<PAGE>
Pursuant to rule 424b5
Registration No. 333-07939
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED MARCH 24, 1998)
- --------------------------------------------------------------------------------
$101,200,000
MANUFACTURED HOUSING CONTRACT
PASS-THROUGH CERTIFICATES,
SERIES 1998-2
UCFC FUNDING CORPORATION(REGISTERED)
DEPOSITOR
[LOGO](REGISTERED)
UNITED COMPANIES LENDING CORPORATION(REGISTERED)
SERVICER
------------------------------
The Manufactured Housing Contract Pass-Through Certificates, Series 1998-2
(the 'Certificates') will represent beneficial ownership interests in a trust
(the 'Trust') consisting primarily of a pool (the 'Contract Pool') of actuarial
manufactured housing installment sale contracts and manufactured housing
installment loan agreements (collectively, the 'Contracts') and certain related
property as described herein. Only the Classes of Certificates listed below
(collectively, the 'Offered Certificates') are being offered hereby.
(cover continued on next page)
<TABLE>
<CAPTION>
INITIAL CLASS REMITTANCE FINAL SCHEDULED
CERTIFICATE BALANCE RATE(1) REMITTANCE DATE(2)
<S> <C> <C> <C>
Class A-1........... $23,250,000 (3) January 15, 2010
Class A-2........... $19,500,000 6.080% August 15, 2015
Class A-3........... $13,300,000 6.163% August 15, 2019
Class A-4........... $24,250,000 6.587% October 15, 2029
Class M-1........... $ 9,900,000 6.726% October 15, 2029
Class M-2........... $ 4,400,000 7.069% October 15, 2029
Class B-1........... $ 6,600,000 7.312% August 15, 2022
</TABLE>
(1) The Remittance Rate is subject to a maximum rate equal to the Weighted
Average Net Contract Rate.
(2) Determined as described under 'Maturity, Prepayment and Yield
Considerations' herein.
(3) The Remittance Rate for this Class will be calculated by reference to the
London interbank offered rate for one-month U.S. Dollar deposits ('1-Month
LIBOR') subject to the limitations described herein. See 'Description of
the Certificates--Interest'.
------------------------------
THE OFFERED CERTIFICATES REPRESENT INTERESTS IN THE TRUST AND DO NOT REPRESENT
INTERESTS IN OR OBLIGATIONS OF THE DEPOSITOR, THE SERVICER, THE TRUSTEE OR ANY
OF THEIR RESPECTIVE AFFILIATES. THE OFFERED CERTIFICATES AND THE CONTRACTS ARE
NOT INSURED OR GUARANTEED BY ANY GOVERNMENTAL AGENCY OR ANY OTHER PERSON NOR HAS
ANY GOVERNMENTAL AGENCY PASSED UPON THE ACCURACY OF THE INFORMATION CONTAINED IN
THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS.
------------------------------
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 NOR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------------
PROSPECTIVE INVESTORS SHOULD REVIEW THE INFORMATION UNDER 'RISK FACTORS'
BEGINNING ON PAGE S-12 HEREIN AND ON PAGE 8 OF THE ACCOMPANYING PROSPECTUS.
------------------------------
The Offered Certificates will be purchased by Credit Suisse First Boston
Corporation and First Chicago Capital Markets, Inc. (the 'Underwriters') from
the Depositor and will be offered by the Underwriters from time to time in
negotiated transactions or otherwise, at varying prices to be determined at the
time of sale. Proceeds to the Depositor, including accrued interest, are
expected to be approximately 99.855809% of the aggregate initial Class
Certificate Balance of the Offered Certificates before deducting expenses
payable by the Depositor estimated to be $200,000. See 'Underwriting' herein.
The Offered Certificates are offered by the Underwriters subject to prior
sale, when, as and if issued to and accepted by the Underwriters, subject to
approval of certain legal matters by counsel for the Underwriters. The
Underwriters reserve the right to withdraw, cancel or modify such offer and to
reject orders in whole or in part. It is expected that the Offered Certificates
will be issued on or about June 17, 1998, and will thereafter be available from
the Underwriter through the Same Day Funds Settlement System of The Depository
Trust Company, Cedel Bank, societe anonyme, and the Euroclear System.
CREDIT SUISSE FIRST BOSTON FIRST CHICAGO CAPITAL MARKETS, INC.
- --------------------------------------------------------------------------------
The date of this Prospectus Supplement is June 12, 1998
<PAGE>
(Cover continued from front page)
The Certificates will be issued pursuant to the Pooling and Servicing
Agreement, dated as of June 1, 1998 (the 'Agreement'), among UCFC Funding
Corporation(Registered), as depositor (the 'Depositor'), United Companies
Lending Corporation(Registered), as servicer ('United Companies' or the
'Servicer'), and Bankers Trust Company of California, N.A., as trustee (the
'Trustee'). Distributions of principal and interest on the Certificates will be
made to the extent funds are available therefor on the 15th day of each month
or, if such day is not a business day, on the next succeeding business day
commencing in July 1998 (each, a 'Remittance Date') to holders of record on the
last business day of the calendar month preceding the month of such Remittance
Date (the 'Record Date').
The assets of the Trust also will include up to approximately $27,433,385
deposited in a trust account (the 'Pre-Funding Account') maintained with the
Trustee which may be used to purchase additional manufactured housing
installment sales contracts and manufactured housing installment loan agreements
(collectively, the 'Subsequent Contracts') from time to time on or before the
Determination Date (as hereinafter defined) occurring in September 1998.
There is currently no secondary market for the Offered Certificates. The
Underwriters intend to make a secondary market for the Offered Certificates, but
are not obligated to do so. There can be no assurance that a secondary market
for any of the Offered Certificates will develop or, if one does develop, that
it will continue or offer Certificateholders sufficient liquidity of investment.
As described herein, an election will be made to treat certain assets and
Accounts (as defined herein) of the Trust as a 'real estate mortgage investment
conduit' ('REMIC') pursuant to the Internal Revenue Code of 1986, as amended
(the 'Code'). The Offered Certificates will be designated as 'regular interests'
in a REMIC. See 'Federal Income Tax Considerations' herein and in the
Prospectus.
------------------------
The Certificates offered by this Prospectus Supplement constitute part of a
separate Series of Certificates being offered by the Depositor pursuant to its
Prospectus dated March 24, 1998, of which this Prospectus Supplement is a part
and which accompanies this Prospectus Supplement. The Prospectus contains
important information regarding this offering which is not contained herein, and
prospective investors are urged to read the Prospectus and this Prospectus
Supplement in full.
S-2
<PAGE>
SUMMARY OF TERMS
This summary is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus Supplement and in the
accompanying Prospectus. Capitalized terms used herein and not otherwise defined
herein shall have the respective meanings assigned them elsewhere in this
Prospectus Supplement and in the Prospectus. See 'Glossary' in the Prospectus.
<TABLE>
<S> <C>
Title of Certificates.... Manufactured Housing Contract Pass-Through
Certificates, Series 1998-2 (the 'Certificates').
Offered Certificates..... The Class A-1, Class A-2, Class A-3 and Class A-4
Certificates (collectively, the 'Senior
Certificates'), the Class M-1 and Class M-2
Certificates (collectively, the 'Class M
Certificates') and the Class B-1 Certificates. Only
the Offered Certificates are offered hereby.
Other Certificates....... In addition to the Offered Certificates, the following
Classes of Subordinated Certificates will be issued by
the Trust in the indicated initial Class Certificate
Balances and will bear interest at the indicated
Remittance Rates, but are not offered hereby:
</TABLE>
<TABLE>
<CAPTION>
INITIAL CLASS REMITTANCE
CERTIFICATE BALANCE RATE
------------------- ----------
<S> <C> <C> <C>
Class B-2 (1) $ 8,800,000 (2)
Class R (1) (3) (3)
</TABLE>
<TABLE>
<S> <C>
------------------
(1) The Class B-2 and Class R Certificates will
provide limited credit support for the Offered
Certificates as described herein.
(2) The Remittance Rate is as set forth in the
Agreement and is subject to a maximum rate equal to
the Weighted Average Net Contract Rate.
(3) The Class R Certificates have no Class Certificate
Balance and do not bear interest.
Any information contained herein with respect to the
Class B-2 and Class R Certificates is provided only to
permit a better understanding of the Offered
Certificates.
Designations
Book-Entry
Certificates........ All Classes of Certificates other than the Physical
Certificates.
Class B Certificates... The Class B-1 and Class B-2 Certificates,
collectively.
Class M Certificates... The Class M-1 and Class M-2 Certificates,
collectively.
Physical
Certificates........ The Class B-2 and Class R Certificates.
Regular Certificates... All Classes of Certificates other than the Class R
Certificates.
Residual
Certificates........ The Class R Certificates.
Senior Certificates.... The Class A-1, Class A-2, Class A-3 and Class A-4
Certificates.
Subordinated
Certificates........ The Class M-1, Class M-2, Class B-1, Class B-2 and
Class R Certificates. For all purposes, the Class M-1
Certificates are deemed to have the lowest numerical
Class designation, and the Class R Certificates are
deemed to have the highest numerical Class
designation, of any Class of Subordinated
Certificates.
Fixed Rate
Certificates........... The Class A-2, Class A-3, Class A-4, Class M and Class
B Certificates.
Floating Rate
Certificates........... The Class A-1 Certificates.
</TABLE>
S-3
<PAGE>
<TABLE>
<S> <C>
Depositor................ UCFC Funding Corporation(Registered), a Louisiana
corporation (the 'Depositor'). See 'The Depositor' in
the Prospectus.
Servicer................. United Companies Lending Corporation(Registered), a
Louisiana corporation ('United Companies' or the
'Servicer'), an indirect, wholly-owned subsidiary of
United Companies Financial Corporation, a Louisiana
corporation (the 'Parent'). The Servicer's principal
executive offices are located at 4041 Essen Lane,
Baton Rouge, Louisiana 70809. See 'The Manufactured
Housing Program' in the Prospectus.
Trustee.................. Bankers Trust Company of California, N.A. (the
'Trustee').
Originators.............. The Contracts were, and any Subsequent Contracts will
have been, originated or purchased by United Companies
Funding, Inc. ('UCFI'), United Companies or UNICOR
Mortgage(Registered), Inc. ('UNICOR,' and collectively
with UCFI and United Companies, the 'Originators').
Each Originator is a Louisiana corporation and an
affiliate of the Depositor. See 'The Manufactured
Housing Program' herein and in the Prospectus.
Approximate Cut-off Date
Pool Principal
Balance................ $82,566,615.
Closing Date............. On or about June 17, 1998.
Cut-off Date............. The opening of business on June 1, 1998, except that
the Cut-off Date with respect to any Contract dated on
or after June 1, 1998, will be the date of such
Contract.
Remittance Date.......... The 15th day of each month or, if such 15th day is not
a business day, the next succeeding business day,
commencing in July 1998.
Determination Date....... The 10th day of each month or, if such 10th day is not
a business day, the preceding business day.
Due Period............... The calendar month preceding each Remittance Date.
Description of
Certificates........... The Certificates will be issued by the Trust pursuant
to the Pooling and Servicing Agreement, dated as of
June 1, 1998 (the 'Agreement'), among the Depositor,
the Servicer and the Trustee. The Offered Certificates
will be offered in registered form, in denominations
of $25,000 and integral multiples of $1,000 in excess
thereof, except for one Certificate of each Class
which may be issued with a different denomination.
Priority of
Distributions.......... Distributions on the Certificates will be made on each
Remittance Date from Available Funds (as defined in
this Summary of Terms under '--Available Funds') in
the following order of priority, and in each case in
the order and subject to amount and the other
limitations set forth herein under 'Description of the
Certificates-- Priority of Distributions': (i) to
interest on each Class of Senior Certificates; (ii) to
interest on each Class of Subordinated Certificates
(other than the Class R Certificates); (iii)
sequentially, to principal of each Class of Senior
Certificates; (iv) to interest on certain Writedown
Amounts in respect of each Class of Subordinated
Certificates and then to principal of each such Class
of Subordinated Certificates (other than the Class R
Certificates) in the order of their Class designations
(i.e., first to interest on Writedown
</TABLE>
S-4
<PAGE>
<TABLE>
<S> <C>
Amounts in respect of the Class M-1 Certificates and
then to principal of the Class M-1 Certificates); and
(v) sequentially, to each Class of Senior
Certificates, the Accelerated Principal Distribution
Amount for such Remittance Date before any
distributions on the Residual Certificates.
Interest Accrual
Period................. Interest will accrue on each Class of Fixed Rate
Certificates at the applicable Remittance Rate for
each calendar month preceding each Remittance Date.
Interest will accrue on the Floating Rate Certificates
at the then-applicable Remittance Rate during the
period commencing on the Remittance Date in the month
preceding the month of the applicable Remittance Date
(or, in the case of the first Remittance Date,
beginning on the Closing Date) and ending on the day
preceding such applicable Remittance Date. Such period
for each Class of Certificates is its respective
'Interest Accrual Period.' Interest on the Fixed Rate
Certificates will be calculated on the basis of a
360-day year consisting of twelve 30-day months.
Interest on the Floating Rate Certificates will be
calculated on the basis of a 360-day year and the
actual number of days elapsed in each Interest Accrual
Period.
Remittance Rate.......... The Remittance Rate for each Class of Fixed Rate
Certificates, except the Class B-2 Certificates, for
each Remittance Date will be as set forth or described
on the cover page hereof. The Remittance Rate for the
Class A-1 Certificates will be calculated by reference
to the London interbank offered rate for one month
U.S. dollar deposits ('1-Month LIBOR'). The 'Class A-1
LIBOR Rate' for each Interest Accrual Period will
equal the sum of 1-Month LIBOR, determined as
described under 'Description of the Certificates--
Interest' herein, plus 0.06%. The Remittance Rate with
respect to each Class of Offered Certificates is
subject to a maximum rate on each Remittance Date
equal to the Weighted Average Net Contract Rate for
such Remittance Date.
Weighted Average Net
Contract Rate.......... The 'Weighted Average Net Contract Rate' for a
Remittance Date is a rate equal to the weighted
average of (i) the Contract Rates applicable to the
Monthly Payments that were due in the related Due
Period on outstanding Contracts at the beginning of
the related Due Period less (ii) 0.515% (the 'Expense
Fee Rate'). The 'Contract Rate' of any Contract is the
rate of interest specified in such Contract.
Certificate Structure
Considerations......... The primary credit support for the Senior Certificates
is the subordination of the Subordinated Certificates,
effected by the allocation of Writedown Amounts (as
defined and described in this Summary of Terms under
'--Allocation of Writedown Amounts') and by the
preferential application of the Available Funds to the
Senior Certificates relative to the Subordinated
Certificates to the extent described herein. The
primary credit support for the Class M-1 Certificates
is the subordination of the Class M-2, Class B and
Class R Certificates, effected by the allocation of
Writedown Amounts as described herein and by the
preferential allocation of the Available Funds to the
Class M-1 Certificates relative to the Class M-2,
Class B and Class R Certificates to the extent
described herein. The primary credit support for the
Class M-2 Certificates is the subordination of the
Class B and
</TABLE>
S-5
<PAGE>
<TABLE>
<S> <C>
Class R Certificates, effected by the allocation of
Writedown Amounts as described herein and by the
preferential allocation of the Available Funds to the
Class M-2 Certificates relative to the Class B and
Class R Certificates to the extent described herein.
The primary credit support for the Class B-1
Certificates is subordination of the Class B-2 and
Class R Certificates, effected by the allocation of
Writedown Amounts as described herein and by the
preferential allocation of the Available Funds to the
Class B-1 Certificates relative to the Class B-2 and
Class R Certificates to the extent described herein.
The Contracts............ The Contracts (unless the context indicates otherwise,
references herein to Contracts will include Subsequent
Contracts) consist of fixed rate manufactured housing
installment sale contracts and manufactured housing
installment loan agreements including any and all
rights to payments received thereunder on and after
the Cut-off Date and either (i) security interests in
the Manufactured Homes purchased with the proceeds of
such contracts or (ii) with respect to certain of the
Contracts ('Land-and-Home Contracts') liens on the
real estate to which the related Manufactured Homes
are deemed permanently affixed. The Contracts have
been selected by the Originators from their portfolios
of manufactured housing contracts based on the
criteria specified in the Agreement. All of the
Contracts are, and all of the Subsequent Contracts
will be, conventional Contracts (i.e., not insured or
guaranteed by any governmental agency). See 'The
Contract Pool' herein.
Pre-Funding Account...... On the Closing Date, the Trustee will establish and
thereafter maintain with itself a trust account (the
'Pre-Funding Account'). On the Closing date, cash in
an amount not to exceed approximately $27,433,385 (the
'Pre-Funded Amount') will be deposited in the
Pre-Funding Account and may be used only to (i)
acquire additional manufactured housing installment
sales contracts and manufactured housing installment
loan agreements (collectively, the 'Subsequent
Contracts') and (ii) make accelerated payments of
principal of the Senior Certificates. During the
period (the 'Pre-Funding Period') from the Closing
Date to the earliest to occur of (i) the Funding
Termination Date (defined below), (ii) an Event of
Default under the Agreement and (iii) the
Determination Date occurring in September 1998,
amounts on deposit in the Pre-Funding Account may be
withdrawn from time to time to acquire Subsequent
Contracts in accordance with the Agreement. The
'Funding Termination Date' will be the date on which
the Pre-Funded Amount has been reduced to less than
$100,000. Any Pre-Funded Amount remaining in the
Pre-Funding Account at the end of the Pre-Funding
Period will be distributed on the Remittance Date at
or immediately following the end of such Pre-Funding
Period to the Class or Classes of Senior Certificates
then entitled to distributions of principal, as
provided herein.
Capitalized Interest
Account................ On the Closing Date, the Trustee will establish and
thereafter maintain with itself a trust account (the
'Capitalized Interest Account') into which amounts
will be deposited. The amounts so deposited will be
used by the Trustee on the Remittance Dates
</TABLE>
S-6
<PAGE>
<TABLE>
<S> <C>
during the Pre-Funding Period to fund the excess, if
any, of the amount of interest accrued on the
Certificates at the applicable Remittance Rates over
the amounts available therefor on such Remittance
Dates. Any amounts on deposit in the Capitalized
Interest Account that are not necessary for such
purpose will be paid to the Holders of the Class R
Certificates.
Available Funds.......... The 'Available Funds' for a Remittance Date will equal
(i) the aggregate of all previously undistributed
payments on account of principal and interest (net of
the Servicing Fee) on the Contracts received on or
after the Cut-off Date and received during the related
Due Period except: (a) amounts representing
reimbursement for Monthly Advances, such reimbursement
being limited to amounts received on particular
Contracts as late collections of principal and
interest as to which the Servicer has made an
unreimbursed Monthly Advance, (b) amounts representing
reimbursement for any unpaid Servicing Fees and
expenses from Liquidation Proceeds, condemnation
proceeds and proceeds of insurance policies with
respect to the related Contracts, and (c) amounts
representing reimbursement for Nonrecoverable
Advances; plus (ii) the amount of any Monthly Advance
made and Compensating Interest paid by the Servicer
and deposited by it in the Certificate Account; plus
(iii) the Capitalized Interest Requirement for such
Remittance Date and, on any Remittance Date at or
immediately following the end of the Pre-Funding
Period, any remaining Pre-Funded Amount in the
Pre-Funding Account.
Realized Losses on
Liquidated
Contracts.............. The Principal Distribution Amount for any Remittance
Date is intended to include the Stated Principal
Balance of each Contract that became a Liquidated
Contract during the related Due Period. A Realized
Loss will be incurred on a Liquidated Contract in the
amount, if any, by which the Net Liquidation Proceeds
from such Liquidated Contract are less than the Stated
Principal Balance of such Liquidated Contract on the
date of liquidation, plus accrued and unpaid interest
thereon. To the extent that the amount of the Realized
Loss is in excess of the sum of (i) interest collected
on the nondefaulted Contracts in excess of certain
interest payments due to be distributed on the Senior,
Class M and Class B Certificates and any portion of
such interest required to be paid to the Servicer as
servicing compensation ('Excess Interest') and (ii)
the Current Overcollateralization Amount, the amount
of such shortfall may be allocated to the Subordinated
Certificates. See '--Allocation of Writedown Amounts'
below in this Summary of Terms. The 'Stated Principal
Balance' for any Contract and Remittance Date is the
principal balance of such Contract as of the Cut-off
Date less any amounts in respect of principal of such
Contract previously due to Certificateholders. The
Stated Principal Balance of a Liquidated Contract is
zero for any month after the month in which it became
a Liquidated Contract. A 'Liquidated Contract' is a
defaulted Contract as to which all amounts that the
Servicer expects to recover through the date of
disposition of the Manufactured Home, or in the case
of Land-and-Home Contracts, the Mortgaged Property,
have been received. 'Net Liquidation Proceeds' with
respect to any
</TABLE>
S-7
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<TABLE>
<S> <C>
Liquidated Contract are the Liquidation Proceeds, net
of expenses of liquidation, unpaid Servicing Fees,
unreimbursed Monthly Advances and unreimbursed
Servicing Advances relating to such Contract. In no
event shall Net Liquidation Proceeds with respect to
any Liquidated Contract be less than zero.
Allocation of Writedown
Amounts................ The 'Writedown Amount' for any Remittance Date will be
the amount, if any, by which the aggregate Certificate
Balance of all Certificates, after taking into account
all distributions to be made on such Remittance Date,
exceeds the sum of (x) the Pre-Funded Amount, if any,
as of the last day of the related Due Period and (y)
the Pool Principal Balance of the Contracts for the
next Remittance Date. The Writedown Amount will be
allocated among the Classes of Subordinated
Certificates in the following order of priority:
(1) first, to the Class B-2 Certificates, to be
applied in reduction of the Adjusted Certificate
Balance of such Class until it has been reduced to
zero;
(2) second, to the Class B-1 Certificates, to be
applied in reduction of the Adjusted Certificate
Balance of such Class until it has been reduced to
zero;
(3) third, to the Class M-2 Certificates, to be
applied in reduction of the Adjusted Certificate
Balance of such Class until it has been reduced to
zero; and
(4) fourth, to the Class M-1 Certificates, to be
applied in reduction of the Adjusted Certificate
Balance of such Class until it is reduced to zero.
Effect of Priority
Sequence of Principal
Distributions.......... The distribution of Principal Distribution Amounts in
the priorities described herein under 'Description of
the Offered Certificates-- Priority of Distributions'
will have the effect of accelerating the amortization
of the Senior Certificates and delaying the
amortization of the Class M Certificates and the Class
B Certificates, from what would otherwise be the case
without such prioritization, thereby increasing the
interest in the Trust evidenced by the Class M
Certificates and the Class B Certificates. Increasing
the interest of the Class M Certificates and the Class
B Certificates relative to that of the Senior
Certificates is intended to preserve the availability
to the Senior Certificates on each Remittance Date of
the subordination provided by the Class M Certificates
and the Class B Certificates. See 'Description of the
Offered Certificates' herein.
Security Interests and
Certain Other Aspects
of the Contracts;
Repurchase or
Substitution
Obligations............ In connection with the transfer of the Contracts and
the Subsequent Contracts to the Trust, the Depositor
will cause each Originator to assign the security
interests in the Manufactured Homes or, with respect
to the Land-and-Home Contracts, the liens on the
Manufactured Homes and the underlying real property,
as appropriate, to the Trust. Under the laws of most
states, Manufactured Homes that have not been affixed
to the real estate
</TABLE>
S-8
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constitute personal property, and perfection of a
security interest in the Manufactured Home is
obtained, depending on applicable state law, either by
noting the security interest on the certificate of
title for the Manufactured Home or by filing a
financing statement under the Uniform Commercial Code.
If the Manufactured Home were to be relocated to
another state without reperfection of the security
interest, or if the Manufactured Home were to become
attached to its site and a determination were to be
made that the security interest was subject to real
estate title and recording laws, or as a result of
fraud or negligence, the Trust could lose its prior
perfected security interest in a Manufactured Home.
Subject to the effect of not amending certificates of
title as discussed under 'Risk Factors-- Titles Will
Not Be Amended' in the Prospectus, the Servicer will
take such steps as are necessary to maintain
perfection of the security interest in each
Manufactured Home. In addition, the assignment to the
Trustee of the mortgage or deed of trust securing each
Land-and-Home Contract will be recorded. Federal and
state consumer protection laws impose requirements
upon creditors in connection with extensions of credit
and collections on installment sale or loan contracts,
and certain of these laws make an assignee of such a
contract, such as the Trust, liable to the obligor
thereon for any violation by the lender. Each
Originator has agreed to repurchase, or, at its
option, to substitute another contract for, any
Contract (including any Subsequent Contract) as to
which it has failed to perfect a security interest in
the Manufactured Home securing such Contract, or as to
which a breach of federal or state laws exists if such
breach materially adversely affects the Trust's
interest in the Contract, unless such failure or
breach has been cured within 90 days from notice of
such breach.
Optional Termination..... At its option, the Servicer may purchase from the
Trust all remaining Contracts, and thereby effect
early retirement of the Certificates, on any
Remittance Date when the Pool Principal Balance for
the next Remittance Date is less than 10% of the sum
of the Pool Principal Balance and the Pre-Funded
Amount as of the Cut-off Date (the 'Servicer Optional
Termination Date'). See 'Description of the
Certificates--Optional Termination' herein.
Auction Sale............. If the Servicer does not exercise its optional
termination right within 90 days after the Servicer
Optional Termination Date, the Trustee is required to
solicit bids for the purchase of all Contracts
remaining in the Trust. If satisfactory bids are
received as set forth in the Agreement, such remaining
Contracts will be sold and the proceeds distributed to
Certificateholders in the same priority as
distributions on a Remittance Date. If such
satisfactory bids are not received, the remaining
Contracts will not be sold, and the Trustee will not
solicit any other bids or otherwise negotiate any
further sale of the Contracts. See 'Description of the
Certificates--Auction Sale' herein.
Federal Income Tax
Considerations......... For federal income tax purposes, an election will be
made to treat the assets of the Trust (other than the
Pre-Funding Account and the Capitalized Interest
Account) as a real estate mortgage investment conduit
('REMIC'). The Regular Certificates will be designated
as 'regular interests' in the REMIC and generally will
be treated as debt instruments of the Trust for
federal income tax purposes with
</TABLE>
S-9
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payment terms equivalent to the terms of such
Certificates. The Class R Certificates will be
designated as the sole class of 'residual interests'
in the REMIC. The holders of the Regular Certificates
will be required to include in income interest on such
Certificates (including any original issue discount)
in accordance with the accrual method of accounting.
Depending on their respective issue prices, certain
Classes of Offered Certificates may be issued with
original issue discount ('OID') for federal income tax
purposes. The rate that will be used to calculate the
accrual of OID will be 175% MHP (as defined herein).
No representation is made that the Contracts will
prepay at that rate or at any other rate. See 'Federal
Income Tax Considerations' herein and in the
Prospectus.
ERISA Considerations..... As described under 'ERISA Considerations' herein, the
Offered Certificates may not be purchased by a pension
or other employee benefit plan subject to the Employee
Retirement Income Security Act of 1974, as amended
('ERISA'), or by individual retirement accounts or
Keogh plans covering only a sole proprietor or partner
which are not subject to ERISA but are subject to
Section 4975 of the Code ('Plans'), except pursuant to
certain exemptions from potential prohibited
transaction rules of ERISA which prohibit a broad
range of transactions involving Plan assets and
persons having certain specified relationships to a
Plan and related excise tax provisions of Section 4975
of the Code.
It is believed that Prohibited Transaction Exemption
89-90 (the 'Exemption'), which provides an exemption
for transactions involving the purchase, holding or
transfer of certain residential mortgage pool
pass-through certificates by Plans, will apply to the
Senior Certificates.
Any Plan fiduciary considering whether to purchase any
Offered Certificates on behalf of a Plan should
consult with its counsel regarding the applicability
of the provisions of ERISA and the Code. See 'ERISA
Considerations' herein and in the Prospectus.
Legal Investment
Considerations......... Upon termination of the Pre-Funding Period, the Senior
Certificates and the Class M-1 Certificates will
constitute 'mortgage related securities' for purposes
of the Secondary Mortgage Market Enhancement Act of
1984 ('SMMEA') so long as they are rated in one of the
two highest rating categories by at least one
nationally recognized statistical rating organization
and, as such, will be 'legal investments' for certain
types of institutional investors to the extent
provided in SMMEA.
The Class M-2 Certificates and the Class B-1
Certificates will not constitute 'mortgage related
securities' for purposes of SMMEA. Accordingly, many
institutions with legal authority to invest in
comparably rated securities may not be legally
authorized to invest in the Class M-2 Certificates and
the Class B-1 Certificates. See 'Legal Investment
Considerations' in the Prospectus.
Ratings.................. It is a condition to the issuance of the Senior
Certificates that they be rated AAA by Fitch IBCA,
Inc. ('Fitch') and Aaa by Moody's
</TABLE>
S-10
<PAGE>
<TABLE>
<S> <C>
Investors Service, Inc. ('Moody's' and together with
Fitch, the 'Rating Agencies'). It is a condition to
the issuance of the Class M-1, Class M-2 and Class B-1
Certificates that they be rated at least AA-, A and
BBB, respectively, by Fitch and at least Aa3, A2 and
Baa2, respectively, by Moody's.
A security rating is not a recommendation to buy, sell
or hold securities and may be subject to revision or
withdrawal at any time.
The Depositor has not requested a rating on the
Offered Certificates by any rating agency other than
the Rating Agencies. However, there can be no
assurance as to whether any other rating agency will
rate some or all of the Offered Certificates or, if it
does, as to the rating that would be assigned by any
such rating agency. The rating assigned by any such
other rating agency could be lower than the respective
ratings assigned by the Rating Agencies.
Registration of the
Offered Certificates... Each Class of Offered Certificates initially will be
represented by one or more certificates registered in
the name of Cede & Co. ('Cede') as the nominee of The
Depository Trust Company ('DTC'). Persons acquiring
beneficial ownership interests in the Offered
Certificates ('Certificate Owners') will hold their
interests through DTC, in the United States, or Cedel
Bank, societe anonyme, ('Cedel') or the Euroclear
System ('Euroclear'), in Europe. Transfers within DTC,
Cedel or Euroclear, as the case may be, will be in
accordance with the usual rules and operating
procedures of the relevant system. So long as the
Offered Certificates are in book-entry form, such
Certificates will be evidenced by one or more
Certificates registered in the name of Cede, as the
nominee of DTC, or one of the relevant depositaries
(collectively, the 'European Depositaries').
Cross-market transfers between persons holding
directly or indirectly through DTC, on the one hand,
and counterparties holding directly or indirectly
through Cedel or Euroclear, on the other, will be
effected in DTC through Citibank N.A. ('Citibank') or
The Chase Manhattan Bank ('Chase'), the relevant
depositaries of Cedel and Euroclear, respectively, and
each a participating member of DTC. The interests of
such Certificateholders will be represented by
book-entries on the records of DTC, participating
members thereof and other entities, such as banks,
brokers, dealers and trust companies that clear
through or maintain custodial relationships with a
participant, either directly or indirectly.
Certificates representing the Offered Certificates
will be issued in definitive form only under the
limited circumstances described herein. All references
herein to 'Holders' or 'Certificateholders' reflect
the rights of Certificate Owners as they may
indirectly exercise such rights through DTC and
participating members thereof, except as otherwise
specified herein. See 'Description of the
Certificates--Book-Entry Certificates' herein and in
the Prospectus.
</TABLE>
S-11
<PAGE>
RISK FACTORS
Before investing in the Offered Certificates, potential investors should
consider the risks discussed under the caption 'Risk Factors' beginning on Page
8 of the Prospectus and the following additional risks:
Trust Assets Are the Only Source of Credit Enhancement. The subordination
of the Subordinated Certificates to the Senior Certificates and the further
subordination within the Subordinated Certificates are the sole sources of
protection against losses on the Contracts available to Holders of the Offered
Certificates. If losses on the Contracts or other shortfalls in available funds
exceed the amount of protection afforded by such mechanism, the Offered
Certificates will bear their allocable share of losses and other shortfalls in
available funds. The Certificates represent interests only in the Trust and do
not represent interests in or obligations of the Depositor, the Originators, the
Servicer, the Trustee or any of their respective affiliates. The assets of the
Trust are the sole source of funds for distributions on the Certificates.
Geographic Concentration May Create Additional Risks. Approximately
17.43%, 11.44%, 8.87%, 6.96% and 6.36% of the Contracts delivered on the Closing
Date (by Cut-off Date Pool Principal Balance) are secured by Manufactured Homes
which, at the time of origination of such Contracts, were located in the States
of South Carolina, North Carolina, Texas, Florida, and Georgia, respectively.
Any significant concentration of Contracts with Obligors in a particular state
or geographic region increases the exposure of the Trust to risk of loss due to
natural disasters, fluctuations in market values for manufactured housing and
deterioration of economic conditions in the particular state or region. Such
factors can affect the rates of delinquency and default on the Contracts as well
as the values of the related Manufactured Homes and the severity of losses
following repossession or foreclosure. Any natural disasters, fluctuations in
market values for manufactured housing or deterioration in economic conditions
affecting the foregoing states may adversely and disportionately affect the
performance of the Contract Pool.
Certificateholders Subject to Loss if Rate of Delinquencies and Amount of
Realized Losses Exceed Certain Levels. Regardless of its location, manufactured
housing generally depreciates in value. Consequently, the market values of the
Manufactured Homes could be or become lower than the principal balances of the
Contracts they secure. This depreciation could exacerbate the negative effects
on Certificates of defaults on Contracts, because it will result in Realized
Losses on Liquidated Contracts being more severe than would have been the case
had the value of the underlying Manufactured Homes not declined. Sufficiently
high defaults and Realized Losses on the Contracts will have the effect of
reducing, and could eliminate, the protection against loss afforded to a Class
of Senior Certificates by one or more Classes of Subordinated Certificates. If
such protection is eliminated such Class of Senior Certificates will bear the
risk of losses on the Contracts. See 'Description of the Certificates--
Subordination of the Subordinated Certificates.' If such protection is
eliminated the risk of losses on the Contracts will be borne first by the Class
B-2 Certificates, then by the Class B-1 Certificates, then by the Class M-2
Certificates and then by the Class M-1 Certificates.
Delinquent Contracts May Adversely Affect Performance. The Depositor's
Manufactured Housing Contract Pass-Through Certificates, Series 1996-1, 1997-1
and 1997-2, transactions have failed the applicable performance tests related to
delinquencies. If any such failure was to continue beyond the specified time
period, the holders of the subordinate certificates in the respective series
would not receive distributions of principal unless and until the performance
test was met. There can be no assurance that a similar situation would not arise
with respect to the Subordinated Certificates offered hereby.
Pre-Funding May Adversely Affect Performance. The Depositor intends to
deliver Subsequent Contracts to the Trust during the Pre-Funding Period in an
amount approximating the Pre-Funded Amount. The Depositor's ability to deliver
such Subsequent Contracts is dependent on the ability of the Originators to
originate or purchase a sufficient amount of Subsequent Contracts during the
Pre-Funding Period which satisfy the requirements for transfer to the Trust. If
the Originators were to be unable to do so, Holders of the Senior Certificates
then entitled to distributions of principal would receive a prepayment of
principal. There can be no assurance that Holders of the Senior Certificates
would be able to reinvest such a prepayment at yields equal to or exceeding the
yields on the related Certificates. It is possible that the yields on such
reinvestment will be lower, and could be significantly lower, than the yields on
the related Certificates.
Prepayments May Affect Remittance Rates. The Remittance Rate for each
Class of Offered Certificates on any Remittance Date will not exceed the
Weighted Average Net Contract Rate of the Contracts in the Contract Pool.
Disproportionate prepayments (including prepayments due to liquidations and
repurchases or purchases by the Originators or the Servicer as required or
permitted by the Agreement) of Contracts with Net Contract Rates in excess of
the applicable Remittance Rate for each Class of Offered Certificates will
increase the possibility
S-12
<PAGE>
that the Remittance Rate for such Class of Certificates will be less than the
otherwise applicable rate. There is no mechanism to compensate Holders of any
affected Class of Certificates. Any difference between interest at the actual
Remittance Rate and interest at the applicable fixed rate, or interest at the
Class A-1 LIBOR Rate, for such Interest Accrual Period, will not constitute a
Carryover Interest Distribution Amount, and any such difference will be foregone
permanently.
The Weighted Average Life of the Offered Certificates is Uncertain. The
prepayment experience on the Contracts will affect the average life of the
Certificates, and will affect the yield to maturity on any Certificates
purchased at a premium over or at a discount from their principal balances. The
amount of Excess Interest (which is available to cover Realized Losses that
otherwise would be borne first by the Subordinated Certificates) included in the
Available Funds on each Remittance Date, as a percentage of the Pool Principal
Balance, will decline to the extent that prepayments are received at a
disproportionately high rate on Contracts with Contract Rates that are
relatively high in comparison with the Contract Rates on other Contracts in the
Contract Pool.
Prepayments on the Contracts may be influenced by a variety of economic,
geographic, social and other factors, including repossessions, seasoning of the
Contracts and interest rates. Other factors affecting prepayment rates on the
Contracts include changes in housing needs, job transfers and unemployment. See
'Maturity, Prepayment and Yield Considerations' herein and in the Prospectus.
Credit Risk from Subordination of the Subordinated Certificates to the
Senior Certificates. As described herein, certain payments of principal and
interest on the Contracts will be available to make distributions on the
Subordinated Certificates only after required distributions have been made on
the Senior Certificates. Further, all Realized Losses on the Contracts generally
will be allocated to the Subordinated Certificates prior to being allocated to
the Senior Certificates. Realized Losses on the Contracts in excess of the
available credit support will adversely affect the yield on the Certificates.
It is not possible to predict with certainty the timing of the Cross-over
Date or the date, if any, on which the Class Certificate Balances of the Senior
Certificates will be reduced to zero, or whether the Principal Distribution
Tests will be met as to any Remittance Date. Generally, prior to the time that
the Class Certificate Balance of a Class of Senior Certificates with a lower
numerical designation is reduced to zero, the holders of any Class of Senior
Certificates with a higher numerical designation will not receive any
distributions of principal. Likewise, prior to the Cross-over Date or prior to
the time that the Class Certificate Balance of all Classes of the Senior
Certificates is reduced to zero, the holders of the Subordinated Certificates
will not receive any distributions of principal. It is not possible to predict
the timing of the occurrence of the Remittance Date, if any, on which the Class
Certificate Balance of any Class of the Senior Certificates or the Subordinated
Certificates will be reduced to zero.
The timing of the occurrence of the Cross-over Date or of the date on which
the Class Certificate Balance of any Class of the Certificates is reduced to
zero will be affected by the rate of voluntary principal prepayments in addition
to prepayments due to defaults on Contracts and the resulting liquidations of
the underlying Manufactured Homes. In addition, the satisfaction of the
Principal Distribution Tests in respect of any Remittance Date will be dependent
on the rate and severity of Realized Losses and delinquencies on the Contracts.
See 'Description of the Offered Certificates--Realized Losses on Liquidated
Contracts' herein.
Yields on Subordinated Certificates will be Adversely Affected by
Losses. The weighted average lives of, and the yields to maturity on, the
Subordinated Certificates will be sensitive to the rate and timing of Obligor
defaults and the severity of ensuing losses on the Contracts. The sensitivity of
the yields on the Subordinated Certificates will increase as the payment
priority of the related Class decreases so that the Class M-2 Certificates will
be more sensitive than the Class M-1 Certificates, the Class B-1 Certificates
will be more sensitive than the Class M Certificates and the Class B-2
Certificates will be more sensitive than the Class M and Class B-1 Certificates.
If the actual rate and severity of losses on the Contracts is higher than those
assumed by a Holder of a Subordinated Certificate, the actual yield to maturity
of such Certificates will be lower than the yield expected by such Holder based
on such assumption. The timing of losses on the Contracts will also affect an
investor's actual yield to maturity, even if the rate of defaults and severity
of losses over the life of the Contract Pool are consistent with an investor's
expectations. In general, the earlier a loss occurs, the greater the effect on
an investor's yield to maturity.
Book-Entry Certificates May Affect Liquidity. The issuance of the Offered
Certificates in book-entry form may reduce the liquidity of such Certificates in
the secondary trading market since some investors may be unwilling to purchase
Offered Certificates for which they cannot receive physical certificates.
S-13
<PAGE>
Since transactions in the Offered Certificates may be effected only through
DTC, participating organizations and indirect participating organizations, the
ability of a beneficial owner of an Offered Certificate to pledge an Offered
Certificate to persons or entities that do not participate in the DTC system or
otherwise to take actions in respect of such Certificates, may be limited by the
lack of a physical certificate representing the Offered Certificates.
Beneficial owners of the Offered Certificates may experience some delay in
the receipt of distributions of interest on and principal of the Offered
Certificates because such distributions will be forwarded by the Trustee to DTC,
and DTC will credit such distributions to the accounts of the applicable
participating organizations which will thereafter credit such distributions to
the accounts of the applicable beneficial owners, either directly or through
indirect participants. See 'Description of the Certificates--Book-Entry
Certificates' herein and in the Prospectus.
Recent Developments. On April 17, 1998, Fitch announced that it lowered
its senior unsecured debt rating of the Parent from 'BBB' to 'BBB-' and its
subordinated debt rating from 'BBB-' to 'BB+.' Fitch's announcement stated that
the 'ratings reflect [the Parent's] cash flow negative position, heightened
competition in its core subprime home equity loan market, gain on sale
assumptions that provide a marginal cushion relative to static pool performance
and reduced access to equity capital.' Fitch added that '[p]artially mitigating
these concerns are [the Parent's] strong retail franchise in the rapidly
growing, consolidating subprime HEL market, good servicing capabilities and
solid liquidity position.'
On March 10, 1998, Standard & Poor's ('S&P') announced that it lowered its
senior unsecured debt rating of the Parent from 'BBB-' to 'BB+', its
subordinated debt rating from 'BB+' to 'BB-' and its rating on the Parent's
preferred stock from 'BB' to 'B+'. S&P's announcement stated the Parent's
ratings were removed from its creditwatch and stated further that its outlook
for the Parent is now stable. The announcement stated, in part, that 'the
ratings reflect S&P's concern about heightened competition in the sub-prime home
equity market, as well as the declining trend in [the Parent's] asset quality
and profitability measures.'
On December 17, 1997, Moody's confirmed its subordinated debt ratings of
the Parent but changed its rating outlook to negative from stable. Moody's
release stated, in part, 'the outlook change reflects the increasing level of
delinquencies in the Parent's securitized home equity loans, the company's
increasing effective leverage, and the highly competitive conditions in the
Parent's consumer business.'
Year 2000 Issue. The 'Year 2000' issue relates to the fact that many
existing computer programs and applications use only two digits to identify a
year in the date field. A failure to modify such programs and applications to be
Year 2000 compliant may have a material adverse impact on the operations at the
turn of the century of the Parent, the Servicer and the other Originators. To
address the Year 2000 issue, the Parent has constituted a Year 2000 task force
(the 'Task Force') with members of its Management Information Services and
Internal Audit departments as well as other employees of the Parent. The Audit
Committee of the Parent's Board of Directors will monitor the activities of the
Task Force.
The Task Force has completed a written plan for identifying issues relating
to Year 2000 compliance by the Parent as well as compliance by the Parent's
vendors and other constituents. The Task Force has reported that it expects to
finalize its identification of such issues by the end of the third quarter of
1998 and either correct or be in the process of replacing all non-Year 2000
compliant systems by year-end 1998. At the present time, the Parent cannot
estimate the costs of the contemplated Year 2000 compliance.
S-14
<PAGE>
THE CONTRACT POOL
GENERAL
All of the Contracts were, and each Subsequent Contract will be, originated
by a manufactured housing dealer and purchased by the Originators from such
dealer, or were originated by the Originators directly or, in the case of
Land-and-Home Contracts, indirectly through correspondents or mortgage brokers.
All of the Contracts are, and all of the Subsequent Contracts will be,
conventional manufactured housing contracts, meaning that they are not insured
or guaranteed by any governmental agency.
Each Contract is, and each Subsequent Contract will be, (a) secured by a
Manufactured Home or, in the case of a Land-and-Home Contract, by a lien on the
Manufactured Home and the real estate to which the Manufactured Home is deemed
permanently affixed, and (b) fully amortizing with a fixed contractual rate of
interest (the 'Contract Rate') and providing for level payments over the term of
such Contract on a specified date in each month (each, a 'Due Date'). The Due
Dates will occur throughout the month.
The 'Value' used to calculate the original loan-to-value ratios of the
Contracts originated by UCFI is equal to (i) in the case of a Chattel Contract
on a new Manufactured Home, the total cost of such Manufactured Home (allowing
for the standard industry dealer markup of 30%), including sales and other
taxes, filing and recording fees imposed by law and premiums for related
insurance and optional equipment up to 25% of the base invoice and set-up fees,
(ii) in the case of a Chattel Contract on a used Manufactured Home, either the
total delivered sales price for such Manufactured Home, if available, or its
appraised market value, plus, in either case, each of the following to the
extent that the inclusion thereof does not exceed the appraised value of the
Manufactured Home: sales and other taxes, filing and recording fees imposed by
law and premiums for related insurance, or (iii) in the case of real estate
securing a Land-and-Home Contract, the total sales price of the real estate and
the Manufactured Home together. (With respect to less than 1% of the Contracts
by Cut-off Date Pool Principal Balance, 'Value' includes the value of land in
respect of which the Obligor has granted a lien to the Originator in lieu of a
down payment, which lien is being transferred to the Trust.) 'Value' used to
calculate the original loan-to-value ratios of the Contracts for the other
Originators will equal the lesser of the appraised value or, in the case of a
purchase, the purchase price of the Manufactured Home and the related real
estate to which the Manufactured Home is permanently affixed. Manufactured
Homes, unlike site-built homes, generally depreciate in value. Consequently, at
any time after origination it is possible, especially in the case of Contracts
with high loan-to-value ratios at origination, that the market value of a
Manufactured Home may be lower than the principal amount outstanding under the
related Contract.
STATISTICAL INFORMATION
Set forth below is certain statistical information as of the Cut-off Date
regarding the Contracts expected to be included in the Contract Pool as of the
Closing Date. Prior to the Closing Date, Contracts may be removed from the
Contract Pool and other Contracts may be substituted therefor. The Depositor
believes that the information set forth herein with respect to the Contract Pool
as presently constituted is representative of the characteristics of the
Contract Pool as it will be constituted at the Closing Date, although certain
characteristics of the Contracts may vary. All such information is approximate,
and the sum of the percentage columns in the following tables may not equal 100%
due to rounding. Percentages, other than rates of interest and Loan-to-Value
Ratios, are based on the Cut-off Date Pool Principal Balance.
As of the Cut-off Date: the Contract balances ranged from $5,007.50 to
$136,293.86; the average Contract balance was $43,456.11; the Contract Rates
ranged from 5.90% to 14.00% per annum; the weighted average Contract Rate was
8.93% per annum; the original Loan-to-Value Ratios ranged from 20.40% to 99.75%;
the weighted average original Loan-to-Value Ratio was 84.76%; the original terms
to stated maturity ranged from 60 months to 360 months; the weighted average
original term to stated maturity was 318 months; the remaining terms to stated
maturity ranged from 58 months to 360 months; the weighted average remaining
term to stated maturity was 317 months; the number of months since origination
of the Contracts ranged from 0 months to 70 months; the weighted average number
of months since origination was 2 months; 87.63% and 12.37% of the Contracts are
secured by new and used Manufactured Homes, respectively; 33.55% of the
Contracts are Land-and-Home Contracts; 100% of the Contracts are secured by
Manufactured Homes which are the Obligors' primary residences based on
representations at the time of origination of such Contracts; 95.54% of the
Contracts were originated in connection with the purchase of the related
Manufactured Home; 27.13%, and 72.87% of the Contracts are secured by
Manufactured Homes which are single wide and multi-wide, respectively.
S-15
<PAGE>
GEOGRAPHICAL DISTRIBUTION OF MANUFACTURED HOMES
<TABLE>
<CAPTION>
% OF CUT-OFF
NUMBER OF AGGREGATE PRINCIPAL DATE POOL
STATES CONTRACTS BALANCE OUTSTANDING PRINCIPAL BALANCE
- ----------------------- --------- ------------------- -----------------
<S> <C> <C> <C>
Alabama................ 3 $ 59,066.92 0.07%
Arizona................ 38 1,234,920.67 1.50
Arkansas............... 83 3,478,164.66 4.21
Colorado............... 34 1,613,780.87 1.95
Florida................ 128 5,748,155.49 6.96
Georgia................ 109 5,254,326.53 6.36
Idaho.................. 2 47,224.30 0.06
Illinois............... 46 1,808,245.35 2.19
Indiana................ 30 1,068,057.67 1.29
Iowa................... 53 1,480,349.61 1.79
Kentucky............... 16 656,434.45 0.80
Louisiana.............. 65 2,811,402.10 3.41
Maine.................. 6 509,239.14 0.62
Massachusetts.......... 2 178,279.79 0.22
Michigan............... 16 698,866.21 0.85
Minnesota.............. 80 2,529,736.54 3.06
Mississippi............ 77 2,911,710.85 3.53
Missouri............... 33 1,339,697.46 1.62
Montana................ 2 66,798.72 0.08
Nebraska............... 1 36,873.91 0.04
Nevada................. 9 651,749.96 0.79
New Hampshire.......... 1 37,755.34 0.05
New Mexico............. 74 4,231,865.09 5.13
North Carolina......... 192 9,447,570.87 11.44
North Dakota........... 6 189,794.56 0.23
Ohio................... 50 2,142,460.00 2.59
Oklahoma............... 44 1,569,570.82 1.90
Oregon................. 6 444,888.14 0.54
Pennsylvania........... 27 750,382.37 0.91
South Carolina......... 301 14,394,977.58 17.43
South Dakota........... 25 764,265.86 0.93
Tennessee.............. 77 3,524,593.99 4.27
Texas.................. 189 7,324,506.26 8.87
Utah................... 1 22,476.00 0.03
Virginia............... 8 288,084.62 0.35
Washington............. 12 1,036,680.22 1.26
West Virginia.......... 37 1,554,332.73 1.88
Wisconsin.............. 12 432,275.45 0.52
Wyoming................ 5 227,053.80 0.27
--------- ------------------- -------
Totals:........... 1,900 $ 82,566,614.90 100.00%
--------- ------------------- -------
--------- ------------------- -------
</TABLE>
S-16
<PAGE>
DISTRIBUTION OF CONTRACT AMOUNTS AS OF CUT-OFF DATE
<TABLE>
<CAPTION>
% OF CUT-OFF
NUMBER OF AGGREGATE PRINCIPAL DATE POOL
RANGE OF CONTRACT AMOUNTS CONTRACTS BALANCE OUTSTANDING PRINCIPAL BALANCE
- --------------------------------- --------- ------------------- ------------------
<S> <C> <C> <C>
$ 5,000.01-- 10,000.00........... 56 $ 444,526.55 0.54%
10,000.01-- 15,000.00........... 83 1,020,260.03 1.24
15,000.01-- 20,000.00........... 98 1,711,530.11 2.07
20,000.01-- 25,000.00........... 155 3,527,194.75 4.27
25,000.01-- 30,000.00........... 197 5,398,189.30 6.54
30,000.01-- 35,000.00........... 227 7,308,258.34 8.85
35,000.01-- 40,000.00........... 164 6,126,269.82 7.42
40,000.01-- 45,000.00........... 155 6,572,264.52 7.96
45,000.01-- 50,000.00........... 124 5,881,333.05 7.12
50,000.01-- 55,000.00........... 142 7,453,534.20 9.03
55,000.01-- 60,000.00........... 109 6,256,734.65 7.58
60,000.01-- 65,000.00........... 89 5,559,917.07 6.73
65,000.01-- 70,000.00........... 65 4,376,758.03 5.30
70,000.01-- 75,000.00........... 43 3,099,198.28 3.75
75,000.01-- 80,000.00........... 38 2,947,403.42 3.57
80,000.01-- 85,000.00........... 30 2,472,822.52 2.99
85,000.01-- 90,000.00........... 28 2,439,442.40 2.95
90,000.01-- 95,000.00........... 35 3,231,327.97 3.91
95,000.01--100,000.00........... 13 1,253,596.25 1.52
100,000.01--105,000.00........... 16 1,638,086.33 1.98
105,000.01--110,000.00........... 9 960,673.31 1.16
110,000.01--115,000.00........... 10 1,118,662.17 1.35
115,000.01--120,000.00........... 4 470,429.49 0.57
120,000.01--125,000.00........... 1 121,702.07 0.15
125,000.01--130,000.00........... 5 634,912.13 0.77
130,000.01--135,000.00........... 2 269,133.01 0.33
135,000.01--140,000.00........... 2 272,455.13 0.33
--------- ------------------- -------
Totals:..................... 1,900 $ 82,566,614.90 100.00%
--------- ------------------- -------
--------- ------------------- -------
</TABLE>
DISTRIBUTION OF ORIGINAL LOAN-TO-VALUE RATIOS
<TABLE>
<CAPTION>
RANGE OF
ORIGINAL % OF CUT-OFF
LOAN-TO-VALUE NUMBER OF AGGREGATE PRINCIPAL DATE POOL
RATIOS CONTRACTS BALANCE OUTSTANDING PRINCIPAL BALANCE
- ----------- --------- ------------------- ------------------
<S> <C> <C> <C>
20.01-- 25.00%... 1 $ 9,893.82 0.01%
25.01-- 30.00... 3 24,728.80 0.03
30.01-- 35.00... 8 92,854.71 0.11
35.01-- 40.00... 5 59,715.42 0.07
40.01-- 45.00... 6 137,188.57 0.17
45.01-- 50.00... 17 381,740.12 0.46
50.01-- 55.00... 18 482,789.43 0.58
55.01-- 60.00... 22 617,436.37 0.75
60.01-- 65.00... 28 895,083.98 1.08
65.01-- 70.00... 72 2,153,573.08 2.61
70.01-- 75.00... 94 3,589,214.76 4.35
75.01-- 80.00... 224 8,443,362.76 10.23
80.01-- 85.00... 367 15,875,459.08 19.23
85.01-- 90.00... 666 29,827,988.35 36.13
90.01-- 95.00... 351 18,883,854.04 22.87
95.01--100.00... 18 1,091,731.61 1.32
------- ----------------- -------
Totals:... 1,900 $ 82,566,614.90 100.00%
------- ----------------- -------
------- ----------------- -------
</TABLE>
S-17
<PAGE>
CONTRACT RATES
<TABLE>
<CAPTION>
% OF CUT-OFF
RANGE OF NUMBER OF AGGREGATE PRINCIPAL DATE POOL
CONTRACT RATES CONTRACTS BALANCE OUTSTANDING PRINCIPAL BALANCE
- ------------------ --------- ------------------- ------------------
<S> <C> <C> <C>
5.51-- 6.00%..... 1 $ 84,841.33 0.10%
6.01-- 6.50...... 11 1,050,059.53 1.27
6.51-- 7.00...... 149 11,861,727.83 14.37
7.01-- 7.50...... 116 7,870,043.07 9.53
7.51-- 8.00...... 230 13,043,523.21 15.80
8.01-- 8.50...... 70 2,920,668.95 3.54
8.51-- 9.00...... 177 8,306,613.43 10.06
9.01-- 9.50...... 149 6,395,466.98 7.75
9.51--10.00...... 236 10,772,062.14 13.05
10.01--10.50...... 231 7,129,114.62 8.63
10.51--11.00...... 238 7,024,926.36 8.51
11.01--11.50...... 90 2,153,867.18 2.61
11.51--12.00...... 144 3,064,543.86 3.71
12.01--12.50...... 25 425,217.60 0.51
12.51--13.00...... 25 357,453.42 0.43
13.01--13.50...... 4 55,775.49 0.07
13.51--14.00...... 4 50,709.90 0.06
--------- ------------------- -------
Totals:...... 1,900 $ 82,566,614.90 100.00%
--------- ------------------- -------
--------- ------------------- -------
</TABLE>
S-18
<PAGE>
REMAINING MONTHS TO MATURITY
<TABLE>
<CAPTION>
AGGREGATE % OF CUT-OFF
RANGE OF REMAINING NUMBER OF PRINCIPAL BALANCE DATE POOL
MONTHS TO MATURITY CONTRACTS OUTSTANDING PRINCIPAL BALANCE
- ------------------ --------- ------------------- ------------------
<S> <C> <C> <C>
60 or less....... 48 $ 418,543.79 0.51%
61-- 72.......... 3 36,686.51 0.04
73-- 84.......... 36 503,039.97 0.61
85-- 96.......... 3 42,015.10 0.05
109--120.......... 105 1,735,684.29 2.10
121--180.......... 181 4,487,787.59 5.44
181--228.......... 5 130,207.20 0.16
229--240.......... 271 8,446,803.90 10.23
241--288.......... 10 366,527.26 0.44
289--300.......... 412 14,716,518.40 17.82
301--334.......... 9 539,377.16 0.65
335--336.......... 1 39,688.19 0.05
337--348.......... 19 1,313,723.32 1.59
349--360.......... 797 49,790,012.22 60.30
--------- ------------------- -------
Totals:...... 1,900 $ 82,566,614.90 100.00%
--------- ------------------- -------
--------- ------------------- -------
</TABLE>
ORIGINAL MONTHS TO MATURITY
<TABLE>
<CAPTION>
AGGREGATE % OF CUT-OFF
RANGE OF ORIGINAL NUMBER OF PRINCIPAL BALANCE DATE POOL
MONTHS TO MATURITY CONTRACTS OUTSTANDING PRINCIPAL BALANCE
- ------------------ --------- ------------------ ------------------
<S> <C> <C> <C>
60 or less....... 48 $ 418,543.79 0.51%
61-- 72.......... 3 36,686.51 0.04
73-- 84.......... 35 473,009.07 0.57
85-- 96.......... 4 72,046.00 0.09
109--120.......... 105 1,735,684.29 2.10
121--144.......... 12 280,621.15 0.34
145--180.......... 169 4,207,166.44 5.10
181--240.......... 276 8,577,011.10 10.39
241--300.......... 421 15,019,073.96 18.19
301--360.......... 827 51,746,772.59 62.67
--------- ------------------ -------
Totals:...... 1,900 $82,566,614.90 100.00%
--------- ------------------ -------
--------- ------------------ -------
</TABLE>
S-19
<PAGE>
DISTRIBUTION OF CONTRACT AGES (IN MONTHS)
<TABLE>
<CAPTION>
RANGE OF AGGREGRATE % OF CUT-OFF
CONTRACT AGES PRINCIPAL BALANCE DATE POOL
(MONTHS) NUMBER OF CONTRACTS OUTSTANDING PRINCIPAL BALANCE
- --------------------------------- ------------------- ----------------- -----------------
<S> <C> <C> <C>
0-- 6........................... 1,817 $ 78,390,665.57 94.94%
7--12........................... 41 1,932,242.58 2.34
13--18........................... 18 974,312.30 1.18
19--24........................... 10 487,571.27 0.59
25--30........................... 3 145,590.02 0.18
31--36........................... 5 284,873.99 0.35
37--42........................... 3 162,971.05 0.20
43--54........................... 2 124,416.42 0.15
67--72........................... 1 63,971.70 0.08
------ ----------------- -------
Totals:..................... 1,900 $ 82,566,614.90 100.00%
------ ----------------- -------
------ ----------------- -------
</TABLE>
SUBSEQUENT CONTRACTS
The Depositor expects to sell Subsequent Contracts to the Trust during the
Pre-Funding Period. The purchase price for such Subsequent Contracts will equal
the outstanding principal balances thereof as of the related subsequent cut-off
date and will be paid by withdrawal of funds on deposit in the Pre-Funding
Account. The Subsequent Contracts generally will have been originated more
recently than, and may have other characteristics which differ from, the
Contracts initially included in the Trust. As a result, following any sale of
Subsequent contracts, the description of the Contracts set forth above may not
accurately reflect the characteristics of all of the Contracts and Subsequent
Contracts in the Trust. However, the Subsequent Contracts must conform to the
representations and warranties set forth in the Agreement. Additionally, no
Subsequent Contracts will be 30 or more days delinquent or secured by used
Manufactured Homes with a model year of 1985 or earlier. Following the end of
the Pre-Funding Period, the Depositor expects that the Contracts (including
Subsequent Contracts) in the Trust will have the following approximate
characteristics.
<TABLE>
<S> <C>
Average Stated Principal Balance.................................................... at least $38,000
Weighted Average Contract Rate...................................................... 8.90% - 10.20%
Weighted Average Remaining Term to Stated Maturity.................................. 310 months - 316 months
Weighted Average Original Loan-to-Value Ratio....................................... not more than 87%
Weighted Average Contract Age....................................................... 0 months - 6 months
Contracts Secured by Primary Residences............................................. at least 99%
Contracts Secured by New Manufactured Homes......................................... at least 85%
Contracts Secured by Manufactured Homes which are Single Wide....................... not more than 30%
Land-and-Home Contracts............................................................. at least 33.50%
State Distribution
South Carolina.................................................................... not more than 18%
North Carolina.................................................................... not more than 15%
Any other individual state........................................................ not more than 10%
</TABLE>
S-20
<PAGE>
MATURITY, PREPAYMENT AND YIELD CONSIDERATIONS
GENERAL
Prepayments. The weighted average life of and, if purchased at a price
other than par, the yield to maturity on, a Class of Offered Certificates will
be directly related to the rate of payment of principal of the Contracts within
the Contract Pool, including for this purpose Prepayments, delinquencies,
liquidations due to defaults, casualties and condemnations, and repurchases of
Contracts by the Originators or purchases of Contracts by the Servicer or
pursuant to an auction sale. 'Prepayment' includes any full or partial payment
or other recovery of principal on a Contract (exclusive of liquidation proceeds)
which is received in advance of its scheduled Due Date. The Contracts may be
prepaid by the related Obligors at any time, generally without payment of any
prepayment fee or penalty. The actual rate of principal prepayments on pools of
manufactured housing contracts is influenced by a variety of economic, tax,
geographic, demographic, social, legal and other factors and has fluctuated
considerably in recent years. In addition, the rate of principal prepayments may
differ among pools of manufactured housing contracts at any time because of
specific factors relating to the contracts in the particular pool, including,
among other things, the age of the contracts, the geographic locations of the
properties securing the contracts, the extent of the Obligors' equity in such
properties, and changes in the Obligors' housing needs, job transfers and
unemployment. Generally, however, because the Contracts bear interest at fixed
rates, if prevailing interest rates were to fall below the Contract Rates, the
Contracts may be subject to higher prepayment rates. Conversely, if prevailing
interest rates were to rise above the Contract Rates, the rate of prepayments on
the Contracts could decrease.
If purchased at a price other than par, the yield to maturity on an Offered
Certificate will be affected by the rate and timing of payments of principal,
including Prepayments, of the Contracts. If the actual rate of payments on the
Contracts is slower than the rate anticipated by an investor who purchases an
Offered Certificate at a discount, the actual yield to such investor will be
lower than such investor's anticipated yield. If the actual rate of payments on
the Contracts is faster than the rate anticipated by an investor who purchases
an Offered Certificate at a premium, the actual yield to such investor will be
lower than such investor's anticipated yield.
While partial prepayments of principal on the Contracts are applied on Due
Dates for such Contracts, Obligors are not required to pay interest on Contracts
after the date of a full prepayment of principal. As a result, full prepayments
of Contracts in advance of their Due Dates in a particular Due Period will
reduce the amount of interest received from Obligors during that Due Period to
less than one month's interest on all the Contracts (such shortfalls in interest
collected being referred to herein as 'Due Date Interest Shortfalls'). The
Agreement requires the Servicer to provide funds (to be included in the
Available Funds distributed with respect to the Certificates) to compensate for
any Due Date Interest Shortfalls in an amount up to its Servicing Fee
('Compensating Interest'). If a sufficient number of Contracts are prepaid in
full during a given Due Period in advance of their respective Due Dates, then
interest payable on all of the Contracts during the related Due Period may be
less that the interest payable on all of the Certificates with respect to such
Due Period. If the level of Due Date Interest Shortfalls were large enough, and
exceeded the amount of available Compensating Interest, such shortfalls could
result in a Writedown Amount being allocated to the Subordinated Certificates.
See 'Description of the Offered Certificates--Priority of Distributions' and
'--Allocation of Writedown Amounts' herein.
The timing of changes in the rate of prepayments on the Contracts may
significantly affect an investor's actual yield to maturity, even if the average
rate of principal payments is consistent with an investor's expectation. In
general, the earlier a prepayment of principal on the Contracts, the greater the
effect on an investor's yield to maturity. The effect on an investor's yield as
a result of principal payments occurring at a rate higher (or lower) than the
rate anticipated by the investor during the period immediately following the
issuance of the Offered Certificates may not be offset by a subsequent like
decrease (or increase) in the rate of principal payments.
If a purchaser of Certificates calculates its anticipated yield based on an
assumed rate of default and an assumed amount of Realized Losses that are lower
than the default rate and amount of Realized Losses actually incurred and such
amount of Realized Losses actually incurred is not entirely covered by Excess
Interest or by the subordination of Classes of Certificates subordinated to such
purchaser's Class, the purchaser's actual yield to maturity will be lower than
that so calculated. The timing of the Realized Losses on Liquidated Contracts
will also affect an investor's actual yield to maturity, even if the rate of
defaults and severity of losses are consistent with an investor's expectations.
There can be no assurance as to the delinquency, repossession, foreclosure or
loss experience with respect to the Contracts.
Appendix A hereto sets forth life-to-date prepayment rates and pool factors
as of March 31, 1998, with respect to certain manufactured housing contracts
previously securitized by the Depositor.
Floating Rate Certificates. Each Interest Accrual Period for the Floating
Rate Certificates will consist of the actual number of days elapsed from the
Remittance Date in the month preceding the month of the applicable
S-21
<PAGE>
Remittance Date (or, in the case of the first Interest Accrual Period, from the
Closing Date) through the day preceding such applicable Remittance Date. After
the initial Interest Accrual Period, the Remittance Rate for the Floating Rate
Certificates will be adjusted by reference to changes in the level of 1-Month
LIBOR, subject to the effects of the applicable limitations described herein.
See 'Risk Factors--Prepayments May Affect Remittance Rates' herein.
Subsequent Contracts. As described herein, the Depositor expects to sell
Subsequent Contracts to the Trust during the Pre-Funding Period. If the entire
Pre-Funded Amount is not used to purchase Subsequent Contracts, the unused
portion will be applied as a Prepayment and allocated to the Class or Classes of
Senior Certificates then entitled to distributions of principal.
Final Scheduled Remittance Dates. The Final Scheduled Remittance Dates for
each Class of Offered Certificates is set forth on the cover hereof. The Final
Scheduled Remittance Dates for the Class A-1, Class A-2, Class A-3 and Class B-1
Certificates were determined on the basis of the Structuring Assumptions
(defined below) and the assumption that there are no Prepayments and no
Accelerated Principal Distribution Amounts are distributed. The Final Scheduled
Remittance Dates for the Class A-4, Class M-1, and Class M-2 Certificates were
determined by adding 13 months to the date of maturity of the latest possible
maturing Contract assuming that the Subsequent Contracts are purchased in
September 1998 and have a remaining term to maturity of 360 months, maturing in
September 2028. The weighted average life of each Class of Offered Certificates
is likely to be shorter, and the final Remittance Date could occur significantly
earlier than the applicable Final Scheduled Remittance Date because (i)
Prepayments are likely to occur, (ii) the Originators may repurchase Contracts
in the event of breaches of representations and warranties, (iii) the Servicer
may cause an optional termination of the Trust or an auction sale may occur and
(iv) Accelerated Principal Distribution Amounts may be distributed.
Priority of Distributions. Generally, prior to the time that the
Certificate Balance of a Class of Senior Certificates with a lower numerical
designation is reduced to zero, the holders of any Class of Senior Certificates
with a higher numerical designation will not receive any distributions of
principal. The allocation of distributions to the Certificates in accordance
with the Agreement will have the effect of amortizing the Senior Certificates
(particularly the Class A-1 Certificates) at a faster rate than the rate at
which such Certificates would have been amortized if the Principal Distribution
Amount were required to be allocated among the Classes of the Certificates pro
rata prior to the Cross-over Date. To the extent that, on a Remittance Date
prior to the Cross-over Date, the Available Funds is not sufficient to permit a
full distribution of the Principal Distribution Amount on one or more Classes of
the Senior Certificates that are then entitled to receive the Principal
Distribution Amount, the effect will be to delay the amortization of such Senior
Certificates.
The holders of the Subordinated Certificates will not be entitled to
receive any distributions of principal on any Remittance Date unless either (1)
the Cross-over Date has occurred and the Principal Distribution Tests are
satisfied for such Remittance Date or (2) the Certificate Balance of the Senior
Certificates has been reduced to zero. It is not possible to predict with
certainty the timing of the date, if any, on which the Cross-over Date will
occur, or whether the Principal Distribution Tests will be met as to any
Remittance Date. A high level of Realized Losses or delinquencies could result
in the Principal Distribution Tests not being met for one or more Remittance
Dates. This would delay the amortization of the Subordinated Certificates beyond
what would otherwise have been the case.
Because the Remittance Rate on each Class of Offered Certificates may vary
on the basis of the Weighted Average Net Contract Rate, such Remittance Rate and
the yield on such Certificates could be affected by disproportionate collections
of principal in respect of Contracts with different Net Contract Rates
(including Obligor prepayments and such collections resulting from liquidations
and repurchases of Contracts). Accordingly, the yield to maturity of any of the
Class A-2, Class A-3, Class A-4, Class M-1, Class M-2 and Class B-1 Certificates
will be lower than that which would otherwise result if all or a substantial
portion of the Contracts with Net Contract Rates higher than a rate per annum
specified below prepaid prior to those with Net Contract Rates lower than such
rate per annum. Such rate per annum is 6.080% in the case of the Class A-2
Certificates, 6.163% in the case of the Class A-3 Certificates, 6.587% in the
case of the Class A-4 Certificates, 6.726% in the case of the Class M-1
Certificates, 7.069% in the case of the Class M-2 Certificates and 7.312% in the
case of the Class B-1 Certificates.
PAYMENT LAG FEATURE OF THE FIXED RATE CERTIFICATES
The Agreement provides that the Interest Accrual Period for the Fixed Rate
Certificates will be the calendar month prior to each Remittance Date.
Collections on the Contracts are not distributed to the Holders of the Offered
Certificates until at least the 15th day of the following month. As a result,
the yield to the Holders of the Fixed Rate Certificates will be slightly lower
than would be the case if each Interest Accrual Period were to be from
Remittance Date to Remittance Date.
S-22
<PAGE>
STRUCTURING ASSUMPTIONS
The information in the decrement tables has been prepared on the basis of
the following assumed characteristics of the Contracts and the following
additional assumptions (collectively, the 'Structuring Assumptions'): (i) the
Contracts prepay at the specified percentages of MHP (as defined below), (ii) no
defaults or delinquencies in the payment by Obligors of principal of and
interest on the Contracts are experienced, (iii) the initial Class Certificate
Balance of each Class of Certificates is as set forth herein, (iv) interest
accrues on each Class of Certificates during each Interest Accrual Period at the
applicable Remittance Rate or initial Remittance Rate described herein, (v)
distributions in respect of the Offered Certificates are received in cash on the
15th day of each month commencing in July 1998, (vi) the Servicer does not
exercise its option to purchase the remaining Contracts and no auction sale
occurs, (vii) the Offered Certificates are purchased on June 17, 1998, (viii)
scheduled payments on the Contracts are received on the first day of each month
commencing in the calendar month following the Closing Date and are computed
prior to giving effect to prepayments received on the last day of the prior
month, (ix) prepayments represent prepayments in full of individual Contracts
and are received on the last day of each month and include 30 days' interest
thereon, commencing in the calendar month of the Closing Date, (x) the scheduled
monthly payment for each Contract has been calculated based on the assumed
characteristics set forth in the following table such that each Contract will
amortize in amounts sufficient to repay the balance of such Contract by its
indicated remaining term to maturity, (xi) Subsequent Contracts are purchased in
July 1998 in an amount equal to the Pre-Funded Amount, (xii) the Trust consists
of 7 Contracts with the characteristics set forth in the following table, (xiii)
the Expense Fee Rate is 0.515% per annum for each Contract and (xiv) the
Remittance Rate on the Class B-2 Certificates is 7.941%. While it is assumed
that each of the Contracts prepays at the specified percentages of MHP, this is
not likely to be the case. Moreover, discrepancies will exist between the
characteristics of the actual Contracts which will be delivered to the Trustee
and characteristics of the Contracts assumed in preparing the tables herein.
Prepayments of contracts are commonly measured relative to a prepayment
standard or model. The model used with respect to the Offered Certificates
('MHP') assumes that a pool of manufactured housing contracts prepays in the
first month of the life of the manufactured housing contract at a constant
prepayment rate ('CPR') of 3.7% and increases by an additional 0.1% each month
thereafter through the 23rd month. Beginning in the 24th month, MHP assumes a
constant prepayment rate of 6.0% per annum. CPR represents an assumed constant
rate of prepayment each month, expressed as an annual rate, relative to the then
outstanding principal balance of a pool of manufactured housing contracts for
the life of such manufactured housing contracts. Neither model purports to be
either an historical description of the prepayment experience of any pool of
manufactured housing contracts or a prediction of the anticipated rate of
prepayment of any manufactured housing contracts, including the Contracts to be
included in the Trust.
<TABLE>
<CAPTION>
REMAINING TERM
PRINCIPAL BALANCE CONTRACT ORIGINAL TERM TO TO MATURITY
CONTRACT NO. ($) RATE (%) MATURITY (IN MONTHS) (IN MONTHS)
- ------------------------- -------------------- -------- -------------------- --------------
<S> <C> <C> <C> <C>
1 1,000,285.37 11.154 74 73
2 2,016,305.44 11.039 123 123
3 4,207,166.44 10.508 180 179
4 8,577,011.10 10.120 240 239
5 15,083,045.66 9.835 300 299
6 51,682,800.89 8.207 360 358
7(1) 27,433,385.10 8.850 351 351
</TABLE>
- ------------------
(1) Assumes transfer to the Trust in July 1998 with the characteristics set
forth above. Scheduled payments are assumed to be received on the first day
of each month commencing in August 1998. Prepayments are assumed to be
received on the last day of each month commencing in July 1998 and include
30 days' interest thereon. During the first Interest Accrual Period interest
is assumed to be available at a rate equal to approximately 6.590% per
annum.
S-23
<PAGE>
DECREMENT TABLES
The following tables indicate, based on the Structuring Assumptions, the
percentages of the initial Class Certificate Balances of the Classes of Offered
Certificates that would be outstanding after each of the dates shown at various
percentages of MHP and the corresponding weighted average lives of such Classes.
It is not likely that (i) all of the Contracts will have the characteristics
assumed or (ii) the Contracts will prepay at the specified percentages of MHP or
at any other constant percentage. Moreover, the diverse remaining terms to
maturity of the Contracts could produce slower or faster principal distributions
than indicated in the tables at the specified percentages of the Prepayment
Assumption, even if the weighted average remaining term to maturity of the
Contracts is consistent with the remaining terms to maturity of the Contracts
specified in the Structuring Assumptions.
PERCENT OF INITIAL CLASS CERTIFICATE
BALANCES OUTSTANDING*
<TABLE>
<CAPTION>
CLASS A-1 CLASS A-2
PERCENTAGE OF MHP PERCENTAGE OF MHP
------------------------------- --------------------------------
REMITTANCE DATE 0% 100% 175% 250% 350% 0% 100% 175% 250% 350%
- --------------------- --- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percent...... 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
June 1999............ 85 66 51 36 16 100 100 100 100 100
June 2000............ 79 35 3 0 0 100 100 100 67 21
June 2001............ 72 4 0 0 0 100 100 50 0 0
June 2002............ 65 0 0 0 0 100 70 1 0 0
June 2003............ 57 0 0 0 0 100 38 0 0 0
June 2004............ 48 0 0 0 0 100 7 0 0 0
June 2005............ 40 0 0 0 0 100 0 0 0 0
June 2006............ 30 0 0 0 0 100 0 0 0 0
June 2007............ 20 0 0 0 0 100 0 0 0 0
June 2008............ 8 0 0 0 0 100 0 0 0 0
June 2009............ 0 0 0 0 0 96 0 0 0 0
June 2010............ 0 0 0 0 0 82 0 0 0 0
June 2011............ 0 0 0 0 0 66 0 0 0 0
June 2012............ 0 0 0 0 0 48 0 0 0 0
June 2013............ 0 0 0 0 0 30 0 0 0 0
June 2014............ 0 0 0 0 0 12 0 0 0 0
June 2015............ 0 0 0 0 0 0 0 0 0 0
June 2016............ 0 0 0 0 0 0 0 0 0 0
June 2017............ 0 0 0 0 0 0 0 0 0 0
June 2018............ 0 0 0 0 0 0 0 0 0 0
June 2019............ 0 0 0 0 0 0 0 0 0 0
June 2020............ 0 0 0 0 0 0 0 0 0 0
June 2021............ 0 0 0 0 0 0 0 0 0 0
June 2022............ 0 0 0 0 0 0 0 0 0 0
June 2023............ 0 0 0 0 0 0 0 0 0 0
June 2024............ 0 0 0 0 0 0 0 0 0 0
June 2025............ 0 0 0 0 0 0 0 0 0 0
June 2026............ 0 0 0 0 0 0 0 0 0 0
June 2027............ 0 0 0 0 0 0 0 0 0 0
June 2028............ 0 0 0 0 0 0 0 0 0 0
--- ---- ---- ---- ---- ---- ---- ---- ---- ----
Weighted Average Life
(years)**.......... 5.6 1.6 1.1 0.8 0.6 13.9 4.7 3.0 2.3 1.7
</TABLE>
- ------------------
* Rounded to the nearest whole percentage.
** The weighted average life of an Offered Certificate is determined by (a)
multiplying the amount of the reduction, if any, of the Class Certificate
Balance of such Certificate on each Remittance Date by the number of years
from the date of issuance to such Remittance Date, (b) summing the results
and (c) dividing the sum by the aggregate amount of the reductions in Class
Certificate Balance of such Certificate referred to in clause (a).
S-24
<PAGE>
PERCENT OF INITIAL CLASS CERTIFICATE
BALANCES OUTSTANDING*
<TABLE>
<CAPTION>
CLASS A-3 CLASS A-4
PERCENTAGE OF MHP PERCENTAGE OF MHP
------------------------------------ ------------------------------------
REMITTANCE DATE 0% 100% 175% 250% 350% 0% 100% 175% 250% 350%
- --------------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percent...... 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
June 1999............ 100 100 100 100 100 100 100 100 100 100
June 2000............ 100 100 100 100 100 100 100 100 100 100
June 2001............ 100 100 100 98 9 100 100 100 100 100
June 2002............ 100 100 100 13 0 100 100 100 100 52
June 2003............ 100 100 38 0 0 100 100 100 68 11
June 2004............ 100 100 11 0 0 100 100 100 57 9
June 2005............ 100 68 0 0 0 100 100 93 48 7
June 2006............ 100 38 0 0 0 100 100 82 39 5
June 2007............ 100 20 0 0 0 100 100 71 33 4
June 2008............ 100 2 0 0 0 100 100 62 27 3
June 2009............ 100 0 0 0 0 100 92 54 22 2
June 2010............ 100 0 0 0 0 100 84 47 18 2
June 2011............ 100 0 0 0 0 100 76 40 14 1
June 2012............ 100 0 0 0 0 100 69 34 11 1
June 2013............ 100 0 0 0 0 100 61 29 9 1
June 2014............ 100 0 0 0 0 100 55 24 7 0
June 2015............ 88 0 0 0 0 100 49 20 5 0
June 2016............ 57 0 0 0 0 100 43 17 4 0
June 2017............ 36 0 0 0 0 100 37 14 3 0
June 2018............ 18 0 0 0 0 100 32 11 0 0
June 2019............ 2 0 0 0 0 100 27 9 0 0
June 2020............ 0 0 0 0 0 91 23 7 0 0
June 2021............ 0 0 0 0 0 80 19 4 0 0
June 2022............ 0 0 0 0 0 69 15 1 0 0
June 2023............ 0 0 0 0 0 56 11 0 0 0
June 2024............ 0 0 0 0 0 46 8 0 0 0
June 2025............ 0 0 0 0 0 34 5 0 0 0
June 2026............ 0 0 0 0 0 22 0 0 0 0
June 2027............ 0 0 0 0 0 8 0 0 0 0
June 2028............ 0 0 0 0 0 0 0 0 0 0
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Weighted Average Life
(years)**.......... 18.6 7.8 5.0 3.6 2.7 25.6 17.6 12.7 8.2 4.5
</TABLE>
- ------------------
* Rounded to the nearest whole percentage.
** The weighted average life of an Offered Certificate is determined by (a)
multiplying the amount of the reduction, if any, of the Class Certificate
Balance of such Certificate on each Remittance Date by the number of years
from the date of issuance to such Remittance Date, (b) summing the results
and (c) dividing the sum by the aggregate amount of the reductions in Class
Certificate Balance of such Certificate referred to in clause (a).
S-25
<PAGE>
PERCENT OF INITIAL CLASS CERTIFICATE
BALANCES OUTSTANDING*
<TABLE>
<CAPTION>
CLASS M-1 CLASS M-2
PERCENTAGE OF MHP PERCENTAGE OF MHP
------------------------------------ ------------------------------------
REMITTANCE DATE 0% 100% 175% 250% 350% 0% 100% 175% 250% 350%
- --------------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percent...... 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
June 1999............ 100 100 100 100 100 100 100 100 100 100
June 2000............ 100 100 100 100 100 100 100 100 100 100
June 2001............ 100 100 100 100 100 100 100 100 100 100
June 2002............ 100 100 100 100 100 100 100 100 100 100
June 2003............ 100 100 100 100 100 100 100 100 100 100
June 2004............ 100 100 88 84 80 100 100 88 84 80
June 2005............ 100 100 77 70 61 100 100 77 70 61
June 2006............ 100 96 67 58 47 100 96 67 58 47
June 2007............ 100 88 59 48 36 100 88 59 48 36
June 2008............ 100 80 51 40 27 100 80 51 40 27
June 2009............ 100 73 44 32 20 100 73 44 32 20
June 2010............ 100 67 38 26 15 100 67 38 26 15
June 2011............ 100 60 33 21 10 100 60 33 21 10
June 2012............ 100 54 28 17 7 100 54 28 17 2
June 2013............ 100 49 24 13 1 100 49 24 13 0
June 2014............ 100 44 20 11 0 100 44 20 11 0
June 2015............ 100 39 17 8 0 100 39 17 5 0
June 2016............ 100 34 14 4 0 100 34 14 0 0
June 2017............ 94 30 11 0 0 94 30 11 0 0
June 2018............ 87 25 9 0 0 87 25 9 0 0
June 2019............ 80 22 7 0 0 80 22 1 0 0
June 2020............ 72 18 3 0 0 72 18 0 0 0
June 2021............ 64 15 0 0 0 64 15 0 0 0
June 2022............ 54 12 0 0 0 54 12 0 0 0
June 2023............ 45 9 0 0 0 45 8 0 0 0
June 2024............ 36 5 0 0 0 36 0 0 0 0
June 2025............ 27 0 0 0 0 27 0 0 0 0
June 2026............ 17 0 0 0 0 17 0 0 0 0
June 2027............ 5 0 0 0 0 0 0 0 0 0
June 2028............ 0 0 0 0 0 0 0 0 0 0
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Weighted Average Life
(years)**.......... 24.3 15.7 11.4 9.9 8.6 24.3 15.7 11.3 9.8 8.5
</TABLE>
- ------------------
* Rounded to the nearest whole percentage.
** The weighted average life of an Offered Certificate is determined by (a)
multiplying the amount of the reduction, if any, of the Class Certificate
Balance of such Certificate on each Remittance Date by the number of years
from the date of issuance to such Remittance Date, (b) summing the results
and (c) dividing the sum by the aggregate amount of the reductions in Class
Certificate Balance of such Certificate referred to in clause (a).
S-26
<PAGE>
PERCENT OF INITIAL CLASS CERTIFICATE
BALANCES OUTSTANDING*
<TABLE>
<CAPTION>
CLASS B-1
PERCENTAGE OF MHP
------------------------------------
REMITTANCE DATE 0% 100% 175% 250% 350%
- --------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percent...... 100% 100% 100% 100% 100%
June 1999............ 100 100 100 100 100
June 2000............ 100 100 100 100 100
June 2001............ 100 100 100 100 100
June 2002............ 100 100 100 100 100
June 2003............ 100 100 100 100 100
June 2004............ 100 100 72 63 53
June 2005............ 100 100 46 30 10
June 2006............ 100 90 24 3 0
June 2007............ 100 72 4 0 0
June 2008............ 100 54 0 0 0
June 2009............ 100 37 0 0 0
June 2010............ 100 22 0 0 0
June 2011............ 100 7 0 0 0
June 2012............ 100 0 0 0 0
June 2013............ 100 0 0 0 0
June 2014............ 100 0 0 0 0
June 2015............ 100 0 0 0 0
June 2016............ 100 0 0 0 0
June 2017............ 87 0 0 0 0
June 2018............ 69 0 0 0 0
June 2019............ 52 0 0 0 0
June 2020............ 34 0 0 0 0
June 2021............ 15 0 0 0 0
June 2022............ 0 0 0 0 0
June 2023............ 0 0 0 0 0
June 2024............ 0 0 0 0 0
June 2025............ 0 0 0 0 0
June 2026............ 0 0 0 0 0
June 2027............ 0 0 0 0 0
June 2028............ 0 0 0 0 0
---- ---- ---- ---- ----
Weighted Average Life
(years)**.......... 21.1 10.4 7.0 6.5 6.1
</TABLE>
- ------------------
* Rounded to the nearest whole percentage.
** The weighted average life of an Offered Certificate is determined by (a)
multiplying the amount of the reduction, if any, of the Class Certificate
Balance of such Certificate on each Remittance Date by the number of years
from the date of issuance to such Remittance Date, (b) summing the results
and (c) dividing the sum by the aggregate amount of the reductions in Class
Certificate Balance of such Certificate referred to in clause (a).
S-27
<PAGE>
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Certificates will be issued pursuant to the Agreement. Set forth below
are summaries of the specific terms and provisions pursuant to which the
Certificates will be issued. The following summaries do not purport to be
complete and are subject to, and are qualified in their entirety by reference
to, the provisions of the Agreement. When particular provisions or terms used in
the Agreement are referred to, the actual provisions (including definitions of
terms) are incorporated by reference.
The Manufactured Housing Contract Pass-Through Certificates, Series 1998-2
will consist of the Class A-1, Class A-2, Class A-3 and Class A-4 Certificates
(collectively, the 'Senior Certificates') and the Class M-1, Class M-2, Class
B-1, Class B-2 and Class R Certificates (collectively, the 'Subordinated
Certificates'). The Senior Certificates and the Subordinated Certificates are
collectively referred to herein as the 'Certificates.' Only the Senior
Certificates and the Class M and Class B-1 Certificates (collectively, the
'Offered Certificates') are offered hereby. The Classes of Offered Certificates
will have the respective initial Class Certificate Balances and Remittance Rates
set forth or described on the cover hereof (except for the Remittance Rate for
the Class A-1 Certificates, which will be calculated by reference to 1-Month
LIBOR). The Remittance Rate for each Class of Offered Certificates for any
Interest Accrual Period will be subject to the Weighted Average Net Contract
Rate for the related Remittance Date.
The Class Certificate Balance of any Class of Certificates as of any
Remittance Date is the initial Class Certificate Balance thereof reduced by the
sum of all amounts previously distributed to holders of Certificates of such
Class as payments of principal.
The Senior Certificates will evidence in the aggregate an initial
beneficial ownership interest of approximately 73.00% in the Trust. The Class
M-1, Class M-2, Class B-1 and Class B-2 Certificates will each evidence in the
aggregate an initial beneficial ownership interest of approximately 9.00%,
4.00%, 6.00% and 8.00%, respectively, in the Trust.
BOOK-ENTRY CERTIFICATES
Each Class of Book-Entry Certificates will be issued in one or more
certificates which equal the aggregate initial Class Certificate Balance of each
such Class of Certificates and which will be held by a nominee of The Depository
Trust Company (together with any successor depository selected by the Depositor,
the 'Depository'). Beneficial interests in the Book-Entry Certificates will be
held indirectly by investors through the book-entry facilities of the
Depository, as described herein. Investors may hold such beneficial interests in
the Book-Entry Certificates in minimum denominations representing an original
principal amount of $25,000 and integral multiples of $1,000 in excess thereof.
One investor of each Class of Book-Entry Certificates may hold a beneficial
interest therein that is not an integral multiple of $1,000. The Depositor has
been informed by the Depository that its nominee will be Cede & Co. ('Cede').
Accordingly, Cede is expected to be the holder of record of the Book-Entry
Certificates. Except as described in the Prospectus under 'Description of the
Certificates--Book-Entry Certificates,' no person acquiring a Book-Entry
Certificate (each, a 'Certificate Owner') will be entitled to receive a physical
certificate representing such Certificate (a 'Definitive Certificate').
Unless and until Definitive Certificates are issued, it is anticipated that
the only 'Certificateholder' of the Book-Entry Certificates will be Cede, as
nominee of the Depository. Owners of the Book-Entry Certificates will not be
Certificateholders, as that term is used in the Agreement. Certificate Owners
are only permitted to exercise the rights of Certificateholders indirectly
through Financial Intermediaries and the Depository. Monthly and annual reports
on the Trust provided to Cede, as nominee of the Depository, may be made
available to Certificate Owners upon request, in accordance with the rules,
regulations and procedures creating and affecting the Depository, and to the
Financial Intermediaries to whose Depository accounts the Book-Entry
Certificates of such Certificate Owners are credited.
For a description of the procedures generally applicable to the Book-Entry
Certificates, see 'Description of the Certificates--Book-Entry Certificates' in
the Prospectus.
S-28
<PAGE>
DISTRIBUTIONS
Distributions on the Certificates will be made by the Trustee on the 15th
day of each month, or if such day is not a business day, on the next succeeding
business day thereafter, commencing in July 1998 (each, a 'Remittance Date'), to
the persons in whose names such Certificates are registered at the close of
business on the last business day of the month immediately preceding the month
of such Remittance Date (the 'Record Date').
Distributions on each Remittance Date will be made by check mailed to the
address of the person entitled thereto as it appears on the applicable
certificate register or, in the case of a Certificateholder who holds 100% of a
Class of Certificates or who holds Certificates with an aggregate initial
Certificate Balance of $1,000,000 or more and who has so notified the Trustee in
writing in accordance with the Agreement, by wire transfer in immediately
available funds to the account of such Certificateholder at a bank or other
depository institution having appropriate wire transfer facilities; provided,
however, that the final distribution in retirement of the Certificates will be
made only upon presentment and surrender of such Certificates at the Corporate
Trust Office of the Trustee.
AVAILABLE FUNDS
The 'Available Funds' for each Remittance Date will equal the sum of the
following amounts:
(i) the aggregate of all previously undistributed payments on account
of principal and interest (net of the Servicing Fee) on the Contracts
received on or after the Cut-off Date and received during the related Due
Period except:
(a) amounts representing reimbursement for Monthly Advances, such
reimbursement being limited to amounts received on particular Contracts
as late collections of principal or interest as to which the Servicer
has made an unreimbursed Monthly Advance;
(b) amounts representing reimbursement for any unpaid expenses and
Servicing Fees from Liquidation Proceeds, condemnation proceeds and
proceeds of insurance policies with respect to the related Contracts;
and
(c) amounts representing reimbursement for Nonrecoverable Advances;
(ii) the amount of any Monthly Advance made and Compensating Interest
paid by the Servicer and deposited by it in the Certificate Account; and
(iii) the Capitalized Interest Requirement for such Remittance Date
and, on any Remittance Date at or immediately following the end of the
Pre-Funding Period, any remaining Pre-Funding Amount in the Pre-Funding
Account.
INTEREST
General. The Remittance Rate for each Class of Fixed Rate Certificates,
except the Class B-2 Certificates, for each Remittance Date will be as set forth
or described on the cover page hereof. The Remittance Rate for the Class A-1
Certificates will be calculated by reference to the London interbank offered
rate for one month U.S. dollar deposits ('1-Month LIBOR'). The 'Class A-1 LIBOR
Rate' for each Interest Accrual Period will equal the sum of 1-Month LIBOR,
determined as described below under '--Calculation of 1-Month LIBOR', plus
0.06%. The Remittance Rate with respect to each Class of Offered Certificates is
subject to a maximum rate on each Remittance Date equal to the Weighted Average
Net Contract Rates for such Remittance Date.
The 'Weighted Average Net Contract Rate' for a Remittance Date is a rate
equal to the weighted average of (i) the Contract Rates applicable to the
Monthly Payments that were due in the related Due Period on outstanding
Contracts at the beginning of the related Due Period less (ii) 0.515% (the
'Expense Fee Rate'). The 'Contract Rate' of any Contract is the rate of interest
specified in such Contract.
On each Remittance Date, holders of each Class of Senior Certificates will
be entitled to receive, to the extent of the Available Funds as described above
(1) interest accrued on such Class during the related Interest Accrual Period at
the then-applicable Remittance Rate on the Certificate Balance of such Class
immediately prior to that Remittance Date (the 'Interest Distribution Amount'
for such Class), plus (2) any amounts distributable under clause (1) above or
this clause (2) on such Class on the previous Remittance Date but not previously
S-29
<PAGE>
distributed, plus interest accrued on any such amount during the related
Interest Accrual Period at the then-applicable Remittance Rate (the 'Carryover
Interest Distribution Amount' for such Class and Remittance Date). On each
Remittance Date, holders of the Subordinated Certificates will be entitled to
receive, to the extent of the Available Funds and on a subordinated basis as
described below under '--Priority of Distributions', (1) interest accrued on
such Class during the related Interest Accrual Period at the then-applicable
Remittance Rate on the Adjusted Certificate Balance of such Class immediately
prior to that Remittance Date (the 'Interest Distribution Amount' for such
Class), plus (2) any amounts distributable under clause (1) above or this clause
(2) on such Class on the previous Remittance Date but not previously
distributed, plus interest accrued on any such amount during the related
Interest Accrual Period at the then applicable Remittance Rate (the 'Carryover
Interest Distribution Amount' for such Class and Remittance Date).
The 'Interest Accrual Period' with respect to each Remittance Date shall
mean (i) in the case of the Fixed Rate Certificates, the calendar month
preceding the month in which the Remittance Date occurs and (ii) in the case of
the Floating Rate Certificates, the period commencing on the Remittance Date in
the month preceding the month of the applicable Remittance Date (or, in the case
of the first Remittance Date, beginning on the Closing Date) and ending on the
day preceding such applicable Remittance Date. Interest on the Fixed Rate
Certificates will be calculated on the basis of a 360-day year consisting of
twelve 30-day months. Interest on the Floating Rate Certificates will be
calculated on the basis of a 360-day year and the actual number of days elapsed
in each Interest Accrual Period.
In addition, on each Remittance Date, to the extent of the Available Funds
and on a subordinated basis as described below under '--Priority of
Distributions' the holders of the Subordinated Certificates will be entitled to
receive (1) interest accrued during the related Interest Accrual Period at the
applicable Remittance Rate on any related Writedown Amount (the 'Writedown
Interest Distribution Amount' for such Class and Remittance Date), plus (2) any
amounts distributable under clause (1) above or this clause (2) on such Class on
the previous Remittance Date but not previously distributed, plus interest
accrued on any such amount during the related Interest Accrual period at the
then applicable Remittance Rate (the 'Carryover Writedown Interest Distribution
Amount' for such Class and Remittance Date).
Calculation of 1-Month LIBOR. With respect to each Remittance Date,
1-Month LIBOR will equal the interbank offered rate for one-month United States
dollar deposits in the London market as quoted on Telerate Page 3750 as of 11:00
A.M., London time, on the second LIBOR Business Day prior to the first day of
the related Interest Accrual Period. 'Telerate Page 3750' means the display
designated as page 3750 on the Telerate Service (or such other page as may
replace page 3750 on that service for the purpose of displaying London interbank
offered rates of major banks). If such rate does not appear on such page (or
such other page as may replace that page on that service, or if such service is
no longer offered, such other service for displaying LIBOR or comparable rates
as may be selected by the Trustee after consultation with the Servicer), the
rate will be the Reference Bank Rate. The 'Reference Bank Rate' will be
determined on the basis of the rates at which deposits in U.S. Dollars are
offered by the reference banks (which shall be three major banks that are
engaged in transactions in the London interbank market, selected by the Trustee
after consultation with the Servicer) as of 11:00 A.M., London time, on the day
that is two LIBOR Business Days prior to the immediately preceding Remittance
Date to prime banks in the London interbank market for a period of one month in
amounts approximately equal to the Class Certificate Balance of the Floating
Rate Certificates. The Trustee will request the principal London office of each
of the reference banks to provide a quotation of its rate. If at least two such
quotations are provided, the rate will be the arithmetic mean of the quotations.
If on such date fewer than two quotations are provided as requested, the rate
will be the arithmetic mean of the rates quoted by one or more major banks in
New York City, selected by the Trustee after consultation with the Servicer, as
of 11:00 A.M., New York City time, on such date for loans in U.S. Dollars to
leading European banks for a period of one month in amounts approximately equal
to the Class Certificate Balance of the Floating Rate Certificates. If no such
quotations can be obtained, the rate will be LIBOR for the prior Remittance
Date. 'LIBOR Business Day' means any day on which commercial banks are open for
business and foreign currency deposits in the London interbank market.
The establishment of 1-Month LIBOR on each Interest Determination Date by
the Trustee and the Trustee's calculation of the rate of interest applicable to
the Floating Rate Certificates for the related Interest Accrual
S-30
<PAGE>
Period shall (in the absence of manifest error) to final and binding. Each such
rate of interest may be obtained by telephoning the Trustee at (949) 253-7575.
PRINCIPAL
The 'Principal Distribution Amount' for any Remittance Date will be an
amount equal to (a) the sum of:
(i) the principal portion of all Monthly Payments on each outstanding
Contract received during the prior Due Period; plus
(ii) all partial principal Prepayments applied and all principal
Prepayments in full received during the prior Due Period; plus
(iii) the Stated Principal Balance of each Contract that became a
Liquidated Contract during the prior Due Period; plus
(iv) the aggregate of the Purchase Prices and Substitution Adjustment
Amounts received with respect to the prior Due Period; plus
(v) any remaining Pre-Funded Amount transferred to the Certificate
Account following the end of the Pre-Funding Period;
minus (b) the Overcollateralization Reduction Amount (as defined below
under '--Overcollateralization'), if any, with respect to such Remittance Date.
The 'Stated Principal Balance' for any Contract and any Remittance Date is
the principal balance of such Contract as of the Cut-off Date less any amounts
in respect of principal of such Contract previously due to Certificateholders.
The Stated Principal Balance of a Liquidated Contract is zero for any month
after the month in which it became a Liquidated Contract.
The 'Principal Distribution Shortfall Carryover Amount' for any Remittance
Date will be, with respect to each Class of Certificates, an amount equal to the
Principal Distribution Amount distributable on such Class from previous
Remittance Dates that have not yet been distributed on such Class of
Certificates.
The 'Senior Principal Distribution Amount' for any Remittance Date will
equal (i) prior to the Cross-over Date, the entire Principal Distribution
Amount, (ii) on any Remittance Date as to which the Principal Distribution Tests
are not met, the entire Principal Distribution Amount, or (iii) on any other
Remittance Date, the Senior Percentage of the Principal Distribution Amount. The
'Class M-1 Principal Distribution Amount' for any Remittance Date will equal (i)
as long as the Class Certificate Balance of the Senior Certificates (the 'Senior
Certificate Balance') has not been reduced to zero and prior to the Cross-over
Date, zero, (ii) on any Remittance Date as to which the Principal Distribution
Tests are not met and the Senior Certificate Balance has not been reduced to
zero, zero, (iii) on any Remittance Date as to which the Principal Distribution
Tests are not met and the Senior Certificate Balance has been reduced to zero,
the Principal Distribution Amount, or (iv) on any other Remittance Date, the
Class M-1 Percentage of the Principal Distribution Amount. The 'Class M-2
Principal Distribution Amount' for a Remittance Date will equal (i) as long as
the Senior Certificate Balance and the Class Certificate Balance of the Class
M-1 Certificates (the 'Class M-1 Certificate Balance') have not been reduced to
zero and prior to the Cross-over Date, zero; (ii) on any Remittance Date as to
which the Principal Distribution Tests are not met and the Senior Certificate
Balance and the Class M-1 Certificate Balance have not been reduced to zero,
zero; (iii) on any Remittance Date as to which the Principal Distribution Tests
are not met and the Senior Certificate Balance and the Class M-1 Certificate
Balance have been reduced to zero, the Principal Distribution Amount, or (iv) on
any other Remittance Date, the Class M-2 Percentage of the Principal
Distribution Amount. The 'Class B-l Principal Distribution Amount' for any
Remittance Date will equal (i) as long as the Senior Certificate Balance, the
Class M-1 Certificate Balance and the Class Certificate Balance of the Class M-2
Certificates (the 'Class M-2 Certificate Balance' and together with the Class
M-1 Certificate Balance, the 'Class M Certificate Balance') have not been
reduced to zero and prior to the Cross-over Date, zero, (ii) on any Remittance
Date as to which the Principal Distribution Tests are not met and the Senior
Certificate Balance and the Class M Certificate Balance have not been reduced to
zero, zero, (iii) on any Remittance Date as to which the Principal Distribution
Tests are not met and the Senior Certificate Balance and the Class M Certificate
Balance have been reduced to zero, the Principal Distribution Amount, or (iv) on
any other Remittance Date, the Class B Percentage of the Principal Distribution
Amount. The 'Class B-2 Principal Distribution Amount' for any
S-31
<PAGE>
Remittance Date will equal the Principal Distribution Amount minus (a) the
Senior Principal Distribution Amount, (b) the Class M-1 Principal Distribution
Amount, (c) the Class M-2 Principal Distribution Amount and (d) the Class B-1
Principal Distribution Amount, in each case for such Remittance Date. For any
Remittance Date, if the Senior Principal Distribution Amount, the Class M-1
Principal Distribution Amount, the Class M-2 Principal Distribution Amount or
the Class B-l Principal Distribution Amount exceeds the Certificate Balance of
the related Class of Certificates, less the Principal Distribution Shortfall
Carryover Amount with respect to such Class and Remittance Date, then such
amounts shall be allocated to the Principal Distribution Amount of the
relatively next junior Class of Certificates. If the Senior Certificate Balance,
the Class M Certificate Balance and the Class Certificate Balance of the Class
B-l Certificates have not been reduced to zero on or before a Remittance Date,
then amounts then allocable as the Class B-2 Principal Distribution Amount shall
be allocated first to the Class M-2 Principal Distribution Amount, next to the
Class M-1 Principal Distribution Amount and finally to the Senior Principal
Distribution Amount, to the extent that allocation of such amounts to the Class
B-2 Principal Distribution Amount would reduce the Class Certificate Balance of
the Class B-2 Certificates below the Class B-2 Floor Amount.
The 'Class Certificate Balance' or 'Certificate Balance' of each Class of
Certificates is its original aggregate principal amount reduced by all
distributions on such Class in reduction of its Class Certificate Balance. The
'Adjusted Certificate Balance' of each Class of Subordinated Certificates is its
Class Certificate Balance immediately following the most recently preceding
Remittance Date reduced by all Writedown Amounts allocated to such Class on such
Remittance Date. A 'Writedown Amount' as of any Remittance Date is the amount,
if any, by which (i) the aggregate Class Certificate Balance of all the
Certificates, after all distributions have been made on all the Certificates on
a Remittance Date, exceeds (ii) the sum of (x) the Pre-Funded Amount, if any, as
of the last day of the related Due Period and (y) Pool Principal Balance for the
next Remittance Date. The 'Senior Percentage' for a Remittance Date will
generally be the percentage derived from the fraction (which shall not be
greater than 1), the numerator of which is the Senior Certificate Balance
immediately prior to such Remittance Date and the denominator of which is the
sum of the Senior Certificate Balance, the Class M Adjusted Certificate Balance
and the Class B Adjusted Certificate Balance, each immediately prior to such
Remittance Date; the 'Class M-1 Percentage' for a Remittance Date will generally
be the percentage derived from the fraction (which shall not be greater than 1),
the numerator of which is the Class M-1 Adjusted Certificate Balance immediately
prior to such Remittance Date and the denominator of which is the sum of the
Senior Certificate Balance, the Class M Adjusted Certificate Balance and the
Class B Adjusted Certificate Balance, each immediately prior to such Remittance
Date. The 'Class M-2 Percentage' for a Remittance Date will generally be the
percentage derived from a fraction (which shall not be greater than 1) the
numerator of which is the Class M-2 Adjusted Certificate Balance immediately
prior to such Remittance Date and the denominator of which is the sum of the
Senior Certificate Balance, the Class M Adjusted Certificate Balance and the
Class B Adjusted Certificate Balance, each immediately prior to such Remittance
Date. The 'Class B Percentage' for a Remittance Date will generally be the
percentage derived from the fraction (which shall not be greater than 1), the
numerator of which is the Class B Adjusted Certificate Balance immediately prior
to such Remittance Date and the denominator of which is the sum of the Senior
Certificate Balance, the Class M Adjusted Certificate Balance and the Class B
Adjusted Certificate Balance, each immediately prior to such Remittance Date.
OVERCOLLATERALIZATION
On the Closing Date, the Current Overcollateralization Amount will be zero.
On subsequent Remittance Dates, Excess Interest, if any, remaining before
distributions to the Residual Certificates will be applied to pay the
Accelerated Principal Distribution Amount, thereby accelerating payments in
respect of the Senior Certificates relative to the principal payments in respect
of the Contracts thereby creating overcollateralization. Such applied amounts of
Excess Interest will continue until the Current Overcollateralization Amount
equals the Target Overcollateralization Amount.
The 'Accelerated Principal Distribution Amount' for any Remittance Date
shall be the positive difference, if any, between the Target
Overcollateralization Amount and the Current Overcollateralization Amount. The
'Overcollateralization Reduction Amount' for any Remittance Date shall be the
positive difference, if any, between the Current Overcollateralization Amount
and the Target Overcollateralization Amount; provided, however, that if on any
Remittance Date the Principal Distribution Tests are not satisfied, then the
S-32
<PAGE>
Overcollateralization Reduction Amount for such Remittance Date shall be zero.
The 'Current Overcollateralization Amount' shall mean, for any Remittance Date,
the positive difference, if any, between (i) the sum of the Pool Principal
Balance for such Remittance Date and the Pre-Funded Amount, if any as of the
beginning of the related Due Period and (ii) the Certificate Balance of all then
outstanding Classes of Certificates. The 'Target Overcollateralization Amount'
shall mean, (i) for any Remittance Date prior to the Cross-over Date, 2.00% of
the sum of the Pool Principal Balance and the Pre-Funded Amount as of the
Cut-off Date and (ii) for any other Remittance Date, the lesser of (x) 2.00% of
the sum of the Pool Principal Balance and the Pre-Funded Amount as of the
Cut-off Date and (y) 3.50% of the Pool Principal Balance for the next Remittance
Date; provided, however, that in no event shall the Target Overcollateralization
Amount be less than 0.75% of the sum of the Pool Principal Balance and the
Pre-Funded Amount as of the Cut-off Date. The 'Pool Principal Balance', as of
any date, is the aggregate Stated Principal Balances of all the Contracts.
PRIORITY OF DISTRIBUTIONS
On each Remittance Date the Available Funds will be distributed in the
following amounts and in the following order of priority:
(1) first, to the Trustee, the Trustee Fee.
(2) second, concurrently, to each Class of Senior Certificates (a)
first, the related Interest Distribution Amount for such Remittance Date,
with the Available Funds being allocated among such Classes pro rata based
on their respective Interest Distribution Amounts and (b) second, the
related Carryover Interest Distribution Amount, if any, for such Remittance
Date, in each case with the Available Funds being allocated among the
Classes of Senior Certificates pro rata based on their respective Carryover
Interest Distribution Amounts;
(3) third, to the Class M-1 Certificates, (a) first, the related
Interest Distribution Amount for such Remittance Date and (b) second, the
related Carryover Interest Distribution Amount, if any, for such Remittance
Date;
(4) fourth, to the Class M-2 Certificates, (a) first, the related
Interest Distribution Amount for such Remittance Date and (b) second, the
related Carryover Interest Distribution Amount, if any, for such Remittance
Date;
(5) fifth, to the Class B-1 Certificates, (a) first, the related
Interest Distribution Amount for such Remittance Date and (b) second, the
related Carryover Interest Distribution Amount, if any, for such Remittance
Date;
(6) sixth, to the Class B-2 Certificates, (a) first, the related
Interest Distribution Amount for such Remittance Date and (b) second, the
related Carryover Interest Distribution Amount, if any, for such Remittance
Date;
(7) seventh, concurrently, to each Class of Senior Certificates, the
related Principal Distribution Shortfall Carryover Amount for the Senior
Certificates, if any, for such Remittance Date, allocated among the Senior
Certificates pro rata based on their respective Certificate Balances;
(8) eighth, to the Senior Certificates, the Senior Principal
Distribution Amount allocated sequentially to the Senior Certificates in
the order of their numerical designations, in reduction of the Certificate
Balance of such Classes, until reduced to zero; provided, however, that on
any Remittance Date on which the Pool Principal Balance for the next
Remittance Date is less than the aggregate Certificate Balance of the
Senior Certificates immediately prior to such Remittance Date, the Senior
Principal Distribution Amount will be allocated among the Senior
Certificates pro rata based upon their respective Certificate Balances;
(9) ninth, to the Class M-1 Certificates, (a) first, any related
Writedown Interest Distribution Amount for such Remittance Date, and (b)
second, any related Carryover Writedown Interest Distribution Amount for
such Remittance Date;
(10) tenth, to the Class M-1 Certificates, the related Principal
Distribution Shortfall Carryover Amount for the Class M-1 Certificates, if
any, for such Remittance Date;
(11) eleventh, to the Class M-1 Certificates, the Class M-1 Principal
Distribution Amount, in reduction of the Certificate Balance of such Class,
until it is reduced to zero;
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<PAGE>
(12) twelfth, to the Class M-2 Certificates, (a) first, any related
Writedown Interest Distribution Amount for such Remittance Date, and (b)
second, any related carryover Writedown Interest Distribution Amount for
such Remittance Date;
(13) thirteenth, to the Class M-2 Certificates, the related Principal
Distribution Shortfall Carryover Amount for the Class M-2 Certificates, if
any, for such Remittance Date;
(14) fourteenth, to the Class M-2 Certificates, the Class M-2
Principal Distribution Amount, in reduction of the Certificate Balance of
such Class, until it is reduced to zero;
(15) fifteenth, to the Class B-l Certificates, (a) first, any related
Writedown Interest Distribution Amount for such Remittance Date, and (b)
second, any related Carryover Writedown Interest Distribution Amount for
such Remittance Date;
(16) sixteenth, to the Class B-1 Certificates, the related Principal
Distribution Shortfall Carryover Amount for the Class B-1 Certificates, if
any, for such Remittance Date;
(17) seventeenth, to the Class B-1 Certificates, the Class B-1
Principal Distribution Amount, in reduction of the Certificate Balance of
such Class, until it is reduced to zero;
(18) eighteenth, to the Class B-2 Certificates, (a) first, any related
Writedown Interest Distribution Amount for such Remittance Date, and (b)
second, any related Carryover Writedown Interest Distribution Amount for
such Remittance Date;
(19) nineteenth, to the Class B-2 Certificates, the related Principal
Distribution Shortfall Carryover Amount for the Class B-2 Certificates, if
any, for such Remittance Date;
(20) twentieth, to the Class B-2 Certificates, the Class B-2 Principal
Distribution Amount, in reduction of the Certificate Balance of such Class,
until it is reduced to zero;
(21) twenty-first, to each Class of Senior Certificates sequentially
in the order of their numerical designations, the Accelerated Principal
Distribution Amount for such Remittance Date, in reduction of the
Certificate Balance of such Classes, until reduced to zero; and
(22) finally, any remainder to the Class R Certificates.
The 'Cross-over Date' will be the later to occur of (1) the Remittance Date
occurring in July 2003 or (2) the first Remittance Date on which the percentage
equivalent of a fraction (which shall not be greater than 1) the numerator of
which is the aggregate Adjusted Certificate Balance of the Subordinated
Certificates plus the Current Overcollateralization Amount for such Remittance
Date and the denominator of which is the Pool Principal Balance for such
Remittance Date equals or exceeds 1.88 times the percentage equivalent of a
fraction (which shall not be greater than 1) the numerator of which is the
initial aggregate Class Certificate Balance of the Subordinated Certificates and
the denominator of which is the sum of the Pool Principal Balance and the
Pre-Funded Amount as of the Cut-off Date.
The 'Principal Distribution Tests' are met in respect of a Remittance Date
if the following conditions are satisfied: (1) the Average Sixty-Day Delinquency
Ratio (as defined in the Agreement) as of such Remittance Date does not exceed
5.00%; (2) the Average Thirty-Day Delinquency Ratio (as defined in the
Agreement) as of such Remittance Date does not exceed 7.00%; (3) the Cumulative
Realized Losses (as defined in the Agreement) as of such Remittance Date do not
exceed a certain specified percentage of the sum of the Pool Principal Balance
and the Pre-Funded Amount as of the Cut-off Date, depending on the year in which
such Remittance Date occurs; and (4) the Current Realized Loss Ratio (as defined
in the Agreement) as of such Remittance Date does not exceed 2.75%. The Average
Sixty-Day Delinquency Ratio and the Average Thirty-Day Delinquency Ratio are, in
general, the ratios of the average of the aggregate principal balances of
Contracts delinquent 60 days or more and 30 days or more, respectively, for the
preceding three Due Periods to the average Pool Principal Balance for such
periods. Cumulative Realized Losses are, in general, the aggregate Realized
Losses incurred in respect of Liquidated Contracts since the Cut-off Date. The
Current Realized Loss Ratio is, in general, the ratio of the aggregate Realized
Losses incurred on Liquidated Contracts for the periods specified in the
Agreement to an average Pool Principal Balance specified in the Agreement.
With respect to any Remittance Date the 'Class B-2 Floor Amount' will mean
(a) 1.25% of the sum of the Pool Principal Balance of the Contracts and the
Pre-Funded Amount as of the Cut-off Date, if the Senior
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<PAGE>
Certificate Balance, the Class M Certificate Balance, and the Class B-1
Certificate Balance have not been reduced to zero immediately prior to such
Remittance Date, and (b) zero, if the Senior Certificate Balance, the Class M
Certificate Balance and the Class B-1 Certificate Balance have been reduced to
zero immediately prior to such Remittance Date.
REALIZED LOSSES ON LIQUIDATED CONTRACTS
The Principal Distribution Amount for any Remittance Date is intended to
include the Stated Principal Balance of each Contract that became a Liquidated
Contract during the related Due Period. A Realized Loss will be incurred on a
Liquidated Contract in the amount, if any, by which the Net Liquidation Proceeds
from such Liquidated Contract are less than the Stated Principal Balance of such
Liquidated Contract on the date of liquidation, plus accrued and unpaid interest
thereon. To the extent that the amount of the Realized Loss is in excess of the
sum of (i) interest collected on the nondefaulted Contracts in excess of certain
interest payments due to be distributed on the Senior, Class M and Class B
Certificates and any portion of such interest required to be paid to the
Servicer as servicing compensation ('Excess Interest'), and (ii) the Current
Overcollateralization Amount, the amount of such Realized Loss may be allocated
to the Subordinated Certificates. See '--Allocation of Writedown Amounts' above.
The 'Stated Principal Balance' for any Contract and any Remittance Date is the
principal balance of such Contract as of the Cut-off Date less any amounts in
respect of principal of such Contract previously due to Certificateholders. The
Stated Principal Balance of a Liquidated Contract is zero for any month after
the month in which it became a Liquidated Contract. A 'Liquidated Contract' is a
defaulted Contract as to which all amounts that the Servicer expects to recover
through the date of disposition of the Manufactured Home, or in the case of
Land-and-Home Contracts, the Mortgaged Property, have been received. 'Net
Liquidation Proceeds' with respect to any Liquidated Contract are the
Liquidation Proceeds, net of expenses of liquidation, unpaid Servicing Fees,
unreimbursed Monthly Advances and unreimbursed Servicing Advances relating to
such Contract. In no event shall Net Liquidation Proceeds with respect to any
Liquidated Contract be less than zero.
ALLOCATION OF WRITEDOWN AMOUNTS
The 'Writedown Amount' for any Remittance Date will be the amount, if any,
by which the aggregate Certificate Balance of all Certificates, after taking
into account all distributions to be made on such Remittance Date, exceeds the
sum of (x) the Pre-Funded Amount, if any, as of the last day of the related Due
Period and (y) the Pool Principal Balance of the Contracts for the next
Remittance Date. The Writedown Amount will be allocated among the Classes of
Subordinated Certificates in the following order of priority:
(1) first, to the Class B-2 Certificates. to be applied in reduction
of the Adjusted Certificate Balance of such Class until it has been reduced
to zero;
(2) second, to the Class B-l Certificates, to be applied in reduction
of the Adjusted Certificate Balance of such Class until is has been reduced
to zero;
(3) third, to the Class M-2 Certificates, to be applied in reduction
of the Adjusted Certificate Balance of such Class until it has been reduced
to zero; and
(4) fourth, to the Class M-1 Certificates, to be applied in reduction
of the Adjusted Certificate Balance of such Class until it has been reduced
to zero.
SUBORDINATION OF THE SUBORDINATED CERTIFICATES
The primary credit support for the Senior Certificates is the subordination
of the Subordinated Certificates effected by the allocation of Writedown Amounts
as described herein and by the preferential application of the Available Funds
to the Senior Certificates relative to the Subordinated Certificates to the
extent described herein. The primary credit support for the Class M-1
Certificates is the subordination of the Class M-2, Class B and Class R
Certificates, effected by the allocation of Writedown Amounts as described
herein and by the preferential allocation of the Available Funds to the Class
M-1 Certificates relative to the Class M-2, Class B and Class R Certificates to
the extent described herein. The primary credit support for the Class M-2
Certificates is the subordination of the Class B and Class R Certificates,
effected by the allocation of Writedown Amounts as described herein and by the
preferential allocation of the Available Funds to the Class M-2 Certificates
relative to the Class B and Class R Certificates to the extent described herein.
The primary credit support for the Class B-1
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<PAGE>
Certificates is the subordination of the Class B-2 and Class R Certificates,
effected by the allocation of Writedown Amounts as described herein and by the
preferential allocation of the Available Funds to the Class B-1 Certificates
relative to the Class B-2 and Class R Certificates to the extent described
herein. See '--Priority of Distributions' above.
PRE-FUNDING ACCOUNT
On the Closing Date, the Trustee will establish and thereafter maintain
with itself a trust account (the 'Pre-Funding Account'). On the Closing Date,
cash in an amount not to exceed approximately $27,433,385 (the 'Pre-Funded
Amount') will be deposited in the Pre-Funding Account and may be used only to
(i) acquire additional manufactured housing installment sales contracts and
manufactured housing installment loan agreements (collectively, the 'Subsequent
Contracts') and (ii) make accelerated payments of principal of the Senior
Certificates. During the period (the 'Pre-Funding Period') from the Closing Date
to the earliest to occur of (i) the Funding Termination Date (defined below),
(ii) an Event of Default under the Agreement and (iii) the Determination Date
occurring in September 1998, amounts on deposit in the Pre-Funding Account may
be withdrawn from time to time to acquire Subsequent Contracts in accordance
with the Agreement. The 'Funding Termination Date' will be the date on which the
Pre-Funded Amount has been reduced to less than $100,000. Any Pre-Funded Amount
remaining in the Pre-Funding Account at the end of the Pre-Funding Period will
be distributed on the Remittance Date at or immediately following the end of
such Pre-Funding Period to the Class or Classes of Senior Certificates then
entitled to distributions of principal, as provided herein.
CAPITALIZED INTEREST ACCOUNT
On the Closing Date, the Trustee will establish and thereafter maintain
with itself a trust account (the 'Capitalized Interest Account') into which
amounts will be deposited. The amounts so deposited will be used by the Trustee
on the Remittance Dates during the Pre-Funding Period to fund the excess, if
any, of the amount of interest accrued on the Certificates at the applicable
Remittance Rates over the amounts available therefor on such Remittance Dates
(as to any such Remittance Date, the 'Capitalized Interest Requirement'). Any
amounts on deposit in the Capitalized Interest Account that are not necessary
for such purpose will be paid to the Holders of Class R Certificates.
SERVICING COMPENSATION
For its servicing of the Contracts, the Servicer will be entitled to
receive a monthly servicing fee with respect to each Remittance Date equal to
1/12th of the product of 0.50% (the 'Servicing Fee Rate') and the Pool Principal
Balance for such Remittance Date (the 'Servicing Fee'). The Available Funds will
be net of the Servicing Fee.
ADVANCES
The Servicer will be required, not later than each Remittance Date, to
deposit into the Certificate Account an amount equal to the interest portion of
each Monthly Payment due, but not collected, with respect to delinquent
Contracts during the prior Due Period, but only if, in its good faith business
judgment, the Servicer believes that such amounts will ultimately be recovered
on or with respect to the related Contract (each, a 'Monthly Advance'). The
Servicer will be permitted to fund its payment of Monthly Advances on any
Remittance Date from collections on any Contract deposited to the Collection
Account subsequent to the related Due Period not required to be distributed to
Certificateholders on the related Remittance Date, and will be required to
reimburse the Collection Account for such amounts from its own funds or from
payments collected on the Contracts in a Due Period that are not otherwise
distributable on the related Remittance Date. Monthly Advances are intended to
maintain a regular flow of scheduled interest payments to Certificateholders
rather than to guarantee or insure against losses.
The Servicer is permitted to reimburse itself for Monthly Advances funded
from its own funds only from subsequent collections on the related delinquent
Contract, unless the Servicer determines that any unreimbursed Monthly Advance
constitutes a Nonrecoverable Advance, in which event it will be reimbursable to
the Servicer from collections on the Contract Pool generally.
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<PAGE>
A 'Nonrecoverable Advance' is a Monthly Advance previously made by the
Servicer but which the Servicer subsequently, in its good faith business
judgment, determines not to be recoverable from the related Contract.
COMPENSATING INTEREST
If a full Prepayment of a Contract occurs during any Due Period, any
difference between the interest collected from an Obligor during such Due Period
and the full month's interest at the applicable Remittance Rate ('Compensating
Interest') that is due is required to be deposited by the Servicer to the
Certificate Account and will be included in Available Funds to be made available
to the Trustee for the next succeeding Remittance Date; provided, however, that
the Servicer's obligation in respect of Compensating Interest is limited to the
aggregate amount of its Servicing Fee for the related Due Period.
OPTIONAL TERMINATION
The Agreement provides that on any Remittance Date on which the Pool
Principal Balance for the next Remittance Date is less than 10% of the sum of
the Pool Principal Balance and the Pre-Funded Amount as of the Cut-off Date (the
'Servicer Optional Termination Date'), the Servicer will have the option to
repurchase all outstanding Contracts at a price equal to the greater of (a) the
sum of (x) 100% of the Stated Principal Balance of each Contract (other than any
Contract as to which the related Manufactured Home has been repossessed and
whose fair market value is included pursuant to clause (y) below) as of the
final Remittance Date and (y) the fair market value of such acquired property
and (b) the aggregate fair market value of all of the assets of the Trust, plus,
in each case, any unpaid interest at the related Remittance Rates on each Class
of Certificates as well as one month's interest at the applicable Contract Rate
on the Stated Principal Balance of each Contract (including any Contract as to
which the related Manufactured Home has been repossessed) (the 'Termination
Price').
AUCTION SALE
If the Servicer does not exercise its optional termination right within
ninety days after the Servicer Optional Termination Date, the Trustee is
required to solicit bids for the purchase of all Contracts remaining in the
Trust. In the event that satisfactory bids are received as described in the
Agreement, the net sale proceeds will be distributed to Certificateholders, in
the same order of priority as collections received in respect of the Contracts.
The Trustee, however, will not accept any bid for the Contracts unless certain
requirements are met, including the requirement that such bid is in an amount at
least equal to the Termination Price. The sale of the Contracts must be for an
amount no less than fair market value. If satisfactory bids are not received,
the Trustee will not sell the Contracts and will not solicit any further bids or
otherwise negotiate any further sale of the Contracts.
THE TRUSTEE
Bankers Trust Company of California, N.A. (the 'Trustee') has its corporate
trust offices at 3 Park Plaza, Irvine, CA 92614.
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<PAGE>
THE MANUFACTURED HOUSING PROGRAM
GENERAL
The Contracts were originated or purchased by the Originators in accordance
with the policies and procedures described under 'The Manufactured Housing
Program' in the Prospectus. As described therein, United Companies has
originated or purchased Land-and-Home Contracts for several years. However, the
volume and performance of those Contracts have not been tracked separately from
the home equity loans originated by United Companies and its affiliates. In May
1995, United Companies Financial Corporation, the ultimate parent of the
Depositor and United Companies, established United Companies Funding, Inc., a
Louisiana corporation headquartered in Minneapolis, Minnesota ('UCFI'), to
originate and purchase manufactured housing contracts which are secured by the
related Manufactured Home ('Chattel Contracts'). UCFI originated $195.6 million
in Chattel Contracts in 1997 compared to $115.6 million in 1996. The
manufactured housing unit originates loan products through dealers and directly
to the consumer. At March 31, 1998, UCFI operated in 44 states through 2,986
dealers.
DELINQUENCY AND LOSS EXPERIENCE
The following two tables set forth information relating to the delinquency
and loss experience of United Companies for its servicing portfolio of
manufactured housing contracts as of the dates indicated in the first table and
for the periods indicated in the second table, including contracts owned by
United Companies or its affiliates and contracts serviced for others.
DELINQUENCY EXPERIENCE ON
UNITED COMPANIES' PORTFOLIO
OF MANUFACTURED HOUSING CONTRACTS
<TABLE>
<CAPTION>
AS OF
MARCH
AS OF DECEMBER 31, 31,
-------------------- --------
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Number of manufactured housing
contracts............................. 5,412 13,816 15,510
Delinquency Period(1)(2)(3)
30-59 days............................ 1.88% 3.13% 2.09%
60-89 days............................ .57 1.11 1.02
90 days and over...................... .16 1.49 1.47
-------- -------- --------
2.61% 5.73% 4.58%
-------- -------- --------
-------- -------- --------
Dollar amount in thousands of
manufactured housing contracts in
repossession at the end of
period(3)............................. $ 725 $ 4,797 $ 7,459
</TABLE>
- ------------------
(1) As a percentage of the number of manufactured housing contracts as of the
date indicated and excluding contracts already in repossession.
(2) The delinquency period is based on the number of days payments are
contractually past due (assuming 30-day months). Therefore, a manufactured
housing contract with a payment due on the first day of a month is not 30
days delinquent until the first day of the next month. The information
includes as current those manufactured housing contracts whose borrowers
have entered bankruptcy proceedings, had their scheduled payment changed
under a bankruptcy payment plan, provided that the borrowers are current
under their bankruptcy payment plan.
(3) Manufactured housing contracts in the process of foreclosure but not yet
repossessed have been included in the appropriate delinquency period.
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<PAGE>
LOSS EXPERIENCE OF UNITED COMPANIES' PORTFOLIO
OF MANUFACTURED HOUSING CONTRACTS
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER QUARTER ENDING
31, MARCH 31,
-------------------- --------------
1996 1997 1998
-------- -------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Dollar amount of manufactured housing contracts outstanding
at the end of period................................................... $170,869 $456,937 $534,316
Net Losses
Gross Losses (1)....................................................... $ 32 $ 866 $ 747
Recoveries (2)......................................................... $ (10) $ (7) $ (18)
-------- -------- --------------
Net Losses............................................................. $ 22 $ 859 $ 729
-------- -------- --------------
-------- -------- --------------
Net Losses as a percentage of average amount outstanding................. 0.03% 0.27% 0.39%
</TABLE>
- ------------------
(1) 'Gross Losses' are amounts which have been determined to be uncollectible
relating to manufactured housing contracts for each respective period.
(2) 'Recoveries' are recoveries from liquidation proceeds and deficiency
judgments.
Contracts are placed on a non-accrual status when they are 150 days past
due.
The above delinquency and loss experience represents United Companies'
recent experience. However, the delinquency and net loss percentages may be
affected by the increase in the size and relative lack of seasoning of a
substantial portion of the portfolio. In addition, United Companies can neither
quantify the impact of declines in the values of Manufactured Homes, if any, on
the Contracts nor predict whether, to what extent or how long such declines may
exist. In a period of such decline, the rates of delinquencies and losses on the
Contracts could be higher than those heretofore experienced in the manufactured
housing lending industry in general. Adverse economic conditions (which may or
may not affect values of the Manufacturerd Homes) may affect the timely payment
by borrowers of scheduled payments of principal and interest on the Contracts
and, accordingly, the actual rates of delinquencies and losses. As a result, the
information in the above tables should not be considered as a basis for
assessing the likelihood, amount or severity of delinquencies or losses on the
Contracts and no assurance can be given that the delinquency and loss experience
presented in the tables will be indicative of such experience of the Contracts.
USE OF PROCEEDS
The net proceeds to be received from the sale of the Offered Certificates
will be used by the Depositor to purchase the Contracts and to pay the costs of
carrying the Contracts until the sale of the Certificates and other expenses
connected with pooling the Contracts and issuing the Certificates.
FEDERAL INCOME TAX CONSIDERATIONS
An election will be made to treat the assets of the Trust (other than the
Pre-Funding Account and the Capitalized Interest Account) as a real estate
mortgage investment conduit ('REMIC') for federal income tax purposes. The
Offered Certificates will be designated as regular interests in a REMIC (the
'Regular Certificates' or the 'REMIC Regular Certificates'). See 'Federal Income
Tax Considerations' in the Prospectus.
Because the Offered Certificates will be considered REMIC regular
interests, they generally will be taxable as debt obligations under the Internal
Revenue Code of 1986, as amended (the 'Code'), and interest paid or accrued on
such Certificates, including original issue discount with respect to any such
Certificates issued with original issue discount, will be taxable to
Certificateholders in accordance with the accrual method of accounting.
Depending on their respective issue prices, certain Classes of Offered
Certificates may be issued with original issue discount. See 'Federal Income Tax
Considerations--REMIC Regular Certificates--Original Issue Discount' in the
Prospectus. The prepayment assumption that will be used in determining the rate
of accrual of original issue discount is 175% MHP. No representation is made as
to the rate at which prepayments actually will
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<PAGE>
occur. In addition, certain Classes of Regular Certificates may be treated as
having been issued at a premium. See 'Federal Income Tax Considerations--REMIC
Regular Certificates--Premium' in the Prospectus.
BACKUP WITHHOLDING
Certain Certificate Owners may be subject to backup withholding at the rate
of 31% with respect to interest paid on the Offered Certificates if the
Certificate Owners, upon issuance, fail to supply the Trustee or their broker
with their taxpayer indentification number, furnish an incorrect taxpayer
identification number, fail to report interest, dividends, or other 'reportable
payments' (as defined in the Code) properly, or, under certain circumstances,
fail to provide the Trustee or their broker with a certified statement, under
penalty of perjury, that they are not subject to backup withholding.
The Trustee will be required to report annually to the IRS, and to each
Holder of record, the amount of interest paid (and OID accrued, if any) on the
Offered Certificates (and the amount of interest withheld for federal income
taxes, if any) for each calendar year, except as to exempt Holders (generally,
Holders that are corporations, certain tax-exempt organizations or nonresident
aliens who provide certification as to their status as nonresidents). As long as
the only Holder of record is Cede, as nominee for DTC, Certificate Owners and
the IRS will receive tax and other information including the amount of interest
paid on such Certificates owned from Participants and Indirect Participants
rather than from the Trustee. (The Trustee, however, will respond to requests
for necessary information to enable Participants, Indirect Participants and
certain other persons to complete their reports.) Each non-exempt Certificate
Owner will be required to provide, under penalty of perjury, a certificate on
IRS Form W-9 containing his or her name, address, correct Federal taxpayer
identification number and a statement that he or she is not subject to backup
withholding. Should a nonexempt Certificate Owner fail to provide the required
certification, the Participants or Indirect Participants will be required to
withhold 31% of the interest (and principal) otherwise payable to the
Certificate Owner, and remit the withheld amount to the IRS as a credit against
the Certificate Owner's federal income tax liability. Such amounts will be
deemed distributed to the affected Certificate Owner for all purposes of the
Certificates and the Agreement.
FEDERAL INCOME TAX CONSEQUENCES TO FOREIGN INVESTORS
The following information describes the United States federal income tax
treatment of Holders that are not United States persons ('Foreign Investors')
and whose income is not effectively connected to a United States trade or
business.
The Code and Treasury regulations generally subject interest paid to a
Foreign Investor to a withholding tax at a rate of 30% (unless such rate were
changed by an applicable treaty). The withholding tax, however, is eliminated
with respect to certain 'portfolio debt investments' issued to Foreign
Investors. Portfolio debt investments generally include debt instruments issued
in registered form for which the United States payor receives a statement that
the beneficial owner of the instrument is a Foreign Investor. The Offered
Certificates will be issued in registered form. Therefore, if the information
required by the Code is furnished (as described below) and no other exceptions
to the withholding tax exemption are applicable, no withholding tax will apply
to the Offered Certificates.
For the Offered Certificates to constitute portfolio debt investments
exempt from the United States withholding tax, the withholding agent must
receive from the Certificate Owner an executed IRS Form W-8 signed under penalty
of perjury by the Certificate Owner stating that the Certificate Owner
beneficially owns the certificate and is a Foreign Investor and providing such
Certificate Owner's name and address. The statement must be received by the
withholding agent in the calendar year in which the interest payment is made, or
in either of the two preceding calendar years.
A Certificate Owner that is a nonresident alien or foreign corporation will
not be subject to United States federal income tax on gain realized on the sale,
exchange, or redemption of such Offered Certificate, provided that (i) such gain
is not effectively connected with a trade or business carried on by the
Certificate Owner in the United States, (ii) in the case of a Certificate Owner
that is an individual, such Certificate Owner is not present in the United
States for 183 days or more during the taxable year in which such sale, exchange
or redemption occurs and (iii) in the case of gain representing accrued
interest, the conditions described in the preceding paragraphs are satisfied.
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<PAGE>
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ('ERISA'),
and Section 4975 of the Internal Revenue Code of 1986, as amended (the 'Code')
impose certain restrictions on employee benefit plans and other retirement
arrangements (including individual retirement accounts) ('Plans') and on persons
who are fiduciaries or 'parties in interest' or 'disqualified persons' with
respect to such Plans. (See 'ERISA Considerations' in the Prospectus.) Employee
benefit plans that are governmental plans (as defined in section 3(32) of ERISA)
and certain church plans (as defined in Section 3(33) of ERISA) are not subject
to ERISA requirements. Accordingly, assets of such plans may be invested in the
Senior Certificates without regards to the ERISA restrictions described above,
subject to applicable provisions of other federal and state laws. However, any
such governmental or church plan which is qualified under section 401(a) of the
Code and exempt from taxation under section 501(a) of the Code is subject to the
prohibited transaction rules set forth in section 503 of the Code.
The U.S. Department of Labor ('DOL') has granted an administrative
exemption to Credit Suisse First Boston Corporation (Prohibited Transaction
Exemption 89-90; Exemption Application D-6555 54 Fed. Reg. 42,581 (1989)) (the
'Exemption') from certain of the prohibited transaction rules of ERISA and the
Code with respect to the initial purchase, the holding and the subsequent resale
by Plans of certificates representing interests in asset-backed pass-through
trusts that consist of certain receivables, loans and other obligations that
meet the conditions and requirements of the Exemption. The receivables covered
by the Exemption include manufactured housing installment sales contracts and
installment loan agreements such as the Contracts.
Among the conditions which must be satisfied for the Exemption to apply to
the Senior Certificates are the following:
(1) The acquisition of the Senior Certificates by a Plan is on terms
(including the price for the Senior Certificates) that are at least as
favorable to the Plan as they would be in an arm's-length transaction with
an unrelated party;
(2) The rights and interests evidenced by the Senior Certificates
acquired by the Plan are not subordinated to the rights and interests
evidenced by other certificates of the Trust;
(3) The Senior Certificates acquired by the Plan have received a
rating at the time of such acquisition that is in one of the three highest
generic rating categories from any of Standard & Poor's Ratings Services, a
division of the McGraw-Hill Companies, Inc., Moody's Investors Service,
Inc., Duff & Phelps Credit Rating Co. or Fitch IBCA, Inc. ('National Credit
Rating Agencies');
(4) The Trustee is not an affiliate of any member of the Restricted
Group (as defined below);
(5) The sum of all payments made to the Underwriter in connection with
the distribution of the Senior Certificates represents not more than
reasonable compensation for underwriting the Senior Certificates. The sum
of all payments made to and retained by the Depositor pursuant to the sale
of the Contracts to the Trust represents not more than the fair market
value of such Contracts. The sum of all payments made to and retained by
the Servicer represents not more than reasonable compensation for the
Servicer's services under the Agreement and reimbursement of the Servicer's
reasonable expenses in connection therewith;
(6) (i) The investment pool consists only of assets of the type
enumerated in the exemption and which have been included in other
investment pools; (ii) certificates evidencing interests in such other
investment pools have been rated in one of the three highest generic rating
categories by one of the National Credit Rating Agencies for at least one
year prior to a Plan's acquisition of certificates; and (iii) certificates
evidencing interests in such investment pools have been purchased by
investors other than Plans for at least one year prior to a Plan's
acquisition of certificates; and
(7) The Plan investing in the Senior Certificates is an 'accredited
investor' as defined in Rule 501 (a)(1) of Regulation D of the Securities
and Exchange Commission under the Securities Act of 1933.
Moreover, the Exemption would provide relief from certain
self-dealing/conflict of interest prohibited transactions only if, among other
requirements, (i) in the case of the acquisition of Senior Certificates in
connection with the initial issuance, at least fifty (50) percent of the Senior
Certificates are acquired by persons
S-41
<PAGE>
independent of the Restricted Group (as defined below), (ii) the Plan's
investment in Senior Certificates does not exceed twenty-five (25) percent of
all of the Senior Certificates outstanding at the time of the acquisition and
(iii) immediately after the acquisition, no more than twenty-five (25) percent
of the assets of the Plan are invested in certificates representing an interest
in one or more trusts containing assets sold or serviced by the same entity. The
Exemption does not apply to Plans sponsored by the Originator, the Depositor,
the Underwriter, the Trustee, the Servicer, any obligor with respect to
Contracts included in the Trust constituting more than five (5) percent of the
aggregate unamortized principal balance of the assets in the Trust or any
affiliate of such parties (the 'Restricted Group').
On July 21, 1997, the DOL published in the Federal Register an amendment to
the Exemption which extends exemptive relief to certain mortgage-backed and
asset-backed securities transactions using pre-funding accounts for trusts
issuing pass-through certificates. With respect to the Senior Certificates, the
amendment generally allows a portion of the Contracts supporting payments to
Senior Certificateholders and having a principal amount equal to no more than
25% of the total principal amount of the Senior Certificates to be transferred
to the Trust within a 90-day or three-month period following the Closing Date
('Pre-Funding Period'), instead of requiring that all such Contracts be either
identified or transferred on or before the Closing Date, provided that the
following conditions are met:
(1) The ratio of the amount allocated to the Pre-Funding Account to
the total principal amount of the Senior Certificates being offered
('Pre-Funding Limit') must not exceed twenty-five percent (25%).
(2) All Contracts transferred after the Closing Date ('Additional
Contracts') must meet the same terms and conditions for eligibility as the
original Contracts used to create the Trust, which terms and conditions
have been approved by the applicable National Credit Rating Agencies.
(3) The transfer of such Additional Contracts to the Trust during the
Pre-Funding Period must not result in the Senior Certificates receiving a
lower credit rating from the applicable National Credit Rating Agencies
upon termination of the Pre-Funding Period than the rating that was
obtained at the time of the initial issuance of the Certificates by the
Trust.
(4) Solely as a result of the use of pre-funding, the weighted average
annual percentage interest rate (the 'average interest rate') for all of
the Contracts in the Trust at the end of the Pre-Funding Period must not be
more than 100 basis points lower than the average interest rate for the
Contracts which were transferred to the Trust on the Closing Date.
(5) Either: (i) the characteristics of the Contracts must be monitored
by an insurer or other credit support provider which is independent of the
Depositor; or (ii) an independent accountant retained by the Depositor must
provide the Depositor with a letter (with copies provided to the applicable
National Credit Rating Agencies, the Underwriters and the Trustee) stating
whether or not the characteristics of the Additional Contracts conform to
the characteristics described in the Prospectus, Prospectus Supplement,
Private Placement Memorandum ('Offering Documents') and/or Pooling and
Servicing Agreement. In preparing such letter, the independent accountant
must use the same type of procedures as were applicable to the Contracts
which were transferred as of the Closing Date.
(6) The Pre-Funding Period must end no later than three months or 90
days after the Closing Date or earlier, in certain circumstances, if the
amount on deposit in the Pre-Funding Account is reduced below the minimum
level specified in the Pooling and Servicing Agreement or an event of
default occurs under the Pooling and Servicing Agreement.
(7) Amounts transferred to any Pre-Funding Account and/or Capitalized
Interest Account used in connection with the pre-funding may be invested
only in investments which are permitted by the applicable National Credit
Rating Agencies and (i) are direct obligations of, or obligations fully
guaranteed as to timely payment of principal and interest by, the United
States or any agency or instrumentality thereof (provided that such
obligations are backed by the full faith and credit of the United States);
or (ii) have been rated (or the obligor has been rated) in one of the three
highest generic rating categories by the Rating Agency ('Permitted
Investments').
S-42
<PAGE>
(8) The Offering Documents must describe: (i) any Pre-Funding Account
and/or Capitalized Interest Account used in connection with a Pre-Funding
Account; (ii) the duration of the Pre-Funding Period; (iii) the percentage
and/or dollar amount of the Pre-Funding Limit for the Trust; and (iv) that
the amounts remaining in the Pre-Funding Account at the end of the
Pre-Funding Period will be remitted to Senior Certificateholders as
repayments of principal.
(9) The Pooling and Servicing Agreement must describe the Permitted
Investments for the Pre-Funding Account and Capitalized Interest Account
and, if not disclosed in the Offering Documents, the terms and conditions
for eligibility of the Additional Contracts.
It is believed that the Exemption will apply to the purchase, holding and
resale of the Senior Certificates.
BECAUSE THE CHARACTERISTICS OF THE CLASS M AND CLASS B-1 CERTIFICATES MAY
NOT MEET THE REQUIREMENTS OF PTCE 83-1, THE EXEMPTION OR ANY OTHER ISSUED
EXEMPTION UNDER ERISA, THE PURCHASE AND HOLDING OF THE CLASS M AND CLASS B-1
CERTIFICATES BY A PLAN MAY RESULT IN PROHIBITED TRANSACTIONS OR THE IMPOSITION
OF EXCISE TAXES OR CIVIL PENALTIES. CONSEQUENTLY, TRANSFERS OF THE CLASS M AND
CLASS B-1 CERTIFICATES WILL NOT BE REGISTERED BY THE TRUSTEE UNLESS THE TRUSTEE
RECEIVES: (I) A REPRESENTATION FROM THE TRANSFEREE OF SUCH CERTIFICATE,
ACCEPTABLE TO AND IN FORM AND SUBSTANCE SATISFACTORY TO THE TRUSTEE, TO THE
EFFECT THAT SUCH TRANSFEREE IS NOT AN EMPLOYEE BENEFIT PLAN SUBJECT TO SECTION
406 OF ERISA OR A PLAN OR ARRANGEMENT SUBJECT TO SECTION 4975 OF THE CODE, NOR A
PERSON ACTING ON BEHALF OF ANY SUCH PLAN OR ARRANGEMENT NOR USING THE ASSETS OF
ANY SUCH PLAN OR ARRANGEMENT TO EFFECT SUCH TRANSFER; (II) IF THE PURCHASER IS
AN INSURANCE COMPANY, A REPRESENTATION THAT THE PURCHASER IS AN INSURANCE
COMPANY WHICH IS PURCHASING SUCH CERTIFICATES WITH FUNDS CONTAINED IN AN
'INSURANCE COMPANY GENERAL ACCOUNT' (AS SUCH TERM IS DEFINED IN SECTION V(E) OF
PROHIBITED TRANSACTION CLASS EXEMPTION 95-60 ('PTCE 95-60')) AND THAT THE
PURCHASE AND HOLDING OF SUCH CERTIFICATES ARE COVERED UNDER PTCE 95-60; OR (III)
AN OPINION OF COUNSEL SATISFACTORY TO THE TRUSTEE THAT THE PURCHASE OR HOLDING
OF SUCH CERTIFICATE BY A PLAN, ANY PERSON ACTING ON BEHALF OF A PLAN OR USING
SUCH PLAN'S ASSETS, WILL NOT RESULT IN THE ASSETS OF THE TRUST BEING DEEMED TO
BE 'PLAN ASSETS' AND SUBJECT TO THE PROHIBITED TRANSACTION REQUIREMENTS OF ERISA
AND THE CODE AND WILL NOT SUBJECT THE TRUSTEE TO ANY OBLIGATION IN ADDITION TO
THOSE UNDERTAKEN IN THE AGREEMENT. SUCH REPRESENTATION AS DESCRIBED ABOVE SHALL
BE DEEMED TO HAVE BEEN MADE TO THE TRUSTEE BY THE TRANSFEREE'S ACCEPTANCE OF A
CLASS M OR CLASS B-1 CERTIFICATE. IN THE EVENT THAT SUCH REPRESENTATION IS
VIOLATED, OR ANY ATTEMPT TO TRANSFER TO A PLAN OR PERSON ACTING ON BEHALF OF A
PLAN OR USING SUCH PLAN'S ASSETS IS ATTEMPTED WITHOUT SUCH OPINION OF COUNSEL,
SUCH ATTEMPTED TRANSFER OR ACQUISITION SHALL BE VOID AND OF NO EFFECT.
Prospective Plan investors should consult with their legal advisors
concerning the impact of ERISA and the Code, the applicability of PTCE 83-1 as
described in the Prospectus and the Exemption, and the potential consequences in
their specific circumstances, prior to making an investment in the Offered
Certificates. Moreover, each Plan fiduciary should determine whether under the
general fiduciary standards of investment prudence and diversification, an
investment in the Offered Certificates is appropriate for the Plan, taking into
account the overall investment policy of the Plan and the composition of the
Plan's investment portfolio.
S-43
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
(the 'Underwriting Agreement') among the Depositor and the Underwriters named
below (the 'Underwriters'), the Depositor has agreed to sell to the Underwriters
and each Underwriter has agreed to purchase from the Depositor the principal
amount of each Class of Offered Certificates set forth below after its name.
<TABLE>
<CAPTION>
UNDERWRITER CLASS PRINCIPAL AMOUNT
- ---------------------------------------------------------------------- ----- ----------------
<S> <C> <C>
Credit Suisse First Boston Corporation A-1 $ 11,625,000
A-2 $ 9,750,000
A-3 $ 6,650,000
A-4 $ 12,125,000
M-1 $ 4,950,000
M-2 $ 2,200,000
B-1 $ 3,300,000
----------------
Total: $ 50,600,000
----------------
----------------
First Chicago Capital Markets, Inc. A-1 $ 11,625,000
A-2 $ 9,750,000
A-3 $ 6,650,000
A-4 $ 12,125,000
M-1 $ 4,950,000
M-2 $ 2,200,000
B-1 $ 3,300,000
----------------
Total: $ 50,600,000
----------------
----------------
</TABLE>
The Offered Certificates will be offered by the Underwriters from time to
time in negotiated transactions or otherwise, at varying prices to be determined
at the time of sale. Proceeds to the Depositor, including accrued interest, are
expected to be approximately 99.855809% of the initial aggregate Class
Certificate Balance of the Offered Certificates, before deducting expenses
payable by the Depositor in connection with the Offered Certificates, estimated
to be $200,000. In connection with the purchase and sale of the Offered
Certificates, the Underwriters may be deemed to have received compensation from
the Depositor in the form of underwriting discounts.
The Underwriting Agreement provides that the Depositor will indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended.
CERTAIN LEGAL MATTERS
Certain tax matters concerning the issuance of the Certificates will be
passed upon by Stroock & Stroock & Lavan LLP, New York, New York. Certain legal
matters relating to the validity of the Certificates will be passed upon for the
Underwriters by Stroock & Stroock & Lavan LLP, New York, New York. Stroock &
Stroock & Lavan LLP represents the Servicer and United Companies Financial
Corporation, an affiliate of the Depositor and the Servicer, from time to time.
RATINGS
It is a condition of the original issuance of the Senior Certificates that
they be rated AAA by Fitch IBCA, Inc. ('Fitch') and Aaa by Moody's Investors
Service Inc. ('Moody's' and together with Fitch, the 'Rating Agencies'). It is a
condition to the issuance of the Class M-1, Class M-2 and Class B-1 Certificates
that they be rated at least AA-, A and BBB, respectively, by Fitch and at least
Aa3, A2 and Baa2, respectively, by Moody's.
The ratings do not address the possibility that, as a result of principal
prepayments, Certificateholders may receive a lower than anticipated yield. The
ratings will be the views only of such rating agencies. There is no assurance
that any such ratings will continue for any period of time or that such ratings
will not be revised or withdrawn. Any such revision or withdrawal of such
ratings may have an adverse effect on the market price of the Offered
Certificates. A security rating is not a recommendation to buy, sell or hold
securities.
The Depositor has not requested a rating on the Offered Certificates by any
rating agency other than the Rating Agencies. However, there can be no assurance
as to whether any other rating agency will rate some or all of the Offered
Certificates or, if it does, as to the rating that would be assigned by any such
rating agency. The rating assigned by any such other rating agency could be
lower than the respective ratings assigned by the Rating Agencies.
S-44
<PAGE>
ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered Manufactured
Housing Contract Pass-Through Certificates, Series 1998-1 (the 'Global
Securities') will be available only in book-entry form. Investors in the Global
Securities may hold such Global Securities through any of DTC, Cedel or
Euroclear. The Global Securities will be tradeable as home market instruments in
both the European and U.S. domestic markets. Initial settlement and all
secondary trades will settle in same-day funds.
Secondary market trading investors holding Global Securities through Cedel
and Euroclear will be conducted in the ordinary way in accordance with their
normal rules and operating procedures and in accordance with conventional
eurobond practice (i.e., seven calendar day settlement).
Secondary market trading between investors holding Global Securities
through DTC will be conducted according to the rules and procedures applicable
to U.S. corporate debt obligations.
Secondary cross-market trading between Cedel or Euroclear and DTC
Participants holding Certificates will be effected on a delivery-against-payment
basis through the respective Depositaries of Cedel and Euroclear (in such
capacity) and as DTC Participants.
Non-U.S. holders (as described below) of Global Securities will be subject
to U.S. withholding taxes unless such holders meet certain requirements and
deliver appropriate U.S. tax documents to the securities clearing organizations
or their Participants.
INITIAL SETTLEMENT
All Global Securities will be held in book-entry form by DTC in the name of
Cede as nominee of DTC. Investors' interests in the Global Securities will be
represented through financial institutions acting on their behalf as Direct and
Indirect Participants in DTC. As a result, Cedel and Euroclear will hold
positions on behalf of their participants through their respective Depositaries,
which in turn will hold such positions in accounts as DTC Participants.
Investors electing to hold their Global Securities through DTC will follow
the settlement practices specified by the Underwriters. Investor securities
custody accounts will be credited with their holdings against payment in
same-day funds on the settlement date.
Investors electing to hold their Global Securities through Cedel or
Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global security
and no 'lock-up' or restricted period. Global Securities will be credited to the
securities custody accounts on the settlement date against payment in same-day
funds.
SECONDARY MARKET TRADING
Since the purchaser determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired value
date.
Trading between DTC Participants. Secondary market trading between DTC
Participants will be settled in same-day funds.
Trading between CEDEL and/or Euroclear Participants. Secondary market
trading between Cedel Participants or Euroclear Participants will be settled
using the procedures applicable to conventional eurobonds in same-day funds.
Trading between DTC seller and Cedel or Euroclear purchaser. When Global
Securities are to be transferred from the account of a DTC Participant to the
account of a Cedel Participant or a Euroclear Participant, the purchaser will
send instructions to Cedel or Euroclear through a Cedel Participant or Euroclear
Participant at least one business day prior to settlement. Cedel or Euroclear
will instruct the respective Depositary, as the case may be, to receive the
Global Securities against payment. Payment will include interest accrued on the
Global
S-45
<PAGE>
Securities from and including the last coupon payment date to and excluding the
settlement date, on the basis of either the actual number of days in such
accrual period and a year assumed to consist of 360 days or a 360-day year of
twelve 30-day months, as applicable to the related class of Global Securities.
For transactions settling on the 31st of the month, payment will include
interest accrued to and excluding the first day of the following month. Payment
will then be made by the respective Depositary of the DTC Participant's account
against delivery of the Global Securities. After settlement has been completed,
the Global Securities will be credited to the respective clearing system and by
the clearing system, in accordance with its usual procedures, to the Cedel
Participant's or Euroclear Participant's account. The securities credit will
appear the next day (European time) and the cash debt will be back-valued to,
and the interest on the Global Securities will accrue from, the value date
(which would be the preceding day when settlement occurred in New York). If
settlement is not completed on the intended value date (i.e., the trade fails),
the Cedel or Euroclear cash debt will be valued instead as of the actual
settlement date.
Cedel Participants and Euroclear Participants will need to make available
to the respective clearing systems the funds necessary to process same-day funds
settlement. The most direct means of doing so is to preposition funds for
settlement, either from cash on hand or existing lines of credit, as they would
for any settlement occurring within Cedel or Euroclear. Under this approach,
they may take on credit exposure to Cedel or Euroclear until the Global
Securities are credited to their accounts one day later.
As an alternative, if Cedel or Euroclear has extended a line of credit to
them, Cedel Participants or Euroclear Participants can elect not to preposition
funds and allow that credit line to be drawn upon the finance settlement. Under
this procedure, Cedel Participants or Euroclear Participants purchasing Global
Securities would incur overdraft charges for one day, assuming they cleared the
overdraft when the Global Securities were credited to their accounts. However,
interest on the Global Securities would accrue from the value date. Therefore,
in many cases the investment income on the Global Securities earned during that
one-day period may substantially reduce or offset the amount of such overdraft
charges, although this result will depend on each Cedel Participant's or
Euroclear Participant's particular cost of funds.
Since the settlement is taking place during New York business hours, DTC
Participants can employ their usual procedures for sending Global Securities to
the respective European Depositary for the benefit of Cedel Participants or
Euroclear Participants. The sale proceeds will be available to the DTC seller on
the settlement date. Thus, to the DTC Participants a cross-market transaction
will settle no differently than a trade between two DTC Participants.
Trading between Cedel or Euroclear Seller and DTC Purchaser. Due to time
zone differences in their favor, Cedel Participants and Euroclear Participants
may employ their customary procedures for transactions in which Global
Securities are to be transferred by the respective clearing system, through the
respective Depositary, to a DTC Participant. The seller will send instructions
to Cedel Participants or Euroclear Participants through a Cedel Participant or
Euroclear Participant at least one business day prior to settlement. In these
cases Cedel or Euroclear will instruct the respective Depositary, as
appropriate, to deliver the Global Securities to the DTC Participant's account
against payment. Payment will include interest accrued on the Global Securities
from and including the last coupon payment to and excluding the settlement date
on the basis of either the actual number of days in such accrual period and a
year assumed to consist of 360 days or a 360-day year of twelve 30-day months,
as applicable to the related class of Global Securities. For transactions
settling on the 31st of the month, payment will include interest accrued to and
excluding the first day of the following month. The payment will then be
reflected in the account of the Cedel Participant or Euroclear Participant the
following day, and receipt of the cash proceeds in the Cedel Participant's or
Euroclear Participant's account would be back-valued to the value date (which
would be the preceding day, when settlement occurred in New York). Should the
Cedel Participant or Euroclear Participant have a line of credit with its
respective clearing system and elect to be in debt in anticipation of receipt of
the sale proceeds in its account, the back-valuation will extinguish any
overdraft incurred over that one-day period. If settlement is not completed on
the intended value date (i.e., the trade fails), receipt of the cash proceeds in
the Cedel Participant's or Euroclear Participant's account would instead be
valued as of the actual settlement date.
Finally, day traders that use Cedel or Euroclear and that purchase Global
Securities from DTC Participants for delivery to Cedel Participants or Euroclear
Participants should note that these trades would automatically fail
S-46
<PAGE>
on the sale side unless affirmative action were taken. At least three techniques
should be readily available to eliminate this potential problem:
(a) borrowing through Cedel or Euroclear for one day (until the
purchase side of the day trade is reflected in their Cedel or Euroclear
accounts) in accordance with the clearing system's customary procedures;
(b) borrowing the Global Securities in the U.S. from a DTC Participant
no later than one day prior to settlement, which would give the Global
Securities sufficient time to be reflected in their Cedel or Euroclear
account in order to settle the sale side of the trade; or
(c) staggering the value dates for the buy and sell sides of the trade
so that the value date for the purchase from the DTC Participant is at
least one day prior to the value date for the sale to the Cedel Participant
or Euroclear Participant.
CERTAIN U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A beneficial owner of Global Securities holding securities through Cedel or
Euroclear (or through DTC if the holder has an address outside the U.S.) will be
subject to the 30% U.S. withholding tax that generally applies to payments of
interest (including original issue discount) on registered debt issued by U.S.
persons, unless (i) each clearing system, bank or other financial institution
that holds customers' securities in the ordinary course of its trade or business
in the chain of intermediaries between such beneficial owner and the U.S. entity
required to withhold tax complies with applicable certification requirements and
(ii) such beneficial owner takes one of the following steps to obtain an
exemption or reduced tax rate:
Exemption for non-U.S. Persons (Form W-8). Beneficial owners of Global
Securities that are non-U.S. Persons can obtain a complete exemption from the
withholding tax by filing a signed Form W-8 (Certificate of Foreign Status). If
the information shown on Form W-8 changes, a new Form W-8 must be filed within
30 days of such change.
Exemption for non-U.S. Persons with effectively connected income (Form
4224). A non-U.S. Person, including a non-U.S. corporation or bank with a U.S.
branch, for which the interest income is effectively connected with its conduct
of a trade or business in the United States, can obtain an exemption from the
withholding tax by filing Form 4224 (Exemption from Withholding of Tax on Income
Effectively Connected with the Conduct of a Trade or Business in the United
States).
Exemption or reduced rate for non-U.S. Persons resident in treaty countries
(Form 1001). Non-U.S. Persons that are Certificate Owners residing in a country
that has a tax treaty with the United States can obtain an exemption or reduced
tax rate (depending on the treaty terms) by filing Form 1001 (Ownership,
Exemption or Reduced Rate Certificate). If the treaty provides only for a
reduced rate, withholding tax will be imposed at that rate unless the filer
alternatively files Form W-8. Form 1001 may be filed by the Owner or his agent.
Exemption for U.S. Persons (Form W-9). U.S. Persons can obtain a complete
exemption from the withholding tax by filing Form W-9 (Payer's Request for
Taxpayer Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The Owner of a Global Security
or, in the case of a Form 1001 or a Form 4224 filer, his agent, files by
submitting the appropriate form to the person through whom it holds (the
clearing agency, in the case of persons holding directly on the books of the
clearing agency). Form W-8 and Form 1001 are effective for three calendar years
and Form 4224 is effective for one calendar year.
The term 'U.S. Person' means (i) a citizen or resident of the United
States, (ii) a corporation or partnership organized in or under the laws of the
United States or any political subdivision thereof or (iii) an estate or trust
described in Section 7701(a)(30)(e) of the Code. This summary does not deal with
all aspects of U.S. Federal income tax withholding that may be relevant to
foreign holders of the Global Securities. Investors are advised to consult their
own tax advisors for specific tax advice concerning their holding and disposing
of the Global Securities.
S-47
<PAGE>
APPENDIX A
CERTAIN HISTORICAL PREPAYMENT INFORMATION
The following table provides life-to-date prepayment rates and pool factors
as of March 31, 1998, with respect to manufactured housing contracts previously
securitized by the Depositor by year of securitization:
<TABLE>
<CAPTION>
REAL ESTATE CHATTEL
--------------------------------------- ---------------------------------------
YEAR OF ORIGINAL LIFE-TO-DATE POOL ORIGINAL LIFE-TO-DATE POOL
SECURITIZATION BALANCE CPR FACTOR(1) BALANCE CPR FACTOR(1)
- --------------- -------- ------------ --------- -------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
1996 $ 55,031 20% 72.29% $109,968 6% 89.83%
1997 $100,403 15% 91.50% $204,573 6% 96.14%
</TABLE>
- ------------------
(1) Pool Factor--Percentage of the original balance remaining outstanding at
March 31, 1998.
S-48
<PAGE>
PROSPECTUS
UCFC FUNDING CORPORATION(REGISTERED)
(DEPOSITOR)
MANUFACTURED HOUSING CONTRACT
PASS-THROUGH CERTIFICATES
(ISSUABLE IN SERIES)
------------------------
This Prospectus relates to $2,000,000,000 original aggregate principal
amount of Manufactured Housing Contract Pass-Through Certificates (the
'Certificates'), issuable in series (each, a 'Series'), which may be sold from
time to time under this Prospectus and a Prospectus Supplement for each such
Series. The Certificates of a Series evidence specified interests in one or more
trust funds (each, a 'Trust'), the primary assets of which will consist of one
or more pools (each, a 'Pool') of manufactured housing installment sales
contracts and manufactured housing installment loan agreements (the
'Contracts'). If specified in the Prospectus Supplement, a portion of the
proceeds of the sale of a Series of Certificates, not to exceed fifty percent of
the aggregate original principal balance of such Certificates, will be deposited
in one or more Pre-Funding Accounts and used to purchase additional Contracts
during the period of time, not to exceed six months, specified in such
Prospectus Supplement. Except as otherwise specified in the related Prospectus
Supplement, the Contracts will have been originated or acquired in the ordinary
course of business primarily by United Companies Funding, Inc. ('UCFI'), United
Companies Lending Corporation(Registered) ('United Companies') and UNICOR
Mortgage(Registered), Inc. ('UNICOR,' and together with UCFI and United
Companies, the 'Originators'). If specified in the related Prospectus
Supplement, credit enhancement with respect to a Series or any Class of
Certificates may be provided by pool insurance, letters of credit, surety bonds,
a guarantee, cash reserve funds, derivative products or other forms of credit
enhancement, or any combinations thereof.
Each Series of Certificates will be issued in one or more classes (each, a
'Class'). Each Class of Certificates will evidence a beneficial ownership
interest of a specified percentage (which may be 0%) or portion of future
interest payments and a specified percentage (which may be 0%) or portion of
future principal payments on the Contracts in the related Trust. A Series of
Certificates may include one or more senior Classes (the 'Senior Certificates')
that receive certain preferential treatment with respect to one or more other
Classes of Certificates of such Series (the 'Subordinated Certificates').
There will have been no public market for any Certificates sold hereunder
prior to the offering thereof and there is no assurance that any such market
will develop. The Underwriters named in the Prospectus Supplement relating to a
Series may from time to time buy and sell Certificates of such Series, but there
can be no assurance that an active secondary market therefor will develop, and
there is no assurance that any such market, if established, will continue or
will provide investors with sufficient liquidity of investment.
If specified in a Prospectus Supplement, one or more elections may be made
to treat each Trust or specified portions thereof as a 'real estate mortgage
investment conduit' (a 'REMIC') for federal income tax purposes. See 'Federal
Income Tax Considerations' herein.
PROSPECTIVE INVESTORS SHOULD REVIEW THE INFORMATION UNDER 'RISK FACTORS'
BEGINNING ON PAGE 8.
------------------------
THE CERTIFICATES WILL NOT REPRESENT INTERESTS IN OR OBLIGATIONS OF THE
DEPOSITOR, THE ORIGINATOR, THE SERVICER OR ANY OF THEIR RESPECTIVE AFFILIATES.
THE CERTIFICATES WILL NOT BE INSURED OR GUARANTEED BY ANY GOVERNMENTAL AGENCY OR
INSTRUMENTALITY, OR (EXCEPT AS OTHERWISE SPECIFIED IN THE RELATED PROSPECTUS
SUPPLEMENT) BY ANY OTHER PERSON OR ENTITY.
------------------------
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.
This Prospectus may not be used to consummate sales of a Series of
Certificates unless accompanied by a Prospectus Supplement.
THE DATE OF THIS PROSPECTUS IS MARCH 24, 1998.
<PAGE>
PROSPECTUS SUPPLEMENT
The Prospectus Supplement relating to a Series of Certificates to be
offered hereunder, among other things, will set forth with respect to such
Series of Certificates: (i) a description of the Class or Classes of such
Certificates; (ii) the rate of interest or other applicable rate (or the manner
of determining such rate) and authorized denominations of each Class of such
Certificates; (iii) certain information concerning the Contracts and insurance
policies, cash accounts, letters of credit, financial guaranty insurance
policies, third party guarantees or other forms of credit enhancement, if any,
relating to one or more Pools or all or part of the related Certificates; (iv)
the specified interest of each Class of Certificates in, and the manner and
priority of, the distributions on the Contracts; (v) information as to the
nature and extent of subordination with respect to such Series of Certificates,
if any; (vi) the Remittance Dates; (vii) information regarding the Servicer;
(viii) the circumstances, if any, under which each Trust may be subject to early
termination; (ix) whether a REMIC election will be made and the designation of
the regular and residual interest therein; and (x) additional information with
respect to the plan of distribution of such Certificates.
AVAILABLE INFORMATION
The Depositor has filed a Registration Statement under the Securities Act
of 1933, as amended (the '1933 Act'), with the Securities and Exchange
Commission (the 'Commission') with respect to the Certificates. The Registration
Statement and amendments thereof and the exhibits thereto are available for
inspection without charge at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549; 75 Park Place,
Room 1102, New York, New York 10007; and 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. Copies of the Registration Statement and
amendments thereof and exhibits thereto may be obtained from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. The Commission maintains an Internet Web site that
contains reports, information statements and other information regarding the
registrants that file electronically with the Commission, including the
Depositor. The address of such Internet Web site is (http://www.sec.gov).
REPORTS TO CERTIFICATEHOLDERS
Periodic and annual reports concerning the Certificates and the related
Trust will be provided to the Certificateholders. See 'Description of the
Certificates--Reports to Certificateholders.' If the Certificates of a Series
are to be issued in book-entry form, such reports will be provided to the
Certificateholder of record and beneficial owners of such Certificates will have
to rely on the procedures described herein under 'Description of the
Certificates--Book-Entry Registration.' The Depositor will file or cause to be
filed with the Commission such periodic reports with respect to each Trust as
may be required under the Securities Exchange Act of 1934, as amended, as the
same may be modified by the Commission pursuant to the request of the Depositor.
Because of the limited number of Certificateholders expected for each Series,
the Depositor anticipates that such reporting obligations will be permanently
suspended following the first fiscal year of each Trust. The Depositor does not
intend to file such reports if its obligation to do so is suspended.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents subsequently filed by or on behalf of each Trust referred to
in the accompanying Prospectus Supplement with the Commission pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as
amended (the 'Exchange Act'), after the date of this Prospectus and prior to the
termination of any offering of the Certificates issued by such Trust shall be
deemed to be incorporated by reference in this Prospectus and to be a part of
this Prospectus from the date of the filing of such documents. Any statement
contained in a document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for all purposes of this
Prospectus to the extent that a statement contained herein (or in the
accompanying Prospectus Supplement) or in any other subsequently filed document
which also is or is deemed to be incorporated by reference herein modifies or
replaces such statement. Any such statement so modified or superseded shall not
be deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Depositor will provide without charge to each person to whom this
Prospectus is delivered, on the written or oral request of such person, a copy
of any or all of the documents referred to above that have been or may be
incorporated by reference in this Prospectus (not including exhibits to the
information that is incorporated by reference unless such exhibits are
specifically incorporated by reference into the information that this Prospectus
incorporates). Such requests should be directed to UCFC Funding Corporation,
4041 Essen Lane, Baton Rouge, Louisiana 70809 Attention: Secretary, telephone
(504) 924-6007.
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SUMMARY OF TERMS
This summary is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus and in the accompanying
Prospectus Supplement. Capitalized terms used and not otherwise defined herein
or in the related Prospectus Supplement will have the respective meanings
assigned them in the 'Glossary.'
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Title of Securities...... Manufactured Housing Contract Pass-Through
Certificates (Issuable in Series) (the
'Certificates').
Depositor................ UCFC Funding Corporation, a Louisiana corporation. The
principal office of the Depositor is located in Baton
Rouge, Louisiana. See 'The Depositor.'
Servicer................. United Companies Lending Corporation(Registered), a
Louisiana corporation and an affiliate of the
Depositor. The Servicer may service the contracts
through one or more sub-servicers. The principal
office of the Servicer is located in Baton Rouge,
Louisiana. See 'The Manufactured Housing Program.'
Originators.............. United Companies Funding, Inc. ('UCFI'), United
Companies Lending Corporation(Registered) ('United
Companies') and UNICOR Mortgage(Registered), Inc.
('UNICOR'). Each of the Originators is a Louisiana
corporation and an affiliate of the Depositor. The
principal office of UCFI is located in Minneapolis,
Minnesota, and the principal office of each of United
Companies and UNICOR is located in Baton Rouge,
Louisiana. See 'The Manufactured Housing Program.'
Trustee.................. The Trustee for each Series of Certificates will be
specified in the related Prospectus Supplement.
The Contracts............ The primary assets of each Trust will consist of one
or more pools (each, a 'Pool') of manufactured housing
installment sales contracts and manufactured housing
installment loan agreements ('Chattel Contracts').
Each Chattel Contract will be secured by a new or used
Manufactured Home (as defined herein). Other contracts
will be secured by a mortgage or deed of trust on the
Manufactured Home and the real estate to which the
Manufactured Home is deemed permanently affixed (a
'Land-and-Home Contract' and collectively with Chattel
Contracts, the 'Contracts'). As described in the
related Prospectus Supplement, the Contracts may bear
fixed or adjustable rates of interest (each, a
'Contract Rate'). Contracts may be conventional
contracts or contracts insured by the Federal Housing
Authority (the 'FHA') or partially guaranteed by the
Veterans Administration (the 'VA').
The Prospectus Supplement for each Series will contain
information as of the date specified in the Prospectus
Supplement (the 'Cut-off Date') and to the extent then
specifically known to the Depositor with respect to
the Contracts in the related Pools, including: (i) the
range of the dates of origination of the Contracts;
(ii) the range of the Contract Rates and the weighted
average Contract Rate; (iii) the range of
Loan-to-Value Ratios at origination and the weighted
average Loan-to-Value Ratio at origination; (iv) the
minimum and maximum outstanding principal balances as
of the Cut-off Date and the average outstanding
principal balance as of the Cut-off Date; (v) the
aggregate principal balances of the Contacts; (vi) the
weighted
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average and range of scheduled terms to maturity as of
the Cut-off Date; (vii) the original maturities of the
Contracts and the last maturity date of any Contract;
(viii) and the locations of the Manufactured Homes
securing the Contracts.
It is expected that the Contracts primarily will have
been originated or purchased by the Originators;
however, certain Contracts may have been purchased by
the Depositor, the Originators or affiliates thereof
in the open market or in privately negotiated
transactions.
Description of
Certificates........... Each Series of Certificates will be issued pursuant to
a Pooling and Servicing Agreement (each, an
'Agreement') among the Depositor, the Servicer and the
Trustee. Each Certificate will evidence an interest in
one or more trust funds (each, a 'Trust') created
pursuant to the related Agreement.
The Certificates of any Series may be issued in one or
more Classes, as specified in the related Prospectus
Supplement. A Series of Certificates may include one
or more Classes of senior Certificates (collectively,
the 'Senior Certificates') which receive certain
preferential treatment specified in the related
Prospectus Supplement with respect to one or more
Classes of subordinate Certificates (collectively, the
'Subordinated Certificates'). Each Class of
Certificates within a Series will evidence the
interests specified in the related Prospectus
Supplement, which may (i) include the right to receive
distributions allocable only to principal, only to
interest or to any combination thereof; (ii) include
the right to receive distributions only of prepayments
of principal throughout the lives of the Certificates
or during specified periods; (iii) be subordinated in
the right to receive distributions of scheduled
payments of principal, prepayments of principal,
interest or any combination thereof to one or more
other Classes of Certificates of such Series
throughout the lives of the Certificates or during
specified periods or may be subordinated with respect
to certain losses or delinquencies; (iv) include the
right to receive such distributions only after the
occurrence of events specified in the Prospectus
Supplement; (v) include the right to receive
distributions in accordance with a schedule or formula
or on the basis of collections from designated
portions of the assets in the related Trust; (vi)
include, as to Certificates entitled to distributions
allocable to interest, the right to receive interest
at a fixed rate or an adjustable rate; and (vii)
include, as to Certificates entitled to distributions
allocable to interest, the right to distributions
allocable to interest only after the occurrence of
events specified in the related Prospectus Supplement,
and in each case, may accrue interest until such
events occur, as specified in such Prospectus
Supplement. The timing and amounts of such
distributions may vary among Classes, over time, or
otherwise as specified in the related Prospectus
Supplement. Unless otherwise specified in the related
Prospectus Supplement, the Certificates will be
issuable in fully registered form, in the minimum
denominations set forth in such Prospectus Supplement.
See 'Description of the Certificates.'
Subordinated
Certificates........... One or more Classes of any Series may be Subordinated
Certificates, as specified in the related Prospectus
Supplement. The rights of the Subordinated
Certificateholders to receive any or a
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specified portion of distributions with respect to the
Contracts will be subordinated to the rights of the
holders ('Certificateholders' or 'Holders') of Senior
Certificates to the extent and in the manner specified
in the related Prospectus Supplement. If a Series of
Certificates contains more than one Class of
Subordinated Certificates, distributions and losses
will be allocated among such Classes in the manner
specified in the related Prospectus Supplement. This
subordination is intended to enhance the likelihood of
regular receipt by Holders of Certificates with a
higher payment priority of the full amount of
scheduled monthly payments of principal and interest
due them and to protect such Holders against losses.
Credit Enhancement....... As an alternative, or in addition, to the credit
enhancement afforded by subordination of the
Subordinated Certificates, credit enhancement with
respect to a Series or any Class of Certificates may
be provided by pool insurance, letters of credit,
surety bonds, a guarantee, cash reserve funds,
derivative products or other forms of credit
enhancement or any combinations thereof (collectively,
'Enhancement'). The Enhancement with respect to any
Series or any Class of Certificates may be structured
to provide protection against delinquencies and/or
losses on the Contracts, against changes in interest
rates, or other risks, to the extent and under the
conditions specified in the related Prospectus
Supplement. Unless otherwise specified in the related
Prospectus Supplement, any form of Enhancement will
have certain limitations and exclusions from coverage
thereunder, which will be described in the related
Prospectus Supplement. Further information regarding
any third party provider of Enhancement (the
'Enhancer'), including financial information when
material, will be included in the related Prospectus
Supplement. See 'Credit Enhancement.'
Pre-Funding and
Capitalized Interest
Accounts............... If specified in the related Prospectus Supplement, a
Trust will include one or more segregated trust
accounts (each, a 'Pre-Funding Account') for the
related Series. If so specified, on the closing date
for such Series, a portion of the proceeds of the sale
of the Certificates of such Series (such amount, the
'Pre-Funded Amount') will be deposited in the
Pre-Funding Account and may be used to purchase
additional Contracts during the period of time, not to
exceed six months, specified in the related Prospectus
Supplement (the 'Pre-Funding Period'). The Contracts
to be so purchased will be required to have certain
characteristics specified in the related Prospectus
Supplement. If any Pre-Funded Amount remains on
deposit in the Pre-Funding Account at the end of the
Pre-Funding Period, such amount will be applied in the
manner specified in the related Prospectus Supplement
to prepay the Classes of Certificates of the
applicable Series specified in the related Prospectus
Supplement. The amount initially deposited in a Pre-
Funding Account for a Series of Certificates will not
exceed fifty percent of the aggregate principal amount
of such Series of Certificates.
If a Pre-Funding Account is established, one or more
segregated trust accounts (each, a 'Capitalized
Interest Account') may be established for the related
Series. On the closing date for such
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<S> <C>
Series, a portion of the proceeds of the sale of the
Certificates of such Series may be deposited in the
Capitalized Interest Account and used to fund the
excess, if any, of (x) the sum of (i) the amount of
interest accrued on the Classes of Certificates of
such Series specified in the related Prospectus
Supplement and (ii) if specified in the related
Prospectus Supplement, certain fees or expenses during
the Pre-Funding Period such as Trustee fees and
Enhancement fees, over (y) the amount of interest
available therefor from the Contracts in the Trust. If
so specified in the related Prospectus Supplement,
amounts on deposit in the Capitalized Interest Account
may be released to the Depositor prior to the end of
the Pre-Funding Period subject to the satisfaction of
certain tests specified in the related Prospectus
Supplement. Any amounts on deposit in the Capitalized
Interest Account at the end of the Pre-Funding Period
that are not necessary for such purposes will be
distributed to the person specified in the related
Prospectus Supplement.
Optional Termination..... If so specified in the related Prospectus Supplement,
the Depositor, the Servicer or another entity may at
its option repurchase all Contracts relating to a
Series of Certificates remaining outstanding at such
price, time and under the circumstances specified in
such Prospectus Supplement. See 'Description of the
Certificates--Termination of the Agreement.'
Registration of
Certificates........... If so specified in the related Prospectus Supplement,
the Certificates of a Series, or of one or more
Classes within a Series, will be issuable in the form
of one or more book-entry certificates registered in
the name of a depositary (each, a 'Depositary') on
behalf of the beneficial owners of the Certificates.
The description of the Certificates in this Prospectus
assumes that the Certificates of a Series will not be
issued in the form of Book-Entry Certificates. If some
or all of the Certificates of a Series are issued in
the form of Book-entry Certificates, the terms
'Holder' and 'Certificateholder' will refer to such
beneficial owners of such Certificates, and the rights
of such Certificateholders will be limited as
described herein. See 'Description of the
Certificates--Book-Entry Certificates.'
Federal Income Tax
Considerations......... The federal income tax consequences of the purchase,
ownership and disposition of the Certificates of each
Series will depend on whether an election is made to
treat the corresponding Trust (or certain assets of
the Trust) as a 'real estate mortgage investment
conduit' ('REMIC') under the Internal Revenue Code of
1986, as amended (the 'Code').
REMIC. If an election is to be made to treat the
Trust or certain assets thereof as a REMIC for federal
income tax purposes, the related Prospectus Supplement
will specify which Class or Classes of the related
Series of Certificates will be designated as regular
interests in the REMIC ('REMIC Regular Certificates')
and which Class of Certificates will be designated as
the residual interest in the REMIC ('REMIC Residual
Certificates'). For federal income tax purposes, REMIC
Regular Certificates generally will be treated as debt
obligations of the Trust with payment terms equivalent
to the terms of such Certificates. Holders of REMIC
Regular Certificates will be required to report income
with respect to such Certificates
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under an accrual method, regardless of their normal
tax accounting method. Original issue discount, if
any, on REMIC Regular Certificates will be includible
in the income of the Holders thereof as it accrues, in
advance of receipt of the cash attributable thereto,
which rate of accrual will be determined based on a
reasonable assumed prepayment rate. The REMIC Residual
Certificates generally will not be treated as
evidences of indebtedness for federal income tax
purposes, but instead, as representing rights to the
taxable income or net loss of the REMIC.
GRANTOR TRUST. If no election is to be made to treat
a Trust as a REMIC, such Trust will be classified as a
grantor trust for federal income tax purposes and not
as an association taxable as a corporation. Holders of
the related Series of Certificates ('Non-REMIC
Certificates') will be treated for such purposes,
subject to the possible application of the stripped
bond rules, as owners of undivided interests in the
related assets of the Trust and generally will be
required to report as income their pro rata share of
the entire gross income (including amounts paid as
reasonable servicing compensation) from the Contracts
and will be entitled, subject to certain limitations,
to deduct their pro rata share of the expenses of the
Trust. See 'Federal Income Tax Considerations.'
ERISA Considerations..... Fiduciaries of employee benefit plans or other
retirement plans or arrangements, including individual
retirement accounts, certain Keogh plans, and
collective investment funds and separate accounts in
which such plans, accounts or arrangements are
invested, that are subject to the Employee Retirement
Income Security Act of 1974, as amended ('ERISA'), or
the Code should carefully review with their legal
advisors whether an investment in the Certificates
will cause the assets of the related Trust to be
considered plan assets under the Department of Labor
('DOL') regulations set forth in 29 C.F.R. Section
2510.3-101 (the 'Plan Asset Regulations'), thereby
subjecting the Trustee and the Servicer to the
fiduciary investment standards of ERISA, and whether
the purchase, holding or transfer of Certificates give
rise to a transaction that is prohibited under ERISA
or subject to the excise tax provisions of Section
4975 of the Code, unless a DOL administrative
exemption applies. See 'ERISA Considerations.'
Legal Investment......... Unless otherwise indicated in the applicable
Prospectus Supplement, any Certificates offered hereby
that are rated by at least one nationally recognized
statistical rating organization in one of its two
highest rating categories will constitute 'mortgage
related securities' under the Secondary Mortgage
Market Enhancement Act of 1984, as amended, and as
such will be 'legal investments' for certain types of
institutional investors to the extent provided in that
Act. See 'Legal Investment.'
Ratings.................. It is a condition to the issuance of any Class of
Certificates sold under this Prospectus that they be
rated in one of the four highest rating categories of
at least one nationally recognized statistical rating
organization. A security rating is not a
recommendation to buy, sell or hold securities and may
be subject to revision or withdrawal at any time by
the assigning rating agency. See 'Ratings.'
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RISK FACTORS
Prospective investors in the Certificates should consider, among other
things, the following risks in connection with the purchase of the Certificates:
Security Interests in Manufactured Homes May be Lost. The method of
perfecting a security interest in a Manufactured Home depends on the laws of the
state in which the Manufactured Home is located and, in some cases, the facts
and circumstances surrounding the location of the Manufactured Home (for
example, whether the Manufactured Home has become permanently affixed to its
site). If a Manufactured Home is moved from one state to another, steps must be
taken to re-perfect the security interest under the laws of the new state.
Generally the Servicer would become aware of the need to take such steps
following notice due to the notation of the Originator's lien on the applicable
certificate of title. However, if through fraud or administrative error such
steps were not taken in a timely manner, the perfected status of the lien on the
related Manufactured Home could be lost.
Similarly, if a Manufactured Home were to become or be deemed to be
permanently affixed to its site, additional steps may have to be taken to
maintain the priority and/or perfection of the security interest granted by the
related Contract. Although the borrowers will have agreed not to permit their
Manufactured Homes to become or to be deemed to be permanently affixed to the
sites, there can be no assurance that the borrowers will comply with their
agreements. In such cases, the Servicer would be unlikely to obtain knowledge
thereof which would permit the Servicer to take additional steps, if any,
required under applicable law to maintain the priority and/or perfection of the
lien on the Manufactured Home. See 'Certain Legal Aspects of the Contracts.'
Property Values May Be Insufficient. Unlike site-built homes which may
appreciate in value over time, manufactured housing generally depreciates in
value over time. In addition, many manufactured housing lenders, including the
Originators, finance the cost of taxes, fees and insurance and the costs of
delivery and set up. The current underwriting standards of UCFI permit an
Obligor to finance up to 95% of the cash sale price (including taxes, fees and
insurance) of a new Manufactured Home and up to 100% of the appraised value
(including taxes, fees and insurance) of a used Manufactured Home. The values of
the Manufactured Homes also may be affected by, among other things, a downturn
in regional or local economic conditions. These regional or local economic
conditions are often volatile, and historically have affected the delinquency,
loan loss and repossession experience of contracts similar to the Contracts.
Consequently, the market value of certain Manufactured Homes could be or become
lower than the outstanding principal balances of the Contracts that they secure.
To the extent that losses on the Contracts are not covered by the subordination
of other Classes of Certificates, if any, or by any other form of Enhancement,
Holders of the Certificates of a Series evidencing interests in such Contracts
will bear all risk of loss resulting from default by obligors and will have to
look primarily to the value of the Manufactured Homes for recovery of the
outstanding principal and unpaid interest on the defaulted Contracts.
Titles Will Not Be Amended. On or prior to the closing date for a Series
of Certificates, the Originators will convey the related Contracts to an
affiliate, Gopher Funding, Inc., such affiliate will convey such Contracts to
the Depositor, and the Depositor will convey such Contracts to the Trust. Each
Contract will be secured by a security interest in a Manufactured Home together
with, in the case of a Land-and-Home Contract, the real estate to which the
Manufactured Home is permanently affixed. Perfection of security interests in
the Manufactured Homes and enforcement of rights to realize upon the value of
the Manufactured Homes as collateral for the Contracts are subject to a number
of federal and state laws, including the Uniform Commercial Code (the 'UCC') as
adopted in the states in which the Manufactured Homes are located and the
certificate of title statutes of such states.
Because of the expense and administrative inconvenience involved, the
certificates of title to the Manufactured Homes will not be amended to change
the lienholder specified therein to the Trustee or to note thereon the interest
of the Trustee, and, unless otherwise specified in the Agreement, the
certificates of title will not be delivered to the Trustee. As a result, the
applicable Originator will remain the lienholder on the certificates of title
for the Manufactured Homes. In some states, in the absence of such an amendment
to the certificate of title, the assignment to the Trustee of the security
interest in the Manufactured Homes located therein may not be effective or such
security interest may not be perfected and, in the absence of such notation or
delivery to the Trustee, the assignment of the security interest in the
Manufactured Home to the Trustee may not be effective against creditors of the
applicable Originator or a trustee in bankruptcy of such Originator. However,
the
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assignment to the Trustee of the mortgage or deed of trust securing each
Land-and-Home Contract will be recorded. See 'Certain Legal Aspects of the
Contracts.'
Originator Has Limited History. UCFI was incorporated in May 1995, and
commenced originating and purchasing Contracts on a limited scale in November
1995. As a result, UCFI has only limited historical information concerning the
delinquency and loss experience of Contracts originated or purchased by it. The
manufactured housing portfolio of UCFI has experienced rapid growth since its
inception, and the delinquency and loss percentages presented herein may be
affected by the size and relative lack of seasoning of its servicing portfolio.
Because such data is limited and includes the period of time during which UCFI
commenced its operations, the Depositor believes such data would not provide
meaningful information concerning the quality or performance of the Contracts.
Although the management of UCFI has had considerable experience while
employed at other companies in the origination, purchasing and servicing of
Contracts, and the Depositor believes that the underwriting criteria of UCFI and
the servicing standards of the Servicer are consistent with industry norms,
there can be no assurance that the loss and delinquency rates on the Contracts
will not exceed normal industry rates.
UCFI's success depends in large part upon a number of key management
personnel and technical employees. The loss of the services of one or more of
its management personnel could have a material adverse impact on the business
and operations of UCFI.
Consumer Protection Laws May Affect Contracts. Numerous federal and state
consumer protection laws impose requirements on lenders under installment sales
contracts and installment loan agreements such as the Contracts, and the failure
by the lender or seller of goods to comply with such requirements could give
rise to liabilities of assignees for amounts due under such agreements and the
right of set-off against claims by such assignees. These laws would apply to the
Trust as assignee of the Contracts. Each Originator will represent and warrant
that as of the related Cut-off Date, each Contract sold by it complies with all
requirements of law and will provide certain representations relating to the
validity, perfection and priority of the security interest in each Manufactured
Home securing a Contract. If any such representation is breached and such breach
materially adversely affects the interests of Certificateholders in the related
Contract, the applicable Originator will be obligated to cure such breach within
the time period specified in the Agreement or to repurchase, or at its option
substitute another manufactured housing contract for, such Contract.
No Secondary Market. There will be no market for the Certificates of any
Series prior to the issuance thereof. There can be no assurance that a secondary
market will develop for the Certificates of any Series, or, if it does develop,
that it will provide the Holders of any of the Certificates with liquidity of
investment or that it will remain for the term of any Series of Certificates.
Trust Assets Are Only Source of Payment. The Certificates will not
represent an interest in or obligation of the Depositor, the Servicer or any
Originator. The Certificates will not be insured or guaranteed by any
governmental agency or instrumentality, or (except as otherwise specified in the
related Prospectus Supplement) by any other person. The Certificates of a Series
will be payable solely from the assets of the related Trust including any
related Enhancement. Further, unless otherwise stated in the related Prospectus
Supplement, at the times set forth in the related Prospectus Supplement, any
balance remaining in the Certificate Account immediately after making all
payments due on the Certificates of such Series and other payments specified in
the related Prospectus Supplement, may be promptly released or remitted to the
Depositor, the Servicer, the Enhancer or any other person entitled thereto and
will no longer be available for making payments to Holders. Consequently,
Holders of Certificates of each Series must rely solely upon payments with
respect to the assets constituting the Trust for a Series of Certificates,
including, if applicable, any amounts available pursuant to any Enhancement for
such Series, for the payment of principal of and interest on the Certificates of
such Series.
Yield May Vary. The yields to maturity of the Classes of Certificates of a
Series will be affected by the amount and timing of principal payments on the
related Contracts, the allocation of available funds and/or losses among such
Classes, the interest rates or amounts of interest payable on such Classes and
the purchase prices paid for such Classes. The interaction of the foregoing
factors may have different effects on, and create different risks for the
various Classes of Certificates, and the effects and/or risks for any one Class
may vary over the life of such Class.
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The prepayment experience on the Contracts in a Trust will affect the
average lives of the related Class or Classes of Certificates. Prepayments on
the Contracts (which include both voluntary prepayments and liquidations
following default) may be influenced by a variety of economic, geographic,
social and other factors, including repossessions, aging, seasonality, market
interest rates, changes in housing needs, job transfers and unemployment. If the
Certificates of any Series are purchased at a discount and the purchaser
calculates its anticipated yield to maturity based on an assumed rate of payment
of principal on such Certificates that is faster than the rate actually
realized, such purchaser's actual yield to maturity will be lower than the yield
so calculated by such purchaser.
Pre-Funding and Additional Contracts May Adversely Affect Investment. If a
Trust includes a Pre-Funding Account and the principal balance of additional
Contracts delivered to the Trust during the Pre-Funding Period is less than the
Pre-Funded Amount, the Holders of the Certificates of the related Series will
receive a prepayment of principal as and to the extent described in the related
Prospectus Supplement. Any such principal prepayment may adversely affect the
yield to maturity of the applicable Certificates. Since prevailing interest
rates are subject to fluctuation, there can be no assurance that investors will
be able to reinvest such a prepayment at yields equaling or exceeding the yields
on the related Certificates. It is possible that the yield on any such
reinvestment will be lower, and may be significantly lower, than the yield on
the related Certificates.
Each additional Contract must satisfy the eligibility criteria specified in
the related Prospectus Supplement and Agreement. Such eligibility criteria will
be determined in consultation with each Rating Agency (and/or any Enhancer)
prior to the issuance of the related Series and are designed to ensure that if
such additional Contracts were included as part of the initial Contracts, the
credit quality of such assets would be consistent with the initial rating of
each Class of Certificates of such Series. The Depositor will certify to the
Trustee that all conditions precedent to the transfer of the additional
Contracts to the Trust, including the satisfaction of the eligibility criteria,
have been satisfied. Following the transfer of additional Contracts to the
Trust, the aggregate characteristics of the Contracts then held in the Trust may
vary from those of the initial Contracts of such Trust. As a result, the
additional Contracts may adversely affect the performance of the related
Certificates.
The ability of a Trust to invest in additional Contracts during the related
Pre-Funding Period will be dependant on the ability of the Originators to
originate or acquire Contracts that satisfy the requirements for transfer to the
Trust specified in the related Prospectus Supplement. The ability of the
Originators to originate or acquire such Contracts will be affected by a variety
of social and economic factors, including the prevailing level of market
interest rates, unemployment levels and consumer perceptions of general economic
conditions.
Ratings Are Not Recommendations. It will be a condition to the sale of any
Certificates under this Prospectus and related Prospectus Supplement that they
be rated in one of the four highest rating categories by the Rating Agency
identified in the related Prospectus Supplement. Any such rating will be based
on, among other things, the adequacy of the value of the Contracts and any
Enhancement with respect to such Series. Such rating should not be deemed a
recommendation to purchase, hold or sell Certificates, inasmuch as it does not
address market price or suitability for a particular investor. There is no
assurance that any such rating will remain in effect for any given period of
time or may not be lowered or withdrawn entirely by the Rating Agency if in its
judgment circumstances in the future so warrant. In addition to being lowered or
withdrawn due to any erosion in the adequacy of the value of the Contracts, such
rating might also be lowered or withdrawn, among other reasons, because of an
adverse change in the financial or other condition of an Enhancer or a change in
the rating of such Enhancer's long term debt.
THE TRUSTS
GENERAL
Each Trust will include (i) one or more Pools, (ii) the amounts held from
time to time in a trust account (the 'Certificate Account') maintained by the
Trustee pursuant to the Agreement, (iii) amounts on deposit in any Pre-Funding
Account and Capitalized Interest Account established for such Trust, (iv) the
amounts held from time to time in other accounts maintained on behalf of the
Trust, (v) proceeds from certain hazard insurance on individual Manufactured
Homes and Manufactured Homes (and, in the case of Land-and-Home Contracts, the
related real estate) acquired by repossession or foreclosure, (vi) any
Enhancement for such Series, and
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(vii) certain rights of the Depositor under the agreements pursuant to which the
Contracts were acquired. Whenever in this Prospectus terms such as 'Pool,'
'Trust,' 'Agreement' or 'Remittance Rate' are used, those terms respectively
apply, unless the context otherwise indicates, to one specific Pool, Trust, each
Agreement and the Remittance Rate applicable to the related Class of
Certificates. Each Certificate will evidence the interest specified in the
related Prospectus Supplement in a Trust, containing one or more Pools comprised
of Contracts having the aggregate principal balance as of the specified day of
the month of the creation of the pool (the 'Cut-off Date') specified in the
related Prospectus Supplement.
The following is a brief description of the Contracts expected to be
included in the Trust. If specific information respecting the Contracts is not
known at the time the related Series of Certificates initially is offered, more
general information of the nature described below will be provided in the
Prospectus Supplement and specific information will be set forth in a report on
Form 8-K to be filed with the Securities and Exchange Commission within fifteen
days after the initial issuance of such Certificates (the 'Detailed
Description'). A copy of the Agreement with respect to each Series of
Certificates will be available for inspection at the corporate trust office of
the Trustee specified in the related Prospectus Supplement. A schedule of the
Contracts relating to such Series will be attached to or incorporated by
reference in the Agreement delivered to the Trustee upon delivery of the
Certificates.
THE CONTRACT POOLS
Each pool of Contracts with respect to a Series of Certificates (each, a
'Pool') will consist of manufactured housing installment sales contracts and
manufactured housing installment loan agreements (collectively, the 'Chattel
Contracts'). Each Chattel Contract will be secured by a Manufactured Home (as
defined below). Other contracts will be secured by a mortgage or deed of trust
on the Manufactured Home and the real estate to which the Manufactured Home is
deemed permanently affixed (a 'Land-and-Home Contract' and collectively with
Chattel Contracts, the 'Contracts'). The Manufactured Homes may be located in
any one of the fifty states or the District of Columbia. Contracts may be
conventional contracts or contracts insured by the Federal Housing Authority
(the 'FHA') or partially guaranteed by the Veterans Administration (the 'VA').
Each Pool will be comprised of Contracts bearing interest at annual fixed
or variable rates (the 'Contract Rates'). Unless otherwise specified in the
related Prospectus Supplement, all of the Contracts in a Pool will provide for
payments to be made monthly on a specified date of each month (each, a 'due
date'), and the due dates will occur throughout the month.
Each Originator will make representations and warranties to the Depositor
as to the types and geographical distribution of the Contracts sold by it and
included in a Pool and as to the accuracy in all material respects of certain
information furnished to the Depositor in respect of each such Contract. The
Originators also will represent to the Depositor that the Manufactured Homes
securing the Contracts consist of manufactured homes within the meaning of 42
United States Code, Section 5402(6), which defines a 'manufactured home' as 'a
structure, transportable in one or more sections, which in the traveling mode,
is eight body feet or more in width or forty body feet or more in length, or,
when erected on site, is three hundred twenty or more square feet, and which is
built on a permanent chassis designed to be used as a dwelling with or without a
permanent foundation when connected to the required utilities, and includes the
plumbing, heating, air-conditioning, and electrical systems contained therein;
except that such term shall include any structure which meets all the
requirements of (this) paragraph except the size requirements and with respect
to which the manufacturer voluntarily files a certification required by the
Secretary of Housing and Urban Development and complies with the standards
established under [this]chapter.' Pursuant to the Agreement, the Depositor will
assign such representations and its rights with respect to breaches thereof to
the Trustee. Upon a breach of any such representation that materially and
adversely affects the interests of the Certificateholders in a Contract, the
applicable Originator will be obligated either to cure the breach in all
material respects, to repurchase the Contract or to substitute another Contract
as described below. Should an Originator not cure the breach in all material
respects or substitute another Contract as described below, the repurchase
obligation of such Originator will constitute the sole remedy available to the
Certificateholders or the Trustee for a breach of representation by such
Originator. See 'Description of the Certificates--Conveyance of Contracts.'
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For each Series of Certificates, the Depositor will cause the Originators
to assign the Contracts constituting the Pool to the trustee named in the
related Prospectus Supplement (the 'Trustee'). The Servicer will service the
Contracts pursuant to the Agreement. See 'Description of the
Certificates--Servicing.' Unless otherwise specified in the related Prospectus
Supplement, the Contract documents (other than the documents relating to
Land-and-Home Contracts) will be held by the Servicer as custodian for the
Trustee. The documents relating to any Land-and-Home Contracts will be held by
the Trustee or by a custodian (the 'Custodian') appointed pursuant to a
custodial agreement (the 'Custodial Agreement') between the Trustee and the
Custodian.
The Prospectus Supplement for each Series of Certificates will contain
information, as of the Cut-off Date and to the extent then specifically known to
the Depositor, with respect to the Contracts contained in the related Pool,
including: (i) the range of the dates of origination of the Contracts; (ii) the
range of the Contract Rates and the weighted average Contract Rate; (iii) the
range of Loan-to-Value Ratios at origination and the weighted average
Loan-to-Value Ratio at origination; (iv) the minimum and maximum outstanding
principal balances as of the Cut-off Date and the average outstanding principal
balance as of the Cut-off Date; (v) the aggregate principal balances of the
Contracts; (vi) the weighted average and range of scheduled terms to maturity as
of the Cut-off Date; (vii) the original maturities of the Contracts and the last
maturity date of any Contract; and (viii) the locations of the Manufactured
Homes securing the Contracts.
USE OF PROCEEDS
The Depositor intends to use the net proceeds to be received from the sale
of the Certificates of each Series to acquire the Contracts to be deposited in
the related Trust, and to pay other expenses connected with pooling Contracts
and issuing Certificates. Any amounts remaining after such payments may be used
for general corporate purposes. The Depositor expects to sell Certificates in
Series from time to time.
THE DEPOSITOR
UCFC Funding Corporation (the 'Depositor') was incorporated in the State of
Louisiana in July 1996, and is an indirect wholly-owned subsidiary of United
Companies Financial Corporation (the 'Parent'). The Depositor maintains its
principal offices at 4041 Essen Lane, Baton Rouge, Louisiana 70809. Its
telephone number is (504) 924-6007.
The Depositor does not have, nor is it expected in the future to have, any
significant assets.
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THE MANUFACTURED HOUSING PROGRAM
GENERAL
It is expected that the Contracts primarily will have been originated or
purchased by United Companies Funding, Inc. ('UCFI'), United Companies Lending
Corporation(Registered) ('United Companies') and UNICOR Mortgage(Registered),
Inc. ('UNICOR,' and together with UCFI and United Companies, the 'Originators').
Certain Contracts may have been purchased by the Depositor, the Originators or
affiliates thereof in the open market or privately negotiated transactions.
United Companies and UNICOR have originated Land-and-Home Contracts for
several years. In 1995, the Parent decided to expand its product line to include
Chattel Contracts. UCFI was incorporated in May 1995, and commenced originating
and purchasing Contracts on a limited scale in November 1995. Each Originator is
an affiliate of the Depositor and a wholly-owned, direct or indirect subsidiary
of the Parent. UCFI maintains its principal offices at 2051 Killibrew Drive,
Suite 220, Minneapolis, Minnesota 55425. Its telephone number is (612) 854-6556.
Each of United Companies and UNICOR maintains its principal offices at 4041
Essen Lane, Baton Rouge, Louisiana 70809. The telephone number is (504)
924-6007.
CONTRACT ORIGINATION
General. UCFI may (i) purchase Contracts from approved manufactured
housing dealers ('Indirect Financing'), (ii) originate Contracts directly with
individual owners or purchasers of Manufactured Homes ('Direct Financing') or
(iii) make bulk purchases of Contracts originated or acquired by other lending
institutions, finance companies or affiliates. United Companies and UNICOR
originate directly, or through correspondents and brokers, only Land-and-Home
Contracts. Regardless of the method of production, the Originator applies its
same underwriting standards.
Indirect Financing. Through its regional managers, UCFI purchases
manufactured housing contracts from manufactured housing dealers. UCFI's
regional managers contact dealers located in their region and explain UCFI's
available financing plans, terms, prevailing rates and credit and financing
policies. If the dealer wishes to use UCFI's available customer financing, the
dealer must make an application for dealer approval. Upon satisfactory results
of UCFI's investigation of the dealer's creditworthiness and general business
reputation, UCFI and the dealer execute a dealer agreement.
UCFI provides Indirect Financing only for Manufactured Homes which are
manufactured by an approved manufacturer. Approval may be requested by a dealer
or a manufacturer. If UCFI's review of the manufacturer's creditworthiness and
general business reputation is satisfactory, UCFI will approve the
manufacturer's products as being eligible for Indirect Financing.
All contracts that UCFI purchases from dealers are written on forms
provided by UCFI and are purchased on an individually approved basis. The dealer
submits the customer's credit application and purchase order to UCFI's executive
offices where UCFI's underwriters make an analysis of the creditworthiness of
the proposed buyer. If the application meets UCFI's guidelines and the credit is
approved, UCFI purchases the Contract after the Manufactured Home is delivered
and set up and the customer has been contacted by telephone to obtain the
customer's approval of the Manufactured Home and the delivery and set-up of the
Manufactured Home.
Direct Financing. The Originators also provide financing directly to
individuals who own or wish to purchase Manufactured Homes. The customer's
credit application is submitted to the applicable Originator's executive offices
where the Originator's underwriters make an analysis of the creditworthiness of
the customer. The Originator also will accept a customer's application over a
toll-free telephone number established for that purpose. If the application
receives preliminary approval, it is further processed as with other customer
applications.
Bulk Purchases. The Originators also may, from time to time, purchase
Contracts originated or acquired by other lending institutions, finance
companies or affiliates. Each Contract so purchased will be re-underwritten by
personnel of the Originator or its affiliates prior to the purchase thereof
using the Originator's then-current underwriting standards.
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UNDERWRITING STANDARDS
The same underwriting standards are applied regardless of the method of
production of a manufactured housing contract. The Originators' underwriting
focuses primarily on the borrower's capacity to repay the debt. The analysis
includes application of a credit scoring system and a review of the applicant's
paying habits, length and likelihood of continued employment, and certain other
factors. The Originators' current underwriting guidelines for conventional
Contracts limit the maximum loan size to $200,000 in the case of Chattel
Contracts and $300,000 in the case of Land-and-Home Contracts. With respect to
conventional contracts for new Manufactured Homes, UCFI may finance up to the
lesser of (a) 95% of the cash sale price (including taxes, fees and insurance)
of the Manufactured Home or (b) 130% of the manufacturer's invoice price of the
Manufactured Home plus 100% of taxes, license fees and freight charges, 100% of
the dealer's cost of additional dealer-installed equipment (not to exceed 25% of
the base price of the Manufactured Home), and up to $1,500 of set-up costs per
module. With respect to used Manufactured Homes, UCFI may finance up to 100% of
the lesser of (a) the total delivered sales price of the Manufactured Home
(including taxes, fees, insurance and up to $1,500 of set-up costs per module),
or (b) the appraised value of the Manufactured Home. Taxes, fees, and insurance
may be included in the amount financed up to a maximum of 100% of the appraised
value of the used Manufactured Home. Such appraisals on used Manufactured Homes
are performed by employees of the Originator, in the case of Indirect Financing,
and by independent appraisers approved by the Originator, in the case of Direct
Financing. The appraisals of such independent appraisers are validated by the
Originator's personnel through a review of the National Automobile Dealers
Association ('NADA') base values and on-site inspections. United Companies and
UNICOR apply substantially the same loan-to-value ratio, appraisal and other
underwriting standards and procedures to the Land-and-Home Contracts as they
apply to other home equity loans originated by them. The guidelines in this
paragraph may be exceeded when the Originator's underwriters deem it
appropriate.
MATURITY, PREPAYMENT AND YIELD CONSIDERATIONS
The yields to maturity of the Certificates will be affected by the amount
and timing of principal payments on or in respect of the Contracts included in
the related Trust, the allocation of available funds to various Classes of
Certificates, the Remittance Rate for various Classes of Certificates and the
purchase price paid for the Certificates.
The original terms to maturity of the Contracts in a given Pool will vary,
and the related Prospectus Supplement will contain information with respect to
the maturities of the Contracts in the related Pool. Unless otherwise specified
in the related Prospectus Supplement, the Contracts may be prepaid without
penalty in full or in part at any time.
The rate of prepayments with respect to manufactured housing installment
sales contracts and manufactured housing installment loan sale agreements has
fluctuated significantly in recent years. In general, if prevailing rates fall
below the Contract Rates borne by the Contracts, such Contracts are likely to be
subject to higher prepayment rates than if prevailing interest rates remain at
or above such Contract Rates. Conversely, if prevailing interest rates rise
appreciably above the Contract Rates borne by the Contracts, such Contracts are
likely to experience a lower prepayment rate than if prevailing rates remain at
or below such Contract Rates. However, there can be no assurance that such will
be the case.
Prepayments are influenced by a variety of economic, geographical, social,
tax, legal and additional factors. The rate of prepayments on Contracts may be
affected by changes in Obligors' housing needs, job transfers, unemployment, the
Obligors' net equity in the Manufactured Homes, the enforcement of due-on-sale
clauses and other servicing decisions. Unless otherwise provided in the related
Prospectus Supplement, all of the Contracts will contain due-on-sale provisions
permitting the lender to accelerate the maturity of the Contract upon sale or
certain transfers by the Obligors of the underlying Manufactured Home. The
Servicer generally will permit the assumption of a Contract by an obligor that
satisfies the then-current underwriting standards of the Originator. In
connection with any such assumption, no material term of the Contract may be
changed.
When a full prepayment occurs on a Contract, the Obligor will be charged
interest on the principal amount of the Contract so prepaid only for the number
of days in the month actually elapsed up to the date of the prepayment rather
than for a full month. Interest shortfalls also could result from the
application of the Relief
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Act, as described under 'Certain Legal Aspects of the Contracts--Soldiers' and
Sailors' Civil Relief Act' herein. Such shortfalls will adversely affect the
yield on the Certificates.
Under certain circumstances, the Depositor, the Servicer, the Holders of
REMIC Residual Certificates or certain other entities specified in the related
Prospectus Supplement may have the option to purchase the Contracts and other
assets of a Trust, thereby effecting earlier retirement of the related Series of
Certificates, subject to the principal balance of the related Contracts being
less than the percentage specified in the related Prospectus Supplement of the
aggregate principal balance of the Contracts at the Cut-off Date for the related
Series.
Unless otherwise specified in the related Prospectus Supplement, the
effective yield to Certificateholders will be slightly lower than the yield
otherwise produced by the applicable Remittance Rate and purchase price, because
while interest generally will accrue on the Certificates from the first day of
each month, the distribution of such interest will not be made earlier than a
date specified in the related Prospectus Supplement in the month following the
month of accrual.
The timing of payments on the Contracts may significantly affect an
investor's yield. In general, the earlier a prepayment of principal on the
Contracts, the greater will be the effect on an investor's yield to maturity. As
a result, the effect on an investor's yield of principal prepayments occurring
at a rate higher (or lower) than the rate anticipated by the investor during the
period immediately following the issuance of the Certificates will not be offset
by a subsequent like reduction (or increase) in the rate of principal payments.
DESCRIPTION OF THE CERTIFICATES
Each Series of Certificates will be issued pursuant to a pooling and
servicing agreement (each, an 'Agreement'), dated as of the related Cut-off
Date, among the Depositor, the Servicer and the Trustee for the benefit of the
holders of the Certificates ('Certificateholders' or 'Holders') of such Series.
The provisions of each Agreement will vary depending upon the nature of the
Certificates to be issued thereunder and the nature of the related Trust. A form
of an Agreement has been filed as an exhibit to the Registration Statement of
which this Prospectus is a part. The following summaries describe the material
provisions which may appear in each Agreement. The Prospectus Supplement for a
Series of Certificates will supplement the description contained in this
Prospectus to the extent necessary to describe the material provisions of the
Agreement for such Series of Certificates. The summaries do not purport to be
complete and are subject to, and are qualified in their entirety by reference
to, all of the provisions of the Agreement for each Series of Certificates and
the applicable Prospectus Supplement. The Depositor will provide a copy of the
Agreement (without exhibits) relating to any Series without charge upon written
request of a Holder of a Certificate of such Series addressed to UCFC Funding
Corporation, 4041 Essen Lane, Baton Rouge, LA 70809, Attention: Secretary.
GENERAL
Unless otherwise specified in the Prospectus Supplement, the Certificates
of each Series will be issued in fully registered form only in the denominations
specified in the related Prospectus Supplement, will represent beneficial
ownership interests in a Trust created pursuant to the related Agreement and
will not be entitled to payments in respect of the Contracts included in any
other Trust. Definitive Certificates will be transferable and exchangeable at
the corporate trust office of the Trustee or, at the election of the Trustee, at
the office of a Certificate Registrar appointed by the Trustee. No service
charge will be incurred for any registration of exchange or transfer, but the
Trustee may require payment of a sum sufficient to cover any tax or other
governmental charge.
Each Series of Certificates will be issued in one or more classes (each, a
'Class'). Each Class of Certificates of a Series will evidence the beneficial
ownership interest in the assets of the related Trust specified in the related
Prospectus Supplement. A Series of Certificates may include one or more Classes
of Senior Certificates that receive certain preferential treatment with respect
to one or more Subordinated Classes of Certificates of such Series. Certain
Series or Classes of Certificates may be covered by Enhancement as described in
the related Prospectus Supplement. Distributions on one or more Classes of a
Series of Certificates may be made prior to one or more other Classes, after the
occurrence of specified events, in accordance with a schedule or formula, on the
basis of collections from designated portions of the Contracts in the related
Trust or on a
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different basis, in each case, as specified in the related Prospectus
Supplement. The timing and amounts of such distributions may vary among Classes
or over time as specified in the related Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement,
distributions of principal and interest (or where applicable, of principal only
or interest only) on the related Certificates will be made by the Trustee on
each date specified in the related Prospectus Supplement (each, a 'Remittance
Date'), in the amounts specified in the related Prospectus Supplement.
Distributions will be made to the persons in whose names the Certificates are
registered at the close of business on the record dates specified in the
Prospectus Supplement. Distributions will be made by check mailed to the persons
entitled thereto at the address appearing in the register maintained for holders
of Certificates (the 'Certificate Register') or, to the extent described in the
related Prospectus Supplement, by wire transfer or by such other means as are
described therein, except that the final distribution in retirement of the
Certificates will be made only upon presentation and surrender of the
Certificates at the office or agency of the Trustee or other person specified in
the final distribution notice to Certificateholders.
Each Class of Certificates within a Series will evidence the interests
specified in the related Prospectus Supplement, which may (i) include the right
to receive distributions allocable only to principal, only to interest or to any
combination thereof; (ii) include the right to receive distributions only of
prepayments of principal throughout the lives of the Certificates or during
specified periods; (iii) be subordinated in its right to receive distributions
of scheduled payments of principal, prepayments of principal, interest or any
combination thereof to one or more other Classes of Certificates of such Series
throughout the lives of the Certificates or during specified periods or may be
subordinated with respect to certain losses or delinquencies; (iv) include the
right to receive such distributions only after the occurrence of events
specified in the Prospectus Supplement; (v) include the right to receive
distributions in accordance with a schedule or formula or on the basis of
collections from designated portions of the assets in the related Trust; (vi)
include, as to Certificates entitled to distributions allocable to interest, the
right to receive interest at a fixed rate or an adjustable rate; and (vii)
include, as to Certificates entitled to distributions allocable to interest, the
right to distributions allocable to interest only after the occurrence of events
specified in the related Prospectus Supplement, and in each case, may accrue
interest until such events occur, as specified in such Prospectus Supplement.
BOOK-ENTRY CERTIFICATES
If so specified in the related Prospectus Supplement, the Certificates will
be book-entry certificates (the 'Book-Entry Certificates'). Persons acquiring
beneficial ownership interests in such Certificates ('Certificate Owners') will
hold their Certificates through DTC in the United States, or Cedel Bank, societe
anonyme, ('Cedel') or the Euroclear System ('Euroclear') in Europe if they are
participants of such systems, or indirectly through organizations which are
participants in such systems. The Book-Entry Certificates will be issued in one
or more certificates which equal the aggregate principal balance of the
applicable Series of Certificates and will initially be registered in the name
of Cede & Co. ('Cede'), the nominee of DTC. Cedel and Euroclear will hold
omnibus positions on behalf of their participants through customers' securities
accounts in Cedel's and Euroclear's names on the books of their respective
depositaries which in turn will hold such positions in customers' securities
accounts in the depositaries' names on the books of DTC. Citibank, N.A.
('Citibank') will act as depositary for Cedel and The Chase Manhattan Bank
('Chase') will act as depositary for Euroclear (in such capacities, individually
the 'Relevant Depositary' and collectively the 'European Depositaries'). Except
as described below, no person acquiring a Book-Entry Certificate will be
entitled to receive a physical certificate representing such Certificate (a
'Definitive Certificate'). Unless and until Definitive Certificates are issued,
the only 'Certificateholder' of Book-Entry Certificates will be Cede, as nominee
of DTC. Certificate Owners will not be Certificateholders as that term is used
in the applicable Agreement. Certificate Owners are only permitted to exercise
their rights indirectly through DTC Participants and DTC.
The Certificate Owner's ownership of a Book-Entry Certificate will be
recorded on the records of the brokerage firm, bank, thrift institution or other
financial intermediary (each, a 'Financial Intermediary') that maintains the
Certificate Owner's account for such purpose. In turn, the Financial
Intermediary's ownership of such Book-Entry Certificate will be recorded on the
records of DTC (or of a participating firm that acts as agent for the Financial
Intermediary, whose interest will in turn be recorded on the records of DTC, if
the Certificate
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Owner's Financial Intermediary is not a DTC Participant and on the records of
Cedel or Euroclear, as appropriate).
Because of time zone differences, credits of securities received in Cedel
or Euroclear as a result of a transaction with a DTC Participant will be made
during subsequent securities settlement processing and dated the business day
following the DTC settlement date. Such credits or any transactions in such
securities settled during such processing will be reported to the relevant
Euroclear or Cedel Participants on such business day. Cash received on Cedel or
Euroclear as a result of sales of securities by or through a Cedel Participant
(as defined below) or Euroclear Participant (as defined below) to a DTC
Participant will be received with value on the DTC settlement date but will be
available in the relevant Cedel or Euroclear cash account only as of the
business day following settlement in DTC.
Transfers between DTC Participants will occur in accordance with DTC Rules.
Transfers between Cedel Participants and Euroclear Participants will occur in
accordance with their respective rules and operating procedures.
Cross-market transfers between persons holding certificates directly or
indirectly through DTC, on the one hand, and directly or indirectly through
Cedel Participants or Euroclear Participants, on the other, will be effected in
DTC in accordance with DTC rules on behalf of the relevant European
international clearing system by the Relevant Depositary; however, such cross
market transactions will require delivery of instructions to the relevant
European international clearing system by the counterparty in such system in
accordance with its rules and procedures and within its established deadlines
(European time). The relevant European International clearing System will, if
the transaction meets its settlement requirements, deliver instructions to the
Relevant Depositary to take action to effect final settlement on its behalf by
delivering or receiving securities in DTC, and making or receiving payment in
accordance with normal procedures for same day funds settlement applicable to
DTC. Cedel Participants and Euroclear Participants may not deliver instructions
directly to the European Depositaries.
DTC which is a New York-chartered limited purpose company, performs
services for its participants, some of which (and/or their representatives) own
DTC. In accordance with its normal procedures, DTC is expected to record the
positions held by each DTC Participant in the Book-Entry Certificates, whether
held for its own account or as a nominee for another person. In general,
beneficial ownership of Book-Entry Certificates will be subject to the rules,
regulations and procedures governing DTC and DTC Participants as in effect from
time to time.
Cedel is incorporated under the laws of Luxembourg as a professional
depository. Cedel holds securities for its participating organizations ('Cedel
Participants') and facilitates the clearance and settlement of securities
transactions between Cedel Participants through electronic book-entry changes in
accounts of Cedel Participants, thereby eliminating the need for physical
movement of certificates. Transactions may be settled in Cedel in any of 28
currencies, including United States dollars. Cedel provides to its Cedel
Participants, among other things, services for safekeeping, administration,
clearance and settlement of internationally traded securities and securities
lending and borrowing. Cedel interfaces with domestic markets in several
countries. As a professional depository, Cedel is subject to regulation by the
Luxembourg Monetary Institute. Cedel participants are recognized financial
institutions around the world, including underwriters, securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations. Indirect access to Cedel is also available to others, such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a Cedel Participant, either directly or indirectly.
Euroclear was created in 1968 to hold securities for its participants
('Euroclear Participants') and to clear and settle transactions between
Euroclear Participants through simultaneous electronic book-entry delivery
against payment, thereby eliminating the need for physical movement of
certificates and any risk from lack of simultaneous transfers of securities and
cash. Transactions may be settled in any of 32 currencies, including United
States dollars. Euroclear includes various other services, including securities
lending and borrowing and interfaces with domestic markets in several countries
generally similar to the arrangements for cross-market transfers with DTC
described above. Euroclear is operated by the Brussels, Belgium office of Morgan
Guaranty Trust Company of New York (the 'Euroclear Operator'), under contract
with Euroclear Clearance Systems S.C., a Belgian cooperative corporation (the
'Cooperative'). All operations are conducted by the Euroclear Operator, and all
Euroclear securities clearance accounts and Euroclear cash accounts are accounts
with the Euroclear Operator, not the Cooperative. The Cooperative establishes
policy for Euroclear on behalf of Euroclear
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Participants. Euroclear Participants include banks (including central banks),
securities brokers and dealers and other professional financial intermediaries.
Indirect access to Euroclear is also available to other firms that clear through
or maintain a custodial relationship with Euroclear Participant, either directly
or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it is
regulated and examined by the Board of Governors of the Federal Reserve System
and the New York State Banking Department, as well as the Belgian Banking
Commission.
Securities clearance accounts and cash accounts with the Euroclear Operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of the Euroclear System and applicable Belgian law
(collectively, the 'Terms and Conditions'). The Terms and Conditions govern
transfers of securities and cash within Euroclear, withdrawals of securities and
cash from Euroclear, and receipts of payments with respect to securities in
Euroclear. All securities in Euroclear are held on a fungible basis without
attribution of specific certificates to specific securities clearance accounts.
The Euroclear Operator acts under the Terms and Conditions only on behalf of
Euroclear Participants, and has no record of or relationship with persons
holding through Euroclear Participants.
Distributions on the Book-Entry Certificates will be made on each
Remittance Date by the applicable Trustee to DTC. DTC will be responsible for
crediting the amount of such payments to the accounts of the applicable DTC
Participants in accordance with DTC's normal procedures. Each DTC Participant
will be responsible for disbursing such payments to the Certificate Owners of
the Book-Entry Certificates that it represents and to each Financial
Intermediary for which it acts as agent. Each such Financial Intermediary will
be responsible for disbursing funds to the Certificate Owners of the Book-Entry
Certificates that it represents.
Under a book-entry format, Certificate Owners of the Book-Entry
Certificates may experience some delay in their receipt of payments, since such
payments will be forwarded by the Trustee to Cede. Distributions with respect to
Certificates held through Cedel or Euroclear will be credited to the cash
accounts of Cedel Participants or Euroclear Participants in accordance with the
relevant system's rules and procedures, to the extent received by the Relevant
Depositary. Such distributions will be subject to tax reporting in accordance
with relevant United States tax laws and regulations. Because DTC can only act
on behalf of Financial Intermediaries, the ability of a Certificate Owner to
pledge Book-Entry Certificates to persons or entities that do not participate in
the depository system, or otherwise take actions in respect of such Book-Entry
Certificates, may be limited due to the lack of physical certificates for such
Book-Entry Certificates. In addition, issuance of the Book-Entry Certificates in
book-entry form may reduce the liquidity of such certificates in the secondary
market since certain potential investors may be unwilling to purchase
certificates for which they cannot obtain physical certificates.
DTC has advised the Depositor that, unless and until Definitive
Certificates are issued, DTC will take any action permitted to be taken by the
holders of the Book-Entry Certificates under the applicable Agreement only at
the direction of one or more Financial Intermediaries to whose DTC accounts the
Book-Entry Certificates are credited, to the extent that such actions are taken
on behalf of Financial Intermediaries whose holdings include such Book-Entry
Certificates. Cedel or the Euroclear Operator, as the case may be, will take any
other action permitted to be taken by a Certificateholder under the applicable
Agreement on behalf of a Cedel Participant or Euroclear Participant only in
accordance with its relevant rules and procedures and subject to the ability of
the Relevant Depositary to effect such actions on its behalf through DTC. DTC
may take actions, at the direction of the related Participants, with respect to
some Book-Entry Certificates of a Series which conflict with actions taken with
respect to other Book-Entry Certificates of such Series.
Definitive Certificates will be issued to beneficial owners of the
Book-Entry Certificates, or their nominees, rather than to DTC, only if (a) DTC
or the Depositor advises the applicable Trustee in writing that DTC is no longer
willing, qualified or able to discharge properly its responsibilities as nominee
and depository with respect to the Book-Entry Certificates and the Depositor or
such Trustee is unable to locate a qualified successor, (b) the Depositor, at
its sole option, elects to terminate the book-entry system through DTC or (c)
after the occurrence of an Event of Default (as defined herein), Certificate
Owners of the applicable Series having Percentage Interests aggregating not less
than 51% advise the Trustee and DTC through the Financial Intermediaries and the
DTC Participants in writing that the continuation of a book-entry system through
DTC (or a successor thereto) is no longer in the best interests of Certificate
Owners.
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Upon the occurrence of any of the events described in the immediately
preceding paragraph, the applicable Trustee will be required to notify all
affected Certificate Owners of the occurrence of such event and the availability
through DTC of Definitive Certificates. Upon surrender by DTC of the global
certificate or certificates representing the Book-Entry Certificates and
instructions for re-registration, the applicable Trustee will issue Definitive
Certificates, and thereafter such Trustee will recognize the holders of such
Definitive Certificates as Certificateholders under the applicable Agreement.
Although DTC, Cedel and Euroclear have agreed to the foregoing procedures
in order to facilitate transfers of Certificates among participants of DTC,
Cedel and Euroclear, they are under no obligation to perform or continue to
perform such procedures and such procedures may be discontinued at any time.
Neither the Depositor, the Servicer nor the Trustee will have any
responsibility for any aspect of the records relating to or payments made on
account of beneficial ownership interests of the Book-Entry Certificates held by
Cede, as nominee for DTC, or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests.
CONVEYANCE OF CONTRACTS
The Depositor will transfer, assign, set over and otherwise convey to the
Trustee all right, title and interest of the Depositor in the Contracts,
including all security interests created thereby and any related mortgages or
deeds of trust, all principal and interest received on or with respect to the
Contracts (other than receipts of principal and interest due on the Contracts
before the Cut-off Date), all rights under certain hazard insurance policies on
the related Manufactured Homes, all documents contained in the Contract files
and all proceeds derived from any of the foregoing. The Trustee, concurrently
with such conveyance, will execute and deliver the Certificates to the order of
the Depositor. The Contracts will be described on a list attached to or
incorporated by reference in the Agreement. Such list will include the amount of
monthly payments due on each Contract as of the date of issuance of the
Certificates, the Contract Rate on each Contract and the maturity date of each
Contract. Prior to the conveyance of the Contracts to the Trust, the Originators
or the Servicer will complete a review of all of the Contract files, including
the certificates of title to, or other evidence of a perfected security interest
in, the Manufactured Homes, confirming the accuracy of the list of Contracts
delivered to the Trustee. Any Contract discovered not to agree with such list in
a manner that is materially adverse to the interests of the Certificateholders
will be repurchased by the applicable Originator or replaced with another
Contract, or, if the discrepancy relates to the unpaid principal balance of a
Contract, the applicable Originator may deposit cash in the separate account
maintained at an Eligible Institution in the name of the Trustee (the
'Certificate Account') in an amount sufficient to offset such discrepancy.
Unless otherwise provided in the related Prospectus Supplement, the
Agreement will designate the Servicer as custodian to maintain possession, as
the Trustee's agent, of the Contracts and any other documents related to the
Manufactured Homes (other than the Land-and-Home Contracts and related
documents). To facilitate servicing and save administrative costs, the documents
will not be physically segregated from other similar documents that are in the
Servicer's possession. Uniform Commercial Code financing statements will be
filed in appropriate jurisdictions reflecting the sale and assignment of the
Contracts from the Originators to Gopher Funding, Inc., an affiliate of the
Depositor, from such affiliate to the Depositor and from the Depositor to the
Trustee, and the Originators' and the Servicer's accounting records and computer
systems will also reflect such sale and assignment. In addition, the Contracts
may be stamped or stickered to reflect their assignment to the Trustee. If
through fraud, negligence or otherwise, a subsequent purchaser were able to take
physical possession of the Contracts without knowledge of the assignment, the
Trustee's interest in the Contracts could be defeated. The Agreement will
designate the Trustee or another independent custodian, as the Trustee's agent,
to maintain possession of the documents relating to all Land-and-Home Contracts.
Except as otherwise specified in the related Prospectus Supplement, each
Originator will make certain representations to the Depositor with respect to
each Contract sold by it as of the related Cut-off Date, including, among
others, that: (a) each Contract is a legal, valid and binding obligation of the
Obligor and is enforceable in accordance with its terms (except as may be
limited by laws affecting creditors' rights generally); (b) no Contract is
subject to any right of rescission, set-off, counterclaim or defense; (c) each
Contract complies with all requirements of law; (d) each Contract creates a
valid and enforceable first priority security interest in favor of the
Originator in the Manufactured Home covered thereby; (e) no Contract has been
sold, assigned or pledged to
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any other person except pursuant to an assignment or pledge which has been
released prior to or simultaneously with the issuance of the related
Certificates, and at the time of the transfer of the Contracts, the Originator
had good and marketable title to each Contract free and clear of any
encumbrance, equity, loan, pledge, charge, claim or security interest, and was
the sole owner and had full right to transfer such Contract to the Trustee; and
(f) the related Manufactured Home is a 'manufactured home' within the meaning of
42 United States Code, Section 5402(6) and each manufactured housing dealer from
whom the Originator purchased a Contract was approved by the Originator in
accordance with the requirements of the Secretary of Housing and Urban
Development. Pursuant to the Agreement, the Depositor will assign to the Trustee
all of the Depositor's right, title and interest in the representations and
warranties made by the Originators, including the obligation of the Originators
to cure, repurchase or substitute for a Contract as described in the following
paragraphs.
Under the terms of the Agreement, and subject to the option to effect a
substitution as described in the next paragraph, the applicable Originator will
be obligated to repurchase for the Repurchase Price (as defined below) any
Contract on the first business day after the first Determination Date which is
more than 90 days after such Originator becomes aware, or should have become
aware, or such Originator's receipt of written notice from the Trustee, the
Depositor or the Servicer, of a breach of any representation or warranty that
materially adversely affects the interest of the Certificateholders in the
related Contract if such breach has not been cured. The Repurchase Price for any
Contract will be the remaining principal amount outstanding on such Contract on
the date of repurchase plus accrued and unpaid interest thereon at its Contract
Rate to the first day of the month in which such Repurchase Price is to be
distributed to Certificateholders. Should an Originator not cure such breach in
all material respects or substitute another Contract as provided below, the
repurchase obligation will constitute the sole remedy available to the Trustee
and the Certificateholders for a breach of a warranty under the Agreement with
respect to the Contracts.
In lieu of repurchasing a Contract as specified in the preceding paragraph,
during the two-year period (or such shorter period as is specified in the
related Prospectus Supplement with respect to a Trust for which no REMIC
election is to be made) following the closing date, the applicable Originator
may, at its option, substitute an Eligible Substitute Contract (as defined
below) for the Contract that it is otherwise obligated to repurchase (referred
to herein as the 'Replaced Contract'). An Eligible Substitute Contract is a
Contract that satisfies, as of the date of its substitution, the representations
and warranties specified in the Agreement, has a Stated Principal Balance that
is not greater than the Stated Principal Balance of the Replaced Contract, has a
Contract Rate that is at least equal to the Contract Rate of the Replaced
Contract and has a remaining term to scheduled maturity that is not greater than
the remaining term to scheduled maturity of the Replaced Contract. The
applicable Originator will be required to deposit in the Certificate Account
cash in the amount, if any, by which the Stated Principal Balance of the
Replaced Contract exceeds the Stated Principal Balance of the Eligible
Substitute Contract.
PAYMENTS ON CONTRACTS
Under each Agreement, the Servicer will be required to establish a
segregated account in its name in trust for the benefit of the applicable
Trustee and the related Certificateholders (each, a 'Collection Account'). In
addition, the Trustee will be required to establish and maintain with itself a
separate trust account for the benefit of the related Certificateholder (each, a
'Certificate Account'). Each Collection Account and Certificate Account must be
(i) established with a depository institution, the long-term unsecured debt
obligations of which at the time of any deposit therein are rated within the two
highest rating categories or such other rating category as will not adversely
affect the ratings assigned to the Certificates by each rating agency rating the
Certificates of such Series, (ii) established with the trust department of a
national bank, (iii) an account or accounts the deposits in which are fully
insured by the FDIC, (iv) an account or accounts the deposits in which are
insured by the FDIC (to the limits established by the FDIC), the uninsured
deposits in which are otherwise secured such that, as evidenced by an opinion of
counsel, the Certificateholders have a claim with respect to the funds in such
account or a perfected first priority security interest against any collateral
securing such funds that is superior to the claims of any other depositors or
general creditors of the depository institution with which such account is
maintained or (v) otherwise acceptable to the rating agency without reduction or
withdrawal of the rating assigned to the relevant Certificates. The collateral
eligible to secure amounts in a Collection Account or a Certificate Account is
limited to United States government securities and certain other high-quality
investments specified in the applicable Agreement ('Eligible Investments'). A
Collection Account or a Certificate Account
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may be maintained as an interest bearing account, or the funds held therein may
be invested pending each succeeding Remittance Date in Eligible Investments.
Unless otherwise specified in the related Prospectus Supplement, the
Servicer will deposit in the Collection Account on a daily basis the following
payments and collections received or made by it subsequent to the Cut-off Date
(including scheduled payments of principal and interest due after the Cut-off
Date but received by the Servicer on or before the Cut-off Date):
(i) all Obligor payments on account of principal, including principal
prepayments, on the Contracts;
(ii) all Obligor payments on account of interest on the Contracts;
(iii) all amounts received and retained in connection with the
liquidation of defaulted Contracts, net of liquidation expenses ('Net
Liquidation Proceeds');
(iv) all proceeds received under any hazard or other insurance policy
covering any Contract, other than proceeds to be applied to the restoration
or repair of the Manufactured Home or released to the Obligor; and
(v) all proceeds of any Contract or property acquired in respect
thereof repurchased by the Servicer, or the Originators, or otherwise as
described above or under 'Termination' below.
DISTRIBUTIONS ON CERTIFICATES
General. In general, the method of determining the amount of distributions
on a particular Series of Certificates will depend on the type of Enhancement,
if any, that is used with respect to such Series. See 'Credit Enhancement.' The
Prospectus Supplement for each Series of Certificates will describe the method
to be used in determining the amount of distributions on the Certificates of
such Series. Distributions allocable to principal and interest on the
Certificates will be made by the Trustee out of, and only to the extent of,
funds in the related Certificate Account, including any funds received as a
result of Enhancement. As between Certificates of different Classes and as
between distributions of interest and principal and, if applicable, between
distributions of prepayments of principal and scheduled payments of principal,
distributions made on any Remittance Date will be applied as specified in the
Prospectus Supplement. Unless otherwise specified in the Prospectus Supplement,
distributions to any Class of Certificates will be made pro rata to all
Certificateholders of that Class.
Amount Available. All distributions on the Certificates of each Series on
each Remittance Date will be made from the Amount Available described below, in
accordance with the terms described in the related Prospectus Supplement. On or
before each Remittance Date, the Servicer will withdraw the Amount Available
from the Collection Account and deposit it in the related Certificate Account.
Unless otherwise specified in the related Prospectus Supplement, the 'Amount
Available' for each Remittance Date will equal the sum of the following amounts:
(i) the aggregate of all amounts described in clauses (i) through (v)
above received by the Servicer after the Cut-off Date and on or prior to
the day of the month of the related Remittance Date specified in the
Agreement (the 'Determination Date') except:
(a) all payments on the Contracts that were due on or before the
Cut-off Date;
(b) all payments or collections received after the Due Period
preceding the month in which the Remittance Date occurs;
(c) all scheduled payments of principal and interest due on a date
or dates subsequent to the Due Period preceding the Determination Date;
(d) amounts representing reimbursement for Advances, such
reimbursement being limited, if so specified in the related Prospectus
Supplement, to amounts received on particular Contracts as late
collections of principal or interest as to which the Servicer has made
an unreimbursed Advance; and
(e) amounts representing reimbursement for any unpaid Servicing
Fees and expenses from Liquidation Proceeds, condemnation proceeds and
proceeds of insurance policies with respect to the related Contracts;
(ii) the amount of any Advance made by the Servicer (including any
Sub-servicer) and deposited by it in the Certificate Account; and
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(iii) if applicable, amounts received in connection with Enhancement.
Distributions of Interest. Interest will accrue on the Class Certificate
Balance (defined below) (or, in the case of Certificates entitled only to
distributions allocable to interest, the aggregate notional principal balance)
of each Class of Certificates entitled to interest from the date, at the
Remittance Rate, for the periods and to the extent specified in the Prospectus
Supplement. To the extent funds are available therefor, interest accrued during
each such specified period on each Class of Certificates entitled to interest
(other than a Class of Certificates that provides for interest that accrues, but
is not currently payable, referred to hereafter as 'Compound Interest
Certificates') will be distributable on the Remittance Dates specified in the
Prospectus Supplement until the Class Certificate Balance of the Certificates of
such Class has been distributed in full or, in the case of Certificates entitled
only to distributions allocable to interest, until the aggregate notional
principal balance of such Certificates is reduced to zero or for the period of
time designated in the Prospectus Supplement.
The original Certificate Principal Balance of each Certificate will equal
the maximum aggregate distributions allocable to principal to which such
Certificate is entitled. Distributions allocable to interest on each Certificate
that is not entitled to distributions allocable to principal will be calculated
on the basis set forth in the related Prospectus Supplement. The notional
principal balance of a Certificate will not evidence an interest in or
entitlement to distributions allocable to principal but will be used solely for
convenience in expressing the calculation of interest and for certain other
purposes.
With respect to any Class of Compound Interest Certificates, if specified
in the Prospectus Supplement, any interest that has accrued but is not paid on a
given Remittance Date will be added to the Class Certificate Balance of such
Class of Certificates on that Remittance Date. Distributions of interest on each
Class of Compound Interest Certificates will commence only after the occurrence
of the events specified in the Prospectus Supplement. Prior to such time, the
beneficial ownership interest of such Class of Compound Interest Certificates in
the Trust, as reflected in the Class Certificate Balance of such Class of
Compound Interest Certificates, will increase on each Remittance Date by the
amount of interest that accrued on such Class of Compound Interest Certificates
during the preceding interest accrual period but that was not required to be
distributed to such Class on such Remittance Date. Any such Class of Compound
Interest Certificates will thereafter accrue interest on its outstanding Class
Certificate Balance as so adjusted.
Distributions of Principal. Unless otherwise specified in the Prospectus
Supplement, the 'Class Certificate Balance' of any Class of Certificates
entitled to distributions of principal will be the aggregate of the original
Certificate Principal Balances of the Certificates of such Class, reduced by all
distributions and losses reported to the holders of such Certificates as
allocable to principal, and, in the case of Compound Interest Certificates,
increased by all interest accrued but not then distributable on such Compound
Interest Certificates. The Prospectus Supplement will specify the method by
which the amount of principal to be distributed on the Certificates on each
Remittance Date will be calculated and the manner in which such amount will be
allocated among the Classes of Certificates entitled to distributions of
principal.
If so provided in the Prospectus Supplement, one or more Classes of Senior
Certificates will be entitled to receive all or a disproportionate percentage of
the payments of principal which are received from Obligors in advance of their
scheduled due dates and are not accompanied by amounts representing scheduled
interest due after the month of such payments ('Principal Prepayments') in the
percentages and under the circumstances or for the periods specified in the
Prospectus Supplement. Any such allocation of Principal Prepayments to such
Class or Classes of Certificates will have the effect of accelerating the
amortization of such Senior Certificates while increasing the interests
evidenced by the Subordinated Certificates in the Trust. Increasing the
interests of the Subordinated Certificates relative to that of the Senior
Certificates is intended to preserve the availability of the subordination
provided by the Subordinated Certificates. The timing and amounts of
distributions allocable to interest and principal and, if applicable, Principal
Prepayments and scheduled payments of principal, to be made on any Remittance
Date may vary among Classes, over time or otherwise as specified in the
Prospectus Supplement.
PRE-FUNDING AND CAPITALIZED INTEREST ACCOUNTS
If specified in the related Prospectus Supplement, a Trust will include one
or more segregated trust accounts (each, a 'Pre-Funding Account') established
and maintained with the Trustee for the related Series. If so specified, on the
closing date for such Series, a portion of the proceeds of the sale of the
Certificates of such
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Series not to exceed fifty percent of the aggregate principal amount of such
Series (such amount, the 'Pre-Funded Amount') may be deposited in the
Pre-Funding Account and may be used to purchase additional Contracts during the
period of time not to exceed six months specified in the related Prospectus
Supplement (the 'Pre-Funding Period'). If any Pre-Funded Amount remains on
deposit in the Pre-Funding Account at the end of the Pre-Funding Period, such
amount will be applied in the manner specified in the related Prospectus
Supplement to prepay the Certificates of the applicable Series.
Each additional Contract must satisfy the eligibility criteria specified in
the related Prospectus Supplement and related Agreement. Such eligibility
criteria will be determined in consultation with each Rating Agency (and/or any
Enhancer) prior to the issuance of the related Series and are designed to ensure
that if such additional Contracts were included as part of the initial
Contracts, the credit quality of such assets would be consistent with the
initial rating of the Certificates of such Series. The Depositor will certify to
the Trustee that all conditions precedent to the transfer of the additional
Contracts to the Trust, including the satisfaction of the eligibility criteria,
have been satisfied. Following the transfer of additional Contracts to the
Trust, the aggregate characteristics of the Contracts then held in the Trust may
vary from those of the initial Contracts of such Trust. As a result, the
additional Contracts may adversely affect the performance of the related
Certificates.
If a Pre-Funding Account is established, one or more segregated trust
accounts (each, a 'Capitalized Interest Account') may be established and
maintained with the Trustee for the related Series. On the closing date for such
Series, a portion of the proceeds of the sale of the Certificates of such Series
will be deposited in the Capitalized Interest Account and used to fund the
excess, if any, of the sum of (i) the amount of interest accrued on the
Certificates of such Series and (ii) if specified in the related Prospectus
Supplement, certain fees or expenses during the Pre-Funding Period such as
Trustee fees and credit enhancement fees, over the amount of interest available
therefor from the Contracts in the Trust. If so specified in the related
Prospectus Supplement, amounts on deposit in the Capitalized Interest Account
may be released to the Depositor prior to the end of the Pre-Funding Period
subject to the satisfaction of certain tests specified in the related Prospectus
Supplement. Any amounts on deposit in the Capitalized Interest Account at the
end of the Pre-Funding Period that are not necessary for such purposes will be
distributed to the person specified in the related Prospectus Supplement.
ADVANCES
To the extent provided in the related Prospectus Supplement, the Servicer
will be obligated to make periodic Advances of cash from its own funds or from
excess funds in the Certificate Account not then required to be distributed to
Certificateholders, for distribution to the Certificateholders entitled thereto
in an amount equal to the amount of delinquent payments of principal and/or
interest for the preceding Due Period but only to the extent the Servicer
determines such Advances are recoverable from future payments and collections on
the delinquent Contracts. The Servicer's obligation to make Advances, if any,
may, as specified in the related Prospectus Supplement, be limited in amount. If
so specified in the related Prospectus Supplement, the Servicer will not be
obligated to make Advances until all or a specified portion of the reserve fund,
if any, is depleted. Advances are intended to maintain a regular flow of
scheduled interest and/or principal payments and not to guarantee or insure
against losses. Accordingly, any funds so advanced are recoverable by the
Servicer out of amounts received on particular Contracts which represent late
recoveries of amounts respecting which any such Advance was made.
SERVICING
General. Pursuant to the Agreement, the Servicer will service and
administer the Contracts assigned to the Trustee as more fully set forth below.
The Servicer may service the Contracts through one or more
sub-servicers, including the Originators. The Servicer will perform diligently
all services and duties specified in each Agreement, in the same manner as
prudent lending institutions of manufactured housing contracts of the same type
as the Contracts in those jurisdictions where the related Manufactured Homes are
located or as otherwise specified in the Agreement. The duties to be performed
by the Servicer will include collection and remittance of principal and interest
payments, collection of insurance claims and, if necessary, repossession or
foreclosure.
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The Servicer will make reasonable efforts to collect all payments called
for under the Contracts and, consistent with the Agreement and any FHA insurance
and VA guaranty, will follow such collection procedures as it follows with
respect to mortgage loans or contracts serviced by it that are comparable to the
Contracts.
Hazard Insurance. The terms of the Agreement will require the Servicer to
cause to be maintained with respect to each Contract one or more insurance
policies ('Hazard Insurance Policies') which provide, at a minimum, the same
coverage as a standard form fire and extended coverage insurance policy that is
customary for manufactured housing, issued by a company authorized to issue such
policies in the state in which the Manufactured Home is located, and in an
amount which is not less than the maximum insurable value of such Manufactured
Home or the principal balance due from the Obligor on the related Contract,
whichever is less. When a Manufactured Home was located at the time of
origination of the related Contract, within a federally designated special flood
hazard area, the Servicer also will be required to cause flood insurance to be
maintained, with coverage at least equal to the minimum amount specified in the
preceding sentence or such lesser amount as may be available under the federal
flood insurance program. Each Hazard Insurance Policy caused to be maintained by
the Servicer will contain a standard loss payee clause in favor of the Servicer
and its successors and assigns. If any Obligor is in default in the payment of
premiums on its Hazard Insurance Policy or Policies, the Servicer will be
required to pay such premiums out of its own funds. The Servicer may add
separately such premium to the Obligor's obligation as provided by the Contract,
but may not add such premium to the remaining amount due on the Contract.
In lieu of causing individual Hazard Insurance Policies to be maintained
with respect to each Manufactured Home, the Servicer may, and, to the extent
that the related Contract does not require the Obligor to maintain a Hazard
Insurance Policy with respect to the related Manufactured Home, the Servicer is
required to, maintain one or more blanket insurance policies covering losses on
the Obligors' interests in the Contracts resulting from the absence or
insufficiency of individual Hazard Insurance Policies. The Servicer will pay the
premium for such policies on the basis described therein and will pay any
deductible amount with respect to claims under such policies relating to the
Contracts.
If the Servicer repossesses a Manufactured Home on behalf of the Trustee,
the Servicer will be required to either (i) maintain at its expense hazard
insurance with respect to such Manufactured Home or (ii) indemnify the Trustee
against any damage to such Manufactured Home prior to resale or other
disposition.
Evidence as to Compliance. Unless otherwise specified in the related
Prospectus Supplement, the Servicer will deliver to the Trustee each year an
officer's certificate executed by an officer of the Servicer (i) stating that a
review of the activities of the Servicer during the preceding calendar year and
of the Servicer's performance under the Agreement has been made under the
supervision of such officer, and (ii) stating that to the best of such officer's
knowledge, the Servicer has fulfilled all its obligations under such Agreement
throughout such year, or, if there has been a default in the fulfillment of any
such obligation, specifying each such default known to such officer and the
nature and status thereof. Such officer's certificate will be accompanied by a
statement of a firm of independent public accountants to the effect that, on the
basis of an examination of certain documents and records relating to servicing
of the Contracts under the Agreement (or, at the Servicer's option, the
Contracts and other contracts being serviced by the Servicer under agreements
similar to the Agreement), conducted in accordance with generally accepted
auditing standards, the Servicer's servicing has been conducted in compliance
with the provisions of the Agreement (or such agreements), except for (i) such
exceptions as such firm believes to be immaterial and (ii) such other exceptions
as may be set forth in such statement.
Certain Matters Regarding the Servicer. The Servicer may not resign from
its obligations and duties under an Agreement except upon (i) appointment of a
successor servicer reasonably satisfactory to the Trustee and the delivery to
the Trustee of a letter from each applicable Rating Agency to the effect that
such action will not, in and of itself, result in the qualification, downgrading
or withdrawal of the then-current rating assigned by such Rating Agency to the
Certificates of the applicable Series or (ii) a determination that its duties
thereunder are no longer permissible under applicable law. No such resignation
will become effective until the Trustee or a successor servicer has assumed the
Servicer's obligations and duties under such Agreement.
Each Agreement will provide that neither the Servicer, nor any director,
officer, employee or agent of the Servicer, will be under any liability to the
Trust or the Certificateholders, and all such persons shall be held harmless,
for any action taken or for refraining from the taking of any action in good
faith pursuant to the Agreement, or for errors in judgment; provided, however,
that no such person will be protected against any
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liability which would otherwise be imposed by reason of willful misfeasance, bad
faith or gross negligence in the performance of such person's duties or by
reason of reckless disregard of such person's obligations and duties under the
Agreement. The Servicer may, in its discretion, undertake any such action which
it may deem necessary or desirable with respect to the Agreement and the rights
and duties of the parties thereto and the interests of the Certificateholders
thereunder. In such event, the legal expenses and costs of such action and any
liability resulting therefrom will be expenses, costs and liabilities of the
Trust and the Servicer will be entitled to be reimbursed therefor out of the
Certificate Account.
Servicing Compensation and Payment of Expenses. As compensation for its
servicing duties in respect of any Series, the Servicer will be entitled to the
Servicing Fee described in the related Prospectus Supplement. The Servicing Fee
for a Series will be a percentage per annum, payable monthly, of the Pool
Scheduled Principal Balance of the related Pool unless otherwise specified in a
particular Prospectus Supplement. In addition, the Servicer will be entitled to
servicing compensation in the form of assumption fees, late payment charges or
otherwise, which fees or charges will be retained by the Servicer to the extent
not required to be deposited into the related Certificate Account.
The Servicing Fee provides compensation for customary manufactured housing
contract third party servicing activities to be performed by the Servicer for
the Trust and for additional administrative services performed by the Servicer
on behalf of the Trust. Customary servicing activities include collecting and
recording payments, communicating with Obligors, investigating payment
delinquencies, providing billing and tax records to Obligors and maintaining
internal records with respect to each Contract. Administrative services
performed by the Servicer on behalf of the Trust include calculating
distributions to Certificateholders and providing related data processing and
reporting services for Certificateholders and on behalf of the Trustee. Expenses
incurred in connection with the servicing of the Contracts and paid by the
Servicer from its Servicing Fees include, without limitation, payment of fees
and expenses of accountants, payments of all fees and expenses incurred in
connection with the enforcement of Contracts (except Liquidation Expenses) and
payment of expenses incurred in connection with distributions and reports to
Certificateholders. The Servicer will be reimbursed out of the Liquidation
Proceeds of a Liquidated Contract for all ordinary and necessary Liquidation
Expenses incurred by it in realization upon the related Manufactured Home.
Events of Default. Except as otherwise specified in the related Prospectus
Supplement, 'Events of Default' under each Agreement will include (i) any
failure by the Servicer to make any required payment or deposit which continues
unremedied for 5 days (or such other period specified in the related Prospectus
Supplement) after the giving of written notice; (ii) any failure by the Servicer
duly to observe or perform in any material respect any other of its covenants or
agreements in the Agreement that materially and adversely affects the interests
of Certificateholders, which, in either case, continues unremedied for 30 days
after the giving of written notice of such failure of breach; and (iii) certain
events of insolvency, readjustment of debt, marshalling of assets and
liabilities or similar proceedings regarding the Servicer. Notice as used herein
means notice to the Servicer by the Trustee or the Depositor, or to the
Depositor, the Servicer and the Trustee by the Holders of Certificates
representing Percentage Interests aggregating not less than 25% of any Class
affected thereby.
Rights Upon Event of Default. Except as otherwise specified in the related
Prospectus Supplement, so long as an Event of Default remains unremedied, the
Trustee may, and at the written direction of the Certificateholders of a Series
evidencing Percentage Interests aggregating not less than 51% of the related
Trust, shall, terminate all of the rights and obligations of the Servicer under
the related Agreement and in and to the Contracts, and the proceeds thereof.
Thereupon (subject to applicable law regarding the Trustee's ability to make
advances) the Trustee or a successor Servicer under the Agreement will succeed
to all the responsibilities, duties and liabilities of the Servicer under the
Agreement and will be entitled to similar compensation arrangements; provided,
however, that neither the Trustee nor any successor Servicer will be liable for
any acts or omissions of the prior Servicer occurring prior to a transfer of the
Servicer's servicing and related functions or for any breach of such Servicer of
any of its obligations contained in the Agreement. Notwithstanding such
termination, the Servicer will be entitled to payment of certain amounts payable
to it prior to such termination, for services rendered prior to such
termination. In the event that the Trustee would be obligated to succeed the
Servicer but is unwilling or unable so to act, it may appoint or petition to a
court of competent jurisdiction for the appointment of a Servicer. Pending such
appointment the Trustee is obligated to act in such capacity. The Trustee and
such successor may
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agree upon the servicing compensation to be paid, which in no event may be
greater than the compensation to the Servicer under the Agreement.
No Certificateholder will have any right under an Agreement to institute
any proceeding with respect to such Agreement unless such Holder previously has
given to the Trustee written notice of default and unless the Holders of
Certificates evidencing Percentage Interests aggregating not less than 25% of
the related Trust requested the Trustee in writing to institute such proceeding
in its own name as Trustee and have offered to the Trustee reasonable indemnity
and the Trustee for 60 days has neglected or refused to institute any such
proceeding. The Trustee will be under no obligation to take any action or
institute, conduct or defend any litigation under the Agreement at the request,
order or direction of any of the Holders of Certificates, unless such
Certificateholders have offered to the Trustee reasonable security or indemnity
against the costs, expenses and liabilities which the Trustee may incur.
REPORTS TO CERTIFICATEHOLDERS
On or before each Remittance Date, the Servicer or the Trustee will be
required to forward to each Certificateholder of record of the related Series a
statement setting forth the following to the extent applicable to such Series or
Class:
(i) the amount of such distribution allocable to principal, separately
identifying the aggregate amount of any Principal Prepayments included
therein;
(ii) the amount of such distribution allocable to interest;
(iii) the amount of any Advance by the Servicer (or any Sub-servicer);
(iv) the total amount of any payments under Enhancement included in
the amount distributed on such Remittance Date;
(v) the outstanding principal balance of such Class after giving
effect to the distribution of principal on such Remittance Date;
(vi) if applicable, the percentage of principal payments on the
Contracts, if any, which such Class will be entitled to receive on the
following Remittance Date;
(vii) unless the Remittance Rate is a fixed rate, the Remittance Rate
applicable to the distribution on the Remittance Date;
(viii) the number and aggregate principal balance of Contracts in the
related Pool delinquent (a) one month and (b) two or more months; and
(ix) if applicable, the amount remaining of any Enhancement, after
giving effect to the distribution on the Remittance Date.
Where applicable, any amount set forth above may be expressed as a dollar
amount per single Certificate of the relevant Class having the denomination or
interest specified in the report to Certificateholders. The report to
Certificateholders for any Class or Series of Certificates may include
additional or other information of a similar nature to that specified above.
In addition, within a reasonable period of time after the end of each
calendar year, the Servicer or the Trustee will mail to each person who was a
Certificateholder of record at any time during such calendar year a report (a)
as to the aggregate of amounts reported pursuant to (i) and (ii) for such
calendar year or, in the event such person was a Certificateholder of record
during a portion of such calendar year, for the applicable portion of such year
and (b) such other customary information as may be deemed necessary or desirable
for Certificateholders to prepare their tax returns.
AMENDMENT
Unless otherwise specified in the related Prospectus Supplement, the
Agreement may be amended by the Depositor, the Servicer and the Trustee without
the consent of the Certificateholders, (i) to cure any ambiguity, (ii) to
correct or supplement any provision therein that may be defective or
inconsistent with any other provision therein, (iii) to maintain the REMIC
status of the Trust and to avoid the imposition of certain taxes on the REMIC or
(iv) to make any other provisions with respect to matters or questions arising
under such Agreement that are
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not inconsistent with the provisions thereof, provided that such action will not
adversely affect in any material respect the interests of the Certificateholders
of the related Series, as evidenced by (A) an opinion of counsel independent of
the Depositor, the Servicer and the Trustee or (B) a letter from each Rating
Agency from which the Depositor requested a rating of any of the Certificates of
such Series stating that the proposed amendment will not result in a downgrading
of the then-current rating of any of the Certificates of such Series rated by
such Rating Agency. The Agreement also may be amended by the Depositor, the
Servicer and the Trustee with the consent of the Certificateholders evidencing
Percentage Interests aggregating not less than 51% of each Class affected
thereby for the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of such Agreement or of modifying in any
manner the rights of the Certificateholders; provided, however, that no such
amendment that reduces in any manner the amount of, or delays the timing of, any
payment received on or with respect to Contracts which are required to be
distributed on any Certificate may be effected without the consent of the
Holders of each such Certificate.
TERMINATION OF THE AGREEMENT; OPTIONAL TERMINATION
The obligations created by each Agreement will terminate upon the date
calculated as specified in the Agreement, generally upon (i) the later of the
final payment or other liquidation of the last Contract subject thereto and the
disposition of all property acquired upon foreclosure of any Land-and-Home
Contract or repossession of any Manufactured Home and (ii) the payment to the
Certificateholders of all amounts held by the Servicer or the Trustee and
required to be paid to them pursuant to the Agreement.
The Depositor, the Servicer or other person identified in the related
Prospectus Supplement will have the option to purchase all of the Contracts and
Manufactured Homes acquired on behalf of the related Trust and thereby effect
early termination of such Trust and the related Series of Certificates. Such
option will not be exercisable until the aggregate unpaid principal balance of
such Contracts is less than 10% or such lower percentage as is specified in the
related Prospectus Supplement of the aggregate unpaid principal balance of the
Contracts on the Cut-off Date. Unless otherwise specified in the related
Prospectus Supplement, the purchase price will equal the unpaid principal
balance of the Contracts and the Manufactured Homes plus one month's interest
thereon at the weighted average Contract Rate (net of the Servicing Fee).
THE TRUSTEE
The Prospectus Supplement for a Series of Certificates will specify the
Trustee under the related Agreement. The Trustee may have normal banking
relationships with the Depositor, the Servicer and their respective affiliates.
The Trustee may resign at any time, in which event the Depositor will be
obligated to appoint a successor Trustee. The Depositor may also remove the
Trustee if the Trustee ceases to be eligible to continue as such under the
Agreement or if the Trustee becomes insolvent. Unless otherwise specified in the
related Prospectus Supplement, the Trustee may also be removed at any time by
the Holders of Certificates evidencing Percentage Interests aggregating at least
51% of the related Trust. Any resignation or removal of the Trustee and
appointment of a successor Trustee will not become effective until acceptance of
the appointment by the successor Trustee.
The Trustee will make no representation as to the validity or sufficiency
of the Agreement, the Certificates, any Contract, Contract file or related
documents, and will not be accountable for the use or application by the
Depositor of any funds paid to the Depositor in consideration of the conveyance
of the Contracts, or deposited into or withdrawn from the Certificate Account by
the Servicer. If no Event of Default has occurred, the Trustee will be required
to perform only those duties specifically required of it under the Agreement.
However, upon receipt of the various certificates, reports or other instruments
required to be furnished to it, the Trustee will be required to examine them to
determine whether they conform as to form to the requirements of the Agreement.
CREDIT ENHANCEMENT
The amounts and types of credit enhancement arrangements and the provider
thereof, if applicable, with respect to a Series or any Class or Certificates
will be set forth in the related Prospectus Supplement. If and to the extent
provided in the related Prospectus Supplement, enhancement may be in the form of
a pool insurance, letters of credit, surety bonds, a guarantee, cash reserve
funds, derivative products or other forms of credit
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enhancement, or any combinations thereof, as may be described in the related
Prospectus Supplement (collectively, 'Enhancement'). If specified in the
applicable Prospectus Supplement, Enhancement for any Series of Certificates may
cover one or more Classes of Certificates, and accordingly may be exhausted for
the benefit of a particular Class of Certificates and thereafter be unavailable
to the other Classes of Certificates of such Series. Further information
regarding any third-party provider of Enhancement (the 'Enhancer'), including
financial information when material, will be included in the related Prospectus
Supplement.
The presence of Enhancement is intended to increase the likelihood of
receipt by the Certificateholders of the full amount of principal and interest
due them and to decrease the likelihood that the Certificateholders will
experience losses, or may be structured to provide protection against changes in
interest rates or against other risks, to the extent and under the conditions
specified in the related Prospectus Supplement. The Enhancement for a Class of
Certificates may not provide protection against all risks of loss and may not
guarantee repayment of the entire principal and interest thereon. If losses
occur which exceed the amount covered by any Enhancement or which are not
covered by any Enhancement, Certificateholders will bear their allocable share
of deficiencies.
DESCRIPTION OF FHA INSURANCE AND VA GUARANTEES
Certain of the Contracts may be insured by the Federal Housing Authority
(the 'FHA') under Title I of the National Housing Act or partially guaranteed by
the Veterans Administration (the 'VA').
The regulations governing FHA manufactured home insurance provide that
insurance benefits are payable upon the repossession and resale of the
collateral and assignment of the contract to the United States Department of
Housing and Urban Development ('HUD'). With respect to a defaulted FHA contract,
the servicer must follow applicable regulations before initiating repossession
procedures. These regulations include requirements that the lender arrange a
face-to-face meeting with the borrower, initiate a modification or repayment
plan, if feasible, and give the borrower 30 days' notice of default prior to any
repossession. The insurance claim is paid in cash by HUD. For manufactured
housing contracts, the amount of insurance benefits generally paid by FHA is
equal to 90% of the sum of (i) the unpaid principal amount of the Contract at
the date of default and uncollected interest earned to the date of default
computed at the Contract Rate, after deducting the best price obtainable for the
collateral (based in part on a HUD-approved appraisal) and all amounts retained
or collected by the lender from other sources with respect to the Contract, (ii)
accrued and unpaid interest on the unpaid amount of the Contract from the date
of default to the date of submission of the claim plus 15 calendar days (but in
no event more than nine months) computed at a rate of 7% per annum, (iii) costs
paid to a dealer or other third party to repossess and preserve the Manufactured
Home, (iv) the amount of any sales commission paid to a dealer or other third
party for the resale of the property, (v) with respect to a Land-and-Home
Contract, property taxes, special assessments and other similar charges and
hazard insurance premiums, prorated to the date of disposition of the property,
(vi) uncollected court costs, (vii) legal fees not to exceed $500 and (viii)
expenses for recording the assignment of the lien on the collateral to the
United States.
The insurance available to a lender under FHA Title I insurance is subject
to the limit of a reserve amount equal to ten percent of the original principal
balance of all Title I insured loans originated by the lender, which amount is
reduced by all claims paid to the lender and by an annual reduction in the
reserve amount of ten percent of the reserve amount, and which is increased by
an amount equal to ten percent of the original principal balance of insured
loans subsequently originated by the lender. If the Servicer were replaced as
Servicer of the Contracts under the Agreement, it is not clear from the FHA
regulations what portion of this reserve amount would be available for claims in
respect of the FHA-insured Contracts. The obligation to pay insurance premiums
to FHA is the obligation of the Servicer.
The maximum guarantee that may be issued by the VA for a VA-guaranteed
contract is the lesser of (a) the lesser of $20,000 and 40% of the principal
amount of the contract and (b) the maximum amount of guaranty entitlement
available to the obligor veteran (which may range from $20,000 to zero). The
amount payable under the guarantee will be the percentage of the VA contract
originally guaranteed applied to indebtedness outstanding as of the applicable
date of computation specified in the VA regulations, interest accrued on the
unpaid balance of the loan to the appropriate date of computation and limited
expenses of the contract holder, but in each case only to the extent that such
amounts have not been recovered through resale of the manufactured home. The
amount payable under the guarantee may in no event exceed the amount of the
original guarantee.
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CERTAIN LEGAL ASPECTS OF THE CONTRACTS
The following discussion contains summaries of certain legal aspects of
manufactured housing contracts, including Land-and-Home Contracts, which are
general in nature. Because such legal aspects are governed by applicable state
law (which laws may differ substantially), the summaries do not purport to be
complete nor to reflect the laws of any particular state, nor to encompass the
laws of all states in which the security for the Contracts is situated. The
summaries are qualified in their entirety by reference to the applicable federal
and state laws governing the Chattel Contracts or Land-and-Home Contracts.
THE CHATTEL CONTRACTS
General. As a result of the assignment of the Chattel Contracts underlying
a Series to the Trustee, the related Trust will succeed to all of the rights
(including the right to receive payment on the Chattel Contracts), and will
assume the obligations, of the obligee under the Chattel Contracts. Each Chattel
Contract evidences both (a) the obligation of the Obligor to repay the loan
evidenced thereby, and (b) the grant of a security interest in the Manufactured
Home to secure repayment of such loan.
The Chattel Contracts generally are 'chattel paper' as defined in the
Uniform Commercial Code (the 'UCC') in effect in the states in which the
Manufactured Homes initially were registered. Pursuant to the UCC, the sale of
chattel paper is treated in a manner similar to perfection of a security
interest in chattel paper. Unless otherwise provided in the related Prospectus
Supplement, the Servicer will retain possession of the Chattel Contracts as
custodian for the Trustee, and will make an appropriate filing of a UCC-1
financing statement in the appropriate jurisdictions to give notice of the
Trustee's ownership of the Contracts. The Chattel Contracts may be stamped or
stickered to reflect their assignment to the Trustee. However, if through
negligence, fraud or otherwise, a subsequent purchaser were able to take
physical possession of the Chattel Contracts without notice of such assignment,
the Trustee's interest in such Contracts could be defeated.
Security Interests in the Manufactured Homes. The Manufactured Homes
securing the Contracts may be located in all 50 states and the District of
Columbia. In many states ('Title States') security interests in manufactured
homes may be perfected under applicable motor vehicle titling statutes either by
notation of the secured party's lien on the certificate of title or by delivery
of the required documents and payment of a fee to the state motor vehicle
authority to re-register the home, depending on state law. In some states ('UCC
States'), perfection of a lien on a manufactured home is accomplished pursuant
to the provisions of the applicable UCC by filing UCC-1 financing statements
with all appropriate UCC filing offices. Some states are both Title States and
UCC States. The Depositor will cause the security interests created by the
Contracts in the related Manufactured Homes to be assigned to the Trustee on
behalf of the Certificateholders. However, unless otherwise specified in the
related Prospectus Supplement, because of the expense and administrative
inconvenience involved, neither the Originator nor the Depositor will amend any
certificate of title to change the lienholder specified therein from the
Originator to the Trustee, deliver any documents or pay fees to re-register any
Manufactured Home, or file any UCC transfer instruments, and neither the
Originator nor the Depositor will deliver any certificate of title to the
Trustee or note thereon the Trustee's interest. In some states, simple
assignment of the security interest created by a Contract in the related
Manufactured Home constitutes an effective conveyance of such security interest
without amendment of any lien noted on the related certificate of title,
re-registration of the underlying home, or filing of any statement under the
applicable UCC, and the assignee succeeds to the seller's rights as the secured
party as to such Manufactured Home. In other states, however, the law is unclear
whether a security interest in a Manufactured Home is effectively assigned in
the absence of an amendment to a certificate of title, re-registration of the
underlying home, or the filing of an appropriate UCC transfer instrument, as
appropriate under applicable state law. In such event, the assignment of the
security interest created by a Contract in the related Manufactured Home may not
be effective against creditors of the Originator or a trustee in bankruptcy of
the Originator.
As manufactured homes have become larger and often have been attached to
their sites without any apparent intention to move them, courts in many states
have held that manufactured homes, under certain circumstances, may become
subject to real estate title and recording laws. As a result, a security
interest in a manufactured home located in such a state could be rendered
subordinate to the interests of other parties claiming an interest in the home
under applicable state real estate law. In order to perfect a security interest
in a manufactured home under
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real estate laws, the holder of the security interest must file either a
'fixture filing' under the provisions of the UCC or a real estate mortgage or
deed of trust, as applicable under the real estate laws of the state where the
home is located. See 'Land-and-Home Contracts' below. These filings must be made
in the real estate records office of the county where the home is located.
Substantially all of the Chattel Contracts contain provisions prohibiting the
Obligor from permanently attaching the Manufactured Home to its site. So long as
the Obligor does not violate this agreement, a security interest in the
Manufactured Home will be governed by the certificate of title laws or the UCC,
and the notation of the security interest on the certificate of title or the
filing of a UCC financing statement will be effective to maintain the priority
of the security interest in the Manufactured Home. If, however, a Manufactured
Home becomes permanently attached to its site, other parties could obtain an
interest in the Manufactured Home which is prior to the security interest
originally obtained by the Originator. The Originator will represent that at the
date of the initial issuance of the related Certificates it has obtained a
perfected first priority security interest by proper notation or delivery of the
required documents and fees with respect to all of the Manufactured Homes
securing the Contracts.
In the absence of fraud, forgery or permanent affixation of the
Manufactured Home to its site by the Manufactured Home owner, or administrative
error by state recording officials, the notation of the lien of the Originator
on the certificate of title or delivery of the required documents and fees will
be sufficient to protect the Certificateholders against the rights of subsequent
purchasers of a Manufactured Home or subsequent lenders who take a security
interest in the Manufactured Home. If there are any Manufactured Homes as to
which the Originator's security interest is not perfected, such security
interest would be subordinate to, among others, subsequent purchasers for value
of the Manufactured Homes and holders of perfected security interests. There
also exists a risk in not identifying the Trustee as the new secured party on
the certificate of title that, through fraud or negligence, the security
interest of the Trustee could be released.
Under the laws of most states, in the event that a manufactured home is
moved to a state other than the state in which it initially is registered, any
perfected security interest in such home would continue automatically for four
months after such relocation, during which time the security interest must be
re-perfected in the new state in order to remain perfected after such four-month
period. Generally, a security interest in such a manufactured home may be
re-perfected after the expiration of such four-month period, but, for the period
between the end of such four-month period and the date of such re-perfection,
the security interest would be unperfected.
If a Manufactured Home is moved to a UCC State, an appropriate UCC
financing statement generally would have to be filed in such state within the
four-month period after the move in order for the Originator's security interest
in the Manufactured Home to remain perfected continuously. If a Manufactured
Home is moved to a Title State, re-perfection of a security interest in such
home generally would be accomplished by registering the Manufactured Home with
the Title State's motor vehicle authority. In the ordinary course of servicing
its portfolio of manufactured housing installment sales contracts, the Servicer
takes steps to re-perfect its security interests in the related manufactured
homes upon its receipt of notice of registration of such home in a new state
(which it should receive by virtue of the notation of the Originator's lien on
the original certificate of title, if the home is moved from a Title State to a
Title State) or of information from a related borrower as to relocation of such
home. In some Title States, the certificate of title to a Manufactured Home
(which is required to be in the Servicer's possession) must be surrendered
before the home could be re-registered; in such states an Obligor could not
re-register a Manufactured Home to a transferee without the Servicer's
assistance. In other Title States, when an Obligor under a Contract sells the
related Manufactured Home (if it is located in a Title State both before and
after the sale), the Originator should at least receive notice of any attempted
re-registration thereof because its lien is noted on the related certificate of
title and accordingly should have the opportunity to require satisfaction of the
related Contract before releasing its lien on the home. If the motor vehicle
authority of a Title State to which a Manufactured Home is relocated or in which
a Manufactured Home is located when it is transferred registers such
Manufactured Home in the name of the owner thereof or such owner's transferee
without noting the Originator's lien on the related certificate of title,
whether because (1) such state did not require the owner to surrender the
certificate of title issued prior to the transfer or issued by the Title State
from which such home was moved or failed to notify the Originator of
re-registration and failed to note the Originator's lien on the new certificate
of title issued upon re-registration or (2) such Manufactured Home was moved
from a state that is not a Title State, such re-registration could defeat the
perfection of the Originator's lien in the Manufactured Home. In addition,
re-registration of a Manufactured Home (whether due to a transfer or
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relocation thereof) in a state, such as a UCC State, which does not require a
certificate of title for registration of a Manufactured Home, could defeat
perfection of the Originator's lien thereon.
The Originator will be required to report to the Servicer any notice it
receives of any re-registration of a Manufactured Home. Under the Agreement, the
Servicer is obligated to take all necessary steps, at its own expense, to
maintain perfection of the Trustee's security interests in the Manufactured
Homes, to the extent it receives notice of relocation, sale or re-registration
thereof. However, the Servicer has no independent obligation to monitor the
status of the Originator's lien on any Manufactured Home.
Under the laws of most states, liens for repairs performed on a
Manufactured Home and liens for personal property taxes take priority over a
perfected security interest. Such liens could arise at any time during the term
of a Contract. No notice will be given to the Trustee or Certificateholders in
the event such a lien arises.
Enforcement of Security Interests in Manufactured Homes. The Servicer on
behalf of the Trustee, to the extent required by the related Agreement, may take
action to enforce the Trustee's security interest with respect to Contracts in
default by repossession and resale of the Manufactured Homes securing such
defaulted Contracts. So long as the Manufactured Home has not become subject to
real estate laws, a creditor can repossess a Manufactured Home securing a
Contract by voluntary surrender, by 'self-help' repossession that is 'peaceful'
(i.e., without breach of the peace) or, in the absence of voluntary surrender
and the ability to repossess without breach of the peace, by judicial process.
The holder of a Contract must give the debtor a number of days' notice, which
varies from state to state, prior to commencement of any repossession. The UCC
and consumer protection laws in most states place restrictions on repossession
sales, including requiring prior notice to the debtor and commercial
reasonableness in effecting such a sale. The law in most states also requires
that the debtor be given notice of any sale prior to resale of the unit so that
the debtor may redeem the home at or before such resale. In the event of such
repossession and resale of a Manufactured Home, the Trustee would be entitled to
be paid out of the sale proceeds before such proceeds could be applied to the
payment of the claims of unsecured creditors or the holders of subsequently
perfected security interests or, thereafter, to the debtor.
Under the laws applicable in most states, a creditor is entitled to obtain
a deficiency judgment from a debtor for any deficiency on repossession and
resale of the manufactured home securing such a debtor's loan. However, some
states impose prohibitions or limitations on deficiency judgments, and in many
cases the defaulting borrower would have no assets with which to pay a judgment.
Certain other statutory provisions, including federal and state bankruptcy and
insolvency laws and general equitable principles, may limit or delay the ability
of a lender to repossess and resell collateral or enforce a deficiency judgment.
Under the terms of the federal Soldiers' and Sailors' Civil Relief Act of
1940, as amended (the 'Relief Act'), an Obligor who enters military service
after the origination of such Obligor's Contract (including an Obligor who is a
member of the National Guard or is in reserve status at the time of the
origination of the Contract and is later called to active duty) may not be
charged interest above an annual rate of 6% during the period of such Obligor's
active duty status, unless a court orders otherwise upon application of the
lender. It is possible that such action could have an effect, for an
indeterminate period of time, on the ability of the Servicer to collect full
amounts of interest on certain of the Contracts. Any shortfall in interest
collections resulting from the application of the Relief Act, to the extent not
covered by any applicable Enhancement, could result in losses to the holders of
a Series of Certificates. In addition, the Relief Act imposes limitations which
would impair the ability of the Servicer to foreclose on an affected Contract
during the Obligor's period of active duty status. Thus, in the event that such
a Contract goes into default, there may be delays and losses occasioned by the
inability to realize upon the Manufactured Home in a timely fashion.
LAND-AND-HOME CONTRACTS
General. The Land-and-Home Contracts will be secured by either first
mortgages or deeds of trust, depending upon the prevailing practice in the state
in which the underlying property is located. A mortgage creates a lien upon the
real property described in the mortgage. There are two parties to a mortgage:
the mortgagor, who is the borrower, and the mortgagee, who is the lender. In a
mortgage state, the mortgagor delivers to the mortgagee a note or bond
evidencing the loan and the mortgage. Although a deed of trust is similar to a
mortgage, a deed of trust has three parties: the borrower, a lender as
beneficiary, and a third-party grantee called the trustee. Under a deed of
trust, the borrower grants the property, irrevocably until the debt is paid, in
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trust, generally with a power of sale, to the trustee to secure payment of the
loan. The trustee's authority under a deed of trust and the mortgagee's
authority under a mortgage are governed by the express provisions of the deed of
trust or mortgage, applicable law, and, in some cases, with respect to the deed
of trust, the directions of the beneficiary.
Foreclosure. Foreclosure of a mortgage is generally accomplished by
judicial action. Generally, the action is initiated by the service of legal
pleadings upon all parties having an interest of record in the real property.
Delays in completion of the foreclosure occasionally may result from
difficulties in locating necessary parties defendant. When the mortgagee's right
to foreclosure is contested, the legal proceedings necessary to resolve the
issue can be time-consuming and expensive. After the completion of a judicial
foreclosure proceeding, the court may issue a judgment of foreclosure and
appoint a receiver or other officer to conduct the sale of the property. In some
states, mortgages may also be foreclosed by advertisement, pursuant to a power
of sale provided in the mortgage. Foreclosure of a mortgage by advertisement is
essentially similar to foreclosure of a deed of trust by nonjudicial power of
sale.
Foreclosure of a deed of trust is generally accomplished by a nonjudicial
trustee's sale under a specific provision in the deed of trust that authorizes
the trustee to sell the property to a third party upon any default by the
borrower under the terms of the note or deed of trust. In certain states, such
foreclosure also may be accomplished by judicial action in the manner provided
for foreclosure of mortgages. In some states the trustee must record a notice of
default and send a copy to the borrower-trustor and to any person who has
recorded a request for a copy of a notice of default and the notice of sale. In
addition, the trustee must provide notice in some states to any other individual
having an interest of record in the real property, including any junior
lienholders. If the deed of trust is not reinstated within any applicable cure
period, a notice of sale must be posted in a public place and, in most states,
published for a specified period of time in one or more newspapers. In addition,
some state laws require that a copy of the notice of sale be posted on the
property and sent to all parties having an interest of record in the property.
In some states, the borrower-trustor has the right to reinstate the loan at
any time following default until shortly before the trustee's sale. In general,
the borrower, or any other person having a junior encumbrance on the real
estate, may, during a reinstatement period, cure the default by paying the
entire amount in arrears plus the costs and expenses incurred in enforcing the
obligation. Certain state laws control the amount of foreclosure expenses and
costs, including attorneys' fees, that may be recovered by a lender.
In the case of foreclosure under either a mortgage or a deed of trust, the
sale by the receiver or other designated officer, or by the trustee, is a public
sale. However, because of the difficulty a potential buyer at the sale would
have in determining the exact status of title and because the physical condition
of the property may have deteriorated during the foreclosure proceedings, it is
not common for a third party to purchase the property at the foreclosure sale.
Rather, the lender generally purchases the property from the trustee or receiver
for an amount equal to the unpaid principal amount of the note, accrued and
unpaid interest and the expenses of foreclosure. Thereafter, subject to the
right of the borrower in some states to remain in possession during the
redemption period, the lender will assume the burdens of ownership, including
obtaining hazard insurance and making such repairs at its own expense as are
necessary to render the property suitable for sale. The lender commonly will
obtain the services of a real estate broker and pay the broker a commission in
connection with the sale of the property. Depending upon market conditions, the
ultimate proceeds of the sale of the property may not equal the lender's
investment in the property.
Rights of Redemption. In some states, after sale pursuant to a deed of
trust or foreclosure of a mortgage, the borrower and certain foreclosed junior
lienors are given a statutory period in which to redeem the property from the
foreclosure sale. In certain other states, this right of redemption applies only
to sale following judicial foreclosure, and not sale pursuant to a nonjudicial
power of sale. In most states where the right of redemption is available,
statutory redemption may occur upon payment of the foreclosure purchase price,
accrued interest and taxes. In some states the right to redeem is an equitable
right. The effect of a right of redemption is to diminish the ability of the
lender to sell the foreclosed property. The exercise of a right of redemption
would defeat the title of any purchaser at a foreclosure sale, or of any
purchaser from the lender subsequent to judicial foreclosure or sale under a
deed of trust. Consequently, the practical effect of the redemption right is to
force the lender to maintain the property and pay the expenses of ownership
until the redemption period has run.
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Anti-Deficiency Legislation and Other Limitations on Lenders. Certain
states have imposed statutory restrictions that limit the remedies of a
beneficiary under a deed of trust or a mortgagee under a mortgage relating to a
single family residence. In some states, statutes limit the right of the
beneficiary or mortgagee to obtain a deficiency judgment against the borrower
following foreclosure or sale under a deed of trust. A deficiency judgment is a
personal judgment against the borrower equal in most cases to the difference
between the amount due to the lender and the net amount realized upon the
foreclosure sale.
Some state statutes may require the beneficiary or mortgagee to exhaust the
security afforded under a deed of trust or mortgage by foreclosure in an attempt
to satisfy the full debt before bringing a personal action against the borrower.
In certain other states, the lender has the option of bringing a personal action
against the borrower on the debt without first exhausting such security;
however, in some of these states, the lender, following judgment on such
personal action, may be deemed to have elected a remedy and may be precluded
from exercising remedies with respect to the security. Consequently, the
practical effect of the election requirement, when applicable, is that lenders
will usually proceed first against the security rather than bringing a personal
action against the borrower.
Other statutory provisions may limit any deficiency judgment against the
former borrower following a foreclosure sale to the excess of the outstanding
debt over the fair market value of the property at the time of such sale. The
purpose of these statutes is to prevent a beneficiary or a mortgagee from
obtaining a large deficiency judgment against the former borrower as a result of
low or no bids at the foreclosure sale.
In some states, exceptions to the anti-deficiency statutes are provided for
in certain instances where the value of the lender's security has been impaired
by acts or omissions of the borrower, for example, in the event of waste of the
property.
In addition to anti-deficiency and related legislation, numerous other
federal and state statutory provisions, including the federal bankruptcy laws,
the Relief Act and state laws affording relief to debtors, may interfere with or
affect the ability of a secured mortgage lender to realize upon its security.
For example, with respect to a Land-and-Home Contract, in a Chapter 13
proceeding under the federal Bankruptcy Code, when a court determines that the
value of a home is less than the principal balance of the loan, the court may
prevent a lender from foreclosing on the home, and, as part of the
rehabilitation plan, reduce the amount of the secured indebtedness to the value
of the home as it exists at the time of the proceeding, leaving the lender as a
general unsecured creditor for the difference between that value and the amount
of outstanding indebtedness. A bankruptcy court may grant the debtor a
reasonable time to cure a payment default, and in the case of a mortgage loan
not secured by the debtor's principal residence, also may reduce the monthly
payments due under such mortgage loan, change the rate of interest and alter the
mortgage loan repayment schedule. Certain court decisions have applied such
relief to claims secured by the debtor's principal residence.
The Code provides priority to certain tax liens over the lien of the
mortgage or deed of trust. The laws of some states provide priority to certain
tax liens over the lien of the mortgage or deed of trust. Numerous federal and
some state consumer protection laws impose substantive requirements upon
mortgage lenders in connection with the origination, servicing and the
enforcement of mortgage loans. These laws include the federal Truth in Lending
Act, Real Estate Settlement Procedures Act, Equal Credit Opportunity Act, Fair
Credit Billing Act, Fair Credit Reporting Act, and related statutes and
regulations. These federal laws and state laws impose specific statutory
liabilities upon lenders who originate or service mortgage loans and who fail to
comply with the provisions of the law. In some cases, this liability may affect
assignees of the Contracts.
CONSUMER PROTECTION LAWS
The so-called 'Holder-in-Due-Course' rule of the Federal Trade Commission
is intended to defeat the ability of the transferor of a consumer credit
contract which is the seller of goods which gave rise to the transaction (and
certain related lenders and assignees) 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 (such as the Trust) to all claims and defenses which
the Obligor could assert against the seller of the Manufactured Home. Liability
under this rule is limited to amounts paid under a contract; however, the
Obligor also may be able to assert the rule to set off remaining amounts due as
a defense against a claim brought by the Trust against such Obligor. Numerous
other federal and state consumer protection laws impose requirements applicable
to the origination and lending
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pursuant to the Contracts, including the Truth in Lending Act, the Federal Trade
Commission Act, the Fair Credit Billing Act, the Fair Credit Reporting Act, the
Equal Credit Opportunity Act, the Fair Debt Collection Practices Act and the
Uniform Consumer Credit Code. In the case of some of these laws, the failure to
comply with their provisions may affect the enforceability of the related
Contract.
TRANSFERS OF MANUFACTURED HOMES; ENFORCEABILITY OF 'DUE-ON-SALE' CLAUSES
The Contracts, in general, prohibit the sale or transfer of the related
Manufactured Homes without the consent of the Servicer and permit the
acceleration of the maturity of the Contracts by the Servicer upon any such sale
or transfer that is not consented to. In certain cases, the transfer may be made
by a delinquent Obligor in order to avoid a repossession proceeding with respect
to a Manufactured Home.
In the case of a transfer of a Manufactured Home after which the Servicer
desires to accelerate the maturity of the related Contract, the Servicer's
ability to do so will depend on the enforceability under state law of the
'due-on-sale' clause. The Garn-St. Germain Depositary Institutions Act of 1982
(the 'Garn-St. Germain Act'), subject to certain exceptions, preempts state
constitutional, statutory and case law prohibiting enforcement of 'due-on-sale'
clauses applicable to the Manufactured Homes. As to Contracts secured by an
owner-occupied residence, the Garn-St. Germain Act sets forth nine specific
instances in which a mortgagee covered by the Garn-St. Germain Act may not
exercise its rights under a due-on-sale clause, notwithstanding the fact that a
transfer of the Manufactured Home may have occurred. The inability to enforce a
due-on-sale clause may result in transfer of the related Manufactured Home to an
uncreditworthy person, which could increase the likelihood of default.
APPLICABILITY OF USURY LAWS
Title V of the Depository Institutions Deregulation and Monetary Control
Act of 1980, as amended ('Title V'), provides that, subject to the following
conditions, state usury limitations shall not apply to any loan which is secured
by a first lien on certain kinds of manufactured housing. The Contracts would be
covered if they satisfy certain conditions, among other things, governing the
terms of any prepayments, late charges and deferral fees and requiring a 30-day
notice period prior to instituting any action leading to repossession of or
foreclosure with respect to the related unit.
Title V authorized any state to reimpose limitations on interest rates and
finance charges by adopting before April 1, 1983 a law or constitutional
provision which expressly rejects application of the federal law. Fifteen states
adopted such a law prior to the April 1, 1983 deadline. In addition, even where
Title V was not so rejected, any state is authorized by the law to adopt a
provision limiting discount points or other charges on loans covered by Title V.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ('ERISA')
imposes certain requirements on employee benefit plans and collective investment
funds and separate accounts in which such plans or arrangements are invested to
which it applies and on those persons who are fiduciaries with respect to such
benefit plans. Certain employee benefit plans, such as governmental plans (as
defined in Section 3(32) of ERISA) and certain church plans (as defined in
Section 3(33) of ERISA), are not subject to ERISA. In accordance with ERISA's
general fiduciary standards, before investing in a Certificate, a benefit plan
fiduciary should determine whether such an investment is permitted under the
governing benefit plan instruments and is appropriate for the benefit plan in
view of its overall investment policy and the composition and diversification of
its portfolio and is prudent.
In addition, benefit plans subject to ERISA and individual retirement
accounts or certain types of Keogh plans not subject to ERISA but subject to
Section 4975 of the Code (each a 'Plan') are prohibited from engaging in a broad
range of transactions involving Plan assets and persons having certain specified
relationships to a Plan ('parties in interest' and 'disqualified persons'). Such
transactions are treated as 'prohibited transactions' under Sections 406 and 407
of ERISA and excise taxes are imposed upon such persons by Section 4975 of the
Code. The Depositor, the Originator, the Enhancer, the Underwriter and the
Trustee and certain of their affiliates might be considered 'parties in
interest' or 'disqualified persons' with respect to a Plan. If so, the
acquisition or holding or transfer of Certificates by or on behalf of such Plan
could be considered to give rise to a 'prohibited transaction' within the
meaning of ERISA and the Code unless an exemption is
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available. In addition, the Department of Labor ('DOL') has issued a regulation
(29 C.F.R. Section 2510.3-101) concerning the definition of what constitutes the
assets of a Plan (the 'Plan Asset Regulations'), which provides that, as a
general rule, the underlying assets and properties of corporations,
partnerships, trusts and certain other entities in which a Plan makes an
'equity' investment will be deemed for purposes of ERISA to be assets of the
investing Plan unless certain exceptions apply. If an investing Plan's assets
were deemed to include an interest in the Contracts and any other assets of the
Trust and not merely an interest in the Certificates, transactions occurring
between the Depositor, the Trustee, the Servicer, Sub-servicers, if any, the
Enhancer or any of their affiliates might constitute prohibited transactions,
and the assets of the Trust would become subject to the fiduciary investment
standards of ERISA, unless an administrative exemption applies. Certain such
exemptions which may be applicable to the acquisition and holding of the
Certificates or to the servicing of the Contracts are noted below.
The DOL has issued an administrative exemption, Prohibited Transaction
Class Exemption 83-1 ('PTCE 83-1'), which, under certain conditions, exempts
from the application of the prohibited transaction rules of ERISA and the excise
tax provisions of Section 4975 of the Code transactions involving a Plan in
connection with the operation of a 'mortgage pool' and the purchase, sale and
holding of 'mortgage pool pass-through certificates.' A 'mortgage pool' is
defined as an investment pool, consisting solely of interest bearing obligations
secured by first or second mortgages or deeds of trust on single-family
residential property, property acquired in foreclosure and undistributed cash. A
'mortgage pool pass-through certificate' is defined as a certificate which
represents a beneficial undivided interest in a mortgage pool which entitles the
holder to pass-through payments of principal and interest from the mortgage
loans.
For the exemption to apply, PTCE 83-1 requires that (i) the Depositor and
the Trustee maintain a system of insurance or other protection for the Contracts
and the property securing such Contracts, and for indemnifying holders of
Certificates against reductions in pass-through payments due to defaults in loan
payments or property damage in an amount at least equal to the greater of 1% of
the aggregate principal balance of the Contracts, or 1% of the principal balance
of the largest covered pooled Contract; (ii) the Trustee may not be an affiliate
of the Depositor; and (iii) the payments made to and retained by the Depositor
in connection with the Trust, together with all funds inuring to its benefit for
administering the Trust, represent no more than 'adequate consideration' for
selling the Contracts, plus reasonable compensation for services provided to the
Trust.
In addition, PTCE 83-1 exempts the initial sale of Certificates to a Plan
with respect to which the Depositor, the Enhancer, the Servicer or the Trustee
is a party in interest if the Plan does not pay more than fair market value for
such Certificates and the rights and interests evidenced by such Certificates
are not subordinated to the rights and interests evidenced by other Certificates
of the same pool. PTCE 83-1 also exempts from the prohibited transaction rules
and transactions in connection with the servicing and operation of the Pool,
provided that any payments made to the Servicer in connection with the servicing
for the Trust are made in accordance with a binding agreement, copies of which
must be made available to prospective investors.
In the case of any Plan with respect to which the Depositor, the Servicer,
the Enhancer or the Trustee is a fiduciary, PTCE 83-1 will only apply if, in
addition to the other requirements: (i) the initial sale, exchange or transfer
of Certificates is expressly approved by an independent fiduciary who has
authority to manage and control those plan assets being invested in
Certificates; (ii) the Plan pays no more for the Certificates than would be paid
in an arm's length transaction; (iii) no investment management, advisory or
underwriting fee, sale commission, or similar compensation is paid to the
Depositor with regard to the sale, exchange or transfer of Certificates to the
Plan; (iv) the total value of the Certificates purchased by such Plan does not
exceed 25% of the amount issued; and (v) at least 50% of the aggregate amount of
Certificates is acquired by persons independent of the Depositor, the Trustee,
the Servicer and the Enhancer, if any.
Before purchasing Certificates, a fiduciary of a Plan should confirm that
the Trust is a 'mortgage pool,' that the Certificates constitute 'mortgage pool
pass-through certificates,' and that the conditions set forth in PTCE 83-1 would
be satisfied. In addition to making its own determination as to the availability
of the exemptive relief provided in PTCE 83-1, the Plan fiduciary should
consider the availability of any other prohibited transaction exemptions. The
Plan fiduciary also should consider its general fiduciary obligations under
ERISA in determining whether to purchase any Certificates on behalf of a Plan.
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In addition, DOL has granted to certain underwriters and/or placement
agents individual prohibited transaction exemptions which may be applicable to
avoid certain of the prohibited transaction rules of ERISA with respect to the
initial purchase, the holding and the subsequent resale in the secondary market
by Plans of pass- through certificates representing a beneficial undivided
ownership interest in the assets of a trust that consist of certain receivables,
loans and other obligations that meet the conditions and requirements of the
exemption which may be applicable to the Certificates.
One or more other prohibited transaction exemptions issued by the DOL may
be available to a Plan investing in Certificates, depending in part upon the
type of Plan fiduciary making the decision to acquire Certificates and the
circumstances under which such decision is made, including but not limited to:
PTCE 90-1 (regarding investments by insurance company pooled separate accounts),
PTCE 91-38 (regarding investments by bank collective investment funds); PTCE
95-60 (regarding investments by insurance company general accounts); PTCE 84-14
(regarding investments by qualified professional asset managers); or PTCE 96-23
(regarding investment by in-house asset managers). However, even if the
conditions specified in the Exemption or one or more of these other exemptions
are met, the scope of the relief provided might or might not cover all acts
which might be construed as prohibited transactions.
Any Plan fiduciary considering the purchase of a Certificate should consult
with its counsel with respect to the potential applicability of ERISA and the
Code to such investment. Moreover, each Plan fiduciary should determine whether,
under the general fiduciary standards of investment prudence and
diversification, an investment in the Certificates is appropriate for the Plan,
taking into account the overall investment policy of the Plan and the
composition of the Plan's investment portfolio. Special caution ought to be
exercised before a Plan purchases a Certificate in such circumstances.
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FEDERAL INCOME TAX CONSIDERATIONS
In the opinion of Stroock & Stroock & Lavan LLP, special Federal tax
counsel, ('Federal Tax Counsel'), the following are the material federal income
tax consequences of the purchase, ownership and disposition of the Certificates
offered hereby. The discussion, and the opinions referred to below, are based on
laws, regulations, rulings and decisions now in effect (or, in the case of
certain regulations, proposed), all of which are subject to change or possibly
differing interpretations. Because tax consequences may vary based on the status
or tax attributes of the owner of a Certificate, prospective investors should
consult their own tax advisors in determining the federal, state, local and
other tax consequences to them of the purchase, ownership and disposition of a
Certificate. For purposes of this tax discussion (except with respect to
information reporting, or where the context indicates otherwise), the terms
'Certificateholder' and 'Holder' mean the beneficial owner of a Certificate.
REMIC ELECTIONS
Under the Internal Revenue Code of 1986, as amended (the 'Code'), an
election may be made with respect to each Trust related to a Series of
Certificates to treat such Trust or certain assets of such Trust as a 'real
estate mortgage investment conduit' ('REMIC'). The Prospectus Supplement for
each Series of Certificates will indicate whether a REMIC election will be made
with respect to the related Trust. To the extent provided in the Prospectus
Supplement for a Series, Certificateholders may also have the benefit of a
reserve fund and of certain agreements (each, a 'Yield Supplement Agreement')
under which payment will be made from the reserve fund in the event that
interest accrued on the Contracts at their Contracts Rates is insufficient to
pay interest on the Certificates of such Series (a 'Basis Risk Shortfall'). If a
REMIC election is to be made, the Prospectus Supplement will designate the
Certificates of such Series that will be designated as 'regular interests'
('REMIC Regular Certificates') in the REMIC (within the meaning of Section
860G(a)(1) of the Code) or as the 'residual interest' ('REMIC Residual
Certificates') in the REMIC (within the meaning of Section 860G(a)(2) of the
Code).
REMIC CERTIFICATES
With respect to each Series of REMIC Certificates, the Trustee will agree
in the Agreement to elect to treat the related Trust or certain assets of such
Trust as a REMIC. Qualification as a REMIC requires ongoing compliance with
certain conditions. Upon the issuance of each Series of REMIC Certificates,
Federal Tax Counsel will deliver its opinion generally to the effect that under
then-existing law and assuming a proper and timely REMIC election and ongoing
compliance with the provisions of the related Agreement and applicable
provisions of the Code and applicable Treasury regulations and rulings, the
related Trust or certain assets of such Trust will be a REMIC and the REMIC
Certificates will be considered to evidence ownership of 'regular interests' or
'residual interests' within the meaning of the REMIC provisions of the Code.
To the extent provided in the Prospectus Supplement for a Series, REMIC
Regular Certificateholders who are entitled to payments from a reserve fund in
the event of a Basis Risk Shortfall will be required to allocate their purchase
price between their beneficial ownership interests in the related REMIC regular
interests and Yield Supplement Agreements, and will be required to report their
income realized with respect to each, calculated taking into account such
allocation. In general, such allocation would be based on the respective fair
market values of the REMIC regular interests and the related Yield Supplement
Agreements on the date of purchase of the related Certificate. No representation
is or will be made as to the fair market value of the Yield Supplement
Agreements or the relative values of the REMIC regular interests and the Yield
Supplement Agreements, upon initial issuance of the related REMIC Regular
Certificates or at any time thereafter. REMIC Regular Certificateholders are
advised to consult their own tax advisors concerning the determination of such
fair market values. Under the Agreement, holders of applicable Classes of REMIC
Regular Certificates will agree that, for federal income tax purposes, they will
be treated as owners of the respective class of regular interests and of the
corresponding Yield Supplement Agreement.
The regulations under Sections 860A through 860G of the Code (the 'REMIC
Regulations') provide that obligations secured by interests in manufactured
housing which qualify as 'single family residences' within the meaning of
Section 25(e)(10) of the Code, are to be treated as 'qualified mortgages' for a
REMIC. Under Section 25(e)(10) of the Code, the term 'single family residence'
includes any manufactured home which has a
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minimum of 400 square feet of living space and a minimum width in excess of 102
inches and which is of a kind customarily used at a fixed location. The
Originator will represent and warrant that each of the manufactured homes
securing the Contracts which are a part of a Trust for which a REMIC election
will be made meets this definition of a 'single family residence.'
Status of REMIC Certificates as Real Property Loans. The REMIC
Certificates will be 'real estate assets' for purposes of Section 856(c)(5)(A)
of the Code and assets described in Section 7701(a)(19)(C) of the Code (assets
qualifying under one or more of those sections, applying each section
separately, 'qualifying assets') to the extent that the REMIC's assets are
qualifying assets, but not to the extent that the REMIC's assets consist of
Yield Supplement Agreements. However, if at least 95 percent of the REMIC's
assets are qualifying assets, then 100 percent of the REMIC Certificates will be
qualifying assets. Similarly, income on the REMIC Certificates will be treated
as 'interest on obligations secured by mortgages on real property' within the
meaning of Section 856(c)(3)(B) of the Code, subject to the limitations of the
preceding two sentences. In addition to the Contracts, the REMIC's assets will
include payments on the Contracts held pending distribution to holders of REMIC
Certificates, amounts in reserve accounts (if any), and other credit
enhancements (if any). The Contracts generally will be qualifying assets under
the foregoing sections of the Code. However, Contracts that are not secured by
residential real property or real property used primarily for church purposes
may not constitute qualifying assets under Section 7701(a)(19)(C)(v) of the
Code. In addition, to the extent that the principal amount of a Contract exceeds
the value of the property securing the Contract, it is unclear and Federal Tax
Counsel is unable to opine whether the Contract will be a qualifying asset.
Although the REMIC Regulations treat credit enhancements as part of the mortgage
or pool of mortgages to which they relate, it is unclear and Federal Tax Counsel
is unable to opine whether credit enhancements are qualifying assets. If credit
enhancements are not qualifying assets and as a consequence less than 95% of the
REMIC's assets are qualifying assets, the extent to which the REMIC Certificates
themselves constitute qualifying assets will be limited to the portion of the
REMIC's assets which constitute qualifying assets. Regulations issued in
conjunction with the REMIC Regulations provide that amounts paid on Contracts
and held pending distribution to holders of Certificates ('cash flow
investments') will be treated as qualifying assets. It is unclear whether
reserve funds would also constitute qualifying assets under any of those
provisions. The REMIC Certificates will not be 'residential loans' for purposes
of the residential loan requirement of Section 593(g)(4)(b) of the Code.
TIERED REMIC STRUCTURES
For certain Series of Certificates, two or more separate elections may be
made to treat designated portions of the related Trust as REMICs ('Tiered
REMICs') for federal income tax purposes. Upon the issuance of any such Series
of Certificates, Federal Tax Counsel will deliver its opinion generally to the
effect that, under then-existing law and assuming proper and timely REMIC
elections and ongoing compliance with the provisions of the related Agreement
and applicable provisions of the Code and applicable Treasury regulations and
rulings, the Tiered REMICs will each qualify as a REMIC and the REMIC
Certificates issued by the Tiered REMICs, respectively, will be considered to
evidence ownership of 'regular interests' or 'residual interests' in the related
REMIC within the meaning of the REMIC provisions of the Code.
Solely for purposes of determining whether the REMIC Certificates will be
'real estate assets' within the meaning of Section 856(c)(5)(A) of the Code, and
assets described in Section 7701(a)(19)(C) of the Code, and whether the income
on such Certificates is interest described in Section 856(c)(3)(B) of the Code,
the Tiered REMICs will be treated as one REMIC.
REMIC REGULAR CERTIFICATES
Current Income on REMIC Regular Certificates--General. Except as otherwise
indicated herein, the REMIC Regular Certificates will be treated for federal
income tax purposes (but not necessarily for accounting or other purposes) as
debt instruments that are issued by the REMIC on the date of issuance of the
REMIC Regular Certificates and not as ownership interests in the REMIC or the
REMIC's assets. Holders of REMIC Regular Certificates who would otherwise report
income under a cash method of accounting will be required to report income with
respect to REMIC Regular Certificates under an accrual method.
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Payments of interest on REMIC Regular Certificates may be based on a fixed
rate, a variable rate as permitted by the REMIC Regulations, or may consist of a
specified portion of the interest payments on qualified mortgages where such
portion does not vary during the period the REMIC Regular Certificate is
outstanding. The definition of a variable rate for purposes of the REMIC
Regulations is based on the definition of a qualified floating rate for purposes
of the rules governing original issue discount set forth in Sections 1271
through 1275 of the Code and the regulations thereunder (the 'OID Regulations')
with certain modifications and permissible variations. In contrast to the OID
Regulations, for purposes of the REMIC Regulations, a qualified floating rate
does not include any multiple of a qualified floating rate (also excluding
multiples of qualified floating rates that themselves would constitute qualified
floating rates under the OID Regulations), and the characterization of a
variable rate that is subject to a cap, floor or similar restriction as a
qualified floating rate for purposes of the REMIC Regulations will not depend
upon the OID Regulations relating to caps, floors, and similar restrictions. A
qualified floating rate, as defined above for purposes of the REMIC Regulations
(a 'REMIC Qualified Floating Rate'), qualifies as a variable rate for purposes
of the REMIC Regulations if such REMIC Qualified Floating Rate is set at a
'current rate' as defined in the OID Regulations. In addition, a rate equal to
the highest, lowest or an average of two or more REMIC Qualified Floating Rates
qualifies as a variable rate for REMIC purposes. A REMIC Regular Certificate
also may have a variable rate based on a weighted average of the interest rates
on some or all of the qualified mortgages held by the REMIC where each qualified
mortgage taken into account has a fixed rate or a variable rate that is
permissible under the REMIC Regulations. Further, a REMIC Regular Certificate
may have a rate that is the product of a REMIC Qualified Floating Rate or a
weighted average rate and a fixed multiplier, is a constant number of basis
points more or less than a REMIC Qualified Floating Rate or a weighted average
rate, or is the product, plus or minus a constant number of basis points, of a
REMIC Qualified Floating Rate or a weighted average rate and a fixed multiplier.
An otherwise permissible variable rate for a REMIC Regular Certificate,
described above, will not lose its character as such because it is subject to a
floor or a cap, including a 'funds available cap' as that term is defined in the
REMIC Regulations. Lastly, a REMIC Regular Certificate will be considered as
having a permissible variable rate if it has a fixed or otherwise permissible
variable rate during one or more payment or accrual periods and different fixed
or otherwise permissible variable rates during other payment or accrual periods.
Original Issue Discount. REMIC Regular Certificates of certain Series may
be issued with 'original issue discount' within the meaning of Section 1273(a)
of the Code. Holders of REMIC Regular Certificates issued with original issue
discount generally must include original issue discount in gross income for
federal income tax purposes as it accrues, in advance of receipt of the cash
attributable to such income, under a method that takes account of the
compounding of interest. The Code requires that information with respect to the
original issue discount accruing on any REMIC Regular Certificate be reported
periodically to the Internal Revenue Service and to certain categories of
holders of such REMIC Regular Certificates.
Each Trust will report original issue discount, if any, to the Holders of
REMIC Regular Certificates based on the OID Regulations. The OID Regulations are
effective April 4, 1994. Proposed OID Regulations concerning contingent payments
have not been finalized.
The Code provides that, in the case of a debt instrument such as a REMIC
Regular Certificate, (i) the amount and rate of accrual of original issue
discount will be calculated based on a reasonable assumed prepayment rate (the
'Prepayment Assumption'), and (ii) adjustments will be made in the amount and
rate of accrual of such discount to reflect differences between the actual
prepayment rate and the Prepayment Assumption. The method for determining the
appropriate assumed prepayment rate will eventually be set forth in Treasury
regulations, but those regulations have not yet been issued. The applicable
legislative history indicates, however, that such regulations will provide that
the assumed prepayment rate for securities such as the REMIC Regular
Certificates will be the rate used in pricing the initial offering of the
securities. The Prospectus Supplement for each Series of REMIC Regular
Certificates will specify the Prepayment Assumption, but no representation is
made that the REMIC Regular Certificates will prepay at a rate based on the
Prepayment Assumption or at any other rate.
In general, a REMIC Regular Certificate will be considered to be issued
with original issue discount if its stated redemption price at maturity exceeds
its issue price. Except as discussed below under 'Payment Lag REMIC Regular
Certificates; Initial Period Considerations' and 'Qualified Stated Interest,'
and in the case of certain Variable Rate REMIC Regular Certificates (as defined
below) and accrual certificates, the stated
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redemption price at maturity of a REMIC Regular Certificate is its principal
amount. The issue price of a REMIC Regular Certificate is the initial offering
price to the public (excluding bond houses and brokers) at which a substantial
amount of the Class of REMIC Regular Certificates was sold. The issue price will
be reduced if any portion of such price is allocable to a related Yield
Supplement Agreement. Notwithstanding the general definition of original issue
discount, such discount will be considered to be zero for any REMIC Regular
Certificate on which such discount is less than 0.25% of its stated redemption
price at maturity multiplied by its weighted average life. The weighted average
life of a REMIC Regular Certificate apparently is computed for purposes of this
de minimis rule as the sum, for all distributions included in the stated
redemption price at maturity of the REMIC Regular Certificate, of the amounts
determined by multiplying (i) the number of complete years (rounding down for
partial years) from the closing date to the date on which each such distribution
is expected to be made, determined under the Prepayment Assumption, by (ii) a
fraction, the numerator of which is the amount of such distribution and the
denominator of which is the REMIC Regular Certificate's stated redemption price
at maturity. The OID Regulations provide that Holders will include any de
minimis original issue discount ratably as payments of stated principal are made
on the REMIC Regular Certificates.
The Holder of a REMIC Regular Certificate issued with original issue
discount must include in gross income the sum of the 'daily portions' of such
original issue discount for each day during its taxable year on which it held
such REMIC Regular Certificate. In the case of an original Holder of a REMIC
Regular Certificate, the daily portions of original issue discount are
determined first by calculating the portion of the original issue discount that
accrued during each period (an 'accrual period') that begins on the day
following a Remittance Date (or in the case of the first such period, begins on
the closing date) and ends on the next succeeding Remittance Date. The original
issue discount accruing during each accrual period is then allocated ratably to
each day during such period to determine the daily portion of original issue
discount for that day.
The portion of the original issue discount that accrues in any accrual
period will equal the excess, if any, of (i) the sum of (A) the present value,
as of the end of the accrual period, of all of the distributions to be made on
the REMIC Regular Certificate, if any, in future periods and (B) the
distributions made on the REMIC Regular Certificate during the accrual period
that are included in such REMIC Regular Certificate's stated redemption price at
maturity, over (ii) the adjusted issue price of such REMIC Regular Certificate
at the beginning of the accrual period. The present value of the remaining
distributions referred to in the preceding sentence will be calculated (i)
assuming that the REMIC Regular Certificates will be prepaid in future periods
at a rate computed in accordance with the Prepayment Assumption and (ii) using a
discount rate equal to the original yield to maturity of the REMIC Regular
Certificates. For these purposes, the original yield to maturity of the REMIC
Regular Certificates will be calculated based on their issue price and assuming
that the REMIC Regular Certificates will be prepaid in accordance with the
Prepayment Assumption. The adjusted issue price of a REMIC Regular Certificate
at the beginning of any accrual period will equal the issue price of such REMIC
Regular Certificate, increased by the portion of the original issue discount
that has accrued during prior accrual periods, and reduced by the amount of any
distributions made on such REMIC Regular Certificate in prior accrual periods
that were included in such REMIC Regular Certificate's stated redemption price
at maturity.
The daily portions of original issue discount may increase or decrease
depending on the extent to which the actual rate of prepayments diverges from
the Prepayment Assumption. If original issue discount accruing during any
accrual period computed as described above is negative, it is likely that a
Holder will be entitled to offset such amount only against positive original
issue discount accruing on such REMIC Regular Certificate in future accrual
periods. Although Federal Tax Counsel is unable to opine with respect to this
matter, such a holder may be entitled to deduct a loss to the extent that its
remaining basis would exceed the maximum amount of future payments to which such
holder is entitled. It is unclear whether the Prepayment Assumption is taken
into account for this purpose.
A subsequent Holder that purchases a REMIC Regular Certificate issued with
original issue discount at a cost less than its remaining stated redemption
price at maturity will also generally be required to include in gross income,
for each day on which it holds such REMIC Regular Certificate, the daily
portions of original issue discount with respect to the REMIC Regular
Certificate, calculated as described above. However, if (i) the excess of the
remaining stated redemption price at maturity over such cost is less than (ii)
the aggregate amount of such daily portions for all days after the date of
purchase until final retirement of such REMIC Regular Certificate, then such
daily portions will be reduced proportionately in determining the income of such
holder.
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Qualified Stated Interest. Interest payable on a REMIC Regular Certificate
which qualifies as 'qualified stated interest' for purposes of the OID
Regulations will not be includible in the stated redemption price at maturity of
the REMIC Regular Certificate. Interest payments will not qualify as qualified
stated interest unless the interest payments are 'unconditionally payable.'
Accordingly, if the interest on a REMIC Regular Certificate does not constitute
'qualified stated interest,' the REMIC Regular Certificate will have original
issue discount. Interest payments will not qualify as qualified stated interest
unless the interest payments are 'unconditionally payable.' The OID Regulations
state that interest is unconditionally payable if reasonable legal remedies
exist to compel timely payment, or the debt instrument otherwise provides terms
and conditions that make the likelihood of late payment (other than a late
payment that occurs within a reasonable grace period) or nonpayment of interest
a remote contingency, as defined in the OID Regulations. It is unclear and
Federal Tax Counsel is unable to opine whether the terms and conditions of the
Contracts underlying the REMIC Regular Certificates or the terms and conditions
of the REMIC Regular Certificates are considered when determining whether the
likelihood of late payment or nonpayment of interest is a remote contingency.
Any terms or conditions that do not reflect arm's length dealing or that the
holder does not intend to enforce are not considered.
Premium. A purchaser of a REMIC Regular Certificate that purchases such
REMIC Regular Certificate at a cost greater than its remaining stated redemption
price at maturity will be considered to have purchased such REMIC Regular
Certificate at a premium, and may, under Section 171 of the Code, elect to
amortize such premium under a constant yield method over the life of the REMIC
Regular Certificate. The Prepayment Assumption is probably taken into account in
determining the life of the REMIC Regular Certificate for this purpose. Except
as provided in regulations, amortizable premium will be treated as an offset to
interest income on the REMIC Regular Certificate.
Payment Lag REMIC Regular Certificates; Initial Period
Considerations. Certain REMIC Regular Certificates will provide for
distributions of interest based on a period that is the same length as the
interval between Remittance Dates but ends prior to each Remittance Date. Any
interest that accrues prior to the closing date may be treated under the OID
Regulations either (i) as part of the issue price and the stated redemption
price at maturity of the REMIC Regular Certificates or (ii) as not included in
the issue price or the stated redemption price. The OID Regulations provide a
special application of the de minimis rule for debt instruments with long first
accrual periods where the interest payable for the first period is at a rate
which is effectively less than that which applies in all other periods. In such
cases, for the sole purpose of determining whether original issue discount is de
minimis, the OID Regulations provide that the stated redemption price is equal
to the instrument's issue price plus the greater of the amount of foregone
interest or the excess (if any) of the instrument's stated principal amount over
its issue price.
Variable Rate REMIC Regular Certificates. Under the OID Regulations, REMIC
Regular Certificates paying interest at a variable rate (a 'Variable Rate REMIC
Regular Certificate') are subject to special rules. A Variable Rate REMIC
Regular Certificate will qualify as a 'variable rate debt instrument' if (i) its
issue price does not exceed the total noncontingent principal payments due under
the Variable Rate REMIC Regular Certificate by more than a specified de minimis
amount and (ii) it provides for stated interest, paid or compounded at least
annually, at (a) one or more qualified floating rates, (b) a single fixed rate
and one or more qualified floating rates, (c) a single objective rate or (d) a
single fixed rate and a single objective rate that is a qualified inverse
floating rate.
A 'qualified floating rate' is any variable rate where variations in the
value of such rate can reasonably be expected to measure contemporaneous
variations in the cost of newly borrowed funds in the currency in which the
Variable Rate REMIC Regular Certificate is denominated. A multiple of a
qualified floating rate will generally not itself constitute a qualified
floating rate for purposes of the OID Regulations. However, a variable rate
equal to (i) the product of a qualified floating rate and a fixed multiple that
is greater than .65 but not more than 1.35 or (ii) the product of a qualified
floating rate and a fixed multiple that is greater than .65 but not more than
1.35, increased or decreased by a fixed rate will constitute a qualified
floating rate for purposes of the OID Regulations. In addition, under the OID
Regulations, two or more qualified floating rates that can reasonably be
expected to have approximately the same values throughout the term of the
Variable Rate REMIC Regular Certificate will be treated as a single qualified
floating rate (a 'Presumed Single Qualified Floating Rate'). Two or more
qualified floating rates with values within 25 basis points of each other as
determined on the Variable Rate REMIC Regular Certificate's issue date will be
conclusively presumed to be a Presumed Single Qualified
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Floating Rate. Notwithstanding the foregoing, a variable rate that would
otherwise constitute a qualified floating rate but which is subject to one or
more restrictions such as a cap or floor, will not be a qualified floating rate
for purposes of the OID Regulations unless the restriction is fixed throughout
the term of the Variable Rate REMIC Regular Certificate or the restriction will
not significantly affect the yield of the Variable Rate REMIC Regular
Certificate.
An 'objective rate' is a rate that is not itself a qualified floating rate
but which is determined using a single fixed formula and which is based upon
objective financial or economic information. The OID Regulations also provide
that other variable rates may be treated as objective rates if so designated by
the Internal Revenue Service in the future. An interest rate on a REMIC Regular
Certificate that is the weighted average of the interest rates on some or all of
the qualified mortgages held by the REMIC should constitute an objective rate.
Despite the foregoing, a variable rate of interest on a Variable Rate REMIC
Regular Certificate will not constitute an objective rate if it is reasonably
expected that the average value of such rate during the first half of the
Variable Rate REMIC Regular Certificate's term will be either significantly less
than or significantly greater than the average value of the rate during the
final half of the Variable Rate REMIC Regular Certificate's term. Further, an
objective rate does not include a rate that is based on information that is
within the control of the issuer (or a party related to the issuer) or that is
unique to the circumstances of the issuer (or a party related to the issuer). An
objective rate will qualify as a 'qualified inverse floating rate' if such rate
is equal to a fixed rate minus a qualified floating rate and variations in the
rate can reasonably be expected to inversely reflect contemporaneous variations
in the qualified floating rate. The OID Regulations also provide that if a
Variable Rate REMIC Regular Certificate provides for stated interest at a fixed
rate for an initial period of less than one year followed by a variable rate
that is either a qualified floating rate or an objective rate and if the
variable rate on the Variable Rate REMIC Regular Certificate's issue date is
intended to approximate the fixed rate, then the fixed rate and the variable
rate together will constitute either a single qualified floating rate or
objective rate, as the case may be (a 'Presumed Single Variable Rate'). If the
value of the variable rate and the initial fixed rate are within 25 basis points
of each other as determined on the Variable Rate REMIC Regular Certificate's
issue date, the variable rate will be conclusively presumed to approximate the
fixed rate.
For Variable Rate REMIC Regular Certificates that qualify as a 'variable
rate debt instrument' under the OID Regulations and provide for interest at
either a single qualified floating rate, a single objective rate, a Presumed
Single Qualified Floating Rate or a Presumed Single Variable Rate throughout the
term (a 'Single Variable Rate REMIC Regular Certificate'), original issue
discount is computed as described in 'REMIC Regular Certificates-Current Income
on REMIC Regular Certificates--Original Issue Discount' based on the following:
(i) stated interest on the Single Variable Rate REMIC Regular Certificate which
is unconditionally payable in cash or property (other than debt instruments of
the issuer) at least annually will constitute qualified stated interest and (ii)
by assuming that the variable rate on the Single Variable Rate REMIC Certificate
is a fixed rate equal to: (a) in the case of a Single Variable Rate REMIC
Regular Certificate with a qualified floating rate or a qualified inverse
floating rate, the value, as of the issue date, of the qualified floating rate
or the qualified inverse floating rate or (b) in the case of a Single Variable
Rate REMIC Regular Certificate with an objective rate (other than a qualified
inverse floating rate), a fixed rate which reflects the reasonably expected
yield for such Single Variable Rate REMIC Regular Certificate.
In general, any Variable Rate REMIC Regular Certificate other than a Single
Variable Rate REMIC Regular Certificate (a 'Multiple Variable Rate REMIC Regular
Certificate') that qualifies as a 'variable rate debt instrument' will be
converted into an 'equivalent' fixed rate debt instrument for purposes of
determining the amount and accrual of original issue discount and qualified
stated interest on the Multiple Variable Rate REMIC Regular Certificate. The OID
Regulations generally require that such a Multiple Variable Rate REMIC Regular
Certificate be converted into an 'equivalent' fixed rate debt instrument by
substituting any qualified floating rate or qualified inverse floating rate
provided for under the terms of the Multiple Variable Rate REMIC Regular
Certificate with a fixed rate equal to the value of the qualified floating rate
or qualified inverse floating rate, as the case may be, as of the Multiple
Variable Rate REMIC Regular Certificate's issue date. Any objective rate (other
than a qualified inverse floating rate) provided for under the terms of the
Multiple Variable Rate REMIC Regular Certificate is converted into a fixed rate
that reflects the yield that is reasonably expected for the Multiple Variable
Rate REMIC Regular Certificate. In the case of a Multiple Variable Rate REMIC
Regular Certificate that qualifies as a 'variable rate debt instrument' and
provides for stated interest at a fixed rate in
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addition to either one or more qualified floating rates or a qualified inverse
floating rate, the fixed rate is initially converted into a qualified floating
rate (or a qualified inverse floating rate, if the Multiple Variable Rate REMIC
Regular Certificate provides for a qualified inverse floating rate). Under such
circumstances, the qualified floating rate or qualified inverse floating rate
that replaces the fixed rate must be such that the fair market value of the
Multiple Variable Rate REMIC Regular Certificate as of the Multiple Variable
Rate REMIC Regular Certificate's issue date is approximately the same as the
fair market value of an otherwise identical debt instrument that provides for
either the qualified floating rate or qualified inverse floating rate rather
than the fixed rate. Subsequent to converting the fixed rate into either a
qualified floating rate or a qualified inverse floating rate, the Multiple
Variable Rate REMIC Regular Certificate is then converted into an 'equivalent'
fixed rate debt instrument in the manner described above.
Once the Multiple Variable Rate REMIC Regular Certificate is converted into
an 'equivalent' fixed rate debt instrument pursuant to the foregoing rules, the
amount of original issue discount and qualified stated interest, if any, are
determined for the 'equivalent' fixed rate debt instrument by applying the
original issue discount rules to the 'equivalent' fixed rate debt instrument in
the manner described in 'REMIC Regular Certificates-Current Income on REMIC
Regular Certificates--Original Issue Discount'. A Holder of the Multiple
Variable Rate REMIC Regular Certificate will account for such original issue
discount and qualified stated interest as if the Holder held the 'equivalent'
fixed rate debt instrument. Each accrual period, appropriate adjustments will be
made to the amount of qualified stated interest or original issue discount
assumed to have been accrued or paid with respect to the 'equivalent' fixed rate
debt instrument in the event that such amounts differ from the actual amount of
interest accrued or paid on the Multiple Variable Rate REMIC Regular Certificate
during such accrual period.
If a Variable Rate REMIC Regular Certificate does not qualify as a
'variable rate debt instrument' under the OID Regulations, then the Variable
Rate REMIC Regular Certificate would be treated as a contingent payment debt
obligation. Federal Tax Counsel is unable to opine how a Variable Rate REMIC
Regular Certificate would be taxed if such REMIC Regular Certificate were to be
treated as a contingent payment debt obligation since the OID Regulations
relating to contingent payment debt obligations do not apply to REMIC regular
interests.
Interest-Only REMIC Regular Certificates. The Trust intends to report
income from interest-only Classes of REMIC Regular Certificates to the Internal
Revenue Service and to holders of interest-only REMIC Regular Certificates based
on the assumption that the stated redemption price at maturity is equal to the
sum of all payments determined under the Prepayment Assumption. As a result,
such interest-only REMIC Regular Certificates will be treated as having original
issue discount.
Market Discount. A Holder that acquires a REMIC Regular Certificate at a
market discount (that is, a discount that exceeds any unaccrued original issue
discount) will recognize gain upon receipt of a principal distribution,
regardless of whether the distribution is scheduled or is a prepayment. In
particular, the REMIC Regular Certificateholder will be required to allocate
that principal distribution first to the portion of the market discount on such
REMIC Regular Certificate that has accrued but has not previously been
includible in income, and will recognize ordinary income to that extent. In
general terms, unless Treasury regulations when issued state otherwise, market
discount on a REMIC Regular Certificate may be treated, at the REMIC
Certificateholder's election, as accruing either (i) under a constant yield
method, taking into account the Prepayment Assumption, or (ii) in proportion to
accruals of original issue discount (or, if there is no original issue discount,
in proportion to payments of interest at the Remittance Rate).
In addition, a Holder may be required to defer deductions for a portion of
the Holder's interest expense on any debt incurred or continued to purchase or
carry a REMIC Regular Certificate purchased with market discount. The deferred
portion of any interest deduction would not exceed the portion of the market
discount on the REMIC Regular Certificate that accrues during the taxable year
in which such interest would otherwise be deductible and, in general, would be
deductible when such market discount is included in income upon receipt of a
principal distribution on, or upon the sale of, the REMIC Regular Certificate.
The Code requires that information necessary to compute accruals of market
discount be reported periodically to the Internal Revenue Service and to certain
categories of Holders of REMIC Regular Certificates.
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Notwithstanding the above rules, market discount on a REMIC Regular
Certificate will be considered to be zero if such discount is less than 0.25% of
the remaining stated redemption price at maturity of such REMIC Regular
Certificate multiplied by its weighted average remaining life. Weighted average
remaining life presumably is calculated in a manner similar to weighted average
life (described above under 'Current Income on REMIC Regular
Certificates-Original Issue Discount'), taking into account distributions
(including prepayments) prior to the date of acquisition of such REMIC Regular
Certificate by the subsequent purchaser. If market discount on a REMIC Regular
Certificate is treated as zero under this rule, the actual amount of such
discount must be allocated to the remaining principal distributions on the REMIC
Regular Certificate, and when each such distribution is made, gain equal to the
discount, if any, allocated to the distribution will be recognized.
Election to Treat All Interest Under the Constant Yield Rules. The OID
Regulations provide that all Holders may elect to include in gross income all
interest that accrues on a debt instrument issued after April 4, 1994 by using
the constant yield method. For purposes of this election, interest includes
stated interest, original issue discount, and market discount, as adjusted to
account for any premium. Holders should consult their own tax advisors regarding
the availability or advisability of such an election.
Sales of REMIC Regular Certificates. If a REMIC Regular Certificate is
sold, the seller will recognize gain or loss equal to the difference between the
amount realized on the sale and its adjusted basis in the REMIC Regular
Certificate. A Holder's adjusted basis in a REMIC Regular Certificate generally
equals the cost of the REMIC Regular Certificate to the Holder, increased by
income reported by the Holder with respect to the REMIC Regular Certificate and
reduced (but not below zero) by distributions on the REMIC Regular Certificate
received by the Holder and by amortized premium. Except as indicated in the next
two paragraphs, any such gain or loss generally will be capital gain or loss
provided the REMIC Regular Certificate is held as a capital asset.
Gain from the sale of a REMIC Regular Certificate that might otherwise be
capital gain will be treated as ordinary income to the extent that such gain
does not exceed the excess, if any, of (i) the amount that would have been
includible in the seller's income with respect to the REMIC Regular Certificate
had income accrued thereon at a rate equal to 110% of 'the applicable Federal
rate' (generally, an average of current yields on Treasury securities),
determined as of the date of purchase of the REMIC Regular Certificate, over
(ii) the amount actually includible in the seller's income. In addition, gain
recognized on the sale of a REMIC Regular Certificate by a seller who purchased
the REMIC Regular Certificate at a market discount would be taxable as ordinary
income in an amount not exceeding the portion of such discount that accrued
during the period the REMIC Regular Certificate was held by such seller, reduced
by any market discount includible in income under the rules described above
under 'Current Income on REMIC Regular Certificates--Market Discount.'
REMIC Regular Certificates will be 'evidences of indebtedness' within the
meaning of Section 582(c)(1) of the Code, so that gain or loss recognized from a
sale of a REMIC Regular Certificate by a bank or other financial institution to
which such section applies would be ordinary income or loss.
Termination. The REMIC will terminate shortly following the REMIC's
receipt of the final payment in respect of the Contracts. The last distribution
on a REMIC Regular Certificate should be treated as a payment in full retirement
of a debt instrument.
TAX TREATMENT OF YIELD SUPPLEMENT AGREEMENTS
Whether a REMIC Regular Certificateholder of a Series will have a separate
contractual right to payments under a Yield Supplement Agreement, and the tax
treatment of such payments, if any, will be addressed in the related Prospectus
Supplement.
REMIC RESIDUAL CERTIFICATES
Because the REMIC Residual Certificates will be treated as 'residual
interests' in the REMIC, each Holder of a REMIC Residual Certificate will be
required to take into account its daily portion of the taxable income or net
loss of the REMIC for each day during the calendar year on which it holds its
REMIC Residual Certificate. The daily portion is determined by allocating to
each day in a calendar quarter a ratable portion of the taxable income or net
loss of the REMIC for that quarter and allocating such daily amounts among the
Holders on such day in proportion to their holdings. All income or loss of the
REMIC taken into account by a REMIC Residual
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Certificateholder must be treated as ordinary income or loss, as the case may
be. Income from residual interests is 'portfolio income' which cannot be offset
by 'passive activity losses' in the hands of individuals or other persons
subject to the passive loss rules. The Code also provides that all residual
interests must be issued on the REMIC's startup day and designated as such. For
this purpose, 'startup day' means the day on which the REMIC issues all of its
regular and residual interests, and under the REMIC Regulations may, in the case
of a REMIC to which property is contributed over a period of up to ten
consecutive days, be any day designated by the REMIC within such period.
The taxable income of the REMIC, for purposes of determining the amounts
taken into account by Holders of REMIC Residual Certificates, is determined in
the same manner as in the case of an individual, with certain exceptions. The
accrual method of accounting must be used and the taxable year of the REMIC must
be the calendar year. The basis of property contributed to the REMIC in exchange
for regular or residual interests is its fair market value immediately after the
transfer. The REMIC Regulations determine the fair market value of the
contributed property by deeming it equal to the aggregate issue prices of all
regular and residual interests in the REMIC.
A REMIC Regular Certificate will be considered indebtedness of the REMIC.
Market discount on any of the Contracts held by the REMIC must be included in
the income of the REMIC as it accrues, rather than being included in income only
upon sale of the Contracts or as principal on the Contracts is paid. The REMIC
is not entitled to any personal exemptions or to deductions for taxes paid to
foreign countries and U.S. possessions, charitable contributions or net
operating losses, or to certain other deductions to which individuals are
generally entitled. Income or loss in connection with a 'prohibited transaction'
is disregarded. See 'Prohibited Transactions.'
As previously discussed, the timing of recognition of negative original
issue discount, if any, on a REMIC Regular Certificate is uncertain. As a
result, the timing of recognition of the REMIC taxable income related to a REMIC
Residual Certificate is also uncertain. Although Federal Tax Counsel is unable
to opine as to this matter, the related REMIC taxable income may be recognized
when the adjusted issue price of such REMIC Regular Certificate would exceed the
maximum amount of future payments with respect to such REMIC Regular
Certificate. It is unclear whether the Prepayment Assumption is taken into
account for this purpose.
A REMIC Residual Certificate has a tax basis in its Holder's hands that is
distinct from the REMIC's basis in its assets. The tax basis of a REMIC Residual
Certificate in its holder's hands will be its cost (i.e., the purchase price of
the REMIC Residual Certificate), and will be reduced (but not below zero) by the
Holder's share of cash distributions and losses and increased by its share of
taxable income from the REMIC.
If, in any year, cash distributions to a Holder of a REMIC Residual
Certificate exceed its share of the REMIC's taxable income, the excess will
constitute a return of capital to the extent of the Holder's basis in its REMIC
Residual Certificate. A return of capital is not treated as income for federal
income tax purposes, but will reduce the tax basis of the Holder in its REMIC
Residual Certificate (but not below zero). If a REMIC Residual Certificate's
basis is reduced to zero, any cash distributions with respect to that REMIC
Residual Certificate in any taxable year in excess of its share of the REMIC's
income would be taxable to the Holder as gain on the sale or exchange of its
interest in the REMIC.
The losses of the REMIC taken into account by a Holder of a REMIC Residual
Certificate in any quarter may not exceed the holder's basis in its REMIC
Residual Certificate. Any excess losses may be carried forward indefinitely to
future quarters subject to the same limitation.
There is no REMIC counterpart to the partnership election under Code
Section 754 to increase or decrease the partnership's basis in its assets by
reference to the adjusted basis to subsequent partners of their partnership
interest. The REMIC Regulations do not provide for a similar election or other
adjustment. Consequently, a subsequent purchaser of a REMIC Residual Certificate
at a premium will not be able to use the premium to reduce his share of the
REMIC's taxable income.
Mismatching of Income and Deductions; Excess Inclusions. The taxable
income recognized by the Holder of a REMIC Residual Certificate in any taxable
year will be affected by, among other factors, the relationship between the
timing of recognition of interest and discount income (or deductions for
amortization of premium) with respect to the Contracts, on the one hand, and the
timing of deductions for interest (including original issue
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discount) on the REMIC Regular Certificates, on the other. In the case of
multiple Classes of REMIC Regular Certificates issued at different yields, and
having different weighted average lives, taxable income recognized by the
holders of REMIC Residual Certificates may be greater than cash flow in earlier
years of the REMIC (with a corresponding taxable loss or less taxable income
than cash flow in later years). This may result from the fact that interest
expense deductions, expressed as a percentage of the outstanding principal
amount of the REMIC Regular Certificates, will increase over time as the shorter
term, lower yielding Classes of REMIC Regular Certificates are paid, whereas
interest income from the Contracts may not increase over time as a percentage of
the outstanding principal amount of the Contracts.
In the case of Tiered REMICs, the OID Regulations provide that the regular
interests in the REMIC which directly owns the Contracts (the 'Lower Tier
REMIC') will be treated as a single debt instrument for purposes of the original
issue discount provisions. Therefore, the Trust will calculate the taxable
income of Tiered REMICs by treating the Lower Tier REMIC regular interests as a
single debt instrument.
Any 'excess inclusions' with respect to a REMIC Residual Certificate will
be subject to certain special rules. The excess inclusions with respect to a
REMIC Residual Certificate are equal to the excess, if any, of its share of
REMIC taxable income for the quarterly period over the sum of the daily accruals
for such quarterly period. The daily accrual for any day on which the REMIC
Residual Certificate is held is determined by allocating to each day in a
quarter its allocable share of the product of (A) 120% of the long-term
applicable Federal rate (for quarterly compounding) that would have applied to
the REMIC Residual Certificates if they were debt instruments on the closing
date under Code Section 1274(d)(1) and (B) the adjusted issue price of such
REMIC Residual Certificates at the beginning of a quarterly period. For this
purpose, the adjusted issue price of such REMIC Residual Certificate at the
beginning of a quarterly period is the issue price of such Certificates plus the
amount of the daily accruals of REMIC taxable income for all prior quarters,
decreased by any distributions made with respect to such Certificates prior to
the beginning of such quarterly period.
The excess inclusions of a REMIC Residual Certificate may not be offset by
other deductions, including net operating loss carryforwards, on a Holder's
return.
Provisions governing the relationship between excess inclusions and the
alternative minimum tax provide that (i) the alternative minimum taxable income
of a taxpayer is based on the taxpayer's regular taxable income computed without
regard to the rule that taxable income cannot be less than the amount of excess
inclusions, (ii) the alternative minimum taxable income of a taxpayer for a
taxable year cannot be less than the amount of excess inclusions for that year,
and (iii) the amount of any alternative minimum tax net operating loss is
computed without regard to any excess inclusions.
If the Holder of a REMIC Residual Certificate is an organization subject to
the tax on unrelated business income imposed by Code Section 511, the excess
inclusions will be treated as unrelated business taxable income of such holder
for purposes of Code Section 511. In addition, the Code provides that under
Treasury regulations, if a real estate investment trust ('REIT') owns a REMIC
Residual Certificate, to the extent excess inclusions of the REIT exceed its
real estate investment trust taxable income (excluding net capital gains), the
excess inclusions would be allocated among the shareholders of the REIT in
proportion to the dividends received by the shareholders from the REIT. Excess
inclusions derived by regulated investment companies ('RICs'), common trust
funds, and subchapter T cooperatives must be allocated to the shareholders of
such entities using rules similar to those applicable to REITs. The Internal
Revenue Service has not yet adopted or proposed such regulations as to REITs,
RICs, or similar entities. A life insurance company cannot adjust its reserve
with respect to variable contracts to the extent of any excess inclusion, except
as provided in regulations.
The Internal Revenue Service has authority to promulgate regulations
providing that if the aggregate value of the REMIC Residual Certificates is not
considered to be 'significant,' then the entire share of REMIC taxable income of
a Holder of a REMIC Residual Certificate may be treated as excess inclusions
subject to the foregoing limitations. This authority has not been exercised to
date.
The REMIC is subject to tax at a rate of 100 percent on any net income it
derived from 'prohibited transactions.' In general, 'prohibited transaction'
means the disposition of a Contract other than pursuant to specified exceptions,
the receipt of income as compensation for services, the receipt of income from a
source other than a Contract or certain other permitted investments, or gain
from the disposition of an asset representing
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a temporary investment of payments on the Contracts pending distribution on the
REMIC Certificates. In addition, a tax is imposed on the REMIC equal to 100
percent of the value of certain property contributed to the REMIC after its
'startup day.' No REMIC in which interests are offered hereunder will accept
contributions that would be subject to such tax. This provision will not affect
the REMIC's ability to accept substitute Contracts or to sell defective
Contracts in accordance with the Agreement.
A REMIC is subject to a tax (deductible from its income) on any 'net income
from foreclosure property' (determined in accordance with Section 857(b)(4)(B)
of the Code as if the REMIC were a REIT).
Any tax described in the two preceding paragraphs that may be imposed on
the Trust initially would be borne by the holders of the REMIC Residual
Certificates in the related REMIC rather than by the REMIC Regular
Certificateholders, unless otherwise specified in the Prospectus Supplement.
Dealers' Ability to Mark-to-Market REMIC Residual Certificates. Temporary
regulations provide that 'negative-value' REMIC Residual Certificates are not
securities and cannot be marked-to-market pursuant to Section 475 of the Code
(relating to the requirement that dealers in securities mark them to market). A
REMIC Residual Certificate is a negative-value REMIC Residual Certificate if on
the date the dealer acquires the REMIC Residual Certificate the present value of
the anticipated tax liabilities associated with holding the REMIC Residual
Certificate (net of the present value of the tax savings resulting from losses
associated with holding the REMIC Residual Certificate) exceeds the present
value of the expected future distributions on the REMIC Residual Certificate.
Pursuant to the temporary regulations, the Commissioner has the authority to
treat REMIC Residual Certificates which have the same economic effect as a
negative-value REMIC Residual Certificate as not being a security for purposes
of Section 475 of the Code. Proposed regulations provide that all REMIC Residual
Certificates acquired on or after January 4, 1995, and similar interests or
arrangements acquired on or after January 4, 1995 that are determined by the
Commissioner to have substantially the same economic effect as a REMIC Residual
Certificate, are not securities and cannot be marked to market pursuant to
Section 475 of the Code.
The anticipated and expected tax consequences and distributions are
determined by taking into account events that have occurred through the date of
acquisition, the Prepayment Assumption and reinvestment assumption adopted when
the residual was created, and by taking account of required liquidations and
required or permitted clean up calls.
TRANSFERS OF REMIC RESIDUAL CERTIFICATES
Tax on Disposition of REMIC Residual Certificates. The sale of a REMIC
Residual Certificate by a Holder will result in gain or loss equal to the
difference between the amount realized on the sale and the adjusted basis of the
REMIC Residual Certificate.
If the seller of a REMIC Residual Certificate held the REMIC Residual
Certificate as a capital asset, the gain or loss generally will be capital gain
or loss. However, under Code Section 582(c), the sale of a REMIC Residual
Certificate by certain banks and other financial institutions will be considered
a sale of property other than a capital asset, resulting in ordinary income or
loss. Although Federal Tax Counsel is unable to opine with respect to the tax
treatment of a REMIC Residual Certificate that has unrecovered basis after all
funds of the Trust have been distributed, the holder may be entitled to claim a
loss in the amount of the unrecovered basis.
The Code provides that, except as provided in Treasury regulations (which
have not yet been issued), if a Holder sells a REMIC Residual Certificate and
acquires the same or other REMIC Residual Certificates, residual interests in
another REMIC, or any similar interests in a 'taxable mortgage pool' (as defined
in Section 7701(i) of the Code) during the period beginning six months before,
and ending six months after, the date of such sale, such sale will be subject to
the 'wash sale' rules of Section 1091 of the Code. In that event, any loss
realized by the seller on the sale generally will not be currently deductible.
A tax is imposed on the transfer of any residual interest in a REMIC to a
'disqualified organization.' The tax is imposed on the transferor, or, where the
transfer is made through an agent of the disqualified organization, on the
agent. 'Disqualified organizations' include for this purpose the United States,
any State or political subdivision thereof, any foreign government, any
international organization or agency or instrumentality of the foregoing (with
an exception for certain taxable instrumentalities of the United States, of a
State or of a political
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subdivision thereof), any rural electrical and telephone cooperative, and any
tax-exempt entity (other than certain farmers' cooperatives) not subject to the
tax on unrelated business income.
The amount of tax to be paid by the transferor on a transfer to a
disqualified organization is equal to the present value of the total anticipated
excess inclusions with respect to the interest transferred for periods after
such transfer multiplied by the highest corporate rate of tax. The transferor
(or agent, as the case may be) will be relieved of liability so long as the
transferee furnishes an affidavit that it is not a disqualified organization and
the transferor or agent does not have actual knowledge that the affidavit is
false. Under the REMIC Regulations, an affidavit will be sufficient if the
transferee furnishes (A) a social security number, and states under penalties of
perjury that the social security number is that of the transferee, or (B) a
statement under penalties of perjury that it is not a disqualified organization.
Treatment of Payments to a Transferee in Consideration of Transfer of a
REMIC Residual Certificate. The federal income tax consequences of any
consideration paid to a transferee on a transfer of an interest in a REMIC
Residual Certificate are unclear and Federal Tax Counsel is unable to opine with
respect to this issue. The preamble to the REMIC Regulations indicates that the
Internal Revenue Service is considering the tax treatment of these types of
residual interests. A transferee of such an interest should consult its own tax
advisors.
Restrictions on Transfer; Holding by Pass-Through Entities. An entity
cannot qualify as a REMIC absent reasonable arrangements designed to ensure that
(1) residual interests in such entity are not held by disqualified organizations
and (2) information necessary to calculate the tax due on transfers to
disqualified organizations (i.e., a computation of the present value of the
excess inclusions) is made available by the REMIC. The governing instruments of
a Trust will contain provisions designed to ensure the foregoing, and any
transferee of a REMIC Residual Certificate must execute and deliver an affidavit
stating that neither the transferee nor any person for whose account such
transferee is acquiring the REMIC Residual Certificate is a disqualified
organization. In addition, as to the requirement that reasonable arrangements be
made to ensure that disqualified organizations do not hold a residual interest
in the REMIC, the REMIC Regulations require that notice of the prohibition be
provided either through a legend on the certificate that evidences ownership, or
through a conspicuous statement in the prospectus or other offering document
used to offer the residual interest for sale. As to the requirement that
sufficient information be made available to calculate the tax on transfers to
disqualified organizations (or the tax, discussed below, on pass-through
entities, interests in which are held by disqualified organizations), the REMIC
Regulations further require that such information also be provided to the
Internal Revenue Service.
A tax is imposed on 'pass-through entities' holding residual interests
where a disqualified organization is a record holder of an interest in the
pass-through entity. 'Pass-through entity' is defined for this purpose to
include RICs, REITs, common trust funds, partnerships, trusts, estates, and
subchapter T cooperatives. Except as provided in regulations, nominees holding
interests in a 'pass-through entity' for another person will also be treated as
'pass-through entities' for this purpose. The tax is equal to the amount of
excess inclusions allocable to the disqualified organization for the taxable
year multiplied by the highest corporate rate of tax, and is deductible by the
'pass-through entity' against the gross amount of ordinary income of the entity.
Each Agreement will provide that any attempted transfer of a beneficial or
record interest in a REMIC Residual Certificate will be null and void unless the
proposed transferee provides to the Trustee an affidavit that such transferee is
not a disqualified organization.
Legislation has been introduced which would provide that partners of
certain partnerships having a large number of partners will be treated as
disqualified organizations for purposes of the tax imposed on pass-through
entities if such partnerships hold residual interests in a REMIC. When
applicable, the legislation would disallow 70 percent of a large partnership's
miscellaneous itemized deductions, including deductions for servicing and
guaranty fees and any expenses of the REMIC, although the remaining deductions
would not be subject to the 2 percent floor applicable to individual partners.
See 'Deductibility of Trust Expenses' below. No prediction can be made regarding
whether such legislation will be enacted.
The REMIC Regulations provide that a transfer of a 'noneconomic residual
interest' will be disregarded for all federal income tax purposes unless
impeding the assessment or collection of tax was not a significant purpose of
the transfer. A residual interest will be treated as a 'noneconomic residual
interest' unless, at the
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time of the transfer (1) the present value of the expected future distributions
on the residual interest at least equals the product of (x) the present value of
all anticipated excess inclusions with respect to the residual interest and (y)
the highest corporate tax rate and (2) the transferor reasonably expects that
for each anticipated excess inclusion, the transferee will receive distributions
from the REMIC, at or after the time at which taxes on such excess inclusion
accrue, sufficient to pay the taxes thereon. A significant purpose to impede the
assessment or collection of tax exists if the transferor, at the time of the
transfer, either knew or should have known (had 'improper knowledge') that the
transferee would be unwilling or unable to pay taxes due on its share of the
taxable income of the REMIC. A transferor will be presumed not to have improper
knowledge if (i) the transferor conducts, at the time of the transfer, a
reasonable investigation of the financial condition of the transferee and, as a
result of the investigation, the transferor finds that the transferee has
historically paid its debts as they came due and finds no significant evidence
to indicate that the transferee will not continue to pay its debts as they come
due in the future, and (ii) the transferee represents to the transferor that (A)
the transferee understands that it might incur tax liabilities in excess of any
cash received with respect to the residual interest and (B) the transferee
intends to pay the taxes associated with owning the residual interest as they
come due. A different formulation of this rule applies to transfers of REMIC
Residual Certificates by or to foreign transferees. See 'Foreign Investors'
below.
DEDUCTIBILITY OF TRUST EXPENSES
A holder that is an individual, estate or trust will be subject to the
limitation with respect to certain itemized deductions described in Code Section
67, to the extent that such deductions, in the aggregate, do not exceed two
percent of the Holder's adjusted gross income, and such Holder may not be able
to deduct such fees and expenses to any extent in computing such Holder's
alternative minimum tax liability. In addition, the amount of itemized
deductions otherwise allowable for the taxable year for an individual whose
adjusted gross income exceeds the 'applicable amount' ($100,000 (or $50,000 in
the case of a separate return by a married individual), adjusted for changes in
the cost of living subsequent to 1990) will be reduced by the lesser of (i) 3
percent of the excess of adjusted gross income over the applicable amount, or
(ii) 80 percent of the amount of itemized deductions otherwise allowable for
such taxable year. Such deductions will include servicing, guarantee, and
administrative fees paid to the servicer of the Contracts. These deductions will
be allocated entirely to the Holders of the REMIC Residual Certificates in the
case of REMIC Trusts with multiple Classes of REMIC Regular Certificates that do
not pay their principal amounts ratably. As a result, the REMIC will report
additional taxable income to Holders of REMIC Residual Certificates in an amount
equal to their allocable share of such deductions, and individuals, estates, or
trusts holding an interest in such REMIC Residual Certificates may have taxable
income in excess of the cash received. In the case of a 'single-Class REMIC,' as
defined in applicable Treasury regulations, such deductions will be allocated
proportionately among the REMIC Regular Certificates and REMIC Residual
Certificates based on the relative daily amounts of income accruing on such
Certificates.
FOREIGN INVESTORS
REMIC Regular Certificates. Except as discussed below, a Holder of a REMIC
Regular Certificate who is not a 'United States person' (as defined below)
generally will not be subject to United States income or withholding tax in
respect of a distribution on a REMIC Regular Certificate, provided that (i) the
Holder complies to the extent necessary with certain identification
requirements, including timely delivery of a statement, signed by the holder of
the REMIC Regular Certificate under penalties of perjury, certifying that the
Holder of the REMIC Regular Certificate is not a United States person and
providing the name and address of the Holder, (ii) the Holder is not a
'10-percent shareholder' within the meaning of Code Section 871(h)(3)(B), which
could be interpreted to apply to a Holder of a REMIC Regular Certificate who
holds a direct or indirect 10 percent interest in the REMIC Residual
Certificates, (iii) the Holder is not a 'controlled foreign corporation' (as
defined in the Code) related to the REMIC or related to a 10 percent holder of a
residual interest in the REMIC, and (iv) the Holder is not engaged in a United
States trade or business, or otherwise subject to federal income tax as a result
of any direct or indirect connection to the United States other than through its
ownership of a REMIC Regular Certificate. For these purposes, the term 'United
States person' means (i) a citizen or resident of the United States, (ii) a
corporation, partnership or other entity created or organized in or under the
laws of the United States or any political subdivision thereof, (iii) an estate
or trust whose income is includible in gross income for United States federal
income taxation regardless of its source and (iv) a trust for which one or more
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United States fiduciaries have the authority to control all substantial
decisions and for which a court of the United States can exercise primary
supervision over the trust's administration. For years beginning before January
1, 1997, the term 'United States person' shall include a trust whose income is
includible in gross income for United States federal income taxation regardless
of source, in lieu of trusts described in (iv) above, unless the trust elects to
have its United States status determined under the criteria set forth in (iv)
above for tax years ending after August 20, 1996.
REMIC Residual Certificates. The Conference Report to the Tax Reform Act
of 1986 states that amounts paid to foreign persons with respect to residual
interests should be considered interest for purposes of the withholding rules.
Interest paid to a foreign person which is not effectively connected with a
trade or business of the foreign person in the United States is subject to a 30%
withholding tax. The withholding tax on interest does not apply, however, to
'portfolio interest' (if certain certifications as to beneficial ownership are
made, as discussed above under 'Foreign Investors--Regular Certificates') or to
the extent a tax treaty reduces or eliminates the tax. Treasury regulations
provide that amounts paid with respect to residual interests qualify as
portfolio interest only if interest on the qualified mortgages held by the REMIC
qualifies as portfolio interest. Generally, interest on Contracts held by a
Trust will not qualify as portfolio interest. In any case, a Holder of a REMIC
Residual Certificate will not be entitled to the portfolio interest exception
from the 30% withholding tax (or to any treaty exemption or rate reduction) for
that portion of a payment that constitutes excess inclusions. Generally, the
withholding tax will be imposed when REMIC gross income is paid or distributed
to the Holder of a residual interest or when there is a disposition of the
residual interest.
The REMIC Regulations provide that a transfer of a REMIC Residual
Certificate to a foreign transferee will be disregarded for all federal income
tax purposes if the transfer has 'tax avoidance potential.' A transfer to a
foreign transferee will be considered to have tax avoidance potential unless at
the time of the transfer, the transferor reasonably expects that (1) the future
distributions on the REMIC Residual Certificate will equal at least 30 percent
of the anticipated excess inclusions and (2) such amounts will be distributed at
or after the time at which the excess inclusion accrues, but not later than the
close of the calendar year following the calendar year of accrual. A safe harbor
in the REMIC Regulations provides that the reasonable expectation requirement
will be satisfied if the above test would be met at all assumed prepayment rates
for the Contracts from 50 percent of the Prepayment Assumption to 200 percent of
the Prepayment Assumption. A transfer by a foreign transferor to a domestic
transferee will likewise be disregarded under the REMIC Regulations if the
transfer would have the effect of allowing the foreign transferor to avoid the
tax on accrued excess inclusions.
BACKUP WITHHOLDING
Distributions made on the REMIC Certificates and proceeds from the sale of
REMIC Certificates to or through certain brokers may be subject to a 'backup'
withholding tax of 31 percent of 'reportable payments' (including interest
accruals, original issue discount, and, under certain circumstances,
distributions in reduction of principal amount) unless, in general, the Holder
of the REMIC Certificate complies with certain procedures or is an exempt
recipient. Any amounts so withheld from distributions on the REMIC Certificates
would be refunded by the Internal Revenue Service or allowed as a credit against
the holder's federal income tax.
REMIC ADMINISTRATIVE MATTERS
The federal information returns for a Trust (Form 1066 and Schedules Q
thereto) must be filed as if the Trust were a partnership for federal income tax
purposes. Information on Schedule Q must be provided to Holders of REMIC
Residual Certificates with respect to every calendar quarter. Each Holder of a
REMIC Residual Certificate will be required to treat items on its federal income
tax returns consistently with their treatment on the Trust's information returns
unless the Holder either files a statement identifying the inconsistency or
establishes that the inconsistency resulted from an incorrect schedule received
from the Trust. The Trust also will be subject to the procedural and
administrative rules of the Code applicable to partnerships, including the
determination of any adjustments to, among other things, items of REMIC taxable
income by the Internal Revenue Service. (Treasury regulations exempt from
certain of these procedural rules REMICs having no more than one residual
interest holder.) Holders of REMIC Residual Certificates will have certain
rights and obligations with respect to any administrative or judicial
proceedings involving the Internal Revenue Service. Under the Code and the REMIC
Regulations, a REMIC generally is required to designate a tax matters person.
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Generally, subject to various limitations, the tax matters person has authority
to act on behalf of the REMIC and the holders of the REMIC Residual Certificates
in connection with administrative determinations and judicial review respecting
returns of taxable income of the REMIC.
Unless otherwise indicated in the Prospectus Supplement, and to the extent
allowable, the Servicer or its designee will act as the tax matters person for
each REMIC. Each holder of a REMIC Residual Certificate, by the acceptance of
its interest in the REMIC Residual Certificate, agrees that the Servicer or its
designee will act as the holder's fiduciary in the performance of any duties
required of the holder in the event that the holder is the tax matters person.
NON-REMIC CERTIFICATES
The discussion under this heading applies only to a Series of Certificates
with respect to which a REMIC election is not made.
Tax Status of the Trust. Upon the issuance of each Series of Non-REMIC
Certificates, Federal Tax Counsel will deliver its opinion generally to the
effect that, under then current law, assuming compliance with the related
Agreement, the related Trust will be classified for federal income tax purposes
as a grantor trust and not as an association taxable as a corporation or a
taxable mortgage pool. Accordingly, each Holder of a Non-REMIC Certificate will
be treated for federal income tax purposes as the owner of an undivided interest
in the Contracts included in the Trust. As further described below, each Holder
of a Non-REMIC Certificate therefore must report on its federal income tax
return the gross income from the portion of the Contracts that is allocable to
such Non-REMIC Certificate and may deduct the portion of the expenses incurred
by the Trust that is allocable to such Non-REMIC Certificate, at the same time
and to the same extent as such items would be reported by such Holder if it had
purchased and held directly such interest in the Contracts and received directly
its share of the payments on the Contracts and incurred directly its share of
expenses incurred by the Trust when those amounts are received or incurred by
the Trust.
A Holder of a Non-REMIC Certificate that is an individual, estate, or trust
will be allowed deductions for such expenses only to the extent that the sum of
those expenses and the Holder's other miscellaneous itemized deductions exceeds
two percent of such Holder's adjusted gross income. In addition, the amount of
itemized deductions otherwise allowable for the taxable year for an individual
whose adjusted gross income exceeds the 'applicable amount' ($100,000 (or
$50,000 in the case of a separate return by a married individual), adjusted for
changes in the cost of living subsequent to 1990) will be reduced by the lesser
of (i) 3 percent of the excess of adjusted gross income over the applicable
amount, or (ii) 80 percent of the amount of itemized deductions otherwise
allowable for such taxable year. Moreover, a Holder of a Non-REMIC Certificate
that is not a corporation cannot deduct such expenses for purposes of the
alternative minimum tax (if applicable). Such deductions will include servicing,
guarantee and administrative fees paid to the servicer of the Contracts. As a
result, the Trust will report additional taxable income to Holders of Non-REMIC
Certificates in an amount equal to their allocable share of such deductions, and
individuals, estates, or trusts holding Non-REMIC Certificates may have taxable
income in excess of the cash received.
Status of the Non-REMIC Certificates as Real Property Loans. The Non-REMIC
Certificates will be 'real estate assets' for purposes of Section 856(c)(5)(A)
of the Code and 'loans . . . secured by an interest in real property' within the
meaning of Section 7701(a)(19)(C)(v) of the Code (assets qualifying under one or
both of those sections, applying each section separately, 'qualifying assets')
to the extent that the Trust's assets are qualifying assets. However, the
Non-REMIC Certificates may not be qualifying assets under any of the foregoing
sections of the Code to the extent that the Trust's assets include reserve funds
or payments on Contracts held pending distribution to Certificateholders.
Further the Non-REMIC Certificates may not be 'real estate assets' to the extent
loans held by the Trust are not secured by real property, and may not be 'loans
. . . secured by an interest in real property' to the extent loans held by the
Trust are not secured by residential real property or real property used
primarily for church purposes. In addition, to the extent that the principal
amount of a loan exceeds the value of the property securing the loan, it is
unclear and Federal Tax Counsel is unable to opine whether the loan will be a
qualifying asset. The Non-REMIC Certificates should not be 'residential loans
made by the taxpayer' for purposes of the residential loan requirement of
Section 593(g)(4)(B) of the Code.
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Taxation of Non-REMIC Certificates Under Stripped Bond Rules. The federal
income tax treatment of the Non-REMIC Certificates will depend on whether they
are subject to the rules of Section 1286 of the Code (the 'stripped bond
rules'). The Non-REMIC Certificates will be subject to those rules if stripped
interest-only Certificates are issued. In addition, whether or not stripped
interest-only Certificates are issued, the Internal Revenue Service may contend
that the stripped bond rules apply on the ground that the Servicer's servicing
fee, or other amounts, if any, paid to (or retained by) the Servicer or its
affiliates, as specified in the applicable Agreement, represent greater than an
arm's length consideration for servicing the Contracts and should be
characterized for federal income tax purposes as an ownership interest in the
Contracts. The Internal Revenue Service has taken the position in Revenue Ruling
91-46 that retained interest in excess of reasonable compensation for servicing
is treated as a 'stripped coupon' under the rules of Code Section 1286.
If interest retained for the Servicer's servicing fee or other interest is
treated as a 'stripped coupon,' the Non-REMIC Certificates will either be
subject to the original issue discount rules or the market discount rules. A
Holder of a Non-REMIC Certificate (other than an interest treated as a 'stripped
coupon') will account for any discount on the Non-REMIC Certificate as market
discount rather than original issue discount if either (i) the amount of
original issue discount with respect to the Non-REMIC Certificate was treated as
zero under the original issue discount de minimis rule when the Non-REMIC
Certificate was stripped or (ii) no more than 100 basis points (including any
amount of servicing in excess of reasonable servicing) is stripped off from the
Contracts. If neither of the above exceptions applies, the original issue
discount rules will apply to the Non-REMIC Certificates.
If the original issue discount rules apply, the holder of a Non-REMIC
Certificate (whether a cash or accrual method taxpayer) will be required to
report interest income from the Non-REMIC Certificate in each taxable year equal
to the income that accrues on the Non-REMIC Certificate in that year calculated
under a constant yield method based on the yield of the Non-REMIC Certificate
(or, possibly, the yield of each Contract underlying such Non-REMIC Certificate)
to such Holder. Such yield would be computed at the rate that, if used in
discounting the Holder's share of the payments on the Contracts, would cause the
present value of those payments to equal the price at which the holder purchased
the Non-REMIC Certificate. With respect to certain categories of debt
instruments, Section 1272(a)(6) of the Code requires that original issue
discount be accrued based on a prepayment assumption determined in a manner
prescribed by forthcoming regulations. It is unclear whether such regulations
would apply this rule to the Non-REMIC Certificates, whether Section 1272(a)(6)
might apply to the Non-REMIC Certificates in the absence of such regulations, or
whether the Internal Revenue Service could require use of a reasonable
prepayment assumption based on other tax law principles and Federal Tax Counsel
is unable to opine with respect to these issues. If required to report interest
income on the Non-REMIC Certificates to the Internal Revenue Service under the
stripped bond rules, it is anticipated that the Trustee will calculate the yield
of the Non-REMIC Certificates based on a representative initial offering price
of the Non-REMIC Certificates and a reasonable assumed rate of prepayment of the
Contracts (although such yield may differ from the yield to any particular
holder that would be used in calculating the interest income of such holder).
The Prospectus Supplement for each Series of Non-REMIC Certificates will
describe the prepayment assumption that will be used for this purpose, but no
representation is made that the Contracts will prepay at that rate or at any
other rate.
In the case of a Non-REMIC Certificate acquired at a price equal to the
principal amount of the Contracts allocable to the Non-REMIC Certificate, the
use of a reasonable prepayment assumption would not have any significant effect
on the yield used in calculating accruals of interest income. In the case,
however, of a Non-REMIC Certificate acquired at a discount or premium (that is,
at a price less than or greater than such principal amount, respectively), the
use of a reasonable prepayment assumption would increase or decrease such yield,
and thus accelerate or decelerate the reporting of interest income,
respectively.
If a Contract is prepaid in full, the Holder of a Non-REMIC Certificate
acquired at a discount or premium generally will recognize ordinary income or
loss equal to the difference between the portion of the prepaid principal amount
of the Contract that is allocable to the Non-REMIC Certificate and the portion
of the adjusted basis of the Non-REMIC Certificate (see 'Sales of Non-REMIC
Certificates' below) that is allocable to the Contract. The method of allocating
such basis among the Contracts may differ depending on whether a reasonable
prepayment assumption is used in calculating the yield of the Non-REMIC
Certificates for purposes of accruing original issue discount. It is not clear
whether any other adjustments would be required to reflect
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differences between the prepayment rate that was assumed in calculating yield
and the actual rate of prepayments.
Non-REMIC Certificates of certain Series ('Variable Rate Non-REMIC
Certificates') may provide for a Remittance Rate based on the weighted average
of the interest rates of the Contracts held by the Trust, which interest rates
may be fixed or variable. In the case of a Variable Rate Non-REMIC Certificate
that is subject to the original issue discount rules, the daily portions of
original issue discount generally will be calculated under the principles
discussed in 'REMIC Regular Certificates-Current Income on REMIC Regular
Certificates-- Original Issue Discount--Variable Rate REMIC Regular
Certificates.'
Taxation of Non-REMIC Certificates If Stripped Bond Rules Do Not Apply. If
the stripped bond rules do not apply to a Non-REMIC Certificate, then the Holder
will be required to include in income its share of the interest payments on the
Contracts in accordance with its tax accounting method. In addition, if the
Holder purchased the Non-REMIC Certificate at a discount or premium, the holder
will be required to account for such discount or premium in the manner described
below. The treatment of any discount will depend on whether the discount is
original issue discount as defined in the Code and, in the case of discount
other than original issue discount, whether such other discount exceeds a de
minimis amount. In the case of original issue discount, the Holder (whether a
cash or accrual method taxpayer) will be required to report as additional
interest income in each month the portion of such discount that accrues in that
month, calculated based on a constant yield method. In general it is not
anticipated that the amount of original issue discount to be accrued in each
month, if any, will be significant relative to the interest paid currently on
the Contracts. However, original issue discount could arise with respect to a
Contract that provides for interest at a rate equal to the sum of an index of
market interest rates and a fixed number. The original issue discount for such
Contracts generally will be determined under the principles discussed in 'REMIC
Regular Certificates-Current Income on REMIC Regular Certificates--Original
Issue Discount---Variable Rate REMIC Regular Certificates.'
If discount other than original issue discount exceeds a de minimis amount
(described below), the Holder will also generally be required to include in
income in each month the amount of such discount accrued through such month and
not previously included in income, but limited, with respect to the portion of
such discount allocable to any Contract, to the amount of principal on such
Contract received by the Trust in that month. Because the Contracts will provide
for monthly principal payments, such discount may be required to be included in
income at a rate that is not significantly slower than the rate at which such
discount accrues (and therefore at a rate not significantly slower than the rate
at which such discount would be included in income if it were original issue
discount). The Holder may elect to accrue such discount under a constant yield
method based on the yield of the Non-REMIC Certificate to such holder. In the
absence of such an election, it may be necessary to accrue such discount under a
more rapid straight-line method. Under the de minimis rule, market discount with
respect to a Non-REMIC Certificate will be considered to be zero if it is less
than the product of (i) 0.25% of the principal amount of the Contracts allocable
to the Non-REMIC Certificate and (ii) the weighted average life (in complete
years) of the Contracts remaining at the time of purchase of the Non-REMIC
Certificate.
If a Holder purchases a Non-REMIC Certificate at a premium, such Holder may
elect under Section 171 of the Code to amortize the portion of such premium that
is allocable to a Contract under a constant yield method based on the yield of
the Contract to such Holder, provided that such Contract was originated after
September 27, 1985. Premium allocable to a Contract originated on or before that
date should be allocated among the principal payments on the Contract and
allowed as an ordinary deduction as principal payments are made or, perhaps,
upon termination.
It is not clear whether the foregoing adjustments for discount or premium
would be made based on the scheduled payments on the Contracts or taking account
of a reasonable prepayment assumption, and Federal Tax Counsel is unable to
opine on this issue.
If a Contract is prepaid in full, the Holder of a Non-REMIC Certificate
acquired at a discount or premium will recognize ordinary income or loss equal
to the difference between the portion of the prepaid principal amount of the
Contract that is allocable to the Non-REMIC Certificate and the portion of the
adjusted basis of the Non-REMIC Certificate (see 'Sales of Non-REMIC
Certificates' below) that is allocable to the Contract. The method of allocating
such basis among the Contracts may differ depending on whether a reasonable
prepayment assumption is used in calculating the yield of the Non-REMIC
Certificates for purposes of accruing original issue
53
<PAGE>
discount. Other adjustments might be required to reflect differences between the
prepayment rate that was assumed in accounting for discount or premium and the
actual rate of prepayments.
Sales of Non-REMIC Certificates. A Holder that sells a Non-REMIC
Certificate will recognize gain or loss equal to the difference between the
amount realized in the sale and its adjusted basis in the Non-REMIC Certificate.
In general, such adjusted basis will equal the holder's cost for the Non-REMIC
Certificate, increased by the amount of any income previously reported with
respect to the Non-REMIC Certificate and decreased by the amount of any losses
previously reported with respect to the Non-REMIC Certificate and the amount of
any distributions received thereon. Any such gain or loss generally will be
capital gain or loss if the assets underlying the Non-REMIC Certificate were
held as capital assets, except that, for a Non-REMIC Certificate to which the
stripped bond rules do not apply and that was acquired with more than a de
minimis amount of discount other than original issue discount (see 'Taxation of
Non-REMIC Certificates if Stripped Bond Rules Do Not Apply' above), such gain
will be treated as ordinary interest income to the extent of the portion of such
discount that accrued during the period in which the seller held the Non-REMIC
Certificate and that was not previously included in income.
Foreign Investors. A Holder of a Non-REMIC Certificate who is not a
'United States person' (as defined below) and is not subject to federal income
tax as a result of any direct or indirect connection to the United States other
than its ownership of a Non-REMIC Certificate generally will not be subject to
United States income or withholding tax in respect of payments of interest or
original issue discount on a Non-REMIC Certificate to the extent attributable to
Contracts that were originated after July 18, 1984, provided that the Holder
complies to the extent necessary with certain identification requirements
(including delivery of a statement, signed by the holder of the Non-REMIC
Certificate under penalties of perjury, certifying that such Holder is not a
United States person and providing the name and address of such holder).
Proposed Treasury Regulations, which would be effective with respect to payments
made after December 31, 1997 if adopted in their current form, would provide
alternative certification requirements and means by which a holder of Non-REMIC
Certificates could claim an exemption from federal income and withholding tax.
Interest or original issue discount on a Non-REMIC Certificate attributable to
Contracts that were originated prior to July 19, 1984 will be subject to a 30%
withholding tax (unless such tax is reduced or eliminated by an applicable tax
treaty). For these purposes, the term 'United States person' means a citizen or
a resident of the United States, a corporation, partnership or other entity
created or organized in, or under the laws of, the United States or any
political subdivision thereof, an estate or trust the income of which is subject
to United States federal income taxation regardless of its source, or a trust
for which one or more United States fiduciaries have the authority to control
all substantial decisions and for which a court of the United States can
exercise primary supervision over the trust's administration. For years
beginning before January 1, 1997, the term 'United States person' shall include
a trust whose income is includible in gross income for United States federal
income taxation regardless of source, in lieu of trusts just described, unless
the trust elects to have its United States status determined under the criteria
described in the previous sentence for tax years ending after August 20, 1996.
TAXABLE MORTGAGE POOLS
Effective January 1, 1992, certain entities classified as 'taxable mortgage
pools' are subject to corporate level tax on their net income. A 'taxable
mortgage pool' is generally defined as an entity that meets the following
requirements: (i) the entity is not a REMIC, (ii) substantially all of the
assets of the entity are debt obligations, and more than 50 percent of such debt
obligations consist of real estate mortgages (or interests therein), (iii) the
entity is the obligor under debt obligations with two or more maturities, and
(iv) payments on the debt obligations on which the entity is the obligor bear a
relationship to the payments on the debt obligations which the entity holds as
assets. With respect to requirement (iii), the Code authorizes the Internal
Revenue Service to provide by regulations that equity interests may be treated
as debt for purposes of determining whether there are two or more maturities. If
a Series of Non-REMIC Certificates were treated as obligations of a taxable
mortgage pool, the Trust would be ineligible to file consolidated returns with
any other corporation and could be liable for corporate tax. Treasury
regulations do not provide for the recharacterization of equity as debt for
purposes of determining whether an entity has issued debt with two maturities,
except in the case of transactions structured to avoid the taxable mortgage pool
rules.
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<PAGE>
LEGAL INVESTMENT CONSIDERATIONS
Unless otherwise indicated in the applicable Prospectus Supplement, any
Certificates offered hereby that are rated in one of the two highest rating
categories by at least one nationally recognized statistical rating organization
will constitute 'mortgage related securities' for purposes of the Secondary
Mortgage Market Enhancement Act of 1984 ('SMMEA') and, as such, will be legal
investments for persons, trusts, corporations, partnerships, associations,
business trusts and business entities (including depository institutions, life
insurance companies and pension funds) created pursuant to or existing under the
laws of the United States or of any state whose authorized investments are
subject to state regulation to the same extent as, under applicable law,
obligations issued by or guaranteed as to principal and interest by the United
States or any such entities. Under SMMEA certain states have created legislation
specifically limiting the legal investment authority of any such entities with
respect to 'mortgage related securities,' in which case the Certificates will
constitute legal investments for entities subject to such legislation only to
the extent provided therein. SMMEA provides, however, that in no event will the
enactment of any such legislation affect the validity of any contractual
commitment to purchase, hold or invest in Certificates, or require the sale or
other disposition of Certificates, so long as such contractual commitment was
made or such Certificates were acquired prior to the enactment of such
legislation.
SMMEA also amended the legal investment authority of federally-chartered
depository institutions as follows: federal savings and loan associations and
federal savings banks may invest in, sell or otherwise deal in Certificates
without limitation as to the percentage of their assets represented thereby;
federal credit unions may invest in Certificates; and national banks may
purchase Certificates for their own account without regard to the limitations
generally applicable to investment securities set forth in 12 U.S.C. Section24
(Seventh), subject in each case to such regulations as the applicable federal
regulatory authority may prescribe.
Some Classes of Certificates offered hereby may not be rated in one of the
two highest rating categories and thus would not constitute 'mortgage related
securities' for purposes of SMMEA.
The Federal Financial Institutions Examination Council, The Federal Deposit
Insurance Corporation, the Office of Thrift Supervision, the Office of the
Comptroller of the Currency and the National Credit Union Administration have
proposed or adopted guidelines regarding investment in various types of
mortgagebacked securities. In addition, certain state regulators have taken
positions that may prohibit regulated institutions subject to their jurisdiction
from holding securities representing residual interests, including securities
previously purchased. There may be other restrictions on the ability of certain
investors, including depository institutions, either to purchase Certificates or
to purchase Certificates representing more than a specified percentage of the
investor's assets. Investors should consult their own legal advisors in
determining whether and to what extent the Certificates constitute legal
investments for such investors.
RATINGS
It is a condition precedent to the issuance of any Class of Certificates
sold under this Prospectus that they be rated by at least one nationally
recognized statistical rating organization in one of its four highest rating
categories (within which there may be sub-categories or gradations indicating
relative standing). A security rating is not a recommendation to buy, sell or
hold securities and may be subject to revision or withdrawal at any time by the
assigning rating agency. The security rating of any Series of Certificates
should be evaluated independently of similar security ratings assigned to other
kinds of securities.
METHOD OF DISTRIBUTION
The Certificates offered hereby and by the Prospectus Supplement will be
offered in Series, either directly by the Depositor or through one or more
underwriters or underwriting syndicates ('Underwriters'). The Prospectus
Supplement for each Series will set forth the terms of the offering of such
Series and of each Class within such Series, including the name or names of the
Underwriters, the proceeds to and their use by the Depositor, and either the
initial public offering price, the discounts and commissions to the Underwriters
and any discounts or concessions allowed or reallowed to certain dealers, or the
method by which the price at which the Underwriters will sell the Certificates
will be determined.
55
<PAGE>
The Certificates in a Series may be acquired by Underwriters for their own
account and may be resold from time to time in one or more transactions,
including negotiated transactions, at a fixed public offering price or at
varying prices determined at the time of sale. The obligations of any
Underwriters will be subject to certain conditions precedent, and such
Underwriters will be severally obligated to purchase all of a Series of
Certificates described in the related Prospectus Supplement, if any are
purchased. If Certificates of a Series are offered other than through
Underwriters, the related Prospectus Supplement will contain information
regarding the nature of such offering and any agreements to be entered into
between the seller and purchasers of Certificates of such Series.
If any of the Certificates are to be offered for the account of security
holders, the related Prospectus Supplement will specify the name of such holder,
the nature of any position, office or other material relationship which such
holder has had within the past three years with the Depositor or any of its
affiliates, and the amount and Percentage Interest of the applicable Class or
Series of Certificates (i) held by such holder prior to the offering, (ii) being
offered and (iii) to be held by such Holder following completion of the
offering.
The Depositor will indemnify any Underwriters against certain civil
liabilities, including liabilities under the 1933 Act, or will contribute to
payments any Underwriters may be required to make in respect thereof.
In the ordinary course of business, the Depositor, its affiliates and any
Underwriters may engage in various securities and financing transactions,
including repurchase agreements to provide interim financing of the Contracts
pending the sale of such Contracts or interests therein, including the
Certificates.
The Depositor anticipates that the Certificates will be sold primarily to
institutional investors. Purchasers of Certificates, including dealers, may,
depending on the facts and circumstances of such purchases, be deemed to be
'underwriters' within the meaning of the 1933 Act in connection with reoffers
and sales by them of Certificates. Holders of Certificates should consult with
their legal advisors in this regard prior to any such reoffer or sale.
LEGAL MATTERS
Certain legal matters relating to the issuance of the Certificates of each
Series, including certain federal income tax consequences with respect thereto,
will be passed upon by Stroock & Stroock & Lavan LLP, 180 Maiden Lane, New York,
New York 10038.
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<PAGE>
GLOSSARY
There follows abbreviated definitions of certain capitalized terms used in
this Prospectus and the Prospectus Supplement. The Agreement may contain a more
complete definition of certain of the terms defined herein and reference should
be made to the Agreement for a more complete definition of all such terms.
'Advances' means the advances made by the Servicer (including advances made
by a Sub-servicer) on any Remittance Date pursuant to an Agreement.
'Agreement' means each Pooling and Servicing Agreement by and among the
Depositor, the Servicer and the Trustee.
'Amount Available' means, with respect to each Series of Certificates,
certain amounts on deposit in the Certificate Account on a Determination Date.
'Certificate Account' means the account maintained by the Servicer or the
Trustee, as specified in the related Prospectus Supplement for deposit of
amounts received on the related Contracts.
'Certificate Principal Balance' means the maximum amount of principal to
which the holder thereof is entitled.
'Certificates' means the Manufactured Housing Contract Pass-Through
Certificates issued pursuant to an Agreement.
'Chattel Contracts' means manufactured housing installment sales contracts
and manufactured housing installment loan agreements, including any and all
rights to receive payments due thereunder on and after the Cut-off Date and
security interests in Manufactured Homes purchased with the proceeds of such
contracts.
'Class' means all Certificates of a Series bearing the same designation and
evidencing the same rights in the related Trust.
'Class Certificate Balance' means the aggregate of the Certificate
Principal Balances of all Certificates of the same Class.
'Code' means the Internal Revenue Code of 1986, as amended, and any
regulations promulgated thereunder.
'Compound Interest Certificates' means Certificates on which interest may
accrue but not be paid for the period described in the related Prospectus
Supplement.
'Contract Rate' means, with respect to each Contract, the annual rate at
which interest accrues on the unpaid balance from time to time as specified in
such Contract.
'Contracts' means Chattel Contracts and Land-and-Home Contracts
collectively, unless the context otherwise requires.
'Cut-off Date' means the date specified in the related Prospectus
Supplement as the date from which principal and interest payments on the
Contracts are included in the Trust.
'Depositor' means UCFC Funding Corporation, a Louisiana corporation.
'Determination Date' means the business day preceding the related
Remittance Date specified in the related Agreement as of which the Amount
Available for such Remittance Date is determined.
'Due Period' means, unless otherwise provided in a related Prospectus
Supplement, with respect to any Remittance Date, the period beginning on the
second day of the month preceding the month of the Remittance Date and ending on
the first day of the month of the Remittance Date.
'Eligible Investments' means one or more of the investments specified in
the Agreement in which moneys in the Certificate Account and certain other
accounts are permitted to be invested.
'Enhancement' means the form of credit enhancement applicable to a Series
or one or more Classes of such Series of Certificates as specified in the
related Prospectus Supplement.
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<PAGE>
'Enhancer' means the third-party providing the Enhancement for a Series.
'FDIC' means the Federal Deposit Insurance Corporation.
'FHA' means the Federal Housing Administration.
'Final Scheduled Remittance Date' means, with respect to any Class, the
date, based on the assumptions set forth in the related Prospectus Supplement,
on which the Class Certificate Balance of such Class would be reduced to zero.
'FNMA' means the Federal National Mortgage Association.
'GNMA' means the Government National Mortgage Association.
'HUD' means the United States Department of Housing and Urban Development.
'Initial Deposit' means, with respect to a Series of Certificates, the
amount, if any, deposited into the Reserve Fund on the date of the initial
issuance of the Certificates.
'Land-and-Home Contract' means a manufactured housing installment sales
contract and manufactured housing installment loan agreement which is secured by
a mortgage, deed of trust or other similar instrument on the Manufactured Home
and the real estate to which the Manufactured Home is deemed to be permanently
affixed.
'Late Collections' means, with respect to any Contract, amounts received
during any Due Period, whether as late payments of Monthly Payments, or as
Liquidation Proceeds, condemnation awards, proceeds of insurance policies or
otherwise, which represent late payments or collections of Monthly Payments due
but delinquent for a previous Due Period and not previously recovered.
'Liquidation Proceeds' means cash (including insurance proceeds) received
in connection with the repossession of a Manufactured Home.
'Loan-to-Value Ratio' means the loan-to-value ratio at the time of
origination of the Contract.
'Manufactured Home' means a unit of manufactured housing, including all
accessions thereto, securing the indebtedness of the Obligor under the related
Contract.
'Monthly Payment' means the scheduled monthly payment of principal and
interest on a Contract.
'Obligor' means each person who is indebted under a Contract or who has
acquired a Manufactured Home subject to a Contract.
'Originator' means United Companies Funding, Inc., a Louisiana corporation,
and any other affiliate thereof specified in the related Prospectus Supplement.
'Pool' means, with respect to each Series of Certificates, the pool of
Contracts transferred by the Depositor to the Trustee.
'Record Date' means the date specified in the related Prospectus Supplement
for the list of Certificateholders entitled to distributions on the
Certificates.
'REMIC' means a 'real estate mortgage investment conduit' as defined in the
Code.
'Remittance Date' means the date specified in the related Prospectus
Supplement for payments on the Certificates.
'Remittance Rate' means, as to a Certificate, the rate or rates of interest
thereon specified in the related Prospectus Supplement.
'Senior Certificates' means, with respect to each Series of Certificates,
the Class or Classes which have rights senior to another Class or Classes in
such Series.
'Servicer' means United Companies Lending Corporation(Registered), a
Louisiana corporation.
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'Servicing Fee' means the amount of the annual fee paid to the Servicer as
specified in the related Prospectus Supplement.
'Subordinated Certificates' means, with respect to each Series of
Certificates, the Class or Classes with rights subordinate to another Class or
Classes of such Series.
'Trust' means, with respect to each Series of Certificates, the corpus of
the trust created by the related Agreement, to the extent described in such
Agreement, consisting of, among other things, Contracts, such assets as shall
from time to time be identified as deposited in the Certificate Account, the
Manufactured Homes which secured a Contract, and Enhancement, if any.
'Trustee' means the Trustee for a Series of Certificates specified in the
related Prospectus Supplement.
'VA' means the Veterans' Administration.
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NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE DEPOSITOR OR ANY UNDERWRITER.
THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS DO NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE
CERTIFICATES OFFERED HEREBY NOR AN OFFER OF SUCH CERTIFICATES TO ANY PERSON IN
ANY STATE OR OTHER JURISDICTION IN WHICH SUCH OFFER WOULD BE UNLAWFUL. THE
DELIVERY OF THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS AT ANY
TIME DOES NOT IMPLY THAT INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT
TO ITS DATE.
------------------------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary of Terms................................................. S-3
Risk Factors..................................................... S-12
The Contract Pool................................................ S-15
Maturity, Prepayment and Yield Considerations.................... S-21
Description of the Certificates.................................. S-28
The Manufactured Housing Program................................. S-38
Use of Proceeds.................................................. S-39
Federal Income Tax Considerations................................ S-39
ERISA Considerations............................................. S-41
Underwriting..................................................... S-44
Certain Legal Matters............................................ S-44
Ratings.......................................................... S-44
Annex I.......................................................... S-45
Appendix A....................................................... S-48
PROSPECTUS
Prospectus Supplement............................................ 2
Available Information............................................ 2
Reports to Certificateholders.................................... 2
Incorporation of Certain Documents by Reference.................. 2
Summary of Terms................................................. 3
Risk Factors..................................................... 8
The Trusts....................................................... 10
Use of Proceeds.................................................. 12
The Depositor.................................................... 12
The Manufactured Housing Program................................. 13
Maturity, Prepayment and Yield Considerations.................... 14
Description of the Certificates.................................. 15
Credit Enhancement............................................... 27
Description of FHA Insurance and VA Guarantees................... 28
Certain Legal Aspects of the Contracts........................... 29
ERISA Considerations............................................. 34
Federal Income Tax Considerations................................ 37
Legal Investment Considerations.................................. 55
Ratings.......................................................... 55
Method of Distribution........................................... 55
Legal Matters.................................................... 56
Glossary......................................................... 57
</TABLE>
------------------------------
UNTIL 90 DAYS AFTER THE DATE OF THIS PROSPECTUS SUPPLEMENT, ALL DEALERS
EFFECTING TRANSACTING IN THE CERTIFICATES OFFERED HEREBY, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS
TO DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
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$101,200,000
MANUFACTURED
HOUSING CONTRACT
PASS-THROUGH CERTIFICATES,
SERIES 1998-2
UCFC FUNDING CORPORATION(REGISTERED)
(DEPOSITOR)
UNITED COMPANIES LENDING
CORPORATION(REGISTERED)
(SERVICER)
[LOGO] (REGISTERED)
------------------------------
PROSPECTUS SUPPLEMENT
------------------------------
CREDIT SUISSE FIRST BOSTON
FIRST CHICAGO CAPITAL
MARKETS, INC.
June 12, 1998
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