SOVEREIGN CREDIT FINANCE I INC, S-1/A, 1997-01-21

SOVEREIGN CREDIT FINANCE I INC
S-1/A, 1997-01-21
SHORT-TERM BUSINESS CREDIT INSTITUTIONS

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As filed with the Securites and Exchange Commission on January 21, 1997

SECURITIES ACT OF 1933
FILE NO. 333-4072

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

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

SOVEREIGN CREDIT FINANCE I, INC.
(Exact name of registrant as specified in charter)

TEXAS 6153 75-2645150
(State of other jurisdiction (Primary Industrial (I.R.S. Employer
of incorporation or organization) Classification Code No.) Identification No.)

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<S> <C>
4015 BELTLINE ROAD A. STARKE TAYLOR, III
BUILDING B 4015 BELTLINE ROAD
DALLAS, TEXAS 75244 BUILDING B
(214) 960-0196 DALLAS, TEXAS 75244
(Address, including zip code, and telephone (972) 960-5500
number, including area code, of registrant's Name, address, including zip code, and
principal executive offices) telephone number, including area code, of
agent for service)
</TABLE>

COPY TO:

FREDERICK C. SUMMERS, III
A PROFESSIONAL CORPORATION
1400 ST. PAUL PLACE
750 NORTH ST. PAUL STREET
DALLAS, TEXAS 75201

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

Approximate date of commencement of proposed sale to public: As soon as
practicable after the effective date of this Registration Statement.

If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933 check the following box. [X]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
-----
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]

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- ---------------------------------------------------------------------------------------
TITLE OF EACH AMOUNT PROPOSED MAXIMUM PROPOSED AMOUNT OF
CLASS OF SECURITIES TO BE OFFERING PRICE MAXIMUM AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED PER UNIT OFFERING PRICE FEE
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
11% Notes $20,000,000 100% $20,000,000 $6,897
Due February 15, 2001
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</TABLE>

The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until this Registration Statement
shall become effective on such date as the Commission, acting pursuant to
Section 8(a), may determine.
- -------------------------------------------------------------------------------

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SOVEREIGN CREDIT FINANCE I, INC.

Cross Reference Sheet Pursuant to
Item 501(b) of Regulation S-K between
Items in Part I of the Registration
Statement (Form S-1) and the Prospectus

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ITEM CAPTION OR
NO. ITEM LOCATION IN PROSPECTUS
- --- ---- ----------------------
<S> <C> <C>
1. Forepart of the Registration
Statement and Outside Cover
Page of Prospectus. . . . . . . . . . . . . . . . . . .Facing Page and Front
Cover Page

2. Inside Front and Outside Back
Cover Pages of the
Prospectus. . . . . . . . . . . . . . . . . . . . . Inside Front and Outside
Back Cover Pages

3. Summary Information, Risk Factors
and Ratio of Earnings to
Fixed Charges . . . . . . . . . . . . . . . . . . . . .Summary; The Company;
Risk Factors

4. Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . .Use of Proceeds

5. Determination of Offering Price. . . . . . . . . . . . . . . . . . Not Applicable

6. Dilution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable

7. Selling Security Holders . . . . . . . . . . . . . . . . . . . . . Not Applicable

8. Plan of Distribution . . . . . . . . . . . . . . . . . . . . Plan of Distribution

9. Description of the Securities
to be Registered. . . . . . . . . . . . . . . . . . . . Description of Notes

10. Interest of Named Experts and Counsel. . . . . . . . . . . . . . .None -- Omitted

11. Information with Respect to the Registrant

(a) Description of Business . . . . . . . . . . . . . .The Company; Purchase and
Collection of Contracts

(b) Description of Property . . . . . . . . . . . . . . . . . . .None -- Omitted

(d) Market Price of and Dividends
on the Registrant's Common
Equity and Related Stockholder
Matters. . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
(e) Financial Statements. . . . . . . . . . . . . .Index to Financial Statements

(f) Selected Financial Data . . . . . . . . . . . . . . . . . . . Not Applicable

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(g) Supplementary Financial Information . . . . . . . . . . . . . Not Applicable

(h) Management's Discussion and
Analysis of Financial
Condition and Results
of Operations. . . . . . . . . . . . . . . . . .Management's Discussion
and Analysis of
Financial Condition

(i) Changes in and Disagreements with
Accountants and Financial
Disclosure . . . . . . . . . . . . . . . . . . . . . . . Not Applicable

(j) Directors and Executive Officers. . . . . . . . . . . . . . . . . Management

(k) Executive Compensation. . . . . . . . . . . . . . . . . . . . . . Management

(l) Security Ownership of Certain
Beneficial Owners and
Management . . . . . . . . . . . . . . . . . . . . . Security Ownership
of Certain
Beneficial Owners
and Management

(m) Certain Relationships and
Related Transactions . . . . . . . . . . . . . . . . . . . . Management

12. Disclosure of Commission Position
on Indemnification for
Securities Act Liabilities. . . . . . . . . . . . . . . . . . Not Applicable
</TABLE>

<PAGE>

Subject to Completion - Dated January 21, 1997

$20,000,000 (MAXIMUM) $500,000 (MINIMUM)
SOVEREIGN CREDIT FINANCE I, INC.
11% NOTES DUE FEBRUARY 15, 2001

Sovereign Credit Finance I, Inc., a Texas corporation (the "Company"), a
newly organized, single purpose subsidiary of Sovereign Credit Holdings, Inc., a
Texas corporation, is hereby offering up to $20,000,000 in principal amount of
its 11% notes due February 15, 2001 (the "Notes"). The Notes bear interest,
payable monthly, at a stated annual rate of 11%. The effective yield of the
Notes will be 10.95%. The principal thereof will be repaid in six equal monthly
installments beginning September 15, 2000.

The Company will purchase, at a discount, retail installment sales
contracts (the "Contracts") and notes secured by used automobiles and light
trucks (the "Financed Vehicles") using (a) the net proceeds from the sale of the
Notes offered hereby, (b) possible additional borrowing (as described herein),
and (c) as long as no Event of Default (as defined under "Description of the
Notes - Additional Indenture Provisions--Events of Default") exists, the net
collection proceeds from previously purchased Contracts. The Notes are subject
to redemption at any time at the option of the Company at a redemption price of
100% of the outstanding principal amount thereof, together with accrued
interest, without any premium or penalty. Sovereign Credit Corporation
("Sovereign"), which is also a subsidiary of Sovereign Credit Holdings, Inc.,
will administer and manage the ongoing operations of the Company. The Company
has contracted with Sovereign Associates, Inc. ("SAI"), a subsidiary of
Sovereign, to provide necessary purchasing and collecting services. At least
84.5% of the gross proceeds of the offering will be available for the purchase
of Contracts.

The Company's only business will be the purchase and collection of the
Contracts, and the Company's most significant assets will be the Contracts and
related motor vehicle collateral. No other party will insure or guarantee
payment of the Notes. Noteholders may look only to the Company's assets as a
source of payment on the Notes. The Notes will be unsecured, and Noteholders'
rights in the Contracts will be junior to the rights of any senior lending
source (the "Additional Lender").

The offering will terminate on ___________, 1997, unless sooner terminated
by the Company for certain reasons. See "Plan of Distribution". The Notes are
offered in minimum subscription amounts of $4,000 ($2,000 for Individual
Retirement Accounts) for each investor, and will be issued without any minimum
denominations.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.

NO PUBLIC MARKET IS EXPECTED TO DEVELOP FOR THESE SECURITIES. INVESTORS
SHOULD EXPECT TO RETAIN OWNERSHIP OF THE NOTES AND BEAR THE ECONOMIC RISKS OF
THEIR INVESTMENT FOR THE ENTIRE TERM OF THE NOTES.

THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK, INCLUDING
RISKS OF DEFAULT ON THE CONTRACTS. THESE ARE SPECULATIVE SECURITIES. SEE "RISK
FACTORS" AT PAGE 13 OF THIS PROSPECTUS. DEBT SECURITIES OFFERED WITH HIGH
INTEREST OR YIELD GENERALLY INVOLVE MORE RISK THAN MANY OTHER MEDIUM TERM DEBT
INSTRUMENTS WITH LOWER INTEREST OR YIELD.

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PRICE TO BROKERS PROCEEDS TO
PUBLIC COMMISSIONS COMPANY (2)
AND EXPENSES (1)
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Per Note..................... 100% 8% 92%
Total Minimum ............... $ 500,000 $ 40,000 $ 460,000
Total Maximum................ $20,000,000 $1,600,000 $18,400,000
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(1) Payable by the Company to participating licensed broker-dealers. See
"Plan of Distribution".
(2) Before deduction of up to 2% of the offering proceeds for the payment of

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offering and organizational expenses incurred by the Company, and the
administration fee payable by the Company to Sovereign for its services in
administering and managing the ongoing operations of the Company equal to
5.5% of the gross proceeds from the sale of the Notes (5.0% of the gross
proceeds in excess of $9,000,000). See "The Company - General".

The Notes are being sold on a "best efforts" basis on behalf of the Company
by one or more licensed broker-dealers that are members of the National
Association of Securities Dealers, Inc. that may hereafter be engaged by the
Company. As of the date of this Prospectus, the Company has not identified any
broker/dealers who have agreed to participate in this offering of the Notes.
Investor funds will be held in an escrow account at River Oaks Trust Company
until a minimum of $500,000 in principal amount of the Notes are sold. In the
event the minimum amount of Notes is not subscribed on or before April 30, 1997,
the offering will be terminated and the escrowed funds, plus any interest earned
thereon, will be promptly returned to the investors by the escrow agent. Upon
the subscription by investors for the minimum amount of Notes, the escrowed
funds (less interest thereon which will be paid to investors) will be released
to the Company. Affiliates of the Company will not purchase Notes in the
offering. Interest will not accrue on the Notes until the escrowed funds are
released to the Company. Any subsequent sales proceeds from Notes will be
immediately available for use by the Company. All subscriptions are subject to
the right of the Company to reject any subscription in whole or in part.

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

This Prospectus is dated _______, 1997.

<PAGE>

AVAILABLE INFORMATION

The Company has filed a Form S-1 Registration Statement under the
Securities Act of 1933, as amended, with the Securities and Exchange Commission
(the "Commission") with respect to the Notes offered pursuant to this
Prospectus. This Prospectus, which forms a part of the Registration Statement,
does not contain all of the information included in the Registration Statement
and the exhibits thereto. For further information, reference is made to the
Registration Statement and amendments thereof and to the exhibits thereto, which
are available for inspection without charge at the office of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional offices of
the Commission at Seven World Trade Center, 12th Floor, New York, New York
10048, and at 500 West Madison Street, Suite 1400, Chicago, IL 60661, and copies
of which may be obtained from the Commission at prescribed rates.

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

REPORTS TO NOTEHOLDERS

The Company will furnish to the Noteholders annual reports of the Company
containing audited financial statements. The Company will also furnish to the
Noteholders quarterly unaudited summary information regarding the Contracts. An
IRS Form 1099 will be mailed to each Noteholder by January 31 of each year for
interest paid during the previous year.

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

MINIMUM SUITABILITY STANDARDS

Minimum suitability requirements have been established for residents of
certain states. Arizona subscribers must represent that they have either (a) an
annual gross income of at least $45,000 and a net worth of at least $45,000
exclusive of the subscriber's principal residence and its furnishings and
personal use automobiles; or (b) a net worth of at least $150,000, exclusive of
the subscriber's principal residence and its furnishings and personal use
automobiles. California subscribers must represent that they have either (a) an
annual gross income of at least $60,000 and a net worth of at least $60,000
exclusive of the subscriber's principal residence and its furnishings and
personal use automobiles; or (b) a net worth of at least $225,000, exclusive of
the subscriber's principal residence and its furnishings and personal use
automobiles. Missouri subscribers must represent that they have either (a) an
annual gross income of at least $45,000 and a net worth of at least $45,000
exclusive of the subscriber's principal residence and its furnishings and
personal use automobiles; or (b) a net worth of at least $150,000, exclusive of
the subscriber's principal residence and its furnishings and personal use
automobiles. North Carolina subscribers must

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represent that they have either (a) an annual gross income of at least
$60,000 and a net worth of at least $60,000 exclusive of the subscriber's
principal residence and its furnishings and personal use automobiles; or (b)
a net worth of at least $225,000, exclusive of the subscriber's principal
residence and its furnishings and personal use automobiles. Texas
subscribers must represent that they have either (a) an annual gross income
of at least $45,000 and a net worth of at least $45,000 exclusive of the
subscriber's principal residence and its furnishings and personal use
automobiles; or (b) a net worth of at least $150,000, exclusive of the
subscriber's principal residence and its furnishings and personal use
automobiles. Wisconsin subscribers must represent that they have either (a)
an annual gross income of at least $45,000 and a net worth of at least
$45,000 exclusive of the subscriber's principal residence and its furnishings
and personal use automobiles; or (b) a net worth of at least $150,000,
exclusive of the subscriber's principal residence and its furnishings and
personal use automobiles. In the case of sales to a subscriber which is a
fiduciary account, the foregoing standards must be met by the beneficiary,
the fiduciary account, or by the donor or grantor who directly or indirectly
supplies the funds to purchase the securities if the donor or grantor is the
fiduciary.

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

The mailing address of the Company's principal executive offices is 4015
Beltline Road, Building B, Dallas, Texas 75244, and its telephone number is
(972) 960-5500.

<PAGE>

SUMMARY

The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus.

COMPANY Sovereign Credit Finance I, Inc. (the "Company") has been formed
for the purpose of purchasing, collecting and servicing retail
installment sales contracts and notes secured by motor vehicles
(the "Contracts"). Except as set forth under "Capitalization",
it does not have, and does not expect to have in the future, any
significant assets other than the Contracts and proceeds thereof.

The Company's principal executive offices are located at 4015
Beltline Road, Building B, Dallas, Texas 75244 and its telephone
number is (972) 960-5500. The Company is a newly organized,
single purpose subsidiary of Sovereign Credit Holdings, Inc.
Sovereign Credit Corporation ("Sovereign"), which serves as
manager of the Company, is also a subsidiary of Sovereign Credit
Holdings, Inc., and Sovereign Associates, Inc. ("SAI"), which
provides purchasing and collecting services on behalf of the
Company, is a subsidiary of Sovereign. See "The Company".

NOTES 11% Notes due February 15, 2001 (the "Notes") to be issued
subject to the terms of a trust indenture agreement (the
"Indenture") between the Company and the Trustee.

OFFERING Up to $20,000,000 in principal amount of the Notes.
AMOUNT Investor funds will be held in escrow until subscriptions for a
minimum amount of $500,000 in principal amount of the Notes have
been received.

INTEREST Each Note will bear interest at 11% per annum on its
PAYMENTS TO outstanding principal, payable monthly on the 15th
NOTEHOLDERS day of each month during the term of the Note (for interest
accruing through the last day of the prior month) beginning
with the second full calendar month following the calendar
month in which the Note is issued (the "Payment Dates"). For
example, if a Note is issued to an investor in January, 1997,
such investor will receive the first interest payment on
March 15, 1997, which will be for interest accruing through
February 28, 1997.

Interest will not accrue on the Notes, nor will the

<PAGE>

Notes be issued, until release of escrowed subscription funds
to the Company, which will not occur until the minimum of
$500,000 of the Notes is sold. Investors in this offering will
receive an IRS Form 1099 following the end of each calendar
year which will state the amount of interest on which to
calculate income taxes.

The record date for each payment of interest on the Notes is the
close of business on the first day of the month of the Payment
Date for that payment. At all times while the Notes remain
outstanding, the monthly interest payments on the Notes must be
fully satisfied before the collection proceeds from the Contracts
may be used to purchase additional Contracts.

EFFECTIVE The effective interest rates of the Notes will be
YIELD 10.95%. This is lower than the stated interest rates of the
Notes because each payment of interest will be paid 15 days after
the end of the month during which it accrued, and because
interest is computed on the basis of a 360-day year, comprised of
twelve 30-day periods.

PRINCIPAL Principal on the Notes will be repaid in six equal
PAYMENTS installments commencing on September 15, 2000, and on each of the
five Payment Dates thereafter. The Notes will mature on February
15, 2001, at which time all outstanding and accrued principal and
interest will be finally due and payable.

MATURITY February 15, 2001

ADDITIONAL In addition to the Notes, the Company intends to
BORROWING pursue an additional lending source (the "Additional Lender") to
borrow funds (the "Additional Borrowing") with which to
purchase additional Contracts. The Additional Lender may be a
bank or an institutional lender such as an insurance company.
The Company anticipates that any borrowings from the Additional
Lender will be secured by first priority security interests in
all the Contracts owned by the Company. The Additional
Borrowings will be utilized to purchase additional Contracts.
As of the date of this Prospectus, the Company has not obtained
a commitment for Additional Borrowing from an Additional
Lender, and no assurance can be made that any Additional
Borrowing will be obtained. The Notes are unsecured, and will
be subject to any first priority security interests in the
Company's

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Contracts that may be granted to any Additional Lender. Such
first priority of the Additional Lender in the Contracts will
result in the Noteholders being placed in a junior position
with respect to the Contracts. Subject to the first priority of
the Additional Lender, the Noteholders may look to any
Contracts purchased from the proceeds of the Additional
Borrowing, in addition to other Contracts purchased by the
Company, as services of payment on the Notes.

THE CONTRACTS The Contracts will consist of retail installment sales contracts
and promissory notes. The Contracts will be secured by liens on
used automobiles and light trucks (the "Financed Vehicles") and
will be purchased by the Company, at a discount, using (i) the
net proceeds from the sale of Notes, and (ii) possible Additional
Borrowing from the Additional Lender and (iii) so long as no
Event of Default exists, any remaining net collection proceeds
from previously purchased Contracts. The Contracts will be
purchased and serviced, on behalf of the Company, under the terms
of a Master Contract Purchasing Agreement and a Servicing
Agreement (collectively, the "Servicing Agreement") between the
Company and SAI. The Contracts will be originated by automobile
dealers ("Dealers"). The Company may also purchase Contracts
which are lease agreements for Financed Vehicles.

THE CONTRACT All proceeds from the Contracts will be paid
PROCEEDS directly by the obligors on the Contracts ("Obligors"), or
deposited by SAI, to a lockbox account maintained by SAI in the
Company's name (the "Collections Account"). On at least a
weekly basis, the Company is required to transfer all amounts
in the Collections Account attributable to the Contracts to a
commercial bank account maintained by the Company (the
"Operating Account"). So long as no Event of Default exists
and subject to the receipt by the Trustee of any required
certificates, and subject further to any restrictions imposed
by any Additional Lender, the Company will have the right to
cause the funds contained in the Operating Account to be
withdrawn or applied for the following purposes in the
following priority: first, to the payment of any interest and
principal due to any Additional Lender; second, to the payment
of any interest due on the outstanding Notes on each Payment
Date; third, to any amounts due the Trustee for its fees

<PAGE>

and expenses; fourth, except during an Event of Default, to the
payment of any other allowed expenses ("Allowed Expenses"), as
certified by the Company; fifth, to the deposit into the trust
account established in the name of the Trustee (the "Trust
Account") for payment of principal owing on the Notes on any
Payment Date occurring on or after September 15, 2000; and,
sixth, except during an Event of Default, to the purchase of
additional eligible Contracts, as certified by the Company and
SAI. Otherwise, the Company is prohibited from withdrawing any
funds from the Operating Account. The Trustee will be provided
regular reports by which the use of such funds may be monitored
and will have the right to make any required transfers of
funds. Allowed Expenses include servicing, trustee, bank,
legal and accounting fees, taxes, repossession, repair and
liquidation expenses, insurance premiums and vehicle warranty
service contract charges. See "Description of the Notes--The
Contract Proceeds and Operating Account".

THE TRUST On or before each Payment Date, the Company will transfer
ACCOUNT funds from the Operating Account to the Trust Account in an
amount sufficient to pay all interest on the Notes due on such
date. Commencing September 15, 2000 and on each of the five
Payment Dates thereafter, the Company will transfer funds from
the Operating Account to the Trust Account in an amount
sufficient to pay the principal of the Notes due on such date.
There is no schedule of minimum payments required to be made into
the Trust Account. All transfers to the Trust Account will be
subject to the priority rights of the Additional Lender, if any.

PURCHASE OF The Company will purchase additional Contracts using
CONTRACTS (i) the net proceeds from the sale of Notes, (ii) possible
Additional Borrowings from the Additional Lender, and (iii) so
long as no Event of Default exists, any remaining net collection
proceeds from previously purchased Contracts, after deduction for
payments of interest and Allowed Expenses. On a monthly basis,
the Company and SAI will certify to the Trustee, among other
things, that the Contracts satisfy certain purchasing criteria
established by the Indenture and the Servicing Agreement. See
"Purchase and Collection of Contracts--Contract Purchase
Criteria". The Company's cost for each Contract will equal the
purchase price payable to the motor vehicle dealer for the
Contract. The Company must also pay a fee per purchased Contract

<PAGE>

equal to the lesser of $500, or 5% of the total amount of
installments due under the Contract as of the date of purchase
(the "Purchase Administration Fee") to SAI for its purchase
administration services.

Although direct purchases from dealers are expected to be the
norm, the Company may also purchase Contracts that SAI or its
affiliates has previously purchased. In order to determine the
cost to the Company for each such Contract, SAI will first
determine the original purchaser's initial internal rate of
return on its investment in the Contract as of its purchase from
the dealer, assuming that the Contract was paid in full in
accordance with its scheduled installments. The cost to the
Company will then be (i) an amount determined so that it will
experience the same internal rate of return on its investment in
the Contract, assuming that the Contract is paid in full in
accordance with its scheduled installments, plus (ii) the
Purchase Administration Fee paid by the original purchaser with
respect to such Contract.

Through application of the purchasing criteria, the Company will
endeavor to purchase Contracts from dealers (i) at prices
involving an initial payment to the dealer (A) of no more than
90% of principal plus accrued interest (pay-off balance) of such
Contract at the time of purchase, and (B) limited to 140% of the
average trade-in price (wholesale value) plus tax, title, license
and warranty (or, in the case of certain popular models, 140% of
the dealer's cost plus tax, title, license and warranty), (ii)
having maturities that are less than the remaining useful lives
of the Financed Vehicles, and (iii) under which down payments (in
cash or trade-in vehicle) of at least approximately 10% of the
dealer's cost (excluding sale preparation expenses) have been
paid by the Obligors. In addition, SAI has established certain
criteria with respect to Dealers from which Contracts will
generally be purchased. SAI does not specifically limit the
number of Contracts originated by any one Dealer that may be
included in the Contracts inventory at any one time. The Company
may purchase Contracts from dealers subject to the requirement
that the selling dealer repurchase any Contract that becomes
overdue for more than 60 days, although the terms of any such
requirement for any particular dealer or group of Contracts
purchased will be determined by SAI and

<PAGE>

such dealer. See "Purchase and Collection of Contracts".

REDEMPTION OF The Company may elect on any Payment Date to redeem
NOTES the Notes in whole or in part, thus reducing the term of the
Notes. The redemption price for the Notes is 100% of the
outstanding principal amount of the Notes, together with accrued
interest through the date of redemption, without any premium or
penalty. In the event that prior to 180 days following the
termination date of the offering the Company has been unable to
invest the net proceeds from the sale of the Notes in suitable
Contracts, the uninvested net proceeds at such date will be
utilized for a mandatory partial redemption of the Notes within
45 days following such date. See "Description of the Notes--
Redemption".

SERVICER Sovereign Associates, Inc. ("SAI"), a Texas corporation and a
wholly-owned subsidiary of Sovereign, whose principal offices are
located at 4015 Beltline Road, Building B, Dallas, Texas 75244.
SAI is obligated pursuant to the Servicing Agreement, subject to
the limitations set forth therein, to provide services for the
purchasing and collecting of the Contracts on behalf of the
Company, and to repurchase certain of the Contracts under certain
circumstances. For its services with regards to the collection
of the Contracts, SAI will be entitled to a monthly servicing fee
of $20 for each Contract that is not assigned for repossession
(the "Contract Servicing Fee") and a fee of $125 for each
Financed Vehicle assigned for repossession. See "Purchase and
Collection of Contracts".

SAI provides purchasing and collecting services on behalf of a
number of affiliated entities (the "Securitization Subsidiaries")
which have issued notes to investors and used the net proceeds
thereof to purchase consumer contracts and notes created by the
retail sale and financing of used automobiles and light trucks.
The average term remaining, and the average principal amount, for
contracts in SAI's servicing portfolio at September

<PAGE>

30, 1996 is approximately 28 months and approximately $8,000,
respectively. SAI expects that (a) its repossession rate, over
the life of the portfolio of all Contracts purchased on behalf
of the Company through its services, will be in the range of
15% to 20% of such contracts, and (b) the average purchase
price payable to motor vehicle dealers will be no more than 66%
of the original total future installments payable under the
Contracts. See "Information Regarding Contracts Purchased and
Serviced by SAI".

TRUSTEE Sterling Trust Company, Waco, Texas.

ADMINISTRATOR Sovereign Credit Corporation ("Sovereign"), a Texas corporation
and a wholly-owned subsidiary of Sovereign Credit Holdings, Inc.,
will administer and manage the ongoing operations of the Company.
Sovereign will pay all general and administrative overhead
expenses incurred by the Company, other than Allowed Expenses.
Sovereign will also pay offering and organization expenses of the
Company (other than commissions to broker-dealers) to the extent
such expenses exceed 2% of the gross proceeds from the sale of
the Notes. For such services, the Company will pay Sovereign a
fee equal to 5.5% of the gross proceeds from the sale of the
Notes (5.0% of the gross proceeds in excess of $9,000,000). See
"Use of Proceeds".

In addition, Sovereign will administer Noteholder payments,
communications and relations. For such services, the Company
will pay Sovereign a monthly fee equal to 1/12 of 0.5% of the
outstanding principal amount of the Notes (the "Investor
Administration Fee"), payable on or before the 15th day of each
month. See "Management--Certain Relationships and Related
Transactions".

TAX STATUS The Notes will be taxable obligations under the Internal Revenue
Code of 1986 as amended, and interest paid or accrued will be
taxable to non-exempt holders of the Notes. Frederick C.
Summers, III, a Professional Corporation, has delivered its
opinion to the Company as to the tax status of the Notes. See
"Certain Federal Income Tax Considerations".

USE OF The Company will use at least 84.5% of the proceeds from the sale
PROCEEDS of the Notes for the purchase of Contracts and no more than 15.5%
of such proceeds for commissions, fees and expenses as stated in

<PAGE>

this Prospectus. See "Use of Proceeds".

DENOMINATIONS The Notes will be issued in fully registered form, without any
minimum denominations, but subject to a minimum purchase by each
investor of at least $4,000 (or $2,000 for Individual Retirement
Accounts).

NO RATING The Company has not sought, and is not required by the Indenture
or any other document, to obtain a rating of the Notes by a
rating agency.

RISK FACTORS An investment in the Notes entails certain risks, including the
following:

- The Company is a single purpose entity and is not expected to
have any significant assets other than the Contracts, except as
set forth under "Capitalization".

- The Notes are unsecured, and will be subject to any and all
security interests granted to Additional Lender with respect to
the Contracts and the proceeds thereof.

- Obligors under the Contracts are anticipated to be somewhat
less credit-worthy than typical purchasers of automobiles from
new car dealers.

- The Company anticipates that a portion of the Contracts will
become delinquent and require repossession and resale of the
related vehicle.

- No public market for the Notes presently exists and none is
expected to result from this offering.

- The Company will have numerous competitors engaged in the
business of buying new and used motor vehicle retail
installment contracts and notes at a discount, including
companies with greater financial resources than either the
Company or SAI.

- There may be conflicts of interest among the Company, SAI,
Sovereign and other note purchasing entities managed by
Sovereign with respect to allocation of management time,
services, overhead expenses and functions.

<PAGE>

For a more complete discussion of the risks involved, see "Risk
Factors".

PLAN OF The Notes will be sold on a "best efforts" basis by licensed
DISTRIBUTION broker-dealers who are members of the National Association of
Securities Dealers, Inc. Investor funds will be held in a
subscription escrow account until the minimum of $500,000 in
principal amount of the Notes are sold. If subscriptions for
the minimum amount of Notes are not received on or before April
30, 1997, the offering will be terminated and the escrowed
funds, plus any interest thereon, will be promptly returned to
the subscribing investors by the escrow agent. Upon
subscription of the minimum amount of Notes, the escrowed funds
will be released to the Company. See "Plan of Distribution".

OFFERING ____________________, 1997, unless sooner terminated by the
TERMINATION Company for certain reasons. See "Plan of Distribution".
DATE

RISK FACTORS

An investment in the Notes involves certain risks. In considering a
purchase of these securities, prospective investors should carefully consider
the risks involved, including the following:

LIMITED ASSETS; SINGLE PURPOSE NATURE

The Company had no operating history prior to the date of this
Prospectus. The Company has been formed for the sole purpose of purchasing
and collecting retail installment sales contracts and obligations secured by
used automobiles and light trucks. The Company does not have, and is not
expected to have, any significant assets other than the Contracts, except as
set forth under "Capitalization". No other party, including either Sovereign
or SAI, will insure or guarantee the Company's obligations under the Notes or
will be obligated to make capital contributions to the Company at any time
for the purpose of paying any delinquencies on the Notes. If an Event of
Default under the Indenture occurs, the holders of the Notes will have no
recourse against Sovereign or SAI for payment of the Notes. Consequently,
Noteholders must rely upon payments made on or in respect of the Contracts
for the payment of interest on and principal of the Notes. If such payments
are insufficient to make the payments of interest or principal on the Notes
when due, the Company will have no other significant assets to apply to
payment of the deficiency, except as set forth under "Capitalization". There
can be no assurance that any or all of the Contracts will perform as
anticipated, or that there will not be greater than anticipated defaults on
such Contracts.

<PAGE>

UNSECURED NATURE OF NOTES

The Notes are unsecured obligations of the Company. Upon the occurrence of
an Event of Default with respect to the Notes, the Trustee will not have the
rights of a secured creditor with respect to the Company's assets, but must
first obtain a judgment against the Company before proceeding to execute against
the Company's assets.

POSSIBLE USE OF LEVERAGE; NOTES TO BE JUNIOR TO ANY ADDITIONAL BORROWINGS

In addition to the proceeds of this offering, the Company may borrow funds
from an Additional Lender, and in conjunction therewith will pledge Contracts
and the proceeds thereof to secure all Additional Borrowings. There is no limit
on the Additional Borrowings. There can be no assurance that the Company will
be able to borrow funds for such purpose. The Notes will be subject to any and
all security interests granted to any Additional Lender with respect to the
Contracts and the proceeds thereof. A default by the Company with respect to
any Additional Borrowings would have a material adverse effect on the interests
of the Noteholders, since the Additional Lender would then have the right to
foreclose on the pledged Contracts. In the event of default by the Company on
any secured debt, the Company may lose its interest in Contracts or the proceeds
thereof which would otherwise be available for payments on the Notes. In
addition, the Additional Lender, as a secured lender, will have priority over
the Noteholders in the event of bankruptcy or dissolution of the Company. Any
such Additional Lender will be unaffiliated with the Company.

PURCHASING AND SERVICING OF CONTRACTS DEPENDENT ON SAI

The Company's ability to purchase Contracts is dependent on SAI for
purchasing services and SAI's established network of motor vehicle dealers (the
"Dealers") from which the Contracts will be purchased. In addition, the
Company's ability to purchase Contracts is dependent on the availability of
Contracts which satisfy the purchasing criteria employed by the Company, of
which there can be no assurance. In the event SAI is unable to effectively
service the Contracts owned by the Company, the Company will need to engage the
services of another servicing company, and there can be no assurance that a
qualified servicer could be located or what such servicer would charge the
Company for its services.

Although SAI has been engaged almost exclusively in the purchase and
collection of used automobile notes since June, 1993, SAI has no prior
experience in purchasing and servicing automobile leases.

<PAGE>

NATURE OF CONTRACTS

The Contracts represent Dealer financing for the sale of used motor
vehicles. Unlike companies financing the sale of new automobiles, which are
primarily credit-based lenders, the Dealers from which the Company will purchase
Contracts base their used automobile financing decisions primarily upon the
value of the underlying automobile collateral. The Contracts which the Company
will purchase are generally entered into by Dealers with customers who generally
cannot obtain a loan from a local financial institution or from the credit
facilities of a major automobile manufacturer. Often, such customers have had
credit problems in the past. Although SAI has established certain purchasing
criteria in order to reduce the risk of default, there is no assurance that such
customers will be creditworthy or that loans will ultimately be repaid. In
addition, there is no assurance that the collateral could be sold for sufficient
net proceeds to recoup the Company's investment in the Contracts. Generally,
the "creditworthiness grade" of the Obligors on the Contracts will be "C" and
"D".

SAI does not specifically limit the number of Contracts originated by any
one Dealer that may be included in the Contracts inventory at any one time. The
average term remaining, and the average length of time outstanding, for
Contracts in SAI's servicing portfolio at September 30, 1996 is approximately 28
months and 23 months, respectively. Contracts purchased on behalf of the
Company may vary from these averages.

DEFAULTS ON CONTRACTS AND REPOSSESSIONS

The Company anticipates that a portion of the Contracts will become
delinquent and require repossession and resale of the related vehicle. See
"Information Regarding Contracts Purchased and Serviced by SAI." There can be
no assurance that the repossession and collection rates anticipated by SAI will
in fact be met, since actual repossession rates and collection rates on the
Contracts are impossible to predict precisely.

If an Obligor defaults under a Contract, and SAI must repossess and
liquidate the Financed Vehicle to recover installments due thereon and costs
associated with the repossession and resale, certain factors may limit the
ability of the Company to realize net proceeds sufficient to recover the cost of
the Contract. These factors include, without limitation, the value of the
repossessed Financed Vehicles, the costs of seeking and collecting a deficiency
judgment and limitations imposed by bankruptcy laws or other Federal or state
laws. In general, SAI is required to commence repossession of a Financed
Vehicle if the Obligor is delinquent on at least two monthly installments and
has made no payments for a period of 45 days. Nevertheless, SAI may grant
extensions or modifications to Obligors or accept partial payments from Obligors
in lieu of commencement or repossession

<PAGE>

activities. If a substantial number of such Obligors make no further
payments on their Contracts, the delay in the repossession of the Financed
Vehicles could result in a decrease in repossession proceeds received by the
Company and could have an adverse impact on the Company's ability to pay the
Notes.

Although the Company believes that the net collection proceeds from the
Contracts, after deduction of Allowed Expenses, together with any proceeds from
the sale or refinancing of the Contracts, will be sufficient to make the
required payments on the Company's debts, the actual collection rates on the
Contracts are impossible to predict precisely and adverse changes in
collectibility rates caused by changes in economic conditions, including
particularly in the Company's primary markets, or other factors beyond the
Company's control could adversely affect the Company's ability to collect on the
Contracts. If the Contracts do not collectively perform as expected by the
Company, which expectations are based on the historical performance of similar
contracts purchased and serviced by SAI, the Company's ability to make the
required payments on the Notes could be adversely affected.

RIGHT TO AMEND PURCHASING CRITERIA WITHOUT CONSENT OF NOTEHOLDERS

The Company and SAI have the right to amend, without obtaining the consent
of any Noteholder, the purchasing criteria and the purchasing and servicing
obligations of SAI under the Servicing Agreement to permit the institution by
SAI of new programs to improve the collection rates on the Contracts that it
purchases and services. Nevertheless, the actual benefits received by the
Company following the institution of any such program may be less than
anticipated and the actual costs and detriments to the Company may be more than
anticipated. Consequently, the Company's financial performance may be adversely
affected.

POSSIBLE INSUFFICIENT AMOUNT IN THE TRUST ACCOUNT

The Company and SAI are required to transfer to the Trust Account, on or
before each Payment Date, all amounts necessary to pay interest and principal
due on the Notes on such Payment Date. The net collection proceeds from the
Contracts may be insufficient to pay all principal outstanding on the Notes on
February 15, 2001, after payment of all interest, and some refinancing or sale
of the remaining Contracts may be necessary for full repayment of the Notes on
that date, which refinancing or sale cannot be assured. In that event, unless
the Company is able to refinance the Notes through other financing sources, the
Company will be in default under the Indenture, and there can be no assurance
that the proceeds, if any, received by the Trustee as a result of the exercise
of its default remedies will be sufficient to repay the Notes in full or of the
timing of any such payments.

<PAGE>

LACK OF MARKET FOR NOTES

No public market for the Notes presently exists and none is expected to
result from this offering. Noteholders have no right to require redemption of
the Notes and may not be able to liquidate their investment in the Notes in the
event of an emergency or for any other reason, and the Notes may not be readily
accepted as collateral for loans. Accordingly, the Notes should be purchased
only by persons who have no need for liquidity in their investment.

DELAYS IN CONTRACT PURCHASES

To maximize its investment yields, the Company expects to purchase
Contracts using the net proceeds from the sale of Notes as soon as practicable
following receipt of such proceeds. However, the timing of expenditure of the
net proceeds will be based partly on availability of Contract purchases, and
cannot be predicted with certainty. In addition, it is expected that the
Company will purchase Contracts on a volume basis, thereby potentially further
delaying expenditures of the net proceeds. If unforeseen delays occur in the
investment of the net proceeds from the sale of Notes in the purchase of
Contracts, the Company's overall profitability and ability to repay the Notes
could be adversely affected because the yields of its short-term investment
alternatives for such funds are expected to be less than the yields anticipated
to be received by the Company from the Contracts.

CERTAIN LEGAL MATTERS RELATING TO THE CONTRACTS

PRIORITY LIENS IN FINANCED VEHICLES. Statutory liens for repairs or unpaid
taxes may have priority over a perfected security interest in the Financed
Vehicles, and certain state and federal laws permit the confiscation of motor
vehicles used in unlawful activity which may result in the loss of a secured
party's perfected security interest in a confiscated motor vehicle. Liens for
repairs or taxes, or the confiscation of a Financed Vehicle, could arise or
occur at any time during the term of a Contract. Notice may not necessarily be
given to the Company or SAI in the event such a lien arises or confiscation
occurs.

BANKRUPTCIES AND DEFICIENCY JUDGMENTS. Certain statutory provisions,
including federal and state bankruptcy and insolvency laws, may limit or delay
the ability of SAI to repossess and resell Financed Vehicles or enforce a
deficiency judgment. In addition, SAI may determine in its discretion that a
deficiency judgment is not an appropriate or economically viable remedy, or may
settle at a significant discount any deficiency judgment that it does obtain.
In the event that deficiency judgments are not obtained, are not satisfied, are
satisfied at a discount or are discharged, in whole or in part, in bankruptcy
proceedings, the loss will be borne by the Company and may adversely affect the
ability of the Company to repay the Notes. See "Certain Legal Aspects of the
Contracts--

<PAGE>

Deficiency Judgments and Excess Proceeds."

CONSUMER PROTECTION LAWS. Numerous federal and state consumer protection
laws impose requirements upon the origination and collection of retail
installment contracts and notes. State laws impose finance charge ceilings and
other restrictions on consumer transactions and may require certain contract
disclosures in addition to those required under federal law. These requirements
impose specific statutory liabilities upon creditors who fail to comply with
their provisions. A risk exists that this liability could affect the ability
of the Company, as an assignee of the Contracts, to enforce the Contracts. In
addition, certain of these laws make an assignee of such a contract liable to
the obligor thereon for any violation by the assignor. Accordingly, the
Company, as holder of the Contracts, may be subject to liability to an obligor
under one or more of the Contracts. See "Certain Legal Aspects of the
Contracts--Consumer Protection Laws."

POTENTIAL CONFLICTS OF INTEREST

Both the Company and Sovereign are subsidiaries of Sovereign Credit
Holdings, Inc. In addition, SAI, with which the Company has entered into an
agreement with SAI to govern the purchasing and servicing of Contracts, is a
subsidiary of Sovereign.

Sovereign manages a number of other note purchasing entities (the
"Securitization Subsidiaries"), including entities whose business purposes are
or will be, or may include, the purchase and servicing of used motor vehicle
retail installment contracts and notes. Purchasing and servicing for such
entities will be conducted by SAI. Consequently, there may be conflicts of
interest among the Company, SAI, Sovereign and the Securitization Subsidiaries
with respect to allocation of management time, services, overhead expenses and
functions. Furthermore the management of Sovereign and SAI are involved in
other business enterprises independent of the Company. The management of
Sovereign, SAI, the Company and the Securitization Subsidiaries intend to
resolve any such conflicts in a manner that is fair and equitable to the
Company, but there can be no assurance that any particular conflict will be
resolved in a manner that does not adversely affect Noteholders.

A situation could arise in which the Company and the Securitization
Subsidiaries contemporaneously have funds available to invest in Contract
packages that SAI deems appropriate to be purchased by more than one of such
entities. The determination of which entity will purchase or invest in a
particular Contract package and what portion, if any, of such Contract package
will be purchased for such entity will be based upon the respective periods of
time the purchasing entities have been in existence, the cost of the available
Contract package, the amount of their unexpended funds and the need to diversify
their holdings. In such event, SAI

<PAGE>

intends to exercise good faith and to deal fairly with the respective
entities in deciding which entity, if any, is to purchase or invest in a
particular Contract package.

In addition, the Company may purchase Contracts from or sell Contracts to
the Securitization Subsidiaries, as determined by Sovereign as the owner of the
Company and the controlling owner of the Securitization Subsidiaries. The
primary purpose for any such transaction will be to provide for liquidity to the
selling entity for the payment of principal and/or interest of notes issued by
such entity, including the Notes in the case of the Company. The purchase price
for any such Contract to the purchasing entity (including the Company) will be
the Purchase Administration Fee paid by the original purchaser plus an amount
determined so that the purchasing entity's internal rate of return on its
investment in the Contract from the remaining unpaid installments equals the
original purchaser's initial internal rate of return on its investment in the
Contract, as of its purchase from the dealer, assuming in both cases that the
Contract was paid in full in accordance with its scheduled installments.

Sovereign provides floor plan financing for various automobile dealers.
"Floor plan financing" refers to assistance provided to dealers in financing
their purchases of inventories of automobiles held for sale to customers. The
Company may purchase Contracts from time to time from such dealers.

Sales of repossessed Financed Vehicles through retail networks may be
conducted by placing the vehicle on the dealer's lot for sale, or on a lot owned
by an affiliate of SAI. In either case, the Company will pay all expenses
associated with the resale of the repossessed Financed Vehicles. In the case of
resales from a lot owned by an affiliate of SAI, such expenses will include an
allocable portion of the costs of operating the lot, although such expenses will
generally be comparable in amount to that which would be charged to the Company
for resales through unaffiliated lots.

LACK OF DAMAGE INSURANCE

The owners of the Financed Vehicles may fail to maintain physical damage
insurance. As a consequence, in the event any theft or physical damage to a
Financed Vehicle occurs and no such insurance exists, the Company may suffer a
loss unless the owner is otherwise able to pay for repairs or replacement or its
obligations under the related Contract. If the Company incurs significant

<PAGE>

losses from uninsured Financed Vehicles, its ability to repay the Notes may be
adversely affected.

REDEMPTION OF NOTES; YIELD CONSIDERATIONS

The Company may elect on any Payment Date to redeem the Notes in whole or
in part, thus reducing the term of the Notes. See "Description of the
Notes--Redemption". Since prevailing interest rates are subject to
fluctuation, there can be no assurance that investors in the Notes will be
able to reinvest payments thereon at yields equaling or exceeding the yields
on the Notes. It is possible that yields on any such reinvestments will be
lower, and may be significantly lower, than the yields on the Notes.

COMPETITION

The Company will have numerous competitors engaged in the business of
buying new and used motor vehicle retail installment contracts and notes at a
discount, including affiliates of the Company. In addition, the Company
competes to some extent with providers of alternative financing services such as
floor plan lines of credit from financial institutions, lease financing and
dealer self-financing. National and regional rental car companies, auction
houses, dealer groups or other firms with greater financial resources than the
Company could elect to compete with the Company in its market. These
competitive factors could have a material adverse effect upon the operations of
the Company.

SALE OF SMALL AMOUNT OF NOTES

The offering may be consummated by the Company with the sale of as little
as $500,000 in principal amount of the Notes. In the event The Company sells
only a small portion of Notes, fewer individual Contracts will be purchased
by the Company, and the performance of such smaller pool of Contracts will
have a greater effect on the ability of the Company to pay the Notes than if
a large portion of the offered Notes are sold. In addition, although most of
the Allowed Expenses of the Company will generally vary with the amount of
Contracts or Notes, certain fixed fees and expenses payable to the Trustee
and for on-going banking, accounting and legal services may not vary in
proportion with the amount of Contracts and may be relatively higher if only
a small portion of the Notes is sold than if a larger portion of the Notes is
sold. Moreover, in the event the fixed Allowed Expenses are higher than
expected, the Company's ability to repay a small amount of Notes may be
adversely affected. See "Description of the Notes--The Contract Proceeds and
Operating Account".

<PAGE>

LACK OF PARTICIPATING BROKER/DEALERS

The Company has not identified any broker/dealers who have agreed to
participate in this offering of the Notes. The failure of the Company to obtain
the agreements of a significant number of broker/dealers to participate in this
offering may increase the likelihood that less than all of the Notes will be
sold. The sale of only a small amount of the Notes may adversely affect
Noteholders. See "Sale of Small Amount of Notes" above.

OTHER SECURITIES OFFERINGS

The Securitization Subsidiaries have previously sold securities to
investors. The offering and sale of securities is subject to the requirement
that the securities be registered under federal securities laws, unless an
exemption therefrom is available. The securities offerings of the
Securitization Subsidiaries were conducted pursuant to the Regulation D
exemption. The Securitization Subsidiaries were all sponsored by Sovereign, and
Sovereign believes that it fully complied with all the requirements of the
Regulation D exemption. However, it is possible that investors in the
Securitization Subsidiaries, in the event they were ever unsatisfied with their
investments, would bring legal actions arguing that the offerings constituted
one single offering and that the Regulation D exemption was unavailable on the
grounds that the Securitization Subsidiaries are under common control, the
Regulation D offerings were conducted in close proximity to one another, and
collections from the Contracts of the various Securitization Subsidiaries are
deposited by SAI in a single gross collections account (albeit under separate
trust agreements with each Securitization Subsidiary). If such investors were
successful in court with such argument, they would be entitled to the rescission
of their investments (subject to available legal offsets). However, even if
such investors were successful with such argument, the Company believes that
most and possibly all claims would be barred by the applicable statute of
limitations. It is unknown as of the date of this Prospectus whether any such
litigation, if it were ever to occur, would have a material adverse effect on
Sovereign's operations, financial condition, or its ability to act as manager of
the Company.

<PAGE>

CAPITALIZATION

The following table sets forth the capitalization of the Company as of
September 30, 1996, and as adjusted to reflect the sale of the Notes offered
hereby.

<TABLE>
As of September 30, 1996
--------------------------------------
Actual As Adjusted
------- -----------------------
Minimum Maximum
<S> <C> <C> <C>
LIABILITIES

Notes Due February 15, 2001 __ $500,000 $20,000,000

SHAREHOLDER'S EQUITY

Common stock, $.01 par value,
authorized 50,000 shares,
issued and outstanding
1,000 shares $ 10 10 10

Additional paid-in capital 990 990 990
Retained deficit (121) (121) (121)
----- -------- -----------

TOTAL SHAREHOLDER'S EQUITY $ 879 $ 879 $ 879
----- -------- -----------
TOTAL LIABILITIES AND
SHAREHOLDER'S EQUIT $ 879 $500,879 $20,000,879
----- -------- -----------
----- -------- -----------
</TABLE>

The capitalization of the Company reflects its asset based security
structure. The Company's only significant assets will be the Contracts, except
as set forth below. The costs of the Company's ongoing operations during the
term of the Notes will be borne by Sovereign and will be reimbursed to Sovereign
through the Company's payment of monthly administration fees which are more
fully described under "Purchase and Collection of Contracts--Servicing Fees and
Sovereign Compensation".

Sovereign Credit Corporation ("Sovereign"), a wholly-owned subsidiary of
Sovereign Credit Holdings, Inc., the parent of the Company, has issued its
unsecured promissory note to the Company, payable on demand, in the principal
amount of $250,000. The note bears interest at the rate of 10% per annum,
payable at maturity. Such note constitutes an asset of the Company, and is
enforceable by the Company in accordance with its terms. As of September 30,
1996, Sovereign had, on a consolidated, unaudited basis, $188,446 in cash, total
assets of $924,504, total liabilities of $384,405, and stockholders' equity of
$540,099.

<PAGE>

USE OF PROCEEDS

The following table sets forth the estimated application by the Company of
the anticipated proceeds of the sale of the Notes:

MINIMUM OFFERING MAXIMUM OFFERING
------------------ -------------------
USE OF PROCEEDS AMOUNT PERCENT AMOUNT PERCENT
- --------------- -------- ------- ---------- -------
Sales Commissions to
Broker-Dealers (1) $ 40,000 8% $1,600,000 8%

Offering and
Organization
Expenses (2) 10,000 2% 400,000 2%

Administration
and Management
Fee (3) 27,500 5.5% 1,045,000 5.2%

Purchase of Contracts
(including the Purchase
Administration Fee) 422,500 84.5% 16,955,000 85%
-------- --- ----------- ---

Total $500,000 100% $20,000,000 100%
-------- --- ----------- ---
-------- --- ----------- ---

(1) The Company will pay to each participating broker-dealer sales commissions
of 8% of the principal amount of the Notes sold by such broker-dealer.

(2) The Company will use up to 2% of the gross proceeds from the sale of the
Notes to pay offering and organization expenses, including filing and
registration fees, legal fees of the Company's counsel, accounting fees,
trustee's fees, escrow agent's fees, "blue sky" expenses and printing expenses.
Sovereign has agreed to pay such expenses to the extent they exceed 2% of the
gross proceeds from the sale of the Notes.

(3) The Company will pay to Sovereign a fee equal to 5.5% of the gross proceeds
from the sale of the Notes (5.0% of the gross proceeds in excess of $9,000,000)
for administering and managing the ongoing operations of the Company.

Other than the foregoing expenses of the Company and the Purchase
Administration Fee payable to SAI, no other fee, remuneration or reimbursement
of expenses will be paid by the Company to Sovereign or SAI from the proceeds of
this offering.

Each of the Contracts will be a retail installment sales contract or note
originated by a used motor vehicle dealer and purchased by the Company through
SAI and will be secured by a used automobile or light-duty truck (a "Financed
Vehicle"). The Contracts will be purchased by the Company using (i) the net
proceeds from the sale of Notes, (ii) possible Additional Borrowing from the
Additional Lender, and (iii) so long as no Event of Default exists, any
remaining net collection proceeds from any previously purchased Contracts.
Although direct purchases from dealers are expected to be the norm, the Company
may also purchase Contracts that SAI or a Securitization Subsidiary has
previously purchased. See "Risk Factors--Common Ownership of the Company and

<PAGE>

SAI; Potential Conflicts of Interest".

DESCRIPTION OF THE NOTES

GENERAL

The Notes will be issued pursuant to an Indenture dated as of ______, 1997
(the "Indenture") between the Company and Sterling Trust Company, as trustee
(the "Trustee"), a copy of which has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part. The following
summaries of certain provisions of the Indenture do not purport to be complete
and are subject to, and qualified in their entirety by reference to, the
provisions of the Indenture. However, all material terms of the Notes and the
Indenture are described in this Prospectus.

The Notes are general unsecured obligations of the Company and the holders
of the Notes will have recourse against the assets of the Company for payment of
the Notes, subject to any and all security interests granted to the Additional
Lender, if any. Substantially all of the Company's assets will be the
Contracts, except as set forth under "Capitalization". The Company has not
sought, and is not required by the Indenture or any other document to obtain a
rating of the Notes by a rating agency. No person or entity will guarantee
payment of the Notes, and the holders of the Notes will have no contractual
recourse against Sovereign or SAI for payment of the Notes. The Trustee will
initially act as the Paying Agent and Registrar.

ISSUANCE OF NOTES; TRANSFERS

The Notes will be issued in an aggregate principal amount of up to
$20,000,000 in fully registered form without any minimum denominations.
(Indenture, Section 2.3) The minimum subscription amount for each investor is
$4,000 (or $2,000 for Individual Retirement Accounts). The Company may charge a
reasonable fee for any transfer or exchange of a Note, except in certain limited
circumstances, or for any change of address. (Indenture, Section 2.7)

MATURITY OF THE NOTES

The Notes will mature on February 15, 2001 (the "Maturity Date"), at which
time all outstanding and accrued principal and interest will be fully due and
payable.

PAYMENTS OF INTEREST

Each Note will accrue interest on its outstanding principal balance from
the date of issuance at the rate of 11% per annum (computed on the basis of a
360-day year, comprised of twelve 30-day periods). The Company will be required
to make monthly

<PAGE>

payments of interest, paid in arrears. Payments of interest will be due and
payable on the 15th day of each successive calendar month during the term of
the Note (for interest accruing through the last day of the prior month)
commencing with the second full calendar month following the month during
which the Note was issued (the "Payment Date") and upon the Maturity Date.
Any installment of interest which is not paid when and as due will accrue
interest at the lesser of (i) 11% per annum or (ii) the highest lawful rate
of interest from the date due to the date of payment, but only to the extent
payment of such interest is lawful and enforceable. The effective interest
rate of the Notes will be lower than their stated interest rate because each
payment of interest will be paid 15 days after the month over which it
accrued.

PAYMENTS OF PRINCIPAL

Six equal installments of principal on the Notes will be due and payable
commencing on September 15, 2000, and thereafter on each of the next five
Payment Dates. Any unpaid principal balance of the Notes will be due and
payable on the Maturity Date.

SOURCES OF FUNDS FOR PAYMENT; ACCOUNTS

The Company expects to use the amounts collected under the Contracts to
make the required payments under the Notes. All installments and other proceeds
from the Contracts will be deposited in the Collections Account maintained by
SAI in the Company's name (as described under "The Contract Proceeds and
Operating Account" below). (Indenture, Sections 4.1 and 12.2) SAI will cause
to be issued to each Obligor on a Contract a payment book together with
instructions to mail remittances directly to the Collections Account. SAI has
agreed to deposit all installments and other proceeds, including proceeds from
sales of repossessed vehicles, into the Collections Account. The Indenture
requires SAI to transfer to the Company's Operating Account all amounts in the
Collections Account attributable to the Contracts on at least a weekly basis.
(Indenture, Section 12.2)

Payments of interest on the Notes will be made on each Payment Date by the
Trustee or the Paying Agent of the Company out of funds in the Trust Account
controlled by the Trustee (as described under "The Trust Account" below).
(Indenture, Section 4.1) On or prior to the Business Day immediately preceding
each Payment Date occurring prior to September 15, 2000, the Company will
transfer to the Trust Account from the Company's Operating Account an amount
which, together with any funds in the Trust Account, is sufficient to pay the
accrued interest due on the outstanding Notes on such Payment Date. Such
transfer must be made before any remaining funds in the Operating Account may be
applied by the Company to any other purpose, other than principal and interest
payments on Additional Borrowing, if any. (Indenture, Section 4.1)

<PAGE>

Commencing on or prior to the business day next preceding September 15,
2000, and on or prior to the business day next preceding each of the next five
Payment Dates occurring thereafter, the Company shall cause to be transferred
from the Operating Account to the Trust Account an amount which, together with
any funds then held in the Trust Account, is sufficient to pay the accrued
interest due, and principal owing, on the Notes on such Payment Date.
(Indenture, Section 4.1)

RECORD DATES

All principal and interest payments will be made by check mailed by the
Trustee or Paying Agent to Noteholders registered as of the close of business on
the first day of the month of the Payment Date (the "Record Dates") at their
addresses appearing on the Note Register, except that the final payment of
principal and interest on each Note will be made only upon presentation and
surrender of such Note at the office of the Paying Agent. (Indenture, Section
5.1)

REDEMPTION

On any Payment Date, the Company may exercise its right to redeem the
Notes, in whole or in part, in accordance with the Indenture. (Indenture,
Section 3.1) Any redemption of a Note will be at 100% of the outstanding
principal amount thereof, together with interest accrued to the date of
redemption, without any premium or penalty. Notice will be given to the
Noteholders by first class mail, postage prepaid, mailed not less than 30 days
prior to the redemption date. The notice will set forth the redemption date,
the redemption price and the name and address of the Paying Agent and will state
that the Notes must be delivered to the Paying Agent and that interest on the
Notes ceases to accrue on and after the redemption date. (Indenture, Section
3.1)

In the event that prior to 180 days following the termination date of the
offering the Company has been unable to invest the total net proceeds from the
sale of the Notes in suitable Contracts, the uninvested net proceeds at such
date will be utilized for a mandatory partial redemption of the Notes within 45
days following such date. In such a case, Notes will be redeemed on a random
basis, by lot.

THE TRUST ACCOUNT

The Company has established, in the name of the Trustee, a trust account at
Sterling Trust Company (the "Trust Account") into which it will deposit interest
and principal payments on the Notes. The Trust Account will relate solely to
the Notes. Funds in the Trust Account will not be commingled with any other
monies of SAI or the Company. All moneys deposited from time to time in the
Trust Account will be held for the benefit of the Trustee.

<PAGE>

Withdrawals of any funds from the Trust Account will be controlled by the
Trustee. All payments of amounts due and payable with respect to the Notes
which are to be made from amounts withdrawn from the Trust Account will be
made on behalf of the Company by the Trustee or by a Paying Agent, and no
amounts so withdrawn from the Trust Account will be paid over to the Company.
The funds in the Trust Account will be employed by the Trustee or the Paying
Agent to pay interest on the Notes on each Payment Date and to make principal
payments on the Notes commencing September 15, 2000 and on each of the next
five Payment Dates thereafter. Funds in the Trust Account may be invested in
Eligible Investments, as directed by the Company, and, during the continuance
of an Event of Default, as determined by the Trustee, within the restrictions
established in the Indenture. (Indenture, Sections 4.1 and 4.2)

THE CONTRACT PROCEEDS AND OPERATING ACCOUNT

SAI has established a lockbox account (the "Collections Account") in the
name of the Company and for the sole benefit of the Company. All payments made
on or with respect to the Contracts will be deposited in the Collections
Account. The Collections Account is a "lock-box" account at a financial
institution where all remittance checks, drafts and other instruments for the
Contracts will be deposited for collection by the financial institution as agent
for the Company. All Obligors will be requested, through correspondence and
delivery of payment books, to remit payments under their Contracts directly to
the Collections Account. SAI has also agreed to deposit in the Collections
Account any payment proceeds received directly by SAI, including any proceeds
from resales of returned or repossessed Financed Vehicles and any recoveries
from insurance claims on Financed Vehicles. The Indenture requires the transfer
of all of the Company's funds from the Collections Account into a commercial
bank account maintained by the Company (the "Operating Account") in its own name
for use in holding the Company's funds and in paying the Company's expenditures
to occur on at least a weekly basis. Any funds in the Operating Account may be
invested daily by the Company in Eligible Investments, subject to the Indenture.
(Indenture, Section 4.1)

Subject to the requirement to pay interest and principal to any Additional
Lender, and provided that no Event of Default exists, the Company will have the
right to cause the funds contained in the Operating Account to be withdrawn or
applied for the following purposes in the following priority; first, through a
direct transfer to the Trust Account, to the payment of any interest due on the
outstanding Notes on each Payment Date; second, to any amounts due the Trustee
for its fees and expenses; third, to the payment of any other Allowed Expenses;
fourth, to the deposit to the Trust Account for payment of any principal due on
the outstanding Notes on any Payment Date occurring on or after September 15,
2000; and, fifth, to the purchase of eligible Contracts, as certified by the
Company and SAI. The Contract proceeds must be sufficient to satisfy fully any
application having

<PAGE>

higher priority before they may be applied to a use having a lower priority.
(Indenture, Section 4.1) The Company and SAI will provide monthly reports to
the Trustee certifying to the Trustee as to purchasing and servicing
activities in relation to the Contracts, the amounts of Allowed Expenses paid
from the Operating Account and a reconciliation of deposits and withdrawals
from the Operating Account. (Indenture, Section 4.1, 12.9 and 12.10)

On or before the business day immediately preceding each Payment Date, the
Company will cause to be transferred directly from the Operating Account to the
Trust Account an amount which, together with any funds in the Trust Account, is
sufficient to make all interest payments on the Notes outstanding on such
Payment Date. Commencing on or prior to the business day immediately preceding
September 15, 2000, and on or prior to the business day immediately preceding
each of the next five Payment Dates occurring thereafter, the Company shall
cause to be transferred from the Operating Account to the Trust Account an
amount which, together with any funds then held in the Trust Account, is
sufficient to pay the accrued interest due, and principal owing, on the Notes on
such Payment Date. See "Sources of Funds for Payment; Accounts" above.

The Company may disburse funds from the Operating Account for purposes of
payment of Allowed Expenses (including fees payable to SAI) except during an
Event of Default, in which event only the payment of the fees and expenses of
the Trustee will be permitted. On a monthly basis, the Company must provide a
report in which it itemizes the Allowed Expenses and certifies that any payments
from the Operating Account conform with the Indenture. (Indenture, Section 4.1)

The "Allowed Expenses" of the Company will be limited to the expenses and
fees of the Trustee under the Indenture, fees charged by SAI under the Servicing
Agreement (including the Contract Servicing Fee, the Purchase Administration Fee
and all repossession fees)(the "Servicing Fees"), the Investor Administration
Fee charged by Sovereign, title transfer fees, federal, state and local taxes
(including corporate franchise taxes and any payment to any of its affiliates as
reimbursements for tax payments made by such affiliate on the Company's behalf
or benefits accruing from tax losses of such affiliate that are used to offset
the taxable income of the Company), legal and accounting fees and printing
expenses for reports, compliance certificates and opinions required by the
Indenture, premiums for vehicle value insurance, charges for vehicle warranty
service contracts (including fees paid to Dealers), bank service charges and
account fees (including such charges and fees incurred by SAI for the
Collections Account), expenses of repossessing, repairing and liquidating motor
vehicle collateral (as to each vehicle, not to exceed the liquidation proceeds
from the vehicle), and any insurance proceeds applied to vehicle repairs or
required to be refunded to Obligors (collectively the "Allowed Expenses"). See
"Management--Certain

<PAGE>

Relationships and Related Transactions". Sovereign will pay all other
general administrative and overhead expenses incurred by the Company. The
following table summarizes the Company's estimates of its anticipated Allowed
Expenses. See "Purchase and Collection of Contracts--Collection Payments".

SUMMARY OF ESTIMATED ALLOWED EXPENSES

<TABLE>
ALLOWED EXPENSES ESTIMATED AMOUNT
- ---------------- ----------------
<S> <C>
Servicing Fees (paid to SAI,
an affiliate of the Company)
Contract Servicing Fee $20 per month per Contract not assigned for
repossession, paid to SAI
Purchase Administration Fee the lesser of $500 per Contract purchased, or 5%
of the total amount of installments due under the
Contract as of the date of purchase, paid monthly
to SAI
Investor Administration Fee
(paid to Sovereign, an
affiliate of the Company) 1/12th of 0.5% of the aggregate outstanding
principal amount of the Notes, paid monthly to
Sovereign ($83.33 or $8,333.33 per month if
minimum or maximum amount, respectively, of Notes
is sold)

Trustee Fees
Acceptance Fee (payable
upon execution of
Indenture $7,000
Annual Administration Fee
(billed quarterly) $7,500
Paying Agent/Registrar
Services $4 per year per Note
Note Register Revisions,
Transfers, Exchanges
and Replacement Notes
(chargeable to
Noteholders) $10 each
Out-of-Pocket Costs Estimated to be minimal
Expedited Delivery (per
delivery, in addition
to out-of-pocket) $10 each

Bank Fees
Collections Account $3,000 to $4,000 (varies with volume) per month
Operating Account $2,000 per year (varies with number of
transactions)

<PAGE>

<S> <C>
Subscription Escrow Account $5,000

Accounting Fees
Annual Audit $20,000
Annual Tax Return $3,500
Annual Compliance
Certificate $3,500
Printing & Mailing $2,500

Repossession, Repair and $125 per Financed Vehicle paid to SAI,
Liquidation Expenses plus expenses estimated to average from
$1000 to $1500 for each repossessed vehicle,
but limited to the related liquidation or
insurance proceeds

Vehicle Warranty Repair Average of $550 per Contract
Service Contract (purchased at Obligor's option and usually
financed through Contract)

Federal Income Taxes Varies with taxable income

Texas Franchise Taxes 4.5% of taxable income allocated to Texas
</TABLE>

To the extent collected funds are not needed to fund the payments on the
Notes or the Additional Borrowing, if any, the purchase of additional Contracts,
or the payment of Allowed Expenses of the Company, such funds will remain in the
Company's Operating Account.

Prepayments by Obligors on the Contracts will be treated in the same manner
as collection proceeds on the Contracts. Consequently, such prepayments may be
used to purchase additional Contracts and will not be required to be passed
through to Noteholders as principal payments. See "Risk Factors--Collections
and Repossessions; Performance of Contracts". The Company and, consequently,
Noteholders will benefit from any prepayments because the loss of the interest
portion of any prepaid installments should be more than offset by the
substantial discounts off of principal at which the Contracts were purchased.

<PAGE>

The following chart illustrates the flow of Contract proceeds from the
Obligors through the Collections Account and Operating Account to the
applications thereof and the priority of the various applications of such
proceeds.

FLOW OF CONTRACT PROCEEDS AND PRIORITY OF APPLICATIONS

<TABLE>
Master
Installments Collections Weekly Operating Monthly
Contract )))) Account )))) Account )))) Proceeds
Obligors (SAI) (Company) Applications(1)
<S> <C> <C> <C> <C> <C> <C>
</TABLE>

(1) PRIORITY OF MONTHLY PROCEEDS APPLICATIONS

1. Interest and principal on the Notes are paid by Company to Trust
Account from Operating Account on or before the business day
immediately preceding each Payment Date.

2. Interest and principal on the Notes are paid by Trustee to Noteholders
from transfers to Trust Account.

3. Trustee's fees and expenses are paid by Company from Operating
Account.

4.* Other Allowed Expenses are paid by Company from Operating Account.

5.* Any remaining proceeds are used to purchase additional eligible
Contracts.

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

* Applications described in 4 and 5 above are prohibited during an Event of
Default.

ADDITIONAL INDENTURE PROVISIONS

MODIFICATION OF INDENTURE. With the consent of the holders of at least a
majority of the aggregate principal amount of the outstanding Notes, the Trustee
and the Company may amend or supplement the Indenture or the Notes, except as
provided below. Notice of any such amendment of the Indenture or the Notes will
be mailed to all holders of the Notes by the Company promptly after the
effectiveness thereof. Without the additional consent of the holder of each
Outstanding Note affected, however, no supplemental indenture will, among other
things, (a) reduce the amount of Notes whose holders must consent to an
amendment, supplement or waiver, (b) reduce the rate of or extend the time for
payment of interest on any Note, (c) reduce or extend the maturity of the
principal of any Note, or (d) make any Note payable in money other than that
stated in the Note. (Indenture, Section 9.2) For the purpose of consents of
Noteholders, the term "Outstanding" excludes Notes held by the Company or its
Affiliates. (Indenture, Section 1.1)

The Company and the Trustee may also amend or supplement the Indenture or
the Notes, without obtaining the consent of Noteholders, to cure ambiguities or
make minor corrections and, among other things, to make any change that does not
materially adversely affect the interests of the Noteholders. (Indenture,
Section 9.1)

EVENTS OF DEFAULT. An event of default ("Event of Default") with respect
to the Notes is defined in the Indenture as being: (a) a failure by the Company
to make any interest payment on the Notes within 30 days after it becomes due;
(b) a failure by the

<PAGE>

Company to make any principal payment on the Notes at maturity or otherwise
within 30 days after it becomes due; (c) the impairment of the validity or
effectiveness of the Indenture, the improper amendment or termination of the
Indenture, or the failure of the Company to comply with any of the covenants
of the Company in the Indenture, and the continuance of any such default for
a period of 30 days after notice to the Company by the Trustee or to the
Company and the Trustee by the registered holders of Notes representing at
least 25% of the aggregate principal amount of the outstanding Notes; (d) the
incorrectness in any material respect of a representation or warranty of the
Company in the Indenture (exclusive of representations and warranties as to
individual Contracts that the Servicer is obligated to, and does, repurchase
from the Company) and the failure to cure such circumstances or condition
within 30 days of notice thereof to the Company by the Trustee or the
registered holders of Notes representing at least 25% of the aggregate
principal amount of the outstanding Notes; or (e) certain events of
bankruptcy of the Company. (Indenture, Section 6.1)

RIGHTS UPON EVENT OF DEFAULT. In case an Event of Default should occur and
be continuing, the Trustee may, or at the direction of the registered holders of
Notes representing at least 25% of the principal amount of the outstanding Notes
will, declare the Notes due and payable. Upon such declaration, the Notes will
immediately become due and payable in an amount equal to their remaining
principal amount plus accrued interest at such time. Such declaration may under
certain circumstances be rescinded by the registered holders of a majority of
the aggregate principal amount of the outstanding Notes. (Indenture, Section
6.2)

If, following an Event of Default, the Notes have been declared due and
payable, the Trustee may exercise one or more of its remedies including, in its
discretion, the right to make demand and institute judicial proceedings in
equity or law for the collection of all amounts then payable on the Notes, or
under the Indenture, whether by declaration or otherwise, enforce all judgments
obtained, and collect from the Company moneys adjudged due. (Indenture, Section
6.3)

The registered holders of a majority of the aggregate principal amount of
the outstanding Notes will have the right to direct the time, method, and place
of conducting any proceedings for any remedy available to the Trustee or
exercising any trust or power conferred on the Trustee. The Trustee may refuse,
however, to follow any such direction that conflicts with law or the Indenture,
that is unduly prejudicial to the rights of Noteholders not joining in such
direction or that would involve the Trustee in personal liability. (Indenture,
Section 6.5) The registered holders of a majority of the aggregate principal
amount of the outstanding Notes may also waive any default, except a default in
respect of a covenant or provision of the Indenture which cannot be

<PAGE>

modified without the waiver or consent of each holder of Notes affected.
(Indenture, Section 6.4)

No holder of Notes will have the right to pursue any remedy with respect to
the Indenture or the Notes, unless (a) such holder gives to the Trustee written
notice of a continuing Event of Default, (b) the registered holders of a
majority of the aggregate principal amount of the outstanding Notes have made a
written request to the Trustee to pursue such remedy, and have offered the
Trustee indemnity satisfactory to the Trustee against loss, liability or
expense, (c) the Trustee does not comply with the request within 60 days, and
(d) the Trustee has received no contrary direction during such 60-day period
from the registered holders of Notes representing a majority of the principal
amount of the outstanding Notes. (Indenture, Section 6.6)

RESTRICTIONS ON BUSINESS ACTIVITIES AND ADDITIONAL INDEBTEDNESS. The
Company has made certain covenants in the Indenture that restrict its business
activities and prohibit certain transactions by the Company. The Company has
agreed, among other things, that, without the consent of the registered holders
of a majority of the aggregate principal amount of the Notes then outstanding,
it will not (i) engage in any business or activity other than or in connection
with the purchase, collection and servicing of the Contracts, the repossession
and resale of the Financed Vehicles and the raising of debt and equity capital,
and any other incidental businesses or activities or (ii) create, incur, assume
or in any manner become liable in respect of any indebtedness other than the
Notes, any Allowed Expenses, and Additional Borrowing and any other amounts
incurred in the ordinary course of the Company's business. In addition, the
Company has agreed not to dissolve or liquidate in whole or in part or to merge
or to consolidate with any corporation, partnership or other entity other than
another direct or indirect wholly-owned subsidiary of an affiliate of the
Company or the Servicer whose business is restricted in the same manner as the
Company's business under clause (i) above. (Indenture, Section 5.9)

COMPLIANCE STATEMENTS AND ANNUAL ACCOUNTANTS' REPORTS. The Company will be
required to file quarterly with the Trustee an officer's certificate as to
fulfillment of its obligations under the Indenture. (Indenture, Section 5.6)
In addition, the Servicer and the Company annually must file with the Trustee a
report of a firm of independent public accountants as to their examination of
the financial statements of the Company and the Servicer and the documents and
records relating to the Contracts and deliver a certificate with respect to the
compliance by the Company and the Servicer, in all material respects, with their
respective obligations arising under the Indenture. (Indenture, Sections 5.6
and 12.11)

<PAGE>

TRUSTEE'S ANNUAL REPORT. The Trust Indenture Act of 1939 requires the
Trustee to mail annually to all holders of Notes a brief report if any of
certain events occur. These events include any change in the Trustee's
eligibility and qualifications to continue as the Trustee under the Indenture,
any amounts advanced by it under the Indenture, the amount, interest rate and
maturity date of certain indebtedness, if any, owing by the Company to the
Trustee in its individual capacity, and any action taken by it which materially
affects the Notes and which has not been previously reported. (Indenture,
Section 7.6)

SATISFACTION AND DISCHARGE OF THE INDENTURE. The Indenture will be
discharged, with certain limitations, upon deposit with the Trustee of funds
sufficient for the payment or redemption of all of the Notes. The duties of the
Company to the holders of Notes will cease upon such deposit. (Indenture,
Section 8.1)

DUTIES OF TRUSTEE. If an Event of Default has occurred and is continuing,
the Trustee is obligated, under the Indenture, to exercise such of its rights
and powers and to use the same degree of care and skill in the exercise of such
rights and powers as a prudent man would exercise or use under the circumstances
in his own affairs. Except during an Event of Default known to the Trustee, the
Trustee may rely, in the absence of bad faith, on certificates and opinions
furnished to it. Generally, the Trustee is not relieved from liability for its
own negligence or willful misconduct except that it is not liable (i) if it
acted in good faith in accordance with a direction from the Holders of not less
than a majority in principal amount of the Notes, or (ii) for any error in
judgment made in good faith and without negligence in ascertaining the pertinent
facts. The Trustee may refuse to perform any duty or exercise any right or
power unless it receives indemnity satisfactory to it against any loss,
liability or expense. (Indenture, Section 7.1) The Trustee may refuse to
exercise any right or power at the request or direction of the holders of Notes,
unless such holders offer to the Trustee reasonable security or indemnity
against the costs, expenses or liabilities that might be incurred by it in
compliance with such request or direction. (Indenture, Section 7.2)

THE TRUSTEE. Sterling Trust Company, a trust company organized and
existing under the laws of the State of Texas, is the Trustee under the
Indenture for the Notes. The Company is obligated to pay the fees and expenses
of the Trustee relating to the Notes. (Indenture, Section 7.7)

THE SERVICING AGREEMENT

The Company anticipates that it will grant to the Additional Lender, if
any, a security interest in all of its rights under the Servicing Agreement. In
addition, the Company anticipates that, in the event of the occurrence and
continuation of a default under the

<PAGE>

Servicing Agreement by SAI, the Additional Lender may direct the Company to,
and the Company will, terminate all of the rights and powers of SAI under the
Servicing Agreement. Upon such termination, all rights, powers, duties,
obligations and responsibilities of SAI with respect to the related Contracts
(except for any obligation of SAI to indemnify the Company) will vest in and
be assumed by the Company or any servicing agent that the Company may
designate; provided, however, that SAI will continue to be obligated to
transfer funds of the Company to the Operating Account.

POSSIBLE ADDITIONAL BORROWING

In addition to the Notes, the Company intends to pursue another lending
source (the "Additional Lender") to borrow funds (the "Additional Borrowing")
with which to purchase additional Contracts. The Additional Lender may be a
bank or an institutional lender such as an insurance company. The Company
anticipates that any borrowings from the Additional Lender will be secured by
first priority security interests in all the Contracts owned by the Company, and
that both interest on and principal of such borrowings will be repaid from
collection proceeds of such Contracts. As of the date of this Prospectus, the
Company has not obtained a commitment for Additional Borrowing from an
Additional Lender, and no assurance can be made that any Additional Borrowing
will be obtained.

To secure the Additional Borrowing, the Company will grant a security
interest or lien in collateral which may consist of the Company's right, title
and interest in any or all of the following: (a) the Contracts (including
Contracts purchased with the net proceeds of this offering), together with all
payments and instruments received with respect thereto, (b) the Servicing
Agreement, (c) the Operating Account and all funds (including investments)
therein, (d) all repossessed or returned Financed Vehicles, and (e) all proceeds
of the conversion, voluntary or involuntary, of any of the foregoing into cash
or other liquid property. The security interest granted to the Additional
Lender in the Contracts will be perfected by delivery of such Contracts and
related title documents to the Additional Lender, or other financial institution
appointed by the Additional Lender to act as custodian and bailee of the
Contracts and related title documents for the benefit of the Additional Lender.

THE COMPANY

GENERAL

Sovereign Credit Finance I, Inc. (the "Company") was incorporated in the
state of Texas on March 19, 1996. The Company is a subsidiary of Sovereign
Credit Holdings, Inc., a Texas corporation. The principal offices of the
Company are located at

<PAGE>

4015 Beltline Road, Building B, Dallas, Texas 75244. The telephone number is
(972) 960-5500.

Sovereign will administer and manage the ongoing operations of the Company.
Other than the Allowed Expenses, Sovereign will pay all general administrative
and overhead expenses incurred by the Company. The Company will pay to
Sovereign a fee equal to 5.5% of the gross proceeds from the sale of the Notes
(5.0% of the gross proceeds in excess of $9,000,000) for its services to the
Company.

THE BUSINESS OF THE COMPANY

The Company was established for the sole purposes of purchasing, collecting
and servicing motor vehicle retail sales installment contracts and obligations,
obtaining capital through borrowings or through sale of debt or equity
securities in order to invest in such contracts and obligations, and all related
business activities. The motor vehicle retail installment contracts and notes
to be purchased by the Company and pledged to secure the Notes (the "Contracts")
will be purchased at discounts ranging generally from 25% to 45% of the
aggregate remaining unpaid installments thereof and will be secured by used
automobiles and light trucks (the "Financed Vehicles"). The Contracts will be
purchased from a network of motor vehicle dealers organized by SAI (the
"Dealers") and currently located primarily in metropolitan areas in Texas and in
Tennessee. The Company will not participate in or directly finance the retail
sales by the Dealers of the Financed Vehicles from which the Contracts will
arise. The Dealers generate the Contracts and offer them for sale on a
non-exclusive basis to the Company. The Dealers forego some profit on each
Contract sold to the Company in exchange for an immediate return of their
invested capital.

The funds necessary to purchase the Contracts will initially be provided
from the sale of the Notes offered hereby. Subject to the prior payment of
interest and principal due upon the Notes and the Additional Borrowing, if any,
and Allowed Expenses, the collection proceeds from the Contracts will be used to
purchase additional Contracts so long as no Event of Default exists. Upon the
payment in full of all principal and interest on the Notes, the Indenture will
terminate. While the Notes remain outstanding, the Company will be prohibited
from engaging in any business other than the purchase, collection and servicing
of the Contracts (including repossession and resale of the vehicle collateral)
and from incurring any additional indebtedness other than the Additional
Borrowing, Allowed Expenses and any other amounts incurred in the ordinary
course of its business.

The Contracts purchased by the Company will relate primarily to Financed
Vehicles in the middle range of the market for used automobiles and light-duty
trucks, where consumer retail prices range from $5,000 to $10,000. The Company
believes that banks and

<PAGE>

other traditional financing institutions are not well equipped to finance
small independent used motor vehicle dealers, due to the large number of
relatively small notes or installment contracts, the institutions' lack of
due diligence and collection capability with respect to used motor vehicles
and the inability of such institutions to approve or evaluate contracts on a
timely, cost-effective basis. Consumer used motor vehicle receivables are
management and collection intensive and require constant supervision, review
and knowledge of repossession and resale services. The Company believes that
SAI, and its contractors, will provide this industry expertise at a low
marginal cost. The Company also believes that the quality and performance of
the Contracts will be enhanced through the consistent application by SAI of
predetermined purchasing and collection criteria established in the Indenture
and the Servicing Agreement.

The Company has no material properties, assets (except as set forth under
"Capitalization"), operating history or pending legal proceedings. The Company
and SAI intend to obtain any licenses that may be required in any state where it
purchases and collects Contracts. SAI has registered, and the Company will
register, with the Texas Consumer Credit Commissioner as a holder of motor
vehicle retail installment contracts.

BUSINESS OF SOVEREIGN, SAI AND THE SECURITIZATION SUBSIDIARIES

Sovereign was formed as a Texas corporation in January 1991. Since its
formation, Sovereign (formerly known as Sovereign Asset Management, Inc.),
through limited partnerships which it has sponsored and of which it serves as
the general partner, has engaged in the business of acquiring notes, accounts
receivable and other evidences of indebtedness from the RTC, the FDIC, credit
unions, lending institutions and other sources. Since October 1993, Sovereign
has sponsored a number of entities (the "Securitization Subsidiaries") which
have issued notes to investors and used the net proceeds thereof to purchase
consumer contracts and notes created by the retail sale and financing of used
automobiles and light trucks. See "Information Regarding the Securitization
Subsidiaries." As used herein, the term "Securitization Subsidiaries" does not
include the Company.

SAI was formed as a Texas corporation in January 1991 for the purpose of
purchasing, servicing and collecting various financial notes on behalf of
Sovereign and the entities sponsored by Sovereign. SAI is a wholly-owned
subsidiary of Sovereign. Sovereign and the Securitization Subsidiaries are the
only parties for which SAI purchases and services motor vehicle retail
installment contracts and notes as of the date of this Prospectus.

Sovereign and SAI both maintain their offices at 4015 Belt Line Road,
Building B, Dallas, Texas 75244. The telephone number is (972) 960-5500.

<PAGE>

LITIGATION

SAI has filed an arbitration claim with the American Arbitration
Association against Lipshy Motorcars, Inc., a used automobile dealer, claiming
that Lipshy is in breach of contract under the terms of various Contract
purchase agreements. Pursuant to such agreements, SAI, on behalf of an
affiliated entity, purchased Contracts from Lipshy for 50% to 60% of the then
outstanding principal balance of the Contracts, with additional payments to be
made as the Contracts were collected by SAI. The agreements further provided
that Lipshy would repurchase any Contract that had amounts past due for a period
of 60 days or more. A large number of Contracts that were so purchased by SAI
became more than 60 days past due, but Lipshy refused to honor its repurchase
obligation. SAI's claim alleges breach of contract, conversion, fraud, and
tortious interference with contract, and requests actual damages of $1,694,960
plus punitive damages. Lipshy has filed a counterclaim against SAI, alleging
that the agreements were actually Contract servicing agreements, and alleges
fraud, negligent misrepresentation, negligence, breach of contract, and
violation of the Texas Deceptive Trade Practices--Consumer Protection Act. In
its counterclaim, Lipshy requests unspecified damages, which it states are in
excess of $1 million. SAI believes that Lipshy's counterclaim is without merit,
and is nothing more than an attempt to circumvent Lipshy's obligations to
repurchase a large amount of Contracts which were uncollectible, and intends to
vigorously defend itself against the counterclaim. Additionally, SAI intends to
vigorously pursue its claims against Lipshy. It is unknown as of the date of
this Prospectus whether an adverse decision with respect to the counterclaim
asserted by Lipshy would have a material adverse effect on SAI's operations,
financial condition, or ability to act as Servicer on behalf of the Company.
Consequently, it unknown as of the date of this Prospectus whether such an
adverse decision would adversely affect the Noteholders.

The Company is not a party to any litigation.

PURCHASE AND COLLECTION OF CONTRACTS

The Contracts will be purchased and serviced on behalf of the Company by
SAI under the Master Contract Purchase Agreement and the Servicing Agreement,
each dated as of ________, 1997 (collectively, the "Servicing Agreement"),
between the Company and SAI. A copy of each of the documents constituting the
Servicing Agreement has been filed as an exhibit to the Registration Statement
of which this Prospectus is a part. In addition, SAI has joined in the
execution of the Indenture for the purpose of making certain agreements and
representations regarding the purchasing and servicing of the Contracts with the
Trustee for the benefit of Noteholders. The following summaries do not purport
to be complete and are subject to and qualified in their entirety by reference
to, the provisions of the Servicing Agreement and the Indenture, and where
particular

<PAGE>

provisions or terms used in the Servicing Agreement or the Indenture are
referred to, the actual provisions (including definitions of terms) are
incorporated by reference as part of such summaries. References herein to
the "Servicer" are to SAI and any successor or permitted assignee of SAI
performing the duties of the Servicer under the Servicing Agreement.

GENERAL

Pursuant to the Servicing Agreement, the Company may request the Servicer
to solicit from Dealers offers to sell to the Company eligible Contracts, and
the Servicer is obligated to use reasonable efforts to solicit from Dealers
offers to sell to the Company eligible Contracts upon receiving any such
request. The Company will be obligated to purchase all Contracts offered for
sale by Dealers through the Servicer up to the dollar amount specified in the
Company's request if the offered Contracts satisfy the purchasing criteria set
forth in the Servicing Agreement. The Company's cost for each Contract will
equal the purchase price payable to the Dealer for the Contract, including any
incentives paid to the Dealer on a per Contract basis such as a volume bonus.

The Servicing Agreement and the Indenture establish certain criteria to
govern Contract purchases. (Master Contract Purchase Agreement, Exhibit B;
Indenture, Exhibit A) The Servicing Agreement also establishes criteria to
govern Contract servicing, including the performance of certain collection and
collateral management activities. If the Servicer fails to comply with these
criteria, the Company may terminate the Servicing Agreement and may appoint
another servicer. (Servicing Agreement, Exhibit A and Section 9) The Servicing
Agreement allows the Servicer to contract with industry-qualified third parties
to perform its obligations thereunder. The performance by any third party will
not relieve the Servicer from liability for its obligations under the Servicing
Agreement. (Servicing Agreement, Section 1)

CONTRACT PURCHASE CRITERIA

SAI has designed certain criteria as to the price, purchase discount, term,
down payment, installments and interest rate for the Contracts and the price,
cost to the dealer, average wholesale value, age, mileage and make of the
Financed Vehicles to qualify for purchase by the Company under the Servicing
Agreement and the Indenture. The Company believes that the most significant of
these criteria, in general, are as follows:

a) The purchase price for each Contract must involve an initial payment
to the Dealer (i) of no more than 90% of principal plus accrued interest
(pay-off balance) of such Contract at the time of purchase, and (ii) which
does not exceed 140% of the average trade-in price (wholesale value) for the
related Financed Vehicle plus tax, title, license and warranty (or, in the
case of

<PAGE>

certain popular models, 140% of the Dealer's cost plus tax, title, license
and warranty).

b) The Contracts generally will have original terms that are 36 months or
less, although 48 month terms will be permitted where the Financed Vehicle is a
1993 or later model, or where lower depreciation or stronger credit history
justifies a 48 month term. The Contracts will equally amortize their principal
balance over their respective terms.

c) The age of each Financed Vehicle will generally be seven years or less
for automobiles or eight years or less for trucks, although SAI may purchase
Contracts secured by Financed Vehicles which are older, if in its judgement the
economics justify such a purchase.

d) The mileage of each Financed Vehicle may not generally exceed 100,000
miles for automobiles or 125,000 miles for trucks, regardless of the year model.
The mileage limit will be less for later year models. In the event mileage of a
Financed Vehicle exceeds such limits, the Dealer is typically required to
guarantee payments under the applicable Contract.

e) The Obligors on the Contracts are generally required to make a down
payment in cash plus net trade-in allowance of at least approximately 10% of the
Dealers' costs (excluding sale preparation expenses) in the Financed Vehicles,
although there are no express minimum ratios of unpaid installments under the
Contracts at the time of their origination by the Dealers to the retail sale
price or the wholesale value of the Financed Vehicles.

f) The interest rate on the Contracts must not violate any applicable
usury laws.

g) The Obligors on the Contracts must have supplied certain credit
information, and credit verification procedures must have been performed by the
Servicer in a manner commensurate with standard industry practice.

Contracts may be purchased which do not meet the criteria specified in (a)
through (e) above if in the Servicer's good faith judgment, purchasing such
Contracts would be in the best interests of the Company. The Company may pay a
higher purchase price for seasoned Contracts. The Company will not decline to
purchase Contracts offered by the Servicer that do not meet the criteria because
the relationship is not arm's length. Generally, the "creditworthiness grade"
of the Obligors on the Contracts will be "C".

With respect to the credit information to be supplied by the Obligors on
the Contracts, the Company has established certain credit criteria to be
satisfied by each Obligor. In order to

<PAGE>

satisfy these criteria, an Obligor, among other things, must be able to
provide verifiable personal references, must have a valid driver's license,
must have been a resident of the local area of origination for a minimum of
six months, and must be at least 18 years of age. In order to verify the
foregoing information in accordance with the Company's expectations of
standard industry practice, the Servicer will be required to obtain from the
Dealer a copy of the credit application executed by the Obligor which
contains the necessary information, to verify by telephone or otherwise the
Obligors' addresses, employment and personal references and to obtain a
credit report from a credit reporting agency.

The Company may purchase Contracts from dealers subject to the requirement
that the selling Dealer repurchase any Contract that becomes overdue for more
than 60 days, although the terms of any such requirement for any particular
Dealer or group of Contracts purchased will be determined by SAI and such
Dealer.

The Company may also purchase Contracts which are lease agreements for
Financed Vehicles. SAI has not previously purchased lease agreements, and has
not established purchase guidelines therefor.

Although most state laws mandate that owners maintain liability insurance
for damages arising from their use of a motor vehicle, the owners of the
Financed Vehicles may fail to maintain physical damage insurance and the
Servicing Agreement does not require that the Obligors on the Contracts maintain
such insurance as a criterion for Contract purchase. In many cases, the
Servicer or the Company will be named as a loss payee under the Obligor's
automobile insurance policy. The Company may suffer a loss upon any theft or
physical damage of any Financed Vehicles if the Obligor does not maintain
physical damage insurance and is otherwise unable to pay for repairs or
replacement or its obligations under the related Contract. In addition, the
Company may not require verification of physical damage insurance coverage for
Financed Vehicles in connection with certain Contract packages it purchases, and
may purchase some packages knowing that some or all of the related Financed
Vehicles are without physical damage insurance coverage. See "Risk Factors -
Lack of Damage Insurance."

The Servicer represents and warrants in the Servicing Agreement and the
Indenture, among other things, that (i) each Contract met at the time of its
purchase from the originating dealer in all material respects all purchasing
criteria set forth on Exhibit A of the Master Contract Purchase Agreement; (ii)
at the date of purchase, the Contracts are free and clear of all security
interests, liens, charges and encumbrances and no offsets, defenses, or
counterclaims against the Company or dealers have been asserted or threatened;
(iii) at the date of purchase, each of the Contracts is or will be secured by a
first security interest in the

<PAGE>

Financed Vehicle which serves as collateral for the Contract; and (iv) each
dealer from which the Company purchases Contracts will be required to
represent and warrant to the Company that each Contract, at the time it was
originated, complied, and at the date of purchase of the Contract, complies
in all material respects with applicable federal and state laws, including
consumer credit, truth in lending, equal credit opportunity and disclosure
laws. (Master Contract Purchase Agreement, Section 7; Indenture, Section
12.16) If the Company, the Servicer or the Trustee discovers that any of
such representations or warranties was incorrect in any material respect with
respect to a Contract, the Servicer is required to cure the defect or
purchase the Contract from the Company. (Indenture, Section 12.17) The
Servicer also covenants in the Indenture that it will take all actions
necessary or desirable to maintain perfection and priority of the security
interest granted under the Contract in the Financed Vehicle. (Indenture,
Section 12.1)

DEALER CRITERIA

Contracts will generally be purchased from Dealers who meet the following
criteria:

* A net worth, exclusive of goodwill or other intangible values, of at least
$100,000, or a parent, affiliate or predecessor which meets the net worth
criterion;

* A minimum of one year of successful operation as an automobile dealer, as
evidenced by financial statements or prior tax returns;

* Experienced contract loss rates during the immediately preceding year
acceptable to SAI; and

* Verifiable banking references.

SAI does not specifically limit the number of Contracts originated by any
one Dealer that may be included in the Contracts inventory at any one time.

COLLECTION OF PAYMENTS

Under the Servicing Agreement, the Servicer is obligated to exercise
discretionary powers involved in the management, administration and collection
of the Contracts and to bear all costs and expenses incurred in connection
therewith. The Servicer is obligated to use the same care and apply the same
policies that it would exercise if it owned the Contracts. (Servicing
Agreement, Section 1)

The Servicer is obligated to instruct all Obligors under the Contracts to
make all payments to the Collections Account.

<PAGE>

(Servicing Agreement, Section 6) Any material extensions, modifications, or
acceptances of partial payments by Obligors, and any related necessary
Contract amendments or default waivers by the Servicer, must be approved by
the chief credit officer or president of the Servicer. (Servicing Agreement,
Exhibit A) Under the Indenture and the Servicing Agreement, the Servicer is
required to pursue repossession, subject to compliance with all state and
federal laws relating thereto, of the Financed Vehicle securing any Contract
whose Obligor (i) is past due by at least three scheduled installments in the
case of bi-weekly or semi-monthly installments or two scheduled installments
in the case of monthly installments, and (ii) has failed for 30 days, in the
case of bi-weekly or semi-monthly installments, or 45 days, in the case of
monthly installments, to remit any sums against the obligations under the
Contract. (Indenture, Section 12.7; Servicing Agreement, Exhibit A) The
Servicer may commence repossession sooner if it deems such activity to be
prudent and in the best interests of the Company and the Servicer. The
Servicer is also required to document the reasons for each chargeoff of any
material unpaid amount from an Obligor under any Contract. (Servicing
Agreement, Exhibit A) As indicated by the foregoing repossession
requirements, to maximize its return, the Company prefers to continue
collecting installments on the Contract despite a missed installment by the
Obligor in lieu of repossession of the vehicle. See "Risk
Factors--Collections and Repossessions; Performance of Contracts".

The Servicer is required to deliver monthly to the Company a report
certifying that all Contracts managed by the Servicer were serviced in material
accordance with the Servicing Agreement and that the Servicer is not in default
under the Servicing Agreement. The report also will contain collection
information on each Contract since the date of the last such report and a
reconciliation of the deposits into and withdrawals from the Operating Account.
(Indenture, Exhibit B) If the Servicer fails to remit collections on the
Contracts to the Collections Account when due, and continues such failure for
five business days, or to service and collect amounts due from the Obligors in
accordance with the servicing criteria established by the Servicing Agreement,
or if certain bankruptcy or insolvency proceedings occur, the Company has the
right to terminate all rights and obligations of the Servicer under the
Servicing Agreement and to transfer servicing rights to a successor servicer.
(Servicing Agreement, Section 10)

SERVICING FEES AND SAI COMPENSATION

The Servicer is entitled under the Servicing Agreement to receive a fee
(the "Contract Servicing Fee") of $20 per month per outstanding Contract that
has not been assigned for repossession, plus all late fees. (Servicing
Agreement, Section 3) Such fee will also be paid to SAI with respect to
Contracts serviced or collected by third parties with which SAI has
contracted. The

<PAGE>

Contract Servicing Fee is intended to compensate and reimburse SAI for
administering the collection of the Contracts, including collecting and
posting all payments, responding to inquiries of Obligors on the Contracts,
investigating delinquencies, sending payment coupons to Obligors, reporting
any required tax information to Obligors, paying costs of collections and
policing the Financed Vehicles. The Contract Servicing Fee will also
compensate the Servicer for furnishing monthly and annual statements to the
Company and the Trustee with respect to expenditures and receipts, and
generating information necessary for the Company to prepare all required
federal and state income tax returns. The Company will reimburse SAI for all
direct charges incurred in connection with servicing the Contracts,
perfecting the Company's security interest in collateral securing the
Contracts and protecting the interests of the Company in the event of default
on any of the Contracts, including without limitation, amounts required to
pay prior liens that must be paid, local, state or federal taxes pertaining
to the collateral, the costs of maintaining, perfecting and obtaining liens
and/or foreclosing thereon, and attorneys fees in connection with the
foregoing.

Under the Indenture, the Servicer will also be entitled to reimbursement,
as an Allowed Expense, of its expenses incurred in the repossession, repair and
sale of any Financed Vehicle to the extent of the related proceeds from its sale
or from any recovery on a related insurance policy. (Indenture, Section 12.7)
In addition, subject to prior payment of any amounts owing on the Notes or to
the Trustee, the Servicer will be paid, as an Allowed Expense, the lockbox fees,
account fees and bank service charges relating to the Collections Account.

The Servicer will receive a monthly fee (the "Purchase Administration Fee")
from the Company equal to the lesser of $500, or 5% of the total amount of
installments due under the Contract as of the date of purchase for the Company,
for each Contract purchased during the preceding calendar month period. The
Purchase Administration Fee is intended to compensate and reimburse the Servicer
for administrating the purchase of the Contracts, including receipt and approval
of dealer drafts and Contract transfer documents, monitoring compliance with
purchase criteria, creation of Contract files, communications with selling
Dealers, and other related activities.

SAI charges a processing fee to the various dealers from which it purchases
Contracts on behalf of the Company, which fee is currently $275 per Contract
purchased. SAI may pay a portion of such fee, in the amount of $50 per Contract
purchased, to one or more third parties as a finder's fee in connection with the
purchase of each Contract. SAI reserves the right to increase the amount of the
processing fee which it charges from time to time, and to increase or decrease
the amount of the finder's fee.

<PAGE>

In some cases, SAI may contract with third parties, including the Dealers
which originated the Contracts, to perform certain servicing and/or collection
services with respect to some Contracts. SAI may also maintain offices for
collection and servicing purposes at the premises of Dealers from which the
Company purchases Contracts.

SAI will make reasonable efforts to collect all payments due with respect
to the Contracts in a manner consistent with the Servicing Agreement.
Consistent with its normal procedures, SAI may, in its discretion, arrange with
the Obligor on a Contract to defer or modify the payment schedule. When SAI
determines that eventual payment in full of a Contract is unlikely, it will
follow its normal practices and procedures to realize upon the Contract,
including the repossession and disposition of the Financed Vehicle securing the
Contract at a public or private sale, or the taking of any other action
permitted by applicable law. In this regard, the Company will pay SAI a fee
equal to $125 for each repossession of a Financed Vehicle.

DEALERS

The Dealers will originate the motor vehicle retail installment contracts
and notes to be purchased by the Company. The economic incentive motivating a
Dealer to sell Contracts to the Company is maximization of return on the
Dealer's invested capital. Although the Dealer may make less profit per
transaction, because the cost of the automobile to the Dealer is recouped
immediately upon sale of the contract or note, and the Dealer does not have to
wait for future installment payments on the contract or note, the Dealer can
purchase and sell more automobiles and increase net profit through increased
inventory turnover.

During 1995, SAI purchased Contracts from 37 Dealers although SAI was only
actively purchasing Contracts from 20 Dealers. The Company believes that the
current Dealers with which SAI conducts business should generate sufficient
eligible Contracts for purchase by the Company, based on the rate of purchases
by SAI from the Dealers. The Company believes that SAI will be able to
adequately handle the servicing of all Contracts purchased by the Company with
the net proceeds from the sale of the Notes.

THE SERVICER

SAI, an affiliate of the Company, is the Servicer under the Servicing
Agreement. Sovereign owns 100% of the outstanding stock of Sovereign Credit
Corporation, which in turn owns 100% of the outstanding stock of SAI. See
"Management--Certain Relationships and Related Transactions". SAI was
incorporated in January, 1991 and commenced purchasing and servicing of motor
vehicle retail installment contracts in June, 1993. Since incorporation, SAI
has been a direct subsidiary of Sovereign or a commonly controlled

<PAGE>

corporation with Sovereign.

INFORMATION REGARDING
CONTRACTS PURCHASED AND SERVICED BY SAI

DELINQUENCY, REPOSSESSION AND COLLECTIONS

The following tables set forth certain information regarding the motor
vehicle retail installment sales contracts serviced by SAI on behalf of the
Securitization Subsidiaries sponsored by Sovereign, from June 1, 1993 (the date
SAI began servicing motor vehicle retail installment sales contracts) through
September 30, 1996. There can be no assurance that the future performance of
the Contracts purchased by the Company, including future delinquency and loss
experience, will be similar to that set forth in the following tables.

DELINQUENCIES OF ALL MOTOR VEHICLES
RETAIL INSTALLMENT SALES CONTRACTS
AS OF SEPTEMBER 30, 1996
-----------------------------------------------------------
TOTAL
DAYS PAST NUMBER OF PERCENT UNPAID PERCENT
DUE(1) ACTIVE CONTRACTS OF TOTAL INSTALLMENTS(2) OF TOTAL
--- ---------------- -------- ------------ --------

0 - 30 3,208 61.1% $19,446,043 61.5%
31 - 60 727 13.8% $ 4,323,526 13.6%
61 - 90 371 7.1% $ 2,172,711 6.9%
over 91 942 18.0% $ 5,700,574 18.0%
----- ------ ----------- ------
All Active
Contracts 5,248 100.0% $31,642,855 100.0%
----- ------ ----------- ------
----- ------ ----------- ------

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

(1) It is SAI's general policy to initiate repossession efforts after
obligors (i) are past due by at least three scheduled installments in
the case of bi-weekly or semi-monthly installments or two scheduled
installments in the case of monthly installments, and (ii) have failed
for 30 days, in the case of bi-weekly or semi-monthly installments, or
60 days, in the case of monthly installments, to remit any sums
against the obligations under the contract. Accordingly, some
contracts are shown as active even though repossession efforts have
commenced.

(2) Includes principal and remaining finance charges.

<PAGE>

ADDITIONAL SELECTED DATA FOR ALL MOTOR VEHICLE
RETAIL INSTALLMENT SALES CONTRACTS FROM
JUNE 1, 1993 THROUGH SEPTEMBER 30, 1996

PERCENT PERCENT
NUMBER OF TOTAL AMOUNT OF TOTAL
Writeoffs(1) 316 3.9% $ 3,141,820 4.8%
Repossessions(2) 1,079 13.3% $10,497,128 16.0%
Proceeds from Repossessions(3) 773 9.6% $ 5,671,554 8.6%
Inventory of Repossessions(4) 306 3.8% $ 818,775 1.2%
Total Contracts Purchased(5) 8,091 $65,761,877

- ---------------------
(1) "Writeoffs" are those contracts which have been written off as
uncollectible as bad debts, and include (i) those which are subject to
Chapter 13 Bankruptcy proceedings (ii) those for which the vehicle
serving as collateral has been destroyed, and (iii) those where the
obligor has "skipped" (i.e., neither the obligor nor the vehicle
serving as collateral can be found). "Amount" represents the total
unpaid installments of the Contracts at the time they are classified
as "Writeoffs".

(2) "Amount" represents the total unpaid installments of the related
Contracts at the time of repossession plus repossession and
reconditioning fees and expenses.

(3) "Amount" represents total unpaid installments of Contracts originated
from sales of repossessed vehicles and any insurance proceeds, if
applicable, before deduction for repossession and reconditioning fees
and expenses.

(4) "Inventory of Repossessions" are repossessed vehicles in inventory
awaiting resale as of September 30, 1996. "Amount" represents
wholesale values of repossessed vehicles at the time of repossession
plus repossession and reconditioning fees and expenses.

(5) "Amount" represents the total unpaid installments of the Contracts at
the time of purchase.

The average term remaining, and the average principal amount, for Contracts
in SAI's servicing portfolio at September 30, 1996 is approximately 28 months
and approximately $8,000, respectively. SAI expects that (a) its repossession
rate, over the life of the portfolio of all Contracts purchased on behalf of the
Company through its services, will be in the range of 15% to 20% of such
contracts, and (b) the average purchase price payable to motor vehicle dealers
will be no more than 66% of the original total future installments payable under
the Contracts.

<PAGE>

INFORMATION REGARDING THE SECURITIZATION SUBSIDIARIES

Since October 1993, Sovereign has sponsored a number of entities (the
"Securitization Subsidiaries") which have issued notes to investors and used the
net proceeds thereof to purchase consumer contracts and notes created by the
retail sale and financing of used automobiles and light trucks. As used herein,
the term "Securitization Subsidiaries" does not include the Company. The
following table sets forth certain information regarding the Securitization
Subsidiaries sponsored by Sovereign from June 1, 1993 (the date SAI began
servicing motor vehicle retail installment sales contracts) through September
30, 1996. There can be no assurance that the future performance of the
Contracts purchased by the Company will be similar to that set forth in the
following table.

<TABLE>
FUNDS CASH MATURITY PAYOFF
FROM COLLECTED VALUE OF BALANCE OF
INVESTORS FROM ACTIVE ACTIVE TOTAL
AS OF DUE 7/1/96 CONTRACTS CONTRACTS ASSETS
NAME OF PROGRAM(1) 9/30/96 DATE(2) TO 9/30/96 AS OF 9/30/96(3) AS OF 9/30/96(4) AS OF 9/30/96(5)
- ----------------- ---------- ------- ---------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
SAM 94-1 $ 558,275 07/15/97 $ 62,858 $ 412,740 $ 329,605 $ 354,028
SAM 94-3 $ 823,142 03/31/98 $ 79,017 $ 681,679 $ 539,915 $ 572,572
SAM 95-1 $ 657,436 10/15/98 $ 62,097 $ 538,812 $ 424,018 $ 478,034
SAM 95-2 $ 889,958 03/15/99 $225,684 $1,350,795 $1,086,408 $1,096,861
Sovereign Acceptance I $ 615,000 05/15/97 $ 68,979 $ 407,187 $ 329,987 $ 368,752
Sovereign Acceptance II $ 602,000 07/15/97 $ 40,649 $ 305,588 $ 252,070 $ 256,536
Sovereign Acceptance III $ 598,517 08/15/97 $ 79,490 $ 469,272 $ 384,287 $ 397,100
Sovereign Acceptance IV $ 685,320 09/15/97 $ 66,789 $ 492,856 $ 400,666 $ 436,644
Sovereign Acceptance V $ 614,537 09/30/97 $ 79,342 $ 509,903 $ 417,064 $ 455,076
Sovereign Acceptance VI $ 587,000 10/15/97 $ 57,278 $ 387,495 $ 319,174 $ 348,623
Sovereign Acceptance VII $ 610,500 11/15/97 $ 75,031 $ 552,403 $ 445,680 $ 448,407
Sovereign Acceptance VIII $ 694,100 12/31/97 $ 66,842 $ 502,817 $ 403,968 $ 429,971
Sovereign Acceptance IX $ 567,140 01/31/98 $ 66,063 $ 460,682 $ 380,960 $ 396,800
Sovereign Acceptance X $ 662,000 01/31/98 $100,776 $ 628,987 $ 504,559 $ 516,758
Sovereign Acceptance XI $ 579,000 02/28/98 $ 77,019 $ 438,502 $ 365,063 $ 389,592
Sovereign Acceptance XII $ 575,000 02/28/98 $ 72,541 $ 488,335 $ 380,061 $ 402,386
Sovereign Acceptance XIII $ 650,000 03/31/98 $ 79,617 $ 655,292 $ 519,501 $ 546,140
Sovereign Acceptance XIV $ 576,000 03/31/98 $ 59,496 $ 371,871 $ 305,336 $ 324,982
Sovereign Acceptance XV $ 612,000 04/30/98 $ 65,653 $ 479,758 $ 384,421 $ 411,355
Sovereign Acceptance XVI $ 563,000 04/30/98 $ 45,669 $ 297,517 $ 248,307 $ 268,774
Sovereign Acceptance XVII $ 746,000 05/31/98 $ 78,416 $ 572,585 $ 525,286 $ 582,625
Sovereign Acceptance XVIII $ 733,053 05/31/98 $ 79,161 $ 590,732 $ 423,911 $ 464,579
Sovereign Acceptance XIX $ 523,000 06/30/98 $ 42,962 $ 308,977 $ 250,631 $ 272,565
Sovereign Acceptance XX $ 640,250 06/30/98 $ 77,251 $ 528,147 $ 421,559 $ 439,934
Sovereign Acceptance XXI $ 606,000 09/15/98 $ 40,154 $ 441,405 $ 347,856 $ 357,378
Sovereign Acceptance XXII $ 465,000 09/15/98 $ 31,272 $ 323,162 $ 259,411 $ 272,773
Sovereign Acceptance XXIII $ 509,000 10/15/98 $ 60,955 $ 439,696 $ 353,764 $ 380,710
Sovereign Acceptance XXIV $ 615,000 10/15/98 $ 86,281 $ 608,150 $ 478,074 $ 499,921
Sovereign Acceptance XXV $ 531,000 11/15/98 $ 39,507 $ 486,481 $ 378,035 $ 394,372
Sovereign Credit I $ 992,000 12/15/98 $117,006 $ 845,917 $ 663,054 $ 707,779
Sovereign Credit II $ 767,350 03/15/99 $112,373 $1,041,384 $ 815,549 $ 876,456
Sovereign Credit III $ 933,121 03/15/99 $188,584 $ 946,201 $ 802,491 $ 806,841
Sovereign Credit IV $ 79,000 04/15/99 $ 5,689 $ 85,501 $ 64,765 $ 69,579
Sovereign Credit V $ 851,051 05/15/99 $275,913 $1,417,894 $1,178,435 $1,195,622
Sovereign Credit VI $1,023,047 06/15/99 $ 66,424 $1,363,839 $1,068,039 $1,067,715
</TABLE>

(Continued on next page)

<PAGE>

(1) Each program is a limited liability company with the exception of Sovereign
Acceptance I, which is a limited partnership.

(2) Principal on the notes issued by each program is required to be repaid in
six equal monthly installments ending on the due date.

(3) Maturity Value of Active Contracts represents the sum of all future
installments of principal and interest, less amounts owed to dealers at
maturity of the contracts.

(4) Payoff Balance of Active Contracts represents the payoff balance of the
contracts as of the date shown.

<PAGE>

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth information, as of January 15, 1997 relating
to the beneficial ownership of the Company's Common Stock by any person or
"group", as that term is used in Section 13(d)(3) of the Securities and Exchange
Act of 1934 (the "Exchange Act"), known to the Company to own beneficially 5% or
more of the outstanding shares of Common Stock, and known to the Company to be
owned by each director of the Company and by all officers and directors of the
Company as a group. Except as otherwise indicated, each of the persons named
below is believed by the Company to possess sole voting and investment power
with respect to the shares of Common Stock beneficially owned by such person.

AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP(1)
NAME OF DIRECTOR OR --------------------------------------------
NAME AND ADDRESS OF PERCENTAGE OF CLASS
BENEFICIAL OWNER NUMBER OF SHARES OUTSTANDING
- ------------------- ---------------- -------------------
Sovereign Credit Holdings, Inc.(2) 1,000 100%
4015 Beltline Road
Building B
Dallas, Texas 75244

A. Starke Taylor, III 0(2) --

William P. Glass 0(2) --

Christopher R. Frattaroli 0(2) --

Diane D. Taylor, Trustee 0(3) --
4015 Beltline Road
Building B
Dallas, Texas 75244

All officers and directors as
a group (3 persons) 0(4) --

_____________________________

(1) The information as to beneficial ownership of Common Stock has been
furnished by the respective shareholders, directors and officers of the Company.

(2) The directors of Sovereign Credit Holdings, Inc. ("SCH") could be deemed to
share voting and investment powers over the shares owned of record by SCH. The
directors of SCH are A. Starke Taylor, III, William P. Glass and Christopher R.
Frattaroli. Mr. Taylor owns 30% of SCH's common stock. Mr. Glass owns 10% of
SCH's common stock. The business address for Mr. Taylor, Mr. Glass, and Mr.

<PAGE>

Frattaroli is SCH's address.

(3) Diane D. Taylor, the wife of Mr. A. Starke Taylor, III, serves as trustee
of the Austin S. Taylor, III Investment Trust No. 2, which owns 43.92% of SCH's
common stock and of which Mr. A. Starke Taylor, III is the beneficiary, and of
five trusts which each owns 3% of SCH's common stock and of which her and A.
Starke Taylor, III's children (including Mr. Frattaroli's wife) are the
beneficiaries. The business address for Ms. Taylor and each of the foregoing
trusts is SCH's address.

(4) This amount excludes shares owned directly by SCH.

MANAGEMENT

BUSINESS BACKGROUND AND EXPERIENCE

The names, ages, backgrounds and principal occupations of the directors and
executive officers of the Company, Sovereign Credit Holdings, Inc. ("SCH"),
Sovereign Credit Corporation ("Sovereign") and Sovereign Associates, Inc.
("SAI") are set forth below:

NAME POSITION
---- --------
A. Starke Taylor, III President and Director: the Company, SCH,
Sovereign and SAI

William P. Glass Vice President and Director of the Company and
SCH; Vice President of Marketing and Director:
Sovereign

William Burmeister Vice President and Controller: SAI

Christopher R. Frattaroli Treasurer and Director: the Company, SCH and
Sovereign; Treasurer: SAI

A. STARKE (TRACY) TAYLOR, III, age 53, has been President and a director of
the Company, SCH, Sovereign and SAI since the formation of such companies. Mr.
Taylor is a Dallas native. He graduated from Southern Methodist University in
1966 with a B.B.B. degree and thereafter began a career in professional
investment services. From approximately 1970 to 1971 Mr. Taylor was the Head of
the Benefits Department of Marsh and McClennan's Dallas office, where he
specialized in employee benefits.

Mr. Taylor used his experience in the pension investment field as a
springboard into a diversified financial career. As a principal of the Watson
and Taylor Companies, he was involved in the development and management of self
storage facilities, business centers, shopping centers, real estate holdings
nationwide and real estate notes. He is a co-general partner in partnerships
holding approximately four and one-half million square feet of self storage

<PAGE>

facilities.

Mr. Taylor was a partner in Lyco Acquisitions Number One, a company which
purchased all of the oil and gas properties of Bethlehem Steel. Later, he was a
principal in Tex-Feld Petroleum Company, which operated a significant drilling
program in the Southwest.

Mr. Taylor has been a general partner in over 100 limited partnerships
which involved real estate or oil and gas investments, with total original
investor contributions of approximately $150 million. The investment objectives
of these partnerships differed significantly from those of the Company. Many of
these partnerships have experienced adverse business developments and
conditions. Real estate revenues have been adversely affected by the overall
decline in the economy. Many of these partnerships utilized a significant
amount of leverage and have experienced significant operating deficits. The
properties owned by various of the partnerships were acquired by their lenders
through foreclosure proceedings.

Mr. Taylor has also served as a general partner or chief executive officer
for 35 partnerships formed to acquire financial notes.

Clearlake, Ltd., of which Mr. Taylor was an individual general partner,
filed a voluntary petition under Chapter 11 of the Federal bankruptcy laws in
September 1992. The plan of reorganization was confirmed by the court, and all
creditors were paid in full by April 1994.

Mr. Taylor is a past Chairman of the Board of Priority One, an
international missionary organization, is on the Board of Trustees of the Dallas
Theological Seminary, is a past member of the Dallas County Advisory Board of
the Salvation Army, is a board member of the Northeast Texas Regional Board of
Young Life, and was the founding Chairman of the Board of the Park Central
Athletic Association. He is past President of the Dallas Fire Fighters
Association, past President of the North Dallas Chamber of Commerce and a past
member of the Board of Directors of the MBank Lincoln Center and MBank Preston.
Mr. Taylor was recognized in 1983 by D Magazine as one of Dallas' ten most
outstanding young business leaders.

Mr. Taylor is married and has five children.

WILLIAM P. GLASS, age 39, has been Vice President of Marketing and a
director of Sovereign since April, 1990 and Vice President and a director of the
Company and SCH since the formation of such companies. Mr. Glass is responsible
for all marketing and investor relations activities for the company. He
attended Baylor University, and was drafted by the Cincinnati Bengals of the

<PAGE>

National Football League in 1980. Mr. Glass began his business career in 1981
with Hank Dickerson & Co. Realtors. In his position as a Sales Associate he led
the Office Division in sales for two of the three years he was employed with
Hank Dickerson & Co.

In 1983, Mr. Glass formed BGI Commercial Real Estate Inc., specializing in
commercial real estate brokerage and the syndication and real estate properties.
Mr. Glass was Venture Manager in over 30 general partnerships. In 1989, Mr.
Glass sold BGI Commercial Real Estate and joined Cornerstone Commercial Real
Estate, Ltd., as Senior Vice President. Cornerstone is a sister company to the
Trammel Crow Development Company. In April, 1990, Mr. Glass left Cornerstone
and became a Vice President of Sovereign.

Mr. Glass is on the Executive Committee of the Board of Directors of his
father's prison ministry, the Bill Glass Evangelistic Association. He is former
board member of Young Life of Southwest Dallas County. He is a member of Hope
Community Church in Cedar Hill. He is a member of Oak Cliff Country Club in
Dallas. Mr. Glass resides in DeSoto, Texas, with his wife and three children.

WILLIAM P. BURMEISTER, age 42, is Controller of SAI. Mr. Burmeister is
responsible for the financial accounting, banking and the day-to-day financial
duties of the companies. He has been with the companies since December, 1994.
From September 1978 to September 1983, he was employed by Harvest States
Cooperatives, a commodity marketing company. While with Harvest States
Cooperatives, he lead the design, development and implementation of an "MIS"
project involving over 1.5 million lines of codes serving major operations in
seven sates. From January 1984 to April 1989, he was employed by VARO, a night
vision manufacturer. While with VARO, he developed a "TQM" system which allowed
the company to be awarded a $500 million defense contract, the largest ever
awarded at that time. Later involvement with DalTex from April 1991 to April
1992, BSM from April 1992 to June 1993, and Clouds from August 1993 to September
1994, dealt with start-up operations, marketing, production and personnel
responsibilities as well as controllership responsibilities with companies,
public and private, ranging in annual sales from $1 million to $4 billion.

CHRISTOPHER R. FRATTAROLI, age 30, is Treasurer and a director of the
Company, SCH and Sovereign, and is Treasurer of SAI. He has been with the
Company and SCH since their formations, and with Sovereign and SAI since
December, 1994. Mr. Frattaroli is responsible for marketing to potential
institutional investors. Mr. Frattaroli graduated from Duke University in 1988
with a Bachelor of Arts degree in Art History.

In May, 1988, Mr. Frattaroli joined Intermarket Management, Inc., at which
he attained the office of Vice President and enjoyed

<PAGE>

a minority interest in the company. The company's primary business focus was
index arbitrage of equity, currency and commodity markets. Mr. Frattaroli
left the company in February, 1992.

In March, 1992, Mr. Frattaroli joined American International Group Trading,
Inc. as a trader/market maker in the foreign exchange market. Mr. Frattaroli
left the company in December, 1994. Mr. Frattaroli traded in the spot market
as well as arbitraging with the futures exchanges.

Mr. Frattaroli joined Sovereign in December of 1994. Mr. Frattaroli is
married to the daughter of A. Starke Taylor, III and has two children.

The directors and executive officers of the Company have served in their
respective offices since the organization of the Company. No director or
executive officer of the Company has received any compensation from the Company
since its formation, nor will they receive any compensation from the Company
prior to satisfaction in full of the Notes. See "Description of the Notes--The
Contract Proceeds and Operating Account". However, see "Certain Relationships
and Related Transactions" below for a description of certain transactions
between Sovereign, SAI and the Company from which such persons may indirectly
benefit through indirect ownership and/or compensation from Sovereign.

Except as stated above, there are no family relationships among the
directors and any of the executive officers of the Company. None of the
Company's directors holds any directorship in any company with a class of
securities registered pursuant to Section 12 of the Exchange Act or subject to
the requirements of Section 15(d) of the Exchange Act or any company registered
as an investment company under the Investment Company Act of 1940.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Both the Company and Sovereign are subsidiaries of Sovereign Credit
Holdings, Inc. ("SCH"). In addition, SAI is a subsidiary of Sovereign.
Sovereign or SCH also beneficially own from 50% to 100% of the outstanding
equity of the Securitization Subsidiaries. Sovereign manages all of the
Securitization Subsidiaries. Management of the Company will devote as much of
their time to the business of the Company as in their judgment is reasonably
required. The Company, SAI, Sovereign, the Securitization Subsidiaries and any
of their respective affiliated entities may have conflicts of interest in
allocating management time, services, overhead and functions among the Company,
SAI, Sovereign, the Securitization Subsidiaries and their affiliated entities.
Management of Sovereign, SAI, the Company and the Securitization Subsidiaries
intend to resolve any such conflicts in a manner that is fair and equitable to
the Company, but there can be no assurance that any particular conflict may be
resolved in a manner that does

<PAGE>

not adversely affect Noteholders. Neither the Company nor SAI has guaranteed
or is otherwise liable for the debts and liabilities of Sovereign or any of
its other subsidiaries, including the Securitization Subsidiaries.

The terms of the Servicing Agreement were not negotiated at arm's length
but were determined unilaterally by the management of SAI. Under the terms of
the Servicing Agreement, SAI will be paid the Servicing Fees and a $125 per
vehicle repossession fee, and will be entitled to reimbursement for its expenses
incurred in connection with the repossession and resale of Financed Vehicles out
of the proceeds from such resales. SAI will retain the Purchase Administration
Fee as compensation and reimbursement for its services in administering the
purchase of Contracts.

The Company will pay Sovereign a monthly fee (the "Investor Administration
Fee") equal to 1/12th of 0.5% of the aggregate outstanding principal amount of
the Notes, which fee shall reimburse Sovereign for expenses incurred in the
administration of Noteholder payments, communications and relations for the
Company.

SAI has agreed, and may agree in the future, to purchase and service motor
vehicle retail sales installment contracts and obligations for itself, its
affiliates and other unrelated parties. The Company has the right to purchase
additional Contracts through SAI from the net collection proceeds on its
existing Contracts except during the continuance of an Event of Default.
Management of SAI will have a conflict of interest in determining whether to
purchase any retail sales installment contracts and notes on behalf of the
Company or one or more other parties for whom it purchases contracts and notes
or to retain the contracts and notes for its own benefit. The determination of
which entity will purchase or invest in a particular Contract package and what
portion, if any, of such Contract package will be purchased for such entity will
be based upon the respective periods of time the purchasing entities have been
in existence, the cost of the available Contract package, the amount of their
unexpended funds and the need to diversify their holdings. In such event, SAI
intends to exercise good faith and to deal fairly with the respective entities
in deciding which entity, if any, is to purchase or invest in a particular
Contract package. SAI will give priority to purchases on behalf of the
Securitization Subsidiaries and the Company over purchases on behalf of
Sovereign or SAI. The Company expects that SAI will not knowingly retain lower
risk contracts and notes for Sovereign, itself or its other customers and sell
higher risk contracts and notes to the Company to serve as collateral for the
Notes.

The Company may purchase Contracts from Sovereign, SAI or their affiliates,
including affiliates that are Dealers, but only if such Contracts are not in
default and satisfied the purchasing criteria established in the Indenture and
the Servicing Agreement at the time of their purchase from the originating
Dealer. Any

<PAGE>

qualifying Contracts will be sold by Sovereign, SAI or its affiliate to the
Company at a price for each Contract equal to the Purchase Administration Fee
paid by the original purchaser plus an amount determined to provide the
Company an internal rate of return on its investment in the Contract from the
remaining unpaid installments equal to the original purchaser's initial
internal rate of return on its investment in the Contract, as of its purchase
from the Dealer, assuming in both cases that the Contract was paid in full in
accordance with its scheduled installments. Such seller will retain any
installments received by it prior to the purchase by the Company and any
profits resulting from the difference between such installments and the
reduction in the purchase price paid to such seller by the Company from the
price paid by such seller to the Dealer.

The Company will use up to 2% of the gross proceeds from the sale of the
Notes to pay offering and organizational expenses. Sovereign has agreed to pay
any such expenses to the extent they exceed 2% of the gross proceeds from the
sale of the Notes. The Company will also pay to Sovereign a fee equal to 5.5%
of the gross proceeds from the sale of the Notes (5.0% of the gross proceeds in
excess of $9,000,000) for administering and managing the ongoing operations of
the Company.

The Company's Board of Directors has adopted a resolution to the effect
that all transactions with officers, directors and affiliates must be on terms
which would be reasonable and appropriate with unaffiliated parties.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

GENERAL

As of the date of this Prospectus, the Company has had no operating
history. The net proceeds of the sale of the Notes will be employed to purchase
the initial Contracts. See "Use of Proceeds". While the Notes remain
outstanding, the Company will be prohibited from engaging in any business other
than the purchase, collection and servicing of the Contracts (including
repossession and resale of the vehicle collateral) and from incurring any
additional indebtedness other than the Additional Borrowing, if any, Allowed
Expenses and any other amounts incurred in the

<PAGE>

ordinary course of its business.

The Company's use of the net collection proceeds from the Contracts will be
restricted to payments on the Notes and the Additional Borrowing, if any, and,
so long as there is no Event of Default, to payments of Allowed Expenses and to
purchase of additional eligible Contracts. See "Description of the Notes--The
Contract Proceeds and Operating Account".

CAPITAL RESOURCES AND LIQUIDITY

The Company's primary sources of funds for repayment of the Notes will be
proceeds from the Contracts, any income on the reinvestment of such proceeds and
any proceeds from sale or refinancing of the remaining Contracts at the maturity
of the Notes. The Company does not have, nor is it expected to have in the
future, any significant source of capital for payment of the Notes and the
expenses incurred by it other than such sources. Payment of the principal or
interest on the Notes is not guaranteed by any other person or entity. See
"Risk Factors--Limited Assets; Single Purpose Nature". Although management of
the Company believes that the Company will realize sufficient proceeds from the
foregoing sources to pay all installments of interest when due on the Notes and
to repay the principal amount of the Notes in full prior to or at maturity,
there can be no assurance that such sources will be sufficient to repay the
Notes in full. See "Risk Factors--Nature of Contracts", --Defaults on Contracts
and Repossessions" and --Possible Insufficient Amount in the Trust Account".

The Company anticipates that a portion of the Contracts will become
delinquent and require repossession and resale of the related vehicle. Based on
the experience of SAI and its employees with respect to similar contracts, the
Company and SAI expect that (i) the Company's portfolio of Contracts will
experience a repossession rate, over the life of the portfolio, of approximately
18% of such Contracts and (ii) aggregate gross collections from all Contracts
will be in the range of approximately 80% to 90% of the original total future
installments for the Contracts at the time of their purchase, including sales
proceeds from repossessed vehicles, but without taking into account costs
associated with the resale of such repossessed vehicles. However, there can be
no assurance that these expectations will in fact be met, since actual
repossession rates and collection rates on the Contracts are impossible to
predict precisely.

<PAGE>

the repossessed Financed Vehicles, the costs of seeking and collecting a
deficiency judgment and limitations imposed by bankruptcy laws or other
Federal or state laws. In general, SAI is required to commence repossession
of a Financed Vehicle if the Obligor is delinquent on at least two monthly
installments and has made no payments for a period of 45 days. Nevertheless,
SAI may grant extensions or modifications to Obligors or accept partial
payments from Obligors in lieu of commencement or repossession activities. If
a substantial number of such Obligors make no further payments on their
Contracts, the delay in the repossession of the Financed Vehicles could result
in a decrease in repossession proceeds received by the Company.

The actual collection rates on the Contracts are impossible to predict
precisely and adverse changes in collectibility rates caused by changes in
economic conditions, including particularly in the Company's primary markets, or
other factors beyond the Company's control could adversely affect the Company's
ability to collect on the Contracts. If the Contracts do not collectively
perform as expected by the Company, which expectations are based on the
historical performance of similar contracts purchased and serviced by SAI, the
Company's ability to make the required payments on the Notes could be adversely
affected.

SAI is a party to an arbitration proceeding in which the other party has
filed a counterclaim against SAI requesting unspecified damages, but which are
stated in the counterclaim to be in excess of $1 million. See "The Company--
Litigation". SAI believes that the counterclaim is without merit, and intends
to vigorously defend itself against the counterclaim. Additionally, SAI intends
to vigorously pursue its claims in the arbitration proceeding. It is unknown as
of the date of this Prospectus whether an adverse decision with respect to the
counterclaim would have a material adverse effect on SAI's operations, financial
condition, or ability to act as Servicer on behalf of the Company.
Consequently, it unknown as of the date of this Prospectus whether such an
adverse decision would adversely affect the Noteholders. See "Risk Factors--
Purchasing and Servicing of Contracts Dependant on SAI".

CERTAIN LEGAL ASPECTS OF THE CONTRACTS

SECURITY INTERESTS IN FINANCED VEHICLES

Under the UCC as adopted in most states, retail installment sale contracts
and notes such as the Contracts constitute security agreements for personal
property and contain grants of security interests in the Financed Vehicles.

Perfection of security interests in the Financed Vehicles is generally
governed by the motor vehicle registration laws of the state in which the
vehicle is located. In most states, a security interest in a motor vehicle is
perfected by notation of the secured

<PAGE>

party's lien on the vehicle's certificate of title.

Upon the purchase of the Contracts, pursuant to the Servicing Agreement,
the originating dealers will assign the Contracts (and the security interests
arising thereunder in the Financed Vehicles) to the Company. The originating
dealers will also provide evidence that proper applications for certificates of
title have been made to ensure that the Company will be named as the lienholder
on the certificates of title relating to the Financed Vehicles. SAI will
deliver possession of the Contracts and related title documents to the Company
or, in the event there is an Additional Lender, then to the Additional Lender or
other financial institution appointed by the Company and the Additional Lender
to act as custodian and bailee for the Additional Lender and the Company. For
any Contracts (and the security interest arising thereunder in the Financed
Vehicles) purchased by the Company from SAI, SAI will assign the Contracts to
the Company and will amend any certificates of title showing SAI as lienholder
to identify the Company as the new lienholder.

Under the laws of most states, liens for repairs performed on a motor
vehicle and liens for certain unpaid taxes take priority over even a perfected
security interest in a vehicle. The Internal Revenue Code of 1986 also grants
priority to certain federal tax liens over the lien of a secured party. Certain
state and federal laws permit the confiscation of motor vehicles under certain
circumstances if used in unlawful activities which may result in the loss of a
secured party's perfected security interest in the confiscated motor vehicle.
Upon the purchase of each Contract by the Company, the selling dealer will
warrant that the Contract creates a valid, subsisting and enforceable first
priority security interest in the Financed Vehicle. However, liens for repairs
or taxes, or the confiscation of a Financed Vehicle, could arise or occur at any
time during the term of a Contract. In addition, SAI will have a lien for
repair expenses it may incur in order to put repossessed Financed Vehicles into
marketable condition. No notice will be given to the Company in the event any
such lien arises or confiscation occurs.

If the owner of a Financed Vehicle relocates to another state, under the
laws of most states the perfected security interest in the Financed Vehicle
would continue for four months after such relocation and thereafter, in most
instances, until the owner re-registers the Financed Vehicle in such state.
Almost all states generally require surrender of a certificate of title to
re-register a titled vehicle. Therefore, the Company must surrender
possession, if it holds the certificate of title to such Financed Vehicle,
before the Financed Vehicle owner may effect the re-registration. In
addition, the Company should receive, absent clerical errors or fraud, notice
of surrender of the certificate of title because the Company will be listed as
lienholder on its face. Accordingly, the Company will have notice and the
opportunity to

<PAGE>

re-perfect its security interest in the Financed Vehicle in the state of
relocation. If the Financed Vehicle owner moves to one of the few states
which does not require surrender of a certificate of title for registration
of a motor vehicle, re-registration could defeat perfection. In the ordinary
course of servicing the Contracts, SAI takes steps to effect such
re-perfection upon receipt of notice of re-registration or other information
from the Obligor as to relocation. Similarly, when an Obligor under a
Contract sells a Financed Vehicle, the Company must surrender possession of
the certificate of title or the Company will receive notice as a result of
its lien noted thereon. Accordingly, the Company will have an opportunity to
require satisfaction of the related Contact before release of the lien. See
"Transfers of Vehicles" below. Under the Servicing Agreement and the
Indenture, SAI is obligated to maintain the continuous perfection of the
security interest represented by each Contract in the related Financed
Vehicle.

REPOSSESSION

In the event of default by an Obligor on a Contract, the holder of the
Contract has all the remedies of a secured party under the UCC. The UCC
remedies of a secured party include the right to repossession by self-help
means, unless such means would constitute a breach of the peace. Unless the
Obligor under a Contract voluntarily surrenders a vehicle, self-help
repossession, by an individual independent repossession specialist engaged by
SAI, is the method usually employed by SAI when an Obligor defaults. Self-help
repossession is accomplished by retaking possession of the Financed Vehicle. If
a breach of the peace is likely to occur, or if applicable state law so
requires, SAI must obtain a court order from the appropriate state court and
repossess the vehicle in accordance with that order.

Pursuant to the Agreement, the Company will pay SAI a fee equal to $125 for
each repossession of a Financed Vehicle. Repossessed vehicles are generally
resold by SAI through retail automobile networks. Such resales may also be
conducted by utilizing wholesale automobile networks, or auctions which are
attended principally by dealers. In many cases, when a repossessed Financed
Vehicle is sold from a dealer's lot, the balance due under the related Contract
is not repaid in cash but is replaced with a new Contract executed by the
purchaser of the Financed Vehicle.

<PAGE>

be charged to the Company for resales through unaffiliated lots.

NOTICE OF SALE; REDEMPTION RIGHTS

In the event of default by the Obligor, some jurisdictions require that the
Obligor be notified of the default and be given a time period within which the
Obligor 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.

In most jurisdictions, the UCC and other state laws require the secured
party to provide the Obligor with reasonable notice of the date, time, and place
of any public sale or the date after which any private sale of the collateral
may be held. Unless the Obligor waives his rights after default, the Obligor
has the right to redeem the collateral prior to actual sale by paying the
secured party the unpaid installments (less any required discount for
prepayment) of the Contract plus reasonable expenses for repossessing, holding,
and preparing the collateral for disposition and arranging for its sale, plus in
some jurisdictions, reasonable attorneys' fees, or, in some states, by payment
of delinquent installments.

DEFICIENCY JUDGMENTS AND EXCESS PROCEEDS

SAI generally will apply the proceeds of resale of the repossessed vehicles
first to reimburse itself for its expenses of resale and repossession, together
with any expenses incurred for repairs, if necessary, to put the vehicle into
marketable condition and any commissions paid to dealers for the resale of the
vehicle, and then to the satisfaction of the obligations of the Obligor on the
Contract. While some states impose prohibitions or limitations on deficiency
judgments if the net proceeds from resale do not cover the full amount of the
Contract obligations, most states allow a deficiency judgment to be sought. A
deficiency judgment is a personal judgment against the Obligor for the
difference between the amount of the obligations of the Obligor under the
Contract and the net proceeds from resale of the collateral. A defaulting
Obligor on a Contract typically lacks capital or income following the
repossession of the Obligor's Financed Vehicle. Therefore, SAI may determine in
its discretion that pursuit of a deficiency judgment is not an appropriate or
economically viable remedy or may settle at a significant discount any
deficiency judgment that it does obtain.

Certain statutory provisions, including federal and state bankruptcy and
insolvency laws, may limit or delay the ability of SAI to repossess and resell
the Financed Vehicles or enforce a deficiency judgment. In the event that
deficiency judgments are not obtained, are not satisfied, are satisfied at a
discount or are discharged, in whole or in part, in bankruptcy proceedings,
including bankruptcy proceedings under Chapter 13 of the Bankruptcy

<PAGE>

Reform Act of 1978, as amended, the loss will be borne by the Company and may
adversely affect the ability of the Company to repay the Notes.

Occasionally, after resale of a vehicle and payment of all expenses and
obligations, there is a surplus of funds. In that case, the UCC requires the
secured party to remit the surplus to the former Obligor.

CONSUMER PROTECTION LAWS

Numerous federal and state consumer protection laws and related regulations
impose substantial requirements upon lenders and servicers involved in consumer
finance. These laws include, but are not limited to, the Truth-in-Lending Act,
the Equal Credit Opportunity Act, the Federal Trade Commission Act, the Fair
Credit Billing Act, the Fair Credit Reporting Act, the Fair Debt Collection
Practices Act, the Magnuson-Moss Warranty Act, the Federal Reserve Board's
Regulations B and Z, state adaptations of the National Consumer Act and of the
Uniform Consumer Credit Code, state motor vehicle retail installment sales acts,
retail installment sales acts, and other similar laws. Also, state laws impose
finance charge ceilings and other restrictions on consumer transactions and
require contract disclosures in addition to those required under federal law.
These requirements impose specific statutory liabilities upon creditors who fail
to comply with their provisions. In some cases, this liability could affect an
assignee's ability to enforce consumer finance contracts such as the Contracts.

The so-called "Holder-in-Due-Course" Rule of the Federal Trade Commission
(the "FTC Rule"), the provisions of which are generally duplicated by the
Uniform Consumer Credit Code, other state statutes, or the common law in certain
states, is intended to defeat the ability of the transferor of a consumer credit
contract (such as the Contracts), which transferor is the seller of the goods
that gave rise to the transaction, to transfer such contract free of notice of
claims by the debtor thereunder. The effect of this rule is to subject the
assignee of such a contract to all claims and defenses which the Obligor under
the contract could assert against the seller of the goods. Most of the
Contracts will be subject to the requirements of the FTC Rule. Accordingly, the
Company, as holder of the Contracts, may be subject to any claims or defenses
that the purchaser of the Financed Vehicle may assert against the seller of the
Financed Vehicle. Such claims are limited to a maximum liability equal to the
amounts paid by the Obligor on the Contract. The Obligor, however, may also
assert the rule to offset remaining amounts due on the Contract as a defense
against any claim brought by the Company against such Obligor.

Under most state motor vehicle dealer licensing laws, sellers of motor
vehicles are required to be licensed to sell motor

<PAGE>

vehicles at retail sale. Furthermore, federal odometer regulations
promulgated under the Motor Vehicle Information and Cost Savings Act require
that all sellers of new and used vehicles furnish a written statement signed
by the seller certifying the accuracy of the odometer reading. If a seller
is not properly licensed or if an odometer disclosure statement was not
provided to the purchaser of a Financed Vehicle, the Obligor may be able to
assert a defense against the seller of the vehicle.

Courts have imposed general equitable principles on secured parties
pursuing repossession of collateral or litigation involving deficiency balances.
These equitable principles may have the effect of relieving an Obligor from some
or all of the legal consequences of a default.

In several cases, obligors have asserted that the self-help remedies of
secured parties under the UCC and related laws violate the due process
protection provided under the 14th Amendment to the Constitution of the United
States. Courts have generally upheld the notice provisions of the UCC and
related laws as reasonable or have found that the repossession and resale by the
creditors do not involve sufficient state action to afford constitutional
protection to consumers.

The selling dealers will warrant that each Contract, at the time of its
purchase by the Company, complies with all requirements of law in all material
respects. Accordingly, if an Obligor has a claim or defense against the Company
for violation of any law and such claim or defense materially and adversely
affects the Company's interest in a Contract, such violation would constitute a
breach of warranty under the purchase agreements and would create an obligation
of the dealer to repurchase or replace the Contract unless the breach is cured.

OTHER LIMITATIONS

In addition to the laws limiting or prohibiting deficiency judgments,
numerous other statutory provisions, including federal bankruptcy laws and
related state laws, may interfere with or affect the ability of a secured party
to realize upon collateral or enforce a deficiency judgment. For example, in a
Chapter 13 proceeding under the federal bankruptcy law, a court may prevent a
lender from repossessing a motor vehicle, and, as part of the rehabilitation
plan, reduce the amount of the secured indebtedness to the market value of the
motor vehicle at the time of bankruptcy (as determined by the court), leaving
the party providing financing a general unsecured creditor for the remainder of
the indebtedness. A bankruptcy court may also reduce the monthly payments due
under a Contract or change the rate of interest and time of repayment of the
indebtedness.

<PAGE>

TRANSFERS OF VEHICLES

The terms of each Contract prohibit the sale or transfer of the Financed
Vehicle securing the Contract without the secured party's consent and allow for
the acceleration of the maturity of the Contract upon a sale or transfer without
its consent. In most circumstances, SAI will not consent to a sale or transfer
of a Financed Vehicle by an Obligor unless the Obligor prepays the Contract.
Because the transfer may be sought by the Obligor as a result of Obligor's
inability to make the scheduled payments, such failure to consent may result in
a default by the Obligor and force SAI to initiate default procedures.

CERTAIN FEDERAL INCOME TAX CONSIDERATIONS

SCOPE AND LIMITATIONS

The following discussion is a general summary of the federal income tax
matters of general application relating to an investment in the Notes.
Frederick C. Summers, III, a Professional Corporation, has delivered its opinion
to the Company as to all material tax consequences of an investment in the
Notes. These material tax consequences are as follows:

(i) The Notes will be taxable obligations under the Internal Revenue Code
of 1986 as amended (the "Code"), and interest paid or accrued will be taxable to
non-exempt holders of the Notes.

(ii) Interest on the Notes will be excluded from the definition of
unrelated business taxable income.

There can be no assurance that the Internal Revenue Service (the "Service")
will take a similar view as to any of the tax consequences described below. The
discussion is based upon current provisions of the Code, existing Treasury
regulations promulgated thereunder and administrative and judicial
interpretations thereof, all of which are subject to change.

The discussion does not purport to describe all aspects of federal income
taxation that may be relevant to an investor in the Notes in light of the
investor's particular tax status and other income, deductions and credits and
does not discuss any state, local or foreign tax matters. Moreover, certain
investors (including insurance companies and foreign persons) may be subject to
special rules not discussed below. EACH POTENTIAL INVESTOR IN THE NOTES SHOULD
CONSULT THE INVESTOR'S OWN TAX ADVISOR AS TO THE PARTICULAR CONSEQUENCES OF AN
INVESTMENT IN THE NOTES.

STATED INTEREST

A Noteholder must report stated interest earned on a Note as ordinary
income in accordance with such Noteholder's method of tax

<PAGE>

accounting. Noteholders reporting their income on a cash basis must include
such interest in their gross income in the taxable year in which it is
received, either actually or constructively, whereas accrual basis
Noteholders must include such interest in their gross income in the taxable
year in which it is earned.

PURCHASE OF NOTES BY EXEMPT PLANS AND OTHER EXEMPT ORGANIZATIONS

Generally, organizations described in Section 401(a) of the Code (trusts
forming part of a stock bonus, pension or profit sharing plan) and Section
501(c) of the Code, individual retirement accounts and individual retirement
trusts are exempt from federal income tax (collectively, "Exempt
Organizations"). However, this exemption does not apply where "unrelated
business taxable income" is derived by the Exempt Organizations from the conduct
of any trade or business which is not substantially related to the exempt
function of the entity. If an Exempt Organization receives unrelated business
taxable income, the Exempt Organization will be subject to a tax imposed by
Section 511 of the Code as well as alternative minimum tax on the unrelated
business taxable income portion of its income.

Generally, interest, dividends, royalties and certain other income are
excluded from the definition of unrelated business taxable income ("Excluded
Income"). Thus, generally, an Exempt Organization which invests in the Notes
will not be taxed on amounts received as interest or prepayment of principal as
a result of its investment.

However, if Excluded Income constitutes "unrelated debt-financed income"
then such income would not be excluded from the computation of unrelated
business taxable income. For this purpose, a percentage of the gross income
attributable to property with "acquisition indebtedness" will be treated as
unrelated business taxable income, generally, in proportion to the ratio of such
indebtedness to the basis of the property. Generally, "acquisition
indebtedness" is indebtedness incurred to acquire property. Therefore, if an
Exempt Organization borrows funds to acquire or hold the Notes, the interest
received on such Notes may be reclassified as unrelated business taxable income.
However, as described above, if an Exempt Organization does not borrow money to
acquire or hold the Notes, it should not realize unrelated business taxable
income by virtue of its investment in the Notes.

This summary does not address any rules or regulations enacted or
promulgated by the Department of Labor under "ERISA". Any investor subject to
ERISA or Department of Labor regulations relating to benefit plans should make
certain that it is eligible to purchase the Notes.

<PAGE>

PLAN OF DISTRIBUTION

The Company is offering up to $20,000,000 in aggregate principal amount of
the Notes. The Notes are being offered by participating broker-dealers which
are members of the National Association of Securities Dealers, Inc. ("NASD").
Under selling agreements with the Company, such broker-dealers will solicit
subscriptions for the Notes on a "best efforts" basis, meaning that they will
make no legal commitment to sell to investors, or to buy as dealer, any specific
amount of the Notes. The Company will pay to each soliciting broker-dealer, in
consideration for its services, a sales commission of 8% of the principal amount
of all Notes sold through their efforts. Of that amount, a portion may
constitute an unallocated due diligence and marketing fee. The Company will
indemnify the broker-dealers against certain liabilities, including liabilities
under applicable securities laws. As of the date of this Prospectus, the
Company has not identified any broker/dealers who have agreed to participate in
this offering of the Notes.

Investor funds will be held in a subscription escrow account with River
Oaks Trust Company, as escrow agent, until a minimum of $500,000 in principal
amount of the Notes are sold. In the event that the minimum amount of Notes is
not subscribed for before April 30, 1997 (or any earlier termination of the
offering ), the offering will be terminated and the escrowed funds, plus any
interest thereon, will be promptly returned to the subscribing investors by the
escrow agent. Upon the subscription of the minimum amount of Notes, the
escrowed funds will be released to the Company. Interest on the Notes will not
accrue until the excrowed funds are released to the Company. Any subsequent
sales proceeds from the sale of additional Notes will be immediately available
for use by the Company to purchase additional Contracts. All subscriptions are
subject to the right of the Company to reject any subscription in whole or in
part.

<PAGE>

principal residence and its furnishings and personal use automobiles; or (b)
a net worth of at least $150,000, exclusive of the subscriber's principal
residence and its furnishings and personal use automobiles. North Carolina
subscribers must represent that they have either (a) an annual gross income
of at least $60,000 and a net worth of at least $60,000 exclusive of the
subscriber's principal residence and its furnishings and personal use
automobiles; or (b) a net worth of at least $225,000, exclusive of the
subscriber's principal residence and its furnishings and personal use
automobiles. Texas subscribers must represent that they have either (a) an
annual gross income of at least $45,000 and a net worth of at least $45,000
exclusive of the subscriber's principal residence and its furnishings and
personal use automobiles; or (b) a net worth of at least $150,000, exclusive
of the subscriber's principal residence and its furnishings and personal use
automobiles. Wisconsin subscribers must represent that they have either (a)
an annual gross income of at least $45,000 and a net worth of at least
$45,000 exclusive of the subscriber's principal residence and its furnishings
and personal use automobiles; or (b) a net worth of at least $150,000,
exclusive of the subscriber's principal residence and its furnishings and
personal use automobiles. In the case of sales to a subscriber which is a
fiduciary account, the foregoing standards must be met by the beneficiary,
the fiduciary account, or by the donor or grantor who directly or indirectly
supplies the funds to purchase the securities if the donor or grantor is the
fiduciary.

The offering will terminate on ________, 1997, unless sooner terminated by
the Company upon the failure to achieve the minimum subscription amount, upon
the sale of all of the Notes or if the Company believes that suitable Contracts
will not be available for purchase by the Company or that additional selling
efforts will be unsuccessful. Early termination of the offering may result in
the Company selling less than $20 million in aggregate principal amount of the
Notes and may expose prior purchasers of Notes to certain risks. See "Risk
Factors--Sale of Small Amount of Notes".

The Company intends to accept in the order received properly completed
subscriptions and payments for subscription amounts from qualified investors
meeting the applicable suitability standards. The Company may elect to treat as
accepted subscriptions from certain otherwise qualified investors (for example,
IRA's) whose subscription funds are being paid by a trustee or other institution
which has confirmed to the Company that the funds will be paid. Upon
achievement of the maximum subscription amount ($20,000,000) for the Notes, any
subsequently received subscription will not be accepted by the Company and will
be promptly returned.

EXPERTS

The financial statements of the Company included in this Prospectus have
been audited by Kinder & Wyman, P.C., independent

<PAGE>

certified public accountants, whose report thereon appears elsewhere herein,
and have been so included in reliance upon the report and authority of such
firm as experts in auditing and accounting.

LEGAL MATTERS

Certain matters with respect to the validity of the Notes have been passed
upon for the Company by Frederick C. Summers, III, a Professional Corporation,
Dallas, Texas. Frederick C. Summers, III, a Professional Corporation, has also
delivered its opinion to the Company as to the federal income tax matters
discussed under "Certain Federal Income Tax Considerations".

<PAGE>

INDEX TO FINANCIAL STATEMENTS

Page

Balance Sheet of the Company as of September 30, 1996 .................. F-2

Statement of Operations of the Company for the period
March 20, 1996 (inception) to September 30, 1996 ................... F-3

Statement of Cash Flows of the Company for the period
March, 1996 (inception) to September 30, 1996 ...................... F-4

Statement of Changes in Stockholder's Equity of the
Company for the period March 20, 1996 (inception)
to September 30, 1996 .............................................. F-5

Notes to Financial Statement ........................................... F-6

Independent Auditor's Report ........................................... F-8

Balance Sheet of the Company as of July 31, 1996 ....................... F-9

Statement of Operations of the Company for the period
March 20, 1996 (inception) to July 31, 1996 ........................ F-10

Statement of Cash Flows of the Company for the period
March 20, 1996 (inception) to July 31, 1996 ........................ F-11

Statement of Changes in Stockholder's Equity of the
Company for the period March 20, 1996 (inception)
to July 31, 1996 ................................................... F-12

Notes to Financial Statement ........................................... F-13

F-1

<PAGE>

SOVEREIGN CREDIT FINANCE I, INC.
BALANCE SHEET
SEPTEMBER 30, 1996

ASSETS

Current Asset - Cash $ 879
------

STOCKHOLDER'S EQUITY

Common stock - $.01 par value; 50,000 shares authorized:
1,000 shares issued and outstanding $ 10

Additional paid-in capital 990

Retained deficit (121)
------

Total Stockholder's Equity $ 879
------

The accompanying notes are an integral part of these financial statements.

F-2

<PAGE>

SOVEREIGN CREDIT FINANCE I, INC.
STATEMENT OF OPERATIONS
FOR THE PERIOD MARCH 20, 1996 (INCEPTION) TO SEPTEMBER 30, 1996

REVENUE $ -
-----

EXPENSES

Service Charges 121
-----

NET LOSS $(121)
-----

The accompanying notes are an integral part of these financial statements.

F-3

<PAGE>

SOVEREIGN CREDIT FINANCE I, INC.
STATEMENT OF CASH FLOWS
FOR THE PERIOD MARCH 20, 1996 (INCEPTION) TO SEPTEMBER 30, 1996

Cash flows from operating activities:
Net loss $ (121)
------

Cash flows from investing activities:
Issuance of common shares 1,000
------

Net increase in cash 879
Cash at beginning of period 0
------

Cash at end of period $ 879
------

Supplemental Disclosures of Cash Flow Information:

Cash paid during the period for:

Interest $ -
------

Income taxes $ -
------

The accompanying notes are an integral part of these financial statements.

F-4

<PAGE>

SOVEREIGN CREDIT FINANCE I, INC.
STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
FOR THE PERIOD MARCH 20, 1996 (INCEPTION) TO SEPTEMBER 30, 1996

Additional
Common Common Paid-in Retained
Shares Stock Capital Deficit Total
------ ------ ---------- -------- ------
Balances at
March 20, 1996 - $ - $ - $ - $ -

Issuance of common shares 1,000 10 990 - 1,000

Net loss - - - (121) (121)
----- ---- ---- ----- ------

Balances at
September 30, 1996 1,000 $ 10 $990 $(121) $ 879
----- ---- ---- ----- ------

The accompanying notes are an integral part of these financial statements.

F-5

<PAGE>

SOVEREIGN CREDIT FINANCE I, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF OPERATIONS

Sovereign Credit Finance I, Inc. (Company) was incorporated in March of
1996 as a Texas Corporation. The Company is a single purpose subsidiary of
Sovereign Credit Holdings, Inc. (Parent). The Company was formed for the
purpose of purchasing, collecting and servicing retail installment sales
and lease contracts and notes secured by motor vehicles (Contracts). The
Company does not expect to have in the future any significant assets other
than the Contracts and proceeds thereof.

Sovereign Credit Corporation (Sovereign), which is also a subsidiary of the
Company's parent, will administer and manage the ongoing operations of the
Company. The Company intends to contract with Sovereign Associates, Inc.
(SAI), a subsidiary of Sovereign, to provide necessary purchasing and
collecting services.

NOTE 2 - AUTOMOBILE CONTRACT NOTES OFFERING

The Company is offering on a "best efforts" basis up to $20,000,000 in
principal amount of 11% Notes (Note(s)) due February 15, 2001. The
principal is required to be repaid in six equal monthly installments
beginning September 15, 2000. Interest begins to accrue on the Notes upon
release of escrowed subscription funds to the Company, which will not occur
until the minimum of $500,000 of the Notes are sold. All unpaid principal
and accrued interest are payable at maturity on February 15, 2001. The
Notes are being offered through licensed broker-dealers who will receive
sales commissions of 8% of the principal amount of the Notes sold by such
broker-dealers. The Company will also pay up to 2% of the gross proceeds
from the sale of the Notes to pay offering and organizational expenses,
including filing and registration fees, legal, accounting, printing,
trustee fees, escrow fees and other fees and expenses. Some of these
expenses will be advanced by Sovereign. Sovereign has agreed to pay such
expenses to the extent they exceed 2% of the gross proceeds from the sale
of the Notes. The Company will also pay to Sovereign an additional 5.5% of
the gross proceeds from the sale of Notes (5.0% of the gross proceeds in
excess of $9,000,000) for its services in administering and managing the
ongoing operations of the Company. Sovereign will also administer
Noteholder payments, communications and relations. For such services, the
Company will pay Sovereign a monthly fee equal to 1/12 of 0.5% of the
outstanding principal amount of the Notes. These payments to Sovereign are
contingent on the successful completion of the Company's public offering.
If the offering is not successful, the Company is not obligated to
reimburse Sovereign for any expenses incurred. The remainder of proceeds
from the sale of Notes (84.5% of the gross proceeds) is to be used to
acquire Contracts.

F-6

<PAGE>

No more than 15.5% of such proceeds is to be used for the foregoing
commissions, fees and expenses. Proceeds from the sale of Notes received
will be held in escrow by a third-party escrow agent and not be available
to the Company until subscriptions for $500,000 in principal amount of
the Notes have been received.

The Company intends to enter into a note purchasing and servicing agreement
with SAI. The contracts will be initiated by a network of automobile
dealers which finance the sale of motor vehicles, some of whom may be
affiliate entities of the Company. SAI will initially be entitled to a
monthly servicing fee of $20 for each Contract that is not assigned for
repossession for administering the collection of payments due under the
Contracts. SAI will also receive a fee of $125 for each Financed Vehicle
assigned for repossession for overseeing the repossession and resale of the
vehicle securing any Contract in default. SAI will also receive a purchase
administration fee for each Contract purchased, equal to the lesser of
$500, or 5% of the total amount of installments due under the Contract as
of the date of purchase.

In addition, the Company intends to enter into an Indenture agreement
between the Company and a trust company, which will govern collection of
the Contract proceeds and repayment of the Notes.

F-7

<PAGE>

[LETTERHEAD]

INDEPENDENT AUDITOR'S REPORT

Board of Directors
Sovereign Credit Finance I, Inc.

We have audited the accompanying balance sheet of Sovereign Credit Finance
I, Inc. (a wholly owned subsidiary of Sovereign Credit Holdings, Inc.) as of
July 31, 1996 and the related statements of operations, changes in
stockholder's equity and cash flows for the period March 20, 1996 (inception)
through July 31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Sovereign Credit Finance I,
Inc. as of July 31, 1996, and the results of their operations and their cash
flows for the period then ended in conformity with generally accepted
accounting principles.

/s/ KINDER & WYMAN, P.C.

KINDER & WYMAN, P.C.

Irving, Texas
September 9, 1996

F-8

<PAGE>

SOVEREIGN CREDIT FINANCE I, INC.
BALANCE SHEET
JULY 31, 1996

ASSETS

Current Asset - Cash $ 879
-----
-----
STOCKHOLDER'S EQUITY

Common stock - $.01 par value; 50,000 shares authorized;
1,000 shares issued and outstanding $ 10

Additional paid-in capital 990

Retained deficit (121)
-----

Total Stockholder's Equity $ 879
-----
-----

The accompanying notes are an integral part of these financial statements.

F-9
<PAGE>

SOVEREIGN CREDIT FINANCE I, INC.
STATEMENT OF OPERATIONS
FOR THE PERIOD MARCH 20, 1996 (INCEPTION) TO JULY 31, 1996

REVENUE $ -
-----
EXPENSES

Service Charges 121
-----
NET LOSS $(121)
-----
-----

The accompanying notes are an integral part of these financial statements.

F-10
<PAGE>

SOVEREIGN CREDIT FINANCE I, INC.
STATEMENT OF CASH FLOWS
FOR THE PERIOD MARCH 20, 1996 (INCEPTION) TO JULY 31, 1996

Cash flows from operating activities:
Net loss $ (121)
------
Cash flows from investing activities:
Issuance of common shares 1,000
------
Net increase in cash 879
Cash at beginning of period 0
------
Cash at end of period $ 879
------
------

Supplemental Disclosures of Cash Flow Information:

Cash paid during the period for:

Interest $ -
------
------

Income taxes $ -
------
------
The accompanying notes are an integral part of these financial statements.

F-11
<PAGE>

SOVEREIGN CREDIT FINANCE I, INC.
STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
FOR THE PERIOD MARCH 20, 1996 (INCEPTION) TO JULY 31, 1996

Additional
Common Common Paid-in Retained
Shares Stock Capital Deficit Total
------ ------ ------- -------- -----
Balances at
March 20, 1996 - $ - $ - $ - $ -

Issuance of common
shares 1,000 10 990 - 1,000

Net loss - - - (121) (121)

------ --- ----- ----- ------
Balances at
July 31, 1996 1,000 $10 $990 $(121) $ 879
------ --- ----- ----- ------
------ --- ----- ----- ------

The accompanying notes are an integral part of these financial statements.

F-12
<PAGE>

SOVEREIGN CREDIT FINANCE I, INC.
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1996

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF OPERATIONS

Sovereign Credit Finance I, Inc. (Company) was incorporated in
March of 1996 as a Texas Corporation. The Company is a single
purpose subsidiary of Sovereign Credit Holdings, Inc. (Parent).
The Company was formed for the purpose of purchasing, collecting
and servicing retail installment sales and lease contracts and
notes secured by motor vehicles (Contracts). The Company does
not expect to have in the future any significant assets other
that the Contracts and proceeds thereof.

Sovereign Credit Corporation (Sovereign), which is also a
subsidiary of the Company's parent, will administer and manage
the ongoing operations of the Company. The Company intends to
contract with Sovereign Associates, Inc. (SAI), a subsidiary of
Sovereign, to provide necessary purchasing and collecting
services.

NOTE 2 - AUTOMOBILE CONTRACT NOTES OFFERING

The Company is offering on a "best efforts" basis up to
$20,000,000 in principal Amount of 11% Notes (Note(s)) due
October 15, 2000. The principal is required to be repaid in six
equal monthly installments beginning May 15, 2000. Interest
begins to accrue on the Notes upon release of escrowed
subscription funds to the Company, which will not occur until the
minimum of $500,000 of the Notes are sold. All unpaid principal
and accrued interest are payable at maturity on October 15, 2000.
The Notes are being offered through licensed broker-dealers who
will receive sales commissions of 8% of the principal amount of
the Notes sold by such broker-dealers. The Company will also pay
up to 2% of the gross proceeds from the sale of the Notes to pay
offering and organizational expenses, including filing and
registration fees, legal, accounting, printing, trustee fees,
escrow fees and other fees and expenses. Some of these expenses
will be advanced by Sovereign. Sovereign has agreed to pay such
expenses to the extent they exceed 2% of the gross proceeds from
the sale of the Notes. The Company will also pay to Sovereign an
additional 5.5% of the gross proceeds from the sale of Notes
(5.0% of the gross proceeds in excess of $9,000,000) for its
services in administering and managing the ongoing operations of
the Company. Sovereign will also administer Noteholder payments,
communications and relations. For such services, the

F-13

<PAGE>

SOVEREIGN CREDIT FINANCE I, INC.
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1996

NOTE 2 - AUTOMOBILE CONTRACT NOTES OFFERING (CONTINUED)

Company will pay Sovereign a monthly fee equal to 1/12 of 0.5% of
the outstanding principal amount of the Notes. These payments to
Sovereign are contingent on the successful completion of the
Company's public offering. If the offering is not successful,
the Company is not obligated to reimburse Sovereign for any
expenses incurred. The remainder of proceeds from the sale of
Notes (84.5% of the gross proceeds) is to be used to acquire
Contracts. No more than 15.5% of such proceeds is to be used for
the foregoing commissions, fees and expenses. Proceeds from the
sale of Notes received will be held in escrow by a third-party
escrow agent and not be available to the Company until
subscriptions for $500,000 in principal amount of the Notes have
been received.

The Company intends to enter into a note purchasing and servicing
agreement with SAI. The contracts will be initiated by a network
of automobile dealers which finance the sale of motor vehicles,
some of whom may be affiliate entities of the Company. SAI will
initially be entitled to a monthly servicing fee of $20 for each
Contract that is not assigned for repossession for administering
the collection of payments due under the Contracts. SAI will
also receive a fee of $125 for each Financed Vehicle assigned for
repossession for overseeing the repossession and resale of the
vehicle securing any Contract in default. SAI will also receive a
purchase administration fee for each Contract purchased, equal to
the lesser of $500, or 5% of the total amount of installments due
under the Contract as of the date of purchase.

In addition, the Company intends to enter into an Indenture
agreement between the Company and a trust company, which will
govern collection of the Contract proceeds and repayment of the
Notes.

F-14

<PAGE>

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

NO PERSON IS AUTHORIZED TO GIVE
ANY INFORMATION ON OR TO MAKE ANY
REPRESENTATIONS ABOUT THE COMPANY, THE
NOTES OR ANY OTHER MATTER REFERRED TO
HEREIN, OTHER THAN THE INFORMATION AND
REPRESENTATIONS CONTAINED IN THIS
PROSPECTUS AND ANY SUPPLEMENTS OR
AMENDMENTS THERETO. IF ANY OTHER
INFORMATION OR REPRESENTATION IS GIVEN
OR MADE, SUCH INFORMATION OR
REPRESENTATION MAY NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE
COMPANY. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR THE
SOLICITATION OF ANY OFFER TO BUY, THE
SECURITIES OFFERED HEREBY IN ANY STATE
IN WHICH, OR TO ANY PERSON TO WHOM,
SUCH AN OFFER WOULD BE UNLAWFUL.

______________

TABLE OF CONTENTS

PAGE
----
Summary. . . . . . . . . . . . . . 5
Risk Factors . . . . . . . . . . . 13
Capitalization . . . . . . . . . . 21
Use of Proceeds. . . . . . . . . . 22
Description of Notes . . . . . . . 23
The Company. . . . . . . . . . . . 35
Purchase and Collection of
Contracts. . . . . . . . . . . . 37
Information Regarding Contracts
Purchased and Serviced by SAI. . 45
Information Regarding the
Securitization Subsidiaries. . . 47
Security Ownership of Certain
Beneficial Owners and
Management . . . . . . . . . . . 49
Management . . . . . . . . . . . . 50
Management's Discussion and
Analysis of Financial
Condition. . . . . . . . . . . . 55
Certain Legal Aspects of the
Contracts. . . . . . . . . . . . 57
Certain Federal Income Tax
Considerations . . . . . . . . . 63
Plan of Distribution . . . . . . . 65
Experts. . . . . . . . . . . . . . 67
Legal Matters. . . . . . . . . . . 67
Index to Financial Statements. . . F-1

UNTIL _______, 1997, ALL DEALERS
EFFECTING TRANSACTIONS IN THE
REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY
BE REQUIRED TO DELIVERY A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION
OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT
TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.

SOVEREIGN CREDIT
FINANCE I, INC.

______________

$20,000,000

11% NOTES
DUE FEBRUARY 15, 2001

______________

PROSPECTUS

__________, 1997

- ---------------------------------------
- ---------------------------------------
<PAGE>

PART II.

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13. Other Expenses of Issuance and Distribution.

Registration Fee. . . . . . . . . . . . . . . . . . . . . . $ 6,897
NASD Fee. . . . . . . . . . . . . . . . . . . . . . . . . . 2,500
Escrow Agent Fees . . . . . . . . . . . . . . . . . . . . . 5,000
Printing Expenses . . . . . . . . . . . . . . . . . . . . . 9,240*
Blue Sky Fees and Expenses. . . . . . . . . . . . . . . . . 27,735*
Legal Fees and Expenses . . . . . . . . . . . . . . . . . . 67,500*
Accountants' Fees and Expenses. . . . . . . . . . . . . . . 4,000*
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . 2,500*
--------
TOTAL. . . . . . . . . . . . . . . . . . . . . . . . . $125,372*

__________________

* All items except Registration Fee and NASD Fee are estimates.

Item 14. Indemnification of Directors and Officers.

Section 7(b) of the Broker-Dealer Selling Agreement (Exhibit 10.4) provides
generally that each broker-dealer will indemnify and hold harmless the
registrant and its control persons against any loses, liabilities, claims,
damages or expenses they may become subject, under the Securities Act of 1933,
the Securities Exchange Act of 1934 or otherwise, insofar as such losses,
liabilities, claims, damages or expenses (or actions in respect thereof) arise
out of or are based upon untrue statements of material facts in connection with
the public offering of the Notes or the omission to state a material fact in
connection with the public offering of the Notes. Article XI of the Articles of
Incorporation of registrant provides generally that no director shall be liable
to the registrant or its shareholders for monetary damages for an act or
omission in such director's capacity as a director. Article VII of the By-Laws
of registrant and Section 2.02-1 of the Texas Business Corporation Act provide
generally that the registrant will indemnify each director and officer in
connection with any legal proceeding in which he is a respondent or defendant by
reason of his serving or having served in such capacity.

Item 15. Recent Sales of Unregistered Securities.

None

Item 16. Financial Statements and Exhibits.

(a) Exhibits:

3.1 Articles of Incorporation of Sovereign Credit Finance I, Inc.*

3.2 Bylaws of Sovereign Credit Finance I, Inc.*

II-1

<PAGE>

4.1 Indenture between Sovereign Credit Finance I, Inc. and Sterling
Trust Company, as Trustee*

4.2 Form of 11% Note Due February 15, 2001 (included in Article Two
of Indenture filed as Exhibit 4.1)*

5.1 Opinion of Frederick C. Summers, III, P.C.*

8.1 Opinion of Frederick C. Summers, III, P.C., regarding tax matters*

10.1 Master Contract Purchase Agreement between Sovereign Credit
Finance I, Inc. and Sovereign Associates, Inc.*

10.2 Servicing Agreement between Sovereign Credit Finance I, Inc. and
Sovereign Associates, Inc.*

10.3 Subscription Escrow Agreement between Sovereign Credit Finance I,
Inc. and River Oaks Trust Company as Escrow Agent*

10.4 Form of Broker-Dealer Selling Agreement*

10.5 Form of Subscription Agreement*

10.6 Form of Promissory Note of Sovereign Credit Corporation*

23.1 Consent of Kinder & Wyman, P.C.

23.2 Consent of Frederick C. Summers, III, P.C. (included in its
opinions as Exhibits 5.1 and 8.1 herein)*

26.1 Form T-1: Statement of eligibility of Sterling Trust Company
(bound separately from other exhibits)*

* previously filed

(b) Financial Statements:

Balance Sheet of the Company as of September 30, 1996

Statement of Operations of the Company for the period
March 20, 1996 (inception) to September 30, 1996

Statement of Cash Flows of the Company for the period
March, 1996 (inception) to September 30, 1996

Statement of Changes in Stockholder's Equity of the
Company for the period March 20, 1996 (inception)
to September 30, 1996

II-2

<PAGE>

Notes to Financial Statement

Independent Auditor's Report

Balance Sheet of the Company as of July 31, 1996

Statement of Operations of the Company for the period March 20, 1996
(inception) to July 31, 1996

Statement of Cash Flows of the Company for the period March 20, 1996
(inception) to July 31, 1996

Statement of Changes in Stockholder's Equity of the Company for the
period March 20, 1996 (inception) to July 31, 1996

Notes to Financial Statement

Item 17. Undertakings.

The undersigned registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:

(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;

(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or
the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the registration
statement; and

(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;

(2) That, for the purpose of determining any liability under the
Securities Act of 1933, as amended, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof;

(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering; and

II-3

<PAGE>

(4) To file an application for the purpose of determining the eligibility
of the trustee to act under subsection (a) of section 310 of the Trust Indenture
Act ("Act") in accordance with the rules and regulations prescribed by the
Commission under section 305(b)(2) of the Act.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.

II-4

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amended registration statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the city of Dallas, State of
Texas on January 17, 1997.

SOVEREIGN CREDIT FINANCE I, INC.

By: /s/ A. STARKE TAYLOR, III
--------------------------------
A. Starke Taylor, III, President

Pursuant to the requirements of the Securities Act of 1933, this amended
registration statement has been signed below by the following persons in the
capacities and on the dates indicated.

SIGNATURE TITLE DATE
--------- ----- ----

/s/ A. STARKE TAYLOR, III President, January 17, 1997
- ----------------------------- (principal executive
A. Starke Taylor, III officer) and director

/s/ WILLIAM P. GLASS director January 17, 1997
- -----------------------------
William P. Glass

/s/ CHRISTOPHER R. FRATTAROLI Treasurer January 17, 1997
- ----------------------------- (principal financial
Christopher R. Frattaroli officer and principal
accounting officer) and
director

II-5

<PAGE>

EXHIBIT INDEX PURSUANT TO ITEM 601 OF REGULATION S-K

PAGE NUMBER IN
SEQUENTIAL
SYSTEM
(REQUIRED IN
MANUALLY EXHIBIT
SIGNED
NUMBER DESCRIPTION COPY ONLY)
- ------ ----------- ----------------
3.1 Articles of Incorporation of Sovereign
Credit Finance I, Inc.*

3.2 Bylaws of Sovereign Credit Finance I, Inc.*

4.1 Indenture between Sovereign Credit
Finance I, Inc. and Sterling Trust Company,
as Trustee*

4.2 Form of 11% Note Due February 15, 2001
(included in Article Two of Indenture
filed as Exhibit 4.1)*

5.1 Opinion of Frederick C. Summers, III, P.C.*

8.1 Opinion of Frederick C. Summers, III, P.C.,
regarding tax matters*

10.1 Master Contract Purchase Agreement between
Sovereign Credit Finance I, Inc. and
Sovereign Associates, Inc.*

10.2 Servicing Agreement between Sovereign
Credit Finance I, Inc. and Sovereign
Associates, Inc.*

10.3 Subscription Escrow Agreement between
Sovereign Credit Finance I, Inc. and
River Oaks Trust Company as Escrow Agent*

10.4 Form of Broker-Dealer Selling Agreement*

10.5 Form of Subscription Agreement*

10.6 Form of Promissory Note of Sovereign Credit
Corporation*

23.1 Consent of Kinder & Wyman, P.C.

23.2 Consent of Frederick C. Summers, III, P.C.
(included in its opinions as Exhibits 5.1
and 8.1 herein)*

26.1 Form T-1: Statement of eligibility of
Sterling Trust Company (bound separately
from other exhibits)*

* previously filed

<PAGE>

EXHIBIT 23.1

CONSENT OF KINDER & WYMAN, P.C.

<PAGE>

CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

We consent to the inclusion in this amended registration statement on Form S-1
of our report dated September 9, 1996, on our audit of the financial statements
of Sovereign Credit Finance I, Inc. We also consent to the reference to our
firm in the prospectus.

KINDER & WYMAN, P.C.

Irving, Texas
January 17, 1997