Filed Pursuant to Rule 424(b)(5)
Registration No. 333-65298
Prospectus Supplement
(To Prospectus dated May 9, 2002)
$983,787,560 (APPROXIMATE)
BANC OF AMERICA COMMERCIAL MORTGAGE INC.
DEPOSITOR
BANK OF AMERICA, N.A.
MASTER SERVICER
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 2002-PB2
<Table>
<Caption>
---------------------------------
The Series 2002-PB2 Commercial Mortgage Pass-Through Certificates will consist of the
CONSIDER CAREFULLY THE RISK FACTORS following classes:
BEGINNING ON PAGE S-20 IN THIS
PROSPECTUS SUPPLEMENT AND PAGE 10 IN - senior certificates consisting of the Class A-1, Class A-2, Class A-3, Class A-4,
THE ACCOMPANYING PROSPECTUS. Class XC and Class XP Certificates;
Neither the certificates nor the - junior certificates consisting of the Class B, Class C, Class D, Class E, Class F,
underlying mortgage loans are insured Class G, Class H, Class J, Class K, Class L, Class M, Class N, Class O, Class P and
or guaranteed by any governmental Class Q Certificates; and
agency.
- the residual certificates consisting of the Class R-I and Class R-II Certificates.
The certificates will represent
interests only in the trust and will Only the Class A-1, Class A-2, Class A-3, Class A-4, Class B, Class C, Class D, Class
not represent interests in or E and Class F Certificates are offered hereby.
obligations of Banc of America
Commercial Mortgage Inc. or any of The trust's assets will consist primarily of 118 mortgage loans and other property
its affiliates, including Bank of described in this prospectus supplement and the accompanying prospectus. The mortgage
America Corporation. loans are secured by first liens on commercial and multifamily properties. This
prospectus supplement more fully describes the offered certificates, as well as the
characteristics of the mortgage loans and the related mortgaged properties.
---------------------------------
</Table>
Certain characteristics of the offered certificates include:
<Table>
<Caption>
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
ASSUMED FINAL RATED FINAL
CERTIFICATE BALANCE AS PASS-THROUGH RATE DISTRIBUTION RATINGS DISTRIBUTION
CLASS OF DELIVERY DATE(1) AS OF DELIVERY DATE DATE(2) S&P/MOODY'S(3) DATE(4)
- --------------------------------------------------------------------------------------------------------------------------------
Class A-1............ $ 63,228,491 4.3340% May 11, 2006 AAA/Aaa June 11, 2035
Class A-2............ $172,175,646 5.6760% December 11, 2009 AAA/Aaa June 11, 2035
Class A-3............ $ 90,950,559 6.0850% June 11, 2011 AAA/Aaa June 11, 2035
Class A-4............ $545,000,000 6.1860% January 11, 2012 AAA/Aaa June 11, 2035
Class B.............. $ 50,594,789 6.3090% January 11, 2012 AA/Aa2 June 11, 2035
Class C.............. $ 16,864,930 6.3490% January 11, 2012 AA-/Aa3 June 11, 2035
Class D.............. $ 14,054,108 6.4170% January 11, 2012 A+/A1 June 11, 2035
Class E.............. $ 19,675,751 6.4470% January 11, 2012 A/A2 June 11, 2035
Class F.............. $ 11,243,286 6.5250% January 11, 2012 A-/A3 June 11, 2035
- --------------------------------------------------------------------------------------------------------------------------------
</Table>
(Footnotes to table on page S-3)
Banc of America Securities LLC is acting as sole lead manager and sole
bookrunner with respect to the offering of the Class A-4 Certificates. Banc of
America Securities LLC and Merrill Lynch, Pierce, Fenner & Smith are acting as
joint lead managers and joint bookrunners with respect to the offering of the
Class A-1, Class A-2, Class A-3, Class B, Class C, Class D, Class E and Class F
Certificates. The underwriters, Banc of America Securities LLC, Merrill Lynch,
Pierce, Fenner & Smith Incorporated and J.P. Morgan Securities Inc. will
purchase the offered certificates from Banc of America Commercial Mortgage Inc.
and will offer them to the public at negotiated prices determined at the time of
sale. The underwriters expect to deliver the offered certificates to purchasers
on or about May 23, 2002. Banc of America Commercial Mortgage Inc. expects to
receive from this offering approximately 100.47% of the initial principal amount
of the offered certificates, plus accrued interest from May 1, 2002, before
deducting expenses payable by Banc of America Commercial Mortgage Inc.
------------------------------------------------------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE OFFERED SECURITIES OR DETERMINED
IF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS IS TRUTHFUL OR
COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------------------------------------------------------
BANC OF AMERICA SECURITIES LLC MERRILL LYNCH & CO.
JPMORGAN
May 9, 2002
Banc of America Commercial Mortgage Inc.
- --------------------------------------------------------------------------------
Commercial Mortgage Pass-Through Certificates, Series 2002-PB2
Geographic Overview of Mortgage Pool
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND ACCURATE
DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR THE PURPOSE OF EDGAR
FILING.]
[MAP]
<Table>
<Caption>
% OF
NUMBER OF AGGREGATE INITIAL
MORTGAGED CUT-OFF DATE POOL
PROPERTY LOCATION PROPERTIES BALANCE BALANCE
----------------- ---------- -------------- -------
California........... 17 $ 148,089,351 13.2%
Florida.............. 17 137,474,204 12.2
Virginia............. 3 115,855,757 10.3
Texas................ 14 76,733,778 6.8
Michigan............. 4 68,074,364 6.1
New Jersey........... 2 64,039,117 5.7
New York............. 3 57,766,234 5.1
Ohio................. 9 55,905,066 5.0
Maryland............. 10 54,113,543 4.8
Georgia.............. 5 34,524,562 3.1
Connecticut.......... 3 31,292,286 2.8
North Carolina....... 9 31,050,265 2.8
Missouri............. 2 30,723,882 2.7
Colorado............. 5 21,267,548 1.9
Washington........... 5 20,581,421 1.8
Pennsylvania......... 1 19,691,998 1.8
Illinois............. 5 19,148,157 1.7
Delaware............. 2 17,250,994 1.5
Kentucky............. 3 16,870,125 1.5
Arizona.............. 4 14,757,368 1.3
Indiana.............. 6 13,480,962 1.2
Wisconsin............ 1 13,185,977 1.2
Tennessee............ 3 11,795,767 1.0
Oregon............... 1 11,736,809 1.0
Louisiana............ 2 9,313,294 0.8
South Carolina....... 1 9,126,698 0.8
Alabama.............. 2 5,348,293 0.5
Nevada............... 1 4,381,728 0.4
Utah................. 1 3,983,813 0.4
Oklahoma............. 1 3,584,351 0.3
Massachusetts........ 1 3,180,928 0.3
--- ------------- ----
Total/Weighted
Average............ 143 1,124,328,641 100.0%
=== ============= =====
</Table>
MORTGAGE POOL BY PROPERTY TYPE
- ------------------------------
[PIE CHART] [ ] < 1.0% of Initial Pool Balance
-
Multifamily........... 3.1% [ ] 1.1% - 5.0% of Initial Pool Balance
Retail................ 27.1% [ ] 5.1% - 10.0% of Initial Pool Balance
Unanchored.......... 3.4% [ ] > 10.0% of Initial Pool Balance
Shadow Anchored..... 2.4%
Anchored............ 21.3%
Industrial............ 13.8%
Office................ 18.2%
Self Storage.......... 1.7%
Manufactured Housing.. 4.1%
Land.................. 4.0%
NOTE REGARDING PIE CHART ON OPPOSITE PAGE: NUMBERS MAY NOT TOTAL TO 100% DUE TO
ROUNDING.
FOR MORE INFORMATION
Banc of America Commercial Mortgage Inc.
has filed with the SEC additional
registration materials relating to the
certificates. You may read and copy any
of these materials at the SEC's Public
Reference Room at the following
locations:
- SEC Public Reference Section
450 Fifth Street, N.W.
Room 1204
Washington, D.C. 20549
- SEC Midwest Regional Offices
Citicorp Center
500 West Madison Street
Suite 1400
Chicago, Illinois 60661-2511
You may obtain information on the
operation of the Public Reference Room by
calling the SEC at 1-800-SEC-0330. The
SEC also maintains an Internet site that
contains reports, proxy and information
statements, and other information that
has been filed electronically with the
SEC.
The Internet address is
http://www.sec.gov.
You may also contact Banc of America
Commercial Mortgage Inc. in writing at
Bank of America Corporate Center, 100
North Tryon Street, Charlotte, North
Carolina 28255, or by telephone at (704)
386-2400.
See also the sections captioned
"Available Information" and
"Incorporation of Certain Information by
Reference" appearing at the end of the
accompanying prospectus.
TABLE OF CONTENTS
<Table>
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING
PROSPECTUS........................................ S-4
EXECUTIVE SUMMARY................................... S-5
SUMMARY OF PROSPECTUS SUPPLEMENT.................... S-8
RISK FACTORS........................................ S-20
Risks Related to the Certificates................. S-20
Risks Related to Prepayments and Repurchases...... S-22
Risks Related to the Mortgage Loans............... S-27
Other Risks....................................... S-51
DESCRIPTION OF THE MORTGAGE POOL.................... S-52
General........................................... S-52
Certain Terms and Conditions of the Mortgage
Loans........................................... S-53
Due Dates....................................... S-53
Mortgage Rates; Calculations of Interest........ S-53
Hyperamortization............................... S-53
Amortization of Principal....................... S-54
Prepayment Provisions........................... S-55
Defeasance...................................... S-55
"Due-on-Sale" and "Due-on-Encumbrance"
Provisions.................................... S-56
Significant Mortgage Loans........................ S-57
Additional Mortgage Loan Information.............. S-71
General......................................... S-71
Delinquencies................................... S-71
Tenant Matters.................................. S-71
Ground Leases and Other Non-Fee Interests....... S-71
Subordinate Financing........................... S-72
Lender/Borrower Relationships................... S-72
Certain Underwriting Matters...................... S-72
Environmental Assessments....................... S-72
Generally....................................... S-73
Property Condition Assessments.................. S-74
Appraisals and Market Studies................... S-74
Zoning and Building Code Compliance............. S-75
Hazard, Liability and Other Insurance........... S-76
The Mortgage Loan Sellers......................... S-77
Assignment of the Mortgage Loans; Repurchases and
Substitutions................................... S-77
Representations and Warranties; Repurchases and
Substitutions................................... S-80
Changes in Mortgage Pool Characteristics.......... S-83
SERVICING OF THE MORTGAGE LOANS..................... S-83
General........................................... S-83
The Master Servicer............................... S-87
The Special Servicer.............................. S-87
Sub-Servicers..................................... S-87
Servicing and Other Compensation and Payment of
Expenses........................................ S-88
Evidence as to Compliance......................... S-91
Modifications, Waivers, Amendments and Consents... S-92
Defaulted Mortgage Loans; Purchase Option......... S-94
REO Properties.................................... S-96
Inspections; Collection of Operating
Information..................................... S-97
Termination of the Special Servicer............... S-97
DESCRIPTION OF THE CERTIFICATES..................... S-98
General........................................... S-98
Registration and Denominations.................... S-98
Certificate Balances and Notional Amount.......... S-99
Pass-Through Rates................................ S-100
</Table>
S-1
<Table>
Distributions..................................... S-103
General......................................... S-103
The Available Distribution Amount............... S-104
Application of the Available Distribution
Amount........................................ S-104
Distributable Certificate Interest.............. S-109
Principal Distribution Amount................... S-109
Excess Interest................................. S-110
Distributions of Prepayment Premiums............ S-111
Treatment of REO Properties..................... S-111
Subordination; Allocation of Losses and Certain
Expenses........................................ S-112
Excess Interest Distribution Account.............. S-113
Interest Reserve Account.......................... S-113
P&I Advances...................................... S-114
Appraisal Reductions.............................. S-115
Reports to Certificateholders; Certain Available
Information..................................... S-116
Trustee Reports................................. S-116
Servicer Reports................................ S-117
Other Information............................... S-119
Voting Rights..................................... S-120
Termination....................................... S-120
THE TRUSTEE......................................... S-120
The Trustee....................................... S-120
Indemnification................................... S-121
YIELD AND MATURITY CONSIDERATIONS................... S-121
Yield Considerations.............................. S-121
General......................................... S-121
Rate and Timing of Principal Payments........... S-122
Losses and Shortfalls........................... S-123
Certain Relevant Factors........................ S-123
Weighted Average Lives............................ S-124
USE OF PROCEEDS..................................... S-129
CERTAIN FEDERAL INCOME TAX CONSEQUENCES............. S-129
General........................................... S-129
Discount and Premium; Prepayment Premiums......... S-129
Characterization of Investments in Offered
Certificates.................................... S-129
Possible Taxes on Income From Foreclosure Property
and Other Taxes................................. S-130
Reporting and Other Administrative Matters........ S-130
CERTAIN ERISA CONSIDERATIONS........................ S-131
LEGAL INVESTMENT.................................... S-133
METHOD OF DISTRIBUTION.............................. S-133
LEGAL MATTERS....................................... S-134
RATINGS............................................. S-135
INDEX OF PRINCIPAL DEFINITIONS...................... S-136
ANNEX A............................................. A-1
ANNEX B............................................. B-1
ANNEX C............................................. C-1
ANNEX D............................................. D-1
</Table>
S-2
FOOTNOTES TO TABLE ON COVER OF PROSPECTUS SUPPLEMENT
(1) Subject to a variance of plus or minus 5%.
(2) As of the delivery date, the "assumed final distribution date" with respect
to any class of offered certificates is the distribution date on which the
final distribution would occur for such class of certificates based upon
the assumptions, among others, that all payments are made when due and that
no mortgage loan (other than those mortgage loans with anticipated
repayment dates) is prepaid, in whole or in part, prior to its stated
maturity, any mortgage loan with an anticipated repayment date is not
prepaid prior to, but is paid in its entirety on its anticipated repayment
date and otherwise based on the maturity assumptions (described in this
prospectus supplement), if any. The actual performance and experience of
the mortgage loans will likely differ from such assumptions. See "Yield and
Maturity Considerations" in this prospectus supplement.
(3) It is a condition to their issuance that the classes of offered
certificates be assigned ratings by Standard & Poor's Ratings Services, a
division of The McGraw-Hill Companies, Inc. and/or Moody's Investors
Service, Inc. no lower than those set forth above. The ratings on the
offered certificates do not represent any assessments of (i) the likelihood
or frequency of voluntary or involuntary 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 will be received.
(4) The "rated final distribution date" for each class of offered certificates
has been set at the first distribution date that follows two years after
the end of the amortization term for the mortgage loan that, as of the
cut-off date, has the longest remaining amortization term, irrespective of
its scheduled maturity. See "Ratings" in this prospectus supplement.
S-3
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS PROSPECTUS
SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS
Information about the offered certificates is contained in two separate
documents that progressively provide more detail: (a) the accompanying
prospectus, which provides general information, some of which may not apply to
the offered certificates; and (b) this prospectus supplement, which describes
the specific terms of the offered certificates. If the terms of the offered
certificates vary between this prospectus supplement and the accompanying
prospectus, you should rely on the information in this prospectus supplement.
You should rely only on the information contained in this prospectus
supplement and the accompanying prospectus. We have not authorized anyone to
provide you with information that is different from that contained in this
prospectus supplement and the prospectus. The information in this prospectus
supplement is accurate only as of the date of this prospectus supplement.
This prospectus supplement begins with several introductory sections
describing the Series 2002-PB2 and the trust in abbreviated form:
Executive Summary, which begins on page S-5 of this prospectus
supplement and shows certain characteristics of the offered certificates in
tabular form;
Summary of Prospectus Supplement, which begins on page S-8 of this
prospectus supplement and gives a brief introduction of the key features of
Series 2002-PB2 and the mortgage loans; and
Risk Factors, which begins on page S-20 of this prospectus supplement
and describes risks that apply to Series 2002-PB2 which are in addition to
those described in the accompanying prospectus with respect to the
securities issued by the trust generally.
This prospectus supplement and the accompanying prospectus include cross
references to sections in these materials where you can find further related
discussions. The tables of contents in this prospectus supplement and the
accompanying prospectus identify the pages where these sections are located.
Certain capitalized terms are defined and used in this prospectus
supplement and the prospectus to assist you in understanding the terms of the
offered certificates and this offering. The capitalized terms used in this
prospectus supplement are defined on the pages indicated under the caption
"Index of Principal Definitions" beginning on page S-136 in this prospectus
supplement. The capitalized terms used in the accompanying prospectus are
defined under the caption "Glossary" beginning on page 98 in the prospectus.
In this prospectus supplement, "we" refers to the depositor, and "you"
refers to a prospective investor in the offered certificates.
---------------------
Until August 15, 2002, all dealers that buy, sell or trade the offered
certificates, whether or not participating in this offering, may be required to
deliver a prospectus supplement and the accompanying prospectus. This is in
addition to the dealers' obligation to deliver a prospectus supplement and the
accompanying prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
If and to the extent required by applicable law or regulation, this
prospectus supplement and the accompanying prospectus will be used by the
underwriter in connection with offers and sales related to market-making
transactions in the offered certificates with respect to which the underwriter
is a principal. The underwriter may also act as agent in such transactions. Such
sales will be made at negotiated prices at the time of sale.
S-4
EXECUTIVE SUMMARY
The following executive summary does not include all relevant information
relating to the offered certificates and the mortgage loans. In particular, the
executive summary does not address the risks and special considerations involved
with an investment in the offered certificates, and prospective investors should
carefully review the detailed information appearing elsewhere in this prospectus
supplement and in the accompanying prospectus before making any investment
decision. The executive summary also describes the certificates that are not
offered by this prospectus supplement (other than the Class R-I, Class R-II,
Class Z-I and Class Z-II Certificates) which have not been registered under the
Securities Act of 1933, as amended, and which will be sold to investors in
private transactions. Certain capitalized terms used in this executive summary
may be defined elsewhere in this prospectus supplement, including in Annex A
hereto, or in the prospectus. An "Index of Principal Definitions" is included at
the end of this prospectus supplement. A "Glossary" is included at the end of
the prospectus. Terms that are used but not defined in this prospectus
supplement will have the meanings specified in the prospectus.
<Table>
<Caption>
- ---------------------------------------------------------------------------------------------------------------------------
CERTIFICATE APPROXIMATE PASS-THROUGH WEIGHTED
BALANCE OR PERCENTAGE APPROXIMATE RATE AS AVERAGE
NOTIONAL OF POOL CREDIT OF DELIVERY LIFE
CLASS RATINGS(1) AMOUNT(2) BALANCE SUPPORT RATE TYPE DATE (YEARS)(3)
- ---------------------------------------------------------------------------------------------------------------------------
Offered Certificates
- ---------------------------------------------------------------------------------------------------------------------------
A-1 AAA/Aaa $ 63,228,491 5.62% 22.50% Fixed 4.3340% 2.50
- ---------------------------------------------------------------------------------------------------------------------------
A-2 AAA/Aaa $ 172,175,646 15.31% 22.50% Fixed 5.6760% 5.75
- ---------------------------------------------------------------------------------------------------------------------------
A-3 AAA/Aaa $ 90,950,559 8.09% 22.50% Fixed 6.0850% 8.44
- ---------------------------------------------------------------------------------------------------------------------------
A-4 AAA/Aaa $ 545,000,000 48.47% 22.50% Fixed 6.1860% 9.44
- ---------------------------------------------------------------------------------------------------------------------------
B AA/Aa2 $ 50,594,789 4.50% 18.00% Fixed 6.3090% 9.63
- ---------------------------------------------------------------------------------------------------------------------------
C AA-/Aa3 $ 16,864,930 1.50% 16.50% Fixed 6.3490% 9.63
- ---------------------------------------------------------------------------------------------------------------------------
D A+/A1 $ 14,054,108 1.25% 15.25% Fixed 6.4170% 9.63
- ---------------------------------------------------------------------------------------------------------------------------
E A/A2 $ 19,675,751 1.75% 13.50% Fixed 6.4470% 9.63
- ---------------------------------------------------------------------------------------------------------------------------
F A-/A3 $ 11,243,286 1.00% 12.50% Fixed 6.5250% 9.63
- ---------------------------------------------------------------------------------------------------------------------------
Private Certificates -- Not Offered Hereby
- ---------------------------------------------------------------------------------------------------------------------------
G (Not Offered) $ 14,054,108 1.25% 11.25% Fixed(4) 6.7210%(4) (6)
- ---------------------------------------------------------------------------------------------------------------------------
H (Not Offered) $ 16,864,930 1.50% 9.75% Fixed(4) 6.8200%(4) (6)
- ---------------------------------------------------------------------------------------------------------------------------
J (Not Offered) $ 14,054,108 1.25% 8.50% WAC(5) 7.2904%(5) (6)
- ---------------------------------------------------------------------------------------------------------------------------
K (Not Offered) $ 16,864,930 1.50% 7.00% Fixed 6.2900% (6)
- ---------------------------------------------------------------------------------------------------------------------------
L (Not Offered) $ 19,675,751 1.75% 5.25% Fixed 6.2900% (6)
- ---------------------------------------------------------------------------------------------------------------------------
M (Not Offered) $ 8,432,465 0.75% 4.50% Fixed 6.2900% (6)
- ---------------------------------------------------------------------------------------------------------------------------
N (Not Offered) $ 13,276,452 1.18% 3.32% Fixed 6.2900% (6)
- ---------------------------------------------------------------------------------------------------------------------------
O (Not Offered) $ 7,234,924 0.64% 2.68% Fixed 6.2900% (6)
- ---------------------------------------------------------------------------------------------------------------------------
P (Not Offered) $ 4,823,283 0.43% 2.25% Fixed 6.2900% (6)
- ---------------------------------------------------------------------------------------------------------------------------
Q (Not Offered) $ 25,260,130 2.25% 0.00% Fixed 6.2900% (6)
- ---------------------------------------------------------------------------------------------------------------------------
XC (Not Offered) $1,124,328,641 N/A N/A Variable Rate(7) 0.5203%(7) (7)
- ---------------------------------------------------------------------------------------------------------------------------
XP (Not Offered) $ 810,221,499 N/A N/A Variable Rate(7) 0.9947%(7) (7)
- ---------------------------------------------------------------------------------------------------------------------------
<Caption>
- --------- -------------------
PRINCIPAL
CLASS WINDOW(3)
- --------- -------------------
Offered
Certificates
- --------------------------------------------------------------------------------------------------------------
A-1 06/11/02-05/11/06
- --------------------------------------------------------------------------------------------------------------------------- ------
- -------------
A-2 05/11/06-12/11/09
- --------------------------------------------------------------------------------------------------------------------------- ------
- -------------
A-3 12/11/09-06/11/11
- --------------------------------------------------------------------------------------------------------------------------- ------
- -------------
A-4 06/11/11-01/11/12
- --------------------------------------------------------------------------------------------------------------------------- ------
- -------------
B 01/11/12-01/11/12
- --------------------------------------------------------------------------------------------------------------------------- ------
- -------------
C 01/11/12-01/11/12
- --------------------------------------------------------------------------------------------------------------------------- ------
- -------------
D 01/11/12-01/11/12
- --------------------------------------------------------------------------------------------------------------------------- ------
- -------------
E 01/11/12-01/11/12
- --------------------------------------------------------------------------------------------------------------------------- ------
- -------------
F 01/11/12-01/11/12
- --------------------------------------------------------------------------------------------------------------------------- ------
- -------------
Private
Certificates --
Not Offered
Hereby
- --------------------------------------------------------------------------------------------------------------------------- ------
- -------------
G (6)
- --------------------------------------------------------------------------------------------------------------------------- ------
- -------------
H (6)
- --------------------------------------------------------------------------------------------------------------------------- ------
- -------------
J (6)
- --------------------------------------------------------------------------------------------------------------------------- ------
- -------------
K (6)
- --------------------------------------------------------------------------------------------------------------------------- ------
- -------------
L (6)
- --------------------------------------------------------------------------------------------------------------------------- ------
- -------------
M (6)
- --------------------------------------------------------------------------------------------------------------------------- ------
- -------------
N (6)
- --------------------------------------------------------------------------------------------------------------------------- ------
- -------------
O (6)
- --------------------------------------------------------------------------------------------------------------------------- ------
- -------------
P (6)
- --------------------------------------------------------------------------------------------------------------------------- ------
- -------------
Q (6)
- --------------------------------------------------------------------------------------------------------------------------- ------
- -------------
XC N/A
- --------------------------------------------------------------------------------------------------------------------------- ------
- -------------
XP N/A
- --------------------------------------------------------------------------------------------------------------------------- ------
- -------------
</Table>
(1) Ratings shown are those of Standard & Poor's Ratings Services, a division of
The McGraw-Hill Companies, Inc. and Moody's Investors Service, Inc.,
respectively.
(2) As of the delivery date. Subject to a variance of plus or minus 5%.
(3) Based on the maturity assumptions (as defined under "Yield and Maturity
Considerations" in this prospectus supplement). As of the delivery date,
calculations for the certificates assume no prepayments will be made on the
mortgage loans prior to their related maturity dates (or, in the case of
those mortgage loans with anticipated repayment dates, their anticipated
repayment dates).
(4) The pass-through rates for any Class G or Class H Certificates for any
distribution date will not exceed the weighted average of the interest rates
(net of the fee rates payable to the master servicer, the special servicer
and the trustee) borne by the mortgage loans. See "Description of the
Certificates -- Pass-Through Rates" in this prospectus supplement.
(5) The pass-through rate for any Class J Certificate on any distribution date
is the weighted average of the interest rates (net of the fee rates payable
to the master servicer, the special servicer and the trustee) borne by the
mortgage loans. See "Description of the Certificates -- Pass-Through Rates"
in this prospectus supplement.
S-5
(6) Not offered by this prospectus supplement. Any information we provide herein
regarding the terms of these certificates is provided only to enhance your
understanding of the offered certificates.
(7) The Class XC and Class XP Certificates are not offered by this prospectus
supplement. Any information we provide herein regarding the terms of these
certificates is provided only to enhance your understanding of the offered
certificates. The Class XC and Class XP Certificates will not have a
certificate balance and their holders will not receive distributions of
principal, but such holders are entitled to receive payments of the
aggregate interest accrued on the notional amount of the Class XC and Class
XP Certificates, as the case may be, as described in this prospectus
supplement. The interest rates applicable to the Class XC and Class XP
Certificates for each distribution date will be as described in this
prospectus supplement. See "Description of the Certificates -- Pass-Through
Rates" in this prospectus supplement.
S-6
Below is certain information regarding the mortgage loans and the mortgaged
properties as of the cut-off date. All weighted averages set forth below are
based on the respective cut-off date balances (as defined herein) of the
mortgage loans. Such information is described, and additional information
regarding the mortgage loans and the mortgaged properties is contained, under
"Description of the Mortgage Pool" in this prospectus supplement and in Annex A
to this prospectus supplement.
MORTGAGE POOL CHARACTERISTICS
<Table>
<Caption>
ENTIRE MORTGAGE POOL
CHARACTERISTICS (APPROXIMATE)
- --------------- -----------------------
Initial pool balance(1)................ $1,124,328,641
Number of mortgage loans............... 118
Number of balloon mortgage loans(2).... 107
Number of mortgage loans with
anticipated repayment dates.......... 11
Number of mortgaged properties......... 143
Average cut-off date balance........... $9,528,209
Range of cut-off date balances......... $1,183,293 to
$82,083,574
Weighted average mortgage rate......... 7.150%
Weighted average remaining lock-out
period............................... 101 months
Range of remaining terms to
maturity(3).......................... 48 to 175 months
Weighted average remaining term to
maturity(3).......................... 109 months
Weighted average underwriting debt
service coverage ratio............... 1.36x
Weighted average cut-off date
loan-to-value ratio(4)............... 72.5%
</Table>
- ---------------
(1) Subject to a variance of plus or minus 5%.
(2) Not including mortgage loans with anticipated repayment dates.
(3) In the case of 11 mortgage loans, the anticipated repayment dates.
(4) For purposes of determining the cut-off date loan-to-value ratio for 6
mortgage loans (referred to in Annex A to this prospectus supplement as LOC
Loans), the principal balances of such mortgage loans were reduced by the
amount of such letters of credit for determining the cut-off date
loan-to-value ratio of each such mortgage loan.
"Cut-off date loan-to-value ratio" and "underwriting debt service coverage
ratio" are calculated as described in Annex A to this prospectus supplement.
S-7
SUMMARY OF PROSPECTUS SUPPLEMENT
This summary highlights selected information from this prospectus
supplement. It does not contain all of the information you need to consider in
making your investment decision. TO UNDERSTAND ALL OF THE TERMS OF THE OFFERING
OF THE OFFERED CERTIFICATES, READ THIS ENTIRE DOCUMENT AND THE ACCOMPANYING
PROSPECTUS CAREFULLY.
RELEVANT PARTIES AND DATES
DEPOSITOR
Banc of America Commercial Mortgage Inc. The depositor, a Delaware
corporation, is a subsidiary of Bank of America, N.A. The depositor maintains
its principal office at Bank of America Corporate Center, 100 North Tryon
Street, Charlotte, North Carolina 28255. See "The Depositor" in the accompanying
prospectus. Neither the depositor nor any of its affiliates has insured or
guaranteed the offered certificates.
TRUSTEE
Wells Fargo Bank Minnesota, N.A. The Trustee will also act as REMIC
administrator. See "The Trustee" in this prospectus supplement.
MASTER SERVICER
Bank of America, N.A., a national banking association. See "Servicing of
the Mortgage Loans -- The Master Servicer" in this prospectus supplement.
SPECIAL SERVICER
Lennar Partners, Inc., a Florida corporation. See "Servicing of the
Mortgage Loans -- The Special Servicer" in this prospectus supplement.
MORTGAGE LOAN SELLERS
Bank of America, N.A. is a national banking association. Bank of America,
N.A. is the parent of Banc of America Commercial Mortgage Inc. and a
wholly-owned subsidiary of NB Holdings Corporation, which in turn is a
wholly-owned subsidiary of Bank of America Corporation. Bank of America, N.A.
maintains its principal office at Bank of America Corporate Center, 100 North
Tryon Street, Charlotte, North Carolina 28255.
Prudential Mortgage Capital Funding, LLC is a limited liability company
organized under the laws of the State of Delaware. Prudential Mortgage Capital
Funding, LLC maintains its principal office at 4 Gateway Center 8th Floor, 100
Mulberry Street, Newark, New Jersey 07102. See "Description of the Mortgage
Pool -- The Mortgage Loan Sellers" in this prospectus supplement.
CUT-OFF DATE
May 1, 2002.
DELIVERY DATE
On or about May 22, 2002.
RECORD DATE
With respect to each class of offered certificates and each distribution
date, the last business day of the calendar month immediately preceding the
month in which such distribution date occurs. Notwithstanding the preceding
sentence, the first record date will be May 31, 2002.
S-8
DISTRIBUTION DATE
The 11th day of each month or, if any such 11th day is not a business day,
the next succeeding business day. The first distribution date with respect to
the offered certificates will occur in June 2002.
DETERMINATION DATE
With respect to any distribution date, the fifth business day prior to such
date.
COLLECTION PERIOD
With respect to any distribution date, the period that begins immediately
following the determination date in the calendar month preceding the month in
which such distribution date occurs and ends on and includes the determination
date in the calendar month in which such distribution date occurs. The first
collection period applicable to the offered certificates will begin immediately
following the cut-off date and end on the determination date in June 2002.
MORTGAGE LOANS
THE MORTGAGE POOL
The pool of mortgage loans consists of 118 multifamily and commercial
mortgage loans. Forty-seven of these mortgage loans were (a) originated by Bank
of America, N.A. or its conduit participants or (b) acquired by Bank of America,
N.A. from various third party originators (other than Bridger Commercial Funding
LLC). Twenty-seven mortgage loans were acquired by Bank of America, N.A. from
Bridger Commercial Funding LLC. The mortgage loans either acquired or originated
by Bank of America, N.A. represent approximately 60.6% of the initial pool
balance. Forty-four multifamily and commercial mortgage loans were acquired by
Prudential Mortgage Capital Funding, LLC from Prudential Mortgage Capital
Company, LLC or its subsidiary, Prudential Mortgage Capital Company, Inc. and
represent 39.4% of the initial pool balance. The mortgage loans have an
aggregate cut-off date balance of approximately $1,124,328,641 which is referred
to as the initial pool balance, subject to a variance of plus or minus 5%.
All numerical information provided herein with respect to the mortgage
loans is provided on an approximate basis. All weighted average information
provided herein with respect to the mortgage loans reflects weighting by related
cut-off date balance. All percentages of the mortgage pool, or of any specified
sub-group thereof, referred to herein without further description are
approximate percentages by aggregate cut-off date balance. See "Description of
the Mortgage Pool -- Changes in Mortgage Pool Characteristics" in this
prospectus supplement.
The cut-off date balance of each mortgage loan is the unpaid principal
balance thereof as of the cut-off date, after application of all payments of
principal due on or before such date, whether or not received. The cut-off date
balances of the mortgage loans range from $1,183,293 to $82,083,574, and the
average cut-off date balance is $9,528,209.
S-9
As of the cut-off date, the mortgage loans had the following additional
characteristics.
SELECTED MORTGAGE LOAN CHARACTERISTICS
<Table>
Range of mortgage rates.................. 6.500% per annum to 8.430% per annum
Weighted average mortgage rate........... 7.150% per annum
Range of remaining terms to stated
maturity(1)............................ 48 months to 175 months
Weighted average remaining term to stated
maturity(1)............................ 109 months
Range of remaining amortization terms.... 173 months to 360 months
Weighted average remaining amortization
term................................... 340 months
Range of remaining lock-out periods...... 17 months to 168 months
Range of cut-off date loan-to-value
ratios(2).............................. 39.9% to 86.1%
Weighted average cut-off date
loan-to-value ratio(2)................. 72.5%
Range of maturity date loan-to-value
ratios of balloon loans(1)............. 25.3% to 78.4%
Weighted average maturity date
loan-to-value ratio of balloon
loans(1)............................... 63.6%
Range of underwriting debt service
coverage ratios........................ 1.10x to 2.20x
Weighted average underwriting debt
service coverage ratio................. 1.36x
</Table>
- ------------------
(1) In the case of mortgage loans that have anticipated repayment dates the
maturity is based on the related anticipated repayment date.
(2) For purposes of determining the cut-off date loan-to-value ratio for the LOC
Loans (as defined in Annex A to this prospectus supplement), the cut-off
date balances of such mortgage loans were reduced by the amount of such
letters of credit for determining the cut-off date loan-to-value ratio of
each such mortgage loan.
Each of "cut-off date loan-to-value ratio", "maturity date loan-to-value
ratio" and "underwriting debt service coverage ratio" are also defined in Annex
A to this prospectus supplement.
Set forth below are the number of mortgaged properties, and the approximate
percentage of the initial pool balance secured by such mortgaged properties,
located in the five states with the highest concentrations:
GEOGRAPHIC CONCENTRATION
<Table>
<Caption>
NUMBER OF PERCENTAGE OF
MORTGAGED INITIAL POOL
STATE PROPERTIES BALANCE(1)
- ----- ---------- -------------
California.................................................. 17 13.2%
Florida..................................................... 17 12.2
Virginia.................................................... 3 10.3
Texas....................................................... 14 6.8
Michigan.................................................... 4 6.1
</Table>
- ---------------
(1) Mortgage loans secured by multiple properties have their cut-off date
balance allocated based on an individual property's appraised value as a
percentage of the total appraised value of the related mortgaged property.
S-10
The remaining mortgaged properties are located throughout 26 other states,
with no more than 5.7% of the initial pool balance secured by mortgaged
properties located in any such other jurisdiction.
Set forth below are the number of mortgaged properties, and the approximate
percentage of the initial pool balance secured by such mortgaged properties,
operated for each indicated purpose:
PROPERTY TYPE
<Table>
<Caption>
NUMBER OF PERCENTAGE OF
MORTGAGED INITIAL POOL
PROPERTIES BALANCE(1)(2)
---------- -------------
Multifamily................................................. 54 31.1%
Retail...................................................... 30 27.1
Office...................................................... 24 18.2
Industrial and Warehouse.................................... 18 13.8
Manufactured Housing Communities............................ 10 4.1
Land........................................................ 1 4.0
Self-Storage................................................ 6 1.7
</Table>
- ---------------
(1) Mortgage loans secured by multiple properties have their cut-off date
balance allocated based on an individual property's appraised value as a
percentage of the total appraised value of the related mortgaged property.
(2) The sum of the percentages in this column may not equal 100% due to
rounding.
FOR MORE DETAILED STATISTICAL INFORMATION REGARDING THE MORTGAGE POOL, SEE
ANNEX A HERETO.
On or before the delivery date, the mortgage loan sellers will transfer all
of the mortgage loans, without recourse, to the depositor, or at the direction
of the depositor to the trustee for the benefit of holders of the certificates.
In connection with such transfer, Bank of America, N.A. will make certain
representations and warranties regarding the characteristics of only those
mortgage loans transferred by it. Prudential Mortgage Capital Funding, LLC will
make certain representations and warranties regarding the characteristics of
only those mortgage loans transferred by it. As described in more detail later
in this prospectus supplement, each of the mortgage loan sellers will be
obligated to cure any material breach of any such representation or warranty
made by it with respect to only those mortgage loans transferred by it or either
repurchase the affected mortgage loan or, in the period and manner described in
this prospectus supplement, substitute a qualified substitute mortgage loan for
the affected mortgage loan and pay any substitution shortfall amount. See
"Description of the Mortgage Pool -- Assignment of the Mortgage Loans;
Repurchases and Substitution" and "-- Representations and Warranties;
Repurchases and Substitutions" in this prospectus supplement.
Each mortgage loan seller will sell each of its respective mortgage loans
without recourse and has no obligations with respect to the offered certificates
other than pursuant to such representations, warranties and repurchase or
substitution obligations. The depositor has made no representations or
warranties with respect to the mortgage loans and will have no obligation to
repurchase or replace mortgage loans with deficient documentation or which are
otherwise defective. See "Description of the Mortgage Pool" and "Risk
Factors -- Risks Related to the Mortgage Loans" in this prospectus supplement
and "Description of the Trust Funds" and "Certain Legal Aspects of Mortgage
Loans" in the accompanying prospectus.
The master servicer and, if circumstances require, the special servicer,
will service and administer the mortgage loans pursuant to the pooling and
servicing agreement among the depositor, the master servicer, the special
servicer, the trustee and the REMIC administrator. See "Servicing of the
Mortgage Loans" in this prospectus supplement and "The Pooling and Servicing
Agreements" in the accompanying prospectus. The compensation to be received by
the master servicer (including certain master servicing fees) and the special
servicer (including special servicing fees, liquidation fees and workout fees)
for their services is described in this prospectus supplement under "Servicing
of the Mortgage Loans -- Servicing and Other Compensation and Payment of
Expenses."
S-11
OFFERED SECURITIES
THE OFFERED CERTIFICATES; CERTIFICATE BALANCES AND PASS-THROUGH RATES
The offered certificates consist of 9 classes of the depositor's Commercial
Mortgage Pass-Through Certificates as part of Series 2002-PB2, namely the Class
A-1, Class A-2, Class A-3, Class A-4, Class B, Class C, Class D, Class E and
Class F Certificates. As of the delivery date, your certificates will have the
approximate aggregate principal amount or notional amount indicated in the chart
on the cover of this prospectus supplement, subject to a variance of plus or
minus 5%, and will accrue interest at an annual rate referred to as a
pass-through rate indicated in the chart on the cover of this prospectus
supplement and the accompanying footnotes. Interest on the offered certificates
will be calculated based on a 360-day year consisting of twelve 30-day months,
or a 30/360 basis.
Series 2002-PB2 consists of a total of 25 classes of certificates, the
following 16 of which are not being offered through this prospectus supplement
and the accompanying prospectus: Class XC, Class XP, Class G, Class H, Class J,
Class K, Class L, Class M, Class N, Class O, Class P, Class Q, Class R-I, Class
R-II, Class Z-I and Class Z-II. The pass-through rates applicable to each of the
Class G, Class H, Class J, Class K, Class L, Class M, Class N, Class O, Class P
and Class Q Certificates for each distribution date are set forth on page S-5 of
this prospectus supplement. The Class Z-I, Class Z-II, Class R-I and Class R-II
Certificates will not have a certificate balance, a notional amount or a
pass-through rate.
The private certificates will represent beneficial ownership interests in a
trust created by Banc of America Commercial Mortgage Inc. The trust's assets
will primarily be 118 mortgage loans secured by first liens on commercial and
multifamily properties.
CLASS X CERTIFICATES
Notional Amount
The Class XC and Class XP Certificates will not have certificate balances.
For purposes of calculating the amount of accrued interest, however, each of
those classes will have a notional amount.
The notional amount of the Class XC Certificates will equal the certificate
balance of the Class A-1, Class A-2, Class A-3, Class A-4, Class B, Class C,
Class D, Class E, Class F, Class G, Class H, Class J, Class K, Class L, Class M,
Class N, Class O, Class P and Class Q Certificates outstanding from time to
time. The initial notional amount of the Class XC Certificates will be
approximately $1,124,328,641, although it may be as much as 5% larger or
smaller.
The notional amount of the Class XP Certificates will equal:
- during the period from the date of initial issuance of the Certificates
through and including the distribution date in May 2006, the sum of the
certificate balances of the Class A-3, Class A-4, Class B, Class C, Class
D, Class E, Class F, Class G, Class H, Class J and Class K Certificates
outstanding from time to time;
- during the period following the distribution date in May 2006 through and
including the distribution date in May 2007, the sum of (a) the lesser of
$71,000,000 and the certificate balance of the Class A-3 Certificates
outstanding from time to time, (b) the certificate balance of the Class
A-4, Class B, Class C, Class D, Class E, Class F, Class G, Class H and
Class J Certificates outstanding from time to time and (c) the lesser of
$11,000,000 and the certificate balance of the Class K Certificates
outstanding from time to time;
S-12
- during the period following the distribution date in May 2007 through and
including the distribution date in May 2008, the sum of (a) the lesser of
$28,000,000 and the certificate balance of the Class A-3 Certificates
outstanding from time to time, (b) the certificate balance of the Class
A-4, Class B, Class C, Class D, Class E, Class F, Class G and Class H
Certificates outstanding from time to time and (c) the lesser of
$8,000,000 and the certificate balance of the Class J Certificates
outstanding from time to time;
- during the period following the distribution date in May 2008 through and
including the distribution date in May 2009, the sum of (a) the lesser of
$481,000,000 and the certificate balance of the Class A-4 Certificates
outstanding from time to time, (b) the certificate balance of the Class
B, Class C, Class D, Class E, Class F and Class G Certificates
outstanding from time to time and (c) the lesser of $11,000,000 and the
certificate balance of the Class H Certificates outstanding from time to
time; and
- following the distribution date in May 2009, $0.
The total initial notional amount of the Class XP Certificates will be
approximately $810,221,499, although it may be as much as 5% larger or smaller.
Pass Through Rate
The pass-through rate applicable to the Class XP Certificates for the
initial distribution date will equal approximately 0.9947% per annum. The
pass-through rate for the Class XP Certificates, for each distribution date
subsequent to the initial distribution date and through and including the May
2009 distribution date will equal the weighted average of the respective strip
rates, which we refer to as Class XP strip rates, at which interest accrues from
time to time on the respective components of the notional amount of the Class XP
Certificates outstanding immediately prior to the related distribution date,
with the relevant weighting to be done based upon the relative sizes of those
components. Each of those components will be comprised of all or a designated
portion of the certificate balances of a specified class of Certificates. If all
or a designated portion of the certificate balance of any class of Certificates
is identified under "-- Notional Amount" above as being part of the notional
amount of the Class XP Certificates immediately prior to any distribution date,
then that certificate balance (or designated portion thereof) will represent a
separate component of the notional amount of the Class XP Certificates for
purposes of calculating the accrual of interest during the related interest
accrual period. For purposes of accruing interest during any interest accrual
period, through and including the May 2009 distribution date, on any particular
component of the notional amount of the Class XP Certificates immediately prior
to the related distribution date, the applicable Class XP strip rate will equal
the excess, if any, of:
(1) the lesser of (a) the reference rate specified on Annex D to this
prospectus supplement for such distribution date and (b) the weighted
average net mortgage rate for such interest accrual period, over
(2) the pass-through rate in effect for such distribution date for the
class of Certificates whose certificate balance, or a designated
portion thereof, comprises such component.
Following the May 2009 interest accrual period, the Class XP Certificates
will cease to accrue interest. In connection therewith, the Class XP
Certificates will have a 0% pass-through rate for the June 2009 interest accrual
period and for each interest accrual period thereafter.
The pass-through rate applicable to the Class XC Certificates for the
initial distribution date will equal approximately 0.5203% per annum. The
pass-through rate for the Class XC Certificates for any interest accrual period
subsequent to the initial distribution date will equal the weighted average of
the respective strip rates, which we refer to as Class XC strip rates, at which
interest accrues from time to time on the respective components of the notional
amount of the Class XC Certificates outstanding immediately prior to the
distribution date, with the relevant weighting to be done based upon the
relative sizes of those components. Each of those components will be comprised
of all or a designated portion of the certificate balance of one of the classes
of Certificates. In general, the certificate balance of certain classes of
Certificates will constitute a
S-13
separate component of the notional amount of the Class XC Certificates; provided
that, if a portion, but not all, of the certificate balance of any particular
class of Certificates is identified under "-- Notional Amount" above as being
part of the notional amount of the Class XP Certificates immediately prior to
any payment date, then that identified portion of such certificate balance will
also represent a separate component of the notional amount of the Class XC
Certificates for purposes of calculating the accrual of interest during the
related interest accrual period, and the remaining portion of such certificate
balance will represent another separate component of the Class XC Certificates
for purposes of calculating the accrual of interest during the related interest
accrual period. For purposes of accruing interest during any interest accrual
period, through and including the May 2009 interest accrual period, on any
particular component of the notional amount of the Class XC Certificates
immediately prior to the related distribution date, the applicable Class XC
strip rate will be calculated as follows:
(1) if such particular component consists of the entire certificate
balance of any class of Certificates, and if such certificate balance
also constitutes, in its entirety, a component of the notional amount
of the Class XP Certificates immediately prior to the related
distribution date, then the applicable Class XC strip rate will equal
the excess, if any, of (a) the weighted average net mortgage rate for
such interest accrual period, over (b) the greater of (i) the
reference rate specified on Annex D to this prospectus supplement for
such interest accrual period and (ii) the pass-through rate in effect
during such interest accrual period for such class of Certificates;
(2) if such particular component consists of a designated portion (but not
all) of the certificate balance of any class of Certificates, and if
such designated portion of such certificate balance also constitutes a
component of the notional amount of the Class XP Certificates
immediately prior to the related distribution date, then the
applicable Class XC strip rate will equal the excess, if any, of (a)
the weighted average net mortgage rate for such interest accrual
period, over (b) the greater of (i) the reference rate specified on
Annex D to this prospectus supplement for such interest accrual period
and (ii) the pass-through rate in effect during such interest accrual
period for such distribution date for such class of Certificates;
(3) if such particular component consists of the entire certificate
balance of any class of Certificates, and if such certificate balance
for such distribution does not, in whole or in part, also constitute a
component of the notional amount of the Class XP Certificates
immediately prior to the related payment date, then the applicable
Class XC strip rate will equal the excess, if any, of (a) the weighted
average net mortgage rate for such distribution date, over (b) the
pass-through rate in effect for such distribution date for such
Certificates; and
(4) if such particular component consists of a designated portion (but not
all) of the certificate balance of any class of Certificates, and if
such designated portion of such certificate balance does not also
constitute a component of the notional amount of the Class XP
Certificates immediately prior to the related payment date, then the
applicable Class XC strip rate will equal the excess, if any, of (a)
the weighted average net mortgage rate for such distribution date,
over (b) the pass-through rate in effect for such distribution date
for such class of Certificates.
Notwithstanding the foregoing, for purposes of the accrual of interest on
the Class XC Certificates for each distribution date subsequent to the May 2009
distribution date, the certificate balance of each class of Certificates (other
than the Class R-I, Class R-II, Class XP, Class XC, Class Z-I and Class Z-II
Certificates) will constitute a single separate component of the notional amount
of the Class XC Certificates, and the applicable Class XC strip rate with
respect to each such component for each such interest accrual period will equal
the excess, if any, of (a) the weighted average net mortgage rate for such
distribution date, over (b) the pass-through rate in effect for such
distribution date for the class of Certificates corresponding to such component.
DISTRIBUTIONS
The total of all payments or other collections (or advances in lieu
thereof) on or in respect of the mortgage loans (but excluding prepayment
premiums and excess interest, each as described in this prospectus
S-14
supplement) that are available for distributions of interest on and principal of
the certificates on any distribution date is herein referred to as the available
distribution amount for such date. See "Description of the
Certificates -- Distributions -- The Available Distribution Amount" in this
prospectus supplement. On each distribution date, the trustee will apply the
available distribution amount for such date for the following purposes and in
the following order of priority:
A. Amount and Order of Distributions
First, Class A-1, Class A-2, Class A-3, Class A-4, Class XC and Class XP:
To interest on Class A-1, Class A-2, Class A-3, Class A-4, Class XC and Class
XP, pro rata, in accordance with their interest entitlements.
Second, Class A-1, Class A-2, Class A-3 and Class A-4: To the extent of
funds available for principal, on Class A-1, then on Class A-2, then on Class
A-3 and then to Class A-4, until each class is reduced to zero.
Third, Class A-1, Class A-2, Class A-3 and Class A-4: To reimburse Class
A-1, Class A-2, Class A-3 and Class A-4, pro rata, for any previously
unreimbursed losses on the mortgage loans allocable to principal that were
previously borne by those classes.
Fourth, Class B: To Class B as follows: (a) to interest on Class B in the
amount of its interest entitlement; (b) to the extent of funds available for
principal, to principal on Class B until reduced to zero; and (c) to reimburse
Class B for any previously unreimbursed losses on the mortgage loans allocable
to principal that were previously borne by that class.
Fifth, Class C: To Class C in a manner analogous to the Class B allocations
of the fourth step.
Sixth, Class D: To Class D in a manner analogous to the Class B allocations
of the fourth step.
Seventh, Class E: To Class E in a manner analogous to the Class B
allocations of the fourth step.
Eighth, Class F: To Class F in a manner analogous to the Class B
allocations of the fourth step.
Finally, Private Certificates: In the amounts and order of priority
provided for in the Pooling Agreement.
The distributions referred to in priority Second above, will be made, pro
rata, among the Class A-1 Certificates, Class A-2 Certificates, Class A-3
Certificates and Class A-4 Certificates when the certificate balances of all
other certificates having certificate balances have been reduced to zero and in
any event on the final distribution date as described under "Description of the
Certificates -- Distributions -- The Available Distribution Amount" in this
prospectus supplement.
B. Interest and Principal Entitlements
A description of each class's interest entitlement can be found in
"Description of the Certificates -- Distributions -- Distributable Certificate
Interest" in this prospectus supplement. As described in such section, there are
circumstances in which your interest entitlement for a distribution date could
be less than one full month's interest at the pass-through rate on your
certificate's principal amount.
The amount of principal required to be distributed to the classes entitled
to principal on a particular distribution date also can be found in "Description
of the Certificates -- Principal Distribution Amount" in this prospectus
supplement.
C. Prepayment Premiums
The manner in which any prepayment consideration and yield maintenance
premiums received during a particular collection period will be allocated to one
or more of the classes of offered certificates is described in "Description of
the Certificates -- Distributions -- Distributions of Prepayment Premiums" in
this prospectus supplement.
S-15
SUBORDINATION
A. General
The chart below describes the manner in which the rights of various classes
will be senior to the rights of other classes. Entitlement to receive principal
and interest on any distribution date is depicted in descending order. The
manner in which mortgage loan losses are allocated is depicted in ascending
order; provided that mortgage loan losses will not be allocated to any class of
Class R-I, Class R-II, Class Z-I or Class Z-II Certificates. No principal
payments or loan losses will be allocated to the Class XC and Class XP
Certificates. However, the notional amount on the Class XC and Class XP
Certificates (which is used to calculate interest due on the Class XC and Class
XP Certificates) will effectively be reduced by the allocation of principal
payments and loan losses to the other classes of certificates, the principal
balances of which correspond to the notional amount of the Class XC and Class XP
Certificates.
------------------------------------------------------
| Class A-1 Certificates, Class A-2 Certificates, |
| Class A-3 Certificates, Class A-4 Certificates, |
| Class XC Certificates and Class XP Certificates(1) |
------------------------------------------------------
|
---------------------------------
| Class B Certificates |
---------------------------------
|
---------------------------------
| Class C Certificates |
---------------------------------
|
---------------------------------
| Class D Certificates |
---------------------------------
|
---------------------------------
| Class E Certificates |
---------------------------------
|
---------------------------------
| Class F Certificates |
---------------------------------
|
---------------------------------
| Private Certificates |
| (other than the Class XC and |
| Class XP Certificates) |
---------------------------------
(1) The Class XC and Class XP Certificates will only be senior with respect
to payments of interest and will not be entitled to receive any payments in
respect of principal.
No other form of credit enhancement will be available for the benefit of
the holders of the offered certificates.
See "Description of the Certificates -- Subordination; Allocation of Losses
and Certain Expenses" in this prospectus supplement.
S-16
B. Shortfalls in Available Funds
The following types of shortfalls in available funds will be allocated in
the same manner as mortgage loan losses:
- shortfalls resulting from additional compensation which the
master servicer or special servicer is entitled to receive;
- shortfalls resulting from interest on advances of principal
and interest or property expenses made by the master
servicer, the special servicer or the trustee;
- shortfalls resulting from extraordinary expenses of the trust; and
- shortfalls resulting from a reduction of a mortgage loan's
interest rate by a bankruptcy court or from other
unanticipated or default-related expenses of the trust.
See "Description of the Certificates -- Distributions" in this prospectus
supplement.
ADVANCES OF PRINCIPAL AND INTEREST
A. P&I Advances
The master servicer is required to advance delinquent monthly mortgage loan
payments if it determines that the advance will be recoverable. The master
servicer will not advance balloon payments due at maturity or interest in excess
of a mortgage loan's regular monthly payment. The master servicer also is not
required to advance prepayment or yield maintenance premiums. If an advance is
made, the master servicer will not advance its servicing fee, but will advance
the trustee's fee.
B. Property Protection Advances
The master servicer may also be required to make advances to pay delinquent
real estate taxes, assessments and hazard insurance premiums and similar
expenses necessary to protect and maintain the mortgaged property, to maintain
the lien on the mortgaged property or enforce the related mortgage loan
documents.
C. Interest on Advances
The master servicer and the trustee, as applicable, will be entitled to
interest as described in this prospectus supplement on any of the advances
referenced in the two immediately preceding paragraphs above, other than for
advances referenced under the above Paragraph A of payments not delinquent past
applicable grace periods. Interest accrued on any of these outstanding advances
may result in reductions in amounts otherwise payable on the certificates.
See "Description of the Certificates -- P&I Advances" and "Servicing of the
Mortgage Loans -- Servicing and Other Compensation and Payment of Expenses" in
this prospectus supplement and "Description of the Certificates -- Advances in
Respect of Delinquencies" and "The Pooling and Servicing
Agreements -- Certificate Account" in the accompanying prospectus.
OTHER ASPECTS OF THE OFFERED CERTIFICATES
A. Denominations
The Class A-1, Class A-2, Class A-3 and Class A-4 Certificates will be
offered in minimum denominations of $10,000 initial principal amount. The Class
B, Class C, Class D, Class E and Class F Certificates will be offered in minimum
denominations of $100,000 initial principal amount. Investments in excess of the
minimum denominations may be made in multiples of $1.
S-17
B. Registration, Clearance and Settlement
Each class of offered certificates will be registered in the name of Cede &
Co., as nominee of The Depository Trust Company. We may elect to terminate the
book-entry system through The Depository Trust Company with respect to all or
any portion of any class of the offered certificates.
See "Description of the Certificates -- Registration and Denominations" in
this prospectus supplement and in the accompanying prospectus.
OPTIONAL TERMINATION
At its option, any holder or holders (other than the depositor or the
mortgage loan sellers) of certificates representing a majority interest in the
controlling class may purchase, and if such holder or holders fail to purchase,
the master servicer may purchase, and if the master servicer fails to purchase,
the special servicer may purchase, all of the mortgage loans and REO properties,
and thereby effect a termination of the trust and early retirement of the
then-outstanding certificates, on any distribution date on which the remaining
aggregate stated principal balance of the mortgage pool is less than 1% of the
initial pool balance. See "Description of the Certificates -- Termination" in
this prospectus supplement and in the accompanying prospectus.
TAX STATUS
Elections will be made to treat designated portions of the trust (other
than the excess interest) as two separate real estate mortgage investment
conduits, referred to in this prospectus supplement as REMICs -- REMIC I and
REMIC II -- for federal income tax purposes. In the opinion of counsel, such
portions of the trust will qualify for this treatment.
Pertinent federal income tax consequences of an investment in the offered
certificates include:
- Each class of Offered Certificates will constitute "regular
interests" in one of the REMICs.
- The regular interests will be treated as newly originated
debt instruments for federal income tax purposes.
- Beneficial owners will be required to report income on the
offered certificates in accordance with the accrual method
of accounting.
- Certain classes of offered certificates may be issued with
original issue discount for federal income tax purposes,
which generally requires you to report income in advance of
the related cash distributions.
- The Class Z-I and Class Z-II Certificates will receive
excess interest, which portion of the Trust will be treated
as a grantor trust for federal income tax purposes.
See "Certain Federal Income Tax Consequences" in this prospectus supplement
and in the accompanying prospectus.
ERISA CONSIDERATIONS
Subject to important considerations described under "Certain ERISA
Considerations" in this prospectus supplement and in the accompanying
prospectus, the depositor expects that the offered certificates are eligible for
purchase by persons investing assets of employee benefit plans or individual
retirement accounts.
See "Certain ERISA Considerations" in this prospectus supplement and in the
accompanying prospectus.
LEGAL INVESTMENT
The offered certificates will not constitute "mortgage related securities"
within the meaning of the Secondary Mortgage Market Enhancement Act of 1984, as
amended.
S-18
See "Legal Investment" in this prospectus supplement and in the
accompanying prospectus.
CERTIFICATE RATINGS
It is a requirement for issuance of the offered certificates that they
receive credit ratings no lower than the following credit ratings from Standard
& Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc. and
Moody's Investors Service, Inc.:
<Table>
<Caption>
S&P MOODY'S
--- -------
Class A-1................................................... AAA Aaa
Class A-2................................................... AAA Aaa
Class A-3................................................... AAA Aaa
Class A-4................................................... AAA Aaa
Class B..................................................... AA Aa2
Class C..................................................... AA- Aa3
Class D..................................................... A+ A1
Class E..................................................... A A2
Class F..................................................... A- A3
</Table>
The ratings of the offered certificates address the likelihood of the
timely payment of interest and the ultimate repayment of principal by the rated
final distribution date. A security rating does not address the frequency of
prepayments (either voluntary or involuntary) or the possibility that
certificateholders might suffer a lower than anticipated yield, nor does a
security rating address the likelihood of receipt of prepayment premiums or the
collection of excess interest.
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. Any such revision, if negative, or withdrawal of a rating could
have a material adverse effect on the affected class of offered certificates.
See "Ratings" in this prospectus supplement and "Rating" in the accompanying
prospectus for a discussion of the basis upon which ratings are assigned, the
limitations and restrictions on ratings, and conclusions that should not be
drawn from a rating.
S-19
RISK FACTORS
- - YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISKS BEFORE MAKING AN INVESTMENT
DECISION. IN PARTICULAR, DISTRIBUTIONS ON YOUR CERTIFICATES WILL DEPEND ON
PAYMENTS RECEIVED ON AND OTHER RECOVERIES WITH RESPECT TO THE MORTGAGE LOANS.
THEREFORE, YOU SHOULD CAREFULLY CONSIDER THE RISK FACTORS RELATING TO THE
MORTGAGE LOANS AND THE MORTGAGED PROPERTIES.
- - THE RISKS AND UNCERTAINTIES DESCRIBED BELOW ARE NOT THE ONLY ONES RELATING TO
YOUR CERTIFICATES. ADDITIONAL RISKS AND UNCERTAINTIES NOT PRESENTLY KNOWN TO
US OR THAT WE CURRENTLY DEEM IMMATERIAL MAY ALSO IMPAIR YOUR INVESTMENT.
- - IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR, YOUR INVESTMENT COULD BE
MATERIALLY AND ADVERSELY AFFECTED.
- - THIS PROSPECTUS SUPPLEMENT ALSO CONTAINS FORWARD-LOOKING STATEMENTS THAT
INVOLVE RISKS AND UNCERTAINTIES. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM
THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN
FACTORS, INCLUDING THE RISKS DESCRIBED BELOW AND ELSEWHERE IN THIS PROSPECTUS
SUPPLEMENT.
RISKS RELATED TO THE CERTIFICATES
YOUR LACK OF CONTROL
OVER THE TRUST FUND CAN
CREATE RISK................ You and other certificateholders generally do
not have the right to make decisions with
respect to the administration of the trust. See
"Servicing of the Mortgage Loans -- General" in
this prospectus supplement. Such decisions are
generally made, subject to the express terms of
the pooling agreement, by the master servicer,
the trustee or the special servicer, as
applicable. Any decision made by one of those
parties in respect of the trust, even if such
decision is determined to be in your best
interests by such party, may be contrary to the
decision that you or other certificateholders
would have made and may negatively affect your
interests.
POTENTIAL CONFLICTS OF
INTEREST..................... The special servicer will have latitude in
determining whether to liquidate or modify
defaulted mortgage loans. See "Servicing of the
Mortgage Loans -- Modifications, Waivers,
Amendments and Consents" in this prospectus
supplement.
The master servicer, the special servicer or an
affiliate of either may purchase certain of the
certificates. In addition, the master servicer
is one of the mortgage loan sellers. This could
cause a conflict between the master servicer's
or the special servicer's duties to the trust
under the pooling and servicing agreement and
its interest as a holder of a certificate or a
mortgage loan seller. However, the pooling and
servicing agreement provides that the mortgage
loans shall be administered in accordance with
the servicing standards without regard to
ownership of any certificate by the master
servicer, the special servicer or any affiliate
of the
S-20
master servicer or the special servicer. See
"Servicing of the Mortgage Loans -- General" in
this prospectus supplement.
In addition, certain of the mortgage loans
included in the trust fund may have been
refinancings of debt previously held by an
affiliate of one of the mortgage loan sellers.
The related property managers and borrowers may
experience conflicts of interest in the
management and/or ownership of the real
properties securing the mortgage loans because:
- a substantial number of the mortgaged real
properties are managed by property managers
affiliated with the respective borrowers;
- these property managers also may manage
and/or franchise additional properties,
including properties that may compete with
the mortgaged real properties; and
- affiliates of the property managers and/or
the borrowers, or the property managers
and/or the borrowers themselves also may
own other properties, including competing
properties.
PREPAYMENTS WILL AFFECT
DISTRIBUTIONS AND YIELD
CONSIDERATIONS............. The yield on any offered certificate will
depend on (a) the price at which such
certificate is purchased by an investor and (b)
the rate, timing and amount of distributions on
such certificate. The rate, timing and amount
of distributions on any offered certificate
will, in turn, depend on, among other things:
- the pass-through rate for such certificate;
- the rate and timing of principal payments
(including principal prepayments) and other
principal collections on or in respect of
the mortgage loans and the extent to which
such amounts are to be applied or otherwise
result in a reduction of the certificate
balance of the class of certificates to
which such certificate belongs;
- the rate, timing and severity of realized
losses and additional trust fund expenses
(each as described in this prospectus
supplement) and the extent to which such
losses and expenses result in the failure
to pay interest on, or a reduction of the
certificate balance of, the class of
certificates to which such certificate
belongs;
- the timing and severity of any net
aggregate prepayment interest shortfalls
(each as described in this prospectus
supplement) and the extent to which such
shortfalls are allocated in reduction of
the distributable certificate
S-21
interest payable on the class of
certificates to which such certificate
belongs; and
- the extent to which prepayment premiums are
collected and, in turn, distributed on the
class of certificates to which such
certificate belongs.
It is impossible to predict with certainty any
of the factors described in the preceding
paragraph. Accordingly, investors may find it
difficult to analyze the effect that such
factors might have on the yield to maturity of
any class of offered certificates. See
"Description of the Mortgage Pool",
"Description of the
Certificates -- Distributions" and
"-- Subordination; Allocation of Losses and
Certain Expenses" and "Yield and Maturity
Considerations" in this prospectus supplement.
See also "Yield and Maturity Considerations" in
the accompanying prospectus.
RISKS RELATED TO PREPAYMENTS AND REPURCHASES
PREPAYMENT AND REPURCHASES
MAY AFFECT THE YIELD TO
MATURITY OF YOUR
CERTIFICATES............... The yield to maturity on your certificates will
depend, in significant part, upon the rate and
timing of principal payments on the mortgage
loans. For this purpose, principal payments
include both voluntary prepayments, if
permitted, and involuntary prepayments, such as
prepayments resulting from casualty or
condemnation, defaults and liquidations,
purchases or repurchases upon breaches of
representations and warranties.
The investment performance of your certificates
may vary materially and adversely from your
expectations if the actual rate of prepayment
on the mortgage loans is higher or lower than
you anticipate.
Voluntary prepayments, if permitted, generally
require payment of a prepayment premium.
Nevertheless, we cannot assure you that the
related borrowers will refrain from prepaying
their mortgage loans due to the existence of a
prepayment premium. Also, we cannot assure you
that involuntary prepayments will not occur.
The rate at which voluntary prepayments occur
on the mortgage loans will be affected by a
variety of factors, including:
- the terms of the mortgage loans;
- the length of any prepayment lockout period;
- the level of prevailing interest rates;
S-22
- the availability of mortgage credit;
- the applicable yield maintenance charges or
prepayment premiums;
- the master servicer's or special servicer's
ability to enforce those charges or premiums;
- the occurrence of casualties or natural
disasters; and
- economic, demographic, tax, legal or other
factors.
No yield maintenance charge or prepayment
premium will be generally required for
prepayments in connection with a casualty or
condemnation. In addition, if Bank of America,
N.A. (as to only those mortgage loans
transferred by it) or Prudential Mortgage
Capital Funding, LLC (as to only those mortgage
loans transferred by it) repurchases any
mortgage loan from the trust due to a material
breach of representations or warranties or a
material document defect, the repurchase price
paid will be passed through to the holders of
the certificates with the same effect as if the
mortgage loan had been prepaid in part or in
full, except that no prepayment premium or
yield maintenance charge would be payable. Such
a repurchase may therefore adversely affect the
yield to maturity on your certificates.
BORROWER DEFAULTS MAY
ADVERSELY AFFECT YOUR
YIELD...................... The rate and timing of delinquencies or
defaults on the mortgage loans will affect:
- the aggregate amount of distributions on the
offered certificates;
- their yield to maturity;
- the rate of principal payments; and
- their weighted average life.
If losses on the mortgage loans exceed the
aggregate principal amount of the classes of
certificates subordinated to a particular
class, such class will suffer a loss equal to
the full amount of such excess (up to the
outstanding principal amount of such
certificate).
If you calculate your anticipated yield based
on assumed rates of defaults and losses that
are lower than the default rate and losses
actually experienced and such losses are
allocable to your certificates, your actual
yield to maturity will be lower than the
assumed yield. Under certain extreme scenarios,
such yield could be negative. In general, the
earlier a loss borne by you on your
certificates occurs, the greater the effect on
your yield to maturity.
S-23
Even if losses on the mortgage loans are not
borne by your certificates, those losses may
affect the weighted average life and yield to
maturity of your certificates. This may be so
because those losses lead to your certificates
having a higher percentage ownership interest
in the trust and related distributions of
principal payments on the mortgage loans than
would otherwise have been the case. The effect
on the weighted average life and yield to
maturity of your certificates will depend upon
the characteristics of the remaining mortgage
loans.
Additionally, delinquencies and defaults on the
mortgage loans may significantly delay the
receipt of distributions by you on your
certificates, unless certain advances are made
to cover delinquent payments or the
subordination of another class of certificates
fully offsets the effects of any such
delinquency or default.
BANKRUPTCY PROCEEDINGS ENTAIL
CERTAIN RISK............... Under the federal bankruptcy law, the filing of
a petition in bankruptcy by or against a
borrower will stay the sale of the real
property owned by that borrower, as well as the
commencement or continuation of a foreclosure
action. In addition, even if a court determines
that the value of the mortgaged property is
less than the principal balance of the mortgage
loan it secures, the court may prevent a lender
from foreclosing on the mortgaged property
(subject to certain protections available to
the lender). As part of a restructuring plan, a
court also may reduce the amount of secured
indebtedness to the then-value of the mortgaged
property, which action would make the lender a
general unsecured creditor for the difference
between the then-current value and the amount
of its outstanding mortgage indebtedness. A
bankruptcy court also may: (1) grant a debtor a
reasonable time to cure a payment default on a
mortgage loan; (2) reduce periodic payments due
under a mortgage loan; (3) change the rate of
interest due on a mortgage loan; or (4)
otherwise alter the mortgage loan's repayment
schedule.
Moreover, the filing of a petition in
bankruptcy by, or on behalf of, a junior
lienholder may stay the senior lienholder from
taking action to foreclose on the junior lien.
Additionally, the borrower's trustee or the
borrower, as debtor-in-possession, has certain
special powers to avoid, subordinate or
disallow debts. In certain circumstances, the
claims of the securitization trustee may be
subordinated to financing obtained by a
debtor-in-possession subsequent to its
bankruptcy.
Under the federal bankruptcy law, the lender
will be stayed from enforcing a borrower's
assignment of rents and leases.
S-24
The federal bankruptcy law also may interfere
with the master servicer's or special
servicer's ability to enforce lockbox
requirements. The legal proceedings necessary
to resolve these issues can be time consuming
and may significantly delay or diminish the
receipt of rents. Rents also may escape an
assignment to the extent they are used by the
borrower to maintain the mortgaged property or
for other court authorized expenses.
As a result of the foregoing, the
securitization trustee's recovery with respect
to borrowers in bankruptcy proceedings may be
significantly delayed, and the aggregate amount
ultimately collected may be substantially less
than the amount owed.
ADDITIONAL COMPENSATION TO
THE SERVICER WILL AFFECT YOUR
RIGHT TO RECEIVE
DISTRIBUTIONS.............. To the extent described in this prospectus
supplement, the master servicer, the special
servicer or the trustee, as applicable, will be
entitled to receive interest on unreimbursed
advances. This interest will generally accrue
from the date on which the related advance is
made or the related expense is incurred through
the date of reimbursement. In addition, under
certain circumstances, including delinquencies
in the payment of principal and interest, a
mortgage loan will be specially serviced and
the special servicer will be entitled to
compensation for special servicing activities.
The right to receive interest on advances or
special servicing compensation is senior to the
rights of certificateholders to receive
distributions on the offered certificates. The
payment of interest on advances and the payment
of compensation to the special servicer may
lead to shortfalls in amounts otherwise
distributable on your certificates.
LIQUIDITY FOR CERTIFICATES
MAY BE LIMITED............... Your certificates will not be listed on any
securities exchange or traded on the NASDAQ
Stock Market, and there is currently no
secondary market for your certificates. While
the underwriters currently intend to make a
secondary market in the offered certificates,
they are not obligated to do so. Accordingly,
you may not have an active or liquid secondary
market for your certificates. Lack of liquidity
could result in a substantial decrease in the
market value of your certificates. Many other
factors may affect the market value of your
certificates including the then-prevailing
interest rates.
MORTGAGE LOAN AMORTIZATION
WILL AFFECT PAYMENT........ As principal payments or prepayments are made
on a mortgage loan that is part of a pool of
mortgage loans, the pool will be subject to
more concentrated risks with respect
S-25
to the diversity of mortgaged properties, types
of mortgaged properties and number of
borrowers, as described above. Classes that
have a later sequential designation or a lower
payment priority are more likely to be exposed
to this concentration risk than are classes
with an earlier sequential designation or a
higher priority. This is the case because
principal on the offered certificates is
generally payable in sequential order, and no
class entitled to distribution of principal
generally receives principal until the
principal amount of the preceding class or
classes entitled to receive principal have been
reduced to zero.
SUBORDINATION CREATES SPECIAL
CONSIDERATIONS FOR
INVESTORS IN SUBORDINATE
OFFERED CERTIFICATES....... As described in this prospectus supplement,
unless your certificates are Class A-1, Class
A-2, Class A-3, Class A-4, Class XC or Class XP
Certificates, your rights to receive
distributions of amounts collected or advanced
on or in respect of the mortgage loans will be
subordinated to those of the holders of the
offered certificates with an earlier
alphabetical designation.
GRACE PERIODS UNDER THE
MORTGAGE LOANS MAY IMPACT
THE MASTER SERVICER'S
OBLIGATION TO ADVANCE...... The mortgage loans have grace periods for
monthly payments ranging from 0 to 15 days. In
some cases, such grace periods may run past the
determination date. If borrowers pay at the end
of such grace periods rather than on the due
dates for such monthly payments, the master
servicer will be required to make an advance
for such monthly payment (and monthly servicing
reports will show significant advances as a
result) even though the borrower is not
technically delinquent under the terms of its
mortgage loan and the mortgage loans will not
be shown as delinquent in such reports. No
interest will accrue on these advances made by
the master servicer until after the end of the
related grace period.
RECENT TERRORIST ATTACKS MAY
ADVERSELY AFFECT YOUR
INVESTMENT................. On September 11, 2001, the United States was
subjected to multiple terrorist attacks which
resulted in considerable uncertainty in the
world financial markets. The full impact of
these events is not yet known but could
include, among other things, increased
volatility in the price of securities including
the certificates. The terrorist attacks may
also adversely affect the revenues or costs of
operation of the mortgaged properties. For
example, declines in travel or shopping may
adversely affect revenues from hotel and retail
properties, and
S-26
the attacks could result in higher costs for
insurance or for security, particularly for
larger properties. Accordingly, these
disruptions, uncertainties and costs could
materially and adversely affect your investment
in the certificates.
RISKS RELATED TO THE MORTGAGE LOANS
RISKS ASSOCIATED WITH
COMMERCIAL LENDING MAY BE
DIFFERENT THAN FOR
RESIDENTIAL LENDING........ The mortgaged properties consist solely of
multifamily rental and commercial properties.
Commercial and multifamily lending is generally
viewed as exposing a lender to a greater risk
of loss than residential one to four family
lending because it usually involves larger
loans to a single borrower or a group of
related borrowers.
The repayment of a commercial or multifamily
loan is typically dependent upon the ability of
the applicable property to produce cash flow
through the collection of rents or other
operating revenues. Even the liquidation value
of a commercial property is determined, in
substantial part, by the capitalization of the
property's cash flow. However, net operating
income can be volatile and may be insufficient
to cover debt service on the loan at any given
time.
The net operating incomes and property values
of the mortgaged properties may be adversely
affected by a large number of factors. Some of
these factors relate to the properties
themselves, such as:
- the age, design and construction quality of
the properties;
- perceptions regarding the safety,
convenience and attractiveness of the
properties;
- the proximity and attractiveness of
competing properties;
- the adequacy of the property's management
and maintenance;
- increases in operating expenses;
- an increase in the capital expenditures
needed to maintain the properties or make
improvements;
- a decline in the financial condition of a
major tenant;
- an increase in vacancy rates; and
- a decline in rental rates as leases are
renewed or entered into with new tenants.
S-27
Other factors are more general in nature, such
as:
- national, regional or local economic
conditions, including plant closings,
military base closings, industry slowdowns
and unemployment rates;
- local real estate conditions, such as an
oversupply of retail space, office space or
multifamily housing;
- demographic factors;
- consumer confidence;
- consumer tastes and preferences; and
- retroactive changes in building codes.
The volatility of net operating income will be
influenced by many of the foregoing factors, as
well as by:
- the length of tenant leases;
- the creditworthiness of tenants;
- in the case of rental properties, the rate
at which new rentals occur; and
- the property's "operating leverage" which
is generally the percentage of total
property expenses in relation to revenue,
the ratio of fixed operating expenses to
those that vary with revenues, and the
level of capital expenditures required to
maintain the property and to retain or
replace tenants.
A decline in the real estate market or in the
financial condition of a major tenant will tend
to have a more immediate effect on the net
operating income of properties with short-term
revenue sources, such as short-term or
month-to-month leases, and may lead to higher
rates of delinquency or defaults.
Commercial properties and manufactured housing
communities represent security for 68.9% of the
initial pool balance. Lending on commercial
properties and manufactured housing communities
is generally perceived as involving greater
risk than lending on the security of
multifamily residential properties. Certain
types of commercial properties and manufactured
housing communities are exposed to particular
kinds of risks. See "Risk Factors -- Risks
Related to the Mortgage Loans -- Risks
Particular to Retail Properties", "-- Risks
Particular to Office Properties", "-- Risks
related to Industrial and Warehouse
Properties", "-- Risks Particular to
Self-Storage Properties" and "-- Risks
Particular to Manufactured Housing Communities"
in this prospectus supplement.
S-28
POOR PROPERTY MANAGEMENT WILL
LOWER THE PERFORMANCE OF
THE RELATED MORTGAGE
PROPERTY................... The successful operation of a real estate
project depends upon the property manager's
performance and viability. The property manager
is responsible for:
- responding to changes in the local market;
- planning and implementing the rental
structure;
- operating the property and providing
building services;
- managing operating expenses; and
- assuring that maintenance and capital
improvements are carried out in a timely
fashion.
Properties deriving revenues primarily from
short-term sources, such as short-term or
month-to-month leases, are generally more
management intensive than properties leased to
creditworthy tenants under long-term leases.
We make no representation or warranty as to the
skills of any present or future managers.
Additionally, we cannot assure you that the
property managers will be in a financial
condition to fulfill their management
responsibilities throughout the terms of their
respective management agreements.
Furthermore, we cannot assure you that the
mortgaged properties will not have related
management which in the event that a related
management company is incapable of performing
its duties may affect one or more groups of
mortgaged properties.
BALLOON LOANS AND ANTICIPATED
REPAYMENT DATE LOANS MAY
PRESENT GREATER RISK THAN
FULLY AMORTIZING LOANS..... One hundred seven of the mortgage loans, which
represent 88.0% of the initial pool balance as
of the cut-off date, will have substantial
payments (that is, balloon payments) due at
their respective stated maturities, in each
case unless the mortgage loan is previously
prepaid. In addition, 11 of the mortgage loans,
which represent 12.0% of the initial pool
balance, are mortgage loans with anticipated
repayment dates which have substantial
scheduled principal balances as of their
respective anticipated repayment dates, unless
the mortgage loans are previously prepaid.
Ninety-four of the mortgage loans, representing
in the aggregate 76.7% of the initial pool
balance as of the cut-off date, will have
balloon payments (or, in the case of mortgage
loans with anticipated repayment dates,
substantial scheduled principal balances) due
during the period from January 1, 2011, through
January 1, 2012.
S-29
Mortgage loans with balloon payments or
substantial scheduled principal balances
involve a greater risk to the lender than fully
amortizing loans, because the borrower's
ability to repay a mortgage loan on its
maturity date or anticipated repayment date
typically will depend upon its ability either
to refinance the loan or to sell the related
mortgaged property at a price sufficient to
permit repayment. In addition, fully amortizing
mortgage loans which accrue interest on an
"actual/360" basis but have fixed monthly
payments, may, in fact, have a small balloon
payment due at maturity. Circumstances that
will affect the ability of the borrower to
accomplish either of these goals at the time of
attempted sale or refinancing include:
- the prevailing mortgage rates;
- the fair market value of the property;
- the borrower's equity in the related
property;
- the financial condition of the borrower and
operating history of the property;
- the operating history of the property and
occupancy levels of the property;
- tax laws;
- prevailing general and regional economic
conditions; and
- the availability of, and competition for,
credit for multifamily or commercial
properties, as the case may be.
See "Description of the Mortgage
Pool -- Certain Terms and Conditions of the
Mortgage Loans" and "-- Additional Mortgage
Loan Information" in this prospectus supplement
and "Risk Factors -- Certain Factors Affecting
Delinquency, Foreclosure and Loss of the
Mortgage Loans -- Increased Risk of Default
Associated with Balloon Payments" in the
accompanying prospectus.
PARTICULAR PROPERTY TYPES
PRESENT SPECIAL RISKS
MULTIFAMILY PROPERTIES..... Multifamily properties secure 43 of the
mortgage loans, representing 31.1% of the
initial pool balance as of the cut-off date.
Several factors may adversely affect the value
and successful operation of a multifamily
property, including:
- the physical attributes of the apartment
building (e.g., its age, appearance and
construction quality);
S-30
- the location of the property (e.g., a
change in the neighborhood over time);
- the ability and willingness of management
to provide adequate maintenance and
insurance;
- the types of services or amenities the
property provides;
- the property's reputation;
- the level of mortgage interest rates (which
may encourage tenants to purchase rather
than lease housing);
- the tenant mix, such as the tenant
population being predominantly students or
being heavily dependent on workers from a
particular business or personnel from a
local military base;
- the presence of competing properties;
- adverse local or national economic
conditions which may limit the amount of
rent that may be charged and may result in
a reduction of timely rent payments or a
reduction in occupancy levels; and
- state and local regulations which may
affect the building owner's ability to
increase rent to market rent for an
equivalent apartment.
MANUFACTURED HOUSING
COMMUNITIES................ Manufactured housing communities secure 10 of
the mortgage loans representing 4.1% of the
initial pool balance as of the cut-off date.
Significant factors determining the value of
such properties are generally similar to the
factors affecting the value of multifamily
residential properties. In addition, these
properties are special purpose properties that
could not be readily converted to general
residential, retail or office use. In fact,
certain states also regulate changes in
manufactured housing communities and require
that the landlord give written notice to its
tenants a substantial period of time prior to
the projected change. Consequently, if the
operation of any of such properties becomes
unprofitable such that the borrower becomes
unable to meet its obligation on the related
mortgage loan, the liquidation value of the
related property may be substantially less,
relative to the amount owing on the mortgage
loan, than would be the case if such properties
were readily adaptable to other uses.
S-31
RETAIL PROPERTIES....... Retail properties secure 30 of the mortgage
loans, representing 27.1% of the initial pool
balance as of the cut-off date.
Several factors may adversely affect the value
and successful operation of a retail property,
including:
- changes in consumer spending patterns,
local competitive conditions (such as the
supply of retail space or the existence or
construction of new competitive shopping
centers or shopping malls);
- alternative forms of retailing (such as
direct mail, video shopping networks and
internet web sites which reduce the need
for retail space by retail companies);
- the quality and philosophy of management;
- the safety, convenience and attractiveness
of the property to tenants and their
customers or clients;
- the public perception of the safety of
customers at shopping malls and shopping
centers;
- the need to make major repairs or
improvements to satisfy the needs of major
tenants; and
- traffic patterns and access to major
thoroughfares.
The general strength of retail sales also
directly affects retail properties. The
retailing industry is currently undergoing
consolidation due to many factors, including
growth in discount and alternative forms of
retailing. If the sales by tenants in the
mortgaged properties that contain retail space
were to decline, the rents that are based on a
percentage of revenues may also decline, and
tenants may be unable to pay the fixed portion
of their rents or other occupancy costs. The
cessation of business by a significant tenant
can adversely affect a retail property, not
only because of rent and other factors specific
to such tenant, but also because significant
tenants at a retail property play an important
part in generating customer traffic and making
a retail property a desirable location for
other tenants at such property. In addition,
certain tenants at retail properties may be
entitled to terminate their leases if an anchor
tenant fails to renew or terminates its lease,
becomes the subject of a bankruptcy proceeding
or ceases operations at such property.
S-32
OFFICE PROPERTIES............ Office properties secure 16 of the mortgage
loans, representing approximately 18.2% of the
initial pool balance.
A large number of factors may adversely affect
the value of office properties, including:
- the number and quality of an office
building's tenants;
- the physical attributes of the building in
relation to competing buildings (e.g., age,
condition, design, access to transportation
and ability to offer certain amenities,
such as sophisticated building systems);
- the desirability of the area as a business
location; and
- the strength and nature of the local
economy (including labor costs and quality,
tax environment and quality of life for
employees).
In addition, there may be significant costs
associated with tenant improvements, leasing
commissions and concessions in connection with
reletting office space. Moreover, the cost of
refitting office space for a new tenant is
often higher than the cost of refitting other
types of property.
INDUSTRIAL AND
WAREHOUSE PROPERTIES....... Industrial and warehouse properties secure 15
of the mortgage loans representing 13.8% of the
initial pool balance as of the cut-off date.
Among the significant factors determining the
value of industrial and warehouse properties
are:
- the quality of tenants;
- building design and adaptability (e.g.,
clear heights, column spacing, zoning
restrictions, number of bays and bay
depths, divisibility and truck turning
radius); and
- the location of the property (e.g.,
proximity to supply sources and customers,
availability of labor and accessibility to
distribution channels).
In addition, industrial and warehouse
properties may be adversely affected by reduced
demand for industrial and warehouse space
occasioned by a decline in a particular
industrial site or occasioned by a decline in a
particular industry segment, and a particular
industrial and warehouse property may be
difficult to release to another tenant or may
become functionally obsolete relative to newer
properties.
SELF-STORAGE PROPERTIES...... Self-storage properties secure 3 of the
mortgage loans, representing approximately 1.7%
of the aggregate principal balance of the pool
of mortgage loans as of the cut-off date.
Self-storage properties are considered
vulnerable to competi-
S-33
tion, because both acquisition costs and
break-even occupancy are relatively low. The
conversion of self-storage facilities to
alternative uses would generally require
substantial capital expenditures. Thus, if the
operation of any of the self-storage mortgaged
properties becomes unprofitable due to
- decreased demand;
- competition;
- age of improvements; or
- other factors so that the borrower becomes
unable to meet its obligations on the
related mortgage loan,
the liquidation value of that self-storage
mortgaged property may be substantially less,
relative to the amount owing on the mortgage
loan, than if the self-storage mortgaged
property were readily adaptable to other uses.
Tenant privacy, anonymity and efficient access
may heighten environmental risks. No
environmental assessment of a mortgaged
property included an inspection of the contents
of the self-storage units included in the
self-storage mortgaged properties and there is
no assurance that all of the units included in
the self-storage mortgaged properties are free
from hazardous substances or other pollutants
or contaminants or will remain so in the
future.
SUBORDINATE FINANCING MAY
MAKE RECOVERY DIFFICULT IN
THE EVENT OF LOSS.......... The terms of certain mortgage loans permit or
require the borrowers to post letters of credit
and/or surety bonds for the benefit of the
mortgage loan, which may constitute a
contingent reimbursement obligation of the
related borrower or an affiliate. The issuing
bank or surety will not typically agree to
subordination and standstill protection
benefiting the mortgagee.
Additionally, although the mortgage loans
generally restrict the pledging of general
partnership and managing member equity
interests in a borrower subject to certain
exceptions, the terms of the mortgages
generally permit, subject to certain
limitations, the pledging of less than a
controlling portion of the limited partnership
or non-managing membership equity interest in a
borrower. Moreover, in general, any borrower
that does not meet special purpose entity
criteria may not be restricted in any way from
incurring unsecured subordinate debt or
mezzanine debt. We are aware that one mortgage
loan representing 1.1% of the initial pool
balance provides that the members of the
borrower have the right to
S-34
incur mezzanine debt under specified
circumstances set forth in the related loan
documents.
Although the mortgage loans generally either
prohibit the related borrower from encumbering
the mortgaged property with additional secured
debt or require the consent of the holder of
the first lien prior to so encumbering such
property, a violation of such prohibition may
not become evident until the related mortgage
loan otherwise defaults. In addition, the
related borrower may be permitted to incur
additional indebtedness secured by furniture,
fixtures and equipment, and to incur additional
unsecured indebtedness. When a mortgage loan
borrower (or its constituent members) also has
one or more other outstanding loans (even if
subordinated unsecured loans), the trust is
subjected to additional risk. The borrower may
have difficulty servicing and repaying multiple
loans. The existence of another loan generally
will make it more difficult for the borrower to
obtain refinancing of the mortgage loan.
Moreover, the need to service additional debt
may reduce the cash flow available to the
borrower to operate and maintain the mortgaged
property. We are aware that one mortgage loan
representing 0.6% of the initial pool balance
has existing unsecured subordinate debt. In
addition, we are aware that three mortgage
loans, representing 2.2% of the initial pool
balance, permit additional unsecured debt under
certain circumstances. We are also aware that
one mortgage loan, representing 1.5% of the
initial pool balance, permits additional
secured debt under certain circumstances.
Additionally, if the borrower (or its
constituent members) defaults on the mortgage
loan and/or any other loan, actions taken by
other lenders such as a foreclosure or an
involuntary petition for bankruptcy against the
borrower could impair the security available to
the trust, including the mortgaged property, or
stay the trust's ability to foreclose during
the course of the bankruptcy case. The
bankruptcy of another lender also may operate
to stay foreclosure by the trust. The trust may
also be subject to the costs and administrative
burdens of involvement in foreclosure or
bankruptcy proceedings or related litigation.
See "Certain Legal Aspects of Mortgage
Loans -- Subordinate Financing" in the
accompanying prospectus.
YOUR INVESTMENT IS NOT
INSURED OR GUARANTEED........ The mortgage loans are not insured or
guaranteed by any person or entity,
governmental or otherwise.
The mortgage loans are generally non-recourse
loans. If a default occurs under any mortgage
loan, recourse generally may be had only
against the specific properties and other
S-35
assets that have been pledged to secure the
loan. Payment prior to maturity is consequently
dependent primarily on the sufficiency of the
net operating income of the mortgaged property.
Payment at maturity is primarily dependent upon
the market value of the mortgaged property or
the borrower's ability to refinance the
property. The depositor has not undertaken an
evaluation of the financial condition of any
borrower.
ADVERSE ENVIRONMENTAL
CONDITIONS MAY REDUCE
CASHFLOW FROM A MORTGAGED
PROPERTY................... The trust could become liable for a material
adverse environmental condition at an
underlying real property. Any such potential
liability could reduce or delay payments on the
offered certificates.
All of the mortgaged properties (except 4
mortgaged properties, representing 1.3% of the
initial pool balance, which are subject to
environmental insurance policies in lieu of
Phase I site assessments) were subject to
environmental site assessments in connection
with origination, including Phase I site
assessments or updates of previously performed
Phase I site assessments or had a transaction
screen performed in lieu of a Phase I site
assessment. In some cases, Phase II site
assessments also have been performed. Although
those assessments involved site visits and
other types of review, we cannot assure you
that all environmental conditions and risks
were identified.
The 4 mortgaged properties, representing 1.3%
of the initial pool balance, referenced in the
preceding paragraph that are subject to
environmental insurance have environmental
insurance policies with American International
Specialty Lines Insurance Company in an amount
equal to 125% of the original loan principal
balance with (i) a term that extends 5 years
beyond the maturity date for the related
mortgage loan, (ii) no deductible, and (iii)
industry standard exclusions.
The environmental investigations described
above as of the date of the report relating to
the environmental investigation, did not reveal
any material violation of applicable
environmental laws with respect to any known
circumstances or conditions concerning the
related mortgaged property, or, if the
environmental investigation report revealed any
such
S-36
circumstances or conditions with respect to the
related mortgaged property, then --
- the circumstances or conditions were
subsequently remediated in all material
respects; or
- generally one or more of the following was
the case:
1. a party not related to the related
borrower was identified as a responsible
party for such conditions or
circumstances;
2. the related borrower was required to
provide additional security and/or to
obtain and, for the period contemplated by
the related mortgage loan documents,
maintain an operations and maintenance
plan;
3. the related borrower provided a "no
further action" letter or other evidence
that applicable federal, state or local
governmental authorities had no current
intention of taking any action, and are
not requiring any action, in respect of
such conditions or circumstances;
4. such conditions or circumstances were
investigated further and based upon such
additional investigation, an environmental
consultant recommended no further
investigation or remediation;
5. the expenditure of funds reasonably
estimated to be necessary to effect such
remediation was not greater than two
percent of the outstanding principal
balance of the related mortgage loan;
6. an escrow of funds exists reasonably
estimated to be sufficient for purposes of
effecting such remediation;
7. the related borrower or other responsible
party is currently taking such actions, if
any, with respect to such circumstances or
conditions as have been required by the
applicable governmental regulatory
authority;
8. the related mortgaged property is insured
under a policy of insurance, subject to
certain per occurrence and aggregate
limits and a deductible, against certain
losses arising from such circumstances and
conditions; or
9. a responsible party provided a guaranty or
indemnity to the related borrower to cover
the costs of any required investigation,
testing, monitoring or remediation.
In some cases, the environmental consultant did
not recommend that any action be taken with
respect to a potential adverse environmental
condition at a mortgaged real property securing
a mortgage loan that we intend to include in
the trust fund because a responsible party with
respect to that
S-37
condition had already been identified. There
can be no assurance, however, that such a
responsible party will be financially able to
address the subject condition or compelled to
do so.
Furthermore, any particular environmental
testing may not have covered all potential
adverse conditions. For example, testing for
lead-based paint, lead in water and radon was
done only if the use, age and condition of the
subject property warranted that testing.
There can be no assurance that --
- the environmental testing referred to above
identified all material adverse environmental
conditions and circumstances at the subject
properties;
- the recommendation of the environmental
consultant was, in the case of all identified
problems, the appropriate action to take;
- any of the environmental escrows established
with respect to any of the mortgage loans
that we intend to include in the trust fund
will be sufficient to cover the recommended
remediation or other action; or
- an environmental insurance policy will cover
all or part of a claim asserted against it
because such policies are subject to various
deductibles, terms, exclusions, conditions
and limitations, and have not been
extensively interpreted by the courts.
THE BENEFITS PROVIDED BY
CROSS-COLLATERALIZATION MAY
BE LIMITED................. As described under "Description of the Mortgage
Pool -- General" in this prospectus supplement,
the mortgage pool includes one set of partially
cross-collateralized mortgage loans, which
represent 1.6% of the initial pool balance as
of the cut-off date and one mortgage loan
evidenced by seven notes and mortgages which
are cross-collateralized which represents 3.5%
of the initial pool balance as of the cut-off
date. Cross-collateralization arrangements seek
to reduce the risk that the inability of one or
more of the mortgaged properties securing any
such set of cross-collateralized mortgage loans
(or any such mortgage loan with multiple notes
and/or mortgaged properties) to generate net
operating income sufficient to pay debt service
will result in defaults and ultimate losses.
Cross-collateralization arrangements involving
more than one borrower could be challenged as
fraudulent conveyances by creditors of the
related borrower in an action brought outside
S-38
a bankruptcy case or, if such borrower were to
become a debtor in a bankruptcy case, by the
borrower's representative.
A lien granted by such a borrower entity could
be avoided if a court were to determine that:
- such borrower was insolvent when granting
the lien, was rendered insolvent by the
granting of the lien or was left with
inadequate capital, or was not able to pay
its debts as they matured; and
- such borrower did not receive fair
consideration or reasonably equivalent
value when it allowed its mortgaged
property or properties to be encumbered by
a lien securing the entire indebtedness.
Among other things, a legal challenge to the
granting of the liens may focus on the benefits
realized by such borrower from the respective
mortgage loan proceeds, as well as the overall
cross-collateralization. If a court were to
conclude that the granting of the liens was an
avoidable fraudulent conveyance, that court
could:
- subordinate all or part of the pertinent
mortgage loan to existing or future
indebtedness of that borrower;
- recover payments made under that mortgage
loan; or
- take other actions detrimental to the
holders of the certificates, including,
under certain circumstances, invalidating
the mortgage loan or the mortgages securing
such cross-collateralization.
MORTGAGE LOANS TO RELATED
BORROWERS AND
CONCENTRATIONS OF RELATED
TENANTS MAY RESULT IN MORE
SEVERE LOSSES ON YOUR
CERTIFICATES............... Certain groups of borrowers under the mortgage
loans are affiliated or under common control
with one another. However, no such group of
affiliated borrowers are obligors on mortgage
loans representing more than 5.3% of the
initial pool balance. In addition, tenants in
certain mortgaged properties also may be
tenants in other mortgaged properties, and
certain tenants may be owned by affiliates of
the borrowers or otherwise related to or
affiliated with a borrower. There are also
several cases in which a particular entity is a
tenant at multiple mortgaged properties, and
although it may not be a major tenant (as
described in the prospectus supplement) at any
such property, it may be significant to the
successful performance of such properties.
In such circumstances, any adverse
circumstances relating to a borrower or tenant
or a respective affiliate and affecting one
S-39
of the related mortgage loans or mortgaged
properties could arise in connection with the
other related mortgage loans or mortgaged
properties. In particular, the bankruptcy or
insolvency of any such borrower or tenant or
respective affiliate could have an adverse
effect on the operation of all of the related
mortgaged properties and on the ability of such
related mortgaged properties to produce
sufficient cash flow to make required payments
on the related mortgage loans. For example, if
a person that owns or directly or indirectly
controls several mortgaged properties
experiences financial difficulty at one
mortgaged property, it could defer maintenance
at one or more other mortgaged properties in
order to satisfy current expenses with respect
to the mortgaged property experiencing
financial difficulty. It could also attempt to
avert foreclosure by filing a bankruptcy
petition that might have the effect of
interrupting monthly payments for an indefinite
period on all the related mortgage loans. See
"Certain Legal Aspects of Mortgage
Loans -- Bankruptcy Laws" in the accompanying
prospectus.
In addition, a number of the borrowers under
the mortgage loans are limited or general
partnerships. Under certain circumstances, the
bankruptcy of the general partner in a
partnership may result in the dissolution of
such partnership. The dissolution of a borrower
partnership, the winding-up of its affairs and
the distribution of its assets could result in
an acceleration of its payment obligations
under the related mortgage loan.
THE GEOGRAPHIC CONCENTRATION
OF MORTGAGED PROPERTIES MAY
ADVERSELY AFFECT PAYMENT ON
YOUR CERTIFICATES.......... A concentration of mortgaged properties in a
particular state or region increases the
exposure of the mortgage pool to any adverse
economic developments that may occur in such
state or region, conditions in the real estate
market where the mortgaged properties securing
the related mortgage loans are located, changes
in governmental rules and fiscal polices, acts
of nature, including floods, tornadoes and
earthquakes (which may result in uninsured
losses), and other factors which are beyond the
control of the borrowers. In this regard as of
the cut-off date:
- 17 of the mortgaged properties, which
constitute security for 13.2% of the
initial pool balance, are located in
California;
- 17 of the mortgaged properties, which
constitute security for 12.2% of the
initial pool balance, are located in
Florida;
S-40
- 3 of the mortgaged properties, which
constitute security for 10.3% of the
initial pool balance, are located in
Virginia;
- 14 of the mortgaged properties, which
constitute security for 6.8% of the initial
pool balance, are located in Texas; and
- 4 of the mortgaged properties, which
constitute security for 6.1% of the initial
pool balance, are located in Michigan.
No more than 4.0% of initial pool balance as of
the cut-off date is secured by mortgaged
properties located in any particular county in
California.
MORTGAGE LOANS WITH HIGHER
THAN AVERAGE PRINCIPAL
BALANCES MAY CREATE MORE
RISK OF LOSS............... Concentrations in a pool of mortgage loans with
larger than average balances can result in
losses that are more severe, relative to the
size of the pool, than would be the case if the
aggregate balance of such pool were more evenly
distributed. In this regard:
- 33 mortgage loans have cut-off date
balances that are higher than the average
cut-off date balance;
- the largest single mortgage loan, by
cut-off date balance, represents
approximately 7.3% of the initial pool
balance, and the single group of
cross-collateralized mortgage loans
represents in the aggregate approximately
1.6% of the initial pool balance; and
- the 10 largest mortgage loans have cut-off
date balances that represent in the
aggregate approximately 35.7% of the
initial pool balance.
CHANGES IN CONCENTRATION MAY
SUBJECT YOUR CERTIFICATES
TO GREATER RISK OF LOSS.... As payments in respect of principal (including
payments in the form of voluntary principal
prepayments, liquidation proceeds (as described
in this prospectus supplement) and the
repurchase prices for any mortgage loans
repurchased due to breaches of representations
or warranties) are received with respect to the
mortgage loans, the remaining mortgage loans as
a group may exhibit increased concentration
with respect to the type of properties,
property characteristics, number of borrowers
and affiliated borrowers and geographic
location. Because principal on the certificates
(other than the Class XC, Class XP, Class R-I,
Class R-II, Class Z-I and Class Z-II
certificates) is payable in sequential order,
classes
S-41
that have a lower priority with respect to the
payment of principal are relatively more likely
to be exposed to any risks associated with
changes in concentrations.
PREPAYMENT PREMIUMS PRESENT
SPECIAL RISKS.............. Approximately 92.2% of the mortgage loans (by
initial pool balance) as of the cut-off date
generally permit defeasance only, and prohibit
any voluntary principal prepayment until 2 to 7
months prior to the maturity date of the
mortgage loan or the anticipated repayment date
with respect to the mortgage loans having
anticipated repayment dates. In addition, one
mortgage loan, representing 0.4% of the initial
pool balance, as of the cut-off date, (a) has
an initial lock-out period, (b) is then subject
after expiration of the initial lock-out period
to a period where the borrower has an option
either to (i) prepay the loan subject to a
prepayment premium or (ii) defease the loan,
and (c) becomes thereafter prepayable without
an accompanying prepayment premium prior to its
maturity. In addition, ten of the mortgage
loans representing 7.5% of the initial pool
balance, (a) have an initial lock-out period,
(b) are then subject after expiration of the
initial lock-out period to a period where the
borrower has an option to prepay the loan
subject to a prepayment premium, and (c)
becomes thereafter prepayable without an
accompanying prepayment premium prior to its
maturity. See "Description of the Mortgage
Pool -- Certain Terms and Conditions of the
Mortgage Loans -- Prepayment Provisions" in
this prospectus supplement. Any prepayment
premiums actually collected on the remaining
mortgage loans, which generally permit
voluntary prepayments during particular periods
and, depending on the period, require the
payment of a prepayment premium with such
prepayment, will be distributed among the
respective classes of certificates in the
amounts and in accordance with the priorities
described in this prospectus supplement under
"Description of the
Certificates -- Distributions -- Distributions
of Prepayment Premiums" in this prospectus
supplement. The depositor, however, makes no
representation as to the collectibility of any
prepayment premium.
See "Servicing of the Mortgage
Loans -- Modifications, Waivers, Amendments and
Consents" in this prospectus supplement and
"Certain Legal Aspects of Mortgage
Loans -- Default Interest and Limitations on
Prepayments" in the accompanying prospectus.
See "Description of the Mortgage
Pool -- Assignment of the Mortgage Loans;
Repurchases" and "-- Representations and
Warranties; Repurchases", "Servicing of the
Mortgage Loans -- Sale of Defaulted Mortgage
Loans" and "Description of the
Certificates -- Termination" in this prospectus
supplement.
S-42
Generally. Provisions requiring prepayment
premiums may not be enforceable in some states
and under federal bankruptcy law. Those
provisions also may constitute interest for
usury purposes. Accordingly, we cannot assure
you that the obligation to pay a prepayment
premium will be enforceable. Also, we cannot
assure you that foreclosure proceeds will be
sufficient to pay an enforceable prepayment
premium. Additionally, although the collateral
substitution provisions related to defeasance
do not have the same effect on the
certificateholders as prepayment, we cannot
assure you that a court would not interpret
those provisions as requiring a prepayment
premium. In certain jurisdictions those
collateral substitution provisions might
therefore be deemed unenforceable or usurious
under applicable law.
We also note the following with respect to
prepayment premiums:
- liquidation proceeds (as described in this
prospectus supplement) recovered in respect
of any defaulted mortgage loan will, in
general, be applied to cover outstanding
advances prior to being applied to cover
any prepayment premium due in connection
with the liquidation of such mortgage loan;
- the special servicer may waive a prepayment
premium in connection with obtaining a
pay-off of a defaulted mortgage loan;
- no prepayment premium will be payable in
connection with any repurchase of a
mortgage loan resulting from a material
breach of representation or warranty or a
material document defect by Bank of
America, N.A. with respect to those
mortgage loans transferred by it, and/or by
Prudential Mortgage Capital Funding, LLC
with respect to those mortgage loans
transferred by it;
- no prepayment premium will be payable in
connection with the purchase of all of the
mortgage loans and any REO properties by
the special servicer, master servicer or
any holder or holders of certificates
evidencing a majority interest in the
controlling class in connection with the
termination of the trust;
- no prepayment premium will be payable in
connection with the purchase of defaulted
mortgage loans by the master servicer,
special servicer or any holder or holders
of certificates evidencing a majority
interest in the controlling class; and
S-43
- in general, no prepayment premium is
payable with respect to a prepayment due to
casualty or condemnation.
See "Servicing of the Mortgage
Loans -- Modifications, Waivers, Amendments and
Consents" in this prospectus supplement and
"Certain Legal Aspects of Mortgage
Loans -- Default Interest and Limitations on
Prepayments" in the accompanying prospectus.
See "Description of the Mortgage
Pool -- Assignment of the Mortgage Loans;
Repurchases" and "-- Representations and
Warranties; Repurchases", "Servicing of the
Mortgage Loans -- Sale of Defaulted Mortgage
Loans" and "Description of the
Certificates -- Termination" in this prospectus
supplement.
THE OPERATION OF THE
MORTGAGED PROPERTY UPON
FORECLOSURE OF THE MORTGAGE
LOAN MAY AFFECT TAX
STATUS..................... If the trust were to acquire a mortgaged
property subsequent to a default on the related
mortgage loan pursuant to a foreclosure or deed
in lieu of foreclosure, the special servicer
would be required to retain an independent
contractor to operate and manage the mortgaged
property. Among other things, the independent
contractor would not be permitted to perform
construction work on the mortgaged property
unless such construction generally was at least
10% complete at the time default on the related
mortgage loan became imminent. In addition, any
net income from such operation and management,
other than qualifying "rents from real
property" (as defined in Section 856(d) of the
Internal Revenue Code of 1986, as amended), or
any rental income based on the net profits of a
tenant or sub-tenant or allocable to a service
that is non-customary in the area and for the
type of building involved, will subject the
trust fund to federal (and possibly state or
local) tax on such income at the highest
marginal corporate tax rate (currently 35%),
thereby reducing net proceeds available for
distribution to certificateholders.
LEASEHOLD INTERESTS ARE
SUBJECT TO TERMS OF THE
GROUND LEASE............... Four mortgaged properties, representing
approximately 2.9% of the initial pool balance
as of the cut-off date are secured, in whole or
in part, 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 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. Accordingly, a leasehold
mortgagee may
S-44
lose the collateral securing its leasehold
mortgage. In addition, although the consent of
the ground lessor generally will not be
required for foreclosure, the terms and
conditions of a leasehold mortgage may be
subject to the terms and conditions of the
ground lease, and the rights of a ground lessee
or a leasehold mortgagee with respect to, among
other things, insurance, casualty and
condemnation may be affected by the provisions
of the ground lease.
We are aware that one of the above mentioned
four mortgaged properties, representing 1.1% of
the initial pool balance, is secured primarily
by a mortgage on the borrower's fee interest in
the mortgaged property. An unimproved portion
of this mortgaged property (one of five
entrances to the mortgaged property) is secured
by a ground lease that was allocated no value
in the underwriting process.
INFORMATION REGARDING THE
MORTGAGE LOANS IS
LIMITED.................... The information set forth in this prospectus
supplement with respect to the mortgage loans
is derived principally from one or more of the
following sources:
- a review of the available credit and legal
files relating to the mortgage loans;
- inspections of each mortgaged property with
respect to the applicable mortgage loan
undertaken by or on behalf of the
applicable mortgage loan seller;
- generally, unaudited operating statements
for the mortgaged properties related to the
mortgage loans supplied by the borrowers;
- appraisals for the mortgaged properties
related to the mortgage loans that
generally were performed in connection with
origination (which appraisals were used in
presenting information regarding the values
of such mortgaged properties as of the
cut-off date under "Description of the
Mortgage Pool" and under Annex A for
illustrative purposes only);
- engineering reports and environmental
reports for the mortgaged properties
related to the mortgage loans that
generally were prepared in connection with
origination; and
- information supplied by entities from which
Bank of America, N.A. or Prudential
Mortgage Capital Funding, LLC acquired, or
which currently service, certain of the
mortgage loans.
Also, several mortgage loans constitute
acquisition financing. Accordingly, limited or
no operating information is available
S-45
with respect to the related mortgaged property.
All of the mortgage loans were originated
during the preceding 24 months.
BORROWER LITIGATION MAY
AFFECT TIMING OR PAYMENT ON
YOUR CERTIFICATES.......... Certain borrowers and the principals of certain
borrowers and/or managers may have been
involved in bankruptcy or similar proceedings
or have otherwise been parties to real
estate-related litigation.
There may also be other legal proceedings
pending and, from time to time, threatened
against the borrowers and their affiliates
relating to the business of or arising out of
the ordinary course of business of the
borrowers and their affiliates. We cannot
assure you that such litigation will not have a
material adverse effect on the distributions to
Certificateholders.
RELIANCE ON A SINGLE TENANT
OR A SMALL GROUP OF TENANTS
MAY INCREASE THE RISK OF
LOSS....................... A deterioration in the financial condition of a
tenant can be particularly significant if a
mortgaged property is leased to a single tenant
or a small number of tenants. Mortgaged
properties leased to a single tenant or a small
number of tenants also are more susceptible to
interruptions of cash flow if a tenant fails to
renew its lease. This is because the financial
effect of the absence of rental income may be
severe; more time may be required to re-lease
the space; and substantial capital costs may be
incurred to make the space appropriate for
replacement tenants. In this regard, see "Risk
Factors -- Risks Related to the Mortgage
Loans -- Risks Related to Retail Properties"
and "-- Risks Related to Office Properties" in
this prospectus supplement.
Retail and office properties also may be
adversely affected if there is a concentration
of particular tenants among the mortgaged
properties or of tenants in a particular
business or industry.
MORTGAGED PROPERTIES WITH
TENANTS PRESENT SPECIAL
RISK....................... The income from, and market value of, the
mortgaged properties leased to various tenants
would be adversely affected if:
- space in the mortgaged properties could not
be leased or re-leased;
- tenants were unable to meet their lease
obligations;
- a significant tenant were to become a debtor
in a bankruptcy case; or
S-46
- rental payments could not be collected for
any other reason.
Repayment of the mortgage loans secured by
retail, offices and industrial and warehouse
properties will be affected by the expiration
of leases and the ability of the respective
borrowers to renew the leases or relet the
space on comparable terms. Certain of the
mortgaged properties may be leased in whole or
in part by government-sponsored tenants who
have the right to cancel their leases at any
time or for lack of appropriations.
Additionally, mortgage loans may have
concentrations of leases expiring at varying
rates in varying percentages.
Even if vacated space is successfully relet,
the costs associated with reletting, including
tenant improvements and leasing commissions,
could be substantial and could reduce cash flow
from the mortgaged properties. Moreover, if a
tenant defaults in its obligations to a
borrower, the borrower may incur substantial
costs and experience significant delays
associated with enforcing its rights and
protecting its investment, including costs
incurred in renovating and reletting the
property.
MORTGAGED PROPERTIES WITH
MULTIPLE TENANTS MAY
INCREASE RE-LEASING COSTS
AND REDUCE CASH FLOW....... If a mortgaged property has multiple tenants,
re-leasing expenditures may be more frequent
than in the case of mortgaged properties with
fewer tenants, thereby reducing the cash flow
available for debt service payments.
Multi-tenanted mortgaged properties also may
experience higher continuing vacancy rates and
greater volatility in rental expenses.
TENANT BANKRUPTCY ADVERSELY
AFFECTS PROPERTY
PERFORMANCE................ The bankruptcy or insolvency of a major tenant,
or a number of smaller tenants, in retail,
office, industrial and warehouse properties may
adversely affect the income produced by a
mortgaged property. Under the federal
bankruptcy code a tenant has the option of
assuming or rejecting any unexpired lease. If
the tenant rejects the lease, the landlord's
claim for breach of the lease would be a
general unsecured claim against the tenant
(absent collateral securing the claim). The
claim would be limited to the unpaid rent
reserved under the lease for the periods prior
to the bankruptcy petition (or earlier
surrender of the leased premises) which are
unrelated to the rejection, plus the greater of
one year's rent or 15% of the remaining
reserved rent (but not more than three year's
rent).
S-47
ONE ACTION RULES MAY LIMIT
REMEDIES................... 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. Accordingly, the special
servicer is required 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.
PROPERTY INSURANCE MAY NOT
PROTECT YOUR CERTIFICATES
FROM LOSS IN THE EVENT OF
CASUALTY OR LOSS........... The loan documents for each of the mortgage
loans generally require the borrower to
maintain, or cause to be maintained, specified
property and liability insurance. The mortgaged
properties may suffer casualty losses due to
risks which were not covered by insurance or
for which insurance coverage is inadequate. We
cannot assure you that borrowers will be able
to maintain adequate insurance. Moreover, if
reconstruction or any major repairs are
required, changes in laws may materially affect
the borrower's ability to effect any
reconstruction or major repairs or may
materially increase the costs of the
reconstruction or repairs. In addition certain
of the mortgaged properties are located in
California, Washington, Oregon, Texas, and
along the Southeastern coastal areas of the
United States. These areas have historically
been at greater risk regarding acts of nature
(such as earthquakes, floods and hurricanes)
than other states. The loans do not generally
require the borrowers to maintain earthquake or
windstorm insurance.
In light of the recent terrorist attacks in New
York City and the Washington, D.C. area, many
reinsurance companies (which assume some of the
risk of the policies sold by primary insurers)
have indicated that they intend to eliminate
coverage for acts of terrorism from their
reinsurance policies after December 31, 2001.
In the event that such casualty losses are not
covered by standard casualty insurance
policies, the loan documents may not
specifically require the borrowers to obtain
this form of coverage.
If the loan documents require insurance
covering terrorist or similar acts, the master
servicer or the special servicer, pursuant to
the pooling and servicing agreement, may not be
required to maintain insurance covering
terrorist or similar acts, nor will it be
required to call a default under a mortgage
loan, if the related borrower fails to maintain
such insurance and the special servicer
consents. In determining whether to require
insurance for terrorist or similar acts or to
call a default, each of the master servicer and
the special
S-48
servicer will consider the following two
factors in accordance with the servicing
standard:
- such insurance is not available at
commercially reasonable rates; and
- the risks relating to terrorist or similar
acts are, at that time, not commonly insured
against for properties similar to the
mortgaged property and located in or around
the region in which the mortgaged property is
located.
However, if the special servicer determines, in
accordance with the servicing standard, that it
is in the best interests of the
certificateholders not to call a default, the
master servicer and the special servicer may,
in certain circumstances, waive the default
regardless of such factors.
Any losses incurred with respect to mortgage
loans included in the trust fund due to
uninsured risks or insufficient hazard
insurance proceeds could adversely affect
distributions on your certificates.
ZONING LAWS AND USE
RESTRICTION, MAY AFFECT THE
OPERATION OF A MORTGAGED
PROPERTY OR THE ABILITY TO
REPAIR OR RESTORE A
MORTGAGED PROPERTY......... Certain of the mortgaged properties may not
comply with current zoning laws, including
density, use, parking and set back
requirements, due to changes in zoning
requirements after such mortgaged properties
were constructed. These properties, as well as
those for which variances or special permits
were issued, are considered to be a "legal
non-conforming use" and/or the improvements are
considered to be "legal non-conforming
structures". This means that the borrower is
not required to alter the use or structure to
comply with the existing or new law; however,
the borrower may not be able to rebuild the
premises "as is" in the event of a casualty
loss. This may adversely affect the cash flow
of the property following the casualty. If a
casualty were to occur, we cannot assure you
that insurance proceeds would be available to
pay the mortgage loan in full. In addition, if
the property were repaired or restored in
conformity with the current law, the value of
the property or the revenue-producing potential
of the property may not be equal to that which
existed before the casualty.
In addition, certain of the mortgaged
properties which are non-conforming may not be
"legal non-conforming uses" or "legal
non-conforming structures". The failure of a
mortgaged property to comply with zoning laws
or to be a "legal non-conforming use" or "legal
non-conforming structure"
S-49
may adversely affect market value of the
mortgaged property or the borrower's ability to
continue to use it in the manner it is
currently being used.
In addition, certain of the mortgaged
properties may be subject to certain use
restrictions imposed pursuant to reciprocal
easement agreements or operating agreements.
Such use restrictions could include, for
example, limitations on the character of the
improvements of the properties, limitations
affecting noise and parking requirements, among
other things, and limitations on the borrowers'
right to operate certain types of facilities
within a prescribed radius. These limitations
could adversely affect the ability of the
related borrower to lease the mortgaged
property on favorable terms, thus adversely
affecting the borrower's ability to fulfill its
obligations under the related mortgage loan.
SOME MORTGAGED PROPERTIES MAY
NOT BE READILY CONVERTIBLE
TO ALTERNATIVE USES........ Some of the mortgaged properties may not be
readily convertible to alternative uses if
those properties were to become unprofitable
for any reason. Converting commercial
properties and manufactured housing communities
to alternate uses generally requires
substantial capital expenditures. The
liquidation value of a mortgaged property
consequently may be substantially less than
would be the case if the property were readily
adaptable to other uses. For example, the 840
Troy Corporate Center mortgage loan and 880
Troy Corporate Center mortgage loan are each
secured by a mortgage on one condominium unit
in a two-unit condominium regime. While both
mortgage loans remain in the trust fund, the
trustee will have the ability to control the
condominium regime, however, if one of the
mortgage loans is prepaid or otherwise acquired
from the trust fund, the remaining mortgaged
property could only be converted to an
alternative use to the extent permission was
obtained from the owner of the other
condominium unit.
Zoning or other restrictions also may prevent
alternative uses. See "Risk Factors -- Risks
Related to the Mortgage Loans -- Zoning
Compliance and Use Restrictions" in this
prospectus supplement.
APPRAISALS ARE LIMITED IN
REFLECTING THE VALUE OF A
MORTGAGED PROPERTY......... Appraisals were obtained with respect to each
of the mortgaged properties in connection with
the origination of the applicable mortgage
loan. In general, appraisals represent the
analysis and opinion of qualified appraisers
and are not guarantees of present or future
value. One appraiser may reach a different
conclusion than the conclusion that would
S-50
be reached if a different appraiser were
appraising that property. Moreover, appraisals
seek to establish the amount a typically
motivated buyer would pay a typically motivated
seller and, in certain cases, may have taken
into consideration the purchase price paid by
the borrower. That amount could be
significantly higher than the amount obtained
from the sale of a mortgaged property under a
distress or liquidation sale. We cannot assure
you that the information set forth in this
prospectus supplement regarding appraised
values or loan-to-value ratios accurately
reflects past, present or future market values
of the mortgaged properties.
NO MORTGAGE LOAN INCLUDED IN
THE TRUST FUND HAS BEEN
REUNDERWRITTEN............. We have not reunderwritten the mortgage loans.
Instead, we have relied on the representations
and warranties made by the mortgage loan
sellers, and the applicable mortgage loan
seller's obligation to repurchase or substitute
a mortgage loan or cure the breach in the event
of a material breach of a representation or
warranty. These representations and warranties
do not cover all of the matters that we would
review in underwriting a mortgage loan and you
should not view them as a substitute for
reunderwriting the mortgage loans. If we had
reunderwritten the mortgage loans, it is
possible that the reunderwriting process may
have revealed problems with a mortgage loan not
covered by a representation or warranty. In
addition, we can give no assurance that the
applicable mortgage loan seller will be able to
repurchase or substitute a mortgage loan or
cure the breach in the event of a material
breach of a representation or warranty. See
"Description of the Mortgage
Pool -- Representations and Warranties;
Repurchases and Substitutions" in this
prospectus supplement.
OTHER RISKS
SEE "RISK FACTORS" IN THE ACCOMPANYING PROSPECTUS FOR A DESCRIPTION OF
CERTAIN OTHER RISKS AND SPECIAL CONSIDERATIONS THAT MAY BE APPLICABLE TO YOUR
CERTIFICATES AND THE MORTGAGE LOANS.
S-51
DESCRIPTION OF THE MORTGAGE POOL
GENERAL
The pool of mortgage loans (the "Mortgage Pool") consists of 118
multifamily and commercial mortgage loans. Forty-seven of the Mortgage Loans
were (a) originated by Bank of America, N.A. ("Bank of America") or its conduit
participants or (b) acquired by Bank of America from various third party
originators (other than Bridger Commercial Funding LLC ("Bridger")). The
Mortgage Loans described in the immediately preceding sentence are referred to
in this prospectus supplement as the "BOA-Originated Mortgage Loans". Twenty
seven mortgage loans were acquired by Bank of America from Bridger (such
mortgage loans, the "BOA-Bridger Mortgage Loans" and together with the
BOA-Originated Mortgage Loans, the "Bank of America Mortgage Loans"). The Bank
of America Mortgage Loans represent approximately 60.6% of the Initial Pool
Balance. Forty-four multifamily and commercial mortgage loans were acquired by
Prudential Mortgage Capital Funding, LLC ("PMCF") from Prudential Mortgage
Capital Company, LLC ("PMCC") or Prudential Mortgage Capital Company, Inc. and
represent 39.4% of the Initial Pool Balance (the "PMCF Mortgage Loans", and
collectively with the Bank of America Mortgage Loans, the "Mortgage Loans"). The
Mortgage Loans have an aggregate Cut-off Date Balance of $1,124,328,641 (the
"Initial Pool Balance"), subject to a variance of plus or minus 5%. See
"Description of the Trust Funds" and "Certain Legal Aspects of Mortgage Loans"
in the accompanying prospectus.
The "Cut-off Date Balance" of each Mortgage Loan is the unpaid principal
balance thereof as of May 1, 2002 (the "Cut-off Date"), after application of all
payments of principal due on or before such date, whether or not received. All
numerical information provided herein with respect to the Mortgage Loans is
provided on an approximate basis. All weighted average information provided
herein with respect to the Mortgage Loans reflects weighting by related Cut-off
Date Balance. All percentages of the Mortgage Pool, or of any specified
sub-group thereof, referred to herein without further description are
approximate percentages of the Initial Pool Balance.
Each Mortgage Loan is evidenced by one or more promissory notes (a
"Mortgage Note") and secured by one or more mortgages, deeds of trust or other
similar security instruments (a "Mortgage") that create a first mortgage lien on
a fee simple and/or leasehold interest in real property (a "Mortgaged
Property"). Each Mortgage Loan is secured by (i) a manufactured housing
community or complex consisting of five or more rental living units or one or
more apartment buildings (a "Multifamily Mortgaged Property", and any Mortgage
Loan secured thereby, a "Multifamily Loan") (53 Mortgage Loans, representing
35.2% of the Initial Pool Balance), or (ii) a retail shopping mall or center, an
office building or complex, land, an industrial or warehouse building or a
self-storage facility (a "Commercial Mortgaged Property", and any Mortgage Loan
secured thereby, a "Commercial Loan") (65 Mortgage Loans, representing 64.8% of
the Initial Pool Balance).
Two Mortgage Loans (each, a "Cross-Collateralized Mortgage Loan") are
partially cross-defaulted and partially cross-collateralized with each other.
This set represents 1.6% of the Initial Pool Balance. One Crossed-Collateralized
Mortgage Loan (the "Large Crossed Loan"), representing 1.4% of the Initial Pool
Balance provides credit support to the other Crossed Collateralized Mortgage
Loan ("Small Crossed Loan"), representing 0.2% of the Initial Pool Balance and a
default under the Small Crossed Loan will trigger a default under the Large
Crossed Loan. Each of the Cross-Collateralized Mortgage Loans is evidenced by a
separate Mortgage Note and secured by a separate Mortgage, which Mortgage or
separate cross-collateralization agreement as the case may be, contains
provisions creating the relevant partial cross-collateralization and partial
cross-default arrangements. One Mortgage Loan, which represents 3.5% of the
Initial Pool Balance, is evidenced by seven separate Mortgage Notes, each of
which is secured by a separate Mortgage, and all of which Mortgage Notes and
Mortgages are cross-defaulted and cross-collateralized. See Annex A hereto for
information regarding the Cross-Collateralized Mortgage Loans and see "Risk
Factors -- Risks Related to the Mortgage Loans -- Limitations on Enforceability
of Cross-Collateralization" in this prospectus supplement.
The Mortgage Loans generally constitute non-recourse obligations of the
related borrower. Upon any such borrower's default in the payment of any amount
due under the related Mortgage Loan, the holder
S-52
thereof may look only to the related Mortgaged Property or Properties for
satisfaction of the borrower's obligation. In the case of certain Mortgage Loans
where the loan documents permit recourse to a borrower or guarantor, the
Depositor has generally not undertaken an evaluation of the financial condition
of any such entity or person, and prospective investors should thus consider all
of the Mortgage Loans to be nonrecourse. None of the Mortgage Loans is insured
or guaranteed by any person or entity, governmental or otherwise. See "Risk
Factors -- Risks Related to the Mortgage Loans -- Limited Recourse" in this
prospectus supplement.
Seventeen of the Mortgaged Properties, which constitute security for
approximately 13.2% of the Initial Pool Balance, are located in California; 17
of the Mortgaged Properties, which constitute security for 12.2% of the Initial
Pool Balance, are located in Florida; 3 of the Mortgaged Properties, which
constitute security for 10.3% of the Initial Pool Balance, are located in
Virginia; 14 Mortgaged Properties, which constitute security for 6.8% of the
Initial Pool Balance, are located in Texas; and 4 of the Mortgaged Properties,
which constitute security for 6.1% of the Initial Pool Balance, are located in
Michigan. The remaining Mortgaged Properties are located throughout 26 other
states, with no more than 5.7% of the Initial Pool Balance secured by Mortgaged
Properties located in any such other jurisdiction.
On or about the Delivery Date, Bank of America will transfer the Bank of
America Mortgage Loans, and PMCF will transfer the PMCF Mortgage Loans, to or at
the direction of the Depositor, without recourse, to the Trustee for the benefit
of the Certificateholders. See "Description of the Mortgage Pool -- The Mortgage
Loan Sellers" and "-- Assignment of the Mortgage Loans; Repurchases and
Substitutions" in this prospectus supplement.
CERTAIN TERMS AND CONDITIONS OF THE MORTGAGE LOANS
Due Dates. Each of the Mortgage Loans provides for scheduled payments of
principal and interest ("Monthly Payments") to be due on the first day of each
month (as to each such Mortgage Loan, the "Due Date") except that, as described
below, each ARD Loan may require that certain additional amounts be paid each
month following its applicable Anticipated Repayment Date. In addition, 14
Mortgage Loans representing 9.5% of the Initial Pool Balance provide for periods
of interest only payments during a portion of their respective loan terms.
Mortgage Rates; Calculations of Interest. All of the Mortgage Loans bear
interest at a rate per annum (a "Mortgage Rate") that is fixed for the remaining
term of the Mortgage Loan, except that, as described below, each of the ARD
Loans will accrue interest at a higher rate after its respective Anticipated
Repayment Date. As used in this prospectus supplement, the term "Mortgage Rate"
does not include the incremental increase in the rate at which interest may
accrue on the ARD Loans after such date. As of the Cut-off Date, the Mortgage
Rates of the Mortgage Loans ranged from 6.500% per annum to 8.430% per annum,
and the weighted average Mortgage Rate of the Mortgage Loans was 7.150%. No
Mortgage Loan, other than an ARD Loan, permits negative amortization or the
deferral of accrued interest.
One hundred eighteen Mortgage Loans (the "Actual/360 Mortgage Loans"),
which represent 100% of the Initial Pool Balance, accrue interest on the basis
of the actual number of days elapsed in the relevant month of accrual and a
360-day year (an "Actual/360 Basis"). The total amount of the Monthly Payment
for each Actual/360 Mortgage Loan is determined as though the Mortgage Loan
accrued interest on the basis of a 360-day year consisting of twelve 30-day
months (a "30/360 Basis"), and the portion of such Monthly Payment allocated to
interest is determined based on interest accrued in the preceding month on an
Actual/360 Basis with the balance allocated to amortized principal. As a result,
the full amortization term is longer than would be the case if calculated on a
30/360 Basis, and the Balloon Payment on any such Mortgage Loan will be larger
than would be the case if interest accrued on a 30/360 Basis.
Hyperamortization. Two of the Mortgage Loans (each a "Bank of America ARD
Loan"), which represent 2.5% of the Initial Pool Balance, provide for changes in
their payments and their accrual of interest if they are not paid in full by a
specified date (the "Anticipated Repayment Date"). Commencing on the Anticipated
Repayment Date, each Bank of America ARD Loan generally will bear interest at a
fixed per annum rate (the "Bank of America Revised Rate") equal to its Mortgage
Rate plus 1% in the first two years
S-53
following the Anticipated Repayment Date and 2.5% thereafter until final
maturity. Interest received on a Bank of America ARD Loan after its Anticipated
Repayment Date will be applied as follows: first, to the payment of all interest
due but not yet paid at the Mortgage Rate in effect immediately prior to the
Anticipated Repayment Date, second, to the payment of interest due but not yet
paid at the Excess Interest Rate, third, to the payment of Default Interest, if
any, due in respect of the amount described in priority first, and fourth, to
the payment of Default Interest, if any, due in respect of the amount described
in priority second. Amounts described in priorities second and fourth are
referred to in this prospectus supplement as "Bank of America Excess Interest".
"Bank of America Excess Interest Rate" shall mean the difference in rate of the
Revised Rate over the Mortgage Rate. In addition to paying interest (at the
Revised Rate) and principal (based on the amortization schedule), from and after
the Anticipated Repayment Date, the borrower generally will be required to apply
all remaining monthly cash flow ("Bank of America Excess Cash Flow") from the
related Mortgaged Property, if any, after paying all permitted operating
expenses and capital expenditures, to pay accrued interest at the Revised Rate
and then to principal on such Bank of America ARD Loan as called for in the
related loan documents. Nine of the Mortgage Loans (each a "PMCF ARD Loan"),
which represent 9.6% of the Initial Pool Balance, provide for changes in their
payments and their accrual of interest if not paid in full by each such PMCF ARD
Loan's Anticipated Repayment Date. Commencing on the Anticipated Repayment Date,
each PMCF ARD Loan generally will bear interest at a fixed per annum rate (the
"PMCF Revised Rate") equal to its Mortgage Rate plus 2%, or the interest rate
applicable for certain non-callable U.S. treasury obligations of comparable
terms plus 2%, whichever is greater. The interest accrued at the excess of the
PMCF Revised Rate over the Mortgage Rate (such interest, the "PMCF Excess
Interest"; and such difference in rate, the "PMCF Excess Interest Rate") will be
deferred until the principal of such PMCF ARD Loan is paid in full and, except
where limited by applicable laws, will itself accrue interest at the Revised
Rate. Non-payment of such PMCF Excess Interest will not constitute a default
under such PMCF ARD Loan prior to the related maturity date. From and after the
Anticipated Repayment Date, in addition to paying interest (at the Mortgage
Rate) and principal (based on the amortization schedule), the borrower generally
will be required to apply all remaining monthly cash flow from the related
Mortgage Property, if any, after paying all permitted operating expenses and
capital expenditures, to pay principal on the PMCF ARD Loan until the PMCF ARD
Loan is paid in full. As used in this prospectus supplement, (i) "ARD Loan"
shall mean collectively each of the Bank of America ARD Loans and the PMCF ARD
Loans; (ii) "Revised Rate" shall mean collectively the Bank of America Revised
Rate and the PMCF Revised Rate; (iii) "Excess Interest" shall mean collectively
the Bank of America Excess Interest and the PMCF Excess Interest; and (iv)
"Excess Interest Rate" shall mean collectively the Bank of America Excess
Interest Rate and the PMCF Excess Interest Rate.
Amortization of Principal. One hundred seven Mortgage Loans, which
represent 88.0% of the Initial Pool Balance, provide for monthly payments of
principal based on amortization schedules significantly longer than the
respective remaining terms thereof, thereby leaving substantial principal
amounts due and payable (each such loan, a "Balloon Loan", and each such
payment, together with the corresponding interest payment, a "Balloon Payment")
on their respective maturity dates, unless prepaid prior thereto. Eleven
Mortgage Loans, which represent 12.0% of the Initial Pool Balance, are ARD
loans.
The original term to stated maturity of each Mortgage Loan, or in the case
of each ARD Loan, to its Anticipated Repayment Date was between 60 and 180
months. The original amortization schedules of the Mortgage Loans (calculated,
in the case of Actual/360 Mortgage Loans on a 30/360 Basis for the purposes of
the accrual of interest) ranged from 180 to 360 months. As of the Cut-off Date,
the remaining terms to stated maturity of the Mortgage Loans, or in the case of
each ARD Loan, to its Anticipated Repayment Date will range from 48 to 175
months, and the weighted average remaining term to stated maturity of the
Mortgage Loan, or in the case of each ARD Loan, to its Anticipated Repayment
Date will be 109 months. As of the Cut-off Date, the remaining amortization
terms of the Mortgage Loans (calculated on a 30/360 Basis for the accrual of
interest) will range from 173 to 360 months, and the weighted average remaining
amortization term (calculated on a 30/360 Basis for purposes of the accrual of
interest) of the Mortgage Loans will be 340 months. See "Risk Factors -- Risks
Related to the Mortgage Loans -- Balloon Payments and ARD Loans" in this
prospectus supplement.
S-54
Prepayment Provisions. All of the Mortgage Loans provided as of
origination either (a) that voluntary prepayments were prohibited until a period
generally 2 to 7 months before the final payment date of such Mortgage Loan,
during which voluntary prepayments can be made without penalty, or (b) for a
sequence of three periods as follows:
(1) a period (a "Lock-out Period") during which voluntary principal
prepayments are prohibited, followed by
(2) a period (a "Prepayment Premium Period") during which any
voluntary principal prepayment be accompanied by a premium, penalty or fee
(a "Prepayment Premium"), followed by
(3) a period (an "Open Period") during which voluntary principal
prepayments may be made without an accompanying Prepayment Premium.
Voluntary principal prepayments (after any Lock-out Period) may be made in
full or in some cases in part, subject to certain limitations and, during a
Prepayment Premium Period, payment of the applicable Prepayment Premium. As of
the Cut-off Date, the remaining Lock-out Periods ranged from 17 months to 168
months, with a weighted average remaining Lock-out Period of 101 months. As of
the Cut-off Date, the Open Period for each Mortgage Loan ranged from two months
to seven months prior to stated maturity or, in the case of an ARD Loan, the
Anticipated Repayment Date, with a weighted average Open Period of four months.
Prepayment Premiums on the Mortgage Loans are generally calculated either on the
basis of a yield maintenance formula (subject, in certain instances, to a
minimum equal to a specified percentage of the principal amount prepaid) or as a
percentage (which may decline over time) of the principal amount prepaid. The
prepayment terms of each of the Mortgage Loans are more particularly described
in Annex A to this prospectus supplement.
As more fully described herein, Prepayment Premiums actually collected on
the Mortgage Loans will be distributed to the respective Classes of
Certificateholders in the amounts and priorities described under "Description of
the Certificates -- Distributions -- Distributions of Prepayment Premiums" in
this prospectus supplement. The Depositor makes no representation as to the
enforceability of the provision of any Mortgage Loan requiring the payment of a
Prepayment Premium or as to the collectibility of any Prepayment Premium. See
"Risk Factors -- Risks Related to the Mortgage Loans -- Prepayment Premiums" in
this prospectus supplement and "Certain Legal Aspects of Mortgage
Loans -- Default Interest and Limitations on Prepayments" in the accompanying
prospectus.
Defeasance. One hundred seven Mortgage Loans, representing 92.2% of the
Initial Pool Balance, permit the applicable borrower at any time after a
specified period (the "Defeasance Lock-Out Period"), which is at least two years
from the Delivery Date, provided no event of default exists, to obtain a release
of a Mortgaged Property from the lien of the related Mortgage (a "Defeasance
Option"). One Mortgage Loan, which represents 0.4% of the Initial Pool Balance:
(a) has an initial Lock-out Period, (b) is then subject after expiration of the
initial Lock-out Period to a period where the borrower has an option either to
(i) prepay such Mortgage Loan subject to a Prepayment Premium or (ii) defease
such Mortgage Loan, and (c) is subject to an Open Period thereafter. The
borrower must meet certain conditions in order to exercise its Defeasance
Option. Among other conditions the borrower must pay on any Due Date (the
"Release Date"):
(1) all interest accrued and unpaid on the principal balance of the
Note to and including the Release Date;
(2) all other sums, excluding scheduled interest or principal
payments, due under the Mortgage Loan and all other loan documents executed
in connection therewith; and
(3) an amount (the "Collateral Substitution Deposit") that will be
sufficient to purchase U.S. government obligations (or in some instances
the applicable Mortgage Loan documents may require the borrower to deliver
the U.S. government obligations referenced in this clause (3)) providing
payments (a) on or prior to, but as close as possible to, all successive
scheduled payment dates from the Release Date to the related maturity date,
(b) in amounts at least equal to the scheduled payments due on such dates
under the Mortgage Loan or the defeased amount thereof in the case of a
partial defeasance and
S-55
(c) any costs and expenses incurred in connection with the purchase of such
U.S. government obligations.
In addition, the borrower must deliver a security agreement granting the
Trust Fund a first priority lien on the securities or the Collateral
Substitution Deposit and generally, an opinion of counsel to such effect.
Simultaneously with such actions, the related Mortgaged Property will be
released from the lien of the Mortgage Loan and the pledged U.S. government
obligations (together with any Mortgaged Property not released, in the case of a
partial defeasance) will be substituted as the collateral securing the Mortgage
Loan. In general, a successor borrower established or designated pursuant to the
related loan documents will assume all of the defeased obligations of a borrower
exercising a Defeasance Option under a Mortgage Loan and the borrower will be
relieved of all of the defeased obligations thereunder. Under the Pooling
Agreement, the Master Servicer is required to enforce any provisions of the
related Mortgage Loan documents that require, as a condition to the exercise by
the Mortgagor of any defeasance rights, that the Mortgagor pay any costs and
expenses associated with such exercise.
The Depositor makes no representation as to the enforceability of the
defeasance provisions of any Mortgage Loan.
"Due-on-Sale" and "Due-on-Encumbrance" Provisions. The Mortgage Loans
generally contain both "due-on-sale" and "due-on-encumbrance" clauses that in
each case, subject to certain limited exceptions, permit the holder of the
Mortgage to accelerate the maturity of the related Mortgage Loan if the borrower
sells or otherwise transfers or encumbers the related Mortgaged Property or
prohibit the borrower from doing so without consent of the holder of the
Mortgage. See "-- Additional Mortgage Loan Information -- Subordinate Financing"
herein. Certain of the Mortgage Loans permit transfer of the related Mortgaged
Property if certain specified conditions are satisfied or if the transfer is to
a borrower reasonably acceptable to the lender. The Master Servicer and/or the
Special Servicer, as applicable, will determine, in a manner consistent with the
Servicing Standard and with the REMIC provisions, whether to exercise any right
the holder of any Mortgage may have under any such clause to accelerate payment
of the related Mortgage Loan upon, or to withhold its consent to, any transfer
or further encumbrance of the related Mortgaged Property; provided, neither the
Master Servicer nor the Special Servicer may waive any right it has, or grant
any consent it is otherwise entitled to withhold, under any related
"due-on-encumbrance" clause until it has received written confirmation from each
Rating Agency (as set forth in the Pooling Agreement) that such action would not
result in the downgrade, qualification (if applicable) or withdrawal of the
rating then assigned by such Rating Agency to any Class of Certificates.
Notwithstanding the foregoing, the existence of any additional indebtedness may
increase the difficulty of refinancing the related mortgage loan at maturity or
the anticipated repayment date and the possibility that reduced cash flow could
result in deferred maintenance. Also, if the holder of the additional debt has
filed for bankruptcy or been placed in involuntary receivership, foreclosure of
the related mortgage loan could be delayed. See "The Pooling and Servicing
Agreements -- Due-on-Sale and Due-on-Encumbrance Provisions" and "Certain Legal
Aspects of Mortgage Loans -- Due-on-Sale and Due-on-Encumbrance" in the
accompanying prospectus.
S-56
SIGNIFICANT MORTGAGE LOANS
Certain of the larger Mortgage Loans or groups of Mortgage Loans (by
outstanding principal balance) are described below in the following table and
text. Terms used below relating to underwriting or property characteristics have
the meaning assigned to such term in Annex A.
The following table and summaries describe the ten largest Mortgage Loans
in the Mortgage Pool by Cut-off Date Balance:
<Table>
<Caption>
LOAN CUT-OFF LTV
MORTGAGE CUT-OFF BALANCE PER DATE RATIO AT
LOAN DATE PROPERTY SF/UNIT/ LTV MATURITY UNDERWRITING MORTGAGE
LOAN NAME SELLER BALANCE TYPE ROOM/PADS RATIO OR ARD DSCR RATE
--------- -------- ------------ ----------- ----------- ------- -------- ------------ --------
Regency Square................ BofA $ 82,083,574 Retail $ 177 61.9% 54.0% 1.66x 6.750%
Town Center East.............. PMCF 45,300,487 Land $ 39 71.4% 61.8% 1.15x 6.500%
MICC Adler Portfolio BofA 43,723,691 Office $ 70 74.4% 69.0% 1.40x 7.010%
New Potomac Portfolio......... PMCF 38,967,597 Multifamily $ 31,199 74.5% 65.1% 1.44x 6.880%
200 Docks Corner Road......... PMCF 36,640,623 Industrial $ 30 72.8% 67.2% 1.31x 6.980%
84 William Street............. BofA 32,845,972 Multifamily $271,454 79.5% 70.0% 1.23x 7.125%
Williamsburg Outlet Center.... PMCF 32,288,033 Retail $ 118 51.3% 42.2% 1.80x 7.690%
880 Troy Corporate Center..... BofA 31,851,704 Office $ 171 73.7% 62.8% 1.26x 7.110%
The Plaza at Citrus Park...... PMCF 29,896,007 Retail $ 92 74.7% 65.1% 1.46x 6.760%
840 Troy Corporate Center..... BofA 27,941,839 Office $ 150 72.8% 64.0% 1.26x 7.110%
------------
TOTAL/WTD. AVG.......................... $401,539,527 69.8% 61.4% 1.42X 6.944%
============
</Table>
Regency Square Mall
The Loan. The Mortgage Loan (the "Regency Square Mall Loan") is secured by
a first mortgage encumbering an anchored regional mall located in Richmond,
Virginia. The Regency Square Mall Loan represents approximately 7.3% of the
Initial Pool Balance. Originated on October 19, 2001, the Regency Square Mall
Loan has a principal balance of $82,083,574 as of the Cut-off Date. The Regency
Square Mall Loan was made to Taubman Regency Square Associates, LLC, a Delaware
limited liability company, which is a special purpose, bankruptcy remote entity
with an independent director. Legal counsel to the borrower delivered a
non-consolidation opinion in connection with the origination of the Regency
Square Mall Loan.
The Regency Square Mall Loan has a remaining term of 114 months and matures
on November 1, 2011. The Regency Square Mall Loan may not be prepaid on or prior
to May 1, 2011. The Regency Square Mall Loan is subject to defeasance with
United States government obligations beginning two years after the Delivery
Date.
The Property. The Regency Square Mall is situated on 38.16 acres and was
constructed in 1975 and renovated in 1987 as a retail shopping center with both
anchor and in-line spaces totaling 779,604 square feet. The Mortgaged Property
securing the Regency Square Mall Loan totals 464,861 net rentable square feet.
As of December 31, 2001, the occupancy rate for the Mortgaged Property securing
the Regency Square Mall Loan was 97.5%.
The Mortgaged Property is situated in Henrico County and is the primary
mall within the suburban area of Richmond commonly referred to as the West End.
The primary market competitors include Chesterfield Town Center (10 miles South)
and Virginia Center Commons (10 miles North East). These primary market
competitors generate average mall store sales of $370 and $350 per square foot,
respectively, with similar anchor stores, compared to average mall store sales
of over $450 per square foot in 2001 for the Mortgaged Property securing the
Regency Square Mall Loan. Comparable average mall store sales have exceeded $400
per square foot at the Mortgaged Property for three consecutive years.
The Mortgaged Property's Hecht's stores rank (when combined) as one of the
top performing locations in the Hecht's chain with 2001 sales of $66.55 million
or $297 per square foot over the combined North and South store area of 223,823
square feet. Average sales for the 80 Hecht's stores in operation during 2001
was $190/SF. Based upon such operations, the two stores at the Regency Square
Mall location produced sales at
S-57
156% of the chain's average store sales. These sales resulted in an occupancy
cost (including all tenant charges) of 2.6% of gross sales in 2001.
The following table presents information relating to the anchor and major
tenants at the Mortgaged Property:
<Table>
<Caption>
YEAR END % OF GROSS NET RENTABLE % OF NET DATE OF LEASE
TENANT 2001 SALES/SF REVENUE AREA (SF) RENTABLE AREA EXPIRATION RENT PER SF
- ------ ------------- ---------- ------------ ------------- ------------- -----------
Hechts North(1)...... $226 5.17% 123,537 26.58% 10/15/05 $ 6.69
Hechts South(1)...... $385 0.24% 100,286 21.57% 10/01/05 $ 3.17
The Limited.......... $351 4.04% 15,298 3.29% 1/31/07 $45.33
Lerner New York...... $213 2.91% 11,541 2.48% 1/31/04 $42.83
Abercrombie &
Fitch.............. $327 2.66% 9,274 2.00% 1/31/08 $45.83
</Table>
- ---------------
(1) The Hecht's leases each provide for two 10-year extension options at the
same economic terms as the existing leases.
Release Provisions. The borrower is entitled to obtain the release of
parcel 2 and/or parcel 3 of the Mortgaged Property from the lender's mortgage
lien subject to certain conditions stated in the loan documents including, among
other things: (i) the delivery of an officer's certificate of the borrower
certifying that such release shall not cause the Mortgaged Property to be in
violation of any leases or any applicable laws and shall not have a material
adverse effect on (a) the borrower's financial condition, (b) the value of the
Mortgaged Property, and (c) the operating income of the Mortgaged Property, and
(ii) the delivery of evidence that the Mortgaged Property exists and operates
independently from the parcel being released.
Escrows. The Regency Square Mall Loan documents provide for certain
escrows of taxes and provide for replacement reserves in the event that the debt
service coverage ratio, as computed by the lender, is less than 1.30x. See Annex
B in this prospectus supplement for information regarding escrows and reserves.
Lock Box Account. Tenant payments are deposited into a mortgagee
designated lock box account. The funds in this account are released to the
borrower until such time as: (i) the debt service coverage ratio, as computed by
the lender, is less than 1.30x, or (ii) the occurrence of an event of default
pursuant to the Regency Square Mall Loan documents at which time such funds
shall be applied as described in the Regency Square Mall Loan documents.
Sponsor. The sponsor of the borrower is the Taubman Realty Group Limited
Partnership, the managing general partner of which is Taubman Centers Inc., a
REIT that is publicly traded on the New York Stock Exchange. Taubman Centers
Inc. operates manages, leases, acquires, develops and expands regional shopping
centers across the country. The company generated revenues of $341 million for
the year ended December 31, 2001 and had a market capitalization of $751.5
million as of April 23, 2002.
Property Management. Taubman Company Limited Partnership is the property
manager. As of December 31, 2001, Taubman Company Limited Partnership managed 20
urban and suburban retail centers located in 10 states and provided third-party
management for 11 super-regional (non-owned) retail centers. The property
manager is affiliated with the borrower.
Financial Information.
<Table>
<Caption>
MOST RECENT
(12/31/01)
UNDERWRITTEN (FULL YEAR)
------------ -----------
Effective Gross Income................ $16,800,774 $16,283,705
Total Expenses........................ $ 5,638,415 $ 5,272,075
Net Operating Income (NOI)............ $11,162,359 $11,011,630
Cash Flow (CF)........................ $10,687,422 $11,011,630
DSCR on NOI........................... 1.74x 1.71x
DSCR on CF............................ 1.66x 1.71x
</Table>
S-58
Town Center East
The Loan. The Mortgage Loan (the "Town Center East Loan") is secured by a
first mortgage encumbering six land parcels in Foster City, California. The Town
Center East Loan represents approximately 4.0% of the Initial Pool Balance.
Originated on November 15, 2001, the Town Center East Loan has a principal
balance of $45,300,487 as of the Cut-off Date. The Town Center East Loan was
made to Metro TCE LLC, a Delaware limited liability company, which is a special
purpose, bankruptcy remote entity. Legal counsel to the borrower delivered a
non-consolidation opinion in connection with the origination of the Town Center
East Loan.
The Town Center East Loan has a remaining term to Anticipated Repayment
Date of 115 months with an Anticipated Repayment Date of December 1, 2011, and
matures on December 1, 2031. The Town Center East Loan may not be prepaid prior
to September 1, 2011. The Town Center East Loan is subject to defeasance with
United States government obligations beginning on the date that is the earlier
to occur of four years following November 15, 2001, or 25 months after the
Delivery Date.
The Property. The Mortgaged Property securing the Town Center East Loan
consists of six land parcels with an aggregate area of 26.50 acres which are
subject to long-term ground leases. Under the terms of the ground leases, the
ground tenants, which include Equity Office Properties, Orchard Supply Hardware
and Wells Fargo Bank, pay ground rent to the borrower on a triple net basis. The
improvements on the Mortgaged Property, which are not currently collateral for
the Town Center East Loan but which are subject to a reversionary interest in
favor of the borrower, were constructed between 1985 and 1989 as a mixed-use
facility with retail spaces totaling approximately 98,700 net rentable square
feet and office spaces totaling approximately 676,230 net rentable square feet.
The Mortgaged Property has an appraised value (as encumbered by the ground
leases) of $63.4 million. This valuation excludes the value of the improvements
(six buildings), four of which were purchased by Spieker Properties (which was
subsequently acquired by Equity Office Properties) in 1998 for $131 million. Two
of the ground tenants are investment grade rated by at least one major rating
agency (Equity Office Properties is rated "BBB+" by S&P and Wells Fargo Bank is
rated "AA" by Fitch, "Aa2" by Moody's and "A+" by S&P). The third tenant,
Orchard Supply Hardware, is an affiliate of Sears, Roebuck and Co., an entity
rated "A-" by Fitch, "A3" by Moody's and "A-" by S&P, although Sears has not
guaranteed the Orchard Supply Hardware lease obligations.
Escrows. Due to the triple net nature of the leases, the Town Center East
Loan documents do not provide for escrows or reserves so long as the ground
leases are in effect. The Town Center East Loan documents require replacement
reserves and tax and insurance reserves at such time as any ground lease is no
longer in effect and/or, with respect to the insurance reserve, if the borrower
elects to maintain a blanket policy of insurance.
Lock Box Account. Tenant payments are deposited into a mortgagee
designated lock box account. The funds in this account may be withdrawn by the
borrower until the earlier to occur of: (i) the Anticipated Repayment Date, or
(ii) the occurrence of an event of default pursuant to the Town Center East Loan
documents, at which time such funds shall be applied as described in the Town
Center East Loan documents.
Property Management. Transpacific Development Co. is the property manager.
Established in 1954, Transpacific Development Co. has developed approximately 10
million square feet of office, retail, and industrial space. The property
manager is affiliated with the borrower.
S-59
Financial Information.
<Table>
<Caption>
MOST RECENT (12/31/01)
UNDERWRITTEN (1 MONTH ANNUALIZED)
------------ ----------------------
Effective Gross Income............... $4,014,220 $4,014,220
Total Expenses....................... $ 40,142 $ 0
Net Operating Income (NOI)........... $3,974,078 $4,014,220
Cash Flow (CF)....................... $3,974,078 $4,014,220
DSCR on NOI.......................... 1.15x 1.16x
DSCR on CF........................... 1.15x 1.16x
</Table>
MICC Adler Portfolio
The Loan. The Mortgage Loan (the "MICC Adler Loan") is secured by a first
mortgage on a portfolio of 15 office, office-flex/warehouse and single tenant
buildings in Miami, Florida. The MICC Adler Loan represents approximately 3.9%
of the Initial Pool Balance. Originated on August 15, 2001, the MICC Adler Loan
has a principal balance of $43,723,691 as of the Cut-off Date. The MICC Adler
Loan was made to Adler Office Associates, Ltd., a Florida limited partnership,
which is a special purpose, bankruptcy remote entity with an independent
director. Legal counsel to the borrower delivered a non-consolidation opinion in
connection with the origination of the MICC Adler Loan.
The MICC Adler Loan has a remaining term of 76 months and matures on
September 1, 2008. The MICC Adler Loan may not be prepaid on or prior to July 1,
2008. The MICC Adler Loan is subject to defeasance with United States government
obligations beginning two years after the Delivery Date.
Ownership Interest. Each of the Mortgaged Properties securing the MICC
Adler Loan, except 8095 Northwest 12th Street, are owned by the Borrower as fee
simple interests. The Borrower holds a leasehold interest in 8095 Northwest 12th
Street pursuant to a ground lease that continues through September 24, 2048 with
no renewal options. The ground lessor is an affiliate of the borrower and has
mortgaged the fee interest in support of the MICC Adler Loan.
The Properties. The Mortgaged Properties securing the MICC Adler Loan are
situated on 38.10 acres and were constructed between 1979 and 2000 (in various
phases) as fifteen office buildings with 626,945 net rentable square feet. The
buildings located on the Mortgaged Property range from one to four-stories and
2,494 parking spaces are available for tenants and/or customers. As of January
4, 2002, the weighted average occupancy rate for the Mortgaged Properties
securing the MICC Adler Loan was 91.6%.
The Mortgaged Properties are situated in Miami-Dade County, which is the
largest metropolitan area in the state of Florida and is located along the
southeast coast of the United States of America. Tourism continues to be an
economic mainstay, with construction, trade, international commerce and finance
growing. More than 100 multinational corporations have offices in Miami-Dade
County. The county is served by major roads including US-1, I-395, I-195, I-95,
I-75, the Florida Turnpike and the Palmetto Expressway.
S-60
The following table presents information relating to the major tenants at
the Mortgaged Property:
<Table>
<Caption>
% OF GROSS NET RENTABLE % OF NET DATE OF LEASE RENT
TENANT REVENUE AREA (SF) RENTABLE AREA EXPIRATION PER SF
- ------ ---------- ------------ ------------- ------------- ------
Parcel 1 -- Electronic Data Systems.... 7.17% 45,510 100.00% 5/11/03 $15.28
Parcel 2 -- ITT Technical Institute.... 4.06% 26,387 37.24% 7/12/06 $12.00
Parcel 3 -- FL Department of Revenue... 7.14% 36,200 54.27% 3/31/06 $17.03
Parcel 4 -- United Health Care
Services............................. 3.42% 16,043 37.77% 2/28/06 $20.24
Parcel 5 -- Dade County Public
Safety............................... 3.25% 17,430 19.44% 10/31/05 $18.27
Parcel 6 -- Metro Dade Corrections..... 1.53% 8,400 10.57% 1/25/03 $17.37
Parcel 7 -- Bally Total Fitness........ 7.11% 36,000 100.00% 10/14/06 $18.77
Parcel 8 -- Equitrac Corporation....... 2.38% 16,288 25.92% 11/30/03 $14.50
Parcel 9 -- GSA Drug Enforcement....... 1.22% 11,900 8.92% 12/31/05 $16.18
</Table>
Escrows. The MICC Adler Loan documents provide for certain escrows of
taxes and provide for replacement reserves. The insurance reserve has been
waived due to the availability of a blanket insurance policy. See Annex B in
this prospectus supplement for information regarding escrow reserves.
Lock Box Account. The borrower has established an account with the agent
into which all rents and other revenues will flow upon the occurrence of an
event of default pursuant to the MICC Adler Loan documents, through the lock box
account. These funds will then be applied as described in the MICC Adler Loan
documents.
Property Management. Adler Management Services is the property manager.
Established in 1978, Adler Management Services currently manages over 7,500,000
square feet of industrial and office space.
Financial Information.
<Table>
<Caption>
MOST RECENT
(12/31/01)
UNDERWRITTEN (FULL YEAR)
------------ -----------
Effective Gross Income...................... $8,746,520 $8,969,175
Total Expenses.............................. $3,093,566 $3,084,956
Net Operating Income (NOI).................. $5,652,954 $5,884,219
Cash Flow (CF).............................. $4,913,996 $5,884,219
DSCR on NOI................................. 1.61x 1.67x
DSCR on CF.................................. 1.40x 1.67x
</Table>
New Potomac Portfolio
The Loan. The Mortgage Loan (the "New Potomac Portfolio Loan") is
evidenced by seven individual promissory notes, each secured by a first mortgage
encumbering one of seven multifamily properties in Prince George's and
Montgomery Counties, Maryland. The notes and mortgages are cross-defaulted and
cross-collateralized. The New Potomac Portfolio Loan represents approximately
3.5% of the Initial Pool Balance. Originated on December 18, 2001, the New
Potomac Portfolio Loan has a principal balance of $38,967,597 as of the Cut-off
Date. The New Potomac Portfolio Loan was made to New Potomac Limited
Partnership, a Delaware limited partnership, which is a special purpose,
bankruptcy remote entity with an independent director.
The New Potomac Portfolio Loan has a remaining term of 116 months and
matures on January 1, 2012. The New Potomac Portfolio Loan may not be prepaid
prior to October 1, 2011. The New Potomac Portfolio Loan is subject to
defeasance with United States government obligations beginning on the date that
is the earlier to occur of four years following December 18, 2001, or 25 months
after the Delivery Date.
The Property. The Mortgaged Properties securing the New Potomac Portfolio
Loan were originally constructed between 1943 and 1967, and consist of seven
complexes ranging from two to four stories in
S-61
height and totaling 1,249 units. All of the Mortgaged Properties securing the
New Potomac Portfolio Loan are located in Maryland (4 in Hyattsville, and one
each in Silver Spring, Brentwood, and Landover), all of which are approximately
seven miles outside of the Washington, DC central business district. As of
January 31, 2002, the weighted average occupancy rate for the Mortgaged
Properties securing the New Potomac Portfolio Loan was 99.1%.
Since 1998, the Mortgaged Properties have undergone approximately $2.2
million ($1,753/unit) of renovations, including replacement of carpeting,
cabinets, flooring, refrigerators and ranges, as well as painting. The
renovations have allowed rents at the Mortgaged Properties to be increased by an
annual average of approximately 14% since 1998.
The following table presents information relating to the unit configuration
of the Mortgaged Properties:
<Table>
<Caption>
1 BEDROOM 2 BEDROOM 3 BEDROOM
--------- --------- ---------
Number of Units...................................... 535 700 14
Average Rent($)...................................... 704 870 1,079
</Table>
Release Provisions. The entire New Potomac Portfolio Loan may be defeased
or all of the Mortgaged Properties transferred in connection with an assumption
of the entire New Potomac Portfolio Loan, each in accordance with the terms of
the loan documents. In addition a one-time transfer of each individual Mortgaged
Property, and the release of the Mortgaged Property(ies) from the
cross-collateralization and cross-default provisions of the New Potomac
Portfolio Loan, or the defeasance of each individual Note, and the release of
the related Mortgaged Property(ies) from the cross-collateralization and
cross-default provisions are allowed subject to certain conditions stated in the
loan documents including: (i) the payment of 125% of the loan amount allocated
to said property, and (ii) a debt service coverage ratio of at least 1.25x and a
maximum loan to value ratio of 80% for the remaining Mortgaged Properties.
Escrows. The New Potomac Portfolio Loan documents provide for certain
escrows of taxes and insurance and provide for replacement reserves. See Annex B
in this prospectus supplement for information regarding escrows and reserves.
Property Management. Sawyer Property Management of Maryland, LLC is the
property manager and an affiliate of Sawyer Realty Holdings, LLC. Established in
1992, Sawyer Realty Holdings, LLC currently manages 33 properties consisting of
7,288 multifamily units. The property manager is affiliated with the borrower.
Financial Information.
<Table>
<Caption>
MOST RECENT
(12/31/01)
UNDERWRITTEN (FULL YEAR)
------------ -----------
Effective Gross Income..................... $10,712,628 $10,689,395
Total Expenses............................. $ 5,812,076 $ 5,841,208
Net Operating Income (NOI)................. $ 4,900,552 $ 4,848,187
Cash Flow (CF)............................. $ 4,442,359 $ 4,414,050
DSCR on NOI................................ 1.59x 1.57x
DSCR on CF................................. 1.44x 1.43x
</Table>
200 Docks Corner Road
The Loan. The Mortgage Loan (the "Docks Corner Road Loan") is secured by a
first mortgage encumbering an industrial warehouse building in South Brunswick,
New Jersey. The Docks Corner Road Loan represents approximately 3.3% of the
Initial Pool Balance. Originated on August 24, 2001, the Docks Corner Road Loan
has a principal balance of $36,640,623 as of the Cut-off Date. The Docks Corner
Road Loan was made to AMB-SGP Docks, LLC, a Delaware limited liability company,
which is a special purpose, bankruptcy remote entity with an independent special
manager. Legal counsel to the borrower delivered a non-consolidation opinion in
connection with the origination of the Docks Corner Road Loan.
S-62
The Docks Corner Road Loan has a remaining term of 55 months and matures on
December 1, 2006. The Docks Corner Road Loan may not be prepaid on or prior to
October 1, 2003. If such prepayment occurs after October 1, 2003, but before
November 1, 2006, the borrower will be required to pay a prepayment premium
equal to the greater of: (A) 0.75% of the principal amount prepaid, or (B) an
amount sufficient to equal the net present value of the future cash flow from
the loan had such prepayment not occurred, discounted at the treasury rate
(interpolated based on the yield on the U.S. Treasury issue having a maturity
date closest to the maturity date for the loan).
The Property. The Mortgaged Property securing the Docks Corner Road Loan
is situated on 80.88 acres and was constructed in 1957 and 1997 as an industrial
warehouse building with 1,205,621 net rentable square feet. As of January 31,
2002, the occupancy rate for the Mortgaged Property securing the Docks Corner
Road Loan was 75.0%, however, the Mortgaged Property is 100.0% leased to 6
tenants, including a master lease of the currently unoccupied 25% by an
affiliate of the borrower.
The borrower under the Docks Corner Road Loan is affiliated with each of
AMB Property Corporation (rated "Baa1" by Moody's, "BBB" by S&P) and GIC Real
Estate, Inc., a real estate investment company controlled by the Government of
Singapore. The Mortgaged Property securing the Docks Corner Road Loan is
situated in New Jersey's Middlesex County, between New York City and
Philadelphia. In addition to containing the largest amount of industrial space
in New Jersey with over 210 million square feet, Middlesex County is also
recognized as a major transportation corridor, with the New Jersey Turnpike,
I-287, and the Garden State Parkway intersecting in the eastern part of the
county. The Mortgaged Property has undergone an extensive capital renovation
program, culminating in the 1997 construction of a 649,638 square foot addition.
The following table presents information relating to the major tenants at
the Mortgaged Property:
<Table>
<Caption>
% OF GROSS NET RENTABLE % OF NET DATE OF LEASE ANNUAL
TENANT REVENUE AREA (SF) RENTABLE AREA EXPIRATION RENT/SF
- ------ ---------- ------------ ------------- ------------- -------
Cooper Tire & Rubber
Company.................. 27.65% 329,202 27.31% 09/30/08 $4.18
AMB-SGP Operating
Partnership.............. 24.40% 303,843 25.20% 09/30/06 $4.00
Barnes & Noble............. 14.70% 172,249 14.29% 05/31/03 $4.25
Home Depot USA, Inc........ 13.05% 162,478 13.48% 03/04/03 $4.00
Franco Apparel Group,
Inc...................... 12.20% 148,187 12.29% 10/31/09 $4.10
Total Logistic Control..... 6.30% 89,662 7.44% 08/31/02 $3.50
</Table>
Escrows. The Docks Corner Road Loan documents provide for certain escrows
of taxes and provide for replacement and tenant improvement/leasing commission
reserves. In lieu of funded insurance escrows, the borrower deposited three
months of insurance premiums into an insurance reserve. In addition, the
borrower posted a $1,660,000 letter of credit for costs associated with leasing
the unoccupied space. See Annex B in this prospectus supplement for information
regarding escrows and reserves.
Lock Box Account. Tenant payments are deposited into a mortgagee
designated lock box account. The funds in this account may be withdrawn by the
borrower until such time as: (i) the debt service coverage ratio, as computed by
the lender, is less than 1.10x, or (ii) the occurrence of an event of default
pursuant to the Docks Corner Road Loan documents, at which time such funds shall
be applied as described in the Docks Corner Road Loan documents.
Property Management. Matrix Realty, Inc. is the property manager. Matrix
Realty, Inc. is an affiliate of Matrix Development Group. Matrix Development
Group has over 21 years of real estate experience and has developed a
diversified portfolio of over 10 million square feet of commercial space.
S-63
Financial Information.
<Table>
<Caption>
MOST RECENT (12/31/01)
UNDERWRITTEN (9 MOS. ANNUALIZED)
------------ ----------------------
Effective Gross Income............... $6,008,796 $5,916,526
Total Expenses....................... $1,475,023 $1,333,091
Net Operating Income (NOI)........... $4,533,773 $4,583,435
Cash Flow (CF)....................... $4,099,750 $4,038,871
DSCR on NOI.......................... 1.45x 1.46x
DSCR on CF........................... 1.31x 1.29x
</Table>
84 William Street
The Loan. The Mortgage Loan (the "84 William Street Loan") is secured by a
first mortgage encumbering a multifamily property in New York, New York. The 84
William Street Loan represents approximately 2.9% of the Initial Pool Balance.
Originated on October 15, 2001, the 84 William Street Loan has a principal
balance of $32,845,972 as of the Cut-off Date. The 84 William Street Loan was
made to 84 William Street Associates, LLC, a New York limited liability company,
which is a special purpose, bankruptcy remote entity. Legal counsel to the
borrower delivered a non-consolidation opinion in connection with the
origination of the 84 William Street Loan.
The 84 William Street Loan has a remaining term of 114 months and matures
on November 1, 2011. The 84 William Street Loan may not be prepaid on or prior
to August 1, 2011. The 84 William Street Loan is subject to defeasance with
United States government obligations beginning two years after the Delivery
Date.
The Property. The Mortgaged Property securing the 84 William Street Loan
is situated on 0.17 acres and was constructed in 1907 as an office building in
the financial district of Manhattan. The Mortgaged Property consists of a
seventeen-story apartment building that was recently converted to an 121 unit
apartment building with 111,184 square feet above grade and 5,500 square feet of
ground floor retail space. One hundred and twenty-one units are fully leased for
student housing under a lease for a ten-year term with one ten-year renewal
option with New School University, which was founded in 1919 and has a current
enrollment of 25,000 graduate and undergraduate students. As of January 30,
2002, the occupancy rate for the Mortgaged Property securing the 84 William
Street Loan was 100.0%.
The Mortgaged Property is situated on the southeast corner of William
Street and Maiden Lane in Manhattan. It is within five blocks of the major
subway lines connecting the downtown financial district to the rest of
Manhattan, Brooklyn, the Bronx and Queens.
The following table presents information relating to the unit configuration
of the Mortgaged Property:
<Table>
<Caption>
1 BEDROOM 2 BEDROOM
--------- ---------
Number of Units............................................. 119 2
Average Rent ($)............................................ 2,998 4,106
</Table>
Escrows. The 84 William Street Loan documents provide for replacement
reserves. Beginning in year 6 and continuing through year 9, the borrower will
deposit $8,333 on each scheduled payment date. In the event the master lessee
does not renew on or prior to the commencement of the 10th year of the loan
term, the borrower will deposit on each scheduled payment date $50,000 until the
maturity date. See Annex B in this prospectus supplement for information
regarding escrow reserves.
Lock Box Account. Tenant payments are deposited into a mortgagee
designated lock box account. The funds in this account are released to the
borrower until such time as: (i) the debt service coverage ratio, as computed by
the lender, is less than 1.10x, or (ii) the occurrence of an event of default
pursuant to the 84 William Street Loan documents, at which time such funds shall
be applied as described in the 84 William Street Loan documents.
S-64
Sponsor. The principals of the borrower, Mr. Berman and Mr. Fromer have
over twenty-five years of combined real estate experience, the majority of which
has been in multifamily development. Mr. Berman is a principal of the Witkoff
Group, a fully integrated real estate investment firm that owns a portfolio of
real estate across the United States. Witkoff currently owns more than 24
properties in New York, New Jersey, Pennsylvania, Texas, Illinois, Michigan and
England. Mr. Berman and Mr. Fromer have experience converting office buildings
to residential buildings in New York City.
Property Management. Metro Loft Management, LLC is the property manager.
Established in 1996, Metro Loft Management, LLC currently manages approximately
300 multifamily units in 4 properties in the New York City market.
Financial Information.
<Table>
<Caption>
MOST RECENT (1/31/02)
UNDERWRITTEN (1 MO. ANNUALIZED)
------------ ---------------------
Effective Gross Income................. $4,269,931 $4,234,536
Total Expenses......................... $ 945,056 $ 378,612
Net Operating Income (NOI)............. $3,324,875 $3,855,924
Cash Flow (CF)......................... $3,288,575 $3,855,924
DSCR on NOI............................ 1.25x 1.45x
DSCR on CF............................. 1.23x 1.45x
</Table>
Williamsburg Outlet Center
The Loan. The Mortgage Loan (the "Williamsburg Outlet Center Loan") is
secured by a first mortgage encumbering a retail shopping center in
Williamsburg, Virginia. The Williamsburg Outlet Center Loan represents
approximately 2.9% of the Initial Pool Balance. Originated on October 19, 2001,
the Williamsburg Outlet Center Loan has a principal balance of $32,288,033 as of
the Cut-off Date. The Williamsburg Outlet Center Loan was made to Williamsburg
Outlets, L.L.C., a Delaware limited liability company, which is a special
purpose, bankruptcy remote entity with an independent director. Legal counsel to
the borrower delivered a non-consolidation opinion in connection with the
origination of the Williamsburg Outlet Center Loan.
The Williamsburg Outlet Center Loan has a remaining term of 114 months and
matures on November 1, 2011. The Williamsburg Outlet Center Loan may not be
prepaid prior to August 1, 2011. The Williamsburg Outlet Center Loan is subject
to defeasance with United States government obligations beginning on the date
that is the earlier to occur of three years following October 19, 2001, or 25
months after the Delivery Date.
The Property. The Mortgaged Property securing the Williamsburg Outlet
Center Loan is situated on 38.32 acres and was constructed between 1988 and 1995
as a retail outlet mall with spaces totaling approximately 274,501 net rentable
square feet. As of January 31, 2002, the occupancy rate for the Mortgaged
Property securing the Williamsburg Outlet Center Loan was 97.7%.
The Mortgaged Property is within a one-hour drive of both the Richmond and
Norfolk metropolitan areas. Tourism is a major contributor to the local economy,
with several tourist attractions nearby, including Busch Gardens and Water
Country USA amusement parks, Jamestown and Yorktown historical parks, and the
Colonial Williamsburg restoration area. The Mortgaged Property, which consists
of more than 80 tenant spaces, has realized sales per square foot averaging
approximately $400/square foot since 1998. The occupancy rate for the Mortgaged
Property has been between 97%-100% since the Mortgaged Property was developed in
1988.
S-65
The following table presents information relating to the major tenants at
the Mortgaged Property:
<Table>
<Caption>
SALES PER % OF GROSS NET RENTABLE % OF NET DATE OF LEASE ANNUAL
TENANT SF REVENUE AREA (SF) RENTABLE AREA EXPIRATION RENT/SF
- ------ --------- ---------- ------------ ------------- ------------- -------
Reebok........................ $438 2.35% 10,000 3.64% 11/30/02 $13.00
Bass Company Store............ $310 2.64% 8,555 3.12% 10/31/02 $17.10
Nike.......................... $618 1.69% 8,200 2.99% 08/31/05 $11.40
</Table>
Escrows. The Williamsburg Outlet Center Loan documents provide for certain
escrows of taxes and insurance and provide for replacement and tenant
improvement/leasing commission reserves. See Annex B in this prospectus
supplement for information regarding escrows and reserves.
Lock Box Account. Tenant payments are deposited into a mortgagee
designated lock box account. The funds in this account are released to the
borrower until such time as: (i) the debt service coverage ratio, as computed by
the lender, is less than 1.30x, or (ii) the occurrence of an event of default
pursuant to the Williamsburg Outlet Center Loan documents, at which time such
funds shall be applied as described in the Williamsburg Outlet Center Loan
documents.
Sponsor. The members of the borrower are Triple Outlet World Joint Venture
and Williamsburg Finance, Inc. The borrower is controlled by Lothar Estein, who
is a partner of Estein & Associates, a Florida limited partnership that
syndicates investments in commercial real estate. Mr. Estein and his partners
have raised over $1 billion in equity for various investments since Estein &
Associates was formed in 1974. Currently he and his partners own a controlling
interest in 10 designer factory outlet shopping malls in the United States
containing a total of 4.75 million square feet.
Property Management. The Prime Outlets at Williamsburg, L.L.C. is the
property manager, which is an affiliate of Prime Retail, L.P. As of December 31,
2000, Prime Retail, L.P. managed 48 outlet centers encompassing 13,500,000
square feet of space in 25 states and Puerto Rico. The property manager is
affiliated with the borrower.
Financial Information.
<Table>
<Caption>
MOST RECENT
(12/31/01)
UNDERWRITTEN (FULL YEAR)
------------ -----------
Effective Gross Income...................... $7,769,520 $8,143,499
Total Expenses.............................. $2,163,658 $2,161,216
Net Operating Income (NOI).................. $5,605,862 $5,982,283
Cash Flow (CF).............................. $5,269,573 $5,927,371
DSCR on NOI................................. 1.91x 2.04x
DSCR on CF.................................. 1.80x 2.02x
</Table>
880 Troy Corporate Center
The Loan. The Mortgage Loan (the "880 Troy Corporate Center Loan") is
secured by a first mortgage encumbering an office building in Troy, Michigan.
The 880 Troy Corporate Center Loan represents approximately 2.8% of the Initial
Pool Balance. Originated on November 30, 2001, the 880 Troy Corporate Center
Loan has a principal balance of $31,851,704 as of the Cut-off Date. The 880 Troy
Corporate Center Loan was made to 880 West Long Lake Associates, L.L.C., a
Delaware limited liability company, which is a special purpose, bankruptcy
remote entity with an independent director. Legal counsel to the borrower
delivered a non-consolidation opinion in connection with the origination of the
880 Troy Corporate Center Loan.
The 880 Troy Corporate Center Loan has a remaining term of 115 months and
matures on December 1, 2011. The 880 Troy Corporate Center Loan may not be
prepaid on or prior to September 1, 2011. The 880 Troy Corporate Center Loan is
subject to defeasance with the United States government obligations beginning
two years after the Delivery Date.
S-66
The Property. The Mortgaged Property securing the 880 Troy Corporate
Center Loan was constructed in 1999 as a six-story office building with 186,565
net rentable square feet. As of February 12, 2002, the occupancy rate for the
Mortgaged Property securing the 880 Troy Corporate Center Loan was 100.0%. The
borrower owns the unit known as Unit A of the Troy Corporate Center, Oakland
County, Condominium Subdivision Plan No. 1395 (the "Condominium Regime"), which
unit has a value equal to fifty percent (50%) of the total value of, and 50% of
the voting interest in, the Condominium Regime. 840 West Long Lake Associates,
L.L.C., a Delaware limited liability company, which is an affiliate of the
borrower's sponsor, owns the remaining unit known as Unit B of the Condominium
Regime (which secures the 840 Troy Corporate Center Loan), which unit has a
value equal to the remaining fifty percent (50%) of the total value of, and
voting interest in, the Condominium Regime. All portions of the overall
condominium premises are common elements under the Condominium Regime.
The Mortgaged Property is situated in the northwest portion of Troy, a
suburban community outside of Detroit. The population in Troy is projected to
increase and average income levels are higher than those in the Detroit
metropolitan statistical area. The majority of the local population is employed
in a service industry, including finance, insurance and real estate. The
companies that provide employment in these categories require their employees to
work in office space. The only tenant, InterOne/Omnicom Group, is rated "A3" by
Moody's and "A" by S&P. Omnicom Group Inc. is a listed marketing and corporate
communications company with strategic holdings in over 1,500 agencies operating
in approximately 100 countries. For the year ended December 31, 2001 the company
posted revenues of $6.9 billion and had a market capitalization of $17.6 billion
as of April 23, 2002.
The following table presents information relating to the tenant at the
Mortgaged Property:
<Table>
<Caption>
% OF GROSS NET RENTABLE % OF NET DATE OF LEASE RENT
TENANT REVENUE AREA (SF) RENTABLE AREA EXPIRATION PER SF
- ------ ---------- ------------ ------------- ------------- ------
InterOne/Omnicom Group......... 100.00% 186,565 100.00% 12/31/19 $27.01
</Table>
Escrows. The 880 Troy Corporate Center Loan documents provide for certain
escrows of taxes and provide for replacement reserves. See Annex B in this
prospectus supplement for information regarding escrow reserves.
Early Termination Provision. In the event that InterOne/Omnicom Group's
business relationship with DaimlerChrysler is terminated, InterOne/Omnicom Group
has the right to terminate its lease with the borrower. Such termination
provision provides that in the event InterOne/Omnicom Group no longer provides
services to DaimlerChrysler, upon six months notice to the borrower,
InterOne/Omnicom Group has the right to terminate the lease any time on or after
the 10th anniversary of its commencement date (such date being in January,
2010). Upon the termination of its lease in either circumstance,
InterOne/Omnicom Group must pay a lease termination fee in an amount equal to
the sum of (i) the unamortized costs of the tenant improvements, (ii) any broker
fees, and (iii) basic rent, additional expenses and additional taxes in effect
for the six month period after such lease termination. The termination fee will
be assigned to the lender and may be used, at the lender's discretion, for
either: (a) a maximum of 18 monthly debt service payments, with the balance of
the funds dedicated to tenant improvement and leasing commission costs to
re-tenant the vacated space, or (b) provided that the borrower is not in default
under the 880 Troy Corporate Center Loan, reimbursements to the borrower for
tenant improvement and leasing commission costs at the Mortgaged Property. The
lease termination fee is approximately $6,400,000.
Lock Box Account. Tenant payments are deposited into a mortgagee
designated lock box account. The funds in this account are swept into a
collection account monthly for disbursement as described in the 880 Troy
Corporate Center Loan documents. The lender has control over both the lock box
and collection accounts.
Sponsor. The sponsor of the borrower is Michael Kojaian, a principal of
the Kojaian Companies, a national operation offering a full range of real estate
services. The Kojaian Companies own approximately 25 million square feet of real
estate in 10 states. In addition Mr. Kojaian sits on the board of the property
management company, Grubb & Ellis, and recently invested an additional $15.2
million in the company
S-67
through Kojaian Ventures, positioning Kojaian with the opportunity to exercise
the voting power of a majority stockholder.
Property Management. Grubb & Ellis Management Services, Inc. is the
property manager. Established in 1958, Grubb & Ellis Management Services, Inc.
currently manages 150 million square feet of space with 18 million square feet
in the local market.
Financial Information.
<Table>
<Caption>
MOST RECENT (1/31/02)
UNDERWRITTEN (1 MO. ANNUALIZED)
------------ ---------------------
Effective Gross Income................ $4,959,844 $5,044,584
Total Expenses........................ $1,547,522 $1,688,952
Net Operating Income (NOI)............ $3,412,322 $3,355,632
Cash Flow (CF)........................ $3,253,590 $3,355,632
DSCR on NOI........................... 1.32x 1.30x
DSCR on CF............................ 1.26x 1.30x
</Table>
The Plaza at Citrus Park
The Loan. The Mortgage Loan (the "Plaza at Citrus Park Loan") is secured
by a first mortgage encumbering a retail shopping center in Tampa, Florida. The
Plaza at Citrus Park Loan represents approximately 2.7% of the Initial Pool
Balance. Originated on December 20, 2001, the Plaza at Citrus Park Loan has a
principal balance of $29,896,007 as of the Cut-off Date. The Plaza at Citrus
Park Loan was made to KIR Tampa 003, LLC, a Delaware limited liability company,
which is a special purpose, bankruptcy remote entity with an independent
director. Legal counsel to borrower delivered a non-consolidation opinion in
connection with the origination of the Mortgage Loan.
The Plaza at Citrus Park Loan has a remaining term to Anticipated Repayment
Date of 116 months with an Anticipated Repayment Date of January 1, 2012, and
matures on January 1, 2032. The Plaza at Citrus Park Loan may not be prepaid
prior to October 1, 2011. The Plaza at Citrus Park Loan is subject to defeasance
with United States government obligations beginning on the date that is the
earlier to occur of four years following December 20, 2001, or 25 months after
the Delivery Date.
The Property. The Mortgaged Property securing the Plaza at Citrus Park
Loan is situated on 72.80 acres and was constructed between 1999 and 2000 as a
retail shopping center with both anchor and in-line spaces totaling
approximately 324,846 net rentable square feet. As of January 28, 2002, the
occupancy rate for the Mortgaged Property securing the Plaza at Citrus Park Loan
was 97.5%.
The borrower under the Plaza at Citrus Park Loan is an affiliate of Kimco
Realty Corporation (rated "A3" by Moody's, "A-" by S&P), a REIT that is publicly
traded on the New York Stock Exchange. Kimco Realty Corporation is an owner and
operator of neighborhood and community shopping centers. The Mortgaged Property
is situated adjacent to the Citrus Park Town Center Mall, a regional mall which
contains 1.1 million square feet of retail space.
S-68
The following table presents information relating to the anchor and major
tenants at the Mortgaged Property:
<Table>
<Caption>
NET % OF
SALES % OF RENTABLE NET DATE OF
PER GROSS AREA RENTABLE LEASE ANNUAL
TENANT SF REVENUE (SF) AREA EXPIRATION RENT/SF
- ------ ------ ---------- --------- -------- ---------- -------
Best Buy............................ $759 14.83% 46,121 14.20% 01/31/16 $12.75
Jo-Ann Fabrics...................... $112 11.59% 45,965 14.15% 01/31/16 $10.00
Bed, Bath & Beyond.................. $162 11.85% 40,852 12.58% 01/31/15 $11.50
The Sports Authority................ $141 9.17% 38,284 11.79% 07/31/10 $ 9.50
Ross Stores......................... $240 7.04% 30,233 9.31% 01/31/10 $ 9.24
PetsMart............................ $133 9.05% 26,085 8.03% 01/31/15 $13.75
Staples............................. UAV 6.66% 24,006 7.39% 10/31/10 $11.00
</Table>
Escrows. The Plaza at Citrus Park Loan documents provide for certain
escrows of taxes and insurance and provide for replacement and tenant
improvement/leasing commissions reserves. Insurance escrows are not required as
long as borrower remains under the control of Kimco Income Operating
Partnership, L.P. and delivers to the Master Servicer evidence of insurance
payments either annually or semi-annually. See Annex B in this prospectus
supplement for information regarding escrows and reserves.
Lock Box Account. The Plaza at Citrus Park Loan is structured with a
lockbox that becomes effective on the earlier to occur of: (i) an event of
default under the Plaza at Citrus Park Loan documents, (ii) failure of the
borrower to provide the Master Servicer with a loan commitment for refinancing
on or prior to October 1, 2011, (iii) the loan commitment provided pursuant to
clause (ii) above terminating or becoming void prior to funding, or (iv) the
Anticipated Repayment Date, at which time such funds shall be applied as
described in the Plaza at Citrus Park Loan documents.
Property Management. Kimco Realty Corporation is the property manager.
Kimco Realty Corporation currently manages a portfolio of approximately 500
retail centers encompassing 66,000,000 square feet of space in 41 states. The
property manager is affiliated with the borrower.
Financial Information.
<Table>
<Caption>
MOST RECENT (12/31/01)
UNDERWRITTEN (5 MOS. ANNUALIZED)
------------ ----------------------
Effective Gross Income............... $4,844,094 $4,507,083
Total Expenses....................... $1,223,014 $ 789,000
Net Operating Income (NOI)........... $3,621,080 $3,718,083
Cash Flow (CF)....................... $3,422,664 $3,718,083
DSCR on NOI.......................... 1.55x 1.59x
DSCR on CF........................... 1.46x 1.59x
</Table>
840 Troy Corporate Center
The Loan. The Mortgage Loan (the "840 Troy Corporate Center Loan") is
secured by a first mortgage encumbering an office building in Troy, Michigan.
The 840 Troy Corporate Center Loan represents approximately 2.5% of the Initial
Pool Balance. Originated on November 30, 2001, the 840 Troy Corporate Center
Loan has a principal balance of $ 27,941,839 as of the Cut-off Date. The 840
Troy Corporate Center Loan was made to 840 West Long Lake Associates, L.L.C., a
Delaware limited liability company, which is a special purpose, bankruptcy
remote entity with an independent director. Legal counsel to the borrower
delivered a non-consolidation opinion in connection with the origination of the
840 Troy Corporate Center Loan.
The 840 Troy Corporate Center Loan has a remaining term of 115 months and
matures on December 1, 2011. The 840 Troy Corporate Center Loan may not be
prepaid on or prior to September 1, 2011. The
S-69
840 Troy Corporate Center Loan is subject to defeasance with United States
government obligations beginning two years after the Delivery Date.
The Property. The Mortgaged Property securing the 840 Troy Corporate
Center Loan was constructed in 1999 as a six-story office building with 186,565
net rentable square feet. As of February 4, 2002, the occupancy rate for the
Mortgaged Property securing the 840 Troy Corporate Center Loan was 100.0%. The
borrower owns the unit known as Unit B of the Condominium Regime, which unit has
a value equal to fifty percent (50%) of the total value of, and 50% of the
voting interest in, the Condominium Regime. 880 West Long Lake Associates,
L.L.C., a Delaware limited liability company, which is an affiliate of the
borrower's sponsor, owns the remaining unit known as Unit A of the Condominium
Regime (which secures the 880 Troy Corporate Center Loan), which unit has a
value equal to the remaining fifty percent (50%) of the total value of, and
voting interest in, the Condominium Regime. All portions of the overall
condominium premises are common elements under the Condominium Regime.
The Mortgaged Property is situated in the northwest portion of Troy, a
suburban community outside of Detroit. The population in Troy is projected to
increase and average income levels are higher than those in the Detroit
metropolitan statistical area. The majority of the local population is employed
in a service industry, including finance, insurance and real estate. The
companies that provide employment in these categories require their employees to
work in office space. The major tenant at the Mortgaged Property securing the
840 Troy Corporate Center Loan, Omnicom Group Inc., is rated "A3" by Moody's and
"A" by S&P. Omnicom Group Inc. is a listed marketing and corporate
communications company with strategic holdings in over 1,500 agencies operating
in approximately 100 countries. For the year ended December 31, 2001 the company
posted revenues of $6.9 billion and had a market capitalization of $17.6 billion
as of April 23, 2002.
The following table presents information relating to the major tenants at
the Mortgaged Property:
<Table>
<Caption>
% OF GROSS NET RENTABLE % OF NET DATE OF LEASE RENT
TENANT REVENUE AREA (SF) RENTABLE AREA EXPIRATION PER SF
- ------ ---------- ------------ ------------- ------------- ------
InterOne/Omnicom Group......... 55.39% 110,158 59.05% 12/31/19 $27.28
Miller Canfield................ 12.99% 24,815 13.30% 10/31/14 $23.07
Textron Fastening Systems...... 9.69% 17,606 9.44% 3/31/05 $27.69
</Table>
Escrows. The 840 Troy Corporate Center Loan documents provide for certain
escrows of taxes and provide for replacement reserves. See Annex B in this
prospectus supplement for information regarding escrows and reserves.
Early Termination Provisions. The InterOne/Omnicom Group lease has two
early lease termination provisions. The first lease termination provision
provides that on January 1, 2010, the tenant has a one time option to vacate any
or all of the occupied space upon 12 months notice. Second, in the event that
InterOne/ Omnicom Group's business relationship with DaimlerChrysler is
terminated, InterOne/Omnicom Group has the right to terminate its lease with the
borrower. Such termination provision provides that in the event InterOne/Omnicom
Group no longer provides services to DaimlerChrysler, upon six months notice to
the borrower, InterOne/Omnicom Group has the right to terminate the lease any
time on or after the 10th anniversary of its commencement date (such date being
in January, 2010). Upon the termination of its lease in either circumstance,
InterOne/Omnicom Group must pay a lease termination fee in an amount equal to
the sum of (i) the unamortized costs of the tenant improvements, (ii) any broker
fees, and (iii) basic rent, additional expenses and additional taxes in effect
for the six month period after such lease termination. The termination fee will
be assigned to the lender and may be used, at the lender's discretion, for
either: (a) maximum of 18 monthly debt service payments, with the balance of the
funds dedicated to tenant improvement and leasing commission costs to re-tenant
the vacated space, or (b) provided that the borrower is not in default under the
840 Troy Corporate Center Loan, reimbursements to the borrower for tenant
improvement and leasing commission costs at the Mortgaged Property. The lease
termination fee, in either scenario, is approximately $4,700,000.
S-70
Lock Box Account. Tenant payments are deposited into a mortgagee
designated lock box account. The funds in this account are swept into a
collection account monthly for disbursement as described in the 840 Troy
Corporate Center Loan documents. The lender has control over both the lock box
and collection accounts.
Sponsor. The sponsor of the borrower is Michael Kojaian, a principal of
the Kojaian Companies, a national operation offering a full range of real estate
services. The Kojaian Companies own approximately 25 million square feet of real
estate in 10 states. In addition Mr. Kojaian sits on the board of the property
management company, Grubb & Ellis, and recently invested an additional $15.2
million in the company through Kojaian Ventures, positioning Kojaian with the
opportunity to exercise the voting power of a majority stockholder.
Property Management. Grubb & Ellis Management Services, Inc. is the
property manager. Established in 1958, Grubb & Ellis Management Services, Inc.
currently manages 150 million square feet of space with 18 million square feet
in the local market.
Financial Information.
<Table>
<Caption>
MOST RECENT
(1/31/02)
UNDERWRITTEN (1 MO. ANNUALIZED)
------------ ------------------
Effective Gross Income................... $4,800,829 $4,901,916
Total Expenses........................... $1,701,713 $1,595,436
Net Operating Income (NOI)............... $3,099,116 $3,306,480
Cash Flow (CF)........................... $2,854,392 $3,306,480
DSCR on NOI.............................. 1.37x 1.46x
DSCR on CF............................... 1.26x 1.46x
</Table>
ADDITIONAL MORTGAGE LOAN INFORMATION
General. For a detailed presentation of certain characteristics of the
Mortgage Loans and Mortgaged Properties, on an individual basis and in tabular
format, see Annex A hereto. Certain capitalized terms that appear herein are
defined in Annex A. See Annex B hereto for certain information with respect to
capital improvement, replacement, tax, insurance and tenant improvement reserve
accounts, as well as certain other information with respect to Multifamily
Mortgaged Properties, other than Manufactured Housing Communities.
Delinquencies. As of the Cut-off Date, none Mortgage Loans will have been
30 days or more delinquent in respect of any Monthly Payment during the past 12
months. All of the Mortgage Loans were originated during the 24 months prior to
the Cut-off Date.
Tenant Matters. Fifty-seven of the retail, office, industrial and
warehouse Mortgaged Properties, which represent security for 48.7% of the
Initial Pool Balance, are leased in large part to one or more Major Tenants. The
six concentrations of Major Tenants with respect to more than one property
(groups of Mortgage Loans where the same company is a Major Tenant of each
Mortgage Loan in the group) represent 128,090,534 of the Initial Pool Balance.
In addition, there are several cases in which a particular entity is a tenant at
multiple Mortgaged Properties, and although it may not be a Major Tenant at any
such property, it may be significant to the success of such properties. "Major
Tenants" means any tenant at a Commercial Mortgaged Property that rents at least
20% of the Leasable Square Footage (as defined in Annex A) at such property.
Certain of the Multifamily Mortgaged Properties have material
concentrations of student tenants.
Ground Leases and Other Non-Fee Interests. Four Mortgaged Properties,
which represent 2.9% of the Initial Pool Balance, are, in each such case,
secured primarily by a Mortgage on the applicable borrower's leasehold interest
in the related Mortgaged Property. Generally, in each case, either (i) the
ground lessor has subordinated its interest in the related Mortgaged Property to
the interest of the holder of the related
S-71
Mortgage Loan or (ii) the ground lessor has agreed to give the holder of the
Mortgage Loan notice of, and has granted such holder the right to cure, any
default or breach by the lessee. One of the above mentioned four Mortgaged
Properties, representing 1.1% of the Initial Pool Balance, is secured primarily
by a mortgage on the borrower's fee interest in the Mortgaged Property. An
unimproved portion of the Mortgaged Property (one of five entrances to the
Mortgaged Property) is secured by a ground lease that was given no value in the
underwriting process. See "Certain Legal Aspects of Mortgage
Loans -- Foreclosure -- Leasehold Considerations" in the accompanying
prospectus.
Subordinate Financing. The existence of subordinated indebtedness
encumbering a mortgaged property may increase the difficulty of refinancing the
related mortgage loan at maturity and the possibility that reduced cash flow
could result in deferred maintenance. Also, in the event that the holder of the
subordinated debt files for bankruptcy or is placed in involuntary receivership,
foreclosure on the mortgaged property could be delayed. In general, the Mortgage
Loans either prohibit the related borrower from encumbering the Mortgaged
Property with additional secured debt or require the consent of the holder of
the first lien prior to so encumbering such property other than three of the
Mortgage Loans, representing 2.2% of the Initial Pool Balance, which permit
additional unsecured debt. In addition, one Mortgaged Loan, representing 1.5% of
the Initial Pool Balance, permits additional secured debt under certain
circumstances. Regardless of whether the terms of a mortgage loan prohibit the
incurrence of subordinate debt, the related borrower may be permitted to incur
additional indebtedness secured by furniture, fixtures and equipment, and to
incur additional unsecured indebtedness. The borrower under 1 of the Mortgage
Loans, representing 0.6% of the Initial Pool Balance, has existing unsecured
indebtedness in addition to trade debt. One Mortgage Loan, representing 1.1% of
the Initial Pool Balance, provides that the members of the borrower have the
right to incur mezzanine debt under specified circumstances set forth in the
related loan documents. Except as described above, we do not know whether the
respective borrowers under the Mortgage Loans have any other debt outstanding.
See "Certain Legal Aspects of Mortgage Loans -- Subordinate Financing" in the
accompanying prospectus.
Lender/Borrower Relationships. The Mortgage Loan Sellers, the Depositor or
any of their affiliates may maintain certain banking or other relationships with
borrowers under the Mortgage Loans or their affiliates, and proceeds of the
Mortgage Loans may, in certain limited cases, be used by such borrowers or their
affiliates in whole or in part to pay indebtedness owed to the Mortgage Loan
Sellers, the Depositor or such other entities.
CERTAIN UNDERWRITING MATTERS
Environmental Assessments
Each of the Mortgaged Properties (except 4 Mortgaged Properties,
representing 1.3% of the Initial Pool Balance, which are subject to
environmental insurance policies in lieu of Phase I site assessments) was
subject to an environmental site assessment, an environmental site assessment
update or a transaction screen that was performed by an independent third-party
environmental consultant with respect to each Mortgaged Property securing a
Mortgage Loan in connection with the origination of such Mortgage Loan or was
required to have environmental insurance in lieu of an environmental site
assessment. In some cases, a third-party consultant also conducted a Phase II
environmental site assessment of a Mortgaged Property. The report of each such
assessment, update or screen is referred to herein as an "Environmental Report".
With respect to an Environmental Report, if any, (i) no such Environmental
Report provides that as of the date of the report there is a material violation
of applicable environmental laws with respect to any known circumstances or
conditions relating to the related Mortgaged Property; or (ii) if any such
Environmental Report does reveal any such circumstances or conditions with
respect to the related Mortgaged Property and such circumstances or conditions
have not been subsequently remediated in all material respects, then generally
one or more of the following was the case: (A) a party not related to the
related borrower was identified as a responsible party for such condition or
circumstance, (B) the related borrower was required to provide additional
security and/or to obtain and, for the period contemplated by the related
Mortgage Loan documents, maintain an operations and maintenance plan, (C) the
related borrower provided a "no further action" letter or other evidence that
applicable federal, state or local governmental authorities had no current
intention of taking any
S-72
action, and are not requiring any action, in respect of such condition or
circumstance, (D) such conditions or circumstances were investigated further and
based upon such additional investigation, an environmental consultant
recommended no further investigation or remediation, (E) the expenditure of
funds reasonably estimated to be necessary to effect such remediation was not
greater than two percent of the outstanding principal balance of the related
Mortgage Loan, (F) an escrow of funds exists reasonably estimated to be
sufficient for purposes of effecting such remediation, (G) the related borrower
or other responsible party is currently taking such actions, if any, with
respect to such circumstances or conditions as have been required by the
applicable governmental regulatory authority, (H) the related Mortgaged Property
is insured under a policy of insurance, subject to certain per occurrence and
aggregate limits and a deductible, against certain losses arising from such
circumstances and conditions or (I) a responsible party provided a guaranty or
indemnity to the related borrower to cover the costs of any required
investigation, testing, monitoring or remediation. There can be no assurance,
however, that a responsible party will be financially able to address the
subject condition or compelled to do so.
The 4 mortgaged properties, representing 1.3% of the initial pool balance,
referenced in the preceding paragraph that are subject to environmental
insurance have environmental insurance policies with American International
Specialty Lines Insurance Company in an amount equal to 125% of the original
loan principal balance with (i) a term that extends 5 years beyond the maturity
date for the related Mortgage Loan, (ii) no deductible, and (iii) standard
industry exclusions.
The Mortgage Loan Sellers will not make any representation or warranty with
respect to environmental conditions arising after the Delivery Date, and will
not be obligated to repurchase or substitute for any Mortgage Loan due to any
such condition.
Generally. Certain federal, state and local laws, regulations and
ordinances govern the management, removal, encapsulation or disturbance of
asbestos-containing materials ("ACMs"). Such laws, as well as common law, may
impose liability for releases of or exposure to ACMs and may provide for third
parties to seek recovery from owners or operators of real properties for
personal injuries associated with such releases.
Owners of residential housing constructed prior to 1978 are required by
federal law to disclose to potential residents or purchasers any known
lead-based paint hazards and violations can incur treble damages for any failure
to so notify. In addition, the ingestion of lead-based paint chips or dust
particles by children can result in lead poisoning, and the owner of a property
where such circumstances exist may be held liable for such injuries and for the
costs of removal or encapsulation of the lead-based paint. Testing for
lead-based paint or lead in the water was conducted with respect to certain of
the Mortgaged Properties, generally based on the age and/or condition thereof.
The Environmental Protection Agency has identified certain health risks
associated with elevated radon gas in buildings, and has recommended that
certain mitigating measures be considered.
When recommended by environmental site assessments, operations and
maintenance plans (addressing in some cases ACMs, lead-based paint, and/or
radon) were generally required, except in the case of certain Mortgaged
Properties where the environmental consultant conducting the assessment also
identified the condition of the ACM as good and non-friable (i.e., not easily
crumbled). In certain instances where related Mortgage Loan documents required
the submission of operations and maintenance plans, these plans have yet to be
received. There can be no assurance that recommended operations and maintenance
plans have been or will continue to be implemented. In many cases, certain
potentially adverse environmental conditions were not tested for. For example,
lead based paint and radon were tested only with respect to Multifamily
Mortgaged Properties and only if, in the case of lead based paint, the age of
the Mortgaged Property warranted such testing and, in the case of radon, radon
is prevalent in the geographic area where the Mortgaged Property is located;
however, at several Multifamily Mortgaged Properties located in geographic areas
where radon is prevalent, radon testing was not conducted. None of the testing
referenced in the preceding sentence was conducted in connection with a
Manufactured Housing Community.
Certain of the Mortgaged Properties have off-site leaking underground
storage tank ("UST") sites located nearby which the environmental assessments
either have indicated are not likely to contaminate the
S-73
related Mortgaged Properties but may require future monitoring or have
identified a party not related to the mortgagor (borrower) as responsible for
such condition. Certain other Mortgaged Properties may contain contaminants in
the soil or groundwater at levels which the environmental consultant has advised
are below regulatory levels or otherwise are indicative of conditions typically
not of regulatory concern and are not likely to require any further action. In
some cases, there was no further investigation of a potentially adverse
environmental condition. In certain instances where related Mortgage Loan
documents required UST repair or removal and the submission of a confirmation
that this work has been performed, the confirmations have yet to be received.
The information contained herein regarding environmental conditions at the
Mortgaged Properties is based on the environmental assessments and has not been
independently verified by the Depositor, the Mortgage Loan Sellers, the
Underwriters, the Master Servicer, the Special Servicer, the Trustee, the REMIC
Administrator or any of their respective affiliates. There can be no assurance
that such environmental assessments or studies, as applicable, identified all
environmental conditions and risks, or that any such environmental conditions
will not have material adverse effect on the value or cash flow of the related
Mortgaged Property.
The Pooling Agreement requires that the Special Servicer obtain an
environmental site assessment of a Mortgaged Property prior to acquiring title
thereto or assuming its operation. (In the event a Phase I assessment already
exists that is less than 12 months old, a new assessment will not be required
under the Pooling Agreement. In the event a Phase I assessment already exists
that is between 12 and 18 months old, only an updated data base will be
required.) Such requirement precludes enforcement of the security for the
related Mortgage Loan until a satisfactory environmental site assessment is
obtained (or until any required remedial action is taken), but will decrease the
likelihood that the Trust will become liable for a material adverse
environmental condition at the Mortgaged Property. However, there can be no
assurance that the requirements of the Pooling Agreement will effectively
insulate the Trust from potential liability for a materially adverse
environmental condition at any Mortgaged Property. See "Servicing of the
Mortgage Loans" in this prospectus supplement and "The Pooling and Servicing
Agreements -- Realization Upon Defaulted Mortgage Loans", "Risk
Factors -- Certain Factors Affecting Delinquency, Foreclosure and Loss of the
Mortgage Loans -- Adverse Environmental Conditions May Subject a Mortgage Loan
to Additional Risk" and "Certain Legal Aspects of Mortgage
Loans -- Environmental Considerations" in the accompanying prospectus.
Property Condition Assessments
Inspections of each of the Mortgaged Properties were conducted by
independent licensed engineers in connection with or subsequent to the
origination of the related Mortgage Loan, except that in connection with certain
of the Bank of America Mortgage Loans having an initial principal balance of
$2,000,000 or less, a site inspection may not have been performed in connection
with the origination of any such Mortgage Loan. Such inspections were generally
commissioned to inspect the exterior walls, roofing, interior construction,
mechanical and electrical systems and general condition of the site, buildings
and other improvements located at a Mortgaged Property. With respect to certain
of the Mortgage Loans, the resulting reports indicated a variety of deferred
maintenance items and recommended capital improvements. The estimated cost of
the necessary repairs or replacements at a Mortgaged Property was included in
the related property condition assessment; and, in the case of certain Mortgaged
Properties, such estimated cost exceeded $100,000. In general, with limited
exception, cash reserves were established, or other security obtained, to fund
or secure the payment of such estimated deferred maintenance or replacement
items. In addition, various Mortgage Loans require monthly deposits into cash
reserve accounts to fund property maintenance expenses.
Appraisals and Market Studies
An independent appraiser that was either a member of the Appraisal
Institute ("MAI") or state certified performed an appraisal (or updated an
existing appraisal) of each of the related Mortgaged Properties in connection
with the origination of each Mortgage Loan in order to establish the appraised
value of the related Mortgaged Property or Properties, except that in connection
with certain of the BOA-Originated Mortgage Loans and BOA-Bridger Mortgage Loans
having an initial principal balance of $2,000,000 or less, no
S-74
independent market study was performed prior to origination of such Mortgage
Loan. Such appraisal, appraisal update or property valuation was prepared on or
about the "Appraisal Date" indicated on Annex A hereto, and except for certain
mortgaged properties involving operating businesses, the appraiser represented
in such appraisal or in a letter or other agreement that the appraisal conformed
to the appraisal guidelines set forth in the Uniform Standards of Professional
Appraisal Practice ("USPAP"). In general, such appraisals represent the analysis
and opinions of the respective appraisers at or before the time made, and are
not guarantees of, and may not be indicative of, present or future value. There
can be no assurance that another appraiser would not have arrived at a different
valuation, even if such appraiser used the same general approach to and same
method of appraising the property. In addition, appraisals seek to establish the
amount a typically motivated buyer would pay a typically motivated seller. Such
amount could be significantly higher than the amount obtained from the sale of a
Mortgaged Property under a distress or liquidation sale.
None of the Depositor, the Mortgage Loan Sellers, the Underwriters, the
Master Servicer, the Special Servicer, the Trustee, the REMIC Administrator or
any of their respective affiliates has prepared or conducted its own separate
appraisal or reappraisal of any Mortgaged Property (except for appraisals
conducted with respect to some of the Mortgaged Properties at the time of
origination by appraisers then in the employ of Bank of America).
Zoning and Building Code Compliance. Bank of America, with respect to
the Bank of America Mortgage Loans and PMCF, with respect to PMCF Mortgage
Loans, have generally examined whether the use and operation of the Mortgaged
Properties were in material compliance with all zoning, land-use, ordinances,
rules, regulations and orders applicable to such Mortgaged Properties at the
time such Mortgage Loans were originated. The Mortgage Loan Sellers may have
considered, among other things, legal opinions, certifications from government
officials, zoning consultant's reports and/or representations by the related
borrower contained in the related Mortgage Loan documents and information which
is contained in appraisals and surveys, title insurance endorsements, or
property condition assessments undertaken by independent licensed engineers.
Certain violations may exist, but none of Bank of America, with respect to the
Bank of America Mortgage Loans or PMCF with respect to PMCF Mortgage Loans has
notice of any material existing violations with respect to the Mortgaged
Properties securing such Mortgage Loans which materially and adversely affect
(i) the value of the related Mortgaged Property as determined by the appraisal
performed in connection with the origination of the related Mortgage Loan or
(ii) the principal use of the Mortgaged Property as of the date of the related
Mortgage Loan's origination.
In some cases, the use, operation and/or structure of the related Mortgaged
Property constitutes a permitted nonconforming use and/or structure that may not
be rebuilt to its current state in the event of a material casualty event. With
respect to such Mortgaged Properties, Bank of America, with respect to the Bank
of America Mortgage Loans has determined that in the event of a material
casualty affecting the Mortgaged Property that:
(1) the extent of the nonconformity is not material;
(2) insurance proceeds together with the value of the remaining
property would be available and sufficient to pay off the related Mortgage
Loan in full;
(3) the Mortgaged Property, if permitted to be repaired or restored in
conformity with current law, would constitute adequate security for the
related Mortgage Loan; or
(4) the risk that the entire Mortgaged Property would suffer a
material casualty to such a magnitude that it could not be rebuilt to its
current state is remote.
PMCF with respect to PMCF Mortgage Loans where the use, operation and/or
structure of the related Mortgaged Property constitutes a permitted
nonconforming use has generally required the related borrower to obtain law and
ordinance insurance coverage unless PMCF determined in its reasonable business
judgment that (i) the extent of the nonconformity was not material, (ii) the
Mortgaged Property, if permitted to be repaired or restored in conformity with
current law should constitute adequate security for the related Mortgage Loan or
(iii) the risk that the entire Mortgaged Property would suffer a material
casualty to such a magnitude that it could not be rebuilt to its current state
was remote.
S-75
Although each Mortgage Loan Seller expects insurance proceeds to be
available for application to the related Mortgage Loan in the event of a
material casualty, no assurance can be given that such proceeds would 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 current law, no
assurance can be given as to what its value would be relative to the remaining
balance of the related Mortgage Loan or what would be the revenue-producing
potential of the property.
Hazard, Liability and Other Insurance. The Mortgage Loans generally
require that each Mortgaged Property be insured by a hazard insurance policy in
an amount (subject to an approved deductible) at least equal to the lesser of
the outstanding principal balance of the related Mortgage Loan and 100% of the
replacement cost of the improvements located on the related Mortgaged Property,
and if applicable, that the related hazard insurance policy contain appropriate
endorsements to avoid the application of co-insurance and not permit reduction
in insurance proceeds for depreciation; provided that, in the case of certain of
the Mortgage Loans, the hazard insurance may be in such other amounts as was
required by the related originators.
In addition, if any material improvements on any portion of a Mortgaged
Property (other than one Mortgaged Property which, while located in a flood
zone, has no flood insurance due to, among other reasons, an elevation study
conducted in connection with this property that concluded the property's lowest
elevation exceeds the base flood elevation) securing any Mortgage Loan was, at
the time of the origination of such Mortgage Loan, in an area identified in the
Federal Register by the Federal Emergency Management Agency as having special
flood hazards, and flood insurance was available, a flood insurance policy
meeting any requirements of the then-current guidelines of the Federal Insurance
Administration is required to be in effect with a generally acceptable insurance
carrier, in an amount representing coverage generally not less than the least of
(1) in the case of Bank of America Mortgage Loans: (a) the outstanding
principal balance of the related Bank of America Mortgage Loan, (b) the
full insurable value of the related Mortgaged Property, (c) the maximum
amount of insurance available under the National Flood Insurance Act of
1973, as amended, or (d) 100% of the replacement cost of the improvements
located on the related Mortgaged Property; or
(2) in the case of the PMCF Mortgage Loans: (a) the outstanding
principal balance of the related PMCF Mortgage Loan, (b) the minimum amount
required under the terms of the coverage to compensate for any damage or
loss on a replacement basis, or (c) the maximum amount of insurance
available under the National Flood Insurance Act of 1973, as amended.
In general, the standard form of hazard insurance policy covers physical
damage to, or destruction of, the improvements on the Mortgaged Property by
fire, lightning, explosion, smoke, windstorm and hail, riot or strike and civil
commotion, subject to the conditions and exclusions set forth in each policy.
Each Mortgage Loan generally also requires the related borrower to maintain
comprehensive general liability insurance against claims for personal and bodily
injury, death or property damage occurring on, in or about the related Mortgaged
Property in an amount generally equal to at least $1,000,000.
Each Mortgage Loan generally further requires the related borrower to
maintain business interruption insurance in an amount not less than
approximately 100% of the gross rental income from the related Mortgaged
Property for not less than 6 months.
In general, the Mortgage Loans (including those secured by Mortgaged
Properties located in California) do not require earthquake insurance.
Twenty-five of the Mortgaged Properties, securing 16.8% of the Initial Pool
Balance, are located in areas that are considered a high earthquake risk. These
areas include all or parts of the states of California, Oregon, Washington, Utah
and Nevada. No Mortgaged Property has a "probable maximum loss" "PML" in excess
of 20% except one Mortgaged Property, securing 1.4% of the Initial Pool Balance,
which has a PML of 23% and which the Mortgage Loan required earthquake
insurance.
S-76
THE MORTGAGE LOAN SELLERS
Bank of America is a national banking association. The principal office of
Bank of America is in Charlotte, North Carolina. Bank of America is a
wholly-owned subsidiary of NB Holdings Corporation, which in turn is a
wholly-owned subsidiary of Bank of America Corporation.
PMCF is a limited liability company organized under the laws of the State
of Delaware. PMCF maintains its principal office in Newark, New Jersey. It is a
wholly owned subsidiary of Prudential Mortgage Capital Company, LLC which is
also a limited liability company organized under the laws of the State of
Delaware.
The information set forth herein concerning Bank of America has been
provided by Bank of America. The information concerning PMCF has been provided
by PMCF. Neither the Depositor nor any Underwriter makes any representation or
warranty as to the accuracy or completeness of such information.
ASSIGNMENT OF THE MORTGAGE LOANS; REPURCHASES AND SUBSTITUTIONS
On or prior to the Delivery Date, by agreement with the Depositor, the
Mortgage Loan Sellers (except as described in the next paragraph) will assign
and transfer the Mortgage Loans, without recourse, to or at the direction of the
Depositor, to the Trustee for the benefit of the Certificateholders. In
connection with such assignment, Bank of America will be required to deliver the
following documents, among others, to the Trustee with respect to each Bank of
America Mortgage Loan and PMCF will be required to deliver the following
documents among others to the Trustee with respect to each PMCF Mortgage Loan:
(1) the original Mortgage Note, endorsed (without recourse) to the
order of the Trustee or a lost note affidavit and an indemnity with a copy
of such Mortgage Note;
(2) the original or a copy of the related Mortgage(s) and, if
applicable, originals or copies of any intervening assignments of such
document(s), in each case (unless the particular document has not been
returned from the applicable recording office) with evidence of recording
thereon;
(3) the original or a copy of any related assignment(s), of leases and
rents (if any such item is a document separate from the Mortgage) and, if
applicable, originals or copies of any intervening assignments of such
document(s), in each case (unless the particular document has not been
returned from the applicable recording office) with evidence of recording
thereon;
(4) an assignment of each related Mortgage in favor of the Trustee, in
recordable form (except for, solely with respect to Mortgages sent for
recording but not yet returned, any missing recording information with
respect to such Mortgage) (or a certified copy of such assignment as sent
for recording);
(5) an assignment of any related assignment(s) of leases and rents (if
any such item is a document separate from the Mortgage) in favor of the
Trustee, in recordable form (except for any missing recording information
with respect to such Mortgage) (or a certified copy of such assignment as
sent for recording);
(6) a title insurance policy (or copy thereof) effective as of the
date of the recordation of the Mortgage Loan, together with all
endorsements or riders thereto (or if the policy has not yet been issued,
an original or copy or a written commitment "marked-up" at the closing of
such Mortgage Loan, interim binder or the pro forma title insurance policy
evidencing a binding commitment to issue such policy);
(7) an assignment in favor of the Trustee of each effective UCC
financing statement in the possession of the transferor (or a certified
copy of such assignment as sent for filing);
(8) in those cases where applicable, the original or a copy of the
related ground lease; and
(9) in those cases where applicable, a copy of any letter of credit
relating to a Mortgage Loan.
S-77
The Trustee is required to review the documents delivered thereto by Bank
of America with respect to each Bank of America Mortgage Loan and PMCF with
respect to each PMCF Mortgage Loan within a specified period following such
delivery, and the Trustee will hold the related documents in trust. If there
exists a breach of any of the delivery obligations made by the related Mortgage
Loan Seller as generally described in items (1) through (9) in the preceding
paragraph, and that breach materially and adversely affects the interests of the
Certificateholders, or any of them with respect to the affected loan, including
but not limited to, a material and adverse effect on any of the distributions
payable with respect to any of the Certificates or on the value of those
Certificates, then Bank of America (if, but only if, the affected Mortgage Loan
is a Bank of America Mortgage Loan) or PMCF (if, but only if, the affected
Mortgage Loan is a PMCF Mortgage Loan) will be obligated, except as otherwise
described below, within a period of 90 days following its receipt of notice of
such omission or defect to (1) deliver the missing documents or cure the defect
in all material respects, as the case may be, (2) repurchase (or cause the
repurchase of) the affected Mortgage Loan at a price (the "Purchase Price")
generally equal to the unpaid principal balance of such Mortgage Loan, plus any
accrued but unpaid interest thereon (other than Excess Interest) at the related
Mortgage Rate to but not including the Due Date in the Collection Period of
repurchase, plus any related unreimbursed Servicing Advances (as defined
herein), any interest on any Advances and any related unreimbursed Additional
Trust Fund Expenses, or (3) substitute a Qualified Substitute Mortgage Loan (as
defined below) for such Mortgage Loan and pay the Trustee a shortfall amount
equal to the difference between the Purchase Price of the deleted Mortgage Loan
calculated as of the date of substitution and the Stated Principal Balance of
such Qualified Substitute Mortgage Loan as of the date of substitution (the
"Substitution Shortfall Amount"). If such defect or breach is capable of being
cured but not within the 90 day period and Bank of America or PMCF as the case
may be, has commenced and is diligently proceeding with the cure of such defect
or breach within such 90 day period, then Bank of America or PMCF as the case
may be, shall have, with respect to such Mortgage Loans only, an additional 90
days to complete such cure or, failing such cure, to repurchase (or cause the
repurchase of) or substitute for the related Mortgage Loan (such possible
additional cure period shall not apply in the event of a defect that causes the
Mortgage Loan not to constitute a "qualified mortgage" within the meaning of
Section 860G(a)(3) of the Internal Revenue Code of 1986, as amended (the "Code")
or not to meet certain Code-specified criteria with respect to customary
prepayment penalties or permissible defeasance). A "Qualified Substitute
Mortgage Loan" in connection with the replacement of a defective Mortgage Loan
as contemplated by the Pooling Agreement, is any other mortgage loan which, on
the date of substitution, (i) has a principal balance, after deduction of the
principal portion of any unpaid Monthly Payment due on or before the date of
substitution, not in excess of the Stated Principal Balance of the defective
Mortgage Loan; (ii) is accruing interest at a fixed rate of interest at least
equal to that of the defective Mortgage Loan; (iii) has the same Due Date as,
and a grace period for delinquent Monthly Payments that is no longer than, the
Due Date and grace period, respectively, of the defective Mortgage Loan; (iv) is
accruing interest on the same basis as the defective Mortgage Loan (for example,
on the basis of a 360-day year consisting of twelve 30-day months); (v) has a
remaining term to stated maturity not greater than, and not more than two years
less than, that of the defective Mortgage Loan and, in any event, has a maturity
date not later than two years prior to the Rated Final Distribution Date; (vi)
has a then current loan-to-value ratio not higher than, and a then current debt
service coverage ratio not lower than, the loan-to-value ratio and debt service
coverage ratio, respectively, of the defective Mortgage Loan as of the Closing
Date; (vii) has comparable prepayment restrictions to those of the defective
Mortgage Loan, (viii) will comply (except in a manner that would not be adverse
to the interests of the Certificateholders (as a collective whole) in or with
respect to such mortgage loan), as of the date of substitution, with all of the
representations relating to the defective Mortgage Loan set forth in or made
pursuant to the related Mortgage Loan Purchase and Sale Agreement; (ix) has a
Phase I Environmental Assessment and a property condition report relating to the
related Mortgage Property in its Servicing File, which Phase I Environmental
Assessment will evidence that there is no material adverse environmental
condition or circumstance at the related Mortgage Property for which further
remedial action may be required under applicable law, and which property
condition report will evidence that the related Mortgage Property is in good
condition with no material damage or deferred maintenance; and (x) constitutes a
"qualified replacement mortgage" within the meaning of Section 860G(a)(4) of the
Code; provided, however, that if more than one mortgage loan is to be
substituted for any defective Mortgage Loan, then all such proposed replacement
mortgage loans shall, in the aggregate, satisfy
S-78
the requirement specified in clause (i) of this definition and each such
proposed replacement mortgage loan shall, individually, satisfy each of the
requirements specified in clauses (ii) through (x) of this definition; and
provided, further, that no mortgage loan shall be substituted for a defective
Mortgage Loan unless (x) such prospective replacement mortgage loan shall be
acceptable to the Directing Certificateholder (or, if there is no Directing
Certificateholder then serving, to the Holders of Certificates representing a
majority of the Voting Rights allocated to the Controlling Class), in its (or
their) sole discretion, and (y) each Rating Agency shall have confirmed in
writing to the Trustee that such substitution will not in and of itself result
in an Adverse Rating Event with respect to any Class of Rated Certificates (such
written confirmation to be obtained by, and at the expense of, the related
Mortgage Loan Seller affecting the substitution).
Except with respect to the Large Crossed Loan and the Small Crossed Loan,
if (x) any Mortgage Loan is required to be repurchased or substituted as
contemplated above, (y) such Mortgage Loan is a Crossed-Collateralized Mortgage
Loan and (z) the applicable defect or breach does not constitute a defect or
breach, as the case may be, as to any related Crossed-Collateralized Mortgage
Loan (without regard to this paragraph), then the applicable defect or breach
(as the case may be) will be deemed to constitute a defect or breach (as the
case may be) as to any related Crossed-Collateralized Mortgage Loan and the
related Mortgage Loan Seller which sold the loan to the Depositor will be
required to repurchase or substitute for any related Crossed-Collateralized
Mortgage Loan in the manner described above unless, in the case of a breach,
both of the following conditions would be satisfied if the related Mortgage Loan
Seller were to repurchase or substitute for only the affected
Crossed-Collateralized Mortgage Loans as to which a breach had occurred without
regard to this paragraph: (i) (a) the debt service coverage ratio for any
related Crossed-Collateralized Mortgage Loans for the four calendar quarters
immediately preceding the repurchase or substitution is not less than 1.25x, and
(b) the loan-to-value ratio for any related Crossed-Collateralized Mortgage
Loans is not greater than 75% and (ii) the then debt service coverage ratio and
the loan-to-value ratio for the related Cross-Collateralized Mortgage Loans is
no worse than the debt service coverage ratio and the loan-to-value ratio for
the related Cross-Collateralized Mortgage Loans immediately prior to the
repurchase or substitution for such affected Crossed-Collateralized Mortgage
Loan. In the event that both of the conditions set forth in the preceding
sentence would be so satisfied, the related Mortgage Loan Seller may elect
either to repurchase or substitute for only the affected Crossed-Collateralized
Mortgage Loan as to which the defect or breach exists or to repurchase or
substitute for the aggregate Crossed-Collateralized Mortgage Loans.
Notwithstanding the foregoing, if (a) any Mortgage Loan is required to be
repurchased or substituted as contemplated above, and (b) such Mortgage Loan is
the Small Crossed Loan, then the applicable defect or breach will not be deemed
to constitute a defect or breach (as the case may be) for the Large Crossed
Loan, and the related Mortgage Loan Seller which sold the Large Crossed Loan to
the Depositor will only be required to repurchase or substitute for the Small
Crossed Loan.
To the extent that the related Mortgage Loan Seller repurchases or
substitutes for an affected Cross-Collateralized Mortgage Loan in the manner
prescribed above while the Trustee continues to hold any related
Cross-Collateralized Mortgage Loans, the related Mortgage Loan Seller and the
Depositor have agreed in the related Mortgage Loan Purchase and Sale Agreement
to forebear from enforcing any remedies against the other's Primary Collateral
(as defined below), but each is permitted to exercise remedies against the
Primary Collateral securing its respective affected Cross-Collateralized
Mortgage Loans, including, with respect to the Trustee, the Primary Collateral
securing Mortgage Loans still held by the Trustee, so long as such exercise does
not impair the ability of the other party to exercise its remedies against its
Primary Collateral. If the exercise of remedies by one party would impair the
ability of the other party to exercise its remedies with respect to the Primary
Collateral securing the Cross-Collateralized Mortgage Loans held by such party,
then both parties have agreed in the related Mortgage Loan Purchase and Sale
Agreement to forbear from exercising such remedies until the loan documents
evidencing and securing the relevant Mortgage Loans can be modified in a manner
that complies with the Mortgage Loan Purchase and Sale Agreement to remove the
threat of impairment as a result of the exercise of remedies. "Primary
Collateral" shall mean the Mortgaged Property directly securing a
Cross-Collateralized Mortgage Loan and excluding any property as to which the
related lien may only be foreclosed upon by exercise of cross-collateralization
of such loans.
S-79
The respective repurchase, substitution or cure obligations of the Mortgage
Loan Sellers described in this prospectus supplement will constitute the sole
remedies available to the Certificateholders for any failure on the part of Bank
of America or PMCF, as the case may be, to deliver any of the above-described
documents with respect to any Mortgage Loan or for any defect in any such
document, and neither the Depositor nor any other person will be obligated to
repurchase the affected Mortgage Loan if Bank of America or PMCF as the case may
be, defaults on its obligation to do so. Notwithstanding the foregoing, if any
of the above-described documents is not delivered with respect to any Mortgage
Loan because such document has been submitted for recording, and neither such
document nor a copy thereof, in either case with evidence of recording thereon,
can be obtained because of delays on the part of the applicable recording
office, then Bank of America or PMCF will not be required to repurchase (or
cause the repurchase of) the related affected Mortgage Loan on the basis of such
missing document so long as the related Mortgage Loan Seller continues in good
faith to attempt to obtain such document or such copy.
The Pooling Agreement requires that the assignments in favor of the Trustee
with respect to each Mortgage Loan described in clauses (4), (5) and (7) of the
first paragraph under this heading be submitted for recording in the real
property records or filing with the Secretary of State, as applicable, of the
appropriate jurisdictions within a specified number of days following the
delivery at the expense of Bank of America (with respect to the Bank of America
Mortgage Loans only) or PMCF (with respect to the PMCF Mortgage Loans only). See
"The Pooling and Servicing Agreements -- Assignment of Mortgage Loans;
Repurchases" in the accompanying prospectus.
REPRESENTATIONS AND WARRANTIES; REPURCHASES AND SUBSTITUTIONS
Mortgage Loans. The Depositor will acquire the Mortgage Loans from each
Mortgage Loan Seller pursuant to a separate mortgage loan purchase and sale
agreement (each a "Mortgage Loan Purchase and Sale Agreement") to be dated as of
the Cut-off Date. Pursuant to the related Mortgage Loan Purchase and Sale
Agreement, Bank of America will represent and warrant solely with respect to the
Bank of America Mortgage Loans and PMCF will represent and warrant solely with
respect to the PMCF Mortgage Loans, in each case as of the Delivery Date or as
of such earlier date specifically provided in the related representation or
warranty (subject to certain exceptions specified in the related Mortgage Loan
Purchase and Sale Agreement) among other things, substantially as follows:
(1) the information set forth in the schedule of Mortgage Loans (the
"Mortgage Loan Schedule") attached to the Pooling Agreement (which will
contain a limited portion of the information set forth in Annex A) with
respect to the Mortgage Loans is true, complete and correct in all material
respects as of the Delivery Date;
(2) based on the related lender's title insurance policy (or, if not
yet issued, a pro forma title policy or a "marked-up" commitment) each
Mortgage related to and delivered in connection with each Mortgage Loan
constitutes a valid enforceable first lien on the related Mortgaged
Property subject only to (a) the lien of current real estate taxes, ground
rents, water charges, sewer rents and assessments not yet due and payable,
(b) covenants, conditions and restrictions, rights of way, easements and
other matters that are of public record and/or are referred to in the
related lender's title insurance policy (or, if not yet issued, referred to
in a pro forma title policy or a "marked-up" commitment), none of which
materially interferes with the security intended to be provided by such
Mortgage, the current principal use of the related Mortgaged Property or
the current ability of the related Mortgaged Property to generate income
sufficient to service such Mortgage Loan, (c) exceptions and exclusions
specifically referred to in such lender's title insurance policy (or, if
not yet issued, referred to in a pro forma title policy or "marked-up"
commitment), none of which materially interferes with the security intended
to be provided by such Mortgage, the current principal use of the related
Mortgaged Property or the current ability of the related Mortgaged Property
to generate income sufficient to service such Mortgage Loan, (d) other
matters to which like properties are commonly subject, none of which
materially interferes with the security intended to be provided by such
Mortgage, the current principal use of the related Mortgaged Property or
the current ability of the related Mortgaged Property to generate income
sufficient to service the related Mortgage Loan, (e) the rights of tenants
(as tenants only) under leases (including
S-80
subleases) pertaining to the related Mortgaged Property which the Mortgage
Loan Seller did not require to be subordinated to the lien of such Mortgage
and which do not materially interfere with the security intended to be
provided by such Mortgage, the current principal use of the related
Mortgaged Property or the current ability of the related Mortgaged Property
to generate income sufficient to service the related Mortgage Loan, and (f)
if such Mortgage Loan constitutes a Cross-Collateralized Mortgage Loan, the
lien of the Mortgage for another Mortgage Loan contained in the same
cross-collateralized group (the foregoing items (a) through (f) being
herein referred to as the "Permitted Encumbrances");
(3) the Mortgage(s) and Mortgage Note for each Mortgage Loan and all
other documents executed by or on behalf of the related borrower with
respect to each Mortgage Loan are the legal, valid and binding obligations
of the related borrower (subject to any non-recourse provisions contained
in any of the foregoing agreements and any applicable state anti-deficiency
legislation), enforceable in accordance with their respective terms, except
as such enforcement may be limited by bankruptcy, fraudulent transfer,
insolvency, reorganization or other laws affecting the rights of creditors
generally and by general principles of equity regardless of whether such
enforcement is considered in a proceeding in equity or at law;
(4) no Mortgage Loan was as of the Delivery Date, or during the
twelve-month period prior thereto, 30 days or more past due in respect of
any Monthly Payment, without giving effect to any applicable grace period;
(5) to the knowledge of the Mortgage Loan Seller, there is no valid
right of offset or rescission, defense or counterclaim available to the
related borrower with respect to any Mortgage Loan or Mortgage Note;
(6) to the knowledge of the Mortgage Loan Seller, based solely upon
inquiry of its servicer, there exists no material default, breach,
violation or event of acceleration existing under any Mortgage Note or
Mortgage;
(7) in the case of each Mortgage Loan, the related Mortgage Property
is (a) not the subject of any proceeding pending for the condemnation of
all or any material portion of any Mortgaged Property, and (b) there is any
damage at any Mortgaged Property that is free and clear of any damage
caused by fire or other casualty which would materially and adversely
affect its value as security for such Mortgaged Loan;
(8) at origination, each Mortgage Loan complied with or was exempt
from, all applicable usury laws;
(9) in connection with or subsequent to the origination of the related
Mortgage Loan, one or more environmental site assessments, an update of a
previously conducted assessment or had a transaction screen has been
performed with respect to each Mortgaged Property, and the Mortgage Loan
Seller has no actual knowledge of any material and adverse environmental
condition or circumstance affecting such Mortgaged Property that was not
disclosed in the related report(s);
(10) each Mortgaged Property securing a Mortgage Loan is covered by a
title insurance policy (or, if a title insurance policy has not yet been
issued in respect of any Mortgage Loan, a policy meeting the foregoing
description is evidenced by a commitment for title insurance "marked-up" at
the closing of such loan) in the original principal amount of such Mortgage
Loan after all advances of principal, insuring that the related Mortgage is
a valid first priority lien on such Mortgaged Property subject only to the
exceptions stated therein;
(11) the proceeds of each Mortgage Loan have been fully disbursed
(except in those cases where the full amount of the Mortgage Loan has been
disbursed but a portion thereof is being held in escrow or reserve accounts
pending the satisfaction of certain conditions relating to leasing, repairs
or other matters with respect to the related Mortgaged Property), and there
is no requirement for future advances with respect thereto;
S-81
(12) the terms of the Mortgage Note and Mortgage(s) for each Mortgage
Loan have not been impaired, waived, altered, satisfied, canceled,
subordinated, rescinded or modified in any manner which would materially
interfere with the benefits of the security intended to be provided by such
Mortgage, except as specifically set forth in the related Mortgage File;
(13) to the Mortgage Loan Seller's actual knowledge there are no
delinquent taxes, assessments or other outstanding charges affecting any
Mortgaged Property;
(14) the related borrower's interest in each Mortgaged Property
securing a Mortgage Loan consists of a fee simple and/or leasehold estate
or interest in real property and the improvements thereon; and
(15) no Mortgage Loan contains any equity participation by the lender,
is convertible by its terms into an equity ownership interest in the
related Mortgaged Property or the related borrower, provides for any
contingent or additional interest in the form of participation in the cash
flow of the related Mortgaged Property or provides for the negative
amortization of interest except for an ARD Loan to the extent described
under "-- Certain Terms and Conditions of the Mortgage
Loans -- Hyperamortization" in this prospectus supplement.
In the related Mortgage Loan Purchase and Sale Agreement, the applicable
Mortgage Loan Seller will make certain representations concerning the priority
and certain terms of ground leases securing those Mortgage Loans transferred by
it (but only by it). Bank of America will represent and warrant as of the
Delivery Date, that, immediately prior to the transfer of the Bank of America
Mortgage Loans, Bank of America had good and marketable title to, and was the
sole owner of, each Bank of America Mortgage Loan and had full right and
authority to sell, assign and transfer such Bank of America Mortgage Loan. PMCF
will also represent and warrant, as of the Delivery Date, that immediately prior
to the transfer of the PMCF Mortgage Loans, PMCF had good and marketable title
to the PMCF Mortgage Loans, and was the sole owner of each such PMCF Mortgage
Loan and had the full right and authority to sell, assign and transfer such PMCF
Mortgage Loan.
If Bank of America discovers or is notified of a breach of any of the
foregoing representations and warranties with respect to any Bank of America
Mortgage Loan or PMCF discovers or is notified of a breach of any of the
foregoing representations and warranties with respect to any PMCF Mortgage Loan
and that breach materially and adversely affects the interests of the
Certificateholders, or any of them, with respect to the affected loan,
including, but not limited to, a material and adverse effect on any of the
distributions payable with respect to any of the Certificates or on the value of
those Certificates, then either Bank of America (if, but only if, the affected
Mortgage Loan is a Bank of America Mortgage Loan or PMCF (if, but only if the
affected Mortgage Loan is a PMCF Mortgage Loan) will be obligated, within a
period of 90 days following its discovery or receipt of notice of such defect or
breach to cure such breach in all material respects, repurchase such Mortgage
Loan at the applicable Purchase Price or substitute a Qualified Substitute
Mortgage Loan and pay any Substitution Shortfall Amount as described in this
prospectus supplement. However, if such defect or breach is capable of being
cured (but not within the 90 day period) and Bank of America or PMCF as the case
may be, has commenced and is diligently proceeding with cure of such defect or
breach within 90 day period, Bank of America or PMCF as the case may be, shall
have an additional 90 days to complete such cure or, failing such cure, to
repurchase the related Mortgage Loan or substitute a Qualified Substitute
Mortgage Loan and pay any Substitution Shortfall Amount as described in this
prospectus supplement (such possible additional cure period shall not apply on
the event of a defect that causes the Mortgage Loan not to constitute a
"qualified mortgage" within the meaning of Section 860G(a)(3) of the Code or not
to meet certain Code-specified criteria with respect to customary prepayment
penalties or permissible defeasance).
The foregoing cure, substitution or repurchase obligations described in the
immediately preceding paragraph will constitute the sole remedy available to the
Certificateholders for any breach of any of the foregoing representations and
warranties, and neither the Depositor nor any other person will be obligated to
repurchase any affected Mortgage Loan in connection with a breach of such
representations and warranties if Bank of America or PMCF as applicable,
defaults on its obligation to do so. Bank of America and PMCF will be the sole
Warranting Parties (as defined in the accompanying prospectus) in respect of the
Mortgage
S-82
Loans, Bank of America being the sole Warranting Party with respect to the Bank
of America Mortgage Loans and PMCF being the sole Warranting Party with respect
to the PMCF Mortgage Loans. See "The Pooling and Servicing
Agreements -- Representations and Warranties; Repurchases" in the accompanying
prospectus. In addition, each of the foregoing representations and warranties by
Bank of America or PMCF is made as of the Delivery Date or such earlier date
specifically provided in the related representation and warranty, and Bank of
America or PMCF as applicable will not be obligated to cure or repurchase any
Mortgage Loan or substitute a Qualified Substitute Mortgage Loan and pay any
Substitution Shortfall Amount as described in this prospectus supplement due to
any breach arising from events subsequent to the date as of which such
representation or warranty was made.
CHANGES IN MORTGAGE POOL CHARACTERISTICS
The description in this prospectus supplement of the Mortgage Pool and the
Mortgaged Properties is based upon the Mortgage Pool as constituted on the
Cut-off Date, as adjusted for the scheduled principal payments due on the
Mortgage Loans on or before the Cut-off Date. Prior to the issuance of the
Offered Certificates, a Mortgage Loan may be removed from the Mortgage Pool if
the Depositor deems such removal necessary or appropriate or if it is prepaid.
The Depositor believes that the information set forth herein is representative
of the characteristics of the Mortgage Pool as constituted as of the Cut-off
Date, although the range of Mortgage Rates and maturities, as well as the other
characteristics of the Mortgage Loans described herein, may vary.
A Current Report on Form 8-K (the "Form 8-K") will be available to
purchasers of the Offered Certificates on or shortly after the Delivery Date and
will be filed, together with the Pooling Agreement, with the Securities and
Exchange Commission within fifteen days after the initial issuance of the
Offered Certificates. In the event Mortgage Loans are removed from the Mortgage
Pool as set forth in the proceeding paragraph, such removal will be noted in the
Form 8-K.
SERVICING OF THE MORTGAGE LOANS
GENERAL
The Master Servicer and the Special Servicer, either directly or through
sub-servicers, will each be required to service and administer the respective
Mortgage Loans for which it is responsible on behalf of the Trust, in the best
interests and for the benefit of the Certificateholders, in accordance with any
and all applicable laws, the terms of the Pooling Agreement, and the respective
Mortgage Loans and, to the extent consistent with the foregoing, the following
standard (the "Servicing Standard"): (a) with the same care, skill, prudence and
diligence as is normal and usual in its general mortgage servicing and REO
property management activities on behalf of third parties or on behalf of
itself, whichever is higher, with respect to mortgage loans and REO properties
that are comparable to those for which it is responsible hereunder; (b) with a
view to the timely collection of all scheduled payments of principal and
interest under the Mortgage Loans, the full collection of all Prepayment
Premiums that may become payable under the Mortgage Loans and, in the case of
the Special Servicer, if a Mortgage Loan comes into and continues in default and
if, in the good faith and reasonable judgment of the Special Servicer, no
satisfactory arrangements can be made for the collection of the delinquent
payments (including payments of Prepayment Premiums), the maximization of the
recovery on such Mortgage Loan to the Certificateholders, as a collective whole,
on a present value basis; and (c) without regard to: (i) any known relationship
that the Master Servicer (or any affiliate thereof) or the Special Servicer (or
any affiliate thereof), as the case may be, may have with the related Mortgagor
or with any other party to the Pooling Agreement; (ii) the ownership of any
Certificate by the Master Servicer (or any affiliate thereof) or the Special
Servicer (or any affiliate thereof), as the case may be; (iii) the obligation of
the Master Servicer to make Advances, (iv) the obligation of the Special
Servicer to direct the Master Servicer to make Servicing Advances; (v) the right
of the Master Servicer (or any affiliate thereof) or the Special Servicer (or
any affiliate thereof), as the case may be, to receive reimbursement of costs,
or the sufficiency of any compensation payable to it, hereunder or with respect
to any particular transaction; (vi) any ownership, servicing and/or management
by the Master Servicer (or any affiliate thereof)
S-83
or the Special Servicer (or any affiliate thereof), as the case may be, of any
other mortgage loans or real property and (8) any obligation of the Master
Servicer or Special Servicer, or any affiliate thereof, to repurchase or
substitute for a Mortgage Loan as a Mortgage Loan Seller.
In general, the Master Servicer will be responsible for the servicing and
administration of all the Mortgage Loans as to which no Servicing Transfer Event
(as defined herein) has occurred and all Corrected Mortgage Loans (as defined
herein), and the Special Servicer will be obligated to service and administer
each Mortgage Loan (other than a Corrected Mortgage Loan) as to which a
Servicing Transfer Event has occurred (each, a "Specially Serviced Mortgage
Loan") and each Mortgaged Property acquired on behalf of the Certificateholders
in respect of a Defaulted Mortgage Loan through foreclosure, deed-in-lieu of
foreclosure or otherwise (upon acquisition, an "REO Property"). A "Servicing
Transfer Event" with respect to any Mortgage Loan consists of any of the
following events:
(a) the related mortgagor has failed to make when due any Monthly
Payment (including a Balloon Payment) or any other payment required under
the related Mortgage Loan documents, which failure continues, or the Master
Servicer determines, in its reasonable, good faith judgment, will continue,
unremedied (i) except in the case of a delinquent Balloon Payment, for 60
days beyond the date on which the subject payment was due, and (ii) solely
in the case of a delinquent Balloon Payment, for one Business Day beyond
the related maturity date or, if the related Mortgagor has delivered to the
Master Servicer, on or before the related maturity date, a refinancing
commitment reasonably acceptable to the Special Servicer, for such longer
period, not to exceed 60 days beyond the related maturity date, during
which the refinancing would occur; or
(b) the Master Servicer or the Special Servicer has determined, in its
reasonable, good faith judgment, that a default in the making of a Monthly
Payment (including a Balloon Payment) or any other material payment
required under the related Mortgage Loan documents is likely to occur
within 30 days and either (i) the related mortgagor has requested a
material modification of the payment terms of the Mortgage Loan or (ii)
such default is likely to remain unremedied for at least the period
contemplated by clause (a) of this definition; or
(c) the Master Servicer or the Special Servicer has determined, in its
reasonable, good faith judgment, that a default, other than as described in
clause (a) or (b) of this definition, has occurred that may materially
impair the value of the related Mortgaged Property as security for the
Mortgage Loan, which default has continued unremedied for the applicable
cure period under the terms of the Mortgage Loan (or, if no cure period is
specified, for 60 days); or
(d) a decree or order of a court or agency or supervisory authority
having jurisdiction in the premises in an involuntary action against the
related Mortgagor under any present or future federal or state bankruptcy,
insolvency or similar law or the appointment of a conservator, receiver or
liquidator in any insolvency, readjustment of debt, marshalling of assets
and liabilities or similar proceeding, 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 undismissed, undischarged
or unstayed for a period of 60 days; or
(e) the related Mortgagor shall have consented to the appointment of a
conservator, receiver or liquidator in any insolvency, readjustment of
debt, marshalling of assets and liabilities or similar proceeding of or
relating to such Mortgagor or of or relating to all or substantially all of
its property; or
(f) the related Mortgagor shall have admitted in writing its inability
to pay its debts generally as they become due, filed a petition to take
advantage of any applicable insolvency or reorganization statute, made an
assignment for the benefit of its creditors, or voluntarily suspended
payment of its obligations; or
(g) the Master Servicer shall have received notice of the commencement
of foreclosure or similar proceedings with respect to the related Mortgaged
Property.
S-84
A Mortgage Loan will cease to be a Specially Serviced Mortgage Loan (and
will become a "Corrected Mortgage Loan" as to which the Master Servicer will
re-assume servicing responsibilities) at such time as such of the following as
are applicable occur with respect to the circumstances identified above that
caused the Mortgage Loan to be characterized as a Specially Serviced Mortgage
Loan (and provided that no other Servicing Transfer Event then exists):
(w) in the case of the circumstances described in clause (a) above,
if and when the related mortgagor has made three consecutive full and
timely Monthly Payments under the terms of such Mortgage Loan (as such
terms may be changed or modified in connection with a bankruptcy or
similar proceeding involving the related Mortgagor or by reason of a
modification, waiver or amendment granted or agreed to by the Master
Servicer or the Special Servicer pursuant to the Pooling Agreement);
(x) in the case of the circumstances described in clauses (b), (d),
(e) and (f) above, if and when such circumstances cease to exist in the
reasonable, good faith judgment of the Special Servicer;
(y) in the case of the circumstances described in clause (c) above,
if and when such default is cured in the reasonable, good faith judgment
of the Special Servicer; and
(z) in the case of the circumstances described in clause (g) above,
if and when such proceedings are terminated.
The Master Servicer shall continue to collect information and prepare all
reports to the Trustee required under the Pooling Agreement with respect to any
Specially Serviced Mortgage Loans and REO Properties, and further to render
incidental services with respect to any Specially Serviced Mortgage Loans and
REO Properties as are specifically provided for in the Pooling Agreement. The
Master Servicer and the Special Servicer shall not have any responsibility for
the performance by each other of their respective duties under the Pooling
Agreement.
The Special Servicer will prepare a report (an "Asset Status Report") for
each Mortgage Loan which becomes a Specially Serviced Mortgage Loan not later
than 45 days after the servicing of such Mortgage Loan is transferred to the
Special Servicer. Each Asset Status Report will be delivered to the Directing
Certificateholder (as defined below), the Master Servicer, the Trustee and the
Rating Agencies. The Directing Certificateholder may object in writing via
facsimile or e-mail to any Asset Status Report within 10 business days of
receipt; provided, however, the Special Servicer (i) will, following the
occurrence of an extraordinary event with respect to the related Mortgaged
Property, take any action set forth in such Asset Status Report before the
expiration of a ten business day period if it has reasonably determined that
failure to take such action would materially and adversely affect the interests
of the Certificateholders and it has made a reasonable effort to contact the
Directing Certificateholder and (ii) in any case, will determine whether such
disapproval is not in the best interest of all the Certificateholders pursuant
to the Servicing Standard. In connection with making such affirmative
determination, the Special Servicer may request (but is not required to request)
a vote by all Certificateholders, but shall in any event take the recommended
action after making such affirmative determination. If the Directing
Certificateholder does not disapprove an Asset Status Report within 10 business
days, the Special Servicer shall implement the recommended action as outlined in
such Asset Status Report. However, the Special Servicer may not take any action
that is contrary to applicable law or the terms of the applicable Mortgage Loan
documents. If the Directing Certificateholder disapproves such Asset Status
Report and the Special Servicer has not made the affirmative determination
described above, the Special Servicer will revise such Asset Status Report as
soon as practicable thereafter, but in no event later than 30 days after such
disapproval. The Special Servicer will revise such Asset Status Report until the
Directing Certificateholder fails to disapprove such revised Asset Status Report
as described above or until the Special Servicer, in accordance with the
Servicing Standard, makes a determination that (i) such objection is not in the
best interests of the Certificateholders or (ii) following the occurrence of an
extraordinary event with respect to the related Mortgaged Property, the failure
to take any action set forth in such Asset Status Report before the expiration
of a ten business day period would materially and adversely affect the interests
of the Certificateholders, and it has made a reasonable effort to contact the
Directing Certificateholder.
S-85
The "Directing Certificateholder" is the Controlling Class
Certificateholder selected by the majority Certificateholder of the Controlling
Class, as certified by the Trustee from time to time; provided, however, that
(i) absent such selection, or (ii) until a Directing Certificateholder is so
selected, or (iii) upon receipt of a notice from a majority of the Controlling
Class, by Certificate Balance, that a Directing Certificateholder is no longer
designated, the Controlling Class Certificateholder that owns the largest
aggregate Certificate Balance of the Controlling Class will be the Directing
Certificateholder.
A "Controlling Class Certificateholder" is each Holder (or Certificate
Owner, if applicable) of a Certificate of the Controlling Class as certified to
the Trustee from time to time by such Holder (or Certificate Owner).
The "Controlling Class" will be, as of any date of determination, the
outstanding Class of Sequential Pay Certificates with the lowest payment
priority (the Class A Certificates being treated as a single class for this
purpose) that has a then outstanding Certificate Balance at least equal to 25%
of its initial Certificate Balance (or, if no Class of Sequential Pay
Certificates has a Certificate Balance at least equal to 25% of its initial
Certificate Balance, then the Controlling Class shall be the outstanding Class
of Sequential Pay Certificates with the then largest outstanding Class principal
balance). The Controlling Class as of the Delivery Date will be the Class Q
Certificates.
The Directing Certificateholder may direct the Special Servicer to take, or
to refrain from taking, certain actions as the Directing Certificateholder may
deem advisable or as to which provision is otherwise made in the Pooling
Agreement; provided that no such direction and no objection contemplated by the
prior paragraph or this paragraph may require or cause the Special Servicer or
the Master Servicer, as applicable, to violate any REMIC provisions, any
provision of the Pooling Agreement or applicable law, including the Special
Servicer's or the Master Servicer's, as applicable, obligation to act in
accordance with the Servicing Standard or expose the Master Servicer, the
Special Servicer, the Trust Fund or the Trustee to liability, or materially
expand the scope of the Special Servicer's responsibilities under the Pooling
Agreement or cause the Special Servicer to act or fail to act in a manner which,
in the reasonable judgment of the Special Servicer, is not in the best interests
of the Certificateholders in which event the Special Servicer or the Master
Servicer, as applicable, shall disregard any such direction or objection.
The Directing Certificateholder will have no liability to the
Certificateholders for any action taken, or for refraining from the taking of
any action, in good faith pursuant to the Pooling Agreement, or for errors in
judgment; provided, however, that the Directing Certificateholder will not be
protected against any liability which would otherwise be imposed by reason of
willful misfeasance, bad faith or negligence in the performance of duties or by
reason of reckless disregard of obligations or duties. By its acceptance of a
Certificate, each Certificateholder confirms its understanding that the
Directing Certificateholder may take actions that favor the interests of one or
more Classes of the Certificates over other Classes of the Certificates, and
that the Directing Certificateholder may have special relationships and
interests that conflict with those of holders of some Classes of the
Certificates; and, absent willful misfeasance, bad faith or negligence on the
part of the Directing Certificateholder, each Certificateholder agrees to take
no action against the Directing Certificateholder or any of its officers,
directors, employees, principals or agents as a result of such a special
relationship or conflict.
The Master Servicer and Special Servicer will each be required to service
and administer any group of related Cross-Collateralized Mortgage Loans as a
single Mortgage Loan as and when it deems necessary and appropriate, consistent
with the Servicing Standard. If any Cross-Collateralized Mortgage Loan becomes a
Specially Serviced Mortgage Loan, then each other Mortgage Loan that is
cross-collateralized with it shall also become a Specially Serviced Mortgage
Loan. Similarly, no Cross-Collateralized Mortgage Loan shall subsequently become
a Corrected Mortgage Loan, unless and until all Servicing Transfer Events in
respect of each other Mortgage Loan with which it is cross-collateralized, are
remediated or otherwise addressed as contemplated above.
S-86
Set forth below is a description of certain pertinent provisions of the
Pooling Agreement relating to the servicing of the Mortgage Loans. Reference is
also made to the accompanying prospectus, in particular to the section captioned
"The Pooling and Servicing Agreements," for additional important information
regarding the terms and conditions of the Pooling Agreement as such terms and
conditions relate to the rights and obligations of the Master Servicer and the
Special Servicer thereunder.
THE MASTER SERVICER
Bank of America, N.A. will be the Master Servicer. Bank of America, N.A.
will be the Master Servicer through its Capital Markets Servicing Group
("BOA-CMSG"), a division of Bank of America, N.A. BOA-CMSG's principal offices
are located at 333 South Beaudry Avenue, 26th Floor, Los Angeles, California
90017. BOA-CMSG was formed in 1994 as a result of the Security Pacific National
Bank and Bank of America NT&SA merger, combining term loan portfolios from bank
units, affiliates and the CMBS portfolio from the Bank of America NT&SA's trust
group. As a result of the merger between Bank of America NT&SA and NationsBank,
N.A., BOA-CMSG was reorganized to perform warehouse and primary servicing for
Bank of America N.A.'s conduit platform. As of December 21, 2001, BOA-CMSG acted
as a full, master or primary servicer on 22 CMBS transactions which aggregate to
approximately 3,219 loans. Bank of America, N.A. has been approved as a master
servicer by S&P, Moody's and Fitch.
The information set forth herein concerning the Master Servicer has been
provided by the Master Servicer. Neither the Depositor nor any Underwriter or
other person other than the Master Servicer makes any representation or warranty
as to the accuracy or completeness of such information.
THE SPECIAL SERVICER
Lennar Partners, Inc., a Florida corporation and a subsidiary of LNR
Property Corporation ("LNR"), will initially be appointed as special servicer of
the Mortgage Loans. The principal executive offices of the Special Servicer are
located at 760 NW 107th Avenue, Miami, Florida, 33172, and its telephone number
is (305) 485-2000. LNR, its subsidiaries and affiliates are involved in the real
estate investment and management business and engage principally in: (i)
acquiring, developing, managing and repositioning commercial and multi-family
residential real estate properties, (ii) acquiring (often in partnership with
financial institutions or real estate funds) and managing portfolios of mortgage
loans and other real estate related assets, (iii) investing in unrated and
non-investment grade rated commercial mortgage-backed securities as to which the
Company has the right to be special servicer, and (iv) making high yielding real
estate related loans and equity investments. The Special Servicer has regional
offices located across the country in Florida, Georgia, Oregon and California.
As of November 30, the Special Servicer and its affiliates were managing a
portfolio which included an original count of 12,800 assets in most states with
an original face value of over 66 billion, most of which are commercial real
estate assets. Included in this managed portfolio are $64 billion of commercial
real estate assets representing 82 securitization transactions, for which the
Special Servicer is servicer or special servicer.
The information set forth herein concerning the Special Servicer has been
provided by the Special Servicer and neither the Depositor nor any Underwriter
makes any representation or warranty as to the accuracy or completeness of such
information.
SUB-SERVICERS
The Master Servicer and Special Servicer may each delegate its servicing
obligations in respect of the Mortgage Loans serviced thereby to one or more
third-party servicers (each, a "Sub-Servicer"); provided that the Master
Servicer or Special Servicer, as the case may be, will remain obligated under
the Pooling Agreement for such delegated duties. A majority of the Mortgage
Loans are currently being primary serviced by third-party servicers that are
entitled to and will become Sub-Servicers of such loans on behalf of the Master
Servicer. Each sub-servicing agreement between the Master Servicer or Special
Servicer, as the case may be, and a Sub-Servicer (each, a "Sub-Servicing
Agreement") must provide that, if for any reason the Master Servicer or Special
Servicer, as the case may be, is no longer acting in such capacity, the Trustee
or
S-87
any successor to such Master Servicer or Special Servicer will assume such
party's rights and obligations under such Sub-Servicing Agreement if the
Sub-Servicer meets certain conditions set forth in the Pooling Agreement. The
Master Servicer and Special Servicer will each be required to monitor the
performance of Sub-Servicers retained by it.
The Trust will not be responsible for any fees owed to any Sub-Servicer
retained by the Master Servicer or the Special Servicer. Each Sub-Servicer
retained thereby will be reimbursed by the Master Servicer or Special Servicer,
as the case may be, for certain expenditures which it makes, generally to the
same extent the Master Servicer or Special Servicer would be reimbursed under
the Pooling Agreement. See "Servicing of the Mortgage Loans -- Servicing and
Other Compensation and Payment of Expenses" in this prospectus supplement.
SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES
The principal compensation to be paid to the Master Servicer in respect of
its master servicing activities will be the Master Servicing Fee. The "Master
Servicing Fee" will be payable monthly on a loan-by-loan basis from amounts
received in respect of interest on each Mortgage Loan (including Specially
Serviced Mortgage Loans and Mortgage Loans as to which the related Mortgaged
Property has become an REO Property), for each calendar month commencing with
May 2002 or any applicable portion thereof, will accrue at the applicable Master
Servicing Fee Rate and will be computed on the same principal amount as interest
accrues from time to time during such calendar month (or portion thereof) on
such Mortgage Loan or is deemed to accrue from time to time during such calendar
month (or portion thereof) on such REO Loan, as the case may be, and shall be
calculated on the same Interest Accrual Basis as is applicable for such Mortgage
Loan or REO Loan, as the case may be. The "Master Servicing Fee Rate" will range
from approximately 0.050% to 0.140% per annum, on a loan-by-loan basis, with a
weighted average Master Servicing Fee Rate of 0.093% per annum as of the Cut-off
Date. As additional servicing compensation, the Master Servicer will be entitled
to retain Prepayment Interest Excesses (as described below) collected on the
Mortgage Loans. In addition, the Master Servicer will be authorized to invest or
direct the investment of funds held in any and all accounts maintained by it
that constitute part of the Certificate Account, in certain government
securities and other investment grade obligations specified in the Pooling
Agreement ("Permitted Investments"), and the Master Servicer will be entitled to
retain any interest or other income earned on such funds, but will be required
to cover any losses from its own funds without any right to reimbursement,
except to the extent such losses are incurred solely as the result of the
insolvency of the federal or state chartered depository institution or trust
company that holds such investment accounts, so long as such depository
institution or trust company satisfied the qualifications set forth in the
Pooling Agreement in the definition of "eligible account" at the time such
investment was made.
If a borrower prepays a Mortgage Loan, in whole or in part, after the Due
Date but on or before the Determination Date in any calendar month, the amount
of interest (net of related Master Servicing Fees and any Excess Interest)
accrued on such prepayment from such Due Date to, but not including, the date of
prepayment (or any later date through which interest accrues) will, to the
extent actually collected, constitute a "Prepayment Interest Excess".
Conversely, if a borrower prepays a Mortgage Loan, in whole or in part, after
the Determination Date in any calendar month and does not pay interest on such
prepayment through the end of such calendar month, then the shortfall in a full
month's interest (net of related Master Servicing Fees and any Excess Interest)
on such prepayment will constitute a "Prepayment Interest Shortfall". Prepayment
Interest Excesses (to the extent not offset by Prepayment Interest Shortfalls)
collected on the Mortgage Loans will be retained by the Master Servicer as
additional servicing compensation. The Master Servicer will deliver to the
Trustee for deposit in the Distribution Account on each Master Servicer
Remittance Date, without any right of reimbursement thereafter, a cash payment
(a "Compensating Interest Payment") in an amount equal to the sum of (i) the
aggregate amount of Balloon Payment Interest Shortfalls, if any, incurred in
connection with Balloon Payments received in respect of the Mortgage Loans
during the most recently ended Collection Period, plus (ii) the lesser of (A)
the aggregate amount of Prepayment Interest Shortfalls, if any, incurred in
connection with principal prepayments received in respect of the Mortgage Loan
during the most recently ended Collection Period, and (B) the aggregate of (1)
that portion of its Master
S-88
Servicing Fees for the related Collection Period that is, in the case of each
and every Mortgage Loan and REO Loan for which such Master Servicing Fees are
being paid in such Collection Period, calculated at 0.01% per annum, and (2) all
Prepayment Interest Excesses received in respect of the Mortgage Loans during
the most recently ended Collection Period, plus (iii) in the event that any
principal prepayment was received on the last Business Day of the second most
recently ended Collection Period, but for any reason was not included as part of
the Master Servicer Remittance Amount for the preceding Master Servicer
Remittance Date (other than because of application of the subject principal
prepayment for another purpose), the total of all interest and other income
accrued or earned on the amount of such principal prepayment while it is on
deposit with the Master Servicer. A "Balloon Payment Interest Shortfall" is,
with respect to any Balloon Loan with a Maturity Date that occurs after, or that
provides for a grace period for its Balloon Payment that runs past, the
Determination Date in any calendar month, and as to which the Balloon Payment is
actually received after the Determination Date in such calendar month (but no
later than its Maturity Date or, if there is an applicable grace period, beyond
the end of such grace period), the amount of interest, to the extent not
collected from the related Determination Date, that would have accrued on the
principal portion of such Balloon Payment during the period from the related
Maturity Date to, but not including, the first day of the calendar month
following the month of maturity (less the amount of related Master Servicing
Fees that would have been payable from that uncollected interest and, if
applicable, exclusive of any portion of that uncollected interest that would
have been Default Interest). In no event will the rights of the
Certificateholders to offset of the aggregate Prepayment Interest Shortfalls be
cumulative.
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" for any particular
calendar month or applicable portion thereof will accrue with respect to each
Specially Serviced Mortgage Loan and each Mortgage Loan as to which the related
Mortgaged Property has become an REO Property, at a rate equal to 0.25% per
annum (the "Special Servicing Fee Rate"), on the same principal amount as
interest accrues from time to time during such calendar month (or portion
thereof) on such Specially Serviced Mortgage Loan or is deemed to accrue from
time to time during such calendar month (or portion thereof) on such REO Loan,
as the case may be, and shall be calculated on the same Interest Accrual Basis
as is applicable for such Specially Serviced Mortgage Loan or REO Loan, as the
case may be. All such Special Servicing Fees will be payable monthly from
general collections on the Mortgage Loans and any REO Properties on deposit in
the Certificate Account from time to time. A "Workout Fee" will in general be
payable with respect to each Corrected Mortgage Loan. As to each Corrected
Mortgage Loan, the Workout Fee will be payable out of, and will be calculated by
application of a "Workout Fee Rate" of 1.0% to, each collection of interest
(other than Default Interest (as defined below) and Excess Interest) and
principal (including scheduled payments, prepayments, Balloon Payments,
Liquidation Proceeds (other than in connection with Liquidation Proceeds paid by
the holder or holders of Certificates evidencing a majority interest in the
Controlling Class) and payments at maturity) received on such Mortgage Loan for
so long as it remains a Corrected Mortgage Loan. The Workout Fee with respect to
any Corrected Mortgage Loan will cease to be payable if such loan again becomes
a Specially Serviced Mortgage Loan or if the related Mortgaged Property becomes
an REO Property; provided that a new Workout Fee will become payable if and when
such Mortgage Loan again becomes a Corrected Mortgage Loan. If the Special
Servicer is terminated, resigns or is replaced, it shall retain the right to
receive any and all Workout Fees payable with respect to (i) any Mortgage Loans
serviced by it that became Corrected Mortgage Loans during the period that it
acted as Special Servicer and were still such at the time of such termination or
resignation and (ii) (other than if it was terminated for cause in which case
only the preceding clause (i) shall apply) any Specially Serviced Mortgage Loans
for which the Special Servicer has resolved all of the circumstances and/or
conditions causing any such Mortgage Loan to be a Specially Serviced Mortgage
Loan but which had not as of the time the Special Servicer was terminated become
a Corrected Mortgage Loan solely because the related mortgagor had not made
three consecutive timely Monthly Payments and which subsequently becomes a
Corrected Mortgage Loan as a result of the related mortgagor making such three
consecutive timely monthly payments (and the successor to the Special Servicer
shall not be entitled to any portion of such Workout Fees), in each case until
the Workout Fee for any such loan ceases to be payable in accordance with the
preceding sentence. A "Liquidation Fee" will be payable with respect to each
Specially Serviced Mortgage Loan as to which the
S-89
Special Servicer obtains a full or discounted payoff or unscheduled or partial
payments in lieu thereof with respect thereto from the related borrower and,
except as otherwise described below, with respect to any Specially Serviced
Mortgage Loan or REO Property as to which the Special Servicer receives any
Liquidation Proceeds or condemnation proceeds. As to each such Specially
Serviced Mortgage Loan and REO Property, the Liquidation Fee will be payable
from, and will be calculated by application of a "Liquidation Fee Rate" of 1.0%
to, the related payment or proceeds (other than any portion thereof that
represents accrued but unpaid Excess Interest or Default Interest).
Notwithstanding anything to the contrary described above, no Liquidation Fee
will be payable based on, or out of, Liquidation Proceeds received in connection
with (i) the repurchase of any Mortgage Loan by the Mortgage Loan Sellers, for a
breach of representation or warranty or for defective or deficient Mortgage Loan
documentation, (ii) the purchase of any Specially Serviced Mortgage Loan or REO
Property by the Master Servicer, the Special Servicer or any holder or holders
of Certificates evidencing a majority interest in the Controlling Class or (iii)
the purchase of all of the Mortgage Loans and REO Properties by the Master
Servicer, the Special Servicer or any holder or holders of Certificates
evidencing a majority interest in the Controlling Class in connection with the
termination of the Trust. The Special Servicer will be authorized to invest or
direct the investment of funds held in any accounts maintained by it that
constitute part of the Certificate Account, in Permitted Investments, and the
Special Servicer will be entitled to retain any interest or other income earned
on such funds, but will be required to cover any losses from its own funds
without any right to reimbursement.
The Master Servicer and the Special Servicer will each be responsible for
the fees of any Sub-Servicers retained by it (without right of reimbursement
therefor). As additional servicing compensation, the Master Servicer and the
Special Servicer, with respect to Mortgage Loans that are not Specially Serviced
Mortgage Loans, and the Special Servicer, with respect to Specially Serviced
Mortgage Loans, generally will be entitled to retain all assumption and
modification fees, charges for beneficiary statements or demands and any similar
fees, in each case to the extent actually paid by the borrowers with respect to
such Mortgage Loans (and, accordingly, such amounts will not be available for
distribution to Certificateholders). In addition, the Master Servicer as to
Non-Specially Serviced Mortgage Loans and the Special Servicer as to Specially
Serviced Mortgage Loans will also be entitled to retain as additional servicing
compensation "Default Interest" (that is, interest (other than Excess Interest)
in excess of interest at the related Mortgage Rate accrued as a result of a
default) only after such Default Interest has been applied: (1) to pay the
Master Servicer, the Special Servicer or the Trustee, as applicable, any unpaid
interest on advances made by that party with respect to the related Mortgage
Loan, (2) to reimburse the Trust Fund for any interest on advances that were
made with respect to any Mortgage Loan, since the Delivery Date, which interest
was paid to the Master Servicer, the Special Servicer or the Trustee, as
applicable, from a source of funds other than Default Interest collected on such
Mortgage Loan, (3) to reimburse the Special Servicer for Servicing Advances made
for the cost of inspection on a Specially Serviced Mortgage Loan and (4) to pay,
or to reimburse the Trust Fund for, any other expenses incurred with respect to
any Mortgage Loan since the Delivery Date, which expense if paid from a source
of funds other than Default Interest collected on such Mortgage Loan, is or will
be an Additional Trust Fund Expense. The Master Servicer (except to the extent
the Sub-Servicers are entitled thereto pursuant to the applicable Sub-Servicing
Agreement) (or, with respect to accounts held by the Special Servicer, the
Special Servicer) shall be entitled to receive all amounts collected for checks
returned for insufficient funds with respect to the Mortgage Loans as additional
servicing compensation. In addition, collections on a Mortgage Loan are to be
applied to interest (at the related Mortgage Rate) and principal then due and
owing prior to being applied to Default Interest.
The Master Servicer and the Special Servicer will, in general, each be
required to pay its expenses incurred by it in connection with its servicing
activities under the Pooling Agreement, and neither will be entitled to
reimbursement therefor except as expressly provided in the Pooling Agreement. In
general, customary, reasonable and necessary "out of pocket" costs and expenses
incurred by the Master Servicer or Special Servicer in connection with the
servicing of a Mortgage Loan after a default, delinquency or other unanticipated
event, or in connection with the administration of any REO Property, will
constitute "Servicing Advances" (Servicing Advances and P&I Advances,
collectively, "Advances") and, in all cases (subject to recoverability), will be
reimbursable from future payments and other collections, including in the form
of Insurance Proceeds, Condemnation Proceeds and Liquidation Proceeds, on or in
respect of the related
S-90
Mortgage Loan or REO Property ("Related Proceeds"). Notwithstanding the
foregoing, the Master Servicer and the Special Servicer will each be permitted
to pay, or to direct the payment of, certain servicing expenses directly out of
the Certificate Account and at times without regard to the relationship between
the expense and the funds from which it is being paid (including in connection
with the remediation of any adverse environmental circumstance or condition at a
Mortgaged Property or an REO Property, although in such specific circumstances
the Master Servicer may advance the costs thereof). The Special Servicer will be
required to direct the Master Servicer to make Servicing Advances (which include
certain Servicing Advances that must be made within five Business Days in order
to avoid a material adverse consequence to the Trust Fund (any such Advance, an
"Emergency Advance")); provided that the Special Servicer may, at its option,
make such Servicing Advance itself (including Emergency Advances). The Special
Servicer is, however, obligated to make any Servicing Advance with respect to
Specially Serviced Mortgage Loans and REO Properties which it fails to timely
request the Master Servicer to make. The Special Servicer may no more than once
per calendar month require the Master Servicer to reimburse it for any Servicing
Advance (including an Emergency Advance) made by the Special Servicer (after
reimbursement, such Servicing Advance will be deemed to have been made by the
Master Servicer) to the extent such Servicing Advance is not a Nonrecoverable
Advance. The Special Servicer will be relieved of any obligations with respect
to a Servicing Advance that it timely requests the Master Servicer to make
(regardless of whether or not the Master Servicer makes that Advance).
If the Master Servicer or the Special Servicer is required under the
Pooling Agreement to make a Servicing Advance, but neither does so within 10
days after such Advance is required to be made, then the Trustee will, if it has
actual knowledge of such failure, be required to give the Master Servicer or
Special Servicer, as the case may be, notice of such failure and, if such
failure continues for three more business days, the Trustee will be required to
make such Servicing Advance.
The Master Servicer, the Special Servicer and the Trustee will be obligated
to make Servicing Advances only to the extent that such Servicing Advances are,
in the reasonable and good faith judgment of the Master Servicer, the Special
Servicer or the Trustee, as the case may be, ultimately recoverable from Related
Proceeds (any Servicing Advance not so recoverable, a "Nonrecoverable Servicing
Advance"). The Trustee will be permitted to rely on any nonrecoverability
determination made by the Master Servicer or the Special Servicer.
The foregoing paragraph notwithstanding, the Master Servicer may, including
at the direction of the Special Servicer, if a Specially Serviced Mortgage Loan
or an REO Property is involved, pay directly out of the Certificate Account any
servicing expense that, if paid by the Master Servicer or the Special Servicer,
would constitute a Nonrecoverable Servicing Advance; provided that the Master
Servicer (or the Special Servicer if a Specially Serviced Mortgage Loan or an
REO Property is involved) has determined in accordance with the Servicing
Standard that making such payment is in the best interests of the
Certificateholders (as a collective whole), as evidenced by an officer's
certificate delivered promptly to the Trustee, the Depositor and the Rating
Agencies, setting forth the basis for such determination and accompanied by any
supporting information the Master Servicer or the Special Servicer may have
obtained.
As and to the extent described herein, the Master Servicer, the Special
Servicer and the Trustee are each entitled to receive interest at the
Reimbursement Rate (compounded monthly) on Servicing Advances made thereby. See
"The Pooling and Servicing Agreements -- Certificate Account" and "-- Servicing
Compensation and Payment of Expenses" in the accompanying prospectus and
"Description of the Certificates -- P&I Advances" in this prospectus supplement.
EVIDENCE AS TO COMPLIANCE
On or before April 30 of each year, beginning April 30, 2003 (or, as to any
such year, such earlier date as is contemplated by the last sentence of this
paragraph), each of the Master Servicer and the Special Servicer, at its
expense, shall cause a firm of independent public accountants (which may also
render other Services to the Master Servicer or the Special Servicer, as the
case may be) and that is a member of the American Institute of Certified Public
Accountants, to furnish a statement to the Depositor and the Trustee to
S-91
the effect that (i) it has obtained a letter of representation regarding certain
matters from the management of the Master Servicer and the Special Servicer, as
the case may be, which includes an assertion that the Master Servicer and the
Special Servicer, as the case may be, has complied with certain minimum mortgage
loan servicing standards (to the extent applicable to commercial and multifamily
mortgage loans) identified in the Uniform Single Association Program for
Mortgage Bankers established by the Mortgage Bankers Association of America,
with respect to the servicing of commercial and multifamily mortgage loans
during the most recently completed calendar year and (ii) on the basis of an
examination conducted by such firm in accordance with standards established by
the American Institute of Certified Public Accountants, such representation is
fairly stated in all material respects, subject to such exceptions and other
qualifications that may be appropriate. In rendering its report such firm may
rely, as to matters relating to the direct servicing of commercial and
multifamily mortgage loans by Sub-Servicers, upon comparable reports of firms of
independent certified public accountants rendered on the basis of examinations
conducted in accordance with the same standards (rendered within one year of
such report) with respect to those sub-servicers.
The Pooling Agreement also requires that, on or before a specified date in
each year, commencing in 2003, each of the Master Servicer and the Special
Servicer deliver to the Trustee a statement signed by one or more officers
thereof to the effect that the Master Servicer or Special Servicer, as the case
may be, has fulfilled its material obligations under the Pooling Agreement in
all material respects throughout the preceding calendar year or the portion
thereof during which the Certificates were outstanding.
MODIFICATIONS, WAIVERS, AMENDMENTS AND CONSENTS
The Master Servicer (as to Mortgage Loans which are not Specially Serviced
Mortgage Loans (each a "Non-Specially Serviced Mortgage Loan")) and the Special
Servicer (as to Specially Serviced Mortgage Loans subject to the requirements
regarding the resolution of Defaulted Mortgage Loans described below under
"-- Defaulted Mortgage Loans; Purchase Option" in this prospectus supplement)
each may, consistent with the Servicing Standard, agree to any modification,
waiver or amendment of any term of, forgive or defer the payment of interest on
and principal of, permit the release, addition or substitution of collateral
securing, and/or permit the release of the borrower on or any guarantor of any
Mortgage Loan it is required to service and administer, without the consent of
the Trustee, subject, however, to the rights of consent provided to the
Directing Certificateholder and to each of the following limitations, conditions
and restrictions:
(i) with limited exception the Master Servicer shall not agree to any
modification, waiver or amendment of any term of, or take any of the other
above referenced acts with respect to, any Mortgage Loan, that would affect
the amount or timing of any related payment of principal, interest or other
amount payable under such Mortgage Loan or affect the security for such
Mortgage Loan, unless the Master Servicer has obtained the consent of the
Special Servicer (it being understood and agreed that (A) the Master
Servicer shall promptly provide the Special Servicer with notice of any
borrower request for such modification, waiver or amendment, the Master
Servicer's recommendations and analysis, and with all information
reasonably available to the Master Servicer that the Special Servicer may
reasonably request in order to withhold or grant any such consent, each of
which shall be provided reasonably promptly in accordance with the
Servicing Standard, (B) the Special Servicer shall decide whether to
withhold or grant such consent in accordance with the Servicing Standard
and (C) if any such consent has not been expressly denied within ten
business days of the Special Servicer's receipt from the Master Servicer of
the Master Servicer's recommendations and analysis and all information
reasonably requested thereby (which request must be made in writing no more
than five business days after receipt of the Master Servicer's
recommendation) and reasonably available to the Master Servicer in order to
make an informed decision (or, if the Special Servicer did not request any
information, within ten business days from such notice), such consent shall
be deemed to have been granted);
(ii) with limited exception the Special Servicer may not agree to (or
in the case of a Non-Specially Serviced Mortgage Loan, consent to the
Master Servicer's agreeing to) any modification, waiver or amendment of any
term of, or take (or in the case of a Non-Specially Serviced Mortgage Loan,
consent to the Master Servicer's taking) any of the other above referenced
actions with respect to, any Mortgage Loan it is required to service and
administer that would affect the amount or timing of any related
S-92
payment of principal, interest or other amount payable thereunder or, in
the reasonable good faith judgment of the Special Servicer would materially
impair the security for such Mortgage Loan, unless a material default on
such Mortgage Loan, has occurred or, in the reasonable good faith judgment
of the Special Servicer, a default in respect of payment on such Mortgage
Loan is reasonably foreseeable, and such modification, waiver, amendment or
other action is reasonably likely to produce a greater recovery to
Certificateholders (collectively) on a present value basis than would
liquidation as certified to the Trustee in an officer's certificate;
(iii) the Special Servicer shall not extend (or in the case of a
Non-Specially Serviced Mortgage Loan, consent to the Master Servicer's
extending) the date on which any Balloon Payment is scheduled to be due on
any Mortgage Loan beyond the earliest of (A) two years prior to the Rated
Final Distribution Date, and (B) if such Mortgage Loan is secured by a
Mortgage solely or primarily on the related Mortgagor's leasehold interest
in the related Mortgaged Property, 20 years (or, to the extent consistent
with the Servicing Standard, giving due consideration to the remaining term
of the ground lease, 10 years) prior to the end of the then current term of
the related ground lease (plus any unilateral options to extend);
(iv) neither the Master Servicer nor the Special Servicer shall make
or permit any modification, waiver or amendment of any term of, or take any
of the other above referenced actions with respect to, any Mortgage Loan
that would result in an adverse REMIC event with respect to either REMIC I
or REMIC II or an adverse grantor trust event with respect to the grantor
trust;
(v) subject to applicable law, the related Mortgage Loan documents and
the Servicing Standard, neither the Master Servicer nor the Special
Servicer shall permit any modification, waiver or amendment of any term of
any Mortgage Loan unless all related fees and expenses are paid by the
related borrower;
(vi) except for substitutions contemplated by the terms of the
Mortgage Loans, the Special Servicer shall not permit (or, in the case of a
Non-Specially Serviced Mortgage Loan, consent to the Master Servicer's
permitting) any borrower to add or substitute real estate collateral for
its Mortgage Loan unless the Special Servicer shall have first determined
in its good faith reasonable judgment, based upon a Phase I environmental
assessment (and any additional environmental testing as the Special
Servicer deems necessary and appropriate), that such additional or
substitute collateral is in compliance with applicable environmental laws
and regulations and that there are no circumstances or conditions present
with respect to such new collateral relating to the use, management or
disposal of any hazardous materials for which investigation, testing,
monitoring, containment, clean-up or remediation would be required under
any then applicable environmental laws and/or regulations;
(vii) with limited exceptions, including a permitted defeasance as
described above under "Description of the Mortgage Pool -- Certain Terms
and Conditions of the Mortgage Loans -- Defeasance" in this prospectus
supplement and specific releases contemplated by the terms of the mortgage
loans in effect on the Delivery Date, the Special Servicer shall not
release (or, in the case of a Non-Specially Serviced Mortgage Loan, consent
to the Master Servicer's releasing), including in connection with a
substitution contemplated by clause (vi) above, any collateral securing an
outstanding Mortgage Loan; except where a Mortgage Loan (or, in the case of
a group of Cross-Collateralized Mortgage Loans, where such entire group of
Cross-Collateralized Mortgage Loans) is satisfied, or except in the case of
a release where (A) either (1) the use of the collateral to be released
will not, in the good faith and reasonable judgment of the Special
Servicer, materially and adversely affect the net operating income being
generated by or the use of the related Mortgaged Property, or (2) there is
a corresponding principal pay down of such Mortgage Loan in an amount at
least equal to the appraised value of the collateral to be released (or
substitute collateral with an appraised value at least equal to that of the
collateral to be released, is delivered), (B) the remaining Mortgaged
Property (together with any substitute collateral) is, in the Special
Servicer's good faith and reasonable judgment, adequate security for the
remaining Mortgage Loan and (C) such release would not, in and of itself,
result in an adverse rating event with respect to any Class of Offered
Certificates (as confirmed in writing to the Trustee by each Rating
Agency);
S-93
provided that the limitations, conditions and restrictions set forth in clauses
(i) through (vii) above shall not apply to any act or event (including, without
limitation, a release, substitution or addition of collateral) in respect of any
Mortgage Loan that either occurs automatically, or results from the exercise of
a unilateral option by the related Mortgagor within the meaning of Treasury
Regulations Section 1.1001-3(c)(2)(iii), in any event under the terms of such
Mortgage Loan in effect on the Closing Date (or, in the case of a replacement
Mortgage Loan, on the related date of substitution); and provided, further,
that, notwithstanding clauses (i) through (vii) above, neither the Master
Servicer nor the Special Servicer shall be required to oppose the confirmation
of a plan in any bankruptcy or similar proceeding involving a Mortgagor if, in
its reasonable, good faith judgment, such opposition would not ultimately
prevent the confirmation of such plan or one substantially similar; and
provided, further, that, notwithstanding clause (vii) above, neither the Master
Servicer nor the Special Servicer shall be required to obtain any confirmation
of the Certificate ratings from the Rating Agencies in order to grant easements
that do not materially affect the use or value of a Mortgaged Property or the
Mortgagor's ability to make any payments with respect to the related Mortgage
Loan.
With respect to any ARD Loan, the Master Servicer shall be permitted to
waive all or any accrued Excess Interest if, prior to the related maturity date,
the related borrower has requested the right to prepay such Mortgage Loan in
full together with all other payments required by such Mortgage Loan in
connection with such prepayment except for all or a portion of accrued Excess
Interest, provided that the Master Servicer's determination to waive the right
to such accrued Excess Interest is reasonably likely to produce a greater
payment to Certificateholders on a present value basis than a refusal to waive
the right to such Excess Interest. Any such waiver will not be effective until
such prepayment is tendered. The Master Servicer will have no liability to the
Trust, the Certificateholders or any other person so long as such determination
is based on such criteria. Except as permitted by clauses (i) through (ii) of
the preceding paragraph, the Special Servicer will have no right to waive the
payment of Excess Interest.
The Master Servicer will not be required to seek the consent of any
Certificateholder in order to approve certain minor or routine modifications,
waivers or amendments of the Mortgage Loans, including waivers of minor covenant
defaults, releases of non-material parcels of a Mortgaged Property, grants of
easements that do not materially affect the use or value of a Mortgaged Property
or a borrower's ability to make any payments with respect to the related
Mortgage Loan and other routine approvals including the granting of
subordination, non-disturbance and attornment agreements and leasing consents,
typically performed by a master servicer on a routine basis; provided that any
such modification, waiver or amendment may not affect a payment term of the
Certificates, constitute a "significant modification" of such Mortgage Loan
pursuant to Treasury Regulations Section 1.860G-2(b) or otherwise have an
adverse REMIC effect or have an adverse effect on the grantor trust, be
inconsistent with the Servicing Standard, or violate the terms, provisions or
limitations of the Pooling Agreement.
DEFAULTED MORTGAGE LOANS; PURCHASE OPTION
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, or new
information, in accordance with the Servicing Standard. A "Defaulted Mortgage
Loan" is a Mortgage Loan (i) that is delinquent 60 days or more in respect to a
Monthly Payment (not including the Balloon Payment) or (ii) is delinquent in
respect of its Balloon Payment unless the Master Servicer has, on or prior to
the due date of such Balloon Payment, received written evidence from an
institutional lender of such lender's binding commitment to refinance such
Mortgage Loan within 60 days after the due date of such Balloon Payment
(provided that if such refinancing does not occur during such time specified in
the commitment, the related Mortgage Loan will immediately become a Defaulted
Mortgage Loan), in either case such delinquency to be determined without giving
effect to any grace period permitted by the related Mortgage or Mortgage Note
and without regard to any acceleration of payments under the related Mortgage
and Mortgage Note, or (iii) as to which the Master Servicer or Special Servicer
has, by written notice to the related Mortgagor, accelerated the maturity of the
indebtedness evidenced by the related Mortgage Note.
S-94
In the event a Mortgage Loan becomes a Defaulted Mortgage Loan, any
majority Certificateholder of the Controlling Class or the Special Servicer will
each have an assignable option (such option will only be assignable after such
option arises) (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 Advances (and interest on
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 Special Servicer will, from time to time, but not less
often than every ninety (90) days, adjust its fair value determination based
upon changed circumstances, new information, and other relevant factors, in each
instance in accordance with the Servicing Standard. The majority
Certificateholder of the Controlling Class 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 Agreement, 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 related 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 the majority Certificateholder of the Controlling Class, the
Special Servicer, or any affiliate of any of them (in other words, the Purchase
Option has not 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, then the determination of whether the Option Price
represents a fair value of the Defaulted Mortgage Loan will be made in the
manner set forth in the Pooling Agreement.
If title to any Mortgaged Property is acquired by the Trustee on behalf of
the Certificateholders pursuant to foreclosure proceedings instituted by the
Special Servicer or otherwise, the Special Servicer, after notice to the
Directing Certificateholder, shall use its reasonable efforts to sell any REO
Property as soon as practicable in accordance with the Servicing Standard but
prior to 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 (an "REO Extension") or (ii) it obtains an opinion of counsel generally
to the effect that the holding of the property for more than three years after
the end of the calendar year in which it was acquired will not result in the
imposition of a tax on the Trust Fund or cause any REMIC created pursuant to the
Pooling Agreement to fail to qualify as a REMIC under the Code. If the Special
Servicer on behalf of the Trustee has not received an REO Extension or such
Opinion of Counsel and the Special Servicer is not able to sell such REO
Property within the period specified above, or if an REO Extension has been
granted and the Special Servicer is unable to sell such REO Property within the
extended time period, the Special Servicer shall auction the property pursuant
to the auction procedure set forth below.
The Special Servicer shall give the Directing Certificateholder, the Master
Servicer and the Trustee not less than five days' prior written notice of its
intention to sell any such REO Property, and shall auction the REO Property to
the highest bidder (which may be the Special Servicer) in accordance with the
Servicing Standard; provided, however, that the Master Servicer, Special
Servicer, holder (or holders) of Certificates evidencing a majority interest in
the Controlling Class, any independent contractor engaged by the Master Servicer
or the Special Servicer pursuant to the Pooling Agreement (or any officer or
affiliate thereof) shall
S-95
not be permitted to purchase the REO Property at a price less than the
outstanding principal balance of such Mortgage Loan as of the date of purchase,
plus all accrued but unpaid interest and related fees and expenses, except in
limited circumstances set forth in the Pooling Agreement; and provided, further
that if the Special Servicer intends to bid on any REO Property, (i) the Special
Servicer shall notify the Trustee of such intent, (ii) the Trustee or an agent
on its behalf shall promptly obtain, at the expense of the Trust an appraisal of
such REO Property and (iii) the Special Servicer shall not bid less than (x) the
fair market value set forth in such appraisal or (y) the outstanding principal
balance of such Mortgage Loan, plus all accrued but unpaid interest and related
fees and expenses and unreimbursed Advances and interest on Advances.
Subject to the REMIC provisions, the Special Servicer shall act on behalf
of the Trust in negotiating and taking any other action necessary or appropriate
in connection with the sale of any REO Property or the exercise of the Purchase
Option, including the collection of all amounts payable in connection therewith.
Notwithstanding anything to the contrary herein, neither the Trustee, in its
individual capacity, nor any of its Affiliates may bid for any REO Property or
purchase any Defaulted Mortgage Loan. Any sale of a Defaulted Mortgage Loan
(pursuant to the Purchase Option) or REO Property shall be without recourse to,
or representation or warranty by, the Trustee, the Depositor, any Mortgage Loan
Seller, the Special Servicer, the Master Servicer or the Trust other than
customary representations and warranties of title, condition and authority (if
liability for breach thereof is limited to recourse against the Trust).
Notwithstanding the foregoing, nothing herein shall limit the liability of the
Master Servicer, the Special Servicer or the Trustee to the Trust and the
Certificateholders for failure to perform its duties in accordance herewith.
None of the Special Servicer, the Master Servicer, the Depositor or the Trustee
shall have any liability to the Trust or any Certificateholder with respect to
the price at which a Defaulted Mortgage Loan is sold if the sale is consummated
in accordance with the terms of the Pooling Agreement.
REO PROPERTIES
In general, the Special Servicer will be obligated to cause any Mortgaged
Property acquired as REO Property to be operated and managed in a manner that
would, to the extent commercially feasible, maximize the Trust's net after-tax
proceeds from such property. The Special Servicer could determine that it would
not be commercially feasible to manage and operate such property in a manner
that would avoid the imposition of a tax on "net income from foreclosure
property". Generally, net income from foreclosure property means income which
does not qualify as "rents from real property" within the meaning of Code
Section 856(c)(3)(A) and Treasury regulations thereunder or as income from the
sale of such REO Property. "Rents from real property" do not include the portion
of any rental based on the net income or gain of any tenant or sub-tenant. No
determination has been made whether rent on any of the Mortgaged Properties
meets this requirement. "Rents from real property" include charges for services
customarily furnished or rendered in connection with the rental of real
property, whether or not the charges are separately stated. Services furnished
to the tenants of a particular building will be considered as customary if, in
the geographic market in which the building is located, tenants in buildings
which are of similar class are customarily provided with the service. No
determination has been made whether the services furnished to the tenants of the
Mortgaged Properties are "customary" within the meaning of applicable
regulations. It is therefore possible that a portion of the rental income with
respect to a Mortgaged Property owned by the Trust Fund, would not constitute
"rents from real property," or that all of such income would fail to so qualify
if a separate charge is not stated for such non-customary services or such
services are not performed by an independent contractor. In addition to the
foregoing, any net income from a trade or business operated or managed by an
independent contractor on a Mortgaged Property owned by REMIC I, such as a hotel
or self-storage facility, will not constitute "rents from real property." Any of
the foregoing types of income instead constitute "net income from foreclosure
property," which would be taxable to REMIC I at the highest marginal federal
corporate rate (currently 35%) and may also be subject to state or local taxes.
Any such taxes would be chargeable against the related income for purposes of
determining the Net REO Proceeds available for distribution to holders of
Certificates. See "Certain Federal Income Tax Consequences -- REMICs --
Prohibited Transactions Tax and Other Taxes" in the accompanying prospectus.
S-96
INSPECTIONS; COLLECTION OF OPERATING INFORMATION
Commencing in 2003, the Master Servicer or, in the case of any inspection
required to be performed 60 days after delinquency, the Special Servicer, is
required to perform (or cause to be performed) physical inspections of each
Mortgaged Property (other than REO Properties and Mortgaged Properties securing
Specially Serviced Mortgage Loans) at least once every two years (or, if the
related Mortgage Loan has a then-current balance greater than $2,000,000, at
least once every year) and 60 days after delinquency at its sole expense (or an
entity employed by the Master Servicer for such purpose). In addition, the
Special Servicer, subject to statutory limitations or limitations set forth in
the related loan documents, is required to perform a physical inspection of each
Mortgaged Property as soon as practicable after servicing of the related
Mortgage Loan is transferred thereto and will be required to perform a yearly
physical inspection of each such Mortgaged Property so long as the related
Mortgage Loan is a Specially Serviced Mortgage Loan. The Special Servicer will
be entitled to receive reimbursement for such expense as a Servicing Advance
payable, first from Default Interest and then from general collections. The
Special Servicer and the Master Servicer will each be required to prepare (or
cause to be prepared) as soon as reasonably possible a written report of each
such inspection performed thereby describing the condition of the Mortgaged
Property.
With respect to each Mortgage Loan that requires the borrower to deliver
quarterly, annual or other periodic operating statements with respect to the
related Mortgaged Property, the Master Servicer or the Special Servicer,
depending on which is obligated to service such Mortgage Loan, is also required
to make reasonable efforts to collect and review such statements. However, there
can be no assurance that any operating statements required to be delivered will
in fact be so delivered, nor is the Master Servicer or the Special Servicer
likely to have any practical means of compelling such delivery in the case of an
otherwise performing Mortgage Loan.
TERMINATION OF THE SPECIAL SERVICER
The holder or holders of Certificates evidencing a majority interest in the
Controlling Class may at any time replace any 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. If the designated
replacement is acceptable to the Trustee, which approval may not be unreasonably
withheld, the designated replacement shall become the 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 Agreement, the then-current rating or ratings of one
or more Classes of the Certificates would not be qualified, 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 to the effect that the designation of such replacement to
serve as Special Servicer is in compliance with the Pooling Agreement, that the
designated replacement will be bound by the terms of the Pooling Agreement and
that the Pooling Agreement will be enforceable against such designated
replacement in accordance with its terms. The existing Special Servicer shall be
deemed to have resigned simultaneously with such designated replacement's
becoming the Special Servicer under the Pooling Agreement.
S-97
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Depositor will issue its Commercial Mortgage Pass-Through Certificates,
Series 2002-PB2, on May 22, 2002 (the "Delivery Date") pursuant to a Pooling and
Servicing Agreement, dated as of May 1, 2002, among the Depositor, the Master
Servicer, the Special Servicer, the Trustee and the REMIC Administrator (the
"Pooling Agreement").
The Offered Certificates, together with the Private Certificates, will
represent in the aggregate the entire beneficial interest in a trust (the
"Trust"), the assets of which (such assets collectively, the "Trust Fund")
include: (i) the Mortgage Loans and all payments thereunder and proceeds thereof
received after the Cut-off Date (exclusive of payments of principal, interest
and other amounts due thereon on or before the Cut-off Date); (ii) any REO
Properties; and (iii) such funds or assets as from time to time are deposited in
the Certificate Account, the Interest Reserve Account, and the Excess Interest
Distribution Account (see "The Pooling and Servicing Agreements -- Certificate
Account" in the accompanying prospectus).
The Certificates will consist of 25 classes to be designated as: (i) the
Class A-1 Certificates, the Class A-2, the Class A-3 Certificates and the Class
A-4 Certificates (collectively, the "Class A Certificates" and together with the
Class XC and the Class XP Certificates, the "Senior Certificates"); (ii) the
Class B Certificates, the Class C Certificates, the Class D Certificates, the
Class E Certificates, the Class F Certificates, the Class G Certificates, the
Class H Certificates, the Class J Certificates, the Class K Certificates, the
Class L Certificates, the Class M Certificates, the Class N Certificates, the
Class O Certificates, the Class P Certificates and the Class Q Certificates
(collectively with the Class A Certificates, the "Sequential Pay Certificates");
(iii) the Class XC Certificates and the Class XP Certificates (collectively, the
"Class X Certificates", and collectively with the Sequential Pay Certificates,
the "REMIC Regular Certificates"); (iv) the Class Z-I and Class Z-II
Certificates; and (v) the Class R-I Certificates and the Class R-II
Certificates, (the Class R-I and Class R-II Certificates collectively, the
"REMIC Residual Certificates"). Only the Class A-1, Class A-2, Class A-3, Class
A-4, Class B, Class C, Class D, Class E and Class F Certificates (collectively,
the "Offered Certificates") are offered hereby. Each Class of Certificates is
sometimes referred to in this prospectus supplement as a "Class".
The Class XC, Class XP, Class G, Class H, Class J, Class K, Class L, Class
M, Class N, Class O, Class P, Class Q, Class Z-I and Class Z-II Certificates and
the REMIC Residual Certificates (collectively, the "Private Certificates") have
not been registered under the Securities Act and are not offered hereby.
Accordingly, to the extent this prospectus supplement contains information
regarding the terms of the Private Certificates, such information is provided
because of its potential relevance to a prospective purchaser of an Offered
Certificate.
The Class A-1 Certificates, the Class A-2 Certificates, the Class A-3
Certificates, the Class A-4 Certificates and the Class X Certificates are
referred to in this Prospectus Supplement as the "Senior Interests".
REGISTRATION AND DENOMINATIONS
The Offered Certificates will be issued in book-entry format in
denominations of: (i) in the case of the Class A Certificates, $10,000 actual
principal amount and in any whole dollar denomination in excess thereof and (ii)
in the case of the other Offered Certificates, $100,000 actual principal amount
and in any whole dollar denomination in excess thereof.
Each Class of Offered Certificates will initially be represented by one or
more Certificates registered in the name of the nominee of The Depository Trust
Company ("DTC"). The Depositor has been informed by DTC that DTC's nominee will
be Cede & Co. No beneficial owner of an Offered Certificate (each, a
"Certificate Owner") will be entitled to receive a fully registered physical
certificate (a "Definitive Certificate") representing its interest in such
Class, except under the limited circumstances described under "Description of
the Certificates -- Book-Entry Registration and Definitive Certificates" in the
accompanying prospectus. Unless and until Definitive Certificates are issued in
respect of the Offered Certificates, beneficial
S-98
ownership interests in each such Class of Certificates will be maintained and
transferred on the book-entry records of DTC and its participating organizations
(its "Participants"), and all references to actions by holders of each such
Class of Certificates will refer to actions taken by DTC upon instructions
received from the related Certificate Owners through its Participants in
accordance with DTC procedures, and all references herein to payments, notices,
reports and statements to holders of each such Class of Certificates will refer
to payments, notices, reports and statements to DTC or Cede & Co., as the
registered holder thereof, for distribution to the related Certificate Owners
through its Participants in accordance with DTC procedures. The form of such
payments and transfers may result in certain delays in receipt of payments by an
investor and may restrict an investor's ability to pledge its securities. See
"Description of the Certificates -- Book-Entry Registration and Definitive
Certificates" in the accompanying prospectus.
The Trustee will initially serve as registrar (in such capacity, the
"Certificate Registrar") for purposes of recording and otherwise providing for
the registration of the Offered Certificates, and of transfers and exchanges of
the Offered Certificates. The Offered Certificates will be issued in fully
registered physical form.
CERTIFICATE BALANCES AND NOTIONAL AMOUNT
On the Delivery Date, the respective classes of Certificates will have the
following Certificate Balances or Notional Amounts (in each case, subject to a
variance of plus or minus 5%):
<Table>
<Caption>
APPROXIMATE
CERTIFICATE PERCENTAGE OF APPROXIMATE
BALANCE OR POOL CREDIT
CLASS NOTIONAL AMOUNT BALANCE SUPPORT
----- --------------- ------------- -----------
A-1...................................... $ 63,228,491 5.62% 22.50%
A-2...................................... $ 172,175,646 15.31% 22.50%
A-3...................................... $ 90,950,559 8.09% 22.50%
A-4...................................... $ 545,000,000 48.47% 22.50%
B........................................ $ 50,594,789 4.50% 18.00%
C........................................ $ 16,864,930 1.50% 16.50%
D........................................ $ 14,054,108 1.25% 15.25%
E........................................ $ 19,675,751 1.75% 13.50%
F........................................ $ 11,243,286 1.00% 12.50%
G........................................ $ 14,054,108 1.25% 11.25%
H........................................ $ 16,864,930 1.50% 9.75%
J........................................ $ 14,054,108 1.25% 8.50%
K........................................ $ 16,864,930 1.50% 7.00%
L........................................ $ 19,675,751 1.75% 5.25%
M........................................ $ 8,432,465 0.75% 4.50%
N........................................ $ 13,276,452 1.18% 3.32%
O........................................ $ 7,234,924 0.64% 2.68%
P........................................ $ 4,823,283 0.43% 2.25%
Q........................................ $ 25,260,130 2.25% 0.00%
XC....................................... $1,124,328,641(1) N/A N/A
XP....................................... $ 810,221,499(1) N/A N/A
</Table>
- ---------------
(1) Notional Amount.
The "Certificate Balance" of any Class of Sequential Pay Certificates
outstanding at any time will be the then aggregate stated principal amount
thereof. On each Distribution Date, the Certificate Balance of each Class of
Sequential Pay Certificates will be reduced by any distributions of principal
actually made on such Class on such Distribution Date, and will be further
reduced by any Realized Losses and Additional Trust Fund Expenses allocated to
such Class on such Distribution Date. See "-- Distributions" and
"-- Subordination; Allocation of Losses and Certain Expenses" below.
S-99
The Class XC and Class XP Certificates will not have Certificate Balances.
For purposes of calculating the amount of accrued interest, however, each of
those classes will have a Notional Amount (a "Notional Amount").
The Notional Amount of the Class XC Certificates will equal the Certificate
Balances of the Class A-1, Class A-2, Class A-3, Class A-4, Class B, Class C,
Class D, Class E, Class F, Class G, Class H, Class J, Class K, Class L, Class M,
Class N, Class O, Class P and Class Q Certificates outstanding from time to
time. The initial Notional Amount of the Class XC Certificates will be
approximately $1,124,328,641, although it may be as much as 5% larger or
smaller.
The Notional Amount of the Class XP Certificates will equal:
- during the period from the date of initial issuance of the Certificates
through and including the distribution date in May 2006, the sum of the
Certificate Balances of the Class A-3, Class A-4, Class B, Class C, Class
D, Class E, Class F, Class G, Class H, Class J and Class K Certificates
outstanding from time to time;
- during the period following the distribution date in May 2006 through and
including the distribution date in May 2007, the sum of (a) the lesser of
$71,000,000 and the Certificate Balance of the Class A-3 Certificates
outstanding from time to time, (b) the total Certificate Balance of the
Class A-4, Class B, Class C, Class D, Class E, Class F, Class G, Class H
and Class J Certificates outstanding from time to time and (c) the lesser
of $11,000,000 and the Certificate Balance of the Class K Certificates
outstanding from time to time;
- during the period following the distribution date in May 2007 through and
including the distribution date in May 2008, the sum of (a) the lesser of
$28,000,000 and the Certificate Balance of the Class A-3 Certificates
outstanding from time to time, (b) the Certificate Balance of the Class
A-4, Class B, Class C, Class D, Class E, Class F, Class G and Class H
Certificates outstanding from time to time and (c) the lesser of
$8,000,000 and the Certificate Balance of the Class J Certificates
outstanding from time to time;
- during the period following the Distribution Date in May 2008 through and
including the distribution date in May 2009, the sum of (a) the lesser of
$481,000,000 and the Certificate Balance of the Class A-4 Certificates
outstanding from time to time, (b) the Certificate Balance of the Class
B, Class C, Class D, Class E, Class F and Class G Certificates
outstanding from time to time and (c) the lesser of $11,000,000 and the
Certificate Balance of the Class H Certificates outstanding from time to
time; and
- following the Distribution Date in May 2009, $0.
The total initial Notional Amount of the Class XP Certificates will be
approximately $810,221,449, although it may be as much as 5% larger or smaller.
The REMIC Residual Certificates will not have a Certificate Balance or a
Notional Amount.
A Class of Offered Certificates will be considered to be outstanding until
its Certificate Balance is reduced to zero; provided, however, that, under very
limited circumstances, reimbursement of any previously allocated Realized Losses
and Additional Trust Fund Expenses may thereafter be made with respect thereto.
PASS-THROUGH RATES
The Pass-Through Rates applicable to the Class A-1, Class A-2, Class A-3,
Class A-4, Class B, Class C, Class D, Class E and Class F Certificates on any
Distribution Date will be the pass-through rates indicated on the cover page of
this prospectus supplement.
The Pass-Through Rate applicable to the Class XP Certificates for the
initial Distribution Date will equal approximately 0.9947% per annum. The
Pass-Through Rate for the Class XP Certificates, for each interest accrual
period subsequent to the initial Distribution Date and through and including the
May 2009 interest accrual period, will equal the weighted average of the
respective strip rates, which we refer to as "Class XP
S-100
Strip Rates", at which interest accrues from time to time on the respective
components of the Notional Amount of the Class XP Certificates outstanding
immediately prior to the related Distribution Date, with the relevant weighting
to be done based upon the relative size of those components. Each of those
components will be comprised of all or a designated portion of the Certificate
Balance of a specified Class of Certificates. If all or a designated portion of
the Certificate Balance of any Class of Certificates is identified under
"-- Certificate Balance and Notional Amounts" above as being part of the
Notional Amount of the Class XP Certificates immediately prior to any
Distribution Date, then that Certificate Balance (or designated portion thereof)
will represent a separate component of the Notional Amount of the Class XP
Certificates for purposes of calculating the accrual of interest during the
related interest accrual period. For purposes of accruing interest during any
interest accrual period, through and including the May 2009 interest accrual
period, on any particular component of the Notional Amount of the Class XP
Certificates immediately prior to the related Distribution Date, the applicable
Class XP Strip Rate will equal the excess, if any of:
(1) the lesser of (a) the reference rate specified on Annex D to this
prospectus supplement for such interest accrual period and (b) the Weighted
Average Net Mortgage Rate for such interest accrual period, over
(2) the Pass-Through Rate in effect during such interest accrual
period for the Certificates whose Certificate Balance or a designated
portion thereof, comprises such component.
Following the May 2009 interest accrual period, the Class XP Certificates
will cease to accrue interest. In connection therewith, the Class XP
Certificates will have a 0% Pass-Through Rate for the June 2009 interest accrual
period and for each interest accrual period thereafter.
The Pass-Through Rate applicable to the Class XC Certificates for the
initial Distribution Date will equal approximately 0.5203% per annum. The
Pass-Through Rate for the Class XC Certificates for any interest accrual period
subsequent to the initial Distribution Date will equal the weighted average of
the respective strip rates, which we refer to as "Class XC Strip Rates", at
which interest accrues from time to time on the respective components of the
Notional Amount of the Class XC Certificates outstanding immediately prior to
the related Distribution Date, with the relevant weighting to be done based upon
the relative sizes of those components. Each of those components will be
comprised of all or a designated portion of the Certificate Balance of certain
Classes of Certificates. In general, the Certificate Balance of certain Classes
of Certificates will constitute a separate component of the Notional Amount of
the Class XC Certificates; provided that, if a portion, but not all, of the
Certificate Balance of any particular Class of Certificates is identified under
"-- Certificate Balances and Notional Amounts" above as being part of the
Notional Amount of the Class XP Certificates immediately prior to any
Distribution Date, then that identified portion of such Certificate Balance will
also represent a separate component of the Notional Amount of the Class XC
Certificates for purposes of calculating the accrual of interest during the
related interest accrual period, and the remaining portion of such Certificate
Balance will represent another separate component of the Class XC Certificates
for purposes of calculating the accrual of interest during the related interest
accrual period. For purposes of accruing interest during any interest accrual
period, through and including the May 2009 interest accrual period, on any
particular component of the Notional Amount of the Class XC Certificates
immediately prior to the related Distribution Date, the applicable Class XC
Strip Rate will be calculated as follows:
(1) if such particular component consists of the entire Certificate
Balance of any class of Certificates, and if such Certificate Balance also
constitutes, in its entirety, a component of the Notional Amount of the
Class XP Certificates immediately prior to the related Distribution Date,
then the applicable Class XC Strip Rate will equal the excess, if any, of
(a) the Weighted Average Net Mortgage Rate for such interest accrual
period, over (b) the greater of (i) the reference rate specified on Annex D
to this prospectus supplement for such interest accrual period and (ii) the
Pass-Through Rate in effect during such interest accrual period for such
Class of Certificates;
(2) if such particular component consists of a designated portion (but
not all) of the Certificate Balance of any Class of Certificates, and if
such designated portion of such Certificate Balance also constitutes a
component of the Notional Amount of the Class XP Certificates immediately
prior to the
S-101
related Distribution Date, then the applicable Class XC Strip Rate will
equal the excess, if any, of (a) the Weighted Average Net Mortgage Rate for
such interest accrual period, over (b) the greater of (i) the reference
rate specified on Annex D to this prospectus supplement for such interest
accrual period and (ii) the Pass-Through Rate in effect during such
interest accrual period for such Class of Certificates;
(3) if such particular component consists of the entire Certificate
Balance of any Class of Certificates, and if such Certificate Balance does
not, in whole or in part, also constitute a component of the Notional
Amount of the Class XP Certificates immediately prior to the related
Distribution Date, then the applicable Class XC Strip Rate will equal the
excess, if any, of (a) the Weighted Average Net Mortgage Rate for such
interest accrual period, over (b) the Pass-Through Rate in effect during
such interest accrual period for such Class of Certificates; and
(4) if such particular component consists of a designated portion (but
not all) of the Certificate Balance of any Class of Certificates, and if
such designated portion of such Certificate Balance does not also
constitute a component of the Notional Amount of the Class XP Certificates
immediately prior to the related Distribution Date, then the applicable
Class XC Strip Rate will equal the excess, if any, of (a) the Weighted
Average Net Mortgage Rate for such interest accrual period, over (b) the
Pass-Through Rate in effect during such interest accrual period for such
Class of Certificates.
Notwithstanding the foregoing, for purposes of accruing interest on the
Class XC Certificates during each interest accrual period subsequent to the May
2009 interest accrual period, the Certificate Balance of each Class of
Certificates (other than the Class R-I, Class R-II, Class XP, Class XC, Class
Z-I and Class Z-II Certificates) will constitute a single separate component of
the Notional Amount of the Class XC Certificates, and the applicable Class XC
Strip Rate with respect to each such Component for each such interest period
will equal the excess, if any, of (a) the Weighted Average Net Mortgage Rate for
such interest accrual period, over (b) the Pass-Through Rate in effect during
such interest accrual period for the Class of Certificates whose Certificate
Balance makes up such component.
For purpose of calculating the Class XC and Class XP Strip Rates, the
Pass-Through Rate of each component will be the Pass-Through Rate of the
corresponding Class of Certificates.
The Pass-Through Rate applicable to the Class G Certificates will be
6.7210% per annum. The Pass-Through Rate applicable to the Class H Certificates
will equal 6.8200%. However, the Pass-Through Rates of the Class G and Class H
Certificates will not exceed the Weighted Average Net Mortgage Rate on any
Distribution Date. The Pass-Through Rate of the Class J Certificates will equal
the Weighted Average Net Mortgage Rate on any Distribution Date. The
Pass-Through Rate applicable to the Class K, Class L, Class M, Class N, Class O,
Class P and Class Q Certificates will, for any Distribution Date, each be equal
to 6.2900% per annum.
"Weighted Average Net Mortgage Rate" for any Distribution Date, means the
weighted average of the Net Mortgage Rates for all the Mortgage Loans (weighted
on the basis of their respective Stated Principal Balances (as defined herein)
immediately following the preceding Distribution Date).
The "Net Mortgage Rate" with respect to any Mortgage Loan is, in general, a
per annum rate equal to the related Mortgage Rate in effect from time to time,
minus the sum of the applicable Master Servicing Fee Rate and the per annum rate
at which the monthly Trustee Fee is calculated (such sum, the "Administrative
Fee Rate"); provided, however, that for purposes of calculating the Pass-Through
Rate for each Class of REMIC Regular Certificates from time to time, the Net
Mortgage Rate for any Mortgage Loan will be calculated without regard to any
modification, waiver or amendment of the terms of such Mortgage Loan subsequent
to the Delivery Date; and provided further, however, that if any Mortgage Loan
does not accrue interest on the basis of a 360-day year consisting of twelve
30-day months, which is the basis on which interest accrues in respect of the
REMIC Regular Certificates, then the Net Mortgage Rate of such Mortgage Loan for
any one-month period preceding a related Due Date will be the annualized rate at
which interest would have to accrue in respect of such loan on the basis of a
360-day year consisting of twelve 30-day months in order to produce the
aggregate amount of interest actually accrued in respect of such loan during
such one-month period at the related Mortgage Rate (net of the related
Administrative Fee Rate); provided,
S-102
however, that with respect to such Mortgage Loans, the Mortgage Rate for the one
month period (a) prior to the due dates in January and February in any year
which is not a leap year or in February in any year which is a leap year will be
the per annum rate stated in the related Mortgage Note and (b) prior to the due
date in March will be determined inclusive of one day of interest retained for
the one month period prior to the due dates in January and February in any year
which is not a leap year or February in any year which is a leap year. As of the
Cut-off Date (without regard to the adjustment described above), the Net
Mortgage Rates for the Mortgage Loans ranged from 6.448% per annum to 8.288% per
annum, with a weighted average Net Mortgage Rate of 7.055% per annum. See
"Servicing of the Mortgage Loans -- Servicing and Other Compensation and Payment
of Expenses" in this prospectus supplement.
The "Stated Principal Balance" of each Mortgage Loan will initially equal
the outstanding principal balance of the Mortgage Loans as of the Cut-off Date
and will be permanently reduced (to not less than zero) on each Distribution
Date by (i) any payments or other collections (or advances in lieu thereof) of
principal on such Mortgage Loan that have been distributed on the Certificates
on such date, and (ii) the principal portion of any Realized Loss incurred in
respect of such Mortgage Loan during the related Collection Period.
The "Collection Period" for each Distribution Date is the period that
begins immediately following the Determination Date in the calendar month
preceding the month in which such Distribution Date occurs and ending on and
including the Determination Date in the calendar month in which such
Distribution Date occurs. The first Collection Period applicable to the Offered
Certificates will begin immediately following the Cut-off Date and will end on
the Determination Date in June 2002. The "Determination Date" for each
Distribution Date will be the 5th business day prior to such Distribution Date.
DISTRIBUTIONS
General. Distributions on or with respect to the Certificates will be made
by the Trustee, to the extent of available funds, on the 11th day of each month
or, if any such 11th day is not a business day, then on the next succeeding
business day (each, a "Distribution Date"). The first Distribution Date with
respect to the Offered Certificates will occur in June 2002. Except as otherwise
described below, all such distributions will be made to the persons in whose
names the Certificates are registered at the close of business on the related
Record Date and, as to each such person, 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 written wiring
instructions no less than five business days prior to the related Record Date,
or otherwise by check mailed to such Certificateholder. Until Definitive
Certificates are issued in respect thereof, Cede & Co. will be the registered
holder of the Offered Certificates. See "-- Registration and Denominations"
above. The final distribution on any Certificate (determined without regard to
any possible future reimbursement of any Realized Losses or Additional Trust
Fund Expense previously allocated to such Certificate) will be made in like
manner, but only upon presentation and surrender of such Certificate at the
location that will be specified in a notice of the pendency of such final
distribution. Any distribution that is to be made with respect to a Certificate
in reimbursement of a Realized Loss or Additional Trust Fund Expense previously
allocated thereto, which reimbursement is to occur after the date on which such
Certificate is surrendered as contemplated by the preceding sentence (the
likelihood of any such distribution being remote), will be made by check mailed
to the Certificateholder that surrendered such Certificate. All distributions
made on or with respect to a Class of Certificates will be allocated pro rata
among such Certificates based on their respective percentage interests in such
Class.
With respect to any Distribution Date and any Class of Certificates, the
"Record Date" will be the last business day of the calendar month immediately
preceding the month in which such Distribution Date occurs. Notwithstanding the
preceding sentence with respect to the Initial Distribution Date, the Record
Date will be May 31, 2002.
S-103
The Available Distribution Amount. With respect to any Distribution Date,
distributions of interest on and principal of the Certificates will be made from
the Available Distribution Amount for such Distribution Date. The "Available
Distribution Amount" for any Distribution Date will, in general, equal
(a) all amounts on deposit in the Certificate Account as of the close of
business on the related Determination Date, exclusive of any portion thereof
that represents one or more of the following:
(i) Monthly Payments collected but due on a Due Date subsequent to the
related Collection Period;
(ii) any payments of principal and interest, Liquidation Proceeds and
Insurance and Condemnation Proceeds received after the end of the related
Collection Period;
(iii) Prepayment Premiums (which are separately distributable on the
Certificates as hereinafter described);
(iv) Excess Interest (which is distributable to the Class Q
Certificates as hereinafter described);
(v) amounts that are payable or reimbursable to any person other than
the Certificateholders (including amounts payable to the Master Servicer,
the Special Servicer, any Sub-Servicers or the Trustee as compensation
(including Trustee Fees, Master Servicing Fees, Special Servicing Fees,
Workout Fees, Liquidation Fees and Default Charges) (to the extent Default
Charges are not otherwise applied to cover interest on Advances or other
expenses), assumption fees and modification fees), amounts payable in
reimbursement of outstanding Advances, together with interest thereon, and
amounts payable in respect of other Additional Trust Fund Expenses);
(vi) amounts deposited in the Certificate Account in error; and
(vii) with respect to each Mortgage Loan which accrues interest on an
Actual/360 Basis and any Distribution Date relating to the one month period
preceding the Distribution Date in each February (and in any January of a
year which is not a leap year), an amount equal to the related Withheld
Amount.
(b) to the extent not already included in clause (a), any P&I Advances made
with respect to such Distribution Date, any Compensating Interest Payments made
by the Master Servicer to cover Prepayment Interest Shortfalls incurred during
the related Collection Period and for the Distribution Date occurring in each
March, the related Withheld Amounts remitted to the Trustee for distribution to
the Certificateholders as described under "Description of the
Certificates -- Interest Reserve Account."
See "The Pooling and Servicing Agreements -- Certificate Account" in the
accompanying prospectus.
Application of the Available Distribution Amount. On each Distribution
Date, the Trustee will apply the Available Distribution Amount for such date for
the following purposes and in the following order of priority:
(1) to pay interest to the holders of the Class A-1 Certificates,
Class A-2 Certificates, Class A-3 Certificates, Class A-4 Certificates,
Class XC Certificates and Class XP Certificates up to an amount equal to,
and pro rata as among such Classes in accordance with, all Distributable
Certificate Interest in respect of each such Class for such Distribution
Date and, to the extent not previously paid, for all prior Distribution
Dates;
(2) to pay principal sequentially first to the holders of the Class
A-1 Certificates, second to the holders of the Class A-2 Certificates,
third to the holders of the A-3 Certificates and fourth to the Class A-4
Certificates up to an amount equal to the lesser of (a) the
then-outstanding Certificate Balance of such Class and (b) the remaining
portion of the Principal Distribution Amounts (as defined below) for such
Distribution Date;
(3) to reimburse the holders of the Class A-1 Certificates, Class A-2
Certificates, Class A-3 Certificates and Class A-4 Certificates up to an
amount equal to, and pro rata as among such Classes in accordance with, the
respective amounts of Realized Losses and Additional Trust Fund Expenses,
if any, previously allocated to such Classes and for which no reimbursement
has previously been paid; and
S-104
(4) to make payments on the other Classes of Certificates
(collectively, the "Subordinate Certificates") as contemplated below;
provided that, on each Distribution Date as of which the aggregate Certificate
Balance of the Subordinate Certificates is to be or has been reduced to zero,
and in any event on the final Distribution Date in connection with a termination
of the Trust (see "-- Termination" below), the payments of principal to be made
as contemplated by clause (2) above with respect to the Class A-1 Certificates,
Class A-2 Certificates, Class A-3 Certificates and Class A-4 Certificates will
be so made (subject to available funds) to the holders of such Classes, up to an
amount equal to, and pro rata as between such Classes in accordance with, the
respective then outstanding Certificate Balances of such Classes.
On each Distribution Date, following the above-described distributions on
the Senior Certificates, the Trustee will apply the remaining portion, if any,
of the Available Distribution Amount for such date for the following purposes
and in the following order of priority:
(1) to pay interest to the holders of the Class B Certificates, up to
an amount equal to all Distributable Certificate Interest in respect or
such Class of Certificates for such Distribution Date and, to the extent
not previously paid, for all prior Distribution Dates;
(2) if the Certificate Balances of the Class A-1 Certificates, Class
A-2 Certificates, Class A-3 Certificates and Class A-4 Certificates have
been reduced to zero, to pay principal to the holders of the Class B
Certificates, up to an amount equal to the lesser of (a) the then
outstanding Certificate Balance of such Class of Certificates and (b) the
remaining portion of the Principal Distribution Amount for such
Distribution Date;
(3) to reimburse the holders of the Class B Certificates, up to an
amount equal to all Realized Losses and Additional Trust Fund Expenses, if
any, previously allocated to the Certificate Balance of such Class of
Certificates and for which no reimbursement has previously been paid;
(4) to pay interest to the holders of the Class C Certificates, up to
an amount equal to all Distributable Certificate Interest in respect of
such Class of Certificates for such Distribution Date and, to the extent
not previously paid, for all prior Distribution Dates;
(5) if the Certificate Balances of the Class A-1 Certificates, Class
A-2 Certificates, Class A-3 Certificates, Class A-4 Certificates and Class
B Certificates have been reduced to zero, to pay principal to the holders
of the Class C Certificates, up to an amount equal to the lesser of (a) the
then outstanding Certificate Balance of such Class of Certificates and (b)
the remaining portion of the Principal Distribution Amount for such
Distribution Date;
(6) to reimburse the holders of the Class C Certificates, up to an
amount equal to all Realized Losses and Additional Trust Fund Expenses, if
any, previously allocated to the Certificate Balance of such Class of
Certificates and for which no reimbursement has previously been received;
(7) to pay interest to the holders of the Class D Certificates, up to
an amount equal to all Distributable Certificate Interest in respect of
such Class of Certificates for such Distribution Date and, to the extent
not previously paid, for all prior Distribution Dates;
(8) if the Certificate Balances of the Class A-1 Certificates, Class
A-2 Certificates, Class A-3 Certificates, Class A-4 Certificates, Class B
Certificates and Class C Certificates have been reduced to zero, to pay
principal to the holder of the Class D Certificates, up to an amount equal
to the lesser of (a) the then outstanding Certificate Balance of such Class
of Certificates and (b) the remaining portion of the Principal Distribution
Amount for such Distribution Date;
(9) to reimburse the holders of the Class D Certificates, up to an
amount equal to all Realized Losses and Additional Trust Fund Expenses, if
any, previously allocated to the Certificate Balance of such Class of
Certificates and for which no reimbursement has previously been received;
S-105
(10) to pay interest to the holders of the Class E Certificates, up to
an amount equal to all Distributable Certificate Interest in respect of
such Class of Certificates for such Distribution Date and, to the extent
not previously paid, for all prior Distribution Dates;
(11) if the Certificate Balances of the Class A-1 Certificates, Class
A-2 Certificates, Class A-3 Certificates, Class A-4 Certificates, Class B
Certificates, Class C Certificates and Class D Certificates have been
reduced to zero, to pay principal to the holders of the Class E
Certificates, up to an amount equal to the lesser of (a) the then
outstanding Certificate Balance of such Class of Certificates and (b) the
remaining portion of the Principal Distribution Amount for such
Distribution Date;
(12) to reimburse the holders of the Class E Certificates, up to an
amount equal to all Realized Losses and Additional Trust Fund Expenses, if
any, previously allocated to the Certificate Balance of such Class of
Certificates and for which no reimbursement has previously been received;
(13) to pay interest to the holders of the Class F Certificates, up to
an amount equal to all Distributable Certificate Interest in respect of
such Class of Certificates for such Distribution Date and, to the extent
not previously paid, for all prior Distribution Dates;
(14) if the Certificate Balances of the Class A-1 Certificates, Class
A-2 Certificates, Class A-3 Certificates, Class A-4 Certificates, Class B
Certificates, Class C Certificates, Class D Certificates and Class E
Certificates have been reduced to zero, to pay principal to the holders of
the Class F Certificates, up to an amount equal to the lesser of (a) the
then outstanding Certificate Balance of such Class of Certificates and (b)
the remaining portion of the Principal Distribution Amount for such
Distribution Date;
(15) to reimburse the holders of the Class F Certificates, up to an
amount equal to all Realized Losses and Additional Trust Fund Expenses, if
any, previously allocated to the Certificate Balance of such Class of
Certificates and for which no reimbursement has previously been received;
(16) to pay interest to the holders of the Class G Certificates, up to
an amount equal to all Distributable Certificate Interest in respect of
such Class of Certificates for such Distribution Date and, to the extent
not previously paid, for all prior Distribution Dates;
(17) if the Certificate Balances of the Class A-1 Certificates, Class
A-2 Certificates, Class A-3 Certificates, Class A-4 Certificates, Class B
Certificates, Class C Certificates, Class D Certificates, Class E
Certificates and Class F Certificates have been reduced to zero, to pay
principal to the holders of the Class G Certificates, up to an amount equal
to the lesser of (a) the then outstanding Certificate Balance of such Class
of Certificates and (b) the remaining portion of the Principal Distribution
Amount for such Distribution Date;
(18) to reimburse the holders of the Class G Certificates, up to an
amount equal to all Realized Losses and Additional Trust Fund Expenses, if
any, previously allocated to the Certificate Balance of such Class of
Certificates and for which no reimbursement has previously been received;
(19) to pay interest to the holders of the Class H Certificates, up to
an amount equal to all Distributable Certificate Interest in respect of
such Class of Certificates for such Distribution Date and, to the extent
not previously paid, for all prior Distribution Dates;
(20) if the Certificate Balances of the Class A-1 Certificates, Class
A-2 Certificates, Class A-3 Certificates, Class A-4 Certificates, Class B
Certificates, Class C Certificates, Class D Certificates, Class E
Certificates, Class F Certificates and Class G Certificates have been
reduced to zero, to pay principal to the holders of the Class H
Certificates, up to an amount equal to the lesser of (a) the then
outstanding Certificate Balance of such Class of Certificates and (b) the
remaining portion of the Principal Distribution Amount for such
Distribution Date;
(21) to reimburse the holders of the Class H Certificates, up to an
amount equal to all Realized Losses and Additional Trust Fund Expenses, if
any, previously allocated to the Certificate Balance of such Class of
Certificates and for which no reimbursement has previously been received;
S-106
(22) to pay interest to the holders of the Class J Certificates, up to
an amount equal to all Distributable Certificate Interest in respect of
such Class of Certificates for such Distribution Date and, to the extent
not previously paid, for all prior Distribution Dates;
(23) if the Certificate Balances of the Class A-1 Certificates, Class
A-2 Certificates, Class A-3 Certificates, Class A-4 Certificates, Class B
Certificates, Class C Certificates, Class D Certificates, Class E
Certificates, Class F Certificates, Class G Certificates and Class H
Certificates have been reduced to zero, to pay principal to the holders of
the Class J Certificates, up to an amount equal to the lesser of (a) the
then outstanding Certificate Balance of such Class of Certificates and (b)
the remaining portion of the Principal Distribution Amount for such
Distribution Date;
(24) to reimburse the holders of the Class J Certificates, up to an
amount equal to all Realized Losses and Additional Trust Fund Expenses, if
any, previously allocated to the Certificate Balance of such Class of
Certificates and for which no reimbursement has previously been received;
(25) to pay interest to the holders of the Class K Certificates, up to
an amount equal to all Distributable Certificate Interest in respect of
such Class of Certificates for such Distribution Date and, to the extent
not previously paid, for all prior Distribution Dates;
(26) if the Certificate Balances of the Class A-1 Certificates, Class
A-2 Certificates, Class A-3 Certificates, Class A-4 Certificates, Class B
Certificates, Class C Certificates, Class D Certificates, Class E
Certificates, Class F Certificates, Class G Certificates, Class H
Certificates and Class J Certificates have been reduced to zero, to pay
principal to the holders of the Class K Certificates, up to an amount equal
to the lesser of (a) the then outstanding Certificate Balance of such Class
of Certificates and (b) the remaining portion of the Principal Distribution
Amount for such Distribution Date;
(27) to reimburse the holders of the Class K Certificates, up to an
amount equal to all Realized Losses and Additional Trust Fund Expenses, if
any, previously allocated to the Certificate Balance of such Class of
Certificates and for which no reimbursement has previously been received;
(28) to pay interest to the holders of the Class L Certificates, up to
an amount equal to all Distributable Certificate Interest in respect of
such Class of Certificates for such Distribution Date and, to the extent
not previously paid, for all prior Distribution Dates;
(29) if the Certificate Balances of the Class A-1 Certificates, Class
A-2 Certificates, Class A-3 Certificates, Class A-4 Certificates, Class B
Certificates, Class C Certificates, Class D Certificates, Class E
Certificates, Class F Certificates, Class G Certificates, Class H
Certificates, Class J Certificates and Class K Certificates have been
reduced to zero, to pay principal to the holders of the Class L
Certificates, up to an amount equal to the lesser of (a) the then
outstanding Certificate Balance of such Class of Certificates and (b) the
remaining portion of the Principal Distribution Amount for such
Distribution Date;
(30) to reimburse the holders of the Class L Certificates, up to an
amount equal to all Realized Losses and Additional Trust Fund Expenses, if
any, previously allocated to the Certificate Balance of such Class of
Certificates and for which no reimbursement has previously been received;
(31) to pay interest to the holders of the Class M Certificates, up to
an amount equal to all Distributable Certificate Interest in respect of
such Class of Certificates for such Distribution Date and, to the extent
not previously paid, for all prior Distribution Dates;
(32) if the Certificate Balances of the Class A-1 Certificates, Class
A-2 Certificates, Class A-3 Certificates, Class A-4 Certificates, Class B
Certificates, Class C Certificates, Class D Certificates, Class E
Certificates, Class F Certificates, Class G Certificates, Class H
Certificates, Class J Certificates, Class K Certificates and Class L
Certificates have been reduced to zero, to pay principal to the holders of
the Class M Certificates, up to an amount equal to the lesser of (a) the
then outstanding Certificate Balance of such Class of Certificates and (b)
the remaining portion of the Principal Distribution Amount for such
Distribution Date;
S-107
(33) to reimburse the holders of the Class M Certificates, up to an
amount equal to all Realized Losses and Additional Trust Fund Expenses, if
any, previously allocated to the Certificate Balance of such Class of
Certificates and for which no reimbursement has previously been received;
(34) to pay interest to the holders of the Class N Certificates, up to
an amount equal to all Distributable Certificate Interest in respect of
such Class of Certificates for such Distribution Date and, to the extent
not previously paid, for all prior Distribution Dates;
(35) if the Certificate Balances of the Class A-1 Certificates, Class
A-2 Certificates, Class A-3 Certificates, Class A-4 Certificates, Class B
Certificates, Class C Certificates, Class D Certificates, Class E
Certificates, Class F Certificates, Class G Certificates, Class H
Certificates, Class J Certificates, Class K Certificates, Class L
Certificates and Class M Certificates have been reduced to zero, to pay
principal to the holders of the Class N Certificates, up to an amount equal
to the lesser of (a) the then outstanding Certificate Balance of such Class
of Certificates and (b) the remaining portion of the Principal Distribution
Amount for such Distribution Date;
(36) to reimburse the holders of the Class N Certificates, up to an
amount equal to all Realized Losses and Additional Trust Fund Expenses, if
any, previously allocated to the Certificate Balance of such Class of
Certificates and for which no reimbursement has previously been received;
(37) to pay interest to the holders of the Class O Certificates, up to
an amount equal to all Distributable Certificate Interest in respect of
such Class of Certificates for such Distribution Date and, to the extent
not previously paid, for all prior Distribution Dates;
(38) if the Certificate Balances of the Class A-1 Certificates, Class
A-2 Certificates, Class A-3 Certificates, Class A-4 Certificates, Class B
Certificates, Class C Certificates, Class D Certificates, Class E
Certificates, Class F Certificates, Class G Certificates, Class H
Certificates, Class J Certificates, Class K Certificates, Class L
Certificates, Class M Certificates and Class N Certificates have been
reduced to zero, to pay principal to the holders of the Class O
Certificates, up to an amount equal to the lesser of (a) the then
outstanding Certificate Balance of such Class of Certificates and (b) the
remaining portion of the Principal Distribution Amount for such
Distribution Date;
(39) to reimburse the holders of the Class O Certificates, up to an
amount equal to all Realized Losses and Additional Trust Fund Expenses, if
any, previously allocated to the Certificate Balance of such Class of
Certificates and for which no reimbursement has previously been received;
(40) to pay interest to the holders of the Class P Certificates, up to
an amount equal to all Distributable Certificate Interest in respect of
such Class of Certificates for such Distribution Date and, to the extent
not previously paid, for all prior Distribution Dates;
(41) if the Certificate Balances of the Class A-1 Certificates, Class
A-2 Certificates, Class A-3 Certificates, Class A-4 Certificates, Class B
Certificates, Class C Certificates, Class D Certificates, Class E
Certificates, Class F Certificates, Class G Certificates, Class H
Certificates, Class J Certificates, Class K Certificates, Class L
Certificates, Class M Certificates, Class N Certificates and Class O
Certificates have been reduced to zero, to pay principal to the holders of
the Class P Certificates, up to an amount equal to the lesser of (a) the
then outstanding Certificate Balance of such Class of Certificates and (b)
the remaining portion of the Principal Distribution Amount for such
Distribution Date;
(42) to reimburse the holders of the Class P Certificates, up to an
amount equal to all Realized Losses and Additional Trust Fund Expenses, if
any, previously allocated to the Certificate Balance of such Class of
Certificates and for which no reimbursement has previously been received;
(43) to pay interest to the holders of the Class Q Certificates, up to
an amount equal to all Distributable Certificate Interest in respect of
such Class of Certificates for such Distribution Date and, to the extent
not previously paid, for all prior Distribution Dates;
(44) if the Certificate Balances of the Class A-1 Certificates, Class
A-2 Certificates, Class A-3 Certificates, Class A-4 Certificates, Class B
Certificates, Class C Certificates, Class D Certificates,
S-108
Class E Certificates, Class F Certificates, Class G Certificates, Class H
Certificates, Class J Certificates, Class K Certificates, Class L
Certificates, Class M Certificates, Class N Certificates, Class O
Certificates and Class P Certificates have been reduced to zero, to pay
principal to the holders of the Class Q Certificates, up to an amount equal
to the lesser of (a) the then outstanding Certificate Balance of such Class
of Certificates and (b) the remaining portion of the Principal Distribution
Amount for such Distribution Date;
(45) to reimburse the holders of the Class Q Certificates, up to an
amount equal to all Realized Losses and Additional Trust Fund Expenses, if
any, previously allocated to the Certificate Balance of such Class of
Certificates and for which no reimbursement has previously been received;
and
(46) to pay to the holders of the REMIC Residual Certificates, the
balance, if any, of the Available Distribution Amount for such Distribution
Date;
provided that, on the final Distribution Date in connection with a termination
of the Trust, the payments of principal to be made as contemplated by any of
clauses (2), (5), (8), (11), (14), (17), (20), (23), (26), (29), (32), (35),
(38), (41) and (44) above with respect to any Class of Sequential Pay
Certificates will be so made (subject to available funds) up to an amount equal
to the entire then outstanding Certificate Balance of such Class of
Certificates.
Distributable Certificate Interest. The "Distributable Certificate
Interest" in respect of each Class of REMIC Regular Certificates for each
Distribution Date is equal to the Accrued Certificate Interest in respect of
such Class of Certificates for such Distribution Date, reduced by such Class'
allocable share (calculated as described below) of any Net Aggregate Prepayment
Interest Shortfall for such Distribution Date.
The "Accrued Certificate Interest" in respect of each Class of REMIC
Regular Certificates for each Distribution Date is equal to one calendar month's
interest at the Pass-Through Rate applicable to such Class of Certificates for
such Distribution Date accrued on the related Certificate Balance or Notional
Amount, as the case may be, outstanding immediately prior to such Distribution
Date. Accrued Certificate Interest will be calculated on the basis of a 360-day
year consisting of twelve 30-day months for each of the Classes of Certificates.
The Master Servicer will be required to make Compensating Interest Payments
in connection with Prepayment Interest Shortfalls as described in this
prospectus supplement. The "Net Aggregate Prepayment Interest Shortfall" for any
Distribution Date will be the amount, if any, by which (a) the aggregate of all
Prepayment Interest Shortfalls incurred during the related Collection Period,
exceeds (b) any such payment made by the Master Servicer with respect to such
Distribution Date to cover such Prepayment Interest Shortfalls. See "Servicing
of the Mortgage Loans -- Servicing and Other Compensation and Payment of
Expenses" in this prospectus supplement. The Net Aggregate Prepayment Interest
Shortfall, if any, for each Distribution Date will be allocated on such
Distribution Date to the respective Classes of REMIC Regular Certificates (in
each case, to reduce the amount of interest otherwise payable thereon on such
Distribution Date) as follows: first, to the respective Classes of REMIC Regular
Certificates (other than the Class A-1, Class A-2, Class A-3, Class A-4, Class
XC and Class XP Certificates) sequentially in reverse alphabetical order of
Class designation, in each case up to an amount equal to the lesser of any
remaining unallocated portion of such Net Aggregate Prepayment Interest
Shortfall and any Accrued Certificate Interest in respect of such Class of
Certificates for such Distribution Date; and, thereafter, if and to the extent
that any portion of such Net Aggregate Prepayment Interest Shortfall remains
unallocated, among the Class A-1 Certificates, Class A-2 Certificates, Class A-3
Certificates, Class A-4 Certificates and the Class XC and Class XP Certificates,
up to, and pro rata in accordance with, the respective amounts of Accrued
Certificate Interest for each such Class for such Distribution Date.
Principal Distribution Amount. The "Principal Distribution Amount" for any
Distribution Date will, in general, equal the aggregate of the following:
(a) the principal portions of all Monthly Payments (other than Balloon
Payments) and any Assumed Monthly Payments due or deemed due, as the case
may be, in respect of the Mortgage Loans for their respective Due Dates
occurring during the related Collection Period;
S-109
(b) all voluntary principal prepayments received on the Mortgage Loans
during the related Collection Period;
(c) with respect to any Balloon Loan as to which the related stated
maturity date occurred during or prior to the related Collection Period,
any payment of principal (exclusive of any voluntary principal prepayment
and any amount described in clause (d) below) made by or on behalf of the
related borrower during the related Collection Period, net of any portion
of such payment that represents a recovery of the principal portion of any
Monthly Payment (other than a Balloon Payment) due, or the principal
portion of any Assumed Monthly Payment deemed due, in respect of such
Mortgage Loan on a Due Date during or prior to the related Collection
Period and not previously recovered;
(d) all Liquidation Proceeds and Insurance and Condemnation Proceeds
received on the Mortgage Loans during the related Collection Period that
were identified and applied by the Master Servicer as recoveries of
principal thereof, in each case net of any portion of such amounts that
represents a recovery of the principal portion of any Monthly Payment
(other than a Balloon Payment) due, or the principal portion of any Assumed
Monthly Payment deemed due, in respect of the related Mortgage Loan on a
Due Date during or prior to the related Collection Period and not
previously recovered; and
(e) the excess, if any, of (i) the Principal Distribution Amount for
the immediately preceding Distribution Date, over (ii) the aggregate
distributions of principal made on the Sequential Pay Certificates in
respect of such Principal Distribution Amount on such immediately preceding
Distribution Date.
For purposes of the foregoing, the Monthly Payment due on any Mortgage Loan
on any related Due Date will reflect any waiver, modification or amendment of
the terms of such Mortgage Loan, whether agreed to by the Master Servicer or
Special Servicer or resulting from a bankruptcy, insolvency or similar
proceeding involving the related borrower.
An "Assumed Monthly Payment" is an amount deemed due in respect of: (i) any
Mortgage Loan that is delinquent in respect of its Balloon Payment beyond the
first Determination Date that follows its stated maturity date and as to which
no arrangements have been agreed to for collection of the delinquent amounts; or
(ii) any Mortgage Loan as to which the related Mortgaged Property has become an
REO Property. The Assumed Monthly Payment deemed due on any such Mortgage Loan
delinquent as to its Balloon Payment, for its stated maturity date and for each
successive Due Date that it remains outstanding, will equal the Monthly Payment
that would have been due thereon on such date if the related Balloon Payment had
not come due, but rather such Mortgage Loan had continued to amortize in
accordance with its amortization schedule, if any, in effect immediately prior
to maturity and had continued to accrue interest in accordance with such loan's
terms in effect immediately prior to maturity. The Assumed Monthly Payment
deemed due on any such Mortgage Loan as to which the related Mortgaged Property
has become an REO Property, for each Due Date that such REO Property remains
part of the Trust Fund, will equal the Monthly Payment (or, in the case of a
Mortgage Loan delinquent in respect of its Balloon Payment as described in the
prior sentence, the Assumed Monthly Payment) due on the last Due Date prior to
the acquisition of such REO Property.
Excess Interest. On each Distribution Date, Excess Interest received
during the related Collection Period with respect to the Bank of America
Mortgage Loans will be distributed solely to the Class Z-I Certificates to the
extent set forth in the Pooling Agreement, and will not be available for
distribution to holders of the Offered Certificates. Excess Interest received
during the related Collection Period with respect to the PMCF Mortgage Loans
will be distributed solely to the Class Z-II Certificateholder to the extent set
forth in the Pooling Agreement and will not be available for distribution to
holders of the Offered Certificates.
S-110
Distributions of Prepayment Premiums. On any Distribution Date, Prepayment
Premiums collected during the related Collection Period are required to be
distributed to the holders of the Classes of Offered Certificates, the Class G
Certificates, the Class H Certificates and the Class J Certificates as described
below.
On each Distribution Date, Prepayment Premiums collected on the Mortgage
Loans during the related Prepayment Period will be distributed by the Trustee to
the following Classes: to the Class A-1, Class A-2, Class A-3, Class A-4, Class
B, Class C, Class D, Class E, Class F, Class G, Class H and Class J
Certificates, in an amount equal to the product of (a) a fraction, not greater
than 1, whose numerator is the amount distributed as principal to such Class on
such Distribution Date, and whose denominator is the total amount distributed as
principal to the Class A-1, Class A-2, Class A-3, Class A-4, Class B, Class C,
Class D, Class E, Class F, Class G, Class H, Class J, Class K, Class L, Class M,
Class N, Class O, Class P and Class Q Certificates on such Distribution Date,
(b) the Base Interest Fraction for the related principal payment on such Class
of Certificates, and (c) the amount of Prepayment Premium collected on such
principal prepayment during the related Prepayment Period. Any Prepayment
Premiums collected during the related Prepayment Period remaining after such
distributions will be distributed to the holders of the Class XC Certificates.
The "Base Interest Fraction" with respect to any principal prepayment on
any Mortgage Loan and with respect to any class of Offered Certificates is a
fraction (a) whose numerator is the amount, if any, by which (i) the
Pass-Through Rate on such Class of Certificates exceeds (ii) the discount rate
used in accordance with the related Mortgage Loan documents in calculating the
Prepayment Premium with respect to such Principal Prepayment and (b) whose
denominator is the amount, if any, by which (i) the Mortgage Rate on such
Mortgage Loan exceeds (ii) the discount rate used in accordance with the related
Mortgage Loan documents in calculating the yield maintenance charge with respect
to such principal prepayment. However, under no circumstances shall the Base
Interest Fraction be greater than one. If such discount rate is greater than or
equal to the lesser of (x) the Mortgage Rate on such Mortgage Loan and (y) the
Pass-Through Rate described in the preceding sentence, then the Base Interest
Fraction will equal zero.
No Prepayment Premiums will be distributed to the holders of the Class K,
Class L, Class M, Class N, Class O, Class P Certificates or Class Q
Certificates. Instead, after the Certificate Balances of the Class A-1, Class
A-2, Class A-3, Class A-4, Class B, Class C, Class D, Class E, Class F, Class G,
Class H and Class J Certificates have been reduced to zero, all prepayment
premiums and yield maintenance charges with respect to the Mortgage Loans will
be distributed to the holders of the Class XC Certificates.
Prepayment Premiums will be distributed on any Distribution Date only to
the extent they are received in respect of the Mortgage Loans in the related
Prepayment Period.
The Depositor makes no representation as to the enforceability of the
provision of any Mortgage Note requiring the payment of a Prepayment Premium or
of the collectibility of any Prepayment Premium. See "Description of the
Mortgage Pool -- Certain Terms and Conditions of the Mortgage
Loans -- Prepayment Provisions" and "Risk Factors -- Risks Related to the
Mortgage Loans -- Prepayment Premiums" in this prospectus supplement.
Treatment of REO Properties. Notwithstanding that any Mortgaged Property
may be acquired as part of the Trust Fund through foreclosure, deed in lieu of
foreclosure or otherwise, the related Mortgage Loan will be treated, for
purposes of, among other things, determining distributions on the Certificates,
allocations of Realized Losses and Additional Trust Fund Expenses to the
Certificates, and the amount of Master Servicing Fees, Special Servicing Fees
and Trustee Fees payable under the Pooling Agreement, as having remained
outstanding until such REO Property is liquidated. Among other things, such
Mortgage Loan will be taken into account when determining the Principal
Distribution Amount for each Distribution Date. In connection therewith,
operating revenues and other proceeds derived from such REO Property (after
application thereof to pay certain costs and taxes, including certain
reimbursements payable to the Master Servicer, the Special Servicer and/or the
Trustee, incurred in connection with the operation and disposition of such REO
Property) will be "applied" by the Master Servicer as principal, interest and
other amounts "due" on such Mortgage Loan; and, subject to the recoverability
determination described below (see "-- P&I Advances"), the Master
S-111
Servicer and the Trustee will be required to make P&I Advances in respect of
such Mortgage Loan, in all cases as if such Mortgage Loan had remained
outstanding.
SUBORDINATION; ALLOCATION OF LOSSES AND CERTAIN EXPENSES
As and to the extent described herein, the rights of holders of the
Subordinate Certificates to receive distributions of amounts collected or
advanced on the Mortgage Loans will, in the case of each Class thereof, be
subordinated to the rights of holders of the Senior Certificates and, further,
to the rights of holders of each other Class of Subordinate Certificates, if
any, with an earlier alphabetical Class designation. This subordination provided
by the Subordinate Certificates is intended to enhance the likelihood of timely
receipt by holders of the respective Classes of Senior Certificates of the full
amount of Distributable Certificate Interest payable in respect of their
Certificates on each Distribution Date, and the ultimate receipt by holders of
the Class A-1 Certificates, Class A-2 Certificates, Class A-3 Certificates and
Class A-4 Certificates of principal equal to, in each such case, the entire
related Certificate Balance. Similarly, but to decreasing degrees, this
subordination is also intended to enhance the likelihood of timely receipt by
holders of the other Classes of Offered Certificates of the full amount of
Distributable Certificate Interest payable in respect of their Certificates on
each Distribution Date, and the ultimate receipt by holders of the other Classes
of Offered Certificates of principal equal to, in each such case, the entire
related Certificate Balance. The subordination of any Class of Subordinate
Certificates will be accomplished by, among other things, the application of the
Available Distribution Amount on each Distribution Date in the order of priority
described under "-- Distributions -- The Available Distribution Amount" above.
No other form of credit support will be available for the benefit of holders of
the Offered Certificates.
If, following the distributions to be made in respect of the Certificates
on any Distribution Date, the aggregate Stated Principal Balance of the Mortgage
Pool that will be outstanding immediately following such Distribution Date is
less than the then aggregate Certificate Balance of the Sequential Pay
Certificates, the Certificate Balances of the Class Q, Class P, Class O, Class
N, Class M, Class L, Class K, Class J, Class H, Class G, Class F, Class E, Class
D, Class C and Class B Certificates will be reduced, sequentially in that order,
in the case of each such Class until such deficit (or the related Certificate
Balance) is reduced to zero (whichever occurs first). If any portion of such
deficit remains at such time as the Certificate Balances of such Classes of
Certificates are reduced to zero, then the respective Certificate Balances of
the Class A-1 Certificates, Class A-2 Certificates, Class A-3 Certificates and
Class A-4 Certificates will be reduced, pro rata in accordance with the relative
sizes of the remaining Certificate Balances of such Classes until such deficit
(or each such Certificate Balance) is reduced to zero. Any such deficit will, in
general, be the result of Realized Losses incurred in respect of the Mortgage
Loans and/or Additional Trust Fund Expenses to the extent paid from funds which
would otherwise have been used to make distributions of principal. Accordingly,
the foregoing reductions in the Certificate Balances of the respective Classes
of the Sequential Pay Certificates will constitute an allocation of any such
Realized Losses and Additional Trust Fund Expenses.
"Realized Losses" are losses on or in respect of the Mortgage Loans arising
from the inability of the Master Servicer and/or the Special Servicer to collect
all amounts due and owing under any such Mortgage Loan, including by reason of
the fraud or bankruptcy of a borrower or a casualty of any nature at a Mortgaged
Property, to the extent not covered by insurance. The Realized Loss in respect
of any Defaulted Mortgage Loan (or any Mortgage Loan as to which the related
Mortgaged Property has become an REO Property (an "REO Loan")) as to which a
final recovery determination has been made is an amount generally equal to (i)
the unpaid principal balance of such Mortgage Loan (or REO Loan) as of the Due
Date related to the Collection Period in which the final recovery determination
was made, plus (ii) all accrued but unpaid interest (excluding Excess Interest)
on such Mortgage Loan (or REO Loan) at the related Mortgage Rate to but not
including the Due Date related to the Collection Period in which the final
recovery determination was made, plus (iii) any related unreimbursed Servicing
Advances as of the commencement of the Collection Period in which the final
recovery determination was made, together with any new related Servicing
Advances made during such Collection Period, minus (iv) all payments and
proceeds, if any, received in respect of such Collection Period related to the
Mortgage Loan (REO Loan) during the Collection Period in
S-112
which such final recovery determination was made (net of any related Liquidation
Expenses paid therefrom). If any portion of the debt due under a Mortgage Loan
is forgiven, whether in connection with a modification, waiver or amendment
granted or agreed to by the Master Servicer or the Special Servicer or in
connection with the bankruptcy or similar proceeding involving the related
borrower, the amount so forgiven also will be treated as a Realized Loss.
"Additional Trust Fund Expenses" include, among other things, (i) all
Special Servicing Fees, Workout Fees and Liquidation Fees paid to the Special
Servicer, (ii) any interest paid to the Master Servicer, the Special Servicer
and/or the Trustee in respect of unreimbursed Advances, (iii) the cost of
various opinions of counsel required or permitted to be obtained in connection
with the servicing of the Mortgage Loans and the administration of the Trust
Fund, (iv) property inspection costs incurred by the Special Servicer for
Specially Serviced Mortgage Loans to the extent paid out of general collections,
(v) certain unanticipated, non-Mortgage Loan specific expenses of the Trust,
including certain reimbursements and indemnifications to the Trustee as
described under "The Trustee -- Indemnification" and under "The Pooling and
Servicing Agreements -- Certain Matters Regarding the Trustee" in the
accompanying prospectus, certain reimbursements to the Master Servicer, the
Special Servicer, the REMIC Administrator and the Depositor as described under
"The Pooling and Servicing Agreements -- Certain Matters Regarding the Master
Servicer, the Special Servicer, the REMIC Administrator and the Depositor" in
the accompanying prospectus and certain federal, state and local taxes, and
certain tax-related expenses, payable out of the Trust Fund as described under
"Certain Federal Income Tax Consequences -- Possible Taxes on Income From
Foreclosure Property and Other Taxes" herein and "Certain Federal Income Tax
Consequences -- REMICs -- Prohibited Transactions Tax and Other Taxes" in the
accompanying prospectus, (vi) if not advanced by the Master Servicer, any
amounts expended on behalf of the Trust to remediate an adverse environmental
condition at any Mortgaged Property securing a Defaulted Mortgage Loan (see "The
Pooling and Servicing Agreements -- Realization Upon Defaulted Mortgage Loans"
in the accompanying prospectus), and (vii) any other expense of the Trust Fund
not specifically included in the calculation of "Realized Loss" for which there
is no corresponding collection from a borrower. Additional Trust Fund Expenses
will reduce amounts payable to Certificateholders and, consequently, may result
in a loss on the Offered Certificates.
EXCESS INTEREST DISTRIBUTION ACCOUNT
The Trustee is required to establish and maintain an "Excess Interest
Distribution Account" (which may be a sub-account of the Distribution Account)
in the name of the Trustee for the benefit of the Class Z-I and Class Z-II
Certificateholders. Prior to the applicable Distribution Date, the Master
Servicer is required to remit to the Trustee for deposit into the Excess
Interest Distribution Account an amount equal to the Excess Interest received
during the related Collection Period. The Trustee may invest amounts on deposit
in the Excess Interest Distribution Account in Permitted Investments for its own
account.
INTEREST RESERVE ACCOUNT
The Trustee will be required to establish and maintain an "Interest Reserve
Account" (which may be a sub-account of the Distribution Account) in the name of
the Trustee for the benefit of the holders of the Certificates. On each Master
Servicer Remittance Date occurring in February and in January of any year which
is not a leap year, an amount will be required to be withdrawn from the
Certificate Account, in respect of each Mortgage Loan which accrues interest on
an Actual/360 Basis, for deposit into the Interest Reserve Account, equal to one
day's interest at the related Net Mortgage Rate on the respective Stated
Principal Balance, as of the Due Date in the month preceding the month in which
such Master Servicer Remittance Date occurs, of each such Mortgage Loan, to the
extent a Monthly Payment or P&I Advance is made in respect thereof (all amounts
so withdrawn in any consecutive January (if applicable) and February, the
"Withheld Amount"). The "Master Servicer Remittance Date" for any month is the
business day preceding each Distribution Date. On each Master Servicer
Remittance Date occurring in March, the Trustee will be required to withdraw
from the Interest Reserve Account an amount equal to the Withheld Amounts from
the preceding January (if applicable) and February, if any, and deposit such
amount into the Certificate Account.
S-113
The Trustee may invest amounts on deposit in the Interest Reserve Account in
Permitted Investments for its own account.
P&I ADVANCES
With respect to each Distribution Date, the Master Servicer will be
obligated, subject to the recoverability determination described below, to make
advances (each, a "P&I Advance") out of its own funds or, subject to the
replacement thereof as and to the extent provided in the Pooling Agreement,
funds held in the Certificate Account that are not required to be part of the
Available Distribution Amount for such Distribution Date, in an amount generally
equal to the aggregate of all Monthly Payments (other than Balloon Payments and
Excess Interest) and any Assumed Monthly Payments, in each case net of related
Master Servicing Fees that were due or deemed due, as the case may be, in
respect of the Mortgage Loans during the related Collection Period and that were
not paid by or on behalf of the related borrowers or otherwise collected as of
the close of business on the Business Day prior to the Master Servicer
Remittance Date. The Master Servicer's obligations to make P&I Advances in
respect of any Mortgage Loan will continue through liquidation of such Mortgage
Loan or disposition of any REO Property acquired in respect thereof.
Notwithstanding the foregoing, if it is determined that an Appraisal Reduction
Amount (as defined below) exists with respect to any Required Appraisal Loan (as
defined below), then, with respect to the Distribution Date immediately
following the date of such determination and with respect to each subsequent
Distribution Date for so long as such Appraisal Reduction Amount exists, in the
event of subsequent delinquencies on such Mortgage Loan, the interest portion of
the P&I Advance required to be made in respect of such Mortgage Loan will be
reduced (no reduction to be made in the principal portion, however) to an amount
equal to the product of (i) the amount of the interest portion of such P&I
Advance that would otherwise be required to be made for such Distribution Date
without regard to this sentence, multiplied by (ii) a fraction (expressed as a
percentage), the numerator of which is equal to the Stated Principal Balance of
such Mortgage Loan, net of such Appraisal Reduction Amount, and the denominator
of which is equal to the Stated Principal Balance of such Mortgage Loan. See
"Description of the Certificates -- Appraisal Reductions" in this prospectus
supplement. Subject to the recoverability determination described below, if the
Master Servicer fails to make a required P&I Advance, the Trustee will be
required to make such P&I Advance. See "The Trustee -- The Trustee" in this
prospectus supplement.
The Master Servicer and the Trustee will each be entitled to recover any
P&I Advance made out of its own funds from any Related Proceeds. Notwithstanding
the foregoing, neither the Master Servicer nor the Trustee will be obligated to
make any P&I Advance that it determines in its reasonable good faith judgment
would, if made, not be recoverable out of Related Proceeds (a "Nonrecoverable
P&I Advance"; and, together with a Nonrecoverable Servicing Advance,
"Nonrecoverable Advances"). The Trustee will be entitled to rely on any
non-recoverability determination made by the Master Servicer. Neither the Master
Servicer nor the Trustee will make a P&I Advance for Excess Interest. The Master
Servicer and Trustee, as applicable, will be entitled to recover any Advance
that at any time is determined to be a Nonrecoverable Advance (and interest
thereon) out of funds received on or in respect of other Mortgage Loans. See
"Description of the Certificates -- Advances in Respect of Delinquencies" and
"The Pooling and Servicing Agreements -- Certificate Account" in the
accompanying prospectus.
The Master Servicer and the Trustee will each be entitled with respect to
any Advance made thereby, and the Special Servicer will be entitled with respect
to any Servicing Advance made thereby, to interest accrued on the amount of such
Advance for so long as it is outstanding at a rate per annum (the "Reimbursement
Rate") equal to the "prime rate" as published in the "Money Rates" section of
The Wall Street Journal, as such "prime rate" may change from time to time
except that no interest will be payable with respect to any P&I Advance of a
payment due on a Mortgage Loan during the applicable grace period. Such interest
on any Advance will be payable to the Master Servicer, the Special Servicer or
the Trustee, as the case may be, first, out of Default Charges collected on the
related Mortgage Loan and, second, at any time coinciding with or following the
reimbursement of such Advance, out of any amounts then on deposit in the
Certificate Account. To the extent not offset by Default Charges accrued and
actually collected on the
S-114
related Mortgage Loan as described above, interest accrued on outstanding
Advances will result in a reduction in amounts payable on the Certificates.
APPRAISAL REDUCTIONS
Promptly following the occurrence of: (1) any Mortgage Loan becoming a
Modified Mortgage Loan; (2) any Monthly Payment with respect to any Mortgage
Loan remains unpaid for 60 days past the Due Date for such payment; (3) the
passage of 60 days after the Special Servicer receives notice that the mortgagor
under such Mortgage Loan becomes the subject of bankruptcy, insolvency or
similar proceedings, which remain undischarged and undismissed; (4) the passage
of 60 days after the Special Servicer receives notice that a receiver or similar
official is appointed with respect to the related Mortgaged Property; or (5) the
related Mortgaged Property becoming an REO Property (an "Appraisal Trigger
Event") with respect to any Mortgage Loan (each such Mortgage Loan, a "Required
Appraisal Loan"), the Special Servicer will be required to obtain (or, if such
Mortgage Loan has a Stated Principal Balance of $2,000,000 or less, at its
discretion, conduct) an appraisal of the related Mortgaged Property from an
independent MAI-designated appraiser, unless such an appraisal had previously
been obtained (or if applicable, conducted) within the prior twelve months and
there has been no subsequent material change in the circumstances surrounding
the related Mortgaged Property that, in the Special Servicer's judgment, would
materially affect the value of the Mortgaged Property, and shall deliver a copy
of such appraisal to the Trustee, the Master Servicer and the Directing
Certificateholder. If such appraisal is obtained from a qualified appraiser, the
cost of such appraisal will be covered by, and reimbursable as a Servicing
Advance. As a result of any such appraisal, it may be determined that an
Appraisal Reduction Amount exists with respect to the related Required Appraisal
Loan. The "Appraisal Reduction Amount" for any Required Appraisal Loan will, in
general, be an amount (calculated as of the Determination Date immediately
following the later of the date on which the most recent relevant appraisal was
obtained by the Special Servicer pursuant to the Pooling Agreement and the date
of the most recent Appraisal Trigger Event with respect to such Required
Appraisal Loan) equal to the excess, if any, of:
(1) the sum of (a) the Stated Principal Balance of such Required
Appraisal Loan as of such Determination Date, (b) to the extent not
previously advanced by or on behalf of the Master Servicer, or the Trustee,
all unpaid interest (net of Default Interest and, in the case of an ARD
Loan after its Anticipated Repayment Date, Excess Interest) accrued on such
Required Appraisal Loan through the most recent Due Date prior to such
Determination Date, (c) all unpaid Special Servicing Fees accrued with
respect to such Required Appraisal Loan, (d) all related unreimbursed
Advances made by or on behalf of the Master Servicer, the Special Servicer
or, the Trustee with respect to such Required Appraisal Loan and
reimbursable out of the Trust Fund, together with all unpaid Advance
Interest accrued on such Advances, and (e) all currently due but unpaid
real estate taxes and assessments, insurance premiums and, if applicable,
ground rents in respect of the related Mortgaged Property or REO Property,
as applicable, for which neither the Master Servicer nor the Special
Servicer holds any escrow payments or Reserve Funds; over
(2) the sum of (x) the excess, if any, of (i) 90% of the Appraisal
Value of the related Mortgaged Property or REO Property, as applicable, as
determined by the most recent relevant appraisal acceptable for purposes of
the Pooling Agreement, over (ii) the amount of any obligation(s) secured by
any liens on such Mortgaged Property or REO Property, as applicable, that
are prior to the lien of such Required Appraisal Loan, and (y) any escrow
payments reserve funds and/or letters of credit held by the Master Servicer
or the Special Servicer with respect to such Required Appraisal Loan, the
related Mortgaged Property or any related REO Property (exclusive of any
such items that are to be applied to real estate taxes, assessments,
insurance premiums and/or ground rents or that were taken into account in
determining the Appraised Value of the related Mortgaged Property or REO
Property, as applicable, referred to in clause (2)(x)(i) above).
If the Special Servicer has not obtained a new appraisal (or performed an
internal valuation, if applicable) within the time limit described above, the
Appraisal Reduction Amount for the related Mortgage
S-115
Loan will equal 25% of the principal balance of such Mortgage Loan, to be
adjusted upon receipt of the new appraisal (or internal valuation, if
applicable).
For so long as any Mortgage Loan or REO Mortgage Loan remains a Required
Appraisal Loan, the Special Servicer is required, within 30 days of each
anniversary of such Mortgage Loan having become a Required Appraisal Loan, to
obtain (or, if such Required Appraisal Loan has a Stated Principal Balance of
$2,000,000 or less, at its discretion, conduct) an update of the prior
appraisal, and shall deliver a copy of such update to the Trustee, the Master
Servicer and the Directing Certificateholder. If such update is obtained from a
qualified appraiser, the cost thereof shall be covered by, and be reimbursed as,
a Servicing Advance. Promptly following the receipt of, and based upon, such
update, the Special Servicer shall redetermine and report to the Trustee, the
Master Servicer and the Directing Certificateholder the then applicable
Appraisal Reduction Amount, if any, with respect to the subject Required
Appraisal Loan.
The Directing Certificateholder shall have the right at any time within six
months of the date of the receipt of any appraisal to require that the Special
Servicer obtain a new appraisal of the subject Mortgaged Property in accordance
with MAI standards, at the expense of the Controlling Class Certificateholder.
Upon receipt of such appraisal the Special Servicer shall deliver a copy thereof
to the Trustee, the Master Servicer and the Directing Certificateholder.
Promptly following the receipt of, and based upon, such appraisal, the Special
Servicer shall redetermine and report to the Trustee, the Master Servicer and
the Directing Certificateholder the then applicable Appraisal Reduction Amount,
if any, with respect to the subject Required Appraisal Loan.
A "Modified Mortgage Loan" is any Mortgage Loan as to which any Servicing
Transfer Event has occurred and which has been modified by the Special Servicer
in a manner that: (A) affects the amount or timing of any payment of principal
or interest due thereon (other than, or in addition to, bringing current Monthly
Payments with respect to such Mortgage Loan); (B) except as expressly
contemplated by the related Mortgage, results in a release of the lien of the
Mortgage on any material portion of the related Mortgaged Property without a
corresponding principal prepayment in an amount not less than the fair market
value (as is) of the property to be released; or (C) in the good faith and
reasonable judgment of the Special Servicer, otherwise materially impairs the
security for such Mortgage Loan or reduces the likelihood of timely payment of
amounts due thereon.
REPORTS TO CERTIFICATEHOLDERS; CERTAIN AVAILABLE INFORMATION
Trustee Reports. Based on information provided in monthly reports prepared
by the Master Servicer and the Special Servicer and delivered to the Trustee, on
each Distribution Date the Trustee will be required to deliver or make available
electronically each month to each Certificateholder and Certificate Owner (so
long as such Certificate Owner provides the Trustee with a certification which
discloses such Certificate Owner's status as a holder), the following statements
and reports (collectively, the "Distribution Date Statement") substantially in
the forms set forth in Annex C (although such forms may be subject to change
over time) and substantially containing the information below:
(1) A statement setting forth, among other things: (i) the amount of
distributions, if any, made on such Distribution Date to the holders of
each Class of REMIC Regular Certificates and applied to reduce the
respective Certificate Balances thereof; (ii) the amount of distributions,
if any, made on such Distribution Date to the holders of each Class of
REMIC Regular Certificates allocable to Distributable Certificate Interest
and Prepayment Premiums; (iii) the Available Distribution Amount for such
Distribution Date; (iv) the aggregate amount of P&I Advances made in
respect of the immediately preceding Determination Date, the aggregate
amount of P&I Advances made as of the Master Servicer Remittance Date
("Payment After Determination Date Report"), the aggregate amount of P&I
Advances and other Servicing Advances made in respect of the immediately
preceding Distribution Date; (v) the aggregate Stated Principal Balance of
the Mortgage Pool outstanding immediately before and immediately after such
Distribution Date; (vi) the number, aggregate principal balance, weighted
average remaining term to maturity and weighted average Mortgage Rate of
the Mortgage Pool as of the end of the Collection Period for the prior
Determination Date; (vii) as of the end of the Collection Period for
S-116
the immediately preceding Distribution Date, the number and aggregate
ending scheduled principal balance of Mortgage Loans (A) delinquent 30-59
days, (B) delinquent 60-89 days, (C) delinquent 90 days or more, (D) as to
which foreclosure proceedings have been commenced (except with respect to
REO Properties) and (E) any bankruptcy by a borrower; (viii) with respect
to any REO Property included in the Trust Fund as of the end of the
Collection Period for such Distribution Date, the principal balance of the
Mortgage Loan as of the date such Mortgage Loan became delinquent; (ix) the
Accrued Certificate Interest and Distributable Certificate Interest in
respect of each Class of REMIC Regular Certificates for such Distribution
Date; (x) the aggregate amount of Distributable Certificate Interest
payable in respect of each Class of REMIC Regular Certificates on such
Distribution Date, including, without limitation, any Distributable
Certificate Interest remaining unpaid from prior Distribution Dates; (xi)
any unpaid Distributable Certificate Interest in respect of such Class of
REMIC Regular Certificates after giving effect to the distributions made on
such Distribution Date; (xii) the Pass-Through Rate for each Class of REMIC
Regular Certificates for such Distribution Date; (xiii) the Principal
Distribution Amount for such Distribution Date, separately identifying the
respective components of such amount; (xiv) the aggregate of all Realized
Losses incurred during the related Collection Period and all Additional
Trust Fund Expenses incurred during the related Collection Period; (xv) the
Certificate Balance or Notional Amount, as the case may be, of each Class
of REMIC Regular Certificates outstanding immediately before and
immediately after such Distribution Date, separately identifying any
reduction therein due to the allocation of Realized Losses and Additional
Trust Fund Expenses on such Distribution Date; (xvi) the aggregate amount
of servicing fees paid to the Master Servicer and the Special Servicer,
collectively and separately, during the Collection Period for the prior
Distribution Date; (xvii) a brief description of any material waiver,
modification or amendment of any Mortgage Loan entered into by the Master
Servicer or Special Servicer pursuant to the Pooling Agreement during the
related Collection Period; (xviii) current and cumulative outstanding
Advances; (xix) current prepayments and curtailments; (xx) the number and
aggregate principal balance of Mortgage Loans as to which foreclosure
proceedings have been commenced as to the related Mortgage Property; and
(xxi) the ratings from all Rating Agencies for all classes of Certificates.
In the case of information furnished pursuant to clauses (i) and (ii)
above, the amounts shall be expressed as a dollar amount in the aggregate
for all Certificates of each applicable Class and per a specified
denomination.
(2) A report containing information regarding the Mortgage Loans as of
the close of business on the immediately preceding Determination Date,
which report shall contain certain of the categories of information
regarding the Mortgage Loans set forth in this prospectus supplement in the
tables under the caption "Annex A: Certain Characteristics of the Mortgage
Loans" (calculated, where applicable, on the basis of the most recent
relevant information provided by the borrowers to the Master Servicer or
the Special Servicer and by the Master Servicer or the Special Servicer, as
the case may be, to the Trustee) and such information shall be presented in
a loan-by-loan and tabular format substantially similar to the formats
utilized in this prospectus supplement on Annex A (provided that no
information will be provided as to any repair and replacement or other cash
reserve and the only financial information to be reported on an ongoing
basis will be actual expenses, actual revenues and actual net operating
income for the respective Mortgaged Properties and a debt service coverage
ratio calculated on the basis thereof).
Servicer Reports. The Master Servicer is required to deliver to the
Trustee on the second Business Day following each Determination Date, and the
Trustee is to provide or make available on each Distribution Date, either in
electronic format or by first-class mail (if requested in writing) to each
Certificateholder, and any potential investor in the Certificates, on each
Distribution Date, a CMSA Loan Setup File, a CMSA Loan Periodic Update File, a
CMSA Property File, and a CMSA Financial File (in electronic format and
substance provided by the Master Servicer and/or the Special Servicer) setting
forth certain information with respect to the Mortgage Loans and the Mortgaged
Properties, and certain CMSA supplemental reports set forth in the Pooling
Agreement containing certain information regarding the Mortgage Loans and the
Mortgaged Properties all of which will be made available electronically (i) to
any interested party including the Rating Agencies, the Underwriters and any
party to the Pooling Agreement via the Trustee's Website or, (ii) to authorized
persons identified by the Trustee to the Master Servicer and parties to the
Pooling Agreement, via
S-117
the Master Servicer's Website, if the Master Servicer elects to maintain a
website, in its sole discretion, with the use of a username and a password
provided by the Master Servicer to such Person upon delivery to the Trustee with
a copy to the Master Servicer of a certification in the form attached to the
Pooling Agreement.
The servicer reports will not include any information that the Master
Servicer or the Special Servicer, as applicable, deems to be confidential. The
information that pertains to Specially Serviced Mortgage Loans and REO
Properties reflected in such reports shall be based solely upon the reports
delivered by the Special Servicer to the Master Servicer prior to the related
Distribution Date. None of the Master Servicer, the Special Servicer or the
Trustee shall be responsible for the accuracy or completeness of any information
supplied to it by a borrower or other third party that is included in any
reports, statements, materials or information prepared or provided by the Master
Servicer, the Special Servicer or the Trustee, as applicable.
Within 60 days after receipt by the Master Servicer from the related
borrowers or otherwise, as to Non-Specially Serviced Mortgage Loans, and within
45 days after receipt by the Master Servicer from the Special Servicer or
otherwise, as to Specially Serviced Mortgage Loans and REO Properties, of any
annual operating statements or rent rolls with respect to any Mortgaged Property
or REO Property, the Master Servicer (or the Special Servicer, with respect to
Specially Serviced Mortgage Loan) shall, based upon such operating statements or
rent rolls, prepare (or, if previously prepared, update) a report (the "CMSA
Operating Statement Analysis Report") and the Master Servicer shall remit a copy
of each CMSA Operating Statement Analysis Report prepared or updated by it
(within 10 days following initial preparation and each update thereof), together
with, if so requested, the underlying operating statements and rent rolls, to
the Special Servicer in a format reasonably acceptable to the Trustee and
Special Servicer.
Within 60 days after receipt by the Master Servicer (or 30 days in the case
of items received by the Special Servicer with respect to Specially Serviced
Mortgage Loans and REO Properties) of any quarterly or annual operating
statements with respect to any Mortgaged Property or REO Property, the Master
Servicer (or the Special Servicer, with respect to Specially Serviced Mortgage
Loans) shall prepare or update and forward to the Special Servicer and the
Directing Certificateholder (in an electronic format reasonably acceptable to
the Special Servicer) a report (the "CMSA NOI Adjustment Worksheet") to
normalize the full year net operating income and debt service coverage numbers
for such Mortgaged Property or REO Property, together with, if so requested, the
related operating statements.
All CMSA Operating Statement Analysis Reports and CMSA NOI Adjustment
Worksheets will be prepared substantially in the form as set forth in the
Pooling Agreement and will be maintained by the Master Servicer with respect to
each Mortgaged Property and REO Property, and the Master Servicer will forward
electronic copies (to the extent available) to the Directing Certificateholder,
the Trustee upon request, each Rating Agency upon request, and any
Certificateholder, upon request, or to the extent a beneficial owner of an
Offered Certificate (a "Certificate Owner") has confirmed its ownership interest
in the Certificates held thereby, such Certificate Owner, together with the
related operating statement or rent rolls. Each CMSA Operating Statement
Analysis Report and CMSA NOI Adjustment Worksheet will be prepared using
normalized year-to-date CMSA methodology as in effect on the Closing Date and as
modified and reasonably agreeable to the Master Servicer from time to time.
Conveyance of notices and other communications by DTC to Participants, and by
Participants to Certificate Owners, will be governed by arrangements among them,
subject to any statutory or regulatory requirements as may be in effect from
time to time. The Master Servicer, the Special Servicer, the Trustee, the
Depositor, the REMIC Administrator, the Mortgage Loan Sellers and the
Certificate Registrar are required to recognize as Certificateholders only those
persons in whose names the Certificates are registered on the books and records
of the Certificate Registrar.
The Trustee will make available each month, to any interested party, the
Distribution Date Statement (and any additional files containing the same
information in an alternative format), the servicer reports, Mortgage Loan
information as presented in the CMSA Loan Setup File, CMSA Loan Periodic Update
File, all other CMSA reports provided to it by the Master Servicer and any other
item at the request of the Depositor to any interested party via the Trustee's
Website initially located at "www.ctslink.com/cmbs". In addition, pursuant to
the Pooling Agreement, the Trustee will make available, as a convenience for
interested parties (and not in furtherance of the distribution of the
accompanying prospectus or the prospectus
S-118
supplement under the securities laws), the Pooling Agreement, the accompanying
prospectus and the prospectus supplement via the Trustee's Website. For
assistance with the above-referenced services, interested parties may call (301)
815-6600. The Trustee will make no representations or warranties as to the
accuracy or completeness of such documents and will assume no responsibility
therefor.
In connection with providing access to the Trustee's 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 with the
Pooling Agreement.
For a discussion of certain annual information reports to be furnished by
the Trustee to persons who at any time during the prior calendar year were
holders of the Offered Certificates, see "Description of the
Certificates -- Reports to Certificateholders" in the accompanying prospectus.
Other Information. The Pooling Agreement requires that the Trustee make
available at its offices, during normal business hours, upon reasonable advance
written notice, for review by any holder or Certificate Owner of an Offered
Certificate or any person identified to the Trustee by any such holder or
Certificate Owner as a prospective transferee of an Offered Certificate or any
interest therein, originals or copies of, among other things, the following
items: (a) all officer's certificates delivered to the Trustee since the
Delivery Date as described under "Servicing of the Mortgage Loans -- Evidence as
to Compliance" in this prospectus supplement, (b) all accountant's reports
delivered to the Trustee since the Delivery Date as described under "Servicing
of the Mortgage Loans -- Evidence as to Compliance" in this prospectus
supplement, and (c) the Mortgage Note, Mortgage and other legal documents
relating to each Mortgage Loan, including any and all modifications, waivers and
amendments of the terms of a Mortgage Loan entered into by the Master Servicer
or the Special Servicer and delivered to the Trustee. In addition, the Master
Servicer is required to make available, during normal business hours, upon
reasonable advance written notice, for review by any holder or Certificate Owner
of an Offered Certificate (as confirmed to the Master Servicer by the Trustee)
or any person identified to the Master Servicer by the Trustee as a prospective
transferee of an Offered Certificate or any interest therein, originals or
copies of any and all documents (in the case of documents generated by the
Special Servicer, to the extent received therefrom) that constitute the
servicing file for each Mortgage Loan, in each case except to the extent the
Master Servicer in its reasonable, good faith determination believes that any
item of information contained in such servicing file is of a nature that it
should be conveyed to all Certificateholders at the same time, in which case the
Master Servicer is required, as soon as reasonably possible following its
receipt of any such item of information, to disclose such item of information to
the Trustee for inclusion by the Trustee along with the Distribution Date
Statement referred to under "Description of the Certificates -- Reports to
Certificateholders; Certain Available Information -- Trustee Reports" in this
prospectus supplement; provided that, until the Trustee has either disclosed
such information to all Certificateholders along with the Distribution Date
Statement or has properly filed such information with the Securities and
Exchange Commission on behalf of the Trust under the Securities Exchange Act of
1934, the Master Servicer is entitled to withhold such item of information from
any Certificateholder or Certificate Owner or prospective transferee of a
Certificate or an interest therein; and, provided, further, that the Master
Servicer is not required to make information contained in any servicing file
available to any person to the extent that doing so is prohibited by applicable
law or by any documents related to a Mortgage Loan.
The Trustee, subject to the last sentence of the prior paragraph, will make
available, upon reasonable advance written notice and at the expense of the
requesting party, originals or copies of the items referred to in the prior
paragraph that are maintained thereby, to Certificateholders, Certificate Owners
and prospective purchasers of Certificates and interests therein; provided that
the Trustee may require (a) in the case of a Certificate Owner, a written
confirmation executed by the requesting person or entity, in a form reasonably
acceptable to the Trustee generally to the effect that such person or entity is
a beneficial owner of Offered Certificates and will keep such information
confidential, and (b) in the case of a prospective purchaser, confirmation
executed by the requesting person or entity, in a form reasonably acceptable to
the Trustee generally to the effect that such person or entity is a prospective
purchaser of Offered Certificates or an interest therein, is requesting the
information solely for use in evaluating a possible investment in such
S-119
Certificates and will otherwise keep such information confidential.
Certificateholders, by the acceptance of their Certificates, will be deemed to
have agreed to keep such information confidential.
VOTING RIGHTS
At all times during the term of the Pooling Agreement, 95% of the voting
rights for the Certificates (the "Voting Rights") shall be allocated among the
holders of the respective Classes of Sequential Pay Certificates in proportion
to the Certificate Balances of their Certificates and 5% of the Voting Rights
shall be allocated to the holders of the Class X Certificates (allocated, pro
rata, between the Classes of Class X Certificates based on Notional Amount) in
proportion to their Notional Amounts. No Voting Rights will be assigned to the
REMIC Residual Certificates. See "Description of the Certificates -- Voting
Rights" in the accompanying prospectus.
TERMINATION
The obligations created by the Pooling Agreement will terminate following
the earliest of (i) the final payment (or advance in respect thereof) or other
liquidation of the last Mortgage Loan or related REO Property remaining in the
Trust Fund, and (ii) the purchase or exchange of all of the Mortgage Loans and
REO Properties remaining in the Trust Fund by the Master Servicer, Special
Servicer or by any holder or holders (other than the Depositor or Mortgage Loan
Sellers) of Certificates representing a majority interest in the Controlling
Class. Written notice of termination of the Pooling Agreement will be given to
each Certificateholder, and the final distribution with respect to each
Certificate will be made only upon surrender and cancellation of such
Certificate at the office of the Certificate Registrar or other location
specified in such notice of termination.
Any such purchase by the Master Servicer, Special Servicer or the majority
holder(s) of the Controlling Class of all the Mortgage Loans and REO Properties
remaining in the Trust Fund is required to be made at a price equal to (a) the
sum of (i) the aggregate Purchase Price of all the Mortgage Loans then included
in the Trust Fund (other than any Mortgage Loans as to which the related
Mortgaged Properties have become REO Properties) and (ii) the fair market value
of all REO Properties then included in the Trust Fund, as determined by an
appraiser mutually agreed upon by the Master Servicer and the Trustee, minus (b)
(solely in the case of a purchase by the Master Servicer) the aggregate of all
amounts payable or reimbursable to the Master Servicer under the Pooling
Agreement. Such purchase will effect early retirement of the then outstanding
Certificates, but the right of the Master Servicer or the majority holder(s) of
the Controlling Class to effect such termination is subject to the requirement
that the then aggregate Stated Principal Balance of the Mortgage Pool be less
than 1.0% of the aggregate outstanding principal balance of the Mortgage Loans
as of the Delivery Date. The purchase price paid by the Master Servicer or the
majority holder(s) of the Controlling Class, exclusive of any portion thereof
payable or reimbursable to any person other than the Certificateholders, will
constitute part of the Available Distribution Amount for the final Distribution
Date.
THE TRUSTEE
THE TRUSTEE
Wells Fargo Bank Minnesota, N.A., ("Wells Fargo"), a national banking
association will act as Trustee on behalf of the certificateholders. Wells
Fargo's principal office is located at Wells Fargo Center, Sixth and Marquette,
Minneapolis, Minnesota 55479. Certificate transfer services are conducted at
Wells Fargo offices in Minneapolis. Wells Fargo otherwise conducts its trustee
and securities administration services at its offices in Columbia, Maryland. Its
address there is 9062 Old Annapolis Road, Columbia, Maryland 21045-1951. As
compensation for its services, the Trustee will be entitled to receive a fee
payable from funds on deposit in the Distribution Account. In addition, the
Trustee will be obligated to make any advance required to be made, but not made,
by the Master Servicer under the Pooling Agreement (including a Servicing
Advance, to the extent the Trustee has actual knowledge of the failure of the
Master Servicer to make such Servicing Advance), provided that the Trustee will
not be obligated to make any advance that it determines to be nonrecoverable.
The Trustee will be entitled to rely conclusively on any determination by the
Master Servicer
S-120
that an advance, if made, would be a nonrecoverable. The Trustee will be
entitled to reimbursement (with interest thereon at the Reimbursement Rate) for
each advance made by it in the same manner and to the same extent as, but prior
to, the Master Servicer. The Trustee will make no representation as to the
validity or sufficiency of the Pooling Agreement, the certificates, the Mortgage
Loans or related documents or the sufficiency of this prospectus supplement and
will not be accountable for the use or application by or on behalf of the Master
Servicer or the Special Servicer of any funds paid to the Master Servicer or the
Special Servicer in respect of the certificates or the Mortgage Loans, or any
funds deposited into or withdrawn from the Certificate Account or any other
account maintained by or on behalf of the Master Servicer or the Special
Servicer. If no Event of Default has occurred and is continuing, the Trustee
will be required to perform only those duties specifically required under the
Pooling Agreement. However, upon receipt of any of the various resolutions,
statements, opinions, reports, documents, orders or other instruments required
to be furnished to it pursuant to the Pooling Agreement, the Trustee will be
required to examine such documents and to determine whether they conform to the
requirements of the Pooling Agreement (to the extent set forth therein) without
responsibility for investigating the contents thereof.
Wells Fargo Bank Minnesota, N.A. is rated "Aa" by Moody's and "AA-" by S&P.
Pursuant to the Pooling Agreement, the Trustee will be entitled to a
monthly fee (the "Trustee Fee"; and, together with the Master Servicing Fee the
"Administrative Fees") payable out of general collections on the Mortgage Loans
and any REO Properties. The Administrative Fees will be computed for the same
period for which interest payments on the Mortgage Loans are computed.
The Trustee will also have certain duties with respect to REMIC
administration (in such capacity the "REMIC Administrator"). See "Certain
Federal Income Tax Consequences -- REMICs -- Reporting and Other Administrative
Matters" and "The Pooling and Servicing Agreements -- Certain Matters Regarding
the Master Servicer, the Special Servicer, the REMIC Administrator and the
Depositor", "-- Events of Default" and "-- Rights Upon Event of Default" in the
accompanying prospectus.
INDEMNIFICATION
The Trustee will be entitled to indemnification, from amounts held in the
Certificate Account, for any loss, liability, damages, claim or expense arising
in respect of the Pooling Agreement or the certificates other than those
resulting from the negligence, fraud, bad faith or willful misconduct of the
Trustee. Any such indemnification payments will be Additional Trust Fund
Expenses that will reduce the amount available to be distributed to
Certificateholders as described under "Description of the
Certificates -- Subordination; Allocation of Losses and Certain Expenses" in
this prospectus supplement.
YIELD AND MATURITY CONSIDERATIONS
YIELD CONSIDERATIONS
General. The yield on any Offered Certificate will depend on (a) the price
at which such Certificate is purchased by an investor and (b) the rate, timing
and amount of distributions on such Certificate. The rate, timing and amount of
distributions on any Offered Certificate will in turn depend on, among other
things, (v) the Pass-Through Rate for such Certificate, (w) the rate and timing
of principal payments (including principal prepayments) and other principal
collections on or in respect of the Mortgage Loans and the extent to which such
amounts are to be applied or otherwise result in reduction of the Certificate
Balance of the Class of Certificates to which such Certificate belongs, (x) the
rate, timing and severity of Realized Losses on or in respect of the Mortgage
Loans and of Additional Trust Fund Expenses and Appraisal Reductions and the
extent to which such losses, expenses and reductions are allocable to or
otherwise result in the nonpayment or deferred payment of interest on, or
reduction of the Certificate Balance, the Class of Certificates to which such
Certificate belongs, (y) the timing and severity of any Net Aggregate Prepayment
Interest Shortfalls and the extent to which such shortfalls are allocable in
reduction of the Distributable Certificate Interest payable on the Class of
Certificates to which such Certificate belongs and (z) the extent to
S-121
which Prepayment Premiums are collected and, in turn, distributed on the Class
of Certificates to which such Certificate belongs.
Rate and Timing of Principal Payments. The yield to holders of any Class
of Offered Certificates that are Sequential Pay Certificates purchased at a
discount or premium will be affected by, the rate and timing of reductions of
the Certificate Balances of such Class of Certificates. As described herein, the
Principal Distribution Amount for each Distribution Date will be distributable
entirely in respect of the Class A-1 Certificates, Class A-2 Certificates, Class
A-3 Certificates and Class A-4 Certificates until the related Certificate
Balances thereof are reduced to zero. Following retirement of the Class A-1
Certificates, Class A-2 Certificates, Class A-3 Certificates and Class A-4
Certificates, the Principal Distribution Amount for each Distribution Date will
be distributable entirely in respect of the remaining Classes of Sequential Pay
Certificates, sequentially in alphabetical order of Class designation, in each
such case until the related Certificate Balance is reduced to zero.
Consequently, the rate and timing of reductions of the Certificate Balance of
each Class of Offered Certificates will depend on the rate and timing of
principal payments on or in respect of the Mortgage Loans, which will in turn be
affected by the amortization schedules thereof, the dates on which any Balloon
Payments are due and the rate and timing of principal prepayments and other
unscheduled collections thereon (including for this purpose, collections made in
connection with liquidations of Mortgage Loans due to defaults, casualties or
condemnations affecting the Mortgaged Properties, or purchases of Mortgage Loans
out of the Trust Fund). Prepayments and, assuming the respective stated maturity
dates therefor have not occurred, liquidations of the Mortgage Loans will result
in distributions on the Sequential Pay Certificates of amounts that would
otherwise be distributed over the remaining terms of the Mortgage Loans and will
tend to shorten the weighted average lives of those Certificates. Defaults on
the Mortgage Loans, particularly in the case of Balloon Loans at or near their
stated maturity dates, may result in significant delays in payments of principal
on the Mortgage Loans (and, accordingly, on the Sequential Pay Certificates)
while workouts are negotiated or foreclosures are completed, and such delays
will tend to lengthen the weighted average lives of those Certificates. Failure
of the borrower under each ARD Loan to repay its respective Mortgage Loan by or
shortly after its Anticipated Repayment Date, for whatever reason, will also
tend to lengthen the weighted average lives of the Sequential Pay Certificates.
Although the ARD Loans include incentives for the related borrower to repay the
Mortgage Loan by its Anticipated Repayment Date (e.g., an increase in the
interest rate of the loan above the Mortgage Rate and the application of all
excess cash (net of approved property expenses and any required reserves) from
the related Mortgaged Property to pay down the Mortgage Loan, in each case
following the passage of such date), there can be no assurance that the related
borrower will want, or be able, to repay the Mortgage Loan in full. See
"Servicing of the Mortgage Loans -- Modifications, Waivers, Amendments and
Consents" herein and "The Pooling and Servicing Agreements -- Realization Upon
Defaulted Mortgage Loans" and "Certain Legal Aspects of Mortgage
Loans -- Foreclosure" in the accompanying prospectus.
The extent to which the yield to maturity of any Class of Offered
Certificates may vary from the anticipated yield will depend upon the degree to
which such Certificates are purchased at a discount or premium and when, and to
what degree, payments of principal on or in respect of the Mortgage Loans are
distributed or otherwise result in a reduction of the Certificate Balance of
such Certificates. An investor should consider, in the case of any Offered
Certificate purchased at a discount, the risk that a slower than anticipated
rate of principal payments on the Mortgage Loans could result in an actual yield
to such investor that is lower than the anticipated yield and, in the case of
any Offered Certificate purchased at a premium, the risk that a faster than
anticipated rate of principal payments on the Mortgage Loans could result in an
actual yield to such investor that is lower than the anticipated yield. In
general, the earlier a payment of principal on or in respect of the Mortgage
Loans is distributed or otherwise results in reduction of the principal balance
of any other Offered Certificate purchased at a discount or premium, the greater
will be the effect on an investor's yield to maturity. As a result, the effect
on an investor's yield of principal payments occurring at a rate higher (or
lower) than the rate anticipated by the investor during any particular period
may not be fully offset by a subsequent like reduction (or increase) in the rate
of principal payments. Because the rate of principal payments on or in respect
of the Mortgage Loans will depend on future events and a variety of factors (as
described more fully below), no assurance can be given as to such rate or the
rate of principal prepayments in particular. The Depositor is not aware of any
relevant publicly available or authoritative
S-122
statistics with respect to the historical prepayment experience of a large group
of mortgage loans comparable to the Mortgage Loans.
Losses and Shortfalls. The yield to holders of the Offered Certificates
will also depend on the extent to which such holders are required to bear the
effects of any losses or shortfalls on the Mortgage Loans. As and to the extent
described herein, Realized Losses and Additional Trust Fund Expenses will be
allocated in the following order: first, to each Class of Sequential Pay
Certificates (other than the Class A Certificates), in reverse alphabetical
order of Class designation, until the Certificate Balance thereof has been
reduced to zero; then, to the Class A-1 Certificates, Class A-2 Certificates,
Class A-3 Certificates and Class A-4 Certificates, pro rata in accordance with
their respective remaining Certificate Balances, until the remaining Certificate
Balance of each such Class has been reduced to zero.
The Net Aggregate Prepayment Interest Shortfall, if any, for each
Distribution Date will be allocated as follows: first, to the respective Classes
of REMIC Regular Certificates (other than the Senior Certificates) sequentially
in reverse alphabetical order of Class designation, in each case up to an amount
equal to the lesser of any remaining unallocated portion of such Net Aggregate
Prepayment Interest Shortfall and any Accrued Certificate Interest in respect of
such Class of Certificates for such Distribution Date; and, thereafter, if and
to the extent that any portion of such Net Aggregate Prepayment Interest
Shortfall remains unallocated, among the Class A-1 Certificates, Class A-2
Certificates, Class A-3 Certificates and Class A-4 Certificates up to, and pro
rata in accordance with, the respective amounts of Accrued Certificate Interest
for each such Class for such Distribution Date.
Certain Relevant Factors. The rate and timing of principal payments and
defaults and the severity of losses on or in respect of the Mortgage Loans may
be affected by a number of factors, including, without limitation, prevailing
interest rates, the terms of the Mortgage Loans (for example, Prepayment
Premiums, Lock-out Periods and amortization terms that require Balloon
Payments), the demographics and relative economic vitality of the areas in which
the Mortgaged Properties are located and the general supply and demand for
retail shopping space, rental apartments, hotel rooms, industrial or warehouse
space, health care facility beds, senior living units or office space, as the
case may be, in such areas, the quality of management of the Mortgaged
Properties, the servicing of the Mortgage Loans, possible changes in tax laws
and other opportunities for investment. See "Risk Factors -- Risks Related to
the Mortgage Loans", "Description of the Mortgage Pool" and "Servicing of the
Mortgage Loans" herein and "The Pooling and Servicing Agreements" and "Yield and
Maturity Considerations -- Yield and Prepayment Considerations" in the
accompanying prospectus.
The rate of prepayment on the Mortgage Loans is likely to be affected by
prevailing market interest rates for mortgage loans of a comparable type, term
and risk level. When the prevailing market interest rate is below the Mortgage
Rate (or, in the case of the ARD Loan after its Anticipated Repayment Date, the
Revised Rate) at which a Mortgage Loan accrues interest, a borrower may have an
increased incentive to refinance such Mortgage Loan. Conversely, to the extent
prevailing market interest rates exceed the applicable Mortgage Rate (or, in the
case of a ARD Loan after its Anticipated Repayment Date, the Revised Rate) for
any Mortgage Loan, such Mortgage Loan may be less likely to prepay (other than,
in the case of the ARD Loan, out of certain net cash flow from the related
Mortgaged Property). Accordingly, there can be no assurance that an ARD Loan
will be prepaid on or before its Anticipated Repayment Date or on any other date
prior to maturity.
Depending on prevailing market interest rates, the outlook for market
interest rates and economic conditions generally, some borrowers may sell
Mortgaged Properties in order to realize their equity therein, to meet cash flow
needs or to make other investments. In addition, some borrowers may be motivated
by federal and state tax laws (which are subject to change) to sell Mortgaged
Properties prior to the exhaustion of tax depreciation benefits.
If a Mortgage Loan is not in a Lock-out Period, any Prepayment Premium in
respect of such Mortgage Loan may not be sufficient economic disincentive to
prevent the related borrower from voluntarily prepaying the loan as part of a
refinancing thereof or a sale of the related Mortgaged Property. See
"Description of the Mortgage Pool -- Certain Terms and Conditions of the
Mortgage Loans" in this prospectus supplement.
S-123
The Depositor makes no representation or warranty as to the particular
factors that will affect the rate and timing of prepayments and defaults on the
Mortgage Loans, as to the relative importance of such factors, as to the
percentage of the principal balance of the Mortgage Loans that will be prepaid
or as to which a default will have occurred as of any date or as to the overall
rate of prepayment or default on the Mortgage Loans.
WEIGHTED AVERAGE LIVES
The weighted average life of any Offered Certificate refers to the average
amount of time that will elapse from the date of its issuance until each dollar
to be applied in reduction of the principal balance of such Certificate is
distributed to the investor. For purposes of this prospectus supplement, the
weighted average life of any such Offered Certificate is determined by (i)
multiplying the amount of each principal distribution thereon by the number of
years from the assumed Settlement Date (as defined below) to the related
Distribution Date, (ii) summing the results and (iii) dividing the sum by the
aggregate amount of the reductions in the principal balance of such Certificate.
Accordingly, the weighted average life of any such Offered Certificate will be
influenced by, among other things, the rate at which principal of the Mortgage
Loans is paid or otherwise collected or advanced and the extent to which such
payments, collections and/or advances of principal are in turn applied in
reduction of the Certificate Balance of the Class of Certificates to which such
Offered Certificate belongs. As described herein, the Principal Distribution
Amount for each Distribution Date will be distributable entirely in respect of
the Class A-1 Certificates, Class A-2 Certificates, Class A-3 Certificates and
Class A-4 Certificates until the Certificate Balances thereof are reduced to
zero, and will thereafter be distributable entirely in respect of the remaining
Classes of Sequential Pay Certificates, sequentially in alphabetical order of
Class designation, in each such case until the related Certificate Balance is
reduced to zero. As a consequence of the foregoing, the weighted average lives
of the Class A-1 Certificates, Class A-2 Certificates, Class A-3 Certificates
and Class A-4 Certificates may be shorter, and the weighted average lives of the
Class B, Class C, Class D, Class E, Class F, Class G, Class H, Class J, Class K,
Class L, Class M, Class N, Class O, Class P and Class Q Certificates may be
longer, than would otherwise be the case if the Principal Distribution Amount
for each Distribution Date was being distributed on a pro rata basis among the
respective Classes of Sequential Pay Certificates.
Prepayments on mortgage loans may be measured by a prepayment standard or
model. The model used in this prospectus supplement is the CPR model (as
described in the accompanying prospectus). As used in each of the following
tables, the column headed "0%" assumes that none of the Mortgage Loans is
prepaid before maturity. The columns headed "25%", "50%", "75%", "100%" assume
that no prepayments are made on any Mortgage Loan during such Mortgage Loan's
Lock-out Period, if any, or during such Mortgage Loan's yield maintenance
period, if any, and are otherwise made on each of the Mortgage Loans at the
indicated CPRs.
There is no assurance, however, that prepayments of the Mortgage Loans
(whether or not in a Lock-out Period or a yield maintenance period) will conform
to any particular CPR, and no representation is made that the Mortgage Loans
will prepay in accordance with the assumptions at any of the CPRs shown or at
any other particular prepayment rate, that all the Mortgage Loans will prepay in
accordance with the assumptions at the same rate or that Mortgage Loans that are
in a Lock-out Period or a yield maintenance period will not prepay as a result
of involuntary liquidations upon default or otherwise. A "yield maintenance
period" is any period during which a Mortgage Loan provides that voluntary
prepayments be accompanied by a Prepayment Premium calculated on the basis of a
yield maintenance formula.
The following tables indicate the percentages of the initial Certificate
Balances of the Class A-1, Class A-2, Class A-3, Class A-4, Class B, Class C,
Class D, Class E and Class F Certificates that would be outstanding after each
of the dates shown at various CPRs, and the corresponding weighted average lives
of such Classes of Certificates, under the following assumptions (the "Maturity
Assumptions"): (i) the Mortgage Loans have the characteristics set forth on
Annex A as of the Cut-off Date, (ii) the Pass-Through Rate and the initial
Certificate Balance (such initial Certificate Balance referred to herein for
purposes of the Maturity Assumptions as the "Initial Certificate Balance"), as
the case may be, of each Class of Offered Certificates are as described herein,
(iii) the scheduled Monthly Payments for each Mortgage Loan that accrues
interest
S-124
on the basis of actual number of days elapsed during the month of accrual in a
360-day year are the actual contractual Monthly Payments (adjusted to take into
account the addition or subtraction of any Withheld Amounts as described under
"Description of the Certificates -- Interest Reserve Account"), (iv) there are
no delinquencies or losses in respect of the Mortgage Loans, there are no
modifications, extensions, waivers or amendments affecting the payment by
borrowers of principal or interest on the Mortgage Loans, there are no Appraisal
Reduction Amounts with respect to the Mortgage Loans and there are no casualties
or condemnations affecting the Mortgaged Properties, (v) scheduled Monthly
Payments on the Mortgage Loans are timely received, (vi) no voluntary or
involuntary prepayments are received as to any Mortgage Loan during such
Mortgage Loan's Lock-out Period ("LOP"), if any, or, yield maintenance period
("YMP"), if any, and, an ARD Loan is paid in full on its Anticipated Repayment
Date, otherwise, prepayments are made on each of the Mortgage Loans at the
indicated CPRs set forth in the tables (without regard to any limitations in
such Mortgage Loans on partial voluntary principal prepayments), (vii) none of
the Master Servicer, the Special Servicer nor any majority holder(s) of the
Controlling Class exercises its or exercise their right of optional termination
described herein, (viii) no Mortgage Loan is required to be repurchased by
either Mortgage Loan Seller, (ix) no Prepayment Interest Shortfalls are
incurred, (x) there are no Additional Trust Fund Expenses, (xi) distributions on
the Offered Certificates are made on the 11th day of each month, commencing in
June 2002 and (xii) the Offered Certificates are settled on May 23, 2002 (the
"Settlement Date"). To the extent that the Mortgage Loans have characteristics
that differ from those assumed in preparing the tables set forth below, Class
A-1, Class A-2, Class A-3, Class A-4, Class B, Class C, Class D, Class E and
Class F Certificates may mature earlier or later than indicated by the tables.
It is highly unlikely that the Mortgage Loans will prepay in accordance with the
above assumptions at any of the specified CPRs until maturity or that all the
Mortgage Loans will so prepay at the same rate. The indicated prepayment speeds
were assumed for each Mortgage Loan for any period for which a fixed prepayment
premium would apply under such Mortgage Loan. In addition, variations in the
actual prepayment experience and the balance of the Mortgage Loans that prepay
may increase or decrease the percentages of the Initial Certificate Balances
(and weighted average lives) shown in the following tables. Such variations may
occur even if the average prepayment experience of the Mortgage Loans were to
conform to the assumptions and be equal to any of the specified CPRs. Investors
are urged to conduct their own analyses of the rates at which the Mortgage Loans
may be expected to prepay.
PERCENTAGES OF THE INITIAL CERTIFICATE BALANCE OF
THE CLASS A-1 CERTIFICATES UNDER THE SPECIFIED CPRS
(PREPAYMENTS LOCKED OUT THROUGH LOP AND YMP, THEN THE FOLLOWING CPR)
<Table>
<Caption>
PREPAYMENT ASSUMPTION (CPR)
------------------------------------------
DATE 0% 25% 50% 75% 100%
- ---- ------ ------ ------ ------ ------
Initial Percentage............................... 100.00 100.00 100.00 100.00 100.00
May 11, 2003..................................... 82.75 82.75 82.75 82.75 82.75
May 11, 2004..................................... 63.71 63.71 63.71 63.71 63.71
May 11, 2005..................................... 42.21 42.21 42.21 42.21 42.21
May 11, 2006..................................... 0.00 0.00 0.00 0.00 0.00
Weighted Average Life (years).................... 2.50 2.50 2.50 2.50 2.48
</Table>
S-125
PERCENTAGES OF THE INITIAL CERTIFICATE BALANCE OF
THE CLASS A-2 CERTIFICATES UNDER THE SPECIFIED CPRS
(PREPAYMENTS LOCKED OUT THROUGH LOP AND YMP, THEN THE FOLLOWING CPR)
<Table>
<Caption>
PREPAYMENT ASSUMPTION (CPR)
------------------------------------------
DATE 0% 25% 50% 75% 100%
- ---- ------ ------ ------ ------ ------
Initial Percentage............................... 100.00 100.00 100.00 100.00 100.00
May 11, 2003..................................... 100.00 100.00 100.00 100.00 100.00
May 11, 2004..................................... 100.00 100.00 100.00 100.00 100.00
May 11, 2005..................................... 100.00 100.00 100.00 100.00 100.00
May 11, 2006..................................... 98.60 98.60 98.60 98.60 98.60
May 11, 2007..................................... 68.33 68.33 68.33 68.33 68.33
May 11, 2008..................................... 57.92 57.92 57.92 57.92 57.92
May 11, 2009..................................... 5.04 5.04 5.04 5.04 5.04
May 11, 2010..................................... 0.00 0.00 0.00 0.00 0.00
Weighted Average Life (years).................... 5.75 5.75 5.74 5.74 5.68
</Table>
PERCENTAGES OF THE INITIAL CERTIFICATE BALANCE OF
THE CLASS A-3 CERTIFICATES UNDER THE SPECIFIED CPRS
(PREPAYMENTS LOCKED OUT THROUGH LOP AND YMP, THEN THE FOLLOWING CPR)
<Table>
<Caption>
PREPAYMENT ASSUMPTION (CPR)
------------------------------------------
DATE 0% 25% 50% 75% 100%
- ---- ------ ------ ------ ------ ------
Initial Percentage............................... 100.00 100.00 100.00 100.00 100.00
May 11, 2003..................................... 100.00 100.00 100.00 100.00 100.00
May 11, 2004..................................... 100.00 100.00 100.00 100.00 100.00
May 11, 2005..................................... 100.00 100.00 100.00 100.00 100.00
May 11, 2006..................................... 100.00 100.00 100.00 100.00 100.00
May 11, 2007..................................... 100.00 100.00 100.00 100.00 100.00
May 11, 2008..................................... 100.00 100.00 100.00 100.00 100.00
May 11, 2009..................................... 100.00 100.00 100.00 100.00 100.00
May 11, 2010..................................... 90.86 90.55 90.13 89.45 77.90
May 11, 2011..................................... 8.37 6.39 3.72 0.00 0.00
May 11, 2012..................................... 0.00 0.00 0.00 0.00 0.00
Weighted Average Life (years).................... 8.44 8.44 8.43 8.41 8.33
</Table>
PERCENTAGES OF THE INITIAL CERTIFICATE BALANCE OF
THE CLASS A-4 CERTIFICATES UNDER THE SPECIFIED CPRS
(PREPAYMENTS LOCKED OUT THROUGH LOP AND YMP, THEN THE FOLLOWING CPR)
<Table>
<Caption>
PREPAYMENT ASSUMPTION (CPR)
------------------------------------------
DATE 0% 25% 50% 75% 100%
- ---- ------ ------ ------ ------ ------
Initial Percentage............................... 100.00 100.00 100.00 100.00 100.00
May 11, 2003..................................... 100.00 100.00 100.00 100.00 100.00
May 11, 2004..................................... 100.00 100.00 100.00 100.00 100.00
May 11, 2005..................................... 100.00 100.00 100.00 100.00 100.00
May 11, 2006..................................... 100.00 100.00 100.00 100.00 100.00
May 11, 2007..................................... 100.00 100.00 100.00 100.00 100.00
May 11, 2008..................................... 100.00 100.00 100.00 100.00 100.00
May 11, 2009..................................... 100.00 100.00 100.00 100.00 100.00
May 11, 2010..................................... 100.00 100.00 100.00 100.00 100.00
May 11, 2011..................................... 100.00 100.00 100.00 99.91 90.72
May 11, 2012..................................... 0.00 0.00 0.00 0.00 0.00
Weighted Average Life (years).................... 9.44 9.42 9.41 9.38 9.20
</Table>
S-126
PERCENTAGES OF THE INITIAL CERTIFICATE BALANCE OF
THE CLASS B CERTIFICATES UNDER THE SPECIFIED CPRS
(PREPAYMENTS LOCKED OUT THROUGH LOP AND YMP, THEN THE FOLLOWING CPR)
<Table>
<Caption>
PREPAYMENT ASSUMPTION (CPR)
------------------------------------------
DATE 0% 25% 50% 75% 100%
- ---- ------ ------ ------ ------ ------
Initial Percentage............................... 100.00 100.00 100.00 100.00 100.00
May 11, 2003..................................... 100.00 100.00 100.00 100.00 100.00
May 11, 2004..................................... 100.00 100.00 100.00 100.00 100.00
May 11, 2005..................................... 100.00 100.00 100.00 100.00 100.00
May 11, 2006..................................... 100.00 100.00 100.00 100.00 100.00
May 11, 2007..................................... 100.00 100.00 100.00 100.00 100.00
May 11, 2008..................................... 100.00 100.00 100.00 100.00 100.00
May 11, 2009..................................... 100.00 100.00 100.00 100.00 100.00
May 11, 2010..................................... 100.00 100.00 100.00 100.00 100.00
May 11, 2011..................................... 100.00 100.00 100.00 100.00 100.00
May 11, 2012..................................... 0.00 0.00 0.00 0.00 0.00
Weighted Average Life (years).................... 9.63 9.63 9.61 9.56 9.38
</Table>
PERCENTAGES OF THE INITIAL CERTIFICATE BALANCE OF THE
CLASS C CERTIFICATES UNDER THE SPECIFIED CPRS
(PREPAYMENTS LOCKED OUT THROUGH LOP AND YMP, THEN THE FOLLOWING CPR)
<Table>
<Caption>
PREPAYMENT ASSUMPTION (CPR)
------------------------------------------
DATE 0% 25% 50% 75% 100%
- ---- ------ ------ ------ ------ ------
Initial Percentage............................... 100.00 100.00 100.00 100.00 100.00
May 11, 2003..................................... 100.00 100.00 100.00 100.00 100.00
May 11, 2004..................................... 100.00 100.00 100.00 100.00 100.00
May 11, 2005..................................... 100.00 100.00 100.00 100.00 100.00
May 11, 2006..................................... 100.00 100.00 100.00 100.00 100.00
May 11, 2007..................................... 100.00 100.00 100.00 100.00 100.00
May 11, 2008..................................... 100.00 100.00 100.00 100.00 100.00
May 11, 2009..................................... 100.00 100.00 100.00 100.00 100.00
May 11, 2010..................................... 100.00 100.00 100.00 100.00 100.00
May 11, 2011..................................... 100.00 100.00 100.00 100.00 100.00
May 11, 2012..................................... 0.00 0.00 0.00 0.00 0.00
Weighted Average Life (years).................... 9.63 9.63 9.63 9.63 9.38
</Table>
PERCENTAGES OF THE INITIAL CERTIFICATE BALANCE OF
THE CLASS D CERTIFICATES UNDER THE SPECIFIED CPRS
(PREPAYMENTS LOCKED OUT THROUGH LOP AND YMP, THEN THE FOLLOWING CPR)
<Table>
<Caption>
PREPAYMENT ASSUMPTION (CPR)
------------------------------------------
DATE 0% 25% 50% 75% 100%
- ---- ------ ------ ------ ------ ------
Initial Percentage............................... 100.00 100.00 100.00 100.00 100.00
May 11, 2003..................................... 100.00 100.00 100.00 100.00 100.00
May 11, 2004..................................... 100.00 100.00 100.00 100.00 100.00
May 11, 2005..................................... 100.00 100.00 100.00 100.00 100.00
May 11, 2006..................................... 100.00 100.00 100.00 100.00 100.00
May 11, 2007..................................... 100.00 100.00 100.00 100.00 100.00
May 11, 2008..................................... 100.00 100.00 100.00 100.00 100.00
May 11, 2009..................................... 100.00 100.00 100.00 100.00 100.00
May 11, 2010..................................... 100.00 100.00 100.00 100.00 100.00
May 11, 2011..................................... 100.00 100.00 100.00 100.00 100.00
May 11, 2012..................................... 0.00 0.00 0.00 0.00 0.00
Weighted Average Life (years).................... 9.63 9.63 9.63 9.63 9.38
</Table>
S-127
PERCENTAGES OF THE INITIAL CERTIFICATE BALANCE OF
THE CLASS E CERTIFICATES UNDER THE SPECIFIED CPRS
(PREPAYMENTS LOCKED OUT THROUGH LOP AND YMP, THEN THE FOLLOWING CPR)
<Table>
<Caption>
PREPAYMENT ASSUMPTION (CPR)
------------------------------------------
DATE 0% 25% 50% 75% 100%
---- ------ ------ ------ ------ ------
Initial Percentage.................................... 100.00 100.00 100.00 100.00 100.00
May 11, 2003.......................................... 100.00 100.00 100.00 100.00 100.00
May 11, 2004.......................................... 100.00 100.00 100.00 100.00 100.00
May 11, 2005.......................................... 100.00 100.00 100.00 100.00 100.00
May 11, 2006.......................................... 100.00 100.00 100.00 100.00 100.00
May 11, 2007.......................................... 100.00 100.00 100.00 100.00 100.00
May 11, 2008.......................................... 100.00 100.00 100.00 100.00 100.00
May 11, 2009.......................................... 100.00 100.00 100.00 100.00 100.00
May 11, 2010.......................................... 100.00 100.00 100.00 100.00 100.00
May 11, 2011.......................................... 100.00 100.00 100.00 100.00 100.00
May 11, 2012.......................................... 0.00 0.00 0.00 0.00 0.00
Weighted Average Life (years)......................... 9.63 9.63 9.63 9.63 9.38
</Table>
PERCENTAGES OF THE INITIAL CERTIFICATE BALANCE OF
THE CLASS F CERTIFICATES UNDER THE SPECIFIED CPRS
(PREPAYMENTS LOCKED OUT THROUGH LOP AND YMP, THEN THE FOLLOWING CPR)
<Table>
<Caption>
PREPAYMENT ASSUMPTION (CPR)
------------------------------------------
DATE 0% 25% 50% 75% 100%
---- ------ ------ ------ ------ ------
Initial Percentage.................................... 100.00 100.00 100.00 100.00 100.00
May 11, 2003.......................................... 100.00 100.00 100.00 100.00 100.00
May 11, 2004.......................................... 100.00 100.00 100.00 100.00 100.00
May 11, 2005.......................................... 100.00 100.00 100.00 100.00 100.00
May 11, 2006.......................................... 100.00 100.00 100.00 100.00 100.00
May 11, 2007.......................................... 100.00 100.00 100.00 100.00 100.00
May 11, 2008.......................................... 100.00 100.00 100.00 100.00 100.00
May 11, 2009.......................................... 100.00 100.00 100.00 100.00 100.00
May 11, 2010.......................................... 100.00 100.00 100.00 100.00 100.00
May 11, 2011.......................................... 100.00 100.00 100.00 100.00 100.00
May 11, 2012.......................................... 0.00 0.00 0.00 0.00 0.00
Weighted Average Life (years)......................... 9.63 9.63 9.63 9.63 9.38
</Table>
S-128
USE OF PROCEEDS
Substantially all of the proceeds from the sale of the Offered Certificates
will be used by the Depositor to purchase the Mortgage Loans as described under
"Description of the Certificates -- General" in this prospectus supplement, and
to pay certain expenses in connection with the issuance of the Certificates.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
GENERAL
For federal income tax purposes, two separate "real estate mortgage
investment conduit" ("REMIC") elections will be made with respect to designated
portions of the Trust Fund, the resulting REMICs being herein referred to as
"REMIC I" and "REMIC II" respectively. The assets of REMIC I will generally
include the Mortgage Loans, any REO Properties acquired on behalf of the
Certificateholders and amounts with respect thereto contained in the Certificate
Account, the Interest Reserve Account and the REO Accounts (each as defined in
the accompanying prospectus). The assets of REMIC II will consist of certain
uncertificated "regular interests" in REMIC I and amounts in the Certificate
Account with respect thereto. For federal income tax purposes, (i) the REMIC
Regular Certificates evidence the "regular interests" in, and generally will be
treated as debt obligations of, REMIC II and (ii) the REMIC Residual
Certificates represent the sole class of "residual interests" in the related
REMICs. Upon issuance of the Offered Certificates, Cadwalader, Wickersham &
Taft, special tax counsel to the Depositor, will deliver its opinion generally
to the effect that, assuming compliance with all provisions of the Pooling
Agreement, for federal income tax purposes, each of REMIC I and REMIC II will
qualify as a REMIC under the Code. In addition, in the opinion of Cadwalader,
Wickersham & Taft, the portion of the trust fund consisting of the Excess
Interest and the Excess Interest Distribution Account will be treated as a
grantor trust for federal income tax purposes under subpart E, part I of
subchapter J of the Code, and the Class Z-I and Class Z-II Certificates will
evidence beneficial ownership of such Excess Interest and Excess Interest
Distribution Account. See "Certain Federal Income Tax Consequences -- REMICs" in
the accompanying prospectus.
DISCOUNT AND PREMIUM; PREPAYMENT PREMIUMS
The Offered Certificates generally will be treated as newly originated debt
instruments originated on the related Startup Day for federal income tax
purposes. The "Startup Day" of REMIC I and REMIC II is the Delivery Date.
Beneficial owners of the Offered Certificates will be required to report income
on such regular interests in accordance with the accrual method of accounting.
One or more of the Classes of Offered Certificates may be issued with original
issue discount for federal income tax purposes. See "Certain Federal Income Tax
Consequences -- REMICs -- Taxation of Owners of REMIC Regular
Certificates -- Original Issue Discount" and "-- Premium" in the accompanying
prospectus.
For purposes of accruing original issue discount, determining whether such
original issue discount is de minimis and amortizing any premium on the Offered
Certificates the Prepayment Assumption will be 0% CPR (except that an ARD Loan
will be assumed to be repaid in full on its Anticipated Repayment Date). See
"Yield and Maturity Considerations -- Weighted Average Lives" herein. No
representation is made as to the rate, if any, at which the Mortgage Loans will
prepay.
CHARACTERIZATION OF INVESTMENTS IN OFFERED CERTIFICATES
Generally, except to the extent noted below, the Offered Certificates will
be "real estate assets" within the meaning of Section 856(c)(4)(A) of the Code
in the same proportion that the assets of the Trust would be so treated. In
addition, interest (including original issue discount, if any) on the Offered
Certificates will be interest described in Section 856(c)(3)(B) of the Code to
the extent that such Certificates are treated as "real estate assets" within the
meaning of Section 856(c)(4)(A) of the Code. If 95% or more of the Mortgage
Loans are treated as assets described in Section 856(c)(4)(A) of the Code, the
Offered Certificates will be treated as such assets in their entirety. The
Offered Certificates will generally only be considered assets described in
Section 7701(a)(19)(C) of the Code to the extent that the Mortgage Loans are
secured by
S-129
residential property. As of the Cut-off Date, 31.1% and 4.1%, of the Initial
Pool Balance represented Mortgage Loans secured by multifamily properties and
manufactured housing communities, respectively. None of the foregoing
characterizations will apply to the extent of any Mortgage Loans that have been
defeased. Accordingly, an investment in the Offered Certificates may not be
suitable for some thrift institutions. The Offered Certificates will be treated
as "qualified mortgages" for another REMIC under Section 860G(a)(3)(C) of the
Code. The Offered Certificates will be treated as "permitted assets" for a
financial asset securitization investment trust under Section 860L(c) of the
Code. See "Description of the Mortgage Pool" in this prospectus supplement and
"Certain Federal Income Tax Consequences -- REMICs -- Characterization of
Investments in REMIC Certificates" in the accompanying prospectus.
POSSIBLE TAXES ON INCOME FROM FORECLOSURE PROPERTY AND OTHER TAXES
In general, the Special Servicer will be obligated to operate and manage
any Mortgaged Property acquired as REO Property in a manner that would, to the
extent commercially feasible, maximize the Trust's net after-tax proceeds from
such property. After the Special Servicer reviews the operation of such property
and consults with the REMIC Administrator to determine the Trust's federal
income tax reporting position with respect to income it is anticipated that the
Trust would derive from such property, the Special Servicer could determine that
it would not be commercially feasible to manage and operate such property in a
manner that would avoid the imposition of a tax on "net income from foreclosure
property" (generally, income not derived from renting or selling real property)
within the meaning of the REMIC provisions (an "REO Tax"). To the extent that
income the Trust receives from an REO Property is subject to a tax on "net
income from foreclosure property," such income would be subject to federal tax
at the highest marginal corporate tax rate (currently 35%). The determination as
to whether income from an REO Property would be subject to an REO Tax will
depend on the specific facts and circumstances relating to the management and
operation of each REO Property. These considerations will be of particular
relevance with respect to any health care facilities or hotels that become REO
Property. Any REO Tax imposed on the Trust's income from an REO Property would
reduce the amount available for distribution to Certificateholders.
Certificateholders are advised to consult their own tax advisors regarding the
possible imposition of REO Taxes in connection with the operation of commercial
REO Properties by REMICs.
REPORTING AND OTHER ADMINISTRATIVE MATTERS
Reporting of interest income, including any original issue discount, if
any, with respect to REMIC Regular Certificates is required annually, and may be
required more frequently under Treasury regulations. These information reports
generally are required to be sent to individual holders of REMIC Regular
Certificates and the IRS; holders of REMIC Regular Certificates that are
corporations, trusts, securities dealers and certain other non-individuals will
be provided interest and original issue discount income information and the
information set forth in the following paragraph upon request in accordance with
the requirements of the applicable regulations. The information must be provided
by the later of 30 days after the end of the quarter for which the information
was requested, or two weeks after the receipt of the request. Reporting
regarding qualification of the REMIC's assets as set forth above under
"-- Characterization of Investments in Offered Certificates" will be made as
required under the Treasury regulations, generally on an annual basis.
As applicable, 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 required by regulations with respect to computing the accrual of any
market discount. Because exact computation of the accrual of market discount on
a constant yield method would require information relating to the holder's
purchase price that the REMIC Administrator may not have, such regulations only
require that information pertaining to the appropriate proportionate method of
accruing market discount be provided.
For further information regarding the federal income tax consequences of
investing in the Offered Certificates, see "Certain Federal Income Tax
Consequences -- REMICs" in the accompanying prospectus.
S-130
CERTAIN ERISA CONSIDERATIONS
A fiduciary of any retirement plan or other employee benefit plan or
arrangement, including individual retirement accounts and individual retirement
annuities, Keogh plans and collective investment funds and separate accounts in
which such plans, accounts or arrangements are invested, including insurance
company general accounts, that is subject to Title I of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), or Section 4975 of the Code
(each, a "Plan") should carefully review with its legal advisors whether the
purchase or holding of Offered Certificates could give rise to a transaction
that is prohibited or is not otherwise permitted either under ERISA or Section
4975 of the Code or whether there exists any statutory or administrative
exemption applicable thereto. Certain fiduciary and prohibited transaction
issues arise only if the assets of the Trust constitute "plan assets" for
purposes of Part 4 of Title I of ERISA and Section 4975 of the Code ("Plan
Assets"). Whether the assets of the Trust will constitute Plan Assets at any
time will depend on a number of factors, including the portion of any Class of
Certificates that are held by "benefit plan investors" (as defined in U.S.
Department of Labor Regulation Section 2510.3-101).
The U.S. Department of Labor issued individual prohibited transaction
exemptions to NationsBank Corporation (predecessor in interest to Bank of
America Corporation), Prohibited Transaction Exemption ("PTE") 93-31, and to
Merrill Lynch & Co., PTE 90-29, each as amended by PTE 97-34 and PTE 2000-58
(collectively, the "Exemption"), which generally exempt from the application of
the prohibited transaction provisions of Sections 406(a) and (b) and 407(a) of
ERISA, and the excise taxes imposed on such prohibited transactions pursuant to
Sections 4975(a) and (b) of the Code, certain transactions, among others,
relating to the servicing and operation of mortgage pools, such as the Mortgage
Pool, and the purchase, sale and holding of mortgage pass-through certificates,
such as the Offered Certificates, underwritten by an Exemption-Favored Party (as
hereinafter defined), provided that certain conditions set forth in the
Exemption are satisfied. "Exemption-Favored Party" shall include (a) Bank of
America Corporation, (b) Merrill Lynch & Co., (c) any person directly or
indirectly, through one or more intermediaries, controlling, controlled by or
under common control with Bank of America Corporation (such as Banc of America
Securities LLC) or Merrill Lynch & Co., and (d) any member of the underwriting
syndicate or selling group of which a person described in (a), (b) or (c) is a
manager or co-manager with respect to the Offered Certificates.
The Exemption sets forth five general conditions which must be satisfied
for a transaction involving the purchase, sale and holding of an Offered
Certificate to be eligible for exemptive relief thereunder. First, the
acquisition of such Offered Certificate by a Plan must be on terms that are at
least as favorable to the Plan as they would be in an arm's-length transaction
with an unrelated party. Second, such Offered Certificate at the time of
acquisition by the Plan must be rated in one of the four highest generic rating
categories by Fitch, Inc. ("Fitch"), Moody's or S&P. Third, the Trustee cannot
be an affiliate of any other member of the "Restricted Group", which (in
addition to the Trustee) consists of any Exemption-Favored Party, the Depositor,
the Master Servicer, the Special Servicer, any sub-servicer, the Mortgage Loan
Sellers, any borrower with respect to Mortgage Loans constituting more than 5%
of the aggregate unamortized principal balance of the Mortgage Pool as of the
date of initial issuance of the Certificates and any affiliate of any of the
aforementioned persons. Fourth, the sum of all payments made to and retained by
the Exemption-Favored Parties must represent not more than reasonable
compensation for underwriting the 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 must represent not more than the fair market value of such
obligations; and the sum of all payments made to and retained by the Master
Servicer, the Special Servicer and any sub-servicer must represent not more than
reasonable compensation for such person's services under the Pooling 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 Commission under the Securities Act.
A fiduciary of a Plan contemplating a purchase of any Class of Offered
Certificates in the secondary market must make its own determination that, at
the time of such purchase, such Certificate continues to satisfy the second and
third general conditions set forth above. A fiduciary of a Plan contemplating
purchasing any Class of Offered Certificate, whether in the initial issuance of
such Certificate or in the secondary market, must make its own determination
that the first and fourth general conditions set forth
S-131
above will be satisfied with respect to such Certificate as of the date of such
purchase. A Plan's authorizing fiduciary will be deemed to make a representation
regarding satisfaction of the fifth general condition set forth above in
connection with the purchase of any Class of Offered Certificate.
The Exemption also requires that the Trust meet the following requirements:
(i) the Trust Fund must consist solely of assets of the type that have been
included in other investment pools; (ii) certificates evidencing interests in
such other investment pools must have been rated in one of the four highest
categories of Fitch, Moody's or S&P for at least one year prior to the Plan's
acquisition of an Offered Certificate; 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 such
Certificate. The Depositor has confirmed to its satisfaction that such
requirements have been satisfied as of the date hereof.
If the general conditions of the Exemption are satisfied, the Exemption may
provide an exemption from the restrictions imposed by Sections 406(a) and 407(a)
of ERISA, as well as the excise taxes imposed by Sections 4975(a) and (b) of the
Code by reason of Sections 4975(c)(1)(A) through (D) of the Code, in connection
with (i) the direct or indirect sale, exchange or transfer of Offered
Certificates in the initial issuance of Offered Certificates between the
Depositor or an Exemption-Favored Party and a Plan when the Depositor, an
Exemption-Favored Party, the Trustee, the Master Servicer, the Special Servicer,
a sub-servicer, the Mortgage Loan Sellers or a borrower is a party in interest
(within the meaning of Section 3(14) of ERISA) or a disqualified person (within
the meaning of Section 4975(e)(2) of the Code) (a "Party in Interest") with
respect to the investing Plan, (ii) the direct or indirect acquisition or
disposition in the secondary market of the Offered Certificates by a Plan and
(iii) the continued holding of the Offered Certificates by a Plan. However, no
exemption is provided from the restrictions of Sections 406(a)(1)(E), 406(a)(2)
and 407 of ERISA for the acquisition or holding of an Offered Certificate on
behalf of an Excluded Plan (as defined in the next sentence) by any person who
has discretionary authority or renders investment advice with respect to the
assets of such Excluded Plan. For purposes hereof, an "Excluded Plan" is a Plan
sponsored by any member of the Restricted Group.
Moreover, if the general conditions of the Exemption, as well as certain
other specific conditions set forth in the Exemption, are satisfied, the
Exemption may also provide an exemption from the restrictions imposed by
Sections 406(b)(1) and (b)(2) of ERISA, and the excise taxes imposed by Sections
4975(a) and (b) of the Code by reason of Section 4975(c)(1)(E) of the Code, in
connection with (1) the direct or indirect sale, exchange or transfer of the
Offered Certificates in the initial issuance of the Offered Certificates between
the Depositor or an Exemption-Favored Party and a Plan when the person who has
discretionary authority or renders investment advice with respect to the
investment of Plan assets in such Certificates is (a) a borrower with respect to
5% or less of the fair market value of the Mortgage Pool or (b) an affiliate of
such a person, (2) the direct or indirect acquisition or disposition in the
secondary market of an Offered Certificates by a Plan and (3) the continued
holding of the Offered Certificates by a Plan.
Further, if the general conditions of the Exemption, as well as certain
other conditions set forth in the Exemption, are satisfied, the Exemption may
provide an exemption from the restrictions imposed by Sections 406(a), 406(b)
and 407(a) of ERISA, and the excise taxes imposed by Sections 4975(a) and (b) of
the Code by reason of Section 4975(c) of the Code, for transactions in
connection with the servicing, management and operation of the Mortgage Pool.
Lastly, if the general conditions of the Exemption are satisfied, the
Exemption also may provide an exemption from the restrictions imposed by
Sections 406(a) and 407(a) of ERISA, and the excise taxes imposed by Sections
4975(a) and (b) of the Code by reason of Sections 4975(c)(1) (A) through (D) of
the Code, if such restrictions are deemed to otherwise apply merely because a
person is deemed to be a Party in Interest with respect to an investing Plan by
virtue of providing services to the Plan (or by virtue of having certain
specified relationships to such a person) solely as a result of the Plan's
ownership of Offered Certificates.
Before purchasing an Offered Certificate, a fiduciary of a Plan should
itself confirm that (i) the Offered Certificates constitute "certificates" for
purposes of the Exemption and (ii) the specific and general conditions and the
other requirements set forth in the Exemption would be satisfied. In addition to
making its own
S-132
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 class exemptions. See "Certain ERISA Considerations" in
the accompanying prospectus. There can be no assurance that any such class
exemptions will apply with respect to any particular Plan investment in the
Offered Certificates or, even if it were deemed to apply, that any exemption
would apply to all transactions that may occur in connection with such
investment.
A governmental plan as defined in Section 3(32) of ERISA is not subject to
Title I of ERISA or Section 4975 of the Code. However, such a governmental plan
may be subject to a federal, state or local law which is, to a material extent,
similar to the foregoing provisions of ERISA or the Code ("Similar Law"). A
fiduciary of a governmental plan should make its own determination as to the
need for and the availability of any exemptive relief under Similar Law.
Any Plan fiduciary considering whether to purchase an Offered Certificate
on behalf of a Plan should consult with its counsel regarding the applicability
of the fiduciary responsibility and prohibited transaction provisions of ERISA
and the Code to such investment.
The sale of Offered Certificates to a Plan is in no respect a
representation by the Depositor or the Underwriters that this investment meets
all relevant legal requirements with respect to investments by Plans generally
or by any particular Plan, or that this investment is appropriate for Plans
generally or for any particular Plan.
LEGAL INVESTMENT
The Offered Certificates will not constitute "mortgage related securities"
for purposes of SMMEA. No representation is made as to the proper
characterization of any class of Offered Certificates for legal investment,
financial institution regulatory or other purposes, or as to the ability of
particular investors to purchase the Offered Certificates under applicable legal
investment or other restrictions. All institutions whose investment activities
are subject to legal investment laws and regulations, regulatory capital
requirements or review by regulatory authorities should consult with their own
legal advisors in determining whether and to what extent the Offered
Certificates constitute legal investments for them or are subject to investment,
capital or other restrictions. See "Legal Investment" in the accompanying
prospectus.
METHOD OF DISTRIBUTION
Subject to the terms and conditions set forth in the underwriting agreement
(the "Underwriting Agreement") among the Depositor, Banc of America Securities
LLC ("Banc of America"), Merrill Lynch, Pierce, Fenner & Smith Incorporated
("Merrill Lynch"), J.P. Morgan Securities Inc. ("JPMorgan" and together with
Banc of America Securities and Merrill Lynch, the "Underwriters"), the Depositor
has agreed to sell to each of Banc of America, Merrill Lynch and JPMorgan and
each of Banc of America, Merrill Lynch and JPMorgan have agreed to purchase,
severally but not jointly, the respective Certificate Balances as applicable, of
each Class of the Offered Certificates as set forth below subject in each case
to a variance of 5%.
<Table>
<Caption>
BANC OF AMERICA MERRILL LYNCH, PIERCE, FENNER J.P. MORGAN
CLASS SECURITIES LLC & SMITH INCORPORATED SECURITIES INC.
- ----- --------------- ----------------------------- ---------------
Class A-1.................... $ 31,614,245.50 $31,614,245.50 $ --
Class A-2.................... $ 86,087,823.00 $86,087,823.00 $ --
Class A-3.................... $ 45,475,279.50 $45,475,279.50 $ --
Class A-4.................... $520,000,000.00 $ -- $25,000,000.00
Class B...................... $ 25,297,394.50 $25,297,394.50 $ --
Class C...................... $ 8,432,465.00 $ 8,432,465.00 $ --
Class D...................... $ 7,027,054.00 $ 7,027,054.00 $ --
Class E...................... $ 9,837,875.50 $ 9,837,875.50 $ --
Class F...................... $ 5,621,643.00 $ 5,621,643.00 $ --
</Table>
S-133
Banc of America Securities LLC is acting as sole lead manager and sole
bookrunner with respect to the offering of the Class A-4 Certificates. Banc of
America Securities LLC and Merrill Lynch, Pierce, Fenner & Smith Incorporated
are acting as joint lead managers and joint bookrunners with respect to the
offering of the Class A-1, Class A-2, Class A-3, Class B, Class C, Class D,
Class E and Class F Certificates.
Banc of America Securities LLC is an affiliate of the Depositor. Proceeds
to the Depositor from the sale of the Offered Certificates, before deducting
expenses payable by the Depositor, will be an amount equal to approximately
100.47% of the initial aggregate Certificate Balance of the Offered
Certificates, plus accrued interest on all of the Offered Certificates, before
deducting expenses payable by the Depositor.
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. The Underwriters may effect such transactions
by selling the Offered Certificates to or through dealers, and such 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, the Underwriters may be deemed to have received
compensation from the Depositor in the form of underwriting discounts. The
Underwriters and any dealers that participate with the Underwriters in the
distribution of the Offered Certificates may be deemed to be underwriters and
any profit on the resale of the Offered Certificates positioned by them may be
deemed to be underwriting discounts and commissions under the Securities Act.
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 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.
The Depositor also has been advised by the Underwriters that the
Underwriters presently intend to make a market in the Offered Certificates;
however, the Underwriters 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. See "Risk Factors -- Risks
Related to the Certificates -- Limited Liquidity and Market Value" in this
prospectus supplement and "Risk Factors -- Limited Liquidity of Certificates" in
the accompanying prospectus.
The Depositor has agreed to indemnify the Underwriters and each person, if
any, who controls the Underwriters within the meaning of Section 15 of the
Securities Act against, or make contributions to the Underwriters and the such
controlling person with respect to, certain liabilities, including certain
liabilities under the Securities Act. Each Mortgage Loan Seller has agreed to
indemnify the Depositor, its officers and directors, the Underwriters and each
person, if any, who controls the Depositor or the Underwriters within the
meaning of Section 15 of the Securities Act, with respect to certain
liabilities, including certain liabilities under the Securities Act, relating to
the Mortgage Loans sold by such Mortgage Loan Seller.
LEGAL MATTERS
Certain legal matters will be passed upon for the Depositor and the
Underwriters by Cadwalader, Wickersham & Taft, New York, New York.
S-134
RATINGS
It is a condition to their issuance that the Offered Certificates receive
the credit ratings indicated below from Moody's Investors Service, Inc.
("Moody's") and Standard & Poor's Ratings Service, a division of The McGraw Hill
Companies, Inc. ("S&P"; and, together with Moody's, the "Rating Agencies"):
<Table>
<Caption>
CLASS S&P MOODY'S
- ----- --- -------
Class A-1................................................... AAA Aaa
Class A-2................................................... AAA Aaa
Class A-3................................................... AAA Aaa
Class A-4................................................... AAA Aaa
Class B..................................................... AA Aa2
Class C..................................................... AA- Aa3
Class D..................................................... A+ A1
Class E..................................................... A A2
Class F..................................................... A- A3
</Table>
The ratings of the Offered Certificates address the likelihood of the
timely receipt by holders thereof of all payments of interest to which they are
entitled on each Distribution Date and the ultimate receipt by holders thereof
of all payments of principal to which they are entitled by the Distribution Date
on June 11, 2035 (the "Rated Final Distribution Date"). The ratings take into
consideration the credit quality of the Mortgage Pool, structural and legal
aspects associated with the Certificates, and the extent to which the payment
stream from the Mortgage Pool is adequate to make payments of principal and/or
interest, as applicable, required under the Offered Certificates. The ratings of
the Offered Certificates do not, however, represent any assessments of (i) the
likelihood or frequency of voluntary or involuntary 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 will be collected on the Mortgage Loans in connection with such
prepayments or the corresponding effect on yield to investors, (iv) whether and
to what extent Default Interest will be received or Net Aggregate Prepayment
Interest Shortfalls will be realized or (v) payments of Excess Interest.
There is no assurance that any rating assigned to the Offered Certificates
by a Rating Agency will not be lowered, qualified (if applicable) or withdrawn
by such Rating Agency, if, in its judgment, circumstances so warrant. There can
be no assurance as to whether any rating agency not requested to rate the
Offered Certificates will nonetheless issue a rating to any Class thereof and,
if so, what such rating would be. In this regard, a rating assigned to any Class
of Offered Certificates by a rating agency that has not been requested by the
Depositor to do so may be lower than the ratings assigned thereto by S&P and/or
Moody's.
The ratings on the Offered Certificates should be evaluated independently
from similar ratings on other types of securities. A security rating is not a
recommendation to buy, sell or hold securities and may be subject to revision or
withdrawal at any time by the assigning rating agency. See "Risk
Factors -- Limited Nature of Ratings" in the accompanying prospectus.
S-135
INDEX OF PRINCIPAL DEFINITIONS
<Table>
<Caption>
PAGE
----
30/360 Basis................. S-53
84 William Street Loan....... S-64
840 Troy Corporate Center
Loan....................... S-69
880 Troy Corporate Center
Loan....................... S-66
Accrued Certificate
Interest................... S-109
ACMs......................... S-73
Actual/360 Basis............. S-53
Actual/360 Mortgage Loans.... S-53
Additional Trust Fund
Expenses................... S-113
Administrative Fee Rate...... S-102, A-1
Administrative Fees.......... S-121
Advances..................... S-90
Annual Debt Service.......... A-1
Annualized Most Recent....... A-3
Anticipated Repayment Date... S-53
Appraisal Reduction Amount... S-115
Appraisal Trigger Event...... S-115
Appraisal Value.............. A-1
ARD Loan..................... S-54
Asset Status Report.......... S-85
Assumed Monthly Payment...... S-110
Available Distribution
Amount..................... S-104
Balloon...................... A-1
Balloon Loan................. S-54
Balloon Payment.............. S-54
Balloon Payment Interest
Shortfall.................. S-89
Banc of America.............. S-133
Bank of America.............. S-52
Bank of America ARD Loan..... S-53
Bank of America Excess Cash
Flow....................... S-54
Bank of America Excess
Interest................... S-54
Bank of America Excess
Interest Rate.............. S-54
Bank of America Mortgage
Loans...................... S-52
Bank of America Revised
Rate....................... S-53
Base Interest Fraction....... S-111
BOA-Bridger Mortgage Loans... S-52
BOA-CMSG..................... S-87
BOA-Originated Mortgage
Loans...................... S-52
Bridger...................... S-52
Cash Flow.................... A-1
Certificate Balance.......... S-99
Certificate Owner............ S-98, S-118
Certificate Registrar........ S-99
Class........................ S-98
Class A Certificates......... S-98
Class X Certificates......... S-98
Class XC Strip Rate.......... S-101
</Table>
<Table>
<Caption>
PAGE
----
Class XP Strip Rate.......... S-101
CMSA NOI Adjustment
Worksheet.................. S-118
CMSA Operating Statement
Analysis Report............ S-118
Code......................... S-78
Collateral Substitution
Deposit.................... S-55
Collection Period............ S-103
Commercial Loan.............. S-52
Commercial Mortgaged
Property................... S-52
Compensating Interest
Payment.................... S-88
Condominium Regime........... S-67
Controlling Class............ S-86
Controlling Class
Certificateholder.......... S-86
Corrected Mortgage Loan...... S-85
Cross-Collateralized Mortgage
Loans...................... S-52
Cut-off Date................. S-52
Cut-off Date Balance......... S-52
Cut-off Date Loan-to-Value
Ratio...................... A-2
Cut-off Date LTV............. A-2
Cut-off Date LTV Ratio....... A-2
Default Interest............. S-90
Defaulted Mortgage Loan...... S-94
DEFEASANCE................... A-2
Defeasance Lock-Out Period... S-55
Defeasance Option............ S-55
Definitive Certificate....... S-98
Delivery Date................ S-98
Depositor.................... S-8
Determination Date........... S-103
Directing
Certificateholder.......... S-86
Discount Rate................ A-2
Distributable Certificate
Interest................... S-109
Distribution Date............ S-103
Distribution Date
Statement.................. S-116
Docks Corner Road Loan....... S-62
DTC.......................... S-98
Due Date..................... S-53
Emergency Advance............ S-91
ERISA........................ S-131
Excess Interest.............. S-54
Excess Interest Distribution
Account.................... S-113
Excess Interest Rate......... S-54
Excluded Plan................ S-132
Exemption-Favored Party...... S-131
Exemption.................... S-131
Expenses..................... A-1
</Table>
S-136
<Table>
<Caption>
PAGE
----
Fitch........................ S-131
Form 8-K..................... S-83
Full Year.................... A-3
Full Year Cash Flow.......... A-2
Full Year End Date........... A-2
Full Year Expenses........... A-2
Full Year Revenues........... A-2
Fully Amortizing............. A-2
GAAP......................... A-1
Hyper Amortizing............. A-2
Initial Certificate
Balance.................... S-124
Initial Pool Balance......... S-52
Interest Diff (BEY).......... A-2
Interest Diff (MEY).......... A-3
Interest Reserve Account..... S-113
JPMorgan..................... S-133
Large Crossed Loan........... S-52
Leasable Square Footage...... A-3
Liquidation Fee.............. S-89
Liquidation Fee Rate......... S-90
LNR.......................... S-87
LOC Loans.................... A-3
Lock-out Period.............. S-55
LOP.......................... S-125
MAI.......................... S-74
Major Tenants................ S-71
Master Servicer.............. S-8
Master Servicer Remittance
Date....................... S-113
Master Servicing Fee......... S-88
Master Servicing Fee Rate.... S-88
Maturity..................... A-3
Maturity Assumptions......... S-124
Maturity Date................ A-3
Maturity Date Balance........ A-3
Maturity Date Loan-to-Value
Ratio...................... A-3
Maturity Date LTV............ A-3
Merrill Lynch................ S-133
MICC Adler Loan.............. S-60
Modified Mortgage Loan....... S-116
Monthly Payments............. S-53
Moody's...................... S-135
Mortgage..................... S-52
Mortgage Loan Purchase and
Sale Agreement............. S-80
Mortgage Loan Schedule....... S-80
Mortgage Loan Sellers........ S-8
Mortgage Loans............... S-52
Mortgage Note................ S-52
Mortgage Pool................ S-52
Mortgage Rate................ S-53
</Table>
<Table>
<Caption>
PAGE
----
Mortgaged Property........... S-52
Most Recent Cash Flow........ A-3
Most Recent DSCR............. A-3
Most Recent End Date......... A-3
Most Recent Expenses......... A-3
Most Recent Revenues......... A-3
Most Recent Statement Type... A-3
Multifamily Loan............. S-52
Multifamily Mortgaged
Property................... S-52
Net Aggregate Prepayment
Interest Shortfall......... S-109
Net Mortgage Rate............ S-102
Net Rentable Area (SF)....... A-3
New Potomac Portfolio Loan... S-61
Nonrecoverable Advances...... S-114
Nonrecoverable P&I Advance... S-114
Nonrecoverable Servicing
Advance.................... S-91
Non-Specially Serviced
Mortgage Loan.............. S-92
Notional Amount.............. S-100
NPV (BEY).................... A-4
Occupancy%................... A-4
Occupancy Percent............ A-4
Offered Certificates......... S-98
OPEN......................... A-4
Open Period.................. S-55
Option Price................. S-95
P&I Advance.................. S-114
Pads......................... A-4
Participants................. S-99
Party in Interest............ S-132
Payment After Determination
Date Report................ S-116
Payment Differential......... A-4
Periodic Treasury Yield...... A-4
Permitted Encumbrances....... S-81
Permitted Investments........ S-88
Plan......................... S-131
Plan Assets.................. S-131
Plaza at Citrus Park Loan.... S-68
PMCC......................... S-52
PMCF......................... S-52
PMCF ARD Loan................ S-54
PMCF Excess Interest......... S-54
PMCF Excess Interest Rate.... S-54
PMCF Mortgage Loans.......... S-52
PMCF Revised Rate............ S-54
Pooling Agreement............ S-98
Prepayment Interest Excess... S-88
Prepayment Interest
Shortfall.................. S-88
Prepayment Premium........... S-55
</Table>
S-137
<Table>
<Caption>
PAGE
----
Prepayment Premium Period.... S-55
Primary Collateral........... S-79
Principal Distribution
Amount..................... S-109
Private Certificates......... S-98
PTE.......................... S-131
Purchase Option.............. S-95
Purchase Price............... S-78
Qualified Substitute Mortgage
Loan....................... S-78
Rated Final Distribution
Date....................... S-135
Rating Agencies.............. S-135
Realized Losses.............. S-112
Regency Square Mall Loan..... S-57
Reimbursement Rate........... S-114
Reinvestment Yield........... A-4
Record Date.................. S-103
Related Loans................ A-4
Related Proceeds............. S-91
Release Date................. S-55
REMIC........................ S-129
REMIC Administrator.......... S-121
REMIC I...................... S-129
REMIC II..................... S-129
REMIC Regular Certificates... S-98
REMIC Residual
Certificates............... S-98
REO Extension................ S-95
REO Loan..................... S-112
REO Property................. S-84
REO Tax...................... S-130
Required Appraisal Loan...... S-115
Restricted Group............. S-131
Revenues..................... A-1
Revised Rate................. S-54
S&P.......................... S-135
Senior Certificates.......... S-98
Senior Interests............. S-98
Sequential Pay
Certificates............... S-98
Servicing Advances........... S-90
Servicing Standard........... S-83
Servicing Transfer Event..... S-84
Settlement Date.............. S-125
Similar Law.................. S-133
Small Crossed Loan........... S-52
Special Servicer............. S-8
</Table>
<Table>
<Caption>
PAGE
----
Special Servicing Fee........ S-89
Special Servicing Fee Rate... S-89
Specially Serviced Mortgage
Loan....................... S-84
Startup Day.................. S-129
Stated Principal Balance..... S-103
Subordinate Certificates..... S-105
Substitution Shortfall
Amount..................... S-78
Sub-Servicer................. S-87
Sub-Servicing Agreement...... S-87
Sub-Servicing Fee Rate....... A-1
Town Center East Loan........ S-59
Trailing 12.................. A-4
Trust........................ S-98
Trust Fund................... S-98
Trustee...................... S-8
Trustee Fee.................. S-121
Underwriters................. S-133
Underwriting Agreement....... S-133
Underwriting Cash Flow....... A-5
Underwriting Debt Service
Coverage Ratio............. A-5
Underwriting DSCR............ A-5
Underwritten DSCR............ A-5
Units........................ A-4
UPB.......................... A-4
USPAP........................ S-75
UST.......................... S-73
U/W Cash Flow................ A-5
U/W DSCR..................... A-5
U/W Expenses................. A-5
U/W Replacement Reserves..... A-6
U/W Replacement Reserves Per
Unit....................... A-6
U/W Revenues................. A-5
Voting Rights................ S-120
Wells Fargo.................. S-120
Weighted Average Net Mortgage
Rate....................... S-102
Williamsburg Outlet Center
Loan....................... S-65
Withheld Amount.............. S-113
Workout Fee.................. S-89
Workout Fee Rate............. S-89
YM........................... A-6
YMP.......................... S-125
</Table>
S-138
ANNEX A
CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS
The schedule and tables appearing in this Annex A set forth certain
information with respect to the Mortgage Loans and Mortgaged Properties. Unless
otherwise indicated, such information is presented as of the Cut-off Date. The
statistics in such schedule and tables were derived, in many cases, from
information and operating statements furnished by or on behalf of the respective
borrowers. Such information and operating statements were generally unaudited
and have not been independently verified by the Depositor or the Underwriters,
or any of their respective affiliates or any other person.
For purposes of the prospectus supplement, including the schedule and
tables in this Annex A, the indicated terms shall have the following meanings
and the schedules and tables in this Annex A will be qualified by the following:
1. "Administrative Fee Rate" means the sum of the Master Servicing Fee
Rate (including the per annum rates at which the monthly sub-servicing fee
is payable to the related Sub-Servicer (the "Sub-Servicing Fee Rate")),
plus the per annum rate applicable to the calculation of the Trustee Fee.
2. "Annual Debt Service" means the amount derived by multiplying the
Monthly Payment set forth for each Mortgage Loan in this Annex A by twelve.
3. "Appraisal Value" means, for any Mortgaged Property, the
appraiser's value as stated in the appraisal available to the Depositor as
of the date specified on the schedule.
4. "Balloon" means Balloon Loans.
5. "Cash Flow" means with respect to any Mortgaged Property, the total
cash flow available for Annual Debt Service on the related Mortgage Loan,
generally calculated as the excess of Revenues over Expenses, capital
expenditures and tenant improvements and leasing commissions.
(i) "Revenues" generally consist of certain revenues received in
respect of a Mortgaged Property, including, for example, (A) for the
Multifamily Mortgaged Properties, rental and other revenues; and (B) for
the Commercial Mortgaged Properties, base rent (less mark-to-market
adjustments in some cases), percentage rent, expense reimbursements and
other revenues.
(ii) "Expenses" generally consist of all expenses incurred for a
Mortgaged Property, including for example, salaries and wages, the costs
or fees of utilities, repairs and maintenance, marketing, insurance,
management, landscaping, security (if provided at the Mortgaged
Property) and the amount of real estate taxes, general and
administrative expenses, ground lease payments, and other costs but
without any deductions for debt service, depreciation and amortization
or capital expenditures therefor.
In certain cases, Full Year Cash Flow, Most Recent Cash Flow and/or
U/W Cash Flow have been adjusted by removing certain non-recurring expenses
and revenue or by certain other normalizations. Such Cash Flow does not
necessarily reflect accrual of certain costs such as capital expenditures
and leasing commissions and does not reflect non-cash items such as
depreciation or amortization. In some cases, capital expenditures and
non-recurring items may have been treated by a borrower as an expense but
were deducted from Most Recent Expenses, Full Year Expenses or U/W Expenses
to reflect normalized Most Recent Cash Flow, Full Year Cash Flow or U/W
Cash Flow, as the case may be. The Depositor has not made any attempt to
verify the accuracy of any information provided by each borrower or to
reflect changes that may have occurred since the date of the information
provided by each borrower for the related Mortgaged Property. Such Cash
Flow was not necessarily determined in accordance with generally accepted
accounting principles ("GAAP"). Such Cash Flow is not a substitute for net
income determined in accordance with GAAP as a measure of the results of a
Mortgaged Property's operations or a substitute for cash flows from
operating activities determined in accordance
A-1
with GAAP as a measure of liquidity. Moreover, in certain cases such Cash
Flow may reflect partial-year annualizations.
6. "Cut-off Date Loan-to-Value Ratio", "Cut-off Date LTV Ratio" or
"Cut-off Date LTV" means, with respect to any Mortgage Loan, the Cut-off
Date Balance of such Mortgage Loan divided by the Appraisal Value of the
related Mortgaged Property; provided that with respect to the LOC Loans (as
defined herein) the Cut-off Date Balance was reduced by the amounts
available under the applicable letter of credit serving as additional
collateral for such Mortgage Loan.
7. "DEFEASANCE" means, with respect to any Mortgage Loan, that such
Mortgage Loan is subject to a Defeasance Option.
8. "Discount Rate" means, with respect to any prepayment premium
calculation, the yield on the U.S. Treasury issue with a maturity date
closest to the maturity date for the Mortgage Loan being prepaid, or an
interpolation thereof.
9. "Full Year End Date" means, with respect to each Mortgage Loan, the
date indicated on Annex A as the "Full Year End Date" with respect to such
Mortgage Loan, which date is generally the end date with respect to the
period covered by the latest available annual operating statement provided
by the related borrower.
10. "Full Year Cash Flow" means, with respect to any Mortgaged
Property, the Cash Flow derived therefrom that was available for debt
service, calculated as Full Year Revenues less Full Year Expenses, Full
Year capital expenditures and Full Year tenant improvements and leasing
commissions. See also "Cash Flow" above.
(i) "Full Year Revenues" are the Revenues received (or annualized
or estimated in certain cases) in respect of a Mortgaged Property for
the 12-month period ended as of the Full Year End Date, based upon the
latest available annual operating statement and other information
furnished by the borrower for its most recently ended fiscal year.
(ii) "Full Year Expenses" are the Expenses incurred (or annualized
or estimated in certain cases) for a Mortgaged Property for the 12-month
period ended as of the Full Year End Date, based upon the latest
available annual operating statement and other information furnished by
the borrower for its most recently ended fiscal year.
11. "Fully Amortizing" means fully amortizing Mortgage Loan; except
that such Mortgage Loan may have a payment due at its maturity in excess of
its scheduled Monthly Payment.
12. "Hyper Amortizing" means ARD Loan.
13. "Interest Diff (BEY)" refers to a method of calculation of a yield
maintenance premium. Under this method prepayment premiums are generally
equal to an amount equal to the greater of (a) one percent (1%) of the
principal amount being prepaid or (b) the product obtained by multiplying
(x) the principal amount being prepaid, times (y) the difference obtained
by subtracting (I) the Yield Rate from (II) the mortgage rate of the
related Mortgage Note, times (z) the present value factor calculated using
the following formula:
1-(1+r)(-n)
------------
r
where r is equal to the Yield Rate and n is equal to the number of years
and any fraction thereof, remaining between the date the prepayment is made
and the maturity date of the related Mortgage Note.
As used herein, "Yield Rate" means the yield rate for the specified
United States Treasury security, as reported in The Wall Street Journal on
the fifth Business Day preceding the date the prepayment is required in the
related Mortgage Loan documents.
A-2
14. "Interest Diff (MEY)" refers to a method of calculation of a yield
maintenance premium. Under this method prepayment premiums are generally
equal to an amount equal to the greater of (a) 1% of the principal amount
being prepaid in connection with Mortgage Loan No. 6104365 and 0.75% in
connection with Mortgage Loan No. 6104395, or (b) the present value of a
series of payments each equal to the Payment Differential and payable on
each date that payment is required under the related Mortgage Loan
documents over the remaining original term of the related Mortgage Note and
on the maturity date of the related Mortgage Loans, discounted at the
Reinvestment Yield for the number of months remaining as of the date of
such prepayment to each such date that payment is required under the
related Mortgage Loan documents and the maturity date of the related
Mortgage Loans.
15. "Leasable Square Footage" or "Net Rentable Area (SF)" means, in
the case of a Mortgaged Property operated as a retail center, office
complex or industrial or warehouse facility, the square footage of the net
leasable area.
16. "LOC Loans" means Mortgage Loan Nos. 55792, 55810, 55817, 55819,
55821 and 55826 representing 3.2% of the Initial Pool Balance.
17. "Maturity" or "Maturity Date" means, with respect to any Mortgage
Loan, the date specified in the related Mortgage Note as its stated
maturity date or in the case of an ARD Loan, the Anticipated Repayment
Date.
18. "Maturity Date Balance" means, with respect to any Mortgage Loan,
the balance due at maturity or in the case of an ARD Loan, the Anticipated
Repayment Date, assuming no prepayments, defaults or extensions.
19. "Maturity Date Loan-to-Value Ratio" or "Maturity Date LTV" means,
with respect to any Mortgage Loan, the Maturity Date Balance, divided by
the Appraisal Value of the related Mortgaged Property.
20. "Most Recent Cash Flow" means, with respect to any Mortgaged
Property, the Cash Flow derived therefrom that was available for debt
service, calculated as Most Recent Revenues less Most Recent Expenses, Most
Recent capital expenditures and Most Recent tenant improvements and leasing
commissions. See also "Cash Flow" above.
(i) "Most Recent Revenues" are the Revenues received (or annualized
or estimated in certain cases) in respect of a Mortgaged Property for
the 12-month period ended on the Most Recent Date, based upon operating
statements and other information furnished by the related borrower.
(ii) "Most Recent Expenses" are the Expenses incurred (or
annualized or estimated in certain cases) for a Mortgaged Property for
the 12-month period ended on the Most Recent Date, based upon operating
statements and other information furnished by the related borrower.
21. "Most Recent DSCR" means, with respect to any Mortgage Loan, (a)
the Most Recent Cash Flow for the related Mortgaged Property, divided by
(b) the Annual Debt Service for such Mortgage Loan.
22. "Most Recent End Date" means, with respect to any Mortgage Loan,
the date indicated on Annex A as the "Most Recent End Date" with respect to
such Mortgage Loan which date is generally the end date with respect to the
period covered by the latest available operating statement provided by the
related borrower.
23. "Most Recent Statement Type" means certain financial information
with respect to the Mortgaged Properties as set forth in the three
categories listed in (i) through (iii) immediately below.
(i) "Full Year" means certain financial information regarding the
Mortgaged Properties presented as of the fiscal year ending December 31,
2001.
(ii) "Annualized Most Recent" means certain financial information
regarding the Mortgaged Properties which has been annualized based upon
one month or more of financial data.
A-3
(iii) "Trailing 12" means certain financial information regarding a
Mortgaged Properties which is presented for the trailing 12 months prior
to the Most Recent End Date.
24. "NPV (BEY)" refers to a method of calculation of a yield
maintenance premium. Under this method prepayment premiums are generally
equal to an amount equal to the greater of (a) an amount equal to one
percent (1%) of the then outstanding principal balance of the related
Mortgage Loan or (b) an amount equal to (y) the sum of the present values
as of the date of prepayment of the related Mortgage Loan of all unpaid
principal and interest payments required under this note, calculated by
discounting such payments from their respective scheduled payment dates
back to the date of prepayment of the related Mortgage Loan at a discount
rate equal to the Periodic Treasury Yield, minus (z) the outstanding
principal balance of the loan as of the date of prepayment of the related
Mortgage Loan.
25. "Occupancy %" or "Occupancy Percent" means the percentage of
Leasable Square Footage or Total Units/Pads, as the case may be, of the
Mortgaged Property that was occupied as of a specified date, as specified
by the borrower or as derived from the Mortgaged Property's rent rolls,
which generally are calculated by physical presence or, alternatively,
collected rents as a percentage of potential rental revenues. With respect
to loan number 6104395, the occupancy rate listed in Annex A relates to the
amount of space leased.
26. "OPEN" means, with respect to any Mortgage Loan that such Mortgage
Loan may be voluntarily prepaid without a Prepayment Premium.
27. "Payment Differential" shall mean an amount equal to (a) the
interest rate under the relevant Mortgage Note less the Reinvestment Yield,
divided by 12 and multiplied by (b) the principal sum outstanding under the
related Mortgage Note after application of the constant monthly payment due
under the related Mortgage Note on the date of such prepayment, provided
that the Payment Differential shall in no event be less than zero.
28. "Periodic Treasury Yield" means (a) the annual yield to maturity
of the actively traded noncallable United States Treasury fixed interest
rate security (other than such security which can be surrendered at the
option of the holder at face value in payment of federal estate tax or
which was issued at a substantial discount) that has a maturity closest to
(whether before, on or after) the maturity date (or if two or more
securities have maturity dates equally close to the maturity date, the
average annual yield to maturity of all such securities), as reported in
The Wall Street Journal or other authoritative publication or news
retrieval service on the fifth Business Day preceding the prepayment date,
divided by (b) twelve, if scheduled payment dates are monthly, or four, if
scheduled payment dates are quarterly.
29. "Reinvestment Yield" shall mean an amount equal to the lesser of
(a) the yield on the United States Treasury issue with a maturity date
closest to the maturity date of the related Mortgage Loan or (b) the yield
on the United States Treasury issue with a term equal to the remaining
average life of the indebtedness evidenced by the related Mortgage Loan,
with each such yield being based on the bid price for such issue as
published in The Wall Street Journal on the date that is 14 days prior to
the date of such prepayment set forth in the notice of prepayment (or, if
such bid price is not published on that date, the next preceding date on
which such bid price is so published) and converted to a monthly compounded
nominal yield.
30. "Related Loans" means two or more Mortgage Loans with respect to
which the related Mortgaged Properties are either owned by the same entity
or owned by two or more entities controlled by the same key principals.
31. "UPB" means, with respect to any Mortgage Loan, its unpaid
principal balance.
32. "Units" and "Pads" respectively, mean: (i) in the case of a
Mortgaged Property operated as multifamily housing, the number of
apartments, regardless of the size of or number of rooms in such
A-4
apartment (referred to in the schedule as "Units"); and (ii) in the case of
a Mortgaged Property operated as a Manufactured Housing Community, the
number of pads (referred to in the schedule as "Pads").
33. "U/W DSCR", "Underwriting DSCR", "Underwritten DSCR" or
"Underwriting Debt Service Coverage Ratio" means, with respect to any
Mortgage Loan, (a) the U/W Cash Flow for the related Mortgaged Property
divided by (b) the Annual Debt Service for such Mortgage Loan.
34. "U/W Cash Flow" or "Underwriting Cash Flow" means, with respect of
any Mortgaged Property, the Cash Flow derived therefrom that was available
for debt service, calculated as U/W Revenues less U/W Expenses, U/W
Reserves and U/W tenant improvements and leasing commissions. See also
"Cash Flow" above.
(i) "U/W Revenues" are the anticipated Revenues in respect of a
Mortgaged Property, generally determined by means of an estimate made at
the origination of such Mortgage Loan or, as in some instances, as have
been subsequently updated. U/W Revenues have generally been calculated
(a) assuming that the occupancy rate for the Mortgaged Property was
consistent with the Mortgaged Property's current or historical rate, or
the relevant market rate, if such rate was less than the occupancy rate
reflected in the most recent rent roll or operating statements, as the
case may be, furnished by the related borrower, and (b) in the case of
retail, office, industrial and warehouse Mortgaged Properties, assuming
a level of reimbursements from tenants consistent with the terms of the
related leases or historical trends at the Mortgaged Property, and in
certain cases, assuming that a specified percentage of rent will become
defaulted or otherwise uncollectible. In addition, in the case of
retail, office, industrial and warehouse Mortgaged Properties, upward
adjustments may have been made with respect to such revenues to account
for all or a portion of the rents provided for under any new leases
scheduled to take effect later in the year. Also, in the case of certain
Mortgaged Properties that are operated as nursing home or hotel
properties and are subject to an operating lease with a single operator,
U/W Revenues were calculated based on revenues received by the operator
rather than rental payments received by the related borrower under the
operating lease.
(ii) "U/W Expenses" are the anticipated Expenses in respect of a
Mortgaged Property, generally determined by means of an estimate made at
the origination of such Mortgage Loan or as in some instances as may be
updated. U/W Expenses were generally assumed to be equal to historical
annual expenses reflected in the operating statements and other
information furnished by the borrower, except that such expenses were
generally modified by (a) if there was no management fee or a below
market management fee, assuming that a management fee was payable with
respect to the Mortgaged Property in an amount approximately equal to a
percentage of assumed gross revenues for the year, (b) adjusting certain
historical expense items upwards or downwards to amounts that reflect
industry norms for the particular type of property and/or taking into
consideration material changes in the operating position of the related
Mortgaged Property (such as newly signed leases and market data) and (c)
adjusting for non-recurring items (such as capital expenditures) and
tenant improvement and leasing commissions, if applicable (in the case
of certain retail, office, industrial and warehouse Mortgaged
Properties, adjustments may have been made to account for tenant
improvements and leasing commissions at costs consistent with historical
trends or prevailing market conditions and, in other cases, operating
expenses did not include such costs).
Actual conditions at the Mortgaged Properties will differ, and may
differ substantially, from the assumed conditions used in calculating U/W
Cash Flow. In particular, the assumptions regarding tenant vacancies,
tenant improvements and leasing commissions, future rental rates, future
expenses and other conditions if and to the extent used in calculating U/W
Cash Flow for a Mortgaged Property, may differ substantially from actual
conditions with respect to such Mortgaged Property. There can be no
assurance that the actual costs of reletting and capital improvements will
not exceed those estimated or assumed in connection with the origination or
purchase of the Mortgage Loans.
In most cases, U/W Cash Flow describes the cash flow available after
deductions for capital expenditures such as tenant improvements, leasing
commissions and structural reserves. In those cases
A-5
where such "reserves" were so included, no cash may have been actually
escrowed. No representation is made as to the future net cash flow of the
properties, nor is U/W Cash Flow set forth herein intended to represent
such future net cash flow.
35. "U/W Replacement Reserves" means, with respect to any Mortgaged
Property, the aggregate amount of on-going reserves (generally for capital
improvements and replacements) assumed to be maintained with respect to
such Mortgaged Property. In each case, actual reserves, if any, may be less
than the amount of U/W Reserves.
36. "U/W Replacement Reserves Per Unit" means, with respect to any
Mortgaged Property, (a) the related U/W Reserves, divided by (b) the number
of Units, Leasable Square Feet or Pads, as applicable.
37. "YM" means, with respect to any Mortgage Loan, a yield maintenance
premium.
38. With respect to Mortgage Loan No. 6104480, the "Town Center East
Loan", the information displayed in this Annex A relates to the mortgaged
collateral rather than the improvements located on the Mortgaged Property.
39. The Mortgage Rate for Mortgage Loan No. 6104477 was 7.69% from the
origination date until 2/15/02. From and after 2/15/02 the interest rate is
7.54%. Payment in month 1 was $111,890.57, payment in month 2 was
$110,998.20. Monthly payments for the remainder of the term of the loan are
$110,296.18. All payments are based on an original 360 month amortization
term.
40. The Mortgage Rate for Mortgage Loan No. 6104526 was 7.69% from the
origination date until 2/15/02. From and after 2/15/02 the interest rate is
7.54%. Payment in month 1 was $12,699.78, payment in month 2 was
$12,598.49. Monthly payments for the remainder of the term of the loan are
$12,518.82. All payments are based on an original 360 month amortization
term.
41. Mortgage Loan Nos. 6104526 and 6104477 are partially
cross-collateralized and cross-defaulted with each other. A default under
Mortgage Loan No. 6140526 will trigger a default under Mortgage Loan No.
6104477; however, a default under Mortgage Loan No. 6104477 will not
trigger a default under Mortgage Loan No. 6104526.
42. Mortgage Loan No. 56050 provides that after the 60th payment the
amortization term resets from an amortization schedule of 30 years to an
amortization schedule of 22 years and the payment resets to $227,503.74 per
month.
A-6
ANNEX A
CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS
SE- LOAN
QUENCE NUMBER PROPERTY NAME PROPERTY ADDRESS
- ------ ------- ---------------------------------------------------- -------------------------------------------------------
P1.1 6104459 New Potomac Portfolio - Finchley Square Apartments 4000 38th Street
P1.2 6104459 New Potomac Portfolio - Victoria Station Apartments 1407 1/2 Merrimac Drive
P1.3 6104459 New Potomac Portfolio - Paddington Square Apartments 8800 Lanier Drive
P1.4 6104459 New Potomac Portfolio - Eaton Square Apartments 7888 Sheriff Road
P1.5 6104459 New Potomac Portfolio - Bedford Station Apartments 1400 East University Boulevard
P1.6 6104459 New Potomac Portfolio - Newbury Square Apartments 6803 Riggs Road
P1.7 6104459 New Potomac Portfolio - Edmonton Station Apartments 5360 Quincy Place
P1 6104459 NEW POTOMAC PORTFOLIO (ROLL-UP)
A1 55567 84 William Street 84 William Street
A2 53445 The Brook at Colonial Park/Kushner 4212 Williamsburg Drive
A3 55954 Gainesville Place 2800 SW 35th Place
A4 55893 Meadow Wood Village 1613 Ximeno Avenue
A5 55015 The Reserve 175 International Drive
A6 55362 RCA Portfolio 2 - Ambassador Apartments 2400 Timberline Drive
P2.1 6104485 CJB Apartments- Silvertree Apartments 2600-3001 North Silvertree Lane
P2.2 6104485 CJB Apartments- Windsong Apartments 2100-2240 North Oakwood Ave
P2.3 6104485 CJB Apartments- Autumn Breeze Apartments 2810-2860 North Everbrook Lane
P2.4 6104485 CJB Apartments- Sunreach Apartments 1801-1821 West Royale Road
P2.5 6104485 CJB Apartments- Everbrook Townhouses 2600-2806 North Everbrook Lane
P2.6 6104485 CJB Apartments- Cardinal Villa 1200 West Bethel Ave
P2 6104485 CJB APARTMENTS (ROLL-UP)
A7 55412 Campus Village Housing Apartments 111 N.Mills St., 110, 118 N.Brooks St., 1002 Springs
St., 1, 2, 9, 10 Gerry Ct.
A8 55819 CLK - Charter Pointe 919 Ballard Street
A9 55810 CLK - Charlestown of Douglass Hills 407 Charlestown Court
P3 6104518 Columbiana Lakes Apartments 250 Crossbow Drive
B1 324010357 Saddle Ridge Crossing Townhomes 4 Tether Court
A10 55364 RCA Portfolio 2 - Landing at Westchase 9797 Meadowglen Lane
A11 53425 Mapleton Square Apartments/Kushner 115 Willis Road
B2 317010356 Park Apartments 10623 East Exposition Avenue
P4 6104457 Cypress Gates Apartments 299 Carmel Avenue
A12 55365 RCA Portfolio 2 - Royal Wildewood Manor 201 Dixie Drive
A13 55826 CLK - Cardinal Woods 1331 Wicklow Court
P5 6104446 Hillbrook Apartments 478 South Raccoon Road
B3 820010338 Whispering Pines 75 Yotzonot Drive/1 - 12 Christopher Drive
A14 55817 CLK - Arlington Village 1733 Arlin Place
P6 6104440 Grand Summit Apartments 601 Friendway Road
B4 317010321 James River Apartments 868 Wilton Lane NW
A15 55821 CLK - Cambridge 360 Piccadilly Square
B5 820010343 Parkway Apartments 1801 - 1821 Parkway Court
A16 55792 CLK - Breckenridge 3209 Glendale Place
A17 55953 La Mirage Apartments 610 East Gilbert Drive
B6 400010330 Paradise Palms Apartments 17646 North Cave Creek Road
B7 820010334 Twin Oaks Apartments 2415 - 2435 W. Bradley Avenue
B8 400010336 Ashton Meadows Apartments 3950 Cabot Drive
B9 820010342 Ravenwood Townhomes 3516 South Park Avenue, 1601-1645 Westchester Boulevard
B10 800010352 Ashwood Downs Apartments 1900 Ashwood Downs Lane
P7 6104345 Green Lake Apartments 10250 NW 80th Court
P8 6104350 Bentwood Subdivision Scott Hamilton Avenue, Bentwood Lane, Burrwood Drive
B11 415010319 Montebello Apartments 1055 South Mollison Avenue
B12 415010326 Bellagio Apartments 435 South Detroit Street
B13 415010325 Monet Apartments 630 - 636 Hauser Boulevard
A18 55367 RCA Portfolio 2 - Braeburn Villa 9600 Braes Bayou Drive
P9 6104385 Meadowbrook Apartments One Meadows Boulevard
B14 415010328 Casa California Apartments 285 West California Avenue
A19 55368 RCA Portfolio 2 - Parkwest Place Apts 10161 Westpark Drive
P10 6104346 Sunset on the Lakes Apartments 7805-7815 SW 152nd Avenue
A20 55739 Regency Square 1420 Parham Road
P11 6103802 Williamsburg Outlet Center 5715 Richmond Road
P12 6104484 The Plaza at Citrus Park 12601-12925 Citrus Park Drive
P13 6104434 Forest Promenade Shopping Plaza 965 Richmond Avenue
A21 54043 Gravois Bluffs I (Lowe's) 1-45 Gravios Bluffs Boulevard
P14 6104442 The Plaza at Brandon Town Center 320 Brandon Town Center Drive
A22 52628 Edwards Fresno Stadium 21 Cinema 7750 North Blackstone Avenue
P15 6104429 Ross Center 11211-11245 SE 82nd Avenue
B15 100010329 Tanglewood Square 8515 - 8575 Tanglewood Square
P16 6104427 Vancouver Park Place 8101 Northeast Parkway Drive
A23 54480 Ahoskie Commons 1400-1530 East Memorial Drive
A24 54504 Rancho Cotati Shopping Center 500-590 East Cotati Avenue
P17 6104430 Silverdale Ross Plaza 10410 Silverdale Way, NW
B16 100010335 West Valley Tops 371 Bagley Road
CUT-OFF
ZIP PROPERTY ORIGINAL DATE
COUNTY CITY STATE CODE TYPE BALANCE BALANCE
- --------------- ------------- ----- ----- ------------ ---------- ----------
Prince George's Brentwood MD 20722 Multifamily
Prince George's Hyattsville MD 20783 Multifamily
Montgomery Silver Spring MD 20910 Multifamily
Prince George's Landover MD 20785 Multifamily
Prince George's Hyattsville MD 20783 Multifamily
Prince George's Hyattsville MD 20783 Multifamily
Prince George's Hyattsville MD 20784 Multifamily
Multifamily 39,100,000 38,967,597
New York New York NY 10038 Multifamily 33,000,000 32,845,972
Dauphin Harrisburg PA 17109 Multifamily 19,691,998 19,691,998
Alachua Gainesville FL 32608 Multifamily 17,840,000 17,753,618
Los Angeles Long Beach CA 90804 Multifamily 15,500,000 15,403,921
Clarke Athens GA 30605 Multifamily 15,280,000 15,145,054
Tarrant Grapevine TX 76051 Multifamily 14,371,000 14,371,000
Delaware Muncie IN 47304 Multifamily
Delaware Muncie IN 47304 Multifamily
Delaware Muncie IN 47304 Multifamily
Delaware Muncie IN 47304 Multifamily
Delaware Muncie IN 47304 Multifamily
Delaware Muncie IN 47304 Multifamily
Multifamily 13,500,000 13,480,962
Dane Madison WI 53715 Multifamily 13,250,000 13,185,977
Seminole Altamonte Springs FL 32701 Multifamily 10,030,000 10,030,000
Jefferson Louisville KY 40243 Multifamily 9,180,000 9,180,000
Lexington Columbia SC 29212 Multifamily 9,150,000 9,126,698
New Castle Wilmington DE 19808 Multifamily 9,000,000 8,987,951
Harris Houston TX 77042 Multifamily 8,800,000 8,800,000
Kent Dover DE 19901 Multifamily 8,263,043 8,263,043
Arapahoe Aurora CO 80012 Multifamily 7,600,000 7,575,544
Monterey Marina CA 93933 Multifamily 7,500,000 7,462,874
Brazoria Clute TX 77531 Multifamily 7,176,000 7,176,000
Wake Cary NC 27511 Multifamily 6,885,000 6,885,000
Mahoning Austintown OH 44515 Multifamily 6,700,000 6,673,040
McLean Bloomington IL 61704 Multifamily 6,140,000 6,111,341
Greene Fairborn OH 45324 Multifamily 5,397,500 5,397,500
Guilford Greensboro NC 27410 Multifamily 5,100,000 5,074,151
Gwinnett Lilburn GA 30047 Multifamily 4,600,000 4,569,790
Clarke Athens GA 30605 Multifamily 4,505,000 4,505,000
McLean Normal IL 61761 Multifamily 4,300,000 4,280,659
Jefferson Birmingham AL 35243 Multifamily 4,165,000 4,165,000
Maricopa Tempe AZ 85281 Multifamily 4,100,000 4,081,362
Maricopa Phoenix AZ 85022 Multifamily 4,000,000 3,985,226
Champaign Champaign IL 61821 Multifamily 3,600,000 3,581,475
Clark Springfield OH 45503 Multifamily 3,400,000 3,386,578
Sangamon Springfield IL 61704 Multifamily 3,000,000 2,986,144
Thurston Olympia WA 98501 Multifamily 2,990,000 2,980,806
Miami-Dade Hialeah Gardens FL 33016 Multifamily 2,800,000 2,789,364
Wood Bowling Green OH 43402 Multifamily 2,785,000 2,762,292
San Diego El Cajon CA 92020 Multifamily 2,660,000 2,650,015
Los Angeles Los Angeles CA 90036 Multifamily 2,650,000 2,636,845
Los Angeles Los Angeles CA 90036 Multifamily 2,575,000 2,562,130
Harris Houston TX 77074 Multifamily 2,288,000 2,288,000
St. Tammany Parish Slidell LA 70460 Multifamily 2,200,000 2,189,893
Los Angeles Pasadena CA 91105 Multifamily 2,000,000 1,987,790
Harris Houston TX 77042 Multifamily 1,725,000 1,725,000
Miami-Dade Miami FL 33193 Multifamily 1,725,000 1,718,448
Henrico Richmond VA 23229 Retail 82,500,000 82,083,574
James City Williamsburg VA 23188 Retail 32,500,000 32,288,033
Hillsborough Tampa FL 33625 Retail 30,000,000 29,896,007
Richmond Staten Island NY 10314 Retail 19,000,000 18,938,859
St. Louis Fenton MO 63026 Retail 16,560,000 16,404,431
Hillsborough Brandon FL 33511 Retail 13,390,000 13,334,738
Fresno Fresno CA 93720 Retail 13,035,339 12,865,985
Clackamas Portland OR 97266 Retail 11,775,000 11,736,809
Geauga Bainbridge OH 40423 Retail 9,500,000 9,415,085
Clark Vancouver WA 98662 Retail 7,600,000 7,574,415
Hertford Ahoskie NC 27910 Retail 6,850,000 6,773,887
Sonoma Cotati CA 94931 Retail 5,992,000 5,957,452
Kitsap Silverdale WA 98383 Retail 5,700,000 5,681,513
Cuyahoga Berea OH 44017 Retail 5,500,000 5,462,022
MATURITY OR
ANTICIPATED
REPAYMENT ADMINI- SUB- NET
DATE LOAN MORTGAGE STRATIVE SERVICING MORTGAGE
BALANCE TYPE RATE FEE RATE(I) FEE RATE RATE
- ----------- ---------------- -------- ---------- --------- --------
34,036,033 Balloon 6.880% 0.092% 0.065% 6.788%
28,911,629 Balloon 7.125% 0.142% 0.100% 6.983%
17,627,861 Hyper Amortizing 8.327% 0.142% 0.100% 8.185%
15,558,723 Balloon 6.950% 0.082% 0.040% 6.868%
13,560,868 Balloon 7.070% 0.142% 0.100% 6.928%
14,516,428 Balloon 7.150% 0.142% 0.100% 7.008%
12,755,675 Balloon 7.330% 0.072% 0.030% 7.258%
11,835,240 Balloon 7.110% 0.052% 0.025% 7.058%
11,558,704 Balloon 6.960% 0.092% 0.050% 6.868%
9,255,989 Balloon 6.990% 0.142% 0.100% 6.848%
8,471,583 Balloon 6.990% 0.142% 0.100% 6.848%
8,046,692 Balloon 7.280% 0.102% 0.075% 7.178%
7,932,962 Balloon 7.320% 0.077% 0.050% 7.243%
7,810,865 Balloon 7.330% 0.072% 0.030% 7.258%
7,396,902 Hyper Amortizing 8.327% 0.142% 0.100% 8.185%
6,660,768 Balloon 7.140% 0.087% 0.060% 7.053%
6,021,526 Balloon 7.040% 0.052% 0.025% 6.988%
6,369,405 Balloon 7.330% 0.072% 0.030% 7.258%
6,353,687 Balloon 6.990% 0.142% 0.100% 6.848%
5,838,831 Balloon 6.910% 0.102% 0.075% 6.808%
5,379,315 Balloon 7.125% 0.077% 0.050% 7.048%
4,720,006 Balloon 6.990% 0.142% 0.100% 6.848%
4,421,887 Balloon 6.730% 0.052% 0.025% 6.678%
4,043,815 Balloon 7.250% 0.087% 0.060% 7.163%
3,939,532 Balloon 6.990% 0.142% 0.100% 6.848%
3,784,163 Balloon 7.300% 0.077% 0.050% 7.223%
3,843,588 Balloon 6.990% 0.142% 0.100% 6.848%
3,793,524 Balloon 7.250% 0.142% 0.100% 7.108%
3,522,175 Balloon 7.310% 0.117% 0.090% 7.193%
3,165,241 Balloon 7.250% 0.077% 0.050% 7.173%
2,970,020 Balloon 7.000% 0.117% 0.090% 6.883%
2,631,714 Balloon 7.175% 0.077% 0.050% 7.098%
2,635,862 Balloon 7.370% 0.077% 0.050% 7.293%
2,457,352 Balloon 7.180% 0.052% 0.025% 7.128%
2,245,811 Balloon 7.170% 0.102% 0.075% 7.068%
2,337,780 Balloon 7.235% 0.077% 0.050% 7.158%
2,070,559 Balloon 7.410% 0.077% 0.050% 7.333%
2,009,315 Balloon 7.380% 0.077% 0.050% 7.303%
2,030,825 Balloon 7.330% 0.072% 0.030% 7.258%
1,931,161 Balloon 7.200% 0.052% 0.025% 7.148%
1,752,960 Balloon 7.140% 0.077% 0.050% 7.063%
1,531,108 Balloon 7.330% 0.072% 0.030% 7.258%
1,513,905 Balloon 7.180% 0.052% 0.025% 7.128%
71,569,005 Balloon 6.750% 0.092% 0.050% 6.658%
26,606,225 Balloon 7.690% 0.052% 0.025% 7.638%
26,031,225 Hyper Amortizing 6.760% 0.052% 0.025% 6.708%
16,651,921 Balloon 7.140% 0.052% 0.025% 7.088%
14,095,931 Balloon 7.550% 0.092% 0.050% 7.458%
11,631,717 Hyper Amortizing 6.790% 0.052% 0.025% 6.738%
11,787,808 Balloon 8.430% 0.142% 0.100% 8.288%
10,309,162 Balloon 7.100% 0.052% 0.025% 7.048%
7,727,457 Balloon 7.470% 0.087% 0.060% 7.383%
6,620,949 Balloon 6.910% 0.052% 0.025% 6.858%
6,035,843 Balloon 7.360% 0.142% 0.100% 7.218%
5,341,075 Balloon 7.810% 0.142% 0.100% 7.668%
4,990,423 Balloon 7.100% 0.052% 0.025% 7.048%
4,457,633 Balloon 7.350% 0.087% 0.060% 7.263%
ORIGINAL ORIGINAL
FIRST INTEREST TERM TO AMORTIZATION INTEREST
NOTE PAYMENT ACCRUAL MONTHLY MATURITY/ARD TERM ONLY SEASONING
DATE DATE METHOD PAYMENT (MONTHS) (MONTHS) (II) PERIOD (MONTHS)
- ---------- --------- -------- ------- ------------ ------------- -------- ---------
12/18/2001 2/1/2002 ACT/360 256,990 120 360 4
10/15/2001 12/1/2001 ACT/360 222,327 120 360 6
9/8/2000 11/1/2000 ACT/360 157,070 120 295 36 19
10/19/2001 12/1/2001 ACT/360 118,092 120 360 6
8/8/2001 10/1/2001 ACT/360 103,852 120 360 8
4/2/2001 6/1/2001 ACT/360 103,202 60 360 12
6/13/2001 8/1/2001 ACT/360 99,767 120 348 12 10
2/4/2002 4/1/2002 ACT/360 90,815 120 360 2
10/9/2001 12/1/2001 ACT/360 87,797 120 360 6
9/21/2001 11/1/2001 ACT/360 70,315 84 306 24 7
9/21/2001 11/1/2001 ACT/360 64,356 84 306 24 7
1/9/2002 3/1/2002 ACT/360 62,605 120 360 3
2/7/2002 4/1/2002 ACT/360 61,824 120 360 2
6/13/2001 8/1/2001 ACT/360 61,092 120 348 12 10
9/8/2000 11/1/2000 ACT/360 65,909 120 295 36 19
12/18/2001 2/1/2002 ACT/360 51,280 120 360 4
12/28/2001 2/1/2002 ACT/360 53,200 120 300 4
6/13/2001 8/1/2001 ACT/360 49,818 120 348 12 10
9/21/2001 11/1/2001 ACT/360 48,267 84 306 24 7
11/26/2001 1/1/2002 ACT/360 44,171 120 360 5
10/2/2001 12/1/2001 ACT/360 41,366 120 360 6
9/21/2001 11/1/2001 ACT/360 37,706 120 309 30 7
10/31/2001 12/1/2001 ACT/360 33,011 120 360 6
7/27/2001 9/1/2001 ACT/360 31,380 120 360 9
9/21/2001 11/1/2001 ACT/360 31,471 120 309 30 7
10/16/2001 12/1/2001 ACT/360 29,480 120 360 6
9/21/2001 11/1/2001 ACT/360 29,199 84 306 24 7
10/19/2001 12/1/2001 ACT/360 27,969 84 360 6
11/27/2001 1/1/2002 ACT/360 27,450 120 360 5
9/19/2001 11/1/2001 ACT/360 24,558 120 360 7
11/6/2001 1/1/2002 ACT/360 22,620 120 360 5
10/10/2001 12/1/2001 ACT/360 20,313 120 360 6
12/11/2001 2/1/2002 ACT/360 20,641 120 360 4
11/30/2001 1/1/2002 ACT/360 18,968 120 360 5
9/21/2001 11/1/2001 ACT/360 19,987 120 300 7
10/5/2001 1/1/2002 ACT/360 18,119 120 360 5
9/4/2001 11/1/2001 ACT/360 18,366 180 360 7
9/4/2001 11/1/2001 ACT/360 17,794 180 360 7
6/13/2001 8/1/2001 ACT/360 15,884 120 348 12 10
10/16/2001 12/1/2001 ACT/360 14,933 120 360 6
8/15/2001 10/1/2001 ACT/360 13,495 120 360 8
6/13/2001 8/1/2001 ACT/360 11,975 120 348 12 10
11/30/2001 1/1/2002 ACT/360 11,686 120 360 5
10/19/2001 12/1/2001 ACT/360 535,093 120 360 6
10/19/2001 12/1/2001 ACT/360 244,203 120 300 6
12/20/2001 2/1/2002 ACT/360 194,779 120 360 4
12/20/2001 2/1/2002 ACT/360 128,199 120 360 4
2/8/2001 4/1/2001 ACT/360 116,357 144 360 14
11/30/2001 1/1/2002 ACT/360 87,204 120 360 5
5/15/2000 7/1/2000 ACT/360 99,585 120 360 23
12/12/2001 2/1/2002 ACT/360 79,132 120 360 4
8/8/2001 10/1/2001 ACT/360 70,019 120 300 8
12/18/2001 2/1/2002 ACT/360 50,104 120 360 4
1/24/2001 3/1/2001 ACT/360 47,241 120 360 15
7/2/2001 9/1/2001 ACT/360 43,176 120 360 9
12/12/2001 2/1/2002 ACT/360 38,306 120 360 4
10/30/2001 12/1/2001 ACT/360 40,109 120 300 6
REMAINING
TERM TO MATURITY OR
MATURITY/ ANTICIPATED
ARD REPAYMENT CROSS-COLLATERALIZED RELATED
(MONTHS) DATE LOANS LOANS
- --------- ----------- -------------------- ------------------
116 1/1/2012 No No
114 11/1/2011 No No
101 10/1/2010 No Yes(BACM 02-PB2-D)
114 11/1/2011 No No
112 9/1/2011 No No
48 5/1/2006 No No
110 7/1/2011 No Yes(BACM 02-PB2-C)
118 3/1/2012 No No
114 11/1/2011 No No
77 10/1/2008 No Yes(BACM 02-PB2-F)
77 10/1/2008 No Yes(BACM 02-PB2-F)
117 2/1/2012 No No
118 3/1/2012 No No
110 7/1/2011 No Yes(BACM 02-PB2-C)
101 10/1/2010 No Yes(BACM 02-PB2-D)
116 1/1/2012 No No
116 1/1/2012 No No
110 7/1/2011 No Yes(BACM 02-PB2-C)
77 10/1/2008 No Yes(BACM 02-PB2-F)
115 12/1/2011 No No
114 11/1/2011 No No
113 10/1/2011 No Yes(BACM 02-PB2-F)
114 11/1/2011 No No
111 8/1/2011 No No
113 10/1/2011 No Yes(BACM 02-PB2-F)
114 11/1/2011 No Yes(BACM 02-PB2-R)
77 10/1/2008 No Yes(BACM 02-PB2-F)
78 11/1/2008 No No
115 12/1/2011 No No
113 10/1/2011 No Yes(BACM 02-PB2-R)
115 12/1/2011 No No
114 11/1/2011 No Yes(BACM 02-PB2-R)
116 1/1/2012 No No
115 12/1/2011 No Yes(BACM 02-PB2-N)
113 10/1/2011 No No
115 12/1/2011 No No
173 10/1/2016 No Yes(BACM 02-PB2-J)
173 10/1/2016 No Yes(BACM 02-PB2-J)
110 7/1/2011 No Yes(BACM 02-PB2-C)
114 11/1/2011 No No
112 9/1/2011 No No
110 7/1/2011 No Yes(BACM 02-PB2-C)
115 12/1/2011 No Yes(BACM 02-PB2-N)
114 11/1/2011 No No
114 11/1/2011 No No
116 1/1/2012 No Yes(BACM 02-PB2-P)
116 1/1/2012 No No
130 3/1/2013 No No
115 12/1/2011 No Yes(BACM 02-PB2-P)
97 6/1/2010 No No
116 1/1/2012 No Yes(BACM 02-PB2-Q)
112 9/1/2011 No No
116 1/1/2012 No Yes(BACM 02-PB2-Q)
105 2/1/2011 No No
111 8/1/2011 No No
116 1/1/2012 No Yes(BACM 02-PB2-Q)
114 11/1/2011 No No
PREPAYMENT
LOCKOUT PENALTY DESCRIPTION YIELD MAINTENANCE
EXPIRATION (MONTHS) TYPE
- ---------- -------------------------------------------- ---------------------
9/30/2011 LO(116)/OPEN(4)/DEFEASANCE
8/1/2011 LO(117)/OPEN(3)/DEFEASANCE
8/1/2004 LO(46)/GRTR1%PPMTorYM(72)/OPEN(2) Interest Diff (BEY)
8/1/2011 LO(117)/OPEN(3)/DEFEASANCE
7/1/2011 LO(118)/OPEN(2)/DEFEASANCE
3/1/2006 LO(58)/OPEN(2)/DEFEASANCE
5/1/2011 LO(118)/OPEN(2)/DEFEASANCE
11/30/2011 LO(116)/OPEN(4)/DEFEASANCE
9/1/2011 LO(118)/OPEN(2)/DEFEASANCE
7/1/2008 LO(81)/OPEN(3)/DEFEASANCE
7/1/2008 LO(81)/OPEN(3)/DEFEASANCE
10/31/2011 LO(116)/OPEN(4)/DEFEASANCE
11/30/2011 LO(116)/OPEN(4)/DEFEASANCE
5/1/2011 LO(118)/OPEN(2)/DEFEASANCE
8/1/2004 LO(46)/GRTR1%PPMTorYM(72)/OPEN(2) Interest Diff (BEY)
9/30/2011 LO(116)/OPEN(4)/DEFEASANCE
9/30/2011 LO(116)/OPEN(4)/DEFEASANCE
5/1/2011 LO(118)/OPEN(2)/DEFEASANCE
7/1/2008 LO(81)/OPEN(3)/DEFEASANCE
8/31/2011 LO(116)/OPEN(4)/DEFEASANCE
7/31/2011 LO(116)/OPEN(4)/DEFEASANCE
7/1/2011 LO(117)/OPEN(3)/DEFEASANCE
7/31/2011 LO(116)/OPEN(4)/DEFEASANCE
4/30/2011 LO(116)/OPEN(4)/DEFEASANCE
7/1/2011 LO(117)/OPEN(3)/DEFEASANCE
7/31/2011 LO(116)/OPEN(4)/DEFEASANCE
7/1/2008 LO(81)/OPEN(3)/DEFEASANCE
11/1/2004 LO(36)/GRTR1%PPMTorYM(46)/OPEN(2)/DEFEASANCE Interest Diff (BEY)
11/30/2005 LO(47)/GRTR1%PPMTorYM(69)/OPEN(4) PV (BEY)
6/30/2011 LO(116)/OPEN(4)/DEFEASANCE
8/31/2011 LO(116)/OPEN(4)/DEFEASANCE
7/31/2011 LO(116)/OPEN(4)/DEFEASANCE
9/30/2011 LO(116)/OPEN(4)/DEFEASANCE
8/31/2011 LO(116)/OPEN(4)/DEFEASANCE
6/30/2011 LO(116)/OPEN(4)/DEFEASANCE
8/31/2011 LO(116)/OPEN(4)/DEFEASANCE
9/30/2005 LO(47)/GRTR1%PPMTorYM(129)/OPEN(4) PV (BEY)
9/30/2005 LO(47)/GRTR1%PPMTorYM(129)/OPEN(4) PV (BEY)
5/1/2011 LO(118)/OPEN(2)/DEFEASANCE
7/31/2011 LO(116)/OPEN(4)/DEFEASANCE
5/31/2011 LO(116)/OPEN(4)/DEFEASANCE
5/1/2011 LO(118)/OPEN(2)/DEFEASANCE
8/31/2011 LO(116)/OPEN(4)/DEFEASANCE
5/1/2011 LO(114)/OPEN(6)/DEFEASANCE
7/31/2011 LO(116)/OPEN(4)/DEFEASANCE
9/30/2011 LO(116)/OPEN(4)/DEFEASANCE
9/30/2011 LO(116)/OPEN(4)/DEFEASANCE
11/1/2012 LO(140)/OPEN(4)/DEFEASANCE
8/31/2011 LO(116)/OPEN(4)/DEFEASANCE
4/1/2010 LO(118)/OPEN(2)/DEFEASANCE
9/30/2011 LO(116)/OPEN(4)/DEFEASANCE
5/31/2011 LO(116)/OPEN(4)/DEFEASANCE
9/30/2011 LO(116)/OPEN(4)/DEFEASANCE
12/1/2010 LO(118)/OPEN(2)/DEFEASANCE
6/1/2011 LO(118)/OPEN(2)/DEFEASANCE
9/30/2011 LO(116)/OPEN(4)/DEFEASANCE
7/31/2011 LO(116)/OPEN(4)/DEFEASANCE
ANNEX A
CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS
CUT-OFF
DATE
SE- LOAN APPRAISAL APPRAISAL LTV YEAR BUILT/
QUENCE NUMBER PROPERTY NAME VALUE DATE RATIO RENOVATED
- ------ --------- ------------- ----------- --------- ------- -----------
P1.1 6104459 New Potomac Portfolio - Finchley Square Apartments 3,950,000 10/29/01 1943/2001
P1.2 6104459 New Potomac Portfolio - Victoria Station Apartments 3,900,000 10/29/01 1948/2001
P1.3 6104459 New Potomac Portfolio - Paddington Square Apartments 9,550,000 10/29/01 1960/2001
P1.4 6104459 New Potomac Portfolio - Eaton Square Apartments 2,200,000 10/29/01 1967/2001
P1.5 6104459 New Potomac Portfolio - Bedford Station Apartments 21,700,000 10/29/01 1947/2001
P1.6 6104459 New Potomac Portfolio - Newbury Square Apartments 7,450,000 10/29/01 1947/2001
P1.7 6104459 New Potomac Portfolio - Edmonton Station Apartments 3,550,000 10/29/01 1949/2001
P1 6104459 NEW POTOMAC PORTFOLIO (ROLL-UP) 52,300,000 75%
A1 55567 84 William Street 41,300,000 09/05/01 80% 1907/2000
A2 53445 The Brook at Colonial Park/Kushner 25,000,000 07/18/00 79% 1966/2000
A3 55954 Gainesville Place 22,300,000 08/01/01 80% 2000
A4 55893 Meadow Wood Village 21,625,000 02/26/01 71% 1986
A5 55015 The Reserve 19,100,000 03/12/01 79% 1999
A6 55362 RCA Portfolio 2 - Ambassador Apartments 18,300,000 05/01/01 79% 1979
P2.1 6104485 CJB Apartments- Silvertree Apartments 6,100,000 11/09/01 1985/2001
P2.2 6104485 CJB Apartments- Windsong Apartments 3,230,000 11/09/01 1987
P2.3 6104485 CJB Apartments- Autumn Breeze Apartments 3,140,000 11/09/01 1992
P2.4 6104485 CJB Apartments- Sunreach Apartments 2,120,000 11/09/01 1984
P2.5 6104485 CJB Apartments- Everbrook Townhouses 1,470,000 11/09/01 1989
P2.6 6104485 CJB Apartments- Cardinal Villa 1,120,000 11/09/01 1992
P2 6104485 CJB APARTMENTS (ROLL-UP) 17,180,000 78%
A7 55412 Campus Village Housing Apartments 16,600,000 09/01/01 79% 2000
A8 55819 CLK - Charter Pointe 11,800,000 05/16/01 80% 1973/1997
A9 55810 CLK - Charlestown of Douglass Hills 10,800,000 05/23/01 80% 1970/2000
P3 6104518 Columbiana Lakes Apartments 12,350,000 07/19/01 74% 1996
B1 324010357 Saddle Ridge Crossing Townhomes 11,300,000 02/01/02 80% 2001
A10 55364 RCA Portfolio 2 - Landing at Westchase 11,000,000 05/11/01 80% 1977
A11 53425 Mapleton Square Apartments/Kushner 9,600,000 07/17/00 86% 1969
B2 317010356 Park Apartments 12,900,000 11/07/01 59% 1972
P4 6104457 Cypress Gates Apartments 12,000,000 10/11/01 62% 1987
A12 55365 RCA Portfolio 2 - Royal Wildewood Manor 8,970,000 05/11/01 80% 1981
A13 55826 CLK - Cardinal Woods 8,100,000 05/21/01 80% 1978
P5 6104446 Hillbrook Apartments 8,900,000 09/14/01 75% 1970/1973
B3 820010338 Whispering Pines 7,800,000 05/27/01 78% 2000
A14 55817 CLK - Arlington Village 6,350,000 05/17/01 80% 1965
P6 6104440 Grand Summit Apartments 6,450,000 09/19/01 79% 2001
B4 317010321 James River Apartments 5,800,000 03/20/01 79% 1983
A15 55821 CLK - Cambridge 5,300,000 05/18/01 80% 1971
B5 820010343 Parkway Apartments 5,400,000 08/15/01 79% 1999
A16 55792 CLK - Breckenridge 4,900,000 05/18/01 80% 1979
A17 55953 La Mirage Apartments 5,425,000 08/22/01 75% 1987
B6 400010330 Paradise Palms Apartments 5,150,000 07/12/01 77% 1984
B7 820010334 Twin Oaks Apartments 4,500,000 08/02/01 80% 2001
B8 400010336 Ashton Meadows Apartments 4,800,000 08/14/01 71% 1994
B9 820010342 Ravenwood Townhomes 3,750,000 08/15/01 80% 1985
B10 800010352 Ashwood Downs Apartments 3,800,000 11/01/01 78% 1995
P7 6104345 Green Lake Apartments 3,740,000 07/03/01 75% 1989
P8 6104350 Bentwood Subdivision 4,200,000 07/09/01 66% 1998/2001
B11 415010319 Montebello Apartments 3,850,000 08/03/01 69% 1986/2000
B12 415010326 Bellagio Apartments 5,300,000 07/03/01 50% 1992
B13 415010325 Monet Apartments 5,300,000 07/03/01 48% 1992
A18 55367 RCA Portfolio 2 - Braeburn Villa 2,860,000 05/11/01 80% 1969
P9 6104385 Meadowbrook Apartments 2,775,000 04/04/01 79% 1984
B14 415010328 Casa California Apartments 3,000,000 05/22/01 66% 1928/1962
A19 55368 RCA Portfolio 2 - Parkwest Place Apts 2,250,000 05/11/01 77% 1984
P10 6104346 Sunset on the Lakes Apartments 2,405,000 07/03/01 71% 1989
A20 55739 Regency Square 132,500,000 09/07/01 62% 1975/1987
P11 6103802 Williamsburg Outlet Center 63,000,000 07/27/01 51% 1988/1995
P12 6104484 The Plaza at Citrus Park 40,000,000 11/07/01 75% 2000
P13 6104434 Forest Promenade Shopping Plaza 25,600,000 09/16/01 74% 1994
A21 54043 Gravois Bluffs I (Lowe's) 20,700,000 12/05/00 79% 2000
P14 6104442 The Plaza at Brandon Town Center 17,850,000 09/07/01 75% 1994
A22 52628 Edwards Fresno Stadium 21 Cinema 17,900,000 12/16/99 72% 1998
P15 6104429 Ross Center 17,700,000 07/27/01 66% 1985
B15 100010329 Tanglewood Square 13,000,000 04/24/01 72% 1972/2000
P16 6104427 Vancouver Park Place 11,500,000 07/27/01 66% 1987
A23 54480 Ahoskie Commons 8,600,000 01/02/01 79% 1987
A24 54504 Rancho Cotati Shopping Center 8,780,000 04/05/01 68% 1975
P17 6104430 Silverdale Ross Plaza 7,950,000 07/24/01 71% 1985
B16 100010335 West Valley Tops 7,000,000 08/27/01 78% 1999
TOTAL
UNITS/ SF/
SE- LOAN SF/ UNITS/ NET RENTABLE
QUENCE NUMBER PROPERTY NAME PADS PADS AREA (SF)
- ------ --------- ------------- ------ ------ ------------
P1.1 6104459 New Potomac Portfolio - Finchley Square Apartments 115 Units 68,030
P1.2 6104459 New Potomac Portfolio - Victoria Station Apartments 101 Units 60,450
P1.3 6104459 New Potomac Portfolio - Paddington Square Apartments 166 Units 133,210
P1.4 6104459 New Potomac Portfolio - Eaton Square Apartments 48 Units 38,400
P1.5 6104459 New Potomac Portfolio - Bedford Station Apartments 487 Units 303,490
P1.6 6104459 New Potomac Portfolio - Newbury Square Apartments 213 Units 159,521
P1.7 6104459 New Potomac Portfolio - Edmonton Station Apartments 119 Units 72,401
P1 6104459 NEW POTOMAC PORTFOLIO (ROLL-UP) 1,249 Units 835,502
A1 55567 84 William Street 121 Units 116,684
A2 53445 The Brook at Colonial Park/Kushner 626 Units 514,686
A3 55954 Gainesville Place 168 Units 236,652
A4 55893 Meadow Wood Village 206 Units 146,778
A5 55015 The Reserve 200 Units 230,062
A6 55362 RCA Portfolio 2 - Ambassador Apartments 376 Units 287,152
P2.1 6104485 CJB Apartments- Silvertree Apartments 120 Units 114,000
P2.2 6104485 CJB Apartments- Windsong Apartments 48 Units 50,400
P2.3 6104485 CJB Apartments- Autumn Breeze Apartments 48 Units 50,400
P2.4 6104485 CJB Apartments- Sunreach Apartments 36 Units 37,800
P2.5 6104485 CJB Apartments- Everbrook Townhouses 32 Units 30,912
P2.6 6104485 CJB Apartments- Cardinal Villa 24 Units 19,200
P2 6104485 CJB APARTMENTS (ROLL-UP) 308 Units 302,712
A7 55412 Campus Village Housing Apartments 119 Units 115,535
A8 55819 CLK - Charter Pointe 312 Units 258,000
A9 55810 CLK - Charlestown of Douglass Hills 244 Units 281,000
P3 6104518 Columbiana Lakes Apartments 204 Units 209,096
B1 324010357 Saddle Ridge Crossing Townhomes 81 Units 148,700
A10 55364 RCA Portfolio 2 - Landing at Westchase 304 Units 192,896
A11 53425 Mapleton Square Apartments/Kushner 212 Units 187,580
B2 317010356 Park Apartments 321 Units 187,540
P4 6104457 Cypress Gates Apartments 134 Units 101,580
A12 55365 RCA Portfolio 2 - Royal Wildewood Manor 260 Units 195,464
A13 55826 CLK - Cardinal Woods 184 Units 140,480
P5 6104446 Hillbrook Apartments 408 Units 264,100
B3 820010338 Whispering Pines 106 Units 142,240
A14 55817 CLK - Arlington Village 164 Units 162,400
P6 6104440 Grand Summit Apartments 120 Units 106,224
B4 317010321 James River Apartments 104 Units 130,852
A15 55821 CLK - Cambridge 180 Units 154,200
B5 820010343 Parkway Apartments 116 Units 63,800
A16 55792 CLK - Breckenridge 120 Units 116,800
A17 55953 La Mirage Apartments 88 Units 69,592
B6 400010330 Paradise Palms Apartments 141 Units 108,450
B7 820010334 Twin Oaks Apartments 114 Units 62,700
B8 400010336 Ashton Meadows Apartments 144 Units 146,416
B9 820010342 Ravenwood Townhomes 86 Units 85,742
B10 800010352 Ashwood Downs Apartments 96 Units 94,464
P7 6104345 Green Lake Apartments 63 Units 75,600
P8 6104350 Bentwood Subdivision 30 Units 59,400
B11 415010319 Montebello Apartments 53 Units 46,002
B12 415010326 Bellagio Apartments 39 Units 33,010
B13 415010325 Monet Apartments 39 Units 33,010
A18 55367 RCA Portfolio 2 - Braeburn Villa 80 Units 74,968
P9 6104385 Meadowbrook Apartments 83 Units 67,208
B14 415010328 Casa California Apartments 20 Units 23,014
A19 55368 RCA Portfolio 2 - Parkwest Place Apts 52 Units 32,500
P10 6104346 Sunset on the Lakes Apartments 60 Units 32,560
A20 55739 Regency Square 464,861 SF 464,861
P11 6103802 Williamsburg Outlet Center 274,501 SF 274,501
P12 6104484 The Plaza at Citrus Park 324,846 SF 324,846
P13 6104434 Forest Promenade Shopping Plaza 125,339 SF 125,339
A21 54043 Gravois Bluffs I (Lowe's) 222,581 SF 222,581
P14 6104442 The Plaza at Brandon Town Center 143,785 SF 143,785
A22 52628 Edwards Fresno Stadium 21 Cinema 104,830 SF 104,830
P15 6104429 Ross Center 134,555 SF 134,555
B15 100010329 Tanglewood Square 128,173 SF 128,173
P16 6104427 Vancouver Park Place 77,944 SF 77,944
A23 54480 Ahoskie Commons 193,457 SF 193,457
A24 54504 Rancho Cotati Shopping Center 69,340 SF 69,340
P17 6104430 Silverdale Ross Plaza 67,287 SF 67,287
B16 100010335 West Valley Tops 55,450 SF 55,450
LOAN U/W
BALANCE PER OCCUPANCY U/W REPLACEMENT
SF/UNIT/ OCCUPANCY AS OF U/W U/W U/W U/W REPLACEMENT RESERVES
PAD PERCENT DATE REVENUES EXPENSES CASH FLOW DSCR RESERVES PER UNIT
----------- --------- --------- -------- -------- --------- ---- ----------- -----------
97% 01/31/02
99% 01/31/02
98% 01/31/02
100% 01/31/02
100% 01/31/02
100% 01/31/02
100% 01/31/02
31,199 99% 10,712,628 5,812,076 4,442,359 1.44 458,193 366.85
271,454 100% 01/30/02 4,269,931 945,056 3,288,575 1.23 36,300 300.00
31,457 94% 03/31/02 4,180,359 1,764,214 2,259,645 1.20 156,500 250.00
105,676 99% 09/28/01 3,349,188 1,453,468 1,835,912 1.30 59,808 356.00
74,776 99% 12/20/01 2,392,920 844,260 1,501,280 1.20 47,380 230.00
75,725 85% 12/31/01 2,584,073 977,385 1,548,688 1.25 58,000 290.00
38,221 96% 10/02/01 2,568,463 1,040,089 1,438,134 1.20 90,240 240.00
100% 02/15/02
100% 02/15/02
100% 02/15/02
100% 02/15/02
100% 02/15/02
100% 02/15/02
43,769 100% 2,653,406 1,033,031 1,520,275 1.40 100,100 325.00
110,807 100% 09/01/01 2,013,384 620,785 1,350,949 1.28 41,650 350.00
32,147 93% 02/28/02 2,221,764 1,090,368 1,055,580 1.25 75,816 243.00
37,623 91% 02/28/02 1,869,995 898,536 908,019 1.18 63,440 260.00
44,739 90% 02/04/02 1,634,668 639,621 949,147 1.26 45,900 225.00
110,962 95% 01/09/02 1,311,863 313,927 960,676 1.29 37,260 460.00
28,947 98% 10/02/01 1,797,410 831,757 891,173 1.22 74,480 245.00
38,977 92% 03/31/02 1,418,651 442,746 922,905 1.17 53,000 250.00
23,600 91% 01/30/02 1,971,977 931,188 960,539 1.56 80,250 250.00
55,693 99% 02/01/02 1,351,036 438,737 878,799 1.38 33,500 250.00
27,600 97% 10/09/01 1,421,744 640,354 720,290 1.20 61,100 235.00
37,418 94% 02/28/02 1,358,714 594,386 713,053 1.23 51,275 278.67
16,355 85% 02/12/02 1,983,455 1,151,237 730,218 1.38 102,000 250.00
57,654 96% 2/20/02 953,154 318,925 604,997 1.22 29,232 275.77
32,912 99% 02/28/02 1,027,990 400,989 585,113 1.29 41,888 255.41
42,285 93% 01/31/02 880,440 295,842 560,598 1.42 24,000 200.00
43,940 96% 02/28/02 859,360 278,820 538,940 1.43 41,600 400.00
25,028 94% 02/28/02 1,096,900 485,193 557,707 1.48 54,000 300.00
36,902 100% 03/01/02 692,949 226,038 437,911 1.24 29,000 250.00
34,708 97% 02/28/02 777,283 294,295 452,028 1.29 30,960 258.00
46,379 97% 01/22/02 747,745 297,658 423,687 1.26 26,400 300.00
28,264 94% 10/31/01 807,329 364,650 394,175 1.20 48,504 344.00
31,416 98% 02/28/02 623,719 210,919 384,300 1.30 28,500 250.00
23,518 92% 12/25/01 838,809 463,776 336,873 1.24 38,160 265.00
34,723 98% 02/28/02 546,857 213,714 308,013 1.26 25,130 292.21
31,050 99% 02/28/02 648,094 310,445 308,849 1.25 28,800 300.00
44,276 98% 01/25/02 498,774 178,514 304,510 1.34 15,750 250.00
92,076 100% 02/01/02 461,760 125,515 324,245 1.35 12,000 400.00
50,000 98% 02/04/02 505,533 186,194 306,089 1.41 13,250 250.00
67,611 100% 03/03/02 560,785 198,900 346,090 1.57 15,795 405.00
65,696 100% 12/31/01 557,935 192,216 349,924 1.64 15,795 405.00
28,600 98% 10/02/01 516,555 264,538 232,177 1.22 19,840 248.00
26,384 96% 12/28/01 507,423 255,816 230,289 1.29 21,318 256.84
99,390 100% 03/07/02 328,971 107,840 213,031 1.32 8,100 405.00
33,173 98% 10/02/01 368,462 184,035 172,727 1.20 11,700 225.00
28,641 97% 01/25/02 382,993 177,453 190,540 1.36 15,000 250.00
177 98% 12/31/01 16,800,774 5,638,415 10,687,422 1.66 92,745 0.20
118 98% 01/31/02 7,769,520 2,163,658 5,269,573 1.80 41,100 0.15
92 98% 01/28/02 4,844,094 1,223,014 3,422,664 1.46 48,727 0.15
151 100% 02/05/02 3,518,278 1,175,106 2,194,876 1.43 18,801 0.15
74 100% 10/15/01 2,459,988 639,244 1,780,802 1.28 22,258 0.10
93 96% 01/28/02 2,343,895 641,106 1,553,499 1.48 21,568 0.15
123 100% 10/22/01 2,470,061 491,057 1,844,644 1.54 26,208 0.25
87 93% 12/31/01 2,092,127 580,722 1,377,372 1.45 33,639 0.25
73 93% 03/06/02 1,538,663 395,047 1,060,896 1.26 12,846 0.10
97 100% 12/31/01 1,339,152 383,864 868,279 1.44 15,589 0.20
35 98% 12/31/01 1,121,543 287,972 768,273 1.36 38,691 0.20
86 100% 12/31/01 845,515 181,176 621,778 1.20 11,440 0.16
84 94% 12/31/01 998,780 285,199 648,646 1.41 16,822 0.25
99 100% 04/23/01 722,784 101,491 615,748 1.28 5,545 0.10
MOST
RECENT MOST MOST MOST MOST MOST FULL
STATEMENT RECENT RECENT RECENT RECENT RECENT YEAR
TYPE END DATE REVENUES EXPENSES CASH FLOW DSCR END DATE
--------- -------- -------- -------- --------- ------ --------
Full Year 12/31/2001 10,689,395 5,841,208 4,414,050 1.43 12/31/2000
Annualized Most Recent 01/31/2002 4,234,536 378,612 3,855,924 1.45
12/31/2001
12/31/2001
Annualized Most Recent 09/30/2001 2,318,268 994,071 1,324,197 1.06 12/31/2000
Annualized Most Recent 12/31/2001 2,563,331 1,253,959 1,309,372 1.06 12/31/2000
12/31/2001
Full Year 12/31/2001 2,747,026 840,172 1,906,854 1.75 12/31/2000
Annualized Most Recent 09/30/2001 2,008,571 328,620 1,671,552 1.59
Annualized Most Recent 01/31/2002 2,392,921 653,183 1,739,739 2.06 12/31/2000
Annualized Most Recent 01/31/2002 1,735,524 652,404 1,083,120 1.40 12/31/2000
Full Year 12/31/2001 1,586,833 639,608 947,225 1.26 12/31/2000
Annualized Most Recent 12/31/2001 1,388,100 294,980 1,093,120 1.47
12/31/2001
Annualized Most Recent 09/30/2001 1,325,325 430,407 841,919 1.06 12/31/1999
Annualized Most Recent 11/30/2001 2,037,122 923,686 780,284 1.27 12/31/2000
Full Year 12/31/2001 1,336,414 403,316 872,622 1.37 12/31/2000
12/31/2001
Annualized Most Recent 01/31/2002 1,147,500 531,960 615,540 1.06 12/31/2000
Full Year 12/31/2001 1,960,584 1,146,784 715,586 1.35 12/31/2000
12/31/2001
Annualized Most Recent 01/31/2002 1,108,026 293,970 814,056 1.80 12/31/2000
Annualized Most Recent 12/31/2001 857,110 343,941 513,169 1.30
12/31/2001
Annualized Most Recent 01/31/2002 954,168 285,828 668,340 1.77 12/31/2000
12/31/2001
Annualized Most Recent 01/31/2002 805,380 232,584 572,796 1.63 12/31/2000
Annualized Most Recent 09/30/2001 776,172 326,976 147,812 0.44 07/31/2001
Annualized Most Recent 10/31/2001 803,639 363,712 395,409 1.20 12/31/2000
12/31/2001
12/31/2001
12/31/2001
12/31/2001
Full Year 12/31/2001 489,078 142,719 346,359 1.52 12/31/2000
Annualized Most Recent 12/31/2001 472,116 35,858 436,258 1.82
12/31/2001
12/31/2001
12/31/2001
12/31/2001
Full Year 12/31/2001 510,278 247,263 256,112 1.43 12/31/2000
12/31/2001
12/31/2001
Full Year 12/31/2001 376,740 155,585 221,155 1.58 12/31/2000
12/31/2001
Full Year 12/31/2001 8,143,499 2,161,216 5,927,371 2.02 12/31/2000
Annualized Most Recent 12/31/2001 4,507,083 789,000 3,718,083 1.59 12/31/2000
Full Year 12/31/2001 3,264,514 576,603 2,669,245 1.74 12/31/2000
Annualized Most Recent 09/30/2001 2,082,761 219,841 1,860,120 1.33
Annualized Most Recent 12/31/2001 2,323,092 357,115 1,949,502 1.86 12/31/2000
Annualized Most Recent 09/30/2001 2,874,267 752,172 2,122,095 1.78 12/31/2000
Full Year 12/31/2001 2,037,088 568,086 1,469,002 1.55 12/31/2000
Annualized Most Recent 12/31/2001 1,444,692 365,749 1,057,012 1.26 12/31/2000
Full Year 12/31/2001 1,373,726 340,500 1,033,226 1.72 12/31/2000
12/31/2001
12/31/2001
Full Year 12/31/2001 1,040,302 238,918 801,384 1.74 12/31/2000
12/31/2001
LARGEST
LARGEST TENANT
FULL FULL FULL FULL TENANT % OF
YEAR YEAR YEAR YEAR LEASED TOTAL
REVENUES EXPENSES CASH FLOW DSCR LARGEST TENANT SF SF
-------- -------- --------- ---- -------------- ------- -------
9,898,903 5,266,391 3,939,460 1.28
4,011,247 1,823,936 2,030,807 1.08
2,671,332 1,432,813 1,238,519 0.87
2,381,867 877,870 1,387,357 1.11
2,599,234 892,274 1,706,960 1.38
2,647,390 1,044,456 1,602,934 1.34
2,712,826 985,902 1,726,924 1.58
2,199,835 1,060,561 1,139,274 1.35
1,855,273 902,482 952,791 1.23
1,535,772 706,424 829,348 1.10
1,819,108 845,304 973,804 1.33
1,237,315 345,354 891,961 1.13
1,780,638 922,575 585,252 0.95
1,214,455 343,870 789,509 1.24
1,470,941 673,748 797,193 1.33
1,308,520 596,772 711,748 1.23
1,991,473 1,021,003 831,850 1.57
916,730 315,019 601,711 1.21
1,049,182 404,865 644,317 1.42
922,472 222,326 640,667 1.70
1,074,518 495,864 578,654 1.53
626,644 190,728 428,809 1.21
773,839 310,654 463,185 1.32
755,503 241,626 513,877 1.53
761,357 412,560 324,201 0.98
517,940 197,855 318,680 1.08
809,724 452,585 330,147 1.22
523,960 215,717 286,605 1.18
616,410 306,301 310,109 1.25
478,026 124,306 353,720 1.55
511,273 176,722 292,471 1.35
538,534 190,417 323,809 1.47
539,985 171,725 326,918 1.53
524,847 277,900 246,947 1.30
516,927 257,595 245,843 1.37
318,689 87,399 212,485 1.31
371,195 191,398 179,797 1.25
360,379 129,489 230,890 1.65
16,283,705 5,272,075 11,011,630 1.71 Hechts North 123,537 27%
7,844,673 2,039,953 5,754,384 1.96 Reebok 10,000 4%
2,088,800 647,700 1,441,100 0.62 Best Buy 46,121 14%
3,096,019 595,763 2,454,586 1.60 ShopRite Stores 61,063 49%
Lowe's 137,000 62%
2,370,800 477,467 1,883,333 1.80 Bed Bath & Beyond 40,000 28%
3,086,253 725,585 2,360,668 1.98 Edwards Megaplex Holdings 104,830 100%
2,088,935 532,811 1,244,751 1.31 Ross Dress for Less #94 32,000 24%
1,655,031 464,822 1,180,497 1.40 Riser Foods Company, Inc. (Giant Eagle) 66,297 52%
1,313,939 347,764 905,404 1.51 T.J. Maxx 24,900 32%
1,031,175 265,525 765,650 1.35 Wal-Mart 75,137 39%
945,284 206,992 738,292 1.42 Oliver's Market 35,136 51%
1,001,915 216,953 715,064 1.56 Ross Dress For Less 29,020 43%
740,170 138,913 601,257 1.25 First National Supermarkets, Inc. 55,450 100%
SECOND SECOND
LARGEST SECOND LARGEST LARGEST
TENANT LARGEST TENANT TENANT
LEASE TENANT % OF LEASE
EXPIRA- SECOND LARGEST LEASED TOTAL EXPIRA-
TION TENANT SF SF TION
------- -------------- ------- ------- -------
10/15/2005 Hechts South 100,286 22% 10/1/2005
11/30/2002 Bass Company Store 8,555 3% 10/31/2002
01/31/2016 Jo-Ann Fabrics 45,965 14% 01/31/2016
10/1/2014 Duane Reade 11,921 10% 07/31/2005
10/31/2020 Shop'N Save 63,885 29% 09/11/2020
01/31/2005 Ross Dress For Less 25,106 17% 01/31/2005
12/31/2019
01/31/2006 Michael's 21,331 16% 02/28/2008
12/31/2017 Medic Drug, Inc. 12,108 9% 06/30/2006
01/31/2008 Pier 1 Imports 9,038 12% 02/29/2004
01/29/2013 Belk 43,200 22% 07/27/2008
08/21/2014 Video Droid 5,160 7% 08/31/2003
01/31/2006 Catherine's 6,160 9% 03/31/2007
10/31/2019
SE- LOAN
QUENCE NUMBER PROPERTY NAME PROPERTY ADDRESS
- ------ --------- ----------------------------------------------------------- ---------------------------------------------
A25 55786 Walgreens - Southfield, MI 28901 Greenfield Road
P18 6103925 Champion Village Plaza 35 & 55 South Gibson Road
P19 6104488 Walgreens - Salt Lake City 4046 W. 5415 South
P20 6104489 Walgreens - Aurora 15301 E. Iliff Avenue
P21 6104403 Parkway Plaza Phase II 520-530 Ed Noble Parkway
A26 55915 CVS - Emerald Isle 87 Emerald Drive
A27 53274 Walgreens - Saginaw, MI 409 West Genesee Avenue
P22 6104374 Walgreens-Germantown 7790 Wolf River Parkway
P23 6104441 Wolfchase Bed Bath, & Beyond 2810 North Germantown Parkway
A28 55550 CVS - Henderson 109 Dabney Drive
A29 54501 Village Corners Shopping Center 3751 Main Street
B17 445010349 CVS-Hagerstown 940 S. Potomac Street
A30 54009 CVS - Altavista 1100 Main Street
P24 6104384 CVS Pharmacy - Clayton 308 Highway 441 South
P25 6104433 Cobblewood Shops 1198 Smiley Avenue
B18 400010309 Troy Retail Center 1416 U.S. Highway 231
A31.1 55546 MICC Adler Portfolio-7875, 7925 NW 12th Street 7875 and 7925 Northwest 12th Street
A31.2 55546 MICC Adler Portfolio-2156-2298 NW 82nd Avenue 2156-2298 Northwest 82nd Avenue
A31.3 55546 MICC Adler Portfolio-1200 NW 78th Ave., 7855 NW 12th Street 1200 Northwest 78th Avenue and 7855 Northwest
12th Street
A31.4 55546 MICC Adler Portfolio-8175 NW 12th Street 8175 Northwest 12th Street
A31.5 55546 MICC Adler Portfolio-1701-1901 NW 82nd Avenue 1701-1901 Northwest 82nd Avenue
A31.6 55546 MICC Adler Portfolio-8181 NW 12th Street 8181 Northwest 12th Street
A31.7 55546 MICC Adler Portfolio-8000 NW 25th Street 8000 Northwest 25th Street
A31.8 55546 MICC Adler Portfolio-7955, 7975 NW 12th Street 7955 and 7975 Northwest 12th Street
A31.9 55546 MICC Adler Portfolio-8095 NW 12th Street 8095 Northwest 12th Street
A31 55546 MICC ADLER PORTFOLIO (ROLL-UP)
A32 56050 880 Troy Corporate Center 880 West Long Lake Road
A33 56044 840 Troy Corporate Center 840 West Long Lake Road
P26 6104381 Commerce Park IV and V 23240 and 23250 Chagrin Boulevard
A34 55936 Unigraphic Solutions Corporate Offices 13690 Riverport Drive
P27 6104111 16 Munson Road 16 Munson Road
B19 415010333 Walnut Creek Orthopedic Center 2405 Shadelands Drive
P28 6104383 20 South Charles Street 20 South Charles Street
B20 400010341 Safari Office Park 300, 310 and 320 Goddard
A35 55566 Metairie Centre Office Building 2424 Edenborn Ave.
P29 6104478 104 East 40th Street 104 East 40th Street
A36 54167 Market Court Office Building 537 Market Street
A37 55668 Orchard One 6143 South Willow Drive
A38 55718 7700 East Arapahoe Road Office Building 7700 E. Arapahoe Road
A39 55657 1001 Hingham Street 1001 Hingham Street
B21 800010327 Centralia DSHS Building 3401 Galvin Road
P30 6104395 200 Docks Corner Road 200 Docks Corner Road
A40 55236 Vornado Industrial - 901, 903-906 Murray Road 901, 903-906 Murray Road
P31.1 6104477 Rio Grande Industrial Center 1900 Billy Mitchell Blvd./600-800 Elca Lane
P31.2 6104477 Rio Grande Distribution Center A&B 200-235 Texas Avenue
P31.3 6104477 Rio Grande Distribution Center C 5575 FM 802
P31.4 6104477 Rio Grande Distribution Center D 1302 South 28th Street
P31 6104477 RIO GRANDE INDUSTRIAL PORTFOLIO (ROLL-UP)
P32 6104526 Rio Grande Industrial Center #4 1900 C Billy Mitchell Boulevard
SUB-TOTAL CROSSED LOANS
A41 55889 Hazard Commercial Complex 8810, 8825, 8830, 8845, 8880, and 8885 Rehco
Road
P33 6104470 Interstate South Commerce Center 9440-9456 Phillips Highway
A42 55570 Old Gate Business Park 125 Old Gate Lane
A43 55956 Shawnee North Business Center 305 and 315 Shawnee North Drive
P34 6104439 Robertson Business Park 3700, 3710, 3750, 3760 Robertson Boulevard
P35 6104469 Interstate Distribution Center 8475 Western Way
A44 54290 Broadway Crossing 2950 East Broadway Road
A45 55635 Burke Cerritos Business Center 12100-12114 Park Street and 16741-16755
Parkside Avenue
A46 54755 1070 Northpoint Boulevard 1070 Northpoint Boulevard
P36 6104373 DFW Business Park 1201 Ira East Woods Avenue
P37 6104380 Stillwater Industrial Park 875-895 Stillwater Road
P38 6104436 Eagle Point 19119 Weiss Lane
B22 400010323 Sugarberry Place 9850 Boudreaux Road
P39 6104370 Ashley Pointe 1300 Penile Road
P40 6104369 Applewood Pointe 2100-2140 Spring Grove Lane
B23 400010340 Summerset Mobile Estates 2052 Gold Street
B24 400010346 Mooney Grove 26814 S. Mooney Avenue
P41 6104368 Heartland Pointe 113 Sioux Trail
B25 400010332 Golden Horseshoe 6720 Mathias Road East
B26 400010291 Crest Mobile Estates 512 Windsor Lane
B27 400010331 Terra Vista Estates 3833 North Fairview Avenue
CUT-OFF
ZIP PROPERTY ORIGINAL DATE
COUNTY CITY STATE CODE TYPE BALANCE BALANCE
- ----------- --------------- ----- ----- --------------------- ---------- ----------
Oakland Southfield MI 48076 Retail 4,850,000 4,835,057
Clark Henderson NV 89012 Retail 4,400,000 4,381,728
Salt Lake Kearns UT 84118 Retail 4,000,000 3,983,813
Arapahoe Aurora CO 80013 Retail 3,740,000 3,726,020
Cleveland Norman OK 73702 Retail 3,600,000 3,584,351
Carteret Emerald Isle NC 28594 Retail 3,500,000 3,475,427
Saginaw Saginaw MI 48602 Retail 3,472,000 3,445,764
Shelby Germantown TN 38138 Retail 3,150,000 3,134,433
Shelby Memphis TN 38018 Retail 3,025,000 3,004,070
Vance Henderson NC 27536 Retail 2,880,000 2,859,780
Denton The Colony TX 75056 Retail 2,540,000 2,519,896
Washington Hagerstown MD 21740 Retail 1,750,000 1,737,021
Campbell Altavista VA 24517 Retail 1,500,000 1,484,150
Rabun Clayton GA 30525 Retail 1,462,000 1,446,041
Hamilton Forest Park OH 45240 Retail 1,395,000 1,387,749
Pike Troy AL 30681 Retail 1,200,000 1,183,293
Miami-Dade Miami FL 33126 Office
Miami-Dade Miami FL 33122 Office
Miami-Dade Miami FL 33126 Office
Miami-Dade Miami FL 33126 Office
Miami-Dade Miami FL 33126 Office
Miami-Dade Miami FL 33126 Office
Miami-Dade Miami FL 33122 Office
Miami-Dade Miami FL 33126 Office
Miami-Dade Miami FL 33126 Office
Office 44,000,000 43,723,691
Oakland Troy MI 48098 Office 31,975,000 31,851,704
Oakland Troy MI 48098 Office 28,050,000 27,941,839
Cuyahoga Beachwood OH 44122 Office 17,100,000 17,012,984
St. Louis Maryland Heights MO 63043 Office 14,375,000 14,319,451
Hartford Farmington CT 06032 Office 11,700,000 11,577,305
Contra Costa Walnut Creek CA 94598 Office 10,000,000 9,871,410
Baltimore Baltimore MD 21201 Office 8,375,000 8,347,997
Orange Irvine CA 92618 Office 8,070,000 8,038,143
Jefferson Metairie LA 70001 Office 7,160,000 7,123,402
New York New York NY 10016 Office 6,000,000 5,981,403
Hamilton Chattanooga TN 37402 Office 5,690,000 5,657,263
Arapahoe Englewood CO 80111 Office 4,425,000 4,402,229
Arapahoe Centennial CO 80112 Office 3,300,000 3,283,018
Plymouth Rockland MA 02370 Office 3,200,000 3,180,928
Lewis Centralia WA 98531 Office 2,100,000 2,055,143
Middlesex South Brunswick NJ 08810 Industrial 37,000,000 36,640,623
Morris East Hanover NJ 07936 Industrial 27,550,000 27,398,494
Cameron Brownsville TX 78521 Industrial
Cameron Brownsville TX 78521 Industrial
Cameron Brownsville TX 78521 Industrial
Hidalgo Edinburg TX 78539 Industrial
Industrial 15,709,000 15,662,854
Cameron Brownsville TX 78521 Industrial 1,783,000 1,777,762
---------- ----------
17,492,000 17,440,616
San Diego San Diego CA 92121 Industrial 13,950,000 13,906,677
Duval Jacksonville FL 32256 Industrial 13,500,000 13,444,498
New Haven Milford CT 06460 Industrial 12,000,000 11,962,139
Gwinnett Suwanee GA 30024 Industrial 8,900,000 8,858,678
Los Angeles Culver City CA 90232 Industrial 7,500,000 7,455,033
Duval Jacksonville FL 32256 Industrial 4,800,000 4,783,841
Maricopa Phoenix AZ 85040 Industrial 4,452,000 4,452,000
Los Angeles Cerritos CA 90703 Industrial 3,320,000 3,306,470
Lake Waukegan IL 60085 Industrial 2,207,000 2,188,538
Tarrant Grapevine TX 76051 Industrial 1,920,000 1,910,339
Yolo County West Sacramento CA 95605 Industrial 1,900,000 1,864,196
Travis Pflugerville TX 78660 Manufactured Housing 11,900,000 11,861,707
Harris Tomball TX 77375 Manufactured Housing 8,700,000 8,641,221
Jefferson Louisville KY 40272 Manufactured Housing 4,530,000 4,492,104
Butler Middletown OH 45044 Manufactured Housing 4,445,000 4,407,815
Santa Clara Alviso CA 95002 Manufactured Housing 3,550,000 3,529,932
Tulare Visalia CA 93277 Manufactured Housing 3,300,000 3,289,992
Kenton Elsmere KY 41018 Manufactured Housing 3,225,000 3,198,021
Pierce Graham WA 98338 Manufactured Housing 2,300,000 2,289,545
El Paso Fountain CO 80817 Manufactured Housing 2,300,000 2,280,737
Pima Tucson AZ 85705 Manufactured Housing 2,250,000 2,238,780
MATURITY OR
ANTICIPATED
REPAYMENT ADMINI- SUB- NET
DATE MORTGAGE STRATIVE SERVICING MORTGAGE
BALANCE LOAN TYPE RATE FEE RATE(I) FEE RATE RATE
- ----------- ----------------- -------- ----------- --------- ---------
4,274,488 Balloon 7.360% 0.142% 0.100% 7.218%
3,665,843 Balloon 7.590% 0.102% 0.075% 7.488%
3,366,937 Hyper Amortizing 7.000% 0.102% 0.075% 6.898%
3,029,591 Hyper Amortizing 7.340% 0.102% 0.075% 7.238%
3,180,890 Hyper Amortizing 7.460% 0.052% 0.025% 7.408%
2,828,167 Balloon 7.250% 0.142% 0.100% 7.108%
3,071,585 Balloon 7.500% 0.142% 0.100% 7.358%
2,782,220 Hyper Amortizing 7.430% 0.102% 0.075% 7.328%
2,594,511 Hyper Amortizing 7.280% 0.052% 0.025% 7.228%
2,327,177 Balloon 7.250% 0.142% 0.100% 7.108%
2,254,040 Balloon 7.610% 0.142% 0.100% 7.468%
1,212,467 Balloon 7.360% 0.107% 0.080% 7.253%
1,227,348 Balloon 7.650% 0.142% 0.100% 7.508%
1,014,774 Hyper Amortizing 7.410% 0.102% 0.075% 7.308%
1,149,070 Balloon 7.890% 0.102% 0.075% 7.788%
842,326 Balloon 7.730% 0.127% 0.100% 7.603%
40,549,232 Balloon 7.010% 0.142% 0.100% 6.868%
27,135,969 Balloon 7.110% 0.092% 0.050% 7.018%
24,572,982 Balloon 7.110% 0.092% 0.050% 7.018%
15,054,051 Balloon 7.300% 0.102% 0.075% 7.198%
12,589,843 Balloon 7.100% 0.142% 0.100% 6.958%
10,435,529 Balloon 7.850% 0.082% 0.055% 7.768%
6,904,805 Balloon 7.250% 0.067% 0.040% 7.183%
7,338,101 Balloon 7.130% 0.052% 0.025% 7.078%
7,049,428 Balloon 7.000% 0.107% 0.080% 6.893%
6,300,130 Balloon 7.280% 0.142% 0.100% 7.138%
5,284,032 Balloon 7.330% 0.052% 0.025% 7.278%
5,021,498 Balloon 7.410% 0.142% 0.100% 7.268%
3,890,610 Balloon 7.250% 0.112% 0.070% 7.138%
2,901,471 Balloon 7.250% 0.112% 0.070% 7.138%
2,812,653 Balloon 7.250% 0.142% 0.100% 7.108%
1,006,346 Balloon 7.370% 0.077% 0.050% 7.293%
33,812,983 Balloon 6.980% 0.052% 0.025% 6.928%
24,035,118 Balloon 6.950% 0.092% 0.050% 6.858%
13,903,918 Balloon 7.540% 0.102% 0.075% 7.438%
1,578,119 Balloon 7.540% 0.102% 0.075% 7.438%
15,482,037
- ----------
12,282,272 Balloon 7.320% 0.142% 0.100% 7.178%
11,022,746 Balloon 6.910% 0.052% 0.025% 6.858%
10,543,975 Balloon 7.240% 0.142% 0.100% 7.098%
7,802,404 Balloon 7.150% 0.142% 0.100% 7.008%
4,780,424 Balloon 7.050% 0.102% 0.075% 6.948%
4,092,863 Balloon 6.910% 0.052% 0.025% 6.858%
4,056,478 Balloon 7.250% 0.142% 0.100% 7.108%
3,142,929 Balloon 6.850% 0.142% 0.100% 6.708%
1,947,330 Balloon 7.380% 0.142% 0.100% 7.238%
1,692,422 Balloon 7.350% 0.052% 0.025% 7.298%
899,702 Balloon 7.100% 0.052% 0.025% 7.048%
10,429,361 Balloon 7.140% 0.052% 0.025% 7.088%
7,623,573 Balloon 7.125% 0.102% 0.075% 7.023%
3,636,236 Balloon 7.020% 0.102% 0.075% 6.918%
3,568,007 Balloon 7.020% 0.102% 0.075% 6.918%
2,882,494 Balloon 7.400% 0.117% 0.090% 7.283%
2,914,248 Balloon 7.440% 0.117% 0.090% 7.323%
2,588,712 Balloon 7.020% 0.102% 0.075% 6.918%
2,021,520 Balloon 7.250% 0.127% 0.100% 7.123%
2,133,331 Balloon 7.375% 0.127% 0.100% 7.248%
1,985,307 Balloon 7.390% 0.127% 0.100% 7.263%
ORIGINAL ORIGINAL REMAINING
TERM TO AMORITI- TERM TO MATURITY OR
FIRST INTEREST MATURITY ZATION INTEREST SEA- MATURITY/ ANTICIPATED
NOTE PAYMENT ACCRUAL MONTHLY ARD TERM ONLY SONING ARD REPAYMENT
DATE DATE METHOD PAYMENT (MONTHS) (MONTHS)(II) PERIOD (MONTHS) (MONTHS) DATE
- ---------- ---------- -------- ------- -------- ------------ -------- -------- ---------- -----------
12/21/2001 2/1/2002 ACT/360 33,448 120 360 4 116 1/1/2012
12/17/2001 2/1/2002 ACT/360 32,355 120 312 4 116 1/1/2012
12/12/2001 2/1/2002 ACT/360 27,345 120 330 4 116 1/1/2012
1/31/2002 3/1/2002 ACT/360 27,250 120 300 3 117 2/1/2012
10/5/2001 12/1/2001 ACT/360 25,073 120 360 6 114 11/1/2011
10/22/2001 12/1/2001 ACT/360 25,298 120 300 6 114 11/1/2011
5/8/2001 7/1/2001 ACT/360 24,277 120 360 11 109 6/1/2011
9/7/2001 11/1/2001 ACT/360 21,874 120 360 7 113 10/1/2011
11/20/2001 1/1/2002 ACT/360 22,611 84 276 5 79 12/1/2008
10/22/2001 12/1/2001 ACT/360 20,817 120 300 6 114 11/1/2011
4/25/2001 6/1/2001 ACT/360 17,952 120 360 12 108 5/1/2011
12/21/2001 2/1/2002 ACT/360 13,948 120 240 4 116 1/1/2012
6/26/2001 8/1/2001 ACT/360 11,232 120 300 10 110 7/1/2011
10/19/2001 12/1/2001 ACT/360 11,697 120 240 6 114 11/1/2011
11/30/2001 1/1/2002 ACT/360 10,665 120 300 5 115 12/1/2011
8/15/2001 10/1/2001 ACT/360 9,837 120 240 8 112 9/1/2011
8/15/2001 10/1/2001 ACT/360 293,029 84 360 8 76 9/1/2008
11/30/2001 1/1/2002 ACT/360 215,098 120 360 5 115 12/1/2011
11/30/2001 1/1/2002 ACT/360 188,694 120 360 5 115 12/1/2011
9/18/2001 11/1/2001 ACT/360 117,233 120 360 7 113 10/1/2011
11/20/2001 1/1/2002 ACT/360 96,605 120 360 5 115 12/1/2011
12/28/2000 2/1/2001 ACT/360 84,630 120 360 16 104 1/1/2011
9/26/2001 11/1/2001 ACT/360 79,038 120 240 7 113 10/1/2011
12/21/2001 2/1/2002 ACT/360 56,452 120 360 4 116 1/1/2012
11/12/2001 1/1/2002 ACT/360 53,690 120 360 5 115 12/1/2011
9/7/2001 11/1/2001 ACT/360 48,990 120 360 7 113 10/1/2011
12/19/2001 2/1/2002 ACT/360 41,257 120 360 4 116 1/1/2012
8/2/2001 10/1/2001 ACT/360 39,435 120 360 8 112 9/1/2011
9/28/2001 11/1/2001 ACT/360 30,186 120 360 7 113 10/1/2011
9/28/2001 11/1/2001 ACT/360 22,512 120 360 7 113 10/1/2011
8/30/2001 10/1/2001 ACT/360 21,830 120 360 8 112 9/1/2011
9/26/2001 11/1/2001 ACT/360 19,312 120 180 7 113 10/1/2011
8/24/2001 10/1/2001 ACT/360 261,036 63 300 8 55 12/1/2006
9/20/2001 11/1/2001 ACT/360 182,367 120 360 7 113 10/1/2011
12/27/2001 2/1/2002 ACT/360 110,296 120 360 4 116 1/1/2012
12/27/2001 2/1/2002 ACT/360 12,519 120 360 4 116 1/1/2012
12/26/2001 2/1/2002 ACT/360 95,827 120 360 4 116 1/1/2012
12/6/2001 2/1/2002 ACT/360 91,493 132 330 4 128 1/1/2013
12/13/2001 2/1/2002 ACT/360 81,780 120 360 4 116 1/1/2012
10/9/2001 12/1/2001 ACT/360 60,111 120 360 6 114 11/1/2011
11/16/2001 1/1/2002 ACT/360 53,248 180 300 5 175 12/1/2016
12/6/2001 2/1/2002 ACT/360 31,645 132 360 4 128 1/1/2013
5/4/2001 7/1/2001 ACT/360 30,370 120 360 24 11 109 6/1/2011
11/1/2001 1/1/2002 ACT/360 21,755 60 360 5 55 12/1/2006
4/27/2001 6/1/2001 ACT/360 15,251 120 360 12 108 5/1/2011
9/21/2001 11/1/2001 ACT/360 13,228 120 360 7 113 10/1/2011
10/9/2001 12/1/2001 ACT/360 17,184 120 180 6 114 11/1/2011
12/7/2001 2/1/2002 ACT/360 80,293 120 360 4 116 1/1/2012
7/30/2001 9/1/2001 ACT/360 58,614 120 360 9 111 8/1/2011
9/10/2001 11/1/2001 ACT/360 32,075 120 300 7 113 10/1/2011
9/10/2001 11/1/2001 ACT/360 31,473 120 300 7 113 10/1/2011
11/28/2001 1/1/2002 ACT/360 26,004 120 300 5 115 12/1/2011
12/18/2001 2/1/2002 ACT/360 22,939 120 360 4 116 1/1/2012
9/10/2001 11/1/2001 ACT/360 22,835 120 300 7 113 10/1/2011
10/30/2001 12/1/2001 ACT/360 15,690 120 360 6 114 11/1/2011
4/4/2001 6/1/2001 ACT/360 15,886 84 360 12 72 5/1/2008
9/5/2001 11/1/2001 ACT/360 15,563 120 360 7 113 10/1/2011
CROSS-COLLATERALIZED RELATED LOCKOUT YIELD MAINTENANCE
LOANS LOANS EXPIRATION PREPAYMENT PENALTY DESCRIPTION (MONTHS) TYPE
- -------------------- ------------------ ---------- --------------------------------------- -------------------
No Yes(BACM 02-PB2-A) 10/1/2011 LO(117)/OPEN(3)/DEFEASANCE
No No 9/30/2011 LO(116)/OPEN(4)/DEFEASANCE
No No 9/30/2011 LO(116)/OPEN(4)/DEFEASANCE
No Yes(BACM 02-PB2-L) 10/31/2011 LO(116)/OPEN(4)/DEFEASANCE
No Yes(BACM 02-PB2-P) 7/31/2011 LO(116)/OPEN(4)/DEFEASANCE
No Yes(BACM 02-PB2-B) 9/1/2011 LO(118)/OPEN(2)/DEFEASANCE
No Yes(BACM 02-PB2-A) 3/1/2011 LO(117)/OPEN(3)/DEFEASANCE
No Yes(BACM 02-PB2-L) 6/30/2011 LO(116)/OPEN(4)/DEFEASANCE
No Yes(BACM 02-PB2-P) 8/31/2008 LO(80)/OPEN(4)/DEFEASANCE
No Yes(BACM 02-PB2-B) 9/1/2011 LO(118)/OPEN(2)/DEFEASANCE
No No 3/1/2011 LO(118)/OPEN(2)/DEFEASANCE
No No 12/31/2006 LO(59)/GRTR1%PPMTorYM(57)/OPEN(4) PV (BEY)
No No 5/1/2011 LO(118)/OPEN(2)/DEFEASANCE
No No 7/31/2011 LO(116)/OPEN(4)/DEFEASANCE
No No 8/31/2011 LO(116)/OPEN(4)/DEFEASANCE
No No 8/31/2005 LO(47)/GRTR1%PPMTorYM(69)/OPEN(4) PV (BEY)
No No 7/1/2008 LO(82)/OPEN(2)/DEFEASANCE
No Yes(BACM 02-PB2-I) 9/1/2011 LO(117)/OPEN(3)/DEFEASANCE
No Yes(BACM 02-PB2-I) 9/1/2011 LO(117)/OPEN(3)/DEFEASANCE
No No 3/31/2011 LO(113)/OPEN(7)/DEFEASANCE
No No 10/1/2011 LO(118)/OPEN(2)/DEFEASANCE
No No 6/30/2010 LO(113)/OPEN(7)/DEFEASANCE
No No 6/30/2011 LO(116)/OPEN(4)/DEFEASANCE
No No 9/30/2011 LO(116)/OPEN(4)/DEFEASANCE
No No 8/31/2011 LO(116)/OPEN(4)/DEFEASANCE
No No 8/1/2011 LO(118)/OPEN(2)/DEFEASANCE
No No 9/30/2011 LO(116)/OPEN(4)/DEFEASANCE
No No 7/1/2011 LO(118)/OPEN(2)/DEFEASANCE
No Yes(BACM 02-PB2-H) 8/1/2011 LO(118)/OPEN(2)/DEFEASANCE
No Yes(BACM 02-PB2-H) 8/1/2011 LO(118)/OPEN(2)/DEFEASANCE
No No 6/1/2011 LO(117)/OPEN(3)/DEFEASANCE
No No 6/30/2011 LO(116)/OPEN(4)/DEFEASANCE
No No 10/1/2003 LO(25)/GRTR.75%PPMT or YM(36)/OPEN(2) Interest Diff (MEY)
No No 4/1/2011 LO(114)/OPEN(6)/DEFEASANCE
Yes(BACM 02-PB2-S) Yes(BACM 02-PB2-K) 9/30/2011 LO(116)/OPEN(4)/DEFEASANCE
Yes(BACM 02-PB2-S) Yes(BACM 02-PB2-K) 9/30/2011 LO(116)/OPEN(4)/DEFEASANCE
No No 11/1/2011 LO(118)/OPEN(2)/DEFEASANCE
No Yes(BACM 02-PB2-M) 8/31/2012 LO(127)/OPEN(5)/DEFEASANCE
No No 10/1/2011 LO(117)/OPEN(3)/DEFEASANCE
No No 9/1/2011 LO(118)/OPEN(2)/DEFEASANCE
No No 5/31/2016 LO(173)/OPEN(7)/DEFEASANCE
No Yes(BACM 02-PB2-M) 8/31/2012 LO(127)/OPEN(5)/DEFEASANCE
No No 4/1/2011 LO(118)/OPEN(2)/DEFEASANCE
No No 10/1/2006 LO(58)/OPEN(2)/DEFEASANCE
No No 3/1/2011 LO(118)/OPEN(2)/DEFEASANCE
No No 6/30/2011 LO(116)/OPEN(4)/DEFEASANCE
No No 7/31/2011 LO(116)/OPEN(4)/DEFEASANCE
No No 9/30/2011 LO(116)/OPEN(4)/DEFEASANCE
No No 4/30/2011 LO(116)/OPEN(4)/DEFEASANCE
No Yes(BACM 02-PB2-O) 6/30/2011 LO(116)/OPEN(4)/DEFEASANCE
No Yes(BACM 02-PB2-O) 6/30/2011 LO(116)/OPEN(4)/DEFEASANCE
No No 8/31/2011 LO(116)/OPEN(4)/DEFEASANCE
No No 9/30/2011 LO(116)/OPEN(4)/DEFEASANCE
No Yes(BACM 02-PB2-O) 6/30/2011 LO(116)/OPEN(4)/DEFEASANCE
No No 7/31/2011 LO(116)/OPEN(4)/DEFEASANCE
No No 4/30/2004 LO(35)/GRTR1%PPMTorYM(45)/OPEN(4) PV (BEY)
No No 6/30/2011 LO(116)/OPEN(4)/DEFEASANCE
CUT-OFF DATE
SE- LOAN APPRAISAL APPRAISAL LTV
QUENCE NUMBER PROPERTY NAME VALUE DATE RATIO
- ------ --------- ----------------------------------------------------------- ---------- -------- ------------
A25 55786 Walgreens - Southfield, MI 6,080,000 12/1/01 80%
P18 6103925 Champion Village Plaza 6,470,000 11/6/01 68%
P19 6104488 Walgreens - Salt Lake City 5,500,000 11/2/01 72%
P20 6104489 Walgreens - Aurora 5,260,000 11/17/01 71%
P21 6104403 Parkway Plaza Phase II 5,000,000 8/17/01 72%
A26 55915 CVS - Emerald Isle 4,375,000 10/4/01 79%
A27 53274 Walgreens - Saginaw, MI 4,340,000 1/2/01 79%
P22 6104374 Walgreens-Germantown 4,400,000 7/19/01 71%
P23 6104441 Wolfchase Bed Bath, & Beyond 4,000,000 9/23/01 75%
A28 55550 CVS - Henderson 3,600,000 10/3/01 79%
A29 54501 Village Corners Shopping Center 3,175,000 2/14/01 79%
B17 445010349 CVS-Hagerstown 2,300,000 9/25/01 76%
A30 54009 CVS - Altavista 1,875,000 5/10/01 79%
P24 6104384 CVS Pharmacy - Clayton 2,000,000 8/21/01 72%
P25 6104433 Cobblewood Shops 1,950,000 9/12/01 71%
B18 400010309 Troy Retail Center 1,940,000 5/9/01 61%
A31.1 55546 MICC Adler Portfolio-7875, 7925 NW 12th Street 8,700,000 6/7/01
A31.2 55546 MICC Adler Portfolio-2156-2298 NW 82nd Avenue 8,100,000 6/7/01
A31.3 55546 MICC Adler Portfolio-1200 NW 78th Ave., 7855 NW 12th Street 7,000,000 6/7/01
A31.4 55546 MICC Adler Portfolio-8175 NW 12th Street 7,000,000 6/7/01
A31.5 55546 MICC Adler Portfolio-1701-1901 NW 82nd Avenue 6,100,000 6/7/01
A31.6 55546 MICC Adler Portfolio-8181 NW 12th Street 5,700,000 6/7/01
A31.7 55546 MICC Adler Portfolio-8000 NW 25th Street 5,700,000 6/7/01
A31.8 55546 MICC Adler Portfolio-7955, 7975 NW 12th Street 5,500,000 6/7/01
A31.9 55546 MICC Adler Portfolio-8095 NW 12th Street 5,000,000 6/7/01
A31 55546 MICC ADLER PORTFOLIO (ROLL-UP) 58,800,000 74%
A32 56050 880 Troy Corporate Center 43,200,000 9/12/01 74%
A33 56044 840 Troy Corporate Center 38,400,000 9/12/01 73%
P26 6104381 Commerce Park IV and V 25,300,000 7/20/01 67%
A34 55936 Unigraphic Solutions Corporate Offices 19,400,000 9/4/01 74%
P27 6104111 16 Munson Road 15,700,000 11/1/00 74%
B19 415010333 Walnut Creek Orthopedic Center 14,000,000 8/7/01 71%
P28 6104383 20 South Charles Street 11,950,000 8/13/01 70%
B20 400010341 Safari Office Park 11,240,000 8/16/01 72%
A35 55566 Metairie Centre Office Building 9,300,000 6/28/01 77%
P29 6104478 104 East 40th Street 15,000,000 10/19/01 40%
A36 54167 Market Court Office Building 7,700,000 4/24/01 73%
A37 55668 Orchard One 5,925,000 7/31/01 74%
A38 55718 7700 East Arapahoe Road Office Building 4,400,000 7/26/01 75%
A39 55657 1001 Hingham Street 4,500,000 7/1/01 71%
B21 800010327 Centralia DSHS Building 2,900,000 7/19/01 71%
P30 6104395 200 Docks Corner Road 50,300,000 7/11/01 73%
A40 55236 Vornado Industrial - 901, 903-906 Murray Road 37,000,000 4/16/01 74%
P31.1 6104477 Rio Grande Industrial Center 15,687,661 10/23/01
P31.2 6104477 Rio Grande Distribution Center A&B 2,654,531 10/23/01
P31.3 6104477 Rio Grande Distribution Center C 482,908 10/23/01
P31.4 6104477 Rio Grande Distribution Center D 540,857 10/23/01
P31 6104477 RIO GRANDE INDUSTRIAL PORTFOLIO (ROLL-UP) 19,365,957 81%
P32 6104526 Rio Grande Industrial Center #4 2,634,044 10/23/01 67%
----------
SUB-TOTAL CROSSED LOANS 22,000,001
A41 55889 Hazard Commercial Complex 18,600,000 10/10/01 75%
P33 6104470 Interstate South Commerce Center 18,900,000 10/29/01 71%
A42 55570 Old Gate Business Park 16,000,000 8/17/01 75%
A43 55956 Shawnee North Business Center 11,300,000 8/27/01 78%
P34 6104439 Robertson Business Park 13,000,000 8/8/01 57%
P35 6104469 Interstate Distribution Center 6,500,000 10/29/01 74%
A44 54290 Broadway Crossing 6,300,000 6/1/01 71%
A45 55635 Burke Cerritos Business Center 4,150,000 7/5/01 80%
A46 54755 1070 Northpoint Boulevard 3,000,000 2/7/01 73%
P36 6104373 DFW Business Park 2,510,000 7/25/01 76%
P37 6104380 Stillwater Industrial Park 3,550,000 7/24/01 53%
P38 6104436 Eagle Point 17,700,000 9/24/01 67%
B22 400010323 Sugarberry Place 11,000,000 6/4/01 79%
P39 6104370 Ashley Pointe 6,320,000 7/24/01 71%
P40 6104369 Applewood Pointe 5,900,000 7/24/01 75%
B23 400010340 Summerset Mobile Estates 4,800,000 9/17/01 74%
B24 400010346 Mooney Grove 4,640,000 8/29/01 71%
P41 6104368 Heartland Pointe 4,440,000 7/24/01 72%
B25 400010332 Golden Horseshoe 3,000,000 8/4/01 76%
B26 400010291 Crest Mobile Estates 2,970,000 2/19/01 77%
B27 400010331 Terra Vista Estates 3,025,000 7/11/01 74%
TOTAL LOAN
UNITS/ SF/ BALANCE PER OCCUPANCY
YEAR BUILT/ SF/ UNITS/ NET RENTABLE SF/UNIT/ OCCUPANCY AS OF U/W
RENOVATED PADS PADS AREA(SF) PAD PERCENT DATE REVENUES
- ---------- --------- ----- ----------- ----------- --------- --------- ---------
2001 14,385 SF 14,385 336 100% 8/13/01 508,700
1999 31,527 SF 31,527 139 97% 1/24/02 721,675
2001 15,120 SF 15,120 263 100% 1/31/02 475,000
2001 14,490 SF 14,490 257 100% 1/31/02 453,479
1999 54,030 SF 54,030 66 100% 2/19/02 546,834
1994/2001 12,000 SF 12,000 290 100% 10/17/01 382,200
2000 14,920 SF 14,920 231 100% 2/1/02 488,354
2001 14,490 SF 14,490 216 100% 2/11/02 371,174
1996 40,000 SF 40,000 75 100% 1/28/02 544,673
2000 10,125 SF 10,125 282 100% 10/19/01 313,268
2000 18,900 SF 18,900 133 100% 12/31/01 372,507
1999 10,146 SF 10,146 171 100% 12/31/01 209,718
1999 10,125 SF 10,125 147 100% 9/30/01 185,513
1999 10,125 SF 10,125 143 100% 7/25/01 192,959
2000 12,810 SF 12,810 108 89% 1/24/02 248,783
2000 19,390 SF 19,390 61 90% 11/28/01 207,577
1979 89,661 SF 89,661 98% 1/4/02
1988 133,416 SF 133,416 87% 1/4/02
1980 79,484 SF 79,484 74% 1/4/02
1986 66,700 SF 66,700 100% 1/4/02
1991 62,832 SF 62,832 80% 1/4/02
1986 36,000 SF 36,000 100% 1/4/02
1995 45,510 SF 45,510 100% 1/4/02
1982 70,862 SF 70,862 100% 1/4/02
2000 42,480 SF 42,480 99% 1/4/02
626,945 SF 626,945 70 92% 8,746,520
1999 186,565 SF 186,565 171 100% 2/12/02 4,959,844
1999 186,565 SF 186,565 150 100% 2/4/02 4,800,829
1984/1989 229,769 SF 229,769 74 85% 1/30/02 4,043,961
2001 122,567 SF 122,567 117 100% 11/15/01 2,749,550
1972/1985 111,381 SF 111,381 104 100% 12/31/01 2,277,646
2001 45,000 SF 45,000 219 100% 1/23/02 1,648,720
1965/2001 121,371 SF 121,371 69 94% 2/1/02 2,096,094
2001 48,110 SF 48,110 167 100% 12/20/01 1,217,965
1986 89,127 SF 89,127 80 92% 9/30/01 1,358,615
1915/1999 68,365 SF 68,365 87 97% 1/30/02 2,218,018
1932/1988 108,156 SF 108,156 52 89% 12/31/01 1,442,000
1982 46,854 SF 46,854 94 100% 1/1/02 826,045
1981 37,533 SF 37,533 87 100% 1/1/02 627,930
1988 31,674 SF 31,674 100 100% 2/19/02 582,698
2001 19,292 SF 19,292 107 100% 9/19/01 329,500
1957/1997 1,205,621 SF 1,205,621 30 100% 1/31/02 6,008,796
1963 942,206 SF 942,206 29 100% 9/28/01 4,280,929
1977/1997 536,016 SF 536,016 100% 3/12/02
1977 90,700 SF 90,700 97% 3/12/02
1982/1989 16,500 SF 16,500 45% 3/12/02
1983 18,480 SF 18,480 50% 3/12/02
661,696 SF 661,696 24 97% 2,665,350
1983 90,000 SF 90,000 20 100% 3/12/02 324,291
1989 171,888 SF 171,888 81 94% 11/29/01 2,068,613
1986/1989 260,068 SF 260,068 52 93% 2/1/02 2,405,256
1940/1998 334,163 SF 334,163 36 97% 11/20/01 1,904,004
1999 204,400 SF 204,400 43 100% 1/10/02 1,248,307
1985 84,855 SF 84,855 88 100% 1/31/02 1,467,105
1990 181,120 SF 181,120 26 95% 2/1/02 1,050,668
2000 95,355 SF 95,355 47 100% 10/23/01 767,633
1970 59,760 SF 59,760 55 100% 10/30/01 469,737
1989 60,585 SF 60,585 36 100% 2/20/02 361,183
1986 36,616 SF 36,616 52 97% 12/31/01 340,387
1988 93,020 SF 93,020 20 100% 2/15/02 379,092
1999 511 Pads 23,213 95% 12/31/01 1,969,994
1999 400 Pads 21,603 98% 7/25/01 1,323,207
1984/2001 330 Pads 13,612 92% 1/28/02 849,191
1970/1995 253 Pads 17,422 91% 1/28/02 744,734
1976 112 Pads 31,517 100% 2/8/02 790,536
1967/2000 170 Pads 19,353 92% 12/14/01 668,344
1970/1997 203 Pads 15,754 93% 1/28/02 633,936
1978/1999 86 Pads 26,623 94% 12/31/01 340,008
1969/1999 106 Pads 21,516 96% 9/22/01 386,751
1970/2001 128 Pads 17,490 96% 1/2/02 400,660
U/W MOST
U/W REPLACEMENT RECENT
U/W U/W U/W U/W REPLACEMENT RESERVES STATEMENT
REVENUES EXPENSES CASH FLOW DSCR RESERVES PER UNIT TYPE
- --------- --------- --------- ---- ----------- ----------- -----------------------
508,700 10,893 496,368 1.24 1,439 0.10
721,675 125,367 561,621 1.45 4,729 0.15 Full Year
475,000 9,500 463,232 1.41 2,268 0.15 Annualized Most Recent
453,479 13,604 437,701 1.34 2,174 0.15 Annualized Most Recent
546,834 96,855 408,715 1.36 8,105 0.15 Annualized Most Recent
382,200 13,266 366,654 1.21 2,280 0.19 Annualized Most Recent
488,354 133,121 352,547 1.21 2,686 0.18 Annualized Most Recent
371,174 11,135 357,865 1.36 2,174 0.15 Annualized Most Recent
544,673 168,040 370,633 1.37 6,000 0.15 Annualized Most Recent
313,268 10,917 301,035 1.21 1,316 0.13 Annualized Most Recent
372,507 88,683 269,394 1.25 2,835 0.15 Annualized Most Recent
209,718 6,792 201,911 1.21 1,015 0.10 Annualized Most Recent
185,513 16,767 167,632 1.24 1,114 0.11 Annualized Most Recent
192,959 19,829 171,611 1.22 1,519 0.15 Annualized Most Recent
248,783 60,706 174,937 1.37 1,922 0.15 Full Year
207,577 32,084 164,344 1.39 1,939 0.10
8,746,520 3,093,566 4,913,996 1.40 101,057 0.16
4,959,844 1,547,522 3,253,590 1.26 37,313 0.20 Annualized Most Recent
4,800,829 1,701,713 2,854,392 1.26 37,313 0.20 Annualized Most Recent
4,043,961 1,704,803 1,934,778 1.38 57,264 0.25 Trailing 12
2,749,550 1,081,581 1,451,042 1.25 19,611 0.16
2,277,646 1,003,110 1,123,223 1.11 27,845 0.25 Full Year
1,648,720 405,139 1,157,175 1.22 6,750 0.15
2,096,094 940,408 946,694 1.40 48,540 0.40 Full Year
1,217,965 338,271 822,477 1.28 7,217 0.15 Annualized Most Recent
1,358,615 512,817 734,814 1.25 17,010 0.19 Annualized Most Recent
2,218,018 966,604 1,089,530 2.20 20,546 0.30 Full Year
1,442,000 715,260 600,611 1.27 17,305 0.16
826,045 300,453 453,437 1.25 10,764 0.23
627,930 235,851 338,344 1.25 9,414 0.25
582,698 194,230 345,503 1.32 7,919 0.25 Annualized Most Recent
329,500 46,382 255,812 1.10 4,738 0.25 Annualized Most Recent
6,008,796 1,475,023 4,099,750 1.31 180,843 0.15 Annualized Most Recent
4,280,929 1,001,314 2,970,595 1.36 155,464 0.17 Annualized Most Recent
2,665,350 710,093 1,716,532 1.30 132,339 0.20 Trailing 12
324,291 93,199 203,101 1.35 18,000 0.20 Trailing 12
2,068,613 406,615 1,498,762 1.30 22,345 0.13 Annualized Most Recent
2,405,256 752,500 1,443,146 1.31 41,610 0.16 Annualized Most Recent
1,904,004 477,139 1,242,187 1.27 33,463 0.10 Annualized Most Recent
1,248,307 248,392 901,920 1.25 20,440 0.10 Annualized Most Recent
1,467,105 515,419 851,452 1.33 22,507 0.27 Full Year
1,050,668 385,922 536,971 1.41 45,280 0.25 Annualized Most Recent
767,633 209,536 499,197 1.37 9,536 0.10 Annualized Most Recent
469,737 96,835 338,498 1.30 10,757 0.18 Annualized Most Recent
361,183 98,659 228,802 1.25 12,117 0.20
340,387 94,094 219,819 1.38 6,224 0.17 Full Year
379,092 85,670 252,914 1.23 18,604 0.20 Full Year
1,969,994 560,430 1,384,164 1.44 25,400 49.71 Annualized Most Recent
1,323,207 352,769 950,438 1.35 20,000 50.00
849,191 301,343 528,181 1.37 19,667 59.60 Full Year
744,734 213,298 519,585 1.38 11,851 46.84 Full Year
790,536 390,332 394,604 1.26 5,600 50.00 Annualized Most Recent
668,344 299,772 360,072 1.31 8,500 50.00 Annualized Most Recent
633,936 246,338 372,677 1.36 14,921 73.50 Full Year
340,008 96,357 239,351 1.27 4,300 50.00 Annualized Most Recent
386,751 123,256 258,195 1.35 5,300 50.00
400,660 151,269 242,991 1.30 6,400 50.00
MOST MOST MOST MOST MOST FULL FULL FULL FULL FULL
RECENT RECENT RECENT RECENT RECENT YEAR YEAR YEAR YEAR YEAR
END DATE REVENUES EXPENSES CASH FLOW DSCR END DATE REVENUES EXPENSES CASH FLOW DSCR
- ---------- --------- --------- --------- ------ ---------- --------- --------- --------- ----
12/31/2001 721,840 117,613 589,688 1.52
10/31/2001 292,917 12,035 280,882 0.86
11/30/2001 452,752 452,752 1.38
12/31/2001 538,331 71,415 466,916 1.55 12/31/2000 553,516 79,720 473,796 1.57
10/2/2001 392,985 4,875 388,110 1.28
10/31/2001 365,000 23,252 341,748 1.17
12/31/2001 369,000 369,000 1.41
12/31/2001 409,822 21,742 379,634 1.40
10/31/2001 292,236 5,273 286,963 1.15
12/31/2001 393,516 45,833 347,684 1.61 12/31/2000 30,466 27,086 3,380 0.02
11/30/2001 200,425 6,889 193,536 1.16 12/31/2000 199,969 7,246 192,723 1.15
9/30/2001 166,353 22,733 143,620 1.07 12/31/2000 175,716 28,238 147,478 1.09
12/31/2001 218,769 218,769 1.56 12/31/2000 188,023 14,333 173,690 1.24
12/31/2001 234,234 54,290 179,944 1.41
12/31/2001 198,419 11,641 186,779 1.58
12/31/2001 8,969,175 3,084,956 5,884,219 1.67
1/31/2002 5,044,584 1,688,952 3,355,632 1.30 12/31/2000 4,644,693 1,303,246 3,341,447 1.29
1/31/2002 4,901,916 1,595,436 3,306,480 1.46 12/31/2000 3,829,527 1,388,138 2,441,389 1.08
6/30/2001 3,612,073 1,848,589 1,639,666 1.17 12/31/2000 3,539,510 1,993,419 1,445,948 1.03
12/31/2001 2,535,311 1,187,769 1,347,542 1.33 12/31/2000 1,838,983 827,831 1,011,152 1.00
12/31/2001 2,168,474 941,754 1,168,050 1.72 12/31/2000 2,018,382 872,046 704,907 1.04
12/31/2001 832,383 165,912 606,157 0.94
9/30/2001 1,486,823 465,145 981,180 1.67 12/31/2000 1,384,441 509,613 775,113 1.32
12/31/2001 2,367,406 1,213,135 1,025,097 2.07 12/31/2000 2,173,323 1,185,642 855,307 1.73
12/31/2001 1,468,548 720,081 747,704 1.58
12/31/2001 913,732 317,899 560,763 1.55
12/31/2001 690,479 257,929 407,921 1.51
12/31/2001 570,402 170,136 400,266 1.53 12/31/2000 483,557 132,609 337,878 1.29
12/31/2001 320,117 10,525 309,592 1.34
12/31/2001 5,916,526 1,333,091 4,038,871 1.29 12/31/2000 6,107,208 1,236,438 4,295,186 1.37
9/30/2001 4,612,443 944,151 3,584,520 1.64 12/31/2000 4,460,377 806,998 3,479,220 1.59
9/30/2001 2,556,922 570,730 1,986,192 1.50 12/31/2000 2,593,660 549,404 2,044,256 1.54
9/30/2001 355,405 62,948 292,457 1.95 12/31/2000 331,962 60,260 271,702 1.81
9/30/2001 1,975,057 245,444 1,729,613 1.50 12/31/2000 1,955,363 311,613 1,592,015 1.38
6/30/2001 2,074,788 687,496 470,364 0.43 12/31/2000 2,115,429 705,218 965,947 0.88
10/31/2001 1,559,156 440,820 1,118,336 1.14 12/31/2000 1,115,690 290,591 693,066 0.71
9/30/2001 1,300,308 184,352 1,115,489 1.55
12/31/2001 1,532,079 527,880 1,004,199 1.57 12/31/2000 1,523,880 421,410 1,085,382 1.70
6/30/2001 1,128,194 362,088 -150,822 -0.40 12/31/2000 845,557 365,754 35,539 0.09
9/30/2001 773,399 130,073 643,326 1.77
9/30/2001 462,085 93,379 338,689 1.30 12/31/2000 430,355 88,780 306,102 1.17
12/31/2001 361,565 101,164 260,401 1.42
12/31/2001 354,197 90,371 263,826 1.66 12/31/2000 307,195 81,966 225,229 1.42
12/31/2001 428,000 74,616 353,384 1.71 12/31/2000 413,705 78,331 335,374 1.63
12/31/2001 1,939,576 500,944 1,438,632 1.49 12/31/2000 892,736 376,057 516,679 0.54
12/31/2001 1,329,806 271,805 1,058,001 1.50
12/31/2001 855,762 234,228 621,534 1.61 12/31/2000 811,967 217,311 594,656 1.54
12/31/2001 800,056 209,853 590,203 1.56 12/31/2000 755,300 219,720 535,580 1.42
10/31/2001 825,039 421,306 373,678 1.20 12/31/2000 755,161 350,778 387,057 1.24
11/30/2001 626,368 297,111 321,536 1.17 12/31/2000 590,799 231,678 309,121 1.12
12/31/2001 611,296 164,178 447,118 1.63 12/31/2000 606,817 177,867 428,950 1.57
8/31/2001 364,570 55,042 309,528 1.64 12/31/2000 363,529 77,802 285,727 1.52
12/31/2001 385,465 111,749 273,716 1.44
7/30/2001 405,162 172,007 233,155 1.25
LARGEST LARGEST
LARGEST TENANT TENANT
TENANT % OF LEASE
LEASED TOTAL EXPIRA-
LARGEST TENANT SF SF TION
- ----------------------------------------------------- ------- ------- ----------
Walgreen Co. 14,385 100% 6/30/2061
Meadow Diagnostic Medical Imaging 5,300 17% 12/31/2011
Walgreen Co. 15,120 100% 4/30/2061
Walgreen Co. 14,490 100% 10/31/2061
Bed Bath and Beyond 30,244 56% 1/31/2010
CVS Pharmacy 12,000 100% 1/31/2024
Walgreen Co. 14,920 100% 11/30/2061
Walgreen Co. 14,490 100% 4/30/2076
Bed Bath and Beyond 40,000 100% 1/31/2012
CVS Pharmacy 10,125 100% 1/31/2021
Hallmark Gold Crown 4,200 22% 10/31/2005
CVS Pharmacy 10,146 100% 1/31/2020
CVS Pharmacy 10,125 100% 1/31/2020
CVS Pharmacy 10,125 100% 1/31/2020
Retail Brands International (d/b/a The Mattress Firm) 4,200 33% 3/31/2005
Dollar Tree Stores, Inc. 6,020 31% 1/31/2007
Dade County Public Safety 17,430 19% 10/31/2005
GSA Drug Enforcement 11,900 9% 12/31/2005
Metro Dade Corrections 8,400 11% 1/25/2003
FL Department of Revenue 36,200 54% 3/31/2006
Equitrac Corporation 16,288 26% 11/30/2003
Bally Total Fitness 36,000 100% 10/14/2006
Electronic Data Systems 45,510 100% 5/11/2003
ITT Technical Institute 26,387 37% 7/12/2006
United Health Care Services 16,043 38% 2/28/2006
Electronic Data Systems 45,510 7% 5/11/2003
InterOne/Omnicom Group 186,565 100% 12/31/2019
InterOne/Omnicom Group 110,158 59% 12/31/2019
Dorsky and Associates 21,918 10% 8/31/2007
Unigraphics Solutions, Inc. 122,567 100% 8/31/2011
Konover & Associates 52,717 47% 12/31/2007
Muir Orthopedic Specialists 21,170 47% 6/30/2021
Kaplan, Heyman, Greenberg 11,021 9% 5/31/2007
Barco Graphics, Inc. 14,951 31% 7/8/2007
Cicso Systems 11,358 13% 4/30/2003
Development Resource Group 3,685 5% 1/31/2008
Fletcher Bright Company 14,136 13% 5/31/2005
Commercial Insurance 13,095 28% 8/31/2006
J.R. Phillips & Assoc 4,890 13% 9/30/2004
Benefit Plan Management 9,664 31% 2/28/2003
State of Washington 19,292 100% 3/31/2011
Cooper Tire & Rubber Company 329,202 27% 9/30/2008
J. Leven & Co 236,195 25% 3/14/2007
Delphi Automotive Systms, LLC 125,000 23% 8/31/2002
Turn Key Warehousing 35,000 39% 3/31/2004
Roadway Express, Inc. 7,425 45% 6/30/2004
Roadway Express, Inc. 9,240 50% 6/30/2004
Delphi Automotive Systms, LLC 125,000 19% 8/31/2002
Ranco, Inc. 90,000 100% 3/31/2005
ARRK Creative Network Corp 52,597 31% 5/31/2005
Laufen International 26,430 10% 5/31/2006
Hacienda Self Storage 117,700 35% 3/31/2011
Multiplastics GA 22,400 11% 5/31/2005
FedEx Corp. 31,000 37% 8/31/2007
Quality Response Services 30,227 17% 5/31/2007
G & G Commercial Printers 37,305 39% 5/31/2011
Jimmy Yoon 7,592 13% 4/30/2004
Mailing House 20,738 34% 2/14/2005
Healthsouth Corporation 10,000 27% 10/31/2005
Schimpf 22,365 24% 3/31/2003
SECOND SECOND
SECOND LARGEST LARGEST
LARGEST TENANT TENANT
TENANT % OF LEASE
LEASED TOTAL EXPIRA-
SECOND LARGEST TENANT SF SF TION
- ----------------------------- ------- ------- ----------
Green Valley Aquariums 4,200 13% 12/31/2004
Qwest Wireless, LLC 2/28/2021
Michaels Stores Inc. 23,786 44% 6/30/2009
Blockbuster 3,010 16% 10/31/2007
Novacare Outpatient 3,430 27% 9/30/2005
Hibbett Sporting Goods, Inc. 4,200 22% 6/30/2005
FL College of Natural Health 14,280 16% 10/31/2003
GSI Acquisition, Inc. 8,310 6% 7/31/2002
American Datamed 5,300 7% 2/28/2003
Metro Dade County Health Dept 18,825 28% 5/5/2006
Ocasa, Inc. 16,288 26% 2/28/2004
Dade County SCB 11,995 17% 2/14/2003
Popular Mortgage Corp. 10,843 26% 2/25/2005
FL Department of Revenue 36,200 6% 3/31/2006
Miller Canfield 24,815 13% 10/31/2014
HQ Global Workplaces 18,196 8% 3/31/2006
Konover Construction 34,209 31% 12/31/2007
Sequoia Surgical Pavillion, LLC 14,790 33% 6/30/2011
Mercantile Safe Deposit & Trus 11,021 9% 12/31/2003
Exponent, Inc. 8,795 18% 3/31/2007
Coventry Healthcare of LA 10,326 12% 12/31/2003
AIDS Healthcare Foundation 2,330 3% 1/31/2011
Hazlett, Lewis & Beiter 12,952 12% 6/30/2004
Madison Asset 10,788 23% 2/28/2005
Newcastle Properties 4,456 12% 9/30/2004
Needel, Welch, & Stone 7,561 24% 10/31/2008
AMB-SGP Operating Partnership 303,843 25% 9/30/2006
Tri-Coastal Design Group 197,840 21% 6/30/2005
Trico Technologies Corp 100,000 19% 1/31/2005
PolyTech Netting, L.P. 26,200 29% 9/30/2004
Trico Technologies Corp 100,000 15% 1/31/2005
General Instrument Crp 10/31/2003
American Red Cross 21,807 13% 3/31/2003
D.R. Horton, Inc. 14,352 6% 3/31/2009
North Sails 48,640 15% 4/30/2011
Tile Contractors 16,800 8% 10/31/2004
Video Bliss, Inc. 18,183 21% 10/31/2003
Hardware Corporation of Americ 28,047 15% 2/28/2007
Dal-Tile Corp. 21,670 23% 12/31/2010
J & P Fashions 5,256 9% 5/30/2002
Imperial Crown Marketing 20,737 34% 8/31/2004
CI Wireless 7,773 21% 11/30/2003
Pennzoil-Quaker 16,740 18% 11/30/2006
SE- LOAN
QUENCE NUMBER PROPERTY NAME PROPERTY ADDRESS
- ------- ------- --------------------------------------------------------- ---------------------------------------------------
P42 6104480 Town Center East 950 Tower Lane, 919, 923-985, 989, 999 E. Hillsdale
Blvd.,1010 Metro Center Blvd.
P43 6104409 Storage USA - Wilton 111 Danbury Road
A47.1 55861 Asheville Mini Storage Portfolio-600 Patton Avenue 600 Patton Avenue
A47.2 55861 Asheville Mini Storage Portfolio-127 Sweeten Creek Road 127 Sweeten Creek Road
A47.3 55861 Asheville Mini Storage Portfolio-1130 Sweeten Creek Road 1130 Sweeten Creek Road
A47.4 55861 Asheville Mini Storage Portfolio-1925 Spartanburg Highway 1925 Spartanburg Highway
A47 55861 ASHEVILLE MINI STORAGE PORTFOLIO (ROLL-UP)
P44 6104365 EZ Storage-Pasadena 8195 Jumpers Hole Road
- ------------------------------------------------------------------------------------------------------------------------------------
TOTALS/WEIGHTED AVERAGE 118 LOANS
====================================================================================================================================
CUT-OFF
ZIP PROPERTY ORIGINAL DATE
COUNTY CITY STATE CODE TYPE BALANCE BALANCE
- ------------ -------------- ----- ---- ------------ -------------- --------------
San Mateo Foster City CA 94404 Land 45,500,000 45,300,487
Fairfield Wilton CT 06897 Self Storage 7,800,000 7,752,843
Buncombe Asheville NC 28806 Self Storage
Buncombe Asheville NC 28803 Self Storage
Buncombe Asheville NC 28803 Self Storage
Henderson Hendersonville NC 28792 Self Storage
Self Storage 6,000,000 5,982,020
Anne Arundel Pasadena MD 21122 Self Storage 5,100,000 5,060,929
- ----------------------------------------------------------------------------------------------------------------------------
$1,129,799,880 $1,124,328,641
===================================
MATURITY OR
ANTICIPATED
REPAYMENT ADMINI- SUB- NET
DATE LOAN MORTGAGE STRATIVE SERVICING MORTGAGE
BALANCE TYPE RATE FEE RATE(i) FEE RATE RATE
- ------------ ---------------- --------- ----------- --------- --------
39,214,513 Hyper Amortizing 6.500% 0.052% 0.025% 6.448%
6,256,959 Balloon 7.000% 0.052% 0.025% 6.948%
5,306,540 Balloon 7.500% 0.142% 0.100% 7.358%
4,157,262 Balloon 7.530% 0.052% 0.025% 7.478%
- -----------------------------------------------------------------------------------------------------------
$981,088,222 7.150% 0.094% 0.060% 7.055%
===========================================================================================================
TERM TO AMORTI- TERM TO MATURITY OR
FIRST INTEREST MATURITY/ ZATION INTEREST SEA- MATURITY/ ANTICIPATED
PAYMENT ACCRUAL MONTHLY ARD TERM ONLY SONING ARD REPAYMENT
NOTE DATE DATE METHOD PAYMENT (MONTHS) (MONTHS)(II) PERIOD (MONTHS) (MONTHS) DATE
- ---------- --------- -------- ---------- --------- ------------ -------- -------- --------- -----------
11/15/2001 1/1/2002 ACT/360 287,591 120 360 5 115 12/1/2011
11/21/2001 1/1/2002 ACT/360 55,129 120 300 5 115 12/1/2011
12/19/2001 2/1/2002 ACT/360 41,953 120 360 4 116 1/1/2012
9/26/2001 11/1/2001 ACT/360 37,788 120 300 7 113 10/1/2011
- ----------------------------------------------------------------------------------------------------------------------------
$7,750,237 116 345 7 109
============================================================================================================================
CROSS- PREPAYMENT
COLLATERALIZED RELATED LOCKOUT PENALTY DESCRIPTION YIELD MAINTENANCE
LOANS LOANS EXPIRATION (MONTHS) TYPE
- -------------- ------- ---------- ----------------------------------- -------------------
No No 8/31/2011 LO(116)/OPEN(4)/DEFEASANCE
No No 8/31/2011 LO(116)/OPEN(4)/DEFEASANCE
No No 10/1/2011 LO(117)/OPEN(3)/DEFEASANCE
No No 11/1/2005 LO(49)/GRTR1%PPMT or YM(67)/OPEN(4) Interest Diff (MEY)
(i) Administrative Fee Rate includes the Sub-Servicing Fee Rate.
(ii) For Mortgage Loans which accrue interest on the basis of actual days
elapsed each calendar month and a 360-day yr. or a 365-day yr., the
amortization term is the term over which the Mortgage Loans would
amortize if interest accrued and was paid on the basis of a 360-day
yr. consisting of twelve 30-day months. The actual amortization would
be longer.
CUT-OFF
DATE
SE- LOAN APPRAISAL APPRAISAL LTV YEAR BUILT/
QUENCE NUMBER PROPERTY NAME VALUE DATE RATIO RENOVATED
- ------ ------- --------------------------------------------------------- ---------- --------- ------- -----------
P42 6104480 Town Center East 63,410,000 6/26/01 71% NAP
P43 6104409 Storage USA - Wilton 11,300,000 8/28/01 69% 1963/1998
A47.1 55861 Asheville Mini Storage Portfolio-600 Patton Avenue 2,950,000 9/21/01 1989
A47.2 55861 Asheville Mini Storage Portfolio-127 Sweeten Creek Road 2,200,000 9/21/01 1984
A47.3 55861 Asheville Mini Storage Portfolio-1130 Sweeten Creek Road 1,800,000 9/21/01 1978
A47.4 55861 Asheville Mini Storage Portfolio-1925 Spartanburg Highway 1,650,000 10/3/01 1981
A47 55861 ASHEVILLE MINI STORAGE PORTFOLIO (ROLL-UP) 8,600,000 70%
- --------------------------------------------------------------------------------------------------------------------------------
P44 6104365 EZ Storage-Pasadena 7,600,000 7/17/01 67% 1999
================================================================================================================================
Totals/Weighted Average 73%
TOTAL
UNITS/ SF/
SE- SF/ UNITS/ NET RENTABLE
QUENCE PADS PADS AREA (SF)
- ------ --------- ------ ------------
P42 1,154,145 SF 1,154,145
P43 799 Units 84,685
A47.1 396 Units 52,475
A47.2 324 Units 40,090
A47.3 222 Units 31,712
A47.4 342 Units 33,675
A47 1,284 Units 157,952
P44 948 Units 76,365
LOAN U/W
BALANCE PER OCCUPANCY U/W REPLACEMENT
SF/UNIT/ OCCUPANCY AS OF U/W U/W U/W U/W REPLACEMENT RESERVES
PAD PERCENT DATE REVENUES EXPENSES CASH FLOW DSCR RESERVES PER UNIT
- ----------- --------- --------- --------- -------- --------- ---- ----------- -----------
39 100% 11/13/01 4,014,220 40,142 3,974,078 1.15
9,703 85% 1/26/02 1,494,674 479,930 1,002,019 1.51 12,725 15.93
77% 11/19/01
100% 11/19/01
90% 11/19/01
96% 11/19/01
4,659 90% 959,623 308,689 630,499 1.25 20,435 15.92
5,339 86% 1/28/02 1,015,872 318,642 685,775 1.51 11,455 12.08
MOST
RECENT MOST MOST MOST MOST MOST FULL
STATEMENT RECENT RECENT RECENT RECENT RECENT YEAR
TYPE END DATE REVENUES EXPENSES CASH FLOW DSCR END DATE
- ---------------------- ---------- --------- -------- --------- ------ ----------
Annualized Most Recent 12/31/2001 4,014,220 4,014,220 1.16 12/31/2000
Full Year 12/31/2001 1,431,557 749,160 681,502 1.03 12/31/2000
Annualized Most Recent 10/31/2001 950,041 216,331 733,710 1.46 12/31/2000
Full Year 12/31/2001 970,592 300,617 669,975 1.48 12/31/2000
LARGEST
LARGEST TENANT
FULL FULL FULL FULL TENANT % OF
YEAR YEAR YEAR YEAR LEASED TOTAL
REVENUES EXPENSES CASH FLOW DSCR LARGEST TENANT SF SF
- --------- -------- --------- ---- ------------------------------------------- ------- -------
4,100,629 233,387 3,867,242 1.12 Orchard Supply Hardware - 1010 Metro Center 280,962 24%
1,143,753 709,407 434,346 0.66
934,620 151,294 783,326 1.56
821,986 265,283 556,703 1.23
SECOND SECOND
LARGEST SECOND LARGEST LARGEST
TENANT LARGEST TENANT TENANT
LEASE TENANT % OF LEASE
EXPIRA- LEASED TOTAL EXPIRA-
TION SECOND LARGEST TENANT SF SF TION
- ---------- ------------------------ ------- ------- ---------
10/23/2014 EOP - 989 East Hillsdale 265,262 23% 4/29/2054
PREPAYMENT LOCK-OUT/PREPAYMENT ANALYSIS
BASED ON OUTSTANDING PRINCIPAL BALANCE(1)(2)
ALL MORTGAGE LOANS
<Table>
<Caption>
MAY-02 MAY-03 MAY-04 MAY-05 MAY-06 MAY-07 MAY-08
---------- ---------- ---------- ---------- ---------- ---------- ----------
Locked Out.............................. 100.00% 100.00% 96.57% 93.71% 92.26% 95.17% 95.39%
Yield Maintenance....................... 0.00% 0.00% 3.43% 6.29% 7.74% 4.83% 4.61%
No Penalty.............................. 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
--------- --------- --------- --------- --------- --------- -------
Total................................... 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
========= ========= ========= ========= ========= ========= =======
Total Balance (in millions)............. $1,124.33 $1,113.42 $1,101.38 $1,087.79 $1,058.68 $1,006.56 $988.64
Percent of Initial Balance.............. 100.00% 99.03% 97.96% 96.75% 94.16% 89.53% 87.93%
<Caption>
MAY-09 MAY-10 MAY-11 MAY-12 MAY-13 MAY-14 MAY-15
---------- ---------- ---------- ---------- ---------- ---------- ----------
Locked Out.............................. 95.43% 94.11% 76.89% 88.66% 56.12% 55.64% 55.08%
Yield Maintenance....................... 4.57% 4.55% 1.69% 11.34% 43.88% 44.36% 44.92%
No Penalty.............................. 0.00% 1.34% 21.42% 0.00% 0.00% 0.00% 0.00%
------- ------- ------- ------ ------ ------ ------
Total................................... 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
======= ======= ======= ====== ====== ====== ======
Total Balance (in millions)............. $897.59 $880.61 $805.58 $40.14 $10.15 $ 9.81 $ 9.44
Percent of Initial Balance.............. 79.83% 78.32% 71.65% 3.57% 0.90% 0.87% 0.84%
<Caption>
MAY-16 MAY-17
---------- ----------
Locked Out.............................. 0.00% 0.00%
Yield Maintenance....................... 45.56% 0.00%
No Penalty.............................. 54.44% 0.00%
------ ------
Total................................... 100.00% 0.00%
====== ======
Total Balance (in millions)............. $ 9.05 $ 0.00
Percent of Initial Balance.............. 0.80% 0.00%
</Table>
(1) Prepayment provisions in effect as a percentage of outstanding loan balances
as of the indicated date assuming no prepayments on the Mortgage Loans,
(except that an ARD Loan will be repaid in full on its Anticipated Repayment
Date), if any.
(2) For purpose of this table Mortgage Loan No. 55953 has been assumed that if
the prepayment option were exercised that the Borrower would prepay with a
yield maintenance premium and not defease such Mortgage Loan.
A-7
PROPERTY TYPE(1)
<Table>
<Caption>
% OF WEIGHTED WEIGHTED
NUMBER OF AGGREGATE INITIAL AVERAGE MIN/MAX AVERAGE MIN/MAX
MORTGAGED CUT-OFF DATE POOL UNDERWRITING UNDERWRITING CUT-OFF DATE CUT-OFF DATE
PROPERTY TYPE PROPERTIES BALANCE BALANCE DSCR DSCR LTV RATIO LTV RATIO
------------- ---------- -------------- ------------ ------------ ------------ ------------ ------------
Multifamily........... 54 $ 349,421,057 31.1% 1.30x 1.17/1.64x 76.6% 48.3/86.1%
Retail................ 30 304,601,402 27.1 1.50x 1.20/1.80x 68.2% 51.3/79.5%
Anchored............ 22 239,396,235 21.3 1.47x 1.20/1.66x 70.1% 61.9/79.5%
Unanchored.......... 3 38,057,510 3.4 1.74x 1.37/1.80x 53.9% 51.3/71.2%
Shadow Anchored..... 5 27,147,658 2.4 1.46x 1.25/1.54x 70.8% 61.0/79.4%
Office................ 24 204,367,909 18.2 1.32x 1.10/2.20x 71.9% 39.9/76.6%
Industrial............ 18 155,612,140 13.8 1.32x 1.23/1.41x 73.4% 52.5/80.9%
Manufactured
Housing............. 10 46,229,854 4.1 1.36x 1.26/1.44x 72.7% 67.0/78.6%
Land.................. 1 45,300,487 4.0 1.15x 1.15/1.15x 71.4% 71.4/71.4%
Self-Storage.......... 6 18,795,791 1.7 1.43x 1.25/1.51x 68.4% 66.6/69.6%
--- -------------- -----
Total/Wtd Avg......... 143 $1,124,328,641 100.0% 1.36x 1.10/2.20x 72.5% 39.9/86.1%
=== ============== =====
<Caption>
WEIGHTED
AVERAGE
MORTGAGE
PROPERTY TYPE RATE
------------- --------
Multifamily........... 7.196%
Retail................ 7.181%
Anchored............ 7.033%
Unanchored.......... 7.686%
Shadow Anchored..... 7.772%
Office................ 7.180%
Industrial............ 7.109%
Manufactured
Housing............. 7.176%
Land.................. 6.500%
Self-Storage.......... 7.302%
Total/Wtd Avg......... 7.150%
</Table>
- ---------------
(1) For Mortgage Loans secured by multiple properties, the Cut-off Date Balance
is allocated based on the individual property's appraised value as a
percentage of the total appraised value of the related Mortgage Loan.
CUT-OFF DATE BALANCES
<Table>
<Caption>
% OF WEIGHTED WEIGHTED WEIGHTED
RANGE OF NUMBER OF AGGREGATE INITIAL AVERAGE AVERAGE AVERAGE
CUT-OFF DATE MORTGAGE CUT-OFF DATE POOL UNDERWRITING CUT-OFF DATE MORTGAGE
BALANCES LOANS BALANCE BALANCE DSCR LTV RATIO RATE
------------ --------- -------------- ------- ------------ ------------ --------
$1,183,293 -- $1,999,999... 11 $ 18,221,787 1.6% 1.30x 69.9% 7.398%
$2,000,000 -- $2,999,999... 16 40,277,907 3.6 1.32x 72.1% 7.313%
$3,000,000 -- $3,999,999... 16 55,095,521 4.9 1.30x 74.4% 7.252%
$4,000,000 -- $4,999,999... 12 53,356,585 4.7 1.35x 75.4% 7.181%
$5,000,000 -- $7,499,999... 17 105,914,830 9.4 1.36x 71.3% 7.221%
$7,500,000 -- $9,999,999... 14 120,433,026 10.7 1.31x 74.1% 7.249%
$10,000,000 -- $14,999,999... 13 166,077,247 14.8 1.33x 74.2% 7.249%
$15,000,000 -- $19,999,999... 8 136,013,718 12.1 1.29x 76.3% 7.396%
$20,000,000 -- $29,999,999... 3 85,236,340 7.6 1.36x 73.9% 6.936%
$30,000,000 -- $82,083,574... 8 343,701,681 30.6 1.43x 69.1% 6.947%
--- -------------- -----
Total/Wtd Avg................ 118 $1,124,328,641 100.0% 1.36x 72.5% 7.150%
=== ============== =====
</Table>
A-8
GEOGRAPHIC DISTRIBUTION(1)
<Table>
<Caption>
% OF WEIGHTED WEIGHTED WEIGHTED
NUMBER OF AGGREGATE INITIAL AVERAGE AVERAGE AVERAGE
MORTGAGED CUT-OFF DATE POOL UNDERWRITING CUT-OFF DATE MORTGAGE
PROPERTY LOCATION PROPERTIES BALANCE BALANCE DSCR LTV RATIO RATE
- ----------------- ---------- -------------- ------------ ------------ ------------ --------
California....................... 17 $ 148,089,351 13.2% 1.27x 69.5% 7.100%
San Mateo County............... 1 45,300,487 4.0 1.15x 71.4% 6.500%
Los Angeles County............. 6 33,352,189 3.0 1.31x 65.2% 7.099%
San Diego County............... 2 16,556,692 1.5 1.32x 73.8% 7.306%
Fresno County.................. 1 12,865,985 1.1 1.54x 71.9% 8.430%
Contra Costa County............ 1 9,871,410 0.9 1.22x 70.5% 7.250%
Orange County.................. 1 8,038,143 0.7 1.28x 71.5% 7.000%
Monterey County................ 1 7,462,874 0.7 1.38x 62.2% 7.040%
Sonoma County.................. 1 5,957,452 0.5 1.20x 67.9% 7.810%
Santa Clara County............. 1 3,529,932 0.3 1.26x 73.5% 7.400%
Tulare County.................. 1 3,289,992 0.3 1.31x 70.9% 7.440%
Other Counties................. 1 1,864,196 0.2 1.23x 52.5% 7.100%
Florida.......................... 17 137,474,204 12.2 1.39x 75.2% 6.917%
Virginia......................... 3 115,855,757 10.3 1.69x 59.2% 7.023%
Texas............................ 14 76,733,778 6.8 1.29x 77.3% 7.335%
Michigan......................... 4 68,074,364 6.1 1.26x 74.0% 7.147%
New Jersey....................... 2 64,039,117 5.7 1.33x 73.3% 6.967%
New York......................... 3 57,766,234 5.1 1.40x 73.6% 7.151%
Ohio............................. 9 55,905,066 5.0 1.33x 72.1% 7.225%
Maryland......................... 10 54,113,543 4.8 1.43x 73.1% 6.995%
Georgia.......................... 5 34,524,562 3.1 1.30x 78.8% 7.153%
Connecticut...................... 3 31,292,286 2.8 1.27x 72.9% 7.406%
North Carolina................... 9 31,050,265 2.8 1.29x 77.4% 7.180%
Missouri......................... 2 30,723,882 2.7 1.27x 76.7% 7.340%
Colorado......................... 5 21,267,548 1.9 1.39x 68.4% 7.240%
Washington....................... 5 20,581,421 1.8 1.35x 70.9% 7.113%
Pennsylvania..................... 1 19,691,998 1.8 1.20x 78.8% 8.327%
Illinois......................... 5 19,148,157 1.7 1.25x 78.4% 7.224%
Delaware......................... 2 17,250,994 1.5 1.23x 82.7% 7.802%
Kentucky......................... 3 16,870,125 1.5 1.26x 76.1% 7.004%
Arizona.......................... 4 14,757,368 1.3 1.28x 74.3% 7.287%
Indiana.......................... 6 13,480,962 1.2 1.40x 78.5% 7.110%
Wisconsin........................ 1 13,185,977 1.2 1.28x 79.4% 6.960%
Tennessee........................ 3 11,795,767 1.0 1.32x 73.3% 7.382%
Oregon........................... 1 11,736,809 1.0 1.45x 66.3% 7.100%
Louisiana........................ 2 9,313,294 0.8 1.26x 77.1% 7.261%
South Carolina................... 1 9,126,698 0.8 1.26x 73.9% 7.280%
Alabama.......................... 2 5,348,293 0.5 1.31x 75.8% 7.154%
Nevada........................... 1 4,381,728 0.4 1.45x 67.7% 7.590%
Utah............................. 1 3,983,813 0.4 1.41x 72.4% 7.000%
Oklahoma......................... 1 3,584,351 0.3 1.36x 71.7% 7.460%
Massachusetts.................... 1 3,180,928 0.3 1.32x 70.7% 7.250%
--- -------------- -----
Total/Weighted Average........... 143 $1,124,328,641 100.0% 1.36x 72.5% 7.150%
=== ============== =====
</Table>
- ---------------
(1) States or counties in which the respective Mortgaged Properties are located.
For Mortgage Loans secured by multiple properties, the Cut-off Date Balance
is allocated based on the property's appraised value as a percentage of the
total appraised value of the related Mortgage Loan.
- -- The Mortgage Properties are located throughout 31 states.
A-9
UNDERWRITING DEBT SERVICE COVERAGE RATIO
<Table>
<Caption>
% OF WEIGHTED WEIGHTED WEIGHTED
NUMBER OF AGGREGATE INITIAL AVERAGE AVERAGE AVERAGE
RANGE OF MORTGAGE CUT-OFF DATE POOL UNDERWRITING CUT-OFF DATE MORTGAGE
UNDERWRITING DSCRS LOANS BALANCE BALANCE DSCR LTV RATIO RATE
------------------ --------- -------------- ------- ------------ ------------ --------
1.10x -- 1.19x............... 5 $ 76,375,978 6.8% 1.15x 74.4% 6.985%
1.20x -- 1.24x............... 23 163,926,991 14.6 1.22x 76.9% 7.370%
1.25x -- 1.29x............... 29 249,505,719 22.2 1.26x 75.8% 7.205%
1.30x -- 1.34x............... 14 128,964,121 11.5 1.31x 74.0% 7.124%
1.35x -- 1.39x............... 20 113,255,914 10.1 1.37x 72.1% 7.155%
1.40x -- 1.49x............... 18 233,492,631 20.8 1.43x 73.4% 6.984%
1.50x -- 1.59x............... 5 35,892,145 3.2 1.54x 66.0% 7.647%
1.60x -- 1.69x............... 2 84,645,704 7.5 1.66x 61.5% 6.769%
1.80x -- 1.89x............... 1 32,288,033 2.9 1.80x 51.3% 7.690%
2.00x -- 2.20x............... 1 5,981,403 0.5 2.20x 39.9% 7.330%
--- -------------- -----
Total/Wtd Avg................ 118 $1,124,328,641 100.0% 1.36x 72.5% 7.150%
=== ============== =====
</Table>
CUT-OFF DATE LOAN-TO-VALUE RATIO
<Table>
<Caption>
% OF WEIGHTED WEIGHTED WEIGHTED
RANGE OF NUMBER OF AGGREGATE INITIAL AVERAGE AVERAGE AVERAGE
CUT-OFF DATE MORTGAGE CUT-OFF DATE POOL UNDERWRITING CUT-OFF DATE MORTGAGE
LTV RATIO LOANS BALANCE BALANCE DSCR LTV RATIO RATE
------------ --------- -------------- ------- ------------ ------------ --------
39.9% -- 49.9%............... 3 $ 11,180,378 1.0% 1.92x 44.2% 7.360%
50.0% -- 59.9%............... 4 49,182,806 4.4 1.67x 53.4% 7.486%
60.0% -- 64.9%............... 3 90,729,741 8.1 1.63x 61.9% 6.787%
65.0% -- 69.9%............... 14 94,846,741 8.4 1.40x 67.5% 7.250%
70.0% -- 74.9%............... 45 525,923,265 46.8 1.32x 73.2% 7.067%
75.0% -- 79.9%............... 38 270,113,314 24.0 1.27x 78.7% 7.280%
80.0% -- 86.1%............... 11 82,352,397 7.3 1.25x 80.8% 7.304%
--- -------------- -----
Total/Wtd Avg................ 118 $1,124,328,641 100.0% 1.36x 72.5% 7.150%
=== ============== =====
</Table>
MATURITY DATE LOAN-TO-VALUE RATIO(1)
<Table>
<Caption>
WEIGHTED
% OF WEIGHTED AVERAGE WEIGHTED
RANGE OF NUMBER OF AGGREGATE INITIAL AVERAGE MATURITY AVERAGE
MATURITY DATE MORTGAGE CUT-OFF DATE POOL UNDERWRITING DATE MORTGAGE
LTV RATIO(S) LOANS BALANCE BALANCE DSCR LTV RATIO RATE
------------- --------- -------------- ------- ------------ ------------ --------
25.3% -- 49.9%............... 9 $ 65,897,486 5.9% 1.64x 41.0% 7.470%
50.0% -- 59.9%............... 21 207,877,788 18.5 1.50x 55.8% 7.010%
60.0% -- 64.9%............... 27 227,916,510 20.3 1.26x 62.8% 7.041%
65.0% -- 69.9%............... 37 429,603,396 38.2 1.35x 67.0% 7.128%
70.0% -- 74.9%............... 17 136,058,894 12.1 1.26x 70.8% 7.430%
75.0% -- 78.4%............... 7 56,974,568 5.1 1.23x 77.4% 7.218%
--- -------------- -----
Total/Wtd Avg................ 118 $1,124,328,641 100.0% 1.36x 63.6% 7.150%
=== ============== =====
</Table>
- ---------------
(1) With respect to the ARD Loans, the Maturity Date Loan-to-Value Ratio was
calculated as of the related Anticipated Repayment Date.
A-10
MORTGAGE RATES
<Table>
<Caption>
% OF WEIGHTED WEIGHTED WEIGHTED
RANGE OF NUMBER OF AGGREGATE INITIAL AVERAGE AVERAGE AVERAGE
MORTGAGE MORTGAGE CUT-OFF DATE POOL UNDERWRITING CUT-OFF DATE MORTGAGE
RATES LOANS BALANCE BALANCE DSCR LTV RATIO RATE
-------- --------- -------------- ------- ------------ ------------ --------
6.500% -- 6.999%............. 21 $ 385,580,030 34.3% 1.40x 72.1% 6.827%
7.000% -- 7.249%............. 35 363,553,766 32.3 1.33x 73.0% 7.099%
7.250% -- 7.499%............. 45 225,260,456 20.0 1.31x 73.6% 7.326%
7.500% -- 7.749%............. 11 90,190,858 8.0 1.49x 67.1% 7.599%
7.750% -- 7.999%............. 3 18,922,505 1.7 1.16x 71.7% 7.840%
8.000% -- 8.430%............. 3 40,821,026 3.6 1.30x 78.1% 8.359%
--- -------------- -----
Total/Wtd Avg................ 118 $1,124,328,641 100.0% 1.36x 72.5% 7.150%
=== ============== =====
</Table>
ORIGINAL TERM TO MATURITY (1)
<Table>
<Caption>
% OF WEIGHTED WEIGHTED WEIGHTED
NUMBER OF AGGREGATE INITIAL AVERAGE AVERAGE AVERAGE
ORIGINAL TERM MORTGAGE CUT-OFF DATE POOL UNDERWRITING CUT-OFF DATE MORTGAGE
TO MATURITY LOANS BALANCE BALANCE DSCR LTV RATIO RATE
------------- --------- -------------- ------- ------------ ------------ --------
60 -- 83................... 3 $ 55,092,148 4.9% 1.29x 75.0% 7.019%
84 -- 99................... 8 83,349,860 7.4 1.33x 76.6% 7.034%
100 -- 120................... 101 938,599,856 83.5 1.37x 72.2% 7.165%
121 -- 179................... 3 34,632,770 3.1 1.31x 75.3% 7.213%
180.......................... 3 12,654,008 1.1 1.44x 53.9% 7.192%
--- -------------- -----
Total/Wtd Avg................ 118 $1,124,328,641 100.0% 1.36x 72.5% 7.150%
=== ============== =====
</Table>
- ---------------
(1)With respect to the ARD Loans, the Original Term to Maturity was calculated
as of the Anticipated Repayment Date.
ORIGINAL AMORTIZATION TERM (1)
<Table>
<Caption>
ORIGINAL % OF WEIGHTED WEIGHTED WEIGHTED
AMORTIZATION NUMBER OF AGGREGATE INITIAL AVERAGE AVERAGE AVERAGE
TERM MORTGAGE CUT-OFF DATE POOL UNDERWRITING CUT-OFF DATE MORTGAGE
(MONTHS) LOANS BALANCE BALANCE DSCR LTV RATIO RATE
------------ --------- -------------- ------- ------------ ------------ --------
180 -- 239................... 2 $ 3,919,339 0.3% 1.16x 62.1% 7.242%
240 -- 299................... 7 45,196,875 4.0 1.22x 77.3% 7.940%
300 -- 359................... 32 239,193,271 21.3 1.37x 70.9% 7.212%
360.......................... 77 836,019,157 74.4 1.36x 72.7% 7.089%
--- -------------- -----
Total/Wtd Avg................ 118 $1,124,328,641 100.0% 1.36x 72.5% 7.150%
=== ============== =====
</Table>
- ---------------
(1) For Mortgage Loans which accrue interest on the basis of actual days elapsed
during each calendar month and a 360-day year, the amortization term is the
term in which the loan would amortize if interest is paid on the basis of a
30-day month and a 360-day year. The actual amortization term would be
longer.
A-11
REMAINING TERM TO MATURITY(1)
<Table>
<Caption>
RANGE OF
REMAINING % OF WEIGHTED WEIGHTED WEIGHTED
TERMS TO NUMBER OF AGGREGATE INITIAL AVERAGE AVERAGE AVERAGE
MATURITY MORTGAGE CUT-OFF DATE POOL UNDERWRITING CUT-OFF DATE MORTGAGE
(MONTHS) LOANS BALANCE BALANCE DSCR LTV RATIO RATE
--------- --------- -------------- ------- ------------ ------------ --------
48 -- 59.................... 3 $ 55,092,148 4.9% 1.29x 75.0% 7.019%
60 -- 79.................... 8 83,349,860 7.4 1.33x 76.6% 7.034%
80 -- 99.................... 1 12,865,985 1.1 1.54x 71.9% 8.430%
100 -- 109................... 8 58,912,431 5.2 1.21x 78.1% 7.926%
110 -- 119................... 92 866,821,440 77.1 1.37x 71.8% 7.094%
120 -- 139................... 3 34,632,770 3.1 1.31x 75.3% 7.213%
160 -- 175................... 3 12,654,008 1.1 1.44x 53.9% 7.192%
--- -------------- -----
Total/Wtd Avg................ 118 $1,124,328,641 100.0% 1.36x 72.5% 7.150%
=== ============== =====
</Table>
- ---------------
(1) With respect to the ARD Loans, the Remaining Term to Maturity was calculated
as of the related Anticipated Repayment Date.
REMAINING STATED AMORTIZATION TERMS
<Table>
<Caption>
REMAINING % OF WEIGHTED WEIGHTED WEIGHTED
STATED NUMBER OF AGGREGATE INITIAL AVERAGE AVERAGE AVERAGE
AMORTIZATION MORTGAGE CUT-OFF DATE POOL UNDERWRITING CUT-OFF DATE MORTGAGE
TERMS (MONTHS) LOANS BALANCE BALANCE DSCR LTV RATIO RATE
-------------- --------- -------------- ------- ------------ ------------ --------
173 -- 174................... 2 $ 3,919,339 0.3% 1.16x 62.1% 7.242%
225 -- 249................... 4 14,237,764 1.3 1.23x 70.5% 7.320%
250 -- 274................... 1 3,004,070 0.3 1.37x 75.1% 7.280%
275 -- 299................... 20 170,815,773 15.2 1.40x 68.8% 7.442%
300 -- 324................... 7 44,544,228 4.0 1.28x 78.8% 7.049%
325 -- 349................... 16 124,989,908 11.1 1.28x 76.7% 7.456%
350 -- 360................... 68 762,817,560 67.8 1.37x 72.4% 7.036%
--- -------------- -----
Total Wtd/Avg................ 118 $1,124,328,641 100.0% 1.36x 72.5% 7.150%
=== ============== =====
</Table>
SEASONING
<Table>
<Caption>
% OF WEIGHTED WEIGHTED WEIGHTED
NUMBER OF AGGREGATE INITIAL AVERAGE AVERAGE AVERAGE
SEASONING MORTGAGE CUT-OFF DATE POOL UNDERWRITING CUT-OFF DATE MORTGAGE
(MONTHS) LOANS BALANCE BALANCE DSCR LTV RATIO RATE
--------- --------- -------------- ------- ------------ ------------ --------
2 -- 12..................... 112 $1,048,751,992 93.3% 1.36x 72.1% 7.087%
13 -- 23..................... 6 75,576,649 6.7 1.27x 77.7% 8.016%
--- -------------- -----
Total/Wtd/Avg................ 118 $1,124,328,641 100.0% 1.36x 72.5% 7.150%
=== ============== =====
</Table>
YEAR OF MORTGAGE ORIGINATION
<Table>
<Caption>
% OF WEIGHTED WEIGHTED WEIGHTED
NUMBER OF AGGREGATE INITIAL AVERAGE AVERAGE AVERAGE
YEAR OF MORTGAGE CUT-OFF-DATE POOL UNDERWRITING CUT-OFF DATE MORTGAGE
ORIGINATION LOANS BALANCE BALANCE DSCR LTV RATIO RATE
----------- --------- -------------- ------- ------------ ------------ --------
2000......................... 4 $ 52,398,331 4.7% 1.26x 77.1% 8.247%
2001......................... 110 1,036,608,679 92.2 1.36x 72.1% 7.091%
2002......................... 4 35,321,632 3.1 1.33x 76.8% 7.232%
--- -------------- -----
Total/Wtd/Avg................ 118 $1,124,328,641 100.0% 1.36x 72.5% 7.150%
=== ============== =====
</Table>
A-12
YEAR OF MORTGAGE MATURITY(1)
<Table>
<Caption>
% OF WEIGHTED WEIGHTED WEIGHTED
NUMBER OF AGGREGATE INITIAL AVERAGE AVERAGE AVERAGE
YEAR OF MORTGAGE CUT-OFF DATE POOL UNDERWRITING CUT-OFF DATE MORTGAGE
MATURITY LOANS BALANCE BALANCE DSCR LTV RATIO RATE
-------- --------- -------------- ------- ------------ ------------ --------
2006....................... 3 $ 55,092,148 4.9% 1.29x 75.0% 7.019%
2008....................... 8 83,349,860 7.4 1.33x 76.6% 7.034%
2010....................... 3 40,821,026 3.6 1.30x 78.1% 8.359%
2011....................... 72 637,932,606 56.7 1.35x 71.7% 7.103%
2012....................... 26 259,846,224 23.1 1.41x 72.2% 7.128%
2013....................... 3 34,632,770 3.1 1.31x 75.3% 7.213%
2016....................... 3 12,654,008 1.1 1.44x 53.9% 7.192%
--- -------------- -----
Total/Wtd Avg.............. 118 $1,124,328,641 100.0% 1.36x 72.5% 7.150%
=== ============== =====
</Table>
- ---------------
(1) With respect to the ARD Loans, the Year of Mortgage Maturity was calculated
as of the year of the Anticipated Repayment Date.
A-13
ANNEX B
CAPITAL IMPROVEMENT, REPLACEMENT RESERVE AND ESCROW ACCOUNTS
SEQUENCE LOAN NUMBER PROPERTY NAME PROPERTY TYPE
P1 6104459 New Potomac Portfolio Multifamily
A1 55567 84 William Street Multifamily
A2 53445 The Brook at Colonial Park/Kushner Multifamily
A3 55954 Gainesville Place Multifamily
A4 55893 Meadow Wood Village Multifamily
A5 55015 The Reserve Multifamily
A6 55362 RCA Portfolio 2 - Ambassador Apartments Multifamily
P2 6104485 CJB Apartments Multifamily
A7 55412 Campus Village Housing Apartments Multifamily
A8 55819 CLK - Charter Pointe Multifamily
A9 55810 CLK - Charlestown of Douglass Hills Multifamily
P3 6104518 Columbiana Lakes Apartments Multifamily
B1 324010357 Saddle Ridge Crossing Townhomes Multifamily
A10 55364 RCA Portfolio 2 - Landing at Westchase Multifamily
A11 53425 Mapleton Square Apartments/Kushner Multifamily
B2 317010356 Park Apartments(1) Multifamily
P4 6104457 Cypress Gates Apartments Multifamily
A12 55365 RCA Portfolio 2 - Royal Wildewood Manor Multifamily
A13 55826 CLK - Cardinal Woods Multifamily
P5 6104446 Hillbrook Apartments Multifamily
B3 820010338 Whispering Pines(2) Multifamily
A14 55817 CLK - Arlington Village Multifamily
P6 6104440 Grand Summit Apartments Multifamily
B4 317010321 James River Apartments Multifamily
A15 55821 CLK - Cambridge Multifamily
B5 820010343 Parkway Apartments(3) Multifamily
A16 55792 CLK - Breckenridge Multifamily
A17 55953 La Mirage Apartments Multifamily
B6 400010330 Paradise Palms Apartments Multifamily
B7 820010334 Twin Oaks Apartments(4) Multifamily
B8 400010336 Ashton Meadows Apartments Multifamily
B9 820010342 Ravenwood Townhomes(5) Multifamily
B10 800010352 Ashwood Downs Apartments Multifamily
P7 6104345 Green Lake Apartments Multifamily
P8 6104350 Bentwood Subdivision Multifamily
B11 415010319 Montebello Apartments Multifamily
B12 415010326 Bellagio Apartments Multifamily
B13 415010325 Monet Apartments Multifamily
A18 55367 RCA Portfolio 2 - Braeburn Villa Multifamily
P9 6104385 Meadowbrook Apartments Multifamily
B14 415010328 Casa California Apartments Multifamily
A19 55368 RCA Portfolio 2 - Parkwest Place Apartments Multifamily
P10 6104346 Sunset on the Lakes Apartments Multifamily
A20 55739 Regency Square Retail
P11 6103802 Williamsburg Outlet Center Retail
INITIAL DEPOSIT TO CURRENT BALANCE IN
CAPITAL CAPITAL INITIAL DEPOSIT TO ANNUAL DEPOSIT TO CURRENT BALANCE IN
IMPROVEMENT IMPROVEMENT REPLACEMENT REPLACEMENT REPLACEMENT
RESERVES RESERVES RESERVES RESERVES RESERVES
118,782 118,782 433,816 108,454
58,250 58,400 15,730 6,559
46,250 156,504 204,290
131,250 131,250 48,720 20,300
33,200 13,309 47,380 27,676
16,000 14,780
198,875 191,695 90,240 16,565
100,000 100,200 100,000
41,650 17,384
71,136 17,117
34,500 34,604 63,440 24,369
17,500 17,500 45,900 7,650
37,260 3,105
23,688 15,495 74,484 18,497
44,125 53,000 49,936
9,375 30,000 80,250 32,218
108,656 86,538 61,092 11,056
5,003 5,018 31,050 56,488 44,002
102,000 34,000
1,875 1,875 29,232 12,180
181,790 11,196 45,096 22,569
3,375 3,375 24,000 10,000
212,000 200,000 41,604 27,736
30,734 30,827 54,000 27,026
29,000 12,083
30,960 9,162
86,250 86,463 26,400 11,009
10,000 10,000 26,375 46,953 42,026
28,500 14,250
38,160 12,723
46,250 46,250 34,400 14,333
4,875 4,875 28,800 7,200
15,750 5,250
10,000 9,870 4,935
6,250 6,250
409,250 19,840 3,638
78,919 21,318 8,882
10,625 2,500 8,107 2,027
32,000 11,700 2,072
15,000 5,000
6,250 6,250 41,100 17,125
TAX AND CURRENT
INSURANCE INITIAL DEPOSIT TO ANNUAL DEPOSIT BALANCE IN
ESCROW TI/LC ESCROW TO TI/LC ESCROW TI/LC ESCROW REPORT DATE
Yes 04/09/02
No 04/17/02
Tax Only 04/17/02
Yes 04/10/02
Yes 04/17/02
Yes 04/17/02
Yes 04/10/02
Yes 04/09/02
Yes 04/10/02
Tax Only 04/17/02
Tax Only 04/17/02
Yes 04/09/02
Yes 04/09/02
Yes 04/10/02
Tax Only 04/17/02
Yes 04/09/02
Yes 04/09/02
Yes 04/10/02
Tax Only 04/17/02
Yes 04/09/02
Yes 04/09/02
Tax Only 04/17/02
Yes 04/09/02
Yes 04/09/02
Tax Only 04/17/02
Yes 04/09/02
Tax Only 04/17/02
Tax Only 04/17/02
Yes 04/09/02
Yes 04/09/02
Yes 04/09/02
Yes 04/09/02
Yes 04/09/02
Yes 04/09/02
Yes 04/09/02
Yes 04/09/02
Yes 04/09/02
Yes 04/09/02
Yes 04/10/02
Yes 04/09/02
Yes 04/09/02
Yes 04/10/02
Yes 04/09/02
No 04/17/02
Yes 300,000 125,000 04/09/02
B-1
ANNEX B
CAPITAL IMPROVEMENT, REPLACEMENT RESERVE AND ESCROW ACCOUNTS
SEQUENCE LOAN NUMBER PROPERTY NAME PROPERTY TYPE
P12 6104484 The Plaza at Citrus Park Retail
P13 6104434 Forest Promenade Shopping Plaza Retail
A21 54043 Gravois Bluffs I (Lowe's) Retail
P14 6104442 The Plaza at Brandon Town Center Retail
A22 52628 Edwards Fresno Stadium 21 Cinema Retail
P15 6104429 Ross Center Retail
B15 100010329 Tanglewood Square Retail
P16 6104427 Vancouver Park Place Retail
A23 54480 Ahoskie Commons Retail
A24 54504 Rancho Cotati Shopping Center Retail
P17 6104430 Silverdale Ross Plaza Retail
B16 100010335 West Valley Tops Retail
A25 55786 Walgreens - Southfield, MI Retail
P18 6103925 Champion Village Plaza Retail
P19 6104488 Walgreens - Salt Lake City Retail
P20 6104489 Walgreens - Aurora Retail
P21 6104403 Parkway Plaza Phase II Retail
A26 55915 CVS - Emerald Isle Retail
A27 53274 Walgreens - Saginaw, MI Retail
P22 6104374 Walgreens-Germantown Retail
P23 6104441 Wolfchase Bed Bath, & Beyond Retail
A28 55550 CVS - Henderson Retail
A29 54501 Village Corners Shopping Center Retail
B17 445010349 CVS-Hagerstown Retail
A30 54009 CVS - Altavista Retail
P24 6104384 CVS Pharmacy - Clayton Retail
P25 6104433 Cobblewood Shops Retail
B18 400010309 Troy Retail Center Retail
A31 55546 MICC Adler Portfolio-Summary Office
A32 56050 880 Troy Corporate Center Office
A33 56044 840 Troy Corporate Center Office
P26 6104381 Commerce Park IV and V Office
A34 55936 Unigraphic Solutions Corporate Offices(6) Office
P27 6104111 16 Munson Road Office
B19 415010333 Walnut Creek Orthopedic Center(7) Office
P28 6104383 20 South Charles Street(8) Office
B20 400010341 Safari Office Park(9) Office
A35 55566 Metairie Centre Office Building Office
P29 6104478 104 East 40th Street Office
A36 54167 Market Court Office Building Office
A37 55668 Orchard One Office
A38 55718 7700 East Arapahoe Road Office Building Office
A39 55657 1001 Hingham Street Office
B21 800010327 Centralia DSHS Building Office
P30 6104395 200 Docks Corner Road Industrial
INITIAL DEPOSIT TO CURRENT BALANCE IN
CAPITAL CAPITAL INITIAL DEPOSIT TO ANNUAL DEPOSIT TO CURRENT BALANCE IN
IMPROVEMENT IMPROVEMENT REPLACEMENT REPLACEMENT REPLACEMENT
RESERVES RESERVES RESERVES RESERVES RESERVES
23,125 23,125 48,720 12,198
18,801 4,700
34,375 34,375 21,570 7,203
3,750 4,025 26,208 49,276
21,518 5,379
30,000 30,448
15,588 3,897
52,250 9,113 29,019 14,691
1,062 0 11,440 1,916
132,505 132,505 10,764 2,691
1,439 360
2,520 630
1,200 300
181 2,173 362
4,200 1,754
2,280 951
2,686 2,252
2,173 1,087
6,000 2,004
1,316 549
2,835 2,619
1,013 253
1,250 1,270 1,114 840
1,317 549
1,038 346
1,000 1,944 2,144
101,064 59,032
18,660 6,224
18,660 6,224
2,300 45,840 22,838
6,132 2,045
1,250 1,250 19,800 24,750
6,750 3,375
63,750 63,750 48,450 12,113
7,217 2,406
20,496 10,248
17,316 10,114
11,712 5,869
37,525 8,305 11,010 5,517
4,118 2,405
4,730 2,365
165,432 96,502
TAX AND CURRENT
INSURANCE INITIAL DEPOSIT TO ANNUAL DEPOSIT BALANCE IN
ESCROW TI/LC ESCROW TO TI/LC ESCROW TI/LC ESCROW REPORT DATE
Tax Only 105,600 26,438 04/09/02
Yes 66,000 16,500 04/09/02
No 04/17/02
Tax Only 144,000 48,085 04/09/02
No 04/17/02
Yes 111,600 27,900 04/09/02
Yes 04/09/02
Yes 84,240 21,060 04/09/02
Yes 04/17/02
Tax Only 04/17/02
Yes 59,400 14,850 04/09/02
Tax Only 04/09/02
No 04/17/02
Yes 33,600 8,400 04/09/02
No 04/09/02
No 04/09/02
Tax Only 50,004 20,887 04/09/02
Yes 04/17/02
No 04/17/02
No 04/09/02
Tax Only 42,864 14,317 04/09/02
Yes 04/17/02
Yes 04/17/02
No 04/09/02
Yes 04/17/02
Yes 04/09/02
Yes 11,220 3,740 04/09/02
Yes 1,018 12,216 8,166 04/09/02
Tax Only 04/17/02
Tax Only 04/17/02
Tax Only 04/17/02
Yes 730,533 175,200 522,655 04/09/02
Tax Only 04/17/02
Yes 94,200 118,560 04/09/02
Yes 500,000 04/09/02
No 04/09/02
Yes 110,000 50,000 127,034 04/09/02
Yes 10,000 10,050 04/10/02
Tax Only 04/09/02
Yes 04/17/02
Yes 04/10/02
Yes 04/10/02
Yes 100,000 100,008 158,772 04/17/02
Yes 04/09/02
Yes 315,000 183,750 04/09/02
B-2
ANNEX B
CAPITAL IMPROVEMENT, REPLACEMENT RESERVE AND ESCROW ACCOUNTS
SEQUENCE LOAN NUMBER PROPERTY NAME PROPERTY TYPE
A40 55236 Vornado Industrial - 901, 903-906 Murray Road Industrial
P31 6104477 Rio Grande Industrial Portfolio Industrial
P32 6104526 Rio Grande Industrial Center #4 Industrial
A41 55889 Hazard Commercial Complex Industrial
P33 6104470 Interstate South Commerce Center Industrial
A42 55570 Old Gate Business Park Industrial
A43 55956 Shawnee North Business Center Industrial
P34 6104439 Robertson Business Park(10) Industrial
P35 6104469 Interstate Distribution Center Industrial
A44 54290 Broadway Crossing Industrial
A45 55635 Burke Cerritos Business Center Industrial
A46 54755 1070 Northpoint Boulevard Industrial
P36 6104373 DFW Business Park Industrial
P37 6104380 Stillwater Industrial Park Industrial
P38 6104436 Eagle Point Manufactured Housing
B22 400010323 Sugarberry Place(11) Manufactured Housing
P39 6104370 Ashley Pointe Manufactured Housing
P40 6104369 Applewood Pointe Manufactured Housing
B23 400010340 Summerset Mobile Estates Manufactured Housing
B24 400010346 Mooney Grove Manufactured Housing
P41 6104368 Heartland Pointe Manufactured Housing
B25 400010332 Golden Horseshoe Manufactured Housing
B26 400010291 Crest Mobile Estates Manufactured Housing
B27 400010331 Terra Vista Estates Manufactured Housing
P42 6104480 Town Center East Land
P43 6104409 Storage USA - Wilton Self Storage
A47 55861 Asheville Mini Storage Portfolio-Summary Self Storage
P44 6104365 EZ Storage-Pasadena Self Storage
- --------------------------------------------------------------------------------------------------------------------
TOTALS
INITIAL DEPOSIT TO CURRENT BALANCE IN
CAPITAL CAPITAL INITIAL DEPOSIT TO ANNUAL DEPOSIT TO CURRENT BALANCE IN
IMPROVEMENT IMPROVEMENT REPLACEMENT REPLACEMENT REPLACEMENT
RESERVES RESERVES RESERVES RESERVES RESERVES
11,375 11,411 292,084 146,199
186,500 186,500 65,100 10,850
9,900 1,650
22,345 5,588
8,500 8,500 41,616 10,404
10,044 2,512
10,224 4,263
45,288 11,322
9,536 7,997
10,757 3,588
12,117 11,194
1,450 1,450 52,500 6,060 55,768
75,000 75,000
20,000 13,368
9,900 4,955
7,824 3,916
5,600 1,867
35,316 35,316 8,500 2,125
27,405 6,090 30,591
28,050 28,050 358 4,300 2,150
1,000 5,304 5,425
533 6,396 3,731
3,125 12,720 4,240
20,436 5,111
7,644 3,822
$2,587,354 $1,431,396 $575,402 $3,591,126 $1,878,249
TAX AND ANNUAL DEPOSIT CURRENT
INSURANCE INITIAL DEPOSIT TO TO TI/LC BALANCE IN
ESCROW TI/LC ESCROW ESCROW TI/LC ESCROW REPORT DATE
Tax Only 04/17/02
Yes 150,000 105,600 167,600 04/09/02
Yes 14,400 2,400 04/09/02
Yes 04/17/02
Yes 168,000 42,000 04/09/02
Yes 390,000 27,240 397,390 04/17/02
Yes 04/17/02
No 04/09/02
Yes 75,000 18,750 04/09/02
Yes 28,302 04/17/02
Yes 04/17/02
Yes 21,605 19,959 04/17/02
Yes 125,000 125,559 04/09/02
Yes 04/09/02
Yes 04/09/02
Yes 04/09/02
Yes 04/09/02
Yes 04/09/02
Yes 04/09/02
Yes 04/09/02
Yes 04/09/02
Yes 04/09/02
Yes 04/09/02
Yes 04/09/02
No 04/09/02
Yes 04/09/02
Tax Only 04/17/02
Yes 04/09/02
$2,116,551 $2,166,997 $2,258,124
(1) The capital expenditure escrow for the Park Apartments loan is capped at
the amount of $115,000.
(2) The capital expenditure escrow for the Whispering Pines loan is capped at
the amount of $116,928.
(3) The capital expenditure escrow for the Parkway Apartments loan is capped
at the amount of $87,000.
(4) The capital expenditure escrow for the Twin Oaks Apartments loan is capped
at the amount of $85,500.
(5) The capital expenditure escrow for the Ravenwood Townhomes loan is capped
at the amount of $125,000.
(6) On September 1, 2006 Unigraphic Soultions will begin to deposit $23,000
per month into an escrow account for tenant improvements/leasing
commissions.
(7) The Walnut Creek Orthopedic Center borrower has posted a letter of credit
in the amount of $500,000 in lieu of monthly funded tenant
improvements/leasing commissions escrows.
(8) The 20 South Charles Street borrower has posted a letter of credit in the
amount of $257,002 in lieu of monthly funded tax, insurance, and tenant
improvements/leasing commissions escrows.
(9) The tenant improvements/leasing commissions escrow for the Safari Office
Park loan is capped at the amount of $250,000.
(10) The Robertson Business Park Center borrower has posted a letter of credit
in the amount of $122,071 in lieu of monthly funded tax, insurance, and
replacement reserves escrows.
(11) The capital expenditure escrow for the Sugarberry Place loan is capped at
the amount of $80,000.
B-3
ANNEX B
MULTIFAMILY SCHEDULE
SE- LOAN
QUENCE NUMBER PROPERTY NAME CUT-OFF BALANCE
------ --------- ---------------------------------------------------- ---------------
P1.1 6104459 New Potomac Portfolio - Finchley Square Apartments
P1.2 6104459 New Potomac Portfolio - Victoria Station Apartments
P1.3 6104459 New Potomac Portfolio - Paddington Square Apartments
P1.4 6104459 New Potomac Portfolio - Eaton Square Apartments
P1.5 6104459 New Potomac Portfolio - Bedford Station Apartments
P1.6 6104459 New Potomac Portfolio - Newbury Square Apartments
P1.7 6104459 New Potomac Portfolio - Edmonton Station Apartments
P1 6104459 NEW POTOMAC PORTFOLIO (ROLL-UP) 38,967,597
A1 55567 84 William Street 32,845,972
A2 53445 The Brook at Colonial Park/Kushner 19,691,998
A3 55954 Gainesville Place 17,753,618
A4 55893 Meadow Wood Village 15,403,921
A5 55015 The Reserve 15,145,054
A6 55362 RCA Portfolio 2 - Ambassador Apartments 14,371,000
P2.1 6104485 CJB Apartments- Silvertree Apartments
P2.2 6104485 CJB Apartments- Windsong Apartments
P2.3 6104485 CJB Apartments- Autumn Breeze Apartments
P2.4 6104485 CJB Apartments- Sunreach Apartments
P2.5 6104485 CJB Apartments- Everbrook Townhouses
P2.6 6104485 CJB Apartments- Cardinal Villa
P2 6104485 CJB APARTMENTS (ROLL-UP) 13,480,962
A7 55412 Campus Village Housing Apartments 13,185,977
A8 55819 CLK - Charter Pointe 10,030,000
A9 55810 CLK - Charlestown of Douglass Hills 9,180,000
P3 6104518 Columbiana Lakes Apartments 9,126,698
B1 324010357 Saddle Ridge Crossing Townhomes 8,987,951
A10 55364 RCA Portfolio 2 - Landing at Westchase 8,800,000
A11 53425 Mapleton Square Apartments/Kushner 8,263,043
B2 317010356 Park Apartments 7,575,544
P4 6104457 Cypress Gates Apartments 7,462,874
A12 55365 RCA Portfolio 2 - Royal Wildewood Manor 7,176,000
A13 55826 CLK - Cardinal Woods 6,885,000
P5 6104446 Hillbrook Apartments 6,673,040
B3 820010338 Whispering Pines 6,111,341
A14 55817 CLK - Arlington Village 5,397,500
P6 6104440 Grand Summit Apartments 5,074,151
B4 317010321 James River Apartments 4,569,790
A15 55821 CLK - Cambridge 4,505,000
B5 820010343 Parkway Apartments 4,280,659
A16 55792 CLK - Breckenridge 4,165,000
A17 55953 La Mirage Apartments 4,081,362
B6 400010330 Paradise Palms Apartments 3,985,226
B7 820010334 Twin Oaks Apartments 3,581,475
B8 400010336 Ashton Meadows Apartments 3,386,578
B9 820010342 Ravenwood Townhomes 2,986,144
B10 800010352 Ashwood Downs Apartments 2,980,806
P7 6104345 Green Lake Apartments 2,789,364
P8 6104350 Bentwood Subdivision 2,762,292
B11 415010319 Montebello Apartments 2,650,015
B12 415010326 Bellagio Apartments 2,636,845
STUDIO 1 BEDROOM
--------------- -----------------
# OF AVG # OF AVG
UTILITIES TENANT PAYS/PAYMENT OF UTIL. UNITS RENT UNITS RENT
- ----------------------------------------------------------------- ----- ---- ----- ----
Electric, Cable TV 83 679
Electric, Cable TV 52 700
Electric, Cable TV
Electric, Cable TV 48 750
Electric, Cable TV 240 724
Electric, Cable TV 42 702
Electric, Cable TV 70 635
535 704
Electric, Gas, Sewer, Trash, Water, Cable TV, AC 119 2,998
Electric, Gas, Cable TV 30 438 252 498
Electric, Sewer, Trash, Water, Cable TV
Electric, Gas 108 977
None
Electric, Cable TV 200 553
Electric, Cable TV
Electric, Cable TV
Electric, Cable TV
Electric, Cable TV
Electric, Water, Cable TV
Electric, Cable TV
Electric, Cable TV
Electric, Water, Hot Water, Cable TV, AC, Heat 72 535 96 580
Electric, Sewer, Water, Hot Water, Cable TV, AC 41 525
Electric, Cable TV 56 607
Gas, Electric, Water, Sewer
Electric 48 420 192 480
Electric, Gas, Cable TV 120 493
None 1 500 270 532
Electric, Gas, Water, Cable TV
Electric 168 452
Electric, Gas, Hot Water, Cable TV, AC, Heat 88 575
Cable TV 278 467
Electric, Gas, Hot Water 16 686
Electric, Gas, Sewer, Trash, Water, Hot Water, Cable TV, AC, Heat 16 515
Electric, Cable TV 60 575
Electric, Water, Sewer
Electric, Gas, Sewer, Trash, Water, Hot Water, Cable TV, AC, Heat 100 469
Electric 116 528
Electric, Gas, Sewer, Water, Hot Water, Cable TV, AC, Heat 80 520
Electric, Hot Water, AC, Heat 32 624
Electric, Gas 46 493
Electric, Gas, Hot Water 114 470
Electric, Gas 16 409
Electric
Electric, Gas
Electric, Gas, Water, Cable TV
Electric, Gas, Water, Cable TV
Electric
None 18 1,100
2 BEDROOM 3 BEDROOM 4 BEDROOM
------------- -------------- ----------------
# OF AVG # OF AVG. # OF AVG
UNITS RENT UNITS RENT UNITS RENT ELEVATORS
----- ----- ----- ----- ----- ----- ---------
32 804 No
49 800 No
158 1,025 8 1,175 No
No
247 859 No
165 806 6 950 No
49 750 No
700 870 14 1,079 No
2 4,106 Yes
336 576 8 640 No
12 941 156 1,576 No
98 1,239 No
94 840 106 1,400 No
176 681 No
48 650 72 790 No
48 880 No
48 900 No
36 800 No
32 700 No
24 700 No
104 677 204 839 No
54 1,085 45 1,426 20 1,640 No
144 684 No
150 666 53 857 No
140 719 8 949 No
38 1,441 43 1,516 No
64 634 No
92 572 No
50 675 No
124 836 10 1,165 No
92 582 No
96 680 No
130 563 No
60 700 30 1,100 No
148 575 No
60 675 No
50 676 54 787 No
64 569 16 669 No
No
32 690 8 775 No
56 776 No
95 570 No
No
96 524 32 629 No
86 550 No
72 551 24 700 No
43 625 20 750 No
3 1,300 27 1,450 No
53 886 No
21 1,563 Yes
ANNEX B
MULTIFAMILY SCHEDULE
SE- LOAN
QUENCE NUMBER PROPERTY NAME CUT-OFF BALANCE UTILITIES TENANT PAYS/PAYMENT OF UTIL.
- ------ ------ ------------------------------------------- --------------- --------------------------------------
B13 415010325 Monet Apartments 2,562,130 None
A18 55367 RCA Portfolio 2 - Braeburn Villa 2,288,000 Electric
P9 6104385 Meadowbrook Apartments 2,189,893 Electric, Water, Cable TV
B14 415010328 Casa California Apartments 1,987,790 Gas, Electric, Water, Sewer
A19 55368 RCA Portfolio 2 - Parkwest Place Apartments 1,725,000 Electric
P10 6104346 Sunset on the Lakes Apartments 1,718,448 Electric, Cable TV
TOTAL MULTIFAMILY LOANS $349,421,057
STUDIO 1 BEDROOM 2 BEDROOM 3 BEDROOM 4 BEDROOM
- ------------ ------------ ------------- ------------ ------------
# OF AVG # OF AVG # OF AVG # OF AVG # OF AVG
UNITS RENT UNITS RENT UNITS RENT UNITS RENT UNITS RENT ELEVATORS
- ----- ---- ----- ----- ----- ---- ----- ---- ----- ---- ---------
18 1,070 21 1471 Yes
22 495 58 596 No
29 492 54 573 No
7 1,101 13 1566 No
52 598 No
4 530 56 570 No
BANK OF AMERICA, N.A.
BANC OF AMERICA COMMERCIAL MORTGAGE INC.
SERIES 2002-PB2
(WELLS FARGO LOGO) For Additional Information, please contact
Wells Fargo Bank Minnesota, N.A. CTSLink Customer Service
Corporate Trust Services (301) 815-6600
9062 Old Annapolis Road Reports Available on the World Wide Web
Columbia, MD 21045 @www.ctslink.com/cmbs
PAYMENT DATE: 06/11/2002
RECORD DATE: 05/30/2002
TRUSTEE REPORT
TABLE OF CONTENTS
<Table>
<Caption>
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
</Table>
<Table>
<Caption>
DEPOSITOR MASTER SERVICER SPECIAL SERVICER
Banc of America Commercial Mortgage Inc. Bank of America, N.A. Lennar Partners, Inc.
100 North Tryon Street 333 South Beaudry Avenue 700 N.W. 107th Avenue
Charlotte, NC 28255 26th Floor Miami, FL 33172
Los Angeles, CA 90017
Contact: David Gertner Contact: Anita Roglich Contact: Steve Bruha
Phone Number: (704) 388-3621 Phone Number: (213) 345-0182 Phone Number: (305) 229-6614
</Table>
This report has been compiled from information provided to Wells Fargo Bank MN.,
N.A. by various third parties, which may include the 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.
Page 1 of 18
C-1
BANK OF AMERICA, N.A.
BANC OF AMERICA COMMERCIAL MORTGAGE INC.
SERIES 2002-PB2
(WELLS FARGO LOGO) For Additional Information, please contact
Wells Fargo Bank Minnesota, N.A. CTSLink Customer Service
Corporate Trust Services (301) 815-6600
9062 Old Annapolis Road Reports Available on the World Wide Web
Columbia, MD 21045 @www.ctslink.com/cmbs
PAYMENT DATE: 06/11/2002
RECORD DATE: 05/30/2002
CERTIFICATE DISTRIBUTION DETAIL
<Table>
<Caption>
CUSIP Pass-Through Original Beginning Principal Interest Prepayment Realized Loss/
Class Rate Balance Balance Distribution Distribution Penalties Additional Trust
Fund Expenses
A-1 0.000000% 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
A-3 0.000000% 0.00 0.00 0.00 0.00 0.00 0.00
A-4 0.000000% 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
C 0.000000% 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
E 0.000000% 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
G 0.000000% 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
J 0.000000% 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
L 0.000000% 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
N 0.000000% 0.00 0.00 0.00 0.00 0.00 0.00
O 0.000000% 0.00 0.00 0.00 0.00 0.00 0.00
P 0.000000% 0.00 0.00 0.00 0.00 0.00 0.00
Q 0.000000% 0.00 0.00 0.00 0.00 0.00 0.00
Totals
<Caption>
Total Ending Current
Class Distribution Balance Subordination Level
A-1 0.00 0.00 0.00%
A-2 0.00 0.00 0.00%
A-3 0.00 0.00 0.00%
A-4 0.00 0.00 0.00%
B 0.00 0.00 0.00%
C 0.00 0.00 0.00%
D 0.00 0.00 0.00%
E 0.00 0.00 0.00%
F 0.00 0.00 0.00%
G 0.00 0.00 0.00%
H 0.00 0.00 0.00%
J 0.00 0.00 0.00%
K 0.00 0.00 0.00%
L 0.00 0.00 0.00%
M 0.00 0.00 0.00%
N 0.00 0.00 0.00%
O 0.00 0.00 0.00%
P 0.00 0.00 0.00%
Q 0.00 0.00 0.00%
Totals 0.00 0.00 0.00%
</Table>
<Table>
<Caption>
Class CUSIP Pass-Through Original Beginning Interest Prepayment Total Ending
Rate Notional Notional Distribution Penalties Distribution Notional
Amount Amount Amount
XC 0.000000% 0.00 0.00 0.00 0.00 0.00 0.00
XP 0.000000% 0.00 0.00 0.00 0.00 0.00 0.00
</Table>
(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).
Page 2 of 18
C-2
BANK OF AMERICA, N.A.
BANC OF AMERICA COMMERCIAL MORTGAGE INC.
SERIES 2002-PB2
(WELLS FARGO LOGO) For Additional Information, please contact
Wells Fargo Bank Minnesota, N.A. CTSLink Customer Service
Corporate Trust Services (301) 815-6600
9062 Old Annapolis Road Reports Available on the World Wide Web
Columbia, MD 21045 @www.ctslink.com/cmbs
PAYMENT DATE: 06/11/2002
RECORD DATE: 05/30/2002
CERTIFICATE FACTOR DETAIL
<Table>
<Caption>
Class CUSIP Beginning Principal Interest Prepayment Realized Loss/ Ending
Balance Distribution Distribution Premium Additional Trust Balance
Fund Expenses
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
A-4 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
N 0.00000000 0.00000000 0.00000000 0.00000000 0.00000000 0.00000000
O 0.00000000 0.00000000 0.00000000 0.00000000 0.00000000 0.00000000
P 0.00000000 0.00000000 0.00000000 0.00000000 0.00000000 0.00000000
Q 0.00000000 0.00000000 0.00000000 0.00000000 0.00000000 0.00000000
</Table>
<Table>
<Caption>
Class CUSIP Beginning Ending
Notional Interest Prepayment Notional
Amount Distribution Penalties Amount
XC 0.00000000 0.00000000 0.00000000 0.00000000
XP 0.00000000 0.00000000 0.00000000 0.00000000
</Table>
Page 3 of 18
C-3
BANC OF AMERICA, N.A.
BANC OF AMERICA COMMERCIAL MORTGAGE INC.
SERIES 2002-PB2
(WELLS FARGO LOGO) For Additional Information, please contact
Wells Fargo Bank Minnesota, N.A. CTSLink Customer Service
Corporate Trust Services (301) 815-6600
9062 Old Annapolis Road Reports Available on the World Wide Web
Columbia, MD 21045 @www.ctslink.com/cmbs
Payment Date: 06/11/2002
Record Date: 05/30/2002
RECONCILIATION DETAIL
<Table>
<Caption>
ADVANCE SUMMARY MASTER SERVICING FEE BREAKDOWNS
P & I Advances Outstanding 0.00 Current Period Accrued Master Servicing Fees 0.00
Master Servicing Advances Outstanding 0.00 Less Delinquent Master Servicing Fees 0.00
Reimbursement for Interest on 0.00 Less Reductions to Master Servicing Fees 0.00
Advances paid from general collections Plus Master Servicing Fees for Delinquent Payments Received 0.00
Current 1 Month LIBOR Rate 0.000000% Plus Adjustments for Prior Master Servicing Calculation 0.00
Next 1 Month LIBOR Rate 0.000000% Total Master Servicing Fees Collected 0.00
</Table>
CERTIFICATE INTEREST RECONCILIATION
<Table>
<Caption>
Accrued Net Aggregate Distributable Deferred Distributable Additional Remaining Unpaid
Certificate Prepayment Certificate Payment Certificate Interest Trust Fund Interest Distributable
Class Interest Interest Shortfall Interest Amount Adjustment Expenses Distribution Certified Interest
A-1 0.00 0.00 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 0.00 0.00
A-3 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
A-4 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
XC 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
XP 0.00 0.00 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 0.00 0.00
C 0.00 0.00 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 0.00 0.00
E 0.00 0.00 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 0.00 0.00
G 0.00 0.00 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 0.00 0.00
J 0.00 0.00 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 0.00 0.00
L 0.00 0.00 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 0.00 0.00
N 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
O 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
P 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Q 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Total 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
</Table>
Page 4 of 18
C-4
BANK OF AMERICA, N.A.
BANC OF AMERICA COMMERCIAL MORTGAGE INC.
SERIES 2002-PB2
(WELLS FARGO LOGO) For Additional Information, please contact
Wells Fargo Bank Minnesota, N.A. CTSLink Customer Service
Corporate Trust Services (301) 815-6600
9062 Old Annapolis Road Reports Available on the World Wide Web
Columbia, MD 21045 @www.ctslink.com/cmbs
PAYMENT DATE: 06/11/2002
RECORD DATE: 05/30/2002
OTHER REQUIRED INFORMATION
<Table>
Available Distribution Amount(1) 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 Trustee Fee 0.00
Aggregate Trust Fund Expenses 0.00
Specially Serviced Loans not Delinquent 0
Number of Outstanding Loans 0.00
Aggregate Unpaid Principal Balance 0.00
</Table>
Appraisal Reduction Amount
<Table>
<Caption>
Appraisal Cumulative Date Appraisal
Loan Reduction ASER Reduction
Number Effected Amount Effected
Total
(1) The Available Distribution Amount includes any Prepayment Premiums.
Page 5 of 18
C-5
BANK OF AMERICA, N.A.
BANC OF AMERICA COMMERCIAL MORTGAGE INC.
SERIES 2002-PB2
(WELLS FARGO LOGO) For Additional Information, please contact
Wells Fargo Bank Minnesota, N.A. CTSLink Customer Service
Corporate Trust Services (301) 815-6600
9062 Old Annapolis Road Reports Available on the World Wide Web
Columbia, MD 21045 @www.ctslink.com/cmbs
PAYMENT DATE: 06/11/2002
RECORD DATE: 05/30/2002
RATINGS DETAIL
<Table>
<Caption>
Original Ratings Current Ratings(1)
------------------------------- -------------------------------
Class CUSIP Fitch Moody's S&P Fitch Moody's S&P
A-1
A-2
A-3
A-4
XC
XP
B
C
D
E
F
G
H
J
K
L
M
N
O
P
Q
</Table>
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.
<Table>
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
</Table>
C-6
Page 6 of 18
BANK OF AMERICA, N.A.
BANC OF AMERICA COMMERCIAL MORTGAGE INC.
SERIES 2002-PB2
(WELLS FARGO LOGO) For Additional Information, please contact
Wells Fargo Bank Minnesota, N.A. CTSLink Customer Service
Corporate Trust Services (301) 815-6600
9062 Old Annapolis Road Reports Available on the World Wide Web
Columbia, MD 21045 @www.ctslink.com/cmbs
PAYMENT DATE: 06/11/2002
RECORD DATE: 05/30/2002
CURRENT MORTGAGE LOAN AND PROPERTY STRATIFICATION TABLES
SCHEDULED BALANCE
<Table>
<Caption>
% of
Scheduled # of Scheduled Agg. WAM Weighted
Balance Loans Balance Bal. (2) WAC Avg DSCR(1)
Totals
STATE(3)
<Caption>
% of
# of Scheduled Agg. WAM Weighted
State Props Balance Bal. (2) WAC Avg DSCR(1)
Totals
</Table>
See footnotes on last page of this section.
Page 7 of 18
C-7
BANK OF AMERICA, N.A.
BANC OF AMERICA COMMERCIAL MORTGAGE INC.
SERIES 2002-PB2
(WELLS FARGO LOGO) For Additional Information, please contact
Wells Fargo Bank Minnesota, N.A. CTSLink Customer Service
Corporate Trust Services (301) 815-6600
9062 Old Annapolis Road Reports Available on the World Wide Web
Columbia, MD 21045 @www.ctslink.com/cmbs
PAYMENT DATE: 06/11/2002
RECORD DATE: 05/30/2002
CURRENT MORTGAGE LOAN AND PROPERTY STRATIFICATION TABLES
DEBT SERVICE COVERAGE RATIO (1)
<Table>
<Caption>
Debt Service # of Scheduled % of WAM Weighted
Coverage Ratio Loans Balance Agg. (2) WAC Avg. DSCR(1)
Bal.
Totals
</Table>
PROPERTY TYPE(3)
<Table>
<Caption>
Property # of Scheduled % of WAM Weighted
Type Props Balance Agg. (2) WAC Avg. DSCR(1)
Bal.
Totals
</Table>
NOTE RATE
<Table>
<Caption>
Note # of Scheduled % of WAM Weighted
Rate Loans Balance Agg. (2) WAC Avg. DSCR(1)
Bal.
Totals
</Table>
SEASONING
<Table>
<Caption>
Seasoning # of Scheduled % of WAM Weighted
Loans Balance Agg. (2) WAC Avg. DSCR(1)
Bal.
Totals
</Table>
See footnotes on last page of this section.
Page 8 of 18
C-8
BANK OF AMERICA, N.A.
BANC OF AMERICA COMMERCIAL MORTGAGE INC.
SERIES 2002-PB2
(WELLS FARGO LOGO) For Additional Information, please contact
Wells Fargo Bank Minnesota, N.A. CTSLink Customer Service
Corporate Trust Services (301) 815-6600
9062 Old Annapolis Road Reports Available on the World Wide Web
Columbia, MD 21045 @www.ctslink.com/cmbs
PAYMENT DATE: 06/11/2002
RECORD DATE: 05/30/2002
CURRENT MORTGAGE LOAN AND PROPERTY STRATIFICATION TABLES
ANTICIPATED REMAINING TERM (ARD AND BALLOON LOANS)
<Table>
<Caption>
Anticipated Remaining # of Scheduled % of WAM Weighted
Term(2) Loans Balance Agg. (2) WAC Avg. DSCR(1)
Bal.
Totals
</Table>
REMAINING AMORTIZATION TERM (ARD AND BALLOON LOANS)
<Table>
<Caption>
Remaining Amortization # of Scheduled % of WAM Weighted
Term Loans Balance Agg. (2) WAC Avg. DSCR(1)
Bal.
Totals
</Table>
GROSS MARGINS
<Table>
<Caption>
Gross Margins # of Scheduled % of WAM Weighted
Loans Balance Agg. (2) WAC Avg. DSCR(1)
Bal.
Totals
</Table>
AGE OF MOST RECENT NOI
<Table>
<Caption>
Age of Most # of Scheduled % of WAM Weighted
Recent NOI Loans Balance Agg. (2) WAC Avg. DSCR(1)
Bal.
Totals
</Table>
(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 current
DSCR provided by the Master 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.
Page 9 of 18
C-9
BANK OF AMERICA, N.A.
BANC OF AMERICA COMMERCIAL MORTGAGE INC.
SERIES 2002-PB2
(WELLS FARGO LOGO) For Additional Information, please contact
Wells Fargo Bank Minnesota, N.A. CTSLink Customer Service
Corporate Trust Services (301) 815-6600
9062 Old Annapolis Road Reports Available on the World Wide Web
Columbia, MD 21045 @www.ctslink.com/cmbs
PAYMENT DATE: 06/11/2002
RECORD DATE: 05/30/2002
MORTGAGE LOAN DETAIL
<Table>
<Caption>
Anticipated
Loan Property Interest Principal Gross Repayment
Number ODCR Type(1) City State Payment Payment Coupon Date
<Caption>
Net. Beginning Ending Paid Appraisal Appraisal Res. Mod.
Maturity Amort Scheduled Scheduled Thru Reduction Reduction Strat. Code
Date (Y/N) Balance Balance Date Date Amount (2) (3)
</Table>
<Table>
<Caption>
(1) Property Type Code (2) Resolution Strategy Code
- ------------------------------------------------- ---------------------------------------------------------------------------------
MF - Multi-Family OF - Office 1 - Modification 6 - DPO 10 - Deed in Lieu Of
RT - Retail MU - Mixed Use 2 - Foreclosure 7 - REO Foreclosure
HC - Health Care LO - Lodging 3 - Bankruptcy 8 - Resolved 11 - Full Payoff
IN - Industrial SS - Self Storage 4 - Extension 9 - Pending Return 12 - Reps and Warranties
WH - Warehouse OT - Other 5 - Note Sale to Master Servicer 13 - Other or TBD
MH - Mobile Home Park
<Caption>
(3) Modification Code
- -------------------------------
1 - Maturity Date Extension
2 - Amortization Change
3 - Principal Write-Off
4 - Combination
</Table>
Page 10 of 18
C-10
BANC OF AMERICA, N.A.
BANC OF AMERICA COMMERCIAL MORTGAGE INC.
SERIES 2000-PB2
(WELLS FARGO LOGO) For Additional Information, please contact
Wells Fargo Bank Minnesota, N.A. CTSLink Customer Service
Corporate Trust Services (301) 815-6600
9062 Old Annapolis Road Reports Available on the World Wide Web
Columbia, MD 21045 @www.ctslink.com/cmbs
Payment Date: 06/11/2002
Record Date: 05/30/2002
EXTENDED LOAN DETAIL
<Table>
<Caption>
OFFERING
DOCUMENT ENDING SCHEDULED ORIGINAL MATURITY DATE NUMBER OF CURRENT
LOAN NUMBER CROSS REFERENCE PRINCIPAL BALANCE MATURITY DATE AFTER EXTENSION MONTHS EXTENDED REMAINING TERM
</Table>
Page 11 of 18
C-11
BANC OF AMERICA, N.A.
BANC OF AMERICA COMMERCIAL MORTGAGE INC.
SERIES 2000-PB2
(WELLS FARGO LOGO) For Additional Information, please contact
Wells Fargo Bank Minnesota, N.A. CTSLink Customer Service
Corporate Trust Services (301) 815-6600
9062 Old Annapolis Road Reports Available on the World Wide Web
Columbia, MD 21045 @www.ctslink.com/cmbs
Payment Date: 06/11/2002
Record Date: 05/30/2002
PRINCIPAL PREPAYMENT DETAIL
<Table>
<Caption>
PRINCIPAL PREPAYMENT AMOUNT
OFFERING DOCUMENT ----------------------------------------------------------------------
LOAN NUMBER CROSS-REFERENCE PAYOFF AMOUNT CURTAILMENT AMOUNT PREPAYMENT PREMIUMS
Totals
</Table>
Page 12 of 18
C-12
BANC OF AMERICA, N.A.
BANC OF AMERICA COMMERCIAL MORTGAGE INC.
SERIES 2002-PB2
(WELLS FARGO LOGO) For Additional Information, please contact
Wells Fargo Bank Minnesota, N.A. CTSLink Customer Service
Corporate Trust Services (301) 815-6600
9062 Old Annapolis Road Reports Available on the World Wide Web
Columbia, MD 21045 @www.ctslink.com/cmbs
Payment Date: 06/11/2002
Record Date: 05/30/2002
HISTORICAL DETAIL
<Table>
<Caption>
Delinquencies
- --------------------------------------------------------------------------------------------------------------
Distribution 30-59 Days 60-89 Days 90 Days or More Foreclosure REO Modifications
Date # Balance # Balance # Balance # Balance # Balance # Balance
<Caption>
Prepayments Rate and Maturities
- ------------------------- ---------------------------
Curtailments Payoff Next Weighted Avg.
# Amount # Amount Coupon Remit WAM
</Table>
Note: Foreclosure and REO Totals are excluded from the delinquencies aging
categories.
Page 13 of 18
C-13
BANC OF AMERICA, N.A.
BANC OF AMERICA COMMERCIAL MORTGAGE INC.
SERIES 2002-PB2
(WELLS FARGO LOGO) For Additional Information, please contact
Wells Fargo Bank Minnesota, N.A. CTSLink Customer Service
Corporate Trust Services (301) 815-6600
9062 Old Annapolis Road Reports Available on the World Wide Web
Columbia, MD 21045 @www.ctslink.com/cmbs
PAYMENT DATE: 6/11/2002
RECORD DATE: 5/30/2002
DELINQUENCY LOAN DETAIL
<Table>
<Caption>
Offering # of Paid Through Current Outstanding Status of Resolution Servicing
Loan Number Document Months Date P & I P & I Mortgage Strategy Transfer Date
Cross-Reference Delinq. Advances Advances** Loan (1) Code (2)
<Caption>
Foreclosure Actual Outstanding Bankruptcy REO
Date Principal Servicing Date Date
Balance Advances
Totals
</Table>
(1) Status of Mortgage Loan
A - Payment Not Received But Still in Grace Period
B - Late Payment But Less Than 1 Month Delinquent
0 - Current
1 - One Month Delinquent
2 - Two Months Delinquent
3 - Three or More Months Delinquent
- Assumed Scheduled Payment (Performing Matured Balloon)
7 - Foreclosure
9 - REO
(2) Resolution Strategy Code
1 - Modification
2 - Foreclosure
3 - Bankruptcy
4 - Extension
5 - Note Sale
6 - DPO
7 - REO
8 - Resolved
9 - Pending Return to Master Servicer
10 - Deed in Lieu of Foreclosure
11 - Full Payoff
12 - Reps and Warranties
13 - Other or TBD
**Outstanding P & I Advances include the current period advance.
Page 14 of 18
C-14
BANC OF AMERICA N.A.
BANC OF AMERICA COMMERCIAL MORTGAGE INC.
SERIES 2002-PB2
(WELLS FARGO LOGO) For Additional Information, please contact
Wells Fargo Bank Minnesota, N.A. CTSLink Customer Service
Corporate Trust Services (301) 815-6600
9062 Old Annapolis Road Reports Available on the World Wide Web
Columbia, MD 21045 @www.ctslink.com/cmbs
PAYMENT DATE: 06/11/2002
RECORD DATE: 05/30/2002
SPECIALLY SERVICED LOAN DETAIL - PART 1
<Table>
<Caption>
Offering Servicing Resolution
Loan Document Transfer Strategy Scheduled Property Interest
Number Cross-Reference Date Code(1) Balance Type(2) State Rate
<Caption>
Net Remaining
Actual Operating DSCR Note Maturity Amortization
Balance Income Date DSCR Date Date Term
</Table>
<Table>
<Caption>
(1) Resolution Strategy Code (2) Property Type Code
1 - Modification 6 - DPO 10 - Deed in Lieu of MF - Multi-Family OF - Office
2 - Foreclosure 7 - REO Foreclosure RT - Retail MU - Mixed Use
3 - Bankruptcy 8 - Resolved 11 - Full Payoff HC - Health Care LO - Lodging
4 - Extension 9 - Pending Return 12 - Reps and Warranties IN - Industrial SS - Self Storage
5 - Note Sale to Master Servicer 13 - Other or TBD WH - Warehouse OT - Other
MH - Mobile Home Park
</Table>
Page 15 of 18
C-15
BANC OF AMERICA N.A.
BANC OF AMERICA COMMERCIAL MORTGAGE INC.
SERIES 2002-PB2
(WELLS FARGO LOGO) For Additional Information, please contact
Wells Fargo Bank Minnesota, N.A. CTSLink Customer Service
Corporate Trust Services (301) 815-6600
9062 Old Annapolis Road Reports Available on the World Wide Web
Columbia, MD 21045 @www.ctslink.com/cmbs
PAYMENT DATE: 06/11/2002
RECORD DATE: 05/30/2002
SPECIALLY SERVICED LOAN DETAIL - PART 2
<Table>
<Caption>
Offering Resolution Site
Loan Document Strategy Inspection Phase 1 Date Appraisal Appraisal Other REO
Number Cross-Reference Code(1) Date Date Value Property Revenue Comment
</Table>
(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
Page 16 of 18
C-16
BANC OF AMERICA, N.A.
BANC OF AMERICA COMMERCIAL MORTGAGE INC.
SERIES 2002-PB2
(WELLS FARGO LOGO) For Additional Information, please contact
Wells Fargo Bank Minnesota, N.A. CTSLink Customer Service
Corporate Trust Services (301) 815-6600
9062 Old Annapolis Road Reports Available on the World Wide Web
Columbia, MD 21045 @ www.ctslink.com/cmbs
PAYMENT DATE: 06/11/2002
RECORD DATE: 05/30/2002
MODIFIED LOAN DETAIL
<Table>
<Caption>
Offering
Loan Document Pre-Modification
Number Cross-Reference Balance Modification Date Modification Description
Totals
</Table>
Page 17 of 18
C-17
BANC OF AMERICA, N.A.
BANC OF AMERICA COMMERCIAL MORTGAGE INC.
SERIES 2002-PB2
(WELLS FARGO LOGO) For Additional Information, please contact
Wells Fargo Bank Minnesota, N.A. CTSLink Customer Service
Corporate Trust Services (301) 815-6600
9062 Old Annapolis Road Reports Available on the World Wide Web
Columbia, MD 21045 @www.ctslink.com/cmbs
PAYMENT DATE: 06/11/2002
RECORD DATE: 05/30/2002
LIQUIDATED LOAN DETAIL
<Table>
<Caption>
Final Recovery Offering Gross Proceeds
Determination Document Appraisal Appraisal Actual Gross as a % of
Loan Number Date Cross-Reference Date Value Balance Proceeds Actual Balance
Current Total
Cumulative Total
<Caption>
Aggregate Net Net Proceeds Repurchased
Liquidation Liquidation as a % of Realized by Seller
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).
Page 18 of 18
C-18
ANNEX D
CLASS XP REFERENCE RATE SCHEDULE
<Table>
<Caption>
INTEREST INTEREST
ACCRUAL DISTRIBUTION CLASS XP ACCRUAL DISTRIBUTION CLASS XP
PERIOD DATE REFERENCE RATE PERIOD DATE REFERENCE RATE
-------- ------------ -------------- -------- ------------ --------------
1 6/11/2002 7.2384% 43 12/11/2005 7.0035%
2 7/11/2002 7.0032% 44 1/11/2006 7.0035%
3 8/11/2002 7.2384% 45 2/11/2006 7.0035%
4 9/11/2002 7.2385% 46 3/11/2006 7.0042%
5 10/11/2002 7.0033% 47 4/11/2006 7.2387%
6 11/11/2002 7.2385% 48 5/11/2006 7.0041%
7 12/11/2002 7.0033% 49 6/11/2006 7.2393%
8 1/11/2003 7.0034% 50 7/11/2006 7.0041%
9 2/11/2003 7.0034% 51 8/11/2006 7.2393%
10 3/11/2003 7.0039% 52 9/11/2006 7.2393%
11 4/11/2003 7.2386% 53 10/11/2006 7.0041%
12 5/11/2003 7.0034% 54 11/11/2006 7.2393%
13 6/11/2003 7.2386% 55 12/11/2006 7.0095%
14 7/11/2003 7.0035% 56 1/11/2007 7.0095%
15 8/11/2003 7.2387% 57 2/11/2007 7.0094%
16 9/11/2003 7.2387% 58 3/11/2007 7.0102%
17 10/11/2003 7.0035% 59 4/11/2007 7.2448%
18 11/11/2003 7.2387% 60 5/11/2007 7.0094%
19 12/11/2003 7.0035% 61 6/11/2007 7.2448%
20 1/11/2004 7.2387% 62 7/11/2007 7.0094%
21 2/11/2004 7.0035% 63 8/11/2007 7.2448%
22 3/11/2004 7.0037% 64 9/11/2007 7.2448%
23 4/11/2004 7.2387% 65 10/11/2007 7.0094%
24 5/11/2004 7.0035% 66 11/11/2007 7.2448%
25 6/11/2004 7.2387% 67 12/11/2007 7.0094%
26 7/11/2004 7.0035% 68 1/11/2008 7.2447%
27 8/11/2004 7.2387% 69 2/11/2008 7.0094%
28 9/11/2004 7.2387% 70 3/11/2008 7.0098%
29 10/11/2004 7.0035% 71 4/11/2008 7.2443%
30 11/11/2004 7.2387% 72 5/11/2008 7.0089%
31 12/11/2004 7.0035% 73 6/11/2008 7.2443%
32 1/11/2005 7.0035% 74 7/11/2008 7.0089%
33 2/11/2005 7.0035% 75 8/11/2008 7.2443%
34 3/11/2005 7.0042% 76 9/11/2008 7.2598%
35 4/11/2005 7.2387% 77 10/11/2008 7.0234%
36 5/11/2005 7.0035% 78 11/11/2008 7.2591%
37 6/11/2005 7.2387% 79 12/11/2008 7.0233%
38 7/11/2005 7.0035% 80 1/11/2009 7.0233%
39 8/11/2005 7.2387% 81 2/11/2009 7.0233%
40 9/11/2005 7.2387% 82 3/11/2009 7.0242%
41 10/11/2005 7.0035% 83 4/11/2009 7.2591%
42 11/11/2005 7.2387% 84 5/11/2009 7.0232%
</Table>
D-1
Prospectus
BANC OF AMERICA COMMERCIAL MORTGAGE INC.
DEPOSITOR
MORTGAGE PASS-THROUGH CERTIFICATES
<Table>
<Caption>
CONSIDER CAREFULLY THE RISK FACTORS THE TRUST --
BEGINNING ON PAGE 10 IN THIS - may periodically issue mortgage pass-through
PROSPECTUS. certificates in one or more series with one or more
Neither the certificates nor the classes; and
underlying mortgage loans are insured - will own --
by any governmental agency. - multifamily and commercial mortgage loans;
The certificates will represent - mortgage-backed securities; and
interests in the related trust only and - other property described and in the accompanying
will not represent interests in or prospectus supplement.
obligations of Banc of America THE CERTIFICATES --
Commercial Mortgage Inc. or any of - will represent interests in the Trust and will be
its affiliates, including Bank of paid only from the trust assets;
America Corporation. - provide for the accrual of interest based on a fixed,
This prospectus may be used to offer variable or adjustable interest rate;
and sell any series of certificates - may be offered through underwriters, which may
only if accompanied by the prospectus include Banc of America Securities LLC, an affiliate of
supplement for that series. Banc of America Commercial Mortgage Inc.; and
- will not be listed on any securities exchange.
THE CERTIFICATEHOLDERS --
- will receive interest and principal payments based on
the rate of payment of principal and the timing of
receipt of payments on mortgage loans.
</Table>
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED THESE
CERTIFICATES OR DETERMINED THAT THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
May 9, 2002
FOR MORE INFORMATION
Banc of America Commercial
Mortgage Inc. has filed with
the SEC additional
registration materials
relating to the certificates.
You may read and copy any of
these materials at the SEC's
Public Reference Room at the
following locations:
- SEC Public Reference
Section
450 Fifth Street, N.W.
Room 1204
Washington, D.C. 20549
- SEC Midwest Regional
Offices
Citicorp Center
500 West Madison Street
Suite 1400
Chicago, Illinois
60661-2511
You may obtain information on
the operation of the Public
Reference Room by calling the
SEC at 1-800-SEC-0330. The
SEC also maintains an
Internet site that contains
reports, proxy and
information statements, and
other information that has
been filed electronically
with the SEC. The Internet
address is
http://www.sec.gov.
You may also contact Banc of
America Commercial Mortgage
Inc. in writing at Bank of
America Corporate Center, 100
North Tryon Street,
Charlotte, North Carolina
28255, or by telephone at
(704) 386-2400.
See also the sections
captioned "Available
Information" and
"Incorporation of Certain
Information by Reference"
appearing at the end of this
prospectus.
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
----
SUMMARY OF PROSPECTUS........................... 5
RISK FACTORS.................................... 10
The Limited Liquidity of Your Certificates May
Have An Adverse Impact on Your Ability to
Sell Your Certificates..................... 10
The Limited Assets of Each Trust May Adversely
Impact Your Ability To Recover Your
Investment in the Event of Loss on the
Underlying Mortgage Assets................. 10
Credit Support is Limited and May Not Be
Sufficient to Prevent Loss on Your
Certificates............................... 11
Prepayments on the Underlying Mortgage Loans
Will Affect the Average Life of Your
Certificates, and the Rate and Timing of
those Prepayments May Be Highly
Unpredictable.............................. 11
Certificates Purchased at a Premium or a
Discount Will Be Sensitive to the Rate of
Principal Payment.......................... 12
The Nature of Ratings Are Limited and Will Not
Guarantee that You Will Receive Any
Projected Return on Your Certificates...... 13
Certain Factors Affecting Delinquency,
Foreclosure and Loss of the Mortgage
Loans...................................... 13
Inclusion of Delinquent Mortgage Loans in a
Mortgage Asset Pool........................ 16
PROSPECTUS SUPPLEMENT........................... 16
CAPITALIZED TERMS USED IN THIS PROSPECTUS....... 17
DESCRIPTION OF THE TRUST FUNDS.................. 18
General....................................... 18
Mortgage Loans................................ 18
MBS........................................... 22
Certificate Accounts.......................... 23
Credit Support................................ 23
Cash Flow Agreements.......................... 23
YIELD AND MATURITY CONSIDERATIONS............... 23
General....................................... 23
Pass-Through Rate............................. 23
Payment Delays................................ 24
Certain Shortfalls in Collections of
Interest................................... 24
Yield and Prepayment Considerations........... 24
Weighted Average Life and Maturity............ 26
Other Factors Affecting Yield, Weighted
Average
Life and Maturity.......................... 26
THE DEPOSITOR................................... 28
DESCRIPTION OF THE CERTIFICATES................. 28
General....................................... 28
Distributions................................. 29
Distributions of Interest on the
Certificates............................... 30
Distributions of Principal of the
Certificates............................... 31
Distributions on the Certificates Concerning
Prepayment Premiums or Concerning Equity
Participations............................. 31
</Table>
2
<Table>
<Caption>
PAGE
----
Allocation of Losses and Shortfalls........... 31
Advances in Respect of Delinquencies.......... 32
Reports to Certificateholders................. 32
Voting Rights................................. 34
Termination................................... 34
Book-Entry Registration and Definitive
Certificates............................... 34
THE POOLING AND SERVICING AGREEMENTS............ 36
General....................................... 36
Assignment of Mortgage Loans; Repurchases..... 36
Representations and Warranties; Repurchases... 38
Collection and Other Servicing Procedures..... 38
Sub-Servicers................................. 40
Certificate Account........................... 41
Modifications, Waivers and Amendments of
Mortgage Loans............................. 43
Realization Upon Defaulted Mortgage Loans..... 43
Hazard Insurance Policies..................... 45
Due-on-Sale and Due-on-Encumbrance
Provisions................................. 46
Servicing Compensation and Payment of
Expenses................................... 46
Evidence as to Compliance..................... 47
Certain Matters Regarding the Master Servicer,
the Special Servicer, the REMIC
Administrator and
the Depositor.............................. 47
Events of Default............................. 49
Rights Upon Event of Default.................. 49
Amendment..................................... 50
List of Certificateholders.................... 51
The Trustee................................... 51
Duties of the Trustee......................... 51
Certain Matters Regarding the Trustee......... 52
Resignation and Removal of the Trustee........ 52
DESCRIPTION OF CREDIT SUPPORT................... 52
General....................................... 52
Subordinate Certificates...................... 53
Insurance or Guarantees Concerning to Mortgage
Loans...................................... 53
Letter of Credit.............................. 53
Certificate Insurance and Surety Bonds........ 54
Reserve Funds................................. 54
Cash Collateral Account....................... 54
Credit Support with respect to MBS............ 54
CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS......... 55
General....................................... 55
Types of Mortgage Instruments................. 55
Leases and Rents.............................. 55
Personalty.................................... 56
Foreclosure................................... 56
Bankruptcy Laws............................... 59
Environmental Considerations.................. 60
Due-on-Sale and Due-on-Encumbrance
Provisions................................. 62
</Table>
3
<Table>
<Caption>
PAGE
----
Junior Liens; Rights of Holders of Senior
Liens...................................... 62
Subordinate Financing......................... 64
Default Interest and Limitations on
Prepayments................................ 64
Applicability of Usury Laws................... 64
Certain Laws and Regulations.................. 65
Americans with Disabilities Act............... 65
Soldiers' and Sailors' Civil Relief Act of
1940....................................... 65
Forfeiture for Drug, RICO and Money Laundering
Violations................................. 65
CERTAIN FEDERAL INCOME TAX CONSEQUENCES......... 66
General....................................... 66
REMICs........................................ 67
Grantor Trust Funds........................... 83
STATE AND OTHER TAX CONSEQUENCES................ 91
CERTAIN ERISA CONSIDERATIONS.................... 91
General....................................... 91
Plan Asset Regulations........................ 92
Insurance Company General Accounts............ 92
Consultation With Counsel..................... 93
Tax Exempt Investors.......................... 93
LEGAL INVESTMENT................................ 93
USE OF PROCEEDS................................. 95
METHOD OF DISTRIBUTION.......................... 95
LEGAL MATTERS................................... 96
FINANCIAL INFORMATION........................... 96
RATING.......................................... 96
AVAILABLE INFORMATION........................... 97
INCORPORATION OF CERTAIN INFORMATION
BY REFERENCE.................................. 98
GLOSSARY........................................ 98
</Table>
4
SUMMARY OF PROSPECTUS
This summary highlights selected information from this prospectus. It does not
contain all the information you need to consider in making your investment
decision. You should carefully review this prospectus and the related prospectus
supplement in their entirety before making any investment in the certificates of
any series. As used in this prospectus, "you" refers to a prospective investor
in certificates, and "we" refers to the depositor, Banc of America Commercial
Mortgage Inc. A "Glossary" appears at the end of this prospectus.
SECURITIES OFFERED
Mortgage pass-through certificates.
DEPOSITOR
Banc of America Commercial Mortgage Inc., a Delaware corporation and a
subsidiary of Bank of America, N.A., has its principal executive offices at Bank
of America Corporate Center, 100 North Tryon Street, Charlotte, North Carolina
28255, and its telephone number is (704) 386-2400.
TRUSTEE
The trustee for each series of certificates will be named in the related
prospectus supplement.
MASTER SERVICER
If the trust includes mortgage loans, the master servicer for the corresponding
series of certificates will be named in the prospectus supplement.
SPECIAL SERVICER
If the trust includes mortgage loans, the special servicer for the corresponding
series of certificates will be named, or the circumstances under which a special
servicer may be appointed, will be described in the prospectus supplement.
MBS ADMINISTRATOR
If the trust includes mortgage-backed securities, the entity responsible for
administering the mortgage-backed securities will be named in the prospectus
supplement.
REMIC ADMINISTRATOR
The person responsible for the various tax-related administration duties for a
series of certificates concerning real estate mortgage investment conduits will
be named in the prospectus supplement.
THE MORTGAGE LOANS
Each series of certificates will, in general, consist of a pool of mortgage
loans referred to as a mortgage asset pool secured by first or junior liens
on --
- - residential properties consisting of five or more rental or
cooperatively-owned dwelling units in high-rise, mid-rise or garden apartment
buildings or other residential structures; or
- - office buildings, retail stores, hotels or motels, nursing homes, hospitals or
other health care-related facilities, recreational vehicle and mobile home
parks, warehouse facilities, mini-warehouse facilities, self-storage
facilities, industrial plants, parking lots, entertainment or sports arenas,
restaurants, marinas, mixed use or various other types of income-producing
properties or unimproved land.
5
However, no one of the following types of properties will be overly-represented
in the trust at the time the trust is formed:
(1) restaurants; (2) entertainment or sports arenas; (3) marinas; or (4) nursing
homes, hospitals or other health care-related facilities.
The mortgage loans will not be guaranteed or insured by Banc of America
Commercial Mortgage Inc. or any of its affiliates or, unless otherwise provided
in the prospectus supplement, by any governmental agency or by any other person.
If specified in the prospectus supplement, some mortgage loans may be delinquent
as of the date the trust is formed.
As described in the prospectus supplement, a mortgage loan may --
- - provide for no accrual of interest or for accrual of interest at an interest
rate that is fixed over its term or that adjusts from time to time, or that
may be converted at the borrower's election from an adjustable to a fixed
mortgage rate, or from a fixed to an adjustable mortgage rate;
- - provide for level payments to maturity or for payments that adjust from time
to time to accommodate changes in the mortgage rate or to reflect the
occurrence of certain events, and may permit negative amortization;
- - be fully amortizing or may be partially amortizing or nonamortizing, with a
balloon payment due on its stated maturity date;
- - may prohibit over its term or for a certain period prepayments and/or require
payment of a premium or a yield maintenance payment in connection with certain
prepayments; and
- - provide for payments of principal, interest or both, on due dates that occur
monthly, quarterly, semi-annually or at such other interval as specified in
the prospectus supplement.
Each mortgage loan will have had an original term to maturity of not more than
40 years. No mortgage loan will have been originated by Banc of America
Commercial Mortgage Inc., although one of its affiliates may have originated
some of the mortgage loans.
If any mortgage loan, or group of related mortgage loans, involves unusual
credit risk, financial statements or other financial information concerning the
related mortgaged property will be included in the related prospectus
supplement.
As described in the prospectus supplement, the trust may also consist of
mortgage participations, mortgage pass-through certificates and/or other
mortgage-backed securities that evidence an interest in, or are secured by a
pledge of, one or more mortgage loans similar to the other mortgage loans in the
trust and which may or may not be issued, insured or guaranteed by the United
States or any governmental agency.
THE CERTIFICATES
Each series of certificates will be issued in one or more classes pursuant to a
pooling and servicing agreement or other agreement specified in the prospectus
supplement and will represent in total the entire beneficial ownership interest
in the trust.
As described in the prospectus supplement, the certificates of each series may
consist of one or more classes that --
- - are senior or subordinate to one or more other classes of certificates in
entitlement to certain distributions on the certificates;
- - are "stripped principal certificates" entitled to distributions of principal,
with disproportionate, nominal or no distributions of interest;
6
- - are "stripped interest certificates" entitled to distributions of interest,
with disproportionate, nominal or no distributions of principal;
- - provide for distributions of interest or principal that commence only after
the occurrence of certain events, such as the retirement of one or more other
classes of certificates of such series;
- - provide for distributions of principal to be made, from time to time or for
designated periods, at a rate that is faster (and, in some cases,
substantially faster) or slower (and, in some cases, substantially slower)
than the rate at which payments or other collections of principal are received
on the mortgage assets in the trust;
- - provide for distributions of principal to be made, subject to available funds,
based on a specified principal payment schedule or other methodology; or
- - provide for distribution based on collections on the mortgage assets in the
trust attributable to prepayment premiums, yield maintenance payments or
equity participations.
If specified in the prospectus supplement, a series of certificates may include
one or more "controlled amortization classes," which will entitle the holders to
receive principal distributions according to a specified principal payment
schedule. Although prepayment risk cannot be eliminated entirely for any class
of certificates, a controlled amortization class will generally provide a
relatively stable cash flow so long as the actual rate of prepayment on the
mortgage loans in the trust remains relatively constant at the rate of
prepayment used to establish the specific principal payment schedule for such
certificates. Prepayment risk with respect to a given mortgage asset pool does
not disappear, however, and the stability afforded to a controlled amortization
class comes at the expense of one or more other classes of the same series.
Each class of certificates, other than certain classes of stripped interest
certificates and certain classes of REMIC residual certificates will have an
initial stated principal amount. Each class of certificates, other than certain
classes of stripped principal certificates and certain classes of REMIC residual
certificates, will accrue interest on its certificate balance or, in the case of
certain classes of stripped interest certificates, on a notional amount, based
on a pass-through rate which may be fixed, variable or adjustable. The
prospectus supplement will specify the certificate balance, notional amount
and/or pass-through rate for each class of certificates.
DISTRIBUTIONS OF INTEREST ON THE CERTIFICATES
Interest on each class of certificates (other than certain classes of stripped
principal certificates and certain classes of REMIC residual certificates) of
each series will accrue at the applicable pass-through rate on the certificate
balance and will be paid on a distribution date. However, in the case of certain
classes of stripped interest certificates, the notional amount outstanding from
time to time will be paid to certificateholders as provided in the prospectus
supplement on a specified distribution date.
Distributions of interest concerning one or more classes of certificates may not
commence until the occurrence of certain events, such as the retirement of one
or more other classes of certificates. Interest accrued concerning a class of
accrual certificates prior to the occurrence of such an event will either be
added to the certificate balance or otherwise deferred as described in the
prospectus supplement. Distributions of interest concerning one or more classes
of certificates may be reduced to the extent of certain delinquencies, losses
and other contingencies described in this prospectus and in the prospectus
supplement.
DISTRIBUTIONS OF PRINCIPAL OF THE CERTIFICATES
Each class of certificates of each series (other than certain classes of
stripped interest certificates and certain classes of REMIC residual
certificates) will have a certificate balance. The certificate balance of a
class of certificates outstanding from time to time will represent the maximum
amount that the holders are then entitled to receive in respect of principal
from future cash flow on the assets in the trust. The initial total certificate
balance of all classes of a series of certificates will not be greater than the
outstanding principal balance of the related mortgage assets as of a specified
cut-off date, after application of scheduled payments due on or before such
date, whether or not received. As described in the prospectus supplement,
distributions
7
of principal with respect to the related series of certificates will be made on
each distribution date to the holders of the class certificates of such series
then entitled until the certificate balances of such certificates have been
reduced to zero. Distributions of principal with respect to one or more classes
of certificates --
- - may be made at a rate that is faster (and, in some cases, substantially
faster) or slower (and, in some cases, substantially slower) than the rate at
which payments or other collections of principal are received on the assets in
the trust;
- - may not commence until the occurrence of certain events, such as the
retirement of one or more other classes of certificates of the same series;
- - may be made, subject to certain limitations, based on a specified principal
payment schedule; or
- - may be contingent on the specified principal payment schedule for another
class of the same series and the rate at which payments and other collections
of principal on the mortgage assets in the trust are received. Unless
otherwise specified in the prospectus supplement, distributions of principal
of any class of certificates will be made on a pro rata basis among all of the
certificates of such class.
CREDIT SUPPORT AND CASH FLOW AGREEMENTS
If specified in the prospectus supplement, partial or full protection against
certain defaults and losses on the assets in the trust may be provided to one or
more classes of certificates by (1) subordination of one or more other classes
of certificates to classes in the same series, or by (2) of such series, one or
more other types of credit support, such as a letter of credit, insurance
policy, guarantee, reserve fund, cash collateral account, overcollateralization
or other credit support. If so provided in the prospectus supplement, the trust
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; or
- - certain other agreements, such as interest rate exchange agreements, interest
rate cap or floor agreements, or other agreements designed to reduce the
effects of interest rate fluctuations on the mortgage assets or on one or more
classes of certificates.
Certain relevant information regarding any applicable credit support or cash
flow agreement will be set forth in the prospectus supplement for a series of
certificates.
ADVANCES
As specified in the prospectus supplement, if the trust includes mortgage loans,
the master servicer, the special servicer, the trustee, any provider of credit
support, and/or another specified person may be obligated to make, or have the
option of making, certain advances concerning delinquent scheduled payments of
principal and/or interest on mortgage loans. Any advances made concerning a
particular mortgage loan will be reimbursable from subsequent recoveries
relating to the particular mortgage loan and as described in the prospectus
supplement. If specified in the prospectus supplement, any entity making such
advances may be entitled to receive interest for a specified period during which
certain or all of such advances are outstanding, payable from amounts in the
trust. If the trust includes mortgaged-backed securities, any comparable
advancing obligation of a party to the related pooling and servicing agreement,
or of a party to the related mortgage-backed securities agreement, will be
described in the prospectus supplement.
OPTIONAL TERMINATION
If specified in the prospectus supplement, a series of certificates may be
subject to optional early termination through the repurchase of the mortgage
assets in the trust. If provided in the related prospectus supplement, upon the
reduction of the certificate balance of a specified class or classes of
certificates by a specified percentage or amount, a specified party may be
authorized or required to solicit bids for the purchase of all of the assets of
the trust, or of a sufficient portion of such assets to retire such class or
classes.
8
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The certificates of each series will constitute or evidence ownership of
either --
- - "regular interests" and "residual interests" in the trust, or a designated
portion of the trust, treated as a REMIC under Sections 860A through 860G of
the Code; or
- - certificates in a trust treated as a grantor trust under applicable provisions
of the Code.
Investors are advised to consult their tax advisors and to review "Certain
Federal Income Tax Consequences" in this prospectus and in the prospectus
supplement.
CERTAIN ERISA CONSIDERATIONS
Fiduciaries of retirement plans and certain other employee benefit plans and
arrangements, including individual retirement accounts, individual retirement
annuities, Keogh plans, and collective investment funds and separate individual
retirement accounts in which such plans, accounts, annuities or arrangements are
invested, that are subject to the Employee Retirement Income Security Act of
1974, as amended, Section 4975 of the Internal Revenue Code of 1986, or any
materially similar provisions of federal, state or local law should review with
their legal advisors whether the purchase or holding of certificates could give
rise to a transaction that is prohibited.
LEGAL INVESTMENT
The certificates will constitute "mortgage related securities" for purposes of
the Secondary Mortgage Market Enhancement Act of 1984, as amended, only if
specified in the prospectus supplement. Investors whose investment authority is
subject to legal restrictions should consult their legal advisors to determine
whether and to what extent the certificates constitute legal investments for
them.
RATING
At their respective dates of issuance, each class of certificates will be rated
as of investment grade by one or more nationally recognized statistical rating
agencies.
9
RISK FACTORS
In considering an investment in the certificates of any series, you should
consider carefully the following risk factors and the risk factors in the
prospectus supplement.
THE LIMITED LIQUIDITY OF YOUR CERTIFICATES MAY HAVE AN ADVERSE IMPACT ON YOUR
ABILITY TO SELL YOUR CERTIFICATES.
The certificates of any series may have limited or no liquidity. You may be
forced to bear the risk of investing in the certificates for an indefinite
period of time. In addition, you may have no redemption rights, and the
certificates are subject to early retirement only under certain circumstances.
Lack of a Secondary Market May Limit the Liquidity of Your Certificate. We
cannot assure you that a secondary market for the certificates will develop or,
if it does develop, that it will provide certificateholders with liquidity of
investment or that it will continue for as long as the certificates remain
outstanding.
The prospectus supplement may indicate that an underwriter intends to
establish a secondary market in the certificates, although no underwriter will
be obligated to do so. Any secondary market may provide less liquidity to
investors than any comparable market for securities relating to single-family
mortgage loans. Unless specified in the prospectus supplement, the certificates
will not be listed on any securities exchange.
The Limited Nature of Ongoing Information Regarding Your Certificate May
Adversely Affect Liquidity. The primary source of ongoing information regarding
the certificates, including information regarding the status of the related
mortgage assets and any credit support for the certificates, will be the
periodic reports to certificateholders to be delivered pursuant to the related
pooling and servicing agreement.
We cannot assure you that any additional ongoing information regarding the
certificates will be available through any other source. The limited nature of
such information concerning a series of certificates may adversely affect
liquidity, even if a secondary market for the certificates does develop.
The Liquidity of Your Certificate May Be Affected by External Sources
Including Interest Rate Movement. If a secondary market does develop for the
certificates, the market value of the certificates will be affected by several
factors, including --
- perceived liquidity;
- the anticipated cash flow (which may vary widely depending upon the
prepayment and default assumptions concerning the underlying mortgage
loans); and
- prevailing interest rates.
The price payable at any given time for certain classes of certificates may
be extremely sensitive to small fluctuations in prevailing interest rates. The
relative change in price for a certificate in response to an upward or downward
movement in prevailing interest rates may not necessarily equal the relative
change in price for the certificate in response to an equal but opposite
movement in such rates. Therefore, the sale of certificates by a holder in any
secondary market that may develop may be at a discount from the price paid by
such holder. We are not aware of any source through which price information
about the certificates will be generally available on an ongoing basis.
THE LIMITED ASSETS OF EACH TRUST MAY ADVERSELY IMPACT YOUR ABILITY TO RECOVER
YOUR INVESTMENT IN THE EVENT OF LOSS ON THE UNDERLYING MORTGAGE ASSETS.
Unless specified in the prospectus supplement, neither the certificates nor
the mortgage assets in the trust will be guaranteed or insured by Banc of
America Commercial Mortgage Inc. or any of its affiliates, by any governmental
agency or by any other person or entity. No certificate will represent a claim
against or security interest in the trust funds for any other series. Therefore,
if the related trust fund has insufficient assets to make payments, no other
assets will be available for payment of the deficiency, and the holders of one
or more classes of the certificates will be required to bear the consequent
loss.
10
Certain amounts on deposit from time to time in certain funds or accounts
constituting part of the trust, including the certificate account and any
accounts maintained as credit support, may be withdrawn under certain
conditions, for purposes other than the payment of principal of or interest on
the related series of certificates. On any distribution occurring after losses
or shortfalls in collections on the mortgage assets have been incurred, all or a
portion of the amount of losses or shortfalls in collections on the mortgage
assets will be borne on a disproportionate basis among classes of certificates.
CREDIT SUPPORT IS LIMITED AND MAY NOT BE SUFFICIENT TO PREVENT LOSS ON YOUR
CERTIFICATES.
The prospectus supplement for a series of certificates will describe any
credit support. Such credit support may not cover all potential losses. For
example, credit support may or may not cover loss by reason of fraud or
negligence by a mortgage loan originator or other parties. Any such losses not
covered by credit support may, at least in part, be allocated to one or more
classes of certificates.
A series of certificates may include one or more classes of subordinate
certificates, if provided in the prospectus supplement. Although subordination
is intended to reduce the likelihood of temporary shortfalls and ultimate losses
to holders of senior certificates, 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 related credit support may be exhausted before the principal of
the later-paid classes of certificates of such series has been repaid in full.
The impact of losses and shortfalls experienced with respect to the
mortgage assets may fall primarily upon those classes of certificates having a
later right of payment.
If a form of credit support covers the certificates of more than one series
and losses on the related mortgage assets exceed the amount of such credit
support, it is possible that the holders of certificates of one (or more) such
series such credit support will disproportionately benefit, to the detriment of
the holders of certificates of one (or more) other such series.
The amount of any applicable credit support supporting one or more classes
of certificates will be determined on the basis of criteria established by each
rating agency rating such classes of certificates based on an assumed level of
defaults, delinquencies and losses on the underlying mortgage assets and certain
other factors. However, we cannot assure you that the loss experience on the
related mortgage assets will not exceed such assumed levels. If the losses on
the related mortgage assets do exceed such assumed levels, the holders of one or
more classes of certificates will be required to bear such additional losses.
PREPAYMENTS ON THE UNDERLYING MORTGAGE LOANS WILL AFFECT THE AVERAGE LIFE OF
YOUR CERTIFICATES, AND THE RATE AND TIMING OF THOSE PREPAYMENTS MAY BE HIGHLY
UNPREDICTABLE.
As a result of prepayments on the mortgage loans in the trust, the amount
and timing of distributions of principal and/or interest on the certificates of
the related series may be highly unpredictable. Prepayments on the mortgage
loans in the trust will result in a faster rate of principal payments on one or
more classes of the related series of certificates than if payments on such
mortgage loans were made as scheduled. Therefore, the prepayment experience on
the mortgage loans in the trust may affect the average life of one or more
classes of certificates of the related series.
The rate of principal payments on pools of mortgage loans varies among
pools and from time to time is influenced by a variety of economic, demographic,
geographic, social, tax and legal factors. For example, if prevailing interest
rates fall significantly below the mortgage rates borne by the mortgage loans
included in the trust, principal prepayments on such mortgage loans are likely
to be higher than if prevailing interest rates remain at or above the rates
borne by those mortgage loans. Conversely, if prevailing interest rates rise
significantly above the mortgage rates borne by the mortgage loans included in
the trust, then principal prepayments on such mortgage loans are likely to be
lower than if prevailing interest rates remain at or below the mortgage rates
borne by those mortgage loans.
We cannot assure you what as to the actual rate of prepayment on the
mortgage loans in the trust will be, or that such rate of prepayment will
conform to any model in any prospectus supplement. As a result, depending on
11
the anticipated rate of prepayment for the mortgage loans in the trust, the
retirement of any class of certificates of the related series could occur
significantly earlier or later, and its average life could be significantly
shorter or longer, than expected.
The extent to which prepayments on the mortgage loans in trust ultimately
affect the average life of any class of certificates of the related series will
depend on the terms and provisions of the certificates. A class of certificates
may provide that on any distribution date the holders of the certificates are
entitled to a pro rata share of the prepayments on the mortgage loans in the
trust fund that are distributable on such date.
A class of certificates that entitles the holders to a disproportionately
large share of the prepayments on the mortgage loans in the trust increases the
likelihood of early retirement of such class if the rate of prepayment is
relatively fast. This type of early retirement risk is sometimes referred to as
"call risk."
A class of certificates that entitles its holders to a disproportionately
small share of the prepayments on the mortgage loans in the trust increases the
likelihood of an extended average life of such class if the rate of prepayment
is relatively slow. This type of prolonged retirement risk is sometimes referred
to as "extension risk."
As described in the prospectus supplement, the respective entitlements of
the various classes of certificate-holders of any series to receive payments
(and, in particular, prepayments) of principal of the mortgage loans in the
trust may vary based on the occurrence of certain events (e.g., the retirement
of one or more classes of certificates of such series) or subject to certain
contingencies (e.g., prepayment and default rates with respect to such mortgage
loans).
A series of certificates may include one or more controlled amortization
classes, which will entitle the holders to receive principal distributions
according to a specified principal payment schedule. Although prepayment risk
cannot be eliminated entirely for any class of certificates, a controlled
amortization class will generally provide a relatively stable cash flow so long
as the actual rate of prepayment on the mortgage loans in the trust remains
relatively constant at the rate of prepayment used to establish the specific
principal payment schedule for the certificates. Prepayment risk concerning a
given mortgage asset pool does not disappear, however, and the stability
afforded to a controlled amortization class comes at the expense of one or more
companion classes of the same series.
As described in the prospectus supplement, a companion class may entitle
the holders to a disproportionately large share of prepayments on the mortgage
loans in the trust when the rate of prepayment is relatively fast, and/or may
entitle the holders to a disproportionately small share of prepayments on the
mortgage loans in the trust when the rate of prepayment is relatively slow. A
companion class absorbs some (but not all) of the call risk and/or extension
risk that would otherwise belong to the related controlled amortization class if
all payments of principal of the mortgage loans in the trust were allocated on a
pro rata basis.
CERTIFICATES PURCHASED AT A PREMIUM OR A DISCOUNT WILL BE SENSITIVE TO THE RATE
OF PRINCIPAL PAYMENT.
A series of certificates may include one or more classes offered at a
premium or discount. Yields on such classes of certificates will be sensitive,
and in some cases extremely sensitive, to prepayments on the mortgage loans in
the trust fund. If the amount of interest payable with respect to a class is
disproportionately large as compared to the amount of principal, as with certain
classes of stripped interest certificates, a holder might fail to recover its
original investment under some prepayment scenarios. The yield to maturity of
any class of certificates may vary from the anticipated yield due to the degree
to which the certificates are purchased at a discount or premium and the amount
and timing of distributions.
You should consider, in the case of any certificate purchased at a
discount, the risk that a slower than anticipated rate of principal payments on
the mortgage loans could result in an actual yield to such investor that is
lower than the anticipated yield. In the case of any certificate purchased at a
premium, you should consider the risk that a faster than anticipated rate of
principal payments could result in an actual yield to such investor that is
lower than the anticipated yield.
12
THE NATURE OF RATINGS ARE LIMITED AND WILL NOT GUARANTEE THAT YOU WILL RECEIVE
ANY PROJECTED RETURN ON YOUR CERTIFICATES.
Any rating assigned by a rating agency to a class of certificates will
reflect only its assessment of the likelihood that holders of the certificates
will receive payments to which the certificateholders are entitled under the
related pooling and servicing agreement. Such rating will not constitute an
assessment of the likelihood that --
- principal prepayments on the related mortgage loans will be made;
- the degree to which the rate of such prepayments might differ from that
originally anticipated; or
- the likelihood of early optional termination of the trust.
Any rating will not address the possibility that prepayment of the mortgage
loans at a higher or lower rate than anticipated by an investor may cause such
investor to experience a lower than anticipated yield or that an investor
purchasing a certificate at a significant premium might fail to recover its
initial investment under certain prepayment scenarios. Therefore, a rating
assigned by a rating agency does not guarantee or ensure the realization of any
anticipated yield on a class of certificates.
The amount, type and nature of credit support given a series of
certificates will be determined on the basis of criteria established by each
rating agency rating classes of the certificates of such series. Those criteria
are sometimes based upon an actuarial analysis of the behavior of mortgage loans
in a larger group. There can be no assurance that the historical data supporting
any such actuarial analysis will accurately reflect future experience, or that
the data derived from a large pool of mortgage loans will accurately predict the
delinquency, foreclosure or loss experience of any particular pool of mortgage
loans. In other cases, such criteria may be based upon determinations of the
values of the properties that provide security for the mortgage loans. However,
we cannot assure you that those values will not decline in the future. As a
result, the credit support required in respect of the certificates of any series
may be insufficient to fully protect the holders of such certificates from
losses on the related mortgage asset pool.
CERTAIN FACTORS AFFECTING DELINQUENCY, FORECLOSURE AND LOSS OF THE MORTGAGE
LOANS.
Mortgage loans made on the security of multifamily or commercial property
may have a greater likelihood of delinquency and foreclosure, and a greater
likelihood of loss than loans made on the security of an owner-occupied
single-family property. The ability of a borrower to repay a loan secured by an
income-producing property typically is dependent primarily upon the successful
operation of such property rather than upon the existence of independent income
or assets of the borrower. Therefore, the value of an income-producing property
is directly related to the net operating income derived from such property.
If the net operating income of the property is reduced (for example, if
rental or occupancy rates decline or real estate tax rates or other operating
expenses increase), the borrower's ability to repay the loan may be impaired. A
number of the mortgage loans may be secured by liens on owner-occupied
properties or on properties leased to a single tenant or in which only a few
tenants produce a material amount of the rental income. As the primary component
of the net operating income of a property, rental income (and maintenance
payments from tenant stockholders of a Cooperative) and the value of any
property are subject to the vagaries of the applicable real estate market and/or
business climate. Properties typically leased, occupied or used on a short-term
basis, such as health care-related facilities, hotels and motels, and
mini-warehouse and self-storage facilities, tend to be affected more rapidly by
changes in market or business conditions than do properties leased, occupied or
used for longer periods, such as (typically) warehouses, retail stores, office
buildings and industrial plants. Commercial Properties may be secured by
owner-occupied properties or properties leased to a single tenant. Therefore, a
decline in the financial condition of the borrower or a single tenant may have a
disproportionately greater effect on the net operating income from such
properties than would be the case with respect to properties with multiple
tenants.
Changes in the expense components of the net operating income of a property
due to the general economic climate or economic conditions in a locality or
industry segment, such as (1) increases in interest rates, real estate
13
and personal property tax rates and other operating expenses including energy
costs, (2) changes in governmental rules, regulations and fiscal policies,
including environmental legislation, and (3) acts of God may also affect the net
operating income and the value of the property and the risk of default on the
related mortgage loan. In some cases leases of properties may provide that the
lessee, rather than the mortgagor, is responsible for payment of certain of
these expenses. However, because leases are subject to default risks as well as
when a tenant's income is insufficient to cover its rent and operating expenses,
the existence of such "net of expense" provisions will only temper, not
eliminate, the impact of expense increases on the performance of the related
mortgage loan.
Additional considerations may be presented by the type and use of a
particular property. For instance, properties that operate as hospitals and
nursing homes are subject to significant governmental regulation of the
ownership, operation, maintenance and financing of health care institutions.
Hotel, motel and restaurant properties are often operated pursuant to franchise,
management or operating agreements that may be terminable by the franchisor or
operator. The transferability of a hotel's or restaurant's operating, liquor and
other licenses upon a transfer of the hotel or the restaurant, whether through
purchase or foreclosure, is subject to local law requirements.
In addition, the concentration of default, foreclosure and loss risks in
mortgage loans in the trust will generally be greater than for pools of
single-family loans because mortgage loans in the trust generally will consist
of a smaller number of higher balance loans than would a pool of single-family
loans of comparable aggregate unpaid principal balance.
Limited Recourse Nature of the Mortgage Loans May Make Recovery Difficult
in the Event that a Mortgage Loan Defaults. We anticipate that some or all of
the mortgage loans included in any trust fund will be nonrecourse loans or loans
for which recourse may be restricted or unenforceable. In this type of mortgage
loan, recourse in the event of borrower default will be limited to the specific
real property and other assets that were pledged to secure the mortgage loan.
However, even with respect to those mortgage loans that provide for recourse
against the borrower and its assets, we cannot assure you that enforcement of
such recourse provisions will be practicable, or that the assets of the borrower
will be sufficient to permit a recovery concerning a defaulted mortgage loan in
excess of the liquidation value of the related property.
Cross-Collateralization Provisions May Have Limitations on Their
Enforceability. A mortgage pool may include groups of mortgage loans which are
cross-collateralized and cross-defaulted. These arrangements are designed
primarily to ensure that all of the collateral pledged to secure the respective
mortgage loans in a cross-collateralized group. Cash flows generated on these
type of mortgage loans are available to support debt service on, and ultimate
repayment of, the total indebtedness. These arrangements seek to reduce the risk
that the inability of one or more of the mortgaged properties securing any such
group of mortgage loans to generate net operating income sufficient to pay debt
service will result in defaults and ultimate losses.
If the properties securing a group of mortgage loans which are
cross-collateralized are not all owned by the same entity, creditors of one or
more of the related borrowers could challenge the cross-collateralization
arrangement as a fraudulent conveyance. Under federal and state fraudulent
conveyance statutes, the incurring of an obligation or the transfer of property
by a person will be subject to avoidance under certain circumstances if the
person did not receive fair consideration or reasonably equivalent value in
exchange for such obligation or transfer and was then insolvent, was rendered
insolvent by such obligation or transfer or had unreasonably small capital for
its business. A creditor seeking to enforce remedies against a property subject
to such cross-collateralization to repay such creditor's claim against the
related borrower could assert that --
- such borrower was insolvent at the time the cross-collateralized mortgage
loans were made; and
- such borrower did not, when it allowed its property to be encumbered by a
lien securing the indebtedness represented by the other mortgage loans in
the group of cross-collateralized mortgage loans, receive fair
consideration or reasonably equivalent value for, in effect,
"guaranteeing" the performance of the other borrowers.
Although the borrower making such "guarantee" will be receiving
"guarantees" from each of the other borrowers in return, we cannot assure you
that such exchanged "guarantees" would be found to constitute fair consideration
or be of reasonably equivalent value.
14
The cross-collateralized mortgage loans may be secured by mortgage liens on
properties located in different states. Because of various state laws governing
foreclosure or the exercise of a power of sale and because foreclosure actions
are usually brought in state court, and the courts of one state cannot exercise
jurisdiction over property in another state, it may be necessary upon a default
under any such mortgage loan to foreclose on the related mortgaged properties in
a particular order rather than simultaneously in order to ensure that the lien
of the related mortgages is not impaired or released.
Increased Risk of Default Associated With Balloon Payments. Some of the
mortgage loans included in the trust may be nonamortizing or only partially
amortizing over their terms to maturity. These types of mortgage loans will
require substantial payments of principal and interest (that is, balloon
payments) at their stated maturity. These loans involve a greater likelihood of
default than self-amortizing loans because the ability of a borrower to make a
balloon payment typically will depend upon its ability either to refinance the
loan or to sell the related property. The ability of a borrower to accomplish
either of these goals will be affected by --
- the value of the related property;
- the level of available mortgage rates at the time of sale or refinancing;
- the borrower's equity in the related property;
- the financial condition and operating history of the borrower and the
related property;
- tax laws;
- rent control laws (pertaining to certain residential properties);
- Medicaid and Medicare reimbursement rates (pertaining to hospitals and
nursing homes);
- prevailing general economic conditions; and
- the availability of credit for loans secured by multifamily or commercial
property.
Neither Banc of America Commercial Mortgage Inc. nor any of its affiliates
will be required to refinance any mortgage loan.
As specified in the prospectus supplement, the master servicer or the
special servicer will be permitted (within prescribed limits) to extend and
modify mortgage loans that are in default or as to which a payment default is
imminent. Although the master servicer or the special servicer generally will be
required to determine that any such extension or modification is reasonably
likely to produce a greater recovery than liquidation, taking into account the
time value of money, we cannot assure you that any such extension or
modification will in fact increase the present value of receipts from or
proceeds of the affected mortgage loans.
The Lender Under a Mortgage Loan May Have Difficulty Collecting Rents Upon
the Default and/or Bankruptcy of the Related Borrower. Each mortgage loan
included in the trust secured by property that is subject to leases typically
will be secured by an assignment of leases and rents. Under such an assignment,
the mortgagor assigns to the mortgagee its right, title and interest as lessor
under the leases of the related property, and the income derived, as further
security for the related mortgage loan, while retaining a license to collect
rents for so long as there is no default. If the borrower defaults, the license
terminates and the lender is entitled to collect rents. Some state laws may
require that the lender take possession of the property and obtain a judicial
appointment of a receiver before becoming entitled to collect the rents. In
addition, if bankruptcy or similar proceedings are commenced by or in respect of
the borrower, the lender's ability to collect the rents may be adversely
affected.
The Enforceability of Due-on-Sale and Debt-Acceleration Clauses May Be
Limited in Certain Situations. Mortgages may contain a due-on-sale clause, which
permits the lender to accelerate the maturity of the mortgage loan if the
borrower sells, transfers or conveys the related property or its interest in the
property. Mortgages also may include a debt-acceleration clause, which permits
the lender to accelerate the debt upon a monetary or nonmonetary 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
15
acceleration of the indebtedness would be inequitable or unjust or the
circumstances would render the acceleration unconscionable.
Adverse Environmental Conditions May Subject a Mortgage Loan to Additional
Risk. Under the laws of certain states, contamination of real property may give
rise to a lien on the property to assure the costs of cleanup. In several
states, such a lien has priority over an existing mortgage lien on such
property. In addition, under the laws of some states and under the federal
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended, a lender may be liable, as an "owner" or "operator", for costs of
addressing releases or threatened releases of hazardous substances at a
property, if agents or employees of the lender have become sufficiently involved
in the operations of the borrower, regardless of whether the environmental
damage or threat was caused by the borrower or a prior owner. A lender also
risks such liability on foreclosure of the mortgage.
Certain Special Hazard Losses May Subject Your Certificates to an Increased
Risk of Loss. Unless otherwise specified in a prospectus supplement, the master
servicer and special servicer for the trust will be required to cause the
borrower on each mortgage loan in the trust to maintain such insurance coverage
in respect of the property as is required under the related mortgage, including
hazard insurance. As described in the prospectus supplement, the master servicer
and the special servicer may satisfy its obligation to cause hazard insurance to
be maintained with respect to any property through acquisition of a blanket
policy.
In general, the standard form of fire and extended coverage policy covers
physical damage to or destruction of the improvements of the property by fire,
lightning, explosion, smoke, windstorm and hail, and riot, strike and civil
commotion, subject to the conditions and exclusions specified in each policy.
Although the policies covering the properties will be underwritten by different
insurers under different state laws in accordance with different applicable
state forms, and therefore will not contain identical terms and conditions, most
such policies typically do not cover any physical damage resulting from war,
revolution, governmental actions, floods and other water-related causes, earth
movement (including earthquakes, landslides and mudflows), wet or dry rot,
vermin, domestic animals and certain other kinds of risks. Unless the mortgage
specifically requires the mortgagor to insure against physical damage arising
from such causes, then, to the extent any consequent losses are not covered by
credit support, such losses may be borne, at least in part, by the holders of
one or more classes of certificates of the related series.
INCLUSION OF DELINQUENT MORTGAGE LOANS IN A MORTGAGE ASSET POOL.
If provided in the prospectus supplement, the trust fund for a particular
series of certificates may include mortgage loans that are past due. As
specified in the related prospectus supplement, the servicing of such mortgage
loans will be performed by the special servicer. The same entity may act as both
master servicer and special servicer. Credit support provided with respect to a
particular series of certificates may not cover all losses related to such
delinquent mortgage loans, and investors should consider the risk that the
inclusion of such mortgage loans in the trust fund may adversely affect the rate
of defaults and prepayments concerning the subject mortgage asset pool and the
yield on the certificates of such series.
PROSPECTUS SUPPLEMENT
To the extent appropriate, the prospectus supplement relating to each
series of offered certificates will contain --
- a description of the class or classes of such offered certificates,
including the payment provisions with respect to each such class, the
aggregate principal amount (if any) of each such class, the rate at which
interest accrues from time to time (if at all), with respect to each such
class or the method of determining such rate, and whether interest with
respect to each such class will accrue from time to time on its aggregate
principal amount (if any) or on a specified notional amount (if at all);
- information with respect to any other classes of certificates of the same
series;
- the respective dates on which distributions are to be made;
- information as to the assets, including the mortgage assets, constituting
the related trust fund;
16
- the circumstances, if any, under which the related trust fund may be
subject to early termination;
- additional information with respect to the method of distribution of such
offered certificates;
- whether one or more REMIC elections will be made and the designation of
the "regular interests" and "residual interests" in each REMIC to be
created and the identity of the person responsible for the various
tax-related duties in respect of each REMIC to be created;
- the initial percentage ownership interest in the related trust fund to be
evidenced by each class of certificates of such series;
- information concerning the trustee of the related trust fund;
- if the related trust fund includes mortgage loans, information concerning
the master servicer and any special servicer of such mortgage loans and
the circumstances under which all or a portion, as specified, of the
servicing of a mortgage loan would transfer from the master servicer to
the special servicer;
- information as to the nature and extent of subordination of any class of
certificates of such series, including a class of offered certificates;
and
- whether such offered certificates will be initially issued in definitive
or book-entry form.
CAPITALIZED TERMS USED IN THIS PROSPECTUS
From time to time we use capitalized terms in this prospectus. Each of
those capitalized terms will have the meaning assigned to it in the "Glossary"
attached to this prospectus.
17
DESCRIPTION OF THE TRUST FUNDS
GENERAL
The primary assets of each trust fund will consist of mortgage assets which
will include --
- various types of multifamily or commercial mortgage loans;
- mortgage participations, pass-through certificates or other
mortgage-backed securities that evidence interests in, or that are
secured by pledges of, one or more of various types of multifamily or
commercial mortgage loans; or
- a combination of such mortgage loans and mortgage backed securities.
We will establish each trust fund and select each mortgage asset. We will
purchase mortgage assets to be included in the trust fund and select each
mortgage asset from the Mortgage Asset Seller who may not have originated the
mortgage asset or issued the MBS and may be our affiliate.
We will not insure or guaranty the mortgage assets nor will any of its
affiliates or, unless otherwise provided in the related prospectus supplement,
by any governmental agency or instrumentality or by any other person. The
discussion below under the heading "-- Mortgage Loans", unless otherwise noted,
applies equally to mortgage loans underlying any MBS included in a particular
trust fund.
MORTGAGE LOANS
General. The mortgage loans will be evidenced by promissory notes
(referred to in this prospectus as mortgage notes) notes secured by mortgages,
deeds of trust or similar security instruments (referred to in this prospectus
as mortgages) that create first or junior liens on fee or leasehold estates in
properties consisting of --
- residential properties consisting of five or more rental or
cooperatively-owned dwelling units in high-rise, mid-rise or garden
apartment buildings or other residential structures; or
- office buildings, retail stores and establishments, hotels or motels,
nursing homes, hospitals or other health care-related facilities,
recreational vehicle and mobile home parks, warehouse facilities,
mini-warehouse facilities, self-storage facilities, industrial plants,
parking lots, entertainment or sports arenas, restaurants, marinas, mixed
use or various other types of income-producing properties or unimproved
land.
These multifamily properties may include mixed commercial and residential
structures and apartment buildings owned by private cooperative housing
corporations. However, no one of the following types of commercial properties
will represent security for a material concentration of the mortgage loans in
any trust fund, based on principal balance at the time such trust fund is
formed: (1) restaurants; (2) entertainment or sports arenas; (3) marinas; or (4)
nursing homes, hospitals or other health care-related facilities. Unless
otherwise specified in the related prospectus supplement, each mortgage will
create a first priority mortgage lien on a borrower's fee estate in a mortgaged
property. If a mortgage creates a lien on a borrower's leasehold estate in a
property, then, unless otherwise specified in the related prospectus supplement,
the term of any such leasehold will exceed the term of the mortgage note by at
least ten years. Unless otherwise specified in the related prospectus
supplement, each mortgage loan will have been originated by a person other than
us; however, such person may be or may have been our affiliate.
If so provided in the related prospectus supplement, mortgage assets for a
series of certificates may include mortgage loans secured by junior liens, and
the loans secured by the related senior liens may not be included in the
mortgage pool. The primary risk to holders of mortgage loans secured by junior
liens is the possibility that adequate funds will not be received in connection
with a foreclosure of the related senior liens to satisfy fully both the senior
liens and the mortgage loan. In the event that a holder of a senior lien
forecloses on a mortgaged property, the proceeds of the foreclosure or similar
sale will be applied first to the payment of court costs and fees in connection
with the foreclosure, second to real estate taxes, third in satisfaction of all
principal, interest, prepayment or acceleration penalties, if any, and any other
sums due and owing to the holder of the senior liens. The claims of the holders
of the senior liens will be satisfied in full out of proceeds of the liquidation
of the
18
related mortgaged property, if such proceeds are sufficient, before the trust
fund as holder of the junior lien receives any payments in respect of the
mortgage loan. If the master servicer were to foreclose on any mortgage loan, it
would do so subject to any related senior liens. In order for the debt related
to such mortgage loan to be paid in full at such sale, a bidder at the
foreclosure sale of such mortgage loan would have to bid an amount sufficient to
pay off all sums due under the mortgage loan and any senior liens or purchase
the mortgaged property subject to such senior liens. In the event that such
proceeds from a foreclosure or similar sale of the related mortgaged property
are insufficient to satisfy all senior liens and the mortgage loan in the
aggregate, the trust fund, as the holder of the junior lien, and, accordingly,
holders of one or more classes of the certificates of the related series bear --
- the risk of delay in distributions while a deficiency judgment against
the borrower is obtained; and
- the risk of loss if the deficiency judgment is not obtained and
satisfied. Moreover, deficiency judgments may not be available in certain
jurisdictions, or the particular mortgage loan may be a nonrecourse loan,
which means that, absent special facts, recourse in the case of default
will be limited to the mortgaged property and such other assets, if any,
that were pledged to secure repayment of the mortgage loan.
If so specified in the related prospectus supplement, the mortgage assets
for a particular series of certificates may include mortgage loans that are
delinquent as of the date such certificates are issued. In that case, the
related prospectus supplement will set forth, as to each such mortgage loan,
available information as to the period of such delinquency, any forbearance
arrangement then in effect, the condition of the related mortgaged property and
the ability of the mortgaged property to generate income to service the mortgage
debt.
Default and Loss Considerations with Respect to the Mortgage
Loans. Mortgage loans secured by liens on income-producing properties are
substantially different from loans made on the security of owner-occupied
single-family homes. The repayment of a loan secured by a lien on an
income-producing property is typically dependent upon the successful operation
of such property (that is, its ability to generate income). Moreover, as noted
above, some or all of the mortgage loans included in a particular trust fund may
be nonrecourse loans.
Lenders typically look to the Debt Service Coverage Ratio of a loan secured
by income-producing property as an important factor in evaluating the likelihood
of default on such a loan. The Net Operating Income of a mortgaged property will
generally fluctuate over time and may or may not be sufficient to cover debt
service on the related mortgage loan at any given time. As the primary source of
the operating revenues of a nonowner occupied, income-producing property, rental
income (and, with respect to a mortgage loan secured by a cooperative apartment
building, maintenance payments from tenant-stockholders of a Cooperative) may be
affected by the condition of the applicable real estate market and/or area
economy. In addition, properties typically leased, occupied or used on a
short-term basis, such as certain 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 typically
leased for longer periods, such as warehouses, retail stores, office buildings
and industrial plants. Commercial Properties may be owner-occupied or leased to
a small number of tenants. Thus, the Net Operating Income of such a mortgaged
property may depend substantially on the financial condition of the borrower or
a tenant, and mortgage loans secured by liens on such properties may pose a
greater likelihood of default and loss than loans secured by liens on
Multifamily Properties or on multi-tenant Commercial Properties.
Increases in operating expenses due to the general economic climate or
economic conditions in a locality or industry segment, such as increases in
interest rates, real estate tax rates, energy costs, labor costs and other
operating expenses, and/or to changes in governmental rules, regulations and
fiscal policies, may also affect the likelihood of default on a mortgage loan.
As may be further described in the related prospectus supplement, in some cases
leases of mortgaged properties may provide that the lessee, rather than the
borrower/landlord, is responsible for payment of operating expenses. However,
the existence of such "net of expense" provisions will result in stable Net
Operating Income to the borrower/landlord only to the extent that the lessee is
able to absorb operating expense increases while continuing to make rent
payments.
Lenders also look to the Loan-to-Value Ratio of a mortgage loan as a factor
in evaluating the likelihood of loss if a property must be liquidated following
a default. The lower the Loan-to-Value Ratio, the greater the
19
percentage of the borrower's equity in a mortgaged property, and thus (a) the
greater the incentive of the borrower to perform under the terms of the related
mortgage loan (in order to protect such equity) and (b) the greater the cushion
provided to the lender against loss on liquidation following a default.
Loan-to-Value Ratios will not necessarily constitute an accurate measure of
the likelihood of liquidation loss in a pool of mortgage loans. For example, the
value of a mortgaged property as of the date of initial issuance of the related
series of certificates may be less than the Value determined at loan
origination, and will likely continue to fluctuate from time to time based upon
certain factors including changes in economic conditions and the real estate
market. Moreover, even when current, an appraisal is not necessarily a reliable
estimate of value. Appraised values of income-producing properties are generally
based on --
- the market comparison method (recent resale value of comparable
properties at the date of the appraisal), the cost replacement method
(the cost of replacing the property at such date);
- the income capitalization method (a projection of value based upon the
property's projected net cash flow),
- or upon a selection from or interpolation of the values derived from such
methods.
Each of these appraisal methods can present analytical difficulties. It is
often difficult to find truly comparable properties that have recently been
sold; the replacement cost of a property may have little to do with its current
market value; and income capitalization is inherently based on inexact
projections of income and expense and the selection of an appropriate
capitalization rate and discount rate. Where more than one of these appraisal
methods are used and provide significantly different results, an accurate
determination of value and, correspondingly, a reliable analysis of the
likelihood of default and loss, is even more difficult.
Although there may be multiple methods for determining the value of a
mortgaged property, value will in all cases be affected by property performance.
As a result, if a mortgage loan defaults because the income generated by the
related mortgaged property is insufficient to cover operating costs and expenses
and pay debt service, then the value of the mortgaged property will reflect such
and a liquidation loss may occur.
While we believe that the foregoing considerations are important factors
that generally distinguish loans secured by liens on income-producing real
estate from single-family mortgage loans, there can be no assurance that all of
such factors will in fact have been prudently considered by the originators of
the mortgage loans, or that, for a particular mortgage loan, they are complete
or relevant. See "Risk Factors -- Certain Factors Affecting Delinquency,
Foreclosure and Loss of the Mortgage Loans -- General" and "-- Certain Factors
Affecting Delinquency, Foreclosure and Loss of the Mortgage Loans -- Increased
Risk of Default Associated With Balloon Payments".
Payment Provisions of the Mortgage Loans. All of the mortgage loans will
(1) have had original terms to maturity of not more than 40 years and (2)
provide for scheduled payments of principal, interest or both, to be made on
specified dates that occur monthly, quarterly, semi-annually or annually. A
mortgage loan may --
- provide for no accrual of interest or for accrual of interest at an
interest rate that is fixed over its term or that adjusts from time to
time, or that may be converted at the borrower's election from an
adjustable to a fixed Mortgage Rate, or from a fixed to an adjustable
Mortgage Rate;
- provide for level payments to maturity or for payments that adjust from
time to time to accommodate changes in its interest rate or to reflect
the occurrence of certain events, and may permit negative amortization;
- may be fully amortizing or may be partially amortizing or nonamortizing,
with a balloon payment due on its stated maturity date;
- may prohibit over its term or for a certain period prepayments and/or
require payment of a premium or a yield maintenance payment in connection
with certain prepayments, in each case as described in the related
prospectus supplement.
20
A mortgage loan may also contain a provision that entitles the lender to a
share of appreciation of the related mortgaged property, or profits realized
from the operation or disposition of such mortgaged property or the benefit, if
any, resulting from the refinancing of the mortgage loan, as described in the
related prospectus supplement. See "Certain Legal Aspects of the Mortgage
Loans -- Default Interest and Limitations on Prepayments" in the prospectus
regarding the enforceability of prepayment premiums and yield maintenance
charges.
Mortgage Loan Information in Prospectus Supplements. Each prospectus
supplement will contain certain information pertaining to the mortgage loans in
the related trust fund, which, to the extent then applicable, will generally
include the following:
- the aggregate outstanding principal balance and the largest, smallest and
average outstanding principal balance of the mortgage loans;
- the type or types of property that provide security for repayment of the
mortgage loans;
- the earliest and latest origination date and maturity date of the
mortgage loans;
- the original and remaining terms to maturity of the mortgage loans, or
the respective ranges of such terms to maturity, and the weighted average
original and remaining terms to maturity of the mortgage loans;
- the Loan-to-Value Ratios of the mortgage loans (either at origination or
as of a more recent date), or the range of the Loan-to-Value-Ratios, and
the weighted average of such Loan-to-Value Ratios;
- the Mortgage Rates borne by the mortgage loans, or the range of the
Mortgage Rate, and the weighted average Mortgage Rate borne by the
mortgage loans;
- with respect to mortgage loans with adjustable Mortgage Rates, the index
or indices upon which such adjustments are based, the adjustment dates,
the range of gross margins and the weighted average gross margin, and any
limits on Mortgage Rate adjustments at the time of any adjustment and
over the life of such mortgage loan;
- information regarding the payment characteristics of the mortgage loans,
including, without limitation, balloon payment and other amortization
provisions, Lock-out Periods and Prepayment Premiums,
- the Debt Service Coverage Ratios of the mortgage loans (either at
origination or as of a more recent date), or the range Debt Service
Coverage Ratios, and the weighted average of such Debt Service Coverage
Ratios, and
- the geographic distribution of the mortgaged properties on a
state-by-state basis. In appropriate cases, the related prospectus
supplement will also contain certain information available us that
pertains to the provisions of leases and the nature of tenants of the
mortgaged properties. If we are unable to provide the specific
information described above at the time any offered certificates of a
series are initially offered, more general information of the nature
described above will be provided in the related prospectus supplement,
and specific information will be set forth in a report which will be
available to purchasers of those certificates at or before their initial
issuance and will be filed as part of a Current Report on Form 8-K with
the Securities and Exchange Commission within fifteen days following
their issuance.
If any mortgage loan, or group of related mortgage loans, constitutes a
concentration of credit risk, financial statements or other financial
information with respect to the related mortgaged property or mortgaged
properties will be included in the related prospectus supplement.
If and to the extent available and relevant to an investment decision in
the offered certificates of the related series, information regarding the
prepayment experience of a master servicer's multifamily and/or commercial
mortgage loan servicing portfolio will be included in the related prospectus
supplement. However, many servicers do not maintain records regarding such
matters or, at least, not in a format that can be readily aggregated. In
addition, the relevant characteristics of a master servicer's servicing
portfolio may be so materially different from those of the related mortgage
asset pool that such prepayment experience would not be meaningful to an
investor. For example, differences in geographic dispersion, property type
and/or loan terms (e.g., mortgage rates, terms to
21
maturity and/or prepayment restrictions) between the two pools of loans could
render the master servicer's prepayment experience irrelevant. Because of the
nature of the assets to be serviced and administered by a special servicer, no
comparable prepayment information will be presented with respect to the special
servicer's multifamily and/or commercial mortgage loan servicing portfolio.
MBS
MBS may include (1) private-label (that is, not issued, insured or
guaranteed by the United States or any agency or instrumentality of the United
States) mortgage participations, mortgage pass-through certificates or other
mortgage-backed securities or (2) certificates issued and/or insured or
guaranteed by the Federal Home Loan Mortgage Corporation, the Federal National
Mortgage Association, the Governmental National Mortgage Association or the
Federal Agricultural Mortgage Corporation, provided that, unless otherwise
specified in the related prospectus supplement, each MBS will evidence an
interest in, or will be secured by a pledge of, mortgage loans that conform to
the descriptions of the mortgage loans contained in this prospectus.
Except in the case of a pro rata mortgage participation in a single
mortgage loan or a pool of mortgage loans, each MBS included in a mortgage asset
pool: (a) either will (1) have been previously registered under the Securities
Act of 1933, as amended, (2) be exempt from such registration requirements or
(3) have been held for at least the holding period specified in Rule 144(k)
under the Securities Act of 1933, as amended; and (b) will have been acquired
(other than from us or any of our affiliates) in bona fide secondary market
transactions.
Any MBS will have been issued pursuant to a MBS agreement which is a
participation and servicing agreement, a pooling and servicing agreement, an
indenture or similar agreement. The issuer of the MBS and/or the servicer of the
underlying mortgage loans will be parties to the MBS agreement, generally
together with a trustee or, in the alternative, with the original purchaser or
purchasers of the MBS.
The MBS may have been issued in one or more classes with characteristics
similar to the classes of the offered certificates described in this prospectus.
Distributions in respect of the MBS will be made by the issuer of the MBS, the
servicer of the MBS, or the trustee of the MBS agreement or the MBS Trustee on
the dates specified in the related prospectus supplement. The Issuer of the MBS
or the MBS Servicer or another person specified in the related prospectus
supplement may have the right or obligation to repurchase or substitute assets
underlying the MBS after a certain date or under other circumstances specified
in the related prospectus supplement.
Reserve funds, subordination or other credit support similar to that
described for the offered certificates under "Description of Credit Support" may
have been provided with respect to the MBS. The type, characteristics and amount
of such credit support, if any, will be a function of the characteristics of the
underlying mortgage loans and other factors and generally will have been
established on the basis of the requirements of any rating agency that may have
assigned a rating to the MBS, or by the initial purchasers of the MBS.
The prospectus supplement for a series of certificates that evidence
interests in MBS will specify, to the extent available --
- the aggregate approximate initial and outstanding principal amount(s) and
type of the MBS to be included in the trust fund;
- the original and remaining term(s) to stated maturity of the MBS, if
applicable;
- the pass-through or bond rate(s) of the MBS or the formula for
determining such rate(s);
- the payment characteristics of the MBS;
- the issuer of the MBS, Servicer of the MBS and trustee of the MBS, as
applicable, of each of the MBS;
- a description of the related credit support, if any;
- the circumstances under which the related underlying mortgage loans, or
the MBS themselves, may be purchased prior to their maturity;
- the terms on which mortgage loans may be substituted for those originally
underlying the MBS;
22
- the type of mortgage loans underlying the MBS and, to the extent
available and appropriate under the circumstances, such other information
in respect of the underlying mortgage loans described under "-- Mortgage
Loans -- Mortgage Loan Information in Prospectus Supplements"; and
- the characteristics of any cash flow agreements that relate to the MBS.
CERTIFICATE ACCOUNTS
Each trust fund will include one or more accounts established and
maintained on behalf of the certificateholders into which all payments and
collections received or advanced with respect to the mortgage assets and other
assets in the trust fund will be deposited to the extent described in this
prospectus and in the related prospectus supplement. See "The Pooling and
Servicing Agreements -- Certificate Account".
CREDIT SUPPORT
If so provided in the prospectus supplement for a series of certificates,
partial or full protection against certain defaults and losses on the mortgage
assets in the related trust fund may be provided to one or more classes of
certificates of such series in the form of subordination of one or more other
classes of certificates of such series or by one or more other types of credit
support, such as a letter of credit, insurance policy, guarantee or reserve
fund, among others, or a combination of subordination and credit support. The
amount and types of credit support, the identity of the entity providing it (if
applicable) and related information with respect to each type of credit support,
if any, will be set forth in the prospectus supplement for a series of
certificates. See "Risk Factors -- Credit Support Limitations" and "Description
of Credit Support".
CASH FLOW AGREEMENTS
If so provided in the prospectus supplement for a series of certificates,
the related trust fund may include guaranteed investment contracts pursuant to
which moneys held in the funds and accounts established for such series will be
invested at a specified rate. The related trust fund may also include certain
other agreements, such as interest rate exchange agreements, interest rate cap
or floor agreements, or other agreements designed to reduce the effects of
interest rate fluctuations on the mortgage assets 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 and provisions relating to the termination of the cash flow agreement,
will be described in the related prospectus supplement. The related prospectus
supplement will also identify the obligor under any such cash flow agreement.
YIELD AND MATURITY CONSIDERATIONS
GENERAL
The yield on any offered certificate will depend on the price paid by the
certificateholder, the pass-through rate of the certificate and the amount and
timing of distributions on the Certificate. See "Risk Factors -- Effect of
Prepayments on Average Life of Certificates". The following discussion
contemplates a trust fund that consists solely of mortgage loans. While the
characteristics and behavior of mortgage loans underlying an MBS can generally
be expected to have the same effect on the yield to maturity and/or weighted
average life of a class of certificates as will the characteristics and behavior
of comparable mortgage loans, the effect may differ due to the payment
characteristics of the MBS. If a trust fund includes MBS, the related prospectus
supplement will discuss the effect, if any, that the payment characteristics of
the MBS may have on the yield to maturity and weighted average lives of the
offered certificates of the related series.
PASS-THROUGH RATE
The certificates of any class within a series may have a fixed, variable or
adjustable pass-through rate, which may or may not be based upon the interest
rates borne by the mortgage loans in the related trust fund.
23
The prospectus supplement with respect to any series of certificates will
specify the pass-through rate for each class of offered certificates of such
series or, in the case of a class of offered certificates with a variable or
adjustable pass-through rate, the method of determining the pass-through rate;
the effect, if any, of the prepayment of any mortgage loan on the pass-through
rate of one or more classes of offered certificates; and whether the
distributions of interest on the offered certificates of any class will be
dependent, in whole or in part, on the performance of any obligor under a cash
flow agreement.
PAYMENT DELAYS
With respect to any series of certificates, a period of time will elapse
between the date upon which payments on the mortgage loans in the related trust
fund are due and the Distribution Date on which such payments are passed through
to certificateholders. That delay will effectively reduce the yield that would
otherwise be produced if payments on such mortgage loans were distributed to
certificateholders on the date they were due.
CERTAIN SHORTFALLS IN COLLECTIONS OF INTEREST
When a principal prepayment in full or in part is made on a mortgage loan,
the borrower is generally charged interest on the amount of such prepayment only
through the date of such prepayment, instead of through the Due Date for the
next succeeding scheduled payment. However, interest accrued on any series of
certificates and distributable on any Distribution Date will generally
correspond to interest accrued on the mortgage loans to their respective Due
Dates during the related Due Period. If a prepayment on any mortgage loan is
distributable to Certificateholders on a particular Distribution Date, but such
prepayment is not accompanied by interest to the Due Date for such mortgage loan
in the related Due Period, then the interest charged to the borrower (net of
servicing and administrative fees) may be less than the corresponding amount of
interest accrued and otherwise payable on the certificates of the related
series. If and to the extent that any such shortfall is allocated to a class of
offered certificates, the yield will be adversely affected. The prospectus
supplement for each series of certificates will describe the manner in which any
such shortfalls will be allocated among the classes of such certificates. The
related prospectus supplement will also describe any amounts available to offset
such shortfalls.
YIELD AND PREPAYMENT CONSIDERATIONS
A certificate's yield to maturity will be affected by the rate of principal
payments on the mortgage loans in the related trust fund and the allocation the
principal payments to reduce the principal balance (or notional amount, if
applicable) of such certificate. The rate of principal payments on the mortgage
loans in any trust fund will in turn be affected by the amortization schedules
of the mortgage loans (which, in the case of mortgage loans, may change
periodically to accommodate adjustments to the corresponding Mortgage Rates),
the dates on which any balloon payments are due, and the rate of principal
prepayments (including for this purpose, voluntary prepayments by borrowers and
also prepayments resulting from liquidations of mortgage loans due to defaults,
casualties or condemnations affecting the related mortgaged properties, or
purchases of mortgage loans out of the related trust fund). Because the rate of
principal prepayments on the mortgage loans in any trust fund will depend on
future events and a variety of factors (as described below), no assurance can be
given as to such rate.
The extent to which the yield to maturity of a class of offered
certificates of any series may vary from the anticipated yield will depend upon
the degree to which they are purchased at a discount or premium and when, and to
what degree, payments of principal on the mortgage loans in the related trust
fund are in turn distributed on such certificates (or, in the case of a class of
Stripped Interest Certificates, result in the reduction of the notional amount
of the Stripped Interest Certificates). An investor should consider, in the case
of any offered certificate purchased at a discount, the risk that a slower than
anticipated rate of principal payments on the mortgage loans in the related
trust fund could result in an actual yield to such investor that is lower than
the anticipated yield and, in the case of any offered certificate purchased at a
premium, the risk that a faster than anticipated rate of principal payments on
such mortgage loans could result in an actual yield to such investor that is
lower than the anticipated yield. In addition, if an investor purchases an
offered certificate at a discount (or premium), and principal payments are made
in reduction of the principal balance or notional amount of such investor's
offered certificates at a rate slower (or faster) than the rate anticipated by
the investor during any particular period, any
24
consequent adverse effects on such investor's yield would not be fully offset by
a subsequent like increase (or decrease) in the rate of principal payments.
In general, the notional amount of a class of Stripped Interest
Certificates will either --
- be based on the principal balances of some or all of the mortgage assets
in the related trust fund; or
- equal the Certificate Balances of one or more of the other classes of
certificates of the same series.
Accordingly, the yield on such Stripped Interest Certificates will be
inversely related to the rate at which payments and other collections of
principal are received on such mortgage assets or distributions are made in
reduction of the Certificate Balances of such classes of certificates, as the
case may be.
Consistent with the foregoing, if a class of certificates of any series
consists of Stripped Interest Certificates or Stripped Principal Certificates, a
lower than anticipated rate of principal prepayments on the mortgage loans in
the related trust fund will negatively affect the yield to investors in Stripped
Principal Certificates, and a higher than anticipated rate of principal
prepayments on such mortgage loans will negatively affect the yield to investors
in Stripped Interest Certificates. If the offered certificates of a series
include any such certificates, the related prospectus supplement will include a
table showing the effect of various constant assumed levels of prepayment on
yields on such certificates. Such tables will be intended to illustrate the
sensitivity of yields to various constant assumed prepayment rates and will not
be intended to predict, or to provide information that will enable investors to
predict, yields or prepayment rates.
The extent of prepayments of principal of the mortgage loans in any trust
fund may be affected by a number of factors, including, without limitation --
- the availability of mortgage credit, the relative economic vitality of
the area in which the mortgaged properties are located;
- the quality of management of the mortgaged properties;
- the servicing of the mortgage loans; or
- possible changes in tax laws and other opportunities for investment.
In general, those factors which increase the attractiveness of selling a
mortgaged property or refinancing a mortgage loan or which enhance a borrower's
ability to do so, as well as those factors which increase the likelihood of
default under a mortgage loan, would be expected to cause the rate of prepayment
in respect of any mortgage asset pool to accelerate. In contrast, those factors
having an opposite effect would be expected to cause the rate of prepayment of
any mortgage asset pool to slow.
The rate of principal payments on the mortgage loans in any trust fund may
also be affected by the existence of Lock-out Periods and requirements that
principal prepayments be accompanied by prepayment premiums, and by the extent
to which such provisions may be practicably enforced. To the extent enforceable,
such provisions could constitute either an absolute prohibition (in the case of
a Lock-out Period) or a disincentive (in the case of a Prepayment Premium) to a
borrower's voluntarily prepaying its mortgage loan, thereby slowing the rate of
prepayments.
The rate of prepayment on a pool of mortgage loans is likely to be affected
by prevailing market interest rates for mortgage loans of a comparable type,
term and risk level. When the prevailing market interest rate is below a
mortgage coupon, a borrower may have an increased incentive to refinance its
mortgage loan. Even in the case of adjustable rate mortgage loans, as prevailing
market interest rates decline, and without regard to whether the Mortgage Rates
on such adjustable rate mortgage loans decline in a manner consistent therewith,
the related borrowers may have an increased incentive to refinance for purposes
of either (1) converting to a fixed rate loan and thereby "locking in" such rate
or (2) taking advantage of a different index, margin or rate cap or floor on
another adjustable rate mortgage loan. Therefore, as prevailing market interest
rates decline, prepayment speeds would be expected to accelerate.
Depending on prevailing market interest rates, the outlook for market
interest rates and economic conditions generally, some borrowers may sell
mortgaged properties in order to realize their equity in the mortgaged
25
properties, to meet cash flow needs or to make other investments. In addition,
some borrowers may be motivated by federal and state tax laws (which are subject
to change) to sell mortgaged properties prior to the exhaustion of tax
depreciation benefits. We make no representation as to the particular factors
that will affect the prepayment of the mortgage loans in any trust fund, as to
the relative importance of such factors, as to the percentage of the principal
balance of such mortgage loans that will be paid as of any date or as to the
overall rate of prepayment on such mortgage loans.
WEIGHTED AVERAGE LIFE AND MATURITY
The rate at which principal payments are received on the mortgage loans in
any trust fund will affect the ultimate maturity and the weighted average life
of one or more classes of the certificates of such series. Unless otherwise
specified in the related prospectus supplement, weighted average life refers to
the average amount of time that will elapse from the date of issuance of an
instrument until each dollar allocable as principal of such instrument is repaid
to the investor.
The weighted average life and maturity of a class of certificates of any
series will be influenced by the rate at which principal on the related mortgage
loans, whether in the form of scheduled amortization or prepayments (for this
purpose, the term "prepayment" includes voluntary prepayments by borrowers and
also prepayments resulting from liquidations of mortgage loans due to default,
casualties or condemnations affecting the related mortgaged properties and
purchases of mortgage loans out of the related trust fund), is paid to such
class. Prepayment rates on loans are commonly measured relative to a prepayment
standard or model, such as the CPR prepayment model or the SPA prepayment model.
CPR represents an assumed constant rate of prepayment each month (expressed as
an annual percentage) relative to the then outstanding principal balance of a
pool of mortgage loans for the life of such loans. SPA represents an assumed
variable rate of prepayment each month (expressed as an annual percentage)
relative to the then outstanding principal balance of a pool of mortgage loans,
with different prepayment assumptions often expressed as percentages of SPA. For
example, a prepayment assumption of 100% of SPA assumes prepayment rates of 0.2%
per annum of the then outstanding principal balance of such loans in the first
month of the life of the loans and an additional 0.2% per annum in each month
thereafter until the thirtieth month. Beginning in the thirtieth month, and in
each month thereafter during the life of the loans, 100% of SPA assumes a
constant prepayment rate of 6% per annum each month.
Neither CPR nor SPA nor any other prepayment model or assumption purports
to be a historical description of prepayment experience or a prediction of the
anticipated rate of prepayment of any particular pool of mortgage loans.
Moreover, the CPR and SPA models were developed based upon historical prepayment
experience for single-family mortgage loans. Thus, it is unlikely that the
prepayment experience of the mortgage loans included in any trust fund will
conform to any particular level of CPR or SPA.
The prospectus supplement with respect to each series of certificates will
contain tables, if applicable, setting forth the projected weighted average life
of each class of offered certificates of such series with a Certificate Balance,
and the percentage of the initial Certificate Balance of each such class that
would be outstanding on specified Distribution Dates, based on the assumptions
stated in such prospectus supplement, including assumptions that prepayments on
the related mortgage loans are made at rates corresponding to various
percentages of CPR or SPA, or at such other rates specified in such prospectus
supplement. Such tables and assumptions will illustrate the sensitivity of the
weighted average lives of the certificates to various assumed prepayment rates
and will not be intended to predict, or to provide information that will enable
investors to predict, the actual weighted average lives of the certificates.
OTHER FACTORS AFFECTING YIELD, WEIGHTED AVERAGE LIFE AND MATURITY
Balloon Payments; Extensions of Maturity. Some or all of the mortgage
loans included in a particular trust fund may require that balloon payments be
made at maturity. Because the ability of a borrower to make a balloon payment
typically will depend upon its ability either to refinance the loan or to sell
the related mortgaged property, there is a possibility that mortgage loans that
require balloon payments may default at maturity, or that the maturity of such a
mortgage loan may be extended in connection with a workout. In the case of
defaults, recovery of proceeds may be delayed by, among other things, bankruptcy
of the borrower or adverse conditions in
26
the market where the property is located. In order to minimize losses on
defaulted mortgage loans, the master servicer or the special servicer, to the
extent and under the circumstances set forth in this prospectus and in the
related prospectus supplement, may be authorized to modify mortgage loans that
are in default or as to which a payment default is imminent. Any defaulted
balloon payment or modification that extends the maturity of a mortgage loan may
delay distributions of principal on a class of offered certificates and thereby
extend the weighted average life of such certificates and, if such certificates
were purchased at a discount, reduce the yield.
Negative Amortization. The weighted average life of a class of
certificates can be affected by mortgage loans that permit negative amortization
to occur (that is, mortgage loans that provide for the current payment of
interest calculated at a rate lower than the rate at which interest accrues,
with the unpaid portion of such interest being added to the related principal
balance). Negative amortization on one or more mortgage loans in any trust fund
may result in negative amortization on the offered certificates of the related
series. The related prospectus supplement will describe, if applicable, the
manner in which negative amortization in respect of the mortgage loans in any
trust fund is allocated among the respective classes of certificates of the
related series. The portion of any mortgage loan negative amortization allocated
to a class of certificates may result in a deferral of some or all of the
interest payable, which deferred interest may be added to the Certificate
Balance of the certificates. In addition, an adjustable rate mortgage loan that
permits negative amortization would be expected during a period of increasing
interest rates to amortize at a slower rate (and perhaps not at all) than if
interest rates were declining or were remaining constant. Such slower rate of
mortgage loan amortization would correspondingly be reflected in a slower rate
of amortization for one or more classes of certificates of the related series.
Accordingly, the weighted average lives of mortgage loans that permit negative
amortization (and that of the classes of certificates to which any such negative
amortization would be allocated or that would bear the effects of a slower rate
of amortization on such mortgage loans) may increase as a result of such
feature.
Negative amortization may occur in respect of an adjustable rate mortgage
loan that --
- limits the amount by which its scheduled payment may adjust in response
to a change in its Mortgage Rate;
- provides that its scheduled payment will adjust less frequently than its
Mortgage Rate; or
- provides for constant scheduled payments notwithstanding adjustments to
its Mortgage Rate.
Accordingly, during a period of declining interest rates, the scheduled
payment on such a mortgage loan may exceed the amount necessary to amortize the
loan fully over its remaining amortization schedule and pay interest at the then
applicable Mortgage Rate, thereby resulting in the accelerated amortization of
such mortgage loan. Any such acceleration in amortization of its principal
balance will shorten the weighted average life of such mortgage loan and,
correspondingly, the weighted average lives of those classes of certificates
entitled to a portion of the principal payments on such mortgage loan.
The extent to which the yield on any offered certificate will be affected
by the inclusion in the related trust fund of mortgage loans that permit
negative amortization, will depend upon (1) whether such offered certificate was
purchased at a premium or a discount and (2) the extent to which the payment
characteristics of such mortgage loans delay or accelerate the distributions of
principal on such certificate (or, in the case of a Stripped Interest
Certificate, delay or accelerate the reduction of the notional amount of a
Stripped Interest Certificate). See "-- Yield and Prepayment Considerations"
above.
Foreclosures and Payment Plans. The number of foreclosures and the
principal amount of the mortgage loans that are foreclosed in relation to the
number and principal amount of mortgage loans that are repaid in accordance with
their terms will affect the weighted average lives of those mortgage loans and,
accordingly, the weighted average lives of and yields on the certificates of the
related series. Servicing decisions made with respect to the mortgage loans,
including the use of payment plans prior to a demand for acceleration and the
restructuring of mortgage loans in bankruptcy proceedings or otherwise, may also
have an effect upon the payment patterns of particular mortgage loans and thus
the weighted average lives of and yields on the certificates of the related
series.
27
Losses and Shortfalls on the Mortgage Assets. The yield to holders of the
offered certificates of any series will directly depend on the extent to which
such holders are required to bear the effects of any losses or shortfalls in
collections arising out of defaults on the mortgage loans in the related trust
fund and the timing of such losses and shortfalls. In general, the earlier that
any such loss or shortfall occurs, the greater will be the negative effect on
yield for any class of certificates that is required to bear the effects of such
loss or shortfall.
The amount of any losses or shortfalls in collections on the mortgage
assets in any trust fund (to the extent not covered or offset by draws on any
reserve fund or under any instrument of credit support) will be allocated among
the respective classes of certificates of the related series in the priority and
manner, and subject to the limitations, specified in the related prospectus
supplement. As described in the related prospectus supplement, such allocations
may be effected by (1) a reduction in the entitlements to interest and/or the
Certificate Balances of one or more such classes of certificates and/or (2)
establishing a priority of payments among such classes of certificates.
The yield to maturity on a class of Subordinate Certificates may be
extremely sensitive to losses and shortfalls in collections on the mortgage
loans in the related trust fund.
Additional Certificate Amortization. In addition to entitling the holders
to a specified portion (which may during specified periods range from none to
all) of the principal payments received on the mortgage assets in the related
trust fund, one or more classes of certificates of any series, including one or
more classes of offered certificates of such series, may provide for
distributions of principal from --
- amounts attributable to interest accrued but not currently distributable
on one or more classes of Accrual Certificates;
- Excess Funds; or
- any other amounts described in the related prospectus supplement.
The amortization of any class of certificates out of the sources described
in the preceding paragraph would shorten the weighted average life of such
certificates and, if such certificates were purchased at a premium, reduce the
yield. The related prospectus supplement will discuss the relevant factors to be
considered in determining whether distributions of principal of any class of
certificates out of such sources is likely to have any material effect on the
rate at which such certificates are amortized and the consequent yield with
respect thereto.
THE DEPOSITOR
We are Banc of America Commercial Mortgage Inc., a Delaware corporation and
were organized on December 13, 1995 for the limited purpose of acquiring, owning
and transferring mortgage assets and selling interests in the mortgage assets or
bonds secured by the mortgage assets. We are a subsidiary of Bank of America,
N.A. We maintain our principal office at Bank of America Corporate Center,
Charlotte, North Carolina 28255. Our telephone number is (704) 386-2400.
Unless otherwise noted in the related prospectus supplement, neither we nor
any of our affiliates will insure or guarantee distributions on the certificates
of any series.
DESCRIPTION OF THE CERTIFICATES
GENERAL
Each series of certificates will represent the entire beneficial ownership
interest in the trust fund created pursuant to the related pooling and servicing
agreement. As described in the related prospectus supplement, the certificates
of each series, including the certificates of such series being offered for
sale, may consist of one or more classes of certificates that, among other
things:
- provide for the accrual of interest on the Certificate Balance or
Notional Amount at a fixed, variable or adjustable rate;
28
- constitute Senior Certificates or Subordinate Certificates;
- constitute Stripped Interest Certificates or Stripped Principal
Certificates;
- provide for distributions of interest or principal that commence only
after the occurrence of certain events, such as the retirement of one or
more other classes of certificates of such series;
- provide for distributions of principal to be made, from time to time or
for designated periods, at a rate that is faster (and, in some cases,
substantially faster) or slower (and, in some cases, substantially
slower) than the rate at which payments or other collections of principal
are received on the mortgage assets in the related trust fund;
- provide for distributions of principal to be made, subject to available
funds, based on a specified principal payment schedule or other
methodology; or
- provide for distributions based on collections on the mortgage assets in
the related trust fund attributable to Prepayment Premiums and Equity
Participations.
If so specified in the related prospectus supplement, a class of
certificates may have two or more component parts, each having characteristics
that are otherwise described in this prospectus as being attributable to
separate and distinct classes. For example, a class of certificates may have a
Certificate Balance on which it accrues interest at a fixed, variable or
adjustable rate. Such class of certificates may also have certain
characteristics attributable to Stripped Interest Certificates insofar as it may
also entitle the holders of Stripped Interest Certificates to distributions of
interest accrued on a Notional Amount at a different fixed, variable or
adjustable rate. In addition, a class of certificates may accrue interest on one
portion of its Certificate Balance at one fixed, variable or adjustable rate and
on another portion of its Certificate Balance at a different fixed, variable or
adjustable rate.
Each class of offered certificates of a series will be issued in minimum
denominations corresponding to the principal balances or, in case of certain
classes of Stripped Interest Certificates or REMIC Residual Certificates,
notional amounts or percentage interests, specified in the related prospectus
supplement. As provided in the related prospectus supplement, one or more
classes of offered certificates of any series may be issued in fully registered,
definitive form or may be offered in book-entry format through the facilities of
DTC. The offered certificates of each series (if issued in fully registered
definitive form) may be transferred or exchanged, subject to any restrictions on
transfer described in the related prospectus supplement, at the location
specified in the related prospectus supplement, without the payment of any
service charges, other than any tax or other governmental charge payable in
connection therewith. Interests in a class of certificates offered in book-entry
format will be transferred on the book-entry records of DTC and its
participating organizations. If so specified in the related prospectus
supplement, arrangements may be made for clearance and settlement through
Clearstream Banking, societe anonyme, or the Euroclear System (in Europe) if
they are participants in DTC.
DISTRIBUTIONS
Distributions on the certificates of each series will be made on each
Distribution Date from the Available Distribution Amount for such series and
such Distribution Date. The particular components of the Available Distribution
Amount for any series and Distribution Date will be more specifically described
in the related prospectus supplement. In general and unless otherwise specified
in the related prospectus supplement, the Distribution Date for a series of
certificates will be the 15th day of each month (or, if any such 15th day is not
a business day, the next succeeding business day), commencing in the month
immediately following the month in which such series of certificates is issued.
Except as otherwise specified in the related prospectus supplement,
distributions on the certificates of each series (other than the final
distribution in retirement of any such certificate) will be made to the persons
in whose names such certificates are registered at the close of business on the
Record Date, and the amount of each distribution will be determined as of the
close of business on the date specified in the related prospectus supplement.
All distributions with respect to each class of certificates on each
Distribution Date will be allocated pro rata among the outstanding certificates
in such class in proportion to the respective percentage interests
29
evidenced thereby unless otherwise specified in the related prospectus
supplement. Payments will be made either by wire transfer in immediately
available funds to the account of a certificateholder at a bank or other entity
having appropriate facilities therefor, if such certificateholder has provided
the person required to make such payments with wiring instructions no later than
the related Record Date or such other date specified in the related prospectus
supplement (and, if so provided in the related prospectus supplement, such
certificate-holder holds certificates in the requisite amount or denomination
specified in the prospectus supplement), or by check mailed to the address of
such certificateholder as it appears on the Certificate Register; provided,
however, that the final distribution in retirement of any class of certificates
(whether issued in fully registered definitive form or in book-entry format)
will be made only upon presentation and surrender of such certificates at the
location specified in the notice to certificateholders of such final
distribution.
DISTRIBUTIONS OF INTEREST ON THE CERTIFICATES
Each class of certificates of each series (other than certain classes of
Stripped Principal Certificates and certain classes of REMIC Residual
Certificates that have no pass-through rate) may have a different pass-through
rate, which in each case may be fixed, variable or adjustable. The related
prospectus supplement will specify the pass-through rate or, in the case of a
variable or adjustable pass-through rate, the method for determining the
pass-through rate, for each class of offered certificates. Unless otherwise
specified in the related prospectus supplement, interest on the certificates of
each series will be calculated on the basis of a 360-day year consisting of
twelve 30-day months.
Distributions of interest in respect of any class of certificates (other
than a 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 other than any
class of Stripped Principal Certificates or REMIC Residual Certificates that is
not entitled to any distributions of interest) will be made on each Distribution
Date based on the Accrued Certificate Interest for such class and such
Distribution Date, subject to the sufficiency of that portion, if any, of the
Available Distribution Amount allocable to such class on such Distribution Date.
Prior to the time interest is distributable on any class of Accrual
Certificates, the amount of Accrued Certificate Interest otherwise distributable
on such class will be added to the Certificate Balance of such Accrual
Certificates on each Distribution Date or otherwise deferred as described in the
related prospectus supplement. Unless otherwise provided in the related
prospectus supplement, the Accrued Certificate Interest for each Distribution
Date on a class of Stripped Interest Certificates will be similarly calculated
except that it will accrue on a Notional Amount. Reference to a Notional Amount
with respect to a class of Stripped Interest Certificates is solely for
convenience in making certain calculations and does not represent the right to
receive any distributions of principal. If so specified in the related
prospectus supplement, the amount of Accrued Certificate Interest that is
otherwise distributable on (or, in the case of Accrual Certificates, that may
otherwise be added to the Certificate Balance of) one or more classes of the
certificates of a series may be reduced to the extent that any Prepayment
Interest Shortfalls, as described under "Yield and Maturity
Considerations -- Certain Shortfalls in Collections of Interest", exceed the
amount of any sums that are applied to offset the amount of such shortfalls. The
particular manner in which such shortfalls will be allocated among some or all
of the classes of certificates of that series will be specified in the related
prospectus supplement. The related prospectus supplement will also describe the
extent to which the amount of Accrued Certificate Interest that is otherwise
distributable on (or, in the case of Accrual Certificates, that may otherwise be
added to the Certificate Balance of) a class of offered certificates may be
reduced as a result of any other contingencies, including delinquencies, losses
and deferred interest on or in respect of the mortgage assets in the related
trust fund. Unless otherwise provided in the related prospectus supplement, any
reduction in the amount of Accrued Certificate Interest otherwise distributable
on a class of certificates by reason of the allocation to such class of a
portion of any deferred interest on or in respect of the mortgage assets in the
related trust fund will result in a corresponding increase in the Certificate
Balance of such class. See "Risk Factors -- Effect of Prepayments on Average
Life of Certificates" and "-- Effect of Prepayments on Yield of Certificates"
and "Yield and Maturity Considerations -- Certain Shortfalls in Collections of
Interest".
30
DISTRIBUTIONS OF PRINCIPAL OF THE CERTIFICATES
Each class of certificates of each series (other than certain classes of
Stripped Interest Certificates and certain classes of REMIC Residual
Certificates) will have a Certificate Balance, which, at any time, will equal
the then maximum amount that the holders of certificates of such class will be
entitled to receive as principal out of the future cash flow on the mortgage
assets and other assets included in the related trust fund. The outstanding
Certificate Balance of a class of certificates will be reduced by distributions
of principal made from time to time and, if and to the extent so provided in the
related prospectus supplement, further by any losses incurred in respect of the
related mortgage assets allocated thereto from time to time. In turn, the
outstanding Certificate Balance of a class of certificates may be increased as a
result of any deferred interest on or in respect of the related mortgage assets
being allocated thereto from time to time, and will be increased, in the case of
a class of Accrual Certificates prior to the Distribution Date on which
distributions of interest are required to commence, by the amount of any Accrued
Certificate Interest in respect of such Accrual Certificate (reduced as
described above). The initial aggregate Certificate Balance of all classes of a
series of certificates will not be greater than the aggregate outstanding
principal balance of the related mortgage assets as of a specified date, after
application of scheduled payments due on or before such date, whether or not
received. The initial Certificate Balance of each class of a series of
certificates will be specified in the related prospectus supplement. As and to
the extent described in the related prospectus supplement, distributions of
principal with respect to a series of certificates will be made on each
Distribution Date to the holders of the class or classes of certificates of such
series entitled thereto until the Certificate Balances of such certificates have
been reduced to zero. Distributions of principal with respect to one or more
classes of certificates may be made at a rate that is faster (and, in some
cases, substantially faster) than the rate at which payments or other
collections of principal are received on the mortgage assets in the related
trust fund. Distributions of principal with respect to one or more classes of
certificates may not commence until the occurrence of certain events, such as
the retirement of one or more other classes of certificates of the same series,
or may be made at a rate that is slower (and, in some cases, substantially
slower) than the rate at which payments or other collections of principal are
received on the mortgage assets in the related trust fund. Distributions of
principal with respect to Controlled Amortization Classes may be made, subject
to available funds, based on a specified principal payment schedule.
Distributions of principal with respect to Companion Classes may be contingent
on the specified principal payment schedule for a Controlled Amortization Class
of the same series and the rate at which payments and other collections of
principal on the mortgage assets in the related trust fund are received. Unless
otherwise specified in the related prospectus supplement, distributions of
principal of any class of offered certificates will be made on a pro rata basis
among all of the certificates of such class.
DISTRIBUTIONS ON THE CERTIFICATES CONCERNING PREPAYMENT PREMIUMS OR CONCERNING
EQUITY PARTICIPATIONS
If so provided in the related prospectus supplement, Prepayment Premiums or
payments in respect of Equity Participations received on or in connection with
the mortgage assets in any trust fund will be distributed on each Distribution
Date to the holders of the class of certificates of the related series entitled
thereto in accordance with the provisions described in such prospectus
supplement. Alternatively, we or any of our affiliates may retain such items or
by any other specified person and/or may be excluded as trust assets.
ALLOCATION OF LOSSES AND SHORTFALLS
The amount of any losses or shortfalls in collections on the mortgage
assets in any trust fund (to the extent not covered or offset by draws on any
reserve fund or under any instrument of credit support) will be allocated among
the respective classes of certificates of the related series in the priority and
manner, and subject to the limitations, specified in the related prospectus
supplement. As described in the related prospectus supplement, such allocations
may be effected by (1) a reduction in the entitlements to interest and/or the
Certificate Balances of one or more such classes of certificates and/or (2)
establishing a priority of payments among such classes of certificates. See
"Description of Credit Support".
31
ADVANCES IN RESPECT OF DELINQUENCIES
If and to the extent provided in the related prospectus supplement, if a
trust fund includes mortgage loans, the master servicer, the special servicer,
the trustee, any provider of credit support and/or any other specified person
may be obligated to advance, or have the option of advancing, on or before each
Distribution Date, from its or their own funds or from excess funds held in the
related Certificate Account that are not part of the Available Distribution
Amount for the related series of certificates for such Distribution Date, an
amount up to the aggregate of any payments of principal (other than the
principal portion of any balloon payments) and interest that were due on or in
respect of such mortgage loans during the related Due Period and were delinquent
on the related Determination Date.
Advances are intended to maintain a regular flow of scheduled interest and
principal payments to holders of the class or classes of certificates entitled
thereto, rather than to guarantee or insure against losses. Accordingly, all
advances made out of a specific entity's own funds will be reimbursable out of
related recoveries on the mortgage loans (including amounts drawn under any fund
or instrument constituting credit support) respecting which such advances were
made and such other specific sources as may be identified in the related
prospectus supplement, including, in the case of a series that includes one or
more classes of Subordinate Certificates, if so identified, collections on other
mortgage assets in the related trust fund that would otherwise be distributable
to the holders of one or more classes of such Subordinate Certificates. No
advance will be required to be made by a master servicer, special servicer or
trustee if, in the judgment of the master servicer, special servicer or trustee,
as the case may be, such advance would not be recoverable from recoveries on the
mortgage loans or another specifically identified source; and, if previously
made by a master servicer, special servicer or trustee, such an advance will be
reimbursable thereto from any amounts in the related Certificate Account prior
to any distributions being made to the related series of Certificateholders.
If advances have been made by a master servicer, special servicer, trustee
or other entity from excess funds in a Certificate Account, such master
servicer, special servicer, trustee or other entity, as the case may be, will be
required to replace such funds in such Certificate Account on or prior to any
future Distribution Date to the extent that funds in such Certificate Account on
such Distribution Date are less than payments required to be made to the related
series of Certificateholders on such date. If so specified in the related
prospectus supplement, the obligation of a master servicer, special servicer,
trustee or other entity to make advances may be secured by a cash advance
reserve fund or a surety bond. If applicable, information regarding the
characteristics of, and the identity of any obligor on, any such surety bond,
will be set forth in the related prospectus supplement.
If and to the extent so provided in the related prospectus supplement, any
entity making advances will be entitled to receive interest on certain or all of
such advances for a specified period during which such advances are outstanding
at the rate specified in such prospectus supplement, and such entity will be
entitled to payment of such interest periodically from general collections on
the mortgage loans in the related trust fund prior to any payment to the related
series of Certificateholders or as otherwise provided in the related pooling and
servicing agreement and described in such prospectus supplement.
The prospectus supplement for any series of certificates evidencing an
interest in a trust fund that includes MBS will describe any comparable
advancing obligation of a party to the related pooling and servicing agreement
or of a party to the agreement pursuant to which the MBS was issued.
REPORTS TO CERTIFICATEHOLDERS
On each Distribution Date, together with the distribution to the holders of
each class of the offered certificates of a series, a master servicer, manager
or trustee, as provided in the related prospectus supplement, will forward to
each such holder, a statement Distribution Date Statement that, unless otherwise
provided in the related prospectus supplement, will set forth, among other
things, in each case to the extent applicable:
- the amount of such distribution to holders of such class of offered
certificates that was applied to reduce the Certificate Balance of such
class;
- the amount of such distribution to holders of such class of offered
certificates that was applied to pay Accrued Certificate Interest;
32
- the amount, if any, of such distribution to holders of such class of
offered certificates that was allocable to (A) Prepayment Premiums and
(B) payments on account of Equity Participations;
- the amount, if any, by which such distribution is less than the amounts
to which holders of such class of offered certificates are entitled;
- if the related trust fund includes mortgage loans, the aggregate amount
of advances included in such distribution;
- if the related trust fund includes mortgage loans, the amount of
servicing compensation received by the related master servicer (and, if
payable directly out of the related trust fund, by any special servicer
and any sub-servicer) and, if the related trust fund includes MBS, the
amount of administrative compensation received by the MBS Administrator;
- information regarding the aggregate principal balance of the related
mortgage assets on or about such Distribution Date;
- if the related trust fund includes mortgage loans, information regarding
the number and aggregate principal balance of such mortgage loans that
are delinquent;
- if the related trust fund includes mortgage loans, information regarding
the aggregate amount of losses incurred and principal prepayments made
with respect to such mortgage loans during the specified period,
generally corresponding in length to the period between Distribution
Dates, during which prepayments and other unscheduled collections on the
mortgage loans in the related trust fund must be received in order to be
distributed on a particular Distribution Date);
- the Certificate Balance or Notional Amount, as the case may be, of such
class of certificates at the close of business on such Distribution Date,
separately identifying any reduction in such Certificate Balance or
Notional Amount due to the allocation of any losses in respect of the
related mortgage assets, any increase in such Certificate Balance or
Notional Amount due to the allocation of any negative amortization in
respect of the related mortgage assets and any increase in the
Certificate Balance of a class of Accrual Certificates, if any, in the
event that Accrued Certificate Interest has been added to such balance;
- if such class of offered certificates has a variable pass-through rate or
an adjustable pass-through rate, the pass-through rate applicable thereto
for such Distribution Date and, if determinable, for the next succeeding
Distribution Date;
- the amount deposited in or withdrawn from any reserve fund on such
Distribution Date, and the amount remaining on deposit in such reserve
fund as of the close of business on such Distribution Date;
- if the related trust fund includes one or more instruments of credit
support, such as a letter of credit, an insurance policy and/or a surety
bond, the amount of coverage under each such instrument as of the close
of business on such Distribution Date; and
- the amount of credit support being afforded by any classes of Subordinate
Certificates.
In the case of information furnished pursuant to the first 3 bulleted items
above, the amounts will be expressed as a dollar amount per specified
denomination of the relevant class of offered certificates or as a percentage.
The prospectus supplement for each series of certificates may describe
additional information to be included in reports to the holders of the offered
certificates of such series.
Within a reasonable period of time after the end of each calendar year, the
master servicer, manager or trustee for a series of certificates, as the case
may be, will be required to furnish to each person who at any time during the
calendar year was a holder of an offered certificate of such series a statement
containing the information set forth in the first 3 bulleted items above,
aggregated for such calendar year or the applicable portion during which such
person was a certificateholder. Such obligation will be deemed to have been
satisfied to the extent that substantially comparable information is provided
pursuant to any requirements of the Internal Revenue Code of 1986, as amended,
are from time to time in force. See, however, "-- Book-Entry Registration and
Definitive Certificates" below.
33
If the trust fund for a series of certificates includes MBS, the ability of
the related master servicer, manager or trustee, as the case may be, to include
in any Distribution Date Statement information regarding the mortgage loans
underlying such MBS will depend on the reports received with respect to such
MBS. In such cases, the related prospectus supplement will describe the
loan-specific information to be included in the Distribution Date Statements
that will be forwarded to the holders of the offered certificates of that series
in connection with distributions made to them.
VOTING RIGHTS
The voting rights evidenced by each series of certificates will be
allocated among the respective classes of such series in the manner described in
the related prospectus supplement.
Certificateholders will generally not have a right to vote, except with
respect to required consents to certain amendments to the related pooling and
servicing agreement and as otherwise specified in the related prospectus
supplement. See "The Pooling and Servicing Agreements -- Amendment". The holders
of specified amounts of certificates of a particular series will have the right
to act as a group to remove the related trustee and also upon the occurrence of
certain events which if continuing would constitute an event of default on the
part of the related master servicer, special servicer or REMIC administrator.
See "The Pooling and Servicing Agreements -- Events of Default", "-- Rights Upon
Event of Default" and "-- Resignation and Removal of the Trustee".
TERMINATION
The obligations created by the pooling and servicing agreement for each
series of certificates will terminate following (1) the final payment or other
liquidation of the last mortgage asset subject thereto or the disposition of all
property acquired upon foreclosure of any mortgage loan subject thereto and (2)
the payment (or provision for payment) to the Certificateholders of that series
of all amounts required to be paid to them pursuant to such pooling and
servicing agreement. Written notice of termination of a pooling and servicing
agreement will be given to each certificateholder of the related series, and the
final distribution will be made only upon presentation and surrender of the
certificates of such series at the location to be specified in the notice of
termination.
If so specified in the related prospectus supplement, a series of
certificates may be subject to optional early termination through the repurchase
of the mortgage assets in the related trust fund by the party or parties
specified in the prospectus supplement, under the circumstances and in the
manner set forth in the prospectus supplement. If so provided in the related
prospectus supplement upon the reduction of the Certificate Balance of a
specified class or classes of certificates by a specified percentage or amount
or upon a specified date, a party designated in the prospectus supplement may be
authorized or required to solicit bids for the purchase of all the mortgage
assets of the related trust fund, or of a sufficient portion of such mortgage
assets to retire such class or classes, under the circumstances and in the
manner set forth in the prospectus supplement.
BOOK-ENTRY REGISTRATION AND DEFINITIVE CERTIFICATES
If so provided in the prospectus supplement for a series of certificates,
one or more classes of the offered certificates of such series will be offered
in book-entry format through the facilities of DTC, and each such class will be
represented by one or more global certificates registered in the name of DTC or
its nominee.
DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking corporation" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
was created to hold securities for its participating organizations and
facilitate the clearance and settlement of securities transactions between its
participating organizations through electronic computerized book-entry changes
in their accounts, thereby eliminating the need for physical movement of
securities certificates. DTC is owned by a number of its Direct Participants and
by the New York Stock Exchange, Inc., the American Stock Exchange, Inc. and the
National Association of Securities Dealers, Inc. The rules applicable to DTC and
its participating organizations are on file with the Securities and Exchange
Commission.
34
Purchases of book-entry certificates under the DTC system must be made by
or through Direct Participants, which will receive a credit for the book-entry
certificates on DTC's records. The ownership interest of each actual purchaser
of a Book-Entry Certificate is in turn to be recorded on the Direct and Indirect
Participants' records. Certificate Owners will not receive written confirmation
from DTC of their purchases, but Certificate Owners are expected to receive
written confirmations providing details of such transactions, as well as
periodic statements of their holdings, from the Direct or Indirect Participant
through which each Certificate Owner entered into the transaction. Transfers of
ownership interests in the book-entry certificates are to be accomplished by
entries made on the books of DTC's participating organizations acting on behalf
of Certificate Owners. Certificate Owners will not receive certificates
representing their ownership interests in the book-entry certificates, except in
the event that use of the book-entry system for the book-entry certificates of
any series is discontinued as described below.
DTC has no knowledge of the actual Certificate Owners of the book-entry
certificates; DTC's records reflect only the identity of the Direct Participants
to whose accounts such certificates are credited, which may or may not be the
Certificate Owners. DTC's participating organizations will remain responsible
for keeping account of their holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Certificate Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
Distributions on the book-entry certificates will be made to DTC. DTC's
practice is to credit Direct Participants' accounts on the related Distribution
Date in accordance with their respective holdings shown on DTC's records unless
DTC has reason to believe that it will not receive payment on such date.
Disbursement of such distributions by DTC's participating organizations to
Certificate Owners will be governed by standing instructions and customary
practices, as is the case with securities held for the accounts of customers in
bearer form or registered in "street name", and will be the responsibility of
each such participating organization (and not of DTC, the depositor or any
trustee, master servicer, special servicer or Manager), subject to any statutory
or regulatory requirements as may be in effect from time to time. Accordingly,
under a book-entry system, Certificate Owners may receive payments after the
related Distribution Date.
Unless otherwise provided in the related prospectus supplement, the only
Certificateholder of book-entry certificates will be the nominee of DTC, and the
Certificate Owners will not be recognized as certificateholders under the
pooling and servicing agreement. Certificate Owners will be permitted to
exercise the rights of certificateholders under the related pooling and
servicing agreement only indirectly through DTC's participating organization who
in turn will exercise their rights through DTC. We have been informed that DTC
will take action permitted to be taken by a certificateholder under a pooling
and servicing agreement only at the direction of one or more Direct Participants
to whose account with DTC interests in the book-entry certificates are credited.
Because DTC can act only on behalf of Direct Participants, who in turn act
on behalf of Indirect Participants and certain Certificate Owners, the ability
of a Certificate Owner to pledge its interest in book-entry certificates to
persons or entities that do not participate in the DTC system, or otherwise take
actions in respect of its interest in book-entry certificates, may be limited
due to the lack of a physical certificate evidencing such interest.
Unless otherwise specified in the related prospectus supplement,
certificates initially issued in book-entry form will be issued in fully
registered definitive form to Certificate Owners or their nominees, rather than
to DTC or its nominee, only if (1) the depositor advises the trustee in writing
that DTC is no longer willing or able to discharge properly its responsibilities
as depository with respect to such certificates and the depositor is unable to
locate a qualified successor or (2) the depositor, at its option, elects to
terminate the book-entry system through DTC with respect to such certificates.
Upon the occurrence of either of the events described in the preceding sentence,
DTC will be required to notify all Direct Participants of the availability
through DTC of Certificates in fully registered form. Upon surrender by DTC of
the certificate or certificates representing a class of book-entry certificates,
together with instructions for registration, the trustee for the related series
or other designated party will be required to issue to the Certificate Owners
identified in such instructions the Certificates in fully registered definitive
form to which they are entitled, and thereafter the holders of such Definitive
Certificates will be recognized as "certificateholders" under and within the
meaning of the related pooling and servicing agreement.
35
THE POOLING AND SERVICING AGREEMENTS
GENERAL
The certificates of each series will be issued pursuant to a Pooling and
Servicing Agreement. In general, the parties to a Pooling and Servicing
Agreement will include the depositor, the trustee, the master servicer, the
special servicer and, if one or more REMIC elections have been made with respect
to the trust fund, the REMIC administrator. However, a Pooling and Servicing
Agreement that relates to a trust fund that includes MBS may include a manager
as a party, but may not include a master servicer, special servicer or other
servicer as a party. All parties to each Pooling and Servicing Agreement under
which certificates of a series are issued will be identified in the related
prospectus supplement. If so specified in the related prospectus supplement, an
affiliate of the depositor, or the mortgage asset seller may perform the
functions of master servicer, special servicer, manager or REMIC administrator.
If so specified in the related prospectus supplement, the master servicer may
also perform the duties of special servicer, and the master servicer, the
special servicer or the trustee may also perform the duties of REMIC
administrator. Any party to a Pooling and Servicing Agreement or any affiliate
of any party may own certificates issued under the Pooling and Servicing
Agreement; however, unless other specified in the related prospectus supplement,
except with respect to required consents to certain amendments to a Pooling and
Servicing Agreement, certificates issued under the Pooling and Servicing
Agreement that are held by the master servicer or special servicer for the
related Series will not be allocated Voting Rights.
A form of a pooling and servicing agreement has been filed as an exhibit to
the Registration Statement of which this prospectus is a part. However, the
provisions of each Pooling and Servicing Agreement will vary depending upon the
nature of the certificates to be issued under the Pooling and Servicing
Agreement and the nature of the related trust fund. The following summaries
describe certain provisions that may appear in a Pooling and Servicing Agreement
under which certificates that evidence interests in mortgage loans will be
issued. The prospectus supplement for a series of certificates will describe any
provision of the related Pooling and Servicing Agreement that materially differs
from the description of the Pooling and Servicing Agreement contained in this
prospectus and, if the related trust fund includes MBS, will summarize all of
the material provisions of the related agreement that provided for the issuance
of the MBS. The summaries in this prospectus do not purport to be complete and
are subject to, and are qualified in their entirety by reference to, all of the
provisions of the Pooling and Servicing Agreement for each series of
certificates and the description of such provisions in the related prospectus
supplement. We will provide a copy of the Pooling and Servicing Agreement
(without exhibits) that relates to any series of certificates without charge
upon written request of a holder of a certificate of such series addressed to it
at its principal executive offices specified in this prospectus under "The
Depositor".
ASSIGNMENT OF MORTGAGE LOANS; REPURCHASES
At the time of issuance of any series of certificates, we will assign (or
cause to be assigned) to the designated trustee the mortgage loans to be
included in the related trust fund, together with, unless otherwise specified in
the related prospectus supplement, all principal and interest to be received on
or with respect to such mortgage loans after the Cut-off Date, other than
principal and interest due on or before the Cut-off Date. The trustee will,
concurrently with such assignment, deliver the certificates to or at our
direction in exchange for the mortgage loans and the other assets to be included
in the trust fund for such series. Each mortgage loan will be identified in a
schedule appearing as an exhibit to the related Pooling and Servicing Agreement.
Such schedule generally will include detailed information that pertains to each
mortgage loan included in the related trust fund, which information will
typically include the address of the related mortgaged property and type of such
property; the Mortgage Rate and, if applicable, the applicable index, gross
margin, adjustment date and any rate cap information; the original and remaining
term to maturity; the amortization term; and the original and outstanding
principal balance.
In addition, unless otherwise specified in the related prospectus
supplement, we will, as to each mortgage loan to be included in a trust fund,
deliver, or cause to be delivered, to the related trustee (or to a custodian
appointed by the trustee as described below) the mortgage note endorsed, without
recourse, either in blank or to the order of such trustee (or its nominee), the
mortgage with evidence of recording indicated (except for any mortgage not
returned from the public recording office), an assignment of the mortgage in
blank or to the trustee
36
(or its nominee) in recordable form, together with any intervening assignments
of the mortgage with evidence of recording (except for any such assignment not
returned from the public recording office), and, if applicable, any riders or
modifications to such mortgage note and mortgage, together with certain other
documents at such times as set forth in the related Pooling and Servicing
Agreement. Such assignments may be blanket assignments covering mortgages on
mortgaged properties located in the same county, if permitted by law.
Notwithstanding the foregoing, a trust fund may include mortgage loans where the
original mortgage note is not delivered to the trustee if we deliver or cause to
be delivered, to the related trustee (or such custodian) a copy or a duplicate
original of the mortgage note, together with an affidavit certifying that the
original mortgage note has been lost or destroyed. In addition, if we cannot
deliver, with respect to any mortgage loan, the mortgage or any intervening
assignment with evidence of recording concurrently with the execution and
delivery of the related Pooling and Servicing Agreement because of a delay
caused by the public recording office, we will deliver, or cause to be
delivered, to the related trustee (or such custodian) a true and correct
photocopy of such mortgage or assignment as submitted for recording. We will
deliver, or cause to be delivered, to the related trustee (or such custodian)
such mortgage or assignment with evidence of recording indicated after receipt
of such mortgage from the public recording office. If we cannot deliver, with
respect to any mortgage loan, the mortgage or any intervening assignment with
evidence of recording concurrently with the execution and delivery of the
related Pooling and Servicing Agreement because such mortgage or assignment has
been lost, we will deliver, or cause to be delivered, to the related trustee (or
such custodian) a true and correct photocopy of such mortgage or assignment with
evidence of recording. Unless otherwise specified in the related prospectus
supplement, assignments of mortgage to the trustee (or its nominee) will be
recorded in the appropriate public recording office, except in states where, in
the opinion of counsel acceptable to the trustee, such recording is not required
to protect the trustee's interests in the mortgage loan against the claim of any
subsequent transferee or any successor to or creditor of us or the originator of
such mortgage loan.
The trustee (or a custodian appointed by the trustee) for a series of
certificates will be required to review the mortgage loan documents delivered to
it within a specified period of days after receipt of the mortgage loan
documents, and the trustee (or such custodian) will hold such documents in trust
for the benefit of the certificateholders of such series. Unless otherwise
specified in the related prospectus supplement, if any such document is found to
be missing or defective, and such omission or defect, as the case may be,
materially and adversely affects the interests of the certificateholders of the
related series, the trustee (or such custodian) will be required to notify the
master servicer, the special servicer and the depositor, and one of such persons
will be required to notify the relevant mortgage asset seller. In that case, and
if the mortgage asset seller cannot deliver the document or cure the defect
within a specified number of days after receipt of such notice, then, except as
otherwise specified below or in the related prospectus supplement, the mortgage
asset seller will be obligated to repurchase the related mortgage loan from the
trustee at a price generally equal to the Purchase Price, or at such other price
as will be specified in the related prospectus supplement. If so provided in the
prospectus supplement for a series of certificates, a mortgage asset seller, in
lieu of repurchasing a mortgage loan as to which there is missing or defective
loan documentation, will have the option, exercisable upon certain conditions
and/or within a specified period after initial issuance of such series of
certificates, to replace such mortgage loan with one or more other mortgage
loans, in accordance with standards that will be described in the prospectus
supplement. Unless otherwise specified in the related prospectus supplement,
this repurchase or substitution obligation will constitute the sole remedy to
holders of the certificates of any series or to the related trustee on their
behalf for missing or defective mortgage loan documentation, and neither we nor,
unless it is the mortgage asset seller, the master servicer or the special
servicer will be obligated to purchase or replace a mortgage loan if a mortgage
asset seller defaults on its obligation to do so.
The trustee will be authorized at any time to appoint one or more
custodians pursuant to a custodial agreement to hold title to the mortgage loans
in any trust fund and to maintain possession of and, if applicable, to review
the documents relating to such mortgage loans, in any case as the agent of the
trustee. The identity of any such custodian to be appointed on the date of
initial issuance of the certificates will be set forth in the related prospectus
supplement. Any such custodian may be one of our affiliates.
37
REPRESENTATIONS AND WARRANTIES; REPURCHASES
Unless otherwise provided in the prospectus supplement for a series of
certificates, the depositor will, with respect to each mortgage loan in the
related trust fund, make or assign, or cause to be made or assigned, certain
representations and warranties covering, by way of example --
- the accuracy of the information set forth for such mortgage loan on the
schedule of mortgage loans appearing as an exhibit to the related Pooling
and Servicing Agreement;
- the enforceability of the related mortgage note and mortgage and the
existence of title insurance insuring the lien priority of the related
mortgage;
- the Warranting Party's title to the mortgage loan and the authority of
the Warranting Party to sell the mortgage loan; and
- the payment status of the mortgage loan.
It is expected that in most cases the Warranting Party will be the mortgage
asset seller; however, the Warranting Party may also be an affiliate of the
mortgage asset seller, the depositor or an affiliate of the depositor, the
master servicer, the special servicer or another person acceptable to the
depositor. The Warranting Party, if other than the mortgage asset seller, will
be identified in the related prospectus supplement.
Unless otherwise provided in the related prospectus supplement, each
Pooling and Servicing Agreement will provide that the master servicer and/or
trustee will be required to notify promptly any Warranting Party of any breach
of any representation or warranty made by it in respect of a mortgage loan that
materially and adversely affects the interests of the Certificateholders of the
related series. If such Warranting Party cannot cure such breach within a
specified period following the date on which it was notified of such breach,
then, unless otherwise provided in the related prospectus supplement, it will be
obligated to repurchase such mortgage loan from the trustee at the applicable
Purchase Price. If so provided in the prospectus supplement for a series of
certificates, a Warranting Party, in lieu of repurchasing a mortgage loan as to
which a breach has occurred, will have the option, exercisable upon certain
conditions and/or within a specified period after initial issuance of such
series of certificates, to replace such mortgage loan with one or more other
mortgage loans, in accordance with standards that will be described in the
prospectus supplement. Unless otherwise specified in the related prospectus
supplement, this repurchase or substitution obligation will constitute the sole
remedy available to holders of the certificates of any series or to the related
trustee on their behalf for a breach of representation and warranty by a
Warranting Party, and neither the depositor nor the master servicer, in either
case unless it is the Warranting Party, will be obligated to purchase or replace
a mortgage loan if a Warranting Party defaults on its obligation to do so.
In some cases, representations and warranties will have been made in
respect of a mortgage loan as of a date prior to the date upon which the related
series of certificates is issued, and thus may not address events that may occur
following the date as of which they were made. However, the depositor will not
include any mortgage loan in the trust fund for any series of certificates if
anything has come to the depositor's attention that would cause it to believe
that the representations and warranties made in respect of such mortgage loan
will not be accurate in all material respects as of the date of issuance. The
date as of which the representations and warranties regarding the mortgage loans
in any trust fund were made will be specified in the related prospectus
supplement.
COLLECTION AND OTHER SERVICING PROCEDURES
Unless otherwise specified in the related prospectus supplement, the master
servicer and the special servicer for any mortgage pool, directly or through
sub-servicers, will each be obligated under the related Pooling and Servicing
Agreement to service and administer the mortgage loans in such mortgage pool for
the benefit of the related certificateholders, in accordance with applicable law
and further in accordance with the terms of such Pooling and Servicing
Agreement, such mortgage loans and any instrument of credit support included in
the related trust fund. Subject to the foregoing, the master servicer and the
special servicer will each have full power and authority to do any and all
things in connection with such servicing and administration that it may deem
necessary and desirable.
38
As part of its servicing duties, each of the master servicer and the
special servicer will be required to make reasonable efforts to collect all
payments called for under the terms and provisions of the mortgage loans that it
services and will be obligated to follow such collection procedures as it would
follow with respect to mortgage loans that are comparable to such mortgage loans
and held for its own account, provided (1) such procedures are consistent with
the terms of the related Pooling and Servicing Agreement and (2) do not impair
recovery under any instrument of credit support included in the related trust
fund. Consistent with the foregoing, the master servicer and the special
servicer will each be permitted, in its discretion, unless otherwise specified
in the related prospectus supplement, to waive any Prepayment Premium, late
payment charge or other charge in connection with any mortgage loan.
The master servicer and the special servicer for any trust fund, either
separately or jointly, directly or through sub-servicers, will also be required
to perform as to the mortgage loans in such trust fund various other customary
functions of a servicer of comparable loans, including maintaining escrow or
impound accounts, if required under the related Pooling and Servicing Agreement,
for payment of taxes, insurance premiums, ground rents and similar items, or
otherwise monitoring the timely payment of those items; attempting to collect
delinquent payments; supervising foreclosures; negotiating modifications;
conducting property inspections on a periodic or other basis; managing (or
overseeing the management of) mortgaged properties acquired on behalf of such
trust fund through foreclosure, deed-in-lieu of foreclosure or otherwise; and
maintaining servicing records relating to such mortgage loans. The related
prospectus supplement will specify when and the extent to which servicing of a
mortgage loan is to be transferred from the master servicer to the special
servicer. In general, and subject to the discussion in the related prospectus
supplement, a special servicer will be responsible for the servicing and
administration of --
- mortgage loans that are delinquent in respect of a specified number of
scheduled payments;
- mortgage loans as to which the related borrower has entered into or
consented to bankruptcy, appointment of a receiver or conservator or
similar insolvency proceeding, or the related borrower has become the
subject of a decree or order for such a proceeding which shall have
remained in force undischarged or unstayed for a specified number of
days; and
- REO Properties.
If so specified in the related prospectus supplement, a Pooling and
Servicing Agreement also may provide that if a default on a mortgage loan has
occurred or, in the judgment of the related master servicer, a payment default
is reasonably foreseeable, the related master servicer may elect to transfer the
servicing of the mortgage loan, in whole or in part, to the related special
servicer. Unless otherwise provided in the related prospectus supplement, when
the circumstances no longer warrant a special servicer's continuing to service a
particular mortgage loan (e.g., the related borrower is paying in accordance
with the forbearance arrangement entered into between the special servicer and
such borrower), the master servicer will resume the servicing duties with
respect thereto. If and to the extent provided in the related Pooling and
Servicing Agreement and described in the related prospectus supplement, a
special servicer may perform certain limited duties in respect of mortgage loans
for which the master servicer is primarily responsible (including, if so
specified, performing property inspections and evaluating financial statements);
and a master servicer may perform certain limited duties in respect of any
mortgage loan for which the special servicer is primarily responsible
(including, if so specified, continuing to receive payments on such mortgage
loan (including amounts collected by the special servicer)), making certain
calculations with respect to such mortgage loan and making remittances and
preparing certain reports to the trustee and/or certificateholders with respect
to such mortgage loan. Unless otherwise specified in the related prospectus
supplement, the master servicer will be responsible for filing and settling
claims in respect of particular mortgage loans under any applicable instrument
of credit support. See "Description of Credit Support".
A mortgagor's failure to make required mortgage loan payments may mean that
operating income is insufficient to service the mortgage debt, or may reflect
the diversion of that income from the servicing of the mortgage debt. In
addition, a mortgagor that is unable to make mortgage loan payments may also be
unable to make timely payment of taxes and otherwise to maintain and insure the
related mortgaged property. In general, the related special servicer will be
required to monitor any mortgage loan that is in default, evaluate whether the
39
causes of the default can be corrected over a reasonable period without
significant impairment of the value of the related mortgaged property, initiate
corrective action in cooperation with the Mortgagor if cure is likely, inspect
the related mortgaged property and take such other actions as it deems necessary
and appropriate. A significant period of time may elapse before the special
servicer is able to assess the success of any such corrective action or the need
for additional initiatives. The time within which the special servicer can make
the initial determination of appropriate action, evaluate the success of
corrective action, develop additional initiatives, institute foreclosure
proceedings and actually foreclose (or accept a deed to a mortgaged property in
lieu of foreclosure) on behalf of the certificateholders of the related series
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. If a mortgagor files a bankruptcy petition, the special servicer may
not be permitted to accelerate the maturity of the mortgage loan or to foreclose
on the related mortgaged property for a considerable period of time. See
"Certain Legal Aspects of Mortgage Loans -- Bankruptcy Laws."
Mortgagors may, from time to time, request partial releases of the
mortgaged properties, easements, consents to alteration or demolition and other
similar matters. In general, the master servicer may approve such a request if
it has determined, exercising its business judgment in accordance with the
applicable servicing standard, that such approval will not adversely affect the
security for, or the timely and full collectibility of, the related mortgage
loan. Any fee collected by the master servicer for processing such request will
be retained by the master servicer as additional servicing compensation.
In the case of mortgage loans secured by junior liens on the related
mortgaged properties, unless otherwise provided in the related prospectus
supplement, the master servicer will be required to file (or cause to be filed)
of record a request for notice of any action by a superior lienholder under a
senior lien for the protection of the related trustee's interest, where
permitted by local law and whenever applicable state law does not require that a
junior lienholder be named as a party defendant in foreclosure proceedings in
order to foreclose such junior lienholder's equity of redemption. Unless
otherwise specified in the related prospectus supplement, the master servicer
also will be required to notify any superior lienholder in writing of the
existence of the mortgage loan and request notification of any action (as
described below) to be taken against the mortgagor or the mortgaged property by
the superior lienholder. If the master servicer is notified that any superior
lienholder has accelerated or intends to accelerate the obligations secured by
the related senior lien, or has declared or intends to declare a default under
the mortgage or the promissory note secured thereby, or has filed or intends to
file an election to have the related mortgaged property sold or foreclosed,
then, unless otherwise specified in the related prospectus supplement, the
master servicer and the special servicer will each be required to take, on
behalf of the related trust fund, whatever actions are necessary to protect the
interests of the related certificateholders and/or to preserve the security of
the related mortgage loan, subject to the application of the REMIC Provisions.
Unless otherwise specified in the related prospectus supplement, the master
servicer or special servicer, as applicable, will be required to advance the
necessary funds to cure the default or reinstate the senior lien, if such
advance is in the best interests of the related certificateholders and the
master servicer or special servicer, as applicable, determines such advances are
recoverable out of payments on or proceeds of the related mortgage loan.
SUB-SERVICERS
A master servicer or special servicer may delegate its servicing
obligations in respect of the mortgage loans serviced thereby to one or more
third-party sub-servicers; provided that, unless otherwise specified in the
related prospectus supplement, such master servicer or special servicer will
remain obligated under the related Pooling and Servicing Agreement. A
sub-servicer for any series of certificates may be an affiliate of the
depositor. Unless otherwise provided in the related prospectus supplement, each
subservicing agreement between a master servicer and a sub-servicer must provide
for servicing of the applicable mortgage loans consistent with the related
Pooling and Servicing Agreement. Unless otherwise provided in the related
prospectus supplement, the master servicer and special servicer in respect of
any mortgage asset pool will each be required to monitor the performance of
sub-servicers retained by it and will have the right to remove a sub-servicer
retained by it at any time it considers such removal to be in the best interests
of certificateholders.
40
Unless otherwise provided in the related prospectus supplement, a master
servicer or special servicer will be solely liable for all fees owed by it to
any sub-servicer, irrespective of whether the master servicer's or special
servicer's compensation pursuant to the related Pooling and Servicing Agreement
is sufficient to pay such fees. Each Sub-Servicer will be reimbursed by the
master servicer or special servicer, as the case may be, that retained it for
certain expenditures which it makes, generally to the same extent such master
servicer or special servicer would be reimbursed under a Pooling and Servicing
Agreement. See "-- Certificate Account" and "-- Servicing Compensation and
Payment of Expenses".
CERTIFICATE ACCOUNT
General. The master servicer, the trustee and/or the special servicer
will, as to each trust fund that includes mortgage loans, establish and maintain
or cause to be established and maintained the corresponding Certificate Account,
which will be established so as to comply with the standards of each rating
agency that has rated any one or more classes of certificates of the related
series. A Certificate Account may be maintained as an interest-bearing or a
noninterest-bearing account and the funds held in the Certificate Account may be
invested pending each succeeding Distribution Date in United States government
securities and other obligations that are acceptable to each rating agency that
has rated any one or more classes of certificates of the related series. Unless
otherwise provided in the related prospectus supplement, any interest or other
income earned on funds in a Certificate Account will be paid to the related
master servicer, trustee or special servicer as additional compensation. A
Certificate Account may be maintained with the related master servicer, special
servicer, trustee or mortgage asset seller or with a depository institution that
is an affiliate of any of the foregoing or of the depositor, provided that it
complies with applicable rating agency standards. If permitted by the applicable
rating agency, a Certificate Account may contain funds relating to more than one
series of mortgage pass-through certificates and may contain other funds
representing payments on mortgage loans owned by the related master servicer or
special servicer or serviced by either on behalf of others.
Deposits. Unless otherwise provided in the related Pooling and Servicing
Agreement and described in the related prospectus supplement, the following
payments and collections received or made by the master servicer, the trustee or
the special servicer subsequent to the Cut-off Date (other than payments due on
or before the Cut-off Date) are to be deposited in the Certificate Account for
each trust fund that includes mortgage loans, within a certain period following
receipt (in the case of collections on or in respect of the mortgage loans) or
otherwise as provided in the related Pooling and Servicing Agreement --
- all payments on account of principal, including principal prepayments, on
the mortgage loans;
- all payments on account of interest on the mortgage loans, including any
default interest collected, in each case net of any portion of such
default interest retained by the master servicer or the special servicer
as its servicing compensation or as compensation to the trustee;
- all proceeds received under any hazard, title or other insurance policy
that provides coverage with respect to a mortgaged property or the
related mortgage loan or in connection with the full or partial
condemnation of a mortgaged property (other than proceeds applied to the
restoration of the property or released to the related borrower) and all
other amounts received and retained in connection with the liquidation of
defaulted mortgage loans or property acquired in respect of such
defaulted mortgage loans, by foreclosure or otherwise, together with the
net operating income (less reasonable reserves for future expenses)
derived from the operation of any mortgaged properties acquired by the
trust fund through foreclosure or otherwise;
- any amounts paid under any instrument or drawn from any fund that
constitutes credit support for the related series of certificates;
- any advances made with respect to delinquent scheduled payments of
principal and interest on the mortgage loans;
- any amounts paid under any cash flow agreement;
41
- all proceeds of the purchase of any mortgage loan, or property acquired
in respect of a mortgage loan, by the depositor, any mortgage asset
seller or any other specified person as described under "-- Assignment of
Mortgage Loans; Repurchases" and "-- Representations and Warranties;
Repurchases", all proceeds of the purchase of any defaulted mortgage loan
as described under "-- Realization Upon Defaulted Mortgage Loans", and
all proceeds of any mortgage asset purchased as described under
"Description of the Certificates -- Termination";
- to the extent that any such item does not constitute additional servicing
compensation to the master servicer or the special servicer and is not
otherwise retained by the depositor or another specified person, any
payments on account of modification or assumption fees, late payment
charges, Prepayment Premiums or Equity Participations with respect to the
mortgage loans;
- all payments required to be deposited in the Certificate Account with
respect to any deductible clause in any blanket insurance policy as
described under "-- Hazard Insurance Policies";
- any amount required to be deposited by the master servicer, the special
servicer or the trustee in connection with losses realized on investments
for the benefit of the master servicer, the special servicer or the
trustee, as the case may be, of funds held in the Certificate Account;
and
- any other amounts required to be deposited in the Certificate Account as
provided in the related Pooling and Servicing Agreement and described in
the related prospectus supplement.
Withdrawals. Unless otherwise provided in the related Pooling and
Servicing Agreement and described in the related prospectus supplement, a master
servicer, trustee or special servicer may make withdrawals from the Certificate
Account for each trust fund that includes mortgage loans for any of the
following purposes --
- to make distributions to the certificateholders on each Distribution
Date;
- to pay the master servicer or the special servicer any servicing fees not
previously retained thereby, such payment to be made out of payments and
other collections of interest on the particular mortgage loans as to
which such fees were earned;
- to reimburse the master servicer, the special servicer or any other
specified person for unreimbursed advances of delinquent scheduled
payments of principal and interest made by it, and certain unreimbursed
servicing expenses incurred by it, with respect to mortgage loans in the
trust fund and properties acquired in respect of the trust fund, such
reimbursement to be made out of amounts that represent late payments
collected on the particular mortgage loans, Liquidation Proceeds and
Insurance and Condemnation Proceeds collected on the particular mortgage
loans and properties, and net income collected on the particular
properties, with respect to which such advances were made or such
expenses were incurred or out of amounts drawn under any form of credit
support with respect to such mortgage loans and properties, or if in the
judgment of the master servicer, the special servicer or such other
person, as applicable, such advances and/or expenses will not be
recoverable from such amounts, such reimbursement to be made from amounts
collected on other mortgage loans in the same trust fund or, if and to
the extent so provided by the related Pooling and Servicing Agreement and
described in the related prospectus supplement, only from that portion of
amounts collected on such other mortgage loans that is otherwise
distributable on one or more classes of Subordinate Certificates of the
related series;
- if and to the extent described in the related prospectus supplement, to
pay the master servicer, the special servicer or any other specified
person interest accrued on the advances and servicing expenses described
in the bulleted clause immediately listed above incurred by it while such
remain outstanding and unreimbursed;
- to pay for costs and expenses incurred by the trust fund for
environmental site assessments performed with respect to mortgaged
properties that constitute security for defaulted mortgage loans, and for
any containment, clean-up or remediation of hazardous wastes and
materials present on such mortgaged properties, as described under
"-- Realization Upon Defaulted Mortgage Loans";
42
- to reimburse the master servicer, the special servicer, the REMIC
administrator, the depositor, the trustee, or any of their respective
directors, officers, employees and agents, as the case may be, for
certain expenses, costs and liabilities incurred thereby, as and to the
extent described under "-- Certain Matters Regarding the Master Servicer,
the Special Servicer, the REMIC Administrator and the Depositor" and
"-- Certain Matters Regarding the Trustee";
- if and to the extent described in the related prospectus supplement, to
pay the fees of the trustee, the REMIC administrator and any provider of
credit support;
- if and to the extent described in the related prospectus supplement, to
reimburse prior draws on any form of credit support;
- to pay the master servicer, the special servicer or the trustee, as
appropriate, interest and investment income earned in respect of amounts
held in the Certificate Account as additional compensation;
- to pay any servicing expenses not otherwise required to be advanced by
the master servicer, the special servicer or any other specified person;
- if one or more elections have been made to treat the trust fund or
designated portions of the trust fund as a REMIC, to pay any federal,
state or local taxes imposed on the trust fund or its assets or
transactions, as and to the extent described under "Certain Federal
Income Tax Consequences -- REMICs -- Prohibited Transactions Tax and
Other Taxes";
- to pay for the cost of various opinions of counsel obtained pursuant to
the related Pooling and Servicing Agreement for the benefit of
certificateholders;
- to make any other withdrawals permitted by the related Pooling and
Servicing Agreement and described in the related prospectus supplement;
and
- to clear and terminate the Certificate Account upon the termination of
the trust fund.
MODIFICATIONS, WAIVERS AND AMENDMENTS OF MORTGAGE LOANS
The master servicer and the special servicer may each agree to modify,
waive or amend any term of any mortgage loan serviced by it in a manner
consistent with the applicable "Servicing Standard" as defined in the related
prospectus supplement; provided that, unless otherwise set forth in the related
prospectus supplement, the modification, waiver or amendment will --
- not affect the amount or timing of any scheduled payments of principal or
interest on the mortgage loan;
- will not, in the judgment of the master servicer or the special servicer,
as the case may be, materially impair the security for the mortgage loan
or reduce the likelihood of timely payment of amounts due; and
- will not adversely affect the coverage under any applicable instrument of
credit support.
Unless otherwise provided in the related prospectus supplement, the special
servicer also may agree to any other modification, waiver or amendment if, in
its judgment, --
- a material default on the mortgage loan has occurred or a payment default
is reasonably foreseeable or imminent;
- such modification, waiver or amendment is reasonably likely to produce a
greater recovery with respect to the mortgage loan, taking into account
the time value of money, than would liquidation; and
- unless inconsistent with the applicable "Servicing Standard", such
modification, waiver or amendment will not materially adversely affect
the coverage under any applicable instrument of credit support.
REALIZATION UPON DEFAULTED MORTGAGE LOANS
If a default on a mortgage loan has occurred, the special servicer, on
behalf of the trustee, may at any time institute foreclosure proceedings,
exercise any power of sale contained in the related mortgage, obtain a deed in
43
lieu of foreclosure, or otherwise comparably convert ownership of, or acquire
title to the related mortgaged property, by operation of law or otherwise. In
connection with such foreclosure or other conversion of ownership, the special
servicer shall follow the servicing standard. A Pooling and Servicing Agreement
may grant the special servicer the right to direct the master servicer to
advance costs and expenses to be incurred in any such proceedings, and such
advances may be subject to reimbursement requirements. A Pooling and Servicing
Agreement may require the special servicer to consult with independent counsel
regarding the order and manner should foreclose upon or comparably proceed
against such properties if a mortgage loan or group of cross-collaterized
mortgage loans are secured by real properties in multiple states including
certain states with a statute, rule or regulation comparable to California's
"one action" rule. Unless otherwise provided in the related prospectus
supplement, when applicable state law permits the special servicer to select
between judicial and non-judicial foreclosure in respect of any mortgaged
property, a special servicer may make such selection so long as the selection is
made in a manner consistent with the servicing standard. Unless otherwise
specified in the related prospectus supplement, the special servicer may not,
however, acquire title to any mortgaged property, have a receiver of rents
appointed with respect to any mortgaged property or take any other action with
respect to any mortgaged property that would cause the trustee, for the benefit
of the related series of Certificateholders, or any other specified person to be
considered to hold title to, to be a "mortgagee-in-possession" of, or to be an
"owner" or an "operator" of such mortgaged property within the meaning of
certain federal environmental laws, unless the special servicer has previously
received a report prepared by a person who regularly conducts environmental
audits (which report will be an expense of the trust fund) and either:
(1) such report indicates that (a) the mortgaged property is in
compliance with applicable environmental laws and regulations and (b) there
are no circumstances or conditions present at the mortgaged property that
have resulted in any contamination for which investigation, testing,
monitoring, containment, clean-up or remediation could be required under
any applicable environmental laws and regulations; or
(2) the special servicer, based solely (as to environmental matters
and related costs) on the information set forth in such report, determines
that taking such actions as are necessary to bring the mortgaged property
into compliance with applicable environmental laws and regulations and/or
taking the actions contemplated by clause (1)(b) above, is reasonably
likely to produce a greater recovery, taking into account the time value of
money, than not taking such actions. See "Certain Legal Aspects of Mortgage
Loans -- Environmental Considerations".
A Pooling and Servicing Agreement may grant to the master servicer, the
special servicer, a provider of credit support and/or the holder or holders of
certain classes of the related series of certificates a right of first refusal
to purchase from the trust fund, at a predetermined price (which, if less than
the Purchase Price, will be specified in the related prospectus supplement), any
mortgage loan as to which a specified number of scheduled payments are
delinquent. In addition, unless otherwise specified in the related prospectus
supplement, the special servicer may offer to sell any defaulted mortgage loan
if and when the special servicer determines, consistent with its normal
servicing procedures, that such a sale would produce a greater recovery, taking
into account the time value of money, than would liquidation of the related
mortgaged property. In the absence of any such sale, the special servicer will
generally be required to proceed against the related mortgaged property, subject
to the discussion above.
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 before the close of the third calendar
year following the year of acquisition, unless (1) the IRS grants an extension
of time to sell such property or (2) the trustee receives an opinion of
independent counsel to the effect that the holding of the property by the trust
fund for longer than such period will not result in the imposition of a tax on
the trust fund or cause the trust fund (or any designated portion of 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 and any other tax-related
limitations, the special servicer will generally be required to attempt to sell
any mortgaged property so acquired on the same terms and conditions it would if
it were the owner. 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 will also be required
to ensure that the mortgaged property is administered so that it constitutes
"foreclosure property" within the
44
meaning of Code Section 860G(a)(8) at all times, that the sale of such property
does not result in the receipt by the trust fund of any income from nonpermitted
assets as described in Code Section 860F(a)(2)(B), and that the trust fund does
not derive any "net income from foreclosure property" within the meaning of Code
Section 860G(c)(2), with respect to such property unless the method of operation
that produces such income would produce a greater after-tax return than a
different method of operation of such property. If the trust fund acquires title
to any mortgaged property, the special servicer, on behalf of the trust fund,
may be required to retain an independent contractor to manage and operate such
property. The retention of an independent contractor, however, will not relieve
the special servicer of its obligation to manage such mortgaged property as
required under the related Pooling and Servicing Agreement.
If Liquidation Proceeds collected with respect to a defaulted mortgage loan
are less than the outstanding principal balance of the defaulted mortgage loan
plus interest accrued plus the aggregate amount of reimbursable expenses
incurred by the special servicer and/or the master servicer in connection with
such mortgage loan, then, to the extent that such shortfall is not covered by
any instrument or fund constituting credit support, the trust fund will realize
a loss in the amount of such shortfall. The special servicer and/or the master
servicer will be entitled to reimbursement out of the Liquidation Proceeds
recovered on any defaulted mortgage loan, prior to the distribution of such
Liquidation Proceeds to certificateholders, any and all amounts that represent
unpaid servicing compensation in respect of the mortgage loan, unreimbursed
servicing expenses incurred with respect to the mortgage loan and any
unreimbursed advances of delinquent payments made with respect to the mortgage
loan. In addition, if and to the extent set forth in the related prospectus
supplement, amounts otherwise distributable on the certificates may be further
reduced by interest payable to the master servicer and/or special servicer on
such servicing expenses and advances.
Except as otherwise provided in the prospectus supplement, if any mortgaged
property suffers damage such that the proceeds, if any, of the related hazard
insurance policy are insufficient to restore fully the damaged property, neither
the special servicer nor the master servicer will be required to expend its own
funds to effect such restoration.
HAZARD INSURANCE POLICIES
Unless otherwise specified in the related prospectus supplement, each
Pooling and Servicing Agreement will require the master servicer (or the special
servicer with respect to mortgage loans serviced thereby) to use reasonable
efforts to cause each mortgage loan borrower to maintain a hazard insurance
policy that provides for such coverage as is required under the related mortgage
or, if the mortgage permits the holder to dictate to the borrower the insurance
coverage to be maintained on the related mortgaged property, such coverage as is
consistent with the master servicer's (or special servicer's) normal servicing
procedures. Unless otherwise specified in the related prospectus supplement,
such coverage generally will be in an amount equal to the lesser of the
principal balance owing on such mortgage loan and the replacement cost of the
related mortgaged property. The ability of a master servicer (or special
servicer) to assure that hazard insurance proceeds are appropriately applied may
be dependent upon its being named as an additional insured under any hazard
insurance policy and under any other insurance policy referred to below, or upon
the extent to which information concerning covered losses is furnished by
borrowers. All amounts collected by a master servicer (or special servicer)
under any such policy (except for amounts to be applied to the restoration or
repair of the mortgaged property or released to the borrower in accordance with
the master servicer's (or special servicer's) normal servicing procedures and/or
to the terms and conditions of the related mortgage and mortgage note) will be
deposited in the related Certificate Account. The Pooling and Servicing
Agreement may provide that the master servicer (or special servicer) may satisfy
its obligation to cause each borrower to maintain such a hazard insurance policy
by maintaining a blanket policy insuring against hazard losses on the mortgage
loans in a trust fund, which may contain a deductible clause (not in excess of a
customary amount). If such blanket policy contains a deductible clause, the
master servicer (or special servicer) will be required, in the event of a
casualty covered by such blanket policy, to deposit in the related Certificate
Account all additional sums that would have been deposited in the Certificate
Account under an individual policy but were not because of such deductible
clause.
In general, the standard form of fire and extended coverage policy covers
physical damage to or destruction of the improvements of the property by fire,
lightning, explosion, smoke, windstorm and hail, and riot, strike and
45
civil commotion, subject to the conditions and exclusions specified in each
policy. Although the policies covering the mortgaged properties will be
underwritten by different insurers under different state laws in accordance with
different applicable state forms, and therefore will not contain identical terms
and conditions, most such policies typically do not cover any physical damage
resulting from war, revolution, governmental actions, floods and other
water-related causes, earth movement (including earthquakes, landslides and
mudflows), wet or dry rot, vermin and domestic animals. Accordingly, a mortgaged
property may not be insured for losses arising from any such cause unless the
related mortgage specifically requires, or permits the holder to require, such
coverage.
The hazard insurance policies covering the mortgaged properties will
typically contain co-insurance clauses that in effect require an insured at all
times to carry insurance of a specified percentage (generally 80% to 90%) of the
full replacement value of the improvements on the property in order to recover
the full amount of any partial loss. If the insured's coverage falls below this
specified percentage, such clauses generally provide that the insurer's
liability in the event of partial loss does not exceed the lesser of (1) the
replacement cost of the improvements less physical depreciation and (2) such
proportion of the loss as the amount of insurance carried bears to the specified
percentage of the full replacement cost of such improvements.
DUE-ON-SALE AND DUE-ON-ENCUMBRANCE PROVISIONS
Certain of the mortgage loans may contain a due-on-sale clause that
entitles the lender to accelerate payment of the mortgage loan upon any sale or
other transfer of the related mortgaged property made without the lender's
consent. Certain of the mortgage loans may also contain a due-on-encumbrance
clause that entitles the lender to accelerate the maturity of the mortgage loan
upon the creation of any other lien or encumbrance upon the mortgaged property.
Unless otherwise provided in the related prospectus supplement, the master
servicer (or special servicer) will determine whether to exercise any right the
trustee may have under any such provision in a manner consistent with the master
servicer's (or special servicer's) normal servicing procedures. Unless otherwise
specified in the related prospectus supplement, the master servicer or special
servicer, as applicable, will be entitled to retain as additional servicing
compensation any fee collected in connection with the permitted transfer of a
mortgaged property. See "Certain Legal Aspects of Mortgage Loans -- Due-on-Sale
and Due-on-Encumbrance Provisions".
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
Unless otherwise specified in the related prospectus supplement, a master
servicer's primary servicing compensation with respect to a series of
certificates will come from the periodic payment to it of a specified portion of
the interest payments on each mortgage loan in the related trust fund, including
mortgage loans serviced by the related special servicer. If and to the extent
described in the related prospectus supplement, a special servicer's primary
compensation with respect to a series of certificates may consist of any or all
of the following components --
- a specified portion of the interest payments on each mortgage loan in the
related trust fund, whether or not serviced by it;
- an additional specified portion of the interest payments on each mortgage
loan then currently serviced by it; and
- subject to any specified limitations, a fixed percentage of some or all
of the collections and proceeds received with respect to each mortgage
loan which was at any time serviced by it, including mortgage loans for
which servicing was returned to the master servicer.
Insofar as any portion of the master servicer's or special servicer's
compensation consists of a specified portion of the interest payments on a
mortgage loan, such compensation will generally be based on a percentage of the
principal balance of such mortgage loan outstanding from time to time and,
accordingly, will decrease with the amortization of the mortgage loan. As
additional compensation, a master servicer or special servicer may be entitled
to retain all or a portion of late payment charges, Prepayment Premiums,
modification fees and other fees collected from borrowers and any interest or
other income that may be earned on funds held in the related Certificate
Account. A more detailed description of each master servicer's and special
servicer's compensation
46
will be provided in the related prospectus supplement. Any sub-servicer will
receive as its sub-servicing compensation a portion of the servicing
compensation to be paid to the master servicer or special servicer that retained
such sub-servicer.
In addition to amounts payable to any sub-servicer, a master servicer or
special servicer may be required, to the extent provided in the related
prospectus supplement, to pay from amounts that represent its servicing
compensation certain expenses incurred in connection with the administration of
the related trust fund, including, without limitation, payment of the fees and
disbursements of independent accountants, payment of fees and disbursements of
the trustee and any custodians appointed thereby and payment of expenses
incurred in connection with distributions and reports to certificateholders.
Certain other expenses, including certain expenses related to mortgage loan
defaults and liquidations and, to the extent so provided in the related
prospectus supplement, interest on such expenses at the rate specified in the
prospectus supplement, may be required to be borne by the trust fund.
EVIDENCE AS TO COMPLIANCE
Unless otherwise specified in the related prospectus supplement, each
Pooling and Servicing Agreement will provide that on or before a specified date
in each year, beginning the first such date that is at least a specified number
of months after the Cut-off Date, there will be furnished to the related trustee
a report of a firm of independent certified public accountants stating that (1)
it has obtained a letter of representation regarding certain matters from the
management of the master servicer which includes an assertion that the master
servicer has complied with certain minimum mortgage loan servicing standards (to
the extent applicable to commercial and multifamily mortgage loans), identified
in the Uniform Single Attestation Program for Mortgage Bankers established by
the Mortgage Bankers Association of America, with respect to the master
servicer's servicing of commercial and multifamily mortgage loans during the
most recently completed calendar year and (2) on the basis of an examination
conducted by such firm in accordance with standards established by the American
Institute of Certified Public Accountants, such representation is fairly stated
in all material respects, subject to such exceptions and other qualifications
that, in the opinion of such firm, such standards require it to report. In
rendering its report such firm may rely, as to the matters relating to the
direct servicing of commercial and multifamily mortgage loans by sub-servicers,
upon comparable reports of firms of independent public accountants rendered on
the basis of examinations conducted in accordance with the same standards
(rendered within one year of such report) with respect to those sub-servicers.
The prospectus supplement may provide that additional reports of independent
certified public accountants relating to the servicing of mortgage loans may be
required to be delivered to the trustee.
Each Pooling and Servicing Agreement will also provide that, on or before a
specified date in each year, beginning the first such date that is at least a
specified number of months after the Cut-off Date, the master servicer and
special servicer shall each deliver to the related trustee an annual statement
signed by one or more officers of the master servicer or the special servicer,
as the case may be, to the effect that, to the best knowledge of each such
officer, the master servicer or the special servicer, as the case may be, has
fulfilled in all material respects its obligations under the Pooling and
Servicing Agreement throughout the preceding year or, if there has been a
material default in the fulfillment of any such obligation, such statement shall
specify each such known default and the nature and status of such default. Such
statement may be provided as a single form making the required statements as to
more than one Pooling and Servicing Agreement.
Unless otherwise specified in the related prospectus supplement, copies of
the annual accountants' statement and the annual statement of officers of a
master servicer or special servicer may be obtained by certificateholders upon
written request to the trustee.
CERTAIN MATTERS REGARDING THE MASTER SERVICER, THE SPECIAL SERVICER, THE REMIC
ADMINISTRATOR AND THE DEPOSITOR
Any entity serving as master servicer, special servicer or REMIC
administrator under a Pooling and Servicing Agreement may be an affiliate of the
depositor and may have other normal business relationships with the depositor or
the depositor's affiliates. Unless otherwise specified in the prospectus
supplement for a series of
47
certificates, the related Pooling and Servicing Agreement will permit the master
servicer, the special servicer and any REMIC administrator to resign from its
obligations under the Pooling and Servicing Agreement only upon a determination
that such obligations are no longer permissible under applicable law or are in
material conflict by reason of applicable law with any other activities carried
on by it. No such resignation will become effective until the trustee or other
successor has assumed the obligations and duties of the resigning master
servicer, special servicer or REMIC administrator, as the case may be, under the
Pooling and Servicing Agreement. The master servicer and special servicer for
each trust fund will be required to maintain a fidelity bond and errors and
omissions policy or their equivalent that provides coverage against losses that
may be sustained as a result of an officer's or employee's misappropriation of
funds or errors and omissions, subject to certain limitations as to amount of
coverage, deductible amounts, conditions, exclusions and exceptions permitted by
the related Pooling and Servicing Agreement.
Unless otherwise specified in the related prospectus supplement, each
Pooling and Servicing Agreement will further provide that none of the master
servicer, the special servicer, the REMIC administrator, the depositor, any
extension adviser or any director, officer, employee or agent of any of them
will be under any liability to the related trust fund or Certificateholders for
any action taken, or not taken, in good faith pursuant to the Pooling and
Servicing Agreement or for errors in judgment; provided, however, that none of
the master servicer, the special servicer, the REMIC administrator, the
depositor, any extension adviser or any such person will be protected against
any liability that would otherwise be imposed by reason of willful misfeasance,
bad faith or gross negligence in the performance of obligations or duties under
the Pooling and Servicing Agreement or by reason of reckless disregard of such
obligations and duties. Unless otherwise specified in the related prospectus
supplement, each Pooling and Servicing Agreement will further provide that the
master servicer, the special servicer, the REMIC administrator, the depositor,
any extension adviser and any director, officer, employee or agent of any of
them will be entitled to indemnification by the related trust fund against any
loss, liability or expense incurred in connection with any legal action that
relates to such Pooling and Servicing Agreement or the related series of
certificates; provided, however, that such indemnification will not extend to
any loss, liability or expense incurred by reason of willful misfeasance, bad
faith or negligence in the performance of obligations or duties under such
Pooling and Servicing Agreement, or by reason of reckless disregard of such
obligations or duties. In addition, each Pooling and Servicing Agreement will
provide that none of the master servicer, the special servicer, the REMIC
administrator, any extension adviser or the depositor will be under any
obligation to appear in, prosecute or defend any legal action that is not
incidental to its respective responsibilities under the Pooling and Servicing
Agreement and that in its opinion may involve it in any expense or liability.
However, each of the master servicer, the special servicer, the REMIC
administrator, any extension adviser and the depositor will be permitted, in the
exercise of its discretion, to undertake any such action that it may deem
necessary or desirable with respect to the enforcement and/or protection of the
rights and duties of the parties to the Pooling and Servicing Agreement and the
interests of the related series of certificateholders under the Pooling and
Servicing Agreement. In such event, the legal expenses and costs of such action,
and any liability resulting from such action, will be expenses, costs and
liabilities of the related series of certificateholders, and the master
servicer, the special servicer, the REMIC administrator, any extension adviser
or the depositor, as the case may be, will be entitled to charge the related
Certificate Account for this expense.
Any person into which the master servicer, the special servicer, the REMIC
administrator or the depositor may be merged or consolidated, or any person
resulting from any merger or consolidation to which the master servicer, the
special servicer, the REMIC administrator or the depositor is a party, or any
person succeeding to the business of the master servicer, the special servicer,
the REMIC administrator or the depositor, will be the successor of the master
servicer, the special servicer, the REMIC administrator or the depositor, as the
case may be, under the related Pooling and Servicing Agreement.
Unless otherwise specified in the related prospectus supplement, a REMIC
administrator will be entitled to perform any of its duties under the related
Pooling and Servicing Agreement either directly or by or through agents or
attorneys, and the REMIC administrator will not be responsible for any willful
misconduct or gross negligence on the part of any such agent or attorney
appointed by it with due care.
48
EVENTS OF DEFAULT
Unless otherwise provided in the prospectus supplement for a series of
certificates, Events of Default under the related Pooling and Servicing
Agreement will include, without limitation --
- any failure by the master servicer to distribute or cause to be
distributed to the certificateholders of such series, or to remit to the
trustee for distribution to such certificateholders, any amount required
to be so distributed or remitted, pursuant to, and at the time specified
by, the terms of the Pooling and Servicing Agreement;
- any failure by the special servicer to remit to the master servicer or
the trustee, as applicable, any amount required to be so remitted,
pursuant to, and at the time specified by, the terms of the Pooling and
Servicing Agreement;
- any failure by the master servicer or the special servicer duly to
observe or perform in any material respect any of its other covenants or
obligations under the related Pooling and Servicing Agreement, which
failure continues unremedied for thirty days after written notice of such
failure has been given to the master servicer or the special servicer, as
the case may be, by any other party to the related Pooling and Servicing
Agreement, or to the master servicer or the special servicer, as the case
may be, with a copy to each other party to the related Pooling and
Servicing Agreement, by certificateholders entitled to not less than 25%
(or such other percentage specified in the related prospectus supplement)
of the Voting Rights for such series;
- any failure by a REMIC administrator (if other than the trustee) duly to
observe or perform in any material respect any of its covenants or
obligations under the related Pooling and Servicing Agreement, which
failure continues unremedied for thirty days after written notice of such
notice has been given to the REMIC administrator by any other party to
the related Pooling and Servicing Agreement, or to the REMIC
administrator, with a copy to each other party to the related Pooling and
Servicing Agreement, by certificateholders entitled to not less than 25%
(or such other percentage specified in the related prospectus supplement)
of the Voting Rights for such series;
- certain events involving a determination by a rating agency that the
master servicer or the special servicer is no longer approved by such
rating agency to serve in such capacity; and
- certain events of insolvency, readjustment of debt, marshaling of assets
and liabilities, or similar proceedings in respect of or relating to the
master servicer, the special servicer or the REMIC administrator (if
other than the trustee), and certain actions by or on behalf of the
master servicer, the special servicer or the REMIC administrator (if
other than the trustee) indicating its insolvency or inability to pay its
obligations.
Material variations to the foregoing Events of Default (other than to add
thereto or shorten cure periods or eliminate notice requirements) will be
specified in the related prospectus supplement. Unless otherwise specified in
the related prospectus supplement, when a single entity acts as master servicer,
special servicer and REMIC administrator, or in any two of the foregoing
capacities, for any trust fund, an Event of Default in one capacity will (except
where related only to a Rating Agency's evaluation of the acceptability of such
entity to act in a particular capacity) constitute an event of default in each
capacity.
RIGHTS UPON EVENT OF DEFAULT
If an Event of Default occurs with respect to the master servicer, the
special servicer or a REMIC administrator under a Pooling and Servicing
Agreement, then, in each and every such case, so long as the Event of Default
remains unremedied, the depositor or the trustee will be authorized, and at the
direction of certificateholders of the related series entitled to not less than
51% (or such other percentage specified in the related prospectus supplement) of
the Voting Rights for such series, the trustee will be required, to terminate
all of the rights and obligations of the defaulting party as master servicer,
special servicer or REMIC administrator, as applicable, under the Pooling and
Servicing Agreement, whereupon the trustee will succeed to all of the
responsibilities, duties and liabilities of the defaulting party as master
servicer, special servicer or REMIC
49
administrator, as applicable, under the Pooling and Servicing Agreement (except
that if the defaulting party is required to make advances under the Pooling and
Servicing Agreement regarding delinquent mortgage loans, but the trustee is
prohibited by law from obligating itself to make such advances, or if the
related prospectus supplement so specifies, the trustee will not be obligated to
make such advances) and will be entitled to similar compensation arrangements.
Unless otherwise specified in the related prospectus supplement, if the trustee
is unwilling or unable so to act, it may (or, at the written request of
Certificateholders of the related series entitled to not less than 51% (or such
other percentage specified in the related prospectus supplement) of the Voting
Rights for such series, it will be required to) appoint, or petition a court of
competent jurisdiction to appoint, a loan servicing institution or other entity
that (unless otherwise provided in the related prospectus supplement) is
acceptable to each applicable rating agency to act as successor to the master
servicer, special servicer or REMIC administrator, as the case may be, under the
Pooling and Servicing Agreement. Pending such appointment, the trustee will be
obligated to act in such capacity.
If the same entity is acting as both trustee and REMIC administrator, it
may be removed in both such capacities as described under "-- Resignation and
Removal of the Trustee" below.
No certificateholder will have any right under a Pooling and Servicing
Agreement to institute any proceeding with respect to such Pooling and Servicing
Agreement unless such holder previously has given to the trustee written notice
of default and the continuance of such default and unless the holders of
certificates of any class evidencing not less than 25% of the aggregate
Percentage Interests constituting such class have made written request upon the
trustee to institute such proceeding in its own name as trustee under the
Pooling and Servicing Agreement and have offered to the trustee reasonable
indemnity and the trustee for sixty days after receipt of such request and
indemnity has neglected or refused to institute any such proceeding. However,
the trustee will be under no obligation to exercise any of the trusts or powers
vested in it by the Pooling and Servicing Agreement or to institute, conduct or
defend any litigation under the Pooling and Servicing Agreement or in relation
thereto at the request, order or direction of any of the holders of certificates
covered by such Pooling and Servicing Agreement, unless such certificateholders
have offered to the trustee reasonable security or indemnity against the costs,
expenses and liabilities which may be incurred in connection with such
litigation.
AMENDMENT
Except as otherwise specified in the related prospectus supplement, each
Pooling and Servicing Agreement may be amended by the parties thereto, without
the consent of any of the holders of certificates covered by such Pooling and
Servicing Agreement, (1) to cure any ambiguity, (2) to correct or supplement any
provision in the Pooling and Servicing Agreement which may be inconsistent with
any other provision in the Pooling and Servicing Agreement or to correct any
error, (3) to change the timing and/or nature of deposits in the Certificate
Account, provided that (A) such change would not adversely affect in any
material respect the interests of any Certificateholder, as evidenced by an
opinion of counsel, and (B) such change would not result in the withdrawal,
downgrade or qualification of any of the then-current ratings on the
certificates, as evidenced by a letter from each applicable rating agency, (4)
if a REMIC election has been made with respect to the related trust fund, to
modify, eliminate or add to any of its provisions (A) to such extent as shall be
necessary to maintain the qualification of the trust fund (or any designated
portion of the trust fund) as a REMIC or to avoid or minimize the risk of
imposition of any tax on the related trust fund, provided that the trustee has
received an opinion of counsel to the effect that (1) such action is necessary
or desirable to maintain such qualification or to avoid or minimize such risk,
and (2) such action will not adversely affect in any material respect the
interests of any holder of certificates covered by the Pooling and Servicing
Agreement, or (B) to restrict the transfer of the REMIC Residual Certificates,
provided that the depositor has determined that the then-current ratings of the
classes of the certificates that have been rated will not be withdrawn,
downgraded or qualified, as evidenced by a letter from each applicable rating
agency, and that any such amendment will not give rise to any tax with respect
to the transfer of the REMIC Residual Certificates to a non-permitted transferee
(See "Certain Federal Income Tax Consequences -- REMICs -- Tax and Restrictions
on Transfers of REMIC Residual Certificates to Certain Organizations" in this
prospectus supplement), (5) to make any other provisions with respect to matters
or questions arising under such Pooling and Servicing Agreement or any other
change, provided that such action
50
will not adversely affect in any material respect the interests of any
certificateholder, or (6) to amend specified provisions that are not material to
holders of any class of certificates offered by this prospectus.
The Pooling and Servicing Agreement may also be amended by the parties
thereto with the consent of the holders of certificates of each class affected
thereby evidencing, in each case, not less than 66 2/3% (or such other
percentage specified in the related prospectus supplement) of the aggregate
Percentage Interests constituting such class for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
such Pooling and Servicing Agreement or of modifying in any manner the rights of
the holders of certificates covered by such Pooling and Servicing Agreement,
except that no such amendment may (1) reduce in any manner the amount of, or
delay the timing of, payments received on mortgage loans which are required to
be distributed on a certificate of any class without the consent of the holder
of such certificate or (2) reduce the aforesaid percentage of certificates of
any class the holders of which are required to consent to any such amendment
without the consent of the holders of all certificates of such class covered by
such Pooling and Servicing Agreement then outstanding.
Notwithstanding the foregoing, if one or more REMIC elections have been
made with respect to the related trust fund, the trustee will not be required to
consent to any amendment to a Pooling and Servicing Agreement without having
first received an opinion of counsel to the effect that such amendment or the
exercise of any power granted to the master servicer, the special servicer, the
depositor, the trustee or any other specified person in accordance with such
amendment will not result in the imposition of a tax on the related trust fund
or cause such trust fund (or any designated portion of the trust fund) to fail
to qualify as a REMIC.
LIST OF CERTIFICATEHOLDERS
Unless otherwise specified in the related prospectus supplement, upon
written request of three or more certificateholders of record made for purposes
of communicating with other holders of certificates of the same series with
respect to their rights under the related Pooling and Servicing Agreement, the
trustee or other specified person will afford such certificateholders access
during normal business hours to the most recent list of certificateholders of
that series held by such person. If such list is as of a date more than 90 days
prior to the date of receipt of such certificateholders' request, then such
person, if not the registrar for such series of certificates, will be required
to request from such registrar a current list and to afford such requesting
certificateholders access thereto promptly upon receipt.
THE TRUSTEE
The trustee under each Pooling and Servicing Agreement will be named in the
related prospectus supplement. The commercial bank, national banking
association, banking corporation or trust company that serves as trustee may
have typical banking relationships with the depositor and its affiliates and
with any master servicer, special servicer or REMIC administrator and its
affiliates.
DUTIES OF THE TRUSTEE
The trustee for each series of certificates will make no representation as
to the validity or sufficiency of the related Pooling and Servicing Agreement,
such certificates or any underlying mortgage asset or related document and will
not be accountable for the use or application by or on behalf of any master
servicer or special servicer of any funds paid to the master servicer or special
servicer in respect of the certificates or the underlying mortgage assets. If no
Event of Default has occurred and is continuing, the trustee for each series of
certificates will be required to perform only those duties specifically required
under the related Pooling and Servicing Agreement. However, upon receipt of any
of the various certificates, reports or other instruments required to be
furnished to it pursuant to the related Pooling and Servicing Agreement, a
trustee will be required to examine such documents and to determine whether they
conform to the requirements of such agreement.
51
CERTAIN MATTERS REGARDING THE TRUSTEE
As and to the extent described in the related prospectus supplement, the
fees and normal disbursements of any trustee may be the expense of the related
master servicer or other specified person or may be required to be borne by the
related trust fund.
Unless otherwise specified in the related prospectus supplement, the
trustee for each series of certificates will be entitled to indemnification,
from amounts held in the Certificate Account for such series, for any loss,
liability or expense incurred by the trustee in connection with the trustee's
acceptance or administration of its trusts under the related Pooling and
Servicing Agreement; provided, however, that such indemnification will not
extend to any loss liability or expense incurred by reason of willful
misfeasance, bad faith or gross negligence on the part of the trustee in the
performance of its obligations and duties under the Pooling and Servicing
Agreement, or by reason of its reckless disregard of such obligations or duties.
Unless otherwise specified in the related prospectus supplement, the
trustee for each series of certificates will be entitled to execute any of its
trusts or powers under the related Pooling and Servicing Agreement or perform
any of its duties under the Pooling and Servicing Agreement either directly or
by or through agents or attorneys, and the trustee will not be responsible for
any willful misconduct or negligence on the part of any such agent or attorney
appointed by it with due care.
RESIGNATION AND REMOVAL OF THE TRUSTEE
The trustee may resign at any time, in which event the depositor will be
obligated to appoint a successor trustee. The depositor may also remove the
trustee if the trustee ceases to be eligible to continue as such under the
Pooling and Servicing Agreement or if the trustee becomes insolvent. Upon
becoming aware of such circumstances, the depositor will be obligated to appoint
a successor trustee. The trustee may also be removed at any time by the holders
of certificates of the applicable series evidencing not less than 33 1/3% (or
such other percentage specified in the related prospectus supplement) of the
Voting Rights for such series. Any resignation or removal of the trustee and
appointment of a successor trustee will not become effective until acceptance of
the appointment by the successor trustee. Notwithstanding anything in this
prospectus to the contrary, if any entity is acting as both trustee and REMIC
administrator, then any resignation or removal of such entity as the trustee
will also constitute the resignation or removal of such entity as REMIC
administrator, and the successor trustee will serve as successor to the REMIC
administrator as well.
DESCRIPTION OF CREDIT SUPPORT
GENERAL
Credit support may be provided with respect to one or more classes of the
certificates of any series or with respect to the related mortgage assets.
Credit support may be in the form of a letter of credit, the subordination of
one or more classes of certificates, the use of a pool insurance policy or
guarantee insurance, the establishment of one or more reserve funds and/or cash
collateral accounts, overcollateralization, or another method of credit support
described in the related prospectus supplement, or any combination of the
foregoing. If and to the extent so provided in the related prospectus
supplement, any of the foregoing forms of credit support may provide credit
enhancement for more than one series of certificates.
Unless otherwise provided in the related prospectus supplement for a series
of certificates, the credit support will not provide protection against all
risks of loss and will not guarantee payment to certificateholders of all
amounts to which they are entitled under the related Pooling and Servicing
Agreement. If losses or shortfalls occur that exceed the amount covered by the
related credit support or that are of a type not covered by such credit support,
certificateholders will bear their allocable share of deficiencies. Moreover, if
a form of credit support covers the offered certificates of more than one series
and losses on the related mortgage assets exceed the amount of such credit
support, it is possible that the holders of offered certificates of one (or
more) such series will be disproportionately benefited by such credit support to
the detriment of the holders of offered certificates of one (or more) other such
series.
52
If credit support is provided with respect to one or more classes of
certificates of a series, or with respect to the related mortgage assets, the
related prospectus supplement will include a description of --
- the nature and amount of coverage under such credit support;
- any conditions to payment under the credit support not otherwise
described in this prospectus;
- the conditions (if any) under which the amount of coverage under such
credit support may be reduced and under which such credit support may be
terminated or replaced; and
- the material provisions relating to such credit support.
Additionally, the related prospectus supplement will set forth certain
information with respect to the obligor, if any, under any instrument of credit
support. See "Risk Factors -- Credit Support Limitations".
SUBORDINATE CERTIFICATES
If so specified in the related prospectus supplement, one or more classes
of certificates of a series may be Subordinate Certificates. To the extent
specified in the related prospectus supplement, the rights of the holders of
Subordinate Certificates to receive distributions from the Certificate Account
on any Distribution Date will be subordinated to the corresponding rights of the
holders of Senior Certificates. If so provided in the related prospectus
supplement, the subordination of a class may apply only in the event of certain
types of losses or shortfalls. The related prospectus supplement will set forth
information concerning the method and amount of subordination provided by a
class or classes of Subordinate Certificates in a series and the circumstances
under which such subordination will be available.
If the mortgage assets in any trust fund are divided into separate groups,
each supporting a separate class or classes of certificates of the related
series, credit support may be provided by cross-support provisions requiring
that distributions be made on Senior Certificates evidencing interests in one
group of mortgage assets prior to distributions on Subordinate Certificates
evidencing interests in a different group of mortgage assets within the trust
fund. The prospectus supplement for a series that includes a cross-support
provision will describe the manner and conditions for applying such provisions.
INSURANCE OR GUARANTEES CONCERNING TO MORTGAGE LOANS
If so provided in the prospectus supplement for a series of certificates,
mortgage loans included in the related trust fund will be covered for certain
default risks by insurance policies or guarantees. The related prospectus
supplement will describe the nature of such default risks and the extent of such
coverage.
LETTER OF CREDIT
If so provided in the prospectus supplement for a series of certificates,
deficiencies in amounts otherwise payable on such certificates or certain
classes of certificates will be covered by one or more letters of credit, issued
by a bank or other financial institution (which may be an affiliate of the
depositor) specified in such prospectus supplement. Under a letter of credit,
the providing institution will be obligated to honor draws in an aggregate fixed
dollar amount, net of unreimbursed payments under the letter of credit,
generally equal to a percentage specified in the related prospectus supplement
of the aggregate principal balance of some or all of the related mortgage assets
on the related Cut-off Date or of the initial aggregate Certificate Balance of
one or more classes of certificates. If so specified in the related prospectus
supplement, the letter of credit may permit draws only in the event of certain
types of losses and shortfalls. The amount available under the letter of credit
will, in all cases, be reduced to the extent of the unreimbursed payments under
the letter of credit and may otherwise be reduced as described in the related
prospectus supplement. The obligations of the providing institution under the
letter of credit for each series of certificates will expire at the earlier of
the date specified in the related prospectus supplement or the termination of
the trust fund.
53
CERTIFICATE INSURANCE AND SURETY BONDS
If so provided in the prospectus supplement for a series of certificates,
deficiencies in amounts otherwise payable on such certificates or certain
classes of certificates will be covered by insurance policies 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 or distributions of principal on the
basis of a schedule of principal distributions set forth in or determined in the
manner specified in the related prospectus supplement. The related prospectus
supplement will describe any limitations on the draws that may be made under any
such instrument.
RESERVE FUNDS
If so provided in the prospectus supplement for a series of certificates,
deficiencies in amounts otherwise payable on such certificates or certain
classes will be covered (to the extent of available funds) by one or more
reserve funds in which cash, a letter of credit, Permitted Investments, a demand
note or a combination will be deposited, in the amounts specified in such
prospectus supplement. If so specified in the related prospectus supplement, the
reserve fund for a series may also be funded over time by a specified amount of
certain collections received on the related mortgage assets.
Amounts on deposit in any reserve fund for a series will be applied for the
purposes, in the manner, and to the extent specified in the related prospectus
supplement. If so specified in the related prospectus supplement, reserve funds
may be established to provide protection only against certain types of losses
and shortfalls. Following each Distribution Date, amounts in a reserve fund in
excess of any amount required to be maintained in such reserve funds may be
released from the reserve fund under the conditions and to the extent specified
in the related prospectus supplement.
If so specified in the related prospectus supplement, amounts deposited in
any reserve fund will be invested in Permitted Investments. Unless otherwise
specified in the related prospectus supplement, any reinvestment income or other
gain from such investments will be credited to the related reserve fund for such
series, and any loss resulting from such investments will be charged to such
reserve fund. However, such income may be payable to any related master servicer
or another service provider as additional compensation for its services. The
reserve fund, if any, for a series will not be a part of the trust fund unless
otherwise specified in the related prospectus supplement.
CASH COLLATERAL ACCOUNT
If so specified in the related prospectus supplement, all or any portion of
credit enhancement for a series of certificates may be provided by the
establishment of a cash collateral account. A cash collateral account will be
similar to a reserve fund except that generally a cash collateral account is
funded initially by a loan from a cash collateral lender, the proceeds of which
are invested with the cash collateral lender or other eligible institution. The
loan from the cash collateral lender will be repaid from such amounts as are
specified in the related prospectus supplement. Amounts on deposit in the cash
collateral account will be available in generally the same manner described
above with respect to a reserve fund. As specified in the related prospectus
supplement, a cash collateral account may be deemed to be part of the assets of
the related Trust, may be deemed to be part of the assets of a separate cash
collateral trust or may be deemed to be property of the party specified in the
related prospectus supplement and pledged for the benefit of the holders of one
or more classes of certificates of a series.
CREDIT SUPPORT WITH RESPECT TO MBS
If so provided in the prospectus supplement for a series of certificates,
any MBS included in the related trust fund and/or the related underlying
mortgage loans may be covered by one or more of the types of credit support
described in this prospectus. The related prospectus supplement will specify, as
to each such form of credit support, the information indicated above with
respect thereto, to the extent such information is material and available.
54
CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS
The following discussion contains general summaries of certain legal
aspects of mortgage loans secured by commercial and multifamily residential
properties. Because such legal aspects are governed by applicable state law
(which laws may differ substantially), the summaries do not purport to be
complete, to reflect the laws of any particular state, or to encompass the laws
of all states in which the security for the mortgage loans (or mortgage loans
underlying any MBS) is situated. Accordingly, the summaries are qualified in
their entirety by reference to the applicable laws of those states. See
"Description of the Trust Funds -- Mortgage Loans". For purposes of the
following discussion, "mortgage loan" includes a mortgage loan underlying an
MBS.
GENERAL
Each mortgage loan will be evidenced by a note or bond and secured by an
instrument granting a security interest in real property, which may be a
mortgage, deed of trust or a deed to secure debt, depending upon the prevailing
practice and law in the state in which the related mortgaged property is
located. mortgages, deeds of trust and deeds to secure debt are in this
prospectus collectively referred to as "mortgages". A mortgage creates a lien
upon, or grants a title interest in, the real property covered thereby, and
represents the security for the repayment of the indebtedness customarily
evidenced by a promissory note. The priority of the lien created or interest
granted will depend on the terms of the mortgage and, in some cases, on the
terms of separate subordination agreements or intercreditor agreements with
others that hold interests in the real property, the knowledge of the parties to
the mortgage and, generally, the order of recordation of the mortgage in the
appropriate public recording office. However, the lien of a recorded mortgage
will generally be subordinate to later-arising liens for real estate taxes and
assessments and other charges imposed under governmental police powers.
TYPES OF MORTGAGE INSTRUMENTS
There are two parties to a mortgage: a mortgagor (the borrower and usually
the owner of the subject property) and a mortgagee (the lender). In contrast, a
deed of trust is a three-party instrument, among a trustor (the equivalent of a
borrower), a trustee to whom the real property is conveyed, and a beneficiary
(the lender) for whose benefit the conveyance is made. Under a deed of trust,
the trustor grants the property, irrevocably until the debt is paid, in trust
and generally with a power of sale, to the trustee to secure repayment of the
indebtedness evidenced by the related note. A deed to secure debt typically has
two parties, pursuant to which the borrower, or grantor, conveys title to the
real property to the grantee, or lender, generally with a power of sale, until
such time as the debt is repaid. In a case where the borrower is a land trust,
there would be an additional party because legal title to the property is held
by a land trustee under a land trust agreement for the benefit of the borrower.
At origination of a mortgage loan involving a land trust, the borrower may
execute a separate undertaking to make payments on the mortgage note. In no
event is the land trustee personally liable for the mortgage note obligation.
The mortgagee's authority under a mortgage, the trustee's authority under a deed
of trust and the grantee's authority under a deed to secure debt are governed by
the express provisions of the related instrument, the law of the state in which
the real property is located, certain federal laws and, in some deed of trust
transactions, the directions of the beneficiary.
LEASES AND RENTS
Mortgages that encumber income-producing property often contain an
assignment of rents and leases and/or may be accompanied by a separate
assignment of rents and leases, pursuant to which the borrower assigns to the
lender the borrower's right, title and interest as landlord under each lease and
the income derived from such leases and rents, while (unless rents are to be
paid directly to the lender) retaining a revocable license to collect the rents
for so long as there is no default. If the borrower defaults, the license
terminates and the lender is entitled to collect the rents. Local law may
require that the lender take possession of the property and/or obtain a
court-appointed receiver before becoming entitled to collect the rents.
In most states, hotel and motel room rates are considered accounts
receivable under the Uniform Commercial Code; in cases where hotels or motels
constitute loan security, the rates are generally pledged by the
55
borrower as additional security for the loan. In general, the lender must file
financing statements in order to perfect its security interest in the room rates
and must file continuation statements, generally every five years, to maintain
perfection of such security interest. In certain cases, mortgage loans secured
by hotels or motels may be included in a trust fund even if the security
interest in the room rates was not perfected or the requisite UCC filings were
allowed to lapse. Even if the lender's security interest in room rates is
perfected under applicable nonbankruptcy law, it will generally be required to
commence a foreclosure action or otherwise take possession of the property in
order to enforce its rights to collect the room rates following a default. In
the bankruptcy setting, however, the lender will be stayed from enforcing its
rights to collect room rates, but those room rates (in light of certain
revisions to the Bankruptcy Code which are effective for all bankruptcy cases
commenced on or after October 22, 1994) constitute "cash collateral" and
therefore cannot be used by the bankruptcy debtor without lender's consent or a
hearing at which the lender's interest in the room rates is given adequate
protection (e.g., the lender receives cash payments from otherwise unencumbered
funds or a replacement lien on unencumbered property, in either case equal in
value to the amount of room rates that the debtor proposes to use, or other
similar relief). See "-- Bankruptcy Laws".
In the case of office and retail properties, the bankruptcy or insolvency
of a major tenant or a number of smaller tenants may have an adverse impact on
the mortgaged properties affected and the income produced by such mortgaged
properties. Under bankruptcy law, a tenant has the option of assuming
(continuing), or rejecting (terminating) or, subject to certain conditions,
assigning to a third party any unexpired lease. If the tenant assumes its lease,
the tenant must cure all defaults under the lease and provide the landlord with
adequate assurance of its future performance under the lease. If the tenant
rejects the lease, the landlord's claim for breach of the lease would (absent
collateral securing the claim) be treated as a general unsecured claim. The
amount of the claim would be limited to the amount owed for unpaid pre-petition
lease payments unrelated to the rejection, plus the greater of one year's lease
payments or 15% of the remaining lease payments payable under the lease (but not
to exceed three years' lease payments). If the tenant assigns its lease, the
tenant must cure all defaults under the lease and the proposed assignee must
demonstrate adequate assurance of future performance under the lease.
PERSONALTY
In the case of certain types of mortgaged properties, such as hotels,
motels and nursing homes, personal property (to the extent owned by the borrower
and not previously pledged) may constitute a significant portion of the
property's value as security. The creation and enforcement of liens on personal
property are governed by the UCC. Accordingly, if a borrower pledges personal
property as security for a mortgage loan, the lender generally must file UCC
financing statements in order to perfect its security interest in the mortgage
loan, and must file continuation statements, generally every five years, to
maintain that perfection. In certain cases, mortgage loans secured in part by
personal property may be included in a trust fund even if the security interest
in such personal property was not perfected or the requisite UCC filings were
allowed to lapse.
FORECLOSURE
General. Foreclosure is a legal procedure that allows the lender to
recover its mortgage debt by enforcing its rights and available legal remedies
under the mortgage. If the borrower defaults in payment or performance of its
obligations under the note or mortgage, the lender has the right to institute
foreclosure proceedings to sell the real property at public auction to satisfy
the indebtedness.
Foreclosure procedures vary from state to state. Two primary methods of
foreclosing a mortgage are judicial foreclosure, involving court proceedings,
and nonjudicial foreclosure pursuant to a power of sale granted in the mortgage
instrument. Other foreclosure procedures are available in some states, but they
are either infrequently used or available only in limited circumstances.
A foreclosure action is subject to most of the delays and expenses of other
lawsuits if defenses are raised or counterclaims are interposed, and sometimes
requires several years to complete.
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
56
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 and Other Limitations on Enforceability of Certain
Provisions. United States courts have traditionally imposed general equitable
principles to limit the remedies available to lenders in foreclosure actions.
These principles are generally designed to relieve borrowers from the effects of
mortgage defaults perceived as harsh or unfair. Relying on such principles, a
court may alter the specific terms of a loan to the extent it considers
necessary to prevent or remedy an injustice, undue oppression or overreaching,
or may require the lender to undertake affirmative actions to determine the
cause of the borrower's default and the likelihood that the borrower will be
able to reinstate the loan. In some cases, courts have substituted their
judgment for the lender's and have required that lenders reinstate loans or
recast payment schedules in order to accommodate borrowers who are suffering
from a temporary financial disability. In other cases, courts have limited the
right of the lender to foreclose in the case of a nonmonetary default, such as a
failure to adequately maintain the mortgaged property or an impermissible
further encumbrance of the mortgaged property. Finally, some courts have
addressed the issue of whether federal or state constitutional provisions
reflecting due process concerns for adequate notice require that a borrower
receive notice in addition to statutorily-prescribed minimum notice. For the
most part, these cases have upheld the reasonableness of the notice provisions
or have found that a public sale under a mortgage providing for a power of sale
does not involve sufficient state action to trigger constitutional protections.
In addition, some states may have statutory protection such as the right of
the borrower to reinstate mortgage loans after commencement of foreclosure
proceedings but prior to a foreclosure sale.
Nonjudicial Foreclosure/Power of Sale. In states permitting nonjudicial
foreclosure proceedings, foreclosure of a deed of trust is generally
accomplished by a nonjudicial trustee's sale pursuant to a power of sale
typically granted in the deed of trust. A power of sale may also be contained in
any other type of mortgage instrument if applicable law so permits. A power of
sale under a deed of trust allows a nonjudicial public sale to be conducted
generally following a request from the beneficiary/lender to the trustee to sell
the property upon default by the borrower and after notice of sale is given in
accordance with the terms of the mortgage and applicable state law. In some
states, prior to such sale, the trustee under the deed of trust must record a
notice of default and notice of sale and send a copy to the borrower and to any
other party who has recorded a request for a copy of a notice of default and
notice of sale. In addition, in some states the trustee must provide notice to
any other party having an interest of record in the real property, including
junior lienholders. A notice of sale must be posted in a public place and, in
most states, published for a specified period of time in one or more newspapers.
The borrower or junior lienholder may then have the right, during a
reinstatement period required in some states, to cure the default by paying the
entire actual amount in arrears (without regard to the acceleration of the
indebtedness), plus the lender's expenses incurred in enforcing the obligation.
In other states, the borrower or the junior lienholder is not provided a period
to reinstate the loan, but has only the right to pay off the entire debt to
prevent the foreclosure sale. Generally, state law governs the procedure for
public sale, the parties entitled to notice, the method of giving notice and the
applicable time periods.
Public Sale. A third party may be unwilling to purchase a mortgaged
property at a public sale because of the difficulty in determining the exact
status of title to the property (due to, among other things, redemption rights
that may exist) and because of the possibility that physical deterioration of
the property may have occurred during the foreclosure proceedings. Therefore, it
is common for the lender to purchase the mortgaged property for an amount equal
to the secured indebtedness and accrued and unpaid interest plus the expenses of
foreclosure, in which event the borrower's debt will be extinguished, or for a
lesser amount in order to preserve its right to seek a deficiency judgment if
such is available under state law and under the terms of the mortgage loan
documents. (The mortgage loans, however, may be nonrecourse. See "Risk
Factors -- Certain Factors Affecting Delinquency, Foreclosure and Loss of the
Mortgage Loans -- Limited Recourse Nature of the Mortgage Loans".) Thereafter,
subject to the borrower's right in some states to remain in possession during a
redemption period, the
57
lender will become the owner of the property and have both the benefits and
burdens of ownership, including the obligation to pay debt service on any senior
mortgages, to pay taxes, to obtain casualty insurance and to make such repairs
as are necessary to render the property suitable for sale. 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 lender also will commonly obtain the services of a real estate broker and
pay the broker's commission in connection with the sale or lease 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,
because of the expenses associated with acquiring, owning and selling a
mortgaged property, a lender could realize an overall loss on a mortgage loan
even if the mortgaged property is sold at foreclosure, or resold after it is
acquired through foreclosure, for an amount equal to the full outstanding
principal amount of the loan plus accrued interest.
The holder of a junior mortgage that forecloses on a mortgaged property
does so subject to senior mortgages and any other prior liens, and may be
obliged to keep senior mortgage loans current in order to avoid foreclosure of
its interest in the property. In addition, if the foreclosure of a junior
mortgage triggers the enforcement of a "due-on-sale" clause contained in a
senior mortgage, the junior mortgagee could be required to pay the full amount
of the senior mortgage indebtedness or face foreclosure.
Rights of Redemption. The purposes of a foreclosure action are to enable
the lender to realize upon its security and to bar the borrower, and all persons
who have interests in the property that are subordinate to that of the
foreclosing lender, from exercise of their "equity of redemption". The doctrine
of equity of redemption provides that, until the property encumbered by a
mortgage has been sold in accordance with a properly conducted foreclosure and
foreclosure sale, those having interests that are subordinate to that of the
foreclosing lender have an equity of redemption and may redeem the property by
paying the entire debt with interest. Those having an equity of redemption must
generally be made parties and joined in the foreclosure proceeding in order for
their equity of redemption to be terminated.
The equity of redemption is a common-law (nonstatutory) right which should
be distinguished from post-sale statutory rights of redemption. In some states,
after sale pursuant to a deed of trust or foreclosure of a mortgage, the
borrower and foreclosed junior lienors are given a statutory period in which to
redeem the property. In some states, statutory redemption may occur only upon
payment of the foreclosure sale price. In other states, redemption may be
permitted if the former borrower pays only a portion of the sums due. The effect
of a statutory right of redemption is to diminish the ability of the lender to
sell the foreclosed property because the exercise of a right of redemption would
defeat the title of any purchaser through a foreclosure. Consequently, the
practical effect of the redemption right is to force the lender to maintain the
property and pay the expenses of ownership until the redemption period has
expired. In some states, a post-sale statutory right of redemption may exist
following a judicial foreclosure, but not following a trustee's sale under a
deed of trust.
Anti-Deficiency Legislation. Some or all of the mortgage loans may be
nonrecourse loans, as to which recourse in the case of default will be limited
to the mortgaged property and such other assets, if any, that were pledged to
secure the mortgage loan. However, even if a mortgage loan by its terms provides
for recourse to the borrower's other assets, a lender's ability to realize upon
those assets may be limited by state law. For example, in some states a lender
cannot obtain a deficiency judgment against the borrower following foreclosure
or sale under a deed of trust. A deficiency judgment is a personal judgment
against the former borrower equal to the difference between the net amount
realized upon the public sale of the real property and the amount due to the
lender. Other statutes may require the lender to exhaust the security afforded
under a mortgage before bringing a personal action against the borrower. In
certain other states, the lender has the option of bringing a personal action
against the borrower on the debt without first exhausting such security;
however, in some of those states, the lender, following judgment on such
personal action, may be deemed to have elected a remedy and thus may be
precluded from foreclosing upon the security. Consequently, lenders in those
states where such an election of remedy provision exists will usually proceed
first against the security. Finally, other statutory provisions, designed to
protect borrowers from exposure to large deficiency judgments that might result
from bidding at below-market values at the foreclosure sale, limit any
deficiency judgment to the excess of the outstanding debt over the fair market
value of the property at the time of the sale.
58
Leasehold Considerations. Mortgage loans may be secured by a mortgage on
the borrower's leasehold interest in a ground lease. Leasehold mortgage loans
are subject to certain risks not associated with mortgage loans secured by a
lien on the fee estate of the borrower. The most significant of these risks is
that if the borrower's leasehold were to be terminated upon a lease default, the
leasehold mortgagee could lose its security. This risk may be lessened if the
ground lease requires the lessor to give the leasehold mortgagee notices of
lessee defaults and an opportunity to cure them, requires the lessor to grant
the mortgagee a new lease if the existing lease is rejected in a bankruptcy
proceeding, permits the leasehold estate to be assigned to and by the leasehold
mortgagee or the purchaser at a foreclosure sale, and contains certain other
protective provisions typically included in a "mortgageable" ground lease.
Certain mortgage loans, however, may be secured by ground leases which do not
contain these provisions.
Cooperative Shares. Mortgage loans may be secured by a security interest
on the borrower's ownership interest in shares, and the proprietary leases
appurtenant thereto, allocable to cooperative dwelling units that may be vacant
or occupied by nonowner tenants. Such loans are subject to certain risks not
associated with mortgage loans secured by a lien on the fee estate of a borrower
in real property. Such a loan typically is subordinate to the mortgage, if any,
on the cooperative's building which, if foreclosed, could extinguish the equity
in the building and the proprietary leases of the dwelling units derived from
ownership of the shares of the cooperative. Further, transfer of shares in a
cooperative are subject to various regulations as well as to restrictions under
the governing documents of the cooperative, and the shares may be canceled in
the event that associated maintenance charges due under the related proprietary
leases are not paid. Typically, a recognition agreement between the lender and
the cooperative provides, among other things, the lender with an opportunity to
cure a default under a proprietary lease.
Under the laws applicable in many states, "foreclosure" on cooperative
shares is accomplished by a sale in accordance with the provisions of Article 9
of the UCC and the security agreement relating to the shares. Article 9 of the
UCC requires that a sale be conducted in a "commercially reasonable" manner,
which may be dependent upon, among other things, the notice given the debtor and
the method, manner, time, place and terms of the sale. Article 9 of the UCC
provides that the proceeds of the sale will be applied first to pay the costs
and expenses of the sale and then to satisfy the indebtedness secured by the
lender's security interest. A recognition agreement, however, generally provides
that the lender's right to reimbursement is subject to the right of the
cooperative to receive sums due under the proprietary leases.
BANKRUPTCY LAWS
Operation of the Bankruptcy Code and related state laws may interfere with
or affect the ability of a lender to realize upon collateral and/or to enforce a
deficiency judgment. For example, under the Bankruptcy Code, virtually all
actions (including foreclosure actions and deficiency judgment proceedings) to
collect a debt are automatically stayed upon the filing of the bankruptcy
petition and, often, no interest or principal payments are made during the
course of the bankruptcy case. The delay and the consequences caused by such
automatic stay can be significant. Also, under the Bankruptcy Code, the filing
of a petition in bankruptcy by or on behalf of a junior lienor may stay the
senior lender from taking action to foreclose out such junior lien.
Under the Bankruptcy Code, provided certain substantive and procedural
safeguards protective of the lender are met, the amount and terms of a mortgage
loan secured by a lien on property of the debtor may be modified under certain
circumstances. For example, the outstanding amount of the loan may be reduced to
the then-current value of the property (with a corresponding partial reduction
of the amount of lender's security interest) pursuant to a confirmed plan or
lien avoidance proceeding, thus leaving the lender a general unsecured creditor
for the difference between such value and the outstanding balance of the loan.
Other modifications may include the reduction in the amount of each scheduled
payment, by means of a reduction in the rate of interest and/or an alteration of
the repayment schedule (with or without affecting the unpaid principal balance
of the loan), and/or by an extension (or shortening) of the term to maturity.
Some bankruptcy courts have approved plans, based on the particular facts of the
reorganization case, that effected the cure of a mortgage loan default by paying
arrearages over a number of years. Also, a bankruptcy court may permit a debtor,
through its rehabilitative plan, to reinstate a loan mortgage payment schedule
even if the lender has obtained a final judgment of foreclosure prior to the
filing of the debtor's petition.
59
Federal bankruptcy law may also have the effect of interfering with or
affecting the ability of a secured lender to enforce the borrower's assignment
of rents and leases related to the mortgaged property. Under the Bankruptcy
Code, a lender may be stayed from enforcing the assignment, and the legal
proceedings necessary to resolve the issue could be time-consuming, with
resulting delays in the lender's receipt of the rents. Recent amendments to the
Bankruptcy Code, however, may minimize the impairment of the lender's ability to
enforce the borrower's assignment of rents and leases. In addition to the
inclusion of hotel revenues within the definition of "cash collateral" as noted
previously in the Section entitled "-- Leases and Rents", the amendments provide
that a pre-petition security interest in rents or hotel revenues extends (unless
the bankruptcy court orders otherwise based on the equities of the case) to such
post-petition rents or revenues and is intended to overrule those cases that
held that a security interest in rents is unperfected under the laws of certain
states until the lender has taken some further action, such as commencing
foreclosure or obtaining a receiver prior to activation of the assignment of
rents.
If a borrower's ability to make payment on a mortgage loan is dependent on
its receipt of rent payments under a lease of the related property, that ability
may be impaired by the commencement of a bankruptcy case relating to a lessee
under such lease. Under the Bankruptcy Code, the filing of a petition in
bankruptcy by or on behalf of a lessee results in a stay in bankruptcy 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. In addition, the Bankruptcy Code generally provides that a
trustee or debtor-in-possession may, subject to approval of the court, (1)
assume the lease and retain it or assign it to a third party or (2) reject the
lease. If the lease is assumed, the trustee or debtor-in-possession (or
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, and any assurances provided to
the lessor may, in fact, be inadequate. If the lease is rejected, the lessor
will be treated as an unsecured creditor with respect to its claim for damages
for termination of the lease. The Bankruptcy Code also limits a lessor's damages
for lease rejection to the rent reserved by the lease (without regard to
acceleration) for the greater of one year, or 15%, not to exceed three years, of
the remaining term of the lease.
Pursuant to the federal doctrine of "substantive consolidation" or to the
(predominantly state law) doctrine of "piercing the corporate veil", a
bankruptcy court, in the exercise of its equitable powers, also has the
authority to order that the assets and liabilities of a related entity be
consolidated with those of an entity before it. Thus, property ostensibly the
property of one entity may be determined to be the property of a different
entity in bankruptcy, the automatic stay applicable to the second entity
extended to the first and the rights of creditors of the first entity impaired
in the fashion set forth above in the discussion of ordinary bankruptcy
principles. Depending on facts and circumstances not wholly in existence at the
time a loan is originated or transferred to the trust fund, the application of
any of these doctrines to one or more of the mortgagors in the context of the
bankruptcy of one or more of their affiliates could result in material
impairment of the rights of the Certificateholders.
For each mortgagor that is described as a "special purpose entity", "single
purpose entity" or "bankruptcy remote entity" in the related prospectus
supplement, the activities that may be conducted by such mortgagor and its
ability to incur debt are restricted by the applicable mortgage or the
organizational documents of such mortgagor in such manner as is intended to make
the likelihood of a bankruptcy proceeding being commenced by or against such
mortgagor remote, and such mortgagor has been organized and is designed to
operate in a manner such that its separate existence should be respected
notwithstanding a bankruptcy proceeding in respect of one or more affiliated
entities of such mortgagor. However, the depositor makes no representation as to
the likelihood of the institution of a bankruptcy proceeding by or in respect of
any mortgagor or the likelihood that the separate existence of any mortgagor
would be respected if there were to be a bankruptcy proceeding in respect of any
affiliated entity of a mortgagor.
ENVIRONMENTAL CONSIDERATIONS
General. A lender may be subject to environmental risks when taking a
security interest in real property. Of particular concern may be properties that
are or have been used for industrial, manufacturing, military or
60
disposal activity. Such environmental risks include the possible diminution of
the value of a contaminated property or, as discussed below, potential liability
for clean-up costs or other remedial actions that could exceed the value of the
property or the amount of the lender's loan. In certain circumstances, a lender
may decide to abandon a contaminated mortgaged property as collateral for its
loan rather than foreclose and risk liability for clean-up costs.
Superlien Laws. Under the laws of many states, contamination on a property
may give rise to a lien on the property for clean-up costs. In several states,
such a lien has priority over all existing liens, including those of existing
mortgages. In these states, the lien of a mortgage may lose its priority to such
a "superlien".
CERCLA. CERCLA, imposes strict liability on present and past "owners" and
"operators" of contaminated real property for the costs of clean-up. A secured
lender may be liable as an "owner" or "operator" of a contaminated mortgaged
property if agents or employees of the lender have become sufficiently involved
in the management of such mortgaged property or the operations of the borrower.
Such liability may exist even if the lender did not cause or contribute to the
contamination and regardless of whether or not the lender has actually taken
possession of a mortgaged property through foreclosure, deed in lieu of
foreclosure or otherwise. Moreover, such liability is not limited to the
original or unamortized principal balance of a loan or to the value of the
property securing a loan. 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 is the so-called "secured creditor exemption."
The Asset Conservation, Lender Liability and Deposit Insurance Act of 1996,
amended, among other things, the provisions of CERCLA with respect to lender
liability and the secured creditor exemption. The Act offers substantial
protection of lenders by defining the activities in which a lender can engage
and still have the benefit of the secured creditor exemption. In order for a
lender to be deemed to have participated in the management of a mortgaged
property, the lender must actually participate in the operational affairs of the
property of the borrower. The Asset Conservation, Lender Liability and Deposit
Insurance Act of 1996 provides that "merely having the capacity to influence, or
unexercised right to control" operations does not constitute participation in
management. A lender will lose the protection of the secured creditor exemption
only if it exercises decision making control over the borrower's environmental
compliance and hazardous substance handling and disposal practices, or assumes
day-to-day management of operational functions of the mortgaged property. The
Asset Conservation, Lender Liability and Deposit Insurance Act of 1996 also
provides that a lender will continue to have the benefit of the secured-creditor
exemption even if it forecloses on a mortgaged property, purchases it at a
foreclosure sale or accepts a deed-in-lieu of foreclosure provided that the
lender seeks to sell the mortgaged property at the earliest practicable
commercially reasonable time on commercially reasonable terms.
Certain Other Federal and State Laws. Many states have statutes similar to
CERCLA, and not all those statutes provide for a secured creditor exemption. In
addition, under federal law, there is potential liability relating to hazardous
wastes and underground storage tanks under the federal Resource Conservation and
Recovery Act.
In addition, the definition of "hazardous substances" under CERCLA
specifically excludes petroleum products. Subtitle I of the Resource
Conservation and Recovery Act governs underground petroleum storage tanks. Under
the Asset Conservation, Lender Liability and Deposit Insurance Act of 1996, the
protections accorded to lenders under CERCLA are also accorded to the holders of
security interests in underground storage tanks. 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 protection of secured creditors.
In a few states, transfers of some types of properties are conditioned upon
cleanup of contamination prior to transfer. In these cases, a lender that
becomes the owner of a property through foreclosure, deed in lieu of foreclosure
or otherwise, may be required to clean up the contamination before selling or
otherwise transferring the property.
Beyond statute-based environmental liability, there exist common law causes
of action (for example, actions based on nuisance or on toxic tort resulting in
death, personal injury or damage to property) related to hazardous environmental
conditions on a property. While it may be more difficult to hold a lender liable
in such cases,
61
unanticipated or uninsured liabilities of the borrower may jeopardize the
borrower's ability to meet its loan obligations.
Additional Considerations. The cost of remediating hazardous substance
contamination at a property can be substantial. If a lender becomes liable, it
can bring an action for contribution against the owner or operator who created
the environmental hazard, but that individual or entity may be without
substantial assets. Accordingly, it is possible that such costs could become a
liability of the trust fund and occasion a loss to the certificateholders of the
related series.
To reduce the likelihood of such a loss, unless otherwise specified in the
related prospectus supplement, the Pooling and Servicing Agreement will provide
that neither the master servicer nor the special servicer, acting on behalf of
the trustee, may acquire title to a mortgaged property or take over its
operation unless the special servicer, based solely (as to environmental
matters) on a report prepared by a person who regularly conducts environmental
audits, has made the determination that it is appropriate to do so, as described
under "The Pooling and Servicing Agreements -- Realization Upon Defaulted
Mortgage Loans".
If a lender forecloses on a mortgage secured by a property, the operations
on which are subject to environmental laws and regulations, the lender will be
required to operate the property in accordance with those laws and regulations.
Such compliance may entail substantial expense, especially in the case of
industrial or manufacturing properties.
In addition, a lender may be obligated to disclose environmental conditions
on a property to government entities and/or to prospective buyers (including
prospective buyers at a foreclosure sale or following foreclosure). Such
disclosure may decrease the amount that prospective buyers are willing to pay
for the affected property, sometimes substantially, and thereby decrease the
ability of the lender to recoup its investment in a loan upon foreclosure.
Environmental Site Assessments. In most cases, an environmental site
assessment of each mortgaged property will have been performed in connection
with the origination of the related mortgage loan or at some time prior to the
issuance of the related certificates. Environmental site assessments, however,
vary considerably in their content, quality and cost. Even when adhering to good
professional practices, environmental consultants will sometimes not detect
significant environmental problems because to do an exhaustive environmental
assessment would be far too costly and time-consuming to be practical.
DUE-ON-SALE AND DUE-ON-ENCUMBRANCE PROVISIONS
Certain of the mortgage loans may contain "due-on-sale" and
"due-on-encumbrance" clauses that purport to permit the lender to accelerate the
maturity of the loan if the borrower transfers or encumbers the related
mortgaged property. In recent years, court decisions and legislative actions
placed substantial restrictions on the right of lenders to enforce such clauses
in many states. However, the Garn Act generally preempts state laws that
prohibit the enforcement of due-on-sale clauses and permits lenders to enforce
these clauses in accordance with their terms, subject to certain limitations as
set forth in the Garn Act and the regulations promulgated under the Garn Act.
Accordingly, a master servicer may nevertheless have the right to accelerate the
maturity of a mortgage loan that contains a "due-on-sale" provision upon
transfer of an interest in the property, without regard to the master servicer's
ability to demonstrate that a sale threatens its legitimate security interest.
JUNIOR LIENS; RIGHTS OF HOLDERS OF SENIOR LIENS
If so provided in the related prospectus supplement, mortgage assets for a
series of certificates may include mortgage loans secured by junior liens, and
the loans secured by the related senior liens may not be included in the
mortgage pool. In addition to the risks faced by the holder of a first lien,
holders of mortgage loans secured by junior liens also face the risk that
adequate funds will not be received in connection with a foreclosure on the
related mortgaged property to satisfy fully both the senior liens and the
mortgage loan. In the event that a holder of a senior lien forecloses on a
mortgaged property, the proceeds of the foreclosure or similar sale will be
applied first to the payment of court costs and fees in connection with the
foreclosure, second to real estate taxes, third in satisfaction of all
principal, interest, prepayment or acceleration penalties, if any, and any other
sums due and
62
owing to the holder of the senior liens. The claims of the holders of the senior
liens will be satisfied in full out of proceeds of the liquidation of the
related mortgaged property, if such proceeds are sufficient, before the trust
fund as holder of the junior lien receives any payments in respect of the
mortgage loan. In the event that such proceeds from a foreclosure or similar
sale of the related mortgaged property are insufficient to satisfy all senior
liens and the mortgage loan in the aggregate, the trust fund, as the holder of
the junior lien, and, accordingly, holders of one or more classes of the
certificates of the related series bear (1) the risk of delay in distributions
while a deficiency judgment against the borrower is obtained and (2) the risk of
loss if the deficiency judgment is not realized upon. Moreover, deficiency
judgments may not be available in certain jurisdictions or the mortgage loan may
be nonrecourse.
The rights of the trust fund (and therefore the certificateholders), as
beneficiary under a junior deed of trust or as mortgagee under a junior
mortgage, are subordinate to those of the mortgagee or beneficiary under the
senior mortgage or deed of trust, including the prior rights of the senior
mortgagee or beneficiary to receive rents, hazard insurance and condemnation
proceeds and to cause the property securing the mortgage loan to be sold upon
default of the mortgagor or trustor, thereby extinguishing the junior
mortgagee's or junior beneficiary's lien unless the master servicer asserts its
subordinate interest in a property in foreclosure litigation or satisfies the
defaulted senior loan. As discussed more fully below, in many states a junior
mortgagee or beneficiary may satisfy a defaulted senior loan in full, adding the
amounts expended to the balance due on the junior loan. Absent a provision in
the senior mortgage, no notice of default is required to be given to the junior
mortgagee.
The form of the mortgage or deed of trust used by many institutional
lenders confers on the mortgagee or beneficiary the right both to receive all
proceeds collected under any hazard insurance policy and all awards made in
connection with any condemnation proceedings, and to apply such proceeds and
awards to any indebtedness secured by the mortgage or deed of trust, in such
order as the mortgage or beneficiary may determine. Thus, in the event
improvements on the property are damaged or destroyed by fire or other casualty,
or in the event the property is taken by condemnation, the mortgagee or
beneficiary under the senior mortgage or deed of trust will have the prior right
to collect any insurance proceeds payable under a hazard insurance policy and
any award of damages in connection with the condemnation and to apply the same
to the indebtedness secured by the senior mortgage or deed of trust. Proceeds in
excess of the amount of senior mortgage indebtedness will, in most cases, be
applied to the indebtedness of a junior mortgage or trust deed to the extent the
junior mortgage or deed of trust so provides. The laws of certain states may
limit the ability of mortgagees or beneficiaries to apply the proceeds of hazard
insurance and partial condemnation awards to the secured indebtedness. In such
states, the mortgagor or trustor must be allowed to use the proceeds of hazard
insurance to repair the damage unless the security of the mortgagee or
beneficiary has been impaired. Similarly, in certain states, the mortgagee or
beneficiary is entitled to the award for a partial condemnation of the real
property security only to the extent that its security is impaired.
The form of mortgage or deed of trust used by many institutional lenders
typically contains a "future advance" clause, which provides, in essence, that
additional amounts advanced to or on behalf of the mortgagor or trustor by the
mortgagee or beneficiary are to be secured by the mortgage or deed of trust.
While such a clause is valid under the laws of most states, the priority of any
advance made under the clause depends, in some states, on whether the advance
was an "obligatory" or "optional" advance. If the mortgagee or beneficiary is
obligated to advance the additional amounts, the advance may be entitled to
receive the same priority as amounts initially made under the mortgage or deed
of trust, notwithstanding that there may be intervening junior mortgages or
deeds of trust and other liens between the date of recording of the mortgage or
deed of trust and the date of the future advance, and notwithstanding that the
mortgagee or beneficiary had actual knowledge of such intervening junior
mortgages or deeds of trust and other liens at the time of the advance. Where
the mortgagee or beneficiary is not obligated to advance the additional amounts
and has actual knowledge of the intervening junior mortgages or deeds of trust
and other liens, the advance may be subordinate to such intervening junior
mortgages or deeds of trust and other liens. Priority of advances under a
"future advance" clause rests, in many other states, on state law giving
priority to all advances made under the loan agreement up to a "credit limit"
amount stated in the recorded mortgage.
63
SUBORDINATE FINANCING
The terms of certain of the mortgage loans may not restrict the ability of
the borrower to use the mortgaged property as security for one or more
additional loans, or such restrictions may be unenforceable. Where a borrower
encumbers a mortgaged property with one or more junior liens, the senior lender
is subjected to additional risk. First, the borrower may have difficulty
servicing and repaying multiple loans. Moreover, if the subordinate financing
permits recourse to the borrower (as is frequently the case) and the senior loan
does not, a borrower may have more incentive to repay sums due on the
subordinate loan. Second, acts of the senior lender that prejudice the junior
lender or impair the junior lender's security may create a superior equity in
favor of the junior lender. For example, if the borrower and the senior lender
agree to an increase in the principal amount of or the interest rate payable on
the senior loan, the senior lender may lose its priority to the extent any
existing junior lender is harmed or the borrower is additionally burdened.
Third, if the borrower defaults on the senior loan and/or any junior loan or
loans, the existence of junior loans and actions taken by junior lenders can
impair the security available to the senior lender and can interfere with or
delay the taking of action by the senior lender. Moreover, the bankruptcy of a
junior lender may operate to stay foreclosure or similar proceedings by the
senior lender.
DEFAULT INTEREST AND LIMITATIONS ON PREPAYMENTS
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 and the
Bankruptcy Code of provisions providing for prepayment fees of 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
Rates, may increase the likelihood of refinancing or other early retirements of
the mortgage loans.
APPLICABILITY OF USURY LAWS
Title V of the Depository Institutions Deregulation and Monetary Control
Act of 1980 provides that state usury limitations shall not apply to certain
types of residential (including multifamily) first mortgage loans originated by
certain lenders after March 31, 1980. Title V of the Depository Institutions
Deregulation and Monetary Control Act of 1980 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 of the Depository Institutions Deregulation and Monetary
Control Act of 1980 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 of the Depository Institutions Deregulation and Monetary
Control Act of 1980. Certain states have taken action to reimpose interest rate
limits and/or to limit discount points or other charges.
No mortgage loan originated in any state in which application of Title V of
the Depository Institutions Deregulation and Monetary Control Act of 1980 has
been expressly rejected or a provision limiting discount points or other charges
has been adopted, will (if originated after that rejection or adoption) be
eligible for inclusion in a trust fund unless (i) such mortgage loan provides
for such interest rate, discount points and charges as are permitted in such
state or (ii) such mortgage loan provides that the terms are to be construed in
accordance with the laws of another state under which such interest rate,
discount points and charges would not be usurious and the borrower's counsel has
rendered an opinion that such choice of law provision would be given effect.
64
CERTAIN LAWS AND REGULATIONS
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
(i.e., a nursing or convalescent home or hospital), result in a failure to
realize the full principal amount of the related mortgage loan.
AMERICANS WITH DISABILITIES ACT
Under the ADA, in order to protect individuals with disabilities, public
accommodations (such as hotels, restaurants, shopping centers, hospitals,
schools and social service center establishments) must remove architectural and
communication barriers which are structural in nature from existing places of
public accommodation to the extent "readily achievable." In addition, under the
ADA, alterations to a place of public accommodation or a commercial facility are
to be made so that, to the maximum extent feasible, such altered portions are
readily accessible to and usable by disabled individuals. The "readily
achievable" standard takes into account, among other factors, the financial
resources of the affected site, owner, landlord or other applicable person. In
addition to imposing a possible financial burden on the borrower in its capacity
as owner or landlord, the ADA may also impose such requirements on a foreclosing
lender who succeeds to the interest of the borrower as owner or landlord.
Furthermore, since the "readily achievable" standard may vary depending on the
financial condition of the owner or landlord, a foreclosing lender who is
financially more capable than the borrower of complying with the requirements of
the ADA may be subject to more stringent requirements than those to which the
borrower is subject.
SOLDIERS' AND SAILORS' CIVIL RELIEF ACT OF 1940
Under the terms of the Relief Act, a borrower who enters military service
after the origination of such borrower's mortgage loan (including a borrower who
was in reserve status and is called to active duty after origination of the
mortgage loan), may not be charged interest (including fees and charges) above
an annual rate of 6% during the period of such borrower's active duty status,
unless a court orders otherwise upon application of the lender. The Relief Act
applies to individuals who are members of the Army, Navy, Air Force, Marines,
National Guard, Reserves, Coast Guard and officers of the U.S. Public Health
Service assigned to duty with the military. Because the Relief Act applies to
individuals who enter military service (including reservists who are called to
active duty) after origination of the related mortgage loan, no information can
be provided as to the number of loans with individuals as borrowers that may be
affected by the Relief Act. Application of the Relief Act would adversely
affect, for an indeterminate period of time, the ability of a master servicer or
special 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 master servicer or special servicer to foreclose on an affected mortgage
loan during the borrower's period of active duty status, and, under certain
circumstances, during an additional three month period thereafter.
FORFEITURE FOR DRUG, RICO AND MONEY LAUNDERING VIOLATIONS
Federal law provides that property purchased or improved with assets
derived from criminal activity or otherwise tainted, or used in the commission
of certain offenses, can be seized and ordered forfeited to the United States of
America. The offenses which can trigger such a seizure and forfeiture include,
among others, violations of the Racketeer Influenced and Corrupt Organizations
Act, the Bank Secrecy Act, the anti-money laundering laws and regulations,
including the USA Patriot Act of 2001 and the regulations issued pursuant to
that Act, as well as the narcotic drug laws. In many instances, the United
States may seize the property even before a conviction occurs.
65
In the event of a forfeiture proceeding, a lender may be able to establish
its interest in the property by proving that (1) its mortgage was executed and
recorded before the commission of the illegal conduct from which the assets used
to purchase or improve the property were derived or before the commission of any
other crime upon which the forfeiture is based, or (2) the lender, at the time
of the execution of the mortgage, "did not know or was reasonably without cause
to believe that the property was subject to forfeiture." However, there is no
assurance that such a defense will be successful.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following general discussion of the anticipated material federal income
tax consequences of the purchase, ownership and disposition of offered
certificates of any series thereof, to the extent it relates to matters of law
or legal conclusions with respect thereto, represents the opinion of counsel to
the depositor with respect to that series on the material matters associated
with such consequences, subject to any qualifications set forth in this
prospectus. Counsel to the depositor for each series will be Cadwalader,
Wickersham & Taft, and a copy of the legal opinion of such counsel rendered in
connection with any series of certificates will be filed by the depositor with
the Securities and Exchange Commission on a Current Report on Form 8-K within 15
days after the Closing Date for such series of certificates. This discussion is
directed primarily to certificateholders that hold the certificates as "capital
assets" within the meaning of Section 1221 of the Code (although portions
thereof may also apply to certificateholders who do not hold certificates as
capital assets) and it does not purport to discuss all federal income tax
consequences that may be applicable to the individual circumstances of
particular investors, some of which (such as banks, insurance companies and
foreign investors) may be subject to special treatment under the Code. Further,
the authorities on which this discussion, and the opinion referred to below, are
based are subject to change or differing interpretations, which could apply
retroactively. Prospective investors should note that no rulings have been or
will be sought from the IRS with respect to any of the federal income tax
consequences discussed below, and no assurance can be given the IRS will not
take contrary positions. In addition to the federal income tax consequences
described in this prospectus, potential investors are advised to consider the
state and local tax consequences, if any, of the purchase, ownership and
disposition of offered certificates. See "State and Other Tax Consequences".
Certificateholders are advised to consult their tax advisors concerning the
federal, state, local or other tax consequences to them of the purchase,
ownership and disposition of offered certificates.
The following discussion addresses securities of two general types: (1)
REMIC Certificates representing interests in a trust fund, or a portion thereof,
that the REMIC administrator will elect to have treated as a REMIC under the
REMIC Provisions of the Code, and (2) Grantor Trust Certificates representing
interests in a Grantor Trust Fund as to which no such election will be made. The
prospectus supplement for each series of certificates will indicate whether a
REMIC election (or elections) will be made for the related trust fund and, if
such an election is to be made, will identify all "regular interests" and
"residual interests" in the REMIC. For purposes of this tax discussion,
references to a "Certificateholder" or a "holder" are to the beneficial owner of
a certificate.
The following discussion is limited in applicability to offered
certificates. Moreover, this discussion applies only to the extent that mortgage
assets held by a trust fund consist solely of mortgage loans. To the extent that
other mortgage assets, including REMIC certificates and mortgage pass-through
certificates, are to be held by a trust fund, the tax consequences associated
with the inclusion of such assets will be disclosed in the related prospectus
supplement. In addition, if cash flow agreements other than guaranteed
investment contracts are included in a trust fund, the anticipated material tax
consequences associated with such cash flow agreements also will be discussed in
the related prospectus supplement. See "Description of the Trust Funds -- Cash
Flow Agreements".
Furthermore, the following discussion is based in part upon the rules
governing original issue discount that are set forth in Sections 1271-1273 and
1275 of the Code and in the OID Regulations, and in part upon the REMIC
Provisions and the REMIC Regulations. The OID Regulations do not adequately
address certain issues relevant to, and in some instances provide that they are
not applicable to, securities such as the certificates.
66
REMICS
Classification of REMICs. Upon the issuance of each series of REMIC
Certificates, counsel to the depositor will give its opinion generally to the
effect that, assuming compliance with all provisions of the related Pooling and
Servicing Agreement, the related trust fund (or each applicable portion thereof)
will qualify as one or more REMICs and the REMIC Certificates offered with
respect thereto will be considered to evidence ownership of REMIC Regular
Certificates or REMIC Residual Certificates in a REMIC within the meaning of the
REMIC Provisions. The following general discussion of the anticipated federal
income tax consequences of the purchase, ownership and disposition of REMIC
Certificates, to the extent it relates to matters of law or legal conclusions
with respect thereto, represents the opinion of counsel to the depositor for the
applicable series as specified in the related prospectus supplement, subject to
any qualifications set forth in this prospectus. In addition, counsel to the
depositor have prepared or reviewed the statements in this prospectus under the
heading "Certain Federal Income Tax Consequences -- REMICs," and are of the
opinion that such statements are correct in all material respects. Such
statements are intended as an explanatory discussion of the possible effects of
the classification of any trust fund (or applicable portion thereof) as one or
more REMICs for federal income tax purposes on investors generally and of
related tax matters affecting investors generally, but do not purport to furnish
information in the level of detail or with the attention to an investor's
specific tax circumstances that would be provided by an investor's own tax
advisor. Accordingly, each investor is advised to consult its own tax advisors
with regard to the tax consequences to it of investing in REMIC Certificates.
If an entity electing to be treated as a REMIC fails to comply with one or
more of the ongoing requirements of the Code for such status during any taxable
year, the Code provides that the entity will not be treated as a REMIC for such
year and thereafter. In that event, such entity may be taxable as a corporation
under Treasury regulations, and the related REMIC Certificates may not be
accorded the status or given the tax treatment described below. Although the
Code authorizes the Treasury Department to issue regulations providing relief in
the event of an inadvertent termination of REMIC status, no such regulations
have been issued. Any such relief, moreover, may be accompanied by sanctions,
such as the imposition of a corporate tax on all or a portion of the trust
fund's income for the period in which the requirements for such status are not
satisfied. The Pooling and Servicing Agreement with respect to each REMIC will
include provisions designed to maintain the trust fund's status as a REMIC under
the REMIC Provisions. It is not anticipated that the status of any trust fund as
a REMIC will be inadvertently terminated.
Characterization of Investments in REMIC Certificates. In general, unless
otherwise provided in the related prospectus supplement, the REMIC Certificates
will be "real estate assets" within the meaning of Section 856(c)(4)(A) of the
Code and assets described in Section 7701(a)(19)(C) of the Code in the same
proportion that the assets of the REMIC underlying such certificates would be so
treated. However, to the extent that the REMIC assets constitute mortgages on
property not used for residential or certain other prescribed purposes, the
REMIC Certificates will not be treated as assets qualifying under Section
7701(a)(19)(C). Moreover, if 95% or more of the assets of the REMIC qualify for
any of the foregoing characterizations at all times during a calendar year, the
REMIC Certificates will qualify for the corresponding status in their entirety
for that calendar year. Interest (including original issue discount) on the
REMIC Regular Certificates and income allocated to the REMIC Residual
Certificates will be interest described in Section 856(c)(3)(B) of the Code to
the extent that such certificates are treated as "real estate assets" within the
meaning of Section 856(c)(4)(A) of the Code. In addition, except as otherwise
provided in the applicable prospectus supplement, the REMIC Regular Certificates
will be "qualified mortgages" for a REMIC within the meaning of Section
860G(a)(3) of the Code and "permitted assets" for a financial asset
securitization investment trust within the meaning of Section 860L(c) of the
Code. The determination as to the percentage of the REMIC's assets that
constitute assets described in the foregoing sections of the Code will be made
with respect to each calendar quarter based on the average adjusted basis of
each category of the assets held by the REMIC during such calendar quarter. The
REMIC Administrator will report those determinations to Certificateholders in
the manner and at the times required by applicable Treasury regulations.
Tiered REMIC Structures. For certain series of REMIC 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. As to each such series of
REMIC Certificates, in the opinion of counsel to the depositor, assuming
compliance with all
67
provisions of the related Pooling and Servicing Agreement, the Tiered REMICs
will each qualify as a REMIC and the REMIC Certificates issued by the Tiered
REMICs, will be considered to evidence ownership of REMIC Regular Certificates
or REMIC Residual Certificates in the related REMIC within the meaning of the
REMIC Provisions.
Solely for purposes of determining whether the REMIC Certificates will be
"real estate assets" within the meaning of Section 856(c)(4)(A) of the Code and
"loans secured by an interest in real property" under Section 7701(a)(19)(C) of
the Code, and whether the income on such certificates is interest described in
Section 856(c)(3)(B) of the Code, the Tiered REMICs will be treated as one
REMIC.
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. Certain REMIC Regular Certificates may be issued
with "original issue discount" within the meaning of Section 1273(a) of the
Code. Any holders of REMIC Regular Certificates issued with original issue
discount generally will be required to include original issue discount in income
as it accrues, in accordance with the "constant yield" method described below,
in advance of the receipt of the cash attributable to such income. In addition,
Section 1272(a)(6) of the Code provides special rules applicable to REMIC
Regular Certificates and certain other debt instruments issued with original
issue discount. Regulations have not been issued under that section.
The Code requires that a reasonable prepayment assumption be used with
respect to mortgage loans held by a REMIC in computing the accrual of original
issue discount on REMIC Regular Certificates issued by that REMIC, and that
adjustments be made in the amount and rate of accrual of such discount to
reflect differences between the actual prepayment rate and the prepayment
assumption. The prepayment assumption is to be determined in a manner prescribed
in Treasury regulations; as noted above, those regulations have not been issued.
The Committee Report indicates that the regulations will provide that the
prepayment assumption used with respect to a REMIC Regular Certificate must be
the same as that used in pricing the initial offering of such REMIC Regular
Certificate. The Prepayment Assumption used in reporting original issue discount
for each series of REMIC Regular Certificates will be consistent with this
standard and will be disclosed in the related prospectus supplement. However,
neither the depositor nor any other person will make any representation that the
mortgage loans will in fact prepay at a rate conforming to the Prepayment
Assumption or at any other rate.
The original issue discount, if any, on a REMIC Regular Certificate will be
the excess of its stated redemption price at maturity over its issue price. The
issue price of a particular class of REMIC Regular Certificates will be the
first cash price at which a substantial amount of REMIC Regular Certificates of
that class is sold (excluding sales to bond houses, brokers and underwriters).
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 such class will be the fair market value of such class on the Closing Date.
Under the OID Regulations, the stated redemption price of a REMIC Regular
Certificate is equal to the total of all payments to be made on such Certificate
other than "qualified stated interest". "Qualified stated interest" is interest
that is unconditionally payable at least annually (during the entire term of the
instrument) at a single fixed rate, or, as discussed below under "Variable Rate
REMIC Regular Certificates," at a qualified variable rate.
If the accrued interest to be paid on the first Distribution Date is
computed with respect to a period that begins prior to the Closing Date, a
portion of the purchase price paid for a REMIC Regular Certificate will reflect
such accrued interest. In such cases, information returns provided to the
Certificateholders and the IRS will be based on the position that the portion of
the purchase price paid for the interest accrued with respect to periods prior
to the Closing Date is treated as part of the overall cost of such REMIC Regular
Certificate (and not as a separate asset the cost of which is recovered entirely
out of interest received on the next Distribution Date) and that portion of the
interest paid on the first Distribution Date in excess of interest accrued for a
number of days
68
corresponding to the number of days from the Closing Date to the first
Distribution Date should be included in the stated redemption price of such
REMIC Regular Certificate. However, the OID Regulations state that all or some
portion of such accrued interest may be treated as a separate asset the cost of
which is recovered entirely out of interest paid on the first Distribution Date.
It is unclear how an election to do so would be made under the OID Regulations
and whether such an election could be made unilaterally by a Certificateholder.
Notwithstanding the general definition of original issue discount, original
issue discount on a REMIC Regular Certificate will be considered to be de
minimis if it is less than 0.25% of the stated redemption price of the REMIC
Regular Certificate multiplied by its weighted average maturity. For this
purpose, the weighted average maturity of the REMIC Regular Certificate is
computed as the sum of the amounts determined, as to each payment included in
the stated redemption price of such REMIC Regular Certificate, by multiplying
(i) the number of complete years (rounding down for partial years) from the
issue date until such payment is expected to be made (presumably taking into
account the Prepayment Assumption) by (ii) a fraction, the numerator of which is
the amount of the payment, and the denominator of which is the stated redemption
price at maturity of such REMIC Regular Certificate. Under the OID Regulations,
original issue discount of only a de minimis amount (other than de minimis
original issue discount attributable to a so-called "teaser" interest rate or an
initial interest holiday) will be included in income as each payment of stated
principal is made, based on the product of the total amount of such de minimis
original issue discount and a fraction, the numerator of which is the amount of
such principal payment and the denominator of which is the outstanding stated
principal amount of the REMIC Regular Certificate. The OID Regulations also
would permit a Certificateholder to elect to accrue de minimis original issue
discount into income currently based on a constant yield method. See
"-- Taxation of Owners of REMIC Regular Certificates -- Market Discount" below
for a description of such election under the OID Regulations.
If original issue discount on a REMIC Regular Certificate is in excess of a
de minimis amount, the holder of such Certificate must include in ordinary gross
income the sum of the "daily portions" of original issue discount for each day
during its taxable year on which it held such REMIC Regular Certificate,
including the purchase date but excluding the disposition date. In the case of
an original holder of a REMIC Regular Certificate, the daily portions of
original issue discount will be determined as follows.
As to each "accrual period", that is, unless otherwise stated in the
related prospectus supplement, each period that begins on a date that
corresponds to a Distribution Date (or in the case of the first such period,
begins on the Closing Date) and ends on the day preceding the immediately
following Distribution Date, a calculation will be made of the portion of the
original issue discount that accrued during such accrual period. The portion of
original issue discount that accrues in any accrual period will equal the
excess, if any, of (1) the sum of (a) the present value, as of the end of the
accrual period, of all of the distributions remaining to be made on the REMIC
Regular Certificate, if any, in future periods and (b) the distributions made on
such REMIC Regular Certificate during the accrual period of amounts included in
the stated redemption price, over (2) the adjusted issue price of such REMIC
Regular Certificate at the beginning of the accrual period. The present value of
the remaining distributions referred to in the preceding sentence will be
calculated (1) assuming that distributions on the REMIC Regular Certificate will
be received in future periods based on the mortgage loans being prepaid at a
rate equal to the Prepayment Assumption, (2) using a discount rate equal to the
original yield to maturity of the Certificate and (3) taking into account events
(including actual prepayments) that have occurred before the close of the
accrual period. For these purposes, the original yield to maturity of the
Certificate will be calculated based on its issue price and assuming that
distributions on the Certificate will be made in all accrual periods based on
the mortgage loans being prepaid at a rate equal to the Prepayment Assumption.
The adjusted issue price of a REMIC Regular Certificate at the beginning of any
accrual period will equal the issue price of such Certificate, increased by the
aggregate amount of original issue discount that accrued with respect to such
Certificate in prior accrual periods, and reduced by the amount of any
distributions made on such REMIC Regular Certificate in prior accrual periods of
amounts included in the stated redemption price. The original issue discount
accruing during any accrual period, computed as described above, will be
allocated ratably to each day during the accrual period to determine the daily
portion of original issue discount for such day.
A subsequent purchaser of a REMIC Regular Certificate that purchases such
Certificate at a cost (excluding any portion of such cost attributable to
accrued qualified stated interest) less than its remaining stated redemption
69
price will also be required to include in gross income the daily portions of any
original issue discount with respect to such Certificate. However, each such
daily portion will be reduced, if such cost is in excess of its "adjusted issue
price", in proportion to the ratio such excess bears to the aggregate original
issue discount remaining to be accrued on such REMIC Regular Certificate. The
adjusted issue price of a REMIC Regular Certificate on any given day equals the
sum of (1) the adjusted issue price (or, in the case of the first accrual
period, the issue price) of such Certificate at the beginning of the accrual
period which includes such day and (2) the daily portions of original issue
discount for all days during such accrual period prior to such day.
Variable Rate REMIC Regular Certificates. REMIC Regular Certificates may
provide for interest based on a variable rate. Under the OID Regulations,
interest is treated as payable at a variable rate if, generally, (1) the issue
price does not exceed the original principal balance by more than a specified
amount and (2) the interest compounds or is payable at least annually at current
values of (a) one or more "qualified floating rates", (b) a single fixed rate
and one or more qualified floating rates, (c) a single "objective rate", or (d)
a single fixed rate and a single objective rate that is a "qualified inverse
floating rate". A floating rate is a qualified floating rate if variations in
the rate can reasonably be expected to measure contemporaneous variations in the
cost of newly borrowed funds, where the rate is subject to a fixed multiple that
is greater than 0.65, but not more than 1.35. The rate may also be increased or
decreased by a fixed spread or subject to a fixed cap or floor, or a cap or
floor that is not reasonably expected as of the issue date to affect the yield
of the instrument significantly. An objective rate (other than a qualified
floating rate) is a rate that is determined using a single fixed formula and
that is based on objective financial or economic information, provided that the
information is not (1) within the control of the issuer or a related party or
(2) unique to the circumstances of the issuer or a related party. A qualified
inverse floating rate is a rate equal to a fixed rate minus a qualified floating
rate that inversely reflects contemporaneous variations in the cost of newly
borrowed funds; an inverse floating rate that is not a qualified floating rate
may nevertheless be an objective rate. A class of REMIC Regular Certificates may
be issued under this prospectus that does not have a variable rate under the OID
Regulations, for example, a class that bears different rates at different times
during the period it is outstanding so that it is considered significantly
"front-loaded" or "back-loaded" within the meaning of the OID Regulations. It is
possible that a class of this type may be considered to bear "contingent
interest" within the meaning of the OID Regulations. The OID Regulations, as
they relate to the treatment of contingent interest, are by their terms not
applicable to REMIC Regular Certificates. However, if final regulations dealing
with contingent interest with respect to REMIC Regular Certificates apply the
same principles as the OID Regulations, those regulations may lead to different
timing of income inclusion than would be the case under the OID Regulations.
Furthermore, application of those principles could lead to the characterization
of gain on the sale of contingent interest REMIC Regular Certificates as
ordinary income. Investors should consult their tax advisors regarding the
appropriate treatment of any REMIC Regular Certificate that does not pay
interest at a fixed rate or variable rate as described in this paragraph.
Under the REMIC Regulations, a REMIC Regular Certificate (1) bearing a rate
that qualifies as a variable rate under the OID Regulations that is tied to
current values of a variable rate (or the highest, lowest or average of two or
more variable rates), including a rate based on the average cost of funds of one
or more financial institutions, or a positive or negative multiple of a rate
(plus or minus a specified number of basis points), or that represents a
weighted average of rates on some or all of the mortgage loans, including a rate
that is subject to one or more caps or floors, or (2) bearing one or more of
these variable rates for one or more periods or one or more fixed rates for one
or more periods, and a different variable rate or fixed rate for other periods
qualifies as a regular interest in a REMIC. Accordingly, unless otherwise
indicated in the applicable prospectus supplement, REMIC Regular Certificates
that qualify as regular interests under this rule will be treated in the same
manner as obligations bearing a variable rate for original issue discount
reporting purposes.
The amount of original issue discount with respect to a REMIC Regular
Certificate bearing a variable rate of interest will accrue in the manner
described above under "-- Original Issue Discount" with the yield to maturity
and future payments on that REMIC Regular Certificate generally to be determined
by assuming that interest will be payable for the life of the REMIC Regular
Certificate based on the initial rate for the relevant class. Unless otherwise
specified in the applicable prospectus supplement, variable interest will be
treated as qualified stated interest, other than variable interest on an
interest-only class, which will be treated as non-qualified stated interest
70
includible in the stated redemption price at maturity. Ordinary income
reportable for any period will be adjusted based on subsequent changes in the
applicable interest rate index.
Although unclear under the OID Regulations, unless required otherwise by
applicable final regulations, REMIC Regular Certificates bearing an interest
rate that is a weighted average of the net interest rates on mortgage loans
having fixed or adjustable rates, will be treated as having qualified stated
interest, except to the extent that initial "teaser" rates cause sufficiently
"back-loaded" interest to create more than de minimis original issue discount.
The yield on those REMIC Regular Certificates for purposes of accruing original
issue discount will be a hypothetical fixed rate based on the fixed rates, in
the case of fixed rate mortgage loans, and initial "teaser rates" followed by
fully indexed rates, in the case of adjustable rate mortgage loans. In the case
of adjustable rate mortgage loans, the applicable index used to compute interest
on the mortgage loans for the initial interest accrual period will be deemed to
be in effect beginning with the period in which the first weighted average
adjustment date occurring after the issue date occurs. Adjustments will be made
in each accrual period either increasing or decreasing the amount of ordinary
income reportable to reflect the actual pass-through interest rate on the REMIC
Regular Certificates.
Market Discount. A Certificateholder that purchases a REMIC Regular
Certificate at a market discount, that is, in the case of a REMIC Regular
Certificate issued without original issue discount, at a purchase price less
than its remaining stated principal amount, or in the case of a REMIC Regular
Certificate issued with original issue discount, at a purchase price less than
its adjusted issue price will recognize gain upon receipt of each distribution
representing stated redemption price. In particular, under Section 1276 of the
Code such a Certificateholder generally will be required to allocate the portion
of each such distribution representing stated redemption price 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, such election will apply to all
market discount bonds acquired by such Certificateholder on or after the first
day of the first taxable year to which such election applies. In addition, the
OID Regulations permit a Certificateholder to elect to accrue all interest and
discount (including de minimis market or original issue discount) in income as
interest, and to amortize premium, based on a constant yield method. If such an
election were made with respect to a REMIC Regular Certificate with market
discount, the Certificateholder would be deemed to have made an election to
include currently market discount in income with respect to all other debt
instruments having market discount that such Certificateholder acquires during
the taxable year of the election or thereafter, including de minimis market
discount discussed in the following paragraph. Similarly, a Certificateholder
that made this election for a Certificate that is acquired at a premium would 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 "-- Taxation of Owners of REMIC Regular
Certificates -- Premium" below. Each of these elections to accrue interest,
discount and premium with respect to a Certificate on a constant yield method or
as interest would be irrevocable except with the approval of the IRS.
However, market discount with respect to a REMIC Regular Certificate will
be considered to be de minimis for purposes of Section 1276 of the Code if such
market discount is less than 0.25% of the remaining stated redemption price of
such REMIC Regular Certificate multiplied by the number of complete years to
maturity remaining after the date of its purchase. In interpreting a similar
rule with respect to original issue discount on obligations payable in
installments, the OID Regulations refer to the weighted average maturity of
obligations, and it is likely that the same rule will be applied with respect to
market discount, presumably taking into account the Prepayment Assumption. If
market discount is treated as de minimis under this rule, it appears that the
actual discount would be treated in a manner similar to original issue discount
of a de minimis amount. See "--Taxation of Owners of REMIC Regular
Certificates -- Original Issue Discount" above. Such treatment would result in
discount being included in income at a slower rate than discount would be
required to be included in income using the method described above.
Section 1276(b)(3) of the Code specifically authorizes the Treasury
Department to issue regulations providing for the method for accruing market
discount on debt instruments, the principal of which is payable in more than one
installment. Until regulations are issued by the Treasury Department, certain
rules described in the Committee Report apply. The Committee Report indicates
that in each accrual period market discount on REMIC
71
Regular Certificates should accrue, at the Certificateholder's option: (1) on
the basis of a constant yield method, (2) in the case of a REMIC Regular
Certificate issued without original issue discount, in an amount that bears the
same ratio to the total remaining market discount as the stated interest paid in
the accrual period bears to the total amount of stated interest remaining to be
paid on the REMIC Regular Certificate as of the beginning of the accrual period,
or (3) in the case of a REMIC Regular Certificate issued with original issue
discount, in an amount that bears the same ratio to the total remaining market
discount as the original issue discount accrued in the accrual period bears to
the total original issue discount remaining on the REMIC Regular Certificate at
the beginning of the accrual period. Moreover, the Prepayment Assumption used in
calculating the accrual of original issue discount is also used in calculating
the accrual of market discount. Because the regulations referred to in this
paragraph have not been issued, it is not possible to predict what effect such
regulations might have on the tax treatment of a REMIC Regular Certificate
purchased at a discount in the secondary market.
To the extent that REMIC Regular Certificates provide for monthly or other
periodic distributions throughout their term, the effect of these rules may be
to require market discount to be includible in income at a rate that is not
significantly slower than the rate at which such discount would accrue if it
were original issue discount. Moreover, in any event a holder of a REMIC Regular
Certificate generally will be required to treat a portion of any gain on the
sale or exchange of such Certificate as ordinary income to the extent of the
market discount accrued to the date of disposition under one of the foregoing
methods, less any accrued market discount previously reported as ordinary
income.
Further, under Section 1277 of the Code a holder of a REMIC Regular
Certificate 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 a REMIC Regular 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 REMIC Regular Certificate purchased at a cost (excluding any
portion of such cost attributable to accrued qualified stated interest) greater
than its remaining stated redemption price will be considered to be purchased at
a premium. The holder of such a REMIC Regular Certificate may elect under
Section 171 of the Code to amortize such premium under the constant yield method
over the life of the Certificate. If made, such an election will apply to all
debt instruments having amortizable bond premium that the holder owns or
subsequently acquires. Amortizable premium will be treated as an offset to
interest income on the related debt instrument, rather than as a separate
interest deduction. The OID Regulations also permit Certificateholders to elect
to include all interest, discount and premium in income based on a constant
yield method, further treating the Certificateholder as having made the election
to amortize premium generally. See "-- Taxation of Owners of REMIC Regular
Certificates -- Market Discount" above. Although final Treasury regulations
issued under Section 171 of the Code do not by their terms apply to prepayable
obligations such as REMIC Regular Certificates, the Committee Report states that
the same rules that apply to accrual of market discount (which rules will
require use of a Prepayment Assumption in accruing market discount with respect
to REMIC Regular Certificates without regard to whether such certificates have
original issue discount) will also apply in amortizing bond premium.
Realized Losses. Under Section 166 of the Code, both corporate holders of
the REMIC Regular Certificates and noncorporate holders of the REMIC Regular
Certificates that acquire such certificates in connection with a trade or
business should be allowed to deduct, as ordinary losses, any losses sustained
during a taxable year in which their certificates become wholly or partially
worthless as the result of one or more realized losses on the mortgage loans.
However, it appears that a noncorporate holder that does not acquire a REMIC
Regular Certificate in connection with a trade or business will not be entitled
to deduct a loss under Section 166 of the Code until such holder's Certificate
becomes wholly worthless (i.e., until its Certificate Balance has been reduced
to zero) and that the loss will be characterized as a short-term capital loss.
72
Each holder of a REMIC Regular Certificate will be required to accrue
interest and original issue discount with respect to such Certificate, without
giving effect to any reductions in distributions attributable to defaults or
delinquencies on the mortgage loans or the Underlying Certificates until it can
be established that any such reduction ultimately will not be recoverable. As a
result, the amount of taxable income reported in any period by the holder of a
REMIC Regular Certificate could exceed the amount of economic income actually
realized by the holder in such period. Although the holder of a REMIC Regular
Certificate eventually will recognize a loss or reduction in income attributable
to previously accrued and included income that, as the result of a realized
loss, ultimately will not be realized, the law is unclear with respect to the
timing and character of such loss or reduction in income.
Taxation of Owners of REMIC Residual Certificates.
General. Although a REMIC is a separate entity for federal income tax
purposes, a REMIC generally is not subject to entity-level taxation, except with
regard to prohibited transactions and certain other transactions. See
"-- Prohibited Transactions Tax and Other Taxes" below. Rather, the taxable
income or net loss of a REMIC is generally taken into account by the holder of
the REMIC Residual Certificates. Accordingly, the REMIC Residual Certificates
will be subject to tax rules that differ significantly from those that would
apply if the REMIC Residual Certificates were treated for federal income tax
purposes as direct ownership interests in the mortgage loans or as debt
instruments issued by the REMIC.
A REMIC Residual Certificateholder generally will be required to report its
daily portion of the taxable income or, subject to the limitations noted in this
discussion, the net loss of the REMIC for each day during a calendar quarter
that such holder owned such REMIC Residual Certificate. For this purpose, the
taxable income or net loss of the REMIC will be allocated to each day in the
calendar quarter ratably using a "30 days per month/90 days per quarter/360 days
per year" convention unless otherwise disclosed in the related prospectus
supplement. The daily amounts so allocated will then be allocated among the
REMIC Residual Certificateholders in proportion to their respective ownership
interests on such day. Any amount included in the gross income or allowed as a
loss of any REMIC Residual Certificateholder by virtue of this paragraph will be
treated as ordinary income or loss. The taxable income of the REMIC will be
determined under the rules described below in "--Taxable Income of the REMIC"
and will be taxable to the REMIC Residual Certificateholders without regard to
the timing or amount of cash distributions by the REMIC until the REMIC's
termination. Ordinary income derived from REMIC Residual Certificates will be
"portfolio income" for purposes of the taxation of taxpayers subject to
limitations under Section 469 of the Code on the deductibility of "passive
losses".
A holder of a REMIC Residual Certificate that purchased such Certificate
from a prior holder of such Certificate also will be required to report on its
federal income tax return amounts representing its daily share of the taxable
income (or net loss) of the REMIC for each day that it holds such REMIC Residual
Certificate. Those daily amounts generally will equal the amounts of taxable
income or net loss determined as described above. The Committee Report indicates
that certain modifications of the general rules may be made, by regulations,
legislation or otherwise to reduce (or increase) the income of a REMIC Residual
Certificateholder that purchased such REMIC Residual Certificate from a prior
holder of such Certificate at a price greater than (or less than) the adjusted
basis (as defined below) such REMIC Residual Certificate would have had in the
hands of an original holder of such Certificate. The REMIC Regulations, however,
do not provide for any such modifications.
Any payments received by a holder of a REMIC Residual Certificate from the
seller of such Certificate in connection with the acquisition of such REMIC
Residual Certificate will be taken into account in determining the income of
such holder for federal income tax purposes. Although it is possible that any
such payment would be includible in income immediately upon its receipt, the IRS
might assert that such payment should be included in income over time according
to an amortization schedule or according to some other method. Because of the
uncertainty concerning the treatment of such payments, holders of REMIC Residual
Certificates should consult their tax advisors concerning the treatment of such
payments for income tax purposes.
The amount of income REMIC Residual Certificateholders will be required to
report (or the tax liability associated with such income) may exceed the amount
of cash distributions received from the REMIC for the corresponding period.
Consequently, REMIC Residual Certificateholders should have other sources of
funds sufficient to pay any federal income taxes due as a result of their
ownership of REMIC Residual Certificates or
73
unrelated deductions against which income may be offset, subject to the rules
relating to "excess inclusions" and "noneconomic" residual interests discussed
below. The fact that the tax liability associated with the income allocated to
REMIC Residual Certificateholders may exceed the cash distributions received by
such REMIC Residual Certificateholders for the corresponding period may
significantly adversely affect such REMIC Residual Certificateholders' after-tax
rate of return. Such disparity between income and distributions may not be
offset by corresponding losses or reductions of income attributable to the REMIC
Residual Certificateholder until subsequent tax years and, then, may not be
completely offset due to changes in the Code, tax rates or character of the
income or loss.
Taxable Income of the REMIC. The taxable income of the REMIC will equal
the income from the mortgage loans (including interest, market discount and, if
applicable, original issue discount and less premium) and other assets of the
REMIC plus any cancellation of indebtedness income due to the allocation of
realized losses to REMIC Regular Certificates, less the deductions allowed to
the REMIC for interest (including original issue discount and reduced by any
premium on issuance) on the REMIC Regular Certificates (and any other class of
REMIC Certificates constituting "regular interests" in the REMIC not offered
hereby), amortization of any premium on the mortgage loans, bad debt losses with
respect to the mortgage loans and, except as described below, for servicing,
administrative and other expenses.
For purposes of determining its taxable income, the REMIC will have an
initial aggregate basis in its assets equal to the sum of the issue prices of
all REMIC Certificates (or, if a class of REMIC Certificates is not sold
initially, such Class's fair market value). Such aggregate basis will be
allocated among the mortgage loans and the other assets of the REMIC in
proportion to their respective fair market values. The issue price of any REMIC
Certificates offered hereby will be determined in the manner described above
under "-- Taxation of Owners of REMIC Regular Certificates -- Original Issue
Discount". The issue price of a REMIC Certificate received in exchange for an
interest in the mortgage loans or other property will equal the fair market
value of such interests in the mortgage loans or other property. Accordingly, if
one or more classes of REMIC Certificates are retained initially rather than
sold, the REMIC Administrator may be required to estimate the fair market value
of such interests in order to determine the basis of the REMIC in the mortgage
loans and other property held by the REMIC.
The method of accrual by the REMIC of original issue discount income and
market discount income with respect to mortgage loans that it holds will be
equivalent to the method for accruing original issue discount income for holders
of REMIC Regular Certificates (that is, under the constant yield method taking
into account the Prepayment Assumption), but without regard to the de minimis
rule applicable to REMIC Regular Certificates. However, a REMIC that acquires
loans at a market discount must include such market discount in income
currently, as it accrues, on a constant yield basis. See "-- Taxation of Owners
of REMIC Regular Certificates" above, which describes a method for accruing such
discount income that is analogous to that required to be used by a REMIC as to
mortgage loans with market discount that it holds.
A mortgage loan will be deemed to have been acquired with discount (or
premium) to the extent that the REMIC's basis therein, determined as described
in the preceding paragraph, is less than (or greater than) its stated redemption
price. Any such discount will be includible in the income of the REMIC as it
accrues, in advance of receipt of the cash attributable to such income, under a
method similar to the method described above for accruing original issue
discount on the REMIC Regular Certificates. It is anticipated that each REMIC
will elect under Section 171 of the Code to amortize any premium on the mortgage
loans. Premium on any mortgage loan to which such election applies may be
amortized under a constant yield method, presumably taking into account a
Prepayment Assumption. Further, such an election would not apply to any mortgage
loan originated on or before September 27, 1985. Instead, premium on such a
mortgage loan should be allocated among the principal payments thereon and be
deductible by the REMIC as those payments become due or upon the prepayment of
such mortgage loan.
A REMIC will be allowed deductions for interest (including original issue
discount) on the REMIC Regular Certificates (including any other class of REMIC
Certificates constituting "regular interests" in the REMIC not offered hereby)
equal to the deductions that would be allowed if the REMIC Regular Certificates
(including any other class of REMIC Certificates constituting "regular
interests" in the REMIC not offered hereby) were
74
indebtedness of the REMIC. Original issue discount will be considered to accrue
for this purpose as described above under "-- Taxation of Owners of REMIC
Regular Certificates -- Original Issue Discount", except that the de minimis
rule and the adjustments for subsequent holders of REMIC Regular Certificates
(including any other class of REMIC Certificates constituting "regular
interests" in the REMIC not offered hereby) described therein will not apply.
If a class of REMIC Regular Certificates is issued with an Issue Premium,
the REMIC will have additional income in each taxable year in an amount equal to
the portion of the Issue Premium that is considered to be amortized or repaid in
that year. Although the matter is not entirely certain, it is likely that Issue
Premium would be amortized under a constant yield method in a manner analogous
to the method of accruing original issue discount described above under
"-- Taxation of Owners of REMIC Regular Certificates -- Original Issue
Discount".
As a general rule, the taxable income of a REMIC will be determined in the
same manner as if the REMIC were an individual having the calendar year as its
taxable year and using the accrual method of accounting. However, no item of
income, gain, loss or deduction allocable to a prohibited transaction will be
taken into account. See "-- Prohibited Transactions Tax and Other Taxes" below.
Further, the limitation on miscellaneous itemized deductions imposed on
individuals by Section 67 of the Code (which allows such deductions only to the
extent they exceed in the aggregate two percent of the taxpayer's adjusted gross
income) will not be applied at the REMIC level so that the REMIC will be allowed
deductions for servicing, administrative and other noninterest expenses in
determining its taxable income. All such expenses will be allocated as a
separate item to the holders of REMIC Certificates, subject to the limitation of
Section 67 of the Code. See "-- Possible Pass-Through of Miscellaneous Itemized
Deductions" below. If the deductions allowed to the REMIC exceed its gross
income for a calendar quarter, such excess will be the net loss for the REMIC
for that calendar quarter.
Basis Rules, Net Losses and Distributions. The adjusted basis of a REMIC
Residual Certificate will be equal to the amount paid for such REMIC Residual
Certificate, increased by amounts included in the income of the REMIC Residual
Certificateholder and decreased (but not below zero) by distributions made, and
by net losses allocated, to such REMIC Residual Certificateholder.
A REMIC Residual Certificateholder is not allowed to take into account any
net loss for any calendar quarter to the extent such net loss exceeds such REMIC
Residual Certificateholder's adjusted basis in its REMIC Residual Certificate as
of the close of such calendar quarter (determined without regard to such net
loss). Any loss that is not currently deductible by reason of this limitation
may be carried forward indefinitely to future calendar quarters and, subject to
the same limitation, may be used only to offset income from the REMIC Residual
Certificate. The ability of REMIC Residual Certificateholders to deduct net
losses may be subject to additional limitations under the Code, as to which
REMIC Residual Certificateholders should consult their tax advisors.
Any distribution on a REMIC Residual Certificate will be treated as a
nontaxable return of capital to the extent it does not exceed the holder's
adjusted basis in such REMIC Residual Certificate. To the extent a distribution
on a REMIC Residual Certificate exceeds such adjusted basis, it will be treated
as gain from the sale of such REMIC Residual Certificate. Holders of certain
REMIC Residual Certificates may be entitled to distributions early in the term
of the related REMIC under circumstances in which their bases in such REMIC
Residual Certificates will not be sufficiently large that such distributions
will be treated as nontaxable returns of capital. Their bases in such REMIC
Residual Certificates will initially equal the amount paid for such REMIC
Residual Certificates and will be increased by their allocable shares of taxable
income of the REMIC. However, such bases increases may not occur until the end
of the calendar quarter, or perhaps the end of the calendar year, with respect
to which such REMIC taxable income is allocated to the REMIC Residual
Certificateholders. To the extent such REMIC Residual Certificateholders'
initial bases are less than the distributions to such REMIC Residual
Certificateholders, and increases in such initial bases either occur after such
distributions or (together with their initial bases) are less than the amount of
such distributions, gain will be recognized to such REMIC Residual
Certificateholders on such distributions and will be treated as gain from the
sale of their REMIC Residual Certificates.
75
The effect of these rules is that a REMIC Residual Certificateholder may
not amortize its basis in a REMIC Residual Certificate, but may only recover its
basis through distributions, through the deduction of any net losses of the
REMIC or upon the sale of its REMIC Residual Certificate. See "-- Sales of REMIC
Certificates" below. For a discussion of possible modifications of these rules
that may require adjustments to income of a holder of a REMIC Residual
Certificate other than an original holder in order to reflect any difference
between the cost of such REMIC Residual Certificate to such REMIC Residual
Certificateholder and the adjusted basis such REMIC Residual Certificate would
have in the hands of an original holder see "-- Taxation of Owners of REMIC
Residual Certificates -- General" above.
Excess Inclusions. Any "excess inclusions" with respect to a REMIC
Residual Certificate will be subject to federal income tax in all events. In
general, the "excess inclusions" with respect to a REMIC Residual Certificate
for any calendar quarter will be the excess, if any, of (1) the daily portions
of REMIC taxable income allocable to such REMIC Residual Certificate over (2)
the sum of the "daily accruals" (as defined below) for each day during such
quarter that such REMIC Residual Certificate was held by such REMIC Residual
Certificateholder. The daily accruals of a REMIC Residual Certificateholder will
be determined by allocating to each day during a 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% of the "long-term
Federal rate" in effect on the Closing Date. For this purpose, the adjusted
issue price of a REMIC Residual Certificate as of the beginning of any calendar
quarter will be equal to the issue price of the REMIC Residual Certificate,
increased by the sum of the daily accruals for all prior quarters and decreased
(but not below zero) by any distributions made with respect to such REMIC
Residual Certificate before the beginning of such quarter. The issue price of a
REMIC Residual Certificate is the initial offering price to the public
(excluding bond houses and brokers) at which a substantial amount of the REMIC
Residual Certificates were sold. The "long-term Federal 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.
For REMIC Residual Certificateholders, an excess inclusion (1) will not be
permitted to be offset by deductions, losses or loss carryovers from other
activities, (2) will be treated as "unrelated business taxable income" to an
otherwise tax-exempt organization and (3) will not be eligible for any rate
reduction or exemption under any applicable tax treaty with respect to the 30%
United States withholding tax imposed on distributions to REMIC Residual
Certificateholders that are foreign investors. See, however, "-- Foreign
Investors in REMIC Certificates" below.
In the case of any REMIC Residual Certificates held by a real estate
investment trust, the aggregate excess inclusions with respect to such REMIC
Residual Certificates, reduced (but not below zero) by the real estate
investment trust taxable income (within the meaning of Section 857(b)(2) of the
Code, excluding any net capital gain), will be allocated among the shareholders
of such trust in proportion to the dividends received by such 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 such
shareholder. Treasury regulations yet to be issued could apply a similar rule to
regulated investment companies, common trust funds and certain cooperatives; the
REMIC Regulations currently do not address this subject.
Noneconomic REMIC Residual Certificates. Under the REMIC Regulations,
transfers of "noneconomic" REMIC Residual Certificates will be disregarded for
all federal income tax purposes if "a significant purpose of the transfer was to
enable the transferor to impede the assessment or collection of tax". If such
transfer is disregarded, the purported transferor will continue to remain liable
for any taxes due with respect to the income on such "noneconomic" REMIC
Residual Certificate. The REMIC Regulations provide that a REMIC Residual
Certificate is noneconomic unless, based on the Prepayment Assumption and on any
required or permitted clean up calls, or required liquidation provided for in
the REMIC's organizational documents, (1) the present value of the expected
future distributions (discounted using the "applicable Federal rate" for
obligations whose term ends on the close of the last quarter in which excess
inclusions are expected to accrue with respect to the REMIC Residual
Certificate, which rate is computed and published monthly by the IRS) on the
REMIC Residual Certificate equals at least the present value of the expected tax
on the anticipated excess inclusions, and (2) the transferor reasonably expects
that the transferee will receive distributions with respect to the REMIC
Residual Certificate at or after the time the taxes accrue on the anticipated
excess inclusions in an amount sufficient to
76
satisfy the accrued taxes. Accordingly, all transfers of REMIC Residual
Certificates that may constitute noneconomic residual interests will be subject
to certain restrictions under the terms of the related Pooling and Servicing
Agreement that are intended to reduce the possibility of any such transfer being
disregarded. Such restrictions will require each party to a transfer to provide
an affidavit that no purpose of such transfer is to impede the assessment or
collection of tax, including certain representations as to the financial
condition of the prospective transferee, as to which the transferor is also
required to make a reasonable investigation to determine such transferee's
historic payment of its debts and ability to continue to pay its debts as they
come due in the future.
In addition to the transferor's investigation of the transferee's financial
condition and the transferee's affidavit, a third requirement has been added
that must be satisfied in one of two alternative ways for the transferor to have
a "safe harbor" against ignoring the transfer. First, proposed Treasury
Regulations, would require that the present value of the anticipated tax
liabilities associated with holding the noneconomic residual interest not exceed
the sum of:
(i) the present value of any consideration given to the transferee to
acquire the interest;
(ii) the present value of the expected future distributions on the
interest; and
(iii) the present value of the anticipated tax savings associated with
holding the interest as the REMIC generates losses.
For purposes of the computations under this "minimum transfer price"
alternative, the transferee is assumed to pay tax at the highest rate of tax
specified in Section 11(b)(1) of the Code (currently 35%). Further, present
values generally are computed using a discount rate equal to the applicable
Federal rate set forth in Section 1274(d) of the Code, compounded semiannually.
However, a lower rate may be used if the transferee can demonstrate that it
regularly borrows, in the course of its trade or business, substantial funds at
such lower rate from unrelated third parties.
The second alternative appears in Revenue Procedure 2001-12, issued by the
IRS. The revenue procedure restates the minimum transfer price alternative
described in the proposed Treasury regulations discussed above and adds an
"eligible transferee" test as the second alternative test for meeting the safe
harbor. To meet the second alternative, (i) the transferee must be a domestic
"C" corporation (other than a corporation exempt from taxation of a regulated
investment company or real estate investment trust) that meets certain gross and
net asset tests (generally, $100 million of gross assets and $10 million of net
assets for the current year and the two preceding fiscal years); (ii) the
transferee must agree in writing that it will transfer the residual interest
only to a subsequent transferee that is an eligible corporation and meets the
requirements for a safe harbor transfer under the Revenue Procedure; and (iii)
the facts and circumstances known to the transferor on or before the date of the
transfer must not reasonably indicate that the taxes associated with ownership
of the residual interest will not be paid by the transferee. The eligible
transferee test, as well as the minimum transfer price test, are effective
retroactive to February 4, 2000 and apply unless and until changed by final
regulations.
Prior to purchasing a REMIC Residual Certificate, prospective purchasers
should consider the applicability and effect of the proposed regulations and
revenue procedure mentioned above and should consider the possibility that a
purported transfer of such REMIC Residual Certificate by such a purchaser to
another purchaser at some future date may be disregarded in accordance with the
above-described rules which would result in the retention of tax liability by
such purchaser.
The related prospectus supplement will disclose whether offered REMIC
Residual Certificates may be considered "noneconomic" residual interests under
the REMIC Regulations; provided, however, that any disclosure that a REMIC
Residual Certificate will not be considered "noneconomic" will be based upon
certain assumptions, and the depositor will make no representation that a REMIC
Residual Certificate will not be considered "noneconomic" for purposes of the
above-described rules. See "-- Foreign Investors in REMIC Certificates" below
for additional restrictions applicable to transfers of certain REMIC Residual
Certificates to foreign persons.
77
Mark-to-Market Rules. On January 4, 1995, the IRS issued final
regulations, relating to the requirement that a securities dealer mark to market
securities held for sale to customers. This mark-to-market requirement applies
to all securities owned by a dealer, except to the extent that the dealer has
specifically identified a security as held for investment. The mark-to-market
regulations provide that for purposes of this requirement, any REMIC Residual
Certificate acquired on or after January 4, 1995 will not be treated as a
security and thus generally may not be marked to market.
Possible Pass-Through of Miscellaneous Itemized Deductions. Fees and
expenses of a REMIC generally will be allocated to certain types of holders of
the related REMIC Residual Certificates. The applicable Treasury regulations
indicate, however, that in the case of a REMIC that is similar to a single class
grantor trust, all or a portion of such fees and expenses should be allocated to
such types of holders of the related REMIC Regular Certificates. Unless
otherwise stated in the related prospectus supplement, such fees and expenses
will be allocated to the related REMIC Residual Certificates in their entirety
and not to the holders of the related REMIC Regular Certificates.
With respect to REMIC Residual Certificates or REMIC Regular Certificates
the holders of which receive an allocation of fees and expenses in accordance
with the preceding discussion, if any holder thereof is an individual, estate or
trust, or a "pass-through entity" beneficially owned by one or more individuals,
estates or trusts, (1) an amount equal to such individual's, estate's or trust's
share of such fees and expenses will be added to the gross income of such holder
and (2) such individual's, estate's or trust's share of such fees and expenses
will be treated as a miscellaneous itemized deduction allowable subject to the
limitation of Section 67 of the Code, which permits such deductions only to the
extent they exceed in the aggregate 2% of a taxpayer's adjusted gross income. In
addition, Section 68 of the Code provides that the amount of itemized deductions
otherwise allowable for an individual whose adjusted gross income exceeds a
specified amount will be reduced by the lesser of (1) 3% of the excess of the
individual's adjusted gross income over such amount or (2) 80% of the amount of
itemized deductions otherwise allowable for the taxable year. The amount of
additional taxable income reportable by REMIC Certificateholders that are
subject to the limitations of either Section 67 or Section 68 of the Code may be
substantial. Furthermore, in determining the alternative minimum taxable income
of such a holder of a REMIC Certificate that is an individual, estate or trust,
or a "pass-through entity" beneficially owned by one or more individuals,
estates or trusts, no deduction will be allowed for such holder's allocable
portion of servicing fees and other miscellaneous itemized deductions of the
REMIC, even though an amount equal to the amount of such fees and other
deductions will be included in such holder's gross income. Accordingly, such
REMIC Certificates may not be appropriate investments for individuals, estates,
or trusts, or pass-through entities beneficially owned by one or more
individuals, estates or trusts. Such prospective investors should consult with
their tax advisors prior to making an investment in such certificates.
Under tax legislation enacted in 2001, the limitations on deductions under
Section 68 will be phased out beginning in 2006 and will be eliminated after
2009.
Sales of REMIC Certificates. If a REMIC Certificate is sold, the selling
Certificateholder will recognize gain or loss equal to the difference between
the amount realized on the sale and its adjusted basis in the REMIC Certificate.
The adjusted basis of a REMIC Regular Certificate generally will equal the cost
of such REMIC Regular Certificate to such Certificateholder, increased by income
reported by such Certificateholder with respect to such REMIC Regular
Certificate (including original issue discount and market discount income) and
reduced (but not below zero) by distributions on such REMIC Regular Certificate
received by such Certificateholder and by any amortized premium. The adjusted
basis of a REMIC Residual Certificate will be determined as described above
under "-- Taxation of Owners of REMIC Residual Certificates -- Basis Rules, Net
Losses and Distributions". Except as provided in the following four paragraphs,
any such gain or loss will be capital gain or loss, provided such REMIC
Certificate is held as a capital asset (generally, property held for investment)
within the meaning of Section 1221 of the Code. The Code as of the date of this
prospectus provides for tax rates for individuals on ordinary income that are
higher than the tax rates for long-term capital gains of individuals for
property held for more than one year. No such rate differential exists for
corporations. In addition, the distinction between a capital gain or loss and
ordinary income or loss remains relevant for other purposes.
78
Gain from the sale of a REMIC Regular Certificate that might otherwise be a
capital gain will be treated as ordinary income to the extent such gain does not
exceed the excess, if any, of (1) the amount that would have been includible in
the seller's income with respect to such REMIC Regular Certificate assuming that
income had accrued thereon at a rate equal to 110% of the "applicable Federal
rate" (generally, a rate based on an average of current yields on treasury
securities having a maturity comparable to that of the certificate based on the
application of the Prepayment Assumption to such certificate), determined as of
the date of purchase of such REMIC Regular Certificate, over (2) the amount of
ordinary income actually includible in the seller's income prior to such sale.
In addition, gain recognized on the sale of a REMIC Regular Certificate by a
seller who purchased such REMIC Regular Certificate at a market discount will be
taxable as ordinary income in an amount not exceeding the portion of such
discount that accrued during the period such REMIC Certificate was held by such
holder, reduced by any market discount included in income under the rules
described above under "--Taxation of Owners of REMIC Regular
Certificates -- Market Discount" and "-- Premium".
REMIC Certificates will be "evidences of indebtedness" within the meaning
of Section 582(c)(1) of the Code, so that gain or loss recognized from the sale
of a REMIC Certificate by a bank or thrift institution to which such Section
applies will be ordinary income or loss.
A portion of any gain from the sale of a REMIC Regular Certificate that
might otherwise be capital gain may be treated as ordinary income to the extent
that such Certificate is held as part of a "conversion transaction" within the
meaning of Section 1258 of the Code. A conversion transaction generally is one
in which the taxpayer has taken two or more positions in the same or similar
property that reduce or eliminate market risk, if substantially all of the
taxpayer's return is attributable to the time value of the taxpayer's net
investment in such transaction. The amount of gain so realized in a conversion
transaction that is recharacterized as ordinary income generally will not exceed
the amount of interest that would have accrued on the taxpayer's net investment
at 120% of the appropriate "applicable Federal rate" at the time the taxpayer
enters into the conversion transaction, subject to appropriate reduction for
prior inclusion of interest and other ordinary income items from the
transaction.
Finally, a taxpayer may elect to have net capital gain taxed at ordinary
income rates rather than capital gains rates in order to include such net
capital gain in total net investment income for the taxable year, for purposes
of the rule that limits the deduction of interest on indebtedness incurred to
purchase or carry property held for investment to a taxpayer's net investment
income.
Except as may be provided in Treasury Department regulations yet to be
issued, if the seller of a REMIC Residual Certificate reacquires such REMIC
Residual Certificate, or acquires any other residual interest in a REMIC or any
similar interest in a "taxable mortgage pool" (as defined in Section 7701(i) of
the Code) 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 Section 1091 of the Code. In that event, any loss realized by the REMIC
Residual Certificateholder on the sale will not be deductible, but instead will
be added to such REMIC Residual Certificateholder's adjusted basis in the
newly-acquired asset.
Prohibited Transactions Tax 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 the disposition of a mortgage loan, the receipt of income from a source
other than a mortgage loan or certain other permitted investments, the receipt
of compensation for services, or gain from the disposition of an asset purchased
with the payments on the mortgage loans for temporary investment pending
distribution on the REMIC Certificates. It is not anticipated that any REMIC
will engage in any prohibited transactions in which it would recognize a
material amount of net income.
In addition, certain contributions to a REMIC made after the day on which
the REMIC issues all of its interests could result in the imposition of a tax on
the REMIC equal to 100% of the value of the contributed property. Each Pooling
and Servicing Agreement will include provisions designed to prevent the
acceptance of any contributions that would be subject to such tax.
REMICs also are 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
79
foreclosure property" generally means gain from the sale of a foreclosure
property that is inventory property and gross income from foreclosure property
other than qualifying rents and other qualifying income for a real estate
investment trust. As provided in each Pooling and Servicing Agreement, a REMIC
may recognize "net income from foreclosure property" subject to federal income
tax to the extent that the REMIC Administrator determines that such method of
operation will result in a greater after-tax return to the trust fund than any
other method of operation.
Unless otherwise disclosed in the related prospectus supplement, it is not
anticipated that any material state or local income or franchise tax will be
imposed on any REMIC.
Unless otherwise stated in the related prospectus supplement, and to the
extent permitted by then applicable laws, any prohibited transactions tax or
contributions tax will be borne by the related REMIC administrator, master
servicer, special servicer, manager or trustee, in any case out of its own
funds, provided that such person has sufficient assets to do so, and provided
further that such tax arises out of a breach of such person's obligations under
the related Pooling and Servicing Agreement and in respect of compliance with
applicable laws and regulations. Any such tax not borne by a REMIC
administrator, a master servicer, special servicer, manager or trustee will be
charged against the related trust fund resulting in a reduction in amounts
payable to holders of the related REMIC Certificates.
Tax and Restrictions on Transfers of REMIC Residual Certificates to Certain
Organizations. If a REMIC Residual Certificate is transferred to a
"disqualified organization" (as defined below), a tax would be imposed in an
amount (determined under the REMIC Regulations) equal to the product of (1) the
present value (discounted using the "applicable Federal rate" for obligations
whose term ends on the close of the last quarter in which excess inclusions are
expected to accrue with respect to the REMIC Residual Certificate) of the total
anticipated excess inclusions with respect to such REMIC Residual Certificate
for periods after the transfer and (2) the highest marginal federal income tax
rate applicable to corporations. The anticipated excess inclusions must be
determined as of the date that the REMIC Residual Certificate is transferred and
must be based on events that have occurred up to the time of such transfer, the
Prepayment Assumption and any required or permitted clean up calls or required
liquidation provided for in the REMIC's organizational documents. Such a tax
generally would be imposed on the transferor of the REMIC Residual Certificate,
except that where such transfer is through an agent for a disqualified
organization, the tax would instead be imposed on such agent. However, a
transferor of a REMIC Residual Certificate would in no event be liable for such
tax with respect to a transfer if the transferee furnishes to the transferor an
affidavit that the transferee is not a disqualified organization and, as of the
time of the transfer, the transferor does not have actual knowledge that such
affidavit is false. Moreover, an entity will not qualify as a REMIC unless there
are reasonable arrangements designed to ensure that (1) residual interests in
such entity are not held by disqualified organizations and (2) information
necessary for the application of the tax described herein will be made
available. Restrictions on the transfer of REMIC Residual Certificates and
certain other provisions that are intended to meet this requirement will be
included in each Pooling and Servicing Agreement, and will be discussed in any
prospectus supplement relating to the offering of any REMIC Residual
Certificate.
In addition, if a "pass-through entity" (as defined below) includes in
income excess inclusions with respect to a REMIC Residual Certificate, and a
disqualified organization is the record holder of an interest in such entity,
then a tax will be imposed on such entity equal to the product of (1) the amount
of excess inclusions on the REMIC Residual Certificate that are allocable to the
interest in the pass-through entity held by such disqualified organization and
(2) the highest marginal federal income tax rate imposed on corporations. A
pass-through entity will not be subject to this tax for any period, however, if
each record holder of an interest in such pass-through entity furnishes to such
pass-through entity (1) such holder's social security number and a statement
under penalties of perjury that such social security number is that of the
record holder or (2) a statement under penalties of perjury that such record
holder is not a disqualified organization.
For taxable years beginning on or after January 1, 1998, if an "electing
large partnership" holds a REMIC Residual Certificate, all interests in the
electing large partnership are treated as held by disqualified organizations for
purposes of the tax imposed upon a pass-through entity by Section 860E(c) of the
Code. An exception to this
80
tax, otherwise available to a pass-through entity that is furnished certain
affidavits by record holders of interests in the entity and that does not know
such affidavits are false, is not available to an electing large partnership.
For these purposes, a "disqualified organization" means (1) the United
States, any State or political subdivision thereof, any foreign government, any
international organization, or any agency or instrumentality of the foregoing
(but would not include instrumentalities described in Section 168(h)(2)(D) of
the Code or the Federal Home Loan Mortgage Corporation), (2) any organization
(other than a cooperative described in Section 521 of the Code) that is exempt
from federal income tax, unless it is subject to the tax imposed by Section 511
of the Code or (3) any organization described in Section 1381(a)(2)(C) of the
Code. In addition, a "pass-through entity" means any regulated investment
company, real estate investment trust, trust, partnership or certain other
entities described in Section 860E(e)(6) of the Code. In addition, a person
holding an interest in a pass-through entity as a nominee for another person
will, with respect to such interest, be treated as a pass-through entity. For
these purposes, an "electing large partnership" means a partnership (other than
a service partnership or certain commodity pools) having more than 100 members
that has elected to apply certain simplified reporting provisions under the
Code.
Termination. A REMIC will terminate immediately after the Distribution
Date following receipt by the REMIC of the final payment in respect of the
mortgage loans or upon a sale of the REMIC's assets following the adoption by
the REMIC of a plan of complete liquidation. The last distribution on a REMIC
Regular Certificate will be treated as a payment in retirement of a debt
instrument. In the case of a REMIC Residual Certificate, if the last
distribution on such REMIC Residual Certificate is less than the REMIC Residual
Certificateholder's adjusted basis in such Certificate, such REMIC Residual
Certificateholder should (but may not) be treated as realizing a loss equal to
the amount of such difference, and such loss may be treated as a capital loss.
Reporting and Other Administrative Matters. Solely for purposes of the
administrative provisions of the Code, the REMIC will be treated as a
partnership and REMIC Residual Certificateholders will be treated as partners.
Unless otherwise stated in the related prospectus supplement, the holder of the
largest percentage interest in a class of REMIC Residual Certificates will be
the "tax matters person" with respect to the related REMIC, and the REMIC
administrator will file REMIC federal income tax returns on behalf of the
related REMIC, and will be designated as and will act as agent of, and
attorney-in-fact for, the tax matters person with respect to the REMIC in all
respects.
As the tax matters person, the REMIC administrator, subject to certain
notice requirements and various restrictions and limitations, generally will
have the authority to act on behalf of the REMIC and the REMIC Residual
Certificateholders in connection with the administrative and judicial review of
items of income, deduction, gain or loss of the REMIC, as well as the REMIC's
classification. REMIC Residual Certificateholders generally will be required to
report such REMIC items consistently with their treatment on the related REMIC's
tax return and may in some circumstances be bound by a settlement agreement
between the REMIC Administrator, as tax matters person, and the IRS concerning
any such REMIC item. Adjustments made to the REMIC tax return may require a
REMIC Residual Certificateholder to make corresponding adjustments on its
return, and an audit of the REMIC's tax return, or the adjustments resulting
from such an audit, could result in an audit of a REMIC Residual
Certificateholder's return. No REMIC will be registered as a tax shelter
pursuant to Section 6111 of the Code because it is not anticipated that any
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 to the related REMIC, in a manner to
be provided in Treasury Department regulations, the name and address of such
person and other information.
Reporting of interest income, including any original issue discount, with
respect to REMIC Regular Certificates is required annually, and may be required
more frequently under Treasury Department regulations. These information reports
generally are required to be sent to individual holders of REMIC Regular
Interests and the IRS; holders of REMIC Regular Certificates that are
corporations, trusts, securities dealers and certain other nonindividuals will
be provided interest and original issue discount income information and the
information set forth in the following paragraph upon request in accordance with
the requirements of the applicable regulations. The information must be provided
by the later of 30 days after the end of the quarter for which the information
was requested, or two weeks after the receipt of the request. Reporting with
respect to REMIC Residual
81
Certificates, including income, excess inclusions, investment expenses and
relevant information regarding qualification of the REMIC's assets will be made
as required under the Treasury Department regulations, generally on a quarterly
basis.
As applicable, 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 required by regulations with respect to computing the accrual of any
market discount. Because exact computation of the accrual of market discount on
a constant yield method would require information relating to the holder's
purchase price that the REMIC may not have, such regulations only require that
information pertaining to the appropriate proportionate method of accruing
market discount be provided. See "-- Taxation of Owners of REMIC Regular
Certificates -- Market Discount".
Unless otherwise specified in the related prospectus supplement, the
responsibility for complying with the foregoing reporting rules will be borne by
the REMIC administrator.
Backup Withholding with Respect to REMIC Certificates. Payments of
interest and principal, as well as payments of proceeds from the sale of REMIC
Certificates, may be subject to the "backup withholding tax" under Section 3406
of the Code at a rate of 30.5% (which rate will be reduced periodically to 28%
beginning in 2006) if recipients of such payments fail to furnish to the payor
certain information, including their taxpayer identification numbers, or
otherwise fail to establish an exemption from such tax. Any amounts deducted and
withheld from a distribution to a recipient would be allowed as a credit against
such recipient's federal income tax. Furthermore, certain penalties may be
imposed by the IRS on a recipient of payments that is required to supply
information but that does not do so in the proper manner. The New Regulations,
as described below, will change certain of the rules relating to certain
presumptions currently available relating to information reporting and backup
withholding. Non-U.S. Persons are urged to contact their own tax advisors
regarding the application to them of backup withholding and information
reporting.
Foreign Investors in REMIC Certificates. A REMIC Regular Certificateholder
that is not a U.S. Person and is not subject to federal income tax as a result
of any direct or indirect connection to the United States in addition to its
ownership of a REMIC Regular Certificate will not, unless otherwise disclosed in
the related prospectus supplement, be subject to United States federal income or
withholding tax in respect of a distribution on a REMIC Regular Certificate,
provided that the holder complies to the extent necessary with certain
identification requirements (including delivery of a statement, signed by the
Certificateholder under penalties of perjury, certifying that such
Certificateholder is not a U.S. Person and providing the name and address of
such Certificateholder). It is possible that the IRS may assert that the
foregoing tax exemption should not apply with respect to a REMIC Regular
Certificate held by a REMIC Residual Certificateholder that owns directly or
indirectly a 10% or greater interest in the REMIC Residual Certificates. If the
holder does not qualify for exemption, distributions of interest, including
distributions in respect of accrued original issue discount, to such holder may
be subject to a tax rate of 30%, subject to reduction under any applicable tax
treaty.
In addition, the foregoing rules will not apply to exempt a United States
shareholder of a controlled foreign corporation from taxation on such United
States shareholder's allocable portion of the interest income received by such
controlled foreign corporation.
Further, it appears that a REMIC Regular Certificate would not be included
in the estate of a nonresident alien individual and would not be subject to
United States estate taxes. However, Certificateholders who are nonresident
alien individuals should consult their tax advisors concerning this question.
The Treasury Department has issued regulations which provide new methods of
satisfying the beneficial ownership certification requirement described above,
including a new series of forms. These regulations became effective January 1,
2001. These regulations require, in the case of REMIC Regular Certificates held
by a foreign partnership, that (x) the certification described above be provided
by the partners rather than by the foreign partnership and (y) the partnership
provide certain information, including a United States taxpayer identification
number. A look-through rule applies in the case of tiered partnerships. Non-U.S.
Persons should consult their own tax advisors concerning the application of the
certification requirements in the regulations.
82
Unless otherwise stated in the related prospectus supplement, transfers of
REMIC Residual Certificates to investors that are not United States Persons will
be prohibited under the related Pooling and Servicing Agreement.
GRANTOR TRUST FUNDS
Classification of Grantor Trust Funds. With respect to each series of
Grantor Trust Certificates, in the opinion of counsel to the depositor for such
series, assuming compliance with all provisions of the related Pooling and
Servicing Agreement, the related Grantor Trust Fund will be classified as a
grantor trust under subpart E, part I of subchapter J of the Code and not as a
partnership or an association taxable as a corporation. The following general
discussion of the anticipated federal income tax consequences of the purchase,
ownership and disposition of Grantor Trust Certificates, to the extent it
relates to matters of law or legal conclusions with respect thereto, represents
the opinion of counsel to the depositor for the applicable series as specified
in the related prospectus supplement, subject to any qualifications set forth in
this prospectus. In addition, counsel to the depositor has prepared or reviewed
the statements in this prospectus under the heading "Certain Federal Income Tax
Consequences -- Grantor Trust Funds," and is of the opinion that such statements
are correct in all material respects. Such statements are intended as an
explanatory discussion of the possible effects of the classification of any
Grantor Trust Fund as a grantor trust for federal income tax purposes on
investors generally and of related tax matters affecting investors generally,
but do not purport to furnish information in the level of detail or with the
attention to an investor's specific tax circumstances that would be provided by
an investor's own tax advisor. Accordingly, each investor is advised to consult
its own tax advisors with regard to the tax consequences to it of investing in
Grantor Trust Certificates.
Characterization of Investments in Grantor Trust Certificates.
Grantor Trust Fractional Interest Certificates. In the case of Grantor
Trust Fractional Interest Certificates, unless otherwise disclosed in the
related prospectus supplement, counsel to the depositor will deliver an opinion
that, in general, Grantor Trust Fractional Interest Certificates will represent
interests in (1) "loans . . . secured by an interest in real property" within
the meaning of Section 7701(a)(19)(C)(v) of the Code; (2) "obligation[s]
(including any participation or certificate of beneficial ownership therein)
which . . . [are] principally secured by an interest in real property" within
the meaning of Section 860G(a)(3) of the Code; and (3) "real estate assets"
within the meaning of Section 856(c)(4)(A) of the Code. In addition, counsel to
the depositor will deliver an opinion that interest on Grantor Trust Fractional
Interest Certificates will to the same extent be considered "interest on
obligations secured by mortgages on real property or on interests in real
property" within the meaning of Section 856(c)(3)(B) of the Code.
Grantor Trust Strip Certificates. Even if Grantor Trust Strip Certificates
evidence an interest in a Grantor Trust Fund consisting of mortgage loans that
are "loans . . . secured by an interest in real property" within the meaning of
Section 7701(a)(19)(C)(v) of the Code and "real estate assets" within the
meaning of Section 856(c)(4)(A) of the Code, and the interest on which is
"interest on obligations secured by mortgages on real property" within the
meaning of Section 856(c)(3)(B) of the Code, it is unclear whether the Grantor
Trust Strip Certificates, and the income therefrom, will be so characterized.
However, the policies underlying such sections (namely, to encourage or require
investments in mortgage loans by thrift institutions and real estate investment
trusts) may suggest that such characterization is appropriate. Counsel to the
depositor will not deliver any opinion on these questions. Prospective
purchasers to which such characterization of an investment in Grantor Trust
Strip Certificates is material should consult their tax advisors regarding
whether the Grantor Trust Strip Certificates, and the income therefrom, will be
so characterized.
The Grantor Trust Strip Certificates will be "obligation[s] (including any
participation or Certificate of beneficial ownership therein) which . . . [are]
principally secured by an interest in real property" within the meaning of
Section 860G(a)(3)(A) of the Code.
83
Taxation of Owners of Grantor Trust Fractional Interest Certificates.
General. Holders of a particular series of Grantor Trust Fractional
Interest Certificates generally will be required to report on their federal
income tax returns their shares of the entire income from the mortgage loans
(including amounts used to pay reasonable servicing fees and other expenses) and
will be entitled to deduct their shares of any such reasonable servicing fees
and other expenses. Because of stripped interests, market or original issue
discount, or premium, the amount includible in income on account of a Grantor
Trust Fractional Interest Certificate may differ significantly from the amount
distributable thereon representing interest on the mortgage loans. Under Section
67 of the Code, an individual, estate or trust holding a Grantor Trust
Fractional Interest Certificate directly or through certain pass-through
entities will be allowed a deduction for such reasonable servicing fees and
expenses only to the extent that the aggregate of such holder's miscellaneous
itemized deductions exceeds two percent of such holder's adjusted gross income.
In addition, Section 68 of the Code provides that the amount of itemized
deductions otherwise allowable for an individual whose adjusted gross income
exceeds a specified amount will be reduced by the lesser of (1) 3% of the excess
of the individual's adjusted gross income over such amount or (2) 80% of the
amount of itemized deductions otherwise allowable for the taxable year. The
amount of additional taxable income reportable by holders of Grantor Trust
Fractional Interest Certificates who are subject to the limitations of either
Section 67 or Section 68 of the Code may be substantial. Further,
Certificateholders (other than corporations) subject to the alternative minimum
tax may not deduct miscellaneous itemized deductions in determining such
holder's alternative minimum taxable income. Under tax legislation enacted in
2001, this limitation on deductions under Section 68 will be phased out
beginning in 2006 and will be eliminated after 2009. Although it is not entirely
clear, it appears that in transactions in which multiple classes of Grantor
Trust Certificates (including Grantor Trust Strip Certificates) are issued, such
fees and expenses should be allocated among the classes of Grantor Trust
Certificates using a method that recognizes that each such class benefits from
the related services. In the absence of statutory or administrative
clarification as to the method to be used, it currently is intended to base
information returns or reports to the IRS and Certificateholders on a method
that allocates such expenses among classes of Grantor Trust Certificates with
respect to each period based on the distributions made to each such class during
that period.
The federal income tax treatment of Grantor Trust Fractional Interest
Certificates of any series will depend on whether they are subject to the
"stripped bond" rules of Section 1286 of the Code. Grantor Trust Fractional
Interest Certificates may be subject to those rules if (1) a class of Grantor
Trust Strip Certificates is issued as part of the same series of certificates or
(2) the depositor or any of its affiliates retains (for its own account or for
purposes of resale) a right to receive a specified portion of the interest
payable on a mortgage asset. Further, the IRS has ruled that an unreasonably
high servicing fee retained by a seller or servicer will be treated as a
retained ownership interest in mortgages that constitutes a stripped coupon. The
related prospectus supplement will include information regarding servicing fees
paid to a master servicer, a special servicer, any sub-servicer or their
respective affiliates.
If Stripped Bond Rules Apply. If the stripped bond rules apply, each
Grantor Trust Fractional Interest Certificate will be treated as having been
issued with "original issue discount" within the meaning of Section 1273(a) of
the Code, subject, however, to the discussion below regarding the treatment of
certain stripped bonds as market discount bonds and the discussion regarding de
minimis market discount. See "-- Taxation of Owners of Grantor Trust Fractional
Interest Certificates -- Market Discount" below. Under the stripped bond rules,
the holder of a Grantor Trust Fractional Interest Certificate (whether a cash or
accrual method taxpayer) will be required to report interest income from its
Grantor Trust Fractional Interest Certificate for each month in an amount equal
to the income that accrues on such Certificate in that month calculated under a
constant yield method, in accordance with the rules of the Code relating to
original issue discount.
The original issue discount on a Grantor Trust Fractional Interest
Certificate will be the excess of such Certificate's stated redemption price
over its issue price. The issue price of a Grantor Trust Fractional Interest
Certificate as to any purchaser will be equal to the price paid by such
purchaser of the Grantor Trust Fractional Interest Certificate. The stated
redemption price of a Grantor Trust Fractional Interest Certificate will be the
sum of all payments to be made on such Certificate, other than "qualified stated
interest", if any, as well as such certificate's share of reasonable servicing
fees and other expenses. See "-- Taxation of Owners of Grantor Trust Fractional
Interest Certificates -- If Stripped Bond Rules Do Not Apply" for a definition
of "qualified stated
84
interest". In general, the amount of such income that accrues in any month would
equal the product of such holder's adjusted basis in such Grantor Trust
Fractional Interest Certificate at the beginning of such month (see "-- Sales of
Grantor Trust Certificates" below) and the yield of such Grantor Trust
Fractional Interest Certificate to such holder. Such yield would be computed as
the rate (compounded based on the regular interval between payment dates) that,
if used to discount the holder's share of future payments on the mortgage loans,
would cause the present value of those future payments to equal the price at
which the holder purchased such Certificate. In computing yield under the
stripped bond rules, a Certificateholder's share of future payments on the
mortgage loans will not include any payments made in respect of any ownership
interest in the mortgage loans retained by the depositor, the master servicer,
the special servicer, any sub-servicer or their respective affiliates, but will
include such Certificateholder's share of any reasonable servicing fees and
other expenses.
Section 1272(a)(6) of the Code requires (1) the use of a reasonable
prepayment assumption in accruing original issue discount and (2) adjustments in
the accrual of original issue discount when prepayments do not conform to the
prepayment assumption, with respect to certain categories of debt instruments,
and regulations could be adopted applying those provisions to the Grantor Trust
Fractional Interest Certificates. It is unclear whether those provisions would
be applicable to the Grantor Trust Fractional Interest Certificates or whether
use of a reasonable prepayment assumption may be required or permitted without
reliance on these rules. It is also uncertain, if a prepayment assumption is
used, whether the assumed prepayment rate would be determined based on
conditions at the time of the first sale of the Grantor Trust Fractional
Interest Certificate or, with respect to any holder, at the time of purchase of
the Grantor Trust Fractional Interest Certificate by that holder.
Certificateholders are advised to consult their tax advisors concerning
reporting original issue discount in general and, in particular, whether a
prepayment assumption should be used in reporting original issue discount with
respect to Grantor Trust Fractional Interest Certificates.
In the case of a Grantor Trust Fractional Interest Certificate acquired at
a price equal to the principal amount of the mortgage loans allocable to such
Certificate, the use of a prepayment assumption generally would not have any
significant effect on the yield used in calculating accruals of interest income.
In the case, however, of a Grantor Trust Fractional Interest Certificate
acquired at a discount or premium (that is, at a price less than or greater than
such principal amount, respectively), the use of a reasonable prepayment
assumption would increase or decrease such yield, and thus accelerate or
decelerate, respectively, the reporting of income.
If a prepayment assumption is not used, then when a mortgage loan prepays
in full, the holder of a Grantor Trust Fractional Interest Certificate acquired
at a discount or a premium generally will recognize ordinary income or loss
equal to the difference between the portion of the prepaid principal amount of
the mortgage loan that is allocable to such Certificate and the portion of the
adjusted basis of such Certificate that is allocable to such Certificateholder's
interest in the mortgage loan. If a prepayment assumption is used, it appears
that no separate item of income or loss should be recognized upon a prepayment.
Instead, a prepayment should be treated as a partial payment of the stated
redemption price of the Grantor Trust Fractional Interest Certificate and
accounted for under a method similar to that described for taking account of
original issue discount on REMIC Regular Certificates. See
"-- REMICs -- Taxation of Owners of REMIC Regular Certificates -- Original Issue
Discount" above. It is unclear whether any other adjustments would be required
to reflect differences between an assumed prepayment rate and the actual rate of
prepayments.
In the absence of statutory or administrative clarification, it is
currently intended to base information reports or returns to the IRS and
Certificateholders in transactions subject to the stripped bond rules on a
Prepayment Assumption that will be disclosed in the related prospectus
supplement and on a constant yield computed using a representative initial
offering price for each class of certificates. However, neither the depositor
nor any other person will make any representation that the mortgage loans will
in fact prepay at a rate conforming to such Prepayment Assumption or any other
rate and Certificateholders should bear in mind that the use of a representative
initial offering price will mean that such information returns or reports, even
if otherwise accepted as accurate by the IRS, will in any event be accurate only
as to the initial Certificateholders of each series who bought at that price.
Under Treasury regulations Section 1.1286-1, certain stripped bonds are to
be treated as market discount bonds and, accordingly, any purchaser of such a
bond is to account for any discount on the bond as market
85
discount rather than original issue discount. This treatment only applies,
however, if immediately after the most recent disposition of the bond by a
person stripping one or more coupons from the bond and disposing of the bond or
coupon (1) there is no original issue discount (or only a de minimis amount of
original issue discount) or (2) the annual stated rate of interest payable on
the original bond is no more than one percentage point lower than the gross
interest rate payable on the original mortgage loan (before subtracting any
servicing fee or any stripped coupon). If interest payable on a Grantor Trust
Fractional Interest Certificate is more than one percentage point lower than the
gross interest rate payable on the mortgage loans, the related prospectus
supplement will disclose that fact. If the original issue discount or market
discount on a Grantor Trust Fractional Interest Certificate determined under the
stripped bond rules is less than 0.25% of the stated redemption price multiplied
by the weighted average maturity of the mortgage loans, then such original issue
discount or market discount will be considered to be de minimis. Original issue
discount or market discount of only a de minimis amount will be included in
income in the same manner as de minimis original issue and market discount
described in "-- Taxation of Owners of Grantor Trust Fractional Interest
Certificates -- If Stripped Bond Rules Do Not Apply" and "-- Market Discount"
below.
If Stripped Bond Rules Do Not Apply. Subject to the discussion below on
original issue discount, if the stripped bond rules do not apply to a Grantor
Trust Fractional Interest Certificate, the Certificateholder will be required to
report its share of the interest income on the mortgage loans in accordance with
such Certificateholder's normal method of accounting. The original issue
discount rules will apply, even if the stripped bond rules do not apply, to a
Grantor Trust Fractional Interest Certificate to the extent it evidences an
interest in mortgage loans issued with original issue discount.
The original issue discount, if any, on the mortgage loans will equal the
difference between the stated redemption price of such mortgage loans and their
issue price. For a definition of "stated redemption price," see "-- Taxation of
Owners of REMIC Regular Certificates -- Original Issue Discount" above. In
general, the issue price of a mortgage loan will be the amount received by the
borrower from the lender under the terms of the mortgage loan, less any "points"
paid by the borrower, and the stated redemption price of a mortgage loan will
equal its principal amount, unless the mortgage loan provides for an initial
"teaser," or below-market interest rate. The determination as to whether
original issue discount will be considered to be de minimis will be calculated
using the same test as in the REMIC discussion. See "-- Taxation of Owners of
REMIC Regular Certificates -- Original Issue Discount" above.
In the case of mortgage loans bearing adjustable or variable interest
rates, the related prospectus supplement will describe the manner in which such
rules will be applied with respect to those mortgage loans by the trustee or
master servicer, as applicable, in preparing information returns to the
Certificateholders and the IRS.
If original issue discount is in excess of a de minimis amount, all
original issue discount with respect to a mortgage loan will be required to be
accrued and reported in income each month, based on a constant yield. The OID
Regulations suggest that no prepayment assumption is appropriate in computing
the yield on prepayable obligations issued with original issue discount. In the
absence of statutory or administrative clarification, it currently is not
intended to base information reports or returns to the IRS and
Certificateholders on the use of a prepayment assumption in transactions not
subject to the stripped bond rules. However, Section 1272(a)(6) of the Code may
require that a prepayment assumption be made in computing yield with respect to
all mortgage-backed securities. Certificateholders are advised to consult their
own tax advisors concerning whether a prepayment assumption should be used in
reporting original issue discount with respect to Grantor Trust Fractional
Interest Certificates. Certificateholders should refer to the related prospectus
supplement with respect to each series to determine whether and in what manner
the original issue discount rules will apply to mortgage loans in such series.
A purchaser of a Grantor Trust Fractional Interest Certificate that
purchases such Grantor Trust Fractional Interest Certificate at a cost less than
such certificate's allocable portion of the aggregate remaining stated
redemption price of the mortgage loans held in the related trust fund will also
be required to include in gross income such certificate's daily portions of any
original issue discount with respect to such mortgage loans. However, each such
daily portion will be reduced, if the cost of such Grantor Trust Fractional
Interest Certificate to such purchaser is in excess of such Certificate's
allocable portion of the aggregate "adjusted issue prices" of
86
the mortgage loans held in the related trust fund, approximately in proportion
to the ratio such excess bears to such Certificate's allocable portion of the
aggregate original issue discount remaining to be accrued on such mortgage
loans. The adjusted issue price of a mortgage loan on any given day equals the
sum of (1) the adjusted issue price (or, in the case of the first accrual
period, the issue price) of such mortgage loan at the beginning of the accrual
period that includes such day and (2) the daily portions of original issue
discount for all days during such accrual period prior to such day. The adjusted
issue price of a mortgage loan at the beginning of any accrual period will equal
the issue price of such mortgage loan, increased by the aggregate amount of
original issue discount with respect to such mortgage loan that accrued in prior
accrual periods, and reduced by the amount of any payments made on such mortgage
loan in prior accrual periods of amounts included in its stated redemption
price.
Unless otherwise provided in the related prospectus supplement, the trustee
or master servicer, as applicable, will provide to any holder of a Grantor Trust
Fractional Interest Certificate such information as such holder may reasonably
request from time to time with respect to original issue discount accruing on
Grantor Trust Fractional Interest Certificates. See "-- Grantor Trust Reporting"
below.
Market Discount. If the stripped bond rules do not apply to a Grantor
Trust Fractional Interest Certificate, a Certificateholder may be subject to the
market discount rules of Sections 1276 through 1278 of the Code to the extent an
interest in a mortgage loan is considered to have been purchased at a "market
discount", that is, in the case of a mortgage loan issued without original issue
discount, at a purchase price less than its remaining stated redemption price
(as defined above), or in the case of a mortgage loan issued with original issue
discount, at a purchase price less than its adjusted issue price (as defined
above). If market discount is in excess of a de minimis amount (as described
below), the holder generally will be required to include in income in each month
the amount of such discount that has accrued (under the rules described in the
next paragraph) through such month that has not previously been included in
income, but limited, in the case of the portion of such discount that is
allocable to any mortgage loan, to the payment of stated redemption price on
such mortgage loan that is received by (or, in the case of accrual basis
Certificateholders, due to) the trust fund in that month. A Certificateholder
may elect to include market discount in income currently as it accrues (under a
constant yield method based on the yield of the Certificate to such holder)
rather than including it on a deferred basis in accordance with the foregoing
under rules similar to those described in "-- Taxation of Owners of REMIC
Regular Interests -- Market Discount" above.
Section 1276(b)(3) of the Code authorized the Treasury Department to issue
regulations providing for the method for accruing 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 Department, certain
rules described in the Committee Report apply. Under those rules, in each
accrual period market discount on the mortgage loans should accrue, at the
holder's option: (1) on the basis of a constant yield method, (2) in the case of
a mortgage loan issued without original issue discount, in an amount that bears
the same ratio to the total remaining market discount as the stated interest
paid in the accrual period bears to the total stated interest remaining to be
paid on the mortgage loan as of the beginning of the accrual period, or (3) in
the case of a mortgage loan issued with original issue discount, in an amount
that bears the same ratio to the total remaining market discount as the original
issue discount accrued in the accrual period bears to the total original issue
discount remaining at the beginning of the accrual period. The prepayment
assumption, if any, used in calculating the accrual of original issue discount
is to be used in calculating the accrual of market discount. The effect of using
a prepayment assumption could be to accelerate the reporting of such discount
income. Because the regulations referred to in this paragraph have not been
issued, it is not possible to predict what effect such regulations might have on
the tax treatment of a mortgage loan purchased at a discount in the secondary
market.
Because the mortgage loans will provide for periodic payments of stated
redemption price, such discount may be required to be included in income at a
rate that is not significantly slower than the rate at which such discount would
be included in income if it were original issue discount.
Market discount with respect to mortgage loans may be considered to be de
minimis and, if so, will be includible in income under de minimis rules similar
to those described above in "-- REMICs -- Taxation of
87
Owners of REMIC Regular Certificates -- Original Issue Discount" above within
the exception that it is less likely that a prepayment assumption will be used
for purposes of such rules with respect to the mortgage loans.
Further, under the rules described above in "-- REMICs -- Taxation of
Owners of REMIC Regular Certificates -- Market Discount", any discount that is
not original issue discount and exceeds a de minimis amount may require the
deferral of interest expense deductions attributable to accrued market discount
not yet includible in income, unless an election has been made to report market
discount currently as it accrues. This rule applies without regard to the
origination dates of the mortgage loans.
Premium. If a Certificateholder is treated as acquiring the underlying
mortgage loans at a premium, that is, at a price in excess of their remaining
stated redemption price, such Certificateholder may elect under Section 171 of
the Code to amortize using a constant yield method the portion of such premium
allocable to mortgage loans originated after September 27, 1985. Amortizable
premium is treated as an offset to interest income on the related debt
instrument, rather than as a separate interest deduction. However, premium
allocable to mortgage loans originated before September 28, 1985 or to mortgage
loans for which an amortization election is not made, should be allocated among
the payments of stated redemption price on the mortgage loan and be allowed as a
deduction as such payments are made (or, for a Certificateholder using the
accrual method of accounting, when such payments of stated redemption price are
due).
It is unclear whether a prepayment assumption should be used in computing
amortization of premium allowable under Section 171 of the Code. If premium is
not subject to amortization using a prepayment assumption and a mortgage loan
prepays in full, the holder of a Grantor Trust Fractional Interest Certificate
acquired at a premium should recognize a loss equal to the difference between
the portion of the prepaid principal amount of the mortgage loan that is
allocable to the Certificate and the portion of the adjusted basis of the
Certificate that is allocable to the mortgage loan. If a prepayment assumption
is used to amortize such premium, it appears that such a loss would be
unavailable. Instead, if a prepayment assumption is used, a prepayment should be
treated as a partial payment of the stated redemption price of the Grantor Trust
Fractional Interest Certificate and accounted for under a method similar to that
described for taking account of original issue discount on REMIC Regular
Certificates. See "-- REMICs -- Taxation of Owners of REMIC Regular
Certificates -- Original Issue Discount" above. It is unclear whether any other
adjustments would be required to reflect differences between the prepayment
assumption and the actual rate of prepayments.
Taxation of Owners of Grantor Trust Strip Certificates. The "stripped
coupon" rules of Section 1286 of the Code will apply to the Grantor Trust Strip
Certificates. Except as described above in "-- Taxation of Owners of Grantor
Trust Fractional Interest Certificates -- If Stripped Bond Rules Apply", no
regulations or published rulings under Section 1286 of the Code have been issued
and some uncertainty exists as to how it will be applied to securities such as
the Grantor Trust Strip Certificates. Accordingly, holders of Grantor Trust
Strip Certificates should consult their tax advisors concerning the method to be
used in reporting income or loss with respect to such Certificates.
The OID Regulations do not apply to "stripped coupons", although they
provide general guidance as to how the original issue discount sections of the
Code will be applied. In addition, the discussion below is subject to the
discussion under "-- Possible Application of Proposed Contingent Payment Rules"
below and assumes that the holder of a Grantor Trust Strip Certificate will not
own any Grantor Trust Fractional Interest Certificates.
Under the stripped coupon rules, it appears that original issue discount
will be required to be accrued in each month on the Grantor Trust Strip
Certificates based on a constant yield method. In effect, each holder of Grantor
Trust Strip Certificates would include as interest income in each month an
amount equal to the product of such holder's adjusted basis in such Grantor
Trust Strip Certificate at the beginning of such month and the yield of such
Grantor Trust Strip Certificate to such holder. Such yield would be calculated
based on the price paid for that Grantor Trust Strip Certificate by its holder
and the payments remaining to be made thereon at the time of the purchase, plus
an allocable portion of the servicing fees and expenses to be paid with respect
to the mortgage loans. See "-- Taxation of Owners of Grantor Trust Fractional
Interest Certificates -- If Stripped Bond Rules Apply" above.
88
As noted above, Section 1272(a)(6) of the Code requires that a prepayment
assumption be used in computing the accrual of original issue discount with
respect to certain categories of debt instruments, and that adjustments be made
in the amount and rate of accrual of such discount when prepayments do not
conform to such prepayment assumption. Regulations could be adopted applying
those provisions to the Grantor Trust Strip Certificates. It is unclear whether
those provisions would be applicable to the Grantor Trust Strip Certificates or
whether use of a prepayment assumption may be required or permitted in the
absence of such regulations. It is also uncertain, if a prepayment assumption is
used, whether the assumed prepayment rate would be determined based on
conditions at the time of the first sale of the Grantor Trust Strip Certificate
or, with respect to any subsequent holder, at the time of purchase of the
Grantor Trust Strip Certificate by that holder.
The accrual of income on the Grantor Trust Strip Certificates will be
significantly slower if a prepayment assumption is permitted to be made than if
yield is computed assuming no prepayments. In the absence of statutory or
administrative clarification, it currently is intended to base information
returns or reports to the IRS and Certificateholders on the Prepayment
Assumption disclosed in the related prospectus supplement and on a constant
yield computed using a representative initial offering price for each class of
certificates. However, neither the depositor nor any other person will make any
representation that the mortgage loans will in fact prepay at a rate conforming
to the Prepayment Assumption or at any other rate and Certificateholders should
bear in mind that the use of a representative initial offering price will mean
that such information returns or reports, even if otherwise accepted as accurate
by the IRS, will in any event be accurate only as to the initial
Certificateholders of each series who bought at that price. Prospective
purchasers of the Grantor Trust Strip Certificates should consult their tax
advisors regarding the use of the Prepayment Assumption.
It is unclear under what circumstances, if any, the prepayment of a
mortgage loan will give rise to a loss to the holder of a Grantor Trust Strip
Certificate. If a Grantor Trust Strip 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 such
Grantor Trust Strip Certificate, it appears that no loss may be available as a
result of any particular prepayment unless prepayments occur at a rate faster
than the Prepayment Assumption. However, if a Grantor Trust Strip Certificate is
treated as an interest in discrete mortgage loans, or if the Prepayment
Assumption is not used, then when a mortgage loan is prepaid, the holder of a
Grantor Trust Strip Certificate should be able to recognize a loss equal to the
portion of the adjusted issue price of the Grantor Trust Strip Certificate that
is allocable to such mortgage loan.
Possible Application of Contingent Payment Rules. The coupon stripping
rules' general treatment of stripped coupons is to regard them as newly issued
debt instruments in the hands of each purchaser. To the extent that payments on
the Grantor Trust Strip Certificates would cease if the mortgage loans were
prepaid in full, the Grantor Trust Strip Certificates could be considered to be
debt instruments providing for contingent payments. Under the OID Regulations,
debt instruments providing for contingent payments are not subject to the same
rules as debt instruments providing for noncontingent payments. Treasury
Department regulations have been promulgated regarding contingent payment debt
instruments, but it appears that Grantor Trust Strip Certificates, due to their
similarity to other mortgage-backed securities (such as REMIC regular interests
and debt instruments subject to Section 1272(a)(6) of the Code) that are
expressly excepted from the application of such Regulations, may also be
excepted from such regulations. Like the OID Regulations, the contingent payment
regulations do not specifically address securities, such as the Grantor Trust
Strip Certificates, that are subject to the stripped bond rules of Section 1286
of the Code.
If the contingent payment rules similar to those under the OID Regulations
were to apply, the holder of a Grantor Trust Strip Certificate would be required
to apply a "noncontingent bond method." Under the "noncontingent bond method,"
the issuer of a Grantor Trust Strip Certificate determines a projected payment
schedule. Holders of Grantor Trust Strip Certificates are bound by the issuer's
projected payment schedule. The projected payment schedule consists of all
noncontingent payments and a projected amount for each contingent payment based
on the comparable yield (as described below) of the Grantor Trust Strip
Certificate. The projected amount of each payment is determined so that the
projected payment schedule reflects the projected yield. The projected amount of
each payment must reasonably reflect the relative expected values of the
payments to be received by the holders of a Grantor Trust Strip Certificate. The
comparable yield referred to above is a rate that, as of the issue date,
reflects the yield at which the issuer would issue a fixed rate debt instrument
with terms and
89
conditions similar to the contingent payment debt instrument, including general
market conditions, the credit quality of the issuer, and the terms and
conditions of the mortgage loans. The holder of a Grantor Trust Strip
Certificate would be required to include as interest income in each month the
adjusted issue price of the Grantor Trust Strip Certificate at the beginning of
the period multiplied by the comparable yield.
Certificateholders should consult their tax advisors concerning the
possible application of the contingent payment rules to the Grantor Trust Strip
Certificates.
Sales of Grantor Trust Certificates. Any gain or loss, equal to the
difference between the amount realized on the sale or exchange of a Grantor
Trust Certificate and its adjusted basis, recognized on such sale or exchange of
a Grantor Trust Certificate by an investor who holds such Grantor Trust
Certificate as a capital asset, will be capital gain or loss, except to the
extent of accrued and unrecognized market discount, which will be treated as
ordinary income, and (in the case of banks and other financial institutions)
except as provided under Section 582(c) of the Code. The adjusted basis of a
Grantor Trust Certificate generally will equal its cost, increased by any income
reported by the seller (including original issue discount and market discount
income) and reduced (but not below zero) by any previously reported losses, any
amortized premium and by any distributions with respect to such Grantor Trust
Certificate. The Code as of the date of this prospectus generally provides for
tax rates of noncorporate taxpayers on ordinary income that are higher than the
rates on long-term capital gains (generally, property held for more than one
year). No such rate differential exists for corporations. In addition, the
distinction between a capital gain or loss and ordinary income or loss remains
relevant for other purposes.
Gain or loss from the sale of a Grantor Trust Certificate may be partially
or wholly ordinary and not capital in certain circumstances. Gain attributable
to accrued and unrecognized market discount will be treated as ordinary income,
as will gain or loss recognized by banks and other financial institutions
subject to Section 582(c) of the Code. Furthermore, a portion of any gain that
might otherwise be capital gain may be treated as ordinary income to the extent
that the Grantor Trust Certificate is held as part of a "conversion transaction"
within the meaning of Section 1258 of the Code. A conversion transaction
generally is one in which the taxpayer has taken two or more positions in the
same or similar property that reduce or eliminate market risk, if substantially
all of the taxpayer's return is attributable to the time value of the taxpayer's
net investment in such transaction. The amount of gain realized in a conversion
transaction that is recharacterized as ordinary income generally will not exceed
the amount of interest that would have accrued on the taxpayer's net investment
at 120% of the appropriate "applicable Federal rate" (which rate is computed and
published monthly by the IRS) at the time the taxpayer enters into the
conversion transaction, subject to appropriate reduction for prior inclusion of
interest and other ordinary income items from the transaction.
Finally, a taxpayer may elect to have net capital gain taxed at ordinary
income rates rather than capital gains rates in order to include such net
capital gain in total net investment income for that taxable year, for purposes
of the rule that limits the deduction of interest on indebtedness incurred to
purchase or carry property held for investment to a taxpayer's net investment
income.
Grantor Trust Reporting. Unless otherwise provided in the related
prospectus supplement, the trustee or master servicer, as applicable, will
furnish to each holder of a Grantor Trust Certificate with each distribution a
statement setting forth the amount of such distribution allocable to principal
on the underlying mortgage loans and to interest thereon at the related
pass-through rate. In addition, the trustee or master servicer, as applicable,
will furnish, within a reasonable time after the end of each calendar year, to
each holder of a Grantor Trust Certificate who was such a holder at any time
during such year, information regarding the amount of servicing compensation
received by the master servicer, the special servicer or any sub-servicer, and
such other customary factual information as the depositor or the reporting party
deems necessary or desirable to enable holders of Grantor Trust Certificates to
prepare their tax returns and will furnish comparable information to the IRS as
and when required by law to do so. Because the rules for accruing discount and
amortizing premium with respect to the Grantor Trust Certificates are uncertain
in various respects, there is no assurance the IRS will agree with the trustee's
or master servicer's, as the case may be, information reports of such items of
income and expense. Moreover, such information reports, even if otherwise
accepted as accurate by the IRS, will in any event be
90
accurate only as to the initial Certificateholders that bought their
certificates at the representative initial offering price used in preparing such
reports.
Backup Withholding. In general, the rules described above in
"-- REMICs -- Backup Withholding with Respect to REMIC Certificates" will also
apply to Grantor Trust Certificates.
Foreign Investors. In general, the discussion with respect to REMIC
Regular Certificates in "-- REMICs -- Foreign Investors in REMIC Certificates"
above applies to Grantor Trust Certificates except that Grantor Trust
Certificates will, unless otherwise disclosed in the related prospectus
supplement, be eligible for exemption from U.S. withholding tax, subject to the
conditions described in such discussion, only to the extent the related mortgage
loans were originated after July 18, 1984.
To the extent that interest on a Grantor Trust Certificate would be exempt
under Sections 871(h)(1) and 881(c) of the Code from United States withholding
tax, and the Grantor Trust Certificate is not held in connection with a
Certificateholder's trade or business in the United States, such Grantor Trust
Certificate will not be subject to United States estate taxes in the estate of a
nonresident alien individual.
STATE AND OTHER TAX CONSEQUENCES
In addition to the federal income tax consequences described in "Certain
Federal Income Tax Consequences," potential investors should consider the state
and local tax consequences of the acquisition, ownership, and disposition of the
offered certificates. State tax law may differ substantially from the
corresponding federal law, and the discussion above does not purport to describe
any aspect of the tax laws of any state or other jurisdiction. Therefore,
prospective investors should consult their tax advisors with respect to the
various tax consequences of investments in the offered certificates.
CERTAIN ERISA CONSIDERATIONS
GENERAL
The Employee Retirement Income Security Act of 1974, as amended, and the
Code impose certain requirements on retirement plans, and on certain other
employee benefit plans and arrangements, including individual retirement
accounts and annuities, Keogh plans and collective investment funds and separate
accounts (and as applicable, insurance company general accounts) in which such
plans, accounts or arrangements are invested that are subject to the fiduciary
responsibility provisions of ERISA and Section 4975 of the Code ("Plans"), and
on persons who are fiduciaries with respect to such Plans, in connection with
the investment of Plan assets. Certain employee benefit plans, such as
governmental plans (as defined in ERISA Section 3(32)), and, if no election has
been made under Section 410(d) of the Code, church plans (as defined in Section
3(33) of ERISA) are not subject to ERISA requirements. However, such plans may
be subject to the provisions of other applicable federal and state law
materially similar to ERISA or the Code. Moreover, any such plan which is
qualified and exempt from taxation under Sections 401(a) and 501(a) of the Code,
however, is subject to the prohibited transaction rules set forth in Section 503
of the Code.
ERISA generally imposes on Plan fiduciaries certain general fiduciary
requirements, including those of investment prudence and diversification and the
requirement that a Plan's investments be made in accordance with the documents
governing the Plan. In addition, Section 406 of ERISA and Section 4975 of the
Code prohibit a broad range of transactions involving assets of a Plan and
persons who have certain specified relationships to the Plan, unless a statutory
or administrative exemption is available. Certain Parties in Interest that
participate in a prohibited transaction may be subject to an excise tax imposed
pursuant to Section 4975 of the Code or a penalty imposed pursuant to Section
502(i) of ERISA, unless a statutory or administrative exemption is available.
These prohibited transactions generally are set forth in Section 406 of ERISA
and Section 4975 of the Code.
91
PLAN ASSET REGULATIONS
A Plan's investment in offered certificates may cause the underlying
mortgage assets and other assets included in a related trust fund to be deemed
assets of such Plan. The Plan Asset Regulations provide that when a Plan
acquires an equity interest in an entity, the Plan's assets include both such
equity interest and an undivided interest in each of the underlying assets of
the entity, unless certain exceptions not applicable here apply, or unless the
equity participation in the entity by "benefit plan investors" (i.e., Plans and
certain employee benefit plans not subject to ERISA) is not "significant", both
as defined therein. For this purpose, in general, equity participation by
benefit plan investors will be "significant" on any date if 25% or more of the
value of any class of equity interests in the entity is held by benefit plan
investors. Equity participation in a trust fund will be significant on any date
if immediately after the most recent acquisition of any Certificate, 25% or more
of any class of certificates is held by benefit plan investors.
Any person who has discretionary authority or control respecting the
management or disposition of Plan assets, and any person who provides investment
advice with respect to such assets for a fee, is a fiduciary of the investing
Plan. If the mortgage assets and other assets included in a trust fund
constitute Plan assets, then any party exercising management or discretionary
control regarding those assets, such as the master servicer, any special
servicer, any sub-servicer, the trustee, the obligor under any credit
enhancement mechanism, or certain affiliates thereof may be deemed to be a Plan
"fiduciary" and thus subject to the fiduciary responsibility provisions and
prohibited transaction provisions of ERISA and the Code with respect to the
investing Plan. In addition, if the mortgage assets and other assets included in
a trust fund constitute Plan assets, the purchase of certificates by a Plan, as
well as the operation of the trust fund, may constitute or involve a prohibited
transaction under ERISA or the Code.
The Plan Asset Regulations provide that where a Plan acquires a "guaranteed
governmental mortgage pool certificate", the Plan's assets include such
certificate but do not solely by reason of the Plan's holdings of such
certificate include any of the mortgages underlying such certificate. The Plan
Asset Regulations include in the definition of a "guaranteed governmental
mortgage pool certificate" Ginnie Mae, Freddie Mac, and Fannie Mae Certificates.
Accordingly, even if such MBS included in a trust fund were deemed to be assets
of Plan investors, the mortgages underlying such MBS would not be treated as
assets of such Plans. Private label mortgage participations, mortgage
pass-through certificates or other mortgage-backed securities are not
"guaranteed governmental mortgage pool certificates" within the meaning of the
Plan Asset Regulations; potential Plan investors should consult their counsel
and review the ERISA discussion in the related prospectus supplement before
purchasing certificates if such MBS are included in the trust fund.
The DOL has granted to certain underwriters administrative exemptions, each
an "Exemption", for certain mortgage-backed and asset-backed certificates
underwritten in whole or in part by the underwriters. An Exemption might be
applicable to the initial purchase, the holding, and the subsequent resale by a
Plan of certain certificates, such as the offered certificates, underwritten by
the underwriters, representing interests in pass-through trusts that consist of
certain receivables, loans and other obligations, provided that the conditions
and requirements of the Exemption are satisfied. The loans described in the
Exemptions include mortgage loans such as the mortgage assets. However, it
should be noted that in issuing the Exemptions, the DOL may not have considered
interests in pools of the exact nature as some of the offered certificates. If
all of the conditions of an Exemption are met, whether or not a Plan's assets
would be deemed to include an ownership interest in the mortgage assets, the
acquisition, holding and resale of the offered certificates by Plans would be
exempt from certain of the prohibited transaction provisions of ERISA and the
Code.
INSURANCE COMPANY GENERAL ACCOUNTS
Sections I and III of PTCE 95-60 exempt from the application of the
prohibited transaction provisions of Sections 406(a), 406(b) and 407(a) of ERISA
and Section 4975 of the Code transactions in connection with the servicing,
management and operation of a trust (such as the Trust) in which an insurance
company general account has an interest as a result of its acquisition of
certificates issued by the trust, provided that certain conditions are
satisfied. If these conditions are met, insurance company general accounts would
be allowed to purchase certain classes of certificates which do not meet the
requirements of any of the Exemptions solely
92
because they (1) are subordinated to other classes of certificates in the trust
and/or (2) have not received a rating at the time of the acquisition in one of
the four highest rating categories from a nationally recognized statistical
rating agency. All other conditions of one of the Exemptions would have to be
satisfied in order for PTCE 95-60 to be available. Before purchasing such class
of certificates, an insurance company general account seeking to rely on
Sections I and III of PTCE 95-60 should itself confirm that all applicable
conditions and other requirements have been satisfied.
The Small Business Job Protection Act of 1996 added a new Section 401(c) to
ERISA, which provides certain exemptive relief from the provisions of Part 4 of
Title I of ERISA and Section 4975 of the Code, including the prohibited
transaction restrictions imposed by ERISA and the related excise taxes imposed
by the Code, for transactions involving an insurance company general account.
Pursuant to Section 401(c) of ERISA, the DOL has issued final regulations
providing guidance for the purpose of determining, in cases where insurance
policies supported by an insurer's general account are issued to or for the
benefit of a Plan on or before December 31, 1998, which general account assets
constitute Plan assets. Any assets of an insurance company general account which
support insurance policies issued to a Plan after December 31, 1998 or issued to
Plans on or before December 31, 1998 for which the insurance company does not
comply with the 401(c) Regulations may be treated as Plan assets. In addition,
because Section 401(c) does not relate to insurance company separate accounts,
separate account assets are still treated as Plan assets of any Plan invested in
such separate account. Insurance companies contemplating the investment of
general account assets in the offered certificates should consult with their
legal counsel with respect to the applicability of Section 401(c) of ERISA.
CONSULTATION WITH COUNSEL
Any Plan fiduciary which proposes to purchase offered certificates on
behalf of or with assets of a Plan should consider its general fiduciary
obligations under ERISA and should consult with its counsel with respect to the
potential applicability of ERISA and the Code to such investment and the
availability of any prohibited transaction exemption in connection therewith.
TAX EXEMPT INVESTORS
A Plan that is exempt from federal income taxation pursuant to Section 501
of the Code nonetheless will be subject to federal income taxation to the extent
that its income is "unrelated business taxable income" within the meaning of
Section 512 of the Code. All "excess inclusions" of a REMIC allocated to a REMIC
Residual Certificate held by a Plan will be considered unrelated business
taxable income and thus will be subject to federal income tax. See "Certain
Federal Income Tax Consequences -- REMICs -- Taxation of Owners of REMIC
Residual Certificates -- Excess Inclusions".
LEGAL INVESTMENT
If so specified in the related prospectus supplement, the offered
certificates will constitute "mortgage related securities" for purposes of
SMMEA. The appropriate characterization of those offered certificates not
qualifying as "mortgage related securities" under various legal investment
restrictions, and thus the ability of investors subject to these restrictions to
purchase those types of offered certificates, may be subject to significant
interpretive uncertainties. Accordingly, investors whose investment authority is
subject to legal investment laws and regulations, regulatory capital
requirements, or review by regulatory authorities should consult their own legal
advisors to determine whether and to what extent the classes of offered
certificates not constituting mortgage related securities constitute legal
investments for them.
Generally, only classes of offered certificates that (1) are rated in one
of the two highest rating categories by any nationally recognized statistical
rating organization and (2) are part of a series evidencing interests in a trust
fund consisting of loans originated by certain types of originators specified in
SMMEA and secured by first liens on real estate, will be "mortgage related
securities" for purposes of SMMEA. Classes of offered certificates qualifying as
"mortgage related securities" will constitute legal investments for persons,
trusts, corporations, partnerships, associations, business trusts and business
entities, including depository institutions, insurance companies and pension
funds, created pursuant to or existing under the laws of the United States or of
any state,
93
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 of its agencies or instrumentalities thereof constitute legal
investments for those entities.
Under SMMEA, a number of states enacted legislation, on or before the
October 3, 1991 cutoff for those enactments, limiting to various extents the
ability of certain entities (in particular, insurance companies) to invest in
"mortgage related securities" secured by liens on residential, or mixed
residential and commercial properties, in most cases by requiring the affected
investors to rely solely upon existing state law, and not SMMEA. Pursuant to
Section 347 of the Riegle Community Development and Regulatory Improvement Act
of 1994, which amended the definition of "mortgage related security" to include,
in relevant part, offered certificates satisfying the rating and qualified
originator requirements for "mortgage related securities," but evidencing
interests in a trust fund consisting, in whole or in part, of first liens on one
or more parcels of real estate upon which are located one or more commercial
structures, states were authorized to enact legislation, on or before September
23, 2001, specifically referring to Section 347 and prohibiting or restricting
the purchase, holding or investment by state-regulated entities in those types
of offered certificates.
SMMEA also amended the legal investment authority of federally-chartered
depository institutions as follows: federal savings and loan associations and
federal savings banks may invest in, sell or otherwise deal in "mortgage related
securities" without limitation as to the percentage of their assets represented
thereby, federal credit unions may invest in those securities, and national
banks may purchase those securities for their own account without regard to the
limitations generally applicable to investment securities set forth in 12 U.S.C.
sec. 24 (Seventh), subject in each case to those regulations as the applicable
federal regulatory authority may prescribe. In this connection, the OCC has
amended 12 C.F.R. Part 1 to authorize national banks to purchase and sell for
their own account, without limitation as to a percentage of the bank's capital
and surplus (but subject to compliance with certain general standards in 12
C.F.R. sec. 1.5 concerning "safety and soundness" and retention of credit
information), certain "Type IV securities," defined in 12 C.F.R. sec. 1.2(m) to
include certain "commercial mortgage-related securities" and "residential
mortgage-related securities." As so defined, "commercial mortgage-related
security" and "residential mortgage-related security" mean, in relevant part,
"mortgage related security" within the meaning of SMMEA, provided that, in the
case of a "commercial mortgage-related security," it "represents ownership of a
promissory note or certificate of interest or participation that is directly
secured by a first lien on one or more parcels of real estate upon which one or
more commercial structures are located and that is fully secured by interests in
a pool of loans to numerous obligors." In the absence of any rule or
administrative interpretation by the OCC defining the term "numerous obligors,"
no representation is made as to whether any class of offered certificates will
qualify as "commercial mortgage-related securities," and thus as "Type IV
securities," for investment by national banks. The NCUA has adopted rules,
codified at 12 C.F.R. Part 703, which permit federal credit unions to invest in
"mortgage related securities" under certain limited circumstances, other than
stripped mortgage related securities, residual interests in mortgage related
securities, and commercial mortgage related securities, unless the credit union
has obtained written approval from the NCUA to participate in the "investment
pilot program" described in 12 C.F.R. sec. 703.140. The OTS has issued Thrift
Bulletin 13a (December 1, 1998), "Management of Interest Rate Risk, Investment
Securities, and Derivatives Activities," which thrift institutions subject to
the jurisdiction of the OTS should consider before investing in any of the
offered certificates.
All depository institutions considering an investment in the offered
certificates should review the "Supervisory Policy Statement on Investment
Securities and End-User Derivatives Activities" of the Federal Financial
Institutions Examination Council, which has been adopted by the Board of
Governors of the Federal Reserve System, the Federal Deposit Insurance
Corporation, the OCC and the OTS, effective May 26, 1998, and by the NCUA,
effective October 1, 1998. That statement sets forth general guidelines which
depository institutions must follow in managing risks (including market, credit,
liquidity, operational (transaction), and legal risks) applicable to all
securities (including mortgage pass-through securities and mortgage-derivative
products) used for investment purposes.
Institutions whose investment activities are subject to regulation by
federal or state authorities should review rules, policies and guidelines
adopted from time to time by those authorities before purchasing any offered
94
certificates, as certain series or classes may be deemed unsuitable investments,
or may otherwise be restricted, under those rules, policies or guidelines (in
certain instances irrespective of SMMEA).
The foregoing does not take into consideration the applicability of
statutes, rules, regulations, orders, guidelines or agreements generally
governing investments made by a particular investor, including, but not limited
to, "prudent investor" provisions, percentage-of-assets limits, provisions which
may restrict or prohibit investment in securities which are not
"interest-bearing" or "income-paying," and, with regard to any offered
certificates issued in book-entry form, provisions which may restrict or
prohibit investments in securities which are issued in book-entry form.
Except as to the status of certain classes of offered certificates as
"mortgage related securities," no representations are made as to the proper
characterization of the offered certificates for legal investment purposes,
financial institution regulatory purposes, or other purposes, or as to the
ability of particular investors to purchase offered certificates under
applicable legal investment restrictions. The uncertainties described above (and
any unfavorable future determinations concerning legal investment or financial
institution regulatory characteristics of the offered certificates) may
adversely affect the liquidity of the offered certificates.
Accordingly, all investors whose investment activities are subject to legal
investment laws and regulations, regulatory capital requirements or review by
regulatory authorities should consult with their own legal advisors in
determining whether and to what extent the offered certificates of any class
constitute legal investments or are subject to investment, capital, or other
restrictions and, if applicable, whether SMMEA has been overridden in any
jurisdiction relevant to such investor.
USE OF PROCEEDS
The net proceeds to be received from the sale of the certificates of any
series will be applied by the depositor to the purchase of trust assets or will
be used by the depositor to cover expenses related thereto. 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.
METHOD OF DISTRIBUTION
The certificates offered hereby and by the related prospectus supplements
will be offered in series through one or more of the methods described below.
The prospectus supplement prepared for each series will describe the method of
offering being utilized for that series and will state the net proceeds to the
depositor from such sale.
The depositor intends that offered certificates will be offered through the
following methods from time to time and that offerings may be made concurrently
through more than one of these methods or that an offering of the offered
certificates of a particular series may be made through a combination of two or
more of these methods. Such methods are as follows:
1. By negotiated firm commitment or best efforts underwriting and
public re-offering by underwriters, which may include Banc of America
Securities LLC, an affiliate of the depositor;
2. By placements by the depositor with institutional investors through
dealers; and
3. By direct placements by the depositor with institutional investors.
In addition, if specified in the related prospectus supplement, the offered
certificates of a series may be offered in whole or in part to the seller of the
related mortgage assets that would comprise the trust fund for such
certificates.
If underwriters are used in a sale of any offered certificates (other than
in connection with an underwriting on a best efforts basis), such certificates
will be acquired by the underwriters for their own account and may be resold
from time to time in one or more transactions, including negotiated
transactions, at fixed public offering prices or at varying prices to be
determined at the time of sale or at the time of commitment therefor. Such
95
underwriters may be broker-dealers affiliated with the depositor whose
identities and relationships to the depositor will be as set forth in the
related prospectus supplement. The managing underwriter or underwriters with
respect to the offer and sale of offered certificates of a particular series
will be set forth on the cover of the prospectus supplement relating to such
series and the members of the underwriting syndicate, if any, will be named in
such prospectus supplement.
In connection with the sale of offered certificates, underwriters may
receive compensation from the depositor or from purchasers of the offered
certificates in the form of discounts, concessions or commissions. Underwriters
and dealers participating in the distribution of the offered certificates may be
deemed to be underwriters in connection with such certificates, and any
discounts or commissions received by them from the depositor and any profit on
the resale of offered certificates by them may be deemed to be underwriting
discounts and commissions under the Securities Act of 1933, as amended.
It is anticipated that the underwriting agreement pertaining to the sale of
the offered certificates of any series will provide that the obligations of the
underwriters will be subject to certain conditions precedent, that the
underwriters will be obligated to purchase all such certificates if any are
purchased (other than in connection with an underwriting on a best efforts
basis) and that, in limited circumstances, the depositor will indemnify the
several underwriters and the underwriters will indemnify the depositor against
certain civil liabilities, including liabilities under the Securities Act of
1933, as amended, or will contribute to payments required to be made in respect
to such liabilities.
The prospectus supplement with respect to any series offered by placements
through dealers will contain information regarding the nature of such offering
and any agreements to be entered into between the depositor and purchasers of
offered certificates of such series.
The depositor anticipates that the offered certificates will be sold
primarily to institutional investors. Purchasers of offered certificates,
including dealers, may, depending on the facts and circumstances of such
purchases, be deemed to be "underwriters" within the meaning of the Securities
Act of 1933, as amended, in connection with reoffers and sales by them of
offered certificates. Holders of offered certificates should consult with their
legal advisors in this regard prior to any such reoffer or sale.
If and to the extent required by applicable law or regulation, this
prospectus will be used by Banc of America Securities LLC in connection with
offers and sales related to market-making transactions in offered certificates
previously offered hereunder in transactions with respect to which Banc of
America Securities LLC acts as principal. Banc of America Securities LLC may
also act as agent in such transactions. Sales may be made at negotiated prices
determined at the time of sale.
LEGAL MATTERS
Certain legal matters relating to the certificates will be passed upon for
the depositor and the underwriter or underwriters by Cadwalader, Wickersham &
Taft. Certain federal income tax matters and other matters will be passed upon
for the depositor by Cadwalader, Wickersham & Taft.
FINANCIAL INFORMATION
A new trust fund will be formed with respect to each series of
certificates, and no trust fund will engage in any business activities or have
any assets or obligations prior to the issuance of the related series of
certificates. Accordingly, no financial statements with respect to any trust
fund will be included in this prospectus or in the related prospectus
supplement. The depositor has determined that its financial statements will not
be material to the offering of any offered certificates.
RATING
It is a condition to the issuance of any class of offered certificates that
they shall have been rated not lower than investment grade, that is, in one of
the four highest rating categories, by at least one rating agency.
96
Ratings on mortgage pass-through certificates address the likelihood of
receipt by the holders of all collections on the underlying mortgage assets to
which such holders are entitled. These ratings address the structural, legal and
issuer-related aspects associated with such certificates, the nature of the
underlying mortgage assets and the credit quality of the guarantor, if any.
Ratings on mortgage pass-through certificates do not represent any assessment of
the likelihood of principal prepayments by borrowers or of the degree by which
such prepayments might differ from those originally anticipated. As a result,
certificateholders might suffer a lower than anticipated yield, and, in
addition, holders of Stripped Interest Certificates might, in extreme cases fail
to recoup their initial investments. Furthermore, ratings on mortgage
pass-through certificates do not address the price of such certificates or the
suitability of such certificates to the investor.
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.
AVAILABLE 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 relating to each series of offered
certificates contain summaries of the material terms of the documents referred
to in this prospectus or in such prospectus supplement, but do not contain all
of the information set forth in the Registration Statement pursuant to the rules
and regulations of the Commission. For further information, reference is made to
such Registration Statement and the exhibits thereto. Such Registration
Statement and exhibits can be inspected and copied at prescribed rates at the
public reference facilities maintained by the Commission at its Public Reference
Section, 450 Fifth Street, N.W., Washington, D.C. 20549, and at its Midwest
Regional Offices located as follows: Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511; and Northeast Regional Office, Seven
World Trade Center, Suite 1300, New York, New York 10048. You may obtain
information on the operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330. The SEC also maintains an internet site that contains reports,
proxy and information statements, and other information that has been filed
electronically with the SEC. The Internet address is http://www.sec.gov.
No dealer, salesman, or other person has been authorized to give any
information, or to make any representations, other than those contained in this
prospectus or any related prospectus supplement, and, if given or made, such
information or representations must not be relied upon as having been authorized
by the depositor or any other person. Neither the delivery of this prospectus or
any related prospectus supplement nor any sale made under this prospectus or any
related prospectus supplement shall under any circumstances create an
implication that there has been no change in the information in this prospectus
since the date of this prospectus or in such prospectus supplement since the
date of the prospectus supplement. This prospectus and any related prospectus
supplement are not an offer to sell or a solicitation of an offer to buy any
security in any jurisdiction in which it is unlawful to make such offer or
solicitation.
The master servicer, the trustee or another specified person will cause to
be provided to registered holders of the offered certificates of each series
periodic unaudited reports concerning the related trust fund. If beneficial
interests in a class or series of offered certificates are being held and
transferred in book-entry format through the facilities of The DTC as described
in this prospectus, then unless otherwise provided in the related prospectus
supplement, such reports will be sent on behalf of the related trust fund to a
nominee of DTC as the registered holder of the offered certificates. Conveyance
of notices and other communications by DTC to its participating organizations,
and directly or indirectly through such participating organizations to the
beneficial owners of the applicable offered certificates, will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time. See "Description of the
Certificates -- Reports to Certificateholders" and "-- Book-Entry Registration
and Definitive Certificates".
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, and the rules and
regulations of the Securities and Exchange Commission. The depositor intends to
make a written request to
97
the staff of the Securities and Exchange Commission that the staff either (1)
issue an order pursuant to Section 12(h) of the Securities Exchange Act of 1934,
as amended, exempting the depositor from certain reporting requirements under
the Securities Exchange Act of 1934, as amended, with respect to each trust fund
or (2) state that the staff will not recommend that the Commission take
enforcement action if the depositor fulfills its reporting obligations as
described in its written request. If such request is granted, the depositor will
file or cause to be filed with the Securities and Exchange Commission as to each
trust fund the periodic unaudited reports to holders of the offered certificates
referenced in the preceding paragraph; however, because of the nature of the
trust funds, it is unlikely that any significant additional information will be
filed. In addition, 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
The depositor hereby incorporates by reference all documents and reports
filed or caused to be filed by the depositor with respect to a trust fund
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of
1934, as amended, prior to the termination of an offering of offered
certificates evidencing interests therein. The Seller incorporates by reference
any future annual, monthly and special SEC reports filed by or on behalf of the
Trust until the termination of the offering of the related Series of
Certificates offered hereby (including market making transactions by Banc of
America Securities LLC, an affiliate of the Depositor and the Servicer, with
respect to such Series of Certificates, unless such transactions are exempt from
the registration provisions of the Securities Act). The depositor will provide
or cause to be provided without charge to each person to whom this prospectus is
delivered in connection with the offering of one or more classes of offered
certificates, upon written or oral request of such person, a copy of any or all
documents or reports incorporated in this prospectus by reference, in each case
to the extent such documents or reports relate to one or more of such classes of
such offered certificates, other than the exhibits to such documents (unless
such exhibits are specifically incorporated by reference in such documents).
Such requests to the depositor should be directed in writing to its principal
executive offices at the Bank of America Corporate Center, Charlotte, North
Carolina 28255, or by telephone at (704) 386-2400.
GLOSSARY
The following capitalized terms will have the respective meanings assigned
to them in this "Glossary" section whenever they are used in this prospectus.
"401(c) Regulations" means those regulations issued by the DOL which
provide guidance for the purpose of determining, in cases where insurance
policies supported by an insurer's general account are issued to or for the
benefit of a Plan on or before December 31, 1998, which general account assets
constitute Plan assets.
"Accrued Certificate Interest" means for each Distribution Date an amount
equal to interest at the applicable pass-through rate accrued for a specified
period (generally the most recently ended calendar month) on the outstanding
Certificate Balance of such class of certificates immediately prior to such
Distribution Date.
"Accrual Certificates" means one or more classes of certificates that may
not be entitled to distributions of interest until the occurrence of certain
events, such as the retirement of one or more other classes of certificates.
"ADA" means the Americans with Disabilities Act of 1990, as amended.
"Available Distribution Amount" means unless otherwise provided in the
related prospectus supplement for any series of certificates and any
Distribution Date the total of all payments or other collections (or advances in
lieu of such collections and advances) on, under or in respect of the mortgage
assets and any other assets included in the related trust fund that are
available for distribution to the holders of certificates of such series on such
date.
"Bankruptcy Code" means the U.S. Bankruptcy Code.
98
"CERCLA" means the federal Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended.
"Certificate Account" means for the trust fund one or more established and
maintained on behalf of the certificateholders into which all payments and
collections received or advanced with respect to the mortgage assets and other
assets in the trust fund will be deposited to the extent described this
prospectus and the related prospectus supplement.
"Certificate Balance" means the initial stated principal amount of each
individual class of certificates for a given series other than real estate
mortgage investment conduit residual certificates or certain classes of stripped
interest certificates.
"Certificate Owner" means the actual purchaser of a book-entry certificate.
"Closing Date" means date of the initial issuance of the certificates of a
given series.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commercial Property" means office buildings, retail stores and
establishments, hotels or motels, nursing homes, hospitals or other health
care-related facilities, recreational vehicle and mobile home parks, warehouse
facilities, mini-warehouse facilities, self-storage facilities, industrial
plants, parking lots, entertainment or sports arenas, restaurants, marinas,
mixed use or various other types of income-producing properties or unimproved
land comprising some or all of the mortgaged properties included in the trust
fund.
"Committee Report" means the Conference Committee Report accompanying the
Tax Reform Act of 1986.
"Companion Class" means one or more classes of certificate where
distributions of principal with respect to one or more other classes of
certificates may be contingent on the specified principal payment schedule for a
Controlled Amortization Class of the same series and the rate at which payments
and other collections of principal on the mortgage assets in the related trust
fund are received.
"Controlled Amortization Class" means one or more classes of certificates
where distributions of principal may be made, subject to available funds, based
on a specified principal payment schedule.
"CPR" means the constant prepayment rate model representing an assumed
constant rate of prepayment each month (expressed as an annual percentage)
relative to the then outstanding principal balance of a pool of mortgage loans
for the life of such mortgage loans.
"Cut-off Date" means the specified date initial aggregate outstanding
principal balance of the related mortgage assets as of a specified date.
"Debt Service Coverage Ratio" means at any given time for a mortgage loan
the ratio of --
- the Net Operating Income derived from the related mortgaged property for
a twelve-month period to
- the annualized scheduled payments of principal and/or interest on the
mortgage loan and any other loans senior to it that are secured by the
related mortgaged property.
"Determination Date" means the date upon which that all scheduled payments
on the mortgage loans in the trust fund are received or advanced by the master
servicer, special servicer or other specified person will be distributed to
certificateholders of the related series on the next succeeding Distribution
Date.
"Direct Participant" means the securities brokers and dealers, banks, trust
companies and clearing corporations and may include certain other organizations
that maintain accounts with DTC.
"Distribution Date" means the date as described in the prospectus
supplement upon which distributions on or with respect to the certificates will
be made.
"DOL" means the United States Department of Labor.
"DTC" means The Depository Trust Company.
99
"Due Date" means a specified date upon which scheduled payments of
interest, principal or both are to be made under a mortgage loan and may occur
monthly, quarterly, semi-annually or annually.
"Due Period" means a specified time period (generally corresponding in
length to the period between Distribution Dates).
"Equity Participation" means a provision under a mortgage loan that
entitles the lender to a share of appreciation of the related mortgaged
property, or profits realized from the operation or disposition of such
mortgaged property or the benefit, if any, resulting from the refinancing of the
mortgage loan.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Excess Funds" means in general that portion of the amounts distributable
in respect of the certificates of any series on any Distribution Date that
represent --
- interest received or advanced on the mortgage assets in the trust fund
that is in excess of the interest currently accrued on the certificates
of such series; or
- Prepayment Premiums, payments from Equity Participations or any other
amounts received on the mortgage assets in the trust fund that do not
constitute payments of interest or principal.
"Exchange Act" means the Securities Exchange Act of 1934 as amended.
"Fannie Mae" means Federal National Mortgage Association.
"Freddie Mac" means Federal Home Loan Mortgage Corporation.
"Garn Act" means the Garn-St Germain Depository Institutions Act of 1982.
"Ginnie Mae" means Governmental National Mortgage Association.
"Grantor Trust Certificates" means certificates in a trust treated as a
grantor trust under applicable provisions of the Code.
"Grantor Trust Fractional Interest Certificate" means a Grantor Trust
Certificate representing an undivided equitable ownership interest in the
principal of the mortgage loans constituting the related Grantor Trust Fund,
together with interest at a pass-through rate.
"Grantor Trust Fund" means that portion of the trust fund as to which no
REMIC election has been made.
"Grantor Trust Strip Certificate" means a Grantor Trust Certificate
representing ownership of all or a portion of the difference between interest
paid on the mortgage loans constituting the related Grantor Trust Fund (net of
normal administration fees) and interest paid to the holders of Grantor Trust
Fractional Interest Certificates issued with respect to such Grantor Trust Fund.
"Indirect Participant" means those banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a Direct
Participant, either directly or indirectly.
"Insurance and Condemnation Proceeds" means proceeds applied to the
restoration of a mortgaged property or released to the related borrower in
connection with the full or partial condemnation of such mortgaged property.
"IRS" means the Internal Revenue Service.
"Issue Premium" means, in the case of a class of REMIC Regular Certificates
issued at a price in excess of the stated redemption price of that class, the
amount of such excess.
"Liquidation Proceeds" means all proceeds received under any hazard, title
or other insurance policy (other than Insurance and Condemnation Proceeds) and
all other amounts received and retained in connection with the liquidation of
defaulted mortgage loans or property acquired in respect of such defaulted
mortgage loans, by foreclosure or otherwise.
"Lock-out Period" means the period in which prepayments are prohibited
under a mortgage loan.
100
"Loan-to-Value Ratio" means for a mortgage loan the ratio (expressed as a
percentage) of --
- the then outstanding principal balance of the mortgage loan and any other
loans senior that are secured by the related mortgaged property to
- its fair market value as determined by an appraisal of such property
conducted by or on behalf of the originator in connection with the
origination of the mortgage loan.
"MBS" means mortgage participations, pass-through certificates or other
mortgage-backed securities that may comprise the assets of the trust fund.
"Mortgage Asset Seller" means the entity from whom the depositor purchased
a mortgage asset either directly or indirectly, included in the trust fund. The
Mortgage Asset Seller may or may not be the originator of the related mortgage
loan or the issuer of the MBS and may be an affiliate of the depositor.
"Mortgage Rate" means the rate at which a mortgage loan accrues interest
which may be fixed over its term or that adjusts from time to time, converted at
the borrower's election from an adjustable to a fixed rate, or from a fixed to
an adjustable rate.
"Multifamily Properties" means residential properties consisting of five or
more rental or cooperatively-owned dwelling units in high-rise, mid-rise or
garden apartment buildings or other residential structures comprising some or
all of the mortgaged properties included in the trust fund.
"Net Operating Income" means for any given period, the total operating
revenues derived from a mortgaged property during such period, minus the total
operating expenses incurred in respect of such mortgaged property during such
period other than --
- noncash items such as depreciation and amortization;
- capital expenditures; and
- debt service on the related mortgage loan or on any other loans that are
secured by such mortgaged property.
"NCUA" means the National Credit Union Administration.
"Notional Amount" means the amount upon which a Stripped Interest
Certificate is calculated to accrue interest which is either --
- based on the principal balances of some or all of the mortgage assets in
the related trust fund; or
- equal to the Certificate Balances of one or more other classes of
certificates of the same series.
"OCC" means the Office of the Comptroller of the Currency.
"OID Regulations" means the Treasury Department regulations issued under
Sections 1271-1273 and 1275 of the Code.
"OTS" means the Office of Thrift Supervision.
"Parties in Interest" means "parties in interest" as defined in ERISA and
"disqualified person" as defined in the Code.
"Percentage Interest" means the undivided percentage interest represented
by an offered certificate of a particular class which will be equal to the
percentage obtained by dividing the initial principal balance or notional amount
of such certificate by the initial Certificate Balance or Notional Amount of
such class.
"Permitted Investments" means government securities and other obligations
that are acceptable to each rating agency that has rated any one or more classes
of certificates of the related series into which funds from the Certificate
Account may be invested.
"Plan" means retirement plans, and certain other employee benefit plans and
arrangements, including individual retirement accounts, individual retirement
annuities, Keogh plans and collective investment funds and
101
separate accounts (and as applicable, insurance company general accounts) in
which such plans, accounts or arrangements are invested that are subject to the
fiduciary responsibility provisions of ERISA or Section 4975 of the Code.
"Plan Asset Regulations" mean Section 2510.3-101 of the regulations issued
by the DOL.
"Pooling and Servicing Agreement" means pooling and servicing agreement or
other agreement specified in the related prospectus supplement pursuant to which
certificates of each series will be issued.
"Prepayment Assumption" means the prepayment assumption used in reporting
original issue discount for each series of REMIC Regular Certificates or, if
applicable, Grantor Trust Certificates, as disclosed in the related prospectus
supplement.
"Prepayment Interest Shortfall" means the result when a prepayment on any
mortgage loan is distributable to certificateholders on a particular
Distribution Date, but such prepayment is not accompanied by interest thereon to
the Due Date for such mortgage loan in the related Due Period, then the interest
charged to the borrower (net of servicing and administrative fees) may be less
than the corresponding amount of interest accrued and otherwise payable on the
certificates of the related series.
"Prepayment Premium" means the payment of any premium or yield maintenance
charge in connection with certain prepayments under a mortgage loan.
"PTCE 95-60" means Prohibited Transaction Class Exemption 95-60.
"Purchase Price" means the price as specified in the prospectus supplement
at which a Mortgage Asset Seller will be required to repurchase a mortgage loan
under the conditions set forth in the prospectus supplement.
"Record Date" means last business day of the month preceding the month in
which the applicable Distribution Date occurs.
"Relief Act" means the Soldiers' and Sailors' Relief Act of 1940, as
amended.
"REMIC" means a real estate mortgage investment conduit, within the meaning
of, and formed in accordance with, the REMIC Provisions of the Code.
"REMIC Certificates" means certificates representing interests in a trust
fund, or a portion of the trust fund, that the REMIC administrator will elect to
have treated as REMIC.
"REMIC Provisions" means Sections 860A through 860G of the Code.
"REMIC Regular Certificates" means certificates evidencing or constituting
ownership of "regular interests" in the trust fund or a designated portion of
the trust under the REMIC Provisions.
"REMIC Regulations" means the Treasury Department regulations issued under
the REMIC Provisions.
"REMIC Residual Certificateholder" means the holder of a REMIC Residual
Certificate.
"REMIC Residual Certificates" means certificates evidencing or constituting
ownership of "residual interests" in the trust or a designated portion of the
trust under the REMIC Provisions.
"REO Properties" means mortgaged properties acquired on behalf of the trust
fund through foreclosure, deed-in-lieu of foreclosure or otherwise.
"RICO" means the Racketeer Influenced and Corrupt Organizations statute.
"Senior Certificates" means certificates in a given series that are senior
to one or more other classes of certificates in entitlement to certain
distributions;
"SMMEA" means the Secondary Mortgage Market Enhancement Act of 1984, as
amended.
"SPA" means the standard prepayment assumption representing an assumed
variable rate of prepayment each month (expressed as an annual percentage)
relative to the then outstanding principal balance of a pool of mortgage loans,.
102
"Stripped Interest Certificate" means those certificates entitled to
distributions of interest, with disproportionate, nominal or no distributions of
principal.
"Stripped Principal Certificate" means entitled to distributions of
principal, with disproportionate, nominal or no distributions of interest;
"Subordinate Certificates" means certificates in a given series that are
subordinate to one or more other classes of certificates in entitlement to
certain distributions;
"Tiered REMIC" means designated portions of the trust fund treated as two
or more REMICs.
"Treasury Department" means the United States Treasury Department.
"UCC" means for any jurisdiction the Uniform Commercial Code as in effect
in that jurisdiction.
"U.S. Person" means --
- a citizen or resident of the United States;
- a corporation or partnership created or organized in, or under the laws
of, the United States, any state or the District of Columbia, including
an entity treated as a corporation or partnership for federal income tax
purposes;
- an estate whose income is subject to United States federal income tax
purposes regardless of the source of its income; or
- a trust as to which --
1. a court in the United States is able to exercise primary
supervision over the administration of the trust, and
2. one or more United States persons have the authority to control all
substantial decisions of the trust.
In addition, to the extent provided in the Treasury Department regulations,
a trust will be a U.S. Person if it was in existence on August 20, 1996 and it
elected to be treated as a U.S. Person.
"Voting Rights" means the voting rights evidenced by each series of
certificates.
"Warranting Party" means a party that makes certain representations and
warranties regarding the mortgage loans.
103
NOTES CONCERNING INFORMATION
PRESENTED IN THE ATTACHED
COMPUTER DISKETTE
This diskette contains a spreadsheet file that can be put on a
user-specified hard drive or network drive. The file is "BACM2002_PB2.xls" The
file "BACM2002_PB2.xls" is a Microsoft Excel(1), Version 5.0 spreadsheet. The
file provides, in electronic format, certain loan level information shown in
ANNEX A of the Prospectus Supplement.
Open the file as you would normally open any spreadsheet in Microsoft
Excel. After the file is opened, a securities law legend will be displayed. READ
THE LEGEND CAREFULLY. To view the ANNEX A data, "click" on the worksheet labeled
"ANNEX A."
- ---------------
(1) Microsoft Excel is a registered trademark of Microsoft Corporation.
------------------------------------------------------
------------------------------------------------------
YOU SHOULD RELY ON THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE IN
THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS. WE HAVE NOT
AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION.
WE ARE NOT OFFERING THE CERTIFICATES IN ANY STATE WHERE THE OFFER IS NOT
PERMITTED.
WE DO NOT CLAIM THE ACCURACY OF THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT
AND THE ACCOMPANYING PROSPECTUS AS OF ANY DATE OTHER THAN THE DATES STATED ON
THEIR RESPECTIVE COVERS.
DEALERS WILL DELIVER A PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS
WHEN ACTING AS UNDERWRITERS OF THE CERTIFICATES AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS. IN ADDITION, ALL DEALERS SELLING THE CERTIFICATES
WILL DELIVER A PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS UNTIL
AUGUST 15, 2002.
------------------------
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
----
PROSPECTUS SUPPLEMENT
Table of Contents............................ S-1
Important Notice About Information Presented
in this Prospectus Supplement and the
Accompanying Prospectus.................... S-4
Executive Summary............................ S-5
Summary of Prospectus Supplement............. S-8
Risk Factors................................. S-20
Description of the Mortgage Pool............. S-52
Servicing of the Mortgage Loans.............. S-83
Description of the Certificates.............. S-98
The Trustee.................................. S-120
Yield and Maturity Considerations............ S-121
Use of Proceeds.............................. S-129
Certain Federal Income Tax Consequences...... S-129
Certain ERISA Considerations................. S-131
Legal Investment............................. S-133
Method of Distribution....................... S-133
Legal Matters................................ S-134
Ratings...................................... S-135
Index of Principal Definitions............... S-136
Annex A...................................... A-1
Annex B...................................... B-1
Annex C...................................... C-1
Annex D...................................... D-1
PROSPECTUS
Summary of Prospectus........................ 5
Risk Factors................................. 10
Prospectus Supplement........................ 16
Capitalized Terms Used in This Prospectus.... 17
Description of the Trust Funds............... 18
Yield and Maturity Considerations............ 23
The Depositor................................ 28
Description of the Certificates.............. 28
The Pooling and Servicing Agreements......... 36
Description of Credit Support................ 52
Certain Legal Aspects of Mortgage Loans...... 55
Certain Federal Income Tax Consequences...... 66
State and Other Tax Consequences............. 91
Certain ERISA Considerations................. 91
Legal Investment............................. 93
Use of Proceeds.............................. 95
Method of Distribution....................... 95
Legal Matters................................ 96
Financial Information........................ 96
Rating....................................... 96
Available Information........................ 97
Incorporation of Certain Information by
Reference.................................. 98
Glossary..................................... 98
</Table>
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
$983,787,560
(APPROXIMATE)
BANC OF AMERICA
COMMERCIAL MORTGAGE INC.
DEPOSITOR
CLASS A-1, CLASS A-2, CLASS A-3,
CLASS A-4, CLASS B,
CLASS C, CLASS D, CLASS E AND CLASS F
BANC OF AMERICA
COMMERCIAL MORTGAGE INC.
COMMERCIAL MORTGAGE
PASS-THROUGH CERTIFICATES
SERIES 2002-PB2
-----------------------------------------
PROSPECTUS SUPPLEMENT
-----------------------------------------
BANC OF AMERICA SECURITIES LLC
MERRILL LYNCH & CO.
JPMORGAN
May 9, 2002
------------------------------------------------------
------------------------------------------------------