<PAGE>
Filed Pursuant to Rule 424(b)(1)
Registration Statement No. 333-44653
PROSPECTUS
$206,300,000
AIC PREMIUM FINANCE LOAN MASTER TRUST
$200,000,000
SERIES 1998-1 FLOATING RATE CLASS A ASSET BACKED CERTIFICATES
$6,300,000
SERIES 1998-1 FLOATING RATE CLASS B ASSET BACKED CERTIFICATES
A.I. RECEIVABLES CORP.
TRANSFEROR
----------------------
Each Series 1998-1 Floating Rate Class A Asset Backed Certificate
(collectively, the 'Series 1998-1 Class A Certificates') and each Series 1998-1
Floating Rate Class B Asset Backed Certificate (collectively, the 'Series 1998-1
Class B Certificates' and, together with the Series 1998-1 Class A Certificates,
the 'Offered Certificates') offered hereby will evidence an undivided interest
in the assets of AIC Premium Finance Loan Master Trust (the 'Trust') created
pursuant to a Pooling and Servicing Agreement dated as of December 1, 1994, as
will be amended and restated as of the Closing Date (together with all
supplements to such agreement, the 'Agreement'), among A.I. Receivables Corp.
('AIR'), as transferor (the 'Transferor'), A.I. Credit Corp. ('AIC'), as an
original transferor and servicer, AICCO, Inc. ('AICCO'), as an original
transferor and servicer (together with AIC, the 'Original Transferors' or the
'Servicer'), and The First National Bank of Chicago, as trustee (the 'Trustee').
AICCO is a wholly owned subsidiary of AIC which, in turn, is a wholly owned
subsidiary of American International Group, Inc. ('AIG'). Each of AIC and AICCO
owns 50% of AIR.
The assets of the Trust will include the entire beneficial interest in
commercial premium finance loans to borrowers to finance premiums on property
and casualty insurance policies governed by the law of a State in the United
States of America or the District of Columbia under which the borrowers are the
insureds, made or purchased by either AIC or AICCO (the 'Loans'), including (i)
all amounts due and to become due and all collections and recoveries on the
Loans, and (ii) the proceeds of certain collateral security securing the Loans,
each as described herein. The beneficial interests described above are herein
referred to as the 'Receivables.' AIC and AICCO will service the Loans. The
Trust has previously issued a Series of certificates (the 'Series 1994-1
Certificates').
(continued on next page)
----------------------
THERE CURRENTLY IS NO SECONDARY MARKET FOR THE OFFERED CERTIFICATES AND THERE IS
NO ASSURANCE THAT ONE WILL DEVELOP. POTENTIAL INVESTORS SHOULD CONSIDER THE
INFORMATION SET FORTH IN 'RISK FACTORS,' ON PAGE 28, WHICH DESCRIBES
MATERIAL RISKS INVOLVED WITH AN INVESTMENT IN THE OFFERED CERTIFICATES.
----------------------
THE OFFERED CERTIFICATES REPRESENT INTERESTS IN THE TRUST ONLY AND DO NOT
REPRESENT INTERESTS IN OR RECOURSE OBLIGATIONS OF A.I. RECEIVABLES CORP., A.I.
CREDIT CORP., AICCO, INC., AMERICAN INTERNATIONAL GROUP, INC. OR ANY OF THEIR
RESPECTIVE AFFILIATES. NEITHER THE OFFERED CERTIFICATES, THE LOANS NOR THE
RECEIVABLES ARE INSURED OR GUARANTEED BY ANY GOVERNMENTAL
AGENCY OR INSTRUMENTALITY OR ANY OTHER PERSON.
----------------------
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.
----------------------
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT TRANSFEROR(1)
---------------- ---------------- ----------------
<S> <C> <C> <C>
Per Series 1998-1 Class A Certificate... 100.000% 0.300% 99.700%
Per Series 1998-1 Class B Certificate... 100.000% 0.300% 99.700%
Total................................... $206,300,000 $618,900 $205,681,100
</TABLE>
- ------------------
(1) Before deduction of expenses of the offering payable by AIR estimated to be
$525,000.
----------------------
The Offered Certificates are offered by the Underwriters as specified
herein, subject to receipt and acceptance by the Underwriters and subject to
their right to reject in whole or in part. It is expected that the Offered
Certificates will be delivered in book-entry form on or about April 14, 1998,
through the facilities of The Depository Trust Company.
GOLDMAN, SACHS & CO.
- ----------------------
The date of this Prospectus is April 8, 1998
<PAGE>
(continued from previous page)
Concurrently with the issuance of the Series 1998-1 Class A Certificates
and Series 1998-1 Class B Certificates, the Trust will issue from the same
Series another class of certificates (the 'Series 1998-1 Class C Certificates,'
and collectively with the Series 1998-1 Class A Certificates and the Series
1998-1 Class B Certificates, the 'Series 1998-1 Certificates') described herein,
which will be owned by the Transferor. The Transferor will also own the
undivided interest in the Trust represented neither by the Series 1998-1
Certificates nor the Series 1994-1 Certificates (the 'Transferor Ownership
Interest'). The Transferor may offer from time to time other Series of
certificates which evidence fractional undivided interests in certain assets of
the Trust, which may have terms significantly different from the Series 1998-1
Certificates, by reducing its interest in the Trust. See 'Description of the
Offered Certificates--New Series Issuances.'
Interest will accrue on the Series 1998-1 Class A Certificates from April
14, 1998 (the 'Closing Date') through May 14, 1998, and with respect to each
Interest Period thereafter, at the per annum rate of 0.09% above the rate per
annum shown on page 3750 of the Telerate screen or any successor page as the
composite London interbank offered rate for one-month United States dollar
deposits ('LIBOR') determined as set forth herein on the related LIBOR
Determination Date with respect to each such period, but in no event in excess
of 16% per annum (the 'Series 1998-1 Class A Certificate Rate'). Interest will
accrue on the Series 1998-1 Class B Certificates from the Closing Date through
May 14, 1998, and with respect to each Interest Period thereafter, at the per
annum rate of 0.30% above LIBOR determined as set forth herein on the related
LIBOR Determination Date with respect to each such period, but in no event in
excess of 16% per annum (the 'Series 1998-1 Class B Certificate Rate'). The
initial LIBOR Determination Date will be April 9, 1998. Interest with respect to
the Series 1998-1 Certificates will be distributed on May 15, 1998 and on the
15th day of each month thereafter (or, if such 15th day is not a business day,
the next succeeding business day) (each a 'Distribution Date').
Principal with respect to the Series 1998-1 Class A Certificates is
scheduled to be distributed monthly on each Distribution Date during the Series
1998-1 Class A Controlled Amortization Period (as defined herein). The first
such Distribution Date is scheduled to occur in September 1999 and the last such
Distribution Date is scheduled to occur in March 2000; however, principal with
respect to the Series 1998-1 Class A Certificates may be paid earlier or later
under certain limited circumstances described herein. Principal with respect to
the Series 1998-1 Class B Certificates is scheduled to be distributed in a
single payment, after the Series 1998-1 Class A Certificates have been paid in
full, on the Distribution Date in April 2000, but may be paid earlier or later
under certain limited circumstances described herein. See 'Maturity
Considerations' and 'Description of the Offered Certificates--Pay Out Events.'
During the Series 1998-1 Class A Controlled Amortization Period, the amount
scheduled to be paid as principal on the Series 1998-1 Class A Certificates on
each of the aforementioned Distribution Dates, out of collections received with
respect to the Receivables, and to the extent of the Series 1998-1 Class A
Ownership Interest (as defined herein) will equal $28,571,428.58. See
'Description of the Offered Certificates--Principal Payments.'
On each Distribution Date distributions of interest will be made first in
respect of the Series 1998-1 Class A Certificates, second in respect of the
Series 1998-1 Class B Certificates and third in respect of the Series 1998-1
Class C Certificates. On each Distribution Date on which principal is
distributable in respect of the Series 1998-1 Class A Certificates, such
principal will be payable after interest on the Series 1998-1 Class A
Certificates and Series 1998-1 Class B Certificates has been paid. Principal
payments will not be made to Series 1998-1 Class B Certificateholders until the
final principal payment due in respect of the Series 1998-1 Class A Certificates
has been paid. Thus on each Distribution Date on which principal is
distributable in respect of the Series 1998-1 Class B Certificates, such
principal will be payable after interest on the Series 1998-1 Class A
Certificates and Series 1998-1 Class B Certificates and principal on the Series
1998-1 Class A Certificates have been paid. On each such Distribution Date no
payments of interest or principal will be made in respect of the Series 1998-1
Class C Certificates unless principal due in respect of the Series 1998-1 Class
B Certificates has been paid. For further information regarding the extent to
which the Series 1998-1 Class B Certificates are
2
<PAGE>
subordinated to the Series 1998-1 Class A Certificates and the extent to which
the Series 1998-1 Class C Certificates are subordinated to the Series 1998-1
Class A Certificates and Series 1998-1 Class B Certificates, see 'Description of
the Offered Certificates--Application of Collections.' In addition, a portion of
the Principal Receivables and Finance Charge Receivables allocable to the
Transferor Ownership Interest will be deposited monthly in the Series 1998-1
Yield Enhancement Account and will be available to fund payments due with
respect to the Series 1998-1 Certificates to the extent described herein.
Certain employee benefit plans, including plans subject to ERISA, may not
purchase any Offered Certificates. See 'Summary--ERISA Plans' herein.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE OFFERED
CERTIFICATES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
UNTIL JULY 8, 1998, ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
REPORTS TO HOLDERS OF OFFERED CERTIFICATES
Unless and until Definitive Certificates (as defined herein) are issued,
monthly and annual reports, containing information concerning the Trust and
prepared by the Servicer, will be sent on behalf of the Trust to Cede & Co.
('Cede'), as nominee of The Depository Trust Company ('DTC') and registered
holder of the Offered Certificates, pursuant to the Agreement. See 'Description
of the Offered Certificates--Book-Entry Registration,' '--Reports to Holders of
Offered Certificates' and '--Evidence as to Compliance.' Such reports will not
constitute financial statements prepared in accordance with generally accepted
accounting principles. The Transferor does not intend to send any of its
financial reports to Holders of Offered Certificates (as defined herein) or to
the owners of beneficial interests in the Offered Certificates ('Certificate
Owners'). The Servicer will file with the Securities and Exchange Commission
(the 'Commission') such periodic reports with respect to the Trust as are
required under the Securities Exchange Act of 1934, as amended (the 'Exchange
Act'), and the rules and regulations of the Commission thereunder.
AVAILABLE INFORMATION
The Transferor, as transferor to the Trust, has filed a Registration
Statement under the Securities Act of 1933, as amended (the 'Securities Act'),
with the Commission on behalf of the Trust with respect to the Offered
Certificates offered pursuant to this Prospectus. For further information,
reference is made to the Registration Statement and amendments thereof and
exhibits thereto, which 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; 7 World Trade Center, New York, New York 10048;
and Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. 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 also maintains a site on the World Wide Web at
'http://www.sec.gov' at which users can view and download copies of reports,
proxies and other information filed electronically through the Electronic Data
Gathering, Analysis and Retrieval ('EDGAR') system.
3
<PAGE>
PROSPECTUS SUMMARY
The following is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus, including the description of
material risks set forth under 'Risk Factors.' Certain capitalized terms used
herein are defined elsewhere in this Prospectus. A listing of the pages on which
such terms are defined is found in the 'Index of Key Terms For Prospectus,'
beginning on page 96. Unless the context requires otherwise, certain capitalized
terms used herein relate only to the Offered Certificates.
<TABLE>
<S> <C>
TITLE OF SECURITIES....................... Series 1998-1 Floating Rate Class A Asset Backed Certificates (the
'Series 1998-1 Class A Certificates') and Series 1998-1 Floating Rate
Class B Asset Backed Certificates (the 'Series 1998-1 Class B
Certificates' and, together with the Series 1998-1 Class A
Certificates, the 'Offered Certificates') that are being issued
pursuant to an Amended and Restated Pooling and Servicing Agreement,
to be dated as of the Closing Date, among AIR, as Transferor, AIC and
AICCO, as the Original Transferors and Servicer, and the Trustee, and
the Series 1998-1 Supplement thereto of the same date (collectively,
together with the Series 1994-1 Supplement thereto, as amended as of
the Closing Date, unless the context otherwise requires, the
'Agreement'). The original Pooling and Servicing Agreement that is to
be amended and restated is dated as of December 1, 1994 and was
entered into among AIC and AICCO, as the Transferors and Servicer,
and the Trustee (together with the original Series 1994-1 Supplement
thereto of the same date (the 'Original Series 1994-1 Supplement'),
the 'Original Agreement').
ISSUER OF SECURITIES...................... AIC Premium Finance Loan Master Trust will issue on the Closing Date
the Offered Certificates, which will represent an undivided interest
in the assets of the Trust formed pursuant to the Agreement.
Concurrently with the issuance of the Offered Certificates, the Trust
will issue from the same Series another class of certificates (the
'Series 1998-1 Class C Certificates,' and, collectively with the
Series 1998-1 Class A Certificates and the Series 1998-1 Class B
Certificates, the 'Series 1998-1 Certificates'), which will be owned
by the Transferor as the Series 1998-1 Class C Certificateholder. The
remaining undivided interest in the Trust not represented by the
Series 1998-1 Certificates or the Series 1994-1 Certificates will
also be owned by the Transferor as the Transferor Ownership Interest.
THE TRUST GENERALLY....................... AIC Premium Finance Loan Master Trust is a master trust. The Trust
will issue the Series 1998-1 Certificates as its second Series and
may issue additional Series from time to time. The Trust has
previously issued a Series of certificates (the 'Series 1994-1
Certificates'). See 'The Trust-Other Series.' The assets of the Trust
will include a pool of Receivables which relate to premium finance
loans funded by AIC or AICCO ('funded' and like terms, when used with
respect to Loans, refer to the making or purchasing of such Loans by
AIC or AICCO, unless the context otherwise requires; see 'Business of
A.I. Receivables Corp., A.I. Credit Corp. and AICCO, Inc.--
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
Premium Finance Loan Purchase Policies') and collections thereon, as
more fully described herein, and either (i) were transferred directly
to the Trust by AIC and AICCO pursuant to the Original Agreement (the
'Existing Receivables') or (ii) are to be sold to AIR by AIC and
AICCO pursuant to a Receivables Sale Agreement, to be dated as of the
Closing Date, among AIC, AICCO and AIR (the 'Receivables Sale
Agreement'), and subsequently transferred to the Trust by AIR, as
Transferor, pursuant to the Agreement (the 'Future Receivables'). The
assets of the Trust are expected to change over the life of the Trust
as Additional Receivables are transferred to the Trust and
Receivables held by the Trust are collected, charged off or removed
from the Trust.
Collections in respect of Principal Receivables and Finance Charge
Receivables will be allocated among the Series 1998-1
Certificateholders, the Series 1994-1 Certificateholders and the
Transferor based generally on their respective ownership interests in
the Trust, as described herein, provided that such collections
allocable to the Series 1998-1 Certificates will be allocated as more
fully described herein to pay interest only on the Series 1998-1
Certificates during a revolving period and then to pay both principal
and interest thereon during an amortization period scheduled to
commence in September 1999.
TRANSFEROR OF RECEIVABLES TO THE
TRUST................................... A.I. Receivables Corp., a Delaware corporation ('AIR'), was recently
created for the sole purpose of acting as Transferor of the
Receivables under the Trust. See 'Business of A.I. Receivables Corp.,
A.I. Credit Corp. and AICCO, Inc.--General.' AIR will purchase the
Receivables from its two parent companies, A.I. Credit Corp., a New
Hampshire corporation ('AIC'), and AICCO, Inc., a California
corporation ('AICCO') and a wholly-owned subsidiary of AIC, which
collectively were the original transferors of Receivables to the
Trust under the Original Agreement. AIC funds loans to commercial
borrowers to finance premiums on property and casualty insurance
policies throughout the United States, except in California where
premium finance loans are funded by AICCO. AIC is a wholly-owned
subsidiary of American International Group, Inc., a Delaware
corporation ('AIG'). AIG is a holding company which through its
subsidiaries is primarily engaged in a broad range of insurance and
insurance-related activities in the United States and abroad.
TRUST ASSETS GENERALLY.................... The assets of the Trust will include the entire beneficial interest
in commercial premium finance loans to borrowers ('Obligors') to
finance premiums on property and casualty insurance policies governed
by the law of a State of the United States of America or the District
of Columbia under which the Obligors are the insureds, funded by AIC
or AICCO (the 'Loans'), including (i) all amounts due and to become
due and all collections and recoveries on the Loans, and (ii) the
proceeds of certain collateral security securing the Loans. The
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
beneficial interests described above are herein referred to as the
'Receivables.'
The Loans are usually short-term in duration, generally with
maturities under one year, and bear fixed interest rates that are
established generally based on spreads over interest rates on money
market investments of comparable maturities prevailing at the time
the Loans are made. Obligors usually secure their Loan obligations to
AIC or AICCO by pledging the Obligors' rights to recover any unearned
premium from the insurance company upon cancellation of the related
insurance policy prior to its expiration. AIC and AICCO generally
have the right to cancel the insurance policy and collect such
unearned premium from the insurance company following a payment
default on the related Loan. At December 31, 1997, in excess of 35%
of the aggregate outstanding loan account balance (as defined herein
in the table entitled 'Outstanding Loan Account Balances by Size'
under 'The Receivables'), represented loans funded by AIC or AICCO to
finance premiums on insurance policies issued by insurance affiliates
of AIG. See 'Business of A.I. Receivables Corp., A.I. Credit Corp.
and AICCO, Inc.--Premium Finance Loan Origination; Collection Policy'
and '--Premium Finance Loan Underwriting Procedures.'
AIC and AICCO originally conveyed to the Trustee pursuant to the
Original Agreement all Eligible Receivables owned by them as of
November 30, 1994 (the 'Cut-Off Date') and, subsequently, all
Eligible Receivables relating to Loans funded by them thereafter. AIC
and AICCO will continue to transfer Receivables to the Trustee prior
to the Closing Date, but will cease doing so as of the Closing Date.
Receivables arising on the Closing Date and from time to time
thereafter may, and under certain circumstances set forth in the
Agreement will, be transferred to the Trustee by the Transferor until
termination of the Trust (such Receivables, the 'Additional
Receivables'). The Transferor will acquire such Receivables from AIC
and AICCO pursuant to the Receivables Sale Agreement. See
'Description of the Offered Certificates--Addition of Receivables'
and '--Removal of Receivables.'
As of December 31, 1997, the average outstanding loan account balance
(as defined herein in the table entitled 'Outstanding Loan Account
Balances by Size' under 'The Receivables') was approximately $16,100,
ranging from approximately 46,000 loan accounts with balances of
under $5,000, to 12 loan accounts with balances in excess of $5
million. The Transferor has agreed that in the event Receivables
relating to a single Obligor result in Default Amounts equal to 0.60%
or more of the outstanding principal balance of the Receivables owned
by the Trust as of the end of a Monthly Period, such Default Amounts
in excess of 0.60% of the outstanding principal balance of
Receivables owned by the Trust will be allocated solely to the
Transferor Ownership Interest. See 'The Receivables' and 'Description
of the
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
Offered Certificates.' For a description of certain other Default
Amounts that may be allocated solely to the Transferor Ownership
Interest based upon the proportion of Receivables in the Trust
relating to Loans made to finance premiums paid to certain insurers,
see 'Description of the Offered Certificates--Defaulted Loans;
Charge-Offs.'
SECURITIES OFFERED........................ The aggregate initial principal amount of the Series 1998-1 Class A
Certificates will be $200,000,000 and of the Series 1998-1 Class B
Certificates will be $6,300,000. The aggregate initial principal
amount of the Series 1998-1 Class C Certificates, which will be
acquired on the Closing Date by the Transferor and are not being
offered hereby, will be $4,226,400.
As used herein, the term 'Holders of Offered Certificates' refers
collectively to the holders of the Series 1998-1 Class A Certificates
and the Series 1998-1 Class B Certificates; the term 'Series 1998-1
Certificateholders' refers collectively to the holders of the Series
1998-1 Certificates; the terms 'Series 1998-1 Class A
Certificateholders,' 'Series 1998-1 Class B Certificateholders' and
'Series 1998-1 Class C Certificateholders' refer to the holders of
the Series 1998-1 Class A Certificates, the Series 1998-1 Class B
Certificates and the Series 1998-1 Class C Certificates,
respectively; and the term 'Series 1994-1 Certificateholders' refers
collectively to the holders of the Series 1994-1 Certificates. All
references herein to Holders of Offered Certificates shall include
Certificate Owners except as otherwise specified herein.
RIGHTS OF SERIES 1998-1 CERTIFICATEHOLDERS
GENERALLY............................... Each of the Series 1998-1 Certificates offered hereby and issued
pursuant to the Agreement (and each of the Series 1994-1
Certificates, which were previously issued) represents an undivided
interest in the assets of the Trust. Each Series 1998-1 Certificate
offered hereby represents the right to receive payments of interest
and principal, funded from a percentage of the collections in respect
of Principal Receivables and Finance Charge Receivables allocated to
the Series 1998-1 Certificates, and, under certain circumstances,
from funds on deposit in the Series 1998-1 Yield Enhancement Account
and its allocable portion of funds on deposit in the Excess Funding
Account. On each Distribution Date distributions of interest will be
made first in respect of the Series 1998-1 Class A Certificates,
second in respect of the Series 1998-1 Class B Certificates and third
in respect of the Series 1998-1 Class C Certificates. On each
Distribution Date on which principal is distributable in respect of
the Series 1998-1 Class A Certificates, such principal will be
payable after interest on the Series 1998-1 Class A Certificates and
Series 1998-1 Class B Certificates has been paid. Principal payments
will not be made to Series 1998-1 Class B Certificateholders until
the final principal payment due in respect of the Series 1998-1 Class
A Certificates has been paid. Thus on each Distribution Date on which
principal is
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
distributable in respect of the Series 1998-1 Class B Certificates,
such principal will be payable after interest on the Series 1998-1
Class A Certificates and Series 1998-1 Class B Certificates and
principal on the Series 1998-1 Class A Certificates has been paid. On
each such Distribution Date no payments of interest or principal will
be made in respect of the Series 1998-1 Class C Certificates unless
principal due in respect of the Series 1998-1 Class B Certificates
has been paid. For further information regarding the extent to which
the Series 1998-1 Class B Certificates are subordinated to the Series
1998-1 Class A Certificates and the extent to which the Series 1998-1
Class C Certificates are subordinated to the Series 1998-1 Class A
Certificates and Series 1998-1 Class B Certificates, see 'Description
of the Offered Certificates-Application of Collections.' The Series
1998-1 Yield Enhancement Account will be funded on each Transfer Date
with a portion of the collections in respect of the Receivables
otherwise allocable to the Transferor Ownership Interest to cover
shortfalls, if any, in the allocable funds of the Trust available to
pay amounts due on the related Distribution Date with respect to the
Series 1998-1 Certificates, to the extent provided herein. See
'Series 1998-1 Yield Enhancement Account' in this Summary and
'Description of the Offered Certificates--Series 1998-1 Yield
Enhancement Account.'
The Series 1998-1 Certificates represent interests in the Trust only
and do not represent interests in or recourse obligations of AIR,
AIC, AICCO, AIG or any of their respective affiliates. Neither the
Series 1998-1 Certificates, the Loans nor the Receivables are insured
or guaranteed by any governmental agency or instrumentality or any
other person.
ALLOCATIONS OF COLLECTIONS AMONG THE
CERTIFICATEHOLDERS AND THE TRANSFEROR
GENERALLY............................... Collections with respect to the Receivables will be allocated, based
on the respective ownership interests, among (i) the Series 1998-1
Class A Certificateholders, the Series 1998-1 Class B
Certificateholders and the Series 1998-1 Class C Certificateholders,
(ii) the Series 1994-1 Certificateholders, (iii) the ownership
interest of the certificateholders of any other Series that may be
issued by the Trust in the future pursuant to the Agreement and the
applicable Series Supplement and (iv) the retained Transferor
Ownership Interest, as described below. The Series 1998-1 Class C
Ownership Interest in the initial amount of $4,226,400 (which amount
represents approximately 2% of the sum of the Series 1998-1 Class A
Initial Ownership Interest, the Series 1998-1 Class B Initial
Ownership Interest and the Series 1998-1 Class C Initial Ownership
Interest) constitutes credit enhancement for the Offered
Certificates, to the extent described herein, and the Series 1998-1
Class B Ownership Interest in the amount of $6,300,000 (which amount
represents approximately 3% of the sum of the Series 1998-1 Class A
Initial Ownership Interest, the Series 1998-1 Class B Initial
Ownership Interest and the Series 1998-1 Class C Initial Ownership
Interest) constitutes
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
credit enhancement for the Series 1998-1 Class A Certificates, to the
extent described herein. The Transferor Ownership Interest is not
subordinate to the Series 1998-1 Certificates, although a portion of
the collections in respect of Receivables otherwise allocable to the
Transferor Ownership Interest will be available to the Series 1998-1
Certificates as yield enhancement (see 'Description of the Offered
Certificates--Series 1998-1 Yield Enhancement Account') and under
the circumstances described under 'Description of the Offered
Certificates--Excess Funding Account,' and a portion of losses on
Receivables meeting specified concentration levels (based on the
identity of the related Obligor or the insurer to whom financed
premiums were paid) that would otherwise be allocable to the Series
1998-1 Certificates may be allocated to the Transferor Ownership
Interest. See 'Description of Offered Certificates--Series 1998-1
Yield Enhancement Account,' '--Excess Funding Account' and
'--Defaulted Loans; Charge-Offs.'
ALLOCATIONS OF FINANCE CHARGE RECEIVABLES,
PRINCIPAL RECEIVABLES AND DEFAULT
AMOUNTS................................. The Series 1998-1 Class A Certificates, the Series 1998-1 Class B
Certificates and the Series 1998-1 Class C Certificates will each
represent the right to receive varying percentages of collections by
the Trust of Finance Charge Receivables and Principal Receivables,
and will be allocated varying percentages of Default Amounts, during
each calendar month ending after the Closing Date (a 'Monthly
Period'). Default Amounts arise as a result of a charge-off by the
Servicer as uncollectible of a Defaulted Loan related to a Receivable
held by the Trust. Collections of Finance Charge Receivables and
Default Amounts at all times, and collections of Principal
Receivables during the Series 1998-1 Revolving Period, will be
allocated to the Series 1998-1 Certificateholders Ownership Interests
based on the Series 1998-1 Floating Investor Percentage. Collections
of Principal Receivables during the Series 1998-1 Controlled
Amortization Period and, if applicable, the Series 1998-1 Rapid
Amortization Period will be allocated to the Series 1998-1
Certificateholders Ownership Interests based on the Series 1998-1
Fixed Investor Percentage. See 'Description of the Offered
Certificates--Allocation Percentages' and '--Pay Out Events.'
PAYMENT RIGHTS OF SERIES 1998-1 CLASS A
CERTIFICATEHOLDERS
GENERALLY............................... The Series 1998-1 Class A Certificates will represent the right to
receive from collections with respect to the Receivables allocated to
the Series 1998-1 Class A Certificates funds up to (but not in excess
of) the amounts required to make (a) payments of interest accruing
from the Closing Date through May 14, 1998, and with respect to each
Interest Period thereafter, at the per annum rate of 0.09% above the
rate per annum shown on page 3750 of the Telerate screen or
</TABLE>
9
<PAGE>
<TABLE>
<S> <C>
any successor page as the composite London interbank offered rate for
one-month United States dollar deposits ('LIBOR') determined as set
forth herein on the related LIBOR Determination Date, but in no event
in excess of 16% per annum (such rate, the 'Series 1998-1 Class A
Certificate Rate'), and (b) payments of principal in the amounts
described below during the Series 1998-1 Class A Controlled
Amortization Period or, if applicable, during the Series 1998-1 Rapid
Amortization Period, to the extent of the Series 1998-1 Class A
Ownership Interest. Principal will be payable on each Distribution
Date during such period to Series 1998-1 Class A Certificateholders
only after interest payable on such date in respect of the Series
1998-1 Class A Certificates and the Series 1998-1 Class B
Certificates has been paid. The Series 1998-1 Class A Ownership
Interest may be less than the unpaid principal balance of the Series
1998-1 Class A Certificates in certain circumstances described
herein, such as in the event of significant losses on the
Receivables. In the event of a reduction in the Series 1998-1 Class A
Ownership Interest, the Series 1998-1 Class A Monthly Interest
payable with respect to the Series 1998-1 Class A Certificates may be
reduced.
PAYMENT RIGHTS OF SERIES 1998-1 CLASS B
CERTIFICATEHOLDERS
GENERALLY............................... The Series 1998-1 Class B Certificates will represent the right to
receive from collections with respect to the Receivables allocated to
the Series 1998-1 Class B Certificates funds up to (but not in excess
of) the amounts required to make (a) payments of interest accruing
from the Closing Date through May 14, 1998, and with respect to each
Interest Period thereafter, at the per annum rate of 0.30% above
LIBOR determined as set forth herein on the related LIBOR
Determination Date, but in no event in excess of 16% per annum (such
rate, the 'Series 1998-1 Class B Certificate Rate'), and (b) payments
of principal in the amounts described below during the Series 1998-1
Class B Controlled Amortization Period or, if applicable, during the
Series 1998-1 Rapid Amortization Period, to the extent of the Series
1998-1 Class B Ownership Interest. If Series 1998-1 Available
Investor Principal Collections are sufficient to pay the Series
1998-1 Controlled Amortization Amount on each Distribution Date
during the Series 1998-1 Controlled Amortization Period, the
principal amount of the Series 1998-1 Class B Ownership Interest will
be paid in a single payment on the April 2000 Distribution Date. No
principal will be paid to the Series 1998-1 Class B
Certificateholders until the final principal payment has been made in
respect of the Series 1998-1 Class A Certificates. On each
Distribution Date, no interest will be paid to the Series 1998-1
Class B Certificateholders until interest due and owing the Series
1998-1 Class A Certificateholders on such Distribution Date is paid
in full. The Series 1998-1 Class B Ownership Interest may be less
than the total unpaid principal balance of the Series 1998-1 Class B
Certificates in
</TABLE>
10
<PAGE>
<TABLE>
<S> <C>
certain circumstances described herein, such as in the event of
significant losses on the Receivables. In the event of a reduction in
the Series 1998-1 Class B Ownership Interest, the Series 1998-1 Class
B Monthly Interest payable with respect to the Series 1998-1 Class B
Certificates may be reduced.
POSSIBLE REDUCTIONS IN SERIES 1998-1
CERTIFICATEHOLDERS
OWNERSHIP INTERESTS..................... The initial amount of the Series 1998-1 Class A Ownership Interest is
$200,000,000 and the initial amount of the Series 1998-1 Class B
Ownership Interest is $6,300,000. The Series 1998-1 Class A Ownership
Interest is subject to reduction, in the absence of distributions
thereon, in certain circumstances if the Series 1998-1 Class B
Ownership Interest and the Series 1998-1 Class C Ownership Interest
are zero and (a) collections of Principal Receivables otherwise
allocable to the Series 1998-1 Certificateholders Ownership Interests
are reallocated to cover interest payable in respect of the Offered
Certificates and (b) Default Amounts allocated to the Series 1998-1
Class A Certificates exceed amounts available therefor as described
herein. The Series 1998-1 Class B Ownership Interest is subject to
reduction, in the absence of distributions thereon, in certain
circumstances as a result of (a) the reallocation of collections of
Principal Receivables otherwise allocable to the Series 1998-1
Certificateholders Ownership Interests to cover interest payable in
respect of the Offered Certificates and (b) the allocation to the
Series 1998-1 Class B Ownership Interest of Default Amounts,
including such amounts otherwise allocable to the Series 1998-1 Class
A Ownership Interest, in each case when the Series 1998-1 Class C
Ownership Interest is zero. See 'Description of the Offered
Certificates--Defaulted Loans; Charge-Offs' and '--Reallocation of
Cash Flows.'
PAYMENT RIGHTS OF THE TRANSFEROR OWNERSHIP
INTEREST................................ The Transferor Ownership Interest will represent the right to
collections with respect to the Receivables not allocated to the
Series 1998-1 Class A Ownership Interest, the Series 1998-1 Class B
Ownership Interest, the Series 1998-1 Class C Ownership Interest, the
Series 1994-1 Certificateholders or the future holders of other
Series of certificates that may be issued by the Trust. As Additional
Receivables are added to the Trust and as collections with respect to
Principal Receivables and Default Amounts, if any, are allocated to
the Transferor Ownership Interest, the Transferor Ownership Interest
will fluctuate. Also, pursuant to the Agreement, (i) the Transferor
may reduce the Transferor Ownership Interest or (ii) if provided in
the relevant Supplement, certificateholders may tender certificates
representing any outstanding Series of certificates to the Trustee
and the Transferor may reduce Transferor Ownership Interest, and,
upon satisfying certain conditions in the Agreement and as described
herein, cause the Trustee to issue one or more new Series as
described below in this Summary under 'New Series Issuances
</TABLE>
11
<PAGE>
<TABLE>
<S> <C>
Generally' and in 'Description of the Offered Certificates--New
Series Issuances.'
SERIES 1998-1 TERMINATION................. The final distribution by the Trust of principal and interest on the
Offered Certificates will be made no later than the October 2001
Distribution Date (the 'Series 1998-1 Termination Date'). After the
Series 1998-1 Termination Date, the Trust will have no further
obligation to pay principal or interest on the Offered Certificates.
OTHER SERIES.............................. The Trust has previously issued one other Series of certificates. In
addition to the Series 1998-1 Certificates to be issued pursuant to
the Agreement on the Closing Date, the Trust has previously offered
by means of a separate prospectus $200,000,000 in aggregate principal
amount of Class A Floating Rate Asset Backed Certificates, Series
1994-1 and $7,600,000 in aggregate principal amount of Class B
Floating Rate Asset Backed Certificates, Series 1994-1 (the 'Series
1994-1 Offered Certificates'). Concurrently with the issuance of the
Series 1994-1 Offered Certificates, the Trust issued another class of
certificates (the 'Series 1994-1 Class C Certificates') which are and
will continue to be held by the Original Transferors. See 'The
Trust-Other Series' for a summary of the terms of the Series 1994-1
Offered Certificates. Additional Series may be issued from time to
time by the Trust. See 'Description of the Offered Certificates--New
Series Issuances.'
RECEIVABLES............................... The Receivables represent the entire beneficial interest in the
related Loans, including all monies due or to become due from the
Obligors in payment of finance charges, fees and service charges
(collectively, together with recoveries on Defaulted Loans, 'Finance
Charge Receivables') and principal ('Principal Receivables') owing or
to become owing with respect to the Loans and recoveries received
with respect to Defaulted Loans. The aggregate amount of Principal
Receivables as of the Closing Date will be no less than $850,000,000.
The amounts of the Series 1998-1 Certificateholders Ownership
Interests, the Series 1994-1 certificateholders ownership interests
and the Transferor Ownership Interest will be determined on the basis
of the amount of Principal Receivables in the Trust from time to
time. The aggregate undivided interest in the Principal Receivables
in the Trust evidenced by the Series 1998-1 Certificates will never
exceed the amount of the Series 1998-1 Certificateholders Ownership
Interests regardless of the total amount of Principal Receivables in
the Trust at any time.
Pursuant to the Agreement, the Transferor may, and under certain
circumstances set forth in the Agreement will be required to,
transfer to the Trust Additional Receivables relating to Loans funded
by AIC or AICCO in the ordinary course of their businesses, and, in
each case, sold to the Transferor from time to time under the
Receivables Sale Agreement. AIC and AICCO presently expect to
transfer all Eligible Receivables relating to Loans funded by them
from
</TABLE>
12
<PAGE>
<TABLE>
<S> <C>
time to time to the Transferor for subsequent transfer to the Trust.
The Transferor will in any event be required to transfer sufficient
Additional Receivables to the Trust to maintain the Minimum
Transferor Ownership Interest; otherwise, a Pay Out Event will occur
and the Series 1998-1 Rapid Amortization Period will commence. See
'Description of the Offered Certificates--Addition of Receivables'
and '--Pay Out Events.'
Further, pursuant to the Agreement, the Transferor has the right,
subject to certain limitations and conditions set forth in the
Agreement and as described herein, to remove certain Receivables
designated by the Transferor from the Trust (the 'Removed
Receivables') and accept the transfer of all the Removed Receivables
from the Trust. In connection with any permitted removal of
Receivables, the selection procedure for removal cannot be materially
adverse to Series 1998-1 Certificateholders. Moreover, prior to any
such permitted removal of Receivables, the Transferor will receive
confirmation from the appropriate rating agencies and an opinion of
counsel indicating, respectively, that neither the then ratings nor
the federal income tax treatment of the Offered Certificates shall be
adversely affected by such removal. The Transferor does not presently
expect to remove Receivables from the Trust. See 'Description of the
Offered Certificates--Removal of Receivables.'
SERVICER AND SERVICING FEE................ AIC is the servicer with respect to all Loans, other than those
originated in California, for which AICCO is the servicer. AIC will
be fully obligated to the Trust for AICCO's servicing performance. In
certain limited circumstances set forth in the Agreement and as
described herein, AIC and AICCO may resign or be removed as Servicer,
in which event the Trustee or a third party servicer may be appointed
as successor servicer (AIC and AICCO collectively (unless the context
otherwise requires), or any such successor servicer, are referred to
herein as the 'Servicer'). The Servicer is permitted to delegate
certain of its duties as servicer under the Agreement to any of its
affiliates other than AIR, but any such delegation will not relieve
the Servicer of its obligations thereunder.
For so long as AIC and AICCO are the Servicer, the Servicer will not
be paid a monthly fee as servicing compensation from the Trust (the
'Servicing Fee'). If AIC and AICCO cease to be the Servicer, then the
monthly Servicing Fee allocable to the Series 1998-1
Certificateholders will be equal to one-twelfth of the product of
0.50% per annum and the then aggregate Series 1998-1
Certificateholders Ownership Interests. On each Transfer Date, funds
on deposit in the Finance Charge Account will, if necessary, be
withdrawn for payment to the Servicer in respect of the Servicing Fee
to be allocated among the Series 1998-1 Certificateholders as
described under 'Description of the Offered Certificates--Servicing
Compensation and Payment of Expenses.'
</TABLE>
13
<PAGE>
<TABLE>
<S> <C>
AIG SUPPORT AGREEMENTS.................... AIC, AICCO and AIG are parties to a support agreement in which AIG
has agreed to cause each of AIC and AICCO to have a minimum net worth
of at least $1 and to provide AIC and AICCO with sufficient funds on
a timely basis to meet when due their respective obligations under
the Agreement and certain other obligations as described herein. AIG
and AIR will enter into a similar support agreement on the Closing
Date in which AIG will agree to cause AIR to have a minimum net worth
of at least $1 and to provide AIR with sufficient funds on a timely
basis to meet when due its obligations under the Agreement and
certain other obligations as described herein. AIG, AIC, AICCO and
AIR have not, however, agreed to guarantee payment of the Series
1998-1 Certificates, Loans or Receivables. See 'Description of the
Offered Certificates--Support Agreements' and 'Risk Factors--Risk of
Bankruptcy of the Transferor or the Original Transferors.'
INTEREST.................................. Interest on the Offered Certificates for each Interest Period will be
distributed on May 15, 1998 and on the 15th day of each month
thereafter, or if such day is not a business day, on the next
succeeding business day (each, a 'Distribution Date'), in an amount
equal to (a) with respect to the Series 1998-1 Class A Certificates,
the product of (i) the actual number of days in the related Interest
Period divided by 360, (ii) the Series 1998-1 Class A Certificate
Rate for such Interest Period and (iii) the Series 1998-1 Class A
Ownership Interest as of the preceding Record Date (or, in the case
of the first Distribution Date, as of the Closing Date) and (b) with
respect to the Series 1998-1 Class B Certificates, the product of (i)
the actual number of days in the related Interest Period divided by
360, (ii) the Series 1998-1 Class B Certificate Rate for such
Interest Period and (iii) the Series 1998-1 Class B Ownership
Interest as of the preceding Record Date (or, in the case of the
first Distribution Date, as of the Closing Date). Interest for any
Distribution Date due but not paid on such Distribution Date will be
payable on the next succeeding Distribution Date, together with
additional interest on such amount at 2% over the applicable
Certificate Rate (such overdue interest, and additional interest
thereon, 'Additional Interest'). If the Series 1998-1 Class B
Ownership Interest or the Series 1998-1 Class A Ownership Interest is
reduced as a result of the allocation of Default Amounts, the related
interest payable with respect to the Series 1998-1 Class B
Certificates or the Series 1998-1 Class A Certificates, as the case
may be, in subsequent months will be less than the amount of interest
that would be payable by applying the applicable Certificate Rate to
the unpaid principal balance of the related class of Series 1998-1
Certificates. If the Series 1998-1 Class A Ownership Interest or the
Series 1998-1 Class B Ownership Interest is reimbursed in full on any
subsequent Transfer Date from funds available for such purpose as
described elsewhere herein, interest that would have accrued on the
Series 1998-1 Class A Ownership Interest or Series 1998-1 Class B
Ownership Interest, as the case may be, had the same not been reduced
('Prior Period Interest'), will be payable on the next succeeding
Distribution Date at the rate described under 'Description of the
Offered Certificates-Application of Collections.' In addition, the
Agreement will provide that
</TABLE>
14
<PAGE>
<TABLE>
<S> <C>
payment of any Series 1998-1 Class B Additional Interest shall be
suspended during any period when the Series 1998-1 Class B Ownership
Interest is zero and will further provide for the cancellation of any
such interest remaining unpaid on the first date during the Series
1998-1 Class B Controlled Amortization Period or, if applicable, the
Series 1998-1 Rapid Amortization Period when the Series 1998-1 Class
B Ownership Interest is or becomes zero. See 'Description of the
Offered Certificates--Defaulted Loans; Charge-Offs,' '--Series 1998-1
Yield Enhancement Account' and '--Interest Payments.'
The 'Interest Period,' with respect to any Distribution Date, will be
the period from the previous Distribution Date through the day
preceding such Distribution Date, except the initial Interest Period
will be the period from the Closing Date through the day preceding
the initial Distribution Date.
In general, interest payments distributable to the Series 1998-1
Class A Certificateholders will be funded from the portion of Finance
Charge Receivables collected during the preceding Monthly Period that
is allocable to the Series 1998-1 Certificateholders Ownership
Interests. If on any Transfer Date such collections are insufficient
to fully fund the Series 1998-1 Class A Monthly Interest, then funds
on deposit in the Series 1998-1 Yield Enhancement Account will be
allocated, to the extent available, for distribution to the Series
1998-1 Class A Certificateholders in payment of such shortfall. If
funds on deposit in the Series 1998-1 Yield Enhancement Account are
insufficient to fund the Series 1998-1 Class A Required Amount, which
includes any shortfall in the payment of Series 1998-1 Class A
Monthly Interest, then Series 1998-1 Reallocated Principal
Collections will be allocated, to the extent available, to fund the
Series 1998-1 Class A Monthly Interest.
In general, interest payments distributable to the Series 1998-1
Class B Certificateholders will be funded from the portion of Finance
Charge Receivables collected during the preceding Monthly Period
allocable to the Series 1998-1 Certificateholders Ownership Interests
remaining after payment of interest due and owing the Series 1998-1
Class A Certificateholders on each Distribution Date. If on any
Transfer Date such collections are insufficient to fully fund the
Series 1998-1 Class B Monthly Interest, then funds on deposit in the
Series 1998-1 Yield Enhancement Account will be allocated, to the
extent available, for distribution to the Series 1998-1 Class B
Certificateholders in payment of such shortfall. If funds on deposit
in the Series 1998-1 Yield Enhancement Account are insufficient to
fund the Series 1998-1 Class B Required Amount, which includes any
shortfall in the payment of Series 1998-1 Class B Monthly Interest,
then Series 1998-1 Reallocated Principal Collections will be
allocated, to the extent available, to fund the Series 1998-1 Class B
Monthly Interest. See 'Series 1998-1 Yield Enhancement Account
Generally' in this Summary and 'Description of the Offered
Certificates--Interest Payments,' '--Principal Payments' and
'--Reallocation of Cash Flows.'
</TABLE>
15
<PAGE>
<TABLE>
<S> <C>
REVOLVING PERIOD PRIOR TO
PRINCIPAL AMORTIZATION.................. The 'Series 1998-1 Revolving Period' with respect to the Series
1998-1 Certificates means the period from and including the Closing
Date to, but not including, the earlier of (a) the commencement of
the Series 1998-1 Controlled Amortization Period and (b) the
commencement of the Series 1998-1 Rapid Amortization Period. The
purpose of the Series 1998-1 Revolving Period is to provide the
Series 1998-1 Certificateholders with a period of time during which
they will be entitled to receive interest only, and no principal,
thereby extending the expected weighted average lives of the Series
1998-1 Certificates. During the Series 1998-1 Revolving Period,
collections in respect of Principal Receivables otherwise allocable
in respect of one or more classes of the Series 1998-1 Certificates
will, subject to certain limitations set forth in the Agreement and
as described herein, be available to cover payments of interest on
the Offered Certificates. Any remaining such collections will be
treated as Shared Principal Collections and will be available to be
applied to cover principal payments due to or for the benefit of the
Series 1994-1 Certificateholders and/or certificateholders of other
Series that may be issued in the future by the Trust, if so specified
in the Supplements for such other Series, or paid to the holder of
the Transferor Certificate. Conversely, during the Series 1994-1
revolving period, collections in respect of Principal Receivables
otherwise allocable in respect of one or more classes of the Series
1994-1 Certificates will, subject to certain limitations set forth in
the Agreement, be available to cover payments of interest on the
Series 1994-1 Certificates. Any remaining collections after such
application will be treated as Shared Principal Collections and will
be available to be applied to cover principal payments due to or for
the benefit of the Series 1998-1 Certificateholders and/or
certificateholders of other Series that may be issued in the future
by the Trust, if so specified in the Supplements for such other
Series, or paid to the holder of the Transferor Certificate. See
'Description of the Offered Certificates--Shared Principal
Collections.' Payment of principal with respect to the Series 1998-1
Certificates is not scheduled to commence until the September 1999
Distribution Date, when principal payments are scheduled to begin
with respect to the Series 1998-1 Class A Certificates during the
Series 1998-1 Class A Controlled Amortization Period. See
'Description of the Offered Certificates--Principal Payments.' See
also the description under 'Description of the Offered
Certificates--Pay Out Events' for the events which would lead to the
commencement of the Series 1998-1 Rapid Amortization Period and that
could result in earlier payments of principal with respect to the
Offered Certificates.
CONTROLLED AMORTIZATION
PERIOD GENERALLY........................ Unless a Pay Out Event has occurred, the Series 1998-1 Revolving
Period will end and the controlled amortization period with respect
to the Series 1998-1 Certificates (the 'Series 1998-1 Controlled
Amortization Period'), which includes controlled amortization periods
for each class (the 'Series 1998-1 Class A Controlled Amortization
Period,' the 'Series 1998-1 Class B Controlled Amortization Period'
and the 'Series 1998-1 Class C Controlled Amortization Period,'
</TABLE>
16
<PAGE>
<TABLE>
<S> <C>
respectively), will commence on September 1, 1999 (and the first
distribution of principal to the Series 1998-1 Class A
Certificateholders will occur on the September 1999 Distribution
Date). The purpose of the Series 1998-1 Controlled Amortization
Period is to provide the Series 1998-1 Certificateholders with a
period of time during which they will be entitled to receive
scheduled principal payments, thereby enabling them to estimate the
expected weighted average lives of the Series 1998-1 Certificates.
The Series 1998-1 Class A Controlled Amortization Period will end on
the earliest of (a) the commencement of the Series 1998-1 Rapid
Amortization Period, (b) the payment in full of the Series 1998-1
Class A Ownership Interest or (c) the Series 1998-1 Termination Date.
Unless a Pay Out Event has occurred, the Series 1998-1 Class B
Controlled Amortization Period will commence on the Distribution Date
on which the Series 1998-1 Class A Ownership Interest is paid in full
(the 'Series 1998-1 Class B Principal Commencement Date') and end on
the earliest of (a) the commencement of the Series 1998-1 Rapid
Amortization Period, (b) the payment in full of the Series 1998-1
Class B Ownership Interest or (c) the Series 1998-1 Termination Date.
Unless a Pay Out Event has occurred, the Series 1998-1 Class C
Controlled Amortization Period will commence on the Distribution Date
on which the Series 1998-1 Class B Ownership Interest is paid in full
(the 'Series 1998-1 Class C Principal Commencement Date') and end on
the earliest of (a) the commencement of the Series 1998-1 Rapid
Amortization Period, (b) the payment in full of the Series 1998-1
Class C Ownership Interest or (c) the Series 1998-1 Termination Date.
PRINCIPAL AMORTIZATION OF THE
SERIES 1998-1 CLASS A CERTIFICATES...... No principal will be payable to Series 1998-1 Class A
Certificateholders until the first Distribution Date with respect to
the Series 1998-1 Class A Controlled Amortization Period, or, upon
the occurrence of a Pay Out Event as described herein, the first
Distribution Date with respect to the Series 1998-1 Rapid
Amortization Period. On each Distribution Date during the Series
1998-1 Class A Controlled Amortization Period, the Series 1998-1
Class A Certificateholders will receive a principal payment equal to
the least of (i) Series 1998-1 Available Investor Principal
Collections on deposit in the Principal Account with respect to such
Distribution Date, (ii) the Series 1998-1 Controlled Distribution
Amount, which is equal to the sum of the Series 1998-1 Controlled
Amortization Amount, which is $28,571,428.58, and any existing
applicable Series 1998-1 Deficit Controlled Amortization Amount and
(iii) the Series 1998-1 Class A Ownership Interest for such
Distribution Date. See 'Description of the Offered
Certificates--Principal Payments' and '--Application of Collections.'
PRINCIPAL AMORTIZATION OF THE
SERIES 1998-1 CLASS B CERTIFICATES...... No principal will be payable to the Series 1998-1 Class B
Certificateholders until the Series 1998-1 Class A Ownership Interest
is paid in full. On each Distribution Date during the Series 1998-1
Class B Controlled Amortization Period, the
</TABLE>
17
<PAGE>
<TABLE>
<S> <C>
Series 1998-1 Class B Certificateholders will receive a principal
payment equal to the least of (i) Series 1998-1 Available Investor
Principal Collections on deposit in the Principal Account with
respect to such Distribution Date (minus the portion of such Series
1998-1 Available Investor Principal Collections applied to Series
1998-1 Class A Monthly Principal on such date), (ii) the Series
1998-1 Controlled Distribution Amount (minus the portion of such
Series 1998-1 Controlled Distribution Amount applied to Series 1998-1
Class A Monthly Principal on such date) and (iii) the Series 1998-1
Class B Ownership Interest for such Distribution Date. If Series
1998-1 Available Investor Principal Collections are sufficient to pay
the Series 1998-1 Controlled Amortization Amount on each Distribution
Date during the Series 1998-1 Controlled Amortization Period, the
Series 1998-1 Class B Ownership Interest will be paid in a single
payment on the April 2000 Distribution Date. No principal will be
payable to the Series 1998-1 Class C Certificateholders until the
Series 1998-1 Class A Ownership Interest and Series 1998-1 Class B
Ownership Interest are paid in full. See 'Description of the Offered
Certificates--Principal Payments' and '--Application of Collections.'
RAPID AMORTIZATION PERIOD................. During the period from the day on which a Pay Out Event has occurred
and ending on the earlier of (a) the date on which the Series 1998-1
Certificateholders Ownership Interests have been paid in full and (b)
the Series 1998-1 Termination Date (the 'Series 1998-1 Rapid
Amortization Period'), all Series 1998-1 Available Investor Principal
Collections received during each Monthly Period will be distributed
on the related Distribution Date in the order of priority described
below, up to the aggregate Series 1998-1 Certificateholders Ownership
Interests on such date. This is in contrast to the Series 1998-1
Controlled Amortization Period during which the amount of collections
in respect of Principal Receivables to be distributed to Series
1998-1 Certificateholders on any related Distribution Date will be
subject to specific limits as described above and may be less than
the total Series 1998-1 Available Investor Principal Collections
received by the Trust during the related Monthly Period. During the
Series 1998-1 Rapid Amortization Period, all Series 1998-1 Available
Investor Principal Collections will be distributed monthly on each
Distribution Date to the Series 1998-1 Class A Certificateholders
and, following payment in full of the Series 1998-1 Class A Ownership
Interest, to the Series 1998-1 Class B Certificateholders and,
following payment in full of the Series 1998-1 Class B Ownership
Interest, to the Series 1998-1 Class C Certificateholders, beginning
with the first Distribution Date following commencement of the Series
1998-1 Rapid Amortization Period.
PAY OUT EVENTS............................ Pay Out Events, that is, events that will cause the commencement of
the Series 1998-1 Rapid Amortization Period and may result in the
payment of Principal Receivables collections allocable to the Series
1998-1 Certificateholders earlier than scheduled generally include
such events as (a) specified defaults in the remittance or deposit of
funds or covenant breaches by AIC, AICCO or the Transferor, (b)
breaches of specified representations and warranties by
</TABLE>
18
<PAGE>
<TABLE>
<S> <C>
AIC, AICCO or the Transferor, (c) a Series 1998-1 Annualized Monthly
Excess Spread Amount below 400 basis points for three consecutive
Monthly Periods, (d) specified failure of the Transferor to maintain
the Transferor Ownership Interest at least equal to the Minimum
Transferor Ownership Interest, (e) specified Servicer Defaults, (f) a
Monthly Payment Rate of less than 14% for three consecutive Monthly
Periods, (g) a Financed Premium Percentage of more than 90% in
respect of Additional Receivables transferred to the Trust for three
consecutive Monthly Periods, (h) certain events of bankruptcy or
insolvency related to AIC, AICCO or the Transferor, (i) the
inability, for any reason, of the Transferor to transfer Additional
Receivables to the Trust and (j) a breach by AIG of the AIC Support
Agreement or a breach by AIC of its support obligations under the
Agreement with respect to AICCO or a breach by AIG of the AIR Support
Agreement. See 'Description of the Offered Certificates--Pay Out
Events' for a further discussion of the events which might lead to
the commencement of the Series 1998-1 Rapid Amortization Period.
PAYMENT PRIORITIES........................ On each Distribution Date during the Series 1998-1 Revolving Period
collections allocable to the Series 1998-1 Certificates will be
allocated as described herein to pay, in the following priority: (i)
interest due the Series 1998-1 Class A Certificateholders, (ii)
interest due the Series 1998-1 Class B Certificateholders, and (iii)
interest due the Series 1998-1 Class C Certificateholders. On each
Distribution Date during the Series 1998-1 Controlled Amortization
Period or the Series 1998-1 Rapid Amortization Period, collections
allocable to the Series 1998-1 Certificates will be allocated as
described herein to pay, in the following priority: (i) interest due
the Series 1998-1 Class A Certificateholders, (ii) interest due the
Series 1998-1 Class B Certificateholders, (iii) principal due the
Series 1998-1 Class A Certificateholders, (iv) principal due the
Series 1998-1 Class B Certificateholders, (v) interest due the Series
1998-1 Class C Certificateholders, and (vi) principal due the Series
1998-1 Class C Certificateholders. See 'Description of the Offered
Certificates--Application of Collections.'
SERIES 1998-1 YIELD ENHANCEMENT
ACCOUNT GENERALLY....................... On each Transfer Date, the Servicer shall deposit into an account
(the 'Series 1998-1 Yield Enhancement Account') maintained by the
Trustee for the benefit of the Series 1998-1 Certificateholders an
amount equal to the Series 1998-1 Available Yield Enhancement Amount
for such date out of Receivables collections otherwise allocable to
the holder of the Transferor Certificate in respect of the
immediately preceding Monthly Period. In addition, the Servicer will
deposit into the Series 1998-1 Yield Enhancement Account on each
Transfer Date any Series 1998-1 Excess Finance Charges.
The Series 1998-1 Available Yield Enhancement Amount on any Transfer
Date will equal (a) during the Series 1998-1 Revolving Period, the
product of (i) 2.25% and (ii) the product of (A) the collections for
the related Monthly Period otherwise allocable to the Transferor
Ownership Interest and (B) the Series 1998-1 Floating Investor
Percentage divided by one minus the Aggregate Investor Percentage,
and (b) during the
</TABLE>
19
<PAGE>
<TABLE>
<S> <C>
Series 1998-1 Controlled Amortization Period and the Series 1998-1
Rapid Amortization Period, if any, the product of (i) 2.25% and (ii)
the product of (A) the collections for the related Monthly Period
otherwise allocable to the Transferor Ownership Interest and (B) in
the case of collections of Finance Charge Receivables allocable to
the Transferor Ownership Interest, the Series 1998-1 Floating
Investor Percentage divided by one minus the Aggregate Investor
Percentage, and in the case of collections of Principal Receivables
allocable to the Transferor Ownership Interest, the Series 1998-1
Fixed Investor Percentage divided by one minus the Aggregate Investor
Percentage; provided that the Series 1998-1 Available Yield
Enhancement Amount for any Transfer Date will be capped so that it
will not exceed the sum of Series 1998-1 Class A Monthly Interest,
Series 1998-1 Class A Additional Interest, Series 1998-1 Class B
Monthly Interest, Series 1998-1 Class B Additional Interest, Series
1998-1 Class C Monthly Interest and Series 1998-1 Class C Additional
Interest, for such Transfer Date. See 'Description of the Offered
Certificates--Series 1998-1 Yield Enhancement Account' and
'--Interest Payments.'
USES OF FUNDS IN THE SERIES 1998-1 YIELD
ENHANCEMENT ACCOUNT GENERALLY........... Funds on deposit in the Series 1998-1 Yield Enhancement Account on
each Transfer Date will be available for application on the next
Distribution Date in respect of the Series 1998-1 Certificates to the
extent and in the priorities set forth under 'Description of the
Offered Certificates--Series 1998-1 Yield Enhancement Account.' In
general, such funds will be available to cover interest payments due
on the Series 1998-1 Certificates, to cover servicing fees allocable
to the Series 1998-1 Certificates, to avoid a reduction in their
respective ownership interests due to Default Amounts otherwise
allocable to the Series 1998-1 Certificates and to reimburse
reductions in such ownership interests due to allocation of Default
Amounts in respect of previous Transfer Dates. There can be no
assurance that funds on deposit in the Series 1998-1 Yield
Enhancement Account, together with the portion of Finance Charge
Receivables collections allocable to the Series 1998-1 Certificates
on any particular Transfer Date, will be sufficient to cover any or
all of such purposes.
On each Transfer Date, any amount in excess of the Series 1998-1 91
Day Delinquency Amount remaining in the Series 1998-1 Yield
Enhancement Account after application of the funds on deposit therein
for the purposes described above will be paid to the holder of the
Transferor Certificate, provided that a Pay Out Event has not
occurred. Amounts so paid will not be available on future
Distribution Dates for payment or allocation to the holders of the
Series 1998-1 Certificates. See 'Description of the Offered
Certificates--Series 1998-1 Yield Enhancement Account.'
</TABLE>
20
<PAGE>
<TABLE>
<S> <C>
PRINCIPAL COLLECTIONS AVAILABLE TO
SUPPLEMENT SERIES 1998-1 YIELD
ENHANCEMENT AMOUNT...................... If, on any Transfer Date, funds on deposit in the Series 1998-1 Yield
Enhancement Account are less than the Series 1998-1 Class A Required
Amount, collections in respect of Principal Receivables during the
preceding Monthly Period that are allocable first to the Series
1998-1 Class C Ownership Interest, then to the Series 1998-1 Class B
Ownership Interest and finally to the Series 1998-1 Class A Ownership
Interest with respect to such Monthly Period will be used to fund the
remaining Series 1998-1 Class A Required Amount. Any reallocation of
Principal Receivables collections to fund the Series 1998-1 Class A
Required Amount or, as described in the following paragraph, the
Series 1998-1 Class B Required Amount will result in a corresponding
reduction in the Series 1998-1 Certificateholders Ownership
Interests. The amount of any such reduction will be allocated first
to reduce the Series 1998-1 Class C Ownership Interest, second to
reduce the Series 1998-1 Class B Ownership Interest and lastly to
reduce the Series 1998-1 Class A Ownership Interest.
If Series 1998-1 Reallocated Principal Collections are insufficient
to fund such remaining Series 1998-1 Class A Required Amount, then
the Series 1998-1 Class C Ownership Interest (after giving effect to
reductions therein for any Series 1998-1 Class C Charge-Offs and
Series 1998-1 Reallocated Principal Collections on such Transfer
Date) will be reduced by the amount of such deficiency. In the event
that such reduction would cause the Series 1998-1 Class C Ownership
Interest to be a negative number, the Series 1998-1 Class C Ownership
Interest will be reduced to zero, and the Series 1998-1 Class B
Ownership Interest (after giving effect to reductions therein for any
Series 1998-1 Class B Charge-Offs and any Series 1998-1 Reallocated
Principal Collections on such Transfer Date) will be reduced by the
amount by which the Series 1998-1 Class C Ownership Interest would
have been reduced below zero. In the event that such reduction would
cause the Series 1998-1 Class B Ownership Interest to be a negative
number, the Series 1998-1 Class B Ownership Interest will be reduced
to zero and the Series 1998-1 Class A Ownership Interest (after
giving effect to reductions therein for any Series 1998-1 Reallocated
Principal Collections on such Transfer Date) will be reduced (but not
below zero) by the amount by which the Series 1998-1 Class B
Ownership Interest would have been reduced below zero (such
reduction, a 'Series 1998-1 Class A Charge-Off'). If the Series
1998-1 Class C Ownership Interest and the Series 1998-1 Class B
Ownership Interest are reduced to zero, the Series 1998-1 Class A
Certificateholders will bear directly the credit risks associated
with their undivided interests in the Trust. See 'Risk Factors--
Premium Finance Loan Credit and Related Risks,' 'Description of the
Offered Certificates--Reallocation of Cash Flows' and '--Defaulted
Loans; Charge-Offs.'
</TABLE>
21
<PAGE>
<TABLE>
<S> <C>
If, on any Transfer Date, funds on deposit in the Series 1998-1 Yield
Enhancement Account and not required to pay the Series 1998-1 Class A
Required Amount are less than the Series 1998-1 Class B Required
Amount, collections in respect of Principal Receivables during the
preceding Monthly Period that are available but not required to pay
the Series 1998-1 Class A Required Amount will be used to fund such
remaining Series 1998-1 Class B Required Amount. If Series 1998-1
Reallocated Principal Collections are insufficient to fund the
remaining Series 1998-1 Class B Required Amount, then the Series
1998-1 Class C Ownership Interest (after giving effect to reductions
therein for any Series 1998-1 Class C Charge-Offs and Series 1998-1
Reallocated Principal Collections on such Transfer Date) will be
reduced by the amount of such deficiency. In the event that such
reduction would cause the Series 1998-1 Class C Ownership Interest to
be a negative number, the Series 1998-1 Class C Ownership Interest
will be reduced to zero, and the Series 1998-1 Class B Ownership
Interest (after giving effect to reductions therein for any Series
1998-1 Reallocated Principal Collections on such Transfer Date) will
be reduced (but not below zero) by the amount by which the Series
1998-1 Class C Ownership Interest would have been reduced below zero
(such reduction, a 'Series 1998-1 Class B Charge-Off'). If the Series
1998-1 Class C Ownership Interest is reduced to zero, the Series
1998-1 Class B Certificateholders will bear directly the credit risks
associated with their undivided interests in the Trust.
Any reallocation of Principal Receivables collections described above
that occurs during the Series 1998-1 Controlled Amortization Period
or any Series 1998-1 Rapid Amortization Period could slow the rate of
amortization of the Series 1998-1 Class A Certificates and/or the
Series 1998-1 Class B Certificates.
In the event of a reduction of the Series 1998-1 Class A Ownership
Interest, the Series 1998-1 Class B Ownership Interest or the Series
1998-1 Class C Ownership Interest, the percentage of future
collections of Finance Charge Receivables and Principal Receivables
available to fund payments with respect to the Series 1998-1 Class A
Certificates and the Series 1998-1 Class B Certificates will be
decreased. See 'Description of the Offered Certificates--
Reallocation of Cash Flows' and '--Defaulted Loans; Charge-Offs.'
NEW SERIES ISSUANCES
GENERALLY............................... The Agreement will authorize the Trustee to issue pursuant to one or
more supplements to the Agreement (each, a 'Supplement') two types of
certificates: (i) one or more series of certificates (each, a
'Series') which may be issued in more than one class with varying
rights and priorities and which will be transferable and have the
characteristics described below and (ii) certificates evidencing the
Transferor Ownership Interest (collectively, the 'Transferor
Certificate'), currently
</TABLE>
22
<PAGE>
<TABLE>
<S> <C>
held by AIC and AICCO and to be transferred to the Transferor on the
Closing Date, and thereafter held by the Transferor. Such Transferor
Certificate will be transferable only as provided in the Agreement.
The Series 1994-1 Certificates have previously been issued pursuant
to such authority under the Original Agreement. See 'The Trust--Other
Series.' The Agreement also provides that, pursuant to any one or
more Supplements, the Transferor may reduce the Transferor Ownership
Interest (a 'Transferor Ownership Interest Reduction') or, if
provided in the relevant Supplement, certificateholders may tender
certificates representing any outstanding Series of certificates to
the Trustee and the Transferor may reduce the Transferor Ownership
Interest (an 'Investor Exchange'), in either case to effectuate the
issuance of one or more new Series (any new Series issuance pursuant
to a Transferor Ownership Interest Reduction or an Investor Exchange
is referred to as a 'New Series Issuance'). The Series 1998-1
Supplement permits an Investor Exchange and corresponding New Series
Issuance with respect to the Series 1998-1 Certificates. See
'Description of the Offered Certificates--New Series Issuances.'
Under the Agreement, the Transferor may define, with respect to any
Series, the Principal Terms of the Series. The Transferor may offer
any Series to the public or other investors under a prospectus or
other disclosure document (a 'Disclosure Document') in transactions
either registered under the Securities Act or exempt from
registration thereunder, directly or through the Underwriters or one
or more other underwriters or placement agents, in fixed-price
offerings or in negotiated transactions or otherwise. The Transferor
may offer, from time to time, additional Series issued by the Trust.
The Trust will, as promptly as practicable, include in a periodic
report filed with the Securities and Exchange Commission with respect
to the Series 1998-1 Certificates, disclosure of all information
related to issuance of any Series not required to be registered under
the Securities Act that is material to the holders of, or potential
investors in, the Series 1998-1 Certificates. See 'Description of the
Offered Certificates--New Series Issuances.' However, at all times,
the interest in the Principal Receivables in the Trust represented by
the Transferor Ownership Interest is required to equal or exceed the
Minimum Transferor Ownership Interest.
REQUIREMENTS FOR NEW SERIES ISSUANCES..... Under the Agreement and pursuant to a Supplement, a New Series
Issuance may occur only upon delivery to the Trustee of the
following: (i) a Supplement specifying the Principal Terms of such
Series, (ii) an opinion of counsel covering certain tax matters as
described herein, (iii) if required by the related Supplement, the
form of Enhancement, (iv) if an Enhancement is required by the
Supplement, an appropriate Enhancement instrument or agreement, (v)
written confirmation from each Rating Agency that the New Series
Issuance will not result in such Rating Agency reducing or
</TABLE>
23
<PAGE>
<TABLE>
<S> <C>
withdrawing its then existing rating on any then outstanding Series
rated by it, and (vi) if applicable, the certificates representing
the Series to be exchanged.
In light of the aforementioned requirements for a New Series
Issuance, including the required ratings confirmation and tax
opinion, the Transferor does not presently expect that any New Series
Issuance, including any issuance as part of an Investor Exchange,
will have a material adverse effect on the Series 1998-1
Certificates. There can be no assurance, however, that the Principal
Terms of any other Series, including any Series issued from time to
time hereafter, might not have an impact on the timing and amount of
payments received by a Series 1998-1 Certificateholder, including as
a result of the refixing of the percentage utilized with respect to
the allocation of the Principal Receivables. See 'Description of the
Offered Certificates--New Series Issuances' and '--Allocation
Percentages.'
DENOMINATION.............................. The Offered Certificates will be offered for purchase in minimum
denominations of $1,000 and integral multiples thereof.
BOOK-ENTRY CERTIFICATES................... The Offered Certificates will initially be issued in book-entry form
only and will be represented by one or more certificates registered
in the name of Cede, as the nominee of DTC. No Certificate Owner will
be entitled to receive a definitive certificate representing such
person's interest, except in the event that Definitive Certificates
are issued under the limited circumstances described herein. Under a
book-entry system, Certificate Owners might experience some delay in
their receipt of payments, since such payments will initially be
forwarded by the Trustee to Cede, as nominee for DTC. Further,
Certificate Owners will not be recognized by the Trustee as
Certificateholders, as such term will be used in the Agreement, and
Certificate Owners will only be permitted to exercise the rights of
Holders of Offered Certificates indirectly through DTC and its
participating organizations. See 'Description of the Offered
Certificates--Book-Entry Registration' and '--Definitive
Certificates.'
COLLECTIONS............................... The Servicer will deposit collections of Receivables in the
Collection Account described under 'Description of the Offered
Certificates--The Collection Account' at the times and to the extent
therein described. All amounts deposited in the Collection Account
will be allocated in the manner provided in the Agreement, as
supplemented by the Series 1994-1 Supplement, the Series 1998-1
Supplement and the Supplements relating to any future Series, by the
Servicer between amounts collected on Principal Receivables and
amounts collected on Finance Charge Receivables. All such amounts
will then be allocated in accordance with the respective interests of
the Series 1998-1 Certificateholders, the Series 1994-1
Certificateholders, the certificateholders of any other Series and
the holder of the Transferor Certificate in the Principal Receivables
and in the Finance Charge
</TABLE>
24
<PAGE>
<TABLE>
<S> <C>
Receivables of the Trust. See 'Description of the Offered
Certificates--Allocation Percentages.'
SHARED PRINCIPAL COLLECTIONS.............. The Offered Certificates are included in Series 1998-1. The Series
1994-1 Certificates were previously issued and other Series may be
issued in the future. Collections of Principal Receivables allocated
to the Series 1998-1 Certificateholders Ownership Interests with
respect to the Series 1998-1 Certificates that are not needed to make
payments on the Series 1998-1 Certificates will be allocated, if
necessary, to cover principal payments due to or for the benefit of
the Series 1994-1 Certificateholders and may be allocated for such
purposes with respect to other Series of certificates ('Shared
Principal Collections'). Any such reallocation will not result in a
reduction in the Series 1998-1 Certificateholders Ownership
Interests. In addition, collections of Principal Receivables and
certain other amounts otherwise allocable to the Series 1994-1
Certificateholders, to the extent such collections are not needed to
make payments to or deposits for the benefit of the Series 1994-1
Certificateholders, will be allocated, if necessary, to cover
principal payments due to or for the benefit of the Series 1998-1
Certificateholders and may be applied for such purposes with respect
to other Series of certificates. See 'Description of the Offered
Certificates--Shared Principal Collections.'
DEPOSITS IN THE EXCESS FUNDING ACCOUNT.... In certain circumstances as described herein, if on any date the
Transferor Ownership Interest equals or is less than the Minimum
Transferor Ownership Interest as of the end of the preceding Monthly
Period, funds (to the extent available therefor as described herein)
otherwise payable to the holder of the Transferor Certificate on such
date will be deposited in the Excess Funding Account. Funds allocable
to the Series 1998-1 Certificates on deposit in the Excess Funding
Account at the beginning of any Series 1998-1 Rapid Amortization
Period for the Series 1998-1 Certificates will be available for
payment to the Series 1998-1 Certificateholders in respect of
principal. See 'Description of the Offered Certificates--Excess
Funding Account.'
OPTIONAL REPURCHASE....................... The Series 1998-1 Certificates will be subject to optional repurchase
by the Transferor on any Distribution Date on or after the
Distribution Date on which the Series 1998-1 Certificateholders
Ownership Interests are reduced to an amount less than or equal to
$21,052,640 (10% of the Series 1998-1 Initial Certificateholders
Ownership Interests), if certain conditions set forth in the
Agreement and as described herein are met (a 'Cleanup Call'). The
repurchase price will be equal to the sum of the unpaid Series 1998-1
Certificateholders Ownership Interests and all accrued and unpaid
interest on the Series 1998-1 Certificates through the day preceding
the Distribution Date on which the Cleanup Call occurs less amounts,
if any, on deposit at such Distribution Date in the Series 1998-1
Distribution Account for the payment of principal
</TABLE>
25
<PAGE>
<TABLE>
<S> <C>
and interest due on the Series 1998-1 Certificates. See 'Description
of the Offered Certificates--Final Payment of Principal; Termination
of the Trust.'
TRUSTEE................................... The First National Bank of Chicago, a national banking association
(the 'Trustee'). The Corporate Trust Office is located at One First
National Plaza, Suite 0126, Chicago, Illinois, 60670-0126, except
that for purposes of notices to the Trustee and the registration of
transfer and exchange of the Series 1998-1 Certificates, the
Corporate Trust Office is located at 14 Wall Street, Eighth Floor,
New York, New York 10005.
TAX STATUS................................ Counsel to the Transferor has issued its opinion, subject to the
assumptions set forth therein, that under existing law, as more fully
discussed under 'United States Federal Income Tax Consequences' and
'Certain State and Local Tax Consequences,' the Offered Certificates
will be characterized as debt secured by the Receivables for federal,
California and New York State income tax purposes. Under the
Agreement, the holder of the Transferor Certificate and the
Certificate Owners will agree to treat the Offered Certificates as
debt of the Transferor for federal, state and local income, franchise
and other tax purposes. See 'United States Federal Income Tax
Consequences' and 'Certain State and Local Tax Consequences' for
additional information concerning the application of United States
federal income and certain state and local tax laws to an investment
in the Offered Certificates.
ERISA PLANS............................... The purchase of Offered Certificates by (a) any employee benefit plan
that is subject to the Employee Retirement Income Security Act of
1974, as amended ('ERISA'), (b) any plan or other arrangement
(including an individual retirement account or Keogh plan) that is
subject to section 4975 of the Code, or (c) any entity whose
underlying assets include 'plan assets' under regulations issued by
the Department of Labor by reason of any such plan's investment in
the entity ('ERISA Plans') may constitute or result in prohibited
transactions or other violations of ERISA. Therefore, the Offered
Certificates may not be acquired by any ERISA Plans. By their
acceptance of Offered Certificates, the Holders of Offered
Certificates will be deemed to have represented and warranted that
they are not subject to the foregoing limitation.
RATINGS OF OFFERED
CERTIFICATES............................ It is a condition to the issuance of the Series 1998-1 Class A
Certificates that they be rated 'AAA' by Standard & Poor's Ratings
Group ('Standard & Poor's') and Aaa by Moody's Investors Service,
Inc. ('Moody's'). The rating of the Series 1998-1 Class A
Certificates is based on the collectability of the Receivables, the
terms of the Series 1998-1 Class B Certificates and of the Series
1998-1 Class C Certificates, including the subordination terms, the
availability of funds to be deposited into the Series 1998-1 Yield
Enhancement Account, the loss allocation method and the Support
Agreements with AIG.
</TABLE>
26
<PAGE>
<TABLE>
<S> <C>
It is a condition to the issuance of the Series 1998-1 Class B
Certificates that they be rated at least 'A' by Standard & Poor's and
'A2' by Moody's. The rating of the Series 1998-1 Class B Certificates
is based on the collectability of the Receivables, the terms of the
Series 1998-1 Class C Certificates, including the subordination
terms, the availability of funds to be deposited into the Series
1998-1 Yield Enhancement Account, the loss allocation method and the
Support Agreements with AIG.
The ratings address the likelihood of full payment of principal and
interest of the Offered Certificates by the Series 1998-1 Termination
Date. Any such rating will not address the possibility of the
occurrence of a Pay Out Event with respect to any such class or the
possibility of the imposition of United States withholding tax with
respect to non-U.S. Holders of Offered Certificates. The rating will
not be a recommendation to purchase, hold or sell any such Offered
Certificates, and such rating will not comment as to the
marketability of such Offered Certificates, any market price or
suitability for a particular investor. There is no assurance that any
rating will not be lowered or withdrawn entirely by a Rating Agency
if in such Rating Agency's judgment future circumstances relating to
the basis of the ratings, such as adverse changes in the
collectability of the Receivables or a lowering of AIG's present
long-term debt rating, so warrant. See 'Risk Factors--Limitations on
Certificate Rating; Risk of Downgrade.'
</TABLE>
27
<PAGE>
RISK FACTORS
LIMITED LIQUIDITY. There is currently no market for the Offered
Certificates. The Underwriters intend to make a market in the Offered
Certificates but are not obligated to do so. There is no assurance that a
secondary market will develop or, if it does develop, that it will provide
Holders of Offered Certificates with liquidity of investment or that it will
continue until the Offered Certificates are paid in full.
PREMIUM FINANCE LOAN CREDIT AND RELATED RISKS. Commercial premium finance
loans entail several different risks, including (a) the creditworthiness of the
borrower (the 'Obligor'), (b) the creditworthiness of the insurance company, in
those cases where reliance is placed on the right to unearned premiums as
collateral for the loan, and (c) the capabilities and operating procedures of
the insurance agent or broker that (i) places the insurance policy, (ii) serves
as a source of significant information concerning the loan transaction and (iii)
may disburse the loan proceeds or collect unearned premium funds. Application of
federal and state bankruptcy, debtor relief or insolvency laws to an insolvency
of an Obligor, insurance company or insurance agent or broker involved with a
loan would affect the interests of the Holders of Offered Certificates in the
Receivables if such laws result in any Receivables being written off as
uncollectible or prevent the cancellation of such Obligor's insurance policy or
the collection of related unearned premium, if any, which may serve as
collateral for such Obligor's Loan. See 'Business of A.I. Receivables Corp.,
A.I. Credit Corp. and AICCO, Inc.--Premium Finance Loan Underwriting Procedures'
and 'Description of the Offered Certificates--Defaulted Loans; Charge-Offs.'
RISK OF BANKRUPTCY OF THE TRANSFEROR OR THE ORIGINAL TRANSFERORS. The
Transferor will transfer to the Trust pursuant to the Agreement the entire
beneficial interest in the Loans funded by AIC or AICCO to Obligors to finance
premiums on property and casualty insurance policies, including (a) the right to
receive payments on the Loans, all amounts due and to become due and all
collections and recoveries thereon and (b) the proceeds of certain collateral
security with respect thereto. Only the beneficial interest in the Loans has
heretofore been transferred to the Trust by the Original Transferors under the
Original Agreement, and only the beneficial interest therein will be transferred
by the Original Transferors to the Transferor under the Receivables Sale
Agreement and by the Transferor to the Trust under the Agreement. It is intended
that AIC or AICCO, as the case may be, will hold legal title to the Loans for
state regulatory purposes and in order to service and collect the Loans, but
that otherwise AIC or AICCO will be acting as nominal title holder only.
Accordingly, the Trust's rights with respect to the Loans will be derivative
through the Transferor and AIC and AICCO. Neither the Transferor nor the Trust
will (i) have made any loans directly to any Obligor, (ii) directly purchase any
loans from Third Party Originators, (iii) have any direct contractual
relationships with any Obligors or (iv) have any direct security interest in, or
direct rights with respect to, any assets or rights of any Obligors pledged as
collateral for the Loans. Accordingly, the Trustee may not have the ability to
exercise remedies directly against Obligors and the exercise of any such
remedies may require the assistance or cooperation of AIC or AICCO.
The Transferor will represent and warrant in the Agreement that its
transfer of Future Receivables to the Trust as of the Closing Date and
thereafter is a valid transfer of Receivables to the Trust. The Transferor will
also warrant and covenant in the Agreement that the Future Receivables have been
and will be transferred free and clear of any adverse claim and that, except for
transfers to the Trust pursuant to the Agreement or as otherwise provided
therein with respect to a permitted merger, consolidation or sale of assets by
the Transferor, the Transferor will not sell, pledge, assign, transfer or grant
any adverse claim on any Receivable (or interest therein) or any other asset of
the Trust. The Original Transferors will have made similar representations,
warranties and covenants with respect to the Existing Receivables under the
Agreement.
Section 541(d) of the United States Bankruptcy Code (the 'Bankruptcy Code')
provides, in pertinent part, that where a debtor retains only legal title to
property to service the property, but does not retain an equitable interest, the
property included in the debtor's bankruptcy estate will be limited to the
debtor's legal title interest only and not to any equitable interest it does not
hold. Since (i) there appears to be uncertainty as to the application of Section
541(d) to property interests outside of real estate
28
<PAGE>
mortgage loans, (ii) AIC and AICCO will be retaining an equitable interest in
the Receivables through the ownership of the Series 1994-1 Class C Certificates,
and (iii) the Transferor will be retaining an equitable interest in the
Receivables through the Transferor Ownership Interest and through the ownership
of the Series 1998-1 Class C Certificates, a court could find that the
Receivables had not been sold and removed from the estate of either AIC, AICCO
or the Transferor, but remain part of any such entity's estate in the event of
bankruptcy. Further, in Octagon Gas Systems, Inc. v. Rimmer, 995 F.2d 948 (10th
Cir. 1993), cert. den., 114 S. Ct. 554, the United States Court of Appeals for
the 10th Circuit suggested that even where a transfer of accounts from a seller
to a buyer constitutes a 'true sale,' the accounts would nevertheless constitute
property of the seller's estate in a bankruptcy of the seller.
In light of the foregoing, a creditor or trustee-in-bankruptcy of any of
AIC, AICCO or AIR could attempt to take the position that the transfer of such
beneficial interest pursuant to the Receivables Sale Agreement or the Agreement
was not a sale and should be recharacterized as an assignment of collateral as
security for the benefit of the Transferor or the holders of certificates issued
by the Trust. If the transfer to the Transferor or to the Trust were deemed to
be a grant to the Transferor or to the Trust of a security interest in the
Receivables, the Trustee may have an unperfected security interest therein that
will not have a priority over other, unsecured creditors, and would be
subordinate to secured creditors, of AIC, AICCO or the Transferor. Also, if it
were determined that the Trust or the Transferor had only an unperfected
security interest in its assets, payments made within one year of a bankruptcy
proceeding in respect of AIC, AICCO or the Transferor could be subject to
recapture as assets of such entity's bankruptcy estate pursuant to Section 547
of the Bankruptcy Code. Holders of Offered Certificates, consequently, could
experience delays in payment or possibly losses in their investment in the
Offered Certificates if a bankruptcy proceeding in respect of AIC, AICCO or the
Transferor were to occur. AIG has agreed for the benefit of the Trustee and the
certificateholders of all outstanding Series in the AIC Support Agreement
described elsewhere herein to cause each of AIC and AICCO to have a minimum net
worth of at least $1 and, if AIC or AICCO has insufficient funds to (a) meet any
of its obligations under the Agreement or (b) pay any of its other obligations
when due (except for any such obligations which are the subject of a bona fide
dispute), the non-payment of which could constitute a basis for the filing of an
involuntary case against either AIC or AICCO under the Bankruptcy Code, to
provide AIC or AICCO, as the case may be, funds on a timely basis to cause such
obligations to be satisfied when due. AIG has agreed for the benefit of the
Trustee and the certificateholders of all outstanding Series in the AIR Support
Agreement described elsewhere herein to cause AIR to have a minimum net worth of
at least $1 and, if (a) AIR has insufficient funds to meet any of its
obligations under the Agreement or (b) AIR has insufficient funds to pay any of
its other obligations when due (except for any such obligations which are the
subject of a bona fide dispute), the non-payment of which could constitute a
basis for the filing of an involuntary case against AIR under the Bankruptcy
Code, to provide AIR funds on a timely basis to cause such obligations to be
satisfied when due. The Support Agreements and AIC's comparable undertaking in
the Agreement reduce the probability that an Original Transferor or the
Transferor might be subject to a bankruptcy proceeding or have unpaid creditors
who might take the aforementioned position. See 'Description of the Offered
Certificates--Support Agreements.'
If a bankruptcy-related event involving AIC, AICCO or the Transferor were
to occur, then a Pay Out Event could occur with respect to all Series then
outstanding and, pursuant to the Agreement, Additional Receivables would not be
transferred to the Trust and the Trustee would be obligated to sell the
Receivables (unless holders of more than 50% of the certificateholders ownership
interests of each Series of certificates issued and outstanding, including any
certificates held by the Transferor if no bankruptcy-related event has occurred
as to the Transferor (or, with respect to any Series with two or more classes,
more than 50% of each class) and the holder of the Transferor Certificate (if no
bankruptcy-related event has occurred as to such holder), instruct otherwise) in
accordance with the Agreement in a commercially reasonable manner and on
commercially reasonable terms, which may cause early termination of the Trust
and a loss to certificateholders of each such Series (including the Series
1998-1 Certificateholders) if the proceeds from such early sale allocable to
such Series, if any, and the amounts available under any Enhancement applicable
to such Series were insufficient to pay
29
<PAGE>
certificateholders of such Series in full. If a Pay Out Event occurs that is due
to the bankruptcy of either AIC or AICCO, a bankruptcy trustee may have the
power to prohibit continued transfers of Receivables to the Transferor and to
repudiate the servicing obligations of AIC or AICCO, as the case may be. If a
Pay Out Event occurs that is due either to the bankruptcy of the Transferor or
the appointment of a bankruptcy trustee for the Transferor, the bankruptcy
trustee would have the power to prevent the early sale, liquidation or
disposition of the Receivables and the commencement of the Series 1998-1 Rapid
Amortization Period. A bankruptcy trustee in such event may also have the power
to cause the early sale of the Receivables, to prohibit the continued transfer
of Additional Receivables to the Trust and to cause the early retirement of the
Offered Certificates. If an early retirement of the Offered Certificates should
occur, Holders of Offered Certificates are likely to be repaid principal amounts
earlier than anticipated with respect to their Offered Certificates, which would
affect the anticipated average life of the Offered Certificates and could result
in reinvestment risk with respect to such earlier repayments.
In addition, in the event of a Servicer Default relating to the bankruptcy
of the Servicer, if no Servicer Default other than such bankruptcy exists, the
bankruptcy trustee for the Servicer may have the power to prevent either the
Trustee or the certificateholders of outstanding Series of certificates from
appointing a successor servicer.
RISK OF STATE REGULATION OF PREMIUM FINANCE LENDING. The making,
purchasing and servicing of insurance premium loans is subject to numerous state
laws and regulations which impose requirements on the making, enforcement and
collection of insurance premium loans. The states may enact additional laws and
regulations and amendments to existing laws and regulations to regulate further
the premium loan industry or to reduce finance charges or other fees or charges
applicable to insurance premium loans. Such laws, as well as any new laws or
rulings which may be adopted, may adversely affect the Servicer's ability to
collect on the Receivables or maintain the required level of finance charges and
other fees and charges and the ability of the Trust to retain a successor
servicer in the event AIC or AICCO shall cease for any reason to continue as a
Servicer. Since neither the Trust nor the Transferor makes or services premium
finance loans or has acquired legal title to any such loans, AIC and AICCO
believe that there is no requirement that either the Transferor or the Trust be
licensed under any state premium finance licensing laws.
Pursuant to the Agreement, the Transferor will covenant to accept
reassignment of each Future Receivable, and AIC or AICCO, as the case may be,
will covenant to accept reassignment of each Existing Receivable, that does not
comply with certain representations and warranties, including representations
concerning compliance with applicable state law and regulations, if, as a result
of such noncompliance, the related Loan becomes a Defaulted Loan. Pursuant to
the Receivables Sale Agreement, each of the Original Transferors will covenant
to accept reassignment of each Future Receivable sold by it to the Transferor
that may be reassigned to the Transferor because of a breach of a representation
and warranty. See 'Description of the Offered Certificates--Representations and
Warranties.' The Trustee has not made, and it is not anticipated that it will
make, any examination of the Receivables or the records relating thereto for the
purpose of establishing the presence or absence of defects, compliance with such
representations and warranties, or for any other purpose. The Trust's remedy if
any such representation or warranty is breached and such breach continues beyond
the applicable cure period and the related Loan becomes a Defaulted Loan because
of such breach is that (i) in the case of a Future Receivable, the Transferor
will be obligated to accept reassignment of the Receivable affected thereby and,
in turn, the Transferor will reassign such Future Receivable to either AIC or
AICCO, as applicable, which will be obligated to accept a reassignment of such
Receivable pursuant to the terms of the Receivables Sale Agreement, or (ii) in
the case of an Existing Receivable, the applicable Original Transferor will be
obligated to accept reassignment of such Receivable. See '--Risk of Bankruptcy
of the Transferor or the Original Transferors' and 'Description of the Offered
Certificates--Representations and Warranties.'
DEPENDENCE ON THE BUSINESS OF AIC AND AICCO. The premium finance loan
industry is competitive and includes banks as well as other premium finance
lending companies that offer financing to companies that purchase commercial
insurance. Insurance premium lenders may compete on the basis of loan pricing
and terms, underwriting criteria and servicing quality. If commercial insurance
30
<PAGE>
consumers choose to utilize competing sources of credit, the amount of available
Additional Receivables relating to Loans funded by AIC or AICCO may be reduced.
The size of the Trust will be dependent upon the Transferor's continued ability
to transfer to the Trust Additional Receivables, which in turn will be dependent
upon the continued ability of AIC and AICCO to generate Additional Receivables
for subsequent sale to the Transferor and transfer by the Transferor to the
Trust. If the amount of Additional Receivables generated declines significantly,
Additional Receivables available to be transferred to the Trust will decline. If
the amount of Additional Receivables generated declines to such an extent that
the Transferor is unable to maintain the Minimum Transferor Ownership Interest,
a Pay Out Event would occur, in which event the Series 1998-1 Rapid Amortization
Period would commence. If the Series 1998-1 Rapid Amortization Period commences,
Series 1998-1 Certificateholders are likely to be repaid principal amounts
earlier than anticipated with respect to their Series 1998-1 Certificates, which
would affect the anticipated average life of the Series 1998-1 Certificates and
could result in reinvestment risk with respect to such earlier repayments. In
addition, the amount otherwise allocable to the holder of the Transferor
Certificate that would be available to be deposited into the Series 1998-1 Yield
Enhancement Account could be reduced thereby, reducing funds available to pay
amounts due with respect to the Series 1998-1 Certificates. See 'Description of
the Offered Certificates--Pay Out Events' and '--Series 1998-1 Yield Enhancement
Account.'
GEOGRAPHIC CONCENTRATION AND ADVERSE ECONOMIC FACTORS. Significant
percentages of Loans underlying the Receivables were originated in New York,
California, Texas and New Jersey. After giving effect to the transfer of
Additional Receivables, the specific percentages may increase or decrease.
Economic factors, including the occurrence of a recession, the rate of
inflation, and relative interest rates, may have an adverse impact on the
performance of the Receivables and on the ability of AIC and AICCO to generate
Additional Receivables. In particular, negative economic developments in New
York, California, Texas or New Jersey could have an adverse impact on the timing
and amounts of payments made by borrowers in respect of Receivables and could
cause such borrowers to become bankrupt or insolvent. Such developments may
adversely affect the payments received by the Trust and could lead to a Pay Out
Event which would cause the early retirement of the Offered Certificates and
result in reinvestment risk. See '--Premium Finance Loan Credit and Related
Risks' and 'Maturity Considerations.'
RISK OF LIMITATIONS ON SUBORDINATION AND YIELD ENHANCEMENT. Although the
probability of payment of amounts due with respect to the Offered Certificates
is intended to be enhanced by the subordination described herein of payments on
the Series 1998-1 Class C Certificates and by the availability of amounts in the
Series 1998-1 Yield Enhancement Account as described herein and, in the case of
the Series 1998-1 Class A Certificates, also by the subordination of payments on
the Series 1998-1 Class B Certificates to the Series 1998-1 Class A Certificates
as described herein, the amount of such enhancement is limited and may decline
during the Series 1998-1 Controlled Amortization Period or any Series 1998-1
Rapid Amortization Period or as a result of Defaulted Loans. If the
subordination of payments on the Series 1998-1 Class C Certificates and any
amounts deposited into the Series 1998-1 Yield Enhancement Account are
insufficient to protect the Series 1998-1 Class B Certificates from shortfalls
or delays in collections on the Receivables, then the Series 1998-1 Class B
Certificateholders will bear directly the credit risk associated with their
undivided interests in the Trust. If the subordination of payments on the Series
1998-1 Class C Certificates and the Series 1998-1 Class B Certificates and any
amounts deposited into the Series 1998-1 Yield Enhancement Account are
insufficient to protect the Series 1998-1 Class A Certificates from shortfalls
or delays in collections on the Receivables, then the Series 1998-1 Class A
Certificateholders will bear directly the credit risk associated with their
undivided interests in the Trust. The credit risk associated with the Series
1998-1 Certificateholders' undivided interests in the Trust is the risk that the
Trust will not receive full and timely payment of the Receivables. This risk is
described further in '--Premium Finance Loan Credit and Related Risks' above.
Series of certificates issued in the future may share with the Offered
Certificates in the benefits of any amounts deposited into the Excess Funding
Account. The Series 1994-1 Offered Certificates will share with the Offered
Certificates in the benefits of amounts deposited into the Excess Funding
Account. See 'Description of the Offered Certificates--Subordination,' '--Series
1998-1 Yield Enhancement Account' and '--Excess Funding Account.'
31
<PAGE>
OTHER SERIES MAY IMPACT PAYMENTS. The Trust, as a master trust, has issued
the Series 1994-1 Certificates, will issue the Series 1998-1 Certificates, and
may issue additional Series of certificates. While the Principal Terms of any
Series will be specified in a Supplement, the provisions of a Supplement and,
therefore, the terms of any additional Series, will not be subject to the prior
review or consent of holders of the certificates of any previously issued
Series, including the Series 1998-1 Certificateholders. Such Principal Terms may
include methods for determining applicable investor percentages and allocating
collections, provisions creating different or additional security or other
Enhancement and different or additional pay out events and/or provisions
subordinating such Series to another Series (if the Supplement relating to such
Series so permits; the Series 1998-1 Supplement will not permit such
subordination of the Offered Certificates to any other Series). It is a
condition precedent to any New Series Issuance that either (A) each Rating
Agency deliver written confirmation to the Trustee that such issuance will not
result in such Rating Agency reducing or withdrawing its then-existing rating on
any outstanding Series or (B) if at the time of the issuance there is no
outstanding Series which is currently rated by a Rating Agency, a nationally
recognized investment banking firm or commercial bank deliver a certificate to
the Trustee to the effect that the issuance will not have an adverse effect on
the timing or distribution of payments to such other Series. There can be no
assurance, however, that the Principal Terms of any other Series, including
Series 1994-1 and any other Series issued from time to time hereafter, will not
have an impact on the timing and amount of payments received by a Series 1998-1
Certificateholder, including as a result of the refixing of the percentage
utilized with respect to the allocation of the Principal Receivables. See
'Description of the Offered Certificates--New Series Issuances' and
'--Allocation Percentages.'
If the Trust issues any additional Series in a future public offering, the
Trust will do so pursuant to a registration statement (and prospectus) under the
Securities Act that is separate from this Prospectus and its related
registration statement. The new prospectus will not take the form of a
supplement to this Prospectus as is utilized in shelf offerings under the
Securities Act.
CERTIFICATEHOLDER CONTROL LIMITATIONS. Subject to certain exceptions, the
certificateholders of each Series may take certain actions, or direct certain
actions to be taken, under the Agreement, including the related Supplement.
However, under certain circumstances, the consent or approval of a specified
percentage of the aggregate certificateholders ownership interests of all Series
or of the certificateholders ownership interests of each Series or of classes
within a Series will be required to take or direct certain actions, including
requiring the appointment of a successor Servicer following a Servicer Default,
amending the Agreement in certain circumstances and directing a repurchase by
the Transferor and/or the Original Transferors of some or all outstanding
Receivables upon the breach of certain representations and warranties by the
Transferor and/or the Original Transferors. In such instances, the interests of
the Series 1998-1 Certificateholders may not be aligned with the interests of
the holders of certificates of such other Series. Thus, even if the requisite
majority of Series 1998-1 Certificateholders votes to take or direct such
action, the holders of certificates of such other Series may control whether or
not such action occurs.
RISK OF DECLINE IN QUALITY OF ADDITIONAL RECEIVABLES. AIC and AICCO will
be obligated pursuant to the Receivables Sale Agreement to transfer to the
Transferor the Additional Receivables relating to Loans funded by them that the
Transferor elects or is obligated to transfer to the Trustee for the benefit of
the Trust pursuant to the Agreement. Such Additional Receivables may include
Receivables originated using criteria different from those which were applied to
the Existing Receivables because such Receivables were originated at a different
date. Consequently, there can be no assurance that Additional Receivables
designated in the future will be of the same credit quality as previously
designated Receivables. The designation of Additional Receivables will be
subject to the satisfaction of certain conditions described herein under
'Description of the Offered Certificates--Addition of Receivables.' Except for
the criteria described thereunder, there are no required characteristics of
Additional Receivables. Following the transfer of Additional Receivables to the
Trust, the aggregate characteristics of the entire pool of Receivables included
in the Trust may vary from those of the Receivables included in the Trust on the
Closing Date. See 'The Receivables.'
32
<PAGE>
RISK OF INSUFFICIENCY OF ADDITIONAL RECEIVABLES. There is no assurance
that there will be at any time after the Closing Date sufficient Additional
Receivables available for transfer to the Transferor and to the Trust to avoid a
Pay Out Event. The commencement and continuation of a Series 1998-1 Controlled
Amortization Period for a class with respect to the Trust will be dependent upon
the continued generation of Additional Receivables to be conveyed to the Trust.
A significant decline in the amount of Receivables generated could result in the
occurrence of a Pay Out Event and the commencement of the Series 1998-1 Rapid
Amortization Period. See 'Maturity Considerations' and 'Description of the
Offered Certificates--Pay Out Events.'
LIMITATIONS ON CERTIFICATE RATING; RISK OF DOWNGRADE. Any rating assigned
to a class of the Offered Certificates by Standard & Poor's or Moody's
(individually, a 'Rating Agency' and collectively, the 'Rating Agencies') will
reflect such Rating Agency's assessment of the likelihood that
certificateholders of such class will receive the payments of interest and
principal required to be made under the Agreement and will be based on the
collectability of the Receivables in the Trust, the terms, including the
subordination terms, of other classes, the availability of amounts in the Series
1998-1 Yield Enhancement Account, the loss allocation method and the Support
Agreements with AIG. The rating addresses the likelihood of full payment of
principal and interest of the Offered Certificates by the Series 1998-1
Termination Date. Any such rating will not address the possibility of the
occurrence of a Pay Out Event with respect to such class or the possibility of
the imposition of United States withholding tax with respect to non-U.S. Holders
of Offered Certificates. The rating will not be a recommendation to purchase,
hold or sell certificates of such class, and such rating will not comment as to
the marketability of such Offered Certificates, any market price or suitability
for a particular investor. There is no assurance that any rating will remain for
any given period of time or that any rating will not be lowered or withdrawn
entirely by a Rating Agency if in such Rating Agency's judgment future
circumstances relating to the basis of the rating, such as adverse changes in
the collectability of the Receivables or a lowering of AIG's long-term debt
rating, so warrant.
The Transferor will request a rating of the Offered Certificates by the two
Rating Agencies. There can be no assurance as to whether any rating agency not
requested to rate the Offered Certificates will nonetheless issue a rating with
respect to any Offered Certificate or class thereof, and, if so, what such
rating would be. A rating assigned to any Offered Certificates or class thereof
by a rating agency that has not been requested by the Transferor to do so may be
lower than the rating assigned by a Rating Agency pursuant to the Transferor's
request.
BOOK-ENTRY REGISTRATION. The Offered Certificates will be initially
represented by one or more certificates registered in the name of Cede, the
nominee for DTC, and will not be registered in the names of the Certificate
Owners or their nominees. Because of this, unless and until Definitive
Certificates are issued, Certificate Owners will not be recognized by the
Trustee as Series 1998-1 Certificateholders, as that term will be used in the
Agreement. Hence, until such time, Certificate Owners will only be able to
exercise the rights of Series 1998-1 Certificateholders indirectly through DTC
and its participating organizations. See 'Description of the Offered
Certificates--Book-Entry Registration' and '--Definitive Certificates.'
REPORTS TO CERTIFICATEHOLDERS. Unless and until Definitive Certificates
are issued, monthly and annual reports containing information concerning the
Trust and prepared by the Trustee will be sent on behalf of the Trust to Cede,
as nominee for DTC and the registered holder of the Offered Certificates. Such
reports will not constitute financial statements prepared in accordance with
generally accepted accounting principles and will not be sent by the Servicer or
the Trustee to the Certificate Owners. See 'Description of the Offered
Certificates--Book-Entry Registration,' '--Definitive Certificates,' and '--
Reports to Holders of Offered Certificates.'
MATURITY CONSIDERATIONS
The Agreement provides that the Series 1998-1 Class A Certificateholders
will not receive payments of principal until the first Distribution Date with
respect to the Series 1998-1 Controlled Amortization Period, which is the
September 1999 Distribution Date, or earlier in the event of a Pay Out
33
<PAGE>
Event which results in the commencement of the Series 1998-1 Rapid Amortization
Period. Series 1998-1 Class A Certificateholders will receive payments of
principal on each Distribution Date following the commencement of the Series
1998-1 Rapid Amortization Period, to the extent of funds available therefor,
until the Series 1998-1 Class A Ownership Interest has been paid in full or the
Series 1998-1 Termination Date has occurred. The Series 1998-1 Class B
Certificateholders will not begin to receive payments of principal until the
Series 1998-1 Class A Ownership Interest has been fully paid.
On each Distribution Date during the Series 1998-1 Class A Controlled
Amortization Period (which is presently scheduled to include the Distribution
Dates occurring in the months from September 1999 to March 1999), the Series
1998-1 Class A Certificateholders will be entitled to receive monthly payments
of principal until the Series 1998-1 Class A Ownership Interest has been paid in
full equal to the least of (a) Series 1998-1 Available Investor Principal
Collections (see 'Description of the Offered Certificates--Principal Payments')
on deposit in the Principal Account with respect to the related Transfer Date,
(b) the applicable Series 1998-1 Controlled Distribution Amount, which is equal
to the sum of the applicable Series 1998-1 Controlled Amortization Amount and
any existing applicable Series 1998-1 Deficit Controlled Amortization Amount
(both as defined under 'Description of the Offered Certificates--Principal
Payments') and (c) the Series 1998-1 Class A Ownership Interest. On each
Distribution Date during the Series 1998-1 Class B Controlled Amortization
Period (which is presently scheduled to be only the Distribution Date occurring
in April 2000), the Series 1998-1 Class B Certificateholders will be entitled to
receive monthly payments of principal until the Series 1998-1 Class B Ownership
Interest has been paid in full equal to the least of (a) Series 1998-1 Available
Investor Principal Collections (see 'Description of the Offered
Certificates--Principal Payments') on deposit in the Principal Account with
respect to the related Transfer Date (minus the portion of such Series 1998-1
Available Investor Principal Collections applied to Series 1998-1 Class A
Monthly Principal on such date), (b) the applicable Series 1998-1 Controlled
Distribution Amount (minus the portion of such Series 1998-1 Controlled
Distribution Amount applied to Series 1998-1 Class A Monthly Principal on such
date), and (c) the Series 1998-1 Class B Ownership Interest.
If a Pay Out Event occurs before or during the Series 1998-1 Controlled
Amortization Period, the Series 1998-1 Rapid Amortization Period will commence.
To the extent that the Series 1998-1 Class A Ownership Interest has not been
paid in full, the Series 1998-1 Class A Certificateholders will be entitled to
monthly payments of principal equal to the Series 1998-1 Available Investor
Principal Collections until the earlier of the date on which the Series 1998-1
Class A Ownership Interest has been paid in full and the Series 1998-1
Termination Date. After the Series 1998-1 Class A Ownership Interest has been
paid in full, Series 1998-1 Available Investor Principal Collections will be
paid to the Series 1998-1 Class B Certificateholders on each Distribution Date
until the earlier of the date on which the Series 1998-1 Class B Ownership
Interest has been paid in full and the Series 1998-1 Termination Date. A Pay Out
Event occurs, either automatically or after specified notice, upon certain
events, including generally (a) the failure of AIC, AICCO or the Transferor to
make certain remittances or deposits of funds for the benefit of the Series
1998-1 Certificateholders within the time periods stated in the Agreement, (b)
breaches of specified representations and warranties by AIC, AICCO or the
Transferor, (c) a Series 1998-1 Annualized Monthly Excess Spread Amount below
400 basis points for three consecutive Monthly Periods, (d) specified failure of
the Transferor to maintain the Transferor Ownership Interest at an amount at
least equal to the Minimum Transferor Ownership Interest, (e) specified Servicer
Defaults, (f) a Monthly Payment Rate of less than 14% for three consecutive
Monthly Periods, (g) a Financed Premium Percentage of more than 90% in respect
of Additional Receivables transferred to the Trust for three consecutive Monthly
Periods, (h) certain events of bankruptcy or insolvency related to AIC, AICCO or
the Transferor, (i) the inability, for any reason, of the Transferor to transfer
Additional Receivables to the Trust, and (j) a breach by AIG of either of the
Support Agreements or a breach by AIC of its support obligations under the
Agreement with respect to AICCO. See 'Description of the Offered
Certificates--Pay Out Events.'
Because there may be a slowdown in the payment rate of the Receivables
below the payment rates used to determine the Series 1998-1 Controlled
Distribution Amounts, or a Pay Out Event may occur which would initiate the
Series 1998-1 Rapid Amortization Period, there can be no assurance that the
34
<PAGE>
respective final Distribution Dates of the Series 1998-1 Class A Certificates
and the Series 1998-1 Class B Certificates will be as indicated herein. See
'Risk Factors--Risk of Insufficiency of Additional Receivables.'
The ability of the Series 1998-1 Certificateholders to receive payments of
principal during the Series 1998-1 Controlled Amortization Period or any Series
1998-1 Rapid Amortization Period depends on the amount and schedule of
installments of outstanding Receivables, delinquencies, charge-offs and the
generation and transfer of Additional Receivables and the potential issuance by
the Trust of additional Series. There can be no assurance as to the actual rate
of payment of principal of the Series 1998-1 Certificates. See 'Description of
the Offered Certificates--Principal Payments.'
In addition, the amount of outstanding Receivables, as well as
delinquencies, charge-offs and the generation of new Receivables may vary from
month to month due to seasonal variations, regulatory factors, general economic
conditions and conditions in the markets for the services offered by AIC and
AICCO. There can be no assurance that collections of Receivables with respect to
the Trust, and thus the rate at which the Series 1998-1 Certificateholders could
expect to receive payments of principal on the Series 1998-1 Certificates, will
be as indicated herein. In addition, the Trust, as a master trust, may issue
additional Series from time to time, and there can be no assurance that the
terms of any such Series would not have an impact on the timing or amount of
payments received by the Holders of Offered Certificates. Further, if a Pay Out
Event occurs, the average life and maturity of the Offered Certificates could be
significantly reduced. No prepayment premium will be payable on account of any
prepayment of the Series 1998-1 Certificates as the result of the occurrence of
the Series 1998-1 Rapid Amortization Period.
If an event of bankruptcy relating to AIC, AICCO or the Transferor were to
occur, then a Pay Out Event could occur with respect to all Series then
outstanding and, pursuant to the Agreement, the Transferor would immediately
cease to transfer Receivables to the Trust, and the Trustee would sell all
Receivables then in the Trust (unless holders of more than 50% of the
certificateholders ownership interests of each Series issued and outstanding,
including any certificates held by the Transferor if no bankruptcy-related event
has occurred as to the Transferor (or, with respect to any Series with two or
more classes, more than 50% of each class) and the holder of the Transferor
Certificate (if no bankruptcy-related event has occurred as to such holder),
instruct otherwise), in accordance with the Agreement in a commercially
reasonable manner and on commercially reasonable terms, which may cause early
termination of the Trust. However, in a bankruptcy proceeding, neither the
Trustee nor the Transferor may be permitted to suspend transfers of Receivables
to the Trust and the Transferor, respectively, and the instructions to sell or
not to sell the Receivables may not be given effect. See 'Risk Factors--Risk of
Bankruptcy of the Transferor or the Original Transferors.' The proceeds from the
sale of the Receivables would be treated as collections on the Receivables and
allocated accordingly among holders of certificates of each Series and the
holder of the Transferor Certificate. If the proceeds from such early sale
allocable to such Series, if any, and the amounts available under any
Enhancement applicable to such Series were insufficient to pay
certificateholders of such Series fully, a loss to certificateholders of each
such Series (including the Series 1998-1 Certificateholders) would result.
THE TRUST
GENERAL. The Trust was formed pursuant to the Original Agreement in
accordance with the laws of the State of New York. Prior to its formation, the
Trust did not have any assets or obligations. The Trust has not engaged and will
not engage in any activity, other than as described herein. In addition to the
Receivables, the assets of the Trust will also include (a) all monies on deposit
in certain bank accounts of the Trust, (b) all monies on deposit in certain bank
accounts established and maintained for the benefit of certificateholders of any
Series, and (c) any Enhancement issued with respect to any other Series (the
benefits of such Enhancement with respect to other Series will not be available
for the benefit of the Series 1998-1 Certificateholders). The term 'Enhancement'
shall mean, with respect to any Series, any letter of credit, cash collateral
account, surety bond, guaranteed rate agreement,
35
<PAGE>
maturity guaranty facility, tax protection agreement, interest rate swap or
other contract or agreement principally for the benefit of certificateholders of
such Series. The Trust will exist only for the transactions described herein,
including the collection of payments with respect to the Receivables and holding
such Receivables, the issuance of the Transferor Certificate, the issuance of
the Series 1998-1 Certificates, the Series 1994-1 Certificates and certificates
representing additional Series and related activities (including, with respect
to any Series, receiving any Enhancement and entering into the Enhancement
agreement relating thereto) and making payments thereon. As a consequence, the
Trust is not expected to have any need for additional capital resources.
OTHER SERIES. The Trust previously issued, on December 22, 1994 (the
'Initial Closing Date'), pursuant to the Original Agreement and the Original
Series 1994-1 Supplement the Series 1994-1 Certificates, consisting of
$200,000,000 in aggregate principal amount of Series 1994-1 Floating Rate Class
A Asset Backed Certificates (the 'Series 1994-1 Class A Certificates'),
$7,600,000 in aggregate principal amount of Series 1994-1 Floating Rate Class B
Asset Backed Certificates (the 'Series 1994-1 Class B Certificates') and the
Series 1994-1 Class C Certificates, and the Transferor Certificate. The Series
1994-1 Class C Certificates and the Transferor Certificate have been and until
the Closing Date or thereabout will continue to be held by AIC and AICCO and
represent their respective interests in the Trust as Original Transferors.
Simultaneously with the issuance of the Series 1998-1 Certificates, the
Transferor Certificate will be transferred to AIR by AIC and AICCO. AIC and
AICCO will retain the Series 1994-1 Class C Certificates. AIC and AICCO will, on
the Closing Date, cease to transfer Receivables to the Trust and all such future
conveyances to the Trust will be made by AIR, which will purchase Receivables
from AIC and AICCO pursuant to the terms of the Receivables Sale Agreement.
The table below sets forth the principal economic characteristics of the
Series 1994-1 Offered Certificates heretofore issued by the Trust. For more
specific information with respect to any Series, any prospective investor should
contact the Servicer at (800) 221-3450. The Servicer will provide, without
charge, to any prospective purchaser of the Series 1998-1 Certificates, a copy
of the prospectus for the Series 1994-1 Certificates.
1. SERIES 1994-1 CLASS A CERTIFICATES
<TABLE>
<S> <C>
Initial Ownership Interest.......... $200,000,000
Certificate Rate.................... One-month LIBOR + 0.23%, subject to a cap of 16.00%, per annum
Current Ownership Interest.......... $200,000,000
Controlled Amortization Amount...... $28,571,428.58
Expected Commencement of Controlled
Amortization Period............... September 1, 1999
Monthly Servicing Fee............... No fee while AIC and AICCO are Servicer; otherwise one-twelfth of the
product of 0.5% and the Series 1994-1 Class A Ownership Interest
Other Enhancement................... Subordination of Series 1994-1 Class B Certificates and Series 1994-1
Class C Certificates; series-specific yield enhancement account
Expected Final Payment Date......... March 2000
Scheduled Series Termination Date... October 2001
Series Issuance Date................ December 22, 1994
</TABLE>
36
<PAGE>
2. SERIES 1994-1 CLASS B CERTIFICATES
<TABLE>
<S> <C>
Initial Ownership Interest.......... $7,600,000
Certificate Rate.................... One-month LIBOR + 0.43%, subject to a cap of 16.00%, per annum
Current Ownership Interest.......... $7,600,000
Controlled Amortization Amount...... $28,571,428.58
Expected Commencement of Controlled
Amortization Period............... April 2000
Monthly Servicing Fee............... No fee while AIC and AICCO are Servicer; otherwise one-twelfth of the
product of 0.5% and the Series 1994-1 Class B Ownership Interest
Other Enhancement................... Subordination of Series 1994-1 Class C Certificates; series-specific
yield enhancement account
Expected Final Payment Date......... April 2000
Scheduled Series Termination Date... October 2001
Series Issuance Date................ December 22, 1994
</TABLE>
37
<PAGE>
BUSINESS OF A.I. RECEIVABLES CORP., A.I. CREDIT CORP. AND AICCO, INC.
GENERAL
A.I. Receivables Corp. ('AIR') was incorporated in Delaware in January of
1998 and is wholly owned by A.I. Credit Corp. and AICCO, Inc., each of which
holds a 50% interest therein. AIR was created for the sole and limited purpose
of acting as Transferor under the Trust and as purchaser under the Receivables
Sale Agreement. Receivables relating to Loans funded by AIC and AICCO, as
described below, will be purchased by AIR pursuant to the Receivables Sale
Agreement and subsequently transferred from AIR to the Trust pursuant to the
Agreement. The principal executive office of AIR is located at 160 Water Street,
New York, New York 10038, telephone number (212) 428-5500.
A.I. Credit Corp. was incorporated in New Hampshire in 1973 and is a
wholly-owned subsidiary of American International Group, Inc., a Delaware
corporation ('AIG'). AIG is a holding company which through its subsidiaries is
primarily engaged in a broad range of insurance and insurance related activities
in the United States and abroad. The principal business of A.I. Credit Corp.
consists of funding loans to commercial borrowers ('Obligors') to finance
property and casualty insurance premiums throughout the United States, other
than in California. AICCO, Inc. ('AICCO'), a wholly-owned subsidiary of A.I.
Credit Corp. that was incorporated in California in 1974, conducts such premium
finance lending activities in California. As used in this 'Business' section
(unless otherwise indicated), 'AIC' refers to A.I. Credit Corp. and AICCO
collectively. AIC finances premiums for most lines of property and casualty
insurance. AIC believes that it is one of the largest insurance premium finance
company in the United States. AIC financed insurance premiums during each of
1996 and 1997 in excess of $2 billion. The principal executive office of AIC is
located at 160 Water Street, New York, New York 10038, telephone number (212)
428-5400 and of AICCO is located at 777 South Figueroa Street, Los Angeles,
California 90017, telephone number (213) 689-3600.
A commercial premium finance loan typically is an installment loan made to
a commercial insurance buyer, the proceeds of which pay premiums which are due
to the insurance company. Financed commercial insurance policies commonly (a)
are for a term of one year or less, (b) require the full premium to be paid at
inception and (c) provide upon early cancellation for a return of unearned
premium to the insured. Obligors generally make fixed scheduled payments which
include a finance charge based on a spread over the estimated yield at the date
of origination of the loan of money market investments with a maturity
comparable to the loan. The finance charges on premium finance loans funded by
AIC may vary considerably, depending on the term and amount of the loan, the
insured's credit payment history, the size of the premium down payment and other
considerations. During each of calendar years 1995, 1996 and 1997, the average
yield on the Loan Portfolio has exceeded the monthly average of the daily rates
in the London interbank market for offers of one-month United States dollar
deposits by at least 200 basis points for each monthly period. Due to future
changes in the interest rate environment, competition from other lenders and
other relevant factors, there can be no assurance the average spread between the
Loans and one-month LIBOR will not be lower in the future. For additional
information concerning the calculation of AIC's finance charges, see
'Description of the Offered Certificates--Allocation Percentages.' For
information concerning additional amounts intended to be available as yield
enhancement for the Offered Certificates, see 'The Receivables' and 'Description
of the Offered Certificates--Series 1998-1 Yield Enhancement Account.'
AIC utilizes standardized premium finance loan agreements that give AIC a
limited power of attorney allowing it to cancel the insurance coverage upon
non-payment of a loan installment by the Obligor and to collect from the
insurance company any unearned premium that may secure the loan. Depending on
the terms of the loan and of the related insurance policy, the return premium
may or may not be sufficient to pay off the outstanding balance of the loan. AIC
also has a right to recover any unpaid loan balance directly from the Obligor.
38
<PAGE>
A common premium finance loan structure may include a 20% down payment on
the premium paid by the Obligor with the remaining 80% funded by a loan from the
insurance premium finance company to be repaid by the Obligor in nine equal
monthly installments. AIC's premium finance loans generally have terms that
range from 6 to 12 monthly installments with higher or lower down payment
percentages depending upon AIC's applicable credit and underwriting policies.
Certain loans do not have level repayment requirements, usually to accommodate a
borrower's cash flow. Given the relatively short duration of most premium
finance loans, such loans are generally not prepaid prior to the scheduled
payment dates although the loan terms do not prohibit prepayments or provide for
penalties in the event of prepayment.
Financed commercial insurance policies usually require that the full
insurance premium be paid at the commencement of the policy period. The
insurance company customarily earns the right to the full premium over the
course of the policy period. If the insured cancels the policy prior to the end
of the policy period, the insured is commonly entitled to a repayment of the
portion of premium payment that is unearned by the insurance company at the time
of cancellation. Depending on the type of insurance coverage and the terms of
the particular insurance policy, the amount of unearned premium available upon
cancellation will vary in light of relevant factors such as (a) the applicable
method for measuring unearned premium which may be by proration over the policy
term or, as required by some states, by an accelerated method under which more
premium is earned in the earlier portion of the policy period, (b) the extent of
the policy period that has expired at the time of cancellation, (c) the loss
experience under the policy prior to cancellation and (d) variations after the
commencement of the policy period in the scope of the risks covered. The
insurance company may, depending on the terms of the policy, be entitled to
retroactively review and evaluate factors (c) and (d) above after cancellation
which may result in a reduction of the amount, and affect the timing, of
repayment of any unearned premiums. Also, in certain cases the insurance company
may earn the entire premium at inception of the policy or upon the occurrence of
an insured loss under the policy, in either of which cases there would be no
unearned premium to be returned.
Premium finance lending activities are regulated by most states. Among
other matters, many states regulate various terms of the premium finance loans
such as refund policies and rates of interest and late charges that may be
charged an insured. Premium finance loans are funded by AIC on standardized loan
forms, the provisions and format of which are also usually subject to state
regulation. AIC regards its relations with state regulatory agencies as good.
See '--State Regulation of Premium Finance Lending Activities' below.
None of AIR, AIC and AICCO is currently involved in any material
litigation.
PREMIUM FINANCE LOAN ORIGINATION; COLLECTION POLICY
AIC generally locates premium finance borrowers through independent
insurance agents and brokers that are licensed under state laws, who offer
premium loan programs to enable their commercial customers to purchase the full
amount of insurance coverage needed and spread out the premium payments over
time. Thus, origination is usually dependent on relationships with insurance
brokers and agents and knowledge of the insurance marketplace. The funding by
AIC of insurance premium finance loans is commonly commenced by an agent or
broker contacting AIC to initiate the premium loan process and outlining to AIC
the proposed loan transaction, including borrower and insurance company
information and coverage types and amounts. AIC then reviews the information
submitted by such agent or broker in light of its underwriting procedures. See
'--Premium Finance Loan Underwriting Procedures' below. After AIC approval, the
borrower executes a standard premium finance loan agreement, which contains a
promise to repay the loan, a limited power of attorney giving AIC the authority
in the event of default on the loan to contact the insurance company directly
and cancel coverage, and a collateral assignment to AIC of the unearned
insurance premium, if any, returnable following such cancellation.
Following receipt and acceptance of the signed premium finance loan
agreement, AIC either sends the loan proceeds to the insurance company to pay
the premium balance due or releases funds to the
39
<PAGE>
insurance agent or broker who then pays the insurance company. AIC bills the
borrower directly on a monthly basis. Each borrower is directed to remit
payments to the appropriate regional lockbox account maintained by AIC.
Since the insurance company generally earns a portion of the premium each
day, thereby reducing unearned premium amounts for loans secured by such
collateral, prompt action on loan defaults is important. On defaulted loans,
most states allow premium finance companies such as AIC to issue a notice of
'intent to cancel' the related insurance policy within five or ten days after
the premium loan installment due date on which the borrower defaulted. A 'notice
of cancellation' can then be issued generally ten days after an 'intent to
cancel' notice has been mailed. Once a cancellation notice has been issued, AIC
will customarily proceed to take steps to collect any unearned premium available
from the insurance company and apply it to the loan balance. If the returned
premium does not retire the loan balance due, AIC will customarily seek payment
from the borrower pursuant to the terms of the premium finance loan agreement.
AIC's policy is to (a) seek to collect past due installments prior to policy
cancellation and (b) if a cancellation occurs, attempt to both collect the
delinquent payment and obtain reinstatement of the insurance coverage. Since
borrowers usually need to maintain insurance (and to reinstate cancelled
policies) to meet their business objectives, collections often continue even
after policy cancellation and cancelled policies are often reinstated.
Generally, the policy cancellation date occurs within one month of the
related loan installment default. The current policy of AIC is to charge off as
a loss the unpaid defaulted loan balance one year after the cancellation of the
related policy. Following cancellation, AIC will process the collection of any
unearned premium with the appropriate insurance company or may pursue collection
against the borrower if sufficient unearned premium is unavailable. If during
this period AIC determines the unpaid loan is not likely to be collected, AIC
may charge off the loan prior to such first anniversary. Under the terms of the
Agreement, any recoveries with respect to Loans that have been written off will
be included in the assets of the Trust and considered Finance Charge
Receivables. See 'The Receivables.'
PREMIUM FINANCE LOAN PURCHASE POLICIES
In addition to directly originating premium finance loans, AIC has entered
into purchase agreements whereby AIC purchases premium finance loans ('Purchased
Loans') from third party premium finance loan originators ('Third Party
Originators') immediately upon their origination by such Third Party
Originators. The terms 'fund,' 'funded' and 'funding,' when used herein with
respect to Loans, refer both to the making of such Loans directly by AIC or
AICCO to Obligors and to the purchase of such Loans by AIC or AICCO from Third
Party Originators immediately upon the origination of such Loans by Third Party
Originators, unless the context otherwise requires. Third Party Originators are
commonly affiliated with insurance agents and/or brokers. Purchased Loans are
originated on substantially similar terms as, and pursuant to the same credit
standards, policies and procedures applied to, loans directly originated by AIC.
The beneficial interest and rights in and to the Purchased Loans acquired by AIC
as purchaser are substantially similar to those in loans which are directly
originated by AIC, including, but not limited to, the limited power of attorney
allowing it to cancel the insurance coverage upon non-payment of a loan
installment by the Obligor and to collect from the insurance company any
unearned premium that may secure the loan. AIC will make identical
representations and warranties with respect to Receivables sold to the
Transferor pursuant to the Receivables Sale Agreement relating to Purchased
Loans, as are made with respect to Receivables relating to Loans directly
originated by AIC.
PREMIUM FINANCE LOAN UNDERWRITING PROCEDURES
AIC considers and evaluates a variety of risks in evaluating each instance
of funding an insurance premium finance loan. These include (a) the loan
structure (the loan term, the amount of down payment and the availability of
unearned premium as collateral), (b) the creditworthiness of the borrower, (c)
the creditworthiness of the insurance company, in those cases where reliance is
placed on the right to unearned premiums, and (d) the capabilities and operating
procedures of the insurance agent or broker that (i) places the insurance
policy, (ii) serves as a source of significant information regarding the loan
40
<PAGE>
transaction, and (iii) may disburse the loan proceeds or collect unearned
premium funds for AIC. These factors may be given different weight in the case
of any particular loans. If there is any question as to the financial
responsibility of any borrower, it is the policy of AIC to ensure that any loan
to any such borrower is properly collateralized.
All applications from insureds for loans to be funded by AIC are reviewed
for completeness and creditworthiness based on the loan underwriting criteria
established by AIC. Under AIC's current underwriting policies, loan applications
are first reviewed by a branch office and a determination is made as to whether
the loan may be approved by the branch office, or be subject to further
evaluation and approval by the corporate credit department of AIC's head office.
Such determination is based primarily upon the size of the premium (and
corresponding loan) to be financed and the associated risk related to the amount
of any unsecured credit exposure. A prospective loan with a risk assessment
exceeding a certain threshold receives a formal credit review performed by the
credit department of AIC's head office. Such risk threshold can vary depending
upon the amount of downpayment made by the prospective borrower, the amount of
unearned premium collateral, the related insurance carrier and the agent/broker
involved in the transaction. In making loan decisions, the corporate credit
department uses Dun & Bradstreet reports, financial statements, payment
histories, agent/broker and AIC local office input, and its extensive
experience. For prospective loans with risk assessments below an applicable
threshold, AIC relies primarily on the inherent diversification of risk, and
approval is granted by the branch office without additional action. Loans that
have special factors, such as large principal amounts, low down payments or the
absence of unearned premium collateral, are also subject to evaluation and
approval by the head office. In most cases AIC receives applications from
insurance agents or brokers.
AIC's general guideline for approval of an insurance company is a rating of
at least B+ by A.M. Best Company. Based upon AIC's own credit determination, it
may finance insurance policies issued by insurance companies that have a lower
rating or, in the case of foreign insurers and certain domestic insurers that
meet AIC credit requirements, that are unrated. While Receivables may relate to
Loans made to finance premiums payable to such unrated or lower rated foreign or
domestic insurers, AIC believes that each of such insurers is subject to state
insurance law requirements relating to the repayment of unearned insurance
premiums upon cancellation of the related policy. At December 31, 1997, in
excess of 35% of the aggregate outstanding loan account balance (as defined
herein in the table entitled 'Outstanding Loan Account Balances by Size' under
'The Receivables') represented loans funded by AIC to finance premiums on
policies issued by insurance affiliates of AIG. As of such date, no other
insurance company group, domestic or foreign, accounted for more than 5.0% of
the outstanding insurance premium loans funded by AIC. With respect to agents
and brokers, AIC monitors loans in its portfolio originated by particular agents
and brokers to assist in assessing their capabilities and performance as agents
or brokers.
STATE REGULATION OF PREMIUM FINANCE LENDING ACTIVITIES
The making, purchasing, enforcement and collection of insurance premium
loans is subject to extensive regulation by many states' laws. Such laws vary
widely by state, but often (i) require that premium finance lenders be licensed
by the state, (ii) restrict the content of premium finance loan agreements, and
impose certain disclosure requirements on such agreements, (iii) limit the
amount of finance charges that may be lawfully imposed, (iv) regulate the amount
of refunds due an obligor who prepays the premium finance loan prior to
maturity, (v) regulate the amount of late fees, if any, and finance charges that
may be charged upon a premium finance loan becoming overdue, (vi) regulate the
manner and method of cancelling an insurance policy upon non-payment of the
premium finance loan, including a requirement that the premium finance lender
provide the obligor with appropriate notice prior to such cancellation, and
(vii) allow imposition of penalties, which may be significant, upon premium
finance lenders for violations of the state's premium finance laws. See 'Risk
Factors--Risk of State Regulation of Premium Finance Lending.'
41
<PAGE>
AS SERVICER
AIC and AICCO will act as the Servicer for the Loans giving rise to
Receivables in accordance with the Agreement. In certain limited circumstances,
AIC and AICCO may resign or be removed as Servicer, in which case a third party
may be appointed as its successor. See 'Risk Factors--Risk of State Regulation
of Premium Finance Lending,' 'Description of the Offered
Certificates--Collection and Other Servicing Procedures,' '--Certain Matters
Regarding the Servicer, the Transferor and the Original Transferors' and
'--Servicer Default.'
THE RECEIVABLES
The assets of the Trust will include (i) the entire beneficial interest in
Loans, which interest has been previously transferred to the Trust by AIC and
AICCO prior to the Closing Date, and (ii) to the extent described under
'Description of Offered Certificates--Addition of Receivables,' the entire
beneficial interest in Loans funded by either AIC or AICCO on the Closing Date
and from time to time thereafter, including (A) all amounts due and to become
due and all collections and recoveries on such Loans, and (B) the proceeds of
certain collateral security securing such Loans. The beneficial interests
described above are herein referred to as the 'Receivables.' The Trust assets
will not include, as of any date of determination, (a) with respect to any
Receivable arising under a Loan which is not a Defaulted Loan, any collections
received by the Servicer on such Loan in excess of the sum of (i) the amounts
due and payable on such Loan during the month in which such date occurs and (ii)
all accrued and unpaid amounts, if any, on such Loan in respect of any month or
months prior to the month in which such date occurs or (b) with respect to any
Receivable arising under a Defaulted Loan, any collections received by the
Servicer on such Defaulted Loan in excess of all amounts due thereon (each, a
'Credit Balance').
Each Loan will have been funded by AIC or AICCO to finance commercial
insurance premiums. Neither the Loans nor the Receivables are guaranteed by AIR,
AIC, AICCO, AIG or any affiliate thereof, and the Trust, as holder of the
Receivables, has no recourse against AIR, AIC, AICCO, AIG or any affiliate
thereof for the non-collectability of the Receivables, except that, under
certain limited circumstances, the Transferor and each of the Original
Transferors will be required to repurchase certain Receivables from the Trust
and to provide indemnification to the Trust in certain events. See 'Description
of the Offered Certificates--Certain Matters Regarding the Servicer, the
Transferor and the Original Transferors.' AIC and AICCO will each act as
Servicer with respect to the Receivables relating to Loans it funded and which
it transferred to the Trust (or sold to AIR for transfer to the Trust). As set
forth in the Agreement, each Receivable to be transferred to the Trust must
satisfy certain eligibility criteria. See 'Description of the Offered
Certificates--Representations and Warranties.'
Certain information regarding the performance and composition of the
portfolio of Loans of AIC and AICCO the related Receivables for which were
included in the Trust (the 'Loan Portfolio') as of the dates shown is set forth
below. AIC and AICCO have transferred to the Trust the Eligible Receivables
resulting from all Loans funded by them since the Initial Closing Date, and
expect hereafter to transfer the Eligible Receivables resulting from all Loans
funded by them to the Transferor pursuant to the Receivables Sale Agreement for
transfer to the Trust pursuant to the Agreement. There can be no assurance that
the performance experience of the Receivables transferred to the Trust will be
comparable to that set forth below. In addition, there are many legal, economic
and competitive factors that could adversely affect the amount and
collectability of the Loans related to the Receivables, including insureds'
decisions to use new sources of credit, which would affect the ability of AIC
and AICCO to generate Additional Receivables, and changes in usage of credit,
payment patterns and general economic conditions. Because the impact of these
and other factors (including the composition of the Receivables and the interest
rates, fees and charges assessed thereon) may change in the future, the text and
tables set forth below are not necessarily indicative of the future performance
of the Receivables that are transferred to the Trust.
The following tables set forth certain summary information regarding the
Loan Portfolio, which comprises all premium finance loans to domestic Obligors
funded by AIC and AICCO. During each of the calendar years 1995, 1996 and 1997,
the average yield on the Loan Portfolio has exceeded the
42
<PAGE>
monthly average of the daily rates in the London interbank market for offers of
one-month United States dollar deposits by at least 200 basis points for each
monthly period. Due to future changes in the interest rate environment,
competition from other lenders and other relevant factors, there can be no
assurance the average spread between the Loans and one-month LIBOR will not be
lower in the future. Also, during each of the calendar years 1995, 1996 and
1997, the average monthly payment rate on commercial premium finance loans in
the Loan Portfolio exceeded 17%. Assuming (i) a 17% payment rate each month,
(ii) twelve equal 30-day monthly periods, and (iii) ownership by the Transferor
during each Monthly Period of at least the Minimum Transferor Ownership
Interest, the amount available under the Agreement during the Series 1998-1
Revolving Period for yield enhancement would be 459 basis points on the
outstanding principal of the Offered Certificates on an annualized basis and may
be greater during an amortization period (unless the amount of interest due on
the outstanding principal of the Offered Certificates during such Monthly Period
is less than 459 basis points on an annualized basis, in which case the amount
available for yield enhancement would be such lesser amount). There can be no
assurance, however, that the monthly payment rate on the Loans will not be less
than 17% since the payment rate will vary depending on a variety of factors,
including loan maturities, interest rates and delinquency and default rates.
Lower payment rates will result in lower yield enhancement amounts. See
'Description of the Offered Certificates--Series 1998-1 Yield Enhancement
Account.'
OUTSTANDING LOAN ACCOUNT BALANCES BY SIZE
AS OF DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
% OF
AGGREGATE
OUTSTANDING OUTSTANDING
LOAN LOAN
NO. OF LOAN % OF LOAN ACCOUNT ACCOUNT
OUTSTANDING LOAN ACCOUNT BALANCE(1) ACCOUNTS(2) ACCOUNTS BALANCE BALANCE
- --------------------------------------------------------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C>
$5,000 or less........................................... 45,931 72.38% $ 63,811 6.26%
$5,001 to $10,000........................................ 6,914 10.90% 48,660 4.77%
$10,001 to $25,000....................................... 5,691 8.97% 89,185 8.75%
$25,001 to $50,000....................................... 2,264 3.57% 78,696 7.72%
$50,001 to $75,000....................................... 774 1.22% 46,959 4.61%
$75,001 to $100,000...................................... 439 0.69% 37,916 3.72%
$100,001 to $250,000..................................... 860 1.36% 133,429 13.09%
$250,001 to $500,000..................................... 339 0.53% 117,154 11.49%
$500,001 to $1,000,000................................... 146 0.23% 99,558 9.77%
$1,000,001 to $5,000,000................................. 90 0.14% 174,603 17.13%
Over $5,000,000.......................................... 12 0.02% 129,443 12.70%
----------- --------- ----------- -----------
Total(3)............................................... 63,460 100.00% $ 1,019,414 100.00%
----------- --------- ----------- -----------
----------- --------- ----------- -----------
</TABLE>
- ------------------
(1) Loan account balances include outstanding principal balances (including
committed but unfunded amounts) and unearned finance charges.
(2) A loan account is generally a single Obligor that may have loans with
respect to one or more commercial insurance policies outstanding at the time
of determination.
(3) The average outstanding loan account balance of each loan as of December 31,
1997 was approximately $16,100.
43
<PAGE>
COMPOSITION OF LOAN ACCOUNTS BY REMAINING INSTALLMENT TERM
AS OF DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
% OF AGGREGATE
OUTSTANDING OUTSTANDING
NO. OF LOAN LOAN ACCOUNT LOAN ACCOUNT
REMAINING INSTALLMENT TERM(1)(2) ACCOUNTS BALANCE BALANCE
- ------------------------------------------------------------------ ----------- ------------ --------------
<S> <C> <C> <C>
3 months or less.................................................. 26,703 $ 118,582 11.63%
4 to 6 months..................................................... 17,115 233,538 22.91%
7 to 9 months..................................................... 15,511 293,252 28.77%
10 to 12 months................................................... 3,586 119,698 11.74%
13 to 18 months................................................... 276 63,569 6.24%
More than 18 months............................................... 269 190,775 18.71%
----------- ------------ --------------
Total........................................................... 63,460 $1,019,414 100.00%
----------- ------------ --------------
----------- ------------ --------------
</TABLE>
- ------------------
(1) Terms of the loans commonly provide for level payments of principal and
finance charges on a monthly basis, although certain loans do not have level
repayment requirement.
(2) The percentage of Loans in the portfolio which had a remaining installment
term greater than 12 months was 24.95% as of December 31, 1997, as compared
to 3.21% with respect to the Loans in the portfolio as of September 30, 1994
(as presented in the Series 1994-1 prospectus).
GEOGRAPHIC CONCENTRATION
The Loan Portfolio includes commercial premium finance loans originated in
all 50 states and the District of Columbia. The following table sets forth
information regarding the concentration of loans by outstanding loan account
balance in the Loan Portfolio among the states with the largest concentration of
loans as of December 31, 1997. No other state accounted for more than 2% of the
Loan Portfolio at such date.
GEOGRAPHIC DISTRIBUTION
AS OF DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
% OF AGGREGATE
OUTSTANDING OUTSTANDING
LOAN ACCOUNT LOAN ACCOUNT
BALANCE BALANCE
------------ --------------
<S> <C> <C>
New York (1).................................................................... $ 238,838 23.43%
California (1).................................................................. 172,286 16.90%
Texas........................................................................... 98,385 9.65%
New Jersey...................................................................... 69,672 6.83%
Pennsylvania.................................................................... 42,063 4.13%
Massachusetts................................................................... 38,463 3.77%
Florida......................................................................... 36,111 3.54%
Illinois........................................................................ 29,377 2.88%
Tennessee....................................................................... 22,044 2.16%
Georgia......................................................................... 20,945 2.05%
Alabama......................................................................... 20,813 2.04%
All Others (2).................................................................. 230,417 22.60%
------------ --------------
Total........................................................................... $1,019,414 100.00%
------------ --------------
------------ --------------
</TABLE>
- ------------------
(1) Significant percentages of the loans funded by AIC and AICCO are originated
in New York, California, Texas and New Jersey, and accordingly, adverse
economic developments in such areas could adversely affect collections of
Receivables related to loans originated in such areas.
(2) States with 2% or less of the total loan account balances.
44
<PAGE>
LOAN LOSS EXPERIENCE
(DOLLARS IN THOUSANDS)
The following table sets forth loss experience with respect to payments by
Obligors on loans for each of the periods shown. There can be no assurance that
the loss experience for the Trust with respect to the Receivables will be
similar to the historical experience set forth below.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Average Aggregate Outstanding Principal Balance (1)....................... $924,616 $796,566 $802,881
Gross Loan Charge-Offs (2)................................................ 12,582 9,160 6,410
Recoveries (3)............................................................ 2,598 2,145 2,697
Net Loan Charge-Offs...................................................... 9,984 7,015 3,713
Net Loan Charge-Offs as Percentage of Average Aggregate Outstanding
Principal Balance, Net (2).............................................. 1.08% 0.88% 0.46%
</TABLE>
- ------------------
(1) Calculated as the average of (a) the average monthly beginning receivables
balance and (b) the average monthly ending receivables balance, over the
relevant periods.
(2) A loan is generally charged-off one year after cancellation. The related
insurance policy is cancelled generally within one month following an
Obligor's failure to make a scheduled loan installment payment.
(3) A recovery occurs if, after a loan is written off, AIC or AICCO, as the case
may be, receives additional funds to pay in whole or in part the outstanding
balance due.
45
<PAGE>
LOAN DELINQUENCY EXPERIENCE FOLLOWING CANCELLATION
The following table sets forth the delinquency experience with respect to
payments by Obligors on loans at each of the dates shown. In conformity with
state requirements regarding cancellation notification, insurance policies are
generally cancelled within one month following an Obligor's failure to make a
related scheduled loan installment payment. Cancellation occurs on an automated
basis unless the loan is carried in the 'hold' category by AIC. The 'hold'
category includes primarily loans that require manual servicing procedures and
loans where cancellation of the related policy is stayed due to the Obligors'
bankruptcy, some of which loans may be delinquent. At December 31, 1997 'hold'
category loans represented approximately 0.44% of the aggregate principal loan
balance (excluding unearned finance charges) for the Loan Portfolio. The loan
delinquency data presented in the following table are measured from the date of
insurance policy cancellation. The percentages presented for each aging category
reflect the sum of the balance of principal and unearned finance charges
(including the overdue installment(s) as well as all of the remaining
installment payments not yet due) on all canceled accounts within each category
divided by the aggregate principal loan balance (excluding unearned finance
charges) for the Loan Portfolio. Since the table reflects percentages calculated
by including unearned finance charges in the cancelled accounts, but not
including such amounts in the aggregate loan balances, the resulting percentages
may reflect higher percentages of delinquencies than actually experienced.
Variations from one measurement date to another measurement date within aging
categories are primarily a reflection of the variability of time required to
collect the unearned insurance premium from the insurance carrier or,
alternatively, the remaining loan balance from the Obligor, on a revolving pool
of loans. There can be no assurance that the delinquency experience with respect
to the Receivables will be similar to the historical experience set forth below.
<TABLE>
<CAPTION>
AT DECEMBER 31,
NUMBER OF DAYS A LOAN REMAINS OVERDUE AFTER ----------------------
CANCELLATION OF THE RELATED INSURANCE POLICY: 1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
1-30 days............................................................................. 1.60% 1.90% 1.94%
31-60 days............................................................................ 0.78% 0.62% 0.46%
61-90 days............................................................................ 0.69% 0.52% 0.70%
91-120 days........................................................................... 0.72% 0.39% 0.43%
121-150 days.......................................................................... 0.35% 0.32% 0.18%
151 days or greater(1)................................................................ 1.18% 1.44% 0.92%
---- ---- ----
Total (2)............................................................................. 5.31% 5.20% 4.63%
---- ---- ----
---- ---- ----
</TABLE>
- ------------------
(1) A loan is generally charged-off one year after cancellation of the related
insurance policy.
(2) The total loan delinquency percentage was 3.47% at September 30, 1994 (as
presented in the Series 1994-1 prospectus).
46
<PAGE>
USE OF PROCEEDS
The net proceeds from the sale of the Offered Certificates, approximately
$205,681,100, before deduction of expenses, will be paid to the Transferor. The
Transferor will use such proceeds to purchase a portion of the Transferor
Ownership Interest from AIC and AICCO.
DESCRIPTION OF THE OFFERED CERTIFICATES
The Offered Certificates will be issued pursuant to the Agreement, which
includes the Series 1998-1 Supplement, to be entered into between AIR, as
Transferor of the Receivables, AIC, as an Original Transferor of the Receivables
and as Servicer of the Loans, AICCO, as an Original Transferor of the
Receivables and as Servicer of the Loans, and The First National Bank of
Chicago, as Trustee for the certificateholders, substantially in the form filed
as exhibits to the Registration Statement of which this Prospectus is a part.
Pursuant to the Agreement, the Transferor may execute further Supplements
thereto between the Transferor, the Original Transferors, the Servicer and the
Trustee in order to issue additional Series of certificates. See '--New Series
Issuances.' The Trustee will provide a copy of the Agreement (without exhibits
or schedules), including the related Supplement, to Series 1998-1
Certificateholders without charge upon written request. The following summary
describes certain terms of, and is qualified in its entirety by reference to,
the Agreement (including the Series 1998-1 Supplement and the Series 1994-1
Supplement).
GENERAL
The Series 1998-1 Certificates will represent an undivided interest in the
assets of the Trust, including the right to the applicable allocation percentage
of all payments on the Receivables in the Trust. Each Series 1998-1 Class A
Certificate represents the right to receive payments of interest at the Series
1998-1 Class A Certificate Rate for the related Interest Period and payments of
principal, to the extent of the Series 1998-1 Class A Ownership Interest, during
the Series 1998-1 Controlled Amortization Period or, if applicable, the Series
1998-1 Rapid Amortization Period, funded from collections of Finance Charge
Receivables and Principal Receivables allocated to the Series 1998-1
Certificates. Each Series 1998-1 Class B Certificate represents the right to
receive payments of interest at the applicable Series 1998-1 Class B Certificate
Rate for the related Interest Period and, after the Series 1998-1 Class A
Ownership Interest has been paid in full, payments of principal to the extent of
the Series 1998-1 Class B Ownership Interest during the Series 1998-1 Controlled
Amortization Period or, if applicable, the Series 1998-1 Rapid Amortization
Period, funded from collections of Finance Charge Receivables and Principal
Receivables allocated to the Series 1998-1 Certificates. In addition to
representing the right to payment from collections of Finance Charge Receivables
and Principal Receivables allocated to such class, each Series 1998-1 Class A
Certificate also represents the right to receive payments from funds on deposit
in the Series 1998-1 Yield Enhancement Account, Series 1998-1 Reallocated
Principal Collections, Shared Principal Collections and funds on deposit in the
Excess Funding Account, all as more fully described below. In addition to
representing the right to payment from collections of Finance Charge Receivables
and Principal Receivables allocated to such class, each Series 1998-1 Class B
Certificate also represents the right to receive payments from funds on deposit
in the Series 1998-1 Yield Enhancement Account and not applied in respect of
Series 1998-1 Class A Certificates, Series 1998-1 Reallocated Principal
Collections, Shared Principal Collections and funds on deposit in the Excess
Funding Account, all as more fully described below. Payments of interest and
principal will be made on each Distribution Date on which such amounts are due
to Series 1998-1 Certificateholders in whose names the Series 1998-1
Certificates were registered on the last business day of the calendar month
preceding such Distribution Date (each a 'Record Date').
The Transferor will own the Transferor Certificate. The Transferor
Certificate represents the fractional undivided interest in the assets of the
Trust not represented by the certificates of any outstanding Series, including
any enhancement thereto, including the right to a percentage of all payments on
the Receivables in the Trust equal to 100% minus the sum of the applicable
investor percentages for all Series of certificates then outstanding. The
Transferor Certificate may be transferred
47
<PAGE>
in whole or in part only upon certain merger or consolidation events with
respect to the Transferor, to certain affiliates of the Transferor or to certain
special-purpose vehicles, as set forth in the Agreement. See '--Certain Matters
Regarding the Servicer, the Transferor and the Original Transferors.'
The Offered Certificates will initially be represented by certificates
registered in the name of the nominee of DTC (together with any successor
depository selected by the Transferor, the 'Depository') except as set forth
below. The Offered Certificates will be available for purchase in minimum
denominations of $1,000 and integral multiples thereof in book-entry form. The
Transferor has been informed by DTC that DTC's nominee will be Cede.
Accordingly, Cede is expected to be the holder of record of the Offered
Certificates. No Certificate Owner acquiring an interest in the Offered
Certificates will be entitled to receive a definitive certificate representing
such person's interest in the Offered Certificates except under the limited
circumstances described below. Unless and until Definitive Certificates are
issued under such limited circumstances, all references herein to actions by
Holders of Offered Certificates shall refer to actions taken by DTC upon
instructions from its Participants (as defined below), and all references herein
to distributions, notices, reports and statements to Holders of Offered
Certificates shall refer to distributions, notices, reports and statements to
DTC or Cede, as the registered holder of the Offered Certificates, as the case
may be, for distribution to Certificate Owners in accordance with DTC
procedures. See '--Book-Entry Registration' and '--Definitive Certificates.'
BOOK-ENTRY REGISTRATION
Holders of Offered Certificates may hold their Offered Certificates through
DTC (in the United States) or Cedel or Euroclear (in Europe) if they are
participants of such system, or indirectly through organizations that are
participants in such system.
Cede, as nominee for DTC, will hold the Offered Certificates. Cedel and
Euroclear will hold omnibus positions on behalf of the Cedel Participants and
the Euroclear Participants, respectively, 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.
DTC is a limited-purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a 'clearing
corporation' within the meaning of the New York Uniform Commercial Code and a
'clearing agency' registered pursuant to the provisions of Section 17A of the
Exchange Act. DTC was created to hold securities for its participating
organizations ('Participants') and to facilitate the clearance and settlement of
securities transactions between Participants through electronic book-entry
changes in accounts of its Participants, thereby eliminating the need for
physical movement of certificates. Participants include securities brokers and
dealers (including the Underwriters), banks, trust companies and clearing
corporations and may include certain other organizations. Indirect access to the
DTC system also is available to others such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly (the 'Indirect Participants').
Transfers between DTC Participants will occur in accordance with DTC rules.
Transfers between Cedel Participants and Euroclear Participants will occur in
the ordinary way in accordance with their applicable rules and operating
procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through Cedel
Participants or Euroclear Participants, on the other, will be effected in DTC in
accordance with DTC rules on behalf of the relevant European international
clearing system by its depositary; however, such cross-market transactions will
require delivery of instructions to the relevant European international clearing
system by the counterparty in such system in accordance with its rules and
procedures and within its established deadlines (Brussels time). The relevant
European international clearing system will, if the transaction meets its
settlement requirements, deliver instructions to its depositary to take action
to effect final settlement on its behalf by delivering or receiving securities
in DTC, and making or receiving payment in accordance with normal procedures for
48
<PAGE>
same-day funds settlement applicable to DTC. Cedel Participants and Euroclear
Participants may not deliver instructions directly to the depositaries.
Because of time-zone differences, credits of securities in Cedel or
Euroclear as a result of a transaction with a DTC Participant will be made
during the subsequent securities settlement processing, dated the business day
following the DTC settlement date, and such credits or any transactions in such
securities settled during such processing will be reported to the relevant Cedel
Participant or Euroclear Participant on such business day. Cash received in
Cedel or Euroclear as a result of sales of securities by or through a Cedel
Participant or a Euroclear Participant to a DTC Participant will be received
with value on the DTC settlement date but will be available in the relevant
Cedel or Euroclear cash account only as of the business day following settlement
in DTC.
Certificate Owners that are not Participants or Indirect Participants but
desire to purchase, sell or otherwise transfer ownership of, or other interest
in, Offered Certificates may do so only through Participants and Indirect
Participants. In addition, Certificate Owners will receive all distributions of
principal and of interest on the Offered Certificates from the Trustee through
the Participants who in turn will receive them from DTC. Under a book-entry
format, Certificate Owners may experience some delay in their receipt of
payments, since such payments will be forwarded by the Trustee to Cede, as
nominee for DTC. DTC will forward such payments to its Participants which
thereafter will forward them to Indirect Participants or Certificate Owners. It
is anticipated that the only 'Certificateholder' (as such term will be used in
the Agreement) of the Series 1998-1 Class A Certificates and of the Series
1998-1 Class B Certificates will be Cede, as nominee of DTC. Certificate Owners
will not be recognized by the Trustee as Certificateholders, as such term will
be used in the Agreement, and Certificate Owners will only be permitted to
exercise the rights of Holders of Offered Certificates indirectly through the
Participants who in turn will exercise the rights of Holders of Offered
Certificates through DTC.
Under the rules, regulations and procedures creating and affecting DTC and
its operations, DTC is required to make book-entry transfers among Participants
on whose behalf it acts with respect to the Offered Certificates and is required
to receive and transmit distributions of principal and interest on the Offered
Certificates. Participants and Indirect Participants with which Certificate
Owners have accounts with respect to the Offered Certificates similarly are
required to make book-entry transfers and receive and transmit such payments on
behalf of their respective Certificate Owners.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a Certificate
Owner to pledge Offered Certificates to persons or entities that do not
participate in the DTC system, or otherwise take actions in respect of such
Offered Certificates, may be limited due to the lack of a physical certificate
for such Offered Certificates. The laws of some jurisdictions require that
certain persons take physical delivery in definitive form. Consequently, the
ability to transfer Offered Certificates to such persons may be limited.
DTC has advised the Transferor that it will take any action permitted to be
taken by any of the Holders of Offered Certificates under the Agreement only at
the direction of one or more Participants to whose account with DTC the Offered
Certificates are credited. Additionally, DTC has advised the Transferor that it
will take such actions with respect to specified percentages of the Series
1998-1 Class A Ownership Interest or Series 1998-1 Class B Ownership Interest,
as the case may be, only at the direction of and on behalf of Participants whose
holdings include undivided interests that satisfy such specified percentages.
DTC may take conflicting actions with respect to other undivided interests to
the extent that such actions are taken on behalf of Participants whose holdings
include such undivided interests.
Cedel Bank, societe anonyme ('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 37 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
49
<PAGE>
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 and may include the underwriters of the Offered
Certificates. 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.
The Euroclear System was created in 1968 to hold securities for
participants of the Euroclear System ('Euroclear Participants') and to clear and
settle transactions between Euroclear Participants through simultaneous
electronic book-entry delivery against payment, thereby eliminating the need for
physical movement of certificates and any risk from lack of simultaneous
transfers of securities and cash. Transactions may be settled in any of 33
currencies, including United States dollars. The Euroclear System includes
various other services, including securities lending and borrowing and
interfaces with domestic markets in several countries generally similar to the
arrangements for cross-market transfers with DTC described above. The Euroclear
System is operated by Morgan Guaranty Trust Company of New York, Brussels,
Belgium office (the 'Euroclear Operator' or 'Euroclear'), under contract with
Euroclear Clearance System, 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 the Euroclear System on behalf of Euroclear Participants. Euroclear
Participants include banks (including central banks), securities brokers and
dealers and other professional financial intermediaries and may include the
underwriters of the Offered Certificates. Indirect access to the Euroclear
System is also available to other firms that clear through or maintain a
custodial relationship with a Euroclear Participant, either directly or
indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it is
regulated and examined by the Board of Governors of the Federal Reserve System
and the New York State Banking Department, as well as the Belgian Banking
Commission.
Securities clearance accounts and cash accounts with the Euroclear Operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of the Euroclear System and applicable Belgian law
(collectively, the 'Terms and Conditions'). The Terms and Conditions govern
transfers of securities and cash within the Euroclear System, withdrawal of
securities and cash from the Euroclear System, and receipts of payments with
respect to securities in the Euroclear System. All securities in the Euroclear
System are held on a fungible basis without attribution of specific certificates
to specific securities clearance accounts. The Euroclear Operator acts under the
Terms and Conditions only on behalf of Euroclear Participants and has no record
or relationship with persons holding through Euroclear Participants.
Distributions with respect to Series 1998-1 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 its depositary. Such distributions will be
subject to tax reporting in accordance with relevant United States tax laws and
regulations. See 'Certain United States Federal Income Tax Consequences.' Cedel
or the Euroclear Operator, as the case may be, will take any other action
permitted to be taken by any of the Holders of Offered Certificates under the
Agreement on behalf of a Cedel Participant or Euroclear Participant only in
accordance with its relevant rules and procedures and subject to its
depositary's ability to effect such actions on its behalf through DTC.
Although DTC, Cedel and Euroclear have agreed to the foregoing procedures
in order to facilitate transfers of Offered 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 Transferor nor the Trustee will have any responsibility for the
performance by
50
<PAGE>
DTC, Cedel or Euroclear or their respective participants or indirect
participants of their respective obligations under the rules and procedures
governing their operations.
DEFINITIVE CERTIFICATES
The Offered Certificates will be issued in fully registered, certificated
form to Certificate Owners or their nominees ('Definitive Certificates'), rather
than to DTC or its nominee, only if (i) the Transferor advises the Trustee in
writing that DTC is no longer willing or able to properly discharge its
responsibilities as Depository with respect to the Offered Certificates, and
neither the Trustee nor the Transferor is able to locate a qualified successor,
(ii) the Transferor, at its option, elects to terminate the book-entry system
through DTC or (iii) after the occurrence of a Servicer Default, Certificate
Owners representing not less than 50% of the Series 1998-1 Class A Ownership
Interest or Series 1998-1 Class B Ownership Interest, as the case may be, advise
the Trustee and DTC through 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 the Certificate Owners.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, DTC is required to notify all the Certificate Owners
through Participants of the availability through DTC of Definitive Certificates.
Upon surrender by DTC of the definitive certificate representing the Offered
Certificates and instructions for re-registration, the Trustee will issue the
Offered Certificates as Definitive Certificates, and thereafter the Trustee will
recognize the holders of such Definitive Certificates as holders of the Offered
Certificates under the Agreement ('Holders').
Distribution of principal and interest on the Offered Certificates will be
made by The First National Bank of Chicago, as paying agent, or its successor in
such capacity (the 'Paying Agent') directly to Holders of Definitive
Certificates in accordance with the procedures set forth in the Agreement.
During the Series 1998-1 Revolving Period, interest payments, and during either
the Series 1998-1 Controlled Amortization Period or Series 1998-1 Rapid
Amortization Period, interest and principal payments in respect of the Offered
Certificates, will be made to Holders of Offered Certificates on each
Distribution Date to the Holders in whose names the Definitive Certificates were
registered at the close of business on the related Record Date. Distributions
will be made by check mailed to the address of such Holder as it appears on the
certificate register. The final payment on any Offered Certificate (whether a
Definitive Certificate or a certificate registered in the name of Cede
representing such Series 1998-1 Certificate), however, will be made only upon
presentation and surrender of such Offered Certificate at the office or agency
specified in the notice of final distribution to Holders of Offered
Certificates. The Trustee will provide such notice to registered Holders of
Offered Certificates not later than the fifth day of the month of such final
distributions.
Definitive Certificates will be transferable and exchangeable at the
offices of The First National Bank of Chicago, as transfer agent and registrar,
or its successor in such capacity (the 'Transfer Agent and Registrar'). No
service charge will be imposed for any registration of transfer or exchange, but
the Transfer Agent and Registrar may require payment of a sum sufficient to
cover any tax or other governmental charge imposed in connection therewith. The
Transfer Agent and Registrar shall not be required to register the transfer or
exchange of any Offered Certificates for a period of 5 business days preceding
the due date for any payment with respect to such Offered Certificates.
INTEREST PAYMENTS
Interest will accrue on the Series 1998-1 Class A Ownership Interest at the
Series 1998-1 Class A Certificate Rate and on the Series 1998-1 Class B
Ownership Interest at the Series 1998-1 Class B Certificate Rate from the
Closing Date. Interest will be distributed on May 15, 1998, and on each
Distribution Date thereafter to Holders of Offered Certificates. Interest
payments on the Series 1998-1 Class A Certificates and the Series 1998-1 Class B
Certificates on any Distribution Date will be calculated on the Series 1998-1
Class A Ownership Interest and the Series 1998-1 Class B Ownership Interest, as
applicable, as of the preceding Record Date, except that interest for the first
Distribution Date will accrue at the applicable Certificate Rate on the Series
1998-1 Class A Initial Ownership
51
<PAGE>
Interest (which is $200,000,000) and the Series 1998-1 Class B Initial Ownership
Interest (which is $6,300,000) from the Closing Date. Interest due on the Series
1998-1 Class A Certificates but not paid on any Distribution Date will be
payable on the next succeeding Distribution Date together with additional
interest on such amount at the applicable Certificate Rate plus 2% per annum
(together, the 'Series 1998-1 Class A Additional Interest'). Interest due on the
Series 1998-1 Class B Certificates but not paid on any Distribution Date will be
payable on the next succeeding Distribution Date together with additional
interest on such amount at the applicable Certificate Rate plus 2% per annum
(together, the 'Series 1998-1 Class B Additional Interest'). Interest due on the
Series 1998-1 Class C Certificates but not paid on any Distribution Date will be
payable on the next succeeding Distribution Date together with additional
interest on such amount at the applicable Certificate Rate plus 2% per annum
(together, the 'Series 1998-1 Class C Additional Interest'). Such Additional
Interest shall accrue on the same basis as interest on the Series 1998-1
Certificates, and shall accrue from the date such overdue interest became due,
to but excluding the Distribution Date on which such overdue interest is paid.
Subject to the priority of payments for each Distribution Date described under
'--Application of Collections' below, interest payments on the Series 1998-1
Class A Certificates on any Distribution Date will be paid from Series 1998-1
Class A Available Funds for the related Monthly Period and, to the extent such
Series 1998-1 Class A Available Funds are insufficient to pay such interest,
from amounts on deposit in the Series 1998-1 Yield Enhancement Account and
Series 1998-1 Reallocated Principal Collections (in each case, to the extent
available therefor) for such Monthly Period. Subject to the aforementioned
priority of payments, interest payments on the Series 1998-1 Class B
Certificates on any Distribution Date will be paid from Series 1998-1 Class B
Available Funds for the related Monthly Period and, to the extent such Series
1998-1 Class B Available Funds are insufficient to pay such interest, from
amounts on deposit in the Series 1998-1 Yield Enhancement Account and Series
1998-1 Reallocated Principal Collections (in each case, to the extent available
therefor) remaining after certain other payments have been made with respect to
the Series 1998-1 Class A Certificates. The Agreement will provide that payment
of any Series 1998-1 Class B Additional Interest shall be suspended during any
period when the Series 1998-1 Class B Ownership Interest is zero and will
further provide for the cancellation of any such interest remaining unpaid on
the first date during the Series 1998-1 Class B Controlled Amortization Period
or, if applicable, the Series 1998-1 Rapid Amortization Period when the Series
1998-1 Class B Ownership Interest is or becomes zero.
'Series 1998-1 Class A Available Funds' means, with respect to any Monthly
Period, an amount equal to the Series 1998-1 Class A Floating Allocation of
collections of Finance Charge Receivables allocated to the Series 1998-1
Certificateholders Ownership Interests with respect to such Monthly Period.
'Series 1998-1 Class B Available Funds' means, with respect to any Monthly
Period, an amount equal to the Series 1998-1 Class B Floating Allocation of
collections of Finance Charge Receivables allocated to the Series 1998-1
Certificateholders Ownership Interests with respect to such Monthly Period.
The Series 1998-1 Class A Certificates will bear interest from the Closing
Date through May 14, 1998 and with respect to each Interest Period thereafter at
a per annum rate of 0.09% above one-month LIBOR prevailing on the related LIBOR
Determination Date with respect to each such period, but in no event in excess
of 16% (the 'Series 1998-1 Class A Certificate Rate').
The Series 1998-1 Class B Certificates will bear interest from the Closing
Date through May 14, 1998 and with respect to each Interest Period thereafter at
a per annum rate of 0.30% above one-month LIBOR prevailing on the related LIBOR
Determination Date with respect to each such period, but in no event in excess
of 16% (the 'Series 1998-1 Class B Certificate Rate').
The Trustee will determine LIBOR for each Interest Period on the second
business day prior to the Distribution Date on which such Interest Period
commences or, in the case of the initial Interest Period, the second business
day prior to the Closing Date (each such business day, a 'LIBOR Determination
Date'). For purposes of calculating LIBOR, a business day is any day other than
a day on which banking institutions in London trading in United States dollar
deposits in the London interbank market
52
<PAGE>
are authorized or obligated by law or executive order to be closed. The Trustee
will determine LIBOR in accordance with the following provisions:
(i) On each LIBOR Determination Date, the Trustee will determine LIBOR
on the basis of the rate for deposits in United States dollars for a period
equal to one month (commencing on the first day of the applicable Interest
Period) which appears on Telerate Page 3750 as of 11:00 a.m. (London time)
on such LIBOR Determination Date (or such other page as may replace that
page on the Dow Jones Telerate Service for the purpose of displaying London
interbank offered rates of major banks).
(ii) If, on any LIBOR Determination Date, such rate does not appear on
Telerate Page 3750 (or such other page), then LIBOR for the applicable
Interest Period shall be determined on the basis of the rates at which
deposits in United States dollars are offered by four major banks in the
London interbank market selected by the Servicer (the 'Reference Banks') as
of approximately 11:00 a.m. (London time). LIBOR as determined by the
Trustee is the arithmetic mean of such quotations (rounded, if necessary,
to the nearest multiple of 0.0625%) if at least two such quotations are
provided.
(iii) If, on the LIBOR Determination Date, only one or none of the
Reference Banks provides such offered quotations, LIBOR will be:
(a) the rate per annum (rounded as aforesaid) that the Trustee
determines to be the arithmetic mean of the offered quotations that
leading banks in The City of New York selected by the Servicer are
quoting at or about 11:00 a.m. (New York time) on the relevant LIBOR
Determination Date to leading European banks for one-month United States
dollar deposits; or
(b) if the banks selected as aforesaid by the Servicer are not
quoting as described in clause (a) above, LIBOR for such Interest Period
will be LIBOR as determined on the previous LIBOR Determination Date (or
5.65625%, in the case of the first LIBOR Determination Date).
The Series 1998-1 Class A Certificate Rate and the Series 1998-1 Class B
Certificate Rate applicable to the then current and immediately preceding
Interest Period may be obtained by telephoning the Trustee at its Corporate
Trust Office at (800) 524-9472 or (312) 407-4660.
Interest on the Series 1998-1 Class A Certificates and on the Series 1998-1
Class B Certificates will be calculated on the basis of the actual number of
days in the Interest Period and a 360-day year.
PRINCIPAL PAYMENTS
During the Series 1998-1 Revolving Period (which begins on the Closing Date
and ends on the day before the commencement of the Series 1998-1 Controlled
Amortization Period or, if earlier, the Series 1998-1 Rapid Amortization
Period), no principal payments will be made to the Series 1998-1
Certificateholders. During the Series 1998-1 Controlled Amortization Period,
which is scheduled to begin on September 1, 1999, and during the Series 1998-1
Rapid Amortization Period, which will begin upon the occurrence of a Pay Out
Event, and until the Series 1998-1 Termination Date occurs, principal will be
paid first to the Series 1998-1 Class A Certificateholders until the Series
1998-1 Class A Ownership Interest has been paid in full, and then to the Series
1998-1 Class B Certificateholders until the Series 1998-1 Class B Ownership
Interest has been paid in full, and then to the Series 1998-1 Class C
Certificateholders until the Series 1998-1 Class C Ownership Interest has been
paid in full.
On each Distribution Date with respect to the Series 1998-1 Class A
Controlled Amortization Period, unless the Series 1998-1 Class A Ownership
Interest has been paid in full or the Series 1998-1 Rapid Amortization Period
commences, the Series 1998-1 Class A Certificateholders will be entitled to
receive for each related Monthly Period an amount equal to the least of (i)
Series 1998-1 Available Investor Principal Collections on deposit in the
Principal Account with respect to the related Transfer Date, (ii) the Series
1998-1 Controlled Distribution Amount and (iii) the Series 1998-1 Class A
Ownership Interest. After payment in full of the Series 1998-1 Class A Ownership
Interest, the Series 1998-1 Class B Certificateholders will be entitled to
receive on each Distribution Date during the Series
53
<PAGE>
1998-1 Class B Controlled Amortization Period the least of (i) the amount of
Series 1998-1 Available Investor Principal Collections on deposit in the
Principal Account with respect to the related Transfer Date (minus the portion
of such Series 1998-1 Available Investor Principal Collections applied to Series
1998-1 Class A Monthly Principal on such Transfer Date), (ii) the Series 1998-1
Controlled Distribution Amount (minus the portion of such Series 1998-1
Controlled Distribution Amount applied to Series 1998-1 Class A Monthly
Principal on such Transfer Date), and (iii) the Series 1998-1 Class B Ownership
Interest. After payment in full of the Series 1998-1 Class A Ownership Interest
and the Series 1998-1 Class B Ownership Interest, the Series 1998-1 Class C
Certificateholders will be entitled to receive on each Distribution Date during
the Series 1998-1 Class C Controlled Amortization Period the least of (i) the
amount of Series 1998-1 Available Investor Principal Collections on deposit in
the Principal Account with respect to the related Transfer Date (minus the
portion of such Series 1998-1 Available Investor Principal Collections applied
to Series 1998-1 Class A Monthly Principal and Series 1998-1 Class B Monthly
Principal on such Transfer Date), (ii) the Series 1998-1 Controlled Distribution
Amount (minus the portion of such Series 1998-1 Controlled Distribution Amount
applied to Series 1998-1 Class A Monthly Principal and Series 1998-1 Class B
Monthly Principal on such Transfer Date), and (iii) the Series 1998-1 Class C
Ownership Interest.
'Series 1998-1 Available Investor Principal Collections' means, with
respect to any Monthly Period, an amount generally equal to the sum of (a)(i)
collections of Principal Receivables received during such Monthly Period
allocable to the Series 1998-1 Certificateholders Ownership Interests minus (ii)
the amount of Series 1998-1 Reallocated Principal Collections with respect to
such Monthly Period used to fund the Series 1998-1 Class A Required Amount and
the Series 1998-1 Class B Required Amount as described under '--Reallocation of
Cash Flows' below, plus (b) any Shared Principal Collections with respect to any
other Series (including Series 1994-1) that are allocated to Series 1998-1, plus
(c) amounts withdrawn from the Series 1998-1 Yield Enhancement Account on the
related Transfer Date for the purpose of covering the Series 1998-1 Class A
Default Amount, the Series 1998-1 Class B Default Amount and/or the Series
1998-1 Class C Default Amount, plus (d) amounts withdrawn from the Excess
Funding Account allocable to the Series 1998-1 Certificateholders Ownership
Interests (as more fully described under '--Series 1998-1 Yield Enhancement
Account' and '--Excess Funding Account' below).
'Series 1998-1 Controlled Distribution Amount' means, for any Distribution
Date with respect to the Series 1998-1 Controlled Amortization Period, an amount
equal to the sum of the Series 1998-1 Controlled Amortization Amount for such
Distribution Date and any Series 1998-1 Deficit Controlled Amortization Amount
for the immediately preceding Distribution Date.
'Series 1998-1 Controlled Amortization Amount' means for any Distribution
Date during the Series 1998-1 Controlled Amortization Period, $28,571,428.58.
'Series 1998-1 Deficit Controlled Amortization Amount' means (a) on the
first Distribution Date with respect to the Series 1998-1 Class A Controlled
Amortization Period, the Series 1998-1 Class B Controlled Amortization Period or
the Series 1998-1 Class C Controlled Amortization Period, the excess, if any, of
the Series 1998-1 Controlled Amortization Amount for such Distribution Date over
the amount distributed from the Series 1998-1 Distribution Account as Series
1998-1 Class A Monthly Principal, Series 1998-1 Class B Monthly Principal or
Series 1998-1 Class C Monthly Principal, as the case may be, for such
Distribution Date and (b) on each subsequent Distribution Date with respect to
the Series 1998-1 Class A Controlled Amortization Period, the Series 1998-1
Class B Controlled Amortization Period or the Series 1998-1 Class C Controlled
Amortization Period, the excess, if any, of the Series 1998-1 Controlled
Amortization Amount for such subsequent Distribution Date plus any Series 1998-1
Deficit Controlled Amortization Amount for the prior Distribution Date over the
amount distributed from the Series 1998-1 Distribution Account as Series 1998-1
Class A Monthly Principal, Series 1998-1 Class B Monthly Principal or Series
1998-1 Class C Monthly Principal, as the case may be, for such subsequent
Distribution Date.
54
<PAGE>
On each Distribution Date during the Series 1998-1 Rapid Amortization
Period, the Series 1998-1 Class A Certificateholders will be entitled to receive
Series 1998-1 Available Investor Principal Collections for the related Monthly
Period until the earlier of the date the Series 1998-1 Class A Ownership
Interest is paid in full and the Series 1998-1 Termination Date. After payment
in full of the Series 1998-1 Class A Ownership Interest, the Series 1998-1 Class
B Certificateholders will be entitled to receive on each Distribution Date
during the Series 1998-1 Rapid Amortization Period Series 1998-1 Available
Investor Principal Collections (minus the portion of such Series 1998-1
Available Investor Principal Collections applied to Series 1998-1 Class A
Monthly Principal on such date) until the earlier of the date the Series 1998-1
Class B Ownership Interest is paid in full and the Series 1998-1 Termination
Date. After payment in full of the Series 1998-1 Class B Ownership Interest, the
Series 1998-1 Class C Certificateholders will be entitled to receive on each
Distribution Date during the Series 1998-1 Rapid Amortization Period Series
1998-1 Available Investor Principal Collections (minus the portion of such
Series 1998-1 Available Investor Principal Collections applied to Series 1998-1
Class A Monthly Principal and Series 1998-1 Class B Monthly Principal on such
date) until the earlier of the date the Series 1998-1 Class C Ownership Interest
is paid in full and the Series 1998-1 Termination Date. See '--Pay Out Events'
below for a discussion of events which might lead to the commencement of the
Series 1998-1 Rapid Amortization Period.
SUBORDINATION
On each Distribution Date distributions of interest will be made first in
respect of the Series 1998-1 Class A Certificates, second in respect of the
Series 1998-1 Class B Certificates and third in respect of the Series 1998-1
Class C Certificates. On each Distribution Date on which principal is
distributable in respect of the Series 1998-1 Class A Certificates, such
principal will be payable after interest on the Series 1998-1 Class A
Certificates and Series 1998-1 Class B Certificates has been paid. Principal
payments will not be made to Series 1998-1 Class B Certificateholders until the
final principal payment due in respect of the Series 1998-1 Class A Certificates
has been paid. Thus on each Distribution Date on which principal is
distributable in respect of the Series 1998-1 Class B Certificates, such
principal will be payable after interest on the Series 1998-1 Class A and Series
1998-1 Class B Certificates and principal on the Series 1998-1 Class A
Certificates has been paid. On each such Distribution Date no payments of
interest or principal will be made in respect of the Series 1998-1 Class C
Certificates unless principal due in respect of the Series 1998-1 Class B
Certificates has been paid. For further information regarding the extent to
which the Series 1998-1 Class B Certificates are subordinated to the Series
1998-1 Class A Certificates and the extent to which the Series 1998-1 Class C
Certificates are subordinated to the Series 1998-1 Class A and Series 1998-1
Class B Certificates, including a description of the manner in which Principal
Receivables collections and Default Amounts may be preferentially allocated
among the classes of Series 1998-1 Certificates, see 'Description of the Offered
Certificates--Application of Collections' and '--Reallocation of Cash Flows.'
CONVEYANCE OF RECEIVABLES
AIC and AICCO originally conveyed to the Trustee pursuant to the Original
Agreement their entire beneficial interest in all Loans owned by them as of
November 30, 1994 (the 'Cut-Off Date') and all Loans funded by them thereafter
relating to Eligible Receivables, including (i) all amounts due and to become
due and all collections and recoveries on such Loans, and (ii) the proceeds of
certain collateral security securing such Loans. AIC and AICCO will continue to
transfer such beneficial interests to the Trustee until the Closing Date. On the
Closing Date and thereafter, AIC and AICCO will transfer such beneficial
interests to the Transferor pursuant to the Receivables Sale Agreement and the
Transferor will immediately thereafter transfer such beneficial interests to the
Trust pursuant to the Agreement. The beneficial interests to be transferred by
the Transferor to the Trust are referred to herein as the 'Future Receivables,'
and the beneficial interests in the Loans existing in the Trust prior to the
Closing Date, which have been transferred directly from the Original Transferors
to the Trust pursuant to the Original Agreement, are referred to herein as the
'Existing Receivables.' The Future Receivables and the Existing Receivables
together will comprise the Receivables.
55
<PAGE>
On or prior to the Determination Date immediately following a Monthly
Period during which Additional Receivables are conveyed to the Trust as
contemplated by the Agreement, the Transferor (i) will cause AIC and AICCO to
provide the Trustee an updated list of each Receivable transferred to the Trust
since the Cut-Off Date, identified by account number and indicating the total
outstanding receivable balance as of the end of such Monthly Period, and (ii)
will provide the Trustee a written assignment of Additional Receivables conveyed
to the Trust during such Monthly Period. The Transferor will not deliver or
cause to be delivered to the Trustee any other records or agreements relating to
the Receivables. Except as stated above, the records and agreements relating to
the Receivables maintained or caused to be maintained by the Transferor or the
Servicer will not be segregated or caused to be segregated by the Transferor or
the Servicer from other documents and agreements relating to other premium
finance loan receivables and will not be stamped or marked (or caused to be
stamped or marked) to reflect the transfer of the entire beneficial interest in
the Loans to the Trust, but AIC and AICCO are required to indicate on their
computer records that the Receivables have been transferred to the Trust.
Neither the Original Transferors nor the Transferor have taken or will be
obligated to take any actions in order to perfect for the benefit of the
Transferor or the Trust, respectively, a security interest in the Receivables,
other than the filing in the appropriate filing offices in the States of New
York and California of financing statements on Form UCC-1. See 'Risk Factors--
Risk of Bankruptcy of the Transferor or the Original Transferors.'
NEW SERIES ISSUANCES
The Agreement will authorize the Trustee to issue two types of
certificates: (i) one or more Series of certificates which may be issued in more
than one class with varying rights and priorities and which will be transferable
and have the characteristics described below and (ii) certificates evidencing
the Transferor Ownership Interest (collectively, the 'Transferor Certificate').
The Transferor Certificate has been held by AIC and AICCO and will be, on or
about the Closing Date, transferred to and thereafter held by the Transferor.
Such Transferor Certificate will be transferable only as provided in the
Agreement. The Agreement will also provide that, pursuant to any one or more
Supplements, the Transferor may reduce the Transferor Ownership Interest (a
'Transferor Ownership Interest Reduction') or, if provided in the relevant
Supplement, certificateholders may tender certificates representing any
outstanding Series of certificates to the Trustee and the Transferor may reduce
the Transferor Ownership Interest (an 'Investor Exchange'), in either case for
the purpose of effectuating the issuance of one or more new Series (any new
Series issuance pursuant to a Transferor Ownership Interest Reduction or an
Investor Exchange is referred to as a 'New Series Issuance'). The Series 1998-1
Supplement permits, but does not require in any circumstance, an Investor
Exchange and corresponding New Series Issuance with respect to the Offered
Certificates.
Under the Agreement, the Transferor may define, with respect to any newly
issued Series (including a Series being issued in an Investor Exchange) certain
terms of a new Series, which will be described in the Disclosure Document being
used in connection with such New Series Issuance. These terms may include: (i)
its name or designation; (ii) its initial principal amount (or method for
calculating such amount); (iii) its coupon rate (or formula for the
determination thereof); (iv) the closing date; (v) the rating agency or
agencies, if any, rating the Series; (vi) the interest periods, the interest
payment date or dates and the date or dates from which interest shall accrue
including the interest accrual period with respect to such Series; (vii) the
name of the clearing agency, if any; (viii) the periods during which or dates on
which principal will be paid or accrued; (ix) the method for allocating
collections with respect to Principal Receivables for such Series and, if
applicable, with respect to other Series and the method by which certificates of
such Series shall amortize or accrete and the method for allocating collections
with respect to Finance Charge Receivables and Recoveries; (x) any other
collections with respect to Receivables or other amounts available to be paid
with respect to such Series; (xi) the Receivables to be allocated with respect
to such Series and the provisions governing the allocations of any such
Receivables; (xii) the names of any accounts to be used by such Series and the
terms governing the operation of any such account and use of moneys therein;
(xiii) the Series Servicing Fee and the percentage used to calculate monthly
servicing fees; (xiv) the Minimum Transferor Ownership Interest; (xv) the
enhancer, if any, and terms of any Enhancement with respect thereto; (xvi) the
base rate, if any,
56
<PAGE>
applicable to such Series; (xvii) the terms on which the certificates of such
Series may be repurchased by the Transferor or remarketed to other investors;
(xviii) the Series termination date; (xix) any deposit into any account
maintained for the benefit of certificateholders of such Series; (xx) the number
of classes of such Series and, if more than one class, the rights and priorities
of each such class; (xxi) the extent to which the certificates of such Series
will be issuable in temporary or permanent global form (and, in such case, the
depositary for such global certificate or certificates, the terms and
conditions, if any, upon which such global certificate may be exchanged, in
whole or in part, for definitive certificates, and the manner in which any
interest payable on a temporary or global certificate will be paid); (xxii)
whether the certificates of such Series may be issued in bearer form and any
limitations imposed thereon; (xxiii) the priority of any Series with respect to
any other Series; (xxiv) the rights of the holder of the Transferor Certificate
that have been transferred to the holders of such Series; (xxv) whether such
Series will or may be a companion Series and the Series with which it will be
paired; and (xxvi) any other relevant terms (all such terms, the 'Principal
Terms' of such Series). None of the Original Transferors, the Transferor, the
Servicer, the Trustee or the Trust is required or intends to obtain the consent
of any Series 1998-1 Certificateholder to issue any additional Series. However,
as a condition of a New Series Issuance, the holder of the Transferor
Certificate will be required to deliver to the Trustee written confirmation from
each Rating Agency that the New Series Issuance will not result in such Rating
Agency reducing or withdrawing its rating of the certificates of any outstanding
Series, including the Series 1998-1 Certificates. The Transferor may offer any
Series to the public under a Disclosure Document in transactions either
registered under the Securities Act or exempt from registration thereunder
directly, through the Underwriters or one or more other underwriters or
placement agents, in fixed-price offerings or in negotiated transactions or
otherwise. Any such Series may be issued in fully registered or book-entry form
in minimum denominations determined by the Transferor. The Transferor may offer,
from time to time, additional Series. The Trust will, as promptly as
practicable, include in a periodic report filed with the Commission with respect
to the Series 1998-1 Certificates, disclosure of all information related to
issuance of any Series not required to be registered under the Securities Act
that is material to the holders of, or potential investors in, the Series 1998-1
Certificates.
The Agreement provides that the holder of the Transferor Certificate may
effect New Series Issuances and define Principal Terms such that each Series has
a period during which amortization of the principal amount thereof is intended
to occur which may have a different length and begin on a different date than
such period for any other Series. Further, one or more Series may be in their
amortization periods while other Series are not. Thus, certain Series may not be
amortizing, while other Series are amortizing. Moreover, each Series may have
the benefits of an Enhancement which is available only to such Series and may
include pay out events that are different from or additional to those for other
Series. Under the Agreement, the Trustee shall hold any such form of Enhancement
only on behalf of the Series with respect to which each relates. Likewise, with
respect to each such form of Enhancement, the holder of the Transferor
Certificate may deliver a different form of Enhancement agreement. The Agreement
also provides that the holder of the Transferor Certificate may specify
different coupon rates and monthly servicing fees with respect to each Series
(or a particular class within such Series). The holder of the Transferor
Certificate also has the option under the Agreement to vary between Series the
terms upon which a Series (or a particular class within such Series) may be
repurchased by the Transferor or remarketed to other investors. In addition, a
Series Supplement may permit (as does the Series 1998-1 Supplement) an Investor
Exchange where the holders of such Series could elect to exchange their
certificates for one or more newly issued Series of certificates upon the
satisfaction of certain conditions specified in the Agreement and the related
Supplement. Additionally, certain Series may be subordinated to other Series, or
classes within a Series may have different priorities. The Series 1998-1
Supplement will not permit the subordination of such Series to Series 1994-1 or
any other Series which may hereafter be issued by the Trust. There is no limit
to the number of New Series Issuances that may be performed under the Agreement.
The Trust will terminate only as provided in the Agreement.
Under the Agreement and pursuant to a Supplement, a New Series Issuance may
only occur upon the satisfaction of certain conditions provided in the
Agreement. Under the Agreement, the holder of the
57
<PAGE>
Transferor Certificate may effect a New Series Issuance by notifying the Trustee
at least three days in advance of the date upon which the New Series Issuance is
to occur. Under the Agreement, the notice will state the designation of any
Series (and class thereof, if applicable) to be issued on the date of the New
Series Issuance and, with respect to each such Series: (i) its initial principal
amount (or method for calculating such amount) which amount may not be greater
than the then current Transferor Ownership Interest plus, in the case of an
Investor Exchange, the certificateholders ownership interests of the
certificates to be exchanged, (ii) its certificate rate (or method for
calculating such rate) and (iii) the provider of the Enhancement, if any, which
is expected to provide credit support with respect to it. On the date of the New
Series Issuance, the Agreement provides that the Trustee will execute and
authenticate any such Series only upon delivery to it of the following, among
others, (i) a Supplement in form satisfactory to the Trustee signed by the
Transferor and specifying the Principal Terms of such Series, (ii) an opinion of
counsel that, for United States federal income tax purposes and for income
and/or franchise tax purposes of the states (or, if appropriate, localities) in
which the Servicers maintain their principal places of business and any
additional states (or, if appropriate, localities) in which the Servicers, after
the date of the Agreement, conduct substantial servicing activities in respect
of Receivables, (1) the issuance of such Series will not adversely affect the
characterization of any outstanding Series of certificates (other than
certificates retained by the Transferor) as indebtedness, (2) the Trust will not
be treated as a taxable entity and (3) the issuance of such Series will not
cause or constitute a taxable event to any certificateholder of any outstanding
Series, (iii) the Enhancement, if any, and an appropriate form of Enhancement
agreement or instrument with respect thereto executed by the Transferor and the
issuer of the Enhancement, (iv) written confirmation from each Rating Agency
that the New Series Issuance will not result in such Rating Agency's reducing or
withdrawing its rating on any outstanding Series, and (v) in the case of an
Investor Exchange, the existing certificates of the Series to be exchanged. Upon
satisfaction of such conditions, the Trustee will execute and authenticate the
new Series (and, in the case of an Investor Exchange, cancel the certificates of
the exchanged Series).
In light of the aforementioned requirements for a New Series Issuance,
including the required ratings confirmation and tax opinion, the Transferor does
not presently expect that any New Series Issuance, including any New Series
Issuance as part of an Investor Exchange, will have a material adverse effect on
the Series 1998-1 Certificates. There can be no assurance, however, that the
Principal Terms of any other Series, including any Series issued from time to
time hereafter, might not have an impact on the timing and amount of payments
received by a Series 1998-1 Certificateholder, including as a result of the
refixing of the percentage utilized with respect to the allocation of the
Principal Receivables. See 'Description of the Offered Certificates--New Series
Issuances' and '--Allocation Percentages.'
REPRESENTATIONS AND WARRANTIES
Each of the Original Transferors and the Transferor will make upon
execution of each Supplement (including the Series 1998-1 Supplement) certain
representations and warranties to the Trust to the effect that, among other
things, as of the closing date of the issuance by the Trust of the related
Series (including the Closing Date), it is duly incorporated and in good
standing and that it has the authority to consummate the transactions
contemplated by the Agreement. If (i) any of these representations and
warranties proves to have been incorrect in any material respect when made, and
continues to be materially incorrect for 60 days after notice to the related
Original Transferor or the Transferor, as applicable, by the Trustee, and (ii)
as a result the interests of the Series 1998-1 Certificateholders are materially
adversely affected, and continue to be materially adversely affected during such
period, then the Trustee or the specified percentage of Series 1998-1
Certificateholders may give notice to the Transferor declaring that a Pay Out
Event has occurred, thereby commencing the Series 1998-1 Rapid Amortization
Period. See '--Pay Out Events.'
The Original Transferors will make with respect to the Existing
Receivables, and the Transferor will make with respect to the Future
Receivables, upon the execution of each Supplement (including the Series 1998-1
Supplement), representations and warranties to the Trust to the effect, among
other
58
<PAGE>
things, that, as of the date of transfer of each such Receivable to the Trust
(a) such Receivable is an Eligible Receivable (as defined below), and (b) all
material consents, licenses, approvals or authorizations of or registrations or
declarations with any governmental authority required to be obtained, effected
or given in connection with the origination and/or servicing of the related Loan
and the conveyance of each such Receivable to the Trust have been duly effected
or given and are in full force and effect. In the event of a breach of any
representation and warranty set forth in this paragraph as a result of which the
Loan relating to a Receivable becomes a Defaulted Loan, within 60 days, or such
longer period as may be agreed to by the Trustee (but no longer than 120 days),
of receipt by the related Original Transferor or the Transferor, as applicable,
of written notice of such breach given by the Trustee, the related Original
Transferor or the Transferor, as applicable, shall accept reassignment of each
Receivable as to which such breach relates if such breach continues throughout
the aforementioned applicable period (an 'Ineligible Receivable') on the terms
and conditions referred to below. The Transferor, with respect to the Future
Receivables, or the related Original Transferor, with respect to the Existing
Receivables, shall accept reassignment of each such Ineligible Receivable by (i)
depositing into the Collection Account an amount equal to the Finance Charge
Receivables due but not collected with respect to such Ineligible Receivable,
(ii) in the case of the Transferor with respect to Future Receivables, directing
the Servicer to deduct the unpaid principal amount of each such Ineligible
Receivable from the aggregate amount of Principal Receivables used to calculate
the Transferor Ownership Interest and (iii) in the case of the Original
Transferors with respect to Existing Receivables, depositing into the Collection
Account an amount equal to the principal balance of such Ineligible Receivable;
provided, however, that if the exclusion of an Ineligible Receivable from the
calculation of the Transferor Ownership Interest would cause the Transferor
Ownership Interest to be less than the Minimum Transferor Ownership Interest or
would otherwise not be permitted by law, then such Ineligible Receivable shall
be removed upon the Transferor depositing in the Principal Account (for
allocation as a Principal Receivable) in immediately available funds an amount
equal to the amount by which the Transferor Ownership Interest would be reduced
below the Minimum Transferor Ownership Interest. Upon any such reassignment of a
Future Receivable to the Transferor, the Transferor shall reassign such
Receivable to AIC or AICCO, as applicable, pursuant to the terms of the
Receivables Sale Agreement. The obligation of the Transferor or the related
Original Transferor, as applicable, to accept reassignment of any Ineligible
Receivable is the sole remedy respecting any breach of the representations and
warranties referred to in this paragraph with respect to such Receivable
available to the Series 1998-1 Certificateholders or the Trustee on behalf of
the Series 1998-1 Certificateholders.
Upon the execution of each Supplement (including the Series 1998-1
Supplement), each Original Transferor and the Transferor with respect to (a)
below, and the Transferor with respect to (b) below, will make representations
and warranties to the Trust to the effect, among other things, that as of the
closing date of the issuance by the Trust of the related Series of certificates
(including the Closing Date) (a) the Agreement, including the related
Supplement, constitutes a valid and legally binding obligation of it, and (b)
the transfer of Receivables to the Trust under the Agreement constitutes a valid
transfer to the Trust of the entire right, title and interest in and to the
Receivables and the proceeds thereof (including amounts in any of the accounts
established for the benefit of the related certificateholders), and recoveries
thereon. Each Original Transferor and the Transferor will make upon the
execution of each Supplement (including the Series 1998-1 Supplement),
representations and warranties to the Trust to the effect, among other things,
that as of the closing date of the issuance by the Trust of the related Series
of certificates (including the Closing Date) (x) all information previously
furnished by it or to be furnished by it in writing to the Trustee in connection
with the Agreement and the transactions contemplated thereby is and will be true
and accurate in all material respects, and (y) all approvals, authorizations,
consents, orders or other actions of any person or of any governmental body or
official required in connection with the execution and delivery of the Agreement
and the certificates and the performance of the transactions contemplated by the
Agreement have been obtained. The Transferor will make with respect to the
Future Receivables, representations and warranties to the Trust similar to those
described in the two foregoing sentences in connection with each assignment of
Receivables added to the Trust from time to time in accordance with the terms
and conditions of the Agreement. In the event of a breach of any of the
representations and warranties described in clause (a) or (b) above,
59
<PAGE>
if such breach has a material adverse effect on the Trust, the Trustee, by
written notice to the Transferor, may direct the Transferor to accept
reassignment of all the Receivables in the Trust portfolio within 60 days of
such notice, or within such longer period specified in such notice (but no
longer than 120 days). Such reassignment will not be required to be made,
however, if at any time during such applicable period, or such longer period,
the representations and warranties described in (a) above shall be true and
correct in all respects and the representations and warranties described in (b)
above shall be true and correct in all material respects. The deposit amount for
such reassignment with respect to each Series of certificates required to be
repurchased following such notice, including the Series 1998-1 Certificates,
will generally be equal to the certificateholders ownership interests of such
Series on the last day of the Monthly Period preceding the date on which the
reassignment is scheduled to be made plus an amount equal to all interest
accrued but unpaid on such certificates at the applicable certificate rate (less
the amounts previously allocated for payment of interest and principal with
respect to each such Series of certificates) through the end of the interest
accrual period in which such reassignment occurs of each such Series. The
reassignment deposit amount shall equal the sum of the reassignment deposits
with respect to each Series then issued and outstanding which is required to be
repurchased following such notice. The allocable portion of such reassignment
deposit amount will be paid in full to the certificateholders of such Series
upon presentation and surrender of their certificates. If the Trustee or the
holders of the outstanding certificates give notice directing the Transferor to
accept reassignment as provided in the Agreement, the obligation of the
Transferor to accept reassignment of the Receivables and to pay the reassignment
deposit amount will constitute the sole remedy respecting a breach of the
representations and warranties described in (a) or (b) above.
'Eligible Receivable' is defined to mean each Receivable (a) which has
arisen from a Loan, having a stated maturity, that was in material compliance
with all requirements of law applicable to AIC, AICCO, any Third Party
Originator (each, an 'Originator') and the Servicer and which, at the time of
the transfer of such Receivable to the Trust, complies in all material respects
with all requirements of law applicable to AIC, AICCO, any Third Party
Originator and the Servicer, (b) with respect to which all material consents,
licenses, approvals or authorizations of, or registrations or declarations with,
each governmental authority required to be obtained, effected or given in
connection with the creation of such Receivable or the execution, delivery and
performance by AIC, AICCO and any Third Party Originator of the Loan relating to
such Receivable, have been duly obtained, effected or given and are in full
force and effect as of the date of transfer to the Trust, (c) which, at the time
of transfer of such Receivable to the Trust, represents a beneficial interest in
a Loan that has been originated in accordance with AIC's underwriting guidelines
and has not been waived or modified except for waivers or modifications that
were made by the Servicer in accordance with its customary servicing standards,
(d) as to which the related Loan is not subject to any right of rescission,
setoff, counterclaim, defense arising out of violations of usury laws, or any
other defenses of any Obligor at the time of the transfer of such Receivable to
the Trust, other than defenses that may arise after the time of transfer out of
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditors' rights in general and general equity
principles, (e) as to which all obligations of AIC, AICCO and any Third Party
Originator with respect to such Receivable required to be fulfilled pursuant to
the related premium finance loan agreement and the Agreement, including the
funding of the related Loan, are satisfied, (f) as to which, at the time of
transfer of such Receivable to the Trust, none of AIC, AICCO and any Third Party
Originator has taken any action which would impair, or failed to take any action
necessary to avoid impairing, the rights of the Trust or the certificateholders
therein, (g) with respect to which the Obligor under the related Loan is not the
direct obligor under any Defaulted Loan (other than a Defaulted Loan resulting
solely from an event of bankruptcy of an entity other than such direct obligor),
(h) which, in the case of Existing Receivables transferred to the Trust after
the Initial Closing Date and Additional Receivables only, does not relate to a
Defaulted Loan or a Loan which is overdue, (i) as to which the related Loan and
all amounts due thereon are denominated and payable only in United States
dollars, (j) which has arisen from a Loan whereby the related premium finance
agreement provides the related Originator and, in the case of a Third Party
Originator, its transferees, a limited power of attorney allowing it to cancel
the related insurance policy, if cancelable, in accordance with state law upon
non-payment of a loan installment by the Obligor thereunder, and (k) which has
arisen
60
<PAGE>
from a Loan whereby the related premium finance agreement allows the related
Originator and, in the case of a Third Party Originator, its transferees, to
direct the insurance company to pay to such party any unearned premium under the
related insurance policy calculated as of the time of cancellation of the
insurance policy, if cancelable.
The Trustee has not made, and it is not required or anticipated that the
Trustee will make, any general examination of the Receivables or any records
relating to the Receivables for the purpose of establishing the presence or
absence of defects, compliance with an Original Transferor's or the Transferor's
representations and warranties or for any other purpose.
ADDITION OF RECEIVABLES
The Transferor has the right and, in some circumstances, is obligated to
designate from time to time Additional Receivables to be transferred to the
Trust. The Original Transferors presently expect to sell to the Transferor all
Additional Receivables generated by them from time to time. The Transferor will
be required in any event to transfer sufficient Additional Receivables to the
Trust to maintain the Minimum Transferor Ownership Interest; otherwise, a Pay
Out Event will occur and the Series 1998-1 Rapid Amortization Period will
commence. Each such Additional Receivable must be an 'Eligible Additional
Receivable.' An 'Eligible Additional Receivable' is, as of the date such
Receivable is added to the Trust, a Receivable which satisfies the criteria set
forth in the definition of Eligible Receivable. The Transferor will convey to
the Trust its entire interest in all such Additional Receivables, subject to the
following additional conditions, among others: (i) no selection procedures
materially adverse to the interests of the holders of any Series of
certificates, including the Holders of Offered Certificates, were used in
selecting the Additional Receivables, (ii) the Transferor shall deliver, on or
prior to the Determination Date following a Monthly Period during which
Additional Receivables are conveyed to the Trust, a written assignment to the
Trust of the Additional Receivables and a computer file or microfiche list
containing a true and complete list of all Receivables, including Additional
Receivables, as of the end of such Monthly Period and (iii) the transfer of
Additional Receivables by the Transferor to the Trust constitutes a valid
transfer and sale of the entire right and interest in and to the Additional
Receivables. The Transferor is not required to give notice to either Rating
Agency of its intention to convey Additional Receivables to the Trust.
REMOVAL OF RECEIVABLES
Subject to the conditions set forth in the next succeeding sentence, on
each Determination Date on which the Transferor Ownership Interest exceeds the
Minimum Transferor Ownership Interest on such Determination Date, the Transferor
may, but shall not be obligated to, not more than once during the Monthly Period
during which such Determination Date occurs, designate Receivables for deletion
and removal from the Trust with five business days' prior written notice to the
Trustee and Servicer but without notice to the Series 1998-1 Certificateholders
(the 'Removed Receivables'). The Transferor is permitted to designate and
require reassignment of Removed Receivables only upon satisfaction of the
following conditions among other things: (i) on or prior to the reassignment
date, the Transferor shall have delivered to the Trustee for execution a written
reassignment and, within five business days after the reassignment date, the
Transferor shall have delivered to the Trustee a computer file or microfiche
list containing a true and complete list of all Removed Receivables, the Removed
Receivables to be identified by, among other things, account number and their
aggregate amount of Principal Receivables as of the date of their removal (the
'Removal Date'); (ii) the Transferor shall represent and warrant that no
selection procedure used by the Transferor which is materially adverse to the
interests of the holders of any certificates issued by the Trust was utilized in
selecting the Removed Receivables; (iii) the removal of any Removed Receivables
shall not, in the reasonable belief of the Transferor, (a) cause a Pay Out Event
to occur, (b) cause the Transferor Ownership Interest to be less than the
Minimum Transferor Ownership Interest on such Removal Date or (c) result in the
failure to make any payment with respect to any Series; (iv) the Transferor
shall have delivered prior written notice of the removal to the Rating Agencies
and prior to the date on which such Receivables are to be removed, the
Transferor shall not have received notice from either Rating Agency that such
removal will result in the reduction or
61
<PAGE>
withdrawal of the then-existing rating of any Series of certificates; (v) the
Transferor shall have delivered to the Trustee an officer's certificate
confirming the items set forth in clauses (i) through (iv) above; and (vi) the
Transferor, the Trustee and each Rating Agency will have received an opinion of
counsel that the proposed removal will not adversely affect the federal income
tax characterization of the Trust. The Transferor does not presently expect to
remove Receivables from the Trust, nor do AIC or AICCO presently expect that any
such removal will take place.
THE COLLECTION ACCOUNT
The Servicer has established and will maintain, or cause to be maintained,
in the name of the Trust, for the benefit of the certificateholders of all
outstanding Series, a 'Collection Account,' which is a non-interest bearing
segregated account established with a Qualified Institution. A 'Qualified
Institution' is a depositary institution (which may include the Trustee),
organized under the laws of the United States or any one of the states thereof
or the District of Columbia, which either (a) has corporate trust powers and at
all times has a certificate of deposit rating of at least P-1 by Moody's
Investors Service, Inc. ('Moody's') and of A-1 by Standard & Poor's Ratings
Group ('Standard & Poor's') or a long-term rating of at least A by Moody's and
of at least A by Standard & Poor's and deposit insurance as required by the
Federal Deposit Insurance Corporation (the 'FDIC') or (b) at all times has a
certificate of deposit rating of at least P-1 by Moody's and A-1+ by Standard &
Poor's or a long-term rating of at least Aa by Moody's and of at least AA by
Standard & Poor's and deposit insurance as required by the FDIC. In addition,
the Supplement with respect to any Series may require the Trustee to establish
and maintain a subaccount of the Collection Account for such Series (such
subaccount, a 'Collection Subaccount'). Funds in the Collection Account or, as
provided in the related Supplement, any Collection Subaccount that are not both
deposited and to be withdrawn on the same date may be invested to the extent
provided in such Supplement, at the direction of the Servicer, in (i)
obligations of or fully guaranteed by the United States of America, (ii) demand
deposits, time deposits or certificates of deposit of (A) depositary
institutions with corporate trust powers, the certificates of deposit of which
have ratings from Moody's and Standard & Poor's of P-1 and A-1, respectively,
and long-term unsecured debt obligations of which have a rating from Moody's and
Standard & Poor's of A and A, respectively or (B) depositary institutions, the
certificates of deposit of which have ratings from Moody's and Standard & Poor's
of P-1 and A-1+, respectively, and long-term unsecured debt obligations of which
have a rating from Moody's and Standard & Poor's of Aa and AA, respectively,
(iii) commercial paper having, at the time of the Trust's investment or
contractual commitment to invest therein, a rating of P-1 and A-1+,
respectively, from Moody's and Standard & Poor's, (iv) demand deposits, time
deposits and certificates of deposit which are fully insured to the limits as
required by law and by the FDIC, (v) bankers acceptances issued by any
depositary institution or trust company described in clause (ii) above, (vi)
money market and common trust funds rated AAA-M or AAA-MG by Standard & Poor's
or P-1 by Moody's or which have otherwise been approved in writing by each
Rating Agency and (vii) certain open end diversified investment companies which
each Rating Agency designates in writing will not result in a withdrawal or
downgrade of its then current rating of any Series it rates ('Permitted
Investments'). Any such investment shall mature and such funds shall be
available for withdrawal on or prior to the Transfer Date related to the Monthly
Period in which such funds were received or deposited. Any earnings (net of
losses and investment expenses) on funds in the Collection Account or any
Collection Subaccount will be paid monthly to the holder of the Transferor
Certificate. If such losses and investment expenses exceed earnings on funds in
the Collection Account or any Collection Subaccount during a Monthly Period,
then such excess shall be treated in the same manner as Default Amounts are
treated. The Transferor is not required to reimburse the Trust with respect to
such excess. See '--Defaulted Loans; Charge-Offs.'
62
<PAGE>
Except as otherwise provided below, the Servicer will deposit into the
Collection Account, no later than the second business day following the date of
receipt, any payment collected by the Servicer on the Receivables; provided,
however, that for as long as AIC remains a Servicer under the Agreement and
either (i) the AIC Support Agreement remains in effect with respect to the
Servicer and is not terminated, amended or modified other than in accordance
with its terms, and AIG has and maintains a long-term rating of at least Aa by
Moody's and of at least AA by Standard & Poor's or (ii) AIC has and maintains a
commercial paper rating of P-1 by Moody's and of A-1 by Standard & Poor's, then
the Servicer may make such deposits into the Collection Account monthly on each
Transfer Date, in an amount equal to the lesser of (a) collections received in
the immediately preceding Monthly Period allocable to the certificateholders
ownership interests of all outstanding Series and (b) the amount required to be
deposited into the Finance Charge Account, the Principal Account or any other
Series account or, without duplication, distributed on or prior to the related
Distribution Date to certificateholders of all outstanding Series. On the same
date as any deposit is made to the Collection Account, the Servicer will (i)
transfer funds from the Collection Account to the Finance Charge Account and
Principal Account to the extent required under '--Application of Collections'
below, and (ii) make such further distributions and payments as required
thereunder. Deposits required to be made by AIC as Servicer into the Finance
Charge Account, Principal Account, the Series 1998-1 Yield Enhancement Account,
Excess Funding Account and any other account established for the benefit of the
holders of any Series of certificates may also be made on a monthly basis rather
than on a more frequent basis if the conditions referred to in the first
sentence of this paragraph are met.
With respect to the certificates of any outstanding Series, whether the
Servicer is required to make monthly or daily deposits from the Collection
Account into the Finance Charge Account, the Principal Account or any other
Series account, with respect to any Monthly Period, (i) the Servicer will only
be required to deposit Collections from the Collection Account into the Finance
Charge Account, the Principal Account or any other Series account up to the
required amount to be deposited into any such deposit account or, without
duplication, distributed on or prior to the related Distribution Date to
certificateholders of such outstanding Series and (ii) if at any time prior to
such Distribution Date the amount of Collections deposited in the Collection
Account exceeds the amount required to be deposited pursuant to clause (i)
above, the Servicer will be permitted to withdraw the excess from the Collection
Account and allocate and pay such excess to the holder of the Transferor
Certificate as provided in the Agreement.
The Paying Agent shall have the revocable power to withdraw funds from the
Collection Account or any Collection Subaccount for the purpose of making
distributions to the certificateholders of all outstanding Series in the manner
provided in the related Supplement.
SERIES 1998-1 ACCOUNTS
The Trustee has established and will maintain with a Qualified Institution
in the name of the Trust, two non-interest bearing segregated trust accounts, a
'Finance Charge Account,' for deposits of collections in respect of Finance
Charge Receivables, and a 'Principal Account,' for deposits of collections in
respect of Principal Receivables, for the benefit of the certificateholders of
all outstanding Series. The Trustee will establish a 'Series 1998-1 Distribution
Account' (a non-interest bearing segregated trust account established with a
Qualified Institution).
Funds in the Principal Account and the Finance Charge Account will be
invested, at the direction of the Transferor, in Permitted Investments. Any
earnings (net of losses and investment expenses) on funds in the Finance Charge
Account or the Principal Account will be paid monthly to the holder of the
Transferor Certificate. If losses and investment expenses exceed earnings on
funds in the Principal Account or the Finance Charge Account during a Monthly
Period, then such excess shall be treated in the same manner as Default Amounts
are treated. The Transferor is not required to reimburse the Trust with respect
to such excess. The Servicer will have the revocable power to withdraw funds
from the Collection Account, the Finance Charge Account, the Principal Account,
the Series 1998-1 Yield Enhancement Account and the Excess Funding Account
referred to below for the purpose of carrying out the Servicer's duties under
the Agreement. The Paying Agent shall have the revocable power to
63
<PAGE>
withdraw funds from the Series 1998-1 Distribution Account for the purpose of
making distributions to the Series 1998-1 Certificateholders. The Series 1998-1
Distribution Account shall not contain any funds of the Transferor or amounts
allocable to the Transferor Ownership Interest, and no amounts on deposit
therein shall be made available to the Transferor.
The Finance Charge Account, Principal Account, Series 1998-1 Yield
Enhancement Account, Excess Funding Account and Series 1998-1 Distribution
Account are collectively referred to as the 'Accounts.'
SERIES 1998-1 YIELD ENHANCEMENT ACCOUNT
The Servicer will establish and maintain or cause to be maintained with a
Qualified Institution in the name of the Trustee, on behalf of the Trust, a
segregated account, the 'Series 1998-1 Yield Enhancement Account,' for the
benefit of the Series 1998-1 Certificateholders. Amounts on deposit in the
Series 1998-1 Yield Enhancement Account will be invested in the manner directed
by the Transferor in Permitted Investments. Any earnings (net of losses and
investment expenses) on funds in the Series 1998-1 Yield Enhancement Account
will be paid monthly to the holder of the Transferor Certificate. If losses and
investment expenses exceed earnings on funds in the Series 1998-1 Yield
Enhancement Account during a Monthly Period, then such excess shall be charged
against funds on deposit in such account. The Transferor is not required to
reimburse the Trust with respect to such excess. On each Transfer Date, an
amount equal to the Series 1998-1 Available Yield Enhancement Amount shall be
deposited into the Series 1998-1 Yield Enhancement Account out of collections
otherwise allocable to the holder of the Transferor Certificate for the Monthly
Period immediately preceding such Transfer Date. If collections otherwise
allocable to the holder of the Transferor Certificate for such Monthly Period on
such Transfer Date are not sufficient therefor, then the Transferor shall
deposit the amount of the insufficiency out of its own funds. Notwithstanding
the two preceding sentences, if AIR is no longer the Transferor or if the AIR
Support Agreement is not in effect with respect to AIR, then prior to any
payment to the holder of the Transferor Certificate of any collections with
respect to Principal Receivables or Finance Charge Receivables not allocated to
the Series 1998-1 Certificateholders, there shall be deposited into the Series
1998-1 Yield Enhancement Account on each date amounts allocable to the Series
1998-1 Certificates which would otherwise be allocable to the holder of the
Transferor Certificate until the amount so deposited equals the Series 1998-1
Maximum Yield Enhancement Amount for the next Transfer Date. The 'Series 1998-1
Maximum Yield Enhancement Amount' shall mean, with respect to any Transfer Date,
the amount calculated pursuant to the proviso to the definition of 'Series
1998-1 Available Yield Enhancement Amount' set forth below, determined on the
assumption that the Series 1998-1 Class A Certificate Rate, the Series 1998-1
Class B Certificate Rate and the Series 1998-1 Class C Certificate Rate used in
determining Series 1998-1 Class A Monthly Interest, Series 1998-1 Class B
Monthly Interest and Series 1998-1 Class C Monthly Interest, respectively,
equals in each case 16.00% per annum. In addition, in all cases the Servicer
will deposit into the Series 1998-1 Yield Enhancement Account on each Transfer
Date any Series 1998-1 Excess Finance Charges. 'Series 1998-1 Excess Finance
Charges' means, with respect to any Transfer Date, an amount equal to the excess
of Series 1998-1 Class A Available Funds, Series 1998-1 Class B Available Funds
and Series 1998-1 Class C Available Funds for the related Monthly Period over
the aggregate, with respect to such Transfer Date, of the amounts set forth in
clauses (a) through (e) of the definitions of Series 1998-1 Class A Required
Amount, Series 1998-1 Class B Required Amount and Series 1998-1 Class C Required
Amount. See '--Reallocation of Cash Flows.'
On each Transfer Date the Servicer will calculate the 'Series 1998-1
Available Yield Enhancement Amount,' which with respect to any Transfer Date (a)
during the Series 1998-1 Revolving Period means the product of (i) 2.25% and
(ii) the product of (A) the collections for the related Monthly Period otherwise
allocable to the Transferor Ownership Interest and (B) the Series 1998-1
Floating Investor Percentage divided by one minus the Aggregate Investor
Percentage, and (b) during the Series 1998-1 Controlled Amortization Period and
the Series 1998-1 Rapid Amortization Period means the product of (i) 2.25% and
(ii) the product of (A) the collections for the related Monthly Period otherwise
allocable to the Transferor Ownership Interest and (B) in the case of
collections of Finance Charge Receivables
64
<PAGE>
allocable to the Transferor Ownership Interest, the Series 1998-1 Floating
Investor Percentage divided by one minus the Aggregate Investor Percentage, and
in the case of collections of Principal Receivables allocable to the Transferor
Ownership Interest, the Series 1998-1 Fixed Investor Percentage divided by one
minus the Aggregate Investor Percentage; provided that in no event shall the
Series 1998-1 Available Yield Enhancement Amount for any Transfer Date exceed
the sum of Series 1998-1 Class A Monthly Interest, Series 1998-1 Class A
Additional Interest, Series 1998-1 Class B Monthly Interest, Series 1998-1 Class
B Additional Interest, Series 1998-1 Class C Monthly Interest and Series 1998-1
Class C Additional Interest for such Transfer Date. 'Aggregate Investor
Percentage' with respect to Principal Receivables and Finance Charge
Receivables, as the case may be, means, as of any date of determination, the sum
of the then applicable Investor Percentages of all Series of certificates issued
and outstanding on such date of determination, to a maximum of 100%. 'Investor
Percentage,' with respect to a Series, means, for any Monthly Period, (a) with
respect to Finance Charge Receivables and Default Amounts at any time and
Principal Receivables during the revolving period for such Series, the floating
investor percentage for such Series and (b) with respect to Principal
Receivables during the controlled amortization period for such Series or the
rapid amortization period for such Series, the fixed investor percentage for
such Series.
During each of the calendar years 1995, 1996 and 1997, the average monthly
payment rate on commercial premium finance loans in the Loan Portfolio exceeded
17%. Assuming (i) a 17% payment rate each month, (ii) twelve equal 30-day
monthly periods, and (iii) ownership by the Transferor during each Monthly
Period of at least the Minimum Transferor Ownership Interest, the amount
available under the Agreement during the Series 1998-1 Revolving Period for
yield enhancement would be 459 basis points on the outstanding principal of the
Offered Certificates on an annualized basis and may be greater during an
amortization period (unless the amount of interest due on the outstanding
principal of the Offered Certificates during such Monthly Period is less than
459 basis points on an annualized basis, in which case the amount available for
yield enhancement would be such lesser amount). There can be no assurance,
however, that the monthly payment rate on the Loans will not be less than 17%
since the payment rate will vary depending on a variety of factors, including
loan maturities, interest rates and delinquency and default rates. Lower payment
rates will result in lower yield enhancement amounts.
On each Transfer Date, the Trustee, acting pursuant to the Servicer's
instructions, will apply funds on deposit in the Series 1998-1 Yield Enhancement
Account with respect to the related Monthly Period to make the following
distributions in the following priority:
(a) an amount equal to the Series 1998-1 Class A Required Amount, if
any, with respect to such Transfer Date will be transferred to the Finance
Charge Account and used to fund the Series 1998-1 Class A Required Amount;
provided, that in the event the Series 1998-1 Class A Required Amount for
such Transfer Date exceeds the funds on deposit in the Series 1998-1 Yield
Enhancement Account, such funds shall be applied to pay amounts due with
respect to such Transfer Date pursuant to clauses (a), (b), (c), (d) and
(e) (in that order) under the definition of Series 1998-1 Class A Required
Amount;
(b) an amount equal to the Series 1998-1 Class B Required Amount, if
any, with respect to such Transfer Date will be transferred to the Finance
Charge Account and used to fund the Series 1998-1 Class B Required Amount;
provided, that in the event the Series 1998-1 Class B Required Amount for
such Transfer Date exceeds the funds on deposit in the Series 1998-1 Yield
Enhancement Account after giving effect to clause (a) above, such funds
shall be applied to pay amounts due with respect to such Transfer Date
pursuant to clauses (a), (b), (c), (d) and (e) (in that order) under the
definition of Series 1998-1 Class B Required Amount;
(c) an amount equal to the aggregate amount by which the Series 1998-1
Class A Ownership Interest has been reduced below the initial Series 1998-1
Class A Ownership Interest on previous Transfer Dates for reasons other
than the payment of principal to the Series 1998-1 Class A
Certificateholders (but not in excess of the aggregate amount of such
reductions which have not been previously reimbursed) will be deposited
into the Principal Account on such Transfer Date
65
<PAGE>
(and the Series 1998-1 Class A Ownership Interest shall be deemed to have
been reimbursed by such amount up to the initial Series 1998-1 Class A
Ownership Interest but only if the Series 1998-1 Class A Ownership Interest
shall not have previously been reduced to zero during the Series 1998-1
Class A Controlled Amortization Period or the Series 1998-1 Rapid
Amortization Period);
(d) an amount equal to the aggregate amount by which the Series 1998-1
Class B Ownership Interest has been reduced below the initial Series 1998-1
Class B Ownership Interest on previous Transfer Dates for reasons other
than the payment of principal to the Series 1998-1 Class B
Certificateholders (but not in excess of the aggregate amount of such
reductions which have not been previously reimbursed) will be deposited
into the Principal Account on such Transfer Date (and the Series 1998-1
Class B Ownership Interest shall be deemed to have been reimbursed by such
amount up to the initial Series 1998-1 Class B Ownership Interest but only
if the Series 1998-1 Class B Ownership Interest shall not have previously
been reduced to zero during the Series 1998-1 Class B Controlled
Amortization Period or the Series 1998-1 Rapid Amortization Period);
(e) an amount equal to the Series 1998-1 Class C Required Amount, if
any, with respect to such Transfer Date will be transferred to the Finance
Charge Account and used to fund the Series 1998-1 Class C Required Amount;
provided, that in the event the Series 1998-1 Class C Required Amount for
such Transfer Date exceeds the funds on deposit in the Series 1998-1 Yield
Enhancement Account after giving effect to clauses (a), (b), (c) and (d)
above, such funds shall be applied to pay amounts due with respect to such
Transfer Date pursuant to clauses (a), (b), (c), (d) and (e) (in that
order) under the definition of Series 1998-1 Class C Required Amount;
(f) an amount equal to the aggregate amount by which the Series 1998-1
Class C Ownership Interest has been reduced below the initial Series 1998-1
Class C Ownership Interest on previous Transfer Dates for reasons other
than the payment of principal to the Series 1998-1 Class C
Certificateholders (but not in excess of the aggregate amount of such
reductions which have not been previously reimbursed) will be deposited
into the Principal Account on such Transfer Date (and the Series 1998-1
Class C Ownership Interest shall be deemed to have been reimbursed by such
amount up to the initial Series 1998-1 Class C Ownership Interest but only
if the Series 1998-1 Class C Ownership Interest shall not have previously
been reduced to zero during the Series 1998-1 Class C Controlled
Amortization Period or the Series 1998-1 Rapid Amortization Period); and
(g) the balance, if any, in excess of the Series 1998-1 91 Day
Delinquency Amount, after giving effect to the payments made pursuant to
subparagraphs (a) through (f) above, shall be distributed to the holder of
the Transferor Certificate provided that a Pay Out Event has not occurred
and will not be available for any future payments to the Series 1998-1
Certificateholders; provided, however, that such amount shall be paid to
the holder of the Transferor Certificate only to the extent that the
Transferor Ownership Interest as of such date is greater than the Minimum
Transferor Ownership Interest as of the end of the immediately preceding
Monthly Period (after giving effect to the inclusion in the Trust of all
Receivables transferred to the Trust on or prior to such date and the
application of collections received) and otherwise shall be deposited into
the Excess Funding Account; provided further, that in no event shall the
amount payable to the holder of the Transferor Certificate be greater than
the Transferor Ownership Interest.
The 'Series 1998-1 91 Day Delinquency Amount' shall equal, as of each
Transfer Date, the product of (a) the Series 1998-1 Floating Investor Percentage
and (b) the aggregate outstanding principal amount as of the end of the
preceding Monthly Period of the Loans relating to Receivables in the Trust that
are then overdue 91 days or more (i) after cancellation of the related insurance
policies or (ii) if cancellation is delayed, whether due to a stay by reason of
an Obligor's bankruptcy or other reason, after the date the policy would have
been cancelled in the absence of such delay. Funds remaining on deposit in the
Series 1998-1 Yield Enhancement Account under clause (g) above shall be
available on the next Transfer Date for application, together with any
additional amounts required to be deposited therein on such Transfer Date, in
accordance with clauses (a) through (g) above.
66
<PAGE>
EXCESS FUNDING ACCOUNT
The Servicer has established and will maintain or cause to be maintained
with a Qualified Institution in the name of the Trustee, on behalf of the Trust,
a segregated account, the 'Excess Funding Account,' for the benefit of the
certificateholders of all outstanding Series, including the Series 1998-1
Certificateholders. If on any date the Transferor Ownership Interest equals or
is less than the Minimum Transferor Ownership Interest as of the end of the
immediately preceding Monthly Period, funds (to the extent available therefor as
described herein) otherwise payable to the holder of the Transferor Certificate
on such date will be deposited in the Excess Funding Account. Funds on deposit
in the Excess Funding Account will be withdrawn and paid to the holder of the
Transferor Certificate to the extent that on any day the Transferor Ownership
Interest exceeds the Minimum Transferor Ownership Interest as of the end of the
immediately preceding Monthly Period as a result of the transfer of Additional
Receivables to the Trust. Such deposits in and withdrawals from the Excess
Funding Account may be made on a daily basis (except, if AIC is the Servicer,
under the circumstances described above under '--The Collection Account').
The allocable portion of funds on deposit in the Excess Funding Account at
the beginning of the Series 1998-1 Rapid Amortization Period will be paid to the
Series 1998-1 Certificateholders as a payment in respect of principal, and
during the Series 1998-1 Controlled Amortization Period will be paid to the
Series 1998-1 Certificateholders as a payment in respect of principal to the
extent that monthly collections received in respect of Principal Receivables and
Shared Principal Collections allocable to the Series 1998-1 Certificateholders
Ownership Interests are insufficient to pay the Series 1998-1 Controlled
Distribution Amount. Funds on deposit in the Excess Funding Account will be
allocated, if necessary, among the certificateholders ownership interests of
each outstanding Series of certificates on a pro rata basis in accordance with
each such Series' fixed investor percentage.
Funds on deposit in the Excess Funding Account will be invested by the
Trustee at the direction of the Transferor in Permitted Investments. All net
investment income earned on amounts in the Excess Funding Account will be
retained in the Excess Funding Account to the extent that the Transferor
Ownership Interest is less than the Minimum Transferor Ownership Interest. If
losses and investment expenses exceed earnings on funds in the Excess Funding
Account during a Monthly Period, then such excess shall be treated in the same
manner as Default Amounts are treated. The Transferor is not required to
reimburse the Trust with respect to such excess.
The 'Minimum Transferor Ownership Interest' shall mean, as of any date of
determination, an amount equal to the sum of (a) (i) 107% of an amount equal to
the aggregate initial certificateholders ownership interests of all outstanding
Series minus (ii) the aggregate certificateholders ownership interests of all
outstanding Series as of such date and (b) the Excess Receivables Amount for
such date; provided, however, that the Minimum Transferor Ownership Interest
shall be calculated without reference to the Excess Receivables Amount if (i)
prior to such date there shall have been delivered to the Trustee (a) a written
agreement, in form and substance satisfactory to the Rating Agencies, executed
by a person having a long-term unsecured debt rating of AAA from Standard &
Poor's and Aaa from Moody's pursuant to which such person shall have
unconditionally agreed to indemnify the Trust for all losses in respect of
amounts constituting the Excess Receivables Amount at any time and (b) written
confirmation from each of the Rating Agencies to the effect that such
substitution will not result in such Rating Agency reducing or withdrawing its
rating on any then outstanding class of investor certificates of any Series,
including the Series 1994-1 Certificates and the Series 1998-1 Certificates, and
(ii) the agreement and the rating referred to in clause (a) above remain in
effect on such date of determination.
'Excess Receivables Amount' shall mean, as of any date of determination,
the sum of:
(i) the aggregate unpaid principal balance of all Receivables in the
Trust as of the end of the immediately preceding Monthly Period having the
same Obligor but only to the extent such aggregate balance is in excess of
0.60% of the aggregate unpaid principal balance of all Receivables in the
Trust as of the end of such Monthly Period; and
67
<PAGE>
(ii) the greater of:
(a) the sum, for each Moody's Non-Investment Grade Insurer
(including for this purpose any affiliated Moody's Non-Investment Grade
Insurer) of, if more than 5% of the aggregate unpaid principal balance
of all Receivables in the Trust as of the end of such Monthly Period
arise from Loans made to finance premiums due to such insurer (including
any such affiliated insurer), the aggregate unpaid principal balance of
such Receivables but only to the extent in excess of such percentage;
(b) the sum, for each insurer (including any affiliated insurer)
referred to below, of the greater of:
(I) if more than 2% of the aggregate unpaid principal balance of
all Receivables in the Trust as of the end of such Monthly Period
arise from Loans made to finance premiums due to the same S&P
Non-Investment Grade Insurer (including for this purpose any
affiliated S&P Non-Investment Grade Insurer), the aggregate unpaid
principal balance of such Receivables but only to the extent in
excess of such percentage; and
(II) if more than 4% of the aggregate unpaid principal balance
of all Receivables in the Trust as of the end of such Monthly Period
arise from Loans made to finance premiums due to the same S&P Non-AAA
Insurer (including for this purpose any affiliated S&P Non-AAA
Insurer), the aggregate unpaid principal balance of such Receivables
but only to the extent in excess of such percentage.
For purposes of making any calculation: (x) pursuant to clause (ii) above, an
amount that would be part of the Excess Receivables Amount under such clause
shall be taken into account only to the extent not already taken into account
under clause (i) above and (y) pursuant to clause (i) or clause (ii) above, the
aggregate of the losses, if any, previously realized in respect of any Obligor
subject to clause (i) above or any insurer referred to in subclauses (a), (b)(I)
and/or (b)(II) of clause (ii) above (to the extent relating to insurer
insolvency) shall reduce the percentage levels used in calculating the excess
amounts set forth or referred to in such clause or subclauses with respect to
any single Obligor or insurer.
'Moody's Non-Investment Grade Insurer' shall mean, on any date of
determination, an insurer that as of the end of the immediately preceding
Monthly Period did not have an insurance financial strength rating of at least
investment grade (i.e., in one of the top four generic rating categories,
irrespective of any plus or minus) by Moody's (other than AIG or any wholly
owned subsidiary of AIG), unless Moody's shall have previously notified the
Transferor in writing that such insurer is not to be deemed a 'Moody's
Non-Investment Grade Insurer' (and shall not have revoked such notification).
'S&P Non-AAA Insurer' shall mean, on any date of determination, an insurer
that as of the end of the immediately preceding Monthly Period did not have a
claims-paying ability rating at least as high as the then applicable rating
assigned by Standard & Poor's to the Series 1998-1 Class A Certificates or the
Series 1994-1 Class A Certificates unless Standard & Poor's shall have
previously notified the Transferor in writing that such insurer is not to be
deemed an 'S&P Non-AAA Insurer' (and shall not have revoked such notification).
'S&P Non-Investment Grade Insurer' shall mean, on any date of
determination, an insurer that as of the end of the immediately preceding
Monthly Period did not have a claims-paying ability rating of at least
investment grade (i.e., in one of the top four generic rating categories,
irrespective of any plus or minus) by Standard & Poor's (other than any
affiliate of AIG with a Standard & Poor's qualified solvency rating of BBBq)
unless Standard & Poor's shall have previously notified the Transferor in
writing that such insurer is not to be deemed an 'S&P Non-Investment Grade
Insurer' (and shall not have revoked such notification).
68
<PAGE>
SHARED PRINCIPAL COLLECTIONS
Collections of Principal Receivables for any Monthly Period allocated to
the Series 1998-1 Certificateholders Ownership Interests will first be used to
cover, with respect to any Monthly Period during the Series 1998-1 Controlled
Amortization Period, deposits of the Series 1998-1 Controlled Distribution
Amount to the Series 1998-1 Distribution Account, and during the Series 1998-1
Rapid Amortization Period, payments to the Holders of Offered Certificates and
then payments to the Series 1998-1 Class C Certificateholders. The Servicer will
determine the amount of collections of Principal Receivables for any Monthly
Period allocated to the Series 1998-1 Certificateholders Ownership Interests
remaining after covering required payments to the Series 1998-1
Certificateholders and any similar amounts remaining for the Series 1994-1
Certificates or any additional Series ('Shared Principal Collections'). The
Servicer will allocate the Shared Principal Collections to cover any scheduled
or permitted principal distributions to certificateholders and deposits to
principal funding accounts, if any, for any Series which have not been covered
out of the collections of Principal Receivables allocable to such Series and
certain other amounts for such Series ('Principal Shortfalls'). Shared Principal
Collections will not be used to reimburse certificateholders for investor
charge-offs for any Series or to cover interest shortfalls for any Series. If
Principal Shortfalls exceed Shared Principal Collections for any Monthly Period,
Shared Principal Collections will be allocated pro rata among the applicable
Series based on the relative amounts of Principal Shortfalls. To the extent that
Shared Principal Collections exceed Principal Shortfalls, the balance will be
paid to the holder of the Transferor Certificate; provided, however, that such
amount shall be paid to the holder of the Transferor Certificate only to the
extent that the Transferor Ownership Interest on such date is greater than the
Minimum Transferor Ownership Interest as of the immediately preceding Monthly
Period (after giving effect to the inclusion in the Trust of all Receivables
transferred to the Trust on or prior to such date and the application of
collections received) and otherwise shall be deposited into the Excess Funding
Account; provided further, that in no event shall the amount payable to the
holder of the Transferor Certificate be greater than the Transferor Ownership
Interest.
DEFAULTED LOANS; CHARGE-OFFS
Losses resulting from the charge-off of Loans in each Monthly Period
('Default Amounts') are generally shared between the certificateholders
ownership interests of each outstanding Series, based on their respective
floating investor percentages (see '--Allocation Percentages' below with respect
to Series 1998-1), and the Transferor Ownership Interest. Certain losses
resulting from charge-offs of Receivables in excess of specified levels will be
allocated entirely to the Transferor Ownership Interest. Accordingly, such
excess losses will not be borne by the Series 1998-1 Certificateholders
Ownership Interests and will not be taken into account in calculating the Series
1998-1 Investor Default Amount (defined below). The circumstances under which
excess losses will be allocated entirely to the Transferor Ownership Interest
will occur when there are losses on Receivables relating to Loans to a single
Obligor exceeding 0.60% of the aggregate principal balances of Receivables at
the end of any Monthly Period (since the inception of the Trust, no such losses
have occurred), or when losses on Receivables resulting from the insolvency of
certain insurance carriers (to the extent not taken into account as a result of
the single Obligor excess loss allocation) exceed a specified percentage of the
aggregate principal balances of Receivables at the end of any Monthly Period
(see the definition of 'Excess Receivables Amount' under '--Excess Funding
Account' above). In addition, all losses will be allocated to the Transferor
Ownership Interest after the occurrence of the Pay Out Event described under
clause (d) of '--Pay Out Events' below or after the Transferor Ownership
Interest falls below the Minimum Transferor Ownership Interest following the
occurrence of any other Pay Out Event.
On the fourth business day preceding each Transfer Date (the 'Determination
Date'), the Servicer will calculate the Series 1998-1 Investor Default Amount
for the preceding Monthly Period. The term 'Series 1998-1 Investor Default
Amount' means, with respect to any Monthly Period and any Receivable under a
Loan that became a Defaulted Loan during such Monthly Period, an amount equal to
the product of (a) the unpaid amount (including both principal and accrued
unpaid finance charges) of such Receivable as of the date that such Loan became
a Defaulted Loan and (b) the Series 1998-1
69
<PAGE>
Floating Investor Percentage with respect to such Monthly Period. The term
'Defaulted Loan' shall mean any Loan which (i) remains in default as of the
beginning of the month immediately following the first anniversary of the
cancellation of the related insurance policy, which cancellation results from
such default, or (ii) is overdue and which the Servicer determines, in
accordance with the Servicer's policies and procedures relating to the operation
of their business, is incapable of collection. A Loan shall be considered to be
a Defaulted Loan upon the earlier to occur of (i) or (ii) above.
State laws impose limitations on the amount of finance charges that may
accrue upon the unpaid balance of a Loan after its scheduled maturity and the
late fees that may be imposed upon an Obligor's default in payment of any
installments due under a Loan. Such laws vary widely by state, but often provide
for the recovery of only minimal additional interest and fees, if any.
A portion of the Series 1998-1 Investor Default Amount will be allocated to
the Series 1998-1 Class A Certificateholders (the 'Series 1998-1 Class A Default
Amount') on each Transfer Date in an amount equal to the product of the Series
1998-1 Class A Floating Allocation applicable during the related Monthly Period
and the Series 1998-1 Investor Default Amount for such Monthly Period. A portion
of the Series 1998-1 Investor Default Amount will be allocated to the Series
1998-1 Class B Certificateholders (the 'Series 1998-1 Class B Default Amount')
on each Transfer Date in an amount equal to the product of the Series 1998-1
Class B Floating Allocation applicable during the related Monthly Period and the
Series 1998-1 Investor Default Amount for such Monthly Period. A portion of the
Series 1998-1 Investor Default Amount will be allocated to the Series 1998-1
Class C Certificateholders (the 'Series 1998-1 Class C Default Amount') on each
Transfer Date in an amount equal to the product of the Series 1998-1 Class C
Floating Allocation applicable during the related Monthly Period and the Series
1998-1 Investor Default Amount for such Monthly Period.
On each Transfer Date, if the Series 1998-1 Class A Default Amount for such
Transfer Date exceeds the funds on deposit in the Series 1998-1 Yield
Enhancement Account available to cover such amount with respect to the Monthly
Period immediately preceding such Transfer Date, the Series 1998-1 Class C
Ownership Interest (after giving effect to reductions therein for any Series
1998-1 Class C Charge-Offs and any Series 1998-1 Reallocated Principal
Collections on such Transfer Date) will be reduced by the amount of such excess.
In the event that such reduction would cause the Series 1998-1 Class C Ownership
Interest to be a negative number, the Series 1998-1 Class C Ownership Interest
will be reduced to zero, and the Series 1998-1 Class B Ownership Interest (after
giving effect to reductions therein for any Series 1998-1 Class B Charge-Offs
and any Series 1998-1 Reallocated Principal Collections on such Transfer Date)
will be reduced by the amount by which the Series 1998-1 Class C Ownership
Interest would have been reduced below zero. In the event that such reduction
would cause the Series 1998-1 Class B Ownership Interest to be a negative
number, the Series 1998-1 Class B Ownership Interest will be reduced to zero,
and the Series 1998-1 Class A Ownership Interest (after giving effect to
reductions therein for any Series 1998-1 Reallocated Principal Collections on
such Transfer Date) will be reduced (but not below zero) by the amount by which
the Series 1998-1 Class B Ownership Interest would have been reduced below zero
(any such reduction, a 'Series 1998-1 Class A Charge-Off'). The Series 1998-1
Class A Ownership Interest will also be reduced by the amount of Series 1998-1
Reallocated Principal Collections used to cover the Series 1998-1 Class A
Required Amount and Series 1998-1 Class B Required Amount if the Series 1998-1
Class B Ownership Interest and Series 1998-1 Class C Ownership Interest have
been reduced to zero. Such reductions in the Series 1998-1 Class A Ownership
Interest will have the effect of slowing or reducing the return of principal and
the payment of interest to the Series 1998-1 Class A Certificateholders. The
Series 1998-1 Class A Ownership Interest will thereafter be reimbursed if not
previously reduced to zero during the Series 1998-1 Class A Controlled
Amortization Period or the Series 1998-1 Rapid Amortization Period (but not in
excess of reductions in the Series 1998-1 Class A Ownership Interest that have
not been previously reimbursed) on any Transfer Date by the amount of funds on
deposit in the Series 1998-1 Yield Enhancement Account allocated and available
for such purpose as described under '--Series 1998-1 Yield Enhancement Account.'
If on any Transfer Date, the Series 1998-1 Class B Default Amount for such
Transfer Date exceeds the amount of funds on deposit in the Series 1998-1 Yield
Enhancement Account which are allocated
70
<PAGE>
and available to fund such amount as described under '--Series 1998-1 Yield
Enhancement Account,' the Series 1998-1 Class C Ownership Interest (after giving
effect to reductions therein for any Series 1998-1 Class C Charge-Offs and any
Series 1998-1 Reallocated Principal Collections on such Transfer Date and after
giving effect to any adjustments with respect thereto as described in the
preceding paragraph) will be reduced by the amount of such excess. In the event
that such reduction would cause the Series 1998-1 Class C Ownership Interest to
be a negative number, the Series 1998-1 Class C Ownership Interest will be
reduced to zero and the Series 1998-1 Class B Ownership Interest (after giving
effect to reductions therein for any Series 1998-1 Reallocated Principal
Collections on such Transfer Date) will be reduced (but not below zero) by the
amount by which the Series 1998-1 Class C Ownership Interest would have been
reduced below zero (any such reduction, a 'Series 1998-1 Class B Charge-Off').
The Series 1998-1 Class B Ownership Interest will also be reduced by the amount
of Series 1998-1 Reallocated Principal Collections in excess of the Series
1998-1 Class C Ownership Interest and the amount of any portion of the Series
1998-1 Class B Ownership Interest allocated to the Series 1998-1 Class A
Certificates to avoid a reduction in the Series 1998-1 Class A Ownership
Interest. Such reductions in the Series 1998-1 Class B Ownership Interest will
have the effect of slowing or reducing the return of principal and the payment
of interest to the Series 1998-1 Class B Certificateholders. The Series 1998-1
Class B Ownership Interest will thereafter be reimbursed if not previously
reduced to zero during the Series 1998-1 Class B Controlled Amortization Period
or the Series 1998-1 Rapid Amortization Period (but not in excess of reductions
in the Series 1998-1 Class B Ownership Interest that have not been previously
reimbursed) on any Transfer Date by the amount of funds on deposit in the Series
1998-1 Yield Enhancement Account allocated and available for that purpose as
described under '--Series 1998-1 Yield Enhancement Account.'
If on any Transfer Date, the Series 1998-1 Class C Default Amount for such
Transfer Date exceeds the amount of funds on deposit in the Series 1998-1 Yield
Enhancement Account which are allocated and available to fund such amount as
described under '--Series 1998-1 Yield Enhancement Account,' the Series 1998-1
Class C Ownership Interest will be reduced by the amount of such excess but not
more than the lesser of the Series 1998-1 Class C Default Amount and the Series
1998-1 Class C Ownership Interest for such Transfer Date (any such reduction, a
'Series 1998-1 Class C Charge-Off'). The Series 1998-1 Class C Ownership
Interest will also be reduced by the amount of Series 1998-1 Reallocated
Principal Collections used to cover payment of interest on the Offered
Certificates and the amount of any portion of the Series 1998-1 Class C
Ownership Interest allocated to the Series 1998-1 Class A Certificates to avoid
a reduction in the Series 1998-1 Class A Ownership Interest or to the Series
1998-1 Class B Certificates to avoid a reduction in the Series 1998-1 Class B
Ownership Interest. The Series 1998-1 Class C Ownership Interest will thereafter
be reimbursed if not previously reduced to zero during the Series 1998-1 Class C
Controlled Amortization Period or the Series 1998-1 Rapid Amortization Period
(but not in excess of reductions in the Series 1998-1 Class C Ownership Interest
that have not been previously reimbursed) on any Transfer Date by the amount of
funds on deposit in the Series 1998-1 Yield Enhancement Account allocated and
available for that purpose as described under '--Series 1998-1 Yield Enhancement
Account.'
ALLOCATION PERCENTAGES
Pursuant to the Agreement, with respect to each Monthly Period the Servicer
will allocate among the Series 1998-1 Certificateholders Ownership Interests,
the certificateholders ownership interests for each other Series issued and
outstanding and the Transferor Ownership Interest, all amounts collected on
Finance Charge Receivables, all amounts collected on Principal Receivables and
all Default Amounts with respect to such Monthly Period. Finance charges on the
Loans are recognized under the actuarial interest method.
Collections of Finance Charge Receivables, which under the terms of the
Agreement will include any recoveries with respect to Loans that have been
written off, and Default Amounts at any time and collections of Principal
Receivables during the Series 1998-1 Revolving Period will be allocated to the
Series 1998-1 Certificateholders Ownership Interests based on the Series 1998-1
Floating Investor Percentage. The 'Series 1998-1 Floating Investor Percentage'
means, with respect to any Monthly
71
<PAGE>
Period, the percentage equivalent of a fraction, the numerator of which is the
Series 1998-1 Certificateholders Ownership Interests as of the close of business
on the last day of the preceding Monthly Period (or with respect to the first
Monthly Period, the Series 1998-1 Initial Certificateholders Ownership
Interests) and the denominator of which is the greater of (x) the aggregate
amount of Principal Receivables as of the close of business on the last day of
the preceding Monthly Period and (y) the sum of the numerators used to calculate
the investor percentages for allocations with respect to Finance Charge
Receivables, Default Amounts or Principal Receivables, as applicable, for all
outstanding Series on such date of determination. Such amounts so allocated will
be further allocated between the Series 1998-1 Class A Certificateholders,
Series 1998-1 Class B Certificateholders and the Series 1998-1 Class C
Certificateholders based on the Series 1998-1 Class A Floating Allocation, the
Series 1998-1 Class B Floating Allocation and the Series 1998-1 Class C Floating
Allocation, respectively. The 'Series 1998-1 Class A Floating Allocation' means,
with respect to any Monthly Period, the percentage equivalent (which percentage
shall never exceed 100%) of a fraction, the numerator of which is equal to the
Series 1998-1 Class A Ownership Interest as of the close of business on the last
day of the preceding Monthly Period (or with respect to the first Monthly
Period, as of the Closing Date) and the denominator of which is equal to the
Series 1998-1 Certificateholders Ownership Interests as of the close of business
on such day. The 'Series 1998-1 Class B Floating Allocation' means, with respect
to any Monthly Period, the percentage equivalent (which percentage shall never
exceed 100%) of a fraction, the numerator of which is equal to the Series 1998-1
Class B Ownership Interest as of the close of business on the last day of the
preceding Monthly Period (or with respect to the first Monthly Period, as of the
Closing Date) and the denominator of which is equal to the Series 1998-1
Certificateholders Ownership Interests as of the close of business on such day.
The 'Series 1998-1 Class C Floating Allocation' means, with respect to any
Monthly Period, the percentage equivalent (which percentage shall never exceed
100%) of a fraction, the numerator of which is equal to the Series 1998-1 Class
C Ownership Interest as of the close of business on the last day of the
preceding Monthly Period (or with respect to the first Monthly Period, as of the
Closing Date) and the denominator of which is equal to the Series 1998-1
Certificateholders Ownership Interests as of the close of business on such day.
Collections of Principal Receivables during the Series 1998-1 Controlled
Amortization Period and Series 1998-1 Rapid Amortization Period will be
allocated to the Series 1998-1 Certificateholders Ownership Interests based on
the Series 1998-1 Fixed Investor Percentage. The 'Series 1998-1 Fixed Investor
Percentage' means, with respect to any Monthly Period, the percentage equivalent
of a fraction, the numerator of which is the Series 1998-1 Certificateholders
Ownership Interests as of the close of business on the last day of the Series
1998-1 Revolving Period and the denominator of which is the greater of (x) the
aggregate amount of Principal Receivables in the Trust as of the close of
business on the last day of the prior Monthly Period and (y) the sum of the
numerators used to calculate the investor percentages for allocations with
respect to Principal Receivables for all outstanding Series for such Monthly
Period.
'Series 1998-1 Certificateholders Ownership Interests' for any date means
an amount equal to the sum of (a) the Series 1998-1 Class A Ownership Interest,
(b) the Series 1998-1 Class B Ownership Interest and (c) the Series 1998-1 Class
C Ownership Interest, each as of such date.
'Series 1998-1 Class A Ownership Interest' for any date means an amount
equal to (a) $200,000,000 (the 'Series 1998-1 Class A Initial Ownership
Interest'), minus (b) the aggregate amount of principal payments made to Series
1998-1 Class A Certificateholders prior to such date, minus (c) the aggregate
amount of Series 1998-1 Class A Charge-Offs for all prior Transfer Dates, minus
(d) the aggregate amount of Series 1998-1 Reallocated Principal Collections for
all prior Transfer Dates for which the Series 1998-1 Class B Ownership Interest
and the Series 1998-1 Class C Ownership Interest have not been reduced, and plus
(e) the aggregate amount of funds on deposit in the Series 1998-1 Yield
Enhancement Account allocated on all prior Transfer Dates for the purpose of
reimbursing amounts deducted pursuant to the foregoing clauses (c) and (d);
provided, however, that the Series 1998-1 Class A Ownership Interest may not be
reduced below zero.
72
<PAGE>
'Series 1998-1 Class B Ownership Interest' for any date means an amount
equal to (a) $6,300,000 (the 'Series 1998-1 Class B Initial Ownership
Interest'), minus (b) the aggregate amount of principal payments made to Series
1998-1 Class B Certificateholders prior to such date, minus (c) the aggregate
amount of Series 1998-1 Class B Charge-Offs for all prior Transfer Dates, minus
(d) the aggregate amount of Series 1998-1 Reallocated Principal Collections for
all prior Transfer Dates for which the Series 1998-1 Class C Ownership Interest
has not been reduced, minus (e) an amount equal to the aggregate amount by which
the Series 1998-1 Class B Ownership Interest has been reduced to fund the Series
1998-1 Class A Default Amount on all prior Transfer Dates as described under
'--Defaulted Loans; Charge-Offs,' and plus (f) the aggregate amount of funds on
deposit in the Series 1998-1 Yield Enhancement Account allocated on all prior
Transfer Dates for the purpose of reimbursing amounts deducted pursuant to the
foregoing clauses (c), (d) and (e); provided, however, that the Series 1998-1
Class B Ownership Interest may not be reduced below zero.
'Series 1998-1 Class C Ownership Interest' for any date means an amount
equal to (a) $4,226,400 (the 'Series 1998-1 Class C Initial Ownership
Interest'), minus (b) the aggregate amount of principal payments made to the
holders of the Series 1998-1 Class C Ownership Interest prior to such date,
minus (c) the aggregate amount of Series 1998-1 Class C Charge-Offs for all
prior Transfer Dates, minus (d) the aggregate amount of Series 1998-1
Reallocated Principal Collections for all prior Transfer Dates for which the
Series 1998-1 Class C Ownership Interest has been reduced, minus (e) an amount
equal to the aggregate amount by which the Series 1998-1 Class C Ownership
Interest has been reduced to fund the Series 1998-1 Class A Default Amount and
the Series 1998-1 Class B Default Amount on all prior Transfer Dates as
described under '--Defaulted Loans; Charge-Offs,' and plus (f) the aggregate
amount of funds on deposit in the Series 1998-1 Yield Enhancement Account
allocated on all prior Transfer Dates for the purpose of reimbursing amounts
deducted pursuant to the foregoing clauses (c), (d) and (e); provided, however,
that the Series 1998-1 Class C Ownership Interest may not be reduced below zero.
REALLOCATION OF CASH FLOWS
With respect to each Transfer Date, the Servicer will determine the 'Series
1998-1 Class A Required Amount,' which will be equal to the amount, if any, by
which the sum of (a) Series 1998-1 Class A Monthly Interest due on the related
Distribution Date, (b) Series 1998-1 Class A Additional Interest due on such
Distribution Date, (c) the Series 1998-1 Class A Servicing Fee for the related
Monthly Period and any overdue Series 1998-1 Class A Servicing Fee, (d) the
Series 1998-1 Class A Default Amount, if any, for the related Monthly Period and
(e) Series 1998-1 Class A Prior Period Interest, if any, exceeds the Series
1998-1 Class A Available Funds for the related Monthly Period. If the Series
1998-1 Class A Required Amount is greater than zero, funds on deposit in the
Series 1998-1 Yield Enhancement Account and available for such purpose will be
used to fund the Series 1998-1 Class A Required Amount with respect to such
Transfer Date. If the funds on deposit in the Series 1998-1 Yield Enhancement
Account are insufficient to fund the remaining Series 1998-1 Class A Required
Amount, first, Series 1998-1 Reallocated Class C Principal Collections, then,
Series 1998-1 Reallocated Class B Principal Collections and finally, Series
1998-1 Reallocated Class A Principal Collections will be used to fund the Series
1998-1 Class A Required Amount. Any reallocation of Principal Receivables
collections to fund the Series 1998-1 Class A Required Amount or, as described
in the next succeeding paragraph, the Series 1998-1 Class B Required Amount will
result in a corresponding reduction in the Series 1998-1 Certificateholders
Ownership Interests. The amount of such reduction will be allocated first to
reduce the Series 1998-1 Class C Ownership Interest, second to reduce the Series
1998-1 Class B Ownership Interest and lastly to reduce the Series 1998-1 Class A
Ownership Interest. If Series 1998-1 Reallocated Principal Collections with
respect to the Monthly Period, together with the funds on deposit in the Series
1998-1 Yield Enhancement Account, are insufficient to fund the Series 1998-1
Class A Required Amount for such related Monthly Period, then the Series 1998-1
Class C Ownership Interest (after giving effect to reductions therein for any
Series 1998-1 Class C Charge-Offs and Series 1998-1 Reallocated Principal
Collections for the related Transfer Date) will be reduced by the amount of such
excess. In the event that such reduction would cause the Series 1998-1 Class C
Ownership Interest to be a negative number, the Series 1998-1
73
<PAGE>
Class C Ownership Interest will be reduced to zero, and the Series 1998-1 Class
B Ownership Interest (after giving effect to reductions therein for any Series
1998-1 Class B Charge-Offs and Series 1998-1 Reallocated Principal Collections
for such Transfer Date) will be reduced by the amount by which the Series 1998-1
Class C Ownership Interest would have been reduced below zero. In the event that
such reduction would cause the Series 1998-1 Class B Ownership Interest to be a
negative number, the Series 1998-1 Class B Ownership Interest will be reduced to
zero and the Series 1998-1 Class A Ownership Interest (after giving effect to
reductions therein for any Series 1998-1 Class A Charge-Offs and Series 1998-1
Reallocated Principal Collections for such Transfer Date) will be reduced (but
not below zero) by the amount by which the Series 1998-1 Class B Ownership
Interest would have been reduced below zero. Any such reduction in the Series
1998-1 Class A Ownership Interest will have the effect of slowing or reducing
the return of principal and payment of interest to the Series 1998-1 Class A
Certificateholders. If the Series 1998-1 Class B Ownership Interest and the
Series 1998-1 Class C Ownership Interest have both been reduced to zero, the
Series 1998-1 Class A Certificateholders will bear directly the credit risks
associated with their interests in the Trust. See '--Defaulted Loans;
Charge-Offs.'
With respect to each Transfer Date, the Servicer will determine the 'Series
1998-1 Class B Required Amount,' which will be equal to the amount, if any, by
which the sum of (a) Series 1998-1 Class B Monthly Interest due on the related
Distribution Date, (b) Series 1998-1 Class B Additional Interest due on such
Distribution Date, (c) the Series 1998-1 Class B Servicing Fee for the related
Monthly Period and any overdue Series 1998-1 Class B Servicing Fee, (d) the
Series 1998-1 Class B Default Amount, if any, for such Transfer Date and (e)
Series 1998-1 Class B Prior Period Interest, if any, exceeds the Series 1998-1
Class B Available Funds for the related Monthly Period. If the Series 1998-1
Class B Required Amount is greater than zero, funds on deposit in the Series
1998-1 Yield Enhancement Account not required to pay the Series 1998-1 Class A
Required Amount will be used to fund the Series 1998-1 Class B Required Amount
with respect to such Transfer Date. If funds on deposit in the Series 1998-1
Yield Enhancement Account are insufficient to fund the remaining Series 1998-1
Class B Required Amount, then Series 1998-1 Reallocated Principal Collections
not required to fund the Series 1998-1 Class A Required Amount for the related
Monthly Period will be used to fund the Series 1998-1 Class B Required Amount.
If such Series 1998-1 Reallocated Principal Collections with respect to the
related Monthly Period are insufficient to fund the remaining Series 1998-1
Class B Required Amount, then the Series 1998-1 Class C Ownership Interest
(after giving effect to reductions therein for any Series 1998-1 Class C
Charge-Offs and Series 1998-1 Reallocated Principal Collections for the related
Transfer Date) will be reduced by the amount of such deficiency. In the event
that such a reduction would cause the Series 1998-1 Class C Ownership Interest
to be a negative number, the Series 1998-1 Class C Ownership Interest will be
reduced to zero, and the Series 1998-1 Class B Ownership Interest (after giving
effect to reductions therein for any Series 1998-1 Class B Charge-Offs and
Series 1998-1 Reallocated Principal Collections for such Transfer Date) will be
reduced (but not below zero) by the amount by which the Series 1998-1 Class C
Ownership Interest would have been reduced below zero. Any such reduction in the
Series 1998-1 Class B Ownership Interest will have the effect of slowing or
reducing the return of principal and payment of interest to the Series 1998-1
Class B Certificateholders. If the Series 1998-1 Class C Ownership Interest has
been reduced to zero, the Series 1998-1 Class B Certificateholders will bear
directly the credit risks associated with their interests in the Trust. See
'--Defaulted Loans; Charge-Offs.'
With respect to each Transfer Date, the Servicer will determine the 'Series
1998-1 Class C Required Amount,' which will be equal to the amount, if any, by
which the sum of (a) Series 1998-1 Class C Monthly Interest due on the related
Distribution Date, (b) Series 1998-1 Class C Additional Interest due on such
Distribution Date, (c) the Series 1998-1 Class C Servicing Fee for the related
Monthly Period and any overdue Series 1998-1 Class C Servicing Fee, (d) the
Series 1998-1 Class C Default Amount, if any, for such Transfer Date, and (e)
Series 1998-1 Class C Prior Period Interest, if any, exceeds the Series 1998-1
Class C Available Funds for the related Monthly Period.
74
<PAGE>
Reductions of the Series 1998-1 Class A Ownership Interest or Series 1998-1
Class B Ownership Interest described above on any Transfer Date shall be
reimbursed by, and the Series 1998-1 Class A Ownership Interest or Series 1998-1
Class B Ownership Interest increased to the extent of, funds on deposit in the
Series 1998-1 Yield Enhancement Account available for such purposes on each
subsequent Transfer Date. See '--Series 1998-1 Yield Enhancement Account.' If
and when such reductions of the Series 1998-1 Class A Ownership Interest and
Series 1998-1 Class B Ownership Interest have been fully reimbursed, reductions
of the Series 1998-1 Class C Ownership Interest shall be reimbursed in a similar
manner until reimbursed in full.
'Series 1998-1 Reallocated Class A Principal Collections' for any Monthly
Period means collections of Principal Receivables allocable to the Series 1998-1
Class A Ownership Interest for such Monthly Period in an amount not to exceed
the amount required to fund the Series 1998-1 Class A Required Amount and the
Series 1998-1 Class B Required Amount for the related Transfer Date; provided,
however, that such amount will not exceed the Series 1998-1 Class A Ownership
Interest after giving effect to any Series 1998-1 Class A Charge-Offs for such
Transfer Date.
'Series 1998-1 Reallocated Class B Principal Collections' for any Monthly
Period means collections of Principal Receivables allocable to the Series 1998-1
Class B Ownership Interest for such Monthly Period in an amount not to exceed
the amount applied to fund the Series 1998-1 Class A Required Amount and the
Series 1998-1 Class B Required Amount, if any; provided, however, that such
amount will not exceed the Series 1998-1 Class B Ownership Interest after giving
effect to any Series 1998-1 Class B Charge-Offs for the related Transfer Date.
'Series 1998-1 Reallocated Class C Principal Collections' for any Monthly
Period means collections of Principal Receivables allocable to the Series 1998-1
Class C Ownership Interest for such Monthly Period in an amount not to exceed
the amount applied to fund the Series 1998-1 Class A Required Amount and the
Series 1998-1 Class B Required Amount, if any; provided, however, that such
amount will not exceed the Series 1998-1 Class C Ownership Interest after giving
effect to any Series 1998-1 Class C Charge-Offs for the related Transfer Date.
'Series 1998-1 Reallocated Principal Collections' for any Monthly Period
means the sum of the Series 1998-1 Reallocated Series 1998-1 Class A Principal
Collections, the Series 1998-1 Reallocated Class B Principal Collections and the
Series 1998-1 Reallocated Class C Principal Collections, in each case for such
Monthly Period.
APPLICATION OF COLLECTIONS
On each Distribution Date, the Trustee, acting pursuant to the Servicer's
instructions, will apply funds on deposit in the Series 1998-1 Distribution
Account (consisting of Series 1998-1 Class A Available Funds, Series 1998-1
Class B Available Funds, Series 1998-1 Class C Available Funds, Series 1998-1
Available Investor Principal Collections (including allocable amounts from the
Excess Funding Account), Series 1998-1 Reallocated Principal Collections, and
amounts from the Series 1998-1 Yield Enhancement Account, in each case to the
extent deposited into the Series 1998-1 Distribution Account for purposes of
making distributions to Series 1998-1 Certificateholders) to pay the following
amounts (in each case determined as of the immediately preceding Transfer Date)
in the following order of priority:
(a) to the Series 1998-1 Class A Certificateholders:
(i) Series 1998-1 Class A Monthly Interest;
(ii) Series 1998-1 Class A Additional Interest, if any;
(iii) Series 1998-1 Class A Prior Period Interest, if any, to the
extent distributable on such Distribution Date;
(b) to the Series 1998-1 Class B Certificateholders:
(i) Series 1998-1 Class B Monthly Interest;
75
<PAGE>
(ii) Series 1998-1 Class B Additional Interest, if any;
(iii) Series 1998-1 Class B Prior Period Interest, if any, to the
extent distributable on such Distribution Date;
(c) during the Series 1998-1 Revolving Period, to the Series 1998-1 Class C
Certificateholders:
(i) Series 1998-1 Class C Monthly Interest;
(ii) Series 1998-1 Class C Additional Interest, if any;
(iii) Series 1998-1 Class C Prior Period Interest, if any, to the
extent distributable on such Distribution Date;
(d) during the Series 1998-1 Controlled Amortization Period or the Series
1998-1 Rapid Amortization Period:
(i) to the Series 1998-1 Class A Certificateholders, Series 1998-1
Class A Monthly Principal;
(ii) to the Series 1998-1 Class B Certificateholders, Series 1998-1
Class B Monthly Principal;
(iii) to the Series 1998-1 Class C Certificateholders, the amounts set
forth in clause (c) above (in the order of priority set forth in such
clause); and
(iv) to the Series 1998-1 Class C Certificateholders, Series 1998-1
Class C Monthly Principal.
'Series 1998-1 Class A Monthly Interest' with respect to any Transfer Date
will equal the product of (i) the Series 1998-1 Class A Certificate Rate for the
related Interest Period, (ii) the actual number of days in such Interest Period
divided by 360 and (iii) the Series 1998-1 Class A Ownership Interest on the
related Record Date; provided, however, with respect to the first Distribution
Date, Series 1998-1 Class A Monthly Interest shall be equal to the interest
accrued on the Series 1998-1 Class A Initial Ownership Interest at the
applicable Series 1998-1 Class A Certificate Rate for the period from the
Closing Date through May 14, 1998.
'Series 1998-1 Class B Monthly Interest' with respect to any Transfer Date
will equal the product of (i) the Series 1998-1 Class B Certificate Rate for the
related Interest Period, (ii) the actual number of days in such Interest Period
divided by 360 and (iii) the Series 1998-1 Class B Ownership Interest on the
related Record Date; provided, however, with respect to the first Distribution
Date, Series 1998-1 Class B Monthly Interest shall be equal to the interest
accrued on the Series 1998-1 Class B Initial Ownership Interest at the
applicable Series 1998-1 Class B Certificate Rate for the period from the
Closing Date through May 14, 1998.
'Series 1998-1 Class C Monthly Interest' with respect to any Transfer Date
will equal the product of (i) the Series 1998-1 Class C Certificate Rate for the
related Interest Period, (ii) the actual number of days in such Interest Period
divided by 360, and (iii) the Series 1998-1 Class C Ownership Interest on the
related Record Date; provided, however, with respect to the first Distribution
Date, Series 1998-1 Class C Monthly Interest shall be equal to the interest
accrued on the Series 1998-1 Class C Initial Ownership Interest at the
applicable Series 1998-1 Class C Certificate Rate for the period from the
Closing Date through May 14, 1998.
'Series 1998-1 Class A Prior Period Interest,' with respect to each
Interest Period in which the Series 1998-1 Class A Certificates would have
accrued interest on the Series 1998-1 Class A Ownership Interest had such Series
1998-1 Class A Ownership Interest not been reduced for reasons other than the
payment of principal to the Series 1998-1 Class A Certificateholders, will equal
the product of (i) the Series 1998-1 Class A Certificate Rate in effect during
such Interest Period plus 2% per annum, (ii) the actual number of days in such
Interest Period divided by 360 and (iii) the amount by which the Series 1998-1
Class A Ownership Interest was less than the Series 1998-1 Class A Ownership
Interest during such Interest Period for reasons other than the payment of
principal to the Series 1998-1 Class A Certificateholders; provided, however,
that Series 1998-1 Class A Prior Period Interest will not be distributed until
the Distribution Date(s) following the Transfer Date on which the Series 1998-1
Class A Ownership Interest has been reimbursed in full for any reductions.
76
<PAGE>
'Series 1998-1 Class B Prior Period Interest,' with respect to each
Interest Period in which the Series 1998-1 Class B Certificates would have
accrued interest on the Series 1998-1 Class B Ownership Interest had such Series
1998-1 Class B Ownership Interest not been reduced for reasons other than the
payment of principal to the Series 1998-1 Class B Certificateholders, will equal
the product of (i) the Series 1998-1 Class B Certificate Rate in effect during
such Interest Period plus 2% per annum, (ii) the actual number of days in such
Interest Period divided by 360 and (iii) the amount by which the Series 1998-1
Class B Ownership Interest was less than the Series 1998-1 Class B Ownership
Interest during such Interest Period for reasons other than the payment of
principal to the Series 1998-1 Class B Certificateholders; provided, however,
that Series 1998-1 Class B Prior Period Interest will not be distributed until
the Distribution Date(s) following the Transfer Date on which the Series 1998-1
Class B Ownership Interest has been reimbursed in full for any reductions.
'Series 1998-1 Class C Prior Period Interest,' with respect to each
Interest Period in which the Series 1998-1 Class C Certificates would have
accrued interest on the Series 1998-1 Class C Ownership Interest had such Series
1998-1 Class C Ownership Interest not been reduced for reasons other than the
payment of principal to the Series 1998-1 Class C Certificateholders, will equal
the product of (i) the Series 1998-1 Class C Certificate Rate in effect during
such Interest Period plus 2% per annum, (ii) the actual number of days in such
Interest Period divided by 360 and (iii) the amount by which the Series 1998-1
Class C Ownership Interest was less than the Series 1998-1 Class C Ownership
Interest during such Interest Period for reasons other than the payment of
principal to the Series 1998-1 Class C Certificateholders; provided, however,
that Series 1998-1 Class C Prior Period Interest will not be distributed until
the Distribution Date(s) following the Transfer Date on which the Series 1998-1
Class C Ownership Interest has been reimbursed in full for any reductions.
'Series 1998-1 Class C Available Funds' means, with respect to any Monthly
Period, an amount equal to the Series 1998-1 Class C Floating Allocation of
collections of Finance Charge Receivables allocated to the Series 1998-1
Certificateholders Ownership Interests with respect to such Monthly Period.
'Series 1998-1 Class A Monthly Principal' with respect to any Transfer Date
relating to (i) the Series 1998-1 Class A Controlled Amortization Period, prior
to the payment in full of the Series 1998-1 Class A Ownership Interest, will
equal the least of (a) the Series 1998-1 Available Investor Principal
Collections on deposit in the Principal Account with respect to such Transfer
Date, (b) the Series 1998-1 Controlled Distribution Amount for the related
Distribution Date, and (c) the Series 1998-1 Class A Ownership Interest on such
Transfer Date, and (ii) the Series 1998-1 Rapid Amortization Period, prior to
payment in full of the Series 1998-1 Class A Ownership Interest, will equal the
lesser of (a) Series 1998-1 Available Investor Principal Collections on deposit
in the Principal Account with respect to such Transfer Date, and (b) the Series
1998-1 Class A Ownership Interest on such Transfer Date.
'Series 1998-1 Class B Monthly Principal' with respect to any Transfer Date
relating to (i) the Series 1998-1 Class B Controlled Amortization Period, after
the Series 1998-1 Class A Ownership Interest has been paid in full (after taking
into account payments to be made on the related Distribution Date in respect of
the Series 1998-1 Class A Certificates), will equal the least of (a) the Series
1998-1 Available Investor Principal Collections on deposit in the Principal
Account with respect to such Transfer Date (minus the portion of such Series
1998-1 Available Investor Principal Collections applied to Series 1998-1 Class A
Monthly Principal on such Transfer Date), (b) the Series 1998-1 Controlled
Distribution Amount for the related Distribution Date (minus the portion of such
Series 1998-1 Controlled Distribution Amount applied to Series 1998-1 Class A
Monthly Principal on such Transfer Date), and (c) the Series 1998-1 Class B
Ownership Interest for such Transfer Date, and (ii) the Series 1998-1 Rapid
Amortization Period, after the Series 1998-1 Class A Ownership Interest has been
paid in full (after taking into account payments to be made on the related
Distribution Date in respect of the Series 1998-1 Class A Certificates), will
equal the lesser of (a) Series 1998-1 Available Investor Principal Collections
on deposit in the Principal Account with respect to such Transfer Date (minus
the portion of such Series 1998-1 Available Investor Principal Collections
applied to Series 1998-1 Class A Monthly Principal on such Transfer Date), and
(b) the Series 1998-1 Class B Ownership Interest on such Transfer Date.
77
<PAGE>
'Series 1998-1 Class C Monthly Principal' with respect to any Transfer Date
relating to (i) the Series 1998-1 Class C Controlled Amortization Period, after
the Series 1998-1 Class B Ownership Interest has been paid in full (after taking
into account payments to be made on the related Distribution Date in respect of
the Series 1998-1 Class A Certificates and the Series 1998-1 Class B
Certificates), will equal the least of (a) the Series 1998-1 Available Investor
Principal Collections on deposit in the Principal Account with respect to such
Transfer Date (minus the portion of such Series 1998-1 Available Investor
Principal Collections applied to Series 1998-1 Class A Monthly Principal, if
any, and Series 1998-1 Class B Monthly Principal on the related Distribution
Date), (b) the Series 1998-1 Controlled Distribution Amount for the related
Distribution Date (minus the portion of such Series 1998-1 Controlled
Distribution Amount applied to Series 1998-1 Class A Monthly Principal and
Series 1998-1 Class B Monthly Principal on such Transfer Date), and (c) the
Series 1998-1 Class C Ownership Interest for such Transfer Date, and (ii) the
Series 1998-1 Rapid Amortization Period, after the Series 1998-1 Class B
Ownership Interest has been paid in full (after taking into account payments to
be made on such Distribution Date in respect of the Series 1998-1 Class A
Certificates and the Series 1998-1 Class B Certificates), will equal the lesser
of (a) Series 1998-1 Available Investor Principal Collections on deposit in the
Principal Account with respect to such Transfer Date (minus the portion of such
Series 1998-1 Available Investor Principal Collections applied to Series 1998-1
Class A Monthly Principal, if any, and Series 1998-1 Class B Monthly Principal
on such Distribution Date), and (b) the Series 1998-1 Class C Ownership Interest
on such Transfer Date.
FINAL PAYMENT OF PRINCIPAL; TERMINATION OF TRUST
The Series 1998-1 Certificates will be subject to optional repurchase by
the Transferor (a 'Cleanup Call') on any Distribution Date on or after which the
Series 1998-1 Certificateholders Ownership Interests are reduced to an amount
less than or equal to 10% of $210,526,400 (the 'Series 1998-1 Initial
Certificateholders Ownership Interests'). Such Cleanup Call is conditioned upon
(i) deposit into the Series 1998-1 Distribution Account of the repurchase price
by or on behalf of the Transferor and (ii) receipt by the Trustee of an
acceptable opinion of counsel to the effect that such deposit would not
constitute a fraudulent transfer of the Transferor. The repurchase price will
generally be equal to the Series 1998-1 Certificateholders Ownership Interests,
plus accrued and unpaid interest on the Series 1998-1 Certificates at the
respective Series 1998-1 Certificate Rates through the date preceding the
Distribution Date on which the repurchase occurs, less the amounts, if any, on
deposit at such Distribution Date in the Series 1998-1 Distribution Account for
the payment of principal and interest thereon. The net proceeds of such Cleanup
Call and any collections on the Receivables available for such purpose will be
distributed pro rata and in accordance with the priority for each class under
the Agreement to the Series 1998-1 Certificateholders on the Distribution Date
following the Monthly Period in which such Cleanup Call occurs as final payment
of the Series 1998-1 Certificates. The Agreement provides that the final
distribution of principal and interest on the Offered Certificates will be made
on the October 2001 Distribution Date (the 'Series 1998-1 Termination Date').
Unless the Servicer and the holder of the Transferor Certificate instruct
the Trustee otherwise, the Trust will terminate on the earliest of: (a) the day
after the Distribution Date with respect to any Series following the day on
which funds shall have been deposited in the applicable distribution account for
each such Series sufficient to pay in full (i) the aggregate certificateholders
ownership interests plus accrued interest thereon at the applicable certificate
rates through the applicable interest accrual period prior to the Distribution
Date with respect to each such Series and (ii) all amounts owed to each person
that provides Enhancement; (b) if a trust extension has occurred, the extended
trust termination date, which shall be no later than the earlier of December 31,
2034 and the expiration of 21 years from the death of the last survivor of the
descendants of Joseph P. Kennedy, the father of the late President of the United
States, living on the date of the Agreement; or (c) immediately following the
liquidation of all of the Receivables, as provided under '--Pay Out Events'
below, subsequent to the insolvency of the Transferor, AIC or AICCO. Upon the
termination of the Trust, payment of all amounts due under the Agreement and the
surrender of the Transferor Certificate, the Trustee shall convey to the holder
of the Transferor Certificate all right, title and interest of the Trust in and
to the Receivables and other assets of the Trust.
78
<PAGE>
PAY OUT EVENTS
A Pay Out Event may occur during either the Series 1998-1 Revolving Period
or the Series 1998-1 Controlled Amortization Period, which is scheduled to
commence at the end of the Series 1998-1 Revolving Period on September 1, 1999.
The Series 1998-1 Rapid Amortization Period will commence on the day that a Pay
Out Event occurs. A 'Pay Out Event' refers to any of the following events:
(a) failure on the part of either of the Original Transferors or the
Transferor (i) to make any payment or deposit on the date required under the
Agreement (or within the applicable grace period which shall not exceed five
business days) or (ii) to observe or perform in any material respect any other
covenants or agreements of either of the Original Transferors or the Transferor
set forth in the Agreement or the Series 1998-1 Supplement, which failure has a
material adverse effect on the Series 1998-1 Certificateholders (which
determination shall be made without reference to whether any funds are available
in the Series 1998-1 Yield Enhancement Account or by reason of the subordination
of any class of the Series 1998-1 Certificates) and continues unremedied for a
period of 60 days after written notice and continues to materially and adversely
affect the interests of the Series 1998-1 Certificateholders (which
determination shall be made without reference to whether any funds are available
in the Series 1998-1 Yield Enhancement Account or by reason of the subordination
of any class of the Series 1998-1 Certificates) for such period;
(b) any representation or warranty made by either of the Original
Transferors or the Transferor in the Agreement or the 1998-1 Supplement, or any
information required to be given by either of the Original Transferors or the
Transferor to the Trustee to identify the Receivables, proves to have been
incorrect in any material respect when made and which continues to be incorrect
in any material respect for a period of 60 days after written notice and as a
result of which the interests of the Series 1998-1 Certificateholders are
materially and adversely affected (which determination shall be made without
reference to whether any funds are available in the Series 1998-1 Yield
Enhancement Account or by reason of the subordination of any class of the Series
1998-1 Certificates) and continue to be materially and adversely affected (which
determination shall be made without reference to whether any funds are available
in the Series 1998-1 Yield Enhancement Account or by reason of the subordination
of any class of the Series 1998-1 Certificates) for such period; provided,
however, that a Pay Out Event described in this subparagraph (b) shall not be
deemed to occur if the related Original Transferor or the Transferor has
accepted reassignment of the related Receivable or all such Receivables, if
applicable, during such period in accordance with the provisions of the
Agreement;
(c) if the Series 1998-1 Annualized Monthly Excess Spread Amount is less
than 400 basis points for three consecutive Monthly Periods;
(d) the Transferor Ownership Interest as of the fourth business day prior
to each Transfer Date does not at least equal the Minimum Transferor Ownership
Interest as of the end of the immediately preceding Monthly Period and on the
immediately following Transfer Date the Transferor shall have failed to transfer
Additional Receivables to the Trust pursuant to the Agreement;
(e) any Servicer Default occurs which would have a material adverse effect
on the Series 1998-1 Certificateholders (which determination shall be made
without reference to whether any funds are available in the Series 1998-1 Yield
Enhancement Account or by reason of the subordination of any class of the Series
1998-1 Certificates);
(f) if the Monthly Payment Rate is less than 14% for three consecutive
Monthly Periods;
(g) a Financed Premium Percentage of more than 90% in respect of
Additional Receivables transferred to the Trust for three consecutive Monthly
Periods;
(h) certain events of bankruptcy or insolvency, relating to either of the
Original Transferors or the Transferor;
(i) the Transferor becomes unable for any reason to transfer Receivables
to the Trust in accordance with the provisions of the Agreement; and
79
<PAGE>
(j) AIG shall fail to meet its obligations under either of the Support
Agreements in any respect or AIC shall fail to meet its support obligations with
respect to AICCO under the Agreement or such support obligations of AIC shall
have been modified, amended or terminated, except as otherwise expressly
permitted by the terms of the Agreement.
In the case of any event described in clause (a), (b) or (e) above, after
any applicable grace period, a Pay Out Event will be deemed to have occurred
with respect to the Series 1998-1 Certificates on the tenth Business Day
thereafter unless prior to such day holders of Series 1998-1 Certificates
evidencing undivided interests aggregating not less than 50% of the Series
1998-1 Certificateholders Ownership Interests notify the Trustee, the Transferor
and the Servicer in writing that a Pay Out Event should not occur. In the case
of any event described in clause (h), (i) or (j), a Pay Out Event with respect
to all Series then outstanding, and in the case of any event described in clause
(c), (d), (f) or (g), a Pay Out Event with respect to only the Series 1998-1
Certificates, will be deemed to have occurred without any notice or other action
on the part of the Trustee or the Series 1998-1 Certificateholders or all
certificateholders of all outstanding Series, as appropriate, immediately upon
the occurrence of such event. On the date on which a Pay Out Event is deemed to
have occurred, the Series 1998-1 Rapid Amortization Period will commence. In
such event, distributions of principal to the Series 1998-1 Certificateholders
will begin on the first Distribution Date following the date on which such Pay
Out Event occurred. If, because of the occurrence of a Pay Out Event, the Series
1998-1 Rapid Amortization Period begins earlier than September 1999, the
scheduled commencement of the Series 1998-1 Controlled Amortization Period,
Series 1998-1 Certificateholders will begin receiving distributions of principal
earlier than they otherwise would have, which may shorten the average life of
the Series 1998-1 Certificates.
In addition to the consequences of a Pay Out Event discussed above, if a
bankruptcy-related event involving AIC, AICCO or the Transferor were to occur,
then a Pay Out Event could occur with respect to all Series then outstanding
and, pursuant to the Agreement, Additional Receivables would not be transferred
to the Trust, and the Trustee would be obligated to sell the Receivables (unless
certificateholders holding more than 50% of the certificateholders ownership
interests of each Series outstanding (or, with respect to any Series with two or
more classes, more than 50% of each class) and the holder of the Transferor
Certificate (if no bankruptcy-related event has occurred as to such holder)
instruct otherwise) in accordance with the Agreement in a commercially
reasonable manner and on commercially reasonable terms which may cause early
termination of the Trust and a loss to certificateholders of each such Series
(including the Series 1998-1 Certificateholders) if the proceeds from such early
sale allocable to such Series, if any, and the amounts available under any
Enhancement applicable to such Series were insufficient to pay
certificateholders of such Series in full. If a Pay Out Event occurs that is due
either to the bankruptcy of AIC, AICCO or the Transferor or the appointment of a
bankruptcy trustee for AIC, AICCO or the Transferor, the bankruptcy trustee
would have the power to prevent the early sale, liquidation or disposition of
the Receivables and the commencement of the Series 1998-1 Rapid Amortization
Period. A bankruptcy trustee may also have the power to cause the early sale of
the Receivables and the early retirement of the Offered Certificates, to
prohibit the continued transfer of Additional Receivables to the Trust, and to
repudiate the servicing obligations of AIC or AICCO. The proceeds from the sale
of the Receivables will be treated as collections on the Receivables and
allocated accordingly among the certificateholders of all outstanding Series and
the Transferor.
'Series 1998-1 Annualized Monthly Excess Spread Amount' shall mean, in
respect of any Monthly Period, the number of basis points calculated by dividing
(i) the sum of (A) the amount of collections in respect of Finance Charge
Receivables allocable to Series 1998-1 Certificateholders for such Monthly
Period, plus (B) the Series 1998-1 Available Yield Enhancement Amount for the
immediately succeeding Transfer Date, minus (C) the aggregate Series 1998-1
Investor Default Amount for such Monthly Period minus (D) the Series 1998-1
Investor Servicing Fee payable on such Transfer Date minus (E) the aggregate
amount payable to Series 1998-1 Certificateholders in respect of interest on the
immediately succeeding Distribution Date by (ii) the Series 1998-1
Certificateholders Ownership Interests as of the end of such Monthly Period and
multiplying the resulting quotient by 12.
80
<PAGE>
'Financed Premium Percentage' means, in respect of any Monthly Period, the
ratio (expressed as a percentage) of the aggregate of the portions of premiums
financed or committed to be financed, as of the respective dates of origination
of the related Loans, of all Additional Receivables transferred to the Trust
during such Monthly Period to the aggregate of the premiums paid or committed to
be paid with respect to such Loans.
'Monthly Payment Rate' shall mean, in respect of any Monthly Period, a
fraction (expressed as a percentage), the numerator of which shall equal the
aggregate of all collections received by the Trust in respect of the Receivables
during such Monthly Period and the denominator of which shall equal the
aggregate amount of Principal Receivables in the Trust at the end of the
preceding Monthly Period.
Upon the occurrence of a Pay Out Event, if more than 10% of the principal
balance of the Receivables have a remaining maturity of more than twelve months,
the Transferor will purchase from the Trust sufficient Receivables with a
remaining maturity of more than twelve months, at a price equal to the principal
amount thereof plus accrued but unpaid Finance Charges to the date of purchase,
so that the percentage of Receivables having a remaining maturity as of the date
of purchase of more than twelve months shall be no more than 10% of the
principal balance of Receivables remaining in the Trust after giving effect to
such purchase.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The Series 1998-1 Investor Servicing Fee (as defined herein) will be funded
from collections of Finance Charge Receivables allocated to the Series 1998-1
Certificateholders Ownership Interests and will be paid each month from amounts
so allocated and on deposit in the Finance Charge Account and, if necessary,
from funds on deposit in the Series 1998-1 Yield Enhancement Account available
for such purpose. The remainder of the servicing fee for the Trust will be
allocable to the Transferor Ownership Interest and the certificateholders
ownership interests of any other Series issued by the Trust. Neither the Trust
nor the Series 1998-1 Certificateholders will have any obligation to pay the
portion of the servicing fee allocable to the Transferor Ownership Interest.
For so long as AIC and AICCO are collectively the Servicer, then the
Servicer will not be paid the Servicing Fee. If AIC and AICCO cease to be the
Servicer, then the share of the Servicing Fee allocable to the Series 1998-1
Certificateholders Ownership Interests with respect to any Transfer Date (the
'Series 1998-1 Investor Servicing Fee') shall be equal to the sum of the Series
1998-1 Class A Servicing Fee, the Series 1998-1 Class B Servicing Fee and the
Series 1998-1 Class C Servicing Fee with respect to such date.
The share of the Series 1998-1 Investor Servicing Fee allocable to the
Series 1998-1 Class A Certificateholders with respect to any Transfer Date in
which AIC and AICCO are not the Servicer (the 'Series 1998-1 Class A Servicing
Fee') shall be equal to one-twelfth of the product of (a) the Series 1998-1
Class A Floating Allocation, (b) 0.50% (the 'Series 1998-1 Net Servicing Fee
Rate') and (c) the Series 1998-1 Certificateholders Ownership Interests as of
the last day of the Monthly Period preceding such Transfer Date. The share of
the Series 1998-1 Investor Servicing Fee allocable to the Series 1998-1 Class B
Certificateholders with respect to any Transfer Date in which AIC and AICCO are
not the Servicer (the 'Series 1998-1 Class B Servicing Fee') shall be equal to
one-twelfth of the product of (a) the Series 1998-1 Class B Floating Allocation,
(b) the Series 1998-1 Net Servicing Fee Rate and (c) the Series 1998-1
Certificateholders Ownership Interests as of the last day of the Monthly Period
preceding such Transfer Date. The share of the Series 1998-1 Investor Servicing
Fee allocable to the Series 1998-1 Class C Ownership Interest with respect to
any Transfer Date (the 'Series 1998-1 Class C Servicing Fee') shall be equal to
one-twelfth of the product of (a) the Series 1998-1 Class C Floating Allocation,
(b) the Series 1998-1 Net Servicing Fee Rate and (c) the Series 1998-1
Certificateholders Ownership Interests as of the last day of the Monthly Period
preceding such Transfer Date. The Series 1998-1 Class A Servicing Fee, Series
1998-1 Class B Servicing Fee and Series 1998-1 Class C Servicing Fee shall be
payable to the Servicer solely to the extent amounts are available for
distribution in respect thereof.
81
<PAGE>
The Servicer will pay certain expenses incurred in connection with
servicing the Loans including, without limitation, payment of the fees and
disbursements of the Trustee and independent certified public accountants and
other fees which are not expressly stated in the Agreement to be payable by the
Trust, the Series 1998-1 Certificateholders or the Series 1994-1
Certificateholders other than federal, state and local income and franchise
taxes, if any, of the Trust.
COLLECTION AND OTHER SERVICING PROCEDURES
Pursuant to the Agreement, the Servicer is responsible for servicing,
collecting, enforcing and administering the Loans in accordance with the
Servicer's policies and procedures for servicing premium finance loan
receivables.
Servicing activities performed by the Servicer include collecting and
recording payments, communicating with obligors, investigating payment
delinquencies, providing billing records to obligors and maintaining internal
records with respect to each premium finance loan. Managerial and custodial
services performed by the Servicer on behalf of the Trust include providing
assistance in any inspections of the documents and records relating to the
Receivables by the Trustee pursuant to the Agreement, maintaining the
agreements, documents and files relating to the Receivables as custodian for the
Trust and providing related data processing and reporting services for
Certificateholders and on behalf of the Trustee.
SERVICER COVENANTS
In the Agreement, the Servicer covenants with the certificateholders of
each outstanding Series and the Trustee, as to each Receivable, that: (a) it
will duly fulfill all obligations on its part to be fulfilled under or in
connection with the related Loan and will maintain in effect all licenses and
qualifications required in order to service such Receivable and the related Loan
and will comply with all requirements of law in servicing each Receivable and
the related Loan, the failure to comply with which would have a material adverse
effect on the certificateholders of any outstanding Series; (b) it will not
permit any rescission or cancellation of the Loans, except in accordance with
its customary and usual servicing procedures or as ordered by a court of
competent jurisdiction or other governmental authority; (c) it will take no
action which, nor will it omit to take any action the omission of which, would
materially impair the rights of the certificateholders of any outstanding Series
in the Receivables or the related Loans; and (d) it will not reschedule, revise
or defer payments due on the Loans except in accordance with its customary and
usual servicing procedures.
Under the terms of the Agreement, a Receivable will be assigned and
transferred or reassigned and transferred to the Servicer and such Receivable
shall no longer be included as a Receivable if the Servicer discovers, or
receives written notice from the Trustee, that any covenant of the Servicer set
forth above has not been complied with and such noncompliance has not been cured
within 60 days thereafter and has a material adverse effect on the interest of
the certificateholders of any outstanding Series in such Receivable. Such
reassignment and retransfer or assignment and transfer, as applicable, shall be
made when the Servicer deposits an amount equal to the amount of such Receivable
in the Collection Account. The amount of such deposit shall be for allocation as
collections pursuant to the Agreement. In either case, this retransfer and
reassignment or transfer and assignment to the Servicer constitutes the sole
remedy available to the certificateholders of each outstanding Series if such
covenant of the Servicer is not satisfied. In either case, the Trust's interest
in any such assigned Receivables shall be automatically assigned to the
Servicer.
82
<PAGE>
CERTAIN MATTERS REGARDING THE SERVICER, THE TRANSFEROR AND THE ORIGINAL
TRANSFERORS
The Servicer may not resign from its obligations and duties under the
Agreement, except upon determination that performance of its duties is no longer
permissible, and there is no reasonable action the Servicer could take to make
the performance of such duties permissible, under applicable law and except as
described below. No such resignation will become effective until the Trustee or
a successor to the Servicer has assumed the Servicer's responsibilities and
obligations under the Agreement. Notwithstanding the foregoing, each of AIC and
AICCO may transfer its servicing obligations to any of its affiliates (which
meets certain eligibility standards set forth in the Agreement) or, subject to
certain conditions set forth in the Agreement, to any other entity which each
Rating Agency has advised in writing will not result in the reduction or
withdrawal of its then-existing rating of the Series 1998-1 Certificates and be
relieved of its obligations and duties under the Agreement.
The Agreement provides that the Servicer will indemnify the Trust, for the
benefit of the certificateholders of all Series, and the Trustee from and
against any loss, liability, expense, damage or injury suffered or sustained by
reason of any acts or omissions or alleged acts or omissions of the Servicer
with respect to the activities of the Trust or the Trustee pursuant to the
Agreement; provided, however, that the Servicer shall not indemnify (a) the
Trustee for liabilities imposed by or resulting from or by reason of fraud,
negligence, breach of fiduciary duty or willful misconduct by the Trustee in the
performance of its duties under the Agreement, (b) the Trust, the Series 1998-1
Certificateholders or the Certificate Owners for liabilities arising from
actions taken by the Trustee at the request of Series 1998-1 Certificateholders,
(c) the Trust, the Series 1998-1 Certificateholders or the Certificate Owners
for any losses, claims, damages or liabilities incurred by any Series 1998-1
Certificateholder in its capacity as an investor, including without limitation
losses incurred as a result of Defaulted Loans or (d) the Trust, the Series
1998-1 Certificateholders or the Certificate Owners for any liabilities, costs
or expenses of the Trust, the Series 1998-1 Certificateholders or the
Certificate Owners arising under any tax law, including without limitation any
United States federal, state or local or foreign income or franchise tax or any
other tax imposed on or measured by income (or any interest or penalties with
respect thereto or arising from a failure to comply therewith) required to be
paid by the Trust, the Series 1998-1 Certificateholders or the Certificate
Owners in connection therewith to any taxing authority (except to the extent
that such liabilities, taxes or expenses arose as a result of the Servicer's
breach of certain obligations set forth in the Agreement).
The Agreement provides that the Transferor with respect to the Future
Receivables and the Original Transferor with respect to the Existing Receivables
will indemnify the Trust, for the benefit of the certificateholders of all
Series, and the Trustee from and against any loss, liability, expense, damage or
injury suffered or sustained by reason of any violation by the Trust, the
Trustee or the Servicer of any state premium finance licensing laws with respect
to any Receivable; provided, however, that the Transferor and the Original
Transferors shall not indemnify (a) the Trustee for liabilities imposed by
reason of fraud, negligence, or willful misconduct by the Trustee in the
performance of its duties under the Agreement or (b) the Trust, the Series
1998-1 Certificateholders or the Certificate Owners for liabilities, costs or
expenses of the Trust arising from actions taken by the Trustee at the request
of Series 1998-1 Certificateholders. Any such indemnification shall not be
payable from the assets of the Trust.
Under the Agreement, the Transferor has agreed to be liable directly to an
injured party for the entire amount of any losses, claims, damages or
liabilities (other than those incurred by a certificateholder in the capacity of
an investor in the Series 1998-1 Certificates or the certificates of any other
Series) arising out of or based on the arrangement created by the Agreement as
though such agreement created a partnership under the New York Uniform
Partnership Act in which the Transferor were a general partner. The Transferor
has agreed to pay, indemnify and hold harmless each Series 1998-1
Certificateholder against and from such losses, claims, damages or liabilities
except to the extent that they arise from any action by such holder.
The Agreement provides that neither the Original Transferors, the
Transferor, the Servicer nor any of their respective directors, officers,
employees or agents will be under any other liability to the Trust,
83
<PAGE>
the Series 1998-1 Certificateholders or any other person for any action taken,
or for refraining from taking any action, in good faith pursuant to the
Agreement. Neither the Original Transferors, the Transferor, the Servicer nor
any of their respective directors, officers, employees or agents will be
protected against any liability which would otherwise be imposed by reason of
willful misfeasance, bad faith or gross negligence of the Original Transferors,
the Transferor, the Servicer or any such person in the performance of its duties
or by reason of reckless disregard of obligations and duties thereunder. In
addition, the Agreement provides that the Servicer is not under any obligation
to appear in, prosecute or defend any legal action which is not incidental to
its servicing responsibilities under the Agreement and which in its reasonable
opinion may expose it to any expense or liability.
Any person into which, in accordance with the Agreement, the Original
Transferors, the Transferor or the Servicer may be merged or consolidated or any
person resulting from any merger or consolidation to which the Original
Transferors, the Transferor or the Servicer is a party, or any person succeeding
to the business of the Original Transferors, the Transferor or the Servicer,
upon execution of an amendment to the Agreement and delivery of an officer's
certificate with respect to the compliance of the transaction with the
applicable provisions of the Agreement and an opinion of counsel to the effect
that such supplemental agreement is legal, valid, binding and enforceable, will
be the successor to the Original Transferors, the Transferor or the Servicer, as
the case may be, under the Agreement. The Original Transferors, the Transferor
or the Servicer may effect any merger, consolidation or assumption which is in
accordance with the provisions of the preceding sentence so long as, among other
conditions set forth in the Agreement: (a) if the Original Transferors, the
Transferor or the Servicer, as the case may be, is not the surviving entity,
such person certifies in writing to the Trustee that all of the applicable
representations and warranties are true and correct with respect to such person;
(b) each Rating Agency indicates that such event will not adversely affect the
then-existing rating of certificates of any Series outstanding including the
Series 1998-1 Certificates; (c) the successor entity executes a supplemental
agreement whereby such entity agrees to assume all the obligations and covenants
of the Original Transferors, the Transferor or Servicer, as the case may be; and
(d) in the case of merger or consolidation of the Transferor when the Transferor
is not the surviving entity, the AIR Support Agreement remains in effect with
respect to the successor entity.
Under the Agreement, each of the Original Transferors, the Transferor, the
Servicer and the Trustee has agreed that it will not at any time institute
against the Trust, or join in any institution against the Trust of, any
bankruptcy proceedings under any United States federal or state bankruptcy or
similar law in connection with any obligations relating to the
certificateholders of any Series or the Agreement.
SUPPORT AGREEMENTS
AIC, AICCO and AIG have entered into a Support Agreement dated as of
December 1, 1994 (the 'AIC Support Agreement'). Under the AIC Support Agreement,
AIG has agreed to be the ultimate beneficial owner of all of the voting capital
stock of AIC, and AIG or AIC has agreed to be the ultimate beneficial owner of
all of the voting capital stock of AICCO. AIR and AIG will enter into a similar
support agreement to be dated as of the Closing Date (the 'AIR Support
Agreement' and, together with the AIC Support Agreement, the 'Support
Agreements'). Under the AIR Support Agreement, AIG will agree to be the ultimate
beneficial owner of all of the voting capital stock of AIR.
The AIC Support Agreement further provides that AIG will cause each of AIC
and AICCO to maintain a net worth of not less than one dollar, and that if (a)
AIC or AICCO needs funds to meet any of its obligations as an Original
Transferor or a Servicer under the Agreement, or (b) AIC or AICCO has
insufficient funds to pay any of its obligations when due (except for any such
obligations which are the subject of a bona fide dispute) the non-payment of
which could constitute a basis for the filing of an involuntary case against
either AIC or AICCO under the Bankruptcy Code, AIG shall provide AIC or AICCO,
as the case may be, funds on a timely basis to cause such obligations to be
satisfied when due. The AIR Support Agreement will further provide that AIG will
cause AIR to maintain a net worth of not less than one dollar, and that if (a)
AIR needs funds to meet any of its obligations as Transferor under the Agreement
or (b) AIR has insufficient funds to pay any of its obligations when due (except
for any such obligations which are the subject of a bona fide dispute) the
non-payment of which could constitute
84
<PAGE>
a basis for the filing of an involuntary case against AIR under the Bankruptcy
Code, AIG shall provide AIR funds on a timely basis to cause such obligations to
be satisfied when due. The Support Agreements are not direct or indirect
guarantees by AIG to any person of the payment of the principal of or interest
on any indebtedness, liability or obligation of AIC, AICCO or AIR. The Agreement
will allow the Support Agreements to be amended or terminated; provided,
however, that no amendment or termination will be effective unless each
certificateholder of each outstanding Series consents in writing to such
amendment and each Rating Agency confirms in writing that such termination or
amendment will not adversely affect the then-existing rating of any outstanding
Series or class for which it is a Rating Agency. AIG may terminate either or
both of the Support Agreements by assuming the obligations of AIC and AICCO, or
AIR, as the case may be, under the Agreement. See '--Pay Out Events' above.
In connection with the AIC Support Agreement, AIG has entered into a letter
agreement with the Trustee (the 'AIC Letter Agreement') for the benefit of the
certificateholders of all outstanding Series pursuant to which AIG has agreed
that it will not default under the AIC Support Agreement and it will not amend
or terminate the AIC Support Agreement other than in accordance with its terms;
provided, however, that the AIC Letter Agreement may be amended with the prior
written consent of each such certificateholder and prior written confirmation of
each Rating Agency that such amendment will not have an adverse effect on the
then-existing ratings of the certificates of any outstanding Series. The AIC
Letter Agreement provides that if AIG fails to perform any of the covenants or
agreements contained in the Letter Agreement, the Trustee may in its discretion
proceed to protect and enforce its rights and the rights of the
certificateholders by appropriate judicial proceedings or by any other proper
remedy. AIG will enter into a similar letter agreement with the Trustee in
connection with the AIR Support Agreement (together with the AIC Letter
Agreement, the 'Letter Agreements').
For purposes of determining whether a Pay Out Event occurs by reason of any
default by AIG under either of the Support Agreements, the Letter Agreements
shall be deemed to be part of the respective Support Agreements.
SERVICER DEFAULT
In the event of any Servicer Default (as defined herein) which is not
remedied or otherwise cured, either the Trustee or holders representing
undivided interests aggregating more than 50% of the sum of the
certificateholders ownership interests of all certificates outstanding, by
written notice to the Servicer (and to the Trustee if given by the
certificateholders), may terminate all of the rights and obligations of the
Servicer as servicer under the Agreement and in and to the Receivables and the
proceeds thereof and the Trustee may appoint a new Servicer (a 'Service
Transfer'). The rights and obligations of the Original Transferors and the
Transferor under the Agreement will not be affected by such termination. The
Trustee shall as promptly as possible appoint a successor Servicer, which
successor Servicer must satisfy certain eligibility criteria contained in the
Agreement. If no such Servicer has been appointed and has accepted such
appointment by the time the Servicer ceases to act as Servicer, all authority,
power and obligations of the Servicer under the Agreement shall pass to and be
vested in the Trustee. If the Trustee is unable to obtain any bids from eligible
servicers and the Servicer delivers an officer's certificate to the effect that
it cannot in good faith cure the Servicer Default which gave rise to a transfer
of servicing, and if the Trustee is legally unable to act as successor Servicer,
then the Trustee shall give the Transferor the right to accept reassignment of
the Receivables at a price generally equal to the higher of the outstanding
principal balance of the certificates of all Series plus accrued interest
through the date of reassignment and the average bid quoted by two recognized
dealers for similar securities rated in comparable rating categories by the
Rating Agencies and having a remaining maturity approximately equal to the
remaining maturity of such Series.
A 'Servicer Default' refers to any of the following events:
(a) failure by the Servicer to make any payment, transfer or deposit
(other than with respect to Credit Balances) or to give instructions to the
Trustee to make any withdrawal, on the date the Servicer is required to do
so under the Agreement (or within the applicable grace period, which shall
not exceed five business days);
85
<PAGE>
(b) failure on the part of the Servicer duly to observe or perform in
any respect any other covenants or agreements of the Servicer which has a
material adverse effect on the certificateholders of any outstanding Series
(including the Series 1998-1 Certificateholders) (which determination shall
be made without regard to whether funds are available by reason of any
credit enhancement or credit support device) and which continues unremedied
for a period of 60 days after written notice of such failure and continues
to have a material adverse effect on such certificateholders for such
period; or the delegation or assignment by the Servicer of its duties under
the Agreement, except as specifically permitted thereunder; provided,
however, that failure on the part of the Servicer duly to observe or
perform in any respect certain specified covenants or agreements of the
Servicer set forth in the Agreement, which has a material adverse effect on
the certificateholders of any outstanding Series (which determination shall
be made without regard to the availability of any credit enhancement or
credit support device) and which continues after, and notwithstanding the
removal by the Servicer of the related Receivable, shall be a Servicer
Default unless the Servicer shall have, within 60 days after the date
(following such removal) on which written notice of such continuing
material adverse effect shall have been given to the Servicer, remedied
such failure;
(c) any representation, warranty or certification made by the Servicer
in the Agreement (including any Supplement), or in any certificate
delivered pursuant to the Agreement or any Supplement, proves to have been
incorrect when made, which has a material adverse effect on the rights of
any of the certificateholders of any outstanding Series (which
determination shall be made without regard to whether funds are available
by reason of any credit enhancement or credit support device) and which
continues to be incorrect in any material respect for a period of 60 days
after written notice; or
(d) the occurrence of certain events of bankruptcy or insolvency of
the Servicer.
REPORTS TO HOLDERS OF OFFERED CERTIFICATES
On each Distribution Date, the Trustee will forward to each Series 1998-1
Certificateholder of record a statement (the 'Monthly Certificateholders
Statement') setting forth among other things: (a) the total amount distributed
to Series 1998-1 Certificateholders, (b) the amount of the distribution made on
such Distribution Date allocable to principal on the Series 1998-1 Certificates,
(c) the amount of the distribution made on such Distribution Date allocable to
interest on the Series 1998-1 Certificates, (d) the amount of collections of
Principal Receivables received during the preceding Monthly Period and allocated
in respect of the Series 1998-1 Certificates, (e) the aggregate amount of
Principal Receivables, the Series 1998-1 Certificateholders Ownership Interests
and the Series 1998-1 Certificateholders Ownership Interests as a percentage of
the aggregate amount of the Principal Receivables in the Trust as of the end of
the last day of the preceding Monthly Period, (f) following cancellation of the
related Loans, the aggregate outstanding balance of Receivables which are
delinquent, broken down by period of delinquency as provided in the Agreement,
in accordance with the Servicer's then-existing premium finance loan guidelines
as of the end of the preceding Monthly Period, (g) the aggregate Default Amount
for the preceding Monthly Period, (h) the aggregate amount of charge-offs
allocable to the Series 1998-1 Certificateholders Ownership Interests for the
preceding Monthly Period and the aggregate amount of charge-offs allocable to
the Series 1998-1 Certificateholders Ownership Interests which were deemed
reimbursed on the Transfer Date immediately preceding such Distribution Date,
(i) the amount of the Monthly Servicing Fee for the preceding Monthly Period,
(j) the 'Pool Factor' as of the end of the last day of the preceding Monthly
Period (consisting of a seven-digit decimal expressing the ratio of Series
1998-1 Certificateholders Ownership Interests to Series 1998-1 Initial
Certificateholders Ownership Interests), (k) the aggregate amount of collections
of Finance Charge Receivables allocable to the Series 1998-1 Certificateholders
Ownership Interests for the preceding Monthly Period, (l) the amount, if any, of
funds required to be withdrawn from the Series 1998-1 Yield Enhancement Account
with respect to the Series 1998-1 Certificates and such Distribution Date, and
(m) certain information relating to the Series 1998-1 Class A Certificate Rate,
the Series 1998-1 Class B Certificate Rate and the Series 1998-1 Class C
86
<PAGE>
Certificate Rate for the Interest Period ending on such immediately preceding
Transfer Date. The Servicer shall not be required to calculate the Minimum
Transferor Ownership Interest for any Monthly Period if the Servicer certifies
in the Monthly Servicer Report for such Monthly Period that the Transferor
Ownership Interest as of the date thereof equals or exceeds 50% of the Trust
assets as of the close of business on the last business day of the preceding
Monthly Period and that such Transferor Ownership Interest exceeds the Minimum
Transferor Ownership Interest as of the end of such Monthly Period.
On or before January 31 of each calendar year, beginning with 1999, the
Trustee will furnish to each person who at any time during the preceding
calendar year was a Series 1998-1 Certificateholder of record a statement
prepared by the Trustee containing the information required to be contained in
the Monthly Servicer Report, as set forth in clauses (a), (b) and (c) above,
aggregated for such calendar year or the applicable portion thereof during which
such person was a Series 1998-1 Certificateholder, together with such other
customary information (consistent with the treatment of the Series 1998-1
Certificates as debt) as the Trustee deems necessary or desirable to enable the
Series 1998-1 Certificateholders to prepare their tax returns.
EVIDENCE AS TO COMPLIANCE
The Agreement provides that on or before April 30 of each calendar year,
the Servicer will cause a firm of nationally recognized independent accountants
(who may also render other services to the Servicer or the Transferor) to
furnish a report to the effect that such firm has examined the assertion by an
officer of the Servicer, made pursuant to the Agreement, that the Servicer has
complied with the terms of the Agreement relating to the servicing of
Receivables, which examination includes a review of certain documents and
records relating to the servicing of the Receivables and has compared the
information contained in the Servicer's certificates delivered under the
Agreement during the period covered by the report with such documents and
records and that, on the basis of such examination, such firm is of the opinion
that the assertion by the Servicer's officer is fairly stated in all material
respects except for such exceptions as such firm shall believe to be immaterial
and such other exceptions as shall be set forth in such report. In addition, on
or before April 30 of each calendar year, the Servicer will also cause a firm of
nationally recognized independent accountants (who may also render other
services to the Servicer or Transferor) to furnish a report to the effect that
such firm has compared the mathematical calculations of each amount set forth in
the Servicer's certificates delivered under the Agreement during the period
covered by the report with the Servicer's computer reports which were the source
of such amounts and that, based on such comparison, such amounts are in
agreement except for such exceptions as such firm believes to be immaterial and
such other exceptions as set forth in such firms's report.
The Agreement provides for delivery to the Trustee on or before April 30 of
each calendar year, of an annual statement signed by an officer of the Servicer
to the effect that, to the best of such officer's knowledge, the Servicer has
fully performed, or has caused to be performed, all its obligations under the
Agreement throughout the preceding year in all material respects, or, if there
has been a default in the performance of any such obligation in any material
respect, specifying the nature and status of the default.
AMENDMENTS
The Agreement and any Supplement may be amended in writing by the
Transferor, the Original Transferors, the Servicer and the Trustee, without
certificateholder consent, to cure any ambiguity, to correct or supplement any
provision therein which may be inconsistent with any other provision therein,
and to add any other provisions with respect to matters or questions arising
under the Agreement and any Supplement which are not inconsistent with the
provisions of the Agreement and any Supplement; provided, that such action does
not adversely affect in any material respect the interests of any
certificateholder. The Agreement may be amended in writing from time to time by
the Transferor, the Original Transferors, the Servicer and the Trustee, with the
consent of the Trustee and without the consent of the certificateholders, to
provide for the purchase of Principal Receivables by the Trust at a price which
is less than 100% of the outstanding balance thereof, and to provide for the
treatment of
87
<PAGE>
collections of Principal Receivables, in an amount up to the aggregate amount by
which the purchase price of Principal Receivables as sold thereafter is less
than 100%, as collections of Finance Charge Receivables; provided, however, that
any such action shall not adversely affect in any material respect the interests
of the certificateholders; further provided that the Servicer and the Trustee
shall have received notice from each Rating Agency that any such amendment will
not result in the reduction or withdrawal of its then-existing rating of the
certificates of any Series. Moreover, any Supplement in connection with a new
Series will not be considered amendments requiring certificateholder consent
under the provisions of the Agreement or any Supplement.
The Agreement may be amended in writing by the Transferor, the Original
Transferors, the Servicer and the Trustee with the consent of the holders of
certificates evidencing undivided interests aggregating not less than 66 2/3% of
the principal amount of all Series adversely affected, for the purpose of adding
any provisions to, changing in any manner or eliminating any of the provisions
of the Agreement or any Supplement or of modifying in any manner the rights of
certificateholders of any Series. No such amendment, however, may (a) reduce in
any manner the amount of, or delay the timing of, distributions required to be
made on such Series, (b) change the definition of or the manner of calculating
the certificateholders ownership interests, the aggregate default amount or the
investor percentage of such Series, (c) reduce the aforesaid percentage of
undivided interests, the holders of which are required to consent to any such
amendment, in each case without the consent of all certificateholders of all
Series adversely affected or (d) modify AIC's support obligations with respect
to AICCO, without the consent of the holders of certificates of all Series.
Promptly following the execution of any amendment to the Agreement or any
Supplement, the Trustee will furnish written notice of the substance of such
amendment to each certificateholder of all Series (or with respect to an
amendment of a Supplement, to the applicable Series).
LIST OF CERTIFICATEHOLDERS
Upon written request of Series 1998-1 Certificateholders aggregating not
less than 20% of the Series 1998-1 Certificateholders Ownership Interests, the
Trustee, after having been adequately indemnified by such Series 1998-1
Certificateholders for its costs and expenses, and having given the Servicer
notice that such request has been made, will afford such Series 1998-1
Certificateholders access during business hours to the current list of
certificateholders of the Trust for purposes of communicating with other
certificateholders with respect to their rights under the Agreement or under the
related certificates. The Agreement generally does not provide for any annual or
other meetings of certificateholders. See '--Book-Entry Registration' and
'--Definitive Certificates' above.
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following discussion, insofar as it constitutes statements of law or
legal conclusions, represents the opinion of Weil, Gotshal & Manges LLP
('Counsel'), special counsel to the Transferor, and is subject to the
qualifications set forth herein. The discussion summarizes the material federal
income tax consequences of the ownership and disposition of the Offered
Certificates and is based on the Internal Revenue Code of 1986, as amended (the
'Code'), the Treasury Regulations promulgated and proposed thereunder (the
'Regulations'), judicial decisions and published administrative rulings and
pronouncements of the Internal Revenue Service (the 'Service'), all as in effect
on the date hereof. Legislative, judicial or administrative changes or
interpretations hereafter enacted or promulgated could alter or modify the
analysis and conclusions set forth below, possibly on a retroactive basis. This
summary does not purport to address the federal income tax consequences either
to special classes of taxpayers (such as S corporations, banks, thrifts, other
financial institutions, insurance companies, mutual funds, small business
investment companies, real estate investment trusts, regulated investment
companies, broker-dealers, tax-exempt organizations and persons that hold the
securities described herein as part of a straddle, hedging or conversion
transaction) or to a person or entity holding an interest in a holder (e.g., as
a stockholder, partner, or holder of an interest as a beneficiary). This summary
(i) assumes that the Offered Certificates will be held by the holders thereof as
capital assets as defined in the Code and (ii) except as indicated (and other
than for purposes of the discussion
88
<PAGE>
under 'Treatment of the Certificates as Indebtedness' and 'Possible Alternative
Characterization' below), describes the consequences of Offered Certificates
that are properly characterized as debt for federal income tax purposes. Except
under 'Certain State and Local Tax Considerations,' no information is provided
herein with respect to any foreign, state or local tax consequences of the
ownership and disposition of the Offered Certificates nor of any federal estate
and gift tax considerations.
Except for 'Non-United States Investors' and 'Information Reporting and
Backup Withholding' below, the following discussion applies only to holders that
are citizens or residents of the United States, domestic corporations or
partnerships, or other entities subject to United States federal income tax on a
net income basis in respect of Offered Certificates (a 'U.S.
Certificateholder').
PROSPECTIVE INVESTORS ARE THEREFORE URGED TO CONSULT THEIR OWN TAX ADVISORS
WITH REGARD TO THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF PURCHASING,
HOLDING AND DISPOSING OF THE OFFERED CERTIFICATES IN THEIR OWN PARTICULAR
CIRCUMSTANCES, AS WELL AS THE TAX CONSEQUENCES ARISING UNDER THE LAWS OF ANY
STATE, FOREIGN COUNTRY OR OTHER JURISDICTION TO WHICH THEY MAY BE SUBJECT.
For purposes of the discussion set forth below, a 'Certificateholder' means
a beneficial owner of an Offered Certificate.
TREATMENT OF THE CERTIFICATES AS INDEBTEDNESS
The Transferor and Certificateholders express in the Agreement the intent
that, for United States federal, state and local income, franchise and other tax
purposes, the Offered Certificates will be indebtedness of the Transferor
secured by the Receivables. The Transferor, by entering into the Agreement, and
each Certificateholder, by the acceptance of an Offered Certificate, agree to
treat the Offered Certificates as indebtedness of the Transferor for all such
tax purposes. Because different criteria are used in determining the financial
and regulatory accounting treatment of the transaction, however, the Transferor
will treat the Agreement, for certain non-tax accounting purposes, as effecting
a transfer of ownership interests in the Receivables and not as creating debt
obligations of the Transferor.
A basic premise of federal income tax law is that the economic substance of
a transaction generally determines its tax consequences. The form of a
transaction, while a relevant factor, is not conclusive evidence of its economic
substance. In appropriate circumstances, the courts have allowed taxpayers as
well as the Service to treat a transaction in accordance with its economic
substance as determined under federal income tax principles, even though the
participants in the transaction have characterized it differently for non-tax
purposes.
The determination of whether the economic substance of a transfer of an
interest in property is instead a loan secured by the transferred property has
been made by the Service and the courts on the basis of numerous factors
designed to determine whether the transferor has relinquished (and the
transferee has obtained) substantial incidents of ownership in the property. The
primary factors examined are whether the transferee has the opportunity to gain
if the property increases in value, and has the risk of loss if the property
decreases in value. Based upon an analysis of such factors, it is the opinion of
Counsel that, under current law, assuming due execution of and compliance with
the Agreement, and subject to the assumptions set forth herein and although no
transaction closely comparable to that contemplated herein has been the subject
of any Regulations, revenue ruling or judicial decision, for federal income tax
purposes the Offered Certificates when issued will not constitute an ownership
interest in the Receivables, but properly will be characterized as debt secured
by the Receivables. In the further opinion of Counsel, the Trust will not be an
association or publicly-traded partnership taxable as a corporation. Except
where indicated to the contrary, the following discussion assumes that the
Offered Certificates are debt for federal income tax purposes.
89
<PAGE>
POSSIBLE ALTERNATIVE CHARACTERIZATION
Although as described above, it is the opinion of Counsel that the Offered
Certificates properly will be characterized as debt for federal income tax
purposes, none of the AICCO, AIR, AIC, or the Trust will seek a ruling from the
Service on the characterization of the Offered Certificates for federal income
tax purposes and the opinion of Counsel will not be binding on the Service.
Thus, no assurance can be given that such a characterization will prevail. Were
the Service to contend successfully that the Offered Certificates were not debt
obligations for federal income tax purposes, the Trust would be classified for
federal income tax purposes as a partnership.
If some or all of the Offered Certificates were treated as equity interests
in a partnership, the partnership would likely be treated as a 'publicly traded
partnership.' A publicly traded partnership is taxed in the same manner as a
corporation unless at least 90% of its gross income consists of specified types
of 'qualifying income.' Such qualifying income includes, among other things,
'interest income' that is 'not derived in the conduct of a financial or
insurance business.' It is unclear whether, were the Trust treated as a
partnership, interest received by it in respect of the Receivables would be
considered to be derived from the conduct of a financial or insurance business
by the Trust.
If a deemed partnership between the Transferor and the Certificateholders
were to qualify for the foregoing exception from taxation as a corporation, the
deemed partnership would not be subject to federal income tax, but each item of
income, gain, loss and deduction generated as a result of the ownership of the
Receivables by the partnership would be passed through to the partners in such a
partnership (including any Certificateholders that are treated as holding equity
interests in the partnership) according to their respective interests therein.
The amount of income reportable by the Certificateholders as partners in such a
partnership could differ from that reportable by the Certificateholders as
holders of debt. A cash basis Certificateholder treated as a partner, for
example, might be required to report income when it accrues to the partnership
rather than when it is received by the Certificateholder. Moreover, an
individual Certificateholder's share of expenses of the partnership would
constitute miscellaneous itemized deductions, which in the aggregate (i) are
allowed as deductions only to the extent they exceed two percent of the
Certificateholder's adjusted gross income and (ii) are subject to reduction in
the hands of a Certificateholder whose adjusted gross income exceeds a certain
amount. As a result, the Certificateholder might be taxed on an amount of income
greater than the amount of interest received on the Certificateholder's Offered
Certificate. In addition, partnership characterization may have adverse state or
local tax consequences for Certificateholders. Finally, if the Trust were
treated as a partnership not taxable as a corporation, with the Series 1998-1
Class A Certificates treated as debt of such partnership and the Series 1998-1
Class B Certificates treated as equity interests in such partnership, a portion
of the taxable income allocated to any Series 1998-1 Class B Certificateholder
that was a pension, profit-sharing or employee benefit plan or other tax-exempt
entity (including an individual retirement account) would constitute 'unrelated
business taxable income' generally taxable to such a Certificateholder under the
Code.
If, alternatively, some or all of the Offered Certificates were treated as
equity interests in a publicly traded partnership taxable as a corporation, the
Trust (or other deemed entity) would be subject to United States federal income
taxes (and state and local taxes) at corporate tax rates on its income from the
Receivables. Distributions on the Offered Certificates, certificates of any
other Series issued by the Trust and the Transferor Certificate might not be
deductible in computing the Trust's (or other deemed entity's) taxable income,
and distributions to the Certificateholders would probably be treated as
dividends to the extent paid out of after-tax earnings. Such an entity-level tax
could result in reduced distributions to Certificateholders, or the
Certificateholders could be liable for a share of such tax.
Because the Transferor will treat the Offered Certificates as indebtedness
for federal income tax purposes, the Servicer and the Paying Agent (and
Participants and Indirect Participants) will not comply with the tax reporting
requirements applicable to the possible alternative characterizations of the
Offered Certificates discussed above.
90
<PAGE>
INTEREST INCOME TO CERTIFICATEHOLDERS
It is anticipated that the Offered Certificates will be issued at par value
(or at an insubstantial discount from par value) and that, except as indicated,
no original issue discount ('OID') will arise with respect to the Offered
Certificates. Under the OID regulations, a holder of an Offered Certificate
issued with more than a de minimis amount of OID must include such OID in income
on a pro rata basis, as principal payments are made on the Offered Certificate.
It is possible, however, that under regulations issued by the U.S. Treasury,
interest payable on the Offered Certificates, as well as any discount from par
value, will constitute OID because late payment or nonpayment of interest would
not be regarded as subject to penalties or to reasonable remedies to compel
payment. Were the Offered Certificates treated as being issued with OID, the
principal consequence would be that Certificateholders using the cash basis
method of accounting would be required to report interest income from the
Offered Certificates on an accrual basis. In any event, a purchaser who buys an
Offered Certificate for more or less than its issue price will generally be
subject, respectively, to the premium amortization or market discount rules of
the Code.
SALE OR EXCHANGE OF OFFERED CERTIFICATES
If an Offered Certificate is sold or exchanged, the seller will recognize
gain or loss equal to the difference between the amount realized upon the sale
or exchange and its adjusted basis in the Offered Certificate. The adjusted
basis of an Offered Certificate will equal its cost, increased by any unpaid OID
and market discount includable in income with respect to the Offered Certificate
prior to its sale, and reduced by any principal payments previously received
with respect to the Offered Certificate and any premium amortization previously
applied to offset interest income. The gain or loss recognized on the sale or
exchange of an Offered Certificate will generally be capital gain or loss if the
Offered Certificate was held as a capital asset and will be long-term or
mid-term capital gain or loss if the Offered Certificate was held by the
Certificateholder for the requisite holding periods at the time of the
disposition.
NON-UNITED STATES INVESTORS
As described above, Counsel will render its opinion that the Offered
Certificates will properly be classified as debt for federal income tax
purposes. If the Offered Certificates are so treated:
(a) interest paid to a nonresident alien or foreign corporation or
partnership would be exempt from U.S. withholding taxes (including backup
withholding taxes), provided the holder complies with applicable
identification requirements (and does not actually or constructively own
10% or more of the voting stock of AIG and is not a controlled foreign
corporation with respect to AIG). Applicable identification requirements
will be satisfied if there is delivered to a securities clearing
organization (or bank or other financial institution that holds Offered
Certificates on behalf of the customer in the ordinary course of its trade
or business), (i) IRS Form W-8 signed under penalties of perjury by the
beneficial owner of the Offered Certificates stating that the holder is not
a U.S. person and providing such holder's name and address, (ii) IRS Form
1001 signed by the beneficial owner of the Offered Certificates or such
owner's agent claiming exemption from withholding under an applicable tax
treaty or (iii) IRS Form 4224 signed by the beneficial owner of the Offered
Certificates or such owner's agent claiming exemption from withholding of
tax on income connected with the conduct of a trade or business in the
United States; provided that in any such case (x) the applicable form is
delivered pursuant to applicable procedures and is properly transmitted to
the United States entity otherwise required to withhold tax and (y) none of
the entities receiving the form has actual knowledge that the holder is a
U.S. person or that any certification on the form is false;
(b) a holder of an Offered Certificate who 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 to a
trade or business carried on by the holder in the United States, (ii) in
the case of a holder that is an
91
<PAGE>
individual, such holder neither is present in the United States for 183
days or more during the taxable year in which such sale, exchange or
redemption occurs, nor ceased being a U.S. citizen or long-term resident
for tax avoidance purposes and (iii) in the case of gain representing
accrued interest, the conditions described in clause (a) are satisfied; and
(c) an Offered Certificate held by an individual who at the time of
death is a nonresident alien will not be subject to United States federal
estate tax as a result of such individual's death if, immediately before
his death, (i) the individual did not actually or constructively own 10% or
more of the voting stock of AIG and (ii) the holding of such Offered
Certificate was not effectively connected with the conduct by the decedent
of a trade or business in the United States and (iii) the individual did
not cease being a U.S. citizen or long-term resident for tax avoidance
purposes.
The Service recently issued final regulations (the 'New Regulations') which
would provide alternative methods of satisfying the certification requirement
described above. The New Regulations are effective January 1, 1999, although
valid withholding certificates that are held on December 31, 1998 remain valid
until the earlier of December 31, 1999 or the date of expiration of the
certificate under the rules as currently in effect. The New Regulations would
require, in the case of Offered Certificates held by a foreign partnership, that
(x) the certification described in clause (a) above be provided by the partners
rather than by the foreign partnership and (y) the partnership provide certain
information. A look-through rule would apply in the case of tiered partnerships.
NON-U.S. CERTIFICATEHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS
CONCERNING THE APPLICATION OF THE CERTIFICATION REQUIREMENTS IN THE NEW
REGULATIONS.
If the Service were to contend successfully that some or all of the Offered
Certificates were equity interests in a partnership (not taxable as a
corporation), a holder of such an Offered Certificate that is a nonresident
alien or foreign corporation might be required to file a U.S. individual or
corporate income tax return and pay tax on its share of partnership income at
regular U.S. rates, including in the case of a corporation the branch profits
tax (and would be subject to withholding tax on its share of partnership
income). In addition, if the Offered Certificates are equity interests in a
partnership, an individual holder that is a nonresident alien at death may be
required to include the value of the Offered Certificates in such holder's gross
estate (unless otherwise provided in an applicable treaty). If some or all of
the Offered Certificates are recharacterized as equity interests in a 'publicly
traded partnership' taxable as a corporation, to the extent distributions on
such Offered Certificates were treated as dividends, a nonresident alien
individual or foreign corporation generally would be taxed on the gross amount
of such dividends (and subject to withholding) at the rate of 30% unless such
rate were reduced by an applicable treaty. In addition, an individual holder
that is a nonresident alien at death would be required to include the value of
such Offered Certificate in such holder's gross estate (unless otherwise
provided in an applicable treaty).
INFORMATION REPORTING AND BACKUP WITHHOLDING
Certain holders may be subject to backup withholding at a rate of 31% on
interest (including any original issue discount) on the Offered Certificates if
the holder fails to supply its taxpayer identification number (or if the
taxpayer identification number furnished by the holder is incorrect), fails to
report interest, dividends or other 'reportable payments' (as defined in the
Code) properly, or, under certain circumstances, fails to provide a certified
statement, under penalties of perjury, that it is not subject to backup
withholding. Information returns will be sent annually to the Service and to the
holders of record setting forth the amount of interest paid or the original
issue discount accrued and the amount of tax withheld therefrom. It is
anticipated that Persons who hold Offered Certificates as nominees for
beneficial owners will report the required tax information to beneficial owners
on Service Form 1099. United States Aliens that are exempt from withholding
under the provisions described above generally will not be subject to
information reporting on Service Form 1099 and backup withholding on the
payments of interest on an Offered Certificate if the applicable certification
requirements are satisfied. However, interest on an Offered Certificate
beneficially owned by a United States Alien will be required to be reported
annually on Service Form 1042S.
92
<PAGE>
Payment of the proceeds from the sale of an Offered Certificate to or
through a foreign office of a broker will not be subject to information
reporting or backup withholding, except that if the broker is a U.S. Person, a
controlled foreign corporation for United States tax purposes, a foreign person
50% or more of whose gross income is effectively connected with the conduct of a
trade or business within the United States for a specified three-year period or,
with respect to payments made after December 31, 1998, a foreign partnership
that, at any time during the taxable year, is 50% or more owned (measured by
either income or capital) by U.S. persons or engaged in a U.S. trade or
business, information reporting will apply to such payments unless such
custodian, nominee or other agent has documentary evidence in its files of the
owner's foreign status and has no actual knowledge to the contrary, or the owner
otherwise establishes an exemption. Payment of the proceeds from a sale of an
Offered Certificate to or through the United States office of a broker is
subject to information reporting and backup withholding unless the holder or
beneficial owner certifies as to its non-United States status or otherwise
establishes an exemption from information reporting and backup withholding. THE
NEW REGULATIONS CHANGE CERTAIN OF THE RULES RELATING TO CERTAIN PRESUMPTIONS
CURRENTLY AVAILABLE RELATING TO INFORMATION REPORTING AND BACKUP WITHHOLDING.
NON-U.S. CERTIFICATEHOLDERS ARE URGED TO CONTACT THEIR OWN TAX ADVISORS
REGARDING THE APPLICATION TO THEM OF BACKUP WITHHOLDING AND INFORMATION
REPORTING.
CERTAIN STATE AND LOCAL TAX CONSEQUENCES
The following discussion, to the extent it contains statements of law or
legal conclusions, represents the opinion of Counsel, and is subject to the
qualifications set forth herein. The discussion of the state and local tax
consequences of the ownership of Offered Certificates is a general summary and
does not purport to address all state or local tax considerations that may be
relevant to Certificateholders. (For purposes of the following discussion, a
'Certificateholder' means a beneficial owner of an Offered Certificate.) Except
as otherwise indicated, the following assumes that for federal income tax
purposes the Offered Certificates will be treated as indebtedness and that, if
the Offered Certificates are so treated, the Trust will not be a taxable entity.
See 'United States Federal Income Tax Consequences--Treatment of the
Certificates as Indebtedness.'
IN GENERAL
The state and local tax consequences of each Certificateholder's ownership
of Offered Certificates will depend upon the provisions of the state and local
tax laws to which that Certificateholder is subject. Because such tax laws vary,
it is impossible to discuss the tax consequences of Certificateholder's
ownership of Offered Certificates in each state or local taxing jurisdiction in
which the Certificateholder is subject to tax.
NEW YORK AND CALIFORNIA
Although there is no directly relevant New York or California authority and
accordingly the matter is not free from doubt, Counsel is of the opinion that if
the Offered Certificates are treated as debt for federal income tax purposes,
the Offered Certificates will also be treated as debt for New York and
California State income and franchise tax purposes and for New York City
personal income and general corporation tax purposes, and, accordingly, the
Trust will not be treated as a taxable entity. In addition, if the Offered
Certificates are treated as debt, Certificateholders who are not otherwise
subject to New York and California state income or franchise taxes or New York
City personal income or general corporation taxes, will not become subject to
such taxes solely as a result of their investment in the Offered Certificates,
but Certificateholders already subject to tax in New York State or New York City
and/or California may be required to pay additional state or local taxes as a
result of their ownership of the Offered Certificates.
93
<PAGE>
OTHER STATES
The Trust will be created under the laws of New York and most activities
relating to the servicing and collection of the Receivables will take place in
New York and California. Nevertheless, there can be no assurance another state
will not claim that the Trust has engaged in activities in that state and is
consequently subject to tax therein. Were another state successfully to make
such a claim, it is possible that under such state's tax laws the Offered
Certificates would not be treated as debt, the Trust would be treated as an
entity subject to taxation by such state and/or Certificateholders not otherwise
subject to taxation by such state could be taxed by such state in respect of the
activities of the Trust therein.
POSSIBLE RECHARACTERIZATIONS
If as described above under the caption 'United States Federal Income Tax
Consequences-Possible Alternative Characterization' all or a portion of the
Offered Certificates were treated as interests in a partnership or a 'publicly
traded partnership,' the New York, California, and other state and local tax
consequences of owning Offered Certificates could be materially different from
and less favorable than those described above.
EACH PROSPECTIVE INVESTOR IS URGED TO CONSULT ITS OWN TAX ADVISOR REGARDING
(I) WITH RESPECT TO NEW YORK STATE AND CALIFORNIA, THE TAX CONSEQUENCES OF THE
PURCHASE, OWNERSHIP AND DISPOSITION OF THE OFFERED CERTIFICATES RELATING TO ITS
PARTICULAR CIRCUMSTANCES AND (II) WITH RESPECT TO ALL OTHER STATES AND
JURISDICTIONS, THE STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE PURCHASE,
OWNERSHIP AND DISPOSITION OF THE OFFERED CERTIFICATES.
UNDERWRITING
Subject to the terms and conditions set forth in the underwriting agreement
(the 'Underwriting Agreement') between the Transferor and Goldman, Sachs & Co.
(the 'Underwriters'), the Transferor has agreed to sell to the Underwriters, and
the Underwriters have agreed to purchase, the Offered Certificates.
In the Underwriting Agreement, the Underwriters have agreed, subject to the
terms and conditions set forth therein, to purchase all the Offered Certificates
if any of the Series 1998-1 Certificates are purchased.
The Underwriters propose initially to offer the Series 1998-1 Class A
Certificates to the public at the price set forth on the cover page hereof and
to certain dealers at such price less concessions not in excess of 0.20% of the
principal amount of the Series 1998-1 Class A Certificates. The Underwriters may
allow, and such dealers may reallow, concessions not in excess of 0.125% of the
principal amount of the Series 1998-1 Class A Certificates to certain brokers
and dealers. After the initial public offering, the public offering price and
other selling terms of the Series 1998-1 Class A Certificates may be changed by
the Underwriters.
The Underwriters propose initially to offer the Series 1998-1 Class B
Certificates to the public at the price set forth on the cover page hereof and
to certain dealers at such price less concessions not in excess of 0.20% of the
principal amount of the Series 1998-1 Class B Certificates. The Underwriters may
allow, and such dealers may reallow, concessions not in excess of 0.125% of the
principal amount of the Series 1998-1 Class B Certificates to certain brokers
and dealers. After the initial public offering, the public offering price and
other selling terms of the Series 1998-1 Class B Certificates may be changed by
the Underwriters.
Only offers and sales of the Offered Certificates in the United States, as
part of the initial distribution thereof or in connection with resales thereof
under circumstances where this Prospectus must be delivered, are made pursuant
to the Registration Statement of which this Prospectus is a part.
94
<PAGE>
The Transferor will indemnify the Underwriters against certain liabilities,
including liabilities under the Securities Act, or contribute to payments the
Underwriters may be required to make in respect thereof. AIG has agreed to
guarantee payment in respect of such indemnification and contribution
obligations of the Transferor.
VALIDITY OF THE CERTIFICATES
The validity of the Series 1998-1 Certificates will be passed upon for the
Trust, the Original Transferors, the Transferor and the Servicer by Weil,
Gotshal & Manges LLP, New York, New York, and for the Underwriters by Cleary,
Gottlieb, Steen & Hamilton, New York, New York. Certain United States federal
income tax and other matters will be passed upon for the Trust by Weil, Gotshal
& Manges LLP, New York, New York. Certain legal matters relating to the Series
1998-1 Certificates will be passed upon for the Trust, the Original Transferors,
the Transferor and the Servicer by Kenneth V. Harkins, Associate General Counsel
of AIG and General Counsel of AIC.
95
<PAGE>
INDEX OF KEY TERMS FOR PROSPECTUS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Accounts............................................................................................. 64
Additional Interest.................................................................................. 14
Additional Receivables............................................................................... 6
Aggregate Investor Percentage........................................................................ 65
Agreement............................................................................................ 1, 4
AIC.................................................................................................. 1, 38
AIC Letter Agreement................................................................................. 85
AIC Support Agreement................................................................................ 84
AICCO................................................................................................ 1, 5, 38
AIG.................................................................................................. 1, 5, 38
AIR.................................................................................................. 1, 5, 38
AIR Support Agreement................................................................................ 84
Bankruptcy Code...................................................................................... 28
Cede................................................................................................. 3
Cedel................................................................................................ 49
Cedel Participants................................................................................... 49
Certificate Owners................................................................................... 3
Certificateholder.................................................................................... 89, 93
Cleanup Call......................................................................................... 25, 78
Closing Date......................................................................................... 2
Code................................................................................................. 88
Collection Account................................................................................... 62
Collection Subaccount................................................................................ 62
Commission........................................................................................... 3
Cooperative.......................................................................................... 50
Counsel.............................................................................................. 88
Credit Balance....................................................................................... 42
Cut-Off Date......................................................................................... 6, 55
Default Amounts...................................................................................... 69
Defaulted Loan....................................................................................... 70
Definitive Certificates.............................................................................. 51
Depository........................................................................................... 48
Determination Date................................................................................... 69
Disclosure Document.................................................................................. 23
Distribution Date.................................................................................... 2, 14
DTC.................................................................................................. 3
EDGAR................................................................................................ 3
Eligible Additional Receivable....................................................................... 61
Eligible Receivable.................................................................................. 60
Enhancement.......................................................................................... 35
ERISA................................................................................................ 26
ERISA Plans.......................................................................................... 26
Euroclear............................................................................................ 50
Euroclear Operator................................................................................... 50
</TABLE>
96
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Euroclear Participants............................................................................... 50
Excess Funding Account............................................................................... 67
Excess Receivables Amount............................................................................ 67
Exchange Act......................................................................................... 3
Existing Receivables................................................................................. 5, 55
FDIC................................................................................................. 62
Finance Charge Account............................................................................... 63
Finance Charge Receivables........................................................................... 12
Financed Premium Percentage.......................................................................... 81
Future Receivables................................................................................... 5, 55
Holders.............................................................................................. 51
Holders of Offered Certificates...................................................................... 7
Indirect Participants................................................................................ 48
Ineligible Receivable................................................................................ 59
Initial Closing Date................................................................................. 36
Interest Period...................................................................................... 15
Investor Exchange.................................................................................... 23, 56
Investor Percentage.................................................................................. 65
Letter Agreements.................................................................................... 85
LIBOR................................................................................................ 2, 10
LIBOR Determination Date............................................................................. 52
Loan Portfolio....................................................................................... 42
Loans................................................................................................ 1, 5
Minimum Transferor Ownership Interest................................................................ 67
Monthly Certificateholders Statement................................................................. 86
Monthly Payment Rate................................................................................. 81
Monthly Period....................................................................................... 9
Moody's.............................................................................................. 26, 62
Moody's Non-Investment Grade Insurer................................................................. 68
New Regulations...................................................................................... 92
New Series Issuance.................................................................................. 23, 56
Obligor.............................................................................................. 28
Obligors............................................................................................. 5, 38
Offered Certificates................................................................................. 1, 4
OID.................................................................................................. 91
Original Agreement................................................................................... 4
Original Series 1994-1 Supplement.................................................................... 4
Original Transferors................................................................................. 1
Originator........................................................................................... 60
Participants......................................................................................... 48
Pay Out Event........................................................................................ 79
Paying Agent......................................................................................... 51
Permitted Investments................................................................................ 62
Pool Factor.......................................................................................... 86
Principal Account.................................................................................... 63
</TABLE>
97
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Principal Receivables................................................................................ 12
Principal Shortfalls................................................................................. 69
Principal Terms...................................................................................... 57
Prior Period Interest................................................................................ 14
Purchased Loans...................................................................................... 40
Qualified Institution................................................................................ 62
Rating Agencies...................................................................................... 33
Rating Agency........................................................................................ 33
Receivables.......................................................................................... 1, 6, 42
Receivables Sale Agreement........................................................................... 5
Record Date.......................................................................................... 47
Reference Banks...................................................................................... 53
Regulations.......................................................................................... 88
Removal Date......................................................................................... 61
Removed Receivables.................................................................................. 13, 61
S&P Non-AAA Insurer.................................................................................. 68
S&P Non-Investment Grade Insurer..................................................................... 68
Securities Act....................................................................................... 3
Series............................................................................................... 22
Series 1994-1 Certificateholders..................................................................... 7
Series 1994-1 Certificates........................................................................... 1, 4
Series 1994-1 Class A Certificates................................................................... 36
Series 1994-1 Class B Certificates................................................................... 36
Series 1994-1 Class C Certificates................................................................... 12
Series 1994-1 Offered Certificates................................................................... 12
Series 1998-1 91 Day Delinquency Amount.............................................................. 66
Series 1998-1 Annualized Monthly Excess Spread Amount................................................ 80
Series 1998-1 Available Investor Principal Collections............................................... 54
Series 1998-1 Available Yield Enhancement Amount..................................................... 64
Series 1998-1 Certificateholders..................................................................... 7
Series 1998-1 Certificateholders Ownership Interests................................................. 72
Series 1998-1 Certificates........................................................................... 2, 4
Series 1998-1 Class A Additional Interest............................................................ 52
Series 1998-1 Class A Available Funds................................................................ 52
Series 1998-1 Class A Certificate Rate............................................................... 2, 9, 52
Series 1998-1 Class A Certificateholders............................................................. 7
Series 1998-1 Class A Certificates................................................................... 1, 4
Series 1998-1 Class A Charge-Off..................................................................... 21, 70
Series 1998-1 Class A Controlled Amortization Period................................................. 16
Series 1998-1 Class A Default Amount................................................................. 70
Series 1998-1 Class A Floating Allocation............................................................ 72
Series 1998-1 Class A Initial Ownership Interest..................................................... 72
Series 1998-1 Class A Monthly Interest............................................................... 76
Series 1998-1 Class A Monthly Principal.............................................................. 77
Series 1998-1 Class A Ownership Interest............................................................. 72
</TABLE>
98
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Series 1998-1 Class A Prior Period Interest.......................................................... 76
Series 1998-1 Class A Required Amount................................................................ 73
Series 1998-1 Class A Servicing Fee.................................................................. 81
Series 1998-1 Class B Additional Interest............................................................ 52
Series 1998-1 Class B Available Funds................................................................ 52
Series 1998-1 Class B Certificate Rate............................................................... 2, 10, 52
Series 1998-1 Class B Certificateholders............................................................. 7
Series 1998-1 Class B Certificates................................................................... 1, 4
Series 1998-1 Class B Charge-Off..................................................................... 20, 71
Series 1998-1 Class B Controlled Amortization Period................................................. 16
Series 1998-1 Class B Default Amount................................................................. 70
Series 1998-1 Class B Floating Allocation............................................................ 72
Series 1998-1 Class B Initial Ownership Interest..................................................... 73
Series 1998-1 Class B Monthly Interest............................................................... 76
Series 1998-1 Class B Monthly Principal.............................................................. 77
Series 1998-1 Class B Ownership Interest............................................................. 73
Series 1998-1 Class B Principal Commencement Date.................................................... 17
Series 1998-1 Class B Prior Period Interest.......................................................... 77
Series 1998-1 Class B Required Amount................................................................ 74
Series 1998-1 Class B Servicing Fee.................................................................. 81
Series 1998-1 Class C Additional Interest............................................................ 52
Series 1998-1 Class C Available Funds................................................................ 77
Series 1998-1 Class C Certificateholders............................................................. 7
Series 1998-1 Class C Certificates................................................................... 2, 4
Series 1998-1 Class C Charge-Off..................................................................... 71
Series 1998-1 Class C Controlled Amortization Period................................................. 16
Series 1998-1 Class C Default Amount................................................................. 70
Series 1998-1 Class C Floating Allocation............................................................ 72
Series 1998-1 Class C Initial Ownership Interest..................................................... 73
Series 1998-1 Class C Monthly Interest............................................................... 76
Series 1998-1 Class C Monthly Principal.............................................................. 78
Series 1998-1 Class C Ownership Interest............................................................. 73
Series 1998-1 Class C Principal Commencement Date.................................................... 17
Series 1998-1 Class C Prior Period Interest.......................................................... 77
Series 1998-1 Class C Required Amount................................................................ 74
Series 1998-1 Class C Servicing Fee.................................................................. 81
Series 1998-1 Controlled Amortization Amount......................................................... 54
Series 1998-1 Controlled Amortization Period......................................................... 16
Series 1998-1 Controlled Distribution Amount......................................................... 54
Series 1998-1 Deficit Controlled Amortization Amount................................................. 54
Series 1998-1 Distribution Account................................................................... 63
Series 1998-1 Excess Finance Charges................................................................. 64
Series 1998-1 Fixed Investor Percentage.............................................................. 72
Series 1998-1 Floating Investor Percentage........................................................... 71
Series 1998-1 Initial Certificateholders Ownership Interests......................................... 78
</TABLE>
99
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Series 1998-1 Investor Default Amount................................................................ 69
Series 1998-1 Investor Servicing Fee................................................................. 81
Series 1998-1 Maximum Yield Enhancement Amount....................................................... 64
Series 1998-1 Net Servicing Fee Rate................................................................. 81
Series 1998-1 Rapid Amortization Period.............................................................. 18
Series 1998-1 Reallocated Class A Principal Collections.............................................. 75
Series 1998-1 Reallocated Class B Principal Collections.............................................. 75
Series 1998-1 Reallocated Class C Principal Collections.............................................. 75
Series 1998-1 Reallocated Principal Collections...................................................... 75
Series 1998-1 Revolving Period....................................................................... 16
Series 1998-1 Termination Date....................................................................... 12, 78
Series 1998-1 Yield Enhancement Account.............................................................. 19, 64
Service.............................................................................................. 88
Service Transfer..................................................................................... 85
Servicer............................................................................................. 1, 13
Servicer Default..................................................................................... 85
Servicing Fee........................................................................................ 13
Shared Principal Collections......................................................................... 25, 69
Standard & Poor's.................................................................................... 26, 62
Supplement........................................................................................... 22
Support Agreements................................................................................... 84
Terms and Conditions................................................................................. 50
Third Party Originators.............................................................................. 40
Transfer Agent and Registrar......................................................................... 51
Transferor........................................................................................... 1
Transferor Certificate............................................................................... 22, 56
Transferor Ownership Interest........................................................................ 2
Transferor Ownership Interest Reduction.............................................................. 23, 56
Trust................................................................................................ 1
Trustee.............................................................................................. 1, 26
U.S. Certificateholder............................................................................... 89
Underwriters......................................................................................... 94
Underwriting Agreement............................................................................... 94
</TABLE>
100
<PAGE>
[This page intentionally left blank]
<PAGE>
------------------------------------------------------------
------------------------------------------------------------
No dealer, salesman or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus in connection with the offer made by this Prospectus and, if given or
made, such information or representations must not be relied upon as having been
authorized by A.I. Receivables Corp., the Trust or the Underwriters. Neither the
delivery of this Prospectus nor any sale made hereunder shall under any
circumstances create an implication that there has been no change in the
affairs of A.I. Receivables Corp. or the Servicer or any affiliate thereof or
the Receivables since the date hereof. This Prospectus does not constitute an
offer or solicitation by anyone in any state in which such offer or solicitation
is not authorized or in which the person making such offer or solicitation is
not authorized or in which the person making such offer or solicitation is not
qualified to do so or to anyone to whom it is unlawful to make such offer or
solicitation.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Reports to Holders of Offered Certificates........... 3
Available Information................................ 3
Prospectus Summary................................... 4
Risk Factors......................................... 28
Maturity Considerations.............................. 33
The Trust............................................ 35
Business of A.I. Receivables Corp., A.I. Credit Corp.
and AICCO, Inc..................................... 38
The Receivables...................................... 42
Use of Proceeds...................................... 47
Description of the Offered Certificates.............. 47
United States Federal Income Tax Consequences........ 88
Certain State and Local Tax Consequences............. 93
Underwriting......................................... 94
Validity of the Certificates......................... 95
Index of Key Terms................................... 96
</TABLE>
Until July 8, 1998 (ninety days after the date of this Prospectus), all
dealers effecting transactions in the Offered Certificates, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
------------------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
$206,300,000
AIC PREMIUM FINANCE LOAN
MASTER TRUST
$200,000,000
Series 1998-1 Floating Rate Class A
Asset Backed Certificates
$6,300,000
Series 1998-1 Floating Rate Class B
Asset Backed Certificates
A.I. RECEIVABLES CORP.
TRANSFEROR
----------------------
PROSPECTUS
----------------------
Goldman, Sachs & Co.
DATED APRIL 8, 1998
------------------------------------------------------------
------------------------------------------------------------
