FIRST SIERRA RECEIVABLES II INC
424B5, 1999-04-16
ASSET-BACKED SECURITIES
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<PAGE>   1
The Information in this Prospectus Supplement is not complete and may be
changed. This Prospectus Supplement is not an offer to sell these notes and it
is not soliciting an offer to buy these notes in any state where the offer or
sale is not permitted.

Subject to completion, dated April 14, 1999     filed pursuant to rule 424(b)(5)
Prospectus supplement to prospectus             Registration No.'s 333-12199
dated November 25, 1998                         and 333-12199-01
- -------------------                                             

FIRST SIERRA EQUIPMENT CONTRACT TRUST 1999-1
Issuer                                                   $259,946,374
FIRST SIERRA FINANCIAL, INC.       
Originator and Servicer                        Equipment Contract Backed Notes,
FIRST SIERRA RECEIVABLES III, INC.                       Series 1999-1
Depositor                          

- -------------------
First Sierra Equipment Contract Trust 1999-1, with First Union Trust Company,
National Association, as owner trustee, will issue seven classes of notes
backed solely by a pledge of the assets of the trust. The assets of the trust
will consist primarily of a pool of finance leases and commercial loans and a
security interest in the related underlying equipment or other property.

- -------------------------------------------------------------------------------
YOU SHOULD READ THE SECTION ENTITLED "RISK FACTORS" STARTING ON PAGE S-7 OF
THIS PROSPECTUS SUPPLEMENT AND PAGE 13 OF THE PROSPECTUS AND CONSIDER THESE
FACTORS BEFORE MAKING A DECISION TO INVEST IN THE NOTES.

The notes represent asset-backed debt secured only by the assets of the trust
and are not interests in or obligations of any other person.

Neither the notes nor the underlying leases and loans will be insured or
guaranteed by any governmental agency or instrumentality or by any other person
except for the note insurer with respect to the Class A Notes.
- -------------------------------------------------------------------------------

THE NOTES --

o    Of the seven classes of notes issued by the trust, only the four classes
     of notes set forth in the table below are offered by this prospectus
     supplement.

o    Interest and principal on the notes is scheduled to be paid monthly, on
     the 15th day of the month, or the business day immediately following such
     15th day. The first scheduled payment date is May 17, 1999.

CREDIT ENHANCEMENT --

o    The Class A Notes will be unconditionally and irrevocably guaranteed as to
     the payment of scheduled interest and ultimate principal pursuant to the
     terms of a note insurance policy to be issued by [MBIA LOGO].

o    The trust is also issuing the Class B Notes or the subordinate notes,
     which are not being offered by this prospectus supplement. Payments on the
     Class B Notes are subordinated to payments due on the Class A Notes. The
     subordination of the Class B Notes provides additional credit enhancement
     for the Class A Notes.

o    The trust is also issuing a trust certificate representing the entire
     beneficial ownership interest in the trust. Payments on the trust
     certificate are subordinated to the payments due on the notes. No
     principal will be paid to the holder of the trust certificate unless all
     payments of principal and interest on all classes of notes have been paid.
     The holder of the trust certificate is referred to as the trust
     certificate holder.

<TABLE>
<CAPTION>
                        Initial Aggregate                                                Underwriting        Proceeds to the
Class                    Note Balance(1)         Note Rate         Price to Public         Discount            Depositor(2)
- -----                   -----------------        ---------         ---------------       ------------        --------------
<S>                     <C>                      <C>               <C>                   <C>                 <C>
A-1                     $      70,637,602            %                       %                    %          $
A-2                     $      57,216,457            %                       %                    %          $
A-3                     $      48,033,569            %                       %                    %          $
A-4                     $      84,058,746            %                       %                    %          $
Total                   $     259,946,374                          $                     $                   $
</TABLE>
- ------------------------

(1)  Approximate as to all dollar amounts.
(2)  Before deducting expenses, estimated to be $ ______________.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.

FIRST UNION CAPITAL MARKETS
                          NESBITT BURNS SECURITIES, INC.
                                                     PNC CAPITAL MARKETS, INC.
           The date of this prospectus supplement is April 14, 1999.


<PAGE>   2
            IMPORTANT NOTICE ABOUT THE INFORMATION PRESENTED IN THIS
             PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS

          We provide information to you about the notes in two separate
documents that progressively provide more detail: (1) the accompanying
prospectus , which provides general information, some of which may not apply to
your series of notes, and (2) this prospectus supplement, which describes the
specific terms of your series of notes.

          This prospectus supplement does not contain complete information
about the offering of the offered notes. Additional information is contained in
the prospectus. You are urged to read both this prospectus supplement and the
prospectus in full. We cannot sell the offered notes to you unless you have
received both this prospectus supplement and the prospectus.

          TO THE EXTENT THE PROSPECTUS CONTEMPLATES DIFFERENT OR MULTIPLE
OPTIONS, YOU SHOULD RELY ON THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT AS TO
THE APPLICABLE OPTION.

          The Depositor has filed with the Securities and Exchange Commission
(the "Commission") a registration statement under the Securities Act of 1933,
as amended, with respect to the offered notes offered pursuant to this
prospectus supplement. This prospectus supplement and the prospectus, which
form a part of the registration statement, omit certain information contained
in such registration statement pursuant to the rules and regulations of the
Commission. You may inspect and copy the registration statement at the Public
Reference Room at the Commission at 450 Fifth Street, N.W., Washington, D.C.
and the Commission's regional offices at Seven World Trade Center, 13th Floor,
New York, New York, 10048 and Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. You can obtain copies of such
materials at prescribed rates from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. In addition, the
Commission maintains a site on the World Wide Web containing reports, proxy
materials, information statements and other items. The address is
http://www.sec.gov.

          We include cross-references in this prospectus supplement and the
accompanying prospectus to captions in these materials where you can find
further related discussions. The following table of contents and the table of
contents included in the accompanying prospectus provide the pages on which
these captions are located.

                                      ii

<PAGE>   3

                               TABLE OF CONTENTS

<TABLE>
<S>                                                          <C>
SUMMARY.........................................................1
   Parties......................................................1
   The Pledged Assets...........................................1
   The Contracts................................................2
   The Notes....................................................2
   Pre-Funding Account and the Capitalized Interest Account.....4
   Credit Enhancement...........................................4
   Mandatory Prepayment of Principal............................5
   Optional Redemption..........................................5
   Material Federal Income Tax Consequences.....................5
   ERISA Considerations.........................................5
   Rating of the Offered Notes..................................5
RISK FACTORS....................................................7
FORMATION OF THE TRUST.........................................10
   The Owner Trustee...........................................10
   The Indenture Trustee.......................................10
   The Trust Assets............................................11
THE RECEIVABLES................................................12
   The Equipment...............................................12
   Statistical Information.....................................12
   Substitutions and Modifications.............................14
FIRST SIERRA...................................................20
THE SELLERS....................................................20
THE SERVICER...................................................20
   Delinquency and Loss Experience.............................20
   Collection Policies.........................................22
LEGAL PROCEEDINGS..............................................22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION....22
DESCRIPTION OF THE NOTES.......................................22
   General.....................................................22
   Flow of Funds...............................................23
   The Accounts................................................25
   Servicer Advances...........................................26
   Withholding.................................................33
   Reports to Noteholders......................................33
   Mandatory Prepayments on the Notes..........................34
   Optional Redemption.........................................35
DESCRIPTION OF THE TRANSACTION DOCUMENTS.......................35
   Conveyance of Receivables...................................35
   Representations and Warranties of First Sierra..............36
   Indemnification.............................................38
   Remittance and Other Servicing Procedures...................39
   Servicing Compensation and Payment of Expenses..............40
   Evidence as to Compliance...................................40
   Certain Matters Relating to the Servicer....................41
   Events of Servicing Termination.............................41
   Rights Upon an Event of Servicing Termination...............42
   Events of Default...........................................42
   Termination of the Trust....................................43
   Amendment...................................................43
PREPAYMENT AND YIELD CONSIDERATIONS............................44
   Weighted Average Lives of the Offered Notes.................45
THE NOTE INSURANCE POLICY AND THE NOTE INSURER.................52
   The Policy..................................................52
   The Note Insurer............................................54
   The Note Insurer Financial Information......................54
   Where You Can Obtain Additional Information About the 
   Note Insurer................................................55
   Year 2000 Readiness Disclosure..............................55
   Financial Strength Ratings of the Note Insurer..............56
MATERIAL FEDERAL INCOME TAX CONSEQUENCES.......................56
   Tax Characterization of the Trust...........................57
   Tax Consequences to Holders of the Notes....................57
STATE AND LOCAL TAX CONSIDERATIONS.............................60
ERISA CONSIDERATIONS...........................................60
LEGAL INVESTMENT...............................................61
RATINGS........................................................62
METHOD OF DISTRIBUTION.........................................62
REPORT OF EXPERTS..............................................63
LEGAL MATTERS..................................................64
INDEX OF PRINCIPAL DEFINED TERMS...............................65
</TABLE>


                                      iii

<PAGE>   4

                                    SUMMARY

o    This summary highlights selected information from this prospectus
     supplement and does not contain all of the information that you need to
     consider in making your investment decision. To understand all of the
     terms of the offering of the offered notes, read carefully this entire
     prospectus supplement and the accompanying prospectus.

o    This summary provides an overview of certain calculations, cash flows and
     other information to aid your understanding. To understand all of the
     terms of the offering, carefully read this entire document and, in
     particular, the full description of these calculations, cash flows and
     other information in this prospectus supplement and the accompanying
     prospectus.

                        -------------------------------

PARTIES

THE TRUST

First Sierra Equipment Contract Trust 1999-1, with First Union Trust Company,
National Association, as owner trustee, is a Delaware common law trust. The
principal executive offices of the trust are in Wilmington, Delaware, in care
of the owner trustee, at the address of the owner trustee specified below.

THE DEPOSITOR

First Sierra Receivables III, Inc. is a Delaware corporation. The depositor is
a wholly-owned special-purpose subsidiary of First Sierra. The address of the
depositor is 600 Travis Street, Suite 7050, Houston, Texas 77002, and its
telephone number is (713) 221-8822.

FIRST SIERRA

First Sierra Financial, Inc. is a Delaware corporation. The address of First
Sierra is 600 Travis Street, Suite 7050, Houston, Texas 77002, and its
telephone number is (713) 221-8822. First Sierra originated the contracts and
will also service the contracts held by the trust.

THE SELLERS

The Sellers are certain affiliates and certain trusts sponsored by First Sierra
or its affiliates, including investors in such trusts.

THE NOTE INSURER

MBIA Insurance Corporation is a New York financial guaranty insurance company.

THE INDENTURE TRUSTEE

Bankers Trust Company is a New York banking corporation. The corporate trust
offices of the indenture trustee is Four Albany Street, New York, New York
10006, and its telephone number is (212) 250-4237.

THE OWNER TRUSTEE

First Union Trust Company, National Association, is a national banking
association. The corporate trust offices of the owner trustee is One Rodney
Square, 920 King Street, Suite 102, Wilmington, Delaware 19801, and its
telephone number is (302) 888-7539.


THE PLEDGED ASSETS

The notes will be backed solely by a pledge of the assets of the trust. The
assets of the trust will consist of:

o    a segregated pool of direct finance leases and commercial loan contracts
     relating to a wide range of equipment, together with all monies received
     relating thereto on or after April 2, 1999;

o    the security interest of the originator or its affiliate in the equipment
     or other property securing such contracts;

                                      S-1
<PAGE>   5

o    all funds on deposit in certain accounts relating to the contracts and the
     equipment; 

o    moneys on deposit in a pre-funding account which shall be used to finance
     additional leases and commercial loan contracts and moneys on deposit in a
     capitalized interest account;

o    certain of the originator's rights under insurance policies relating to
     the contracts and the equipment; and

o    the note insurance policy to be issued by MBIA Insurance Corporation.

Any security deposits received by the servicer with respect to the contracts
will be retained by the servicer, and such amounts will not be available to the
trust in the event of the liquidation of the related contracts.

THE CONTRACTS

Each contract was previously originated and each subsequent contract intended
to be purchased by the trust from the sellers on or before July 22, 1999 will
be originated by either: (i) a third-party unaffiliated with First Sierra,
each, a "source," and acquired by First Sierra through its "private label
program"; or (ii) First Sierra directly through its "vendor or broker program."

The sellers will transfer the contracts and a security interest in the related
equipment to the trust. The trust will then pledge all of its right, title and
interest in and to such contracts and equipment to the indenture trustee on
behalf of the noteholders.

All of the contracts:

o    which are in the form of leases are characterized as finance leases;

o    require the periodic, scheduled payment of rent or other payments on a
     monthly, quarterly, semi-annual, or annual basis, in arrears or in
     advance;

o    require that the obligor under such contract assumes all responsibility
     with respect to the related equipment, including the obligation to pay all
     costs relating to its operation, maintenance, repair and, with certain
     exceptions described herein, insurance or self insurance; and

o    contain "hell or high water" provisions, which unconditionally obligate
     the obligor to make all scheduled payments without setoff.

The principal value of the pool of contracts at any time will be calculated by
discounting their remaining payments (except for delinquent payments) at a rate
equal to ____%.

THE NOTES

DENOMINATIONS

The offered notes will initially be issued in book-entry form only, through the
facilities of The Depository Trust Company. The offered notes will be issued in
minimum denominations of $1,000 and multiples of $1,000 in excess thereof, with
the exception of one note in each class which will be issued in an odd amount.

PAYMENT DATE

Principal and interest is scheduled to be paid to the noteholders on the 15th
day of each month if the twelfth is a business day. If the twelfth is not a
business day, the payment date will be the following day that is a business
day. The first payment date will be May 17, 1999.

RECORD DATE

The indenture trustee will make payments to the noteholders of record as of the
close of business on the last day of the interest accrual period for such
month.

COLLECTION PERIOD

Payments made on each payment date will relate to the collections received in
respect of the contracts and the equipment during the period beginning on the
opening of business on the second day of the immediately preceding calendar
month and ending on the close of business on the first day of the calendar
month in which such payment date occurs.


                                      S-2
<PAGE>   6

CLOSING DATE

On or about April 22, 1999.

INTEREST

Interest on the notes of each class is due and payable on each monthly payment
date and will accrue at the applicable note rate from the prior payment date to
the day before the next payment date. In the case of the first payment date,
interest begins to accrue on the day of the closing.

For the Class A-1 Notes, interest on the notes will be calculated on an
"actual/360" basis. For all other classes of notes, interest on the notes will
be calculated on a "30/360" basis.

Interest on a class of notes which is not paid as scheduled is due on the
following payment date and will accrue interest at a rate equal to the note
rate for such class plus 1%.

PRINCIPAL

On each payment date, the noteholders are scheduled to receive an amount of
principal generally equal to the sum of actual principal collections, payments
by the originator for contracts repurchased by it and the value of any
defaulted contracts, all as determined by the decrease in the principal value
of the contracts from the prior collection period to the current collection
period. The noteholders of each class of notes are scheduled to receive a
percentage of the above amount. Each class's percentage will equal such class's
initial note principal balance divided by the aggregate initial note principal
balance of all classes of notes (excluding the trust certificate). No principal
is paid or is due to the trust certificate holder until principal due to all
classes of notes is paid.

The trust will pay principal in the following priority:

o    to the Class A noteholders, the payment of principal due, including
     overdue principal on the outstanding Class A Notes. Amounts distributed to
     the holders of the Class A Notes are paid in a "sequential pay" fashion;
     first to the holders of the Class A-1 Notes until the principal amount on
     the Class A-1 Notes is zero; then to the holders of the Class A-2 Notes
     until the principal amount on the Class A-2 Notes is zero; then to the
     holders of the Class A-3 Notes until the principal amount on the Class A-3
     Notes is zero; and to the holders of the Class A-4 Notes until principal
     amount on the Class A-4 Notes is zero;

o    when the Class A Notes have been paid in full, to the Class B-1
     noteholders, the payment of principal due, including overdue principal on
     the outstanding Class B-1 Notes;

o    when the Class B-1 Notes have been paid in full, to the Class B-2
     noteholders, the payment of principal due, including overdue principal on
     the outstanding Class B-2 Notes;

o    when the Class B-2 Notes have been paid in full, to the Class B-3
     noteholders, the payment of principal due, including overdue principal on
     the outstanding Class B-3 Notes

o    when all of the notes have been paid in full, to the trust certificate
     holder any excess principal.

However, during a restricting event, principal will not be paid as set forth
above, but will instead will be paid to the most senior class of notes then
outstanding until such class is paid to zero.

Certain circumstances could cause principal on the notes to be paid earlier or
later, or in reduced amounts. We refer you to "Description of the Notes -- Flow
of Funds" in this prospectus supplement for further information regarding the
payment of interest and principal on the notes.

FINAL SCHEDULED PAYMENT DATE

If the notes have not already been paid in full, the trust will pay the
outstanding principal

                                      S-3
<PAGE>   7

amount of the notes in full on the following payment dates:

Class A-1.........March, 2000

Class A-2.........December, 2000

Class A-3.........September, 2001

Class A-4.........January, 2004

Final payment on the notes will probably be earlier than the final scheduled
payment date set forth above for the related class of notes.

PRE-FUNDING ACCOUNT AND THE CAPITALIZED INTEREST ACCOUNT

The contracts will consist of initial contracts held by the trust on the
closing date and contracts to be acquired by the trust subsequent to the
closing date. On the closing date, an aggregate amount of $56,510,081 will be
deposited into a segregated pre-funding account which will be used from time to
time on or before July 22, 1999 to acquire subsequent contracts for addition to
the asset pool to secure the notes. These subsequent contracts must satisfy
certain criteria described in this prospectus supplement.

On the closing date, a portion of the sales proceeds of the notes will be
deposited in a capitalized interest account to be used to cover shortfalls in
interest on the notes attributable to the pre-funding feature during the
pre-funding period.

CREDIT ENHANCEMENT

The credit enhancement available to the noteholders will consist of, with
respect to the Class A Notes only, the note insurance policy issued by MBIA
Insurance Corporation and the subordination provisions of the trust.

NOTE INSURANCE POLICY

The note insurer will issue its note insurance policy for the benefit of the
holders of the Class A Notes. Pursuant to this policy, the note insurer will
unconditionally and irrevocably guarantee the payments required to be made
under the policy during the term of such policy.

In the event that, on any payment date, the holders of the Class A Notes do not
receive interest then due to them, such shortfall is due and payable and will
be funded from the proceeds of a drawing under the policy. In addition, in the
event that, on any payment date (i) on which any of the Class A Notes matures,
the holders of such Class A Notes do not receive the amount of such maturing
principal then due to them or (ii) on any other payment date, the aggregate
discounted contract principal balance plus, during the pre-funding period, the
amount on deposit in the pre-funding account, is less than the principal
balance of the Class A Notes outstanding, the resulting shortfall is due and
payable and will be funded from the proceeds of a drawing under the policy.

SUBORDINATION

The credit enhancement available for the benefit of any class of notes is
provided by each class of notes having a lower priority of payment than such
class of notes, as well as by the trust certificate. Losses caused by defaults
on the underlying contracts will be absorbed first, by the trust certificate
holder, second, by the holders of the Class B-3 Notes, third, by the holders of
the Class B-2 Notes, fourth, by the holders of the Class B-1 Notes and fifth,
by the holders of the Class A Notes. Thus, any losses on the underlying
contracts will be absorbed first by the trust certificate, and then the next
successive junior subordinate class of notes.

In addition, during a restricting event, amounts otherwise payable to the
subordinate noteholders and the trust certificate holder will be suspended and
shall be disbursed to the most senior class of notes then outstanding, as a
further reduction of the outstanding note principal balance of such class.


                                      S-4
<PAGE>   8

MANDATORY PREPAYMENT OF PRINCIPAL

To the extent that the trust does not fully use amounts on deposit in the
pre-funding account to purchase subsequent contracts by July 22, 1999, the
trust will apply the remaining amounts as a prepayment of the principal of the
notes on the payment date immediately succeeding the end of the Pre-Funding
Period.

OPTIONAL REDEMPTION

The trust certificate holder may redeem the notes in whole on any payment date
on which the aggregate discounted contract principal balance is less than 10%
of the sum of the aggregate discounted contract principal balance as of the
closing date plus the aggregate discounted contract principal balance of
contracts as of the related subsequent cut-off date purchased during the
pre-funding period. If a redemption occurs, the trust will pay noteholders a
final distribution equaling (a) the discounted contract principal balance of
all contracts as of the close of business on the second preceding collection
period (without any deduction for any security deposit paid by an obligor,
unless such security deposit has been deposited in the collection account); (b)
the product of (i) each contract's discounted contract principal balance as of
the beginning of the immediately preceding collection period and (ii)
one-twelfth of the actual discount rate; (c) any scheduled payments theretofore
due and not paid by an obligor; and (d) any final contract payment due or to
become due under the contract.

The trust certificate holder may redeem the notes in part with respect to
certain contracts identified in an exhibit to the indenture on any payment date
on which the aggregate discounted contract principal balance for such contracts
is less than 15% of the sum of the aggregate discounted contract principal
balance for such contracts as of the closing date plus the aggregate discounted
contract principal balance of such contracts as of the related subsequent
cut-off date purchased by the trust during the pre-funding period.

If a partial redemption occurs, the trust will pay the noteholders a
distribution equaling the sum of (a) the discounted contract principal balance
of all contracts as of the close of business on the second preceding collection
period (without any deduction for any security deposit paid by an obligor,
unless such security deposit has been deposited in the collection account); (b)
the product of (i) each contract's discounted contract principal balance as of
the beginning of the immediately preceding collection period and (ii)
one-twelfth of the actual discount rate; (c) any scheduled payments theretofore
due and not paid by an obligor; and (d) any final contract payment due or to
become due under the contract.

MATERIAL FEDERAL INCOME TAX CONSEQUENCES

Dewey Ballantine LLP, tax counsel, is of the opinion that the offered notes
will be treated as debt for federal income tax purposes and the trust will not
be treated as an association (or a publicly traded partnership) taxable as a
corporation. By your acceptance of an offered note, you agree to treat the
notes as debt.

ERISA CONSIDERATIONS

Subject to the considerations described under "ERISA Considerations" in this
prospectus supplement, the notes offered by this prospectus supplement may be
purchased by pension, profit sharing and other employee benefit plans and
retirement arrangements. Investors should consult with their counsel regarding
the applicability of the provisions of the Employer Retirement Income Security
Act of 1974, as amended, before purchasing an offered note.

RATING OF THE OFFERED NOTES

The offered notes must receive at least the following ratings from Standard &
Poor's, a division of The McGraw-Hill Companies, Inc. ("S&P"), Moody's
Investors Service, Inc. ("Moody's"), Fitch IBCA, Inc. ("Fitch") and 


                                      S-5
<PAGE>   9

Duff & Phelps Credit Rating Co. ("DCR") in order to be issued:

<TABLE>
<CAPTION>
  Class                     Ratings
  -----                     -------
             S&P       Moody's       Fitch         DCR
             ----      -------      -------       -----
<S>          <C>       <C>        <C>            <C>
   A-1       A-1+       P-1         F1+/AAA       D-1+
   A-2       AAA        Aaa           AAA          AAA
   A-3       AAA        Aaa           AAA          AAA
   A-4       AAA        Aaa           AAA          AAA
</TABLE>

You must not assume that the ratings will not be lowered, qualified or
withdrawn by the rating agencies.


                                      S-6

<PAGE>   10

                                  RISK FACTORS

          In addition to the risk factors discussed in the prospectus,
prospective offered noteholders should consider, among other things, the
following additional factors in connection with the purchase of the offered
notes:

THE ADDITION AND SUBSTITUTION OF CONTRACTS MAY ADVERSELY AFFECT CASHFLOW AND
MAY DECREASE THE YIELD ON THE NOTES

If a significant number of contracts are added or replaced, this could affect
the rate at which funds are distributed on the notes and decrease the yield to
noteholders. The receivables transfer agreement permits First Sierra, under
certain circumstances, to substitute or add certain qualifying contracts. The
addition or substitution of contracts may include contracts that possess
different payment due dates and installment amounts than its predecessor
contract. It may also include contracts with maturity dates that are different
from the maturity dates of its predecessor contracts.

First Sierra may only add or substitute contracts that meet certain qualifying
characteristics and conditions. The ability of First Sierra to acquire such
contracts is dependent upon its ability to originate a sufficient amount of
contracts that meet the specified eligibility criteria. This may be affected by
a variety of social and economic factors, including interest rates,
unemployment levels, the rate of inflation and public perception of economic
conditions generally. As such, the addition or substitution of contracts could
change the concentration of contracts from the current characteristics of the
pool described as of April 1, 1999. This may increase the geographic
concentration or equipment concentration of certain contracts. Consequently,
any adverse economic or social factors that particularly affect a certain
geographic area or a certain type of equipment may adversely affect the
performance of the contracts. 

GEOGRAPHIC CONCENTRATIONS OF CONTRACTS MAY ADVERSELY AFFECT THE CONTRACTS

As of the statistic calculation date, obligors with respect to approximately
21.38%, 8.76% and 8.24% of the contracts and the related equipment were located
in the States of California, Texas and Florida, respectively. To the extent
adverse events or economic conditions are particularly severe in such
geographic regions or in the event an obligor or group of obligors under the
contracts in such geographic regions were to experience financial difficulties
due to the economic conditions specific to such obligor's region, the
delinquency and loss experience of the contracts could be adversely impacted.
In such event, you may experience delays in receiving payments and suffer loss
of your investment in the notes.


                                      S-7
<PAGE>   11

SUBSEQUENT CONTRACTS MAY HAVE CHARACTERISTICS THAT DIFFER FROM THE INITIAL
CONTRACTS

Subsequent contracts may have characteristics that are different from those of
the initial contracts. However, each subsequent contract must satisfy the
eligibility criteria referred to herein under "Description of the Transaction
Documents -- Representatives and Warranties of First Sierra" at the time of its
conveyance to the trust and must be underwritten in accordance with the
criteria set forth under "First Sierra -- Underwriting" in the prospectus.


POSSIBLE PREPAYMENTS AS A RESULT OF PRE-FUNDING MAY REDUCE YIELD TO NOTEHOLDERS

If the pre-funding account is not fully applied to the purchase of subsequent
contracts during the pre-funding period, the remaining funds will be used to
make a principal prepayment on the notes. Such prepayment may reduce the
expected yield to you.

RISKS ASSOCIATED WITH YEAR 2000 COMPLIANCE

The year 2000 issue is the result of prior computer programs being written
using two digits instead of four to define the applicable year. Any computer
programs that have time-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. Any such occurrence could result in
major computer system failure or miscalculations.

First Sierra has implemented a six phase program which involves the testing of
all hardware, software, operating systems, relationships, and services to be
completed by the third quarter of 1999. The phases consist of: inventory,
impact analytics, solution planning, corrective procedures, quality assurance,
and contingency planning. First Sierra did not incur any costs to address the
year 2000 issues in the year ended December 31, 1998. First Sierra estimates
that it will incur costs approximating $250,000 during 1999 to complete year
2000 issues.

First Sierra has not identified any specific known events, trends or
uncertainties which are reasonably likely to have a material effect on First
Sierra's business.

The foregoing constitutes a year 2000 statement and readiness disclosure
subject to the protection afforded it by the federal Year 2000 Information and
Readiness Disclosure Act of 1998.

RISKS ASSOCIATED WITH DTC AND THE YEAR 2000

With respect to year 2000 issues, DTC has informed members of the financial
community that it has developed and is implementing a program so that its
systems, as the same relate to the timely payment of distributions (including
principal and income payments) to securityholders, book-entry deliveries, and
settlement of trades within DTC continue to function appropriately on and after
January 1, 2000. This program


                                      S-8
<PAGE>   12

includes a technical assessment and a remediation plan, each of which is
complete. Additionally, DTC's plan includes a testing phase, which is expected
to be completed within appropriate time frames.

However, DTC's ability to perform properly its services is also dependent upon
other parties, including but not limited to, its participating organizations
(through which noteholders will hold their offered notes), as well as the
computer systems of third party service providers. DTC has informed the
financial community that it is contacting (and will continue to contact) third
party vendors from whom DTC acquires services to: (i) impress upon them the
importance of such services being year 2000 compliant and (ii) determine the
extent of their efforts for year 2000 remediation (and, as appropriate,
testing) of their services. In addition, DTC has stated that it is in the
process of developing such contingency plans as it deems appropriate.

If problems associated with the year 2000 issue were to occur with respect to
DTC and the services described above, distributions to noteholders could be
delayed or otherwise adversely affected.



                                      S-9
<PAGE>   13

                             FORMATION OF THE TRUST

          You can find a listing of the pages where capitalized terms used in
this prospectus supplement summary are defined under the caption "Index of
Principal Defined Terms" beginning on page 65 in this prospectus supplement and
under the caption "Index of Terms" beginning on page 50 in the accompanying
prospectus.

          First Sierra Equipment Contract Trust 1999-1, with First Union Trust
Company, National Association, as Owner Trustee, is a common law trust (the
"Trust"), formed in accordance with the laws of the State of Delaware, pursuant
to the Trust Agreement, dated as of April 1, 1999, between First Sierra
Receivables III, Inc., as depositor, and First Union Trust Company, National
Association, as owner trustee (the "Trust Agreement"), solely for the purpose
of effectuating the transactions described herein. Prior to formation, the
Trust will have had no assets or obligations and no operating history. Upon
formation, the Trust will not engage in any business activity other than (i)
acquiring, holding and pledging the Receivables (as defined herein), (ii)
issuing the Notes and the Trust Certificate and (iii) distributing payments
thereon. As described under "Description of the Notes - Servicing Compensation
and Payment of Expenses," a portion of the monthly collections with respect to
the Contracts will be paid to the Servicer as servicing compensation and to the
Note Insurer and the Indenture Trustee as fees. All other expenses of the Trust
will be paid as provided in the Trust Agreement.

THE OWNER TRUSTEE

          First Union Trust Company, National Association (the "Owner Trustee")
is a national banking association, the principal offices of which are located
at One Rodney Square, 920 King Street, Suite 102, Wilmington, Delaware 19801.
The Owner Trustee will perform limited administrative functions on behalf of
the Trust pursuant to the Trust Agreement. The Owner Trustee's duties are
limited solely to the express obligations of the Owner Trustee set forth in the
Trust Agreement.

THE INDENTURE TRUSTEE

          Bankers Trust Company (the "Indenture Trustee") is the Indenture
Trustee under the Indenture, dated as of April 1, 1999, between the Indenture
Trustee, the Trust and First Sierra, in its capacity as servicer and as
originator (the "Indenture"). Bankers Trust Company is a New York banking
corporation, the principal offices of which are located at Four Albany Street,
New York, New York 10006. The Indenture Trustee's duties in connection with the
Notes is limited solely to its express obligations under the Indenture and the
Servicing Agreement.

          Duties and Immunities of Indenture Trustee. The Indenture Trustee
will make no representations as to the validity or sufficiency of the Servicing
Agreement, the Notes (other than the authentication thereof) or of any Contract
or related document and will not be accountable for the use or application by
First Sierra of any funds paid to the Sellers in consideration of the sale of
any Notes. If an Event of Servicing Termination has not occurred, then the
Indenture Trustee will be required to perform only those duties specifically
required of it under the Servicing Agreement. However, upon receipt of the
various resolutions, certificates, statements, opinions, reports, documents,
orders or other instruments required to be furnished to it, the Indenture
Trustee will be required to examine them to determine whether they conform as
to form to the requirements of the Servicing Agreement.

          No recourse is available based on any provision of the Servicing
Agreement, the Notes or any Receivable or assignment thereof against Bankers
Trust Company, in its individual capacity, and


                                     S-10
<PAGE>   14

Bankers Trust Company shall not have any personal obligation, liability or duty
whatsoever to any Noteholder or any other person with respect to any such claim
and such claim shall be asserted solely against the Trust Assets or any
indemnitor, except for such liability as is determined to have resulted from
the Indenture Trustee's own negligence or willful misconduct.

          The Indenture Trustee will be entitled to receive, pursuant to the
priority set forth in the Indenture, (a) reasonable compensation for its
services (the "Indenture Trustee Fee"), (b) reimbursement for its reasonable
expenses and (c) indemnification for loss, liability or expense incurred
without negligence or bad faith on its part, arising out of performance of its
duties thereunder ((b) and (c) collectively, the "Indenture Trustee Expenses").

          Resignation or Removal of Indenture Trustee. The Indenture Trustee
may resign, subject to the conditions set forth below, at any time upon written
notice to the Servicer and the Note Insurer, in which event the Servicer will
be obligated to appoint a successor Indenture Trustee. If no successor
Indenture Trustee shall have been so appointed and have accepted such
appointment within 30 days after the giving of such notice of resignation, the
resigning Indenture Trustee may petition a court of competent jurisdiction for
the appointment of a successor Indenture Trustee. Any successor Indenture
Trustee shall be acceptable to the Note Insurer and shall meet the financial
and other standards for qualifying as a successor Indenture Trustee under the
Indenture. The Servicer may with the consent of the Note Insurer and shall at
the direction of the Note Insurer or the Noteholders of any Class evidencing
more than 25% of the Percentage Interests of such Class may, subject to the
consent of the Note Insurer, also remove the Indenture Trustee if the Indenture
Trustee ceases to be eligible to continue as such under the Indenture and fails
to resign after written request therefor, or is legally unable to act, or if
the Indenture Trustee is adjudicated to be insolvent. In such circumstances,
the Servicer or such Noteholders will also be obligated to appoint a successor
Indenture Trustee (acceptable to the Note Insurer). The Note Insurer shall also
have the right to remove the Indenture Trustee for "cause" under the Indenture.
Any resignation or removal of the Indenture Trustee and appointment of a
successor Indenture Trustee will not become effective until acceptance of the
appointment by the successor Indenture Trustee.

THE TRUST ASSETS

          The Trust Assets will consist of: (i) a pool of finance leases and
commercial loan contracts (the "Contracts"), a security interest in the related
equipment (the "Equipment" and, together with the Contracts, the
"Receivables"), and any Scheduled Payments, Final Scheduled Payments and
Defaulted Contract Recoveries to be made by Obligors (but not including any
payments due on or prior to the Cut-Off Date); (ii) any guaranties of an
Obligor's obligations under a Contract; (iii) with respect to any Contract,
copies of the Contract, any UCC financing statement and other original
documents related to the Contract, the application of the related Obligor,
documentation evidencing the information with respect to such Contract input
into the computerized electronic contract management system maintained by the
Servicer for all Contracts and other agreements similar to the Contracts, and
any other information required by the Note Insurer or the Servicer pursuant to
its customary policies and procedures (the "Contract Files"); (iv) the
insurance policies maintained by the Obligors with respect to the Equipment
(the "Insurance Policies") and the proceeds of such Insurance Policies; (v) any
rights of the Trust under the Receivables Transfer Agreement and any Subsequent
Transfer Agreement (including the right to instruct First Sierra to exercise
any unassignable rights of enforcement under the Contracts and any guaranties
thereof); (vi) moneys on deposit in the Pre-Funding Account and the Capitalized
Interest Account; (vii) funds from time to time deposited in the Collection
Account; and (viii) any and all income


                                     S-11
<PAGE>   15

and proceeds of the foregoing. The Trust Assets will not include any security
deposits received by the Servicer with respect to the Contracts.

                                THE RECEIVABLES

          The Receivables consist primarily of a segregated pool of finance
lease and commercial loan contracts and a security interest in the related
underlying equipment or other property.

THE EQUIPMENT

          The Equipment subject to the Contracts consists of small to medium
sized equipment used in a wide variety of businesses consistent with small
ticket equipment leasing. The equipment and other property underlying the
Contracts may include, but is not limited to, the following: (i) computers and
peripherals; (ii) computer software; (iii) medical and dental related equipment
including dental operatories; (iv) medical, dental and veterinary diagnostic
equipment including x-ray machines, blood analyzers, and other diagnostic
equipment, (v) telecommunications, (vi) general office, (vii) automotive
servicing, (viii) hospitality and food services related equipment; (ix)
equipment utilized in the arbor industry; (x) machines tools; (xi)
manufacturing process equipment; (xii) heavy mobile construction equipment;
(xiii) copiers; and (xiv) specialty vehicles including bucket trucks, lifts,
delivery vans and trucks.

STATISTICAL INFORMATION

          The Contracts consist of small ticket leases, commercial loans and
security interests in the related equipment or other property (i) acquired by
First Sierra from small independent leasing companies on an on-going basis
through the Private Label Program or (ii) originated directly by First Sierra
through the Broker Program or the Vendor Program. See "First Sierra" in the
prospectus.

          The statistical information presented in this prospectus supplement
describes only the Contracts included in the Trust Assets on the Closing Date
(the "Initial Contracts") and does not include Contracts purchased by the Trust
and included in the Trust Assets after the Closing Date (the "Subsequent
Contracts" and, together with the Initial Contracts, the "Contracts"). All
statistical information is stated as of April 1, 1999 (the "Initial Cut-Off
Date") and all percentages, unless otherwise stated, are by Aggregate
Discounted Contract Principal Balance.

          Subsequent Contracts are intended to be purchased by the Trust from
the Sellers from time to time (but not more than once in any calendar month
unless the Note Insurer consents to more frequent transfers) on or before July
22, 1999, from funds on deposit in the Pre-Funding Account. The Receivables
Transfer Agreement will provide that the Subsequent Contracts must conform to
certain specified characteristics described below under "Description of the
Transaction Documents --Representations and Warranties of First Sierra."

          As of April 1, 1999 (the "Statistic Calculation Date"), the Initial
Contracts had an Aggregate Discounted Contract Principal Balance (calculated
using an assumed discount rate of 6.368% (the "Statistical Discount Rate")) of
approximately $226,040,326 (the "Statistical Discounted Contract Principal
Balance"). The actual discount rate is ______% (the "Discount Rate"). The
Discount Rate is equal to the sum of (i) the weighted average of the Class A-1
Note Rate, the Class A-2 Note Rate, the Class A-3 Note Rate, the Class A-4 Note
Rate, the Class B-1 Note Rate and the Class B-2 Note Rate, weighted by (x) the
Initial Class A-1 Note Principal Balance, the Initial Class A-2 Note Principal
Balance,


                                     S-12
<PAGE>   16

the Initial Class A-3 Note Principal Balance, the Initial Class A-4 Note
Principal Balance, the Initial Class B-1 Note Principal Balance and the Initial
Class B-2 Note Principal Balance, as applicable, and (y) the expected weighted
average life of each Class of Notes, as applicable, assuming a constant
prepayment rate of 6.0%, (ii) the Servicer Fee Rate and (iii) the Premium Rate.
The Initial Aggregate Discounted Contract Principal Balance of the Initial
Contracts as of the Cut-Off Date calculated using the Discount Rate is
$___________.

          Between the Statistic Calculation Date and April 22 , 1999 (the
"Closing Date") some amortization of the pool is expected to occur. In
addition, certain Initial Contracts included in the pool as of the Statistic
Calculation Date may be determined not to meet the eligibility requirements for
the pool as of the Closing Date, and may not be included in the pool as of the
Closing Date. Moreover, certain Initial Contracts that are not included in the
pool as of the Statistic Calculation Date may be included in the pool as of the
Closing Date. While the statistical distribution of the characteristics as of
the Closing Date for the Receivables pool and calculated at the Discount Rate
will vary somewhat from the statistical distribution of such characteristics as
of the Statistic Calculation Date and calculated at the assumed Discount Rate
as presented in this prospectus supplement, such characteristics will not vary
by more than 5% (measured by the Aggregate Discounted Contract Principal
Balance).

          The "Discounted Contract Principal Balance" with respect to any
Contract, on any Determination Date, is the sum of the present value of all of
the remaining Scheduled Payments becoming due under such Contract after the end
of the prior Collection Period, discounted monthly at the Discount Rate in the
manner described below; provided, however, the Discounted Contract Principal
Balance of any Defaulted Contract, Early Termination Contract, or Expired
Contract or Contract repurchased by First Sierra or the Servicer pursuant to
the Indenture shall be equal to zero.

          In connection with all calculations required to be made pursuant to
the Transaction Documents with respect to the determination of Discounted
Contract Principal Balances, on any Determination Date the Discounted Contract
Principal Balance for each Contract shall be calculated assuming:

          (i)  Scheduled Payments are due on the last day of each Collection
               Period;

          (ii) Scheduled Payments are discounted on a monthly basis using a
               30-day month and a 360-day year; and

          (iii) Scheduled Payments are discounted to the last day of the
               Collection Period prior to the Determination Date.

          The "Aggregate Discounted Contract Principal Balance" as determined
from time to time is the sum of the Discounted Contract Principal Balances of
all Contracts.

          All of the Contracts require the periodic, scheduled payment of rent
or other payments on a monthly, quarterly, semi-annual or annual basis, in
arrears or in advance. Such periodic payments are referred to herein as
"Scheduled Payments."

          The Contracts have the characteristics specified in the Servicing
Agreement and described herein, and the Contracts eligible to be designated as
Subsequent Contracts or Substitute Contracts will conform to the
characteristics specified in the Servicing Agreement and herein.

          The final scheduled payment to be received by the Trust on the
Initial Contract with the latest maturity is due April, 2006. As of the
Statistic Calculation Date, all of the Initial Contracts had (i) original terms
to maturity ranging from 3 months to 85 months, with a weighted average
original term


                                     S-13
<PAGE>   17

to maturity of approximately 50 months and (ii) a remaining term to maturity of
not less than 2 months and not more than 84 months, with a weighted average
remaining term to maturity of approximately 44 months.

          References herein to percentages of Obligors refer in each case to
the percentage of the Statistical Discounted Contract Principal Balance of the
Initial Contracts as of the Statistic Calculation Date.

          As of the Statistic Calculation Date, the Discounted Contract
Principal Balances of the Initial Contracts ranged from $165 to $856,542. No
more than 0.30% of the Statistical Discounted Contract Principal Balance is
attributable to any one Obligor, with the exception of one Obligor that makes
up 0.76% of the statistical discounted contract principal balance, and the
average Discounted Contract Principal Balance is approximately $17,127.

          The Servicer is permitted to allow an Obligor to prepay a Contract in
an amount not less than the related Prepayment Amount. In addition, in the
event that an Obligor requests an upgrade or trade-in of Equipment, the
Servicer may remove such Equipment and related Contract from the Trust Assets,
but only upon payment of an amount equal to the sum of (i) the Discounted
Contract Principal Balance as of the first day of the Collection Period
preceding such removal, (ii) one month's interest thereon at the Discount Rate,
(iii) any Scheduled Payments due and outstanding under such Contract that have
not been paid by the Obligor and (iv) any Final Contract Payment due or to
become due under the Contract (collectively, the "Repurchase Amount").

SUBSTITUTIONS AND MODIFICATIONS

          First Sierra may, with the consent of the Note Insurer, substitute
one or more Contracts and transfer a security interest in the related Equipment
for and replace one or more Contracts and terminate the security interest in
the related Equipment that (i) becomes a Defaulted Contract, a Delinquent
Contract, a Prepayment or an Early Termination Contract or (ii) are required to
be repurchased by First Sierra pursuant to the Servicing Agreement.

          Each Substitute Contract shall be a Contract which satisfies certain
representations and warranties set forth in the Servicing Agreement (a
"Substitute Contract") as of the related Substitute Cut-Off Date. In addition,
the following conditions must be satisfied:

          (i) on a cumulative basis from the Initial Cut-Off Date, the sum of
     the Discounted Contract Principal Balance (as of the related Substitute
     Cut-Off Date) of such Substitute Contracts does not exceed 10% of the sum
     of Initial Aggregate Discounted Contract Principal Balance of all
     Contracts as of the Initial Cut-Off Date plus the aggregate Discounted
     Contract Principal Balance of the Subsequent Contracts as of the related
     Subsequent Cut-Off Date;

          (ii) as of the related Substitute Contract Cut-Off Date, the
     Substitute Contracts then being transferred have a Discounted Contract
     Principal Balance that is not less than the Discounted Contract Principal
     Balance of the Contracts being replaced; and

          (iii) no substitution shall be permitted if, as a result thereof, (X)
     the sum of the Scheduled Payments on all Contracts due in any Collection
     Period thereafter would be less than or increase the amount by which it is
     less than (Y) the sum of the Scheduled Payments which would otherwise be
     due in such Collection Period.



                                     S-14
<PAGE>   18

          The Servicer may waive, modify or vary any term of a Contract if the
Servicer, in its reasonable and prudent judgment, determines that it will not
be materially adverse to the Noteholders or the Note Insurer. However, the
Servicer will covenant in the Servicing Agreement that (i) it will not forgive
any payment of rent, principal or interest, (ii) unless an Obligor is in
default, it will not permit any modification with respect to a Contract which
would defer the payment of any principal or interest or any Scheduled Payment
or change the final maturity date on any Contract except as necessary to effect
recovery under Defaulted Contracts; provided, however, that no change in the
final maturity date of any Contract shall be permitted under any circumstances
if such new maturity date is later than the latest maturity date of any other
Contract then held by the Trust (as defined below), and (iii) the Servicer may
accept Prepayment in part or in full; provided, further, that (1) in the event
of Prepayment in full, the Servicer may consent to such Prepayment only in an
amount not less than the Prepayment Amount and (2) in the event of a partial
Prepayment, the Servicer may consent to such partial Prepayment only if (x)
following such partial Prepayment there are no delinquent amounts then due from
the Obligor and (y) such partial Prepayment will not reduce the Discounted
Contract Principal Balance by more than an amount equal to (I) the amount of
such partial Prepayment, minus (II) unpaid interest at the Discount Rate,
accrued through the end of the Collection Period immediately following such
partial Prepayment on the outstanding Discounted Contract Principal Balance
prior to such partial Prepayment. In the case of a partial Prepayment, the
Servicer is required to accurately recalculate the Discounted Contract
Principal Balance, and the allocation of Scheduled Payments to principal and
interest.

          Pursuant to the Servicing Agreement, the Servicer will manage,
administer, service and make collections on the Contracts, in accordance with
the terms of the Servicing Agreement, the Contracts, the Servicer's current
credit and collection policies and applicable law and, to the extent consistent
with such terms, in the same manner in which, and with the same care, skill,
prudence and diligence with which, it services and administers leases of
similar credit quality for itself or others, if any, giving due consideration
to customary and usual standards of practice of prudent institutional small
ticket equipment finance lease servicers and, in each case, taking into account
its other obligations under the Servicing Agreement (collectively, the
"Servicing Standard"). The Servicer shall use commercially reasonable best
efforts consistent with the Servicing Standard and its customary servicing
procedures, to repossess or otherwise comparably convert the ownership of any
Equipment that it has reasonably determined should be repossessed or otherwise
converted following a default under the Contract, remarket, either through sale
or re-lease, the Equipment upon the expiration of the term of the related
Contract and act as sales and processing agent for Equipment which it
repossesses. The Servicer shall follow such practices and procedures as are
consistent with the Servicing Standard and as it shall deem necessary or
advisable and as shall be customary and usual in its servicing of equipment
leases and other actions by the Servicer in order to realize upon such a
Contract, which may include reasonable efforts to enforce any recourse
obligations of Obligors and repossessing and selling the Equipment at public or
private sale. The foregoing is subject to the provision that, in any case in
which the Equipment shall have suffered damage, the Servicer shall not be
required to expend funds in connection with any repair or towards the
repossession of such Equipment unless it shall determine in its discretion that
such repair and/or repossession will increase the proceeds and recoveries on
such Equipment by an amount greater than the amount of such expenses.

          Following is certain statistical information relating to the Initial
Contracts, calculated as of the Statistic Calculation Date and assuming a
Statistical Discount Rate of 6.368%. Certain columns may not total 100% due to
rounding.


                                     S-15
<PAGE>   19

          DISTRIBUTION OF THE INITIAL CONTRACTS BY DISCOUNTED CONTRACT
                               PRINCIPAL BALANCE

<TABLE>
<CAPTION>
                                                                                            Percentage of
                                                             Statistical Discounted     Statistical Discounted
         Discounted Contract                 Number of              Contract                   Contract
          Principal Balance                  Contracts         Principal Balance          Principal Balance
          -----------------                  ---------         -----------------          -----------------
    Greater            Less Than or
      Than               Equal to
      ----               --------
<S>                  <C>                        <C>            <C>                                 <C>  
$          1         $      5,000               4,115          $     9,723,932                     4.30%
       5,000               10,000               2,638               16,997,027                     7.52
      10,000               15,000               1,398               15,472,975                     6.85
      15,000               20,000                 984               15,451,369                     6.84
      20,000               25,000                 801               16,147,903                     7.14
      25,000               30,000                 654               16,068,309                     7.11
      30,000               35,000                 517               14,974,264                     6.62
      35,000               40,000                 396               13,170,375                     5.83
      40,000               45,000                 332               12,492,982                     5.53
      45,000               50,000                 242               10,063,218                     4.45
      50,000               55,000                 150                6,906,635                     3.06
      55,000               60,000                 137                6,942,896                     3.07
      60,000               65,000                  96                5,248,128                     2.32
      65,000               70,000                 101                5,898,734                     2.61
      70,000               75,000                 113                7,022,563                     3.11
      75,000               80,000                  94                6,257,699                     2.77
      80,000               85,000                  80                5,647,356                     2.50
      85,000               90,000                  48                3,620,559                     1.60
      90,000               95,000                  40                3,223,966                     1.43
      95,000              100,000                  35                2,961,085                     1.31
     100,000              150,000                 147               14,634,394                     6.47
     150,000              200,000                  34                5,117,740                     2.26
     200,000              250,000                  27                5,103,409                     2.26
     250,000              300,000                   8                1,813,125                     0.80
     300,000              350,000                   3                  799,278                     0.35
     350,000              400,000                   3                1,012,458                     0.45
     500,000              600,000                   1                  432,134                     0.19
     600,000              700,000                   2                1,122,730                     0.50
   1,000,000            1,100,000                   2                1,713,084                     0.76
   ---------            ---------           ---------          ---------------                ---------
Total...............................           13,198          $   226,040,326                   100.00%
                                            =========          ===============                ========= 
</TABLE>


                                     S-16
<PAGE>   20

            DISTRIBUTION OF THE INITIAL CONTRACTS BY DEFINED OBLIGOR
                               INDUSTRY (TOP 20)

<TABLE>
<CAPTION>
                                                                                          Percentage of
                                                     Number           Statistical          Statistical
                                                       of         Discounted Contract  Discounted Contract
           Industry Type                            Contracts      Principal Balance    Principal Balance
           -------------                         ---------------   -----------------   -------------------
<S>                                              <C>               <C>                 <C>   
Health Services                                              644    $    25,028,555              11.07%
Business Services                                          1,085         20,025,020               8.86
Eating and Drinking Places                                   758         14,272,855               6.31
Auto Repair, Services and Parking                          1,269         12,294,164               5.44
Trucking and Warehousing                                     383          8,946,590               3.96
Individuals                                                  908          8,904,830               3.94
Special Trade Contractors                                    534          8,512,979               3.77
Agricultural Services                                        318          8,409,066               3.72
Auto Dealers and Gasoline Service Stations                   431          7,413,637               3.28
Miscellaneous Retail                                         593          7,153,993               3.16
Personal Services                                            395          6,668,384               2.95
Food Stores                                                  499          6,260,354               2.77
Amusement and Recreation Services                            274          6,149,107               2.72
Durable Goods                                                415          5,794,055               2.56
Nondurable Goods                                             611          5,353,916               2.37
Industrial Machinery and Equipment                           237          5,004,860               2.21
Hotels and Other Lodging Places                              205          4,700,796               2.08
General Building Contractors                                 218          4,481,572               1.98
Printing and Publishing                                      200          4,240,959               1.88
Engineering and Management Services                          201          3,642,940               1.61
                                                 ---------------    ---------------    ---------------
Total (Top 20 Defined Industries)                         10,178    $   173,258,632              76.65%
                                                 ---------------    ---------------    ---------------
All Others (including not defined)                         3,020    $    52,781,694              23.35%
                                                 ---------------    ---------------    ---------------
Total                                                     13,198    $   226,040,326             100.00%
                                                 ===============    ===============    ===============
</TABLE>


                                     S-17

<PAGE>   21

        DISTRIBUTION OF THE INITIAL CONTRACTS BY OBLIGOR BILLING ADDRESS

<TABLE>
<CAPTION>
                                                  Statistical             Percentage of
                                Number of     Discounted Contract    Statistical Discounted
State                           Contracts      Principal Balance   Contract Principal Balance
- -----                        ---------------   -----------------   --------------------------

<S>                          <C>              <C>                  <C>  
Alabama                                  194    $     2,362,343               1.05%
Alaska                                    20            432,330               0.19
Arizona                                  206          5,163,859               2.28
Arkansas                                  82          1,240,971               0.55
California                              2404         48,327,832              21.38
Colorado                                 191          3,526,039               1.56
Connecticut                              149          2,708,579               1.20
Delaware                                  27            707,791               0.31
District of Columbia                      16            385,211               0.17
Florida                                 1299         18,634,493               8.24
Georgia                                  511          7,206,276               3.19
Hawaii                                    63            664,813               0.29
Idaho                                     43            697,154               0.31
Illinois                                 340          5,244,031               2.32
Indiana                                  143          1,908,662               0.84
Iowa                                      57            857,470               0.38
Kansas                                    54            680,833               0.30
Kentucky                                 159          2,604,254               1.15
Louisiana                                289          2,700,330               1.19
Maine                                     50            950,052               0.42
Maryland                                 206          3,307,374               1.46
Massachusetts                            330          5,729,438               2.53
Michigan                                 592          6,427,548               2.84
Minnesota                                102          2,024,477               0.90
Mississippi                              128          1,468,519               0.65
Missouri                                 210          3,640,020               1.61
Montana                                   44            754,192               0.33
Nebraska                                  64          1,175,191               0.52
Nevada                                   129          3,138,786               1.39
New Hampshire                             91          1,495,783               0.66
New Jersey                               428          8,984,907               3.97
New Mexico                                49            960,416               0.42
New York                                 712         12,743,384               5.64
North Carolina                           332          4,878,538               2.16
North Dakota                              13            253,501               0.11
Ohio                                     353          5,776,955               2.56
Oklahoma                                  82          1,701,371               0.75
Oregon                                   168          4,057,910               1.80
Pennsylvania                             421          7,506,634               3.32
Puerto Rico                                1              7,207               0.00
Rhode Island                              61            920,482               0.41
South Carolina                           182          3,254,414               1.44
South Dakota                              15            289,918               0.13
Tennessee                                209          3,199,012               1.42
Texas                                   1074         19,799,109               8.76
Utah                                      70          1,160,623               0.51
Vermont                                   25            579,489               0.26
Virginia                                 288          4,805,997               2.13
Washington                               380          6,388,622               2.83
West Virginia                             49            760,171               0.34
Wisconsin                                 82          1,469,466               0.65
Wyoming                                   11            377,551               0.17
                             ---------------    ---------------    ---------------
Total                                 13,198    $   226,040,326             100.00%
                             ===============    ===============    ===============
</TABLE>


                                     S-18
<PAGE>   22

      DISTRIBUTION OF THE INITIAL CONTRACTS BY REMAINING TERM TO MATURITY

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Remaining Term in Months
- -----------------------------------------------------------------------------------------------
                                                                              Percentage of
                                                          Statistical          Statistical
    Greater          Less Than             Number      Discounted Contract  Discounted Contract
     Than           or Equal to         of Contracts    Principal Balance    Principal Balance
- ---------------    ---------------    ---------------   -----------------   -------------------
<S>                <C>                <C>               <C>                 <C>  
              1                 12              1,021    $     5,336,037                2.36%
             12                 24              2,548         25,866,902               11.44
             24                 36              3,584         50,772,167               22.46
             36                 48              3,081         47,143,472               20.86
             48                 60              2,656         77,401,275               34.24
             60                 72                247         11,265,860                4.98
             72                 84                 61          8,254,613                3.65
- -----------------------------------------------------------------------------------------------
Total................................          13,198    $   226,040,326              100.00%
===============================================================================================
</TABLE>

           DISTRIBUTION OF THE INITIAL CONTRACTS BY ORIGINAL TERM TO
                                    MATURITY

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
     Original Term in Months
- -----------------------------------------------------------------------------------------------
                                                                              Percentage of
                                                          Statistical          Statistical
    Greater          Less Than             Number      Discounted Contract  Discounted Contract
     Than           or Equal to         of Contracts    Principal Balance    Principal Balance
- ---------------    ---------------    ---------------   -----------------   -------------------
<S>                <C>                <C>               <C>                 <C>  
              1                 12                527   $       2,001,055               0.89%
             12                 24              1,412          10,026,788               4.44
             24                 36              3,816          48,666,254              21.53
             36                 48              2,770          41,048,945              18.16
             48                 60              3,134          79,922,816              35.36
             60                 72              1,430          32,335,424              14.31
             72                 84                103           9,861,443               4.36
             84                 96                  6           2,177,600               0.96
- -----------------------------------------------------------------------------------------------
Total.........................                 13,198   $     226,040,326             100.00%
===============================================================================================
</TABLE>


                                     S-19

<PAGE>   23

                                  FIRST SIERRA

          First Sierra Financial, Inc. ("First Sierra") is a Delaware
corporation. Its principal executive offices are located at 600 Travis Street,
Suite 7050, Houston, Texas 77002. First Sierra, is a publicly traded company
and its common stock is listed on the Nasdaq National Market System under the
symbol "FSFH." For a discussion regarding First Sierra and its origination
programs and underwriting guidelines, see "First Sierra" in the prospectus.

                                  THE SELLERS

          Certain affiliates and certain trusts sponsored by the Originator or
its affiliates, including investors related thereto (the "Sellers") will
transfer the Receivables to the Trust pursuant to the Receivables Transfer
Agreement, dated as of April 1, 1999, among First Sierra, First Sierra
Receivables III, Inc., First Union National Bank, Variable Funding Capital
Corporation, Bankers Trust Company and the Trust.

          The Sellers will warrant to the Trust in the Receivables Transfer
Agreement that the transfer of the related Receivables to the Trust is a valid
transfer of the Receivables to the Trust. In addition, the Sellers and the
Trust will treat the transactions described herein as an absolute conveyance of
the Receivables to the Trust, and the Trust will take all actions that are
required to perfect the Trust's ownership interest in the Receivables.
Notwithstanding the foregoing, if First Sierra were to become a debtor in a
bankruptcy case and a creditor or trustee-in-bankruptcy of such debtor or such
debtor itself were to take the position that the transfer of the Receivables to
the Trust should be recharacterized as a pledge of such Receivables to secure a
borrowing of such debtor, then delays in payments of collections of Receivables
to the Trust could occur or (should the court rule in favor of any such
trustee, debtor or creditor) reductions in the amount of such payments could
result. If the transfer of Receivables to the Trust is recharacterized as a
pledge, then a tax or government lien on the property of First Sierra arising
before the transfer of Receivables to the Trust may have priority over the
Trust's interest in such Receivables. If the transfer of Receivables to the
Trust is treated as a sale, the Receivables would not be part of First Sierra's
bankruptcy estate and would not be available to First Sierra's creditors.

                                  THE SERVICER

          First Sierra Financial, Inc., a Delaware corporation (in its separate
capacity as Servicer, the "Servicer"), was founded in June 1994. Its principal
office is located at 600 Travis Street, Suite 7050, Houston, Texas 77002. Since
its incorporation through December 31, 1998, First Sierra has acquired over
$1.8 billion of contracts for equipment and other property.

          As of March 1, 1999, First Sierra employed 486 employees, of which 73
were engaged in management and administrative functions, 30 in credit and
collection activities, 37 in collections and customer service and 346 in sales
and sales support activities.


DELINQUENCY AND LOSS EXPERIENCE

          The tables set forth below present certain information regarding the
delinquency and loss experience of the Servicer's portfolio of contracts for
equipment and other property for the periods indicated. There can be no
assurance that the levels of delinquency and loss experience reflected in the


                                     S-20
<PAGE>   24

following tables are indicative of the performance of the Contracts. From
inception through December 31, 1998, the Servicer had incurred net charge-offs
of $4.89 million.


                             DELINQUENCY EXPERIENCE
                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                              FOR THE YEAR ENDED                  FOR THE YEAR ENDED                 FOR THE YEAR ENDED
                               DECEMBER 31, 1996                  DECEMBER 31, 1997                   DECEMBER 31, 1998
                       --------------------------------   ---------------------------------   -----------------------------------
                        PRIVATE     BROKER/                PRIVATE      BROKER/                PRIVATE     BROKER/
                         LABEL      VENDOR     TOTAL(1)     LABEL       VENDOR      TOTAL       LABEL      VENDOR       TOTAL
                       ---------   --------   ---------   ---------   ---------   ---------   ---------   ---------   -----------

<S>                    <C>         <C>        <C>         <C>         <C>         <C>         <C>         <C>         <C>        
Gross Remaining
Contract Receivable    $ 244,049   $ 13,185   $ 257,234   $ 422,290   $ 189,068   $ 611,358   $ 592,435   $ 478,139   $ 1,070,574

31 - 60 days past
due                         2.46%      1.25%       2.40%       1.86%       1.90%       1.87%       1.36%       1.30%         1.33%

61 - 90 days past
due                         0.81%      0.21%       0.78%       0.60%       0.50%       0.57%       0.63%       0.69%         0.65%

Over 90 days past
due                         0.35%      0.00%       0.33%       0.38%       0.36%       0.37%       0.40%       0.81%         0.58%

Total                       3.62%      1.46%       3.51%       2.84%       2.76%       2.81%       2.39%       2.80%         2.56%
                       ---------   --------   ---------   ---------   ---------   ---------   ---------   ---------   -----------
</TABLE>

                                LOSS EXPERIENCE
                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                     FOR THE YEAR ENDED        FOR THE YEAR ENDED       FOR THE YEAR ENDED
                                                    DECEMBER 31, 1996(1)       DECEMBER 31, 1997         DECEMBER 31, 1998
                                                    --------------------       -----------------         -----------------

<S>                                                 <C>                         <C>                       <C>     
Average servicing portfolio                         $            124,592       $         321,965         $         653,852

Net losses
   Private Label Programs                           $                 25       $             222         $             505
   Broker/Vendor Programs                           $                  0       $             362         $           3,776
Percentage of average servicing portfolio                           0.02%                   0.18%                     0.65%
</TABLE>

- ---------------------------

(1)  First Sierra did not establish its Broker/Vendor Programs until July,
     1996.

          The tables above include delinquency and loss experiences for the
Servicer's overall contract portfolio. Delinquency results have declined over
the reported periods due to continued strong overall economic performance and
consistent application of credit underwriting standards. The overall net loss
performance has increased in total dollar amount due to the increase in the
total number of leases acquired, the maturation of earlier acquired leases and
an increased proportion of leases originated under First Sierra's retail
origination programs.

          While the above delinquency and loss experiences are typical of the
Servicer's experiences at the date for the periods indicated, there can be no
assurance that the delinquency and loss experiences on the Contracts will be
similar. Accordingly, the information should not be considered to reflect the
credit quality of the Contracts included in the Trust, or as a basis of
assessing the likelihood,


                                     S-21
<PAGE>   25

amount or severity of losses on the Contracts. The Contracts, in general, are
likely to have characteristics which distinguish them from the majority of the
contracts in the Servicer's servicing portfolio.

COLLECTION POLICIES

          For a discussion of the Servicer's collection policies, see "The
Servicer--Collection Policies" in the prospectus.

                               LEGAL PROCEEDINGS

          As of the date of this prospectus supplement, First Sierra is
involved in various lawsuits arising in the ordinary course of its business. In
the opinion of management of First Sierra, the outcome of these matters will
not have a material adverse effect on the financial condition or results of
operations of First Sierra.

          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

          As of the date of this prospectus supplement, the Trust has not had
an operating history. The net proceeds of the sale of the Offered Notes will be
employed to purchase the Contracts. The Trust was formed for the limited
purposes of (i) the purchase of equipment contracts from First Sierra and its
affiliates, (ii) the issuance of notes collateralized by its assets and (iii)
engaging in acts incidental, necessary or convenient to the foregoing.

                            DESCRIPTION OF THE NOTES

          The Notes will be issued pursuant to the Indenture to be entered into
by the Servicer, the Trust and the Indenture Trustee. The Servicer will provide
a copy of the Indenture to subsequent Noteholders without charge on written
request addressed to it at 600 Travis Street, Suite 7050, Houston, Texas 77002.

GENERAL

          The ______% Class A-1 Equipment Contract Backed Notes (the "Class A-1
Notes") in the initial principal amount of approximately $70,637,602, the ____%
Class A-2 Equipment Contract Backed Notes (the "Class A-2 Notes") in the
initial principal amount of approximately $57,216,457, the _____% Class A-3
Equipment Contract Backed Notes (the "Class A-3 Notes") in the initial
principal amount of approximately $48,033,569, the _____% Class A-4 Equipment
Contract Backed Notes (the "Class A-4 Notes" and, together with the Class A-1
Notes, the Class A-2 Notes and the Class A-3 Notes, the "Class A Notes" or the
"Offered Notes") in the initial principal amount of approximately $84,058,746,
which Offered Notes aggregate approximately $259,946,374 in initial principal
amount (the "Initial Class A Note Principal Balance"), will each be issued
pursuant to the Indenture. The Initial Class A Note Principal Balance to be
issued hereunder is equal to approximately 92.0% of the Initial Aggregate
Discounted Contract Principal Balance of the Contracts. Each class of Offered
Notes will initially be issued in book-entry form only through The Depository
Trust Company in minimum denominations of $1,000 and integral multiples
thereof, with the exception of one Note in each class which will be issued in
an odd amount. Payments on the Offered Notes are required to be made by the
Indenture Trustee on each Payment Date.


                                     S-22
<PAGE>   26

          The obligations evidenced by the Notes are recourse to the assets of
the Trust only and are not recourse to the Depositor, First Sierra, the
Servicer, the Indenture Trustee, the Owner Trustee or any other Person.

          The Trust will agree in the Indenture and in the respective Offered
Notes to pay to the Class A-1 Noteholders, the Class A-2 Noteholders, the Class
A-3 Noteholders and the Class A-4 Noteholders (i) an amount of principal equal
to the Initial Note Principal Balance thereof and (ii) Note Interest thereof,
in each case, at the times, from the sources and on the terms and conditions
set forth in the Indenture and in the respective Offered Notes.

          The first Payment Date for distributions to the Offered Noteholders
will be May 17, 1999. Payments are required to be made by the Indenture
Trustee, by check mailed or, if requested by the Noteholder, by wire transfer
of immediately available funds, to Noteholders entitled thereto at the address
appearing on the certificate register on the Record Date, which, for so long as
the Offered Notes are in book-entry form through The Depository Trust Company,
will be Cede & Co.

          In addition to the Offered Notes, the Trust will also issue four
classes of subordinate securities, the ____% Class B-1 Equipment Contract
Backed Notes (the "Class B-1 Notes"), the ____% Class B-2 Equipment Contract
Backed Notes (the "Class B-2 Notes"), the ____% Class B-3 Equipment Contract
Backed Notes (the "Class B-3 Notes" and, collectively with the Class B-1 Notes
and the Class B-2 Notes, the "Subordinate Notes" and the Subordinate Notes,
collectively with the Offered Notes, the "Notes") and the Trust Certificate
(the "Trust Certificate," together with the Subordinate Notes, the "Subordinate
Securities," and collectively with the Subordinate Notes and the Class A Notes,
the "Securities").

          The Subordinate Notes and the Trust Certificate are not offered
hereby, and will be issued initially to the holder of the Trust Certificate
(the "Trust Certificate Holder"). The Trust Certificate Holder expects that
some of the Subordinate Notes will be privately placed with one or more
qualified institutional investors. The Trust Certificate Holder will be
required to retain the Trust Certificate.

          One hundred percent of the Class A Insured Distribution Amount due to
the Class A Noteholders on each Payment Date is insured by the Note Insurer
under the Note Insurance Policy. See "The Note Insurance Policy And The Note
Insurer."

FLOW OF FUNDS

          On each Determination Date, the Servicer is required to deliver to
the Indenture Trustee, the Note Insurer and each Rating Agency a certificate
(the "Monthly Statement") setting forth the information needed to make payments
on the upcoming Payment Date.

          On each Payment Date, the Indenture Trustee will be required to make
the following payments from the Available Funds then on deposit in the
Collection Account, in the following order of priority (to the extent funds are
available therefor):

          (i) to the Servicer, any unreimbursed Servicer Advances (other than
     Servicer Advances for the related Collection Period);

          (ii) to the Servicer, the Servicer Fee then due, together with any
     accrued and unpaid Servicer Fees from prior Collection Periods;

          (iii) to the Servicer, Servicing Charges, if any, deposited in the
     Collection Account;

                                     S-23
<PAGE>   27

          (iv) to the Note Insurer, the Premium Amount then due, together with
     any accrued and unpaid Premium Amounts from prior Collection Periods;

          (v) to the Indenture Trustee, the Indenture Trustee Fees then due,
     together with any Indenture Trustee Fees from prior Collection Periods
     (subject to certain limitations set forth in the Indenture);

          (vi) to the Indenture Trustee, the Indenture Trustee Expenses then
     due, together with any Indenture Trustee Expenses from prior Collection
     Periods in an amount not to exceed in the aggregate $75,000;

          (vii) to the Class A-1 Noteholders, the Class A-2 Noteholders, the
     Class A-3 Noteholders and the Class A-4 Noteholders, the related Note
     Interest thereon, pari passu based on the interest due on each class of
     Notes;

          (viii) to the Class B-1 Noteholders, the related Note Interest
     thereon for the related Collection Period (to the extent the disbursement
     of such Note Interest will not result in an Available Funds Shortfall);

          (ix) to the Class B-2 Noteholders, the related Note Interest thereon
     for the related Collection Period (to the extent the disbursement of such
     Note Interest will not result in an Available Funds Shortfall );

          (x) to the Class B-3 Noteholders, the related Note Interest thereon
     for the related Collection Period (to the extent the disbursement of such
     Note Interest will not result in an Available Funds Shortfall);

          (xi) until the Class A Note Principal Balance has been reduced to
     zero, to the Class A Noteholders, the sum of (a) the Base Principal
     Distribution Amount for Class A for such Payment Date, and (b) any Overdue
     Principal for Class A, such amount to be applied sequentially, with 100%
     of such amount being applied to reduce the applicable Note Principal
     Balance of the Class A Notes then outstanding and having the lowest
     numerical designation (e.g., first to the Class A-1 Notes) to zero before
     any principal payment is made to the next Class;

          (xii) to the Note Insurer, the unpaid Reimbursement Amount, if any;

          (xiii) until the Note Principal Balance of the Class B-1 Notes has
     been reduced to zero, to the Class B-1 Noteholders, from the Available
     Funds then remaining in the Collection Account, the sum of (a) the Base
     Principal Distribution Amount for Class B-1 for such Payment Date, and (b)
     any Overdue Principal for Class B-1; provided, however, that if a
     Restricting Event exists on such Payment Date, the amount otherwise
     required to be paid to the Class B-1 Noteholders under this clause (xiii),
     shall instead be paid to the Class A Noteholders during such time as a
     Restricting Event is continuing as an additional reduction of the Class A
     Note Principal Balance up to the amount necessary to reduce the Class A
     Note Principal Balance to zero (and shall be paid in the sequential-pay
     fashion described in clause (xi) above);

          (xiv) until the Note Principal Balance thereof has been reduced to
     zero, to the Class B-2 Noteholders, from the Available Funds then
     remaining in the Collection Account, the sum of (a) the Base Principal
     Distribution Amount for Class B-2 for such Payment Date, and (b) any
     Overdue Principal for Class B-2; provided, however, that if a Restricting
     Event exists on such Payment Date, the amount otherwise required to be
     paid to the Class B-2 Noteholders under this clause (xiv), shall instead
     be paid (x) to Class A Noteholders as an additional reduction of the

                                     S-24
<PAGE>   28

     Class A Note Principal Balance up to the amount necessary to reduce the
     Class A Note Principal Balance to zero (and shall be paid in the
     sequential-pay fashion described in clause (xi) above), and (y) then to
     the Class B-1 Noteholders as an additional reduction of the Note Principal
     Balance of the Class B-1 Notes up to the amount necessary to reduce such
     balance to zero;

          (xv) until the Note Principal Balance thereof has been reduced to
     zero, to the Class B-3 Noteholders, from the Available Funds then
     remaining in the Collection Account, the sum of (a) the Base Principal
     Distribution Amount for Class B-3 for such Payment Date, and (b) any
     Overdue Principal for Class B-3; provided, however, that if a Restricting
     Event exists on such Payment Date; the amount otherwise required to be
     paid to the Class B-3 Noteholders under this clause (xv), shall instead be
     paid (x) to the Class A Noteholders as an additional reduction of the
     Class A Note Principal Balance up to the amount necessary to reduce the
     Class A Note Principal Balance to zero (and shall be paid in the
     sequential-pay fashion described in clause (xi) above), (y) then to the
     Class B-1 Noteholders as an additional reduction of the Note Principal
     Balance of the Class B-1 Notes up to the amount necessary to reduce such
     balance to zero, and (z) then to the Class B-2 Noteholders as an
     additional reduction of the Note Principal Balance of the Class B-2 Notes
     up to the amount necessary to reduce such balance to zero;

          (xvi) to the Indenture Trustee, the Indenture Trustee Expenses then
     due, together with any Indenture Trustee Expenses from prior Collection
     Periods in excess of the $75,000 limitation set forth in clause (vi);

          (xvii) to the Servicer, any other amounts due the Servicer as
     expressly provided in the Servicing Agreement; and

          (xviii) to the Trust Certificate Holder, any remaining amounts;
     provided, however, that during the continuance of a Restricting Event, no
     distribution will be made to the Trust Certificate Holder. Rather, such
     amount will be paid to the most senior class of Notes then outstanding.

THE ACCOUNTS

          The Servicer is required to establish and maintain in accordance with
the Servicing Agreement four accounts: the Lockbox Account, the Collection
Account, the Pre-Funding Account and the Capitalized Interest Account. The
Collection Account is to be held by the Indenture Trustee in the name of the
Trust and for the benefit of Noteholders and the Note Insurer. The Collection
Account will be one or more segregated trust accounts. The Lockbox Account will
be a demand deposit account maintained at Chase Bank of Texas, N.A. (the
"Lockbox Bank"). The Pre-Funding Account is to be held by the Indenture Trustee
in the name of the Trust and for the benefit of Noteholders. The Pre-Funding
Account will be one or more segregated trust accounts. The Capitalized Interest
Account is to be held by the Indenture Trustee in the name of the Trust and for
the benefit of Noteholders. The Capitalized Interest will be one or more
segregated trust accounts.

          "Advance Payments" are amounts paid by an Obligor during a Collection
Period with respect to amounts due from such Obligor in subsequent Collection
Periods. Advance Payments will be retained in the Lockbox Account until the
Determination Date relating to the Collection Period in which such Advance
Payment (or portion thereof) is due in accordance with the provisions of the
related Contract.

          The Servicing Agreement permits the Servicer to direct the investment
of amounts in the Collection Account in certain eligible investments that
mature not later than the Business Day prior to the

                                     S-25
<PAGE>   29

next succeeding Payment Date. Generally, the Trust Certificate Holder shall be
entitled to any income from such investments.

          Pre-Funding Account. On the Closing Date, approximately $56,510,081
(the "Original Pre-Funded Amount") will be deposited in an account (the
"Pre-Funding Account"), which account will be in the name of and maintained by
the Indenture Trustee and shall be part of the Trust Assets and which amount
will be used to acquire Subsequent Contracts at a purchase price equal to
96.25% of the aggregate Discounted Contract Principal Balance of the Subsequent
Contracts transferred as of the close of the third Business Day prior to the
applicable Subsequent Transfer Date. During the Pre-Funding Period, the
Original Pre-Funded Amount will be reduced (on any date of determination, the
Original Pre-Funded Amount as so reduced, the "Pre-Funded Amount") by the
amount thereof used to purchase Subsequent Receivables for addition to the
Trust Assets in accordance with the Indenture. Any Pre-Funded Amount remaining
at the end of the Pre-Funding Period will be distributed to the Holders of the
Class or Classes of the Notes then entitled to receive principal in accordance
with the terms of the Notes on the Payment Date that immediately follows the
end of the Pre-Funding Period in reduction of the Note Principal Balance of
such Holder's Notes, thus resulting in a principal prepayment of such class of
Notes.

          Amounts on deposit in the Pre-Funding Account will be invested in
Eligible Investments. All interests and any other investment earnings on
amounts on deposit in the Pre-Funding Account (the "Pre-Funding Earnings") will
be deposited in the Capitalized Interest Account on or prior to each Payment
Date during the Pre-Funding Period.

          Capitalized Interest Account. On the Closing Date, cash will be
deposited in the Capitalized Interest Account, which account shall be in the
name of and maintained by the Indenture Trustee and shall be part of the Trust
Assets. On each Payment Date during the Pre-Funding Period, the amount on
deposit in the Capitalized Interest Account, including reinvestment income
thereon and amounts deposited thereto from the Pre-Funding Account, will be
used by the Indenture Trustee to fund one month's interest on the amount on
deposit in the Pre-Funding Account, calculated at the sum of (a) the weighted
average of the Note Rates on the Notes plus (b) the Premium Rate (the
"Capitalized Interest Requirement").

          If after making any required transfers to the Collection Account on
any Payment Date, the amount on deposit in the Capitalized Interest Account
exceeds an amount equal to the product of (i) the Discount Rate less the sum of
(a) the Servicer Fee Rate and (b) 2.5%, (ii) the amount remaining in the
Pre-Funding Account as of such Payment Date and (iii) a fraction, the numerator
of which is the number of days remaining until the Payment Date immediately
following the termination of the Pre-Funding Period and the denominator of
which is 360 (the "Capitalized Interest Required Reserve Amount"), the
Indenture Trustee will distribute such excess to First Sierra. In addition, any
amounts remaining in the Capitalized Interest Account at the end of the
Pre-Funding Period and not needed for the purpose described above will be paid
to First Sierra and will not thereafter be available for distribution to the
Holders of the Notes. Amounts on deposit in the Capitalized Interest Account
will be invested in Eligible Investments.

SERVICER ADVANCES

          In the event that any Obligor fails to remit the full Scheduled
Payment due from it with respect to a Collection Period by the Determination
Date related to such Collection Period, the Servicer shall make an advance from
its own funds of an amount equal to such unpaid Scheduled Payment (a "Servicer
Advance") if the Servicer, in its sole discretion, determines that eventual
repayment of such


                                     S-26
<PAGE>   30

Servicer Advance is likely from collections from or on behalf of the related
Obligor. The Servicing Agreement provides for the reimbursement of the Servicer
for such Servicer Advances from first, Excluded Amounts and second, to the
extent not reimbursed from Excluded Amounts, funds available for distribution
in the Collection Account on each subsequent Payment Date before the required
payments to Noteholders have been paid as set forth above in "Flow of Funds."
If at any time First Sierra or an affiliate is no longer the Servicer, no
Servicer Advances will be required. The Servicing Agreement shall provide that,
in the event that the Servicer determines that any Servicer Advances previously
made are not recoverable from the related Obligor, or any Delinquent Contracts
for which the Servicer has made a Servicer Advance in respect thereof become
Defaulted Contracts, the Indenture Trustee shall draw on the Collection Account
to repay such Servicer Advances in accordance with the provisions of the
Indenture.

          As used in this prospectus supplement, the following terms have the
following meanings:

          Advance Payment: With respect to a Contract and a Collection Period,
any Scheduled Payment, Final Scheduled Payment or portion of either made by or
on behalf of an Obligor and received by the Servicer during such Collection
Period, which Scheduled Payment, Final Scheduled Payment or portion thereof
does not become due until a subsequent Collection Period.

          Aggregate Initial Note Principal Balance: The aggregate of the
Initial Note Principal Balances of each Class of Notes.

          Available Distribution Amount: With respect to a Collection Period,
the total of (a) the Available Funds with respect to the related Collection
Period, minus (B) the Trust Operating Expenses.

          Available Funds: With respect to a Payment Date, (i) all amounts held
in the Collection Account on the related Determination Date, after taking into
account all deposits required to be made on such Determination Date, (ii)
proceeds of any Servicer Advances to be made on the Business Day immediately
prior to the Payment Date, other than any such amounts which relate to any
subsequent Collection Period, (iii) any Repurchase Amounts to be deposited by
the Trust Certificate Holder two Business Days prior to the Payment Date, (iv)
on each Payment Date on or prior to the Payment Date in July 1999, the
Capitalized Interest Requirement, if any, and (v) on the Payment Date
immediately following the termination of the Pre-Funding Period, the amount on
deposit in the Pre-Funding Account at such time.

          Available Funds Shortfall: An event which occurs on a Payment Date if
the Class A Insured Distribution Amount for such Payment Date exceeds the
Available Distribution Amount for such Payment Date.

          Base Principal Amount: With respect to any Collection Period, an
amount equal to the excess of (x) the Aggregate Discounted Contract Principal
Balances of the Contracts as of the close of business on the last day of the
second preceding Collection Period over (y) the Aggregate Discounted Contract
Principal Balances of the Contracts as of the close of business on the last day
of the immediately preceding Collection Period.

          Base Principal Distribution Amount: With respect to the Class A Notes
and any Payment Date, the sum of (i) the product of (a) the Class A Percentage
and (b) the Base Principal Amount for the related Collection Period and (ii) on
the Payment Date immediately following the termination of the Pre-Funding
Period, the amount on deposit in the Pre-Funding Account at such time. With
respect to the Class B-1 Notes, the Class B-2 Notes or the Class B-3 Notes and
any Payment Date, the product of (a) the Class Percentage for such Class and
(b) the Base Principal Amount for the related Collection Period.

                                     S-27
<PAGE>   31

          Class A Initial Note Principal Balance: The sum of the Initial Note
Principal Balances of the Class A-1 Notes, the Class A-2 Notes, the Class A-3
Notes and the Class A-4 Notes.

          Class A Insured Distribution Amount: (a) With respect to any Payment
Date (other than the Payment Date which is a Class A Maturity Date), the sum of
(i) the Class A Note Interest and (ii) the excess, if any, of (A) the Class A
Note Principal Balance over (B) the sum of the Aggregate Discounted Contract
Principal Balance as of the end of the immediately preceding Collection Period
plus, during the Pre-Funding Period, the Pre-Funded Amount as of the end of the
immediately preceding Collection Period, and (b) with respect to the Payment
Date which is a Class A Maturity Date, the sum of (i) the Class A Note Interest
and (ii) the greater of (x) the amount due under clause (a)(ii) above and (y)
with respect to the Class A Notes relating to such Class A Maturity Date, the
applicable Class A Note Principal Balance.

          Class A Maturity Date: The Maturity Date for the Class A-1 Notes, the
Class A-2 Notes, the Class A-3 Notes or the Class A-4 Notes, as applicable.

          Class A Percentage:                95.584%

          Class Percentage: With respect to the following Classes of Notes,

          Class A Notes:                     95.584%

          Class B-1 Notes:                    2.078%

          Class B-2 Notes:                    1.039%

          Class B-3 Notes:                    1.299%

          Cut-Off Date: With respect to the Initial Contracts, the Initial
Cut-Off Date, with respect to each Subsequent Contract, the related Subsequent
Cut-Off Date and with respect to each Substitute Contract, the related
Substitute Cut-Off Date.

          Defaulted Contract: A Contract becomes a "Defaulted Contract" at the
earlier of the date on which (i) the Servicer has determined in its sole
discretion, in accordance with the Servicing Standard and its customary
servicing procedures, that such Contract is not collectible, (ii) all or part
of a Scheduled Payment thereunder is more than 180 days delinquent, or (iii)
that was repurchased by a Source pursuant to a Source Agreement.

          Defaulted Contract Recoveries: All proceeds of the sale of Equipment
related to Defaulted Contracts and any amounts collected as judgments against
an Obligor or others related to the failure of such Obligor to pay any required
amounts under the related Contract or to return the Equipment, in each case as
reduced by (i) any unreimbursed Servicer Advances with respect to such Contract
or such Equipment and (ii) any reasonably incurred out-of-pocket expenses
incurred by the Servicer in enforcing such Contract or in liquidating such
Equipment.

          Delinquency Trigger Event: Exists on any Payment Date on which the
average of the Delinquency Trigger Ratios for such Payment Date and the two
immediately preceding Payment Dates exceeds 7.5%.

          Delinquency Trigger Ratio: With respect to any Payment Date, the
quotient, expressed as a percentage of (a) the Aggregate Discounted Contract
Principal Balance of all Contracts as to which all or a portion of a Scheduled
Payment remained unpaid for more than 30 days from its due date, determined as
of the end of the immediately preceding calendar month, divided by (b) the
Aggregate

                                     S-28
<PAGE>   32

Discounted Contract Principal Balance of all Contracts as of the last day of
the immediately preceding calendar month (including any Contracts which were
repossessed or substituted).

          Delinquent Contract: As of any Determination Date, any Contract
(other than a Contract which became a Defaulted Contract prior to such
Determination Date) with respect to which all or a portion of any Scheduled
Payment was not received when due by the Servicer as of the close of business
on the last day of the month in which such payment was due.

          Determination Date: With respect to a Payment Date, a date which is
the tenth day of the calendar month in the month in which such Payment Date
occurs, or if such day is not a Business Day, the immediately preceding
Business Day; provided, however, that in no event shall such Determination Date
be later than two Business Days prior to such Payment Date.

          Discounted Contract Principal Balance: With respect to any Contract,
on any Determination Date, the sum of the present value of all of the remaining
Scheduled Payments becoming due under such Contract after the end of the prior
Collection Period, discounted monthly at the Discount Rate in the manner
described below; provided, however, that except to the extent expressly
provided in the Servicing Agreement, the Discounted Contract Principal Balance
of any Defaulted Contract, Early Termination Contract, or Expired Contract or
Contract, purchased by First Sierra pursuant to the Servicing Agreement or by
the Trust Certificate Holder pursuant to the Indenture, shall be deemed to be
equal to zero as of the last day of the immediately preceding Collection
Period.

          In connection with all calculations required to be made pursuant to
the Transaction Documents with respect to the determination of Discounted
Contract Principal Balances, for any date of determination the "Discounted
Contract Principal Balance" for each Contract shall be calculated assuming:

          (i) Scheduled Payments are due on the last day of each Collection
     Period;

          (ii) Scheduled Payments are discounted on a monthly basis using a 30
     day month and a 360 day year; and

          (iii) Scheduled Payments are discounted to the last day of the
     Collection Period prior to the Determination Date.

          Early Termination Contract: Any Contract that has terminated pursuant
to the terms of such Contract prior to its scheduled expiration date, other
than a Defaulted Contract.

          Excluded Amounts: Any payments received from an Obligor or a Source
in connection with any application fees, tax processing fees, wire transfer
fees, express mail fees, insurance premiums, late charges and other penalty
amounts, taxes, fees or other charges imposed by any governmental authority,
any indemnity payments made by an Obligor for the benefit of the obligee under
the related Contract or any payments collected from an Obligor or received from
a Source relating to servicing and/or maintenance payments pursuant to the
related Contract or maintenance agreement, as applicable, Expired Contract
Proceeds (other than any amounts then due from a related source under the
related Source Agreement) or any other non-rental charges reimbursable to the
Servicer in accordance with the Servicer's customary policies and procedures
plus any collections received following the end of the immediately preceding
Collection Period up to the amount of the Servicer Advance for the immediately
preceding Collection Period.

          Expired Contract: Any Contract that has terminated on its scheduled
expiration date.


                                     S-29
<PAGE>   33

          Expired Contract Proceeds: Any and all cash proceeds or rents
realized from the sale or re-lease of Equipment under an Expired Contract.

          Final Scheduled Payment: With respect to any Contract, any payment
set forth in such Contract other than the regular Scheduled Payment which is
required to be paid by the related Obligor at the maturity of such Contract to
the extent included in the Discounted Contract Principal Balance.

          Gross Charge-Off Event: Exists on any Payment Date on which the
average of the Gross Charge-Off Ratio for such Payment Date and the two
immediately preceding Payment Dates exceeds 2.5%.

          Gross Charge-Off Ratio: With respect to any Payment Date, 12 times
the quotient, expressed as a percentage, of (a) the Aggregate Discounted
Contract Principal Balance of all Contracts that become Defaulted Contracts
during the immediately preceding calendar month less all recoveries received
during the immediately preceding calendar month, including, but not limited to,
Source buybacks, Source reserve fund payments, liquidation proceeds and
residual proceeds, divided by (b) the Aggregate Discounted Contract Principal
Balance of all Contracts as of the end of the immediately preceding calendar
month. For the purposes of the calculation of the Gross Charge-Off Ratio, the
Discounted Contract Principal Balance of any Contract which is a Defaulted
Contract shall not be zero, but shall instead be calculated as provided in the
definition of Discounted Contract Principal Balance without reference to the
last proviso in such definition.

          Indenture Trustee Expenses: Reasonable expenses of the Indenture
Trustee, as set forth in Section 7.07(a)(ii) of the Indenture.

          Initial Note Principal Balance: With respect to the following Classes
of Notes, the following approximate amounts:

          Class A-1                      $   70,637,602

          Class A-2                      $   57,216,457

          Class A-3                      $   48,033,569

          Class A-4                      $   84,058,746

          Class B-1                      $    5,651,008

          Class B-2                      $    2,825,504

          Class B-3                      $    3,531,880

          Initial Unpaid Amount: With respect to a Contract, the excess of (x)
the aggregate amount of all Scheduled Payments due prior to the Cut-Off Date
over (y) the aggregate of all Scheduled Payments made prior to the Cut-Off Date
with respect to such Contract.

          Interest Accrual Period: With respect to any Payment Date, the period
from and including the prior Payment Date to but excluding such Payment Date
and with respect to the initial Payment Date, the period from and including
April 22, 1999 to but excluding such Payment Date.

          Majority Holders: The applicable Noteholders that together own Notes
with an aggregate Percentage Interest in excess of 50%.


                                     S-30
<PAGE>   34

          Maturity Date: With respect to each Class of Notes, the following
dates:

          Class A-1 Notes           May, 2000

          Class A-2 Notes           June, 2001

          Class A-3 Notes           March, 2002

          Class A-4 Notes           July, 2004

          Class B-1 Notes           July, 2004

          Class B-2 Notes           July, 2004

          Class B-3 Notes           May 2006

          Note Current Interest: With respect to a Class of Notes and any
Collection Period, the interest accrued during the related Interest Accrual
Period, equal to, for the Class A-1 Notes, the product of (x) a fraction, the
numerator of which is the actual number of days elapsed in the related Interest
Accrual Period and the denominator of which is 360, (y) the Note Rate for the
Class A-1 Notes and (z) the aggregate Note Principal Balance of the Class A-1
Notes outstanding immediately prior to such Payment Date, and for all other
Classes of Notes, the product of (x) one-twelfth of the Note Rate for such
Class of Notes and (y) the aggregate Note Principal Balance of such Class of
Notes outstanding immediately prior to such Payment Date.

          Note Interest: With respect to a Class of Notes and any Collection
Period, the sum of the Note Current Interest and the Overdue Interest for such
Class.

          Note Principal Balance: At any time, with respect to a Class of
Notes, the Initial Note Principal Balance of such Class minus all payments
theretofore received by the Noteholders of such Class on account of principal
(including, without limitation, any amounts released from the Pre-Funding
Account at the end of the Pre-Funding Period as a prepayment of principal on
such Class of Notes). The "Note Principal Balance" with respect to the Class A
Notes is, at any time, the sum of the Note Principal Balances of the Class A-1
Notes, the Class A-2 Notes, the Class A-3 Notes and the Class A-4 Notes.

          Note Rate: With respect to each Class of Notes, the following rates
of interest:

          Class A-1                 %

          Class A-2                 %

          Class A-3                 %

          Class A-4                 %

          Class B-1                 %

          Class B-2                 %

          Class B-3                 %

          Overdue Interest: With respect to a Class of Notes and any Payment
Date, the difference between (a) the sum of (i) the excess, if any, of any Note
Current Interest due on the immediately preceding Payment Date for such Class
over the Note Current Interest paid on such Class on such immediately preceding
Payment Date, (ii) without duplication of the amount described in clause (i),
the amount of the Overdue Interest for such Class due and unpaid as of the
immediately preceding Payment Date and (iii) for the Class A-1 Notes only, the
product of (x) the sum of clauses (i) and (ii), (y) a fraction, the numerator
of which is the actual number of days elapsed in the related Interest Accrual
Period and the denominator of which is 360, and (z) the sum of the Class A-1
Note Rate plus 1%, and (b) any Overdue Interest for Class A-1 paid on such
Payment Date, and for each other Class of Notes, the product of (x) 

                                     S-31

<PAGE>   35

the sum of clauses (i) and (ii) and (y) one-twelfth of the sum of the Note Rate
for such Class plus 1%, and (b) any Overdue Interest for such Class paid on
such Payment Date.

          Overdue Principal: With respect to any Class of Notes and any Payment
Date, the difference, if any, equal to (a) the aggregate of the Base Principal
Distribution Amounts with respect to such Class due on all prior Payment Dates
and (b) the aggregate amount of the principal (from whatever source) actually
distributed to Noteholders of such Class on all prior Payment Dates. The
"Overdue Principal" with respect to the Class A Notes is equal to the sum of
the Overdue Principal for the Class A-1 Notes, the Class A-2 Notes, the Class
A-3 Notes and the Class A-4 Notes.

          Percentage Interest: With respect to a Noteholder and a Class of
Notes on any date of determination, the percentage obtained by dividing the
Note Principal Balance of the Note held by such Noteholder as of the Closing
Date by the related Note Principal Balance of the related Class of Notes as of
the Closing Date.

          Pre-Funding Earnings: With respect to any Payment Date, the actual
investment earnings then on deposit in the Pre-Funding Account.

          Premium Amount: With respect to any Payment Date, the product of (a)
one-twelfth, (b) the Premium Rate and (c) the Class A Note Principal Balance as
of the end of the immediately preceding Collection Period.

          Premium Rate: The insurance premium rate charged by the Note Insurer
to issue the Note Insurance Policy on the Class A Notes.

          Prepayment: With respect to a Collection Period and a Contract
(except a Defaulted Contract), the amount received by the Servicer during such
Collection Period from or on behalf of an Obligor with respect to such Contract
in excess of the sum of (x) the Scheduled Payment and any Final Scheduled
Payment due during such Collection Period, plus (y) the aggregate of any
overdue Scheduled Payments, Initial Unpaid Amounts and unpaid Servicing Charges
for such Contract, so long as such amount is designated by the Obligor as a
prepayment and the Servicer has consented to such prepayment. Defaulted
Contract Recoveries are not Prepayments.

          Prepayment Amount: With respect to a Payment Date and a Contract, an
amount, without duplication, equal to the sum of (i) the Discounted Contract
Principal Balance as of the close of business on the second preceding
Collection Period (without any deduction for any security deposit paid by an
Obligor, unless such security deposit has been deposited in the Collection
Account pursuant to the Indenture); (ii) the product of (x) such Contract's
Discounted Contract Principal Balance as of the immediately preceding Payment
Date and (y) one-twelfth of the Discount Rate; (iii) any Scheduled Payments
theretofore due and not paid by an Obligor; and (iv) any Final Scheduled
Payment due or to become due under the Contract.

          Reimbursement Amount: As of any Payment Date, the sum of (x)(i) all
Insured Payments previously received by the Indenture Trustee from the Note
Insurer and not previously repaid to the Note Insurer pursuant to the Indenture
plus (ii) interest accrued on each such Insured Payment not previously repaid
to the Note Insurer from the date the Indenture Trustee received the related
Insured Payment to, but not including, such Payment Date and (y)(i) any amounts
then due and owing to the Note Insurer under the Insurance Agreement plus (ii)
interest on such amounts.

          Repurchase Amount: With respect to a Payment Date and a Contract, the
sum, without duplication, of (i) the Discounted Contract Principal Balance as
of the close of business on the second 

                                     S-32

<PAGE>   36

preceding Collection Period (without any deduction for any security deposit
paid by an Obligor, unless such security deposit has been deposited in the
Collection Account pursuant to the Indenture); (ii) the product of (x) such
Contract's Discounted Contract Principal Balance as of the beginning of the
immediately preceding Collection Period and (y) one-twelfth of the Discount
Rate; (iii) any Scheduled Payments theretofore due and not paid by an Obligor;
and (iv) any Final Scheduled Payment due or to become due under the Contract.

          Restricting Event: An event which shall occur on a Payment Date on
which (a) an Event of Servicing Termination has occurred under the Servicing
Agreement and is not cured within the grace period set forth in the Servicing
Agreement, (b) a Gross Charge-Off Event exists, or (c) a Delinquency Trigger
Event exists or (d) the Note Insurer makes an Insured Payment.

          Scheduled Payments: With respect to a Payment Date and a Contract,
the periodic payment (exclusive of any amounts in respect of insurance,
warranty extensions, service contracts or taxes, and reflecting any adjustment
for partial Prepayments, and further reflecting the effect of any permitted
modification to such Contract) set forth in such Contract due from the Obligor
in the related Collection Period; provided, however, that with respect to any
Contract as to which First Sierra retained the security deposit, a Scheduled
Payment shall not include the final payment or payments to be made thereon
equal to the amount of such security deposit.

          Substitute Cut-Off Date: With respect to a Substitute Contract, the
close of business on the first day of the calendar month in which the related
Substitute Transfer Date occurs.

          Substitute Transfer Date: Any date on which a Substitute Contract is
pledged pursuant to the Indenture.

          Trust Operating Expenses: With respect to any Payment Date, an amount
equal to the amounts owing to the Servicer, the Note Insurer and the Indenture
Trustee pursuant to the Indenture and payable out of Available Funds in
priority to amounts owing the Noteholders.

WITHHOLDING

          The Indenture Trustee is required to comply with all applicable
federal income tax withholding requirements respecting payments to Noteholders
of interest with respect to the Notes. The consent of Noteholders is not
required for such withholding. In the event the Noteholder is other than The
Depository Trust Company, then in the event that the Indenture Trustee does
withhold or causes to be withheld any amount from interest payments or advances
thereof to any Noteholders pursuant to federal income tax withholding
requirements, the Indenture Trustee shall indicate the amount withheld annually
to such Noteholders.

REPORTS TO NOTEHOLDERS

          On each Payment Date, the Indenture Trustee will furnish or cause to
be furnished with each payment to Noteholders, a statement prepared by the
Servicer setting forth the following information (per $1,000 of Initial Note
Principal Balance as to (a) and (b) below):

          a. With respect to a statement to a Class A Noteholder or a
     Subordinate Noteholder, the amount of such payment allocable to such
     Noteholder's required payment of the Base Principal Amount and Overdue
     Principal;


                                     S-33
<PAGE>   37

          b. With respect to a statement to a Class A Noteholder or a
     Subordinate Noteholder, the amount of such payment allocable to Note
     Current Interest and Overdue Interest;

          c. The aggregate amount of fees and compensation received by the
     Servicer pursuant to the Servicing Agreement for the Collection Period;

          d. The aggregate Note Principal Balance for each Class of Notes, the
     Note Factor for each Class of Notes, the Pool Factor and the Aggregate
     Discounted Contract Principal Balance, after taking into account all
     distributions made on such Payment Date;

          e. The total unreimbursed Servicer Advances with respect to the
     related Collection Period;

          f. The amount of Defaulted Contract Recoveries for the related
     Collection Period and the Aggregate Discounted Contract Principal Balances
     for all Contracts that became Defaulted Contracts during the related
     Collection Period, calculated immediately prior to the time such Contracts
     became Defaulted Contracts; and

          g. The total number of Contracts and the Aggregate Discounted
     Contract Principal Balances thereof, together with the number and
     aggregate Discounted Contract Principal Balances of all Contracts as to
     which the Obligors, as of the related Calculation Date, were one, two,
     three or four Scheduled Payments delinquent, and Delinquent Contracts
     reconveyed.

          Such reports will not constitute financial statements prepared in
accordance with generally accepted accounting principles. The Depositor will
cause to be filed with the Commission such periodic reports as are required
under the Securities Exchange Act of 1934, as amended, and the rules and
regulations thereunder and as are otherwise agreed to by the Commission. Copies
of such periodic reports may be obtained from the Public Reference Section of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates.

          The "Note Factor" of a Class of Notes is the seven digit decimal
number that the Servicer will compute or cause to be computed for each
Collection Period and will make available on the related Determination Date
representing the ratio of (x) the Note Principal Balance for such Class of
Notes which will be outstanding on the next Payment Date (after taking into
account all distributions to be made on such Payment Date) to (y) the Initial
Note Principal Balance of such Class of Notes.

          The "Pool Factor" is the seven digit decimal number that the Servicer
will compute or cause to be computed for each Collection Period and will make
available on the related Determination Date representing the ratio of (x) the
Aggregate Discounted Contract Principal Balance as of the end of the
immediately preceding Collection Period to (y) the Aggregate Discounted
Contract Principal Balance as of the Cut-Off Date.

          In addition, by January 31 of each calendar year following any year
during which the Notes are outstanding, commencing January 31, 2000, the
Indenture Trustee will furnish to each Noteholder of record at any time during
such preceding calendar year, information as to the aggregate of amounts
reported pursuant to items (a) and (b) above for such calendar year to enable
Noteholders to prepare their federal income tax returns.

MANDATORY PREPAYMENTS ON THE NOTES

          Each Class of Notes will be partially prepaid on the Payment Date
immediately following the end of the Pre-Funding


                                     S-34
<PAGE>   38

Period to the extent that any amount remains on deposit in the Pre-Funding
Account on such Payment Date. Although no assurance can be given, it is
anticipated that the principal amount of Subsequent Contracts sold to the Trust
and included in the Trust Assets will require the application of substantially
all of the Original Pre-Funded Amount and that there should be no material
amount of principal prepaid to the Notes from the Pre-Funding Account. However,
it is unlikely that the Sellers will be able to deliver Subsequent Contracts
with an aggregate principal balance identical to the Original Pre-Funded
Amount.

OPTIONAL REDEMPTION

          The Notes may be redeemed in whole by the Trust Certificate Holder on
any Payment Date on which the Aggregate Discounted Contract Principal Balance
is less than 10% of the sum of the Aggregate Discounted Contract Principal
Balance as of the Closing Date plus the aggregate Discounted Contract Principal
Balance of all Subsequent Contracts as of the related Subsequent Cut-Off Date
so long as the Trust Certificate Holder deposits or causes to be deposited in
the Collection Account the Repurchase Amount for each Contract that was not a
Defaulted Contract as of the close of business on the second preceding
Collection Period by two Business Days prior to such Payment Date; it being
understood that any such Defaulted Contracts and any related recoveries shall
remain property of the Trust.

          The Notes may be redeemed in part by the Trust Certificate Holder
with respect to certain Contracts identified in the Indenture on any Payment
Date on which the Aggregate Discounted Contract Principal Balance for such
Contracts is less than 15% of the sum of the Aggregate Discounted Contract
Principal Balance for such Contracts as of the Closing Date plus the Aggregate
Discounted Contract Principal Balance of such Contracts as of the related
Subsequent Cut-Off Date purchased by the Trust during the Pre-Funding Period so
long as the Trust Certificate Holder deposits or causes to be deposited into
the Collection Account the Repurchase Amount for such Contracts that was not a
Defaulted Contract as of the close of business on the second preceding
Collection Period by two Business Days prior to such Payment Date; it being
understood that any such Defaulted Contracts and any related recoveries shall
remain property of the Trust.

                    DESCRIPTION OF THE TRANSACTION DOCUMENTS

          The following summary describes material terms of the Receivables
Transfer Agreement, the Servicing Agreement and the Indenture. The summary does
not purport to be complete. Wherever provisions of the Receivables Transfer
Agreement, the Servicing Agreement and the Indenture are referred to, such
provisions are hereby incorporated herein by reference.

CONVEYANCE OF RECEIVABLES

          On the Closing Date, the Trust will acquire from the Sellers all the
right, title, and interest of the Sellers in and to (a) any security interest
of the Sellers in any of the Original Equipment that is not owned by the
Sellers; (b) the Initial Contracts, including, without limitation, all
Scheduled Payments, Defaulted Contract Recoveries and any other payments due or
made with respect to the Initial Contracts after the Cut-Off Date relating to
such Initial Contracts; (c) any guarantees of an Obligor's obligations under an
Initial Contract; (d) all other documents in the Contract Files relating to the
Initial Contracts, including, without limitation, any UCC financing statements
related to the Initial Contracts or the Original Equipment; (e) any Insurance
Policies and Insurance Proceeds with respect to the Initial Contracts; (f) all
amounts on deposit in the Collection Account; and (g) any and all income and
proceeds 


                                     S-35
<PAGE>   39

of any of the foregoing; provided, however, that the transfer shall not include
the Initial Unpaid Amounts relating thereto.

          Under the Receivables Transfer Agreement, following the initial
issuance of the Notes, the Sellers will be obligated from time to time (but not
more than once during each calendar month unless the Note Insurer consents to
more frequent transfers) to sell to the Trust for inclusion in the Trust Assets
during the period commencing on the Closing Date and ending on the earlier to
occur of (i) the date on which the amount on deposit in the Pre-Funding Account
is less than $100,000, (ii) the date on which an Event of Default or an Event
of Servicing Termination occurs, and (ii) July 22, 1999 (the "Pre-Funding
Period"), subject to the availability thereof, the Subsequent Contracts and a
security interest in the underlying Equipment (the "Subsequent Equipment").
Each Subsequent Contract will have been underwritten in accordance with the
criteria set forth in the prospectus under "First Sierra -- Underwriting
Guidelines." Subsequent Contracts will be transferred to the Trust pursuant to
subsequent transfer agreements (the "Subsequent Transfer Agreements") between
the Sellers and the Trust. In connection with the purchase of Subsequent
Contracts on such dates of transfer (the "Subsequent Transfer Dates"), the
Trust will be required to pay from amounts on deposit in the Pre-Funding
Account a cash purchase price equal to 96.25% of the Aggregate Discounted
Contract Principal Balance of the Subsequent Contracts so transferred as of the
close of the third Business Day prior to the applicable Subsequent Transfer
Date (each a "Subsequent Cut-Off Date"). The amount paid from the Pre-Funding
Account on each Subsequent Transfer Date will not include accrued interest on
the Subsequent Contracts. Following each Subsequent Transfer Date, the
Aggregate Discounted Contract Principal Balance of the Contracts will increase
by an amount equal to the Aggregate Discounted Contract Principal Balance of
the Subsequent Contracts so acquired and the amount in the Pre-Funding Account
will decrease accordingly.

          Any conveyance of Subsequent Contracts on a Subsequent Transfer Date
is subject to certain conditions including, but not limited to, the following:
(a) each such Subsequent Contract must satisfy the representations and
warranties specified in the Servicing Agreement; (b) the Sellers will not
select such Subsequent Contracts in a manner that they reasonably believe is
adverse to the interests of the Noteholders or the Note Insurer; and (c) the
Sellers will deliver to the Indenture Trustee an executed Subsequent Transfer
Agreement.

          The Indenture Trustee will have possession of the Contracts and the
Contract Files, and the Servicer will retain copies of any other documents
which relate to the Receivables, any related evidence of insurance and payment,
and delinquency and related reports maintained by the Servicer in the ordinary
course of business with respect to each Receivable. Prior to transfer of the
Receivables to the Trust, the Servicer will cause its electronic ledger to be
marked to show that such Contracts have been transferred from the Sellers to
the Trust, and the Sellers and the Trust will each file UCC financing
statements reflecting the transfer and assignment of the Receivables in certain
jurisdictions, as required by the Receivables Transfer Agreement and the
Servicing Agreement. See "Certain Legal Aspects of the Receivables" in the
prospectus.

REPRESENTATIONS AND WARRANTIES OF FIRST SIERRA

          First Sierra, as Originator or as Servicer, as the case may be, will
make certain representations and warranties in the Servicing Agreement (as of
the Closing Date with respect to the Initial Contracts, as of the applicable
Subsequent Transfer Date with respect to a Subsequent Contract, and with
respect to a Substitute Contract, as of the date on which the Trust acquires
such Substitute

                                     S-36
<PAGE>   40

Contract (each, a "Substitute Transfer Date")), the benefits of which will be
assigned to the Trust and then to the Indenture Trustee, including that:

o    no provision of any Contract has been waived, altered or modified in any
     respect, except by instrument or documents contained in its Contract File
     and identified by First Sierra and no modification or amendment of any
     Contract would individually or in the aggregate materially and adversely
     affect the Indenture Trustee's rights thereunder or has reduced the amount
     of any Scheduled Payment (or the aggregate Scheduled Payments) owing
     thereunder or extended the expiration date thereof;

o    each Contract is a valid and binding payment obligation of the related
     Obligor and is enforceable in accordance with its terms (except as may be
     limited by applicable insolvency, bankruptcy, moratorium, reorganization,
     or other similar laws affecting enforceability of creditors' rights
     generally and the availability of equitable remedies) and is in full force
     and effect;

o    each Contract contains a "hell or high water" clause under which the
     Obligor's obligations are non-cancelable and unconditional and not subject
     to any right of set-off, defense, abatement, counterclaim, reduction or
     recoupment;

o    no Contract is or will be subject to rights of rescission, set-off,
     counterclaim or defense, and each Contract provides for acceleration of
     the Scheduled Payments upon default by the Obligor;

o    the Contracts, at the time they were made, did not violate the laws of any
     applicable state or of the United States, including, without limitation,
     usury, truth-in-lending and equal credit opportunities laws applicable to
     such Contract;

o    no Contract permits the prepayment or early termination thereof at the
     option of the Obligor for an amount that is less than the Prepayment
     Amount related to such Contract;

o    no Contract provides for the substitution, addition or exchange of any
     item of Equipment which would result in any reduction of payments due
     under such Contract;

o    all of the Contracts require the Obligor to maintain the Equipment in good
     working order, to bear all the costs of operating the Equipment, including
     taxes and insurance relating thereto;

o    the Contract provides for periodic Scheduled Payments, which are
     principally due and payable on a monthly, quarterly, semi-annual, or
     annual basis;

o    in an event of a Casualty Loss, such Contract requires the Obligor, at the
     Obligor's expense, to (a) replace the Equipment with like equipment in
     good repair, or (b) pay the sum of all unpaid rent and other payments due
     under the Contract, all accelerated future payments due under the Contract
     (discounted to present value payoff amount) and the booked residual value
     of the Equipment;

o    under the terms of the Contract the Obligor may not elect to utilize its
     security deposit to offset any Scheduled Payment;

o    if obtained during the original approval, the Contracts provide a personal
     guarantee of the Obligor;

o    all of the Contracts originated by a Source permit the Source to
     accelerate Scheduled Payments if an Obligor is in default under the
     Contract;

o    all the Contracts meet the Originator's credit and collections policies
     and procedures;

o    each Source has entered into valid sale and assignment of each Contract
     originated by such Source;


                                     S-37
<PAGE>   41

o    each Contract conveyed includes only the remaining, in the event the
     Contract does not include all original Scheduled Payments under the
     Contract, non-cancelable Scheduled Payments (provided that such remaining
     Scheduled Payments do not exceed an amount greater than 84);

o    the right, title and interest of the Originator or its affiliates
     including the Sellers in and to each Contract and the security interest of
     the Originator or its affiliates including the Sellers in the related
     Equipment have not been sold, transferred, assigned or pledged by such
     entities to any other Person (or any such pledge has been released as
     evidenced by releases of collateral) and at the time of the conveyance of
     such Contract to the Trust, the Trust will be the sole owner of such
     Contract and the rights thereunder in and to the related Equipment and
     will have good and marketable title to each Contract and will have the
     power to convey such Contract and assign its security interest in the
     related Equipment free and clear of any liens;

o    as of the Closing Date, all action required by the Receivables Transfer
     Agreement and the Servicing Agreement shall have been taken by the
     Originator or its affiliates including the Sellers to convey all of its
     right, title and interest in and to the Contracts and the related
     Equipment to the Trust;

o    all filings (including UCC filings) necessary to evidence the conveyance
     of the Contracts to the Trust and to perfect the first perfected priority
     security interest of the Indenture Trustee in the Contracts and in the
     related Equipment in accordance with the filing requirements of the
     Receivables Transfer Agreement and the Servicing Agreement have been made
     in all appropriate jurisdictions and are in full force and effect;

o    as of the Cut-Off Date, no Obligor will have been released, in whole or in
     part, from any of its obligations in respect of any such Contract; no such
     Contract will have been satisfied, canceled, extended or subordinated, in
     whole or in part, or rescinded, and no Equipment covered by any such
     Contract will have been released from such Contract, in whole or in part,
     nor will any instrument have been executed that would effect any such
     satisfaction, release, cancellation, subordination or rescission; and

o    as of the Initial Cut-Off Date (in each case calculated using the
     statistical discount rate of 6.368%), no one Obligor is the Obligor under
     Contracts for which the sum of the Statistical Discounted Contract
     Principal Balances exceeds $1,750,000, no more than $6,100,000 of the
     Statistical Discounted Contract Principal Balance is attributable to any
     10 Obligors and the average original cost (based on GAAP) of the Equipment
     subject to the Contracts shall not exceed $18,000.

          First Sierra will make similar representations and warranties with
respect to Subsequent Contracts as of the applicable Subsequent Transfer Date
and with respect to Substitute Contracts as of the date of the related transfer
of such Substitute Contracts. Such representations and warranties will survive
the transfer of the Subsequent Contracts and the Substitute Contracts to the
Trust.

          Under the terms of the Servicing Agreement, First Sierra will be
obligated to accept the reconveyance of any Receivables and deposit the
Repurchase Amount on or before the end of the calendar month following the
month of its discovery or receipt of notice of a breach of a representation or
warranty that materially adversely affects such item of Receivables, which
breach has not been cured or waived in all material respects. This obligation
to accept the reconveyance of the Receivables and remit the Repurchase Amount
will constitute the sole remedy against First Sierra available to the
Depositor, the Trust, the Indenture Trustee and the Noteholders for a breach of
a representation or warranty made by First Sierra with respect to the required
characteristics of the Receivables.

INDEMNIFICATION

          The Servicing Agreement will provide that the Servicer will defend
and indemnify the Depositor, First Sierra, the Indenture Trustee, the Owner
Trustee, the Trust, the Note Insurer and the 


                                     S-38
<PAGE>   42

Noteholders against any and all costs, expenses, losses, damages, claims and
liabilities, including reasonable fees and expenses of counsel and expenses of
litigation, reasonably incurred, arising out of or resulting from (i) the use,
repossession or operation by the Servicer or any affiliate thereof of any
Equipment and (ii) (A) the failure of the Servicer to perform its duties under
the Servicing Agreement or (B) in the case of the Indenture Trustee or the
Owner Trustee, the performance of their respective duties, except to the extent
that such cost, expense, loss, damage, claim or liability resulted from the
Indenture Trustee's or the Owner Trustee's respective gross negligence or
willful misconduct. First Sierra's obligations, as Servicer, to indemnify the
Depositor, the Note Insurer, the Indenture Trustee, the Owner Trustee, the
Trust and the Noteholders for acts or omissions of First Sierra as Servicer
will survive the resignation or termination of the Servicer but will not apply
to any acts or omissions of a successor Servicer. Such indemnification does not
extend to indirect, incidental, special or consequential damages.

REMITTANCE AND OTHER SERVICING PROCEDURES

          The Servicer has agreed to manage, administer and service the
Receivables and to enforce and make collections on the Receivables and any
Insurance Policies, exercising the degree of skill and care consistent with
that which the Servicer customarily exercises with respect to similar property
owned, managed or serviced by it.

          The Servicer may grant to an Obligor any rebate, refund or adjustment
that the Servicer in good faith believes is required, because of Prepayment in
full of a Contract. The Servicer may deduct the amount of any such rebate,
refund or adjustment from the amount otherwise payable by the Servicer into the
Collection Account; provided, however, that the Servicer will not permit any
rescission or cancellation of any Contract which would materially impair the
rights of the Trust, the Note Insurer or the Noteholders in the Contracts or
the proceeds thereof, nor will the prepayment price after giving effect to any
such rebate, refund or adjustment (and without any adjustment for any security
deposit previously paid by the Obligor) be less than the Prepayment Amount. The
Servicer may waive, modify or vary any term of a Contract if the Servicer, in
its reasonable and prudent judgment, determines that it will not be materially
adverse to the Noteholders or the Note Insurer. However, the Servicer will
covenant in the Servicing Agreement that (i) it will not forgive any payment of
rent, principal or interest, (ii) unless an Obligor is in default, it will not
permit any modification with respect to a Contract which would defer the
payment of any principal or interest or any Scheduled Payment or change the
final maturity date on any Contract; provided, however, that no change in the
final maturity date of any Contract shall be permitted under any circumstances
if such new maturity date is later than the latest maturity date of any other
Contract then held by the Trust, and (iii) the Servicer may accept Prepayment
in part or in full; provided, further, that (1) in the event of Prepayment in
full, the Servicer may consent to such Prepayment only in an amount not less
than the Prepayment Amount and (2) in the event of a partial Prepayment, the
Servicer may consent to such partial Prepayment only if (x) following such
partial Prepayment there are no delinquent amounts then due from the Obligor
and (y) such partial Prepayment will not reduce the Discounted Contract
Principal Balance by more than an amount equal to (I) the amount of such
partial Prepayment, minus (II) unpaid interest at the Discount Rate, accrued
through the end of the Collection Period immediately following such partial
Prepayment on the outstanding Discounted Contract Principal Balance prior to
such partial Prepayment. In the case of a partial Prepayment, the Servicer is
required to accurately recalculate the Discounted Contract Principal Balance,
and the allocation of Scheduled Payments to principal and interest.



                                     S-39
<PAGE>   43

SERVICING COMPENSATION AND PAYMENT OF EXPENSES

          For its servicing of the Contracts, the Servicer will receive
servicing compensation including the monthly Servicer Fee for each Collection
Period (payable on the next succeeding Payment Date) and Servicing Charges.

          The servicing compensation will compensate the Servicer for customary
equipment contract servicing activities to be performed by the Servicer for the
Trust, additional administrative services performed by the Servicer on behalf
of the Trust and expenses paid by the Servicer on behalf of the Trust.

          The Servicer, as an independent contractor on behalf of the Trust and
for the benefit of the Noteholders and the Note Insurer, will be responsible
for managing, servicing and administering the Receivables and enforcing and
making collections on the Contracts and any Insurance Policies and for
enforcing any security interest in any item of Equipment, all as set forth in
the Servicing Agreement. The Servicer's responsibilities will include
collection and posting of all payments, responding to inquiries of Obligors,
investigating delinquencies, accounting for collections, furnishing monthly and
annual statements to the Indenture Trustee and the Note Insurer with respect to
distributions, making Servicer Advances, providing appropriate federal income
tax information for use in providing information to Noteholders, collecting and
remitting sales and property taxes on behalf of taxing authorities and
maintaining the perfected security interest of the Trust in the Equipment and
the Contracts.

EVIDENCE AS TO COMPLIANCE

          The Servicing Agreement requires that the Servicer cause an
independent accountant (who may also render other services to the Servicer) to
prepare a statement to the Indenture Trustee, the Note Insurer and each Rating
Agency dated not later than April 30, 2000, and annually as of the same month
thereafter, to the effect that the independent accountant has examined the
servicing procedures, manuals, guides and records of the Servicer and the
accounts and records of the Servicer relating to the Receivables and the
Contract Files (which procedures, manuals, guides and records shall be
described in one or more schedules to such statement), that such firm has
compared the information contained in the Monthly Statements delivered in the
relevant period with information contained in the accounts and records for such
period and that, on the basis of such examination and comparison, nothing has
come to the independent accountant's attention to indicate that the Servicer
has not, during the relevant period, serviced the Receivables in compliance
with such servicing procedures, manuals and guides and in the same manner
required by the Servicer's standards and with the same degree of skill and care
consistent with that which the Servicer customarily exercises with respect to
similar property owned by it, that such accounts and records have not been
maintained in accordance with the Servicing Agreement, that the information
contained in the Monthly Statements does not reconcile with the information
contained in the accounts and records or that such certificates, accounts and
records have not been properly prepared and maintained in all material
respects, except in each case for (a) such exceptions as the independent
accountant shall believe to be immaterial and (b) such other exceptions as
shall be set forth in such statement. On or before April 30 of each year,
commencing on April 30, 2000, the Servicer shall deliver to the Indenture
Trustee, the Note Insurer and each Rating Agency a copy of such statement.

          The Servicing Agreement will also provide for annual delivery of a
report (the "Supplementary Report") by the Servicer to the Indenture Trustee
and the Note Insurer not later than 120 days after the end of each fiscal year,
signed by an authorized officer of the Servicer (a "Servicing Officer") on
behalf of the Servicer and dated as of the last day of such fiscal year,
stating that (a) a review 


                                      S-40
<PAGE>   44

of the activities of the Servicer and the Servicer's performance under the
Servicing Agreement for the previous 12-month period has been made under such
Servicing Officer's supervision and (b) nothing has come to such Servicing
Officer's attention to indicate that an Event of Servicing Termination has
occurred, or, if such Event of Servicing Termination has so occurred and is
continuing, specifying each such event known to the officer, the nature and
status thereof and the steps necessary to remedy such event.

          The Servicing Agreement will provide that the Servicer, upon request
of the Indenture Trustee, will furnish to the Indenture Trustee such underlying
data necessary for administration of the Trust or enforcement actions as can be
generated by the Servicer's existing data processing system.

CERTAIN MATTERS RELATING TO THE SERVICER

          The Servicing Agreement will provide that the Servicer may not resign
from its obligations and duties as Servicer thereunder, except upon the consent
of the Note Insurer or a determination that the Servicer's performance of such
duties is no longer permissible under applicable law. The Servicer can only be
removed pursuant to an Event of Servicing Termination as discussed below.

EVENTS OF SERVICING TERMINATION

          An "Event of Servicing Termination" under the Servicing Agreement
will occur (a) (i) if the Servicer fails to make any Servicer Advance or (ii)
if the Servicer fails to make any other payment or deposit required under the
Servicing Agreement within three Business Days but not more than once in any
Collection Period; (b) if the Servicer fails to submit a Monthly Statement,
within three Business Days following knowledge or notice of non-receipt; (c)
(i) if the Servicer fails to observe or perform in any material respect any
other covenant or agreement in the Servicing Agreement or the Notes or (ii) if
any representation or warranty of the Servicer in the Servicing Agreement is
incorrect, and such failure or breach materially and adversely affects the
rights of the Indenture Trustee, the Note Insurer or the Noteholders and
continues unremedied for 30 days after the earlier to occur of (x) written
notice to the Servicer by the Indenture Trustee or to the Indenture Trustee or
the Servicer by the Note Insurer or any Noteholders or (y) the date on which
any Servicing Officer or authorized officer of the Indenture Trustee knows, or
reasonably should have known, of any such failure or breach; (d) upon the
filing of an involuntary petition in bankruptcy or the decree or order of a
court, agency or supervisory authority having jurisdiction over the Servicer
for the appointment of a conservator, receiver, trustee in bankruptcy or
liquidator in any bankruptcy, insolvency or similar proceedings, and the
continuance of any such petition, decree or order undismissed or unstayed and
in effect for a period of 60 consecutive days; (e) upon the voluntary filing of
such petition or assignment for the benefit of creditors, the consent by the
Servicer to any such appointment, the admission in writing by the Servicer of
its inability to pay its debts as they become due or the determination by a
court that the Servicer is generally not paying its debts as they come due; (f)
in the event that the Servicer assigns or attempts to assign its rights and
duties under the Servicing Agreement except as specifically permitted therein;
(g) if there occurs a change of "control" of the Servicer ("control" having the
meaning ascribed to it in the Rules and Regulations under the Securities
Exchange Act of 1934, as amended), unless the Note Insurer has determined that
such change in control does not have a material adverse effect on the interests
of the Note Insurer; or (h) upon the occurrence of any other event specified in
the Insurance Agreement.


                                     S-41
<PAGE>   45

RIGHTS UPON AN EVENT OF SERVICING TERMINATION

          If an Event of Servicing Termination has occurred and is continuing
and has not been waived in writing by the Note Insurer, either the Indenture
Trustee shall at the direction of the Note Insurer or the Majority Holders may
with the consent of the Note Insurer terminate all (but not less than all) of
the Servicer's rights and obligations under the Servicing Agreement. Upon such
termination, the Indenture Trustee or such successor Servicer as may be
appointed in accordance with the procedures set forth in the Servicing
Agreement will succeed to all the responsibilities, duties and liabilities of
the Servicer under the Servicing Agreement; provided, however, that the
Indenture Trustee or the successor Servicer, as the case may be, shall not (i)
assume any obligation to reacquire Receivables by reason of misrepresentations
or breaches of warranties or (ii) be liable for acts, omissions or breaches of
representations or warranties by the Servicer occurring prior to transfer of
the servicing functions. Notwithstanding such termination, the Servicer shall
be entitled to payment of certain amounts payable to it prior to such
termination for services rendered prior to such termination.

EVENTS OF DEFAULT

          Upon the occurrence of an Event of Default, the Indenture Trustee,
upon the direction of the Controlling Parties, shall declare the unpaid
principal amount of all the Notes to be due and payable, together with all
accrued and unpaid interest thereon without presentment, demand, protest or
other notice of any kind, all of which are waived by the Trust. "Events of
Default" wherever used herein means any one of the following events:

          (i) failure to distribute or cause to be distributed to the Indenture
Trustee, for the benefit of the Noteholders, all or part of any payment of
interest due and payable monthly at the applicable Note Rate, as required under
the terms of such Notes or the Indenture; or

          (ii) failure to distribute or cause to be distributed (x) to the
Indenture Trustee, for the benefit of the Noteholders, on any Payment Date an
amount equal to the principal due on the outstanding Notes as of such Payment
Date to the extent that sufficient Available Funds are on deposit in the
Collection Account or (y) on the Maturity Date of a Class of Notes, any
remaining principal owed on such Class of Notes.

          "Controlling Parties" means: (i) with respect to an Event of Default
resulting only from the failure to make a required payment on the Class B-3
Notes, (a) the Majority Holders of the Class B-1 Notes, the Majority Holders of
the Class B-2 Notes and the Majority Holders of the Class B-3 Notes and (b) the
Note Insurer, but if the Note Insurer has defaulted on its obligations under
the Note Insurance Policy and such default is continuing, the Majority Holders
of the Class A Notes; (ii) with respect to an Event of Default resulting only
from the failure to make a required payment on the Class B-2 Notes and the
Class B-3 Notes, (a) the Majority Holders of the Class B-1 Notes and the
Majority Holders of the Class B-2 Notes and (b) the Note Insurer, but if the
Note Insurer has defaulted on its obligations under the Note Insurance Policy
and such default is continuing, the Majority Holders of the Class A Notes;
(iii) with respect to an Event of Default resulting only from the failure to
make a required payment on the Class B-1 Notes, the Class B-2 Notes and the
Class B-3 Notes, (a) the Majority Holders of the Class B-1 Notes and (b) the
Note Insurer, but if the Note Insurer has defaulted on its obligations under
the Note Insurance Policy and such default is continuing, the Majority Holders
of the Class A Notes; and (iv) with respect to an Event of Default resulting
from the failure to make a required payment on the Class A Notes, the Note
Insurer, but if the Note Insurer has defaulted on its obligations under the
Note Insurance Policy and such default is continuing, the Majority Holders of
the Class A Notes.


                                     S-42
<PAGE>   46

          Notwithstanding the foregoing, in the event that an Event of Default
is declared by the Controlling Parties without the consent of the Note Insurer,
during the occurrence and continuation of a default by the Note Insurer under
the Note Insurance Policy, and payments on the Class A Notes are accelerated,
such accelerated payments will not be covered by the Note Insurer under the
Note Insurance Policy and Insured Payments on the Class A Notes shall remain
due and payable by the Note Insurer in accordance with the original terms of
the Note Insurance Policy regardless of any such acceleration of the Class A
Notes.

TERMINATION OF THE TRUST

          The Trust and the Indenture will terminate, (i) at the option of the
Trust Certificate Holder, at any time which is 123 days after the payment to
the Class A Noteholders, the Class B-1 Noteholders, the Class B-2 Noteholders
and the Class B-3 Noteholders of all amounts required to be paid to them
pursuant to the Indenture, reducing the Class A Note Principal Balance, the
Class B-1 Note Principal Balance, the Class B-2 Note Principal Balance and the
Class B-3 Note Principal Balance to zero; or (ii) after the 120th day following
the Maturity Date of the Class A-4 Notes. Upon termination of the Trust and the
reduction of the Class A Note Principal Balance, the Class B-1 Note Principal
Balance, the Class B-2 Note Principal Balance and the Class B-3 Note Principal
Balance to zero and payment of any amounts then owing to the Note Insurer and
the Indenture Trustee, any remaining property then held by the Trust shall be
distributed to the Trust Certificate Holder.

          The respective representations, warranties and indemnities of First
Sierra, the Servicer and the Depositor will survive any termination of the
Trust and the Indenture.

AMENDMENT

          The Transaction Documents may be amended by agreement of the
Indenture Trustee, the Depositor and the Servicer, and where applicable, the
Owner Trustee, at any time, without consent of the Noteholders but with the
consent of the Note Insurer, to cure any ambiguity, upon receipt of an opinion
of counsel to the Servicer that such amendment will not adversely affect in any
respect the interests of any Noteholder.

          The Transaction Documents may also be amended from time to time by
the Indenture Trustee, the Depositor, the Servicer, the Note Insurer, the
Majority Holders and, where applicable, the Owner Trustee for the purpose of
adding any provisions to or changing in any manner or eliminating any of the
provisions of the Transaction Documents or of modifying in any manner the
rights of the Noteholders; provided, however, that no such amendment shall (a)
increase or reduce in any manner the amount of, or accelerate or delay the
timing of, collections of payments on the Receivables or distributions which
are required to be made on any Note without the consent of the holder of such
Note or (b) reduce the aforesaid percentage of Noteholders required to consent
to any amendment, without unanimous consent of the Noteholders.

          The Indenture Trustee is required under the Indenture to furnish
Noteholders and the Rating Agencies with written notice of the substance of any
such amendment to the Indenture promptly upon execution of such amendment.


                                     S-43
<PAGE>   47

                      PREPAYMENT AND YIELD CONSIDERATIONS

          The rate of principal payments on, and the weighted average life of,
the Offered Notes will be directly related to the rate of principal payments on
the underlying Contracts. If purchased at a price other than par, the yield to
maturity will also be affected by the rate of such principal payments and the
amount, if any, distributed from the Pre-Funding Account at the end of the
Pre-Funding Period. The principal payments on such Contracts may be in the form
of scheduled principal payments or liquidations due to default, casualty,
repurchases for breach and the like. Any such payments will result in
distributions to Class A Noteholders of amounts which would otherwise have been
distributed over the remaining term of the Contracts. In general, the rate of
such payments may be influenced by a number of other factors, including general
economic conditions. The rate of payment of principal may also be affected by
any removal of the Contracts from the pool and the deposit of the related
Prepayment Amount or Repurchase Amount into the Collection Account.

          To the extent that the Original Pre-Funded Amount has not been fully
applied to the purchase of Subsequent Contracts by the Trust by the end of the
Pre-Funding Period, the Holders of each Class of Notes will receive on the
first Payment Date following the termination of the Pre-Funding Period a
prepayment of principal in an amount equal to the lesser of (i) a portion of
the Pre-Funded Amount remaining in the Pre-Funding Account and (ii) the
outstanding Principal Balance of such class of Notes.

          The Contracts generally do not provide for the right of the Obligor
to prepay. Under the Servicing Agreement, the Servicer will be permitted to
allow such Prepayments in full or in part, provided that no Prepayment of a
Contract will be allowed in an amount less than the Prepayment Amount.

          The Expected Final Payment Date for the Class A-1 Notes is March 15,
2000, for the Class A-2 Notes is December 15, 2000, for the Class A-3 Notes is
September 15, 2001, for the Class A-4 Notes is January 15, 2004, for the Class
B-1 Notes is January 15, 2004, for the Class B-2 Notes is January 15, 2004 and
for the Class B-3 Notes is January 15, 2004. Such dates are the dates on which
the related Note Principal Balance would be reduced to zero, assuming, among
other things, (i) Prepayments with respect to the Contracts are received at a
rate of 6% CPR and (ii) the Modeling Assumptions (as defined below) apply. The
weighted average life of the Offered Notes is likely to be shorter than would
be the case if payments actually made on the Contracts conformed to the
foregoing assumptions, and the final Payment Dates with respect to the Offered
Notes could occur significantly earlier than such final scheduled Payment Dates
due to defaults and because First Sierra is obligated to repurchase Contracts
in the event of breaches of representations and warranties.

          "Weighted Average Life" refers to the average amount of time from the
date of issuance of a security until each dollar of principal of such security
is repaid to the investor. The weighted average lives of the Offered Notes will
be influenced by the rate at which principal payments (including scheduled
payments and prepayments) on the Contracts are made. Principal payments on
Contracts may be in the form of scheduled amortization or prepayments (for this
purpose, the term "prepayment" includes prepayments and liquidations due to a
default or other dispositions of the Contracts). The weighted average lives of
the Offered Notes will also be influenced by delays associated with realizing
on Defaulted Contracts. The prepayment model used in this prospectus
supplement, the "Conditional Prepayment Rate" or "CPR", represents an assumed
annualized rate of prepayment relative to the then outstanding balance on a
pool of contracts. The CPR assumes that a fraction of the outstanding Contract
Pool is prepaid on each Payment Date, which implies that each Contract in the
Contract Pool is equally likely to prepay. This fraction, expressed as a
percentage, is annualized to arrive at the CPR for the Contract Pool. The CPR
measures prepayments based on the outstanding principal on the previous


                                     S-44
<PAGE>   48

Payment Date. The CPR further assumes that all Contracts are the same size and
amortize at the same rate and that each Contract will be either paid as
scheduled or prepaid in full.

WEIGHTED AVERAGE LIVES OF THE OFFERED NOTES

          For the purpose of the tables below, it is assumed, among other
things, that: (i) the Closing Date for the Notes occurs on April 22, 1999, (ii)
distributions on the Notes are made on the 15th day of each month regardless of
the day on which the Payment Date actually occurs, commencing on May 17, 1999
in accordance with the priorities described herein, (iii) no delinquencies or
defaults in the payment of principal and interest on the Contracts are
experienced, (iv) no Contract is repurchased for breach of a representation and
warranty or otherwise, (v) the Statistical Discount Rate is 6.368% per annum,
(vi) prepayments with respect to the Contracts are received on the last day of
each Collection Period, commencing on May 1, 1999, (vii) no Restricting Event
occurs, (viii) the Class A-1 Note Rate is _____% per annum, the Class A-2 Note
Rate is ____% per annum, the Class A-3 Note Rate is ____% per annum, the Class
A-4 Note Rate is ____% per annum, the Class B-1 Note Rate is ___% per annum,
the Class B-2 Note Rate is ___% per annum and the Class B-3 Note Rate is ____%
per annum, (ix) the Servicer Fee is 0.50% per annum, (x) the Contract pool
consists of two contracts, the initial contract with a Discounted Contract
Principal Balance equal to $226,404,326 and a second contract (the Original
Pre-Funded Amount) equal to $56,510,081, (xi) Scheduled Payments on such
contract are timely received, (xii) during the Pre-Funding Period, Subsequent
Contracts are transferred to the Trust in a single transfer, having a purchase
price of 96.25% of the aggregate Discounted Contract Principal Balance of the
Subsequent Contracts so transferred as of the related Subsequent Cut-Off Date
and having a purchase price equal to the Original Pre-Funded Amount, with a
term equal to 60 months, and (xiii) the option to redeem when the Aggregate
Discounted Contract Principal Balance on any Payment Date is less than 10% of
the Aggregate Discounted Contract Principal Balance as of the Closing Date is
exercised (collectively, the "Modeling Assumptions").

          Since the tables were prepared on the basis of the Modeling
Assumptions, there are discrepancies between the characteristics of the actual
Contracts and the characteristics of the Contracts assumed in preparing the
tables. Any such discrepancies may have an effect upon the percentages of the
Initial Note Principal Balance for the Offered Notes outstanding and the
weighted average lives of the Offered Notes set forth in the tables. In
addition, since the actual Contracts in the Trust have characteristics which
differ from those assumed in preparing the tables set forth below, the related
weighted average life may be longer or shorter than as indicated in the tables.

          The following tables set forth the percentages of the initial
principal amount of the Class A-1 Notes, the Class A-2 Notes, the Class A-3
Notes and the Class A-4 Notes that would be outstanding after each of the dates
shown, assuming a CPR of 0%, 3%, 6% and 9%, respectively.

                                     S-45
<PAGE>   49

                           PERCENTAGE OF INITIAL NOTE
                         PRINCIPAL BALANCE OUTSTANDING

                                CLASS A-1 NOTES

                             Prepayment Speed (CPR)
<TABLE>
<S>                            <C>          <C>          <C>          <C>
Payment Date                        0%           3%           6%           9%
                           ----------   ----------   ----------   ----------
Closing Date                   100.00%      100.00%      100.00%      100.00%
May 15, 1999                    92.69%       91.93%       91.15%       90.35%
June 15, 1999                   85.28%       83.80%       82.29%       80.74%
July 15, 1999                   77.35%       75.20%       73.00%       70.75%
August 15, 1999                 68.59%       65.61%       62.58%       59.47%
September 15, 1999              59.95%       56.20%       52.37%       48.47%
October 15, 1999                51.25%       46.76%       42.19%       37.55%
November 15, 1999               42.34%       37.16%       31.91%       26.59%
December 15, 1999               33.65%       27.83%       21.94%       15.98%
January 15, 2000                25.10%       18.68%       12.20%        5.66%
February 15, 2000               16.31%        9.34%        2.32%        0.00%
March 15, 2000                   7.90%        0.41%        0.00%        0.00%
April 15, 2000                   0.00%        0.00%        0.00%        0.00%

Weighted Average Life
    (years) to 10% Call          0.53         0.49         0.46         0.43
Weighted Average Life
    (years) to Maturity          0.53         0.49         0.46         0.43
</TABLE>


                                     S-46

<PAGE>   50

                           PERCENTAGE OF INITIAL NOTE
                         PRINCIPAL BALANCE OUTSTANDING
                                CLASS A-2 NOTES

                             Prepayment Speed (CPR)
<TABLE>
<S>                            <C>          <C>          <C>          <C>
Payment Date                        0%           3%           6%           9%
                           ----------   ----------   ----------   ----------
Closing Date                   100.00%      100.00%      100.00%      100.00%
May 15, 1999                   100.00%      100.00%      100.00%      100.00%
June 15, 1999                  100.00%      100.00%      100.00%      100.00%
July 15, 1999                  100.00%      100.00%      100.00%      100.00%
August 15, 1999                100.00%      100.00%      100.00%      100.00%
September 15, 1999             100.00%      100.00%      100.00%      100.00%
October 15, 1999               100.00%      100.00%      100.00%      100.00%
November 15, 1999              100.00%      100.00%      100.00%      100.00%
December 15, 1999              100.00%      100.00%      100.00%      100.00%
January 15, 2000               100.00%      100.00%      100.00%      100.00%
February 15, 2000              100.00%      100.00%      100.00%       94.15%
March 15, 2000                 100.00%      100.00%       91.22%       81.90%
April 15, 2000                  99.32%       89.49%       79.65%       69.79%
May 15, 2000                    88.80%       78.45%       68.11%       57.77%
June 15, 2000                   78.28%       67.46%       56.67%       45.92%
July 15, 2000                   67.74%       56.50%       45.33%       34.22%
August 15, 2000                 57.29%       45.68%       34.17%       22.76%
September 15, 2000              46.96%       35.02%       23.22%       11.56%
October 15, 2000                36.73%       24.53%       12.49%        0.62%
November 15, 2000               26.35%       13.93%        1.72%        0.00%
December 15, 2000               16.38%        3.78%        0.00%        0.00%
January 15, 2001                 6.66%        0.00%        0.00%        0.00%
February 15, 2001                0.00%        0.00%        0.00%        0.00%

Weighted Average Life
    (years) to 10% Call          1.42         1.33         1.24         1.16
Weighted Average Life
    (years) to Maturity          1.42         1.33         1.24         1.16
</TABLE>

                                     S-47

<PAGE>   51

                           PERCENTAGE OF INITIAL NOTE
                         PRINCIPAL BALANCE OUTSTANDING

                                CLASS A-3 NOTES

                             Prepayment Speed (CPR)
<TABLE>
<S>                        <C>          <C>          <C>          <C>    
Payment Date                        0%           3%           6%           9%
                           ----------   ----------   ----------   ----------
Closing Date                   100.00%      100.00%      100.00%      100.00%
May 15, 1999                   100.00%      100.00%      100.00%      100.00%
June 15, 1999                  100.00%      100.00%      100.00%      100.00%
July 15, 1999                  100.00%      100.00%      100.00%      100.00%
August 15, 1999                100.00%      100.00%      100.00%      100.00%
September 15, 1999             100.00%      100.00%      100.00%      100.00%
October 15, 1999               100.00%      100.00%      100.00%      100.00%
November 15, 1999              100.00%      100.00%      100.00%      100.00%
December 15, 1999              100.00%      100.00%      100.00%      100.00%
January 15, 2000               100.00%      100.00%      100.00%      100.00%
February 15, 2000              100.00%      100.00%      100.00%      100.00%
March 15, 2000                 100.00%      100.00%      100.00%      100.00%
April 15, 2000                 100.00%      100.00%      100.00%      100.00%
May 15, 2000                   100.00%      100.00%      100.00%      100.00%
June 15, 2000                  100.00%      100.00%      100.00%      100.00%
July 15, 2000                  100.00%      100.00%      100.00%      100.00%
August 15, 2000                100.00%      100.00%      100.00%      100.00%
September 15, 2000             100.00%      100.00%      100.00%      100.00%
October 15, 2000               100.00%      100.00%      100.00%      100.00%
November 15, 2000              100.00%      100.00%      100.00%       87.73%
December 15, 2000              100.00%      100.00%       89.77%       75.32%
January 15, 2001               100.00%       92.75%       77.88%       63.34%
February 15, 2001               96.75%       81.43%       66.47%       51.87%
March 15, 2001                  85.88%       70.46%       55.44%       40.82%
April 15, 2001                  75.19%       59.71%       44.67%       30.08%
May 15, 2001                    64.56%       49.07%       34.07%       19.54%
June 15, 2001                   54.04%       38.59%       23.66%        9.24%
July 15, 2001                   43.67%       28.30%       13.48%        0.00%
August 15, 2001                 33.41%       18.17%        3.50%        0.00%
September 15, 2001              23.30%        8.22%        0.00%        0.00%
October 15, 2001                13.38%        0.00%        0.00%        0.00%
November 15, 2001                3.58%        0.00%        0.00%        0.00%
December 15, 2001                0.00%        0.00%        0.00%        0.00%

                           ----------   ----------   ----------   ----------
Weighted Average Life                                               
  (years) to 10% Call            2.23         2.10         1.99         1.88
Weighted Average Life                                               
  (years) to Maturity            2.23         2.10         1.99         1.88
</TABLE>


                                     S-48
<PAGE>   52

                           PERCENTAGE OF INITIAL NOTE
                         PRINCIPAL BALANCE OUTSTANDING

                                CLASS A-4 NOTES

                             Prepayment Speed (CPR)
<TABLE>
<S>                        <C>          <C>          <C>          <C>    
Payment Date                        0%           3%           6%           9%
                           ----------   ----------   ----------   ----------
Closing Date                   100.00%      100.00%      100.00%      100.00%
May 15, 1999                   100.00%      100.00%      100.00%      100.00%
June 15, 1999                  100.00%      100.00%      100.00%      100.00%
July 15, 1999                  100.00%      100.00%      100.00%      100.00%
August 15, 1999                100.00%      100.00%      100.00%      100.00%
September 15, 1999             100.00%      100.00%      100.00%      100.00%
October 15, 1999               100.00%      100.00%      100.00%      100.00%
November 15, 1999              100.00%      100.00%      100.00%      100.00%
December 15, 1999              100.00%      100.00%      100.00%      100.00%
January 15, 2000               100.00%      100.00%      100.00%      100.00%
February 15, 2000              100.00%      100.00%      100.00%      100.00%
March 15, 2000                 100.00%      100.00%      100.00%      100.00%
April 15, 2000                 100.00%      100.00%      100.00%      100.00%
May 15, 2000                   100.00%      100.00%      100.00%      100.00%
June 15, 2000                  100.00%      100.00%      100.00%      100.00%
July 15, 2000                  100.00%      100.00%      100.00%      100.00%
August 15, 2000                100.00%      100.00%      100.00%      100.00%
September 15, 2000             100.00%      100.00%      100.00%      100.00%
October 15, 2000               100.00%      100.00%      100.00%      100.00%
November 15, 2000              100.00%      100.00%      100.00%      100.00%
December 15, 2000              100.00%      100.00%      100.00%      100.00%
January 15, 2001               100.00%      100.00%      100.00%      100.00%
February 15, 2001              100.00%      100.00%      100.00%      100.00%
March 15, 2001                 100.00%      100.00%      100.00%      100.00%
April 15, 2001                 100.00%      100.00%      100.00%      100.00%
May 15, 2001                   100.00%      100.00%      100.00%      100.00%
June 15, 2001                  100.00%      100.00%      100.00%      100.00%
July 15, 2001                  100.00%      100.00%      100.00%       99.55%
August 15, 2001                100.00%      100.00%      100.00%       93.95%
September 15, 2001             100.00%      100.00%       96.43%       88.50%
October 15, 2001               100.00%       99.14%       91.00%       83.22%
November 15, 2001              100.00%       93.67%       85.68%       78.06%
December 15, 2001               96.71%       88.48%       80.64%       73.19%
January 15, 2002                91.67%       83.58%       75.90%       68.61%
February 15, 2002               86.89%       78.95%       71.42%       64.31%
March 15, 2002                  82.35%       74.55%       67.18%       60.24%
April 15, 2002                  77.89%       70.25%       63.06%       56.29%
May 15, 2002                    73.47%       66.02%       59.01%       52.44%
June 15, 2002                   69.09%       61.83%       55.03%       48.66%
July 15, 2002                   64.69%       57.65%       51.07%       44.93%
August 15, 2002                 60.36%       53.56%       47.21%       41.30%
</TABLE>


                                     S-49
<PAGE>   53

<TABLE>
<S>                        <C>          <C>          <C>          <C>    
Payment Date                        0%           3%           6%           9%
                           ----------   ----------   ----------   ----------
September 15, 2002              56.11%       49.56%       43.45%       37.79%
October 15, 2002                51.92%       45.62%       39.78%       34.36%
November 15, 2002               47.76%       41.74%       36.17%       31.02%
December 15, 2002               43.81%       38.06%       32.75%       27.86%
January 15, 2003                39.98%       34.51%       29.47%       24.84%
February 15, 2003               36.35%       31.15%       26.38%       22.00%
March 15, 2003                  32.88%       27.96%       23.45%        0.00%
April 15, 2003                  29.51%       24.87%       20.62%        0.00%
May 15, 2003                    26.20%       21.84%        0.00%        0.00%
June 15, 2003                   22.99%        0.00%        0.00%        0.00%
July 15, 2003                    0.00%        0.00%        0.00%        0.00%
                           ----------   ----------   ----------   ----------
Weighted Average Life 
 (years) to 10% Call             3.56         3.43         3.31         3.17
Weighted Average Life 
 (years) to Maturity             3.62         3.49         3.37         3.25
</TABLE>

          The Contracts will not have the characteristics assumed above, and
there can be no assurance that (i) the Contracts will prepay at any of the
rates shown in the tables or at any other particular rate or will prepay
proportionately or (ii) the weighted average lives of the Offered Notes will be
as calculated above. Because the rate of distributions of principal of the
Offered Notes will be a result of the actual amortization (including
prepayments) of the Contracts, which will include Contracts that have remaining
terms to stated maturity shorter or longer than those assumed, the weighted
average lives of the Offered Notes will differ from those set forth above, even
if all of the Contracts prepay at the indicated constant prepayment rates.

          The effective yield to the Offered Noteholders will depend upon,
among other things, the price at which such Offered Notes are purchased, and
the amount of and rate at which principal, including both scheduled and
unscheduled payments thereof, is paid to the Offered Noteholders. See "Risk
Factors" in the prospectus.

          Due to the subordination provisions applicable to the Notes, it is
likely that the Note Principal Balance of the Class A Notes will amortize more
rapidly than will the Initial Aggregate Discounted Contract Principal Balance.
See "Summary of Terms -- Subordination Provisions" and "Description of Notes --
Flow of Funds" in this prospectus supplement.

          The preceding tables are prepared utilizing the following expected
cash flows of the Initial Contracts.


                                     S-50

<PAGE>   54

                              COLLATERAL CASH FLOW

<TABLE>
<CAPTION>
  Collection Period           Scheduled Cash Flow      Collection Period               Scheduled Cash Flow
  -----------------           -------------------      -----------------               -------------------
<S>                           <C>                      <C>                             <C>
  April 1999                  $     6,603,936.90       November 2002                   $    2,653,469.05
  May 1999                          6,647,506.33       December 2002                        2,525,201.77
  June 1999                         6,999,036.41       January 2003                         2,336,827.89
  July 1999                         6,783,235.71       February 2003                        2,168,991.53
  August 1999                       6,654,964.51       March 2003                           2,073,322.02
  September 1999                    6,672,778.78       April 2003                           2,006,837.30
  October 1999                      6,791,126.91       May 2003                             1,897,042.78
  November 1999                     6,593,190.61       June 2003                            1,853,111.05
  December 1999                     6,451,084.23       July 2003                            1,825,286.83
  January 2000                      6,599,495.87       August 2003                          1,789,405.02
  February 2000                     6,290,330.28       September 2003                       1,724,003.75
  March 2000                        6,281,192.51       October 2003                         1,682,582.96
  April 2000                        6,295,566.64       November 2003                        1,333,643.49
  May 2000                          6,266,364.98       December 2003                        1,119,692.99
  June 2000                         6,244,668.13       January 2004                           822,685.82
  July 2000                         6,160,789.27       February 2004                          624,357.85
  August 2000                       6,055,371.97       March 2004                             417,570.46
  September 2000                    5,955,293.56       April 2004                             372,552.26
  October 2000                      6,017,946.62       May 2004                               337,280.30
  November 2000                     5,740,507.73       June 2004                              336,347.76
  December 2000                     5,559,202.14       July 2004                              338,620.96
  January 2001                      5,328,090.23       August 2004                            323,199.88
  February 2001                     5,139,136.56       September 2004                         311,346.36
  March 2001                        5,024,699.13       October 2004                           297,924.24
  April 2001                        4,963,195.36       November 2004                          284,889.46
  May 2001                          4,879,133.45       December 2004                          264,907.29
  June 2001                         4,773,716.35       January 2005                           242,815.94
  July 2001                         4,691,978.82       February 2005                          176,415.40
  August 2001                       4,590,318.73       March 2005                             166,262.20
  September 2001                    4,470,634.81       April 2005                             162,901.82
  October 2001                      4,381,281.22       May 2005                               129,266.60
  November 2001                     4,122,278.09       June 2005                              126,609.75
  December 2001                     3,838,437.79       July 2005                               81,774.83
  January 2002                      3,580,692.59       August 2005                             78,219.18
  February 2002                     3,357,642.36       September 2005                          77,170.05
  March 2002                        3,262,471.20       October 2005                            77,950.80
  April 2002                        3,197,747.33       November 2005                           81,112.38
  May 2002                          3,150,650.34       December 2005                           29,924.68
  June 2002                         3,146,907.10       January 2006                            36,860.35
  July 2002                         3,062,993.90       February 2006                           13,105.01
  August 2002                       2,971,058.15       March 2006                             193,001.61
  September 2002                    2,900,590.35
  October 2002                      2,854,091.06
</TABLE>

                                     S-51

<PAGE>   55

                           THE NOTE INSURANCE POLICY
                              AND THE NOTE INSURER

          The following information has been supplied by MBIA Insurance
Corporation (the "Note Insurer") for inclusion in this Prospectus Supplement.
The Note Insurer does not accept any responsibility for the accuracy or
completeness of the prospectus or this prospectus supplement or any information
or disclosure contained therein or herein, or omitted therefrom or heretofrom,
other than with respect to the accuracy of the information herein regarding the
Note Insurance Policy and Note Insurer set forth under the heading "The Note
Insurance Policy and the Note Insurer." Additionally, the Note Insurer makes no
representation regarding the Notes or the advisability of investing in the
Notes.

THE POLICY

          The Note Insurer, in consideration of the payment of the premium and
subject to the terms of the Note Insurance Policy, thereby unconditionally and
irrevocably guarantees to any Owner (as described below) that an amount equal
to each full and complete Insured Payment (as described below) will be received
by the Indenture Trustee, or its successor, as trustee for the Owners, on
behalf of the Owners from the Note Insurer for distribution by the Indenture
Trustee to each Owner of each Owner's proportionate share of the Insured
Payment. The Note Insurer's obligations under the Note Insurance Policy with
respect to a particular Insured Payment shall be discharged to the extent funds
equal to the applicable Insured Payment are received by the Indenture Trustee,
whether or not such funds are properly applied by the Indenture Trustee.
Insured Payments shall be made only at the time set forth in the Note Insurance
Policy and no accelerated Insured Payments shall be made regardless of any
acceleration of the Class A Notes, unless such acceleration is at the sole
option of the Note Insurer.

          Notwithstanding the foregoing paragraph, the Note Insurance Policy
does not cover shortfalls, if any, attributable to the liability of the Trust
or the Indenture Trustee for withholding taxes, if any (including interest and
penalties in respect of any such liability).

          The Note Insurer will pay any Insured Payment that is a Preference
Amount (as described below) on the Business Day (as described below) following
receipt on a Business Day by the Fiscal Agent (as described below) of:

          o a certified copy of the order requiring the return of a preference
     payment;

          o an opinion of counsel satisfactory to the Note Insurer that such
     order is final and not subject to appeal;

          o an assignment in such form as is reasonably required by the Note
     Insurer, irrevocably assigning to the Note Insurer all rights and claims
     of the Owner relating to or arising under the Class A Notes against the
     debtor which made such preference payment or otherwise with respect to
     such preference payment; and

          o appropriate instruments to effect the appointment of the Note
     Insurer as agent for such Owner in any legal proceeding related to such
     preference payment, such instruments being in a form satisfactory to the
     Note Insurer;

provided that if such documents are received after 12:00 noon New York City
time on such Business Day, they will be deemed to be received on the following
Business Day. Such payments shall be disbursed to the receiver or trustee in
bankruptcy named in the final order of the court exercising jurisdiction on
behalf of the Owner and not to any Owner directly unless such Owner has
returned principal or interest paid on


                                     S-52
<PAGE>   56

the Class A Notes to such receiver or trustee in bankruptcy, in which case such
payment shall be disbursed to such Owner.

          The Note Insurer will pay any other amount payable under the Note
Insurance Policy no later than 12:00 noon New York City time on the later of
the Payment Date on which the related Deficiency Amount is due or the second
Business Day following receipt in New York, New York on a Business Day by State
Street Bank and Trust Company, N.A. as Fiscal Agent for the Note Insurer or any
successor fiscal agent appointed by the Note Insurer (the "Fiscal Agent") of a
Notice (as described below); provided that if such Notice is received after
12:00 noon New York City time on such Business Day, it will be deemed to be
received on the following Business Day. If any such Notice received by the
Fiscal Agent is not in proper form or is otherwise insufficient for the purpose
of making a claim under the Note Insurance Policy it shall be deemed not to
have been received by the Fiscal Agent for purposes of this paragraph, and the
Note Insurer or the Fiscal Agent, as the case may be, shall promptly so advise
the Indenture Trustee and the Indenture Trustee may submit an amended Notice.

          Insured Payments due under the Note Insurance Policy unless otherwise
stated therein will be disbursed by the Fiscal Agent to the Indenture Trustee
on behalf of the Owners by wire transfer of immediately available funds in the
amount of the Insured Payment less, in respect of Insured Payments related to
Preference Amounts, any amount held by the Indenture Trustee for the payment of
such Insured Payment and legally available therefor.

          The Fiscal Agent is the agent of the Note Insurer only and the Fiscal
Agent shall in no event be liable to Owners for any acts of the Fiscal Agent or
any failure of the Note Insurer to deposit or cause to be deposited, sufficient
funds to make payments due under the Note Insurance Policy.

          Subject to the terms of the Indenture, the Note Insurer shall be
subrogated to the rights of each Owner to receive payments under the Class A
Notes to the extent of any payment by the Note Insurer under the Note Insurance
Policy.

          As used in the Note Insurance Policy, the following terms shall have
the following meanings:

          "Business Day" means any day other than a Saturday, a Sunday or a day
     on which the Note Insurer and banking institutions in New York City or in
     the city in which the corporate trust office of the Indenture Trustee is
     located are authorized or obligated by law or executive order to close.

          "Deficiency Amount" means, as of any Payment Date, the Available
     Funds Shortfall.

          "Insured Payment" means (i) as of any Payment Date, any Deficiency
     Amount and (ii) any Preference Amount.

          "Notice" means the telephonic or telegraphic notice, promptly
     confirmed in writing by telecopy substantially in the form of the exhibit
     attached to the Note Insurance Policy, the original of which is
     subsequently delivered by registered or certified mail, from the Indenture
     Trustee specifying the related Insured Payment which shall be due and
     owing on the applicable Payment Date.

          "Owner" means each holder of a Class A Note (other than the
     Depositor, the Servicer or any subservicer) who, on the applicable Payment
     Date, is entitled under the terms of the applicable Class A Note, to
     payment thereunder.


                                     S-53
<PAGE>   57

          "Preference Amount" means any amount previously distributed to an
     Owner on the Class A Notes that is recoverable and sought to be recovered
     as a avoidable preference by a trustee in bankruptcy pursuant to the
     United States Bankruptcy Code (11 U.S.C. ss. 101 et seq.), as amended from
     time to time (the "Bankruptcy Code"), in accordance with a final
     nonappealable order of a court having competent jurisdiction.

          Capitalized terms used in the Note Insurance Policy and not otherwise
defined therein will have the respective meanings set forth in the Indenture as
of the date of execution of the Note Insurance Policy, without giving effect to
any subsequent amendment or modification to the Indenture unless such amendment
or modification has been approved in writing by the Note Insurer.

          Any notice under the Note Insurance Policy or service of process on
the Fiscal Agent of the Note Insurer may be made at the address listed below
for the Fiscal Agent of the Note Insurer or such other address as the Note
Insurer shall specify in writing to the Indenture Trustee.

          The notice address of the Fiscal Agent is 61 Broadway, 15th Floor,
New York, New York, 10006, Attention: Municipal Registrar and Paying Agency, or
such other address as the Fiscal Agent shall specify to the Indenture Trustee
in writing.

          The Note Insurance Policy is being issued under and pursuant to, and
shall be construed under, the laws of the State of New York, without giving
effect to the conflict of laws principles thereof.

          The insurance provided by the Note Insurance Policy is not covered by
the Property/Casualty Insurance Security Fund specified in Article 76 of the
New York Insurance Law.

          The Note Insurance Policy is not cancelable for any reason. The
premium on the Note Insurance Policy is not refundable for any reason including
payment, or provision being made for payment, prior to the maturity of the
Class A Notes.

THE NOTE INSURER

          The Note Insurer is the principal operating subsidiary of MBIA Inc.,
a New York Stock Exchange listed company ("MBIA Inc."). MBIA Inc. is not
obligated to pay the debts of or claims against the Note Insurer. The Note
Insurer is domiciled in the State of New York and licensed to do business in
and is subject to regulation under the laws of all 50 states, the District of
Columbia, the Commonwealth of Puerto Rico, the Commonwealth of the Northern
Mariana Islands, the Virgin Islands of the United States and the Territory of
Guam. The Note Insurer has two European branches, one in the Republic of France
and the other in the Kingdom of Spain. New York has laws prescribing minimum
capital requirements, limiting classes and concentrations of investments and
requiring the approval of policy rates and forms. State laws also regulate the
amount of both the aggregate and individual risks that may be insured, the
payment of dividends by the Note Insurer, changes in control and transactions
among affiliates. Additionally, the Note Insurer is required to maintain
contingency reserves on its liabilities in certain amounts and for certain
periods of time.

THE NOTE INSURER FINANCIAL INFORMATION

          The consolidated financial statements of the Note Insurer, a wholly
owned subsidiary of MBIA Inc., and its subsidiaries as of December 31, 1998 and
December 31, 1997 and for each of the three years in the period ended December
31, 1998, prepared in accordance with generally accepted accounting principles,
included in the Annual Report on Form 10-K of MBIA Inc. for the year ended
December 31, 1998 are hereby incorporated by reference into this prospectus
supplement and shall be 




                                      S-54
<PAGE>   58

deemed to be a part hereof. Any statement contained in a document incorporated
by reference herein shall be modified or superseded for purposes of this
prospectus supplement to the extent that a statement contained herein or in any
other subsequently filed document which also is incorporated by reference
herein modifies or supersedes such statement. Any statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this prospectus supplement.

          All financial statements of the Note Insurer and its subsidiaries
included in documents filed by MBIA Inc. pursuant to Section 13(a), 13(c), 14
or 15(d) of the Securities Exchange Act of 1934, as amended, subsequent to the
date of this prospectus supplement and prior to the termination of the offering
of the Class A Notes shall be deemed to be incorporated by reference into this
prospectus supplement and to be a part hereof from the respective dates of
filing such documents.

          The tables below present selected financial information of the Note
Insurer determined in accordance with statutory accounting practices prescribed
or permitted by insurance regulatory authorities ("SAP") and generally accepted
accounting principles ("GAAP"):


<TABLE>
<CAPTION>
                                                SAP
                           --------------------------------------------
                           December 31, 1997          December 31, 1998
                           --------------------------------------------
                               (Audited)                  (Audited)
                                          (In millions)
<S>                         <C>                        <C>   
 Admitted Assets                $5,256                     $6,521
 Liabilities                     3,496                      4,231
 Capital and Surplus             1,760                      2,290
</TABLE>

<TABLE>
<CAPTION>
                                                SAP
                           --------------------------------------------
                           December 31, 1997          December 31, 1998
                           --------------------------------------------
                               (Audited)                  (Audited)
                                          (In millions)
<S>                         <C>                        <C>   
 Assets                         $5,988                     $7,488
 Liabilities                     2,624                      3,211
 Shareholder's Equity            3,364                      4,277
</TABLE>

WHERE YOU CAN OBTAIN ADDITIONAL INFORMATION ABOUT THE NOTE INSURER

          Copies of the financial statements of the Note Insurer incorporated
by reference herein and copies of the Note Insurer's 1998 year-end audited
financial statements prepared in accordance with statutory accounting practices
are available, without charge, from the Note Insurer. The address of the Note
Insurer is 113 King Street, Armonk, New York 10504. The telephone number of the
Note Insurer is (914) 273-4545.

YEAR 2000 READINESS DISCLOSURE

          MBIA Inc. is actively managing a high-priority Year 2000 ("Y2K")
program. The Note Insurer has established an independent Y2K testing lab in its
Armonk headquarters, with a committee of 




                                      S-55
<PAGE>   59

business unit managers overseeing the project. The Note Insurer has a budget of
$1.13 million for its 1998-2000 Y2K efforts. Expenditures are proceeding as
anticipated, and the Note Insurer does not expect the project budget to
materially exceed this amount. The Note Insurer has initiated a comprehensive
Y2K plan that includes assessment, remediation, testing and contingency
planning. This plan covers "mission-critical" internally developed systems,
vendor software, hardware and certain third-party entities through which the
Note Insurer conducts its business. Testing to date indicates that functions
critical to the financial guarantee business, both domestic and international,
were Y2K ready as of December 31, 1998. Additional testing will continue
throughout 1999.

FINANCIAL STRENGTH RATINGS OF THE NOTE INSURER

          Moody's Investors Service, Inc. rates the financial strength of the
Note Insurer "Aaa."

          Standard & Poor's Ratings Services, a division of The McGraw-Hill
Companies, Inc. rates the financial strength of the Note Insurer "AAA."

          Fitch IBCA, Inc. (formerly known as Fitch Investors Service, L.P.)
rates the financial strength of the Note Insurer "AAA."

          Each rating of the Note Insurer should be evaluated independently.
The ratings reflect the respective rating agency's current assessment of the
creditworthiness of the Note Insurer and its ability to pay claims on its
policies of insurance. Any further explanation as to the significance of the
above ratings may be obtained only from the applicable rating agency.

          The above ratings are not recommendations to buy, sell or hold the
Class A Notes, and such ratings may be subject to revision or withdrawal at any
time by the rating agencies. Any downward revision or withdrawal of any of the
above ratings may have an adverse effect on the market price of the Class A
Notes. The Note Insurer does not guaranty the market price of the Class A Notes
nor does it guaranty that the ratings on the Class A Notes will not be revised
or withdrawn.

                    MATERIAL FEDERAL INCOME TAX CONSEQUENCES

          In the opinion of Dewey Ballantine LLP, tax counsel to the Trust
("Tax Counsel"), the material federal income tax considerations to investors of
the purchase, ownership and disposition of the securities offered hereby are
described below. Tax Counsel's opinion is based upon laws, regulations, rulings
and decisions now in effect, all of which are subject to change. Tax Counsel's
opinion does not purport to deal with all federal tax considerations applicable
to all categories of investors. This discussion does not address all aspects of
federal income taxation that may be important to a holder in light of such
holder's particular circumstances or to holders subject to special rules, such
as holders who are not citizens or residents of the United States, financial
institutions, tax-exempt organizations, insurance companies, dealers or brokers
in securities, holders who held their stock as part of a hedge, appreciated
financial position, straddle or conversion transaction. Moreover, the
discussion assumes that the holders will hold their Notes as capital assets. It
is recommended that investors consult their own tax advisors in determining the
federal, state, local and any other tax consequences to them of the purchase,
ownership and disposition of the securities.




                                      S-56
<PAGE>   60

TAX CHARACTERIZATION OF THE TRUST

          Tax Counsel is of the opinion that, assuming compliance with the
terms of the Trust Agreement and related documents, the Trust will not be an
association (or publicly traded partnership) taxable as a corporation for
federal income tax purposes.

TAX CONSEQUENCES TO HOLDERS OF THE NOTES

          Treatment of the Notes as Indebtedness. The parties to the
transaction agree, and the Noteholders will agree by their purchase of Offered
Notes, to treat the Offered Notes as debt for all federal, state and local
income tax purposes. There are no regulations, published rulings or judicial
decisions involving the characterization for federal income tax purposes of
securities with terms substantially the same as the Offered Notes. Whether
instruments such as the Offered Notes constitute indebtedness for federal
income tax purposes is a question of fact, the resolution of which is based
primarily upon the economic substance of the instruments and the transaction
pursuant to which they are issued rather than merely upon the form of the
transaction or the manner in which the instruments are labeled. The Internal
Revenue Service (the "IRS") and the courts have set forth various factors to be
taken into account in determining, for federal income tax purposes, whether or
not an instrument constitutes indebtedness and whether a transfer of property
is a sale because the transferor has relinquished substantial incidents of
ownership in the property or whether such transfer is a borrowing secured by
the property. On the basis of its analysis of such factors as applied to the
facts and its analysis of the economic substance of the contemplated
transaction, Tax Counsel is of the opinion that, for federal income tax
purposes, the Offered Notes will be treated as indebtedness of the Trust, and
not as an ownership interest in the Receivables, or an equity interest in the
Trust or in a separate association taxable as a corporation or other taxable
entity.

          If the Offered Notes are characterized as indebtedness, interest paid
or accrued on an Offered Note will be treated as ordinary income to the
Noteholders and principal payments on an Offered Note will be treated as a
return of capital to the extent of the Noteholder's basis in the Offered Note
allocable thereto. An accrual method taxpayer will be required to include in
income interest on the Offered Notes when earned, even if not paid, unless it
is determined to be uncollectible. The Trust will report to Noteholders of
record and the IRS in respect of the interest paid and original discount, if
any, accrued on the Offered Notes to the extent required by law.

          Although, as described above, it is the opinion of Tax Counsel that,
for federal income tax purposes, the Offered Notes will be characterized as
debt, such opinion is not binding on the IRS and thus no assurance can be given
that such a characterization will prevail. If the IRS successfully asserted
that the Offered Notes did not represent debt for federal income tax purposes,
holders of the Offered Notes would likely be treated as owning an interest in a
partnership and not an interest in an association (or publicly traded
partnership) taxable as a corporation. If the Noteholders were treated as
owning an equitable interest in a partnership, the partnership itself would not
be subject to federal income tax; rather each partner would be taxed
individually on their respective distributive share of the partnership's
income, gain, loss, deductions and credits. The amount, timing and
characterization of items of income and deductions for a Noteholder would
differ if the Notes were held to constitute partnership interests, rather than
indebtedness. Since the Trust will treat the Offered Notes as indebtedness for
federal income tax purposes, the Servicer will not attempt to satisfy the tax
reporting requirements that would apply under this alternative characterization
of the Offered Notes. It is recommended that investors that are




                                      S-57
<PAGE>   61

foreign persons consult their own tax advisors in determining the federal,
state, local and other tax consequences to them of the purchase, ownership and
disposition of the Offered Notes.

          Original Issue Discount. The Offered Notes will not have any original
issue discount ("OID") other than possibly OID of a de minimis amount and that
accordingly the provisions of sections 1271 through 1273 and 1275 of the
Internal Revenue Code of 1986, as amended (the "Code"), will not apply to the
Offered Notes. OID will be considered de minimis if it is less than 0.25% of
the principal amount of a Note multiplied by its expected weighted average
life. The prepayment assumption that will be used for purposes of computing
OID, if any, for federal income tax purposes is 6% of the CPR.

          Market Discount. A subsequent purchaser who buys an Offered Note for
less than its principal amount may be subject to the "market discount" rules of
Section 1276 through 1278 of the Code. If a subsequent purchaser of an Offered
Note disposes of such Class A Note (including certain nontaxable dispositions
such as a gift), or receives a principal payment, any gain upon such sale or
other disposition will be recognized, or the amount of such principal payment
will be treated as ordinary income to the extent of any "market discount"
accrued for the period that such purchaser holds the Offered Note. Such holder
may instead elect to include market discount in income as it accrues with
respect to all debt instruments acquired in the year of acquisition of the
Offered Notes and thereafter. Market discount will equal the excess, if any, of
the then current unpaid principal balance of the Note over the purchaser's
basis in the Offered Note immediately after such purchaser acquired the Note.
Market discount on an Offered Note will be treated as accruing over the term of
such Offered Note in the ratio of interest for the current period over the sum
of such current interest and the expected amount of all remaining interest
payments, or at the election of the holder, under a constant yield method
(taking into account the CPR). At the request of a holder of an Offered Note,
information will be made available that will allow the holder to compute the
accrual of market discount under the first method described in the preceding
sentence.

          The market discount rules also provide that a holder who incurs or
continues indebtedness to acquire an Offered Note at a market discount may be
required to defer the deduction of all or a portion of the interest on such
indebtedness until the corresponding amount of market discount is included in
income.

          Notwithstanding the above rules, market discount on an Offered Note
will be considered to be zero if it is less than a de minimis amount, which is
0.25% of the remaining principal balance of the Note multiplied by its expected
weighted average remaining life. If OID or market discount is de minimis, the
actual amount of discount must be allocated to the remaining principal
distributions on the Offered Notes and, when each such distribution is
received, capital gain equal to the discount allocated to such distribution
will be recognized.

          Market Premium. A subsequent purchaser who buys an Offered Note for
more than its principal amount will be considered to have purchased the Offered
Note at a premium. Such holder may amortize such premium, using a constant
yield method, over the remaining term of the Offered Note and, except as future
regulations may otherwise provide, may apply such amortized amounts to reduce
the amount of interest reportable with respect to such Offered Note over the
period from the purchase date to the date of maturity of the Offered Note.
Legislative history to the Tax Reform Act of 1986 indicates that the
amortization of such premium on an obligation that provides for partial
principal payments prior to maturity should be governed by the methods for
accrual of market discount on such an obligation (described above). Proposed
regulations implementing the provisions of the Tax Reform Act of 1986 provide
for the use of the constant yield method to determine the amortization of
premiums. Such 




                                      S-58
<PAGE>   62

proposed regulations will apply to bonds acquired on or after 60 days after the
final regulations are published. A holder that elects to amortize premium must
reduce his tax basis in the related obligation by the amount of the aggregate
deductions (or interest offsets) allowable for amortizable premium. If a debt
instrument purchased at a premium is redeemed in full prior to its maturity, a
purchaser who has elected to amortize premium should be entitled to a deduction
for any remaining unamortized premium in the taxable year of redemption.

          Sale or Redemption of Notes. If an Offered Note is sold or retired,
the seller will recognize gain or loss equal to the difference between the
amount realized on the sale and such Holder's adjusted basis in the Offered
Note. Such adjusted basis will equal the cost of the Offered Note to the
seller, increased by any original issue discount included in the seller's gross
income in respect of the Offered Note (and by any market discount which the
taxpayer elected to include in income or was required to include in income),
and reduced by payments other than payments of qualified stated interest in
respect of the Offered Note received by the seller and by any amortized
premium. Similarly, a holder who receives a payment other than a payment of
qualified stated interest in respect of an Offered Note, either on the date on
which such payment is scheduled to be made or as a prepayment, will recognize
gain equal to the excess, if any, of the amount of the payment over his
adjusted basis in the Note allocable thereto. A Noteholder who receives a final
payment which is less than his adjusted basis in the Offered Note will
recognize a loss in the amount of the shortfall on the last day of his taxable
year. Any such gain or loss realized by an investor who holds a Note as a
"capital asset" within the meaning of Code Section 1221 should be capital gain
or loss, except as described above in respect of market discount and except
that a loss attributable to accrued but unpaid interest may be an ordinary
loss.

          Information Reporting and Backup Withholding. The Trust will be
required to report annually to the IRS, and to each related Noteholder of
record, the amount of interest paid on the Notes, the amount of any OID on the
Notes, and the amount of interest withheld for federal income taxes, if any,
for each calendar year, except as to exempt Noteholders (generally,
corporations, tax-exempt organizations, qualified pension and profit-sharing
trusts, and individual retirement accounts). Each Noteholder (other than
Noteholders who are not subject to the reporting requirements, or foreign
persons who provide certification as to their status as described below) will
be required to provide to the Trust, under penalties of perjury, a certificate
on IRS Form W-9 or its equivalent containing the Noteholder's name, address,
correct federal taxpayer identification number and a statement that the
Noteholder is not subject to backup withholding. Should a nonexempt Noteholder
fail to provide the required certification, the Trust will be required to
withhold amounts otherwise payable to the Noteholder equal to 31% of such
interest and OID (if any) and remit the withheld amounts to the IRS as a credit
against such Noteholder's federal income tax liability.

          The IRS recently issued final regulations (the "Withholding
Regulations"), which change certain of the rules relating to certain
presumptions currently available relating to information reporting and backup
withholding. The Withholding Regulations provide alternative methods of
satisfying the beneficial ownership certification requirement. The Withholding
Regulations are effective January 1, 2000, although valid withholding
certificates that are held on December 31, 1999 remain valid until the due date
or expiration of the certificate under the rules as currently in effect.

          Foreign Investors. Interest, including OID (if any), distributable to
a Noteholder who or which is not a United States person (other than a foreign
bank and certain other persons) will not be subject to United States
withholding tax (possibly reduced by treaty) imposed with respect to such
payments, provided that such Noteholder fulfills certain certification
requirements. For these purposes, 




                                      S-59
<PAGE>   63

"United States person" means a person who or which is for United States federal
income tax purposes a citizen or resident of the United States, a corporation,
partnership or other entity created or organized in or under the laws of the
United States or any political subdivision thereof, an estate that is subject
to United States federal income tax, regardless of the source of its income, or
a trust if a court within the United States can exercise primary supervision
over its administration and at least one United States person has the authority
to control all substantial decisions of the trust. Under the certification
requirements, a foreign Noteholder must certify, under penalties of perjury,
that it is not a United States person and provide its name and address. The
Withholding Regulations, which will be effective for payments made after
December 31, 1999, provide alternative certification requirements and means for
claiming the exemption from federal income and withholding tax. If income or
gain with respect to a Note is effectively connected with a United States trade
or business carried on by a Noteholder who or which is not a United States
person, the withholding tax will not apply, but such Noteholder will be subject
to United States federal income tax at graduated rates applicable to United
States persons. It is recommended that potential investors who are non-United
States persons consult their own tax advisors regarding certification
requirements and the specific tax consequences to them of owning the Notes.

                       STATE AND LOCAL TAX CONSIDERATIONS

          Potential Noteholders should consider the state and local income tax
consequences of the purchase, ownership and disposition of the Offered Notes.
State and local income tax laws may differ substantially from the corresponding
federal law, and this discussion does not purport to describe any aspect of the
income tax laws of any state or locality. Therefore, it is recommended that
potential Noteholders consult their own tax advisors with respect to the
various state and local tax consequences of an investment in the Offered Notes.

                              ERISA CONSIDERATIONS

          Section 406 of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), and Section 4975 of the Code prohibit a pension, profit
sharing, or other employee benefit plan as well as individual retirement
accounts and certain types of Keogh Plans (each, a "Benefit Plan") from
engaging in certain transactions involving "plan assets" with persons that are
"parties in interest" under ERISA or "disqualified persons" under the Code with
respect to the Benefit Plan. A violation of these "prohibited transaction"
rules may generate excise tax and other liabilities under ERISA and the Code
for such persons. Title I of ERISA also requires that fiduciaries of a Benefit
Plan subject to ERISA make investments that are prudent, diversified (except if
prudent not to do so) and in accordance with governing plan documents.

          In addition to the matters described below, purchasers of the Offered
Notes that are insurance companies should consult with their counsel with
respect to the United States Supreme Court case interpreting the fiduciary
responsibility rules of ERISA, John Hancock Mutual Life Insurance Co. v. Harris
Trust and Savings Bank, 510 U.S. 86 (1993). In John Hancock, the Supreme Court
ruled that assets held in an insurance company's general account may be deemed
to be "plan assets" for ERISA purposes under certain circumstances. Prospective
purchasers should determine whether the decision affects their ability to make
purchases of the Offered Notes.

          Certain transactions involving the Trust might be deemed to
constitute prohibited transactions under ERISA and the Code if assets of the
Trust were deemed to be "plan assets" of a Benefit 



                                      S-60
<PAGE>   64

Plan. Under a regulation issued by the United States Department of Labor (the
"Plan Assets Regulation"), the assets of the Trust would be treated as plan
assets of a Benefit Plan for the purposes of ERISA and the Code only if the
Benefit Plan acquired an "equity interest" in the Trust and none of the
exceptions contained in the Plan Assets Regulation were applicable. An equity
interest is defined under the Plan Assets Regulation as an interest other than
an instrument which is treated as indebtedness under applicable local law and
which has no substantial equity features. The Offered Notes should be treated
as indebtedness without substantial equity features for purposes of the Plan
Assets Regulation. This determination is based in part upon the traditional
debt features of the Offered Notes, including the reasonable expectation of
purchasers of the Offered Notes that the Offered Notes will be repaid when due,
as well as the absence of conversion rights, warrants and other typical equity
features. The debt treatment of the Offered Notes for ERISA purposes could
change if the Trust incurred losses. However, without regard to whether the
Offered Notes are treated as an equity interest for such purposes, the
acquisition or holding of the Offered Notes by or on behalf of a Benefit Plan
could be considered to give rise to a prohibited transaction if the Trust or
any of its affiliates is or becomes a party in interest or disqualified person
with respect to such Benefit Plan. In such case, certain exemptions from the
prohibited transaction rules could be applicable depending on the type and
circumstances of the plan fiduciary making the decision to acquire an Offered
Note. Included among these exemptions are: Prohibited Transaction Class
Exemption ("PTCE") 90-1, regarding investments by insurance company pooled
separate accounts; PTCE 91-38, regarding investments by bank collective
investment funds; PTCE 95-60, regarding investments by insurance company
general accounts; PTCE 96-23, regarding transactions by "in-house asset
managers"; and PTCE 84-14, regarding transactions by "qualified professional
assets managers." Each investor using the assets of a Benefit Plan which
acquires the Offered Notes, or to whom the Offered Notes are transferred, will
be deemed to have represented that the acquisition and continued holding of the
Offered Notes will be covered by a prohibited transaction class exemption
issued by the United States Department of Labor.

          Employee plans that are governmental plans (as defined in Section
3(32) of ERISA) and certain church plans (as defined in Section 3(33) of
ERISA), are not subject to ERISA; however, such plans may be subject to
comparable restrictions under federal, state or local law.

          Any Benefit Plan fiduciary considering the purchase of an Offered
Note should consult with its counsel with respect to the potential
applicability of ERISA and the Code to such investment. Moreover, each Benefit
Plan fiduciary should determine whether, under the general fiduciary standards
of investment prudence and diversification, an investment in the Offered Notes
is appropriate for the Benefit Plan, taking into account the overall investment
policy of the Benefit Plan and the composition of the Benefit Plan's investment
portfolio. The sale of Offered Notes to a Benefit 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 Benefit Plans
generally or any particular Benefit Plan, or that this investment is
appropriate for Benefit Plans generally or any particular Benefit Plan.

                                LEGAL INVESTMENT

          The Class A-1 Notes will be eligible securities for purchase by money
market funds under the Investment Company Act of 1940, as amended.



                                      S-61
<PAGE>   65

                                    RATINGS

          As a condition to the issuance of the Class A-1 Notes, the Class A-1
Notes must be rated "P-1" by Moody's, "A-1+" by S&P, F1+/AAA by Fitch and D-1+
by DCR and as a condition to the issuance of the Class A-2 Notes, the Class A-3
Notes and the Class A-4 Notes, the Class A-2 Notes, the Class A-3 Notes and the
Class A-4 Notes must be rated "Aaa" by Moody's and "AAA" by S&P, Fitch and DCR.
A security rating is not a recommendation to buy, sell or hold securities and
may be subject to revision or withdrawal at any time. The ratings assigned to
the Offered Notes address the likelihood of the receipt by the Offered
Noteholders of all distributions to which such Offered Noteholders are
entitled. The ratings assigned to the Offered Notes do not represent any
assessment of the likelihood that principal prepayments might differ from those
originally anticipated or address the possibility that Offered Noteholders
might suffer a lower than anticipated yield.

                             METHOD OF DISTRIBUTION

          Subject to the terms and conditions set forth in an underwriting
agreement (the "Underwriting Agreement") for the sale of the Offered Notes
dated April __, 1999, the Depositor has agreed to sell, and Wheat First
Securities, Inc., doing business as First Union Capital Markets, a division of
Wheat First Securities, Inc. ("First Union"), Nesbitt Burns Securities, Inc.
("Nesbitt Burns"), and PNC Capital Markets, Inc. ("PNC Capital Markets, Inc.,"
together with First Union and Nesbitt Burns, the "Underwriters"), have each
agreed to purchase, the principal amount of the Offered Notes set forth
opposite its name below;

<TABLE>
<S>                             <C>                         <C>    
                                Class A-1 Notes
                                ---------------
Underwriter                                                 Principal Amount
- -----------                                                 ----------------
First Union Capital Markets                                 $     42,382,561
Nesbitt Burns Securities, Inc.                              $     21,191,280
PNC Capital Markets, Inc.                                   $      7,063,760
                                                            ----------------
         Total                                              $     70,637,602

                                Class A-2 Notes
                                ---------------
Underwriter                                                 Principal Amount
- -----------                                                 ----------------
First Union Capital Markets                                 $    34,329,874
Nesbitt Burns Securities, Inc.                              $    17,164,937
PNC Capital Markets, Inc.                                   $     5,721,645
                                                            ---------------
         Total                                              $    57,216,457

                                Class A-3 Notes
                                ---------------
Underwriter                                                 Principal Amount
- -----------                                                 ----------------
First Union Capital Markets                                 $    28,820,141
Nesbitt Burns Securities, Inc.                              $    14,410,070
PNC Capital Markets, Inc.                                   $     4,803,356
                                                            ---------------
         Total                                              $    48,033,569
</TABLE>



                                      S-62
<PAGE>   66

<TABLE>
<S>                             <C>                         <C>    
                                Class A-4 Notes
                                ---------------
Underwriter                                                 Principal Amount
- -----------                                                 ----------------
First Union Capital Markets                                 $    50,435,247
Nesbitt Burns Securities, Inc.                              $    25,217,623
PNC Capital Markets, Inc.                                   $     8,405,874
                                                            ---------------
         Total                                              $    84,058,746
</TABLE>


          First Union Corporation, the parent corporation of First Union, owns
approximately 1.39% of the outstanding common stock of First Sierra.

          In the Underwriting Agreement, the Underwriters have agreed, subject
to the terms and conditions therein, to purchase all the Offered Notes offered
hereby if any of such Offered Notes are purchased.

          The Underwriters have advised the Depositor that they propose to
offer the Offered Notes purchased by the Underwriters for sale from time to
time in one or more negotiated transactions or otherwise, at market prices
prevailing at the time of sale, at prices related to such market prices or at
negotiated prices. The Underwriters may effect such transactions by selling
such Offered Notes to or through a dealer, and such dealer may receive
compensation in the form of underwriting discounts, concessions or commissions
from the Underwriters or purchasers of the Offered Notes for whom they may act
as agent. Any dealers that participate with the Underwriters in the
distribution of the Offered Notes purchased by the Underwriters may be deemed
to be underwriters, and any discounts or commissions received by them or the
Underwriters, and any profit on the resale of the Offered Notes by them or the
Underwriters may be deemed to be underwriting discounts or commissions under
the Securities Act of 1933, as amended (the "Securities Act").

     In connection with this offering, the underwriters may over-allot or
effect transactions which stabilize or maintain the market prices of the
offered notes at levels above those which might otherwise prevail in the open
market. Such stabilizing, if commenced, may be discontinued at any time.

          For further information regarding any offer or sale of the Offered
Notes pursuant to this prospectus supplement and the prospectus , see "Methods
of Distribution" in the prospectus.

          The Transaction Documents and the Underwriting Agreement provide that
First Sierra will indemnify the Underwriters against certain civil liabilities,
including liabilities under the Securities Act, or contribute to payments the
Underwriters may be required to make in respect thereof.

                               REPORT OF EXPERTS

          The consolidated balance sheets of MBIA Insurance Corporation and
Subsidiaries as of December 31, 1998 and December 31, 1997 and the related
consolidated statements of income, changes in shareholder's equity and cash
flows for each of the three years in the period ended December 31, 1998
incorporated by reference into this prospectus supplement have been
incorporated herein in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of that firm as experts in
accounting and auditing.



                                      S-63
<PAGE>   67

                                 LEGAL MATTERS

          Certain legal matters relating to the Notes will be passed upon by
Dewey Ballantine LLP, New York, New York. Certain federal income tax matters
will be passed upon for the Trust by Dewey Ballantine LLP, New York, New York.
Certain legal matters relating to the Note Insurer will be passed upon for the
Note Insurer by Kutak Rock, Omaha, Nebraska.



                                     S-64

<PAGE>   68

                        INDEX OF PRINCIPAL DEFINED TERMS

<TABLE>
<CAPTION>
                                                                                                               Page
                                                                                                               ----

<S>                                                                                                    <C>
  Advance Payment..............................................................................................S-27
  Advance Payments.............................................................................................S-25
  Aggregate Discounted Contract Principal Balance..............................................................S-13
  Aggregate Initial Note Principal Balance.....................................................................S-27
  Available Distribution Amount................................................................................S-27
  Available Funds..............................................................................................S-27
  Available Funds Shortfall....................................................................................S-27
  Bankruptcy Code..............................................................................................S-54
  Base Principal Amount........................................................................................S-27
  Base Principal Distribution Amount...........................................................................S-27
  Benefit Plan.................................................................................................S-60
  Business Day.................................................................................................S-53
  Capitalized Interest Required Reserve Amount.................................................................S-26
  Capitalized Interest Requirement.............................................................................S-26
  Class A Initial Note Principal Balance.......................................................................S-28
  Class A Insured Distribution Amount..........................................................................S-28
  Class A MaturityDate.........................................................................................S-28
  Class A Notes................................................................................................S-22
  Class A Percentage...........................................................................................S-28
  Class A-1 Notes..............................................................................................S-22
  Class A-2 Notes..............................................................................................S-22
  Class A-3 Notes..............................................................................................S-22
  Class A-4 Notes..............................................................................................S-22
  Class B-1 Notes..............................................................................................S-23
  Class B-2 Notes..............................................................................................S-23
  Class B-3 Notes..............................................................................................S-23
  Class Percentage.............................................................................................S-28
  Closing Date.................................................................................................S-13
  Code.........................................................................................................S-58
  Conditional Prepayment Rate..................................................................................S-44
  Contract Files...............................................................................................S-11
  Contracts..............................................................................................S-11, S-12
  Controlling Parties..........................................................................................S-42
  CPR..........................................................................................................S-44
  DCR...........................................................................................................S-6
  Defaulted Contract...........................................................................................S-28
  Defaulted Contract Recoveries................................................................................S-28
  Deficiency Amount............................................................................................S-53
  Delinquency Trigger Event....................................................................................S-28
  Delinquency Trigger Ratio....................................................................................S-28
  Delinquent Contract..........................................................................................S-29
  Depositor.....................................................................................................S-1
  Determination Date...........................................................................................S-29
  Discount Rate................................................................................................S-12
  Discounted Contract Principal Balance..................................................................S-13, S-29
  Early Termination Contract...................................................................................S-29
</TABLE>


                                      S-65
<PAGE>   69

<TABLE>
<S>                                                                                                    <C>
  Equipment....................................................................................................S-11
  ERISA........................................................................................................S-60
  Event of Servicing Termination...............................................................................S-41
  Events of Default............................................................................................S-42
  Excluded Amounts.............................................................................................S-29
  Expired Contract.............................................................................................S-29
  Expired Contract Proceeds....................................................................................S-30
  Final Scheduled Payment......................................................................................S-30
  First Sierra.................................................................................................S-20
  First Union..................................................................................................S-62
  Fiscal Agent.................................................................................................S-53
  Fitch.........................................................................................................S-5
  GAAP.........................................................................................................S-55
  Gross Charge-Off Event.......................................................................................S-30
  Gross Charge-Off Ratio.......................................................................................S-30
  Indenture....................................................................................................S-10
  Indenture Trustee............................................................................................S-10
  Indenture Trustee Expenses.............................................................................S-11, S-30
  Indenture Trustee Fee........................................................................................S-11
  Initial Class A Note Principal Balance.......................................................................S-22
  Initial Contracts............................................................................................S-12
  Initial Cut-Off Date.........................................................................................S-12
  Initial Note Principal Balance...............................................................................S-30
  Initial Unpaid Amount........................................................................................S-30
  Insurance Policies...........................................................................................S-11
  Insured Payment..............................................................................................S-53
  Interest Accrual Period......................................................................................S-30
  IRS..........................................................................................................S-57
  Lockbox Bank.................................................................................................S-25
  Majority Holders.............................................................................................S-30
  Maturity Date................................................................................................S-30
  Modeling Assumptions.........................................................................................S-45
  Monthly Statement............................................................................................S-23
  Moody's.......................................................................................................S-5
  Nesbitt Burns................................................................................................S-62
  Note Current Interest........................................................................................S-31
  Note Factor..................................................................................................S-34
  Note Insurer.................................................................................................S-52
  Note Interest................................................................................................S-31
  Note Principal Balance.......................................................................................S-31
  Note Rate....................................................................................................S-31
  Notes........................................................................................................S-23
  Notice.......................................................................................................S-53
  Offered Notes................................................................................................S-22
  OID..........................................................................................................S-58
  Original Pre-Funded Amount...................................................................................S-26
  Overdue Interest.............................................................................................S-31
  Overdue Principal............................................................................................S-32
  Owner........................................................................................................S-53
  Owner Trustee...........................................................................................S-1, S-10
  Percentage Interest..........................................................................................S-32
</TABLE>


                                      S-66
<PAGE>   70

<TABLE>
<S>                                                                                                      <C>
  Plan Assets Regulation.......................................................................................S-61
  PNC Capital Markets, Inc.....................................................................................S-62
  Pool Factor..................................................................................................S-34
  Preference Amount............................................................................................S-54
  Pre-Funded Amount............................................................................................S-26
  Pre-Funding Account..........................................................................................S-26
  Pre-Funding Earnings.........................................................................................S-26
  Pre-Funding Period...........................................................................................S-36
  Premium Amount...............................................................................................S-32
  Premium Rate.................................................................................................S-32
  Prepayment...................................................................................................S-32
  Prepayment Amount............................................................................................S-32
  PTCE.........................................................................................................S-61
  Receivables..................................................................................................S-11
  Reimbursement Amount.........................................................................................S-32
  Repurchase Amount......................................................................................S-14, S-32
  Restricting Event............................................................................................S-33
  S&P...........................................................................................................S-5
  SAP..........................................................................................................S-55
  Scheduled Payments.....................................................................................S-13, S-33
  Securities...................................................................................................S-23
  Securities Act...............................................................................................S-63
  Sellers.................................................................................................S-1, S-20
  Servicer.....................................................................................................S-20
  Servicer Advance.............................................................................................S-26
  Servicing Officer............................................................................................S-40
  Servicing Standard...........................................................................................S-15
  Statistic Calculation Date...................................................................................S-12
  Statistical Discount Rate....................................................................................S-12
  Statistical Discounted Contract Principal Balance............................................................S-12
  Subordinate Notes............................................................................................S-23
  Subordinate Securities.......................................................................................S-23
  Subsequent Contracts.........................................................................................S-12
  Subsequent Equipment.........................................................................................S-36
  Subsequent Transfer Agreements...............................................................................S-36
  Subsequent Transfer Dates....................................................................................S-36
  Substitute Contract..........................................................................................S-14
  Substitute Cut-Off Date......................................................................................S-33
  Substitute Transfer Date...............................................................................S-33, S-37
  Supplementary Report.........................................................................................S-40
  Tax Counsel..................................................................................................S-56
  Trust.........................................................................................................S-1
  Trust Agreement..............................................................................................S-10
  Trust Certificate............................................................................................S-23
  Trust Certificate Holder.....................................................................................S-23
  Trust Operating Expenses.....................................................................................S-33
  Underwriters.................................................................................................S-62
  Underwriting Agreement.......................................................................................S-62
  Weighted average life........................................................................................S-44
  Withholding Regulations......................................................................................S-59
</TABLE>


                                     S-67
<PAGE>   71
 
PROSPECTUS
 
                 CONTRACT BACKED SECURITIES ISSUABLE IN SERIES
 
                       FIRST SIERRA RECEIVABLES III, INC.
                                    COMPANY
 
                          FIRST SIERRA FINANCIAL INC.,
                                    SERVICER
 
    This Prospectus describes certain Contract Backed Notes (the "Notes") and
Contract Backed Certificates (the "Certificates" and, together with the Notes,
the "Securities") that may be sold from time to time in one or more series, in
amounts, at prices and on terms to be determined at the time of sale and to be
set forth in a supplement to this Prospectus (each, a "Prospectus Supplement").
Each series of Securities may include one or more classes of Notes and/or one or
more classes of Certificates. Each Series will be issued by a trust (each a
"Trust") formed by First Sierra Receivables II, Inc. or First Sierra Receivables
III, Inc. (together the "Company" or the "Companies") for the purpose of issuing
the Securities. The Trust (which may be an owner trust) issuing Securities as
described in this Prospectus and the related Prospectus Supplement shall be
referred to herein as the "Issuer."
 
    Each class of Securities of any series will evidence beneficial ownership in
a segregated pool of a segregated pool of assets owned by a Trust (each, an
"Asset Pool") (such Securities, "Certificates") or will represent indebtedness
of the Issuer secured by the Asset Pool (such Securities, "Notes"), as described
herein and in the related Prospectus Supplement. Each Asset Pool shall consist
of finance leases and commercial loans, together with all monies received
relating thereto (the "Contracts"). Each Asset Pool may also include security
interests in the underlying equipment and property relating thereto, together
with the proceeds thereof (the "Equipment" together with the Contracts, the
"Receivables"). If and to the extent specified in the related Prospectus
Supplement, credit enhancement with respect to an Asset Pool or any class of
Securities may include any one or more of the following: a financial guaranty
insurance policy (a "Policy") issued by an insurer specified in the related
Prospectus Supplement, a reserve account, letters of credit, credit or liquidity
facilities, third party payments or other support, cash deposits or other
arrangements. In addition to or in lieu of the foregoing, credit enhancement may
be provided by means of subordination, cross-support among the Receivables or
over collateralization. See "Description of the Trust Agreements -- Credit
Enhancements." The Receivables in the Asset Pool for a series will have been
originated by First Sierra Financial, Inc. (the "Seller" or "First Sierra") or
acquired by First Sierra from other entities generally in the business of
originating or acquiring Receivables. Except to the extent provided herein and
in the related Prospectus Supplement, the Company will acquire the Receivables
from the Seller on or prior to the date of issuance of the related Securities,
as described herein and in the related Prospectus Supplement. Each series of
Securities will include one or more classes (each, a "Class"). A series may
include one or more Classes of Securities entitled to principal distributions,
with disproportionate, nominal or no interest distributions, or to interest
distributions, with disproportionate, nominal or no principal distributions. The
rights of one or more Classes of Securities of any series may be senior or
subordinate to the rights of one or more of the other Classes of Securities. A
series may include two or more Classes of Securities which differ as to the
timing, sequential order, priority of payment, interest rate or amount of
distributions of principal or interest or both. Information regarding each Class
of Securities of a series, together with certain characteristics of the related
Receivables, will be set forth in the related Prospectus Supplement. The rate of
payment in respect of principal of the Securities of any Class will depend on
the priority of payment of such a Class and the rate and timing of payments
(including prepayments, defaults, liquidations or repurchases of Receivables) on
the related Receivables. A rate of payment lower or higher than that anticipated
may affect the weighted average life of each Class of Securities in the manner
described herein and in the related Prospectus Supplement. See "Description of
the Securities."
 
     AN INVESTMENT IN THE SECURITIES INVOLVES CERTAIN RISKS. SEE "RISK FACTORS"
COMMENCING ON PAGE 13 HEREIN AND THE RELATED PROSPECTUS SUPPLEMENT FOR A
DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN
INVESTMENT IN THE SECURITIES OFFERED HEREBY.
 
  THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
  ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THE
   PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE
 SECURITIES WILL NOT REPRESENT AN INTEREST IN OR AN OBLIGATION OF THE COMPANY,
    FIRST SIERRA, ANY SERVICER, ANY SUBSERVICER, ANY LESSOR, OR ANY OF THEIR
RESPECTIVE AFFILIATES. NEITHER THE SECURITIES NOR THE UNDERLYING CONTRACTS WILL
  BE GUARANTEED OR INSURED BY ANY GOVERNMENTAL AGENCY OR BY THE COMPANY, FIRST
 SIERRA, ANY SERVICER, ANY SUBSERVICER, ANY LESSOR, OR ANY OF THEIR RESPECTIVE
      AFFILIATES EXCEPT AS SET FORTH IN THE RELATED PROSPECTUS SUPPLEMENT.
 
    Offers of the Securities may be made through one or more different methods,
including offerings through underwriters as more fully described under "Method
of Distribution" herein and in the related Prospectus Supplement. Prior to
issuance, there will have been no market for the Securities of any series, and
there can be no assurance that a secondary market for the Securities will
develop, or if it does develop, it will continue.
 
     RETAIN THIS PROSPECTUS FOR FUTURE REFERENCE. THIS PROSPECTUS MAY NOT BE
USED TO CONSUMMATE SALES OF SECURITIES UNLESS ACCOMPANIED BY A PROSPECTUS
SUPPLEMENT.
 
               THE DATE OF THIS PROSPECTUS IS NOVEMBER 25, 1998.
<PAGE>   72
 
                             PROSPECTUS SUPPLEMENT
 
     The Prospectus Supplement relating to a series of Securities to be offered
hereunder, among other things, will set forth with respect to such series of
Securities: (i) a description of the Class or Classes of such Securities, (ii)
the rate of interest, the "Pass-Through Rate" or "Interest Rate" or other
applicable rate (or the manner of determining such rate) and authorized
denominations of such Class of such Securities; (iii) certain information
concerning the Receivables and insurance polices, overcollateralization cash
accounts, letters of credit, financial guaranty insurance policies, third party
guarantees or other forms of credit enhancement, if any, relating to one or more
pools of Receivables or all or part of the related Securities; (iv) the
specified interest, if any, of each Class of Securities in, and manner and
priority of, the distributions from the Asset Pool; (v) information as to the
nature and extent of subordination with respect to such series of Securities, if
any; (vi) the payment date to Securityholders; (vii) information regarding the
Servicer; (viii) the circumstances, if any, under which each Asset Pool may be
subject to early termination; (ix) information regarding tax considerations; and
(x) additional information with respect to the method of distribution of such
Securities.
 
                             AVAILABLE INFORMATION
 
     The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (together with all amendments and
exhibits thereto, referred to herein as the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
Securities offered pursuant to this Prospectus. For further information,
reference is made to the Registration Statement which may be inspected and
copied at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549; and at the Commission's regional
offices at Northwest Atrium Center, 500 West Madison, Suite 1400, Chicago,
Illinois 60661 and Seven World Trade Center, 13th Floor, New York, New York
10048. Copies of the Registration Statement may be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. In addition, the Commission maintains a site on the
world wide web containing reports, proxy materials, information statements and
other items. The address is http://www.sec.gov.
 
     No person has been authorized to give any information or to make any
representation other than those contained in this Prospectus and any Prospectus
Supplement with respect hereto and, if given or made, such information or
representations must not be relied upon. This Prospectus and any Prospectus
Supplement with respect hereto do not constitute an offer to sell or a
solicitation of an offer to buy any securities other than the Securities offered
hereby and thereby, nor an offer of the Securities to any person in any state or
other jurisdiction in which such offer would be unlawful.
 
     This Prospectus, together with the Prospectus Supplement for each Series or
Class of Securities will contain a summary of the material terms of the
applicable exhibits to the Registration Statement and the documents referred to
herein and therein. Copies of such exhibits are on file at the offices of the
Commission in Washington, D.C., and may be obtained at rates prescribed by the
Commission upon request and may be inspected, without charge, at the
Commission's offices.
 
                INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
 
     All documents subsequently filed by the Company, either on its own behalf
or on behalf of a Trust, relating to any series of Securities referred to in the
accompanying Prospectus Supplement, with the Commission pursuant to Section
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), after the date of this Prospectus and prior to the
termination of any offering of the Securities issued by the Issuer, shall be
deemed to be incorporated by reference in this Prospectus and to be a part of
this Prospectus from the date of the filing of such documents. Any statement
contained herein or in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained herein (or in the
accompanying Prospectus Supplement) or in any other subsequently filed document
which also is or is
 
                                        i
<PAGE>   73
 
deemed to be incorporated by reference herein, modifies or replaces such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
 
                           REPORTS TO SECURITYHOLDERS
 
     Periodic and annual reports concerning any Security and the related Asset
Pool will be provided to the Securityholders. See "Description of the
Securities -- Reports to Securityholders." If the Securities of a series are to
be issued in book-entry form, such reports will be provided to the
Securityholder of record and beneficial owners of such Securities will have to
rely on the procedures described herein under "Description of
Securities -- Book-Entry Registration."
 
     The Company will provide without charge to each person to whom this
Prospectus is delivered, on the written or oral request of such person, a copy
of any or all of the documents referred to above that have been or may be
incorporated by reference in this Prospectus (not including exhibits to the
information that is incorporated by reference unless such exhibits are
specifically incorporated by reference into the information that this Prospectus
incorporates). Such requests should be directed to: First Sierra Financial Inc.,
Texas Commerce Tower, 600 Travis Street, Houston, Texas 77002, Attention: Roger
Gebhart, Senior Vice President and Treasurer, (713) 221-8822.
 
                                       ii
<PAGE>   74
 
                                    SUMMARY
 
     The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus and by reference to
the information with respect to the Securities of any series contained in the
related Prospectus Supplement to be prepared and delivered in connection with
the offering of such Securities. Capitalized terms used in the summary and not
defined are defined elsewhere in the Prospectus on the pages indicated in the
"Index of Terms" beginning on page 50 of the Prospectus.
 
Issuers....................  With respect to each series of Securities, a trust
                               (each trust of a series, the "Trust") to be
                               formed by the Company. The Trust issuing
                               Securities pursuant to this Prospectus and the
                               related Prospectus Supplement shall be referred
                               to herein as the "Issuer" with respect to the
                               related Securities. Each class of Securities will
                               be issued by the Trust and will either evidence a
                               beneficial ownership in or indebtedness secured
                               by a segregated pool of assets owned by a Trust
                               (such pool of assets, a "Asset Pool"). No Series
                               will be secured by more than one Asset Pool,
                               except to the extent that more than one Asset
                               Pool receives the benefit of a common form of
                               credit enhancement. See "The Issuers."
 
Company....................  First Sierra Receivables II, Inc., a Delaware
                               Corporation, and First Sierra Receivables III,
                               Inc., a Delaware corporation (together, the
                               "Company" or the "Companies"). Either First
                               Sierra Receivables II, Inc. or First Sierra
                               Receivables III, Inc. will act as the depositor
                               with respect to each series of Securities. The
                               principal office of each of the Companies is
                               located at 600 Travis Street, Houston, Texas,
                               77002, and its telephone number is (713)
                               221-8822. Each of the Companies is a wholly-owned
                               subsidiary of the Servicer. See "The Company."
 
Servicer...................  First Sierra Financial, Inc., a Delaware
                               corporation (the "Servicer" or "First Sierra").
                               First Sierra is a specialized finance company
                               that acquires and originates and sells and
                               services equipment contracts. The principal
                               office of First Sierra is 600 Travis Street,
                               Houston, Texas 77002, and its telephone number is
                               (713) 221-8822. See "The Servicer."
 
Seller.....................  The Company will acquire the Receivables from First
                               Sierra or an affiliate (collectively the
                               "Seller"). The Receivables will be acquired by
                               the Seller either (a) as the result of the
                               acquisition of equipment lease portfolios from
                               small ticket lessors (the "Portfolio Acquisition
                               Program") or (b) as the result of the ongoing
                               acquisition of equipment leases which comply with
                               certain underwriting criteria specified by First
                               Sierra from certain lessors as such leases are
                               originated (the "Private Label Program") or (c)
                               as the result of direct origination by First
                               Sierra through its own sales force and referral
                               programs (the "Broker Program" and the "Vendor
                               Program"). A "small-ticket" lessor, is a lessor
                               who leases equipment having original equipment
                               costs which are generally less than $1 million.
                               For a more complete description of the Portfolio
                               Acquisition Program and the Private Label Program
                               please see the descriptions under the caption
                               "The Receivables" herein and in the related
                               Prospectus Supplement.
 
Trustee....................  The Trustee for each series of Securities will be
                               specified in the related Prospectus Supplement.
 
The Securities.............  Each Class of Securities of any series will
                               evidence beneficial ownership in an Asset Pool
                               (such Securities, "Certificates") or will
                               represent indebtedness of the Issuer secured by
                               the Asset Pool (such Securities,
                                        1
<PAGE>   75
 
                               "Notes"), as described herein and in the related
                               Prospectus Supplement. Each Asset Pool shall
                               consist of finance leases and commercial loans,
                               together with all monies received relating
                               thereto (the "Contracts"). The characteristics of
                               a particular Asset Pool will be more fully
                               described in the related Prospectus Supplement.
                               Each Asset Pool also may include a security
                               interest in the underlying equipment and property
                               relating thereto, together with the proceeds
                               thereof (the "Equipment" and together with the
                               Contracts, the "Receivables"). If and to the
                               extent specified in the related Prospectus
                               Supplement, credit enhancement with respect to an
                               Asset Pool or any class of Securities may include
                               any one or more of the following: a financial
                               guaranty insurance policy (a "Policy") issued by
                               an insurer specified in the related Prospectus
                               Supplement, a reserve account, letters of credit,
                               credit or liquidity facilities, third party
                               payments or other support, cash deposits or other
                               arrangements. In addition to or in lieu of the
                               foregoing, credit enhancement may be provided by
                               means of subordination, cross-support among the
                               Receivables or over-collateralization. The
                               Company will acquire the Receivables from the
                               Seller on or prior to the date of issuance of the
                               related Securities, as described herein and in
                               the related Prospectus Supplement.
 
                             With respect to Securities that represent equity,
                               each Trust will be established pursuant to an
                               agreement (each, a "Pooling Agreement") by and
                               between the Company and the Trustee named
                               therein. Each Pooling Agreement will describe the
                               related pool of Receivables held by the Trust.
 
                             With respect to Securities that represent debt
                               issued by the Issuer, the Issuer will enter into
                               an indenture (each, an "Indenture") by and
                               between the Issuer and the trustee named on such
                               Indenture (the "Indenture Trustee"). Each
                               Indenture will describe the related pool of
                               Receivables comprising the Asset Pool and
                               securing the debt issued by the related Issuer.
 
                             The Receivables comprising each Asset Pool will be
                               serviced by the Servicer pursuant to a pooling
                               and servicing agreement (each, a "Servicing
                               Agreement") by and between the Servicer and the
                               related Issuer. In addition, the lessors from
                               whom the Receivables were acquired (each, a
                               "Lessor") may be required to perform certain
                               monitoring and collection functions with respect
                               to the Receivables on behalf of the Seller and
                               its assignee pursuant to the purchase agreement
                               between the First Sierra and such Lessor (each, a
                               "Purchase Agreement") Such Purchase Agreements
                               will be assigned to the Asset Pool to the extent
                               related to the Receivables in the Asset Pool.
 
                             In the case of any individual Asset Pool, the
                               contractual arrangements relating to the
                               establishment of a Trust, if any, the servicing
                               of the related Receivables and the issuance of
                               the related Securities may be contained in a
                               single agreement, or in several agreements which
                               combine certain aspects of the Pooling Agreement,
                               the Servicing Agreement and the Indenture
                               described above (for example, a pooling and
                               servicing agreement, or a servicing and
                               collateral management agreement). For purposes of
                               this Prospectus, the term "Trust Agreement" as
                               used with respect to an Asset Pool means,
                               collectively, and except as otherwise described
                               in the related Prospectus Supplement,
                                        2
<PAGE>   76
 
                               any and all agreements relating to the
                               establishment of a Trust, if any, the servicing
                               of the related Receivables and the issuance of
                               the related Securities. The term "Trustee" means
                               any and all persons acting as a trustee pursuant
                               to a Trust Agreement.
 
                             Securities Will Be Non-Recourse to the Seller.
 
                             The Securities will not be obligations, either
                               recourse or non-recourse (except for certain
                               non-recourse debt described under "Material
                               Federal Income Tax Consequences" in the related
                               Prospectus Supplement), of the Servicer, the
                               Seller or any person other than the related
                               Issuer. The Notes of a given series represent
                               obligations of the Issuer, and the Certificates
                               of a given series represent beneficial interests
                               in the related Trust only and do not represent
                               interests in or obligations of the Company, the
                               Seller or any of their respective affiliates
                               other than the related Trust. In the case of
                               Securities that represent beneficial ownership
                               interest in the related Trust, such Securities
                               will represent the beneficial ownership interests
                               in such Trust and the sole source of payment will
                               be the assets of such Trust. In the case of
                               Securities that represent debt issued by the
                               related Issuer, such Securities will be secured
                               by assets in the related Asset Pool.
                               Notwithstanding the foregoing, and as to be
                               described in the related Prospectus Supplement,
                               certain types of credit enhancement, such as a
                               letter of credit, financial guaranty insurance
                               policy or reserve fund may constitute a full
                               recourse obligation of the provider of such
                               credit enhancement.
 
                             General Nature of the Securities as Investments.
 
                             All of the Securities offered pursuant to this
                               Prospectus and the related Prospectus Supplement
                               will be rated in one of the four highest rating
                               categories by one or more Rating Agencies (as
                               defined herein).
 
                             Additionally, the Securities offered pursuant to
                               this Prospectus and the related Prospectus
                               Supplement will be of the fixed-income type
                               having a principal balance (or certificate
                               balance) and a specified interest rate ("Interest
                               Rate"). Securities may either represent
                               beneficial ownership interests in the related
                               Receivables held by the related Trust or debt
                               secured by certain assets of the related Issuer.
 
                             Each series or Class of Securities offered pursuant
                               to this Prospectus may have a different Interest
                               Rate, which may be a fixed or adjustable Interest
                               Rate. The related Prospectus Supplement will
                               specify the Interest Rate for each series or
                               Class of Securities described therein, or the
                               initial Interest Rate and the method for
                               determining subsequent changes to the Interest
                               Rate.
 
                             A series may include one or more Classes of
                               Securities ("Strip Securities") entitled (i) to
                               principal distributions, with disproportionate,
                               nominal or no interest distributions, or (ii) to
                               interest distributions, with disproportionate,
                               nominal or no principal distributions. In
                               addition, a Series of Securities may include two
                               or more Classes of Securities that differ as to
                               timing, sequential order, priority of payment,
                               Interest Rate or amount of distribution of
                               principal or interest or both, or as to which
                               distributions of principal or interest or both on
                               any Class may be made upon the occurrence of
                               specified events, in accordance with a schedule
                               or formula, or on the basis of collections
 
                                        3
<PAGE>   77
 
                               from designated portions of the related pool of
                               Receivables. Any such series may include one or
                               more Classes of Securities ("Accrual
                               Securities"), as to which certain accrued
                               interest will not be distributed but rather will
                               be added to the principal balance (or nominal
                               balance, in the case of Accrual Securities which
                               are also Strip Securities) thereof on each
                               Payment Date, as hereinafter defined, or in the
                               manner described in the related Prospectus
                               Supplement.
 
                             If so provided in the related Prospectus
                               Supplement, a series may include one or more
                               other Classes of Securities (collectively, the
                               "Senior Securities") that are senior to one or
                               more other Classes of Securities (collectively,
                               the "Subordinate Securities") in respect of
                               certain distributions of principal and interest
                               and allocations of losses on Receivables.
 
                             In addition, certain Classes of Senior (or
                               Subordinate) Securities may be senior to other
                               Classes of Senior (or Subordinate) Securities in
                               respect of such distributions or losses.
 
                             General Payment Terms of Securities.
 
                             As provided in the related Trust Agreement and as
                               described in the related Prospectus Supplement,
                               the holders of the Securities ("Securityholders")
                               will be entitled to receive payments on their
                               Securities on specified dates (each, a "Payment
                               Date"). Payment Dates with respect to Securities
                               will occur monthly, quarterly or semi-annually,
                               as described in the related Prospectus
                               Supplement.
 
                             The related Prospectus Supplement will describe a
                               date (the "Record Date") preceding such Payment
                               Date, as of which the Trustee or its paying agent
                               will fix the identity of the Securityholders for
                               the purpose of receiving payments on the next
                               succeeding Payment Date. As described in the
                               related Prospectus Supplement, the Payment Date
                               will be a specified day of each month, commonly
                               the tenth, fifteenth or twenty-fifth day of each
                               month (or, in the case of quarterly-pay
                               Securities, the tenth, fifteenth or twenty-fifth
                               day of every third month; and in the case of
                               semi-annual pay Securities, the tenth, fifteenth
                               or twenty-fifth day of every sixth month) and the
                               Record Date will be the close of business as of
                               the last day of the calendar month that precedes
                               the calendar month in which such Payment Date
                               occurs.
 
                             As more fully described in the related Prospectus
                               Supplement, each Trust Agreement will describe a
                               period (each, a "Remittance Period") preceding
                               each Payment Date (for example, in the case of
                               monthly-pay Securities, the calendar month
                               preceding the month in which a Payment Date
                               occurs). As more fully described in the related
                               Prospectus Supplement, collections received on or
                               with respect to the related Receivables
                               constituting an Asset Pool during a Remittance
                               Period will be required to be remitted by the
                               Servicer to the related Trustee prior to the
                               related Payment Date and will be used to fund
                               payments to Securityholders on such Payment Date.
                               As may be described in the related Prospectus
                               Supplement, the related Trust Agreement may
                               provide that all or a portion of the payments
                               collected on or with respect to the related
                               Receivables may be applied by the related Trustee
                               to the acquisition of additional Receivables
                               during a specified period (rather than be used to
                               fund payments of principal to
                                        4
<PAGE>   78
 
                               Securityholders during such period), with the
                               result that the related Securities will possess
                               an interest-only period, also commonly referred
                               to as a revolving period, which will be followed
                               by an amortization period. Any such interest only
                               or revolving period may, upon the occurrence of
                               certain events to be described in the related
                               Prospectus Supplement, terminate prior to the end
                               of the specified period and result in the earlier
                               than expected amortization of the related
                               Securities.
 
                             In addition, and as may be described in the related
                               Prospectus Supplement, the related Trust
                               Agreement may provide that all or a portion of
                               such collected payments may be retained by the
                               Trustee (and held in certain temporary
                               investments, including Receivables satisfying the
                               criteria more fully described in the related
                               Prospectus Supplement) for a specified period
                               prior to being used to fund payments of principal
                               to Securityholders. Such retention and temporary
                               investment by the Trustee of such collected
                               payments may be required by the related Trust
                               Agreement for the purpose of (a) slowing the
                               amortization rate of the related Securities
                               relative to the rent payment schedule of the
                               related Receivables, or (b) attempting to match
                               the amortization rate of the related Securities
                               to an amortization schedule established at the
                               time such Securities are issued. Any such feature
                               applicable to any Securities may terminate upon
                               the occurrence of events to be described in the
                               related Prospectus Supplement, resulting in
                               distributions to the specified Securityholders
                               and an acceleration of the amortization of such
                               Securities.
 
                             As more fully specified in the related Prospectus
                               Supplement, neither the Securities nor the
                               underlying Receivables will be guaranteed or
                               insured by any governmental agency or
                               instrumentality or the Company, First Sierra, the
                               Servicer, any Lessor, any Trustee, or any of
                               their affiliates.
 
No Investment Companies....  The Issuer will not be required to register as an
                               "investment company" under the Investment Company
                               Act of 1940, as amended (the "Investment Company
                               Act"). Dewey Ballantine LLP, counsel to the
                               Issuer, has rendered its opinion to the effect
                               that registration of the Issuer as an "investment
                               company" is not required. However, the Commission
                               has not determined whether registration would, in
                               fact, be required, and there can be no assurance
                               that the Issuer will not be required to register
                               as an investment company.
 
The Company's Interest.....  With respect to each Trust, the "Company's
                               Interest" at any time represents the rights to
                               the related Asset Pool in excess of the
                               Securityholders' interest of all series then
                               outstanding that were issued by such Trust. The
                               Company's Interest in any Asset Pool will
                               fluctuate as the aggregate Discounted Contract
                               Balance of such Asset Pool changes from time to
                               time. A portion of the Company's interest may be
                               sold separately in one or more public or private
                               transactions.
 
The Asset Pools............  As specified in the related Prospectus Supplement,
                               each Asset Pool will consist of the related
                               Contracts, and may include a security interest in
                               the related Equipment. All of the Lessees (as
                               defined herein) and all of the Equipment will be
                               located within the United States. If and to the
                               extent specified in the related Prospectus
                               Supplement, credit
 
                                        5
<PAGE>   79
 
                               enhancement with respect to an Asset Pool or any
                               class of Securities may include any one or more
                               of the following: a Policy issued by an insurer
                               specified in the related Prospectus Supplement, a
                               reserve account, letters of credit, credit or
                               liquidity facilities, repurchase obligations,
                               third party payments or other support, cash
                               deposits or other arrangements. In addition to or
                               in lieu of the foregoing, credit enhancement may
                               be provided by means of subordination, cross-
                               support among the Receivables or
                               over-collateralization. See "Description of the
                               Trust Agreements -- Credit Enhancements." The
                               Contracts are obligations for the lease or
                               purchase of the Equipment, or evidence borrowings
                               used to acquire the Equipment, entitling the
                               obligor thereunder (the "Lessor") to payments of
                               rent and related payments and to either the
                               return of the Equipment at the termination of the
                               related Contract or, with respect to certain of
                               the Contracts, the payment of a purchase price
                               for the Equipment at the election of the obligee
                               thereunder (the "Lessee").
 
                             The Contracts which are leases will all be finance
                               leases. "Finance Leases" usually have a term
                               greater than three years. In a Finance Lease, the
                               Lessor transfers substantially all benefits and
                               risks of ownership to the Lessee. In accordance
                               with Statement of Financial Accounting Standards
                               No. 13 ("FASB 13"), a lease agreement is
                               classified as a Finance Lease if the
                               collectibility of payments are reasonably certain
                               and it meets one of the following criteria: (1)
                               the lease agreement transfers title and ownership
                               of the Equipment to the Lessee by the end of the
                               Contract term; (2) the lease agreement contains a
                               bargain purchase option; (3) the lease agreement
                               term at inception is at least 75% of the
                               estimated life of the Equipment; or (4) the
                               present value of the minimum lease agreement
                               payments is at least 90% of the fair market value
                               of the Equipment at inception of the lease
                               agreement. The related Prospectus Supplement will
                               describe the type and characteristics of the
                               Contracts included in each Asset Pool relating to
                               the Securities offered pursuant to this
                               Prospectus and the related Prospectus Supplement.
 
                             Neither the related Trust nor the Servicer will
                               have the right to obtain possession of the
                               Equipment securing a Contract, or to obtain the
                               proceeds of the sale of any Equipment, except in
                               the case of a repossession of such item of
                               Equipment following a default of the related
                               Lessee under the Contract. Consequently, except
                               for proceeds obtained following a repossession,
                               the Securities will not be secured by, or paid
                               from, the residual value of the Equipment.
 
                             The Receivables comprising an Asset Pool shall be
                               either (i) originated by the Seller, (ii)
                               originated by Lessors and acquired by the Seller
                               or (iii) acquired by the Seller from other
                               originators or owners of Receivables. See "The
                               Receivables."
 
                             With respect to the Receivables comprising each
                               Asset Pool, the Company will receive the related
                               Receivables from the Seller pursuant to a
                               Contribution and Sale Agreement as defined
                               herein. The Company will transfer such
                               Receivables to a Trust pursuant to a Pooling
                               Agreement or the Trust may pledge its right,
                               title and interest in and to such Receivables to
                               a Trustee on behalf of Securityholders pursuant
                               to an Indenture. The Contracts transferred to a
                               Trust or pledged to a
                                        6
<PAGE>   80
 
                               Trustee shall have a Discounted Contract Balance
                               (as defined below) specified in the related
                               Prospectus Supplement. The rights and benefits of
                               the Company under such Contribution and Sale
                               Agreement will be assigned to the Trustee on
                               behalf of the related Securityholders. The
                               obligations of the Company and the Servicer under
                               such Trust Agreements include those specified
                               below and in the related Prospectus Supplement.
 
                             The "Discounted Contract Balance" of a Contract as
                               of any Cut-Off Date is the present value of all
                               of the remaining payments scheduled to be made
                               with respect to such Contract, discounted at a
                               rate specified in the related Prospectus
                               Supplement and the Trust Agreement.
 
Pre-Funding Account........  If so specified in the related Prospectus
                               Supplement, a portion of the issuance proceeds of
                               the Securities of a particular series (such
                               amount, (the "Pre-Funded Amount") will be
                               deposited in an account (the "Pre-Funding
                               Account") to be established with the Trustee,
                               which will be used to acquire Additional
                               Receivables from time to time during time period
                               specified in the related Prospectus Supplement.
                               Prior to the investment of the Pre-Funded Amount
                               in Additional Receivables, such Pre-Funded Amount
                               will be invested in one or more Eligible
                               Investments. An "Eligible Investment" is any of
                               the following, in each case as determined at the
                               time of the investment or contractual commitment
                               to invest therein (to the extent such investments
                               would not require registration of the Trust as an
                               investment company pursuant to the Investment
                               Company Act): (a) negotiable instruments or
                               securities represented by instruments in bearer
                               or registered or book-entry form which evidence:
                               (i) obligations which have the benefit of the
                               full faith and credit of the United States of
                               America, including depository receipts issued by
                               a bank as custodian with respect to any such
                               instrument or security held by the custodian for
                               the benefit of the holder of such depository
                               receipt, (ii) demand deposits or time deposits
                               in, or bankers' acceptances issued by, any
                               depositary institution or trust company
                               incorporated under the laws of the United States
                               of America or any state thereof and subject to
                               supervision and examination by Federal or state
                               banking or depositary institution authorities;
                               provided that at the time of the Trustee's
                               investment or contractual commitment to invest
                               therein, the certificates of deposit or
                               short-term deposits (if any) or long-term
                               unsecured debt obligations (other than such
                               obligations whose rating is based on collateral
                               or on the credit of a Person other than such
                               institution or trust company) of such depositary
                               institution or trust company has a credit rating
                               in highest rating category from each Rating
                               Agency, (iii) certificates of deposit having a
                               rating in the highest rating category by the
                               Rating Agencies, or (iv) investments in money
                               market funds which are (or which are composed of
                               instruments or other investments which are) rated
                               in the highest rating category by the Rating
                               Agencies; (b) demand deposits in the name of the
                               Trustee in any depositary institution or trust
                               company referred to in clause (a)(ii) above; (c)
                               commercial paper (having original or remaining
                               maturities of no more than 270 days) having a
                               credit rating in the highest rating category by
                               the Rating Agencies; (d) Eurodollar time deposits
                               that are obligations of institutions whose time
                               deposits
                                        7
<PAGE>   81
 
                               carry a credit rating in the highest rating
                               category by the Rating Agencies; (e) repurchase
                               agreements involving any Eligible Investment
                               described in any of clauses (a)(i), (a)(iii) or
                               (d) above, so long as the other party to the
                               repurchase agreement has its long-term unsecured
                               debt obligations rated in the highest rating
                               category by the Rating Agencies; and (f) any
                               other investment with respect to which the Rating
                               Agencies rating such Securities indicate will not
                               result in the reduction or withdrawal of its
                               then-existing rating of the Securities. Any
                               Eligible Investment must mature no later than the
                               Business Day prior to the next Payment Date.
 
                             During any Pre-Funding Period, the Company will be
                               obligated (subject only to the availability
                               thereof) to acquire from the Seller and to either
                               transfer to a Trust, additional Receivables (the
                               "Additional Receivables") from time to time
                               during such Pre-Funding Period. Such Additional
                               Receivables will be required to satisfy certain
                               eligibility criteria more fully set forth in the
                               related Prospectus Supplement which eligibility
                               criteria will be consistent with the eligibility
                               criteria of the Receivables included in each
                               Asset Pool as of the issuance date subject to
                               such exceptions as are expressly stated in such
                               Prospectus Supplement.
 
                             Although the specific parameters of the Pre-Funding
                               Account with respect to any issuance of
                               Securities will be specified in the related
                               Prospectus Supplement, it is anticipated that:
                               (a) the Pre-Funding Period will not exceed 120
                               days from the related Closing Date (and in no
                               event will the Pre-Funding Period exceed one year
                               from the Closing Date), (b) that the Additional
                               Contracts to be acquired during the Pre-Funding
                               Period will be subject to the same
                               representations and warranties as the Contracts
                               included in the related Asset Pool on the Closing
                               Date (although additional criteria may also be
                               required to be satisfied, as described in the
                               related Prospectus Supplement) and (c) that the
                               Pre-Funded Amount is anticipated not to exceed
                               25% of the principal amount of the Securities
                               issued pursuant to a particular offering.
 
                             A periodic report on Form 8-K will be filed with
                               the Commission with respect to each Trust which
                               has a Pre-Funding Account, which will be filed
                               after the end of the related Pre-Funding Period.
                               Such filing will contain statistical information
                               on the final collateral pool, and will be
                               presented on a format substantially similar to
                               that used in the related Prospectus Supplement
                               for such statistical information.
 
Registration of
Securities.................  Securities may be represented by global securities
                               registered in the name of Cede & Co. ("Cede"), as
                               nominee of The Depository Trust Company ("DTC"),
                               or another nominee. In such case, Securityholders
                               will not be entitled to receive definitive
                               securities representing such Securityholders'
                               interests, except in certain circumstances
                               described in the related Prospectus Supplement.
                               See "Description of the Securities -- Book Entry
                               Registration" herein.
 
Credit Enhancement.........  If and to the extent specified in the related
                               Prospectus Supplement, credit enhancement with
                               respect to an Asset Pool or any class of
                               Securities may include any one or more of the
                               following: a Policy issued by an insurer
                               specified in the related Prospectus Supplement (a
 
                                        8
<PAGE>   82
 
                               "Security Insurer"), a reserve account, letters
                               of credit, credit or liquidity facilities, third
                               party payments or other support, cash deposits or
                               other arrangements. In addition to or in lieu of
                               the foregoing, credit enhancement may be provided
                               by means of subordination, cross-support among
                               the Receivables or overcollateralization. Any
                               form of credit enhancement will have certain
                               limitations and exclusions from coverage
                               thereunder, which will be described in the
                               related Prospectus Supplement. See "Description
                               of the Trust Agreements -- Credit Enhancements."
                               To the extent that shortfalls in the proceeds of
                               the Contracts occur which exceed the amount
                               covered by the credit enhancement or which are
                               not covered by the credit enhancement available
                               to a particular Series or Class,
                               Certificateholders will bear their allocable
                               share of any deficiencies. See "Risk
                               Factors -- Limited Assets" herein, and to the
                               extent applicable, in the related Prospectus
                               Supplement.
 
                             Any form of credit enhancement will have certain
                               limitations and exclusions from coverage
                               thereunder, which will be described in the
                               related Prospectus Settlement. See "Description
                               of the Trust Agreements -- Credit Enhancements."
 
Cross-Collateralization....  As described in the related Trust Agreement and the
                               related Prospectus Supplement, the source of
                               payment for Securities of each series will be the
                               assets of the related Asset Pool only.
 
                             However, as may be described in the related
                               Prospectus Supplement, a series or class of
                               Securities may include the right to receive
                               moneys from a common pool of credit enhancement
                               which may be available for more than one series
                               of Securities, such as a master reserve account,
                               master insurance policy or a master collateral
                               pool consisting of similar Receivables.
                               Notwithstanding the foregoing, and as described
                               in the related Prospectus Supplement, no payment
                               received on any Receivable held by any Trust may
                               be applied to the payment of Securities issued by
                               any other Trust (except to the limited extent
                               that certain collections in excess of the amounts
                               needed to pay the related Securities may be
                               deposited in a common master reserve account or
                               an overcollateralization account that provides
                               credit enhancement for more than one series of
                               Securities issued pursuant to the related Trust
                               Agreement).
 
Mandatory Repurchase of
  Certain Contracts........  As more fully described in the related Prospectus
                               Supplement, the Company will be obligated to
                               repurchase a Contract if the Contract is found to
                               be in breach of a representation or warranty, if
                               the breach is not cured and the Securityholders'
                               interests are materially and adversely affected.
                               Upon discovery by the Trust, the Servicer, a
                               Security Insurer or in the case of the Indenture
                               Trustee, upon actual knowledge of a Responsible
                               Officer of the Indenture Trustee, of such breach,
                               the party discovering such breach shall give
                               prompt written notice to the other parties. The
                               Security Insurer, to the extent there is one, or
                               the Indenture Trustee will then determine whether
                               the Securityholders' interests have been
                               materially and adversely affected by a breach of
                               a representation or warranty. In addition, if so
                               specified in the related Prospectus Supplement,
                               the Company may from time to time repurchase
                               certain Receivables or substitute other
                               Receivables for such
                                        9
<PAGE>   83
 
                               Receivable held by an Asset Pool, subject to
                               certain requirements set forth in the related
                               Trust Agreement and Conveyance Agreement;
                               provided that the following conditions are met:
 
                             (i) on a cumulative basis, the sum of the
                               Discounted Contract Balance of all substitute
                               Contracts cannot exceed 10% of the aggregate
                               Discounted Contract Balance of all Contracts as
                               of the related cut-off date;
 
                             (ii) the substitute Contracts being transferred
                               must have a Discounted Contract Balance that is
                               greater than the Discounted Contract Balance of
                               the Contracts being replaced; and
 
                             (iii) no substitutions shall be permitted if, as a
                               result thereof, (x) the sum of the scheduled
                               payments on all Contracts due in any Collection
                               Period thereafter would be less than or increase
                               the amount by which it is less than (y) the sum
                               of the scheduled payments which would otherwise
                               be due in such Collection Period.
 
Servicer's Compensation....  The Servicer shall be entitled to receive a fee for
                               servicing the Contracts of each Asset Pool equal
                               to a specified percentage of the Discounted
                               Contract Balance of such Contracts, as set forth
                               in the related Prospectus Supplement. See
                               "Description of the Trust Agreements -- Servicing
                               Compensation" herein and in the related
                               Prospectus Supplement.
 
Certain Legal Aspects of
the Contracts..............  With respect to the transfer of the Contracts to
                               the related Trust, the Company will warrant, in
                               each case, that the transfer by it is either a
                               valid transfer and assignment of the Contracts to
                               the Trust or the grant of a security interest in
                               the Contracts. Each Prospectus Supplement will
                               specify whether the Company will be required to
                               take such action as is required to perfect either
                               the Trust's or the Securityholders' security
                               interest in the Contracts. The Company may also
                               warrant that, if the transfer or pledge by it to
                               the Trust or to the Securityholders is deemed to
                               be a grant to the Trust or to the Securityholders
                               of a security interest in the Contracts, then the
                               Trust or the Securityholders will have a first
                               priority perfected security interest therein,
                               except for certain liens which have priority over
                               previously perfected security interests by
                               operation of law, and, with certain exceptions,
                               in the proceeds thereof. Similar security
                               interest and priority representations and
                               warranties, as described in the related
                               Prospectus Supplement, may also be made by the
                               Company with respect to the Equipment.
 
                             Each Prospectus Supplement will specify if the
                               Seller or the Company has filed or will be
                               required to file UCC (as herein defined)
                               financing statements identifying the Equipment as
                               collateral pledged in favor of the related Trust
                               or Trustee on behalf of the Securityholders. In
                               the absence of such filings any security interest
                               in the Equipment will not be perfected in favor
                               of the related Trust or Trustee. See "Risk
                               Factors."
 
Optional Termination.......  The Servicer, the Company, or, if specified in the
                               related Prospectus Supplement, certain other
                               entities may, at their respective options, effect
                               early retirement of a series of Securities under
                               the circum-
 
                                       10
<PAGE>   84
 
                               stances and in the manner set forth herein under
                               "Description of the Trust
                               Agreements -- Termination" and in the related
                               Prospectus Supplement. In the event of such a
                               redemption, the entire outstanding principal
                               amount of the Securities subject to early
                               termination, together with accrued interest
                               thereon at the related Interest Rate will be
                               required to be paid to the Securityholders.
 
Mandatory Termination......  The Trustee, the Servicer or certain other entities
                               specified in the related Prospectus Supplement
                               may be required to effect early retirement of all
                               or any portion of a series of Securities by
                               soliciting competitive bids for the purchase of
                               the related Asset Pool or otherwise, under other
                               circumstances and in the manner specified in
                               "Description of the Trust
                               Agreements -- Termination" and in the related
                               Prospectus Supplement.
 
Material Federal Income Tax
  Consequences.............  Securities of each series offered hereby will, for
                               federal income tax purposes, constitute either
                               (i) interests in a Trust treated as a grantor
                               trust under applicable provisions of the Code
                               ("Grantor Trust Certificates") or (ii) debt
                               issued by a Trust ("Notes"). See "Material
                               Federal Income Tax Consequences."
 
                             Holders of Grantor Trust Securities will be treated
                               as the owner of an interest in the Equipment and
                               Contracts included in the Grantor Trust Estate.
                               Holders of Notes will be treated as the owner of
                               a debt instrument and will be required to report
                               income received with respect to the Notes in
                               accordance with their normal method of
                               accounting.
 
                             The Prospectus Supplement for each series of
                               Securities will summarize, subject to the
                               limitations stated therein, federal income tax
                               considerations relevant to the purchase,
                               ownership and disposition of such Securities.
 
                             Investors are recommended to consult their tax
                               advisors and to review "Material Federal Income
                               Tax Consequences" herein and in the related
                               Prospectus Supplement.
 
ERISA Considerations.......  The Prospectus Supplement for each series of
                               Securities will summarize, subject to the
                               limitations discussed therein, considerations
                               under the Employee Retirement Income Security Act
                               of 1974, as amended ("ERISA"), relevant to the
                               purchase of such Securities by employee benefit
                               plans and individual retirement accounts. See
                               "ERISA Considerations" in the related Prospectus
                               Supplement.
 
                                       11
<PAGE>   85
 
Ratings....................  Each Class of Securities offered pursuant to this
                               Prospectus and the related Prospectus Supplement
                               will be rated in one of the four highest rating
                               categories by one or more "national statistical
                               rating organizations", as defined in the
                               Securities Exchange Act of 1934, as amended (the
                               "Exchange Act"), and commonly referred to as
                               "Rating Agencies". Such ratings will address, in
                               the opinion of such Rating Agencies, the
                               likelihood that the Issuer will be able to make
                               timely payment of all amounts due on the related
                               Securities in accordance with the terms thereof.
                               Such ratings will neither address any prepayment
                               or yield considerations applicable to any
                               Securities nor constitute a recommendation to
                               buy, sell or hold any Securities.
 
                             The ratings expected to be received with respect to
                               any Securities will be set forth in the related
                               Prospectus Supplement.
 
                                       12
<PAGE>   86
 
                                  RISK FACTORS
 
     Prospective investors should consider, among other things, the following
factors in connection with the purchase of the Securities:
 
          Limited Liquidity May Result In A Securityholder Being Unable To
     Liquidate Its Investments. There can be no assurance that a secondary
     market for the Securities of any Series or Class will develop or, if it
     does develop, that it will provide Securityholders with liquidity of
     investment or that it will continue for the life of such Securities. The
     Prospectus Supplement for any series of Securities may indicate that an
     underwriter specified therein intends to establish and maintain a secondary
     market in such Securities; however, no underwriter will be obligated to do
     so. The Securities will not be listed on any securities exchange.
 
          Limited Assets Will Secure The Securities And Securityholders Will
     Have No Recourse To The Issuer, The Company, The Servicer, The Seller Or
     Any Respective Affiliate.  Each Asset Pool will not have, nor is it
     permitted or expected to have, any significant assets or sources of funds
     other than the related Receivables and, to the extent provided in the
     related Prospectus Supplement, the related reserve account(s) and any other
     credit enhancement. The Certificates will represent beneficial interests in
     the related Trust only and will not represent interests in or obligations
     of the Company, the Servicer, the Seller or any of their respective
     affiliates other than the related Trust. The sole source of payment with
     respect to any Certificate will be the assets of the related Trust. The
     Notes will represent obligations of the related Issuer only and will not
     represent interests in or obligations of the Company, the Servicer, the
     Seller or any of their respective affiliates other than the related Issuer.
     The Notes will be secured by the assets of the related Asset Pool, and the
     sole source of payment with respect to any Note will be the assets of the
     related Asset Pool. No Securities will be insured or guaranteed by the
     Seller, the Company, the Servicer or the applicable Trustee(s), except as
     set forth in the related Prospectus Supplement. Consequently, holders of
     Securities must rely for repayment primarily upon payments on the related
     Receivables and, if and to the extent available, amounts on deposit in the
     reserve account(s), if any, and any other credit enhancement, all as
     specified in the related Prospectus Supplement.
 
          Subordination Of Interest And Principal On Certain Classes And Series
     of Securities Will Increase The Likelihood Of Delays And Loss Of Payments
     To Such Classes And Series.  To the extent specified in the related
     Prospectus Supplement, distributions of interest and principal on one Class
     or Series of Securities may be subordinated in priority of payment to
     interest and principal due on other Classes or Series of Securities. Such
     Class or Series of Securities could experience delays and or reductions in
     the payment of principal and/or interest to the extent that collections and
     other amounts available to make distributions to the senior Class, Classes
     or Series of Securities are insufficient to cover the required amount to be
     distributed to such senior Class, Classes or Series. The particular terms
     of any subordination will be more fully set forth in the related Prospectus
     Supplement.
 
          The Seller Or Servicer Rather Than The Trustee May Have Possession Of
     The Contracts, Exposing Securityholders To The Risk That They May Lose
     Their Security Interest Or Ownership Interest In The Contracts And
     Equipment.  In connection with the issuance of each Series, the Seller will
     transfer Contracts to the Company. The Seller will warrant in a
     Contribution and Sale Agreement that the transfer of the Contracts by it to
     the Company is a valid assignment, transfer and conveyance of such
     Contracts. The Company will warrant in a Trust Agreement (a) if the Company
     retains title to the Contracts, that it has granted to the Trustee for the
     benefit of Securityholders a valid security interest in such Contracts, or
     (b) if the Company transfers such Contracts to a Trust, that the transfer
     of the Contracts by it to such Trust is either a valid assignment, transfer
     and conveyance of the Contracts to the Trust or it has granted to the
     Trustee on behalf of the Securityholders a valid security interest in such
     Contracts. Pursuant to each Trust Agreement, the Trustee will be required
     to maintain possession of the original copies of all Contracts that
     constitute chattel paper; provided that the Servicer or a Lessor acting as
     a sub-Servicer may take possession of such original copies as necessary for
     the enforcement of any Contract. In certain circumstances, and as specified
     in the related Prospectus Supplement, a portion of the Contracts may remain
     in the possession of a Lessor or the Seller, subject to specific trigger
     events that
 
                                       13
<PAGE>   87
 
     will require delivery to the Trustee. If the Servicer, a Lessor or other
     third party, while in possession of the Contracts, sells or pledges and
     delivers such Contracts to another party, in violation of the Contribution
     and Sale Agreement or the Trust Agreement, there is a risk that such other
     party could acquire an interest in such Contracts having a priority over
     the Issuer's interest. Furthermore, if the Servicer, a Lessor or a third
     party, while in possession of the Contracts, is rendered insolvent, such
     event of insolvency may result in competing claims to ownership or security
     interests in the Contracts. Such an attempt, even if unsuccessful, could
     result in delays in payments on the Securities. If successful such attempt
     could result in losses to the Securityholders or an acceleration of the
     repayment of the Securities. The Seller and the Company will make certain
     representations and warranties with respect to the ownership of the
     Contracts as of the date of the transfer to the Company and the Trust, if
     any, respectively. The Seller will be obligated to acquire any Contract
     from the related Asset Pool if there is a breach of such representations
     and warranties that materially adversely affects the interests of the
     Company or the Trust in such Contract and such breach has not been cured.
 
          The Seller will also sell and/or contribute all of its right, title
     and interest in and to the Equipment to the Company. If a security interest
     in title to the Equipment is transferred, the Contribution and Sale
     Agreement shall require the Seller to make certain representations and
     warranties with respect to the transfer of title and perfection and
     priority of such security interest, if any, in the Equipment. The Company
     will pledge all of its right, title and interest in and to such Equipment
     to the Trust. Pursuant to a Trust Agreement, the Company will warrant (a)
     if the Company transfers such Equipment to a Trust, that such transfer is
     either a valid assignment, transfer and conveyance of such Equipment to the
     Trust or it has granted to the Trust a security interest in such Equipment,
     or (b) if the Company retains title, that it has granted to the Trustee for
     the benefit of Securityholders a valid security interest in such Equipment.
 
          As specified herein and related Prospectus Supplement, because of the
     administrative burden and expense that would be entailed in so doing,
     neither the Seller nor the Company will have filed, or necessarily would be
     required to file, UCC financing statements identifying the Equipment as
     collateral pledged in favor of the related Trust or Trustee on behalf of
     the Securityholders. In the absence of such filings any security interest
     in the Equipment will not be perfected in favor of the related Trust or
     Trustee. As a result the Trust or Trustee could lose priority of its
     security interest in such Equipment. Neither the Seller nor the Company
     will have any obligation to reacquire Equipment as to which such
     aforementioned occurrence results in the loss of lien priority after the
     date the Company or the Trust receives an interest in such Equipment unless
     otherwise obligated in the related Prospectus Supplement.
 
          Yields, Maturities And Prepayments On The Securities Cannot Be
     Predicted And Social, Economic And Other Factors May Affect Securityholders
     Return On Their Investments.  Because the rate of payment of principal on
     the Securities will depend, among other things, on the rate of payment on
     the Contracts, the rate of payment of principal on the Securities cannot be
     predicted. Payments on the Contracts will include scheduled payments as
     well as partial and full prepayments (to the extent not replaced with
     substitute Contracts), payments upon the liquidation of Defaulted
     Contracts, payments upon acquisitions by the Company of Contracts from the
     related Asset Pool on account of a breach of certain representations and
     warranties in the related Trust Agreement, payments upon an optional
     acquisition by the Company of Contracts from the related Asset Pool (any
     such voluntary or involuntary prepayment or other early payment of a
     Contract, a "Prepayment"), and residual payments. The rate of early
     terminations of Contracts due to Prepayments and defaults may be influenced
     by a variety of economic and other factors, including, among others,
     obsolescence, then current economic conditions and tax considerations. The
     risk of reinvesting distributions of the principal of the Securities will
     be borne by the Securityholders. The yield to maturity on Strip Securities
     or Securities purchased at premiums or discounts to par will be extremely
     sensitive to the rate of Prepayments on the related Receivables. In
     addition, the yield to maturity on certain other types of classes of
     Securities, including Strip Securities, Accrual Securities or certain other
     Classes in a series including more than one Class of Securities, may be
     relatively more sensitive to the rate of prepayment of the related
     Contracts than other Classes of Securities.
 
                                       14
<PAGE>   88
 
          The Company does not have available to it any statistics as to
     prepayment rates historically experienced in the equipment leasing industry
     and the Seller does not accumulate information related to Prepayments with
     respect to its portfolio. As a matter of practice, the Seller does not
     originate Contracts which permit Prepayments. Further, in the ordinary
     course of dealings, the Seller does not permit Prepayments at the request
     of a Lessee. Additionally, to the extent that one or more Contracts having
     large Discounted Contract Balances are prepaid, the prepayment experience
     of the Seller's portfolio would not necessarily be indicative of the actual
     rate of Prepayments experienced by any particular Asset Pool. The rate of
     Prepayments of Contracts cannot be predicted and is influenced by a wide
     variety of economic, social, and other factors, including prevailing
     interest rates, the availability of alternate financing and local and
     regional economic conditions. Therefore, no assurance can be given as to
     the level of Prepayments that an Asset Pool will experience.
 
          Securityholders should consider, in the case of Securities purchased
     at a discount, the risk that a slower than anticipated rate of Prepayments
     on the Receivables could result in an actual yield that is less than the
     anticipated yield and, in the case of any Securities purchased at a
     premium, the risk that a faster than anticipated rate of Prepayments on the
     Receivables could result in an actual yield that is less than the
     anticipated yield.
 
          Recoveries On The Contracts May Be Limited, Which May Result In The
     Issuer Receiving Substantially Less Than The Face Amount Of The Related
     Contract.  The Contracts provide that the obligations of the Lessees
     thereunder are absolute and unconditional, regardless of any defense,
     set-off or abatement which the Lessee may have against the Seller or any
     other person or entity whatsoever unless otherwise described in the related
     Prospectus Supplement,. The Seller will warrant that no claims or defenses
     have been asserted or threatened with respect to the Contracts and that all
     requirements of applicable law with respect to the Contracts have been
     satisfied.
 
          In the event that the Company or Trustee must rely on repossession and
     disposition of Equipment to recover scheduled payments due on Defaulted
     Contracts, the Issuer may not realize the full amount due on a Contract (or
     may not realize the full amount on a timely basis). Other factors that may
     affect the ability of the Issuer to realize the full amount due on a
     Contract include whether financing statements to perfect the security
     interest in the Equipment had been filed, depreciation, obsolescence,
     damage or loss of any item of Equipment, and the application of Federal and
     state bankruptcy and insolvency laws. As a result, the Securityholders may
     be subject to delays in receiving payments and suffer loss of their
     investment in the Securities.
 
          Risks Related To Insolvency Of The Seller And Bankruptcy Matters.  The
     Company has taken steps in structuring the transactions contemplated hereby
     that are intended to ensure that the voluntary or involuntary application
     for relief by the Seller under the United States Bankruptcy Code or similar
     applicable state laws ("Insolvency Laws") will not result in consolidation
     of the assets and liabilities of the Company with those of the Seller.
     These steps include the creation of the Company as a separate,
     limited-purpose subsidiary pursuant to a certificate of incorporation
     containing certain limitations (including restrictions on the nature of the
     Company's business and a restriction on the Company's ability to commence a
     voluntary case or proceeding under any Insolvency Law without the prior
     unanimous affirmative vote of all of its directors). However, there can be
     no assurance that the activities of the Company would not result in a
     court's concluding that the assets and liabilities of the Company should be
     consolidated with those of the Seller in a proceeding under any Insolvency
     Law.
 
          In addition, while the Seller is the Servicer, cash collections held
     by the Seller may, subject to certain conditions, be commingled and used
     for the benefit of the Seller prior to each Payment Date and, in the event
     of the bankruptcy of the Seller, the Company, a Trust or Trustee may not
     have a perfected interest in such collections.
 
          With respect to each series, the Seller will obtain a legal opinion
     from Dewey Ballantine LLP, special counsel to the Seller that the transfer
     of the Receivables by Seller to the Company should be treated as a valid
     assignment, transfer and conveyance of the Receivables. However, in the
     event of an insolvency of the Seller, a court, among other remedies, could
     attempt to recharacterize the transfer of
                                       15
<PAGE>   89
 
     the Receivables by the Seller to the Company as a borrowing by the Seller
     from the Company or the related Securityholders, secured by a pledge of
     such Receivables. Such an attempt, even if unsuccessful, could result in
     delays in payments on the Securities. If such an attempt were successful, a
     court, among other remedies, could elect to accelerate payment of the
     Securities and liquidate the Receivables, with the Securityholders entitled
     to the then outstanding principal amount thereof and interest thereon at
     the applicable Security Interest Rate to the date of payment. Thus, the
     Securityholders could lose the right to future payments of interest and
     might incur reinvestment losses. As more fully described in the related
     Prospectus Supplement, in the event the Company is rendered insolvent, the
     Trustee for a Trust, in accordance with the Trust Agreement, will promptly
     sell, dispose of or otherwise liquidate the related Receivables in a
     commercially reasonable manner on commercially reasonable terms. The
     proceeds from any such sale, disposition or liquidation of such Receivables
     will be treated as collections on such Receivables. If the proceeds from
     the liquidation of the Receivables and any amount available from any credit
     enhancement, if any, are not sufficient to pay Securities of the related
     series in full, the amount of principal returned to such Securityholders
     will be reduced and such Securityholders will incur a loss.
 
          Lessees of the Equipment may be entitled to assert against the Seller,
     the Company, or the Trust, if any, claims and defenses which they have
     against the Seller with respect to the Receivables. The Seller will warrant
     that no such claims or defenses have been asserted or threatened with
     respect to the Receivables and that all requirements of applicable law with
     respect to the Receivables have been satisfied.
 
          Equipment Obsolescence May Diminish Recovery Values.  In the event a
     Contract becomes a Defaulted Contract and the Lessee (and any guarantor)
     has insufficient assets available to pay the Contract payments on the
     scheduled payment dates, the only other source of moneys (other than the
     applicable credit enhancements, if any) for such amounts will be the income
     and proceeds from the disposition of the related Equipment. Because the
     market value of equipment generally declines with age and may be subject to
     sudden, significant declines in value because of technological advances, in
     the event of a repossession and sale of Equipment subject to a Defaulted
     Contract, the Issuer may not recover the entire amount due on such
     Contract. As a result, the Securityholders may be subject to delays in
     receiving payments and suffer loss of their investment in the Securities.
 
          Future Levels Of Delinquencies On The Contracts Are Uncertain.  There
     can be no assurance that the levels of delinquencies and losses experienced
     in recent years by the Seller on its equipment lease portfolio are
     indicative of the performance of the Contracts included in any Asset Pool
     or that such levels will continue in the future. Delinquencies and losses
     could increase significantly for various reasons, including changes in the
     federal income tax laws, changes in the local, regional or national
     economies or due to other events.
 
          Book-Entry Registration May Further Reduce Liquidity And May Lead To
     Payment Delays. Issuance of the Securities in book-entry form may reduce
     the liquidity of such Securities in the secondary trading market since
     investors may be unwilling to purchase Securities for which they cannot
     obtain definitive physical securities representing such Securityholders'
     interests, except in certain circumstances described in the related
     Prospectus Supplement.
 
          Since transactions in Securities will, in most cases, be able to be
     effected only through DTC, direct or indirect participants in DTC's
     book-entry system ("Direct Participants" or "Indirect Participants") or
     certain banks, the ability of a Securityholder to pledge a Security to
     persons or entities that do not participate in the DTC system, or otherwise
     to take actions in respect to such Securities, may be limited due to lack
     of a physical security representing the Securities.
 
          Securityholders may experience some delay in their receipt of
     distributions of interest on and principal of the Securities since
     distributions may be required to be forwarded by the Trustee to DTC and, in
     such case, DTC will be required to credit such distributions to the
     accounts of its Participants which thereafter will be required to credit
     them to the accounts of the applicable class of Securityholders
 
                                       16
<PAGE>   90
 
     either directly or indirectly through Indirect Participants. See
     "Description of the Securities -- Book Entry Registration."
 
          Rating Of Securities Subject To Change Based On The Ratings Of The
     Credit Enhancers.  The rating of Securities credit enhanced by a letter of
     credit, financial guaranty insurance policy, reserve fund, credit or
     liquidity facilities, cash deposits or other forms of credit enhancement
     (collectively "Credit Enhancement") will depend primarily on the
     creditworthiness of the issuer of such external Credit Enhancement device
     (a "Credit Enhancer"). Any reduction in the rating assigned to the
     claims-paying ability of the related Credit Enhancer to honor its
     obligations pursuant to any such Credit Enhancement below the rating
     initially given to the Securities would likely result in a reduction in the
     rating of the Securities.
 
          Software and Service Contracts May Not Be Owned By The Seller And The
     Issuer May Not Realize Proceeds Upon A Default Of Such Software And Service
     Contracts.  Certain Contracts, as described in the related Prospectus
     Supplement, will relate to software and services that are not owned by the
     Seller and in which no related interest will be transferred to the Issuer.
     Instead, the Issuer will receive the right to receive payments under the
     Contract. Accordingly, if any such Contract becomes a Defaulted Contract,
     the Issuer will not realize any proceeds from the related software and
     services from which to satisfy any unpaid payments under such Contracts.
 
          Transfer Of Servicing May Delay Payments To Securityholders.  If the
     Seller were to cease acting as Servicer, delays in processing payments on
     the Receivables and information in respect thereof could occur and result
     in delays in payments to the Securityholders.
 
          The Seller's Inability To Repurchase Contracts May Result In Losses
     And Delays Of Payments To The Securityholders.  In connection with the
     transfer of Receivables by the Seller to the Company, the Seller will make
     representations and warranties with respect to certain matters relating to
     such Receivables. In certain circumstances, the Company and the Seller will
     be required to acquire Receivables from the related Asset Pool with respect
     to which such representations and warranties have been breached. In the
     event that the Seller is incapable of complying with its reacquire
     obligations and no other party is obligated to perform or satisfy such
     obligations, Securityholders may be subject to delays in receiving payments
     and suffer loss of their investment in the Securities.
 
          The Initial Contact Pool May Have Geographic Or Other
     Concentrations.  As more fully set forth in the related Prospectus
     Supplement, the Contracts constituting a particular Asset Pool may be
     concentrated such that lessees in a particular geographic region, a
     particular type of equipment or a particular lessee constitutes a
     significant portion of the Asset Pool. To the extent Adverse economic
     conditions were particularly severe in such geographic region or industry
     or in the event a lessee under a large amount of Contracts were to
     experience financial difficulties the delinquency and default experience of
     the Asset Pool could be adversely impacted.
 
          The Seller's Ability To Originate Additional Contracts May Determine
     Whether The Pre-Funding Account Will Be Fully Utilized.  In the event the
     Company is unable to transfer Contracts with an Aggregate Discounted
     Contract Balance equal to the Pre-Funded Amount prior to the expiration of
     the Pre-Funding Period, Securityholders will experience a prepayment equal
     to their allocable share (as more fully described in the related Prospectus
     Supplement) of the uninvested Pre-Funded Amount. Such prepayment may reduce
     the expected yield to investors. In addition, due to market fluctuations,
     investors may be unable to reinvest such prepayment amounts in similarly
     yielding investments.
 
          Year 2000 Issue.  The "Year 2000" issue involves computer programs and
     applications that were written using two digits (instead of four) to
     describe the applicable year. Failure to successfully modify such programs
     and applications to be Year 2000 compliant may have a material adverse
     impact on First Sierra. Exposure arises not only from potential
     consequences (for example, business interruption) of certain of First
     Sierra's own applications not being Year 2000 compliant, but also from
     non-compliance by significant counterparties with which First Sierra does
     business. Management has made inquiries of its major software vendors and
     has received assertions that the software programs from such vendors are
     Year 2000 compliant. First Sierra expects to complete testing of the
     software vendors' assertions by the first quarter of 1999.
                                       17
<PAGE>   91
 
          The Underwriting Criteria Used To Originate Contracts Under The
     Portfolio Acquisition Program May Deviate From The Underwriting Criteria Of
     First Sierra.  The Contracts included in a particular Asset Pool may have
     been purchased by First Sierra from one or more lessors pursuant to its
     Portfolio Acquisition Program. To the extent described in the related
     Prospectus Supplement, certain Contracts included in a particular Asset
     Pool may have been originated using underwriting criteria different from
     that of First Sierra's. However, the Contracts included in a particular
     Asset Pool will satisfy the criteria set forth in the related Prospectus
     Supplement.
 
          Securityholders' Waiver Of Right To Institute Proceeding Against
     Company.  Each Securityholder by its purchase of Securities is deemed by
     its purchase of such Securities to have covenanted that it will not at any
     time institute against the Company any bankruptcy, reorganization or other
     proceeding under any Insolvency Law.
 
                                USE OF PROCEEDS
 
     The proceeds from the sale of the Securities of a given series will be
applied by the related Issuer to the acquisition of the related Receivables or
may be transferred to the Seller in connection with the conveyance of the
Receivables. The Company expects that it will make additional sales of
securities similar to the Securities from time to time, but the timing and
amount of any such additional offering will be dependent upon a number of
factors, including the volume of Contracts acquired by the Company, prevailing
interest rates, availability of funds and general market conditions.
 
                                  THE ISSUERS
 
     The Securities offered hereby will be issued by a Trust (which may be an
owner trust or a trust) established by the Company pursuant to a Pooling
Agreement or a Trust Agreement. For purposes of this Prospectus and the related
Prospectus Supplement, the Trust issuing the related Securities shall be
referred to as the "Issuer" with respect to such Securities. Each Trust may
issue Certificates and, if it is an owner trust, Notes. The Asset Pool related
to each Trust will be formed and transferred to such Trust pursuant to the
related Pooling Agreement and, in the case of Notes, the related Asset Pool will
be formed and pledged to the related Trustee pursuant to the related Indenture.
 
     To the extent that a Trust in an owner trust (an "Owner Trust"), it will be
organized as a business trust to be formed in accordance with the laws of the
State of Delaware, pursuant to a Pooling and Servicing Agreement, solely for the
purpose of effectuating the transactions described herein and in the related
Prospectus Supplements. Prior to formation, each such Trust will have had no
assets or obligations and no operating history. Upon formation, each such Trust
will not engage in any business activity other than (a) acquiring, managing and
holding the related Contracts, (b) issuing the related Securities, (c) making
distributions and payments thereon and (d) engaging in those activities,
including entering into agreements, that are necessary, suitable or convenient
to accomplish the foregoing or are incidental thereto or connected therewith.
Such Owner Trust may issue Certificates pursuant to a Pooling Agreement or issue
Notes pursuant to an Indenture. The terms of any such issuance are more fully
described herein and may be fully in the related Prospectus Supplement.
 
                                THE ASSET POOLS
 
     Each Asset Pool will include, as specified in the related Prospectus
Supplement, (i) a pool of Contracts which will consist solely of finance leases
and commercial loans and the Receivables related thereto, (ii) all moneys
(including accrued interest) due or to become due thereunder on or after the
applicable Cut-off Date, (iii) such amounts as from time to time may be held in
one or more accounts established and maintained by the Servicer pursuant to the
related Trust Agreement, as described below and in the related Prospectus
Supplement, (iv) the security interests, if any, in the Equipment relating to
such pool of Receivables, (v) the right to proceeds from claims on physical
damage policies, if any, covering such Equipment or the related Lessees, as the
case may be, (vi) the rights of the Seller under the related Contribution and
Sale Agreement
 
                                       18
<PAGE>   92
 
and (vii) interest earned on short-term investments made by such Trust. The
Asset Pool will also include, if so specified in the related Prospectus
Supplement, monies on deposit in a Pre-Funding Account, which will be used by
the Trustee to acquire or receive a security interest in Additional Receivables
from the Company from time to time during the Pre-Funding Period specified in
the related Prospectus Supplement. In addition, to the extent specified in the
related Prospectus Supplement, some combination of Credit Enhancements may be
issued to or held by the Trustee on behalf of the related Securityholders for
the benefit of the holders of one or more classes of Securities.
 
     The Receivables and related items in each Asset Pool will be acquired by
the Company from the Seller pursuant to a contribution and sale agreement
between the Seller and the Company (each, a "Contribution and Sale Agreement").
The Receivables included in each Asset Pool will be selected from those
Receivables held by the Seller based on the criteria specified in the applicable
Trust Agreement and described in the related Prospectus Supplement.
 
     Information with respect to the Receivables in each Asset Pool will be set
forth in the related Prospectus Supplement, including, to the extent
appropriate, the distribution of such Receivables by equipment type, remaining
lease term, original lease term, Discounted Contract Balance and/or Discounted
Contract and Residual Balance, lessee industry and geographic distribution, in
each case, as of the applicable Cut-Off Date.
 
                                THE RECEIVABLES
 
GENERAL
 
     The Contracts are full payout leases with an average original equipment
cost of approximately $17,000, generally range in size from $1,000 to $500,000,
have an average term of nearly 60 months and generally range from 36 to 84
months in term. The Contracts relate to a wide range of equipment, which consist
of: computers and peripherals, computer software, medical and dental related
equipment including dental operatories, medical, dental and veterinary
diagnostic equipment including x-ray machines, blood analyzers and other
diagnostic equipment, telecommunications, general office, automotive servicing,
hospitality and food services related equipment, equipment utilized in the arbor
industry which includes trucks, grinders and lifts, machine tools, manufacturing
process equipment, heavy mobile construction equipment, copiers, and specialty
vehicles including bucket trucks, lifts, delivery vans and trucks.
 
     The Contracts were acquired by the Company from First Sierra or an
affiliate. As more fully described in the related Prospectus Supplement, the
Contracts were either (a) originated by a lessor and acquired by First Sierra
pursuant to First Sierra's Portfolio Acquisition Program, (b) acquired by First
Sierra because such Contracts comply with First Sierra's underwriting criteria
for the Private Label Program or (c) originated by First Sierra under the Broker
Program and Vendor Program.
 
                                  FIRST SIERRA
 
     First Sierra Financial Inc. (the "Seller" or "First Sierra") is a
specialized finance company that acquires and originates, sells and services
equipment contracts.
 
     First Sierra has established strategic alliances with a network of
independent leasing companies, contract brokers and equipment vendors, each of
which acts as a source from which First Sierra obtains access to equipment
contracts. First Sierra customizes contract financing products to meet the
specific equipment financing needs of its customers and in many cases provides
such customers with servicing and technological support via on-line connections
to First Sierra's state-of-the-art computer system.
 
     First Sierra commenced operations in June 1994 and initially developed a
program to purchase contracts from leasing companies which had the ability to
originate significant contract volumes and were willing and able to provide
credit protection to First Sierra (through recourse and purchase price holdback
features) and perform certain servicing functions on an ongoing basis with
respect to such contracts. This program, referred to by First Sierra as its
"Private Label" program (and the companies that participate in the Private Label
 
                                       19
<PAGE>   93
 
Program are "Sources"), was designed to provide First Sierra with access to high
volumes of contracts eligible for the securitization market, while minimizing
the risk of loss to First Sierra. First Sierra has experienced significant
growth in its Private Label program since inception, with the volume of
contracts purchased increasing from $4.5 million in 1994, to $65.2 million in
1995, to $161.1 million in 1996, to $210 million in 1997 and to $118 million in
the first six months of 1998. The volume of contracts originated under the
Broker Program and Vendor Program was a combined $168 million in 1997.
 
PRIVATE LABEL PROGRAM
 
  General
 
     The Private Label Program was designed to provide financing to small ticket
Sources which were typically financed by local commercial banks. Each Private
Label transaction generally contains one or more of the following types of loss
protection: (a) recourse to the Source which requires the Source to repurchase
contracts that are typically 90 days past due up to an aggregate amount that is
up to 10% of the total purchase price of the contracts acquired from such
Source, (b) remarketing of the equipment that is subject to a defaulted contract
and (c) retention of a certain percentage of the purchase price owing to the
Source for each contract as a reserve, such reserve typically ranging from 1% to
10% of the purchase price of the related contracts. However, some Private Label
transactions are non-recourse to the Source (although such Sources are obligated
to repurchase contracts as to which a breach of representation or warranty
occurs) and are not structured with the loss protections contained in (a), (b)
and (c) above. Other than for a breach of a representation or warranty, First
Sierra would absorb the full risk of loss on leases originated under this
structure. Currently, there is no Private Label transaction that falls in this
category.
 
     The Private Label Program utilizes three separate forms of agreements that
utilize the above types of loss protection. Under the first, First Sierra has
recourse to the Source up to 10% of the aggregate purchase price of the
contracts acquired from such Source for defaulted contracts. Under the second
form of agreement, in addition to the aforementioned recourse to the Source,
First Sierra has the benefit of a reserve which generally ranges from 1% to 10%
of the total purchase price of the contracts acquired from such Source, with an
average of 3.5%. Such amount is funded by the retention of a specified
percentage of the purchase price for each contract as a reserve. Under the third
option, First Sierra has recourse only to the cash reserve for credit losses,
which reserve also ranges from 1%-10% of the total purchase price of the
contracts acquired from such Source, with an average reserve of 3.5%.
 
  Underwriting Procedures
 
     In order to qualify for participation in the Private Label Program, a
Source must satisfy certain criteria, which generally require that the majority
of the Source's business be small ticket contracts ($1,000 -- $500,000),
generate a minimum volume of contracts in excess of $5 million a year, have been
in business a minimum of five years, have a history of profitably operating a
leasing company for a period of time in excess of five years, have a personal
credit history which shows that the principal management of the Source has a
clean credit history, and have sufficient staff and financial resources. The
specific requirements vary depending upon such things as transaction size, and
type and location of equipment financed.
 
     First Sierra's underwriting guidelines with respect to Obligors contain
specific requirements which vary according to the nature of the Obligor's
business, the size of the transaction, and the type of program under which the
Source is seeking approval. In underwriting the Obligor, First Sierra considers,
among other things, time in business, bank, credit and trade references, credit
bureau reports on all officers, Dun & Bradstreet reports, confirmation of
ownership, complete financial package, personal guarantees, maximum exposure per
Obligor, verification of a personal medical license, where applicable, and
historical financial statements or tax returns for commercial exposures greater
than $75,000 or as specifically arranged with the originating Source.
 
     The Private Label Source typically closes the contract transaction prior to
sale to First Sierra. The Source will have performed all the necessary credit
inquiries and documentation, and will submit this information to First Sierra
for review. Each contract submitted for funding from any approved Source is
individually underwritten and approved by First Sierra. Individual contract
underwriting procedures generally include
 
                                       20
<PAGE>   94
 
review of credit bureau reports and verification of bank references, trade
references, and licenses. For commercial exposures greater than $50,000, First
Sierra reviews personal financial statements, business financial statements, and
tax returns with an emphasis on cash flow and the ability to service the
contract payments and debt. For each contract application First Sierra receives,
the credit department reviews all documentation and credit reviews. First Sierra
performs periodic verification on all acquired contracts on a random basis.
Ongoing review involves periodic financial analysis of the Source, portfolio
performance assessment for leases originated from the Source, and periodic
on-site visits with management. Private Label program agreements are structured
such that First Sierra retains full right of approval of all contracts
originated from the Source. In the event that ongoing monitoring and review
indicate that the performance of the Source or the pool does not meet
expectations, First Sierra would decline to accept new leases from that Source.
However, the Source remains obligated under the original terms of the program
agreement for all leases previously originated from the Source.
 
BROKER PROGRAM
 
     First Sierra's Broker Program is designed to fund equipment contracts from
small ticket contract brokers that are unwilling or unable to provide the credit
protection and perform the servicing functions necessary to participate in First
Sierra's Private Label program. In a typical Broker transaction, First Sierra
originates contracts referred to it by the Broker and pays the Broker a referral
fee. Contracts originated under the Broker Program are structured on a
non-recourse basis, with risk of loss in the event of default by the Obligor
residing with First Sierra. First Sierra owns or (in the case of a contract
intended as security) has a security interest in the underlying equipment
covered by a Broker contract and, in certain cases, retains a residual interest
in such underlying equipment. All servicing functions are performed by First
Sierra.
 
     First Sierra also provides a variety of value-added services to
participants in its Broker Program, including consulting on the structuring of
financing transactions with equipment purchasers, timely and efficient credit
approvals and preparation and completion of standardized contract documents.
Although First Sierra enters into a brokerage agreement with each of the
participants in its Broker Program, such agreements are not exclusive and can be
terminated by either party.
 
     First Sierra's yields on contracts originated under its Broker Program,
depending upon the transaction, can typically range from 400 to 600 basis points
higher than those acquired under its Private Label program because of the risk
of loss and servicing responsibilities assumed by First Sierra in the Broker
Program.
 
VENDOR PROGRAM
 
     First Sierra's Vendor Program focuses on establishing formal and informal
relationships with equipment vendors (of which vendors may deal in software) in
order to establish First Sierra as the provider of financing recommended by such
vendors to their equipment purchasers. By assisting such vendors in providing
timely, convenient and competitive financing for their equipment sales and
offering vendors a variety of value-added services, First Sierra simultaneously
promotes the vendor's equipment sales and the utilization of First Sierra as the
equipment finance provider.
 
     In a typical vendor arrangement, First Sierra originates all contracts
referred to it by the Vendor. Contracts originated under the Vendor Program are
structured on a non-recourse basis, with risk of loss in the event of a default
by the Obligor residing with First Sierra. First Sierra owns or (in the case of
a contract intended as security) has a security interest in the underlying
equipment covered by a vendor contract and, in certain cases, retains a residual
interest in such equipment. All servicing functions are performed by First
Sierra under the Vendor Program.
 
     Criteria for the Vendor Program include the following: minimum time in
business of four years, satisfactory Dun and Bradstreet reports, references,
personal references and satisfactory credit reports on the principals involved,
and, depending upon the size of the vendor relationship and anticipated funding
volume, satisfactory financial results and credit analysis of the vendor.
 
                                       21
<PAGE>   95
 
     In some cases, a vendor may desire to establish a captive finance program.
In this instance, First Sierra assists the vendor in establishing a funding
program for the vendor's customers. First Sierra may provide varying levels of
service, generally for a fee, which can include activity related to sales force
training, sales force assistance, origination, funding, and on-going servicing
and collection activities. First Sierra may purchase contracts originated
through this program or it may assist the vendor in funding these contracts on a
non-recourse basis with other funding sources.
 
     The Vendor Program provides for customized financing arrangements to
respond to the needs of a particular vendor and its equipment purchasers. The
value-added services offered by First Sierra to participants in its Vendor
Program include consulting with vendors on structuring financing transactions
with equipment purchasers, training the vendor's sales and management staffs to
understand and market First Sierra's various financing alternatives, customizing
financial products to encourage product sales, and preparation and completion of
standardized contract documents. In most cases, First Sierra's sales
representatives also work directly with the vendor's equipment purchasers,
providing them with the guidance necessary to complete the equipment financing
transaction. First Sierra also may participate actively in the vendor's sale
sand marketing efforts, including advertising, promotions, trade show activities
and sales meetings.
 
     First Sierra generally obtains yields on contracts funded under the Vendor
Program which are 2 - 3% higher than those in the Broker Program due to
additional services provided by First Sierra under the Vendor Program.
 
                                  THE SERVICER
 
GENERAL
 
     First Sierra Financial, Inc., a Delaware corporation (the "Servicer"), was
founded in June 1994. Its principal office is located at 600 Travis Street,
Suite 7050, Houston, Texas 77002. Since its incorporation through March 31,
1998, First Sierra has acquired over $820 million of contracts for equipment and
other property. First Sierra, is a publicly traded company and its common stock
is listed on the Nasdaq National Market System under the symbol "FSFH".
 
COLLECTION POLICIES
 
     On a day-to-day basis, the billing and collection process is handled by
First Sierra's automated billing system. Day-to-day collections are processed
through Chase Bank of Texas' cash management operations, which utilize optical
code reading technology to scan the invoices and earmark payments to the
specific pool where the contract is funded.
 
     For Private Label Programs, the First Sierra relies on the Source to
undertake the initial collection efforts with respect to the Obligors. First
Sierra monitors contract receipts and aging results on a daily basis. First
Sierra provides delinquency status to Sources at least twice monthly. Many
Sources are connected to First Sierra's delinquency reporting systems and can
receive delinquency performance on daily basis. First Sierra monitors the
Source's progress, and is in regular contact with the Source regarding
collection activity, and actions to prevent the delinquency from worsening.
After 60 days, First Sierra contacts the Source directly to notify it that it
has 30 days to ensure the account is brought current. After 90 days, First
Sierra notifies the Source that it has 60 days to repurchase the contract it was
purchased pursuant to a recourse program, or to re-market the equipment. If
collections activities do not rectify the account, First Sierra typically
charges off the account at between 120 and 180 days past due depending on the
specific circumstances related to that account.
 
     With respect to Broker/Vendor Programs, First Sierra's automated billing
cues collectors to initiate contact with Obligors if payment is not received by
the 11th day after due date. If payment has not been received by the 25th, a
general demand letter is sent to the Obligor. If no contact is made within 45
days, a letter is sent which gives the Obligor five days to bring the account
current. If no payment is received, the collector, in conjunction with senior
credit personnel, determines the subsequent actions appropriate for the
 
                                       22
<PAGE>   96
 
circumstances. If collection activities do not rectify the account, First Sierra
typically charges off the account at 180 days.
 
                      PREPAYMENT AND YIELD CONSIDERATIONS
 
     Generally, none of the Seller's originated Contracts are prepayable at any
time. As more fully described in the related Prospectus Supplement, if a
Contract permits a Prepayment such payment or upon a default that results in
such payment, will shorten the weighted average life of the related pool of
Receivables and the weighted average life of the related Securities. The rate of
Prepayments on the Receivables may be influenced by a variety of economic,
financial and other factors. In addition, under certain circumstances, the
Company or the Seller will be obligated to acquire Receivables from the related
Asset Pool pursuant to the applicable Trust Agreement or Contribution and Sale
Agreement as a result of breaches of representations and warranties. Any
reinvestment risks resulting from a faster or slower amortization of the related
Securities which results from Prepayments will be borne entirely by the related
Securityholders.
 
     The related Prospectus Supplement will set forth certain additional
information with respect to the maturity and prepayment considerations
applicable to a particular pool of Receivables and the related series of
Securities.
 
                                  POOL FACTORS
 
     The "Pool Factor" for each Class of Securities will be a seven-digit
decimal, which the Servicer will compute prior to each distribution with respect
to such Class of Securities, indicating the remaining outstanding principal
balance of such Class of Securities as of the applicable Payment Date, as a
fraction of the initial outstanding principal balance of such Class of
Securities. Each Pool Factor will be initially 1.0000000, and thereafter will
decline to reflect reductions in the outstanding principal balance of the
applicable Class of Securities. A Securityholder's portion of the aggregate
outstanding principal balance of the related Class of Securities is the product
of (i) the original aggregate purchase price of such Securityholder's Securities
and (ii) the applicable Pool Factor.
 
                                       23
<PAGE>   97
 
                                  THE COMPANY
 
     First Sierra Receivables II, Inc. and First Sierra Receivables III, Inc.
(together, the "Company") is each a limited purpose corporation organized under
the laws of the State of Delaware. Each of the Company's principal executive
offices are located at 600 Travis Street, Houston, Texas 77002.
 
     The Company does not intend to engage in any business or investment
activities other than acquiring, owning, leasing, transferring, receiving or
pledging the assets transferred to the Company. The Company's certificate of
incorporation (the "Certificate of Incorporation") limits the Company's business
and investment activities to the above purposes and to any activities necessary,
suitable or convenient to accomplish the foregoing or incidental thereto.
Pursuant to the Company's Certificate of Incorporation, the limitations so
imposed on the Company's business may only be altered upon unanimous affirmative
vote of all of the Company's directors, including the Independent Director. The
Company's Certificate of Incorporation requires the Company, at all times, to
have at least one Independent Director. An "Independent Director" is not
permitted to be a director, officer or employee of any direct or ultimate parent
or affiliate of the Seller, provided, however, that such Independent Director
may serve in similar capacities for other limited purpose corporations which are
affiliated with the Originator. The Company's Certificate of Incorporation
further prohibits the Company, without the unanimous affirmative vote of the
directors, including the Independent Director, from (1) instituting or
consenting to the institution of bankruptcy or insolvency proceedings, (2)
merging or consolidating with another corporation, (3) incurring, assuming or
guaranteeing any indebtedness other than as otherwise provided in the
Certificate of Incorporation, or (4) engaging in certain other actions that
would have a negative impact upon whether the separate legal identities of the
Company and the Seller will be respected.
 
     The Company has taken steps in structuring the transactions contemplated
hereby that are intended to ensure that the voluntary or involuntary petition
for relief by the Originator under any Insolvency Law will not result in
consolidation of the assets and liabilities of the Company with those of the
Seller. These steps include the creation of the Company as a separate, limited
purpose corporation having a restrictive Certificate of Incorporation as
described above.
 
     The Company will not acquire any assets other than the Receivables and
other assets transferred by the Seller pursuant to the Contribution and Sale
Agreements. Because the Company does not have any operating history and will not
engage in any business activity other than as described above, there has not
been included herein any historical or current financial information with
respect to the Company.
 
     The Seller will warrant to the Company in each Contribution and Sale
Agreement that the transfer of the related Receivables by it to the Company is a
valid transfer of the Receivables to the Company. In addition, the Seller and
the Company will treat the transactions described herein and in the related
Prospectus Supplement as a transfer of the Receivables to the Company, and the
Company will take all actions that are required to perfect the Company's
ownership interest in the Receivables. Notwithstanding the foregoing, if the
Seller were to become a debtor in a bankruptcy case and a creditor or
trustee-in-bankruptcy of such debtor or such debtor itself were to take the
position that the transfer of the Receivables to the Company should be
recharacterized as a pledge of such Receivables to secure a borrowing of such
debtor, then delays in payments of collections of Receivables to the Company
could occur or (should the court rule in favor of any such trustee, debtor or
creditor) reductions in the amount of such payments could result. If the
transfer of Receivables to the Company is recharacterized as a pledge, then a
tax or government lien on the property of the Seller arising before the transfer
of Receivables to the Company may have priority over the Company's interest in
such Receivables. If the transfer of Receivables to the Company is treated as a
sale, the Receivables would not be part of the Seller's bankruptcy estate and
would not be available to the Seller's creditors.
 
                                       24
<PAGE>   98
 
                                  THE TRUSTEES
 
     The Trustee for each series of Securities will be specified in the related
Prospectus Supplement. The Trustee's liability in connection with the issuance
and sale of the related Securities is limited solely to the express obligations
of such Trustee set forth in the related Trust Agreement; provided, however,
that such limitation shall in no way be deemed to affect any liability of the
Trustee under the federal securities laws.
 
     With respect to each series of Securities, no resignation or removal of the
Trustee and no appointment of a successor Trustee shall become effective until
the acceptance of appointment by the successor Trustee. The Trustee may resign
for cause at any time by giving written notice thereof to the Company and by
mailing notice of resignation by first-class mail, postage prepaid, to the
Securityholders of such series at their addresses appearing on the Security
Register. The Trustee may be removed at any time by written notice of the
holders of Securities evidencing more than 50% of the voting rights with respect
to such series, delivered to the Trustee and the Company. If the Trustee shall
resign, be removed, or become incapable of acting, or if a vacancy shall occur
in the office of Trustee for any cause, the Company shall promptly appoint a
successor Trustee. If no successor Trustee shall have been so appointed by the
Company or the Securityholders, or if no successor Trustee shall have accepted
appointment within 30 days after any such resignation or removal, existence of
incapability, or occurrence of such vacancy, the Trustee or any Securityholder
may petition any court of competent jurisdiction for the appointment of a
successor Trustee.
 
                         DESCRIPTION OF THE SECURITIES
 
GENERAL
 
     The Securities will be issued in series. Each series of Securities (or, in
certain instances, two or more series of Securities) will be issued pursuant to
a Trust Agreement or an Indenture. The following summaries (together with
additional summaries under the Trust Agreement below) describe all material
terms and provisions relating to the Securities common to each Trust Agreement.
The summaries do not purport to be complete.
 
     All of the Securities offered pursuant to this Prospectus and the related
Prospectus Supplement will be rated in one of the four highest rating categories
by one or more Rating Agencies.
 
     The Securities will generally be styled as debt instruments, having a
principal balance and a specified Interest Rate. The Securities may either
represent beneficial ownership interests in the related Asset Pool held by the
related Trust or debt secured by certain assets of the related Issuer. To the
extent that the Securities represent debt secured by certain assets of the
related Asset Pool, such Securities will not represent beneficial ownership
interests in the related Receivables.
 
     Each series or Class of Securities offered pursuant to this Prospectus may
have a different Interest Rate, which may be a fixed or adjustable interest
rate. The related Prospectus Supplement will specify the Interest Rate for each
series or Class of Securities described therein, or the initial interest rate
and the method for determining subsequent changes to the Interest Rate.
 
     A series may include one or more Classes of Strip Securities entitled (i)
to principal distributions, with disproportionate, nominal or no interest
distributions, or (ii) to interest distributions, with disproportionate, nominal
or no principal distributions. In addition, a series of Securities may include
two or more Classes of Securities that differ as to timing, sequential order,
priority of payment, Interest Rate or amount of distribution of principal or
interest or both, or as to which distributions of principal or interest or both
on any Class may be made upon the occurrence of specified events, in accordance
with a schedule or formula, or on the basis of collections from designated
portions of the related pool of Receivables. Any such series may include one or
more Classes of Accrual Securities, as to which certain accrued interest will
not be distributed but rather will be added to the principal balance (or nominal
balance, in the case of Accrual Securities which are also Strip Securities)
thereof on each Payment Date, as hereinafter defined, or in the manner described
in the related Prospectus Supplement.
 
                                       25
<PAGE>   99
 
     If so provided in the related Prospectus Supplement, a series may include
one or more other Classes of Senior Securities that are senior to one or more
other Classes of Subordinate Securities in respect of certain distributions of
principal and interest and allocations of losses on Receivables.
 
     In addition, certain Classes of Senior (or Subordinate) Securities may be
senior to other Classes of Senior (or Subordinate) Securities in respect of such
distributions or losses.
 
GENERAL PAYMENT TERMS OF SECURITIES
 
     As provided in the related Trust Agreement and as described in the related
Prospectus Supplement, Securityholders will be entitled to receive payments on
their Securities on the specified Payment Dates. Payment Dates with respect to
the Securities will occur monthly, quarterly or semi-annually, as described in
the related Prospectus Supplement.
 
     The related Prospectus Supplement will describe the Record Date preceding
such Payment Date, as of which the Trustee or its paying agent will fix the
identity of the Securityholders for the purpose of receiving payments on the
next succeeding Payment Date. As more fully described in the related Prospectus
Supplement, the Payment Date may be the tenth, fifteenth or twenty-fifth day of
each month (or, in the case of quarterly-pay Securities, the tenth, fifteenth or
twenty-fifth day of every third month; and in the case of semi-annual pay
Securities, the tenth, fifteenth or twenty-fifth day of every sixth month) and
the Record Date will be the close of business as of the last day of the calendar
month that precedes the calendar month in which such Payment Date occurs.
 
     As more fully provided in the related Prospectus Supplement, each Trust
Agreement will describe a Remittance Period preceding each Payment Date (for
example, in the case of monthly-pay Securities, the calendar month preceding the
month in which a Payment Date occurs). As more fully provided in the related
Prospectus Supplement, collections received on or with respect to the related
Receivables held by a Trust during a Remittance Period will be required to be
remitted by the Servicer to the related Trustee prior to the related Payment
Date and will be used to fund payments to Securityholders on such Payment Date.
As may be described in the related Prospectus Supplement, the related Trust
Agreement may provide that all or a portion of the payments collected on or with
respect to the related Receivables may be applied by the related Trustee to the
acquisition of additional Receivables during a specified period (rather than be
used to fund payments of principal to Securityholders during such period) with
the result that the related Securities will possess an interest-only period,
also commonly referred to as a revolving period, which will be followed by an
amortization period. Any such interest only or revolving period may, upon the
occurrence of certain events to be described in the related Prospectus
Supplement, terminate prior to the end of the specified period and result in the
earlier than expected amortization of the related Securities. The revolving
period is one of structural features related to the conclusion that under
certain structures the Securities are considered debt of the particular issuer
for federal income tax considerations. The duration of the revolving period and
the requirements to be satisfied by additional Receivables will be specified in
the related Prospectus Supplement. Any direct or indirect costs to investors
associated with a revolving period will be discussed in the related Prospectus
Supplement.
 
     In addition, and as may be described in the related Prospectus Supplement,
the related Trust Agreement may provide that all or a portion of such collected
payments may be retained by the Trustee (and held in certain temporary
investments, including Receivables) for a specified period prior to being used
to fund payments of principal to Securityholders.
 
     Such retention and temporary investment by the Trustee of such collected
payments may be required by the related Trust Agreement for the purposes of (a)
slowing the amortization rate of the related Securities relative to the rent
payment schedule of the related Receivables, or (b) attempting to match the
amortization rate of the related Securities to an amortization schedule
established at the time such Securities are issued. Any such feature applicable
to any Securities may terminate upon the occurrence of events to be described in
the related Prospectus Supplement, resulting in distributions to the specified
Securityholders and an acceleration of the amortization of such Securities.
 
                                       26
<PAGE>   100
 
     Neither the Securities nor the underlying Receivables will be guaranteed or
insured by any governmental agency or instrumentality or the Company, First
Sierra, the Servicer, any Seller, any Trustee or any of their affiliates unless
specifically set forth in the related Prospectus Supplement.
 
     As may be described in the related Prospectus Supplement, Securities of
each series covered by a particular Trust Agreement will either evidence
specified beneficial ownership interest in a separate Asset Pool created
pursuant to such Trust Agreement or represent debt secured by the related Asset
Pool. To the extent that any Asset Pool includes certificates of interest or
participations in Receivables, the related Prospectus Supplement will describe
the material terms and conditions of such certificates or participations.
 
BOOK-ENTRY REGISTRATION
 
     As may be described in the related Prospectus Supplement, Securityholders
of a given series may hold their Securities through DTC (in the United States)
or CEDEL or Euroclear (in Europe) if they are participants of such systems, or
indirectly through organizations that are participants in such systems.
 
     Cede, as nominee for DTC, will hold the global Securities in respect of a
given series. CEDEL and Euroclear will hold omnibus positions on behalf of the
CEDEL Participants (as defined below) and the Euroclear Participants (as defined
below) (collectively, the "Participants"), respectively, through customers'
securities accounts in CEDEL's and Euroclear's names on the books of their
respective depositaries (collectively, the "Depositaries") which in turn will
hold such positions in customers' securities accounts in the Depositaries' names
on the books of DTC.
 
     DTC is a limited purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York UCC and a "clearing agency"
registered pursuant to Section 17A of the Exchange Act. DTC was created to hold
securities for its Participants and to facilitate the clearance and settlement
of securities transactions between Participants through electronic book-entries,
thereby eliminating the need for physical movement of notes or certificates.
Participants include securities brokers and dealers, banks, trust companies and
clearing corporations. Indirect access to the DTC system also is available to
others such as banks, brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a Participant, either directly or
indirectly ("Indirect Participants").
 
     Transfers between DTC Participants will occur in accordance with DTC rules.
Transfers between CEDEL Participants and Euroclear Participants will occur in
the ordinary way in accordance with their applicable rules and operating
procedures.
 
     Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through CEDEL
Participants or Euroclear Participants, on the other, will be effected in DTC in
accordance with DTC rules on behalf of the relevant European international
clearing system by its Depositary; however, such cross-market transactions will
require delivery of instructions to the relevant European international clearing
system by the counterparty in such system in accordance with its rules and
procedures and within its established deadlines (European time). The relevant
European international clearing system will, if the transaction meets its
settlement requirements, deliver instructions to its Depositary to take action
to effect final settlement on its behalf by delivering or receiving securities
in DTC, and making or receiving payment in accordance with normal procedures for
same-day funds settlement applicable to DTC. CEDEL Participants and Euroclear
Participants may not deliver instructions directly to the Depositaries.
 
     Because of time-zone differences, credits of securities in CEDEL or
Euroclear as a result of a transaction with a DTC Participant will be made
during the subsequent securities settlement processing, dated the business day
following the DTC settlement date, and such credits or any transactions in such
securities settled during such processing will be reported to the relevant CEDEL
Participant or Euroclear Participant on such business day. Cash received in
CEDEL or Euroclear as a result of sales of securities by or through a CEDEL
Participant or a Euroclear Participant to a DTC Participant will be received
with value on the DTC settlement date but will be available in the relevant
CEDEL or Euroclear cash account only as of the business day following settlement
in DTC.
 
                                       27
<PAGE>   101
 
     The Securityholders of a given series that are not Participants or Indirect
Participants but desire to purchase, sell or otherwise transfer ownership of, or
other interests in, Securities of such series may do so only through
Participants and Indirect Participants. In addition, Securityholders of a given
series will receive all distributions of principal and interest through the
Participants who in turn will receive them from DTC. Under a book-entry format,
Securityholders of a given series may experience some delay in their receipt of
payments, since such payments will be forwarded by the applicable Trustee to
Cede, as nominee for DTC. DTC will forward such payments to its Participants,
which thereafter will forward them to Indirect Participants or such
Securityholders. It is anticipated that the only "Securityholder" in respect of
any series will be Cede, as nominee of DTC. Securityholder of a given series
will not be recognized as Securityholders of such series, and such
Securityholders will be permitted to exercise the rights of Securityholders of
such series only indirectly through DTC and its Participants.
 
     Under the rules, regulations and procedures creating and affecting DTC and
its operations (the "Rules"), DTC is required to make book-entry transfers of
Securities of a given series among Participants on whose behalf it acts with
respect to such Securities and to receive and transmit distributions of
principal of, and interest on, such Securities. Participants and Indirect
Participants with which the Securityholders of a given series have accounts with
respect to such Securities similarly are required to make book-entry transfers
and receive and transmit such payments on behalf of their respective
Securityholders of such series. Accordingly, although such Securityholders will
not possess Securities, the Rules provide a mechanism by which Participants will
receive payments and will be able to transfer their interests.
 
     Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a
Securityholder of a given series to pledge Securities of such series to persons
or entities that do not participate in the DTC system, or to otherwise act with
respect to such Securities, may be limited due to the lack of a physical
certificate for such Securities.
 
     DTC will advise the Trustee in respect of each Series that it will take any
action permitted to be taken by a Securityholder of the related series only at
the direction of one or more Participants to whose accounts with DTC the
Securities of such series are credited. DTC may take conflicting actions with
respect to other undivided interests to the extent that such actions are taken
on behalf of Participants whose holdings include such undivided interests.
 
     CEDEL is incorporated under the laws of Luxembourg as a professional
depository. CEDEL holds securities for its participating organizations ("CEDEL
Participants") and facilitates the clearance and settlement of securities
transactions between CEDEL Participants through electronic book-entry changes in
accounts of CEDEL Participants, thereby eliminating the need for physical
movement of certificates. Transactions may be settled in CEDEL in any of 28
currencies, including United States dollars. CEDEL provides to its CEDEL
Participants, among other things, services for safekeeping, administration,
clearance and settlement of internationally traded securities and securities
lending and borrowing. CEDEL interfaces with domestic markets in several
countries. As a professional depository, CEDEL is subject to regulation by the
Luxembourg Monetary Institute. CEDEL Participants are recognized financial
institutions around the world, including underwriters, securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations. Indirect access to CEDEL is also available to others, such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a CEDEL Participant, either directly or indirectly.
 
     Euroclear was created in 1968 to hold securities for participants of the
Euroclear System ("Euroclear Participants") and to clear and settle transactions
between Euroclear Participants through simultaneous electronic book-entry
delivery against payment, thereby eliminating the need for physical movement of
certificates and any risk from lack of simultaneous transfers of securities and
cash. Transactions may now be settled in any of 28 currencies, including United
States dollars. The Euroclear System includes various other services, including
securities lending and borrowing and interfaces with domestic markets in several
countries generally similar to the arrangements for cross-market transfers with
DTC described above. Euroclear is
 
                                       28
<PAGE>   102
 
operated by Morgan Guaranty Trust Company of New York, Brussels, Belgium office,
under contract with Euroclear Clearance System, S.C., a Belgian cooperative
corporation (the "Cooperative"). All operations are conducted by the "Euroclear
Operator" (as defined below), and all Euroclear securities clearance accounts
and Euroclear cash accounts are accounts with the Euroclear Operator, not the
Cooperative. The Cooperative establishes policy for the Euroclear System on
behalf of Euroclear Participants. Euroclear Participants include banks
(including central banks), securities brokers and dealers and other professional
financial intermediaries and may include the Underwriters. Indirect access to
the Euroclear System is also available to other firms that clear through or
maintain a custodial relationship with a Euroclear Participant, either directly
or indirectly.
 
     The "Euroclear Operator" is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it is
regulated and examined by the Board of Governors of the Federal Reserve System
and the New York State Banking Department, as well as the Belgian Banking
Commission.
 
     Securities clearance accounts and cash accounts with the Euroclear Operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of the Euroclear System and applicable Belgian law
(collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash within the Euroclear System, withdrawal of
securities and cash from the Euroclear System, and receipts of payments with
respect to securities in the Euroclear System. All securities in the Euroclear
System are held on a fungible basis without attribution of specific certificates
to specific securities clearance accounts. The Euroclear Operator acts under the
Terms and Conditions only on behalf of Euroclear Participants and has no record
of relationship with persons holding through Euroclear Participants.
 
     Except as required by law, the Trustee in respect of a series will not have
any liability for any aspect of the records relating to or payments made or
account of beneficial ownership interests of the related Securities held by
Cede, as nominee for DTC, or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests.
 
DEFINITIVE NOTES
 
     As may be described in the related Prospectus Supplement, the Securities
will be issued in fully registered, certificated form ("Definitive Securities")
to the Securityholders of a given series or their nominees, rather than to DTC
or its nominee, only if (i) the Trustee in respect of the related series advises
in writing that DTC is no longer willing or able to discharge properly its
responsibilities as depository with respect to such Securities and such Trustee
is unable to locate a qualified successor, (ii) such Trustee, at its option,
elects to terminate the book-entry-system through DTC or (iii) after the
occurrence of an "Event of Default" under the related Indenture or a default by
the Servicer under the related Trust Agreements, Securityholders representing at
least a majority of the outstanding principal amount of such Securities advise
the applicable Trustee through DTC in writing that the continuation of a
book-entry system through DTC (or a successor thereto) is no longer in such
Securityholders' best interest.
 
     Upon the occurrence of any event described in the immediately preceding
paragraph, the applicable Trustee will be required to notify all such
Securityholders through Participants of the availability of Definitive
Securities. Upon surrender by DTC of the definitive certificates representing
such Securities and receipt of instructions for re-registration, the applicable
Trustee will reissue such Securities as Definitive Securities to such
Securityholders.
 
     Distributions of principal of, and interest on, such Securities will
thereafter be made by the applicable Trustee in accordance with the procedures
set forth in the related Indenture or Trust Agreement directly to holders of
Definitive Securities in whose names the Definitive Securities were registered
at the close of business on the applicable Record Date specified for such
Securities in the related Prospectus Supplement. Such distributions will be made
by check mailed to the address of such holder as it appears on the register
maintained by the applicable Trustee. The final payment on any such Security,
however, will be made only upon presentation and surrender of such Security at
the office or agency specified in the notice of final distribution to the
applicable Securityholders.
 
                                       29
<PAGE>   103
 
     Definitive Securities in respect of a given series of Securities will be
transferable and exchangeable at the offices of the applicable Trustee or of a
certificate registrar named in a notice delivered to holders of such Definitive
Securities. No service charge will be imposed for any registration of transfer
or exchange, but the applicable Trustee may require payment of a sum sufficient
to cover any tax or other governmental charge imposed in connection therewith.
 
REPORTS TO SECURITYHOLDERS
 
     With respect to each series of Securities, on or prior to each Payment Date
for such series, the Servicer, Company or Trustee will forward or cause to be
forwarded to each holder of record of such class of Securities a statement or
statements with respect to the related Asset Pool setting forth the information
specifically described in the related Trust Agreement which generally will
include the following information:
 
          (i) the amount of the distribution with respect to each class of
     Securities;
 
          (ii) the amount of such distribution allocable to principal;
 
          (iii) the amount of such distribution allocable to interest;
 
          (iv) the Pool Balance, if applicable, as of the close of business on
     the last day of the related Remittance Period;
 
          (v) the aggregate outstanding principal balance and the Pool Factor
     for each Class of Securities after giving effect to all payments reported
     under (ii) above on such Payment Date;
 
          (vi) the amount paid to the Servicer, if any, with respect to the
     related Remittance Period;
 
          (vii) the amount of the aggregate purchase amounts for Receivables
     that have been reacquired, if any, for such Remittance Period; and
 
          (viii) the amount of coverage under any letter of credit, financial
     guaranty insurance policy, reserve account or other form of credit
     enhancement covering default risk as of the close of business on the
     applicable Payment Date and a description of any Credit Enhancement
     substituted therefor.
 
     Each amount set forth pursuant to subclauses (i), (ii), (iii) and (v) with
respect to the Securities of any series will be expressed as a dollar amount per
$1,000 of the initial principal balance of such Securities, as applicable.
 
     Within the prescribed period of time for tax reporting purposes after the
end of each calendar year, the applicable Trustee will provide to the
Securityholders a statement containing the amounts described in (ii) and (iii)
above for that calendar year and any other information required by applicable
tax laws, for the purpose of the Securityholders' preparation of federal income
tax returns.
 
              DESCRIPTION OF THE POOLING AND SERVICING AGREEMENTS
 
     The following summary describes the material terms of each Trust Agreement
pursuant to which an Asset Pool will be created and the related Securities in
respect of such Asset Pool will be issued. For purposes of this Prospectus, the
term "Trust Agreement" as used with respect to a Trust means, collectively, and
except as otherwise specified, any and all agreements relating to the
establishment of the related Trust, the servicing of the related Receivables and
the issuance of the related Securities, including without limitation the
Indenture (i.e. pursuant to which any Notes shall be issued), the Trust
Agreement and the Pooling Agreement. Forms of the Trust Agreement have been
filed as exhibits to the Registration Statement of which the Prospectus forms a
part. The summary does not purport to be complete.
 
ASSIGNMENT OF THE RECEIVABLES
 
     On the Closing Date specified with respect to any given series of
Securities (the "Closing Date"), the Company will receive the related
Receivables from the Seller pursuant to a Contribution and Sale Agreement. The
Company will either transfer such Receivables to a Trust pursuant to a Pooling
Agreement, or, in the case
                                       30
<PAGE>   104
 
of Notes, the related Trust Agreement. The rights and benefits of the Company
under such Contribution and Sale Agreement will be assigned to the Trustee on
behalf of Securityholders as collateral for the Securities of the related series
issued by a Trust or pursuant to an Indenture. The obligations of the Company
and the Servicer under such Trust Agreements include those specified below and
in the related Prospectus Supplement.
 
     In each Contribution and Sale Agreement, the Seller will agree, and in each
Trust Agreement, the Servicer will agree, to indicate in its computer records
that the Receivables included in the related Asset Pool have been sold to the
Company, and, as appropriate, transferred to the related Trust and/or pledged
under the related Indenture. As specified in the related Trust Agreement, a
custodian, as may be specified therein (the "Custodian") or the Trustee will
have possession of any original lease documentation constituting "chattel paper"
under the UCC.
 
     With respect to each Asset Pool, First Sierra, as Seller, will file UCC
financing statements with respect to the sale, contribution, transfer and
assignment of the related Receivables to the Company. If the Issuer is a Trust,
the Company will file UCC financing statements with respect to the sale,
transfer and assignment of such Receivables to such Trust. In addition, if
applicable, the Issuer will file UCC financing statements with respect to the
security interest in its assets granted to the Indenture Trustee under the
related Indenture. Since the Contract Files will remain in First Sierra's
possession, as Servicer, and will not be stamped or otherwise marked to reflect
the sale, contribution, transfer and assignment of the related Receivables to
the Company, the Trust and/or the Trustee, as applicable, if a subsequent
purchaser were able to take possession of the related Contract for new value in
the ordinary course of its business without actual knowledge of the assignments,
the Company's, the Trust's and/or the Trustees, as applicable, interests in such
Receivables could be defeated. See "Certain Legal Aspects of the Receivables."
 
     Any Receivables to be included in an Asset Pool in substitution for other
Receivables will also be acquired by the Company from the Seller under the
related Contribution and Sale Agreement. Any substitute lease would be required
to satisfy criteria set forth in the relevant transaction documents and
described in the related prospectus supplement. Any additional costs, direct or
indirect associated with the substitution of Contracts will be discussed in the
related Prospectus Supplement.
 
REPRESENTATIONS AND WARRANTIES
 
     With respect to each Asset Pool, the Seller will make certain
representation and warranties pursuant to the Contribution and Sale Agreement
with respect to the related Receivables. In the related Pooling Agreement or
Indenture, the Company will assign such representations and warranties to the
related Trust (or the related Trustee) and will represent and warrant that the
Company has taken no action to which would cause such representations and
warranties of the Seller to be false in any material respect. Under the related
Trust Agreement, in the event the Servicer or the related Trustee discovers or
by written notice is informed that any such representation or warranty of the
Seller or Company is untrue, the Servicer and such Trustee will be obligated to
use reasonable efforts to enforce the obligation of the Seller or Company set
forth in the related Contribution and Sale Agreement or the related Pooling
Agreement to purchase any Receivable included in the related Asset Pool
materially and adversely affected by such untruth. The Seller or Company will be
obligated to purchase each such Receivable on or prior to the thirtieth day
after such discovery or notice (or such later date as the Seller or Company and
such Trustee shall agree); provided, that the Seller or Company will not be
required to purchase any such Receivable if such untruth has been cured in all
material aspects or if such Receivable is replaced with a substitute Receivable
(if and to the extent substitution is permitted in the related Trust Agreement).
Any such repurchase shall be the sole remedy for any such breach. The purchase
price for any Receivable so purchased (the "Warranty Purchase Price") will be
based on the then Discounted Contract Balance or Discounted Contract and
Residual Balance of such Receivable as further described in the related
Prospectus Supplement. All such payments will be deposited in the related
Collection Account.
 
     In each Contribution and Sale Agreement, the Seller will also make
representations and warranties to the Company to the effect that, among other
things, as of the closing date for the issuance of any related
 
                                       31
<PAGE>   105
 
Securities: (a) the Seller is duly formed as a corporation and in good standing
under the laws of the State of Delaware, it has the requisite power and
authority to consummate the transactions contemplated thereby and such
Contribution and Sale Agreement constitutes a legal, valid and binding
obligation of the Seller and (b) the contribution and sale of the related
Receivables thereunder constitute a valid contribution, sale, transfer and
assignment to the Company of all right, title and interest of the Seller therein
(subject, in the case of Leased Vehicles, to applicable titling statutes), and
such Receivables will be held by the Company free and clear of any lien of any
person claiming through or under the Seller, except for liens created by or
permitted under the related Trust Agreement.
 
     In each Trust Agreement, the Company will make representations and
warranties to the effect that, among other things, as of the closing date for
the issuance of any related Securities: (a) the Company is duly incorporated and
in good standing under the laws of the State of Delaware, it has the corporate
power and authority to consummate the transactions contemplated thereby and such
Trust Agreement constitutes a legal, valid and binding agreement of the Company;
and (b) if the Issuer is a Trust, the transfer of the Receivables pursuant to
such Trust Agreement constitutes a valid sale, transfer and assignment to such
Trust of all right, title and interest of the Company in such Receivables, and
such Receivables will be held by such Trust free and clear of any lien of any
person claiming through the Company, except for liens created or permitted by
the such Trust Agreement. In the related Indenture, if any, the Issuer will
represent and warrant to the related Indenture Trustee that (a) no interest in
any Receivable conveyed by such Issuer to such Indenture Trustee thereunder has
been sold, transferred or pledged by such Issuer to any other person, (b) upon
execution and delivery of such Indenture by such Issuer, such Indenture Trustee
shall have all of the right, title and interest of the Issuer in such
Receivables, free of any lien, and (c) all UCC filings have been made to give
such Indenture Trustee, a first priority perfected security interest in the
Issuer's interest in such Contract and the related Equipment (if such Equipment
is located in a state in which a UCC filing was made), subject to liens
permitted by the related Trust Agreement and liens which have priority by
operation of law.
 
     In each Contribution and Sale Agreement, the Seller will agree to do
nothing to impair the rights of the Company in the Receivables included in the
related Asset Pool, except as it is expressly permitted to do in its capacity as
the Servicer under the related Trust Agreement. In each Trust Agreement, the
Company will covenant that, except for the sale and conveyances pursuant
thereto, and the interests created under, such Trust Agreement or as otherwise
permitted therein, the Company will not sell, pledge, assign or transfer any
interest in any Receivables included in the related Asset Pool.
 
ACCOUNTS
 
     With respect to each series of Securities issued by a Trust, the Servicer
will establish and maintain with the applicable Trustee one or more accounts, in
the name of such Trustee on behalf of the related Securityholders, into which
all payments made on or with respect to the related Receivables will be
deposited (the "Collection Account"). The Servicer will also establish and
maintain with such Trustee separate accounts, in the name of such Trustee on
behalf of such Securityholders, in which amounts released from the Collection
Account and the reserve account or other Credit Enhancement, if any, and to the
extent provided, for distribution to such Securityholders will be deposited and
from which distributions to such Securityholders will be made (the "Distribution
Account").
 
     Any other accounts to be established with respect to a Trust, including any
reserve account, will be described in the related Prospectus Supplement.
 
     For any series of Securities, funds in the Collection Account, the
Distribution Account, any reserve account and other accounts identified as such
in the related Prospectus Supplement (collectively, the "Trust Accounts") shall
be invested as provided in the related Trust Agreement in Eligible Investments.
Subject to certain conditions, Eligible Investments may include securities
issued by the Company or its affiliates or other trusts created by the Company
or its affiliates. Except as described below or in the related Prospectus
Supplement, Eligible Investments are limited to obligations or securities that
mature not later than the business day immediately preceding the next
distribution. However, subject to certain conditions, funds in the reserve
account may be invested in securities that will not mature prior to the date of
the next distribution and
 
                                       32
<PAGE>   106
 
will not be sold to meet any shortfalls. Thus, the amount of cash in any reserve
account at any time may be less than the balance of such reserve account. If the
amount required to be withdrawn from any reserve account to cover shortfalls in
collections on the related Receivables exceeds the amount of cash in such
reserve account a temporary shortfall in the amounts distributed to the related
Securityholders could result, which could, in turn, increase the average life of
the Securities of such series. Except as otherwise specified in the related
Prospectus Supplement, investment earnings on funds deposited in the applicable
Trust Accounts, net of losses and investment expenses (collectively, "Investment
Earnings"), shall be deposited in the applicable Collection Account on each
Payment Date and shall be treated as collections of interest on the related
Receivables.
 
     The Trust Accounts will be maintained as Eligible Deposit Accounts.
"Eligible Deposit Account" means either (a) a segregated account with an
Eligible Institution or (b) a segregated trust account with the corporate trust
department of a depository institution organized under the laws of the United
States of America or any one of the states thereof or the District of Columbia
(or any domestic branch of a foreign bank), having corporate trust powers and
acting as trustee for funds deposited in such account, so long as any of the
securities of such depository institution has a credit rating from each Rating
Agency in one of its generic rating categories which signifies investment grade.
"Eligible Institution" means, with respect to a Trust, (a) the corporate trust
department of the related Indenture Trustee or the related Trustee, as
applicable, or (b) a depository institution organized under the laws of the
United States of America or any one of the states thereof or the District of
Columbia (or any domestic branch of a foreign bank), which (i) (A) has either
(w) a long-term unsecured debt rating acceptable to the Rating Agencies or (x) a
short-term unsecured debt rating or certificate of deposit rating acceptable to
the Rating Agencies or (B) the parent corporation of which has either (y) a
long-term unsecured debt rating acceptable to the Rating Agencies or (z) a
short-term unsecured debt rating or certificate of deposit rating acceptable to
the Rating Agencies and (ii) whose deposits are insured by the FDIC.
 
     To the extent that the Seller's unsecured debt ratings are acceptable to
the Rating Agencies, amounts deposited to any Trust Account may be commingled
with the Seller's general account moneys. Any rights to so commingle moneys will
be described in the related Prospectus Supplement.
 
PRE-FUNDING ACCOUNT
 
     In accordance with the provisions that may be set forth in the related
Prospectus Supplement, a portion of the issuance proceeds of the Securities of a
particular series (such amount, the "Pre-Funded Amount") will be deposited in an
account (the "Pre-Funding Account") to be established with the Trustee, which
will be used to acquire Additional Receivables from time to time during time
period specified in the related Prospectus Supplement. Prior to the investment
of the Pre-Funded Amount in Additional Receivables, such Pre-Funded Amount will
be invested in certain temporary investments satisfying certain eligibility
criteria more fully described in the related Prospectus Supplement. Although the
specific criteria with respect to such temporary investments will be specified
in the related Prospectus Supplement, such temporary investments will be highly
rated, short-term securities.
 
     During any Pre-Funding Period, the Company will be obligated (subject only
to the availability thereof) to acquire from the Seller and to either transfer
to a Trust or pledge to a Trustee on behalf of Securityholders, Additional
Receivables from time to time during such Pre-Funding Period. Such Additional
Receivables will be required to satisfy certain eligibility criteria more fully
set forth in the related Prospectus Supplement.
 
     Although the specific parameters of the Pre-Funding Account with respect to
any issuance of Securities will be specified in the related Prospectus
Supplement, it is anticipated that: (a) the Pre-Funding Period will not exceed
120 days from the related Closing Date (and in no event will the Pre-Funding
Period exceed one year from the Closing Date), (b) that the Additional Contracts
to be acquired during the Pre-Funding Period will be subject to the same
representations and warranties as the Contracts included in the related Asset
Pool on the Closing Date (although additional criteria may also be required to
be satisfied, as described in the related Prospectus Supplement) and (c) that
the Pre-Funded Amount will not exceed 25% of the principal amount of the
Securities issued pursuant to a particular offering.
 
                                       33
<PAGE>   107
 
SUBSTITUTION
 
     Subject to the limitations set forth in the related Prospectus Supplement,
pursuant to the related Trust Agreement, the Company may have the ability to
substitute a comparable Contract, together with an interest in the related
Equipment, for and replace any Contract that defaults, terminates prior to its
scheduled termination date or becomes subject to purchase by the Seller, the
Company or the Servicer as a result of the breach of the representations,
warranties or covenants by the Seller, the Company or the Servicer, as
applicable, with respect to such Contract. The related Prospectus Supplement
will describe the limitations, if any, on the ability of the Company to
substitute Receivables with respect to any Asset Pool and the criteria to be
satisfied with respect to any Receivable to be added to an Asset Pool in
substitution of another Receivable. The Company will acquire all such
Receivables under the related Contribution and Sale Agreement.
 
     The Company will also have the right to substitute Equipment under any
Contract for comparable Equipment so long as there is no change in the amount,
number or timing of the scheduled payments with respect to such Contract, and,
to the extent provided in the related Prospectus Supplement, the Company may
also have the right to permit add-ons and upgrades with respect to any Contract.
 
     Upon the replacement of a Contract and/or Equipment with a substitute
Contract and/or Equipment as described above, the interest of the related
Trustee in such replaced Contract and/or Equipment shall be terminated and, if
it has been transferred to the related Trust, such replaced Contract and/or
Equipment shall be transferred to the Company.
 
SERVICING PROCEDURES
 
     In accordance with the Servicer's procedures set forth under "Underwriting
Procedures" herein, with respect to each series of Securities, the Servicer will
make reasonable efforts to collect all payments due with respect to the
Receivables held in the related Asset Pool and, in a manner consistent with the
related Trust Agreement, will continue such collection procedures as the
Servicer follows with respect to the particular type of Receivable in the
particular pool it services for itself and others. Consistent with its normal
procedures, the Servicer may, in its discretion and on a case-by-case basis,
arrange with the Lessee on a Receivable to extend or modify the payment
schedule. Some of such arrangements (including, without limitation any extension
of the payment schedule beyond the final scheduled Payment Date for the related
Securities may result in the Servicer acquiring such Receivable if such Contract
becomes a Defaulted Contract. The Servicer may sell the Equipment securing the
respective Defaulted Contract, if any, at a public or private sale, or take any
other action permitted by applicable law. See "Certain Legal Aspects of the
Receivables".
 
PAYMENTS ON RECEIVABLES
 
     With respect to each series of Securities, the Servicer will deposit all
payments on the related Receivables (from whatever source) and all proceeds of
such Receivables collected within two (2) business days of receipt thereof in
the related collection facility (a "Lockbox"). As specified in the related
Prospectus Supplement, the Servicer will be required to deposit payments on the
related Receivables (from whatever source) collected during each collection
period (each, a "Collection Period") into the related Collection Account on a
specified day each month. Pending deposit into the related Collection Account,
collections in the Lockbox may be invested by the Servicer at its own risk and
for its own benefit, and will not be segregated from funds of the Servicer.
 
SERVICING COMPENSATION
 
     As may be described in the related Prospectus Supplement with respect to
any series of securities issued by a Trust, the Servicer will be entitled to
receive a servicing fee for each Collection Period (the "Servicing Fee") in an
amount equal to a specified percentage per annum (as set forth in the related
Prospectus Supplement, the "Servicing Fee Rate") of the Pool Balance as of the
first day of such Collection Period. Each Prospectus Supplement and Servicing
Agreement will specify the priority of distributions with respect to the
Servicing Fee (together with any portion of the Servicing Fee that remains
unpaid from prior Payment Dates), such Servicing Fee may be paid prior to any
distribution to the related Securityholders.
                                       34
<PAGE>   108
 
     The Servicer will also collect and retain any late fees, the penalty
portion of interest paid on past due amounts and other administrative fees or
similar charges allowed by applicable law with respect to the Receivables, and
will be entitled to reimbursement from each Trust for certain expenses to the
extent provided in the related Servicing Agreement or Pooling Agreement, as the
case may be. Payments by or on behalf of Lessees will be allocated to scheduled
payments and late fees and other charges in accordance with the Servicer's
normal practices and procedures.
 
     The Servicing Fee will compensate the Servicer for performing the functions
of a third party servicer of similar types of receivables as an agent for their
beneficial owner, including collecting and posting all payments, responding to
inquiries of Lessees on the Receivables, investigating delinquencies, sending
payment coupons to Lessees, paying costs of collection and disposition of
defaults, and policing the collateral. The Servicing Fee also will compensate
the Servicer for administering the Receivables, accounting for collections and
furnishing statements to the applicable Trustee and the applicable Indenture
Trustee, if any, with respect to distributions. The Servicing Fee also will
reimburse the Servicer for certain taxes, accounting fees, outside auditor fees,
data processing costs and other costs incurred in connection with administering
the Receivables.
 
DISTRIBUTIONS
 
     With respect to each series of Securities, beginning on the Payment Date
specified in the related Prospectus Supplement, distributions of principal and
interest (or, where applicable, of principal or interest only) on each Class of
such Securities entitled thereto will be made by the applicable Indenture
Trustee to the Noteholders and by the applicable Trustee to the
Certificateholders of such series. The timing, calculation, allocation, order,
source, priorities of and requirements for each class of Noteholders and all
distributions to each class of Certificateholders of such series will be set
forth in the related Prospectus Supplement.
 
     With respect to each series of Securities, on each Payment Date collections
on the related Receivables will be transferred from the Collection Account to
the Distribution Account for distribution to Securityholders, respectively, to
the extent provided in the related Prospectus Supplement. Credit Enhancement,
such as a reserve account, may be available to cover any shortfalls in the
amount available for distribution on such date, to the extent specified in the
related Prospectus Supplement. As more fully described in the related Prospectus
Supplement, and unless otherwise specified therein, distributions in respect of
principal of a Class of Securities of a given series will be subordinate to
distributions in respect of interest on such Class, and distributions in respect
of the Certificates of such series may be subordinate to payments in respect of
the Notes of such series.
 
CREDIT ENHANCEMENTS
 
     The amounts and types of Credit Enhancement arrangements, if any, and the
provider thereof, if applicable, with respect to each class of Securities of a
given series will be set forth in the related Prospectus Supplement. If and to
the extent provided in the related Prospectus Supplement, credit enhancement may
be in the form of a Policy, subordination of one or more Classes of Securities,
cross-support among the Receivables, reserve accounts, overcollateralization,
letters of credit, credit or liquidity facilities, third party payments or other
support, surety bonds, guaranteed cash deposits or any combination of two or
more of the foregoing. If specified in the applicable Prospectus Supplement,
Credit Enhancement for a Class of Securities may cover one or more other Classes
of Securities of the same series, and Credit Enhancement for a series of
Securities may cover one or more other series of Securities.
 
     The presence of Credit Enhancement for the benefit of any Class or series
of Securities is intended to enhance the likelihood of receipt by the
Securityholders or such Class or series of the full amount of principal and
interest due thereon and to decrease the likelihood that such Securityholders
will experience losses. As more specifically provided in the related Prospectus
Supplement, the credit enhancement for a Class or series of Securities will not
provide protection against all risks of loss and will not guarantee repayment of
the entire principal balance and interest thereon. If losses occur which exceed
the amount covered by any Credit Enhancement or which are not covered by any
Credit Enhancement, Securityholders of any Class or series will bear their
allocable share of deficiencies, as described in the related Prospectus
Supplement. In addition,
 
                                       35
<PAGE>   109
 
if a form of Credit Enhancement covers more than one series of Securities,
Securityholders of any such series will be subject to the risk that such Credit
Enhancement will be exhausted by the claims of Securityholders of other series.
 
STATEMENTS TO INDENTURE TRUSTEES AND TRUSTEES
 
     Prior to each Payment Date with respect to each series of Securities, the
Servicer will provide to the applicable Indenture Trustee and/or the applicable
Trustee and Credit Enhancer as of the close of business on the last day of the
preceding related Collection Period a statement setting forth substantially the
same information as is required to be provided in the periodic reports provided
to Securityholders of such series described under "Description of the
Securities -- Reports to Securityholders".
 
EVIDENCE AS TO COMPLIANCE
 
     Each Trust Agreement will provide that a firm of independent public
accountants will furnish to the related Trust and/or the applicable Indenture
Trustee and Credit Enhancer, annually, a statement as to compliance by the
Servicer during the preceding twelve months (or, in the case of the first such
certificate, the period from the applicable Closing Date) with certain standards
relating to the servicing of the Receivables.
 
     Each Trust Agreement will also provide for delivery to the related Trust
and/or the applicable Indenture Trustee of a certificate signed by an officer of
the Servicer stating that the Servicer either has fulfilled its obligations
under such Trust Agreement in all material respects throughout the preceding 12
months (or, in the case of the first such certificate, the period from the
applicable Closing Date) or, if there has been a default in the fulfillment of
any such obligation in any material respect, describing each such default. The
Servicer also will agree to give each Trustee and each Indenture Trustee notice
of certain "Servicer Defaults" (as defined below) under the related Trust
Agreement.
 
     Copies of such statements and certificates may be obtained by
Securityholders by a request in writing addressed to the applicable Indenture
Trustee or the applicable Trustee.
 
CERTAIN MATTERS REGARDING THE SERVICER
 
     With respect to each series of Securities issued by a Trust, each Trust
Agreement will provide that First Sierra may not resign from its obligations and
duties as Servicer thereunder, except upon determination that First Sierra's
performance of such duties is no longer permissible under applicable law. No
such resignation will become effective until the related Trustee or a successor
servicer has assumed First Sierra's servicing obligations and duties under the
Trust Agreement.
 
     Except as otherwise provided in the related Prospectus Supplement, each
Trust Agreement will further provide that neither the Servicer nor any of its
respective directors, officers, employees, or agents shall be under any
liability to the related Issuer or the related Securityholders for taking any
action or for refraining from taking any action pursuant to such Trust
Agreement, or for errors in judgment; provided, however, that neither the
Servicer nor 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 duties or by reason of reckless disregard of
obligations and duties thereunder and provided, further, however, that neither
the Servicer nor any such person will be protected against any liability that
would be imposed under the federal securities laws. In addition, such Trust will
provide that the Servicer is under no obligation to appear in, prosecute, or
defend any legal action that is not incidental to its servicing responsibilities
under such Trust Agreement and that, in its opinion, may cause it to incur any
expense or liability.
 
     Under the circumstances specified in any such Trust Agreement, any entity
into which the Servicer may be merged or consolidated, or any entity resulting
from any merger or consolidation to which the Servicer is a party, or any entity
succeeding to the business of the Servicer or, with respect to its obligations
as Servicer, which corporation or other entity in each of the foregoing cases
assumes the obligations of the Servicer, will be the successor of the Servicer
under such Trust Agreement.
 
                                       36
<PAGE>   110
 
SERVICER DEFAULT
 
     Except as otherwise provided in the related Prospectus Supplement,
"Servicer Default" under a Trust Agreement will include (i) any failure by the
Servicer to deliver to the applicable Trustee for deposit in any of the related
Trust Accounts any required payment or to direct such Trustee to make any
required distributions therefrom, which failure continues unremedied for greater
than three (3) Business Days after written notice from such Trustee is received
by the Servicer or after discovery by the Servicer; (ii) any failure by the
Servicer or the Company, as the case may be, duly to observe or perform in any
material respect any other covenant or agreement in such Trust Agreement, which
failure materially and adversely affects the rights of the related
Securityholders and which continues unremedied for greater than ninety (90) days
after the giving of written notice of such failure (1) to the Servicer or the
Company, as the case may be, by the applicable Trustee or (2) to the Servicer or
the Company, as the case may be, and to the applicable Trustee by holders of the
related Securities, as applicable, evidencing not less than 25% of the voting
rights of such outstanding Securities; and (iii) any Insolvency Event. An
"Insolvency Event" shall mean financial insolvency, readjustment of debt,
marshalling of assets and liabilities, or similar proceedings with respect to
the Servicer or the Company and certain actions by the Servicer or the Company
indicating its insolvency, reorganization pursuant to bankruptcy proceedings, or
inability to pay its obligations.
 
RIGHTS UPON SERVICER DEFAULT
 
     As more fully described in the related Prospectus Supplement, as long as a
Servicer Default under a Trust Agreement remains unremedied, the applicable
Trustee, Credit Enhancer or holders of Securities of the related series
evidencing not less than 25% of the voting rights of such then outstanding
Securities may terminate all the rights and obligations of the Servicer, if any,
under such Trust Agreement, whereupon a successor servicer appointed by such
Trustee or such Trustee will succeed to all the responsibilities, duties and
liabilities of the Servicer under such Trust Agreement and will be entitled to
similar compensation arrangements. If, however, a bankruptcy trustee or similar
official has been appointed for the Servicer, and no Servicer Default other than
such appointment has occurred, such bankruptcy trustee or official may have the
power to prevent the applicable Trustee or such Securityholders from effecting a
transfer of servicing. In the event that the Trustee is unwilling or unable to
so act, it may appoint, or petition a court of competent jurisdiction for the
appointment of, a successor with a net worth of at least $25,000,000 and whose
regular business includes the servicing of a similar type of receivables. Such
Trustee may make such arrangements for compensation to be paid, which in no
event may be greater than the servicing compensation payable to the Servicer
under the related Trust Agreement.
 
WAIVER OF PAST DEFAULTS
 
     With respect to each Asset Pool, unless otherwise provided in the related
Prospectus Supplement and subject to the approval of any Credit Enhancer, the
holders of Notes evidencing at least a majority of the voting rights of such
then outstanding Securities may, on behalf of all Securityholders of the related
Securities, waive any default by the Servicer, or by the Company, in the
performance of its obligations under the related Trust Agreement and its
consequences, except a default in making any required deposits to or payments
from any of the Trust Accounts in accordance with such Trust Agreement. No such
waiver shall impair the Securityholders' rights with respect to subsequent
defaults.
 
AMENDMENT
 
     As more fully described in the related Prospectus Supplement, each of the
Trust Agreements may be amended by the parties thereto, without the consent of
the related Securityholders, for the purpose of (a) adding any provisions to or
changing in any manner or eliminating any of the provisions of such Trust
Agreements or (b) modifying in any manner the rights of such Securityholders;
provided that such action will not, in the opinion of counsel satisfactory to
the applicable Trustee, materially and adversely affect the interests of any
such Securityholder and, to the extent provided in the related Prospectus
Supplement, to which the related Credit Enhancer may consent. As may be
described in the related Prospectus Supplement, the Trust Agreements may also be
amended by the Company, the Servicer, and the applicable Trustee with
                                       37
<PAGE>   111
 
the consent of the holders of Securities evidencing at least a majority of the
voting rights of such then outstanding Securities for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
such Trust Agreements or of modifying in any manner the rights of such
Securityholders; provided, however, that no such amendment may (i) increase or
reduce in any manner the amount of, or accelerate or delay the timing of,
collections of payments on the related Receivables or distributions that are
required to be made for the benefit of such Securityholders or (ii) reduce the
aforesaid percentage of the Securities of such series which are required to
consent to any such amendment, without the consent of the Securityholders of
such series.
 
INSOLVENCY EVENT
 
     As described in the related Prospectus Supplement, if an Insolvency Event
occurs with respect to the Company, the Receivables held in each Asset Pool will
be liquidated and each Trust will be terminated 90 days after the date of such
Insolvency Event, unless, before the end of such 90-day period, the Trustee of
such Trust shall have received written instructions from each of the related
Securityholders (other than the Company) and/or Credit Enhancer to the effect
that such party disapproves of the liquidation of such Receivables and
termination of such Trust. Promptly after the occurrence of any Insolvency Event
with respect to the Company, notice thereof is required to be given to such
Securityholders and/or Credit Enhancer; provided, however, that any failure to
give such required notice will not prevent or delay termination of any Trust.
Upon termination of any Trust, the applicable Trustee shall direct that the
assets of such Trust be promptly sold (other than the related Trust Accounts) in
a commercially reasonable manner and on commercially reasonable terms. The
proceeds from any such sale, disposition or liquidation of such Receivables will
be treated as collections on such Receivables and deposited in the related
Collection Account. If the proceeds from the liquidation of such Receivables and
any amounts on deposit in the Reserve Account, if any, and the related
Distribution Account are not sufficient to pay the Securities of the related
series in full, and no additional Credit Enhancement is available, the amount of
principal returned to Securityholders will be reduced and some or all of such
Securityholders will incur a loss.
 
     Each Trust Agreement will provide that the applicable Trustee does not have
the power to commence a voluntary proceeding in bankruptcy with respect to any
related Trust without the unanimous prior approval of all Certificateholders
(including the Company, if applicable) of such Trust and the delivery to such
Trustee by each such Certificateholder of a certificate certifying that such
Certificateholder reasonably believes that such Trust is insolvent.
 
TERMINATION
 
     With respect to each Trust formed by the Company to issue Securities, the
obligations of the Servicer, the Company and the applicable Trustee pursuant to
the related Trust Agreements will terminate upon the earlier to occur of (i) the
maturity or other liquidation of the last related Receivable and the disposition
of any amounts received upon liquidation of any such remaining Receivables and
(ii) the payment to Securityholders of the related series of all amounts
required to be paid to them pursuant to such Trust Agreement. As more fully
described in the related Prospectus Supplement, in order to avoid excessive
administrative expense, the Servicer will be permitted in respect of the
applicable Asset Pool, unless otherwise specified in the related Prospectus
Supplement, at its option to purchase from such Asset Pool, as of the end of any
Collection Period immediately preceding a Payment Date, if the Discounted
Contract Balance of the related Contracts is less than a specified percentage
(set forth in the related Prospectus Supplement) of the initial Pool Balance in
respect of such Asset Pool, all such remaining Receivables at a price equal to
the Aggregate Discounted Contract Balance of the related Securities will be
redeemed following such purchase. Unless otherwise provided in the related
Prospectus Supplement, the Trustee shall not be required to solicit bids from
third parties.
 
     If and to the extent provided in the related Prospectus Supplement with
respect to an Asset Pool, the applicable Trustee will, within ten days following
a Payment Date as of which the Pool Balance is equal to or less than the
percentage of the initial Pool Balance specified in the related Prospectus
Supplement, solicit bids for the purchase of the Receivables remaining in such
Trust, in the manner and subject to the terms and
                                       38
<PAGE>   112
 
conditions set forth in such Prospectus Supplement. If such Trustee receives
satisfactory bids as described in such Prospectus Supplement (which must, in any
case, generate sufficient proceeds to pay in full all outstanding Securities),
then the Receivables remaining in such Asset Pool will be sold to the highest
bidder. Affiliates of the Company will be permitted to submit bids.
 
     As more fully described in the related Prospectus Supplement, any
outstanding Notes of the related series will be redeemed concurrently with
either of the events specified above and the subsequent distribution to the
related Certificateholders of all amounts required to be distributed to them
pursuant to the applicable Trust Agreement may effect the prepayment of the
Certificates of such series.
 
                                       39
<PAGE>   113
 
                CERTAIN LEGAL MATTERS AFFECTING THE RECEIVABLES
 
GENERAL
 
     To the extent provided in the related Prospectus Supplement, the Contracts
that comprise the Receivables are "chattel paper" as defined in the Uniform
Commercial Code in effect in the State of Texas, the State of California and the
State of Florida; the governing laws chosen in the First Sierra forms of lease
contract. The governing law of the lease contracts acquired by the Seller
pursuant to its Portfolio Acquisition Program may vary as specified in the
related Prospectus Supplement. Pursuant to the UCC for most purposes, a sale of
chattel paper is treated in a manner similar to a transaction creating a
security interest in chattel paper. To the extent provided in the related
Prospectus Supplement, First Sierra and the Company will cause the filing of
appropriate UCC-1 financing statements to be made with the appropriate
governmental authorities. Under the Trust Agreement, the Servicer will be
obligated from time to time to take such actions as are necessary to protect and
perfect the Trust's or the Trustee's interests in the Contracts and their
proceeds.
 
THE SECURITY INTEREST IN THE EQUIPMENT
 
     The Seller will convey the Seller's interest in the Equipment to the
Company. The Company will pledge a security interest in the Equipment to the
related Issuer. UCC financing statements will not be filed to perfect any
security interest in the Equipment unless otherwise specified in the related
Prospectus Supplement. Moreover, in the event of the repossession and resale of
Equipment, it may be subject to a superior lien. In such case, the senior
lienholder may be entitled to be paid the full amount of the indebtedness owed
to it out of the sale proceeds before such proceeds could be applied to the
payment of claims of the Servicer on behalf of the Trust.
 
     In the event of a default by the Lessee, the Servicer on behalf of the
related Trustee may take action to enforce such Defaulted Contract by
repossession and resale of the leased Equipment. Under the UCC in most states, a
creditor can, without prior notice to the debtor, repossess assets securing a
defaulted contract by the Lessee's voluntary surrender of such assets or by
"self-help" repossession that does not involve a breach of the peace and by
judicial process.
 
     In the event of a default by the Lessee, some jurisdictions require that
the Lessee be notified of the default and be given a time period within which it
may cure the default prior to repossession. Generally, this right of
reinstatement may be exercised on a limited number of occasions in any one-year
period.
 
     The UCC and other state laws place restrictions on repossession sales,
including requirements that the secured party provide the Lessee with reasonable
notice of the date, time and place of any public sale and/or the date after
which any private sale of the collateral may be held and that any such sale be
conducted in a commercially reasonable manner. Each Trust Agreement may require
the Servicer to sell promptly any repossessed item of Equipment, reacquire such
Equipment from the Asset Pool, re-lease such Equipment for the benefit of the
Securityholders or take such other action as specified in the related Prospectus
Supplement.
 
     Under most state laws, a Lessee has the right to redeem collateral for its
obligations prior to actual sale by paying the secured party the unpaid balance
of the obligation plus reasonable expenses for repossession, holding and
preparing the collateral for disposition and arranging for its sale, plus, to
the extent provided for in the written agreement of the parties, reasonable
attorneys' fees.
 
     In addition, because the market value of the equipment of the type financed
pursuant to the Receivables generally declines with age and because of
obsolescence, the net disposition proceeds of leased Equipment at any time
during the term of the lease may be less than the outstanding balance on the
Contract principal balance which it secures. Because of this, and because other
creditors may have rights in the related leased Equipment superior to those of
the related Trustee, the Servicer may not be able to recover the entire amount
due on a Defaulted Contract in the event that the Servicer elects to repossess
and sell such leased Equipment at any time.
 
                                       40
<PAGE>   114
 
     Under the UCC and laws applicable in most states, a creditor is entitled to
obtain a deficiency judgment from a Lessee for any deficiency on repossession
and resale of the asset securing the unpaid balance of such Lessee's contract.
However, some states impose prohibitions or limitations on deficiency judgments.
In most jurisdictions the courts, in interpreting the UCC, would impose upon a
creditor an obligation to repossess the equipment in a commercially reasonable
manner and to "mitigate damages" in the event of a Lessee's failure to cure a
default. The creditor would be required to exercise reasonable judgment and
follow acceptable commercial practice in seizing and disposing of the equipment
and to offset the net proceeds of such disposition against its claim. In
addition, a Lessee may successfully invoke an election of remedies defense to a
deficiency claim in the event that the Servicer's repossession and sale of the
leased Equipment is found to be a retention discharging the Lessee from all
further obligations under UCC Section 9-505(2). If a deficiency judgment were
granted, the judgment would be a personal judgment against the Lessee for the
shortfall, but a defaulting Lessee may have very little capital or sources of
income available following repossession. Therefore, in many cases, it may not be
useful to seek a deficiency judgment or, if one is obtained, it may be settled
at a significant discount.
 
     Certain statutory provisions, including federal and state bankruptcy and
insolvency laws, may also limit the ability of the Servicer to repossess and
resell collateral or obtain a deficiency judgment. In the event of the
bankruptcy or reorganization of a Lessee, various provisions of the Bankruptcy
Code of 1978 (the "Bankruptcy Code") and related laws may interfere with or
eliminate the ability of the Servicer or the Trustee to enforce its rights under
the Receivables. If bankruptcy proceedings were instituted in respect of a
Lessee, the Trustee could be prevented from continuing to collect payments due
from or on behalf of such Lessee or exercising any remedies assigned to such
Trustee without the approval of the bankruptcy court, and the bankruptcy court
could permit the Lessee to use or dispose of the leased Equipment and provide
the Trustee with a lien on substitute collateral, so long as such substitute
collateral constituted "adequate protection" as defined under the Bankruptcy
Code.
 
     In addition, certain of the Receivables may be leased by the Seller to
governmental entities. Payment by governmental authorities of amounts due under
such Contracts may be contingent upon legislative approval. Accordingly, payment
delays and collection difficulties as described in the related Prospectus
Supplement may limit collections with respect to certain governmental Contracts.
 
     These UCC and bankruptcy provisions, in addition to the possible decrease
in value of a repossessed item of Equipment (equipment leased pursuant to a
Finance Lease), may limit the amount realized on the sale of the collateral to
less than the amount due on the related Receivable.
 
                    MATERIAL FEDERAL INCOME TAX CONSEQUENCES
 
     The Prospectus Supplement for each series of Securities will summarize,
subject to the limitations stated therein, federal income tax considerations
relevant to the purchase, ownership and disposition of such Securities. In
addition, each Prospectus Supplement will include an opinion of counsel as to
the material federal income tax consequences of purchasing, owning and disposing
of the Securities that are not addressed in the opinion with respect to the
Prospectus.
 
     The following describes the material Federal income tax consequences to the
holders of Securities. The tax consequences of each Series will be reflected in
the related Prospectus Supplement, and the Company will file an additional tax
opinion with respect thereto by Form 8-K confirming the opinions described
herein.
 
     Holders of Grantor Trust Certificates generally will be taxable on their
respective shares of the income from the Contracts. See "GRANTOR TRUST
CERTIFICATES -- Taxation of Holders of Grantor Trust Certificates," below.
Holders of Notes generally will be taxable on distributions of interest on the
Notes. See "NOTES," below. In either case, it is anticipated that the Trust will
not be treated as an association taxable as a corporation (or a publicly traded
partnership). See "POSSIBLE CLASSIFICATION OF THE SECURITIES AS INTERESTS IN A
PARTNERSHIP OR AN ASSOCIATION," below.
 
                                       41
<PAGE>   115
 
TAX CHARACTERIZATION OF THE TRUST
 
     Dewey Ballantine LLP, special tax counsel to the Sellers ("Special
Counsel") is of the opinion that, assuming compliance with the terms of the
Trust Agreement and related documents, the Trust will not be an association (or
publicly traded partnership) taxable as a corporation for federal income tax
purposes.
 
GENERAL
 
     The following is the opinion of Special Counsel as to the material federal
income tax consequences to investors of the purchase, ownership and disposition
of the Securities offered hereby. Special Counsel's opinion is based upon laws,
regulations, rulings and decisions now in effect, all of which are subject to
change. Special Counsel's opinion does not purport to deal with all federal tax
consequences applicable to all categories of investors. Certain holders,
including insurance companies, tax-exempt organizations, financial institutions
or broker dealers, taxpayers subject to the alternative minimum tax, and holders
that will hold the Securities as other than capital assets, may be subject to
special rules that are not discussed below. It is recommended that Investors
consult their own tax advisors in determining the federal, state, local and any
other tax consequences to them of the purchase, ownership and disposition of the
Securities.
 
     Special Counsel's opinion addresses Securities of two general types: (i)
certificates ("Grantor Trust Certificates") representing interests in a trust
estate (a "Grantor Trust Estate"); and (ii) notes ("Notes") that are intended to
be treated for federal income tax purposes as indebtedness secured by the
Equipment and Contracts. For purposes of this discussion, references to a
"Holder" are to the beneficial owner of a Security.
 
GRANTOR TRUST CERTIFICATES
 
     With respect to each Series of Grantor Trust Certificates, Special Counsel
will additionally deliver its opinion to the Seller that (unless otherwise
limited in the applicable Prospectus Supplement) the related Grantor Trust
Estate will be classified as a grantor trust and not as a partnership or an
association taxable as a corporation. Accordingly, each Holder of a Grantor
Trust Certificate will be treated as the owner of an interest in the Equipment
and Contracts included in the Grantor Trust Estate.
 
     For purposes of Special Counsel's opinion, a Grantor Trust Certificate
representing an undivided equitable ownership interest in the Equipment and
Contracts constituting the related Grantor Trust Estate, together with interest
thereon at a pass-through rate, will be referred to as a "Grantor Trust
Fractional Interest Certificate."
 
     In certain cases in which the Contracts in the Grantor Trust Estate consist
entirely of Finance Leases, a Grantor Trust Certificate may be issued
representing ownership of all or a portion of the difference between the
interest component of the payments on the Finance Leases constituting the
related Grantor Trust Estate and interest paid to the Holders of Grantor Trust
Fractional Interest Certificates issued with respect to such Grantor Trust
Estate. Such an Certificate will be referred to as a "Grantor Trust Strip
Certificate."
 
     Taxation of Holders of Grantor Trust Certificates.  Holders of Grantor
Trust Fractional Interest Certificates will be required to report on their
federal income tax returns their respective shares of the income from the
Contracts (including amounts used to pay reasonable servicing fees and other
expenses but excluding amounts payable to Holders of any corresponding Grantor
Trust Strip Certificates) and, subject to the limitations described below, will
be entitled to deduct their shares of any such reasonable servicing fees and
other expenses. If all of the Contracts in the Grantor Trust Estate consist of
Finance Leases, the income from the Contracts will be limited to the interest
component of the payment thereon. Payments of principal generally will be
treated as nontaxable recoveries of the Holder's investment. In such a case, if
a Holder acquires a Grantor Trust Fractional Interest Certificate for an amount
that differs from its outstanding principal amount or from the aggregate
outstanding principal amount of the underlying Finance Leases, the amount
includible in income on a Grantor Trust Fractional Interest Certificate may
differ from the amount of interest distributable thereon. See "Discount and
Premium," below.
 
                                       42
<PAGE>   116
 
     Individuals 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. Further, Holders (other than
corporations) subject to the alternative minimum tax may not deduct
miscellaneous itemized deductions in determining alternative minimum taxable
income.
 
     Holders of Grantor Trust Strip Certificates will be required to treat such
Certificates as "stripped coupons" under section 1286 of the Internal Revenue
Code of 1986 (the "Code"). Accordingly, such a Holder will be required to treat
the excess of the total amount of payments on such an Certificate over the
amount paid for such Certificate as original issue discount and to include such
discount in income as it accrues over the life of such Certificate. See
"Discount and Premium," below.
 
     Grantor Trust Fractional Interest Certificates may also be subject to the
coupon stripping rules if a class of Grantor Trust Strip Certificates is issued
as part of the same series of Certificates. The consequences of the application
of the coupon stripping rules would appear to be that any discount arising upon
the purchase of such a Certificate (and perhaps all stated interest thereon)
would be classified as original issue discount and includible in the Holder's
income as it accrues (regardless of the Holder's method of accounting), as
described below under "Discount and Premium." The coupon stripping rules will
not apply, however, if (i) the pass-through rate is no more than 100 basis
points lower than the gross rate of interest on the Contracts and (ii) the
difference between the outstanding principal balance on the Certificate and the
amount paid for such Certificate is less than 0.25 percent of such principal
balance times the weighted average remaining maturity of the Certificate.
 
     Sales of Grantor Trust Certificates.  Any gain or loss recognized on the
sale of a Grantor Trust Certificate (equal to the difference between the amount
realized on the sale and the adjusted basis of such Grantor Trust Certificate)
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 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 on
the Certificates.
 
     Grantor Trust Reporting.  The Trustee will furnish to each Holder of a
Grantor Trust Fractional Interest Certificate with each distribution a statement
setting forth the amount of such distribution allocable to principal on the
Contracts and to interest thereon at the related Certificate Rate. In addition,
within a reasonable time after the end of each calendar year, based on
information provided by the Servicer, the Trustee will furnish to each Holder
during such year such customary factual information as the Servicer 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 to do so by law.
 
NOTES
 
     With respect to each Series of Notes, Special Counsel will additionally
deliver its opinion to the Seller (unless otherwise limited in the applicable
Prospectus Supplement) that the Notes will be classified as debt of the Seller
secured by the Equipment and Contracts confirming the opinion described herein.
Consequently, the Notes will not be treated as ownership interests in the
Equipment and Contracts or the Trust. Holders will be required to report income
received with respect to the Notes in accordance with their normal method of
accounting. For additional tax consequences relating to Notes purchased at a
discount or with premium, see "Discount and Premium," below.
 
     Sale or Exchange of Notes.  If a Holder of Notes sells or exchanges such
Notes, the Holder will recognize gain or loss equal to the difference, if any,
between the amount received and the Holder's adjusted basis in the Note. The
adjusted basis in the Notes generally will equal its initial cost, increased by
any original issue discount or market discount previously included in the
seller's gross income with respect to the Notes and reduced by the payments
previously received on the Notes, other than payments of qualified stated
interest, and by any amortized premium.
                                       43
<PAGE>   117
 
     In general (except as described in "Discount and Premium Market Discount,"
below, and except for certain financial institutions subject to section 582(c)
of the Code), any gain or loss on the sale or exchange of Notes recognized by an
investor who holds the Notes as a capital asset (within the meaning of section
1221 of the Code), will be capital gain or loss and will be long-term or
short-term depending on the length of time the Holder has held the Notes.
 
POSSIBLE CLASSIFICATION OF THE CERTIFICATES AS INTERESTS IN A PARTNERSHIP OR AN
ASSOCIATION
 
     Although, as described above, it is the opinion of Special Counsel that the
Securities will properly be characterized either as ownership interests in a
grantor trust or as debt for Federal income tax purposes, such opinion is not
binding on the IRS and thus no assurance can be given that such a
characterization will prevail. If the IRS were to contend successfully that the
Securities were not interests in a grantor trust or debt obligations for Federal
income tax purposes, the arrangement between the Seller and the Holders might be
classified as a partnership for Federal income tax purposes, as an association
taxable as a corporation or as a "publicly traded partnership" taxable as a
corporation.
 
     If the Securities were treated as interests in a partnership, each item of
income, gain, loss, deduction and credit generated through the ownership of the
Equipment and the Contracts by the partnership would be passed through to the
partners in such a partnership (including the Holders) according to their
respective interests therein. Under current law, the income reportable by the
Holders as partners in such a partnership could differ from the income
reportable by the Holders as holders of debt or of interests in a grantor trust.
Except as discussed below, it is not expected that such differences would be
materially adverse to Holders unless the proposed legislation, discussed in the
following paragraph, is enacted. If the Holders were treated as partners, a cash
basis Holder might be required to report income when it accrues to the
partnership rather than when it is received by the Holder. Moreover, if Notes
were treated as interests in a partnership, an individual Holder's share of
expenses of the partnership (such as Servicing Fees) would be miscellaneous
itemized deductions that in the aggregate are allowed only to the extent they
exceed two percent of the holder's adjusted gross income, meaning that the
holder might be taxed on a greater amount of income than the stated interest on
his Notes. Finally, if the trust is treated as a partnership of a Security
treated as a partnership interest, any taxable income allocated to a Holder that
is a pension, profit sharing or employee benefit plan or other tax-exempt entity
(including an individual retirement account), could constitute "unrelated
business taxable income".
 
     If, alternatively, the Securities were treated as interests in an
association taxable as a corporation or a "publicly traded partnership" taxable
as a corporation, the resulting entity would be subject to Federal income tax at
corporate tax rates on its taxable income generated by ownership of the
Contracts. Moreover, distributions by the entity on the Securities probably
would not be deductible in computing the entity's taxable income and all or part
of distributions to Holders would probably be treated as dividend income to such
Holders. Such an entity-level tax could result in a reduced amount of cash
available for distributions to Securityholders.
 
     Since the Seller will treat the Grantor Trust Certificates as ownership
interests in a grantor trust and Notes as indebtedness for Federal income tax
purposes, the Trustee (and Participants and Indirect Participants) will not
attempt to satisfy the tax reporting requirements that would apply under these
alternative characterizations of the Securities. Further, If the IRS were to
contend successfully that the Securities are interests in a partnership or an
association taxable as a corporation, additional tax consequences would apply to
Foreign Holders. It is recommended that Investors consult their own tax advisors
with regard to the potential application of such provisions.
 
DISCOUNT AND PREMIUM
 
     A Note purchased at original issue for an amount other than its outstanding
principal amount will be subject to the rules governing original issue discount
or premium. A Grantor Trust Certificate purchased for an amount other than the
aggregate outstanding principal amount of the Contracts in the Grantor Trust
Estate generally will be subject to the rules governing market discount or
premium. In addition, all Grantor Trust
 
                                       44
<PAGE>   118
 
Strip Certificates and certain Grantor Trust Fractional Interest Certificates
will be treated as having original issue discount by virtue of the coupon
stripping rules in section 1286 of the Code. In general terms, (i) original
issue discount is treated as a form of interest and must be included in a
Holder's income as it accrues (regardless of the Holder's regular method of
accounting) using a constant yield method; (ii) market discount is treated as
ordinary income and must be included in a Holder's income as principal payments
are made on the Security (or upon a sale of a Security); and (iii) if a Holder
so elects, premium may be amortized over the life of the Security and offset
against inclusions of interest income. These tax consequences are discussed in
greater detail below.
 
     Original Issue Discount.  In general, a Security will be considered to be
issued with original issue discount equal to the excess, if any, of its "stated
redemption price at maturity" over its "issue price." The issue price of a
Security is the initial offering price to the public (excluding bond houses and
brokers) at which a substantial amount of the Securities is sold. The issue
price also includes any accrued interest attributable to the period prior to the
Series Issuance Date. The stated redemption price at maturity of a Security is
equal to the sum of all distributions to be made under such Security other than
amounts of "qualified stated interest." Qualified stated interest is stated
interest that is unconditionally payable at least annually at a single fixed
rate or, unless otherwise stated in an applicable Prospectus Supplement, at one
or more variable rates. The stated redemption price at maturity of any Security
will include an amount equal to the excess (if any) of the interest payable on
the first Distribution Date over the interest that accrues for the period from
the Series Issuance Date to the first Distribution Date.
 
     Notwithstanding the general definition, original issue discount will be
treated as zero if such discount is less than 0.25 percent of the stated
redemption price at maturity multiplied by its weighted average life. The
weighted average life of a Security is apparently computed for this purpose as
the sum, for all distributions included in the stated redemption price at
maturity, of the amounts determined by multiplying (i) the number of complete
years (rounding down for partial years) from the Series Issuance Date until the
date on which each such distribution is expected to be made under the assumption
that the Contracts prepay at a specified rate (the "Prepayment Assumption") by
(ii) a fraction, the numerator of which is the amount of such distribution and
the denominator of which is the Security's stated redemption price at maturity.
If original issue discount is treated as zero under this rule, the actual amount
of original issue discount must be allocated to the principal distributions on
the Security and, when each such distribution is received, gain equal to the
discount allocated to such distribution will be recognized.
 
     Section 1272(a)(6)(B)(iii) of the Code requires that the prepayment
assumption used to calculate original issue discount be determined in the manner
prescribed in Treasury regulations. To date, no such regulations have been
promulgated. The legislative history of this Code provision indicates that the
assumed prepayment rate must be the rate used by the parties in pricing the
particular transaction. The Seller anticipates that the Prepayment Assumption
for each Series of Securities will be consistent with this standard. The Seller
makes no representation, however, that the Contracts for a given Series will
prepay at the rate reflected in the Prepayment Assumption for that Series or at
any other rate. Each investor must make its own decision as to the appropriate
prepayment assumption to be used in deciding whether or not to purchase any of
the Securities.
 
     Each Holder must include in gross income the sum of the "daily portions" of
original issue discount on its Security for each day during its taxable year on
which it held such Security. For this purpose, in the case of an original
Holder, the daily portions of original issue discount will be determined as
follows. A calculation will first be made of the portion of the original issue
discount that accrued during each "accrual period." The Trustee will supply, at
the time and in the manner required by the IRS, to Holders, brokers and
middlemen information with respect to the original issue discount accruing on
the Securities. Unless otherwise disclosed in the applicable Prospectus
Supplement, the Trustee will report original issue discount based on accrual
periods of one month, each beginning on a payment date (or, in the case of the
first such period, the Series Issuance Date) and ending on the day before the
next payment date.
 
     Under section 1272(a)(6) of the Code, the portion of original issue
discount treated as accruing for any accrual period will equal the excess, if
any, of (i) the sum of (A) the present values of all the distributions
 
                                       45
<PAGE>   119
 
remaining to be made on the Security, if any, as of the end of the accrual
period and (B) the distribution made on such Security during the accrual period
of amounts included in the stated redemption price at maturity, over (ii) the
adjusted issue price of such Security at the beginning of the accrual period.
The present value of the remaining distributions referred to in the preceding
sentence will be calculated based on (i) the yield to maturity of the Security,
calculated as of the Series Issuance Date, giving effect to the Prepayment
Assumption, (ii) events (including actual prepayments) that have occurred prior
to the end of the accrual period, (iii) the Prepayment Assumption, and (iv) in
the case of a Security calling for a variable rate of interest, an assumption
that the value of the index upon which such variable rate is based remains the
same as its value on the Series Issuance Date over the entire life of such
Security. The adjusted issue price of a Security at any time will equal the
issue price of such Security, increased by the aggregate amount of previously
accrued original issue discount with respect to such Security, and reduced by
the amount of any distributions made on such Security as of that time of amounts
included in the stated redemption price at maturity. The original issue discount
accruing during any accrual period will then be allocated ratably to each day
during the period to determine the daily portion of original issue discount.
 
     In the case of Grantor Trust Strip Certificates, the calculation described
in the preceding paragraph may produce a negative amount of original issue
discount for one or more accrual periods. No definitive guidance has been issued
regarding the treatment of such negative amounts. The legislative history to
section 1272(a)(6) indicates that such negative amounts may be used to offset
subsequent positive accruals but may not offset prior accruals and may not be
allowed as a deduction item in a taxable year in which negative accruals exceed
positive accruals. Holders of such Certificates should consult their own tax
advisors concerning the treatment of such negative accruals.
 
     A subsequent purchaser of a Security that purchases such Security at a cost
less than its remaining stated redemption price at maturity also will be
required to include in gross income for each day on which it holds such
Security, the daily portion of original issue discount with respect to such
Security (but reduced, if the cost of such Security to such purchaser exceeds
its adjusted issue price, by an amount equal to the product of (i) such daily
portion and (ii) a constant fraction, the numerator of which is such excess and
the denominator of which is the sum of the daily portions of original issue
discount on such Security for all days on or after the day of purchase).
 
     Market Discount.  A Holder that purchases a Security at a market discount,
that is, at a purchase price less than the remaining stated redemption price at
maturity of such Security (or, in the case of a Security with original issue
discount, its adjusted issue price), will be required to allocate each principal
distribution first to accrued market discount on the Security, and recognize
ordinary income to the extent such distribution does not exceed the aggregate
amount of accrued market discount on such Security not previously included in
income. With respect to Securities that have unaccrued original issue discount,
such market discount must be included in income in addition to any original
issue discount. A Holder that incurs or continues indebtedness to acquire a
Security at a market discount may also be required to defer the deduction of all
or a portion of the interest on such indebtedness until the corresponding amount
of market discount is included in income. In general terms, market discount on a
Security may be treated as accruing either (i) under a constant yield method or
(ii) in proportion to remaining accruals of original issue discount, if any, or
if none, in proportion to remaining distributions of interest on the Security,
in any case taking into account the Prepayment Assumption. The Trustee will make
available, as required by the IRS, to Holders of Securities information
necessary to compute the accrual of market discount.
 
     Notwithstanding the above rules, market discount on a Security will be
considered to be zero if such discount is less than 0.25 percent of the
remaining stated redemption price at maturity of such Security multiplied by its
weighted average remaining life. Weighted average remaining life presumably
would be calculated in a manner similar to weighted average life, taking into
account payments (including prepayments) prior to the date of acquisition of the
Security by the subsequent purchaser. If market discount on a Security is
treated as zero under this rule, the actual amount of market discount must be
allocated to the remaining principal distributions on the Security and, when
each such distribution is received, gain equal to the discount allocated to such
distribution will be recognized.
 
                                       46
<PAGE>   120
 
     Certificates Purchased at a Premium.  A purchaser of a Security that
purchases such Security at a cost greater than its remaining stated redemption
price at maturity will be considered to have purchased such Security (a "Premium
Security") at a premium. Such a purchaser need not include in income any
remaining original issue discount and may elect, under section 171(c)(2) of the
Code, to treat such premium as "amortizable bond premium." If a Holder makes
such an election, the amount of any interest payment that must be included in
such Holder's income for each period ending on a Distribution Date will be
reduced by the portion of the premium allocable to such period based on the
Premium Certificate's yield to maturity. Such premium amortization should be
made under principles analogous to those governing the accrual of market
discount (as discussed above under "Market Discount"). If such election is made
by the Holder, the election will also apply to all bonds the interest on which
is not excludible from gross income ("fully taxable bonds") held by the Holder
at the beginning of the first taxable year to which the election applies and to
all such fully taxable bonds thereafter acquired by it, and is irrevocable
without the consent of the IRS. If such an election is not made, (i) such a
Holder must include the full amount of each interest payment in income as it
accrues, and (ii) the premium must be allocated to the principal distributions
on the Premium Security and, when each such distribution is received, a loss
equal to the premium allocated to such distribution will be recognized. Any tax
benefit from the premium not previously recognized will be taken into account in
computing gain or loss upon the sale or disposition of the Premium Security.
 
     Because the interest rate on a Grantor Trust Certificate generally will be
lower than the implicit interest rate on the Finance Leases that comprise the
Grantor Trust Estate, the principal amount of such Certificates may be higher
than the aggregate outstanding principal amount of the Finance Leases. The IRS
may take the position that the existence of market discount or premium on
Grantor Trust Certificates should be measured with reference to the aggregate
outstanding principal balance of the Contracts, rather than the Certificates.
Accordingly, it is recommended that Holders of Grantor Trust Certificates
consult with their own advisors regarding the advisability of making a
protective election to treat any premium on such Certificates as amortizable
bond premium.
 
     Special Election.  A Holder may elect to include in gross income all
"interest" that accrues on the Security by using a constant yield method. For
purposes of the election, the term "interest" includes stated interest,
acquisition discount, original issue discount, de minimis original issue
discount, market discount, de minimis market discount and unstated interest as
adjusted by any amortizable bond premium or acquisition premium. Holders are
encouraged to consult their own tax advisors regarding the time and manner of
making and the scope of the election and the implementation of the constant
yield method.
 
BACKUP WITHHOLDING
 
     Distributions of interest and principal, as well as distributions of
proceeds from the sale of Securities, may be subject to the "backup withholding
tax" under section 3406 of the Code at a rate of 31 percent if recipients of
such distributions 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 distributions that is required to supply information but that does
not do so in the proper manner.
 
FOREIGN INVESTORS
 
     Distributions made on a Grantor Trust Certificate or a Note to, or on
behalf of, a Holder that is not a U.S. Person generally will be exempt from U.S.
federal income and withholding taxes. The term "U.S. Person" means a citizen or
resident of the United States, a corporation, partnership or other entity
created or organized in or under the laws of the United States or any political
subdivision thereof, an estate that is subject to U.S. federal income tax
regardless of the source of its income or a trust other than a "foreign trust"
as defined in Section 7701(a)(31) of the Code. The term "Non-U.S. Person" means
any person who is not a U.S. Person. This Prospectus does not deal with all
aspects of U.S. federal income tax withholding that may be relevant to foreign
holders of the Securities or with the application of recently issued Treasury
Regulations relating to tax documentation requirements that are generally
effective with respect to payments made after
                                       47
<PAGE>   121
 
December 31, 1999. This exemption is applicable provided (a) the Holder is not
subject to U.S. tax as a result of a connection to the United States other than
ownership of the Security, (b) the Holder signs a statement under penalties of
perjury that certifies that such Holder is not a U.S. Person, and provides the
name and address of such Holder, and (c) the last U.S. Person in the chain of
payment to the Holder receives such statement from such Holder or a financial
institution holding on its behalf and does not have actual knowledge that such
statement is false. Holders should be aware that the IRS might take the position
that this exemption does not apply to a Holder that also owns 10 percent or more
of the total combined voting power of all classes of stock of the Seller
entitled to vote, or to a Holder that is a "controlled foreign corporation"
described in section 881(c)(3)(C) of the Code.
 
STATE AND LOCAL TAX CONSEQUENCES
 
     State tax consequences to each Securityholder will depend upon the
provisions of the state tax laws to which the Holder is subject. Most states
modify or adjust the taxpayer's Federal taxable income to arrive at the amount
of income potentially subject to state tax. Resident individuals generally pay
state tax on 100% of such state-modified income, while corporations and other
taxpayers generally pay state tax only on that portion of state-modified income
assigned to the taxing state under the state's own apportionment and allocation
rules. Because each state's tax law varies, it is impossible to predict the tax
consequences to the Securityholders in all the state taxing jurisdictions in
which they are already subject to tax. Securityholders are encouraged to consult
their own tax advisors with respect to state taxes.
 
                              ERISA CONSIDERATIONS
 
     The Prospectus Supplement for each series of Securities will summarize,
subject to the limitations discussed therein, considerations under ERISA
relevant to the purchase of such Securities by employee benefit plans and
individual retirement accounts.
 
                             METHOD OF DISTRIBUTION
 
     The Securities offered hereby and by the related Prospectus Supplement 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 public offering or
purchase price of such series and the net proceeds to the Company from such
sale.
 
     The Company intends that Securities will be offered through the following
methods from time to time and that offerings may be made concurrently through
more than one of these methods or that an offering of a particular series of
Securities 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;
 
          2. By placements by the Company with institutional investors through
     dealers;
 
          3. By direct placements by the Company with institutional investors;
     and
 
          4. By competitive bid.
 
     In addition, if specified in the related Prospectus Supplement, a series of
Securities may be offered in whole or in part in exchange for the Receivables
(and other assets, if applicable) that would comprise the Asset Pool in respect
of such Securities.
 
     If underwriters are used in a sale of any Securities (other than in
connection with an underwriting on a best efforts basis), such Securities 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. The
 
                                       48
<PAGE>   122
 
Securities 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 the Securities, underwriters may receive
compensation from the Company or from purchasers of the Securities in the form
of discounts, concessions or commissions. Underwriters and dealers participating
in the distribution of the Securities may be deemed to be underwriters in
connection with such Securities, and any discounts or commissions received by
them from the Company and any profit on the resale of Securities by them may be
deemed to be underwriting discounts and commissions under the Securities Act.
The Prospectus Supplement will describe any such compensation paid by the
Company.
 
     It is anticipated that the underwriting agreement pertaining to the sale of
any series of Securities 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 Securities if any are purchased (other than in
connection with an underwriting on a best efforts basis) and that, in limited
circumstances, the Company will indemnify the several underwriters and the
underwriters will indemnify the Company against certain civil liabilities,
including liabilities under the Securities Act or will contribute to payments
required to be made in respect thereof.
 
     The Prospectus Supplement with respect to any series offered by placements
through dealers will contain information regarding the nature of such offering
and any agreements to be entered into between the Company and purchasers of
Securities of such series.
 
     Purchasers of Securities, 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
Securities. Holders of Securities should consult with their legal advisors in
this regard prior to any such reoffer or sale.
 
                             CERTAIN LEGAL MATTERS
 
     Certain legal matters relating to the issuance of the Securities of any
series, including certain federal and state income tax consequences with respect
thereto, will be passed upon by Dewey Ballantine LLP, New York, New York.
 
                             FINANCIAL INFORMATION
 
     A new Asset Pool will be formed with respect to each Series of Securities
and no Asset Pool will engage in any business activities or have any assets or
obligations prior to the issuance of the related Series of Securities. The
Company's activities will be limited solely to the activities of Asset Pools to
be formed with respect to each Series of Securities. Accordingly, no financial
statements with respect to any Asset Pool will be included in this Prospectus or
in the related Prospectus Supplement.
 
     A Prospectus Supplement may contain the financial statements of the related
Credit Enhancer, if any.
 
                             ADDITIONAL INFORMATION
 
     This Prospectus, together with the Prospectus Supplement for each series of
Securities, contains a summary of the material terms of the applicable exhibits
to the Registration Statement and the documents referred to herein and therein.
Copies of such exhibits are on file at the offices of the Securities and
Exchange Commission in Washington, D.C., and may be obtained at rates prescribed
by the Commission upon request to the Commission and may be inspected, without
charge, at the Commission's offices.
 
                                       49
<PAGE>   123
 
                                 INDEX OF TERMS
 
     Set forth below is a list of the defined terms used in this Prospectus and
the pages on which the definitions of such terms may be found herein.
 
<TABLE>
<CAPTION>
                                                                  PAGE
                                                              ------------
<S>                                                           <C>
Accrual Securities..........................................             4
Additional Receivables......................................             8
Asset Pool..................................................             1
Bankruptcy Code.............................................            41
Broker Program..............................................             1
Cede........................................................             8
CEDEL Participants..........................................            28
Certificate of Incorporation................................            24
Certificates................................................             1
Class.......................................................             1
Closing Date................................................            31
Code........................................................            43
Collection Account..........................................            32
Collection Period...........................................            34
Commission..................................................             i
Company.....................................................         1, 24
Company's Interest..........................................             5
Contracts...................................................             2
Contribution and Sale Agreement.............................            19
Cooperative.................................................            29
Credit Enhancement..........................................            17
Credit Enhancer.............................................            17
Custodian...................................................            31
Definitive Securities.......................................            29
Depositaries................................................            27
Direct Participants.........................................            16
Discounted Contract Balance.................................             7
Distribution Account........................................            32
DTC.........................................................             8
Eligible Deposit Account....................................            33
Eligible Institution........................................            33
Eligible Investment.........................................             7
Equipment...................................................             2
ERISA.......................................................            11
Euroclear Operator..........................................            29
Euroclear Participants......................................            28
Event of Default............................................            29
Exchange Act................................................            12
</TABLE>
 
                                       50
<PAGE>   124
 
<TABLE>
<CAPTION>
                                                                  PAGE
                                                              ------------
<S>                                                           <C>
FASB 13.....................................................             6
Finance Leases..............................................             6
First Sierra................................................         1, 19
FSFH........................................................            22
Fully Taxable Bonds.........................................            45
Grantor Trust Certificates..................................        11, 42
Grantor Trust Estate........................................            42
Grantor Trust Strip Certificate.............................            42
Indenture...................................................             2
Indenture Trustee...........................................             2
Independent Director........................................            24
Indirect Participants.......................................        16, 27
Insolvency Event............................................            37
Insolvency Laws.............................................            15
Interest Rate...............................................             3
Investment Company Act......................................             5
Investment Earnings.........................................            33
Issuer......................................................             1
Lessee......................................................             6
Lessor......................................................          2, 6
Lockbox.....................................................            34
Notes.......................................................  1, 2, 11, 42
Owner Trust.................................................            18
Participants................................................            27
Partnership Interest........................................             i
Pass-Through Rate...........................................             i
Payment Date................................................             4
Policy......................................................             2
Pool Factor.................................................            23
Pooling Agreement...........................................             2
Portfolio Acquisition Program...............................             1
Pre-Funded Amount...........................................         7, 33
Pre-Funding Account.........................................         7, 33
</TABLE>
 
                                       51
<PAGE>   125
 
<TABLE>
<CAPTION>
                                                                  PAGE
                                                              ------------
<S>                                                           <C>
Premium Security............................................            47
Prepayment..................................................            14
Prepayment Assumption.......................................            45
Private Label...............................................            19
Private Label Program.......................................             1
Prospectus Supplement.......................................             1
Purchase Agreement..........................................             2
Receivables.................................................           1,2
Record Date.................................................             4
Registration Statement......................................             2
Remittance Period...........................................             4
Rules.......................................................            28
Securities..................................................             1
Securities Act..............................................             i
Security Insurer............................................             9
Securityholders.............................................             4
Seller......................................................         1, 19
Senior Securities...........................................             4
Servicer....................................................         1, 22
Servicer Defaults...........................................            37
Servicing Agreement.........................................             2
Servicing Fee...............................................            35
Servicing Fee Rate..........................................            35
Sources.....................................................            20
Special Counsel.............................................            42
Strip Securities............................................             3
Subordinate Securities......................................             4
Terms and Conditions........................................            29
Trust.......................................................             1
Trust Accounts..............................................        32, 33
Trust Agreement.............................................             3
Trustee.....................................................             2
U.S. Person.................................................            47
Vendor Program..............................................             1
Warranty Purchase Price.....................................            31
</TABLE>
 
                                       52
<PAGE>   126

===============================================================================
No dealer, salesman, or any other person has been authorized to give any
information or to make any representation not contained in this prospectus
supplement and the prospectus , and, if given or made, such information or
representation must not be relied upon as having been authorized by the
Depositor or by the Underwriter. This prospectus supplement and the prospectus
do not constitute an offer to sell, or a solicitation of an offer to buy, the
securities offered hereby to anyone in any jurisdiction in which the person
making such offer or solicitation is not qualified to do so or to any one to
whom it is unlawful to make any such offer or solicitation. Neither the
delivery of this prospectus nor any sale made hereunder shall, under any
circumstances, create an implication that information herein or therein is
correct as of any time since the date of this prospectus supplement or the
prospectus . 

                              -------------------
                                                                     
<TABLE>
<CAPTION>
                               TABLE OF CONTENTS                       PAGE
                             PROSPECTUS SUPPLEMENT                     ----

<S>                                                                   <C>
Summary Of Terms........................................................S-1
Risk Factors............................................................S-7
Formation Of The Trust.................................................S-10
The Receivables........................................................S-12
First Sierra...........................................................S-20
The Sellers............................................................S-20
The Servicer...........................................................S-20
Legal Proceedings......................................................S-22
Management's Discussion and Analysis of Financial
   Condition...........................................................S-22
Description Of The Notes...............................................S-22
Description Of The Transaction Documents ..............................S-35
Prepayment And Yield Considerations....................................S-44
The Note Insurance Policy and The Note Insurer.........................S-52
Material Federal Income Tax Consequences...............................S-56
State And Local Tax Considerations.....................................S-60
Erisa Considerations...................................................S-60
Legal Investment.......................................................S-61
Ratings................................................................S-62
Method Of Distribution.................................................S-62
Report Of Experts......................................................S-63
Legal Matters..........................................................S-64
Index Of Principal Defined Terms.......................................S-65

                                   PROSPECTUS

Available Information.....................................................I
Incorporation of Certain Documents by Reference...........................I
Reports to Securityholders...............................................ii
Summary...................................................................1
Risk Factors.............................................................13
Use of Proceeds..........................................................18
The Issuers..............................................................18
The Asset Pools..........................................................18
The Receivables..........................................................19
First Sierra.............................................................19
The Servicer.............................................................22
Prepayment and Yield Considerations......................................23
Pool Factors.............................................................23
The Company..............................................................24
The Trustees.............................................................25
Description of the Securities............................................25
Description of the Pooling and Servicing Agreements......................30
Certain Legal Matters Affecting the Receivables..........................40
Material Federal Income Tax Consequences.................................41
ERISA Considerations.....................................................48
Method of Distribution...................................................48
Certain Legal Matters....................................................49
Financial Information....................................................49
Additional Information...................................................49
Index of Terms...........................................................50
</TABLE>

Until 90 days after the date of this prospectus supplement, all dealers that
effect transactions in the Offered Notes, whether or not participating in this
offering, may be required to deliver a prospectus supplement and the prospectus
to which it relates. This is in addition to the dealers' obligation to deliver
a prospectus supplement and the related prospectus when acting as underwriters
and with respect to their unsold allotments or subscriptions.

===============================================================================

                        FIRST SIERRA EQUIPMENT CONTRACT
                                  TRUST 1999-1
                                                                
                                  $259,946,374
                                                                
                          FIRST SIERRA FINANCIAL, INC.
                            Originator and Servicer
                                                                
                                                                
                       FIRST SIERRA RECEIVABLES III, INC.
                                   Depositor
                                                                
                                                                
                                $70,637,602 ___%
                   EQUIPMENT CONTRACT BACKED NOTES, CLASS A-1
                                                                
                                $57,216,457 ___%
                   EQUIPMENT CONTRACT BACKED NOTES, CLASS A-2
                                                                
                                $48,033,569 ___%
                   EQUIPMENT CONTRACT BACKED NOTES, CLASS A-3
                                                                
                                $84,058,746 ___%
                   EQUIPMENT CONTRACT BACKED NOTES, CLASS A-4


                           __________________________

                             PROSPECTUS SUPPLEMENT
                           __________________________



                          FIRST UNION CAPITAL MARKETS
                                                                
                         NESBITT BURNS SECURITIES, INC.
                                                                
                           PNC CAPITAL MARKETS, INC.
                                                                
                                 APRIL 14, 1999
                                                                
                                                                
                                                                
===============================================================================


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