<PAGE>
As filed with the Securities and Exchange Commission on December 6, 1995
================================================================================
Registration No. 33-10125
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
POST-EFFECTIVE
AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
ASSET BACKED SECURITIES CORPORATION
(Exact name of Registrant as specified in its charter)
on behalf of itself and trusts with respect to which it is the settlor or
depositor
Delaware Park Avenue Plaza 13-3354848
(State or other jurisdiction of 55 East 52nd Street (I.R.S. Employer
incorporation or organization) New York, New York 10055 Identification No.)
(212) 909-2000
(Address, including zip code, and telephone number, including area code,
of Registrant's principal executive offices)
Gina Hubbell
Director and Vice President
Asset Backed Securities Corporation
Park Avenue Plaza
55 East 52nd Street
New York, New York 10055
(212) 909-2000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------
Copy to:
Michael H. Yanowitch
Sidley & Austin
875 Third Avenue
New York, New York 10022
---------------
Approximate date of commencement of proposed sale to the public: From time
to time after this Registration Statement becomes effective.
---------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [_]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_] ________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_] ________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
This document is a copy of the Post-Effective Amendment No. 2 to Registration
Statement No. 33-10125 filed on December 6, 1995 pursuant to a continuing
hardship exemption under Rule 202(d) of Regulation S-T.
<PAGE>
EXPLANATORY NOTE
This Amendment contains three separate base prospectuses for the
securitization of different types of underlying assets as follows: (i) motor
vehicle installment sale contracts and installment loan agreements (the "Auto
Loan Prospectus"), (ii) mortgage loans, manufactured housing installment sale
contracts and installment loan agreements (the "Mortgage Prospectus"), and (iii)
credit card, charge card and other consumer debt receivables (the "Credit Card
Prospectus"), in each case including previously issued securities backed by such
underlying assets. With respect to the Auto Loan Prospectus, four forms of
prospectus supplement have been included. With respect to the Mortgage
Prospectus, seven forms of prospectus supplement have been included. With
respect to the Credit Card Prospectus, three forms of prospectus supplement have
been included. The forms of prospectus supplement included in this Amendment are
illustrative of particular structures of terms of securities that may be offered
under this Registration Statement and are not intended to limit the structures
of terms of securities that may be offered hereunder.
Please note that the full text of this Amendment is contained in two volumes.
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus supplement and the accompanying prospectus shall
not constitute an offer to sell or the solicitation of an offer to buy, nor
shall there be any sale of these securities in any State in which such offer,
solicitation or sale would be unlawful prior to registration or qualification
under the securities laws of any such State.
Subject to Completion
Prospectus Supplement to Prospectus Dated _________________, 199_
$
CS First Boston Auto Receivables Trust 199_-___
$ % Asset Backed Notes, Class A-1
$ % Asset Backed Notes, Class A-2
$ % Asset Backed Certificates
________________
Asset Backed Securities Corporation
Company
________________
CS First Boston Auto Receivables Trust 199_ - __ (the "Trust") will be formed
pursuant to a trust agreement (the"Trust Agreement") dated as of _________, 199_
(the "Cutoff Date"), between Asset Backed Securities Corporation (the
"Company"), as depositor, and _________ (the "Owner Trustee"), as owner trustee.
The Trust will issue $_________ aggregate principal amount of __________% Asset
Backed Notes, Class A-1 (the "Class A-1 Notes") and $_______________ aggregate
principal amount of _____% Asset Backed Notes, Class A-2 (the "Class A-2 Notes"
and, with the Class A-1 Notes, the "Notes") pursuant to an indenture (the
"Indenture"), dated as of the Cutoff Date, between the Trust and __________,
(the "Indenture Trustee") as indenture trustee. The Trust also will issue
$______________ aggregate principal amount of_____________% Asset Backed
Certificates (the "Certificates").
---------------
(Continued on following page)
THE NOTES REPRESENT OBLIGATIONS OF, AND THE CERTIFICATES REPRESENT BENEFICIAL
INTERESTS IN, THE TRUST ONLY AND DO NOT REPRESENT OBLIGATIONS OF, OR INTERESTS
IN, CS FIRST BOSTON CORPORATION, THE COMPANY, THE SERVICER, THE SELLER, OR ANY
OF THEIR RESPECTIVE AFFILIATES. NONE OF THE NOTES, THE CERTIFICATES OR THE
RECEIVABLES ARE INSURED OR GUARANTEED BY CS FIRST BOSTON CORPORATION, THE
COMPANY, THE SERVICER, THE SELLER, ANY OF THEIR RESPECTIVE AFFILIATES OR ANY
GOVERNMENTAL AGENCY.
________________
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 SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
________________
PROSPECTIVE INVESTORS SHOULD CONSIDER THE FACTORS SET FORTH UNDER RISK FACTORS
ON PAGE S-10 OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 10 OF THE ACCOMPANYING
PROSPECTUS.
________________
<TABLE>
<CAPTION>
Price to the Underwriting Proceeds to the
Public(1) Discount Company(1)(2)
---------------------------------------------
<S> <C> <C> <C>
Per Class A-1 Note...................... % % %
Per Class A-2 Note...................... % % %
Per Certificate......................... % % %
Total $ $ $
</TABLE>
(1) Plus accrued interest, if any, from ______________, 199_.
(2) Before deducting expenses, estimated to be $____________.
________________
The Notes and the Certificates are offered subject to prior sale and subject
to the right of CS First Boston Corporation (the "Underwriter") to reject
orders in whole or in part. It is expected that delivery of the Notes and the
Certificates will be made through the Same Day Funds System of the Depository
Trust Company on or about _______, 199_.
[LOGO] CS First Boston
The date of this Prospectus Supplement is __________, 199_.
<PAGE>
(Continued from preceding page)
The assets of the Trust will consist primarily of a pool of motor vehicle
installment loan agreements and motor vehicle retail installment sale contracts
(collectively, the "Receivables") secured by new or used automobiles,vans and
light duty trucks, certain monies due or received thereunder on and after the
Cutoff Date, security interests in the vehicles financed thereby, and certain
other property, as described herein. The Receivables will be transferred to the
Trust by the Company pursuant to the Trust Agreement. The Company will purchase
the Receivables from ________ (in such capacity, the "Seller") pursuant to a
receivables purchase agreement (the "Receivables Purchase Agreement"), dated as
of _________,199_ . The Notes will be secured by the assets of the Trust
pursuant to the Indenture. The Trust may also draw on funds on deposit in a
Reserve Account, to the extent described herein, to meet shortfalls in amounts
due to Securityholders on any Distribution Date. The Reserve Account will not be
part of the Trust.
Interest on each class of Notes will accrue at the fixed per annum rates
specified above and generally will be payable on the __ day of each month,
commencing _______, 199_ (each, a "Distribution Date"). Principal of the Notes
will be payable on each Distribution Date to the extent described herein;
however, no principal will be paid on the Class A-2 Notes until the Class A-1
Notes have been paid in full. The Certificates represent fractional undivided
interests in the Trust. Interest on the Certificates will accrue at the fixed
per annum rates specified above and generally will be payable on each
Distribution Date. No distributions of principal will be made on the
Certificates until all of the Notes have been paid in full. To the extent not
previously paid, the Class A-1 Notes will be payable in full on _______, 199_,
the Class A-2 Notes will be payable in full on ________, 199_, and the
Certificates will be payable in full on ________,199_.
____________________
THIS PROSPECTUS SUPPLEMENT DOES NOT CONTAIN COMPLETE INFORMATION ABOUT THE
OFFERING OF THE NOTES AND THE CERTIFICATES. ADDITIONAL INFORMATION IS CONTAINED
IN THE PROSPECTUS, AND PROSPECTIVE INVESTORS ARE URGED TO READ BOTH THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS IN FULL. SALES OF THE NOTES OR THE
CERTIFICATES MAY NOT BE CONSUMMATED UNLESS THE PURCHASER HAS RECEIVED BOTH THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS. TO THE EXTENT ANY STATEMENTS IN THIS
PROSPECTUS SUPPLEMENT CONFLICT WITH STATEMENTS IN THE PROSPECTUS, THE STATEMENTS
IN THIS PROS-PECTUS SUPPLEMENT SHALL CONTROL.
IN CONNECTION WITH THIS OFFERING THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES AND THE
CERTIFICATES AT LEVELS ABOVE THOSE WHICH MIGHT OTHER-WISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
_____________________
S-2
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AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission
(the "Commission"), on behalf of the Trust, a Registration Statement on Form
S-3 (together with all amendments and exhibits thereto, the "Registration
Statement") of which this Prospectus Supplement is a part under the Securities
Act of 1933, as amended. This Prospectus Supplement does not contain all of
the information set forth in the Registration Statement, certain parts of which
have been omitted in accordance with the rules and regulations of the
Commission. For further information, reference is made to the Registration
Statement which is available for inspection without charge at the public
reference facilities of the Commission at Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and the regional offices of the Commission at
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661,
and Seven World Trade Center, Suite 1300, New York, New York 10048. Copies of
such information can be obtained from the Public Reference Section of the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549,
at prescribed rates. The Servicer, on behalf of the Trust, will also file or
cause to be filed with the Commission such periodic reports as are required
under the Securities Exchange Act of 1934, as amended, and the rules and
regulations of the Commission thereunder.
REPORTS TO SECURITYHOLDERS
Unless and until Definitive Notes or Definitive Certificates are
issued, monthly and annual unaudited reports containing information concerning
the Receivables will be prepared by the Servicer and sent on behalf of the
Trust only to Cede & Co., as nominee of The Depository Trust Company and
registered holder of the Notes and the Certificates. See "Certain Information
Regarding the Securities - Book-Entry Registration" and "-Statements to
Securityholders" in the accompanying Prospectus (the "Prospectus").
S-3
<PAGE>
SUMMARY OF TERMS
The following summary is qualified in its entirety by reference to the detailed
information appearing elsewhere herein and in the Prospectus. Certain
capitalized terms used herein are defined elsewhere in this Prospectus
Supplement on the pages indicated in the "Index of Terms" or, to the extent not
defined herein, have the meanings assigned to such terms in the Prospectus.
Issuer.............. CS First Boston Auto Receivables Trust 199_-___, a trust
(the "Trust") to be formed pursuant to a trust agreement
(the "Trust Agreement") dated as of ___________, 199_
(the "Cutoff Date"), between the Company and the Owner
Trustee.
Company............. The Company is a special-purpose Delaware corporation
organized for the purpose of causing the issuance of the
Securities and other securities issued under the
Registration Statement backed by receivables or
underlying securities of various types and acting as
settlor or depositor with respect to trusts, custody
accounts or similar arrangements or as general or limited
partner in partnerships formed to issue securities. It is
not expected that the Company will have any significant
assets. The Company is an indirect, wholly owned finance
subsidiary of Collateralized Mortgage Securities
Corporation which is a wholly owned subsidiary of CS
First Boston Securities Corporation, which is a wholly
owned subsidiary of CS First Boston, Inc. Neither CS
First Boston Securities Corporation nor CS First Boston,
Inc. nor any of their affiliates has guaranteed, will
guarantee or is or will be otherwise obligated with
respect to any Series of Securities.
The Company's principal executive office is located at
Park Avenue Plaza, 55 East 52nd Street, New York, New
York 10055, and its telephone number is (212) 909-2000.
Seller.............. _______ (in such capacity, "the Seller"). See "The Seller
and the Servicer" herein.
Servicer............ _______ (in such capacity, the "Servicer") as servicer
under the servicing agreement (the "Servicing Agreement")
dated as of the Cutoff Date, between the Servicer and the
Issuer. See "The Seller and the Servic er" herein.
Indenture Trustee... ____________________, as trustee under the Indenture
(the "Indenture Trustee").
Owner Trustee....... ____________________, as trustee under the Trust
Agreement (the "Owner Trustee") .
The Notes........... The Trust will issue $______ aggregate principal amount
of ___% Asset Backed Notes, Class A-1 (the "Class A-1
Notes") and $______ aggregate principal amount of ___%
Asset Backed Notes, Class A-2 (the "Class A-2 Notes" and,
with the Class A-1 Notes, the "Notes") on ___, 199_ (the
"Closing Date") pursuant to an indenture (the
"Indenture") dated as of the Cutoff Date between the
Issuer and the Indenture Trustee.
Under the terms of the Indenture, the Notes will be
secured by the assets of the Trust.
S-4
<PAGE>
The Certificates.... The Trust will issue $____ aggregate principal amount of
___% Asset Backed Certificates (the "Certificates" and,
with the Notes, the "Securities") on the Closing Date.
The Certificates represent fractional undivided interests
in the Trust and will be issued pursuant to the Trust
Agreement.
The Receivables..... On the Closing Date, the Company will convey the
Receivables to the Trust in an aggregate principal
balance of approximately $_______________ as of the
Cutoff Date, pursuant to the Trust Agreement. See "The
Transfer and Servicing Agreements - Sale and Assignment
of Receivables" and "The Receivables Pool" herein and
"The Receivables Pools" in the Prospectus.
On or before the Closing Date, the Company will purchase
the Receivables from the Seller pursuant to a receivables
purchase agreement (the "Receivables Purchase
Agreement"), dated as of ____________,199_. See "The
Transfer and Servicing Agreements--the Receivables
Purchase Agreement" herein.
The Receivables arise from motor vehicle installment
contracts (each, a "Contract") originated or purchased by
the Seller in the ordinary course of business. The
Receivables have been selected from Contracts owned by
the Seller based on the criteria specified in the
Receivables Purchase Agreement and described herein under
"The Receivables Pool". Approximately __% of the
Receivables were originated in ____________ and
approximately __% of the Receivables were originated in
__________. As of the Cutoff Date, the weighted average
APR of the Receivables was approximately ____ months, the
weighted average remaining term to maturity of the
Receivables was approximately ____ months and the
weighted average original term to maturity of the
Receivables was approximately ____ months. No Receivable
has a scheduled maturity later than ______________ (the
"Final Scheduled Maturity Date").
Pursuant to the terms of the Trust Agreement, the Company
will assign the representations and warranties made by
the Seller to the Owner Trustee for the benefit of
holders of the Certificates and will make certain limited
representations and warranties with respect to the
Receivables. Pursuant to the terms of the Receivables
Purchase Agreement, the Seller will make certain
representations and warranties regarding the
characteristics of the Receivables and will undertake to
repurchase any Receivable with respect to which an
uncured breach of any representation or warranty exists,
if such breach materially and adversely affects the
interests of the Owner Trustee and the Certificateholders
in such Receivable and if such breach is not cured by the
Seller in a timely manner. To the extent that the Seller
does not repurchase a Receivable in the event of a breach
of its representations and warranties with respect to
such Receivable, the Company will not be required to
repurchase such Receivable unless such breach also
constitutes a breach of one of the Company's
representations and warranties with respect to such
Receivable and such breach materially and adversely
affects the interests of the Certificateholders in any
such Receivable. See "The Transfer and Servicing
Agreements" herein. Neither the Seller nor the Company
will have any other obligation with respect to the
Receivables or the Certificates .
Trust Property...... The assets of the Trust (the "Trust Property") include
(i) the Receivables, (ii) all monies (including accrued
interest) received on or with respect to the Receivables
on or after the Cutoff Date, (iii) all amounts and
property from time to time held in or credited to the
Collection Account, (iv) security interests in the
Financed Vehicles and any accessions thereto, (v) the
right to receive proceeds from claims on physical damage,
credit life and disability insurance policies covering
Financed Vehicles or Obligors, as the case may be, (vi)
any property that shall have secured
S-5
<PAGE>
a Receivable and that shall have been acquired by or on
behalf of the Trustee, (vii) all of the Seller's right to
all documents contained in the files pertaining to the
Receivables, (viii) the right to draw on funds on deposit
in the Reserve Account, to the extent described herein,
to meet shortfalls in amounts due to Certificateholders,
and (ix) any and all proceeds of the foregoing. The
Reserve Account will not be property of the Trust. See
"The Certificates-Distribution, and "The Trust".
Terms of the Notes
A. Distribution
Dates........ Payments of interest and principal on the Notes will be
made on the ___ day of each month or, if any such day is
not a Business Day, on the next succeeding Business Day
(each, a "Distribution Date") commencing ____________,
199_. Payments will be made to holders of record of the
Notes (the "Noteholders") as of the day immediately
preceding such Distribution Date (each, a "Record Date").
A "Business Day" is a day other than a Saturday, a Sunday
or day on which banking institutions or trust companies
in The City of New York or the city in which the
corporate trust office of the Indenture Trustee is
located are authorized by law, regulation or executive
order to be closed.
B. Interest Rates Interest will accrue on the Class A-1 Notes at a per
annum rate of ____% (the "Class A-1 Rate") and on the
Class A-2 Notes at a per annum rate of ____% (the "Class
A-2 Rate"), in each case, calculated on the basis of a
360-day year consisting of twelve 30-day months. The
Class A-1 Rate and the Class A-2 rate are sometimes
referred to herein collectively as the "Interest Rates".
C. Interest..... Interest on the outstanding principal amount of the Class
A-1 Notes and the Class A-2 Notes in respect of any
Distribution Date will accrue at the Class A-1 Rate and
the Class A-2 Rate, respectively, from and including the
most recent Distribution Date on which interest payments
were distributed to Noteholders (or, in the case of the
first Distribution Date, from and including the Closing
Date) to but excluding such Distribution Date. Interest
will be paid to the Noteholders on each Distribution
Date, to the extent of the Total Distribution Amount (as
defined herein) after payment of the Servicing Fee and
from the Reserve Account. See "The Notes - Payments of
Interest" herein.
D. Principal... Principal of the Class A-1 Notes will be payable on each
Distribution Date in an amount equal to the Total
Distribution Amount remaining following payment of the
Servicing Fees and the Noteholders' Interest
Distributable Amount (as defined herein) on such date. On
each Distribution date from and including the
Distribution Date on which the Class A-1 Notes are paid
in full, principal of the Class A-2 Notes will be payable
on each Distribution Date in an amount equal to the Total
Distribution Amount remaining following payment of the
Servicing Fee, the Noteholders' Interest Distributable
Amount and, on the Distribution Date on which the Class
A-1 Notes are paid in full, any amount distributed as
principal to holders of the Class A-1 Notes. No principal
payment will be made on the Class A-2 Notes until the
Class A-1 have been paid in full.
The outstanding principal amount, if any, of the Class
A-1 Notes will be payable in full on ____________, 199_
(the "Class A-1 Final Scheduled Payment Date") and the
outstanding principal amount, if any, of the Class A-2
Notes will be payable in full on ____________, 199_ (the
"Class A-2 Final Scheduled Payment Date").
See "The Notes - Payments of Principal" herein.
S-6
<PAGE>
E. Optional
Redemption.... The Class A-2 Notes may be redeemed in whole, but not in
part, on a Distribution Date on which the Servicer
exercises its option to purchase the Receivables. Under
the terms of the Servicing Agreement, the Servicer may
purchase the Receivables when the aggregate principal
balance of the Receivables (the "Pool Balance") has been
reduced to 10% or less of the initial Pool Balance. The
redemption price for the Class A-2 Notes will equal the
unpaid principal amount of the Class A-2 Notes plus
accrued interest at the Class A-2 Rate.
Terms of the Certificates
A. Distribution
Dates......... Distributions with respect to the Certificates will be
made on each Distribution Date to holders of record of
the Certificates (the "Certificateholders", and, together
with the Noteholders, the "Securityholders") as of the
related Record Date.
B. Pass-Through
Rate.......... Interest will accrue on the Certificates at a per annum
rate of ___% (the "Certificate Pass-Through Rate"),
calculated on the basis of a 360-day year consisting of
twelve 30-day months.
C. Interest...... On each Distribution Date, the Owner Trustee will
distribute pro rata to Certificateholders accrued
interest at the Certificate Pass-Through Rate on the
Certificate Balance as of the preceding Distribution Date
(after giving effect to distributions made on such
Distribution Date) generally to the extent of funds
available following payment of the Servicing Fee and the
Noteholders' Distributable Amount (as defined herein)
from the Total Distribution Amount and the Reserve
Account. Interest on the Certificates in respect of any
Distribution Date will accrue from the most recent
Distribution Date (or, in the case of the first
Distribution Date, the Closing Date) to but excluding
such Distribution Date. See "The Certificates -
Distributions of Interest" herein.
D. Principal .... On each Distribution Date on and after the date on which
the Class A-2 Notes are paid in full, principal of the
Certificates will be payable in an amount generally equal
to the Total Distribution Amount remaining after payment
of the Servicing Fee, the Noteholders' Distributable
Amount (on the Distribution Date on which the outstanding
principal amount of the Class A-2 Notes is reduced to
zero) and the Certificateholders' Interest Distributable
Amount.
The outstanding principal amount, if any, of the
Certificates will be payable full on ____________, 199_
(the "Final Scheduled Distrib ution Date").
See "The Certificates - Distributions of Principal" and
"Description of the Transfer and Servicing Agreements -
Distributions" here in.
E. Optional
Prepayment.... If the Servicer exercises its option to purchase the
Receivables, which it may do when the Pool Balance is 10%
or less of the initial Pool Balance, the
Certificateholders will receive an amount in respect of
the Certificates equal to the Certificate Balance plus
accrued interest at the Certificate Pass-Through Rate,
and the Certificates will be retired. See "The
Certificates- Optional Prepayment" and "The Notes -
Optional Redemption" herein .
Reserve Account...... The Reserve Account will be created with an initial
deposit by the Company on the Closing Date of cash or
Eligible Investments having a value of at least $________
(the "Reserve Account Initial Deposit"). Funds will be
withdrawn from the Reserve Account on any Distribution
Date if, and to the extent that, the Total
S-7
<PAGE>
Distribution Amount for the related Collection Period
remaining after payment of the Servicing Fee is less than
the Noteholders' Distributable Amount and will be
deposited in the Note Distribution Account for
distribution to the Noteholders. In addition, funds will
be withdrawn from the Reserve Account to the extent that
the portion of the Total Distribution Amount remaining
after payment of the Servicing Fee and the Noteholders'
Distributable Amount is less than the Certificateholders'
Distributable Amount and will be deposited in the
Certificate Distribution Account for distribution to the
Certificateholders.
Funds in any Reserve Account may be invested in
securities that will not mature prior to the date of such
next scheduled distribution with respect to the
Certificates and will not be sold prior to maturity to
meet any shortfalls. Thus, the amount of available funds
on deposit in the Reserve Account at any time may be less
than the balance of the Reserve Account. If the amount
required to be withdrawn from the Reserve Account to
cover shortfalls in collections on the related
Receivables exceeds the amount of available funds on
deposit in the Reserve Account, a temporary shortfall in
the amounts distributed to the Certificateholders could
result.
On each Distribution Date, the amount available in the
Reserve Account will be reinstated up to the Specified
Reserve Account Balance by the deposit thereto of the
amount, if any, remaining in the Collection Account after
payment on such date of the Servicing Fee, the
Noteholders' Distributable Amount and the
Certificateholders' Distributable Account. The "Specified
Reserve Account Balance" with respect to any Distribution
Date generally will be equal to [state formula]. Certain
amounts in the Reserve Account on any Distribution Date
(after giving effect to all distributions to be made on
such Distribution Date) in excess of the Specified
Reserve Account Balance for such Distribution Date will
be released to the Company and will no longer be
available to the Securityholders.
The Reserve Account will be maintained with the Indenture
Trustee as a segregated trust account, but will not be
part of the Trust. See "The Transfer and Servicing
Agreements - Reserve Account" herein.
Collection Account.. Except under certain conditions described in the
Prospectus under "Description of the Transfer and
Servicing Agreements - Collections," the Servicer will be
required to remit collections received with respect to
the Receivables within two Business Days of receipt
thereof to one or more accounts in the name of the
Indenture Trustee (the "Collection Account"). Pursuant to
the Indenture, the Indenture Trustee will withdraw funds
on deposit in the Collection Account and apply such funds
on each Distribution Date to the following (in the
priority indicated): (i) the Servicing Fee for the
related Collection Period and any overdue Servicing Fees
to the Servicer, (ii) the Noteholders' Interest
Distributable Amount and the Noteholders' Principal
Distributable Amount to the Note Distribution Account,
(iii) the Certificateholders' Interest Distributable
Amount and, after the Class A-2 Notes have been paid in
full, the Certificates' Principal Distributable Amount to
the Certificate Distribution Account, and (iv) the
remaining balance, if any, to the Reserve Account. See
"The Transfer and Servicing Agreements - Distributions"
and" - Reserve Account" herein.
Advances............ If a shortfall should occur in any Collection Period
between the amount due as interest on the Receivables
during such Collection Period (assuming the Receivables
were paid on their respective scheduled payment dates)
and the amount actually received in respect of the
Receivables during such Collection Period and allocable
to interest, the Servicer will advance an amount equal to
such shortfall (an "Advance"). The Servicer will be
reimbursed for Advances (i) from
S-8
<PAGE>
collections and other amounts received on the Receivables
with respect to which such Advances were made; (ii) from
collections and other amounts received in respect of
other Receivables; or (iii) by reducing the Repurchase
Amount (as defined herein) due from the Servicer by the
amount of any unreimbursed Advances. The Servicer may
elect not to make an Advance with respect to any
Receivable to the extent that the Servicer determines, in
its sole discretion, that it is unlikely to be able to
recover such Advances from future collections and other
payments in respect of the Receivables. See "The Transfer
and Servicing Agreements-Advances" herein.
Certain Legal
Aspects........... The Seller shall repurchase certain Receivables with
respect to which any prior security interest in such
Receivable is found to exist, any laws have been
violated, or the Seller's security interest in the
respective Financed Vehicle has not been properly
assigned to the Trustee. The Trustee's security interest
in the Financed Vehicle may be not be properly assigned
in the event of (i) the relocation or resale of the
Financed Vehicle in another state without the Servicer's
re-perfecting the Trustee's security interest, (ii) the
imposition certain tax or possessory liens, or (iii)
fraud or negligence. In addition, certain consumer
protection laws allow an Obligor (as defined herein)
under a Receivable to assert certain claims and defenses
against a holder of the Receivable thus possibly
rendering a Receivable partly or wholly uncollectible.
See "Risk Factors - Security Interests in the Financed
Vehicles" herein and "Risk Factors - Certain Legal
Aspects - Security Interests in Financed Vehicles" and
"Certain Legal Aspects of the Receivables" in the
Prospectus.
Tax Status.......... In the opinion of Sidley & Austin ("Federal Tax
Counsel"), the Trust will not be an association (or
publicly traded partnership) taxable as a corporation for
federal income tax purposes. The Trust will agree, and
the owners of beneficial interests in the Notes will
agree by their purchase of Notes, to treat the Notes as
debt for federal tax purposes. Federal Tax Counsel has
advised the Trust that the Notes will be classified as
debt for federal income tax purposes. The Trust will also
agree, and the related owners of beneficial interests in
the Certificates ("Certificate Owners") will agree by
their purchase of Certificates, to treat the Trust as a
partnership for purposes of federal and state income tax,
franchise tax and any other tax measured in whole or in
part by income, with the assets of the partnership being
the assets held by the Trust, the partners of the
partnership being the Certificate Owners (including, to
the extent relevant, the Seller in its capacity as
recipient of distributions from any Reserve Fund), and
the Notes being debt of the partnership. See "Certain
Federal Income Tax Consequences" in the Prospectus for
additional information concerning the application of
federal income tax laws to the Trust and the Securities.
ERISA Considerations. Subject to the considerations discussed under "ERISA
Considerations" herein and in the Prospectus, the Notes
are eligible for purchase by employee benefit plans. The
Certificates may not be acquired by employee benefit
plans subject to the Employee Retirement Income Security
Act of 1974, as amended, or by "plans" as defined in
Section 4975 of the Internal Revenue Code of 1986, as
amended. See "ERISA Considerations" herein and in the
Prospectus.
Ratings of the
Securities........ It is a condition to the issuance of the Notes and
Certificates that the Class A-1 Notes be rated at least
"______", the Class A-2 Notes be rated at least "_______"
and the Certificates be rated at least "__________" or
its equivalent, in each case by at least two nationally
recognized rating agencies.
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<PAGE>
A rating is not a recommendation to purchase, hold or
sell the Notes or Certificates, inasmuch as such rating
does not comment as to market price or suitability for a
particular investor. A rating addresses the likelihood
that principal of and interest on a particular class of
Notes or the Certificates, as applicable, will be paid
pursuant to its terms. There can be no assurance that a
rating will not be lowered or withdrawn by a rating
agency if circumstances so warrant. See "Risk Factors -
Ratings of the Securities" herein.
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<PAGE>
RISK FACTORS
In addition to the other information contained in this Prospectus
Supplement and the Prospectus, prospective investors should carefully consider
the following risk factors before investing in the Securities.
Limited Liquidity. There is currently no secondary market for the
Securities. CS First Boston Corporation (the "Underwriter") currently intends
to make a market in the Securities, but is under no obligation to do so. There
can be no assurance that a secondary market will develop or, if a secondary
market does develop, that it will provide Securityholders with liquidity of
investment or that it will continue for the life of the Securities.
Servicer Default. If a Servicer Default occurs, the Indenture
Trustee or the Noteholders may remove the Servicer without the consent of the
Owner Trustee or the Certificateholders, in the manner described in the
Prospectus under "Description of the Transfer and Servicing Agreements -- Rights
upon Servicer Default". Neither the Owner Trustee nor the Certificateholders
will have the ability to remove the Servicer if a Servicer Default occurs. In
addition, the Noteholders have the ability with certain specific exceptions, to
waive defaults by the Servicer, including defaults that might have a materially
adverse effect on Certificateholders. See "Description of the Transfer and
Servicing Agreements -- Waiver of Past Defaults" in the Prospectus.
Subordination, Limited Assets. Distributions of interest and
principal on the Certificates will be subordinated in priority of payment to
interest and principal due on the Notes. Consequently, Certificateholders will
not receive any distributions with respect to a Collection Period until full
amount of interest on and principal of the Notes distributable on such
Distribution Date has been deposited in the Note Distribution Account. The
Certificateholders will not receive any distributions of principal until after
the Notes have been paid in full. See "The Transfer and Servicing Agreements -
Distributions" herein.
The Trust will not have any significant assets or sources of funds
other than the Receivables, the proceeds thereof and access to funds in the
Reserve Account. Securityholders must rely on payments on the Receivables and,
if and to the extent available, amounts on deposit in the Reserve Account.
Although any funds available in the Reserve Account on each Distribution Date
will be applied to cover shortfalls in distribution of interest and principal
on the Notes and the Certificates, the funds to be deposited in the Reserve
Account are limited in amount. If the Reserve Account is exhausted, the Trust
will depend solely on current distributions on the Receivables to make payments
on the Notes and the Certificates. See "The Trust" and "The Transfer and
Servicing Agreements - Reserve Account" herein.
Funds in any Reserve Account may be invested in securities that
will not mature prior to the date of such next scheduled distribution with
respect to the Certificates and will not be sold prior to maturity to meet any
shortfalls. Thus, the amount of available funds on deposit in the Reserve
Account at any time may be less than the balance of the Reserve Account. If
the amount required to be withdrawn from the Reserve Account to cover
shortfalls in collections on the related Receivables exceeds the amount of
available funds on deposit in the Reserve Account, a temporary shortfall in the
amounts distributed to the Certificateholders could result.
Security Interests in the Financed Vehicles. To facilitate
servicing and to minimize administrative burden and expense, the Servicer will
be appointed custodian of the Receivables and the related documents by the
Trustee, but will not stamp the Receivables to reflect the sale and assignment
of the Receivables to the Trust or amend the certificates of title of the
Financed Vehicles. In the absence of amendments to the certificates of title,
the Trustee may not have perfected security interests in the Financed Vehicles
securing the Receivables in some states. See "Risk Factors - Certain Legal
Aspects - Security Interests in Financed Vehicles" and "Certain Legal Aspects
of the Receivables" in the Prospectus.
Ratings of the Securities. It is a condition to the issuance of
the Notes and the Certificates that the Class A-1 Notes be rated "___________",
the Class A-2 Notes be rated "________" and the Certificates be rated
"_________" or its equivalent, in each case by at least two nationally
recognized rating agencies (the "Rating Agencies"). A rating is not a
recommendation to purchase, hold or sell Securities, inasmuch as such rating
does not comment as to market price or suitability for a particular investor.
The ratings of the Securities address the
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<PAGE>
likelihood of the timely payment of interest on, and the ultimate repayment of
principal of, the Securities pursuant to their terms. There can be no
assurance that a rating will be retained for any given period of time or that a
rating will not be lowered or withdrawn entirely by a Rating Agency if in its
judgment circumstances in the future so warrant. In the event that a rating is
subsequently lowered or withdrawn, no person or entity will be required to
provide any additional credit enhancement. The ratings of the Notes are based
primarily on the credit quality of the Receivables, the subordination provided
by the Certificates and the availability of funds in the Reserve Account. The
ratings of the Certificates are based primarily on the credit quality of the
Receivables and the availability of funds in the Reserve Account.
Trust's Relationship to the Company. The Company is generally not
obligated to make any payments in respect of the Notes, the Certificates or the
Receivables. The Company has assigned the representations and warranties of the
Seller under the Receivables Purchase Agreement to the Trustee. In addition the
Company has made certain representations and warranties regarding the
characteristics of the Receivables and is required under the Trust Agreement to
repurchase Receivables with respect to which such representations and
warranties have been breached. It is not anticipated that the Company will have
any significant assets with which to fund such repurchases.
Trust's Relationship to the Seller and the Servicer. Neither the
Seller nor the Servicer is generally obligated to make any payments in respect
of the Notes, the Certificates or the Receivables. If _______ were to cease
acting as Servicer, delays in processing payments on the Receivables and
information in respect thereof could occur and result in delays in payment to
the Securityholders. The Seller has made certain representations and
warranties regarding the characteristics of the Receivables and is required
under the Receivables Purchase Agreement to repurchase Receivables with respect
to which such representations and warranties have been breached. See "The
Transfer and Servicing Agreements -- The Receivables Purchase Agreement".
THE TRUST
GENERAL
The Issuer, CS First Boston Auto Receivables Trust 199_-_, is a
business trust formed under the laws of the State of Delaware pursuant to the
Trust Agreement for the transactions described in this Prospectus Supplement.
After its formation, the Trust will not engage in any activity other that (i)
acquiring, holding and managing the Receivables and the other assets of the
Trust and proceeds therefrom, (ii) issuing the Notes and the Certificates,
(iii) making payments on the Notes and the Certificates, and (iv) engaging in
other activities that are necessary, suitable or convenient to accomplish the
foregoing or are incidental thereto or connected therewith.
The Trust initially will be capitalized with equity equal to
$____________. Certificates with an original principal balance of
$____________ (which represents approximately [1]% of the initial Certificate
Balance) will be sold to ____________ and the remaining Certificates will be
sold to third party investors which are expected to be unaffiliated with the
Seller, the Servicer and the Trust. The proceeds from the initial sale of the
Notes and Certificates will be used by the Trust to purchase the Receivables
from the Company pursuant to the Trust Agreement. The Servicer will service
the Receivables pursuant to the Servicing Agreement and will be compensated for
acting as Servicer. See "The Transfer and Servicing Agreements - Servicing
Compensation" herein.
If the protection provided to the Securityholders by the Reserve
Account is insufficient, the Trust will look only to the Obligors on the
Receivables and the proceeds from the repossession and sale of Financed
Vehicles that secure defaulted Receivables to fund distributions of principal
and interest on the Securities. In such event, certain factors, such as the
Trust's not having a first priority perfected security interest in some of the
Financed Vehicles, may affect the Trust's ability to realize on the collateral
securing the Receivables and thus may reduce the proceeds to be distributed to
Securityholders with respect to the Securities. See "The Transfer and
Servicing Agreements - Distributions" and "-Reserve Account" herein and
"Certain Legal Aspects of the Receivables" in the Prospectus.
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<PAGE>
The Trust's principal offices are located in _____________________,
Delaware, in care of ____________________, as Owner Trustee, at the address
listed below under "-The Owner Trustee".
CAPITALIZATION OF THE TRUST
The following table illustrates the capitalization of the Trust as
of the Cutoff Date, as if the issuance and sale of the Notes and the
Certificates had taken place on such date:
Class A-1 Notes .................... $
Class A-2 Notes.......................
Certificates..........................
-------------------------------
Total.......................... $
===============================
THE OWNER TRUSTEE
____________________ is the Owner Trustee under the Trust
Agreement. ________________________ is a banking corporation and its principal
offices are located at __________________________. The Owner Trustee's
liability in connection with the issuance and sale of the Notes and
Certificates is limited solely to the express obligations of the Owner Trustee
set forth in the Trust Agreement and the Servicing Agreement. The Seller, the
Company and their respective affiliates may maintain normal commercial banking
relations with the Owner Trustee and its affiliates.
THE RECEIVABLES POOL
The pool of Receivables conveyed to the Trust (the "Receivables
Pool") was originated or purchased by the Seller in the ordinary course of
business, and were or will be selected from the Seller's portfolio for
inclusion in the Receivables Pool based on several criteria, including the
following: (i) as of the Cutoff Date each Receivable had, or will have, an
outstanding gross balance of at least $1,000; (ii) as of the Cutoff Date, no
Receivable will be more than 90 days past due; and (iii) as of the Cutoff Date,
no Obligor on any Receivable was noted in the records of the Seller as being
the subject of a bankruptcy proceeding. Certain additional criteria that each
Receivable must meet are set forth in the Prospectus under "The Receivables
Pools". No selection procedures believed by the Seller to be adverse to
Securityholders were, or will be, used in selecting the Receivables.
The composition, distribution by APR and geographic distribution of
the Receivables as of the Cutoff Date are as set forth in the following tables.
COMPOSITION OF THE RECEIVABLES AS OF THE CUTOFF DATE
<TABLE>
<CAPTION>
Weighted Aggregate principal Number of Weighted Average Weight Average Average Principal
Average APR Balance Receivables Remaining Term Original Term Balance
<S> <C> <C> <C> <C> <C>
% $ months months $
</TABLE>
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<PAGE>
DISTRIBUTION OF RECEIVABLES BY APR AS OF THE CUTOFF DATE
<TABLE>
<CAPTION>
Number of Aggregate Principal Percentage of Aggregate
APR Range Receivables Balance Principal Balance
<S> <C> <C> <C>
0.00% to 3.00%
3.01% to 4.00%
4.01% to 5.00%
5.01% to 6.00%
6.01% to 7.00%
7.01% to 8.00%
8.01% to 9.00%
9.01% to 10.00%
10.01% to 11.00%
11.01% to 12.00%
12.01% to 13.00%
13.01% to 14.00%
14.01% to 15.00%
15.01% to 16.00%
16.01% to 17.00%
17.01% to 18.00%
18.01% to 19.00%
Greater than 20.00%
----------- ---------- -----------
Total
=========== ========== ===========
</TABLE>
GEOGRAPHIC DISTRIBUTION OF THE RECEIVABLES AS OF THE CUTOFF DATE (1)
<TABLE>
<CAPTION>
Number of Aggregate Principal Percentage of Aggregate
Receivables Balance Principal Balance
----------- ------------------- -----------------------
<S> <C> <C> <C>
New York...............
California.............
Other..................
----------- ---------- -----------
Total.............
=========== ========== ===========
</TABLE>
(1) Based on billing addresses of the Obligers as of the Cutoff Date.
By aggregate principal balance, approximately ___% of the
Receivables constitute Precomputed Receivables and ___% of the Receivables
constitute Simple Interest Receivables. See "The Receivables Pools" in the
Prospectus for a description of the characteristics of Precomputed Receivables
and Simple Interest Receivables. As of the Cutoff Date, approximately ___% of
the Receivables by aggregate principal balance, constituting ___% of the number
of Receivables, represent used vehicles.
DELINQUENCIES, REPOSSESSIONS AND NET LOSSES
Set forth below is certain information concerning the delinquency,
repossession and net loss experience of the Seller pertaining to retail new and
used automobile, van and light duty truck receivables. The delinquency,
repossession and credit loss data presented in the following tables are for
illustrative purposes only. There is no assurance that the Seller's
delinquency, repossession and credit loss experience with respect to
automobile, van and light duty truck receivables in the future, or the
experience of the Trust with respect to the Receivables, will be similar to
that set forth below. Delinquencies, repossessions and net losses on new and
used automobiles, vans and light duty trucks are affected by social and
economic conditions generally and, in particular, in the States of ______ and
_______, where ___% and ___%, respectively, of the Financed Vehicles were
purchased.
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<PAGE>
DELINQUENCY EXPERIENCE (1)
<TABLE>
<CAPTION>
At December 31,
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
(Dollars in Thousands)
Portfolio Outstanding at End of Period
Delinquencies at End of Period(2)
30-59 Days
60-89 Days
90 Days or More
Total Delinquencies
Total Delinquencies as a Percentage of
Portfolio Outstanding at End of Period
</TABLE>
________________
(1) Except as indicated, all amounts and percentages are based on the gross
amount scheduled to be paid on each contract, including unearned finance
and other charges.
(2) The period of delinquency is based on the number of days payments are
contractually past due.
CREDIT LOSS/REPOSSESSION EXPERIENCE(1)
<TABLE>
<CAPTION>
At December 31,
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
(Dollars in Thousands)
Average Amount Outstanding During the Period
Average Number of Contracts Outstanding
during the Period
Repossessions as a Percentage of Average
Number of Contracts Outstanding
Net Losses as a Percentage of
Liquidations (2)(3)
Net Losses as a Percentage of Average
Amount Outstanding(3)
</TABLE>
________________
(1) Except as indicated, all amounts and percentages are based on the gross
amount scheduled to be paid on each contract, including unearned finance
and other charges.
(2) Net losses are equal to the aggregate of the net balances of all
contracts that were determined to be uncollectible in the period, less
any recoveries on contracts charged off in the period or any prior
periods, excluding any losses resulting from the failure to recover
commissions to dealers with respect to contracts that are prepaid or
charged off.
(3) Liquidations represent a reduction in the outstanding balances of the
contracts as a result of monthly cash payments and charge-offs.
THE SELLER AND THE SERVICER
[Information regarding the Seller and the Servicer to be supplied.]
WEIGHTED AVERAGE LIFE OF THE SECURITIES
Information regarding certain maturity and prepayment
considerations with respect to the Securities is set forth under "Weighted
Average Life of the Securities" in the Prospectus. In addition, holders of the
Class A-2 Notes will not receive any principal payments until the Class A-1
Notes are paid in full, and holders of the Certificates will not receive any
principal payments until the Class A-1 Notes and the Class A-2 Notes have been
paid in full. See "The Notes - Payments of Principal" and "The Certificates -
Distributions of Principal" herein. As the rate of payment of principal of
each class of Notes and the Certificates depends on the rate of payment
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<PAGE>
(including prepayments) of the principal balance of the Receivables, final
payment of the Class A-1 Notes or the Class A-2 Notes and the final
distribution in respect of the Certificates could occur significantly earlier
than the Class A-1 Final Scheduled Payment Date, the Class A-2 Final Scheduled
Payment Date or the Final Scheduled Distribution Date, as applicable.
Securityholders will bear the risk of being able to reinvest principal payments
on the Securities at yields at least equal to the yield on their Securities.
THE NOTES
GENERAL
The Notes will be issued pursuant to the terms of the Indenture, a
form of which has been filed as an exhibit to the Registration Statement. A
copy of the Indenture will be filed with the Commission following the issuance
of the Securities. The following summary describes certain terms of the Notes
and the Indenture. The summary does not purport to be complete and is subject
to, and is qualified in its entirety by reference to, all the provisions of the
Notes and the Indenture. The following summary supplements, and to the extent
inconsistent therewith replaces, the description of the general terms and
provisions of the Notes of any given Series and the related Indenture set forth
under the headings "Description of the Notes" and "Certain Information
Regarding the Securities" in the Prospectus, to which description reference is
hereby made.
PAYMENTS OF INTEREST
Interest on the principal balance of the Class A-1 Notes and the
Class A-2 Notes will accrue at the Class A-1 Rate and Class A-2 Rate,
respectively, and will be payable to the holders of the Class A-1 Notes and the
Class A-2 Notes monthly on each Distribution Date. Interest with respect to
any Distribution Date will accrue from and including the most recent
Distribution Date on which interest was distributed to Noteholders (or, with
respect to the first Distribution Date, from and including the Closing Date) to
but excluding such Distribution Date. Interest on each class of Notes will be
calculated on the basis of a 360-day year of twelve 30-day months. Interest
accrued but not paid on any Distribution Date will be due on the next
Distribution Date, together with interest on such amount at the applicable
Interest Rate (to the extent lawful). Interest payments on the Notes will
generally be derived from the Total Distribution Amount remaining after the
payment of the Servicing Fee and from the Reserve Account. See "The Transfer
and Servicing Agreements - Distributions" and "- Reserve Account" herein.
Interest payments to holders of both classes of Notes will have the same
priority. Under certain circumstances, the amount available for such payments
could be less than the amount of interest payable on the Notes on any
Distribution Date, in which case the holders of each class of Notes will
receive their ratable share (based on the aggregate amount of interest due on
such class of Notes) of the aggregate amount available for distribution in
respect of interest on the Notes.
PAYMENTS OF PRINCIPAL
On each Distribution Date for as long as the Class A-1 Notes are
outstanding, principal of the Class A-1 Notes will be distributed to holders of
the Class A-1 Notes in an amount equal to the Total Distribution Amount
remaining after payment of the Servicing Fee and the Noteholder's Interest
Distributable Amount. On each Distribution Date from and including the
Distribution Date on which the Class A-1 Notes are paid in full and for as long
as the Class A-2 Notes are outstanding, principal will be distributed to
holders of the Class A-2 Notes in an amount equal to the Total Distribution
Amount remaining after payment of the Servicing Fee, the Noteholders' Interest
Distributable Amount and, on the Distribution Date on which the outstanding
principal amount of the Class A-1 Notes is reduced to zero, any amounts
distributed as principal to holders of the Class A-1 Notes. No principal will
be paid on the Class A-2 Notes until the Class A-1 Notes have been paid in
full. See "The Transfer and Servicing Agreements - Distributions" and "-
Reserve Account" herein.
The principal balance of the Class A-1 Notes, to the extent not
previously paid, will be due on the Class A-1 Final Scheduled Payment Date and
the principal balance of the Class A-2 Notes, to the extent not previously
paid, will be due on the Class A-2 Final Scheduled Payment Date. The actual
date on which the
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<PAGE>
aggregate outstanding principal amount of either the Class A-1 Notes or the
Class A-2 Notes is paid in full may be earlier than the applicable Final
Scheduled Payment Date set forth above due to a variety of factors, including
those described under "Weighted Average Life of the Securities" herein and in
the Prospectus.
OPTIONAL REDEMPTION
The Class A-2 Notes may be redeemed in whole, but not in part, on a
Distribution Date on which the Servicer exercises its option to purchase the
Receivables, which the Servicer may do after the aggregate outstanding
principal amount of the Receivables is reduced to 10% or less of the initial
Pool Balance. See "Description of the Transfer and Servicing Agreements -
Termination" in the Prospectus. The redemption price for the Class A-2 Notes
will equal the unpaid principal amount of the Class A-2 Notes plus accrued and
unpaid interest thereon to the redemption date.
THE CERTIFICATES
GENERAL
The Certificates will be issued pursuant to the terms of the Trust
Agreement, a form of which has been filed as an exhibit to the Registration
Statement. A copy of the Trust Agreement will be filed with the Commission
following the issuance of the Securities. The following summary describes
certain terms of the Certificates and the Trust Agreement. This summary does
not purport to be complete and is subject to, and qualified in its entirety by
reference to, all the provisions of the Certificates and the Trust Agreement.
The following summary supplements, and to the extent inconsistent therewith
replaces, the description of the general terms and provision of the
Certificates of any given Series and the related Trust Agreement set forth in
the Prospectus, to which description reference is hereby made.
DISTRIBUTIONS OF INTEREST
Interest on the principal balance of the Certificates will accrue
at the Pass-Through Rate. Interest with respect to any Distribution Date will
accrue from and including the most recent Distribution Date on which interest
was distributed to Certificateholders (or, with respect to the first
Distribution Date, from and including the Closing Date) to but excluding such
Distribution Date and will be calculated on the basis of a 360-day year of
twelve 30-day months. Interest accrued but not distributed on any Distribution
Date will be due on the next Distribution Date, together with interest on such
amount at the Pass-Through Rate (to the extent lawful). Interest distributions
with respect to the Certificates generally will be funded from the portion of
the Total Distribution Amount and funds in the Reserve Account remaining after
the distribution of the Servicing Fee and the Noteholders' Distributable
Amount. See "The Transfer and Servicing Agreements - Distributions" and " -
Reserve Account" herein.
DISTRIBUTIONS OF PRINCIPAL
Certificateholders will not be entitled to distributions of
principal on any Distribution Date until the Notes have been paid in full. On
each Distribution Date on and after the Distribution Date on which the Class
A-2 Notes are paid in full, the Certificateholders will be entitled to
distributions of principal in a maximum amount equal to the lesser of (i) the
Total Distribution Amount plus any funds in the Reserve Account remaining after
payment of the Servicing Fee, the Noteholders' Distributable Amount (on the
Distribution Date on which the outstanding principal amount of the Class A-2
Notes is reduced to zero) and the Certificateholders' Interest Distributable
Amount and (ii) the outstanding Certificate Balance. See "The Transfer and
Servicing Agreements - Distributions" and "- Reserve Account" herein.
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<PAGE>
OPTIONAL PREPAYMENT
If the Servicer exercises its option to purchase the Receivables,
which it may do when the aggregate outstanding principal amount of the
Receivables is reduced to 10% or less of the initial Pool Balance, the
Certificateholders will receive an amount in respect of the Certificates equal
to the outstanding Certificate Balance, together with accrued interest thereon
at the Pass-Through Rate to the redemption date, which distribution shall
effect an early retirement of the Certificates. See "Description of the
Transfer and Servicing Agreements - Termination" in the Prospectus.
THE TRANSFER AND SERVICING AGREEMENTS
The following summary describes certain terms of the Servicing
Agreement, the Receivables Purchase Agreement and the Trust Agreement
(collectively, the "Transfer and Servicing Agreements"). Forms of the Transfer
and Servicing Agreements have been filed as exhibits to the Registration
Statement. A copy of the Transfer and Servicing Agreements will be filed with
the Commission following the issuance of the Securities. This summary does not
purport to be complete and is subject to, and is qualified in its entirety by
reference to, all the provisions of the Transfer and Servicing Agreements. The
following summary supplements, and to the extent inconsistent therewith
replaces, the description of the general terms and provisions of Transfer and
Servicing Agreements (as such term is used in the Prospectus) set forth under
the heading "Description of the Transfer and Servicing Agreements" in the
Prospectus, to which description reference is hereby made.
SALE AND ASSIGNMENT OF RECEIVABLES
Certain information with respect to the conveyance of the
Receivables to the Seller to the Company and from the Company to the Trust on
the Closing Date is set forth under "Description of the Transfer and Servicing
Agreements - Sale and Assignment of Receivables" in the Prospectus. See also
"The Receivables Pool" herein and "The Receivables Pools" in the Prospectus for
additional information regarding the Receivables and certain obligations of the
Seller and the Servicer with respect to the Receivables.
ACCOUNTS
In addition to the Accounts referred to under "Description of the
Transfer and Servicing Agreements - Accounts" in the Prospectus, the Servicer
with also establish and maintain the Reserve Account with the Indenture
Trustee, in the name of the Indenture Trustee on behalf of the Noteholders and
the Certificateholders.
SERVICING COMPENSATION
The Servicer will be entitled to receive the Servicing Fee for each
Collection Period in an amount equal to 1.00% per annum of the Pool Balance as
of the first day of such Collection Period. The Servicing Fee (together with
any portion of the Servicing Fee that remains unpaid from prior Distribution
Dates) will be paid on each Distribution Date solely to the extent of the
Interest Distribution Amount; however, the Servicing Fee will be paid to the
Servicer prior to the distribution of any portion of the Interest Distribution
Amount to Noteholders and Certificateholders. See "Description of the Transfer
and Servicing Agreements - Servicing Compensation and Payment of Expenses" in
the Prospectus.
DISTRIBUTIONS
Deposits to Collection Account. On or about the _____ Business Day
of each month, the Servicer will provide the Indenture Trustee with certain
information with respect to the related Collection Period, including the
aggregate amount of collections on the Receivables, Advances and Repurchase
Amounts, as well as the Total Distribution Amount, the Interest Distribution
Amount and the Principal Distribution Amount.
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<PAGE>
On or before each Distribution Date, the Servicer will cause the
Total Distribution Account to be deposited into the Collection Account. The
"Total Distribution Amount" for a Distribution Date will equal the sum of the
Interest Distribution Amount and the Principal Distribution Amount (other than
the portion thereof attributable to Realized Losses). "Realized Losses" means
the excess of the principal balance of any Liquidated Receivable over
Liquidation Proceeds to the extent allocable to principal.
The "Interest Distribution Amount" for a Distribution Date will
equal the sum of the following amounts with respect to the related Collection
Period: (i) that portion of all collections on the Receivables allocable to
interest, (ii) all proceeds of the liquidation of defaulted Receivables
("Liquidated Receivables"), net of expenses incurred by the Servicer in
connection with such liquidation and any amounts required by law to be remitted
to the related Obligor (such net amount "Liquidation Proceeds"), to the extent
allocable to interest; (iii) all recoveries in respect of Liquidated
Receivables that were written off in prior Collection Periods; (iv) all
Advances made by the Servicer; (v) the Repurchase Amount of each Receivable
that was repurchased by the Seller or the Company during the related Collection
Period, to the extent allocable to interest; and (vi) Investment Earnings for
such Distribution Date.
The "Principal Distribution Amount" for a Distribution Date will
equal the sum of the following amounts with respect to the related Collection
Period: (i) that portion of all collections on the Receivables allocable to
principal; (ii) Liquidation Proceeds to the extent attributable to the
principal, plus all Realized Losses with respect to such Liquidated
Receivables; (iii) all Precomputed Advances made by the Servicer of principal
due on the Precomputed Receivables; (iv) to the extent attributable to
principal, the Repurchase Amount received with respect to each Receivable
repurchased by the Seller or the Company; (v) partial prepayments relating to
refunds of extended warranty protection plan costs or of physical damage,
credit life or disability insurance policy premiums, but only if such costs or
premiums were financed by the respective Obligor as of the date of the original
Contract; and (vi) on the Final Scheduled Distribution Date, any amounts
advanced by the Servicer with respect to principal on the Receivables.
The Interest Distribution Amount and the Principal Distribution
Amount on any Distribution Date shall exclude the following:
(i) amounts realized on Precomputed Receivables to the
extent that the Servicer has previously made an unreimbursed Precomputed
Advance;
(ii) Liquidation Proceeds with respect to a particular
Precomputed Receivable to the extent of any unreimbursed Precomputed
Advances thereon;
(iii) all payments and proceeds (including Liquidation
Proceeds) of any Receivables the Repurchase Amount of which has been
included in the Total Distribution Amount in a prior Collection Period;
(iv) amounts received in respect of interest on Simple
Interest Receivables during the related Collection Period in excess of
the amount of interest that would have been due during the Collection
Period on Simple Interest Receivables at their respective APRs (assuming
that a payment is received on each Simple Interest Receivable on the due
date thereof); and
(v) Liquidation Proceeds with respect to a Simple Interest
Receivable attributable to accrued and unpaid interest thereon (but not
including interest for the then current Collection Period) to the extent
of any unreimbursed Simple Interest Advances.
Deposits to the Distribution Accounts. On each Distribution Date,
the Servicer will instruct the Trustee to make the following deposits and
distributions, to the extent of the Total Distribution Amount, in the following
order of priority:
S-19
<PAGE>
(i) to the Servicer, from the Interest Distribution Amount,
the Servicing Fee and all unpaid Servicing Fees from prior Collection
Periods;
(ii) to the Note Distribution Account, from the Total
Distribution Amount remaining after the application of clause (i), the
Noteholders' Interest Distributable Amount;
(iii) to the Note Distribution Account, from the Total
Distribution Amount remaining after the application of clauses (i) and
(ii), the Noteholders' Principal Distributable Amount;
(iv) to the Certificate Distribution Account, from the Total
Distribution Amount remaining after the application of clauses (i)
through (iii), the Certificateholders' Interest Distributable Amount;
(v) to the Certificate Distribution Account, from the Total
Distribution Amount remaining after the application of clauses (i)
through (iv), the Certificateholders' Principal Distributable Amount; and
(vi) to the Reserve Account, the Total Distribution Amount
remaining after the application of clauses (i) through (v).
For purposes hereof, the following terms shall have the following
meanings:
"Noteholders' Distributable Amount" means, with respect to any
Distribution Date, the sum of the Noteholders' Principal Distributable Amount
and the Noteholders' Interest Distributable Amount.
"Noteholders' Interest Distributable Amount" means, with respect to
any Distribution Date, the sum of the Noteholders' Monthly Interest
Distributable Amount for such Distribution Date and the Noteholders' Interest
Carryover Shortfall for such Distribution Date.
"Noteholders' Monthly Interest Distributable Amount" means, with
respect to any Distribution Date, 30 days of interest (or, in the case of the
first Distribution Date, interest accrued from and including the Closing Date
to but excluding such Distribution Date) on the Class A-1 Notes and the Class
A-2 Notes at the Class A-1 Rate and the Class A-2 Rate, respectively, on the
outstanding principal balance of the Notes of such class on the immediately
preceding Distribution Date (or, in the case of the first Distribution Date, on
the Closing Date) after giving effect to all payments of principal to the
Noteholders of such class on or prior to such Distribution Date.
"Noteholders' Interest Carryover Shortfall" means, with respect to
any Distribution Date, (i) the excess of the Noteholders' Monthly Interest
Distributable Amount for the preceding Distribution Date, plus any outstanding
Noteholders' Interest Carryover Shortfall on such preceding Distribution Date,
over the amount in respect of interest that is actually deposited in the Note
Distribution Account on such preceding Distribution Date, plus (ii) interest on
the amount of interest due but not paid to Noteholders on the preceding
Distribution Date, to the extent permitted by law, at the respective Interest
Rates borne by each class of the Notes from such preceding Distribution Date to
but excluding such current Distribution Date.
"Noteholders' Principal Distributable Amount" means, with respect
to any Distribution Date, the sum of the Noteholders' Monthly Principal
Distributable Amount for such Distribution Date and the Noteholders' Principal
Carryover Shortfall as of the close of the preceding Distribution Date;
provided, however, that the Noteholders' Principal Distributable Amount shall
not exceed the outstanding principal balance of the Notes. In addition, (i) on
the Class A-1 Final Scheduled Payment Date, the Noteholder's Principal
Distributable Amount will not be less than the amount that is necessary (after
giving effect to all other amounts to be deposited in the Note Distribution
Account on such Distribution Date and allocable to principal) to reduce the
outstanding principal balance of the Class A-1 Notes to zero; and (ii) on the
Class A-2 Final Scheduled Payment Date the Noteholders' Principal Distributable
Amount will not be less than the amount that is necessary (after giving effect
to all other amounts to
S-20
<PAGE>
be deposited in the Note Distribution Account on such Distribution Date and
allocable to principal) to reduce the outstanding principal balance of the
Class A-2 Notes to zero.
"Noteholders' Monthly Principal Distributable Amount" means, with
respect to any Distribution Date for as long as the Class A-1 Notes or the
Class A-2 Notes are outstanding, 100% of the Principal Distribution Amount;
provided, however, that on the Distribution Date on which the principal balance
of the Class A-2 Notes is reduced to zero, the portion, if any, of the
Principal Distribution Amount that is not applied to the principal of the Class
A-2 Notes will be applied to the Certificate Balance.
"Noteholders' Principal Carryover Shortfall" means, as of the close
of any Distribution Date, the excess of the Noteholders' Monthly Principal
Distributable Amount and any outstanding Noteholders' Principal Carryover
Shortfall from the preceding Distribution Date over the amount in respect of
principal that is actually deposited in the Note Distribution Account.
"Certificateholders' Distributable Amount" means, with respect to
any Distribution Date, the sum of the Certificateholder's Principal
Distributable Amount and the Certificateholders' Interest Distributable Amount.
"Certificateholders' Interest Distributable Amount" means, with
respect to any Distribution Date, the sum of the Certificateholders' Monthly
Interest Distributable Amount for such Distribution Date and the
Certificateholders' Interest Carryover Shortfall for such Distribution Date.
"Certificateholders' Monthly Interest Distributable Amount" means,
with respect to any Distribution Date, 30 days of interest (or, in the case of
the first Distribution Date, interest accrued from and including the Closing
Date to but excluding such Distribution Date) at the Pass-Through Rate on the
Certificate Balance on the last day of the preceding Collection Period (or, in
the case of the first Distribution Date, on the Closing Date) after giving
effect to all distributions of principal to the Certificateholders on or prior
to such Distribution Date.
"Certificateholders' Interest Carryover Shortfall" means, with
respect to any Distribution Date, the excess of the Certificateholders' Monthly
Interest Distributable Amount for the preceding Distribution Date and any
outstanding Certificateholders' Interest Carryover Shortfall on such preceding
Distribution Date, over the amount in respect of interest that is actually
deposited in the Certificate Distribution Account on such preceding
Distribution Date, plus interest on such excess, to the extent permitted by
law, at the Pass-Through Rate from such preceding Distribution Date to but
excluding such current Distribution Date.
"Certificateholders' Principal Distributable Amount" means, with
respect to any Distribution Date, the sum of the Certificateholders' Monthly
Principal Distributable Amount for such Distribution Date and the
Certificateholders' Principal Carryover shortfall as of the close of the
preceding Distribution Date; provided, however, that the Certificateholders'
Principal Distributable Amount shall not exceed the Certificate Balance. In
addition, on the Final Scheduled Distribution Date, the principal required to
be distributed to Certificateholders will include the lesser of (a)(i) any
scheduled payments of principal due and remaining unpaid on each Precomputed
Receivable and (ii) any principal due and remaining unpaid on each Simple
Interest Receivable, in each case, in the Trust as of the Final Scheduled
Maturity Date or (b) the amount that is necessary (after giving effect to the
other amounts to be deposited in the Certificate Distribution Account on such
Distribution Date and allocable to principal) to reduce the Certificate Balance
to zero.
"Certificateholders' Monthly Principal Distributable Amount" means,
with respect to any Distribution Date prior to the Distribution Date on which
the Notes are paid in full, zero; and with respect to any Distribution Date
commencing on the Distribution Date on which the Notes are paid in full, 100%
of the Principal Distribution Amount (less, on the Distribution Date on which
the Notes are paid in full, the portion thereof payable as principal of the
Notes).
S-21
<PAGE>
"Certificateholders' Principal Carryover Shortfall" means, as of
the close of any Distribution Date, the excess of the Certificateholders'
Monthly Principal Distributable Amount and any outstanding Certificateholders'
Principal Carryover Shortfall from the preceding Distribution Date, over the
amount in respect of principal that is actually deposited in the Certificate
Distribution Account.
"Certificate Balance" equals, initially, $______ and, thereafter,
equals the initial Certificate Balance, reduced by all amounts allocable to
principal previously distributed to Certificateholders.
On each Distribution Date, all amounts on deposit in the Note
Distribution Account generally will be paid in the following order of priority:
(i) without regard to Class, to the applicable Noteholders,
accrued and unpaid interest on the outstanding principal balance of the
applicable class of Notes at the applicable Interest Rate;
(ii) to the Class A-1 Noteholders in reduction of principal
until the principal balance of the Class A-1 Notes has been reduced to
zero; and
(iii) to the Class A-2 Noteholders in reduction of principal
until the principal balance of the Class A-2 Notes has been reduced to
zero.
On each Distribution Date, all amounts on deposit in the
Certificate Distribution Account will be distributed to the Certificateholders.
RESERVE ACCOUNT
The Reserve Account will be created by the deposit thereto by the
Company on the Closing Date of the Reserve Account Initial Deposit and will be
increased up to the Specified Reserve Account Balance by the deposit thereto on
each Distribution Date on the amount, if any, remaining from the Total
Distribution Amount after payment of the Servicing Fee, the Noteholders'
Distributable Amount and the Certificateholders' Distributable Amount. If the
amount on deposit in the Reserve Account on any Distribution Date (after giving
effect to all deposits thereto or withdrawals therefrom on such Distribution
Date), is greater than the Specified Reserve Account Balance for such
Distribution Date, the Servicer will instruct the Indenture Trustee to
distribute an amount equal to such excess to the Company. Upon any
distribution to the Company of amounts from the Reserve Account, neither the
Noteholders nor the Certificateholders will have any rights in, or claim to,
such amounts.
Amounts held from time to time in the Reserve Account will continue
to be held for the benefit of the Noteholders and Certificateholders. Funds
will be withdrawn from cash in the Reserve Account to the extent that the Total
Distribution Amount (after the payment of the Servicing Fee) with respect to
any Collection Period is less than the Noteholders' Distributable Amount and
will be deposited to the Note Distribution Account for distribution to the
Noteholders. In addition, funds will be withdrawn from cash in the Reserve
Account to the extent that the portion of the Total Distribution Amount
remaining after the payment of the Servicing Fee and the deposit of the
Noteholders' Distributable Amount to the Note Distribution Account is less than
the Certificateholders' Distributable Amount and will be deposited to the
Certificate Distribution Account for distribution to the Certificateholders.
The subordination of the Certificates and access to funds in the
Reserve Account are intended to enhance the likelihood of receipt by
Noteholders of the full amount of principal and interest due to them and to
decrease the likelihood that the Noteholders will experience losses. In
addition, the Reserve Account is intended to enhance the likelihood of receipt
by Certificateholders of the full amount of principal and interest due to them
and to decrease the likelihood that the Certificateholders will experience
losses. However, in certain circumstances, the Reserve Account could be
depleted. In addition, subject to certain conditions, funds in the Reserve
Account may be invested in securities that will not mature prior to a
particular Distribution Date and will not be sold prior to maturity to meet any
shortfalls that might occur on such Distribution Date. Thus, the amount of
cash in the Reserve Account at any time may be less than the balance of the
Reserve Account. If the amount required to be withdrawn from the Reserve
Account to cover shortfalls in collections on the Receivables exceeds the
amount of
S-22
<PAGE>
cash in the Reserve Account, a temporary shortfall in the amounts distributed
to the Noteholders or the Certificateholders could result, which could, in
turn, increase the average life of the Notes or the Certificates.
ADVANCES
If a shortfall should occur in any Collection Period between (i) the
aggregate amount of interest due on the Receivables during such Collection
Period, assuming each Receivable was paid on its scheduled payment date under
the related Contract, and (ii) the amount actually received on or in respect of
the Receivables during such Collection Period and allocable to interest, the
Servicer will deposit an amount (an "Advance") equal to such deficiency in the
Collection Amount on or before the applicable Distribution Date. The Servicer
will be allowed to recover any Advances so made (a) from collections and other
amounts received on the Receivables with respect to which such Advances were
made, (b) from collections or any other amounts received in respect of any
other Receivables and (c) by reducing any Repurchase Amount due from the
Servicer by the amount of any unreimbursed Advances. The Servicer may elect
not to make an Advance with respect to any Receivable to the extent that the
Servicer determines that it is unlikely to be able to recover such Advance from
payments on or with respect to the Receivables or from any other source.
THE RECEIVABLES PURCHASE AGREEMENT
On or prior to the Closing Date, the Seller will transfer and assign to
the Company pursuant to the Receivables Purchase Agreement, all of its right,
title and interest in and to Receivables in the outstanding principal amount of
$_________ including its security interests in the related Financed Vehicles.
Each Receivable will be identified in a schedule appearing as an exhibit to the
Receivables Purchase Agreement (the "Schedule of Receivables"). The Seller
will sell the Receivables to the Company without recourse, except that, as
described in the following paragraph, the Seller will be required to repurchase
Receivables with respect to which it is in breach of a representation or
warranty, if such breach materially and adversely affects the right of the
related Trust and Certificateholders in and to such Receivables. Concurrently
with or subsequent to the transfer and assignment of the Receivables to the
Company, the Company will transfer and assign the Receivables to the Trust, and
Trustee will execute, authenticate and deliver the Certificates. The net
proceeds from the sale of the Notes and the Certificates will be applied to the
purchase of the Receivables.
In the Receivables Purchase Agreement, the Seller will represent and
warrant to the Company, among other things, that (i) the information set forth
in the Schedule of Receivables is correct in all material respects as of the
Cutoff Date; (ii) the Obligor on each Receivable is contractually required to
maintain physical damage insurance covering the related Financed Vehicle in
accordance with the Seller's normal requirements; (iii) on the Closing Date, to
the best of its knowledge, the Receivables are free and clear of all security
interests, liens, charges and encumbrances, and no offsets, defenses or
counterclaims have been asserted or threatened; (iv) at the Closing date, each
of the Receivables is, or will be, secured by a perfected, first-priority
security interest in the related Financed Vehicle in favor of the Seller; and
(v) each Receivable, at the time it was originated, complied and, on the
Closing Date complies, in all material respects with applicable federal and
state laws, including, without limitation, consumer credit, truth-in-lending,
equal credit opportunity and disclosure laws.
ERISA CONSIDERATIONS
THE NOTES
The Notes may be purchased by an "employee benefit plan" as defined
in and subject to the provisions of Title I of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") or a "plan" as described in Section
4975 (e) (1) of the Internal Revenue Code of 1986, as amended (the "Code") each
such "employee benefit plan" and "plan," a "Plan"). A fiduciary of a Plan must
determine that the purchase of a Note is consistent with its fiduciary duties
under ERISA and does not result in a nonexempt prohibited transaction as
defined in Section 406 of ERISA or Section 4975 of the Code. For additional
information regarding treatment of the Notes under ERISA, see "ERISA
Considerations" in the Prospectus.
S-23
<PAGE>
THE CERTIFICATES
The Certificates may not be acquired by (a) an employee benefit
plan (as defined in Section 3(3) of ERISA) that is subject to the provisions of
Title I of ERISA, (b) a plan described in Section 4975(e)(l) of the Code or (c)
any entity whose underlying assets include plan assets by reason of a plan's
investment in the entity. By its acceptance of a Certificate, each
Certificateholder will be deemed to have represented and warranted that it is
not subject to the foregoing limitation. For additional information regarding
treatment of the Certificates under ERISA, see "ERISA Considerations" in the
Prospectus.
UNDERWRITING
Subject to the terms and conditions set forth in the respective
underwriting agreements relating to the Notes and the Certificates (the
"Underwriting Agreements"), the Company has agreed to cause the Trust to sell
to CS First Boston Corporation (the "Underwriter"), and the Underwriter has
agreed to purchase, all of the Securities.
The Underwriter proposes to offer the Securities to the public
initially at the public offering prices set forth on the cover page of this
Prospectus Supplement, and to certain dealers at such prices less a concession
of ___% per Class A-1 Note, ___% per Class A-2 Note and ___% per Certificate;
and, the Underwriter and such dealers may allow a discount of ___% per Class
A-1 Note, ___% per Class A-2 Note and ___% per Certificate on sales to certain
other dealers; and after the initial public offering of the Securities, such
public offering prices and the concessions and discounts to dealers may be
changed by the Underwriter.
The Underwriting Agreements provide that the Seller will indemnify
the Underwriter against certain liabilities, including liabilities under
applicable securities laws, or contribute to payments the Underwriter may be
required to make in respect thereof.
The Trust may, from time to time, invest the funds in the Trust
Accounts in Eligible Investments acquired from the Underwriter.
The closing of the sale of the Certificates is conditioned on the
closing of the sale of the Notes, and the closing of the sale of the Notes is
conditioned on the closing of the sale of the Certificates.
Upon receipt of a request by an investor who has received an
electronic Prospectus Supplement and Prospectus from the Underwriter within the
period during which there is an obligation to deliver a Prospectus Supplement
and Prospectus, the Company or the Underwriter will promptly deliver, or cause
to be delivered, without charge, a paper copy of the Prospectus Supplement and
the Prospectus.
LEGAL MATTERS
Certain legal matters relating to the Securities will be passed
upon by Sidley & Austin, New York, New York.
S-24
<PAGE>
INDEX OF TERMS
Business Day............................................................S-
Certificate Balance.....................................................S-
Certificateholders......................................................S-
Certificateholders' Distributable Amount................................S-
Certificateholders' Interest Carryover Shortfall........................S-
Certificateholders' Interest Distributable Amount.......................S-
Certificateholders' Monthly Interest Distributable Amount...............S-
Certificateholders' Monthly Principal Distributable Amount..............S-
Certificateholders' Principal Carryover Shortfall.......................S-
Certificateholders' Principal Distributable Amount......................S-
Certificates............................................................S-
Class A-1 Final Scheduled Payment Date..................................S-
Class A-1 Notes.........................................................S-
Class A-1 Rate..........................................................S-
Class A-2 Final Scheduled Payment Date..................................S-
Class A-2 Notes.........................................................S-
Class A-2 Rate..........................................................S-
Closing Date............................................................S-
Code....................................................................S-
Collection Account......................................................S-
Commission..............................................................S-
Cutoff Date.............................................................S-
Distribution Date.......................................................S-
ERISA...................................................................S-
Federal Tax Counsel.....................................................S-
Final Scheduled Distribution Date.......................................S-
Final Scheduled Maturity Date...........................................S-
Indenture...............................................................S-
Indenture Trustee.......................................................S-
Interest Distribution Amount............................................S-
Interest Rates..........................................................S-
Liquidated Receivables..................................................S-
Liquidated Proceeds.....................................................S-
Noteholders.............................................................S-
Noteholders' Interest Carryover Shortfall...............................S-
Noteholders' Interest Distributable Amount..............................S-
Noteholders' Monthly Interest Distributable Amount......................S-
Noteholders' Monthly Principal Distributable Amount.....................S-
Noteholders' Principal Carryover Shortfall..............................S-
Noteholders' Principal Distributable Amount.............................S-
Notes...................................................................S-
Owner Trustee...........................................................S-
Pass-Through Rate.......................................................S-
Plan....................................................................S-
Pool Balance............................................................S-
Principal Distribution Amount...........................................S-
Prospectus..............................................................S-
Rating Agencies.........................................................S-
Realized Losses.........................................................S-
Receivable..............................................................S-
Record Date.............................................................S-
Reserve Account.........................................................S-
S-25
<PAGE>
Securities..............................................................S-
Securityholders.........................................................S-
Seller..................................................................S-
Servicer................................................................S-
Servicing Agreement.....................................................S-
Specified Reserve Account Balance.......................................S-
Total Distribution Amount...............................................S-
Transfer and Servicing Agreements.......................................S-
Trust...................................................................S-
Trust Agreement.........................................................S-
Underwriting............................................................S-
Underwriting Agreements.................................................S-
S-26
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus supplement and the accompanying prospectus shall
not constitute an offer to sell or the solicitation of an offer to buy, nor
shall there be any sale of these securities in any State in which such offer,
solicitation or sale would be unlawful prior to registration or qualification
under the securities laws of any such State.
Subject to Completion
Prospectus Supplement to Prospectus dated , 199
CS FIRST BOSTON AUTO RECEIVABLES TRUST 199_-___
$ % ASSET BACKED CERTIFICATES, CLASS A
________________
ASSET BACKED SECURITIES CORPORATION
COMPANY
________________
CS First Boston Auto Receivables Trust 199 - (the "Trust") will be formed
pursuant to a pooling and servicing agreement (the "Pooling and Servicing
Agreement"), dated as of _______________, 199_ (the "Cutoff Date"),
among Asset Backed Securities Corporation (the "Company") as
depositor, _________ (in such capacity, the "Servicer"), as
servicer, and _________________ (the "Trustee") as trustee,
and will issue $____________ aggregate principal amount of
____ % Asset Backed Certificates, Class A (the "Class A
Certificates") and $_______________ aggregate principal
amount of _____ % Asset Backed Certificates, Class B
(the "Class B Certificates" and, with the Class A
Certificates, the "Certificates"). Only the Class
A Certificates are being offered hereby.
(Continued on following page)
________________
THE CLASS A CERTIFICATES REPRESENT BENEFICIAL INTERESTS IN
THE TRUST ONLY AND DO NOT REPRESENT OBLIGATIONS OF OR
INTERESTS IN CS FIRST BOSTON CORPORATION, THE COMPANY,
THE SERVICER, THE SELLER, OR ANY OF THEIR RESPECTIVE
AFFILIATES. NEITHER THE CLASS A CERTIFICATES NOR THE
RECEIVABLES ARE INSURED OR GUARANTEED BY CS FIRST
BOSTON CORPORATION, THE COMPANY, THE SERVICER,
THE SELLER, ANY OF THEIR RESPECTIVE AFFILIATES
OR ANY GOVERNMENTAL AGENCY.
________________
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 SUPPLEMENT OR THE PROSPECTUS. ANY REPRE-
SENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
________________
PROSPECTIVE INVESTORS SHOULD CONSIDER THE FACTORS SET FORTH UNDER "RISK FACTORS"
ON PAGE S-10 OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 10 OF
THE ACCOMPANYING PROSPECTUS.
________________
<TABLE>
<CAPTION>
Price to the Underwriting Proceeds to the
Public(1) Discount Company(1)(2)
------------ ------------ ---------------
<S> <C> <C> <C>
Per Class A Certificate.............. % % %
$ $ $
</TABLE>
(1) Plus accrued interest, if any, from ______________, 199_.
(2) Before deducting expenses, estimated to be $____________.
________________
The Class A Certificates are offered subject to prior sale and subject
to the right of CS First Boston Corporation (the "Underwriter") to reject orders
in whole or in part. It is expected that delivery of the Class A Certificates
will be made through the Same Day Funds System of the Depository Trust Company
on or about _______________, 199_.
LOGO CS First Boston
The date of this Prospectus Supplement is , 199 .
<PAGE>
(Continued from preceding page)
The assets of the Trust will consist primarily of a pool of motor
vehicle installment loan agreements and motor vehicle retail
installment sale contracts (collectively, the "Receivables")
secured by new or used automo-biles, vans and light duty
trucks, certain monies due or received thereunder on and
after the Cutoff Date, security interests in the vehicles
financed thereby, and certain other property, as des-
cribed herein. The Receivables will be transferred to
the Trust by the Company pursuant to the Pooling and
Servicing Agreement. The Company will purchase the
Receivables from ________ (in such capacity, the
"Seller") pursuant to a receivables purchase
agreement (the "Receivables Purchase Agree-
ment"), dated as of __________, 199_ . The
Trust may also draw on funds on deposit in
a Reserve Account, to the extent described
herein, to meet shortfalls in amounts due
to Cer-tificateholders on any Distri-
bution Date. The Reserve Account will
not be part of the Trust.
The Class A Certificates will evidence in the aggregate an
undivided ownership interest in approximately % of the
Trust. The Class B Certificates, which are not being
offered hereby, will evidence in the aggregate an
undivided ownership interest in approximately
_______% of the Trust. Principal and interest
at the applicable Pass-Through Rate generally
will be distributed to holders of Certificates
on the ________ day of each month, commencing
__________, 199_. The rights of the holders
of Class B Certifi-cates to receive distri-
butions are subordinated to the rights of
the holder of Class A Certifi-cates to
the extent described herein. The out-
standing principal amount, if any, of
the Certificates will be due and
payable on ______________, 199_.
________________
THIS PROSPECTUS SUPPLEMENT DOES NOT CONTAIN COMPLETE INFORMATION ABOUT THE
OFFERING OF THE CLASS A CERTIFICATES. ADDITIONAL INFORMATION IS CON-
TAINED IN THE PROSPECTUS, AND PROSPECTIVE INVESTORS ARE URGED TO
READ BOTH THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS IN
FULL. SALES OF THE CLASS A CERTIFICATES MAY NOT BE CON-
SUMMATED UNLESS THE PURCHASER HAS RECEIVED BOTH
THIS PROSPECTUS SUPPLEMENT AND THE PROSPEC-
TUS. TO THE EXTENT ANY STATEMENTS IN THIS
PROSPECTUS SUPPLEMENT CONFLICT WITH
STATEMENTS IN THE PROSPECTUS, THE
STATEMENTS IN THIS PROSPECTUS
SUPPLEMENT SHALL CONTROL.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CLASS A
CERTIFICATES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL
IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED,
MAY BE DISCONTINUED AT ANY TIME.
________________
S-2
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), on behalf of the Trust, a Registration Statement on Form S-3
(together with all amendments and exhibits thereto, the "Registration
Statement") of which this Prospectus Supplement is a part under the Securities
Act of 1933, as amended. This Prospectus Supplement does not contain all of
the information set forth in the Registration Statement, certain parts of which
have been omitted in accordance with the rules and regulations of the
Commission. For further information, reference is made to the Registration
Statement which is available for inspection without charge at the public
reference facilities of the Commission at Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and the regional offices of the Commission at
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661,
and Seven World Trade Center, Suite 1300, New York, New York 10048. Copies of
such information can be obtained from the Public Reference Section of the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549,
at prescribed rates. The Servicer, on behalf of the Trust, will also file or
cause to be filed with the Commission such periodic reports as are required
under the Securities Exchange Act of 1934, as amended, and the rules and
regulations of the Commission thereunder.
REPORTS TO CERTIFICATEHOLDERS
Unless and until Definitive Certificates are issued, monthly and annual
unaudited reports containing information concerning the Receivables will be
prepared by the Servicer and sent on behalf of the Trust only to Cede & Co., as
nominee of The Depository Trust Company and registered holder of the Class A
Certificates. See "Certain Information Regarding the Securities -- Book-Entry
Registration" and "-- Statements to Securityholders" in the accompanying
Prospectus (the "Prospectus").
S-3
<PAGE>
SUMMARY OF TERMS
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere herein and in the Prospectus. Certain
capitalized terms used herein are defined elsewhere in this Prospectus
Supplement on the pages indicated in the "Index of Terms" or, to the extent not
defined herein, have the meanings assigned to such terms in the Prospectus.
Issuer.............. CS First Boston Auto Receivables Trust 199_-___, a trust
(the "Trust") to be formed pursuant to a pooling and
servicing agreement (the "Pooling and Servicing
Agreement") dated as of ___________, 199_ (the "Cutoff
Date"), among the Company, the Servicer and the Trustee.
Company............. The Company is a special-purpose Delaware corporation
organized for the purpose of causing the issuance of the
Certificates and other securities issued under the
Registration Statement backed by receivables or underlying
securities of various types and acting as settlor or
depositor with respect to trusts, custody accounts or
similar arrangements or as general or limited partner in
partnerships formed to issue securities. It is not
expected that the Company will have any significant
assets. The Company is an indirect, wholly owned finance
subsidiary of Collateralized Mortgage Securities
Corporation which is a wholly owned subsidiary of CS First
Boston Securities Corporation, which is a wholly owned
subsidiary of CS First Boston, Inc. Neither CS First
Boston Securities Corporation nor CS First Boston, nor any
of their affiliates has guaranteed, will guarantee or is
or will be otherwise obligated with respect to any Series
of Securities.
The Company's principal executive office is located at
Park Avenue Plaza, 55 East 52nd Street, New York, New York
10055, and its telephone number is (212) 909-2000.
Seller.............. _______ (in such capacity, "the Seller"). See "The Seller
and the Servicer" herein.
Servicer............ _______ (in such capacity, the "Servicer"). See "The
Seller and the Servicer" herein.
Trustee............. _______, as trustee under the Pooling and Servicing
Agreement (the "Trustee"). See "The Trustee" herein.
The Certificates.... The Trust will issue $_________ aggregate principal amount
of _____% Asset Backed Certificates, Class A (the "Class A
Certificates") and $____________ aggregate principal
amount of % Asset Backed Certificates, Class B (the "Class
B Certificates" and, with the Class A Certificates, the
"Certificates") on ____________, 199_ (the "Closing
Date"). Each Certificate will represent a fractional
undivided interest in the Trust. The Class A Certificates
will evidence in the aggregate an undivided ownership
interest in approximately __% of the Trust (the "Class A
Percentage") and the Class B Certificates will evidence in
the aggregate an undivided ownership interest in
approximately __% of the Trust (the "Class B Percentage").
Only the Class A Certificates are being offered hereby.
S-4
<PAGE>
The Class B Certificates will be subordinated to the Class
A Certificates to the extent described herein. See "The
Certificates" herein.
The Receivables..... On the Closing Date, the Company will convey the
Receivables to the Trust in an aggregate principal balance
of approximately $_______________ as of the Cutoff Date.
The Company will convey the Receivables, and the Servicer
will agree to service the Receivables, pursuant to the
Pooling and Servicing Agreement. See "The Pooling and
Servicing Agreement - Sale and Assignment of Receivables"
and "The Receivables Pool" herein and "The Receivables
Pools" in the Prospectus.
On or before the Closing Date, the Company will purchase
the Receivables from the Seller pursuant to a receivables
purchase agreement (the "Receivables Purchase Agreement"),
dated as of ____________,199_. See "The Receivables
Purchase Agreement" herein.
The Receivables arise from motor vehicle installment
contracts (each, a "Contract") originated or purchased by
the Seller in the ordinary course of business. The
Receivables have been selected from Contracts owned by the
Seller based on the criteria specified in the Receivables
Purchase Agreement and described herein under "The
Receivables Pool". Approximately __% of the Receivables
were originated in ____________ and approximately __% of
the Receivables were originated in __________. As of the
Cutoff Date, the weighted average APR of the Receivables
was approximately ____, the weighted average remaining
term to maturity of the Receivables was approximately ____
months and the weighted average original term to maturity
of the Receivables was approximately ____ months. No
Receivable has a scheduled maturity later than
______________ (the "Final Scheduled Maturity Date").
Pursuant to the terms of the Pooling and Servicing
Agreement, the Company will assign the representations and
warranties made by the Seller to the Trustee for the
benefit of holders of the Certificates and will make
certain limited representations and warranties with
respect to the Receivables. Pursuant to the terms of the
Receivables Purchase Agreement, the Seller will make
certain representations and warranties regarding the
characteristics of the Receivables and will undertake to
repurchase any Receivable with respect to which an uncured
breach of any representation or warranty exists, if such
breach materially and adversely affects the interests of
the Trustee and the Certificateholders in such Receivable
and if such breach is not cured by the Seller in a timely
manner. To the extent that the Seller does not repurchase
a Receivable in the event of a breach of its
representations and warranties with respect to such
Receivable, the Company will not be required to repurchase
such Receivable unless such breach also constitutes a
breach of one of the Company's representations and
warranties with respect to such Receivable and such breach
materially and adversely affects the interests of the
Certificateholders in any such Receivable. See "The
Pooling and Servicing Agreement," and "The Receivables
Purchase Agreement" herein. Neither the Seller nor the
Company will have any other obligation with respect to the
Receivables or the Certificates.
Trust Property...... The assets of the Trust (the "Trust Property") include (i)
the Receivables, (ii) all monies (including accrued
interest) received on or with respect to the Receivables
on or after the Cutoff Date, (iii) all amounts and
property from time to time held in or credited to the
Collection Account, (iv) security interests in the
Financed
S-5
<PAGE>
Vehicles and any accessions thereto, (v) the right to
receive proceeds from claims on physical damage, credit
life and disability insurance policies covering Financed
Vehicles or Obligors, as the case may be, (vi) any
property that shall have secured a Receivable and that
shall have been acquired by or on behalf of the Trustee,
(vii) all of the Seller's right to all documents contained
in the files pertaining to the Receivables, (viii) the
right to draw on funds on deposit in the Reserve Account,
to the extent described herein, to meet shortfalls in
amounts due to Certificateholders, and (ix) any and all
proceeds of the foregoing. The Reserve Account will not be
property of the Trust. See "The Certificates-
Distribution," "-Subordination of the Class B
Certificates; Reserve Account," and "The Trust".
Terms of the Certificates
A. Distribution
Dates .......... Distributions of interest and principal on the
Certificates will be made on the ____ day of each month
or, if such day is not a Business Day, on the next
succeeding Business Day (each, a "Distribution Date"),
commencing _________, 199_. Distributions will be made to
holders of record of the Certificates (the
"Certificateholders") as of the day immediately preceding
such Distribution Date (each, a "Record Date"). A
"Business Day" is a day other than a Saturday, a Sunday or
day on which banking institutions or trust companies in
The City of New York or the city in which the corporate
trust office of the Trustee is located are authorized by
law, regulation or executive order to be closed.
B. Pass-Through
Rates .......... Interest will accrue on the Class A Certificates at the
rate of ___% per annum (the "Class A Pass-Through Rate")
and on the Class B Certificates at the rate of ___% per
annum (the "Class B Pass-Through Rate"), in each case,
calculated on the basis of a 360-day year consisting of
twelve 30-day months.
C. Interest........ On each Distribution Date, the Trustee will distribute pro
rata to holders of the Class A Certificates (the "Class A
Certificateholders") accrued interest at the Class A Pass-
Through Rate on the Class A Certificate Balance as of the
preceding Distribution Date (after giving effect to
distributions made on such Distribution Date), to the
extent of funds available therefor, following payment of
the Servicing Fee, from (i) the Class A Percentage of the
Interest Distribution Amount, (ii) the Reserve Account,
and (iii) the Class B Percentage of the Total Distribution
Amount.
D. Principal....... Principal of the Class A Certificates will be payable on
each Distribution Date, pro rata to the Class A
Certificateholders, in a maximum amount equal to the Class
A Principal Distributable Amount for the calendar month
preceding such Distribution Date or, in the case of the
first Distribution Date, the period from and including the
Cutoff Date through the last day of the calendar month
immediately preceding such Distribution Date (the
"Collection Period"). The Class A Principal Distributable
Amount with respect to any Distribution Date will equal
the Class A Percentage of the Principal Distribution
Amount for the related Collection Period and generally
will be payable to the extent of funds available therefor,
following payment of the Servicing Fee and the Class A
Interest Distributable Amount, from (i) the Class A
Percentage of the Principal Distribution Amount (exclusive
of the portion thereof attributable to Realized Losses),
(ii) the Reserve Account, and (iii) the Class B Percentage
of the Total Distribution Amount.
S-6
<PAGE>
On each Distribution Date, subject to the prior
distribution on such date of the Servicing Fee, the Class
A Interest Distributable Amount and the Class A Principal
Distributable Amount, the Trustee will distribute to
holders of the Class B Certificates (the "Class B
Certificateholders") (i) the Class B Interest
Distributable Amount to the extent of funds available
therefor from the Class B Percentage of the Interest
Distribution Amount and the Reserve Account and (ii) the
Class B Principal Distributable Amount to the extent of
funds available therefor from the Class B Percentage of
the Principal Distribution Amount and the Reserve Account.
The outstanding principal amount of the Class A
Certificates and the Class B Certificates, if any, will be
payable in full on ____________, 199_ (the "Final
Scheduled Distribution Date").
See "The Pooling and Servicing Agreement - Distributions -
Calculation of Amounts to be Distributed" herein.
E. Optional
Prepayment ..... If the Servicer exercises its option to purchase the
Receivables, which it may do after the aggregate principal
balance of the Receivables (the "Pool Balance") declines
to 10% or less of the initial Pool Balance, the Class A
Certificateholders will receive an amount equal to the
Class A Certificate Balance together with accrued interest
at the Class A Pass-Through Rate, the Class B
Certificateholders will receive an amount equal to the
Class B Certificate Balance together with accrued interest
at the Class B Pass-Through Rate, and the Certificates
will be retired. See "The Certificates - Optional
Prepayment" herein.
Collection Account.. Except under certain conditions described in the
Prospectus under "Description of the Transfer and
Servicing Agreements - Collections," the Servicer will be
required to remit collections received with respect to the
Receivables within two Business Days of receipt thereof to
one or more accounts in the name of the Trustee (the
"Collection Account"). Pursuant to the Pooling and
Servicing Agreement, the Trustee will withdraw funds on
deposit in the Collection Account and apply such funds on
each Distribution Date to the following (in the priority
indicated): (i) the Servicing Fee for the related
Collection Period and any overdue Servicing Fees to the
Servicer, (ii) the Class A Interest Distributable Amount
and the Class A Principal Distributable Amount to the
Class A Certificateholders, (iii) the Class B Interest
Distributable Amount and the Class B Principal
Distributable Amount to the Class B Certificateholders,
and (iv) the remaining balance, if any, to the Reserve
Account. See "The Pooling and Servicing Agreement -
Distributions" herein.
Credit Enhancement.. Subordination. The rights of the Class B
Certificateholders to receive distributions to which they
would otherwise be entitled with respect to the
Receivables are subordinated to the rights of the Class A
Certificateholders, as described more fully herein. See
"The Pooling and Servicing Agreement -Distributions"
and"-Subordination of the Class B Certificates; Reserve
Account" herein.
Reserve Account. The Reserve Account will be created with
an initial deposit by the Company on the Closing Date of
cash or Eligible Investments having a value of at least
$________ (the "Reserve Account Initial Deposit"). Funds
will be withdrawn from the Reserve Account on any
Distribution Date if, and to the extent that, the Total
Distribution Amount for the related Collection Period
remaining
S-7
<PAGE>
after payment of the Servicing Fee is less than the Class
A Distributable Amount. Such funds will be distributed to
the Class A Certificateholders. In addition, after giving
effect to any such withdrawal and distribution to the
Class A Certificateholders, funds will be withdrawn from
the Reserve Account if, and to the extent that, the
portion of the Total Distribution Amount remaining after
payment of the Servicing Fee and the Class A Distributable
Amount is less than the Class B Distributable Amount. Such
funds will be distributed to the Class B
Certificateholders.
Funds in any Reserve Account may be invested in securities
that will not mature prior to the date of such next
scheduled distribution with respect to the Certificates
and will not be sold prior to maturity to meet any
shortfalls. Thus, the amount of available funds on deposit
in the Reserve Account at any time may be less than the
balance of the Reserve Account. If the amount required to
be withdrawn from the Reserve Account to cover shortfalls
in collections on the related Receivables exceeds the
amount of available funds on deposit in the Reserve
Account, a temporary shortfall in the amounts distributed
to the Certificateholders could result.
On each Distribution Date, the Reserve Account will be
reinstated up to the Specified Reserve Account Balance by
the deposit thereto of the portion, if any, of the Total
Distribution Amount remaining after payment of the
Servicing Fee, the Class A Distributable Amount and the
Class B Distributable Amount. The "Specified Reserve
Account Balance" with respect to any Distribution Date
generally will be equal to [state formula]. Certain
amounts in the Reserve Account on any Distribution Date
(after giving effect to all distributions to be made on
such Distribution Date) in excess of the Specified Reserve
Account Balance for such Distribution Date will be
released to the Company and will no longer be available to
the Certificateholders.
The Reserve Account will be maintained with the Trustee as
a segregated trust account, but will not be part of the
Trust. See "The Pooling and Servicing Agreement -
Subordination of the Class B Certificates; Reserve
Account" herein.
Advances............ If a shortfall should occur in any Collection Period
between the amount due as interest on the Receivables
during such Collection Period (assuming the Receivables
were paid on their respective scheduled payment dates) and
the amount actually received in respect of the Receivables
during such Collection Period and allocable to interest,
the Servicer will advance an amount equal to such
shortfall (an "Advance"). The Servicer will be reimbursed
for Advances (i) from collections and other amounts
received on the Receivables with respect to which such
Advances were made; (ii) from collections and other
amounts received in respect of other Receivables; or (iii)
by reducing the Repurchase Amount (as defined herein) due
from the Servicer by the amount of any unreimbursed
Advances. The Servicer may elect not to make an Advance
with respect to any Receivable to the extent that the
Servicer determines, in its sole discretion, that it is
unlikely to be able to recover such Advances from future
collections and other payments in respect of the
Receivables. See "The Certificates-Advances" herein.
Certain Legal
Aspects ............ The Seller shall repurchase certain Receivables with
respect to which any prior security interest in such
Receivable is found to exist, any laws have been violated,
or the Seller's security interest in the respective
Financed Vehicle has not been properly assigned to the
Trustee. The Trustee's security interest in the Financed
S-8
<PAGE>
Vehicle may be not be properly assigned in the event of
(i) the relocation or resale of the Financed Vehicle in
another state without the Servicer's re-perfecting the
Trustee's security interest, (ii) the imposition certain
tax or possessory liens, or (iii) fraud or negligence. In
addition, certain consumer protection laws allow an
Obligor (as defined herein) under a Receivable to assert
certain claims and defenses against a holder of the
Receivable thus possibly rendering a Receivable partly or
wholly uncollectible. See "Risk Factors - Security
Interests in the Financed Vehicles" herein and "Risk
Factors - Certain Legal Aspects - Security Interests in
Financed Vehicles" and "Certain Legal Aspects of the
Receivables" in the Prospectus.
Tax Status.......... In the opinion of Sidley & Austin ("Federal Tax Counsel"),
the Trust will be classified as a grantor trust for
federal income tax purposes and will not be classified as
an association taxable as a corporation. Subject to the
discussion under "Certain Federal Income Tax Consequences"
in the Prospectus, each Owner of a beneficial interest in
the Certificates must include in income its pro rata share
of interest and other income from the Receivables and,
subject to certain limitations, may deduct its pro rata
share of fees and other deductible expenses paid by the
Trust. See "Certain Federal Income Tax Consequences" in
the Prospectus for additional information concerning the
application of federal income tax laws to the Trust and
the Certificates.
ERISA Considerations Subject to the considerations discussed under "ERISA
Considerations" herein and in the Prospectus, the Class A
Certificates will be eligible for purchase by employee
benefit plans subject to the Employee Retirement Income
Security Act of 1974, as amended, and "plans" as defined
in Section 4975 of the Internal Revenue Code of 1986, as
amended. See "ERISA Considerations" herein and in the
Prospectus.
Ratings of the
Certificates ....... It is a condition to the issuance of the Class A
Certificates that they be rated at least _____ by at least
two nationally recognized rating agencies. A rating is not
a recommendation to purchase, hold or sell the Class A
Certificates, inasmuch as such rating does not comment as
to market price or suitability for a particular investor.
The ratings address the likelihood that principal of and
interest on the Class A Certificates will be paid pursuant
to their terms. There can be no assurance that a rating
will not be lowered or withdrawn by a rating agency if
circumstances so warrant. See "Risk Factors -Ratings of
the Class A Certificates" herein.
S-9
<PAGE>
RISK FACTORS
In addition to the other information contained in this Prospectus
Supplement and the Prospectus, prospective investors should carefully consider
the following risk factors before investing in the Class A Certificates.
Limited Liquidity. There is currently no secondary market for the Class
A Certificates. CS First Boston Corporation (the "Underwriter") currently
intends to make a market in the Class A Certificates, but is under no
obligation to do so. There can be no assurance that a secondary market will
develop or, if a secondary market does develop, that it will provide the Class
A Certificateholders with liquidity of investment or that it will continue for
the life of the Class A Certificates.
Limited Assets. The Trust will not have, nor is it permitted or expected
to have, any significant assets or sources of funds other than the Receivables
and access to funds in the Reserve Account. Certificateholders generally must
rely on payments on the Receivables for distributions of interest and principal
on the Certificates. Although funds in the Reserve Account will be generally
available on each Distribution Date to cover shortfalls in distributions of
interest and principal on the Certificates, amounts to be deposited in the
Reserve Account are limited in amount. If the Reserve Account is exhausted,
the Trust will depend solely on current distributions on the Receivables to
make distributions on the Certificates.
Funds in any Reserve Account may be invested in securities that will not
mature prior to the date of such next scheduled distribution with respect to the
Certificates and will not be sold prior to maturity to meet any shortfalls.
Thus, the amount of available funds on deposit in the Reserve Account at any
time may be less than the balance of the Reserve Account. If the amount required
to be withdrawn from the Reserve Account to cover shortfalls in collections on
the related Receivables exceeds the amount of available funds on deposit in the
Reserve Account, a temporary shortfall in the amounts distributed to the
Certificateholders could result.
Security Interests in the Financed Vehicles. To facilitate servicing and
to minimize administrative burden and expense, the Servicer will be appointed
custodian of the Receivables and the related documents by the Trustee, but will
not stamp the Receivables to reflect the sale and assignment of the Receivables
to the Trust or amend the certificates of title of the Financed Vehicles. In
the absence of amendments to the certificates of title, the Trustee may not
have perfected security interests in the Financed Vehicles securing the
Receivables in some states. See "Risk Factors - Certain Legal Aspects -
Security Interests in Financed Vehicles" and "Certain Legal Aspects of the
Receivables" in the Prospectus.
Ratings of the Class A Certificates. It is a condition to the issuance
of the Class A Certificates that they be rated at least or its equivalent by at
least two nationally recognized rating agencies (the "Rating Agencies"). A
rating is not a recommendation to purchase, hold or sell the Class A
Certificates, inasmuch as a rating does not comment as to market price or
suitability for a particular investor. The ratings of the Class A Certificates
address the likelihood of the timely payment of interest on, and the ultimate
repayment of principal of, the Class A Certificates pursuant to their terms.
There can be no assurance that a rating will be retained for any given period
of time or that a rating will not be lowered or withdrawn entirely by a Rating
Agency if in its judgment circumstances in the future so warrant. In the event
that a rating is subsequently lowered or withdrawn, no person or entity will be
required to provide any additional credit enhancement. The ratings of the
Class A Certificates are based primarily on the credit quality of the
Receivables, the subordination of the Class B Certificates and the availability
of funds in the Reserve Account.
Trust's Relationship to the Company. The Company is generally not
obligated to make any payments in respect of the Certificates or the
Receivables. The Company has assigned the representations and warranties of the
Seller under the Receivables Purchase Agreement to the Trustee. In addition
the Company has made certain representations and warranties regarding the
characteristics of the Receivables and is required under the Pooling and
Servicing Agreement to repurchase Receivables with respect to which such
representations and warranties have been
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<PAGE>
breached. It is not anticipated that the Company will have any significant
assets with which to fund such repurchases.
Trust's Relationship to the Seller and the Servicer. Neither the Seller
nor the Servicer is generally obligated to make any payments in respect of the
Certificates or the Receivables. If _______ were to cease acting as Servicer,
delays in processing payments on the Receivables and information in respect
thereof could occur and result in delays in payment to the Class A
Certificateholders. The Seller has made certain representations and warranties
regarding the characteristics of the Receivables and is required under the
Receivables Purchase Agreement to repurchase Receivables with respect to which
such representations and warranties have been breached. See "The Receivables
Purchase Agreement - Sale and Assignment of Receivables herein and "Description
of the Receivables Purchase Agreements - Sale and Assignment of Receivables" in
the Prospectus.
THE TRUST
GENERAL
The Company will establish the Trust by selling and assigning the Trust
Property to the Trustee in exchange for the Certificates. The Servicer will
service the portion of such assets consisting of the Receivables pursuant to
the Pooling and Servicing Agreement and will be compensated for acting as the
Servicer. See "The Pooling and Servicing Agreement - Servicing Compensation"
herein and "The Transfer and Servicing Agreements - Servicing Compensation and
Payment of Expenses" in the Prospectus.
If the protection provided to Certificateholders by the Reserve Account
and, in the case of the Class A Certificateholders, the subordination of the
Class B Certificates is insufficient, the Trust will look only to the Obligors
on the Receivables and the proceeds from the repossession and sale of Financed
Vehicles that secure defaulted Receivables to fund distributions of principal
and interest on the Certificates. In such event, certain factors, such as the
Trust's not having first priority perfected security interests in some of the
Financed Vehicles, may affect the Trust's ability to realize on the collateral
securing the Receivables and thus may reduce the proceeds to be distributed to
Certificateholders with respect to the Certificates. See "The Pooling and
Servicing Agreement - Distributions" and "- Subordination of the Class B
Certificates, Reserve Account" herein and "Certain Legal Aspects of the
Receivables" in the Prospectus.
Each Certificate represents a fractional undivided ownership interest in
the Trust. The assets of the Trust (the "Trust Property") include (i) the
Receivables, (ii) all monies (including accrued interest) received on or with
respect to the Receivables on or after the Cutoff Date, (iii) all amounts and
property from time to time held in or credited to the Collection Account, (iv)
security interests in the Financed Vehicles and any accessions thereto, (v) the
right to receive proceeds from claims on physical damage, credit life and
disability insurance policies covering Financed Vehicles or Obligors, as the
case may be, (vi) any property that shall have secured a Receivable and that
shall have been acquired by or on behalf of the Trustee, (vii) all of the
Seller's right to all documents contained in the files pertaining to the
Receivables, (viii) the right to draw on funds on deposit in the Reserve
Account, to the extent described herein, to meet shortfalls in amounts due to
Certificateholders, and (ix) any and all proceeds of the foregoing. The
Reserve Account will be maintained by the Trustee for the benefit of the
Certificateholders, but will not be part of the Trust.
THE TRUSTEE
__________ is Trustee under the Pooling and Servicing Agreement.
__________ is a __________ banking corporation, and its principal offices are
located at __________. The Company, the Seller or any of their respective
affiliates may maintain normal commercial banking relations with the Trustee
and its affiliates.
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<PAGE>
THE RECEIVABLES POOL
The pool of Receivables conveyed to the Trust (the "Receivables Pool")
were originated or purchased by the Seller in the ordinary course of business,
and were or will be selected from the Seller's portfolio for inclusion in the
Receivables Pool based on several criteria, including the following: (i) as of
the Cutoff Date each Receivable had, or will have, an outstanding gross balance
of at least $1,000; (ii) as of the Cutoff Date, no Receivable will be more than
90 days past due; and (iii) as of the Cutoff Date, no Obligor on any Receivable
was noted in the records of the Seller as being the subject of a bankruptcy
proceeding. Certain additional criteria that each Receivable must meet are set
forth in the Prospectus under "The Receivables Pools". No selection procedures
believed by the Seller to be adverse to Certificateholders were or will be used
in selecting the Receivables.
The composition, distribution by APR and geographic distribution of the
Receivables as of the Cutoff Date are as set forth in the following tables.
COMPOSITION OF THE RECEIVABLES AS OF THE CUTOFF DATE
<TABLE>
<S> <C> <C> <C> <C> <C>
Weighted Aggregate principal Number of Weighted Average Weighted Average Average Principal
Average APR Balance Receivables Remaining Term Original Term Balance
% $ months months $
</TABLE>
DISTRIBUTION OF RECEIVABLES BY APR AS OF THE CUTOFF DATE
Number of Aggregate Principal Percentage of Aggregate
APR Range Receivables Balance Principal Balance
0.00% to 3.00%
3.01% to 4.00%
4.01% to 5.00%
5.01% to 6.00%
6.01% to 7.00%
7.01% to 8.00%
8.01% to 9.00%
9.01% to 10.00%
10.01% to 11.00%
11.01% to 12.00%
12.01% to 13.00%
13.01% to 14.00%
14.01% to 15.00%
15.01% to 16.00%
16.01% to 17.00%
17.01% to 18.00%
18.01% to 19.00%
Greater than 20.00% ____________ ____________ ______________
Total ======= ======= =======
GEOGRAPHIC DISTRIBUTION OF THE RECEIVABLES AS OF THE CUTOFF DATE (1)
Number of Aggregate Principal Percentage of Aggregate
Receivables Balance Principal Balance
----------- ------------------- -----------------------
New York.......
California.....
Other.......... ----------- ---------- -----------
Total........ ====== ====== ======
(1) Based on billing addresses of the Obligers as of the Cutoff Date.
S-12
<PAGE>
By aggregate principal balance, approximately ___% of the Receivables
constitute Precomputed Receivables and ___% of the Receivables constitute Simple
Interest Receivables. See "The Receivables Pools" in the Prospectus for a
description of the characteristics of Precomputed Receivables and Simple
Interest Receivables. As of the Cutoff Date, approximately ___% of the
Receivables by aggregate principal balance, constituting ___% of the number of
Receivables, represent used vehicles.
DELINQUENCIES, REPOSSESSIONS AND NET LOSSES
Set forth below is certain information concerning the delinquency,
repossession and net loss experience of the Seller pertaining to retail new and
used automobile, van and light duty truck receivables. The delinquency,
repossession and credit loss data presented in the following tables are for
illustrative purposes only. There is no assurance that the Seller's delinquency,
repossession and credit loss experience with respect to automobile, van and
light duty truck receivables in the future, or the experience of the Trust with
respect to the Receivables, will be similar to that set forth below.
Delinquencies, repossessions and net losses on new and used automobiles, vans
and light duty trucks are affected by social and economic conditions generally
and, in particular, in the States of ______ and _______, where ___% and ___%,
respectively, of the Financed Vehicles were purchased.
DELINQUENCY EXPERIENCE (1)
At December 31,
1994 1993 1992 1991 1990
(Dollars in Thousands)
Portfolio Outstanding at End of Period
Delinquencies at End of Period(2)
30-59 Days
60-89 Days
90 Days or More
Total Delinquencies
Total Delinquencies as a Percentage of
Portfolio Outstanding at End of Period
________________
(1) Except as indicated, all amounts and percentages are based on the gross
amount scheduled to be paid on each contract, including unearned finance
and other charges.
(2) The period of delinquency is based on the number of days payments are
contractually past due.
CREDIT LOSS/REPOSSESSION EXPERIENCE(1)
At December 31,
1994 1993 1992 1991 1990
(Dollars in Thousands)
Average Amount Outstanding During the
Period
Average Number of Contracts
Outstanding during the Period
Repossessions as a Percentage of
Average Number of Contracts
Outstanding
Net Losses as a Percentage of
Liquidations (2)(3)
Net Losses as a Percentage of Average
Amount Outstanding(3)
________________
(1) Except as indicated, all amounts and percentages are based on the gross
amount scheduled to be paid on each contract, including unearned finance
and other charges.
(2) Net losses are equal to the aggregate of the net balances of all
contracts that were determined to be uncollectible in the period, less
any recoveries on contracts charged off in the period or any prior
periods, excluding any losses resulting from the failure to recover
commissions to dealers with respect to contracts that are prepaid or
charged off.
(3) Liquidations represent a reduction in the outstanding balances of the
contracts as a result of monthly cash payments and charge-offs.
S-13
<PAGE>
THE SELLER AND THE SERVICER
[Information regarding the Seller and the Servicer to be supplied.]
WEIGHTED AVERAGE LIFE OF THE CERTIFICATES
Information regarding certain maturity and prepayment considerations with
respect to the Certificates is set forth under "Weighted Average Life of the
Securities" in the Prospectus. As the rate of payment of principal of the
Certificates depends on the rate of payment (including prepayments) of the
principal balance of the Receivables, the final distribution in respect of the
Certificates could occur significantly earlier that the Final Scheduled
Distribution Date. Certificateholders will bear the risk of being able to
reinvest principal payments on the Certificates at yields at least equal to the
yield on the Certificates.
THE CERTIFICATES
GENERAL
The Certificates will be issued pursuant to the terms of the Pooling and
Servicing Agreement, a form of which has been filed as an exhibit to the
Registration Statement. A copy of the Pooling and Servicing Agreement will be
filed with the Commission following the issuance of the Certificates. The
following summary describes certain terms of the Certificates and the Pooling
and Servicing Agreement. The summary does not purport to be complete and is
subject to, and is qualified in its entirety by reference to, all the provisions
of the Certificates and the Pooling and Servicing Agreement. The following
summary supplements, and to the extent inconsistent therewith replaces, the
description of the general terms and provisions of the Certificates of any given
Series and the related Pooling and Servicing Agreement set forth in the
Prospectus, to which description reference is hereby made.
The "Class A Certificate Balance" initially will equal $__________
and, as of any date of determination thereafter, will equal such initial Class
A Certificate Balance less the sum of all amounts previously distributed to
Class A Certificateholders allocable to principal. The "Class B Certificate
Balance" initially will equal $_________ and, as of any date of determination
thereafter, will equal such initial Class B Certificate Balance less the sum of
all amounts previously distributed to Class B Certificateholders allocable to
principal and any Realized Losses allocable to the Class B Certificates. The
Class A Certificates will evidence in the aggregate an undivided ownership
interest in approximately _____% of the Trust, and the Class B Certificates
will evidence in the aggregate an undivided ownership interest in approximately
_____% of the Trust. The Class B Certificates are not being offered hereby and
initially will be held by ______.
DISTRIBUTIONS
Deposits to Collection Account. On or about the ____ Business Day
of each month, the Servicer will provide the Trustee with certain information
with respect to the preceding Collection Period, including the aggregate amount
of collections on the Receivables, the Advances and Repurchase Amounts, as well
as the Total Distribution Amount, the Interest Distribution Amount, the
Principal Distribution Amount, the Class A Interest Distributable Amount, the
Class A Principal Distributable Amount, the Class B Interest Distributable
Amount and the Class B Principal Distributable Amount.
On or before each Distribution Date, the Servicer will cause the Total
Distribution Amount to be deposited into the Collection Account. The "Total
Distribution Amount" for any Distribution Date will equal the sum of the
Interest Distribution Amount and the Principal Distribution Amount for such date
(other than the portion
S-14
<PAGE>
hereof attributable to Realized Losses). "Realized Losses" means the excess of
the principal balance of a Liquidated Receivable over Liquidation Proceeds with
respect thereto to the extent allocable to principal.
The "Interest Distribution Amount" for a Distribution Date generally will
equal the sum of the following amounts with respect to the preceding Collection
Period: (i) that portion of all collections on the Receivables allocable to
interest; (ii) all proceeds of the liquidation of defaulted Receivables
("Liquidated Receivables"), net of expenses incurred by the Servicer in
connection with such liquidation and any amounts required by law to be remitted
to the obligor on such Liquidated Receivables (such net amount, "Liquidation
Proceeds"), to the extent attributable to interest due thereon; (iii) all
recoveries in respect of Liquidated Receivables that were written off in prior
Collection Periods; (iv) all Advances made by the Servicer; (v) the Repurchase
Amount of each Receivable that was repurchased by the Seller or the Company, to
the extent attributable to interest due thereon; and (vi) Investment Earnings
for such Distribution Date.
The "Principal Distribution Amount" for a Distribution Date generally will
equal the sum of the following amounts with respect to the preceding Collection
Period: (i) that portion of all collections on the Receivables allocable to
principal; (ii) Liquidation Proceeds to the extent attributable to principal,
plus the amount of Realized Losses with respect to the related Liquidated
Receivables; and (iii) the Repurchase Amount of each Receivable that was
repurchased by the Seller or the Company to the extent allocable to principal.
The Interest Distribution Amount and the Principal Distribution Amount on any
Distribution Date shall exclude the following:
(i) amounts received on Receivables to the extent that the
Servicer has previously made an unreimbursed Advance;
(ii) Liquidation Proceeds with respect to a particular
Receivable to the extent of any unreimbursed Advances thereon; and
(iii) all payments and proceeds (including Liquidation
Proceeds) of any Receivables the Repurchase Amount of which has been
included in the Total Distribution Amount in a prior Collection Period.
Calculation of Distributable Amounts. The "Class A Distributable
Amount" with respect to a Distribution Date will equal the sum of (i) the
"Class A Principal Distributable Amount", consisting of the Class A Percentage
of the Principal Distribution Amount, plus (ii) the "Class A Interest
Distributable Amount", consisting of thirty days' interest at the Class A
Pass-Through Rate on the Class A Certificate Balance as of the preceding
Distribution Date (after giving effect to distribution made on such
Distribution Date). In addition, on the Final Scheduled Distribution Date, the
Class A Principal Distributable Amount will include the lesser of (a) the Class
A Percentage of (i) any scheduled payments of principal due and remaining
unpaid on each Precomputed Receivable and (ii) any principal due and remaining
unpaid on each Simple Interest Receivable, in each case, in the Trust as of the
Final Scheduled Maturity Date or (b) the amount that is necessary (after giving
effect to the other amounts to be distributed to Class A Certificateholders on
such Distribution Date and allocable to principal) to reduce the Class A
Certificate Balance to zero.
The "Class B Distributable Amount" with respect to a Distribution Date will
equal the sum of (i) the "Class B Principal Distributable Amount", consisting of
the Class B Percentage of the Principal Distribution Amount, plus (ii) the
"Class B Interest Distributable Amount", consisting of thirty days' interest at
the Class B Pass-Through Rate on the Class B Certificate Balance as of the
preceding Distribution Date (after giving effect to distributions made on such
Distribution Date). In addition, on the Final Scheduled Distribution Date, the
Class B Principal Distributable Amount will include the lesser of (a) the Class
B Percentage of (i) any scheduled payments of principal due and remaining unpaid
on each Precomputed Receivable and (ii) any principal due and remaining
S-15
<PAGE>
unpaid on each Simple Interest Receivable, in each case, in the Trust as of the
Final Scheduled Maturity Date or (b) the amount that is necessary (after giving
effect to the other amounts to be distributed to Class B Certificateholders on
such Distribution Date and allocable to principal) to reduce the Class B
Certificate Balance to zero.
Amounts Distributed. The Class A Certificateholders will receive on any
Distribution Date, to the extent of available funds, the Class A Distributable
Amount and any outstanding Class A Interest Carryover Shortfall and Class A
Principal Carryover Shortfall as of the close of the preceding Distribution
Date.
On each Distribution Date on which the sum of the Class A Interest
Distributable Amount and any outstanding Class A Interest Carryover Shortfall
from the preceding Distribution Date (plus interest on such Class A Interest
Carryover Shortfall at the Class A Pass-Through Rate from such preceding
Distribution Date to the current Distribution Date, to the extent permitted by
law) exceeds the Class A Percentage of the Interest Distribution Amount (after
payment of the Servicing Fee) on such Distribution Date, the Class A
Certificateholders will be entitled to receive such amounts, first, from the
Class B Percentage of the Interest Distribution Amount; second, if such amounts
are insufficient, from amounts available in the Reserve Account, and, third, if
such amounts are insufficient, from the Class B Percentage of the Principal
Distribution Amount (other than any portion thereof allocable to Realized
Losses). "Class A Interest Carryover Shortfall" means, with respect to any
Distribution Date, the excess of the Class A Interest Distributable Amount for
the preceding Distribution Date, plus any outstanding Class A Interest Carryover
Shortfall on such preceding Distribution Date, over the amount of interest
actually distributed to Class A Certificateholders on such preceding
Distribution Date, plus interest on such excess at the Class A Pass-Through Rate
from such preceding Distribution Date to the current Distribution Date, to the
extent permitted by law.
On each Distribution Date on which the sum of the Class A Principal
Distributable Amount and any outstanding Class A Principal Carryover Shortfall
from the preceding Distribution Date exceeds the Class A Percentage of the
Principal Distribution Amount on such Distribution Date, the Class A
Certificateholders will be entitled to receive such amounts, first, from the
Class B Percentage of the Principal Distribution Amount (other than any portion
thereof attributable to Realized Losses); second, if such amounts are
insufficient, from amounts available in the Reserve Account; and, third, if
such amounts are insufficient, from the Class B Percentage of the Interest
Distribution Amount. "Class A Principal Carryover Shortfall" means, with
respect to any Distribution Date, the excess of the Class A Principal
Distributable Amount for the preceding Distribution Date plus any outstanding
Class A Principal Carryover Shortfall on such preceding Distribution Date, over
the amount of principal actually distributed to Class A Certificateholders on
such preceding Distribution Date.
THE POOLING AND SERVICING AGREEMENT
SALE AND ASSIGNMENT OF RECEIVABLES
Certain information with respect to the conveyance of the Receivables by the
Seller to the Trust on the Closing Date pursuant to the Pooling and Servicing
Agreement is set forth under "Description of the Transfer and Servicing
Agreements - Sale and Assignment of Receivables" in the Prospectus.
SERVICING COMPENSATION
The Servicer will be entitled to receive the Servicing Fee for each Collection
Period in an amount equal to _____% per annum of the Pool Balance as of the
first day of such Collection Period. The Servicing Fee (together with any
portion of the Servicing Fee that remains unpaid from prior Distribution Dates)
will be paid on each Distribution Date solely to the extent of the Interest
Distribution Amount for the related Collection Period; however, the Servicing
Fee will be paid to the Servicer prior to the distribution of any portion of the
Interest
S-16
<PAGE>
Distribution Amount to Certificateholders. See "Description of the Transfer
and Servicing Agreements - Servicing Compensation and Payment of Expenses" in
the Prospectus.
OPTIONAL PREPAYMENT
If the Servicer exercises its option to purchase the Receivables,
which it may do when the aggregate outstanding principal amount of the
Receivables declines to 10% or less of the initial Pool Balance, the Class A
Certificateholders will receive an amount in respect of the Class A
Certificates equal to the outstanding Class A Certificate Balance, together
with accrued interest to the redemption date at the Class A Pass-Through Rate,
and the Class B Certificateholders will receive an amount in respect of the
Class B Certificates equal to the outstanding Class B Certificate Balance,
together with accrued interest to the redemption date at the Class B
Pass-Through Rate, which distributions shall effect the early retirement of the
Certificates. See "Description of the Transfer and Servicing Agreements -
Termination" in the Prospectus.
SUBORDINATION OF THE CLASS B CERTIFICATES; RESERVE ACCOUNT
Subordination of the Class B Certificates. The rights of the Class
B Certificateholders to receive distributions with respect to the Receivables
generally will be subordinated to the rights of the Class A Certificateholders
in the event of defaults or delinquencies on the Receivables as provided in the
Pooling and Servicing Agreement and described herein. The protection afforded
to the Class A Certificateholders through subordination will be effected by the
preferential right of the Class A Certificateholders to receive current
distributions with respect to the Receivables.
Reserve Account. The Reserve Account will be created by the
deposit thereto by the Company on the Closing Date of the Reserve Account
Initial Deposit and will be increased up to the Specified Reserve Account
Balance by the deposit thereto on each Distribution Date on the amount, if any,
remaining from the Total Distribution Amount after payment of the Servicing
Fee, the Class A Distributable Amount and the Class B Distributable Amount. If
the amount on deposit in the Reserve Account on any Distribution Date (after
giving effect to all deposits thereto or withdrawals therefrom on such date) is
greater than the Specified Reserve Account Balance for such Distribution Date,
the Trustee will release such excess to the Company. Upon any such
distribution to the Company, the Certificateholders will have no rights in, or
claims to such amounts. Amounts held from time to time in the Reserve Account
will continue to be held for the benefit of the Class A Certificateholders and
the Class B Certificateholders.
Funds in the Reserve Account will be invested in Eligible Investments, as
provided in the Pooling and Servicing Agreement. Funds in any Reserve Account
may be invested in securities that will not mature prior to the date of such
next scheduled distribution with respect to the Certificates and will not be
sold prior to maturity to meet any shortfalls. Thus, the amount of available
funds on deposit in the Reserve Account at any time may be less than the balance
of the Reserve Account. If the amount required to be withdrawn from the Reserve
Account to cover shortfalls in collections on the related Receivables exceeds
the amount of available funds on deposit in the Reserve Account, a temporary
shortfall in the amounts distributed to the Certificateholders could result. The
Reserve Account will not be part of or otherwise includible in the Trust and
will be a segregated trust account held by the Trustee.
ADVANCES
If a shortfall should occur in any Collection Period between (i) the aggregate
amount of interest due on the Receivables during such Collection Period,
assuming each Receivable was paid on its scheduled payment date under the
related Contract, and (ii) the amount actually received on or in respect of the
Receivables during such Collection Period and allocable to interest, the
Servicer will deposit an amount (an "Advance") equal to such deficiency in the
Collection Amount on or before the applicable Distribution Date. The Servicer
will be allowed
S-17
<PAGE>
to recover any Advances so made (a) from collections and other amounts received
on the Receivables with respect to which such Advances were made, (b) from
collections or any other amounts received in respect of any other Receivables
and (c) by reducing any Repurchase Amount due from the Servicer by the amount
of any unreimbursed Advances. The Servicer may elect not to make an Advance
with respect to any Receivable to the extent that the Servicer determines that
it is unlikely to be able to recover such Advance from payments on or with
respect to the Receivables or from any other source.
THE RECEIVABLES PURCHASE AGREEMENT
On or prior to the Closing Date, the Seller will transfer and assign to the
Company pursuant to the Receivables Purchase Agreement, all of its right, title
and interest in and to Receivables in the outstanding principal amount of
$_________ including its security interests in the related Financed Vehicles.
Each Receivable will be identified in a schedule appearing as an exhibit to the
Receivables Purchase Agreement (the "Schedule of Receivables"). The Seller will
sell the Receivables to the Company without recourse, except that, as described
in the following paragraph, the Seller will be required to repurchase
Receivables with respect to which it is in breach of a representation or
warranty, if such breach materially and adversely affects the right of the
related Trust and Certificateholders in and to such Receivables. Concurrently
with or subsequent to the transfer and assignment of the Receivables to the
Company, the Company will transfer and assign the Receivables to the Trust, and
Trustee will execute, authenticate and deliver the Certificates. The net
proceeds from the sale of the Certificates will be applied to the purchase of
the Receivables.
In the Receivables Purchase Agreement, the Seller will represent and warrant
to the Company, among other things, that (i) the information set forth in the
Schedule of Receivables is correct in all material respects as of the Cutoff
Date; (ii) the Obligor on each Receivable is contractually required to maintain
physical damage insurance covering the related Financed Vehicle in accordance
with the Seller's normal requirements; (iii) on the Closing Date, to the best of
its knowledge, the Receivables are free and clear of all security interests,
liens, charges and encumbrances, and no offsets, defenses or counterclaims have
been asserted or threatened; (iv) at the Closing date, each of the Receivables
is, or will be, secured by a perfected, first-priority security interest in the
related Financed Vehicle in favor of the Seller; and (v) each Receivable, at the
time it was originated, complied and, on the Closing Date complies, in all
material respects with applicable federal and state laws, including, without
limitation, consumer credit, truth-in-lending, equal credit opportunity and
disclosure laws.
ERISA CONSIDERATIONS
Subject to the considerations set forth under "ERISA Considerations
- - Prohibited Transaction Exemption for Senior Certificates Issued by Grantor
Trusts" in the Prospectus, the Class A Certificates may be purchased by an
"employee benefit plan" as defined in and subject to the Employee Retirement
Income Security Act of 1974, as amended ("ERISA") or a "plan" as defined in
Section 4975 of the Internal Revenue Code of 1986, as amended (the "Code")
(each such "employee benefit plan" and "plan a "Plan"). A fiduciary of a Plan
must determine that the purchase of a Class A Certificate is consistent with
its fiduciary duties under ERISA and does not result in a nonexempt prohibited
transaction as defined in Section 406 of ERISA or Section 4975 of the Code.
For additional information regarding treatment of the Class A Certificates
under ERISA, see "ERISA Considerations" in the Prospectus.
S-18
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in an Underwriting
Agreement relating to the Class A Certificates (the "Underwriting Agreement"),
the Company has agreed to cause the Trust to sell to the Underwriter, and the
Underwriter has agreed to purchase, the entire principal amount of the Class A
Certificates.
The Underwriter proposes to offer the Class A Certificates to the
public initially at the public offering price set forth on the cover page of
this Prospectus Supplement, and to certain dealers at such price less a
concession of % per Class A Certificates; the Underwriter and such dealers
may allow a discount of % per Class A Certificates on sales to certain
other dealers; and after the initial public offering of the Class A
Certificates, the public offering price and the concessions and discounts to
dealers may be changed by the Underwriter.
The Underwriting Agreement provides that the Seller will indemnify
the Underwriter against certain liabilities under applicable securities laws,
or contribute to payments the Underwriter may be required to make in respect
thereof.
The Trust may, from time to time, invest the funds in the Trust Accounts in
Eligible Investments acquired from the Underwriter.
Upon receipt of a request by an investor who has received an electronic
Prospectus Supplement and Prospectus from the Underwriter within the period
during which there is an obligation to deliver a Prospectus Supplement and
Prospectus, the Company or the Underwriter will promptly deliver, or cause to be
delivered, without charge, a paper copy of the Prospectus Supplement and
Prospectus.
LEGAL MATTERS
Certain legal matters relating to the Certificates will be passed upon by
Sidley & Austin, New York, New York.
S-19
<PAGE>
INDEX OF TERMS
Business Day...............................................................S-
Certificates...............................................................S-
Certificateholders.........................................................S-
Class A Certificate Balance ...............................................S-
Class A Certificateholders ................................................S-
Class A Certificates.......................................................S-
Class A Distributable Amount...............................................S-
Class A Interest Carryover Shortfall.......................................S-
Class A Interest Distributable Amount......................................S-
Class A Pass-Through Rate..................................................S-
Class A Percentage.........................................................S-
Class A Principal Carryover Shortfall......................................S-
Class A Principal Distributable Amount.....................................S-
Class B Certificate Balance................................................S-
Class B Certificateholders.................................................S-
Class B Certificates.......................................................S-
Class B Distributable Amount...............................................S-
Class B Interest Distributable Amount......................................S-
Class B Pass-Through Rate..................................................S-
Class B Percentage.........................................................S-
Class B Principal Distributable Amount.....................................S-
Closing Date...............................................................S-
Code.......................................................................S-
Collection Account.........................................................S-
Collection Period..........................................................S-
Commission.................................................................S-
Cutoff Date................................................................S-
Distribution Date..........................................................S-
ERISA......................................................................S-
Federal Tax Counsel........................................................S-
Final Scheduled Distribution Date..........................................S-
Final Scheduled Maturity Date..............................................S-
Funding Period.............................................................S-
Interest Distribution Amount...............................................S-
Liquidated Receivables.....................................................S-
Liquidation Proceeds.......................................................S-
Plan.......................................................................S-
Pool Balance...............................................................S-
Pooling and Servicing Agreement............................................S-
Principal Distribution Amount..............................................S-
Prospectus.................................................................S-
Rating Agencies............................................................S-
Realized Losses............................................................S-
Receivables................................................................S-
Receivables Pool...........................................................S-
Receivables Purchase Agreement.............................................S-
Record Date................................................................S-
Reserve Account............................................................S-
S-20
<PAGE>
Reserve Account Initial Deposit............................................S-
Seller.....................................................................S-
Servicer...................................................................S-
Specified Reserve Account Balance..........................................S-
Total Distribution Amount..................................................S-
Trust......................................................................S-
Trust Accounts.............................................................S-
Trustee....................................................................S-
Underwriter................................................................S-
Underwriting Agreement.....................................................S-
S-21
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus supplement and the accompanying prospectus shall
not constitute an offer to sell or the solicitation of an offer to buy, nor
shall there be any sale of these securities in any State in which such offer,
solicitation or sale would be unlawful prior to registration or qualification
under the securities laws of any such State.
Subject to Completion
Prospectus Supplement to Prospectus Dated __________________, 199_
CS First Boston Auto Receivables Securities Trust
199_-___
$ ______________ % Asset Backed Certificates, Class A
________________
Asset Backed Securities Corporation
Company
________________
CS First Boston Auto Receivables Securities Trust 199__ -___ (the "Trust") will
be formed pursuant to a pooling and servicing agreement (the "Pooling and
Servicing Agreement"), dated as of __________, 199_ (the "Cutoff Date"), among
Asset Backed Securities Corporation (the "Company") as depositor, ________ (the
"Servicer"), as servicer, and ________________, (the "Trustee") as trustee, and
will issue $____________ aggregate principal amount of ____ % Asset Backed
Certificates, Class A (the "Class A Certificates") and $_____________aggre-gate
principal amount of ____ % Asset Backed Certificates, Class B (the "Class B
Certificates" and, with the Class A Certificates, the "Certificates"). Only the
Class A Certificates are being offered hereby.
(Continued on following page)
________________
THE CLASS A CERTIFICATES REPRESENT BENEFICIAL INTERESTS IN THE TRUST ONLY AND DO
NOT REPRESENT OBLIGATIONS OF OR INTERESTS IN CS FIRST BOSTON CORPORATION, THE
COMPANY, THE SERVICER, ANY SELLER, OR ANY OF THEIR RESPECTIVE AFFILIATES. NONE
OF THE CLASS A CERTIFICATES, THE COLLATERAL CERTIFICATES (AS DEFINED HEREIN), OR
THE RECEIVABLES ARE INSURED OR GUARANTEED BY CS FIRST BOSTON CORPORATION, THE
COMPANY, THE SERVICER, ANY SELLER, ANY OF THEIR RESPECTIVE AFFILIATES OR ANY
GOVERNMENTAL AGENCY.
________________
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 SUPPLEMENT OR THE PROSPECTUS. ANY REPRE-
SENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
________________
PROSPECTIVE INVESTORS SHOULD CONSIDER THE FACTORS SET FORTH UNDER "RISK
FACTORS" ON PAGE S-10 OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 10 OF THE
ACCOMPANYING PROSPECTUS.
________________
Price to the Underwriting Proceeds to the
Public(1) Discount Company(1)(2)
------------ ------------ ---------------
Per Class A Certificate......... % % %
$ $ $
(1) Plus accrued interest, if any, from ______________, 199_.
(2) Before deducting expenses, estimated to be $____________.
________________
The Class A Certificates are offered subject to prior sale and subject to
the right of CS First Boston Corporation (the "Underwriter") to reject orders in
whole or in part. It is expected that delivery of the Class A Certificates will
be made through the Same Day Funds System of the Depository Trust Company on or
about _______________, 199_.
[LOGO] CS First Boston
The date of this Prospectus Supplement is ________________, 199__.
<PAGE>
(Continued from preceding page)
The assets of the Trust will consist primarily of certain asset backed
certificates or notes (collectively, Collateral Certificates"), each issued
pursuant to a pooling and servicing agreement, sale and servicing agreement,
trust agreement or indenture (each, an "Underlying Agreement"). Each Collateral
Certificate represents an interest in a trust fund created pursuant to such
Underlying Agreement consisting of a pool of motor vehicle installment loan
agreements and motor vehicle retail installment sale contracts (collectively,
the "Receivables") secured by new or used automobiles, vans and light duty
trucks, security interests in in the vehicles financed thereby, and certain
other property. The Collateral Certificates [will be transferred to the Trust by
the Company pursuant to the Pooling and Servicing Agreement] [will be purchased
by the Trust with funds received from the Company in exchange for the
Certificates] [. The Company will purchase the Collateral Certificates] from
Certain Sellers (each, a "Seller"). The Trust may also draw on funds on deposit
in a Reserve Account, to the extent described herein, to meet shortfalls in
amounts due to Certificateholders on any Distribution Date. The Reserve Account
will not be part of the Trust.
The Class A Certificates will evidence in the aggregate an undivided ownership
interest in approximately % of the Trust. The Class B Certificates, which are
not being offered hereby, will evidence in the aggregate an undivided ownership
interest in approximately _______% of the Trust. Principal and interest at the
applicable Pass-Through Rate generally will be distributed to holders of
Certificates on the ________ day of each month, commencing __________, 199_. The
rights of the holders of Class B Certificates to receive distributions are
subordinated to the rights of the holder of Class A Certificates to the extent
described herein. The outstanding principal amount, if any, of the Certificates
will be due and payable on ______________, 199_.
________________
THIS PROSPECTUS SUPPLEMENT DOES NOT CONTAIN COMPLETE INFORMATION ABOUT THE
OFFERING OF THE CLASS A CERTIFICATES. ADDITIONAL INFORMATION IS CONTAINED IN THE
PROSPECTUS, AND PROSPECTIVE INVESTORS ARE URGED TO READ BOTH THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS IN FULL. INFORMATION WITH RESPECT TO EACH
COLLATERAL CERTIFICATE IS CONTAINED IN SCHEDULE I AND APPENDIX A HERETO. SALES
OF THE CLASS A CERTIFICATES MAY NOT BE CONSUMMATED UNLESS THE PURCHASER HAS
RECEIVED BOTH THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS. TO THE EXTENT ANY
STATEMENTS IN THIS PROSPECTUS SUPPLEMENT CONFLICT WITH STATEMENTS IN THE
PROSPECTUS, THE STATEMENTS IN THIS PROSPECTUS SUPPLEMENT SHALL CONTROL.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CLASS A
CERTIFICATES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
________________
S-2
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), on behalf of the Trust, a Registration Statement on Form S-3
(together with all amendments and exhibits thereto, the "Registration
Statement"), of which this Prospectus Supplement is a part under the Securities
Act of 1933, as amended. This Prospectus Supplement does not contain all of
the information set forth in the Registration Statement, certain parts of which
have been omitted in accordance with the rules and regulations of the
Commission. For further information, reference is made to the Registration
Statement which is available for inspection without charge at the public
reference facilities of the Commission at Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and the regional offices of the Commission at
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661,
and Seven World Trade Center, Suite 1300, New York, New York 10048. Copies of
such information can be obtained from the Public Reference Section of the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549,
at prescribed rates. The Servicer, on behalf of the Trust, will also file or
cause to be filed with the Commission such periodic reports as are required
under the Securities Exchange Act of 1934, as amended, (the "Exchange Act") and
the rules and regulations of the Commission thereunder.
REPORTS TO CERTIFICATEHOLDERS
Unless and until Definitive Certificates are issued, monthly and annual
unaudited reports containing information concerning the Receivables will be
prepared by the Servicer and sent on behalf of the Trust only to Cede & Co., as
nominee of The Depository Trust Company and registered holder of the Class A
Certificates. See "Certain Information Regarding the Securities - Book-Entry
Registration" and "- Statements to Securityholders" in the accompanying
Prospectus (the "Prospectus").
S-3
<PAGE>
SUMMARY OF TERMS
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere herein and in the Prospectus. Certain
capitalized terms used herein are defined elsewhere in this Prospectus
Supplement on the pages indicated in the "Index of Terms" or, to the extent not
defined herein, have the meanings assigned to such terms in the Prospectus.
Issuer.............. CS First Boston Auto Receivables Securities Trust 199_-
___, a trust (the "Trust") to be formed pursuant to a
pooling and servicing agreement (the "Pooling and
Servicing Agreement") dated as of ___________, 199_ (the
"Cutoff Date"), among the Company, the Servicer and the
Trustee.
Company............. The Company is a special-purpose Delaware corporation
organized for the purpose of causing the issuance of the
Certificates and other securities issued under the
Registration Statement backed by receivables or
underlying securities of various types and acting as
settlor or depositor with respect to trusts, custody
accounts or similar arrangements or as general or
limited partner in partnerships formed to issue
securities. It is not expected that the Company will
have any significant assets. The Company is an indirect,
wholly owned finance subsidiary of Collateralized
Mortgage Securities Corporation which is a wholly owned
subsidiary of CS First Boston Securities Corporation,
which is a wholly owned subsidiary of CS First Boston,
Inc. Neither CS First Boston Securities Corporation nor
CS First Boston, Inc. nor any of their affiliates has
guaranteed, will guarantee or is or will be otherwise
obligated with respect to any Series of Securities.
The Company's principal executive office is located at
Park Avenue Plaza, 55 East 52nd Street, New York, New
York 10055, and its telephone number is (212) 909-2000.
Servicer............ _______ (in such capacity, the "Servicer"). See "The
Servicer" herein.
Trustee............. _______, as trustee under the Pooling and Servicing
Agreement (the "Trustee"). See "The Trustee" herein.
The Certificates.... The Trust will issue $_________ aggregate principal
amount of _____% Asset Backed Certificates, Class A (the
"Class A Certificates") and $____________ aggregate
principal amount of % Asset Backed Certificates, Class B
(the "Class B Certificates" and, with the Class A
Certificates, the "Certificates") on ____________, 199_
(the "Closing Date"). Each Certificate will represent a
fractional undivided interest in the Trust. The Class A
Certificates will evidence in the aggregate an undivided
ownership interest in approximately __% of the Trust
(the "Class A Percentage") and the Class B Certificates
will evidence in the aggregate an undivided ownership
interest in approximately __% of the Trust (the "Class B
Percentage"). Only the Class A Certificates are being
offered hereby. The Class B Certificates will be
subordinated to the Class A Certificates to the extent
described herein. See "The Certificates" herein.
The Collateral
Certificates........ The Collateral Certificates are described in Schedule I
hereto. The Collateral Certificates consist of certain
asset backed certificates or notes, each issued
S-4
<PAGE>
pursuant to a pooling and servicing agreement, sale and
servicing agreement, trust agreement or indenture (each,
an "Underlying Agreement"). Each Collateral Certificate
represents an interest in a trust fund (an "Underlying
Trust Fund") created pursuant to such Underlying
Agreement. The assets of each Underlying Trust Fund
consist primarily of a pool of motor vehicle installment
loan agreements and motor vehicle retail installment
sale contracts (collectively, the "Receivables") secured
by new or used automobiles, vans and light duty trucks,
certain monies due or received thereunder, security
interests in the vehicles financed thereby, and certain
other property. Holders of a Collateral Certificate are
entitled to receive distributions of interest and
principal in respect thereof as described herein.
Trust Property...... The assets of the Trust (the "Trust Property") include
(i) the Collateral Certificates, (ii) all monies
(including accrued interest) received on or with respect
to the Collateral Certificates on or after the Cutoff
Date, (iii) all amounts and property from time to time
held in or credited to the Collection Account, (iv) the
right to draw on funds on deposit in the Reserve
Account, to the extent described herein, to meet
shortfalls in interest due to Certificateholders, and
(v) any and all proceeds of the foregoing. The Reserve
Account will not be property of the Trust. See "The
Certificates-Distribution," "-Subordination of the Class
B Certificates; Reserve Account," and "The Trust".
Terms of the Certificates
A. Distribution
Dates....... Distributions of interest and principal on the
Certificates will be made on the __ day of each month
or, if such day is not a Business Day, on the next
succeeding Business Day (each, a "Distribution Date"),
commencing _________, 199_. Distributions will be made
to holders of record of the Certificates (the
"Certificateholders") as of the day immediately
preceding such Distribution Date (each, a "Record
Date"). A "Business Day" is a day other than a Saturday,
a Sunday or day on which banking institutions or trust
companies in The City of New York or the city in which
the corporate trust office of the Trustee is located are
authorized by law, regulation or executive order to be
closed.
B. Pass-Through
Rates....... Interest will accrue on the Class A Certificates at the
rate of ___% per annum (the "Class A Pass-Through Rate")
and on the Class B Certificates at the rate of ___% per
annum (the "Class B Pass-Through Rate"), in each case,
calculated on the basis of a 360-day year consisting of
twelve 30-day months.
C. Interest..... On each Distribution Date, the Trustee will distribute
pro rata to holders of the Class A Certificates (the
"Class A Certificateholders") accrued interest at the
Class A Pass-Through Rate on the Class A Certificate
Balance as of the preceding Distribution Date (after
giving effect to distributions made on such Distribution
Date), to the extent of funds available therefor,
following payment of the Servicing Fee, from (i) the
Class A Percentage of the Interest Distribution Amount,
(ii) the Reserve Account, and (iii) the Class B
Percentage of the Total Distribution Amount.
D. Principal... Principal of the Class A Certificates will be payable on
each Distribution Date, pro rata to the Class A
Certificateholders, in a maximum amount equal to the
Class A Principal Distributable Amount for the calendar
month preceding such Distribution Date or, in the case
of the first Distribution Date, the period from and
including the Cutoff Date through the last day of the
calendar month immediately preceding
S-5
<PAGE>
such Distribution Date (the "Collection Period"). The
Class A Principal Distributable Amount with respect to
any Distribution Date will equal the Class A Percentage
of the Principal Distribution Amount for the related
Collection Period.
On each Distribution Date, subject to the prior
distribution on such date of the Servicing Fee, the
Class A Interest Distributable Amount and the Class A
Principal Distributable Amount, the Trustee will
distribute to holders of the Class B Certificates (the
"Class B Certificateholders") (i) the Class B Interest
Distributable Amount to the extent of funds available
therefor from the Class B Percentage of the Interest
Distribution Amount and the Reserve Account and (ii) the
Class B Principal Distributable Amount.
The outstanding principal amount of the Class A
Certificates and the Class B Certificates, if any, will
be payable in full on ____________, 199_ (the "Final
Scheduled Distribution Date").
See "The Pooling and Servicing Agreement -
Distributions -Calculation of Amounts to be Distributed"
herein.
E. Optional
Prepayment.. If the Servicer exercises its option to purchase the
Collateral Certificates, which it may do after the
aggregate principal balance of the Collateral
Certificates (the "Pool Balance") declines to 10% or
less of the initial Pool Balance, the Class A
Certificateholders will receive an amount equal to the
Class A Certificate Balance together with accrued
interest at the Class A Pass-Through Rate, the Class B
Certificateholders will receive an amount equal to the
Class B Certificate Balance together with accrued
interest at the Class B Pass-Through Rate, and the
Certificates will be retired. See "The Certificates -
Optional Prepayment" herein.
Collection Account.. Except under certain conditions described in the
Prospectus under "Description of the Transfer and
Servicing Agreements - Collections," the Servicer will
be required to remit collections received with respect
to the Collateral Certificates within two Business Days
of receipt thereof to one or more accounts in the name
of the Trustee (the "Collection Account"). Pursuant to
the Pooling and Servicing Agreement, the Trustee will
withdraw funds on deposit in the Collection Account and
apply such funds on each Distribution Date to the
following (in the priority indicated): (i) the Servicing
Fee for the related Collection Period and any overdue
Servicing Fees to the Servicer, (ii) the Class A
Interest Distributable Amount and the Class A Principal
Distributable Amount to the Class A Certificateholders,
(iii) the Class B Interest Distributable Amount and the
Class B Principal Distributable Amount to the Class B
Certificateholders, and (iv) the remaining balance, if
any, to the Reserve Account. See "The Pooling and
Servicing Agreement - Distributions" herein.
Credit Enhancement.. Subordination. The rights of the Class B
Certificateholders to receive distributions to which
they would otherwise be entitled with respect to the
Collateral Certificates are subordinated to the rights
of the Class A Certificateholders, as described more
fully herein. See "The Pooling and Servicing Agreement -
Distributions" and "- Subordination of the Class B
Certificates; Reserve Account" herein.
Reserve Account. The Reserve Account will be created
with an initial deposit by the Company on the Closing
Date of cash or Eligible Investments having a value
S-6
<PAGE>
of at least $________ (the "Reserve Account Initial
Deposit"). Funds will be withdrawn from the Reserve
Account on any Distribution Date if, and to the extent
that, the Total Distribution Amount for the related
Collection Period remaining after payment of the
Servicing Fee is less than the Class A Distributable
Amount. Such funds will be distributed to the Class A
Certificateholders. In addition, after giving effect to
any such withdrawal and distribution to the Class A
Certificateholders, funds will be withdrawn from the
Reserve Account if, and to the extent that, the portion
of the Total Distribution Amount remaining after payment
of the Servicing Fee and the Class A Distributable
Amount is less than the Class B Distributable Amount.
Such funds will be distributed to the Class B
Certificateholders.
Funds in the Reserve Account may be invested in
securities that will not mature prior to the date of
such next scheduled distribution with respect to the
Certificates and will not be sold prior to maturity to
meet any shortfalls. Thus, the amount of available funds
on deposit in the Reserve Account at any time may be
less than the balance of the Reserve Account. If the
amount required to be withdrawn from the Reserve Account
to cover shortfalls in collections on the related
Receivables exceeds the amount of available funds on
deposit in the Reserve Account, a temporary shortfall in
the amounts distributed to the Certificateholders could
result.
On each Distribution Date, the Reserve Account will be
reinstated up to the Specified Reserve Account Balance
by the deposit thereto of the portion, if any, of the
Total Distribution Amount remaining after payment of the
Servicing Fee, the Class A Distributable Amount and the
Class B Distributable Amount. The "Specified Reserve
Account Balance" with respect to any Distribution Date
generally will be equal to [state formula]. Certain
amounts in the Reserve Account on any Distribution Date
(after giving effect to all distributions to be made on
such Distribution Date) in excess of the Specified
Reserve Account Balance for such Distribution Date will
be released to the Company and will no longer be
available to the Certificateholders.
The Reserve Account will be maintained with the Trustee
as a segregated trust account, but will not be part of
the Trust. See "The Pooling and Servicing Agreement -
Subordination of the Class B Certificates; Reserve
Account" herein.
Tax Status.......... In the opinion of Sidley & Austin ("Federal Tax
Counsel"), the Trust will be classified as a grantor
trust for federal income tax purposes and will not be
classified as an association taxable as a corporation.
Subject to the discussion under "Certain Federal Income
Tax Consequences" in the Prospectus, each holder of a
beneficial interest in the Certificates must include in
income its pro rata share of interest and other income
from the Collateral Certificates and, subject to certain
limitations, may deduct its pro rata share of fees and
other deductible expenses paid by the Trust. See
"Certain Federal Income Tax Consequences" in the
Prospectus for additional information concerning the
application of federal income tax laws to the Trust and
the Certificates.
S-7
<PAGE>
ERISA Considerations Subject to the considerations discussed under "ERISA
Considerations" herein and in the Prospectus, the Class
A Certificates will be eligible for purchase by employee
benefit plans subject to the Employee Retirement Income
Security Act of 1974, as amended, and "plans" as defined
in Section 4975 of the Internal Revenue Code of 1986, as
amended. See "ERISA Considerations" herein and in the
Prospectus.
Ratings of the
Certificates....... It is a condition to the issuance of the Class A
Certificates that they be rated at least _____ by at
least two nationally recognized rating agencies. A
rating is not a recommendation to purchase, hold or sell
the Class A Certificates, inasmuch as such rating does
not comment as to market price or suitability for a
particular investor. The ratings address the likelihood
that principal of and interest on the Class A
Certificates will be paid pursuant to their terms. There
can be no assurance that a rating will not be lowered or
withdrawn by a rating agency if circumstances so
warrant. See "Risk Factors -Ratings of the Class A
Certificates" herein.
S-8
<PAGE>
RISK FACTORS
In addition to the other information contained in this Prospectus
Supplement and the Prospectus, prospective investors should carefully consider
the following risk factors before investing in the Class A Certificates.
Limited Liquidity. There is currently no secondary market for the Class
A Certificates. CS First Boston Corporation (the "Underwriter") currently
intends to make a market in the Class A Certificates, but is under no
obligation to do so. There can be no assurance that a secondary market will
develop or, if a secondary market does develop, that it will provide the Class
A Certificateholders with liquidity of investment or that it will continue for
the life of the Class A Certificates.
Limited Assets. The Trust will not have, nor is it permitted or expected
to have, any significant assets or sources of funds other than the Collateral
Certificates and access to funds in the Reserve Account. Certificateholders
must rely on payments on the Collateral Certificates for distributions of
interest and principal on the Certificates. Although funds in the Reserve
Account will be available on each Distribution Date to cover shortfalls in
distributions of interest and principal on the Certificates, amounts to be
deposited in the Reserve Account are limited in amount. If the Reserve Account
is exhausted, the Trust will depend solely on distributions on the Collateral
Certificates to make distributions on the Certificates.
Funds in the Reserve Account may be invested in securities that will not
mature prior to the date of such next scheduled distribution with respect to
the Certificates and will not be sold prior to maturity to meet any shortfalls.
Thus, the amount of available funds on deposit in the Reserve Account at any
time may be less than the balance of the Reserve Account. If the amount required
to be withdrawn from the Reserve Account to cover shortfalls in collections on
the related Receivables exceeds the amount of available funds on deposit in the
Reserve Account, a temporary shortfall in the amounts distributed to the
Certificateholders could result.
Ratings of the Class A Certificates. It is a condition to the issuance
of the Class A Certificates that they be rated at least ______ or its
equivalent by at least two nationally recognized rating agencies (the "Rating
Agencies"). A rating is not a recommendation to purchase, hold or sell the
Class A Certificates, inasmuch as a rating does not comment as to market price
or suitability for a particular investor. The ratings of the Class A
Certificates address the likelihood of the timely payment of interest on, and
the ultimate repayment of principal of, the Class A Certificates pursuant to
their terms. There can be no assurance that a rating will be retained for any
given period of time or that a rating will not be lowered or withdrawn entirely
by a Rating Agency if in its judgment circumstances in the future so warrant.
In the event that a rating is subsequently lowered or withdrawn, no person or
entity will be required to provide any additional credit enhancement. The
ratings of the Class A Certificates are based primarily on the credit quality
of the Receivables, the subordination of the Class B Certificates and the
availability of funds in the Reserve Account.
Trust's Relationship to the Company. The Company is generally not
obligated to make any payments in respect of the Certificates or the Collateral
Certificates.
Considerations Regarding Collateral Certificates. Prospective investors
in the Certificates should consider carefully the factors set forth under the
caption "Risk Factors" or "Special Considerations" in the excerpted sections of
the prospectuses relating to the Collateral Certificates attached hereto as
Appendix A for certain additional considerations relating to the Collateral
Certificates and investments backed by Receivables. Neither the Company nor
the Underwriter participated in the preparation of the prospectuses relating to
the Collateral Certificates or the offering of the Collateral Certificates, and
neither has made any due diligence inquiry with respect to the information
provided therein. Although neither the Company nor the Underwriter is aware of
any material misstatements or omissions in any such prospectus, the information
provided therein or in the publicly available documents referred to below is
not guaranteed as to accuracy or completeness, and is not to be construed as a
representation, by the Company or the Underwriter. In particular, information
set forth in any prospectus relating to the Collateral
S-9
<PAGE>
Certificates speaks only as of the date of such prospectus; there can be no
assurance that events have not occurred, which may or may not have been
publicly disclosed, that would affect the accuracy or completeness of any such
statements.
Each originator of an Underlying Trust Fund is subject to the
informational requirements of the Exchange Act. Accordingly, such originator
files annual and periodic reports and other information with the Commission.
Copies of such reports and other information may be inspected and copies at
certain offices of the Commission at the addresses listed under "Available
Information" herein.
THE TRUST
GENERAL
The Company will establish the Trust [by selling and assigning]
[transferring funds to be used by the Trust to purchase] the Trust Property (as
defined below) to the Trustee in exchange for the Certificates. The Servicer
will service such assets pursuant to the Pooling and Servicing Agreement and
will be compensated for acting as the Servicer. See "The Pooling and Servicing
Agreement - Servicing Compensation" herein and "The Transfer and Servicing
Agreements - Servicing Compensation and Payment of Expenses" in the Prospectus.
If the protection provided to Certificateholders by the Reserve Account and, in
the case of the Class A Certificateholders, the subordination of the Class B
Certificates is insufficient, the Trust will look only to the Collateral
Certificates to fund distributions of principal and interest on the
Certificates.
Each Certificate represents a fractional undivided ownership interest in
the Trust. The assets of the Trust (the "Trust Property") include (i) the
Collateral Certificates, (ii) all monies (including accrued interest) received
on or with respect to the Collateral Certificates on or after the Cutoff Date,
(iii) all amounts and property from time to time held in or credited to the
Collection Account, (iv) the right to draw on funds on deposit in the Reserve
Account, to the extent described herein, to meet shortfalls in interest due to
Certificateholders, and (v) any and all proceeds of the foregoing. The Reserve
Account will be maintained by the Trustee for the benefit of the
Certificateholders, but will not be part of the Trust.
THE TRUSTEE
__________ is Trustee under the Pooling and Servicing Agreement.
__________ is a __________ banking corporation, and its principal offices are
located at __________. The Company, the Seller or any of their respective
affiliates may maintain normal commercial banking relations with the Trustee
and its affiliates.
THE SERVICER
[Information regarding the Servicer to be supplied.]
WEIGHTED AVERAGE LIFE OF THE CERTIFICATES
Information regarding certain maturity and prepayment considerations with
respect to the Certificates is set forth under "Weighted Average Life of the
Securities" in the Prospectus. As the rate of payment of principal of the
Certificates depends on the rate of payment (including prepayments) of the
Collateral Certificates, the final distribution in respect of the Certificates
could occur significantly earlier than the Final Scheduled Distribution Date.
Certificateholders will bear the risk of being able to reinvest principal
payments on the Certificates at yields at least equal to the yield on the
Certificates.
S-10
<PAGE>
THE CERTIFICATES
GENERAL
The Certificates will be issued pursuant to the terms of the Pooling and
Servicing Agreement, a form of which has been filed as an exhibit to the
Registration Statement. A copy of the Pooling and Servicing Agreement will be
filed with the Commission following the issuance of the Certificates. The
following summary describes certain terms of the Certificates and the Pooling
and Servicing Agreement. The summary does not purport to be complete and is
subject to, and is qualified in its entirety by reference to, all the
provisions of the Certificates and the Pooling and Servicing Agreement. The
following summary supplements, and to the extent inconsistent therewith
replaces, the description of the general terms and provisions of the
Certificates of any given Series and the related Pooling and Servicing
Agreement set forth in the Prospectus, to which description reference is hereby
made.
The "Class A Certificate Balance" initially will equal $__________ and,
as of any date of determination thereafter, will equal such initial Class A
Certificate Balance less the sum of all amounts previously distributed to Class
A Certificateholders allocable to principal. The "Class B Certificate Balance"
initially will equal $_________ and, as of any date of determination
thereafter, will equal such initial Class B Certificate Balance less the sum of
all amounts previously distributed to Class B Certificateholders allocable to
principal and any Realized Losses (as defined below) allocable to the Class B
Certificates. The Class A Certificates will evidence in the aggregate an
undivided ownership interest in approximately _____% of the Trust, and the
Class B Certificates will evidence in the aggregate an undivided ownership
interest in approximately _____% of the Trust. The Class B Certificates are
not being offered hereby and initially will be held by ______.
DISTRIBUTIONS
Deposits to Collection Account. On or about the ____ Business Day of
each month, the Servicer will provide the Trustee with certain information with
respect to the preceding Collection Period, including the aggregate amount of
collections on the Collateral Certificates, as well as the Total Distribution
Amount, the Interest Distribution Amount, the Principal Distribution Amount,
the Class A Interest Distributable Amount, the Class A Principal Distributable
Amount, the Class B Interest Distributable Amount and the Class B Principal
Distributable Amount.
On or before each Distribution Date, the Servicer will cause the Total
Distribution Amount to be deposited into the Collection Account. The "Total
Distribution Amount" for any Distribution Date will equal the sum of the
Interest Distribution Amount and the Principal Distribution Amount for such
date (other than the portion thereof attributable to Realized Losses).
"Realized Losses" means the excess of the principal balance of a Liquidated
Receivable over Liquidation Proceeds with respect thereto to the extent
allocable to principal.
The "Interest Distribution Amount" for a Distribution Date generally will
equal the sum of (i) that portion of all collections on the Collateral
Certificates allocable to interest; and (ii) Investment Earnings, if any, for
such Distribution Date each, with respect to the preceding Collection Period.
The "Principal Distribution Amount" for a Distribution Date will equal
that portion of all collections on the Collateral Certificates allocable to
principal.
Calculation of Distributable Amounts. The "Class A Distributable Amount"
with respect to a Distribution Date will equal the sum of (i) the "Class A
Principal Distributable Amount", consisting of the Class A Percentage of the
Principal Distribution Amount, plus (ii) the "Class A Interest Distributable
Amount", consisting of thirty days' interest at the Class A Pass-Through Rate
on the Class A Certificate Balance as of the preceding Distribution Date (after
giving effect to distribution made on such Distribution Date). In addition, on
the Final Scheduled
S-11
<PAGE>
Distribution Date, the Class A Principal Distributable Amount will include the
lesser of (a) the Class A Percentage of any payments of principal on each
Collateral Certificate and (b) the amount that is necessary (after giving
effect to the other amounts to be distributed to Class A Certificateholders on
such Distribution Date and allocable to principal) to reduce the Class A
Certificate Balance to zero.
The "Class B Distributable Amount" with respect to a Distribution Date
will equal the sum of (i) the "Class B Principal Distributable Amount",
consisting of the Class B Percentage of the Principal Distribution Amount, plus
(ii) the "Class B Interest Distributable Amount", consisting of thirty days'
interest at the Class B Pass-Through Rate on the Class B Certificate Balance as
of the preceding Distribution Date (after giving effect to distributions made
on such Distribution Date). In addition, on the Final Scheduled Distribution
Date, the Class B Principal Distributable Amount will include the lesser of (a)
the Class B Percentage of any payments of principal on each Collateral
Certificate and (b) the amount that is necessary (after giving effect to the
other amounts to be distributed to Class B Certificateholders on such
Distribution Date and allocable to principal) to reduce the Class B Certificate
Balance to zero.
Amounts Distributed. The Class A Certificateholders will receive on any
Distribution Date, to the extent of available funds, the Class A Distributable
Amount and any outstanding Class A Interest Carryover Shortfall as of the close
of the preceding Distribution Date.
On each Distribution Date, principal distributions will be made on the
Certificates in an aggregate amount equal to distributions with respect to
principal received on the Collateral Certificates during the preceding
Collection Period.
On each Distribution Date on which the sum of the Class A Interest
Distributable Amount and any outstanding Class A Interest Carryover Shortfall
from the preceding Distribution Date (plus interest on such Class A Interest
Carryover Shortfall at the Class A Pass-Through Rate from such preceding
Distribution Date to the current Distribution Date, to the extent permitted by
law) exceeds the Class A Percentage of the Interest Distribution Amount (after
payment of the Servicing Fee) on such Distribution Date, the Class A
Certificateholders will be entitled to receive such amounts, first, from the
Class B Percentage of the Interest Distribution Amount; second, if such amounts
are insufficient, from funds available in the Reserve Account, and, third, if
such amounts are insufficient, from the Class B Percentage of the Principal
Distribution Amount. "Class A Interest Carryover Shortfall" means, with
respect to any Distribution Date, the excess of the Class A Interest
Distributable Amount for the preceding Distribution Date, plus any outstanding
Class A Interest Carryover Shortfall on such preceding Distribution Date, over
the amount of interest actually distributed to Class A Certificateholders on
such preceding Distribution Date.
DESCRIPTION OF THE COLLATERAL CERTIFICATES
GENERAL
This Prospectus Supplement sets forth certain relevant terms of the
Collateral Certificates. It does not purport to summarize such securities or
to provide complete or updated information with respect to the issuer thereof
or the Receivables relating thereto. Schedule I to this Prospectus Supplement
contains a summary of the terms of the Collateral Certificates. Appendix A to
this Prospectus Supplement contains excerpts from each prospectus pursuant to
which Collateral Certificates were offered and sold. This Prospectus
Supplement relates only to the Certificates offered hereby and does not relate
to the Collateral Certificates. See "Special Considerations-Considerations
Regarding Collateral Certificates".
Although the Company has no reason to believe the information concerning
the Underlying Trust Fund or the prospectus relating to the Collateral
Certificates is not reliable, the Company has not verified either its accuracy
S-12
<PAGE>
or its completeness. Neither the Company nor the Underwriter warrants that
there events have not occurred , which would affect either the accuracy or the
completeness of the information contained therein. See "Special
Considerations-Considerations Regarding Collateral Certificates" and "-Certain
Updated Information with Respect to the Collateral Certificates".
CERTAIN UPDATED INFORMATION WITH RESPECT TO THE COLLATERAL CERTIFICATES
The originator of each Underlying Trust Fund is subject to the
information requirements of the Exchange Act. Accordingly, such originator
files reports and other information with respect to each Underlying Trust Fund,
including monthly servicer reports ("Servicer Reports") regarding the
Receivables, with the Commission. A summary of certain of the information
included in the most recent Servicer Reports filed with the Commission is
included as Appendix B hereto. Copies of such reports and other information
may be inspected and copied at certain offices of the Commission at the address
listed under "Available Information" herein.
Neither the Company nor the Underwriter participated in the preparation
of such Servicer Reports, and the information provided therein or in the
publicly available documents referred to above is not guaranteed as to accuracy
or completeness, and is not to be construed as a representation, by the Company
or the Underwriter. In particular, information set forth in the Servicer
Reports speaks only as of the date of such Servicer Report; there can be no
assurance that events have not occurred that would affect the accuracy or
completeness of any statements included in such Servicer Reports or in the
publicly available documents filed by or on behalf of each Underlying Trust
Fund.
THE POOLING AND SERVICING AGREEMENT
SALE AND ASSIGNMENT OF RECEIVABLES
Certain information with respect to the conveyance of the Collateral
Certificates by the Seller to the Trust on the Closing Date pursuant to the
Pooling and Servicing Agreement is set forth under "Description of the Transfer
and Servicing Agreements - Sale and Assignment of Receivables" in the
Prospectus.
SERVICING COMPENSATION
The Servicer will be entitled to receive the Servicing Fee for each
Collection Period in an amount equal to _____% per annum of the Pool Balance as
of the first day of such Collection Period. The Servicing Fee (together with
any portion of the Servicing Fee that remains unpaid from prior Distribution
Dates) will be paid on each Distribution Date solely to the extent of the
Interest Distribution Amount for the related Collection Period; however, the
Servicing Fee will be paid to the Servicer prior to the distribution of any
portion of the Interest Distribution Amount to Certificateholders. See
"Description of the Transfer and Servicing Agreements - Servicing Compensation
and Payment of Expenses" in the Prospectus.
OPTIONAL PREPAYMENT
If the Servicer exercises its option to purchase the Collateral
Certificates, which it may do when the aggregate outstanding principal amount
of the Collateral Certificates declines to 10% or less of the initial Pool
Balance, the Class A Certificateholders will receive an amount in respect of
the Class A Certificates equal to the outstanding Class A Certificate Balance,
together with accrued interest to the redemption date at the Class A
Pass-Through Rate, and the Class B Certificateholders will receive an amount in
respect of the Class B Certificates equal to the outstanding Class B
Certificate Balance, together with accrued interest to the redemption date at
the Class B Pass-Through Rate, which distributions shall effect the early
retirement of the Certificates. See "Description of the Transfer and Servicing
Agreements - Termination" in the Prospectus.
S-13
<PAGE>
SUBORDINATION OF THE CLASS B CERTIFICATES; RESERVE ACCOUNT
Subordination of the Class B Certificates. The rights of the Class B
Certificateholders to receive distributions with respect to the Collateral
Certificates generally will be subordinated to the rights of the Class A
Certificateholders in the event of defaults or delinquencies on the Collateral
Certificates as provided in the Pooling and Servicing Agreement and described
herein. The protection afforded to the Class A Certificateholders through
subordination will be effected by the preferential right of the Class A
Certificateholders to receive current distributions with respect to the
Collateral Certificates.
Reserve Account. The Reserve Account will be created by the deposit
thereto by the Company on the Closing Date of the Reserve Account Initial
Deposit and will be increased up to the Specified Reserve Account Balance by
the deposit thereto on each Distribution Date on the amount, if any, remaining
from the Total Distribution Amount after payment of the Servicing Fee, the
Class A Distributable Amount and the Class B Distributable Amount. If the
amount on deposit in the Reserve Account on any Distribution Date (after giving
effect to all deposits thereto or withdrawals therefrom on such date) is
greater than the Specified Reserve Account Balance for such Distribution Date,
the Trustee will release such excess to the Company. Upon any such
distribution to the Company, the Certificateholders will have no rights in, or
claims to such amounts. Amounts held from time to time in the Reserve Account
will continue to be held for the benefit of the Class A Certificateholders and
the Class B Certificateholders.
Funds in the Reserve Account will be invested in Eligible Investments, as
provided in the Pooling and Servicing Agreement. Funds in the Reserve Account
may be invested in securities that will not mature prior to the date of such
next scheduled distribution with respect to the Certificates and will not be
sold prior to maturity to meet any shortfalls. Thus, the amount of available
funds on deposit in the Reserve Account at any time may be less than the
balance of the Reserve Account. If the amount required to be withdrawn from
the Reserve Account to cover shortfalls in collections on the related
Receivables exceeds the amount of available funds on deposit in the Reserve
Account, a temporary shortfall in the amounts distributed to the
Certificateholders could result. The Reserve Account will not be part of or
otherwise includible in the Trust and will be a segregated trust account held
by the Trustee.
ERISA CONSIDERATIONS
Subject to the considerations set forth under "ERISA Considerations -
Prohibited Transaction Exemption for Senior Certificates Issued by Grantor
Trusts" in the Prospectus, the Class A Certificates may be purchased by an
"employee benefit plan" as defined in and subject to the Employee Retirement
Income Security Act of 1974, as amended ("ERISA") or a "plan" as defined in
Section 4975 of the Internal Revenue Code of 1986, as amended (the "Code")(each
such "employee benefit plan" and "plan," a "Plan"). A fiduciary of a Plan must
determine that the purchase of a Class A Certificate is consistent with its
fiduciary duties under ERISA and does not result in a nonexempt prohibited
transaction as defined in Section 406 of ERISA or Section 4975 of the Code.
For additional information regarding treatment of the Class A Certificates
under ERISA, see "ERISA Considerations" in the Prospectus.
UNDERWRITING
Subject to the terms and conditions set forth in an Underwriting
Agreement relating to the Class A Certificates (the "Underwriting Agreement"),
the Company has agreed to cause the Trust to sell to the Underwriter, and the
Underwriter has agreed to purchase, the entire principal amount of the Class A
Certificates.
S-14
<PAGE>
The Underwriter proposes to offer the Class A Certificates to the public
initially at the public offering price set forth on the cover page of this
Prospectus Supplement, and to certain dealers at such price less a concession
of _____% per Class A Certificates; the Underwriter and such dealers may allow
a discount of _____% per Class A Certificates on sales to certain other
dealers; and after the initial public offering of the Class A Certificates, the
public offering price and the concessions and discounts to dealers may be
changed by the Underwriter.
The Underwriting Agreement provides that the Seller will indemnify the
Underwriter against certain liabilities under applicable securities laws, or
contribute to payments the Underwriter may be required to make in respect
thereof.
The Trust may, from time to time, invest the funds in the Trust Accounts
in Eligible Investments acquired from the Underwriter.
Upon receipt of a request by an investor who has received an electronic
Prospectus Supplement and Prospectus from the Underwriter within the period
during which there is an obligation to deliver a Prospectus Supplement and
Prospectus, the Company or the Underwriter will promptly deliver, or cause to
be delivered, without charge, a paper copy of the Prospectus Supplement and
Prospectus.
LEGAL MATTERS
Certain legal matters relating to the Certificates will be passed upon by
Sidley & Austin, New York, New York.
S-15
<PAGE>
INDEX OF TERMS
Business Day...............................................................S-
Certificates...............................................................S-
Certificateholders.........................................................S-
Class A Certificate Balance ...............................................S-
Class A Certificateholders ................................................S-
Class A Certificates.......................................................S-
Class A Distributable Amount...............................................S-
Class A Interest Carryover Shortfall.......................................S-
Class A Interest Distributable Amount......................................S-
Class A Pass-Through Rate..................................................S-
Class A Percentage.........................................................S-
Class A Principal Carryover Shortfall......................................S-
Class A Principal Distributable Amount.....................................S-
Class B Certificate Balance................................................S-
Class B Certificateholders.................................................S-
Class B Certificates.......................................................S-
Class B Distributable Amount...............................................S-
Class B Interest Distributable Amount......................................S-
Class B Pass-Through Rate..................................................S-
Class B Percentage.........................................................S-
Class B Principal Distributable Amount.....................................S-
Closing Date...............................................................S-
Code.......................................................................S-
Collection Account.........................................................S-
Collection Period..........................................................S-
Commission.................................................................S-
Cutoff Date................................................................S-
Distribution Date..........................................................S-
ERISA......................................................................S-
Federal Tax Counsel........................................................S-
Final Scheduled Distribution Date..........................................S-
Final Scheduled Maturity Date..............................................S-
Funding Period.............................................................S-
Interest Distribution Amount...............................................S-
Liquidated Receivables.....................................................S-
Liquidation Proceeds.......................................................S-
Plan.......................................................................S-
Pool Balance...............................................................S-
Pooling and Servicing Agreement............................................S-
Principal Distribution Amount..............................................S-
Prospectus.................................................................S-
Rating Agencies............................................................S-
Realized Losses............................................................S-
Receivables................................................................S-
Receivables Pool...........................................................S-
Receivables Purchase Agreement.............................................S-
Record Date................................................................S-
Reserve Account............................................................S-
S-16
<PAGE>
Reserve Account Initial Deposit............................................S-
Seller.....................................................................S-
Servicer...................................................................S-
Specified Reserve Account Balance..........................................S-
Total Distribution Amount..................................................S-
Trust......................................................................S-
Trust Accounts.............................................................S-
Trustee....................................................................S-
Underwriter................................................................S-
Underwriting Agreement.....................................................S-
S-17
<PAGE>
SCHEDULE I
----------
Class __
CUSIP #___________ Rating: ______________
[Monthly][Quarterly]
[Semi-Annual] Aggregate
Payment Dates Interest Payment Interest Payment
- ------------- ---------------- ----------------
$___________________ $___________________
Aggregate Face
Amount Minimum
of Principal Authorized
Component Denomination Interest Rate
--------- ------------ -------------
$____________ $______________ _________%
I-1
<PAGE>
Appendix A
[To be Supplied]
A-1
<PAGE>
Appendix B
[To be Supplied]
B-1
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus supplement and the accompanying prospectus shall not
constitute an offer to sell or the solicitation of an offer to buy, nor shall
there be any sale of these securities in any State in which such offer,
solicitation or sale would be unlawful prior to registration or qualification
under the securities laws of any such State.
Subject to Completion
Prospectus Supplement to Prospectus Dated _________________, 199_
$
CS First Boston Auto Receivables Securities Trust 199_-___
$ % Asset Backed Notes, Class A-1
$ % Asset Backed Notes, Class A-2
$ % Asset Backed Certificates
________________
Asset Backed Securities Corporation
Company
________________
CS First Boston Auto Receivables Securities Trust 199___ -___ (the "Trust") will
be formed pursuant to a trust agreement (the "Trust Agreement") dated as of
__________, 199__ (the "Cutoff Date"), between Asset Backed Securities
Corporation (the "Depositor"), as depositor, and ____________ (the "Owner
Trustee"), as owner trustee. TheTrust will issue $__________ aggregate principal
amount of ________% Asset Backed Notes, Class A-1 (the "Class A-1 Notes") and
$______________ aggregate principal amount of __________% Asset Backed Notes,
Class A-2 (the "Class A-2 Notes" and, with the Class A-1 Notes, the "Notes")
pursuant to an indenture (the "Indenture"), dated as of the Cutoff Date, between
the Trust and _______, (the "Indenture Trustee") as indenture trustee. The Trust
also will issue $_____ aggregate principal amount of ________% Asset Backed
Certificates (the "Certificates").
(Continued on following page)
________________
THE NOTES REPRESENT OBLIGATIONS OF, AND THE CERTIFICATES REPRESENT BENEFICIAL
INTERESTS IN, THE TRUST ONLY AND DO NOT REPRESENT OBLIGATIONS OF, OR INTERESTS
IN, CS FIRST BOSTON CORPORATION, THE COMPANY, THE SERVICER, ANY SELLER, OR ANY
OF THEIR RESPECTIVE AFFILIATES. NONE OF THE NOTES, THE CERTIFICATES OR THE
COLLATERAL CERTIFICATES (AS DEFINED HEREIN) ARE INSURED GUARANTEED BY CS FIRST
BOSTON CORPORATION, THE COMPANY, THE SERVICER, ANY SELLER, ANY OF THEIR
RESPECTIVE AFFILIATES OR ANY GOVERNMENTAL AGENCY.
________________
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 SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
________________
PROSPECTIVE INVESTORS SHOULD CONSIDER THE FACTORS SET FORTH UNDER RISK FACTORS
ON PAGE S-10 OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 10 OF THE ACCOMPANYING
PROSPECTUS.
________________
Price to the Underwriting Proceeds to the
Public(1) Discount Depositor(1)(2)
------------ ------------ ----------------
Per Class A-1 Note......... % % %
Per Class A-2 Note......... % % %
Per Certificate............ % % %
Total $ $ $
(1) Plus accrued interest, if any, from ______________, 199_.
(2) Before deducting expenses, estimated to be $____________.
________________
The Notes and the Certificates are offered subject to prior sale and
subject to the right of CS First Boston Corporation (the "Underwriter") to
reject orders in whole or in part. It is expected that delivery of the Notes and
the Certificates will be made through the Same Day Funds System of the
Depository Trust Company on or about _______, 199_.
[LOGO] CS First Boston
The date of this Prospectus Supplement is __________, 199_.
<PAGE>
(Continued from preceding page)
The assets of the Trust will consist primarily of certain asset backed
certificates or notes (collectively, "Collateral Certificates"), each issued
pursuant to a pooling and servicing agreement, sale and servicing agree ment,
trust agreement or indenture (each, an "Underlying Agreement"). Each Collateral
Certificate represents an interest in a trust fund created pursuant to such
Underlying Agreement consisting of a pool of motor vehicle installment loan
agreements and motor vehicle retail installment sales contracts (collectively,
the "Receivables") secured by new or used automobiles, vans and light duty
trucks, certain monies due or received thereunder on and after the Cutoff Date,
security interests in the vehicles financed thereby, and certain other property,
as descried herein. The Collateral Certificates [will be tran sferred to the
Trust by the Company pursuant to the Trust Agreement][will be purchased by the
Trust with funds received from the Company in exchange for the Certificates].
The Company will purchase the Collateral Certificates] from a certain seller or
sellers (each, a "Seller"). The Notes will be secured by the assets of the
Trust pursuant to the Indenture. The Trust may also draw on funds on deposit in
a Reserve Account, to the extent described herein, to meet shortfalls in
interest due to Securityholders on any Distribution Date. The Reserve Account
willnot be part of the Trust.
Interest on each class of Notes will accrue at the fixed per annum rates
specified above and generally will be payable on the __ day of each month,
commencing ______, 199_ (each, a "Distribution Date"). Principal of the Notes
will be payable on each Distribution Date to the extent described herein;
however, no principal will be paid on the Class A-2 Notes until the Class A-1
Notes have been paid in full. The Certificates represent fractional undivided
interests in the Trust. Interest on the Certificates will accrue at the fixed
per annum rates specified above and generally will be payable on each
Distribution Date. No distributions of principal will be made on the
Certificates until all of the Notes have been paid in full. To the extent not
previously paid, the Class A-1 Notes will be payable in full on _______, 199_,
the Class A-2 Notes will be payable in full on _______, 199_, and the
Certificates will be payable in full on _______,199_.
____________________
THIS PROSPECTUS SUPPLEMENT DOES NOT CONTAIN COMPLETE INFORMATION ABOUT THE THE
OFFERING OF THE NOTES AND THE CERTIFICATES. ADDITIONAL INFORMATION IS CONTAINED
IN THE PROSPECTUS, AND PROSPECTIVE INVESTORS ARE URGED TO READ BOTH THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS IN FULL. INFORMATION WITH RESPECT TO
EACH COLLATERAL CERTIFICATE IS CONTAINED IN SCHEDULE I AND APPENDIX A HERETO.
SALES OF THE NOTES OR THE CERTIFICATES MAY NOT BE CONSUMMATED UNLESS THE
PURCHASER HAS RECEIVED BOTH THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS. TO
THE EXTENT ANY STATEMENTS IN THIS PROSPECTUS SUPPLEMENT CONFLICT WITH STATEMENTS
IN THE PROSPECTUS, THE STATEMENTS IN THIS PROSPECTUS SUPPLEMENT SHALL CONTROL.
S-2
<PAGE>
IN CONNECTION WITH THIS OFFERING THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES
AND THE CERTIFICATES AT LEVELS ABOVE THOSE WHICH MIGHT OTHER-
WISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
_____________________
S-3
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission
(the "Commission"), on behalf of the Trust, a Registration Statement on Form
S-3 (together with all amendments and exhibits thereto, the "Registration
Statement"), of which this Prospectus Supplement is a part under the Securities
Act of 1933, as amended. This Prospectus Supplement does not contain all of
the information set forth in the Registration Statement, certain parts of which
have been omitted in accordance with the rules and regulations of the
Commission. For further information, reference is made to the Registration
Statement which is available for inspection without charge at the public
reference facilities of the Commission at Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and the regional offices of the Commission at
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661,
and Seven World Trade Center, Suite 1300, New York, New York 10048. Copies of
such information can be obtained from the Public Reference Section of the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549,
at prescribed rates. The Servicer, on behalf of the Trust, will also file or
cause to be filed with the Commission such periodic reports as are required
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
the rules and regulations of the Commission thereunder.
REPORTS TO SECURITY HOLDERS
Unless and until Definitive Notes or Definitive Certificates are
issued, monthly and annual unaudited reports containing information concerning
the Receivables will be prepared by the Servicer and sent on behalf of the
Trust only to Cede & Co., as nominee of The Depository Trust Company and
registered holder of the Notes and the Certificates. See "Certain Information
Regarding the Securities - Book-Entry Registration" and "-Statements to
Securityholders" in the accompanying Prospectus (the "Prospectus").
S-4
<PAGE>
SUMMARY OF TERMS
The following summary is qualified in its entirety by reference to the detailed
information appearing elsewhere herein and in the Prospectus. Certain
capitalized terms used herein are defined elsewhere in this Prospectus
Supplement on the pages indicated in the "Index of Terms" or, to the extent not
defined herein, have the meanings assigned to such terms in the Prospectus.
Issuer.............. CS First Boston Auto Receivables Securities Trust 199_-
___, a trust (the "Trust") to be formed pursuant to a
trust agreement (the "Trust Agreement") dated as of
___________, 199_ (the "Cutoff Date"), between the
Company and the Owner Trustee.
Company............. The Company is a special-purpose Delaware corporation
organized for the purpose of causing the issuance of the
Securities and other securities issued under the
Registration Statement backed by receivables or
underlying securities of various types and acting as
settlor or depositor with respect to trusts, custody
accounts or similar arrangements or as general or
limited partner in partnerships formed to issue
securities. It is not expected that the Company will
have any significant assets. The Company is an indirect,
wholly owned finance subsidiary of Collateralized
Mortgage Securities Corporation which is a wholly owned
subsidiary of CS First Boston Securities Corporation,
which is a wholly owned subsidiary of CS First Boston,
Inc. Neither CS First Boston Securities Corporation nor
CS First Boston, Inc. nor any of their affiliates has
guaranteed, will guarantee or is or will be otherwise
obligated with respect to any Series of Securities.
The Company's principal executive office is located at
Park Avenue Plaza, 55 East 52nd Street, New York, New
York 10055, and its telephone number is (212) 909-2000.
Servicer............ _______ (in such capacity, the "Servicer") as servicer
under the servicing agreement (the "Servicing
Agreement") dated as of the Cutoff Date, between the
Servicer and the Issuer. See "The Servicer" herein.
Indenture Trustee... ____________________, as trustee under the Indenture
(the "Indenture Trustee").
Owner Trustee....... ____________________, as trustee under the Trust
Agreement (the "Owner Trustee").
The Notes........... The Trust will issue $______ aggregate principal amount
of ___% Asset Backed Notes, Class A-1 (the "Class A-1
Notes") and $______ aggregate principal amount of ___%
Asset Backed Notes, Class A-2 (the "Class A-2 Notes"
and, with the Class A-1 Notes, the "Notes") on ___, 199_
(the "Closing Date") pursuant to an indenture (the
"Indenture") dated as of the Cutoff Date between the
Issuer and the Indenture Trustee.
Under the terms of the Indenture, the Notes will be
secured by the assets of the Trust.
The Certificates.... The Trust will issue $____ aggregate principal amount of
___% Asset Backed Certificates (the "Certificates" and,
with the Notes, the "Securities") on the Closing Date.
The Certificates represent fractional undivided
interests in the Trust and will be issued pursuant to
the Trust Agreement.
S-5
<PAGE>
The Collateral
Certificates........ The Collateral Certificates are described in Schedule I
hereto. The Collateral Certificates consist of certain
asset backed certificates or notes, each issued pursuant
to a pooling and servicing agreement, sale and servicing
agreement, trust agreement or indenture (each, an
"Underlying Agreement"). Each Collateral Certificate
represents an interest in a trust fund (an "Underlying
Trust Fund") created pursuant to such Underlying
Agreement. The assets of each Underlying Trust Fund
consist primarily of a pool of motor vehicle installment
loan agreements and motor vehicle retail installment
sale contracts (collectively, the "Receivables") secured
by new or used automobiles, vans and light duty trucks,
certain monies due or received thereunder, security
interests in the vehicles financed thereby, and certain
other property. Holders of a Collateral Certificate are
entitled to receive distributions of interest and
principal in respect thereof as described herein.
Trust Property...... The assets of the Trust (the "Trust Property") include
(i) the Collateral Certificates, (ii) all monies
(including accrued interest) received on or with respect
to the Collateral Certificates on or after the Cutoff
Date, (iii) all amounts and property from time to time
held in or credited to the Collection Account, (iv) the
right to draw on funds on deposit in the Reserve
Account, to the extent described herein, to meet
shortfalls in interest due to Certificateholders, and
(v) any and all proceeds of the foregoing. The Reserve
Account will not be property of the Trust. See "The
Certificates-Distributions of Interest", "-Distributions
of Principal" and "The Trust".
Terms of the Notes
A. Distribution
Dates....... Payments of interest and principal on the Notes will be
made on the ___ day of each month or, if any such day is
not a Business Day, on the next succeeding Business Day
(each, a "Distribution Date") commencing ____________,
199_. Payments will be made to holders of record of the
Notes (the "Noteholders") as of the day immediately
preceding such Distribution Date (each, a "Record
Date"). A "Business Day" is a day other than a Saturday,
a Sunday or day on which banking institutions or trust
companies in The City of New York or the city in which
the corporate trust office of the Indenture Trustee is
located are authorized by law, regulation or executive
order to be closed.
B. Interest Rates Interest will accrue on the Class A-1 Notes at a per
annum rate of ____% (the "Class A-1 Rate") and on the
Class A-2 Notes at a per annum rate of ____% (the "Class
A-2 Rate"), in each case, calculated on the basis of a
360-day year consisting of twelve 30-day months. The
Class A-1 Rate and the Class A-2 rate are sometimes
referred to herein collectively as the "Interest Rates".
C. Interest..... Interest on the outstanding principal amount of the
Class A-1 Notes and the Class A-2 Notes in respect of
any Distribution Date will accrue at the Class A-1 Rate
and the Class A-2 Rate, respectively, from and including
the most recent Distribution Date on which interest
payments were distributed to Noteholders (or, in the
case of the first Distribution Date, from and including
the Closing Date) to but excluding such Distribution
Date. Interest will be paid to the Noteholders on each
Distribution Date, to the extent of the Total
Distribution Amount (as defined herein) after payment of
the Servicing Fee and from the Reserve Account. See "The
Notes - Payments of Interest" herein.
D. Principal... On each Distribution Date for as long as the Class A-1
Notes are outstanding, principal of the Class A-1 Notes
will be payable on each Distribution Date in an amount
equal to the Total Distribution Amount remaining
following payment of the Servicing Fees and the
Noteholders' Interest Distributable Amount (as defined
S-6
<PAGE>
herein) on such date. On each Distribution Date from and
including the Distribution Date on which the Class A-1
Notes are paid in full and for as long as the Class A-2
Notes are outstanding, principal of the Class A-2 Notes
will be payable on each Distribution Date in an amount
equal to the Total Distribution Amount remaining
following payment of the Servicing Fee, the Noteholders'
Interest Distributable Amount and, on the Distribution
Date on which the Class A-1 Notes are paid in full, any
amount distributed as principal to holders of the Class
A-1 Notes. No principal payment will be made on the
Class A-2 Notes until the Class A-1 Notes have been paid
in full.
The outstanding principal amount, if any, of the Class
A-1 Notes will be payable in full on ____________, 199_
(the "Class A-1 Final Scheduled Payment Date") and the
outstanding principal amount, if any, of the Class A-2
Notes will be payable in full on ____________, 199_ (the
"Class A-2 Final Scheduled Payment Date").
See "The Notes - Payments of Principal" herein.
E. Optional
Redemption. The Class A-2 Notes may be redeemed in whole, but not in
part, on a Distribution Date on which the Servicer
exercises its option to purchase the Collateral
Certificates. Under the terms of the Servicing
Agreement, the Servicer may purchase the Collateral
Certificates when the aggregate principal balance of the
Collateral Certificates (the "Pool Balance") has been
reduced to 10% or less of the initial Pool Balance. The
redemption price for the Class A-2 Notes will equal the
unpaid principal amount of the Class A-2 Notes plus
accrued interest at the Class A-2 Rate.
Terms of the Certificates
A. Distribution
Dates...... Distributions with respect to the Certificates will be
made on each Distribution Date to holders of record of
the Certificates (the "Certificateholders", and,
together with the Noteholders, the "Securityholders") as
of the related Record Date.
B. Pass-Through
Rate....... Interest will accrue on the Certificates at a per annum
rate of ___% (the "Certificate Pass-Through Rate"),
calculated on the basis of a 360-day year consisting of
twelve 30-day months.
C. Interest..... On each Distribution Date, the Owner Trustee will
distribute pro rata to Certificateholders accrued
interest at the Certificate Pass-Through Rate on the
Certificate Balance as of the preceding Distribution
Date (after giving effect to distributions made on such
Distribution Date) generally to the extent of funds
available following payment of the Servicing Fee and the
Noteholders' Distributable Amount (as defined herein)
from the Total Distribution Amount and the Reserve
Account. Interest on the Certificates in respect of any
Distribution Date will accrue from the most recent
Distribution Date (or, in the case of the first
Distribution Date, the Closing Date) to but excluding
such Distribution Date. See "The Certificates -
Distributions of Interest" herein.
D. Principal .... On each Distribution Date on and after the date on which
the Class A-2 Notes are paid in full, principal of the
Certificates will be payable in an amount generally
equal to the Total Distribution Amount remaining after
payment of the Servicing Fee, the Noteholders'
Distributable Amount (on the Distribution Date on which
the outstanding principal amount of the Class A-2 Notes
is reduced to zero) and the Certificateholders' Interest
Distributable Amount.
S-7
<PAGE>
The outstanding principal amount, if any, of the
Certificates will be payable full on ____________, 199_
(the "Final Scheduled Distribution Date").
See "The Certificates - Distributions of Principal" and
"Description of the Transfer and Servicing Agreements -
Distributions" herein.
E. Optional
Prepayment If the Servicer exercises its option to purchase the
Collateral Certificates, which it may do when the Pool
Balance is 10% or less of the initial Pool Balance, the
Certificateholders will receive an amount in respect of
the Certificates equal to the Certificate Balance plus
accrued interest at the Certificate Pass-Through Rate,
and the Certificates will be retired. See "The
Certificates - Optional Prepayment" and "The Notes -
Optional Redemption" herein.
Reserve Account..... The Reserve Account will be created with an initial
deposit by the Company on the Closing Date of cash or
Eligible Investments having a value of at least
$________ (the "Reserve Account Initial Deposit"). Funds
will be withdrawn from the Reserve Account on any
Distribution Date if, and to the extent that, the Total
Distribution Amount for the related Collection Period
remaining after payment of the Servicing Fee is less
than the Noteholders' Interest Distributable Amount and
will be deposited in the Note Distribution Account for
distribution to the Noteholders. In addition, funds will
be withdrawn from the Reserve Account to the extent that
the portion of the Total Distribution Amount remaining
after payment of the Servicing Fee and the Noteholders'
Distributable Amount is less than the
Certificateholders' Interest Distributable Amount and
will be deposited in the Certificate Distribution
Account for distribution to the Certificateholders.
Funds in the Reserve Account may be invested in
securities that will not mature prior to the date of
such next scheduled distribution with respect to the
Notes or Certificates and will not be sold prior to
maturity to meet any shortfalls. Thus, the amount of
available funds on deposit in the Reserve Account at any
time may be less than the balance of the Reserve
Account. If the amount required to be withdrawn from the
Reserve Account to cover shortfalls in collections on
the related Receivables exceeds the amount of available
funds on deposit in the Reserve Account, a temporary
shortfall in the amounts distributed to the Noteholders
or Certificateholders could result.
On each Distribution Date, the amount available in the
Reserve Account will be reinstated up to the Specified
Reserve Account Balance by the deposit thereto of the
amount, if any, remaining in the Collection Account
after payment on such date of the Servicing Fee, the
Noteholders' Distributable Amount and the
Certificateholders' Distributable Account. The
"Specified Reserve Account Balance" with respect to any
Distribution Date generally will be equal to [state
formula]. Certain amounts in the Reserve Account on any
Distribution Date (after giving effect to all
distributions to be made on such Distribution Date) in
excess of the Specified Reserve Account Balance for such
Distribution Date will be released to the Company and
will no longer be available to the Securityholders.
The Reserve Account will be maintained with the
Indenture Trustee as a segregated trust account, but
will not be part of the Trust. See "The Transfer and
Servicing Agreements - Reserve Account" herein.
Collection Account.. Except under certain conditions described in the
Prospectus under "Description of the Transfer and
Servicing Agreements - Collections," the Servicer will
be required to remit collections received with respect
to the Collateral Certificates within two Business Days
of receipt thereof to one or more accounts in the name
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of the Indenture Trustee (the "Collection Account").
Pursuant to the Indenture, the Indenture Trustee will
withdraw funds on deposit in the Collection Account and
apply such funds on each Distribution Date to the
following (in the priority indicated): (i) the Servicing
Fee for the related Collection Period and any overdue
Servicing Fees to the Servicer, (ii) the Noteholders'
Interest Distributable Amount and the Noteholders'
Principal Distributable Amount to the Note Distribution
Account, (iii) the Certificateholders' Interest
Distributable Amount and, after the Class A-2 Notes have
been paid in full, the Certificates' Principal
Distributable Amount to the Certificate Distribution
Account, and (iv) the remaining balance, if any, to the
Reserve Account. See "The Transfer and Servicing
Agreements -Distributions" and" - Reserve Account"
herein.
Tax Status.......... In the opinion of Sidley & Austin ("Federal Tax
Counsel"), the Trust will not be an association (or
publicly traded partnership) taxable as a corporation
for federal income tax purposes. The Trust will agree,
and the owners of beneficial interests in the Notes will
agree by their purchase of Notes, to treat the Notes as
debt for federal tax purposes. Federal Tax Counsel has
advised the Trust that the Notes will be classified as
debt for federal income tax purposes. The Trust will
also agree, and the related owners of beneficial
interests in the Certificates ("Certificate Owners")
will agree by their purchase of Certificates, to treat
the Trust as a partnership for purposes of federal and
state income tax, franchise tax and any other tax
measured in whole or in part by income, with the assets
of the partnership being the assets held by the Trust,
the partners of the partnership being the Certificate
Owners (including, to the extent relevant, the Seller in
its capacity as recipient of distributions from any
Reserve Fund) and the Notes being debt of the
partnership. See "Certain Federal Income Tax
Consequences" in the Prospectus for additional
information concerning the application of federal income
tax laws to the Trust and the Securities.
ERISA Considerations Subject to the considerations discussed under "ERISA
Considerations" herein and in the Prospectus, the Notes
are eligible for purchase by employee benefit plans. The
Certificates may not be acquired by employee benefit
plans subject to the Employee Retirement Income Security
Act of 1974, as amended, or by "plans" as defined in
Section 4975 of the Internal Revenue Code of 1986, as
amended. See "ERISA Considerations" herein and in the
Prospectus.
Ratings of the
Securities......... It is a condition to the issuance of the Notes and
Certificates that the Class A-1 Notes be rated at least
"______", the Class A-2 Notes be rated at least
"_______" and the Certificates be rated at least
"__________" or its equivalent, in each case by at least
two nationally recognized rating agencies.
A rating is not a recommendation to purchase, hold or
sell the Notes or Certificates, inasmuch as such rating
does not comment as to market price or suitability for a
particular investor. A rating addresses the likelihood
that principal of and interest on a particular class of
Notes or the Certificates, as applicable, will be paid
pursuant to its terms. There can be no assurance that a
rating will not be lowered or withdrawn by a rating
agency if circumstances so warrant. See "Risk Factors -
Ratings of the Securities" herein.
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RISK FACTORS
In addition to the other information contained in this Prospectus
Supplement and the Prospectus, prospective investors should carefully consider
the following risk factors before investing in the Securities.
Limited Liquidity. There is currently no secondary market for the
Securities. CS First Boston Corporation (the "Underwriter") currently intends
to make a market in the Securities, but is under no obligation to do so. There
can be no assurance that a secondary market will develop or, if a secondary
market does develop, that it will provide Securityholders with liquidity of
investment or that it will continue for the life of the Securities.
Servicer Default. If a Servicer Default occurs, the Indenture
Trustee or the Noteholders may remove the Servicer without the consent of the
Owner Trustee or the Certificateholders, in the manner described in the
Prospectus under "Description of the Transfer and Servicing Agreements - Rights
upon Servicer Default". Neither the Owner Trustee nor the Certificateholders
will have the ability to remove the Servicer if a Servicer Default occurs. In
addition, the Noteholders have the ability with certain specific exceptions, to
waive defaults by the Servicer, including defaults that might have a materially
adverse effect on Certificateholders. See "Description of the Transfer and
Servicing Agreements - Waiver of Past Defaults" in the Prospectus.
Subordination; Limited Assets. Distributions of interest and
principal on the Certificates will be subordinated in priority of payment to
interest and principal due on the Notes. Consequently, Certificateholders will
not receive any distributions with respect to a Collection Period until full
amount of interest on and principal of the Notes distributable on such
Distribution Date has been deposited in the Note Distribution Account. The
Certificateholders will not receive any distributions of principal until after
the Notes have been paid in full. See "The Transfer and Servicing Agreements -
Distributions" herein.
The Trust will not have, nor is it permitted or expected to have,
any significant assets or sources of funds other than the Collateral
Certificates and access to funds in the Reserve Account. Securityholders must
rely on payments on the Collateral Certificates and, if and to the extent
available, amounts on deposit in the Reserve Account. Although any funds
available in the Reserve Account on each Distribution Date will be applied to
cover shortfalls in distribution of interest on the Notes and the Certificates,
the funds to be deposited in the Reserve Account are limited in amount. If the
Reserve Account is exhausted, the Trust will depend solely on distributions on
the Collateral Certificates to make distributions on the Notes and the
Certificates. See "The Trust" and "The Transfer and Servicing Agreements -
Reserve Account" herein.
Funds in the Reserve Account may be invested in securities that
will not mature prior to the date of such next scheduled distribution with
respect to the Notes or Certificates and will not be sold prior to maturity to
meet any shortfalls. Thus, the amount of available funds on deposit in the
Reserve Account at any time may be less than the balance of the Reserve
Account. If the amount required to be withdrawn from the Reserve Account to
cover shortfalls in collections on the related Receivables exceeds the amount
of available funds on deposit in the Reserve Account, a temporary shortfall in
the amounts distributed to the Noteholders or Certificateholders could result.
Ratings of the Securities. It is a condition to the issuance of
the Notes and the Certificates of the Notes and the Certificates that the Class
A-1 Notes be rated "___________", the Class A-2 Notes be rated "________" and
the Certificates be rated "_________" or its equivalent, in each case by at
least two nationally recognized rating agencies (the "Rating Agencies"). A
rating is not a recommendation to purchase, hold or sell Securities, inasmuch
as such rating does not comment as to market price or suitability for a
particular investor. The ratings of the Securities address the likelihood of
the timely payment of interest on, and the ultimate repayment of principal of,
the Securities pursuant to their terms. There can be no assurance that a
rating will be retained for any given period of time or that a rating will not
be lowered or withdrawn entirely by a Rating Agency if in its judgment
circumstances in the future so warrant. In the event that a rating is
subsequently lowered or withdrawn, no person or entity will be required to
provide any additional credit enhancement. The ratings of the Notes are based
primarily on the credit quality of the Receivables, the subordination provided
by the Certificates and the
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availability of funds in the Reserve Account. The ratings of the Certificates
are based primarily on the credit quality of the Receivables and the
availability of funds in the Reserve Account.
Trust's Relationship to the Depositor. The Company is generally not
obligated to make any payments in respect of the Certificates or the Collateral
Certificates.
Considerations Regarding Collateral Certificates. Prospective
investors in the Certificates should consider carefully the factors set forth
under the caption "Risk Factors" or "Special Considerations" in the excerpted
sections of the prospectuses relating to the Collateral Certificates attached
hereto as Appendix A for certain additional considerations relating to the
Collateral Certificates and investments backed by Receivables. Neither the
Company nor the Underwriter participated in the preparation of the prospectuses
relating to the Collateral Certificates or the offering of the Collateral
Certificates, and neither has made any due diligence inquiry with respect to
the information provided therein. Although neither the Company nor the
Underwriter is aware of any material misstatements or omissions in any such
prospectus, the information provided therein or in the publicly available
documents referred to below is not guaranteed as to accuracy or completeness,
and is not to be construed as a representation, by the Company or the
Underwriter. In particular, information set forth in any prospectus relating
to the Collateral Certificates speaks only as of the date of such prospectus;
there can be no assurance that events have not occurred, which may or may not
have been publicly disclosed, that would affect the accuracy or completeness of
any such statements.
Each originator of an Underlying Trust Fund is subject to the
informational requirements of the Exchange Act. Accordingly, such originator
files annual and periodic reports and other information with the Commission.
Copies of such reports and other information may be inspected and copies at
certain offices of the Commission at the addresses listed under "Available
Information" herein.
THE TRUST
GENERAL
The Issuer, CS First Boston Auto Receivables Securities Trust
199_-_, is a business trust formed under the laws of the State of Delaware
pursuant to the Trust Agreement for the transactions described in this
Prospectus Supplement. After its formation, the Trust will not engage in any
activity other that (i) acquiring, holding and managing the Collateral
Certificates and the other assets of the Trust and proceeds therefrom, (ii)
issuing the Notes and the Certificates, (iii) making payments on the Notes and
the Certificates, and (iv) engaging in other activities that are necessary,
suitable or convenient to accomplish the foregoing or are incidental thereto or
connected therewith.
The Trust initially will be capitalized with equity equal to
$____________, excluding amounts in the Reserve Account. Certificates with an
original principal balance of $____________ (which represents approximately
[1]% of the initial Certificate Balance) will be sold to ____________ and the
remaining Certificates will be sold to third party investors the are expected
to be unaffiliated with the Company and the Trust. The proceeds from the
initial sale of the Notes and Certificates will be used by the Trust to
purchase the Collateral Certificates from the Company pursuant to the Trust
Agreement. The Servicer will service the Collateral Certificates pursuant to
the Servicing Agreement and will be compensated for acting as Servicer. See
"The Transfer and Servicing Agreements - Servicing Compensation" herein.
The Trust's principal offices are located in _______________________,
Delaware, in care of ____________________, as Owner Trustee, at the address
listed below under "-The Owner Trustee".
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CAPITALIZATION OF THE TRUST
The following table illustrates the capitalization of the Trust as
of the Cutoff Date, as if the issuance and sale of the Notes and the Notes and
the Certificates had taken place on such date:
Class A-1 Notes .................... $
Class A-2 Notes.......................
Certificates.......................... --------------------------------
Total.......................... $
================================
THE OWNER TRUSTEE
____________________ is the Owner Trustee under the Trust Agreement.
________________________ is a banking corporation and its principal offices are
located at __________________________. The Owner Trustee's liability in
connection with the issuance and sale of the Notes and Certificates is limited
solely to the express obligations of the Owner Trustee set forth in the Trust
Agreement and the Servicing Agreement. The Seller, the Company and their
respective affiliates may maintain normal commercial banking release with the
Owner Trustee and its affiliates.
THE SERVICER
[Information regarding the Servicer to be supplied.]
WEIGHTED AVERAGE LIFE OF THE SECURITIES
Information regarding certain maturity and prepayment considerations with
respect to the Securities is set forth under "Weighted Average Life of the
Securities" in the Prospectus. In addition, holders of the Class A-2 Notes will
not receive any principal payments until the Class A-1 Notes are paid in full,
and holders of the Certificates will not receive any principal payments until
the Class A-1 Notes and the Class A-2 Notes have been paid in full. See "The
Notes - Payments of Principal" and "The Certificates -Distributions of
Principal" herein. As the rate of payment of principal of each class of Notes
and the Certificates depends on the rate of payment (including prepayments) of
the Collateral Certificates, final payment of the Class A-1 Notes or the Class
A-2 Notes and the final distribution in respect of the Certificates could occur
significantly earlier than the Class A-1 Final Scheduled Payment Date, the Class
A-2 Final Scheduled Payment Date or the Final Scheduled Distribution Date, as
applicable. Securityholders will bear the risk of being able to reinvest
principal payments on the Securities at yields at least equal to the yield on
their Securities.
THE NOTES
GENERAL
The Notes will be issued pursuant to the terms of the Indenture, a
form of which has been filed as an exhibit to the Registration Statement. A
copy of the Indenture will be filed with the Commission following the issuance
of the Securities. The following summary describes certain terms of the Notes
and the Indenture. The summary does not purport to be complete and is subject
to, and is qualified in its entirety by reference to, all the provisions of the
Notes and the Indenture. The following summary supplements, and to the extent
inconsistent therewith replaces, the description of the general terms and
provisions of the Notes of any given Series and the related Indenture set forth
under the headings "Description of the Notes" and "Certain Information
Regarding the Securities" in the Prospectus, to which description reference is
hereby made.
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<PAGE>
PAYMENTS OF INTEREST
Interest on the principal balance of the Class A-1 Notes and the
Class A-2 Notes will accrue at the Class A-1 Rate and Class A-2 Rate,
respectively, and will be payable to the holders of the Class A-1 Notes and the
Class A-2 Notes monthly on each Distribution Date. Interest with respect to
any Distribution Date will accrue from and including the most recent
Distribution Date on which interest was distributed to Noteholders (or, with
respect to the first Distribution Date, from and including the Closing Date) to
but excluding such Distribution Date. Interest on each class of Notes will be
calculated on the basis of a 360-day year of twelve 30-day months. Interest
accrued but not paid on any Distribution Date will be due on the next
Distribution Date, together with interest on such amount at the applicable
Interest Rate (to the extent lawful). Interest payments on the Notes will
generally be derived from the Total Distribution Amount remaining after the
payment of the Servicing Fee and from the Reserve Account. See "The Transfer
and Servicing Agreements - Distributions" and "- Reserve Account" herein.
Interest payments to holders of both classes of Notes will have the same
priority. Under certain circumstances, the amount available for such payments
could be less than the amount of interest payable on the Notes on any
Distribution Date, in which case the holders of each class of Notes will
receive their ratable share (based on the aggregate amount of interest due on
such class of Notes) of the aggregate amount available for distribution in
respect of interest on the Notes.
PAYMENTS OF PRINCIPAL
On each Distribution Date for as long as the Class A-1 Notes are
outstanding, principal of the Class A-1 Notes will be distributed to holders of
the Class A-1 Notes in an amount equal to the Total Distribution Amount
remaining after payment of the Servicing Fee and the Noteholder's Interest
Distributable Amount. On each Distribution Date from and including the
Distribution Date on which the Class A-1 Notes are paid in full and for as long
as the Class A-2 Notes are outstanding, principal will be distributed to
holders of the Class A-2 Notes in an amount equal to the Total Distribution
Amount remaining after payment of the Servicing Fee, the Noteholders' Interest
Distributable Amount and, on the Distribution Date on which the outstanding
principal amount of the Class A-1 Notes is reduced to zero, any amounts
distributed as principal to holders of the Class A-1 Notes. No principal will
be paid on the Class A-2 Notes until the Class A-1 Notes have been paid in
full. See "The Transfer and Servicing Agreements - Distributions" and "-
Reserve Account" herein.
The principal balance of the Class A-1 Notes, to the extent not
previously paid, will be due on the Class A-1 Final Scheduled Payment Date and
the principal balance of the Class A-2 Notes, to the extent not previously
paid, will be due on the Class A-2 Final Scheduled Payment Date. The actual
date on which the aggregate outstanding principal amount of either the Class
A-1 Notes or the Class A-2 Notes is paid in full may be earlier than the
applicable Final Scheduled Payment Date set forth above due to a variety of
factors, including those described under "Weighted Average Life of the
Securities" herein and in the Prospectus.
OPTIONAL REDEMPTION
The Class A-2 Notes may be redeemed in whole, but not in part, on a
Distribution Date on which the Servicer exercises its option to purchase the
Collateral Certificates, which the Servicer may do after the aggregate
outstanding principal amount of the Collateral Certificates is reduced to 10%
or less of the initial Pool Balance. See "Description of the Transfer and
Servicing Agreements - Termination" in the Prospectus. The redemption price
for the Class A-2 Notes will equal the unpaid principal amount of the Class A-2
Notes plus accrued and unpaid interest thereon.
THE CERTIFICATES
GENERAL
The Certificates will be issued pursuant to the terms of the Trust
Agreement, a form of which has been filed as an exhibit to the Registration
Statement. A copy of the Trust Agreement will be filed with the Commission
following the issuance of the Securities. The following summary describes
certain terms of the
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Certificates and the Trust Agreement. This summary does not purport to be
complete and is subject to, and qualified is its entirety by reference to, all
the provisions of the Certificates and the Trust Agreement. The following
summary supplements, and to the extent inconsistent therewith replaces, the
description of the general terms and provision of the Certificates of any given
Series and the related Trust Agreement set forth in the Prospectus, to which
description reference is hereby made.
DISTRIBUTIONS OF INTEREST
Interest on the principal balance of the Certificates will accrue
at the Pass-Through Rate. Interest with respect to any Distribution Date will
accrue from and including the most recent Distribution Date on which interest
was distributed to Certificateholders (or, with respect to the first
Distribution Date, from and including the Closing Date) to but excluding such
Distribution Date and will be calculated on the basis of a 360-day year of
twelve 30-day months. Interest accrued but not distributed on any Distribution
Date will be due on the next Distribution Date, together with interest on such
amount at the Pass-Through Rate (to the extent lawful). Interest distributions
with respect to the Certificates generally will be funded from the portion of
the Total Distribution Amount and funds in the Reserve Account remaining after
the distribution of the Servicing Fee and the Noteholders' Distributable
Amount. See "The Transfer and Servicing Agreements - Distributions" and " -
Reserve Account" herein.
DISTRIBUTIONS OF PRINCIPAL
Certificateholders will not be entitled to distributions of
principal on any Distribution Date until the Notes have been paid in full. On
each Distribution Date on and after the Distribution Date on which the Class
A-2 Notes are paid in full, the Certificateholders will be entitled to
distributions of principal in a maximum amount equal to the lesser of (i) the
Total Distribution Amount plus any funds in the Reserve Account remaining after
payment of the Servicing Fee, the Noteholders' Distributable Amount (on the
Distribution Date on which the outstanding principal amount of the Class A-2
Notes is reduced to zero) and the Certificateholders' Interest Distributable
Amount and (ii) the outstanding Certificate Balance. See "The Transfer and
Servicing Agreements - Distributions" and "- Reserve Account" herein.
OPTIONAL PREPAYMENT
If the Servicer exercises its option to purchase the Collateral
Certificates, which it may do when the aggregate outstanding principal amount
of the Collateral Certificates is reduced to 10% or less of the initial Pool
Balance, the Certificateholders will receive an amount in respect of the
Certificates equal to the outstanding Certificate Balance, together with
accrued interest thereon at the Pass-Through Rate, which distribution shall
effect an early retirement of the Certificates. See "Description of the
Transfer and Servicing Agreements - Termination" in the Prospectus.
DESCRIPTION OF THE COLLATERAL CERTIFICATES
GENERAL
This Prospectus Supplement sets forth certain relevant terms of the
Collateral Certificates. It does not purport to summarize such securities or
to provide complete or updated information with respect to the issuer thereof
or the Receivables relating thereto. Schedule I to this Prospectus Supplement
contains a summary of the terms of the Collateral Certificates. Appendix A to
this Prospectus Supplement contains excerpts from each prospectus pursuant to
which Collateral Certificates were offered and sold. This Prospectus
Supplement relates only to the Certificates offered hereby and does not relate
to the Collateral Certificates. See "Special Considerations-Considerations
Regarding Collateral Certificates".
Although the Company has no reason to believe the information concerning
the Underlying Trust Fund or the prospectus relating to the Collateral
Certificates is not reliable, the Company has not verified either its accuracy
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or its completeness. Neither the Company nor the Underwriter warrants that
there events have not occurred , which would affect either the accuracy or the
completeness of the information contained therein. See "Special
Considerations-Considerations Regarding Collateral Certificates" and "-Certain
Updated Information with Respect to the Collateral Certificates".
CERTAIN UPDATED INFORMATION WITH RESPECT TO THE COLLATERAL CERTIFICATES
The originator of each Underlying Trust Fund is subject to the
information requirements of the Exchange Act. Accordingly, such originator
files reports and other information with respect to each Underlying Trust Fund,
including monthly servicer reports ("Servicer Reports") regarding the
Receivables, with the Commission. A summary of certain of the information
included in the most recent Servicer Reports filed with the Commission is
included as Appendix B hereto. Copies of such reports and other information
may be inspected and copied at certain offices of the Commission at the address
listed under "Available Information" herein.
Neither the Company nor the Underwriter participated in the preparation
of such Servicer Reports, and the information provided therein or in the
publicly available documents referred to above is not guaranteed as to accuracy
or completeness, and is not to be construed as a representation, by the Company
or the Underwriter. In particular, information set forth in the Servicer
Reports speaks only as of the date of such Servicer Report; there can be no
assurance that events have not occurred that would affect the accuracy or
completeness of any statements included in such Servicer Reports or in the
publicly available documents filed by or on behalf of each Underlying Trust
Fund.
THE TRANSFER AND SERVICING AGREEMENTS
The following summary describes certain terms of the Servicing
Agreement and the Trust Agreement (together, the "Transfer and Servicing
Agreements"). Forms of the Transfer and Servicing Agreements have been filed
as exhibits to the Registration Statement. A copy of the Transfer and
Servicing Agreements will be filed with the Commission following the issuance
of the Securities. This summary does not purport to be complete and is subject
to, and is qualified in its entirety by reference to, all the provisions of the
Transfer and Servicing Agreements. The following summary supplements, and to
the extent inconsistent therewith replaces, the description of the general
terms and provisions of Transfer and Servicing Agreements (as such term is used
in the Prospectus) set forth under the heading "Description of the Transfer and
Servicing Agreements" in the Prospectus, to which description reference is
hereby made.
ACCOUNTS
In addition to the Accounts referred to under "Description of the
Transfer and Servicing Agreements - Accounts" in the Prospectus, the Servicer
with also establish and maintain the Reserve Account with the Indenture
Trustee, in the name of the Indenture Trustee on behalf of the Noteholders and
the Certificateholders.
SERVICING COMPENSATION
The Servicer will be entitled to receive the Servicing Fee for each
Collection Period in an amount equal to 1.00% per annum of the Pool Balance as
of the first day of such Collection Period. The Servicing Fee (together with
any portion of the Servicing Fee that remains unpaid from prior Distribution
Dates) will be paid on each Distribution Date solely to the extent of the
Interest Distribution Amount; however, the Servicing Fee will be paid to the
Servicer prior to the distribution of any portion of the Interest Distribution
Amount to Noteholders and Certificateholders. See "Description of the Transfer
and Servicing Agreements - Servicing Compensation and Payment of Expenses" in
the Prospectus.
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DISTRIBUTIONS
Deposits to Collection Account. On or about the _____ Business Day
of each month, the Servicer will provide the Indenture Trustee with certain
information with respect to the related Collection Period, including the
aggregate amount of collections on the Collateral Certificates, as well as the
Total Distribution Amount, the Interest Distribution Amount and the Principal
Distribution Amount.
On or before each Distribution Date, the Servicer will cause the
Total Distribution Account to be deposited into the Collection Account. The
"Total Distribution Amount" for a Distribution Date will equal the aggregate
amount of the distributions received on the Collateral Certificates.
The "Interest Distribution Amount" for a Distribution Date will
equal the sum of the portion of all collections on the Collateral Certificates
allocable to interest, and Investment Earnings for such Distribution Date in
each case, with respect to the related Collection Period. The "Principal
Distribution Amount" for a Distribution Date will equal the portion of all
collections on the Collateral Certificates allocable to principal, with respect
to the related collection period.
Deposits to the Distribution Accounts. On each Distribution Date,
the Servicer will instruct the Trustee to make the following deposits and
distributions, to the extent of the Total Distribution Amount, in the following
order of priority:
(i) to the Servicer, from the Interest Distribution Amount,
the Servicing Fee and all unpaid Servicing Fees from prior Collection
Periods;
(ii) to the Note Distribution Account, from the Total
Distribution Amount remaining after the application of clause (i), the
Noteholders' Interest Distributable Amount;
(iii) to the Note Distribution Account, from the Total
Distribution Amount remaining after the application of clauses (i) and
(ii), the Noteholders' Principal Distributable Amount;
(iv) to the Certificate Distribution Account, from the Total
Distribution Amount remaining after the application of clauses (i)
through (iii), the Certificateholders' Interest Distributable Amount;
(v) to the Certificate Distribution Account, from the Total
Distribution Amount remaining after the application of clauses (i)
through (iv), the Certificateholders' Principal Distributable Amount; and
(vi) to the Reserve Account, the Total Distribution Amount
remaining after the application of clauses (i) through (v).
For purposes hereof, the following terms shall have the following
meanings:
"Noteholders' Distributable Amount" means, with respect to any
Distribution Date, the sum of the Noteholders' Principal Distributable Amount
and the Noteholders' Interest Distributable Amount.
"Noteholders' Interest Distributable Amount" means, with respect to
any Distribution Date, the sum of the Noteholders' Monthly Interest
Distributable Amount for such Distribution Date and the Noteholders' Interest
Carryover Shortfall for such Distribution Date.
"Noteholders' Monthly Interest Distributable Amount" means, with
respect to any Distribution Date, 30 days of interest (or, in the case of the
first Distribution Date, interest accrued from and including the Closing Date
to but excluding such Distribution Date) on the Class A-1 Notes and the Class
A-2 Notes at the Class A-1 Rate and the Class A-2 Rate, respectively, on the
outstanding principal balance of the Notes of such class on
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the immediately preceding Distribution Date (or, in the case of the first
Distribution Date, on the Closing Date) after giving effect to all payments of
principal to the Noteholders of such class on or prior to such Distribution
Date.
"Noteholders' Interest Carryover Shortfall" means, with respect to
any Distribution Date, (i) the excess of the Noteholders' Monthly Interest
Distributable Amount for the preceding Distribution Date, plus any outstanding
Noteholders' Interest Carryover Shortfall on such preceding Distribution Date,
over the amount in respect of interest that is actually deposited in the Note
Distribution Account on such preceding Distribution Date, plus (ii) interest on
the amount of interest due but not paid to Noteholders on the preceding
Distribution Date, to the extent permitted by law, at the respective Interest
Rates borne by each class of the Notes from such preceding Distribution Date to
but excluding such current Distribution Date.
"Noteholders' Principal Distributable Amount" means, with respect
to any Distribution Date for as long as the Class A-1 Notes or the Class A-2
Notes are outstanding, 100% of the Principal Distribution Amount; provided,
however, that on the Distribution Date on which the principal balance of the
Class A-2 Notes is reduced to zero, the portion, if any, of the Principal
Distribution Amount that is not applied to the principal of the Class A-2 Notes
will be applied to the Certificate Balance; provided further, however, that the
Noteholders' Principal Distributable Amount shall not exceed the outstanding
principal balance of the Notes.
"Certificateholders' Distributable Amount" means, with respect to
any Distribution Date, the sum of the Certificateholder's Principal
Distributable Amount and the Certificateholders' Interest Distributable Amount.
"Certificateholders' Interest Distributable Amount" means, with
respect to any Distribution Date, the sum of the Certificateholders' Monthly
Interest Distributable Amount for such Distribution Date and the
Certificateholders' Interest Carryover Shortfall for such Distribution Date.
"Certificateholders' Monthly Interest Distributable Amount" means,
with respect to any Distribution Date, 30 days of interest (or, in the case of
the first Distribution Date, interest accrued from and including the Closing
Date to but excluding such Distribution Date) at the Pass-Through Rate on the
Certificate Balance on the last day of the preceding Collection Period (or, in
the case of the first Distribution Date, on the Closing Date) after giving
effect to all distributions of principal to the Certificateholders on or prior
to such Distribution Date.
"Certificateholders' Interest Carryover Shortfall" means, with
respect to any Distribution Date, the excess of the Certificateholders' Monthly
Interest Distributable Amount for the preceding Distribution Date and any
outstanding Certificateholders' Interest Carryover Shortfall on such preceding
Distribution Date, over the amount in respect of interest that is actually
deposited in the Certificate Distribution Account on such preceding
Distribution Date, plus interest on such excess, to the extent permitted by
law, at the Pass-Through Rate from such preceding Distribution Date to but
excluding such current Distribution Date.
"Certificateholders' Principal Distributable Amount" means, with
respect to any Distribution Date prior to the Distribution Date on which the
Notes are paid in full, zero; and with respect to any Distribution Date
commencing on the Distribution Date on which the Notes are paid in full, 100%
of the Principal Distribution Amount (less, on the Distribution Date on which
the Notes are paid in full, the portion thereof payable as principal of the
Notes); provided, however, that the Certificateholders' Principal Distributable
Amount shall not exceed the Certificate Balance.
"Certificate Balance" equals, initially, $______ and, thereafter,
equals the initial Certificate Balance, reduced by all amounts allocable to
principal previously distributed to Certificateholders.
On each Distribution Date, all amounts on deposit in the Note
Distribution Account generally will be paid in the following order of priority:
(i) to the applicable Noteholders, accrued and unpaid
interest on the outstanding principal balance of the applicable class of
Notes at the applicable Interest Rate;
S-17
<PAGE>
(ii) to the Class A-1 Noteholders in reduction of principal
until the principal balance of the Class A-1 Notes has been reduced to
zero; and
(iii) to the Class A-2 Noteholders in reduction of principal
until the principal balance of the Class A-2 Notes has been reduced to
zero.
On each Distribution Date, all amounts on deposit in the
Certificate Distribution Account will be distributed to the Certificateholders.
RESERVE ACCOUNT
The Reserve Account will be created by the deposit thereto by the
Company on the Closing Date of the Reserve Account Initial Deposit and will be
increased up to the Specified Reserve Account Balance by the deposit thereto on
each Distribution Date on the amount, if any, remaining from the Total
Distribution Amount after payment of the Servicing Fee, the Noteholders'
Distributable Amount and the Certificateholders' Distributable Amount. If the
amount on deposit in the Reserve Account on any Distribution Date (after giving
effect to all deposits thereto or withdrawals therefrom on such Distribution
Date), is greater than the Specified Reserve Account Balance for such
Distribution Date, the Servicer will instruct the Indenture Trustee to
distribute an amount equal to such excess to the Depositor. Upon any
distribution to the Company of amounts from the Reserve Account, neither the
Noteholders nor the Certificateholders will have any rights in, or claim to,
such amounts.
Amounts held from time to time in the Reserve Account will continue
to be held for the benefit of the Noteholders and Certificateholders. Funds
will be withdrawn from cash in the Reserve Account to the extent that the Total
Distribution Amount (after the payment of the Servicing Fee) with respect to
any Collection Period is less than the Noteholders' Interest Distributable
Amount and will be deposited to the Note Distribution Account for distribution
to the Noteholders. In addition, funds will be withdrawn from cash in the
Reserve Account to the extent that the portion of the Total Distribution Amount
remaining after the payment of the Servicing Fee and the deposit of the
Noteholders' Distributable Amount to the Note Distribution Account is less than
the Certificateholders' Interest Distributable Amount and will be deposited to
the Certificate Distribution Account for distribution to the
Certificateholders.
The subordination of the Certificates and the Reserve Account are
intended to enhance the likelihood of receipt by Noteholders of the full amount
of interest due to them and to decrease the likelihood that the Noteholders
will experience losses. In addition, the Reserve Account is intended to
enhance the likelihood of receipt by Certificateholders of the full amount of
interest due to them and to decrease the likelihood that the Certificateholders
will experience losses. However, in certain circumstances, the Reserve Account
could be depleted. In addition, subject to certain conditions, funds in the
Reserve Account may be invested in securities that will not mature prior to a
particular Distribution Date and will not be sold prior to maturity to meet any
shortfalls that might occur on such Distribution Date. Thus, the amount of
cash in the Reserve Account at any time may be less than the balance of the
Reserve Account. If the amount required to be withdrawn from the Reserve
Account to cover shortfalls in collections on the Collateral Certificates
exceeds the amount of cash in the Reserve Account, a temporary shortfall in the
amounts distributed to the Noteholders or the Certificateholders could result.
ERISA CONSIDERATIONS
THE NOTES
The Notes may be purchased by an "employee benefit plan" as defined
in and subject to the provisions of Title I of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") or a "plan" as described in Section
4975(e)(1) of the Internal Revenue Code of 1986, as amended (the "Code") (each
such "employee benefit "plan" and "plan," a "Plan"). A fiduciary of a Plan
must determine that the purchase of a Note is consistent with its fiduciary
duties under ERISA and does not result in a nonexempt prohibited transaction as
defined in Section 406 of ERISA or Section 4975 of the Code. For additional
information regarding treatment of the Notes under ERISA, see "ERISA
Considerations" in the Prospectus.
S-18
<PAGE>
THE CERTIFICATES
The Certificates may not be acquired by (a) an employee benefit
plan (as defined in Section 3(3) of ERISA) that is subject to the provisions of
Title I of ERISA, (b) a plan described in Section 4975(e)(l) of the Code or (c)
any entity whose underlying assets include plan assets by reason of a plan's
investment in the entity. By its acceptance of a Certificate, each
Certificateholder will be deemed to have represented and warranted that it is
not subject to the foregoing limitation. For additional information regarding
treatment of the Certificates under ERISA, see "ERISA Considerations" in the
Prospectus.
UNDERWRITING
Subject to the terms and conditions set forth in the respective
underwriting agreements relating to the Notes and the Certificates (the
"Underwriting Agreements"), the Company has agreed to cause the Trust to sell
to CS First Boston Corporation (the "Underwriter"), and the Underwriter has
agreed to purchase, all of the Securities.
The Underwriter proposes to offer the Securities to the public
initially at the public offering prices set forth on the cover page of this
Prospectus Supplement, and to certain dealers at such prices less a concession
of ___% per Class A-1 Note, ___% per Class A-2 Note and ___% per Certificate;
however, the Underwriter and such dealers may allow a discount of ___% per
Class A-1 Note, ___% per Class A-2 Note and ___% per Certificate on sales to
certain other dealers; and after the initial public offering of the Securities,
and public offering prices and the concessions and discounts to dealers may be
changed by the Underwriter.
The Underwriting Agreements provide that the Seller will indemnify
the Underwriter against certain liabilities, including liabilities under
applicable securities laws, or contribute to payments the Underwriter may be
required to make in respect thereof.
The Trust may, from time to time, invest the funds in the Trust
Accounts in Eligible Investments acquired from the Underwriter.
The closing of the sale of the Certificates is conditioned on the
closing of the sale of the Notes, and the closing of the sale of the Notes is
conditioned on the closing of the sale of the Certificates.
Upon receipt of a request by an investor who has received an
electronic Prospectus Supplement and Prospectus from the Underwriter within the
period during which there is an obligation to deliver a Prospectus Supplement
and Prospectus, the Company or the Underwriter will promptly deliver, or cause
to be delivered, without charge, a paper copy of the Prospectus Supplement and
the Prospectus.
LEGAL MATTERS
Certain legal matters relating to the Securities will be passed upon by
Sidley & Austin, New York, New York.
S-19
<PAGE>
INDEX OF TERMS
Business Day................................................................S-
Certificate Balance.........................................................S-
Certificateholders..........................................................S-
Certificateholders' Distributable Amount....................................S-
Certificateholders' Interest Carryover Shortfall............................S-
Certificateholders' Interest Distributable Amount...........................S-
Certificateholders' Principal Carryover Shortfall...........................S-
Certificateholders' Principal Distributable Amount..........................S-
Certificates................................................................S-
Class A-1 Final Scheduled Payment Date......................................S-
Class A-1 Notes.............................................................S-
Class A-1 Rate..............................................................S-
Class A-2 Final Scheduled Payment Date......................................S-
Class A-2 Notes.............................................................S-
Class A-2 Rate..............................................................S-
Closing Date................................................................S-
Code........................................................................S-
Collateral Certificates.....................................................S-
Collection Account..........................................................S-
Commission..................................................................S-
Cutoff Date.................................................................S-
Distribution Date...........................................................S-
ERISA.......................................................................S-
Federal Tax Counsel.........................................................S-
Final Scheduled Distribution Date...........................................S-
Final Scheduled Maturity Date...............................................S-
Indenture...................................................................S-
Indenture Trustee...........................................................S-
Interest Distribution Amount................................................S-
Interest Rates..............................................................S-
Liquidated Receivables......................................................S-
Liquidated Proceeds.........................................................S-
Noteholders.................................................................S-
Noteholders' Interest Carryover Shortfall...................................S-
Noteholders' Interest Distributable Amount..................................S-
Noteholders' Monthly Interest Distributable Amount..........................S-
Noteholders' Principal Distributable Amount.................................S-
Notes.......................................................................S-
Owner Trustee...............................................................S-
Pass-Through Rate...........................................................S-
Plan........................................................................S-
Pool Balance................................................................S-
Principal Distribution Amount...............................................S-
Prospectus..................................................................S-
Rating Agencies.............................................................S-
Realized Losses.............................................................S-
Receivable..................................................................S-
Record Date.................................................................S-
Reserve Account.............................................................S-
Securities..................................................................S-
Securityholders.............................................................S-
Seller......................................................................S-
S-20
<PAGE>
Servicer....................................................................S-
Servicing Agreement.........................................................S-
Specified Reserve Account Balance...........................................S-
Total Distribution Amount...................................................S-
Transfer and Servicing Agreements...........................................S-
Trust.......................................................................S-
Trust Agreement.............................................................S-
Underwriting................................................................S-
Underwriting Agreements.....................................................S-
S-21
<PAGE>
SCHEDULE I
----------
Class __
CUSIP #___________ Rating: ______________
[Monthly][Quarterly]
[Semi-Annual] Aggregate
Payment Dates Interest Payment Interest Payment
- ------------- ---------------- ----------------
$___________________ $___________________
Aggregate Face
Amount Minimum
of Principal Authorized
Component Denomination Interest Rate
--------- ------------ -------------
$____________ $___________ ___________%
I-1
<PAGE>
APPENDIX A
[To be Supplied]
A-1
<PAGE>
APPENDIX B
[To be Supplied]
B-1
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there by any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
Subject to completion, dated __________ ___, 199__
PROSPECTUS
CS FIRST BOSTON AUTO [RECEIVABLES] [RECEIVABLES SECURITIES]
TRUSTS
Asset Backed Notes
Asset Backed Certificates
---------------------
Asset Backed Securities Corporation
Company
---------------------
The Asset Backed Notes (the "Notes") and the Asset Backed Certificates
(the "Certificates" and, together with the Notes, the "Securities") described
herein may be sold from time to time in one or more series (each, a "Series"),
in amounts, at prices and on terms to be determined at the time of sale and to
be set forth in a supplement to this Prospectus (a "Prospectus Supplement").
Each Series of Securities will be issued by a trust (each, a "Trust") to be
formed with respect to such Series and may include one or more classes of Notes
and/or one or more classes of Certificates. The property of each Trust will
include assets composed of (a) Primary Assets, which may include (i) one or more
pools of motor vehicle installment loan agreements or motor vehicle retail
installment sale contracts secured by new and used automobiles, vans and light
duty trucks (the "Receivables"), and security interests in the vehicles financed
thereby or (ii) Collateral Certificates (as defined herein), (b) certain monies
due or received under the terms of the Primary Assets, on or after the
applicable cutoff date, (c) the rights to certain credit and cash flow
enhancement as described herein, and (d) certain other property, as more fully
described herein and in the related Prospectus Supplement. [The Primary Assets
will be sold to a Trust by Asset Backed Securities Corporation, a Delaware
corporation (the "Company").] [Asset Backed Securities Corporation (the
"Company") will transfer funds to a Trust in exchange for the Certificates. Such
Trust will use such funds to purchase the Primary Assets].
Except as otherwise specified in the related Prospectus Supplement,
each class of Securities of any Series will represent the right to receive a
specified amount of payments of principal and interest on the related Primary
Assets, at the rates, on the dates and in the manner described herein and in the
related Prospectus Supplement. As more fully described herein and in the related
Prospectus Supplement, distributions on any class of Securities may be senior or
subordinate to distributions on one or more other classes of Securities of the
same Series, and payments on the Certificates of a Series may be subordinated in
priority to payments on the Notes of such Series. If provided in the related
Prospectus Supplement, a Series of Securities may include one or more classes of
Securities entitled to principal distributions with disproportionate, nominal or
no distributions in respect of interest, or to interest distributions with
disproportionate, nominal or no distributions in respect of principal.
EXCEPT AS OTHERWISE SPECIFIED IN THE RELATED PROSPECTUS SUPPLEMENT,
THE NOTES OF A SERIES WILL REPRESENT OBLIGATIONS OF, AND THE CERTIFICATES OF A
SERIES WILL REPRESENT BENEFICIAL INTERESTS IN, THE RELATED TRUST ONLY, AND WILL
NOT REPRESENT OBLIGATIONS OF OR INTERESTS IN, AND ARE NOT GUARANTEED OR INSURED
BY, CS FIRST BOSTON CORPORATION, THE COMPANY, ANY OF THEIR RESPECTIVE
AFFILIATES, OR ANY GOVERNMENTAL AGENCY.
PROSPECTIVE INVESTORS SHOULD CONSIDER THE FACTORS SET FORTH UNDER
"RISK FACTORS" IN THIS PROSPECTUS AND IN THE RELATED PROSPECTUS SUPPLEMENT.
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.
Retain this Prospectus for future reference. This Prospectus may not be used
to consummate sales of Securities of any Series unless accompanied by a
Prospectus Supplement.
---------------------
[LOGO] CS First Boston
This date of this Prospectus is __________, 199_.
<PAGE>
PROSPECTUS SUPPLEMENT
The Prospectus Supplement relating to a Series of Securities to be
offered hereunder will, among other things, set forth with respect to such
Series of Securities: (i) the aggregate principal amount, interest rate and
authorized denominations of each Class of such Securities; (ii) certain
information concerning the Primary Assets and the related Seller and Servicer,
as applicable; (iii) the terms of any Credit or Cash Flow Enhancement
applicable to any Class or Classes of such Securities; (iv) information
concerning any other assets in the related Trust; (v) the expected date or
dates on which the principal amount of each Class of such Securities will be
paid to holders of such Securities; (vi) the extent to which any Class within
such Series is subordinated to any other Class of such Series; and (vii)
additional information with respect to the plan of distribution of such
Securities. To the extent that the terms of this Prospectus conflict or are
otherwise inconsistent with the terms of the related Prospectus Supplement, the
terms of such related Prospectus Supplement shall govern.
REPORTS TO SECURITYHOLDERS
With respect to each Series of Securities, the Servicer (as defined in
the related Prospectus Supplement) of the related Primary Assets will prepare
for distribution to the related Securityholders certain monthly and annual
reports concerning such Securities and the related Trust. See, "Certain
Information Regarding the Securities - Statements to Securityholders".
AVAILABLE INFORMATION
The Company, as originator of the Trusts, has filed with the Securities
and Exchange Commission (the "Commission") a Registration Statement on Form S-3
(together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act of 1933, as amended, (the "Securities
Act") with respect to the Securities being offered hereby. This Prospectus
does not contain all of the information set forth in the Registration
Statement, certain parts of which have been omitted in accordance with the
rules and regulations of the Commission. In addition, Company is subject to
the informational requirements of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and in accordance therewith files reports and
other information with the Commission. Such Registration Statement, reports
and other information are available for inspection without charge at the public
reference facilities of the Commission at Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and the regional offices of the Commission at
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511, and Seven World Trade Center, Suite 1300, New York, New York 10048.
Copies of such information can be obtained from the Public Reference Section of
the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates.
Upon receipt of a request by an investor who has received an electronic
Prospectus Supplement and Prospectus from the Underwriter or a request by such
investor's representative within the period during which there is an obligation
to deliver a Prospectus Supplement and Prospectus, the Underwriter will
promptly deliver, or cause to be delivered, without charge, to such investor a
paper copy of the Prospectus Supplement and Prospectus.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents filed by the Company on behalf of the Trust referred to in
the accompanying Prospectus Supplement with the Commission pursuant to Section
13(a), 13(c), 14 or 15(d) of the "Exchange Act" after the date of this
Prospectus and prior to the termination of the offering of the Securities
offered by such Trust shall be deemed to be incorporated by reference in this
Prospectus and to be a part hereof from the dates of filing of such documents.
Any statement contained herein or in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
(or in the accompanying Prospectus Supplement) or in any subsequently filed
document that also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so
-2-
<PAGE>
modified or superseded shall not be deemed, except as so modified or supersede,
to constitute a part of this Prospectus.
The Company on behalf of any Trust will provide without charge to each
person to whom a copy of this Prospectus is delivered, on the written or oral
request of such person, a copy of any or all of the documents incorporated
herein by reference, except the exhibits to such documents. Requests for such
copies should be directed to __________________________________________________
___________________________________________________. Telephone requests may be
directed to ________________ at _________________________.
-3-
<PAGE>
SUMMARY OF TERMS
This Summary is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus and by reference to the
information with respect to each Series of Securities contained in the related
Prospectus Supplement to be prepared and delivered in connection with the
offering of such Securities. Certain capitalized terms used in this summary
are defined elsewhere in this Prospectus on the pages indicated in the "Index
of Terms".
Issuer................. With respect to any Series of Securities, a Trust
formed pursuant to either (i) a pooling and servicing
agreement (a "Pooling and Servicing Agreement") among
the Company, the Servicer and the Trustee for such
Trust (each such Trust being referred to herein as a
"Grantor Trust") or (ii) a trust agreement (a "Trust
Agreement") between the Company and the Trustee for
such Trust (each such Trust being referred to herein as
an "Owner Trust").
Company................ The Company is a special-purpose Delaware corporation
organized for the purpose of issuing the Securities and
other securities issued under the Registration
Statement backed by receivables or underlying
securities of various types and acting as settlor or
depositor with respect to trusts, custody accounts or
similar arrangements or as general or limited partner
in partnerships formed to issue securities. It is not
expected that the Company will have any significant
assets. The Company is an indirect, wholly owned
finance subsidiary of CS First Boston USA, Inc., which
is a wholly owned subsidiary of CS First Boston, Inc.
Neither CS First Boston USA, Inc. nor CS First Boston,
Inc. nor any of their affiliates has guaranteed, will
guarantee or is or will be otherwise obligated with
respect to any Series of Securities.
The Company's principal executive office is located at
Park Avenue Plaza, 55 East 52nd Street, New York, New
York 10055, and its telephone number is (212) 909-2000.
Trustee................ With respect to each Owner Trust and each Grantor
Trust, the trustee specified in the related Prospectus
Supplement (the "Trustee").
-4-
<PAGE>
Servicer............... With respect to each Owner Trust and each Grantor
Trust, the servicer specified in the related Prospectus
Supplement (the "Servicer").
Indenture Trustee...... With respect to any Series of Securities that is issued
by an Owner Trust and includes one or more classes of
Notes, the indenture trustee specified in the related
Prospectus Supplement (the "Indenture Trustee").
Securities Offered..... Each Series of Securities issued by an Owner Trust will
include one or more classes of Certificates and may
also include one or more classes of Notes. Each Series
of Securities issued by a Grantor Trust will include
one or more classes of Certificates, but will not
include any Notes. Each class of Notes will be issued
pursuant to an indenture (each, an "Indenture") between
the related Owner Trust and the Indenture Trustee
specified in the related Prospectus Supplement. Each
class of Certificates will be issued pursuant to the
related Trust Agreement (in the case of Certificates
issued by an Owner Trust) or the related Pooling and
Servicing Agreement (in the case of Certificates issued
by a Grantor Trust). The related Prospectus Supplement
will specify which class or classes of Notes and/or
Certificates of the related Series are being offered
thereby.
Notes.................. Unless otherwise specified in the related Prospectus
Supplement, each class of Notes will have a stated
principal amount and will bear interest at a specified
rate or rates (with respect to each class of Notes, the
"Interest Rate"). Each class of Notes may have a
different Interest Rate, which may be a fixed, variable
or adjustable Interest Rate or any combination of the
foregoing. The related Prospectus Supplement will
specify the Interest Rate, or the method for
determining the Interest Rate, for each class of Notes.
A Series of Securities issued by an Owner Trust may
include two or more classes of Notes that differ as to
timing and priority of payments, seniority, allocations
of losses, Interest Rate or amount of payments of
principal or interest. Additionally, payments of
principal or interest in respect of any such class or
classes may or may not be made upon the occurrence of
specified events or on the basis of collections from
designated portions of the Primary Assets. If specified
in the related Prospectus Supplement, one or more
classes of Notes ("Strip Notes") may be entitled to (i)
principal payments with disproportionate, nominal or no
interest payments or (ii) interest payments with
disproportionate,
-5-
<PAGE>
nominal or no principal payments. See "Description of
the Notes-Distributions of Principal and Interest".
Unless otherwise specified in the related Prospectus
Supplement, Notes will be available for purchase in
denominations of $1,000 and integral multiples thereof
and will be available in book-entry form only. Unless
otherwise specified in the related Prospectus
Supplement, Noteholders will be able to receive
Definitive Notes only in the limited circumstances
described herein or in the related Prospectus
Supplement. See "Certain Information Regarding the
Securities-Definitive Securities".
If the Servicer exercises its option to purchase the
Primary Assets of a Trust (or if not and, if and to the
extent provided in the related Prospectus Supplement,
satisfactory bids for the purchase of such Primary
Assets are received), in the manner and on the
respective terms and conditions described under
"Description of the Transfer and Servicing Agreements-
Termination", the outstanding Notes will be redeemed as
set forth in the related Prospectus Supplement.
The Certificates....... Unless otherwise specified in the related Prospectus
Supplement, each class of Certificates will have a
stated certificate balance (the "Certificate Balance")
and will accrue interest on such Certificate Balance at
a specified rate (with respect to each class of
Certificates, the "Pass-Through Rate"). Each class of
Certificates may have a different Pass-Through Rate,
which may be a fixed, variable or adjustable Pass-
Through Rate, or any combination of the foregoing. The
related Prospectus Supplement will specify the Pass-
Through Rate, or the method for determining the
applicable Pass-Through Rate, for each class of
Certificates.
A Series of Securities may include two or more classes
of Certificates that differ as to timing and priority
of distributions, seniority, allocations of losses,
Pass-Through Rate or amount of distributions in respect
of principal or interest. Additionally, distributions
in respect of principal or interest in respect of any
such class or classes may or may not be made upon the
occurrence of specified events or on the basis of
collections from designated portions of the related
Primary Assets. If specified in the related Prospectus
Supplement, one or more classes of Certificates ("Strip
Certificates") may be entitled to (i) principal
distributions with disproportionate, nominal or no
interest distributions or (ii) interest distributions
with disproportionate, nominal or no principal
distributions. See "Description of the
-6-
<PAGE>
Certificates-Distributions of Principal and Interest".
If a Series of Securities issued by an Owner Trust
includes classes of Notes, distributions in respect of
the Certificates will be subordinated in priority of
payment to payments on the Notes to the extent
specified in the related Prospectus Supplement.
Unless otherwise specified in the related Prospectus
Supplement, Certificates will be available for purchase
in a minimum denomination of $10,000 and in integral
multiples of $1,000 in excess thereof and will be
available in book-entry form only. Unless otherwise
specified in the related Prospectus Supplement,
Certificateholders will be able to receive Definitive
Certificates only in the limited circumstances
described herein or in the related Prospectus
Supplement. See "Certain Information Regarding the
Securities-Definitive Securities".
If the Servicer exercises its option to purchase the
Primary Assets of a Trust (or if not and, if and to the
extent provided in the related Prospectus Supplement,
satisfactory bids for the purchase of such Primary
Assets are received), in the manner and on the
respective terms and conditions described under
"Description of the Transfer and Servicing Agreements-
Termination", the Certificates will be prepaid as set
forth in the related Prospectus Supplement.
The Trust Property
General.............. On or prior to the date of issuance of a Series of
Securities specified in the related Prospectus
Supplement (the "Closing Date"), [the seller or sellers
specified in the related Prospectus Supplement, which
seller or sellers may also be the Servicer, (the
"Seller") will sell] [the Company will own and will
sell] Primary Assets having the aggregate principal
balance specified in such Prospectus Supplement as of
the date specified therein (the "Cutoff Date") [to the
Company and the Company will sell or transfer such
Primary Assets] to the Trust being formed on such date
pursuant to either (i) a Pooling and Servicing
Agreement (in the case of a Grantor Trust) or (ii) a
trust agreement (a "Trust Agreement") (in the case of
an Owner Trust).
The property of each Trust also will include amounts on
deposit in certain trust accounts, including the
related Collection Account and any other account
identified in the
-7-
<PAGE>
applicable Prospectus Supplement. See "Description of
the Transfer and Servicing Agreements-Trust Accounts".
Receivables.......... Receivables consist of Motor Vehicle Installment
Contracts secured by new or used automobiles, vans or
light duty trucks and the right to receive certain
payments made with respect to such Receivables,
security interests in the vehicles financed thereby
(the "Financed Vehicles"), certain accounts and the
proceeds thereof, and any proceeds from claims under
certain related insurance policies.
Receivables arise or will arise, from motor vehicle
installment loan agreements originated by [the Seller
or Sellers specified in the related Prospectus
Supplement (collectively, the "Seller")] [the Seller]
or motor vehicle retail installment sale contracts
acquired by the Seller (collectively, the "Motor
Vehicle Installment Contracts"), in each case secured
by new or used automobiles, vans or light duty trucks
purchased by the obligors on such Receivables (each, an
"Obligor") from motor vehicle dealers (the "Dealers").
The Receivables for any given Receivables Pool will be
selected from the Motor Vehicle Installment Contracts
owned by a Seller based on the criteria specified in
the related Receivables Purchase Agreement, and
described herein under "The Receivables Pools" and
"Description of the Transfer and Servicing Agreement-
Sale and Assignment of Receivables" and in the related
Prospectus Supplement under "The Receivables Pool."
Collateral
Certificates......... The Collateral Certificates consist of certain asset
backed certificates or notes, each issued pursuant to a
pooling and servicing agreement, sale and servicing
agreement, trust agreement or indenture (each, an
"Underlying Agreement"). Each Collateral Certificate
represents an interest in a trust fund ("an Underlying
Trust Fund") created pursuant to such Underlying
Agreement. The assets of each Underlying Trust Fund
consist primarily of a pool of motor vehicle
installment loan agreements and motor vehicle retail
installment sale contracts secured by new or used
automobiles, vans and light duty trucks, certain monies
due or received thereunder, security interests in the
vehicles financed thereby, and certain other property.
Holders of a Collateral Certificate are entitled to
receive distributions of interest and principal in
respect thereof as described herein. The Collateral
Certificates are more particularly described in related
Prospectus Supplement.
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Credit and Cash Flow
Enhancement........ If and to the extent specified in the related
Prospectus Supplement, credit enhancement with respect
to a Trust or any class or classes of Securities may
include any one or more of the following: subordination
of one or more other classes of Securities of the same
Series, reserve funds, spread accounts, yield
supplement accounts, surety bonds, insurance policies,
letters of credit, credit or liquidity facilities, cash
collateral accounts, over-collateralization, guaranteed
investment contracts, swaps or other interest rate
protection agreements, repurchase obligations, other
agreements with respect to third party payments or
other support, cash deposits, or other arrangements
that are incidental to or related to the Primary Assets
included in a Trust. To the extent specified in the
related Prospectus Supplement, a form of credit
enhancement with respect to a Trust or class or classes
of Securities will be subject to certain limitations
and exclusions from coverage thereunder.
Transfer and Servicing
Agreements........... [The Seller will sell Receivables to the Company
pursuant to a Receivables Purchase Agreement. The
Company will (i) sell or transfer Receivables and will
assign certain rights and benefits received under a
Receivables Purchase Agreement or (ii) sell or transfer
Collateral Certificates to a Trust pursuant to a
Pooling and Servicing Agreement or a Trust Agreement.
The rights and benefits of an Owner Trust under any
such agreement will be assigned to the related
Indenture Trustee as collateral for the Notes of the
related Series.] [The Company will sell Collateral
Certificates held by it to the Trust] [The Company will
transfer funds to the Trust. The Trust will purchase
[Receivables] [Collateral Certificates] with such
funds].
A Servicer will agree with a Trust pursuant to the
Pooling and Servicing Agreement (in the case of a
Grantor Trust) or pursuant to a servicing agreement (a
"Servicing Agreement") (in the case of an Owner Trust)
to be responsible for servicing, managing, maintaining
custody of and making collections on Receivables.
Unless otherwise provided in the related Prospectus
Supplement, the Servicer will advance scheduled
payments under each Precomputed Receivable that are not
timely made (a "Precomputed Advance") to the extent
that the Servicer, in its sole discretion, expects to
recoup the Precomputed Advance from subsequent payments
on or with respect to
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such Receivable or from other Precomputed Receivables.
With respect to Simple Interest Receivables, the
Servicer will advance any interest shortfall (a "Simple
Interest Advance"). As used herein, "Advance" means any
Precomputed Advance or Simple Interest Advance. The
Servicer will be entitled to reimbursement of Advances
from subsequent payments on or with respect to the
Receivables to the extent described in the related
Prospectus Supplement.
Unless otherwise provided in the related Prospectus
Supplement, the Seller will be obligated to repurchase
any Receivable in which the interest of the applicable
Trust is material and adversely affected as a result of
a breach of any representation or warranty made by the
Seller in the related Receivables Purchase Agreement if
such breach is not cured in a timely manner following
the discovery by or notice to the Seller thereof.
Unless otherwise provided in the related Prospectus
Supplement, the Servicer will be obligated under the
Receivables Purchase Agreement to purchase or make
Advances with respect to any Receivable if, among other
things, it extends the date for final payment by the
Obligor thereon beyond the final scheduled maturity
date for the related Receivables Pool specified in the
related Prospectus Supplement (the "Final Scheduled
Maturity Date"), changes the annual percentage rate
(the "APR") or the amount of the scheduled monthly
payments on such Receivable or fails to maintain a
perfected security interest in the Financed Vehicle
related to such Receivable.
Unless otherwise specified in the related Prospectus
Supplement, the Servicer will receive a fee for
servicing the Receivables of each Trust equal to the
percentage specified in the related Prospectus
Supplement of the aggregate outstanding principal
balance of the related Receivables Pool, plus certain
late fees, prepayment charges and other administrative
fees or similar charges. See "Description of the
Transfer and Servicing Agreements-Servicing
Compensation and Payment of Expenses" herein and
"Description of the Transfer and Servicing Agreements-
Servicing Compensation" in the related Prospectus
Supplement.
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Certain Legal Aspects
of Receivables;
Repurchase
Obligations.......... Unless otherwise specified in the related Prospectus
Supplement, the Seller will be obligated to repurchase
any Receivable sold to a Trust as to which a first
perfected security interest in the name of the Seller
in the Financed Vehicle securing such Receivable shall
not exist as of the date such Receivable is purchased
by such Trust, if such breach shall materially
adversely affect the interest of such Trust in such
Receivable and if such failure or breach is not cured
by the Seller by the last day of the second month
following the discovery by or notice to the Seller of
such breach.
In connection with the sale of Receivables to a Trust,
security interests in the Financed Vehicles securing
such Receivables will be assigned by the Seller to such
Trust. Due to administrative burden and expense,
however, the certificates of title to such Financed
Vehicles will not be amended to reflect such assignment
to the Trust. In the absence of such an amendment, the
Trust may not have a perfected security interest in the
Financed Vehicles securing the Receivables in some
states. If a Trust does not have a perfected security
interest in a Financed Vehicle, its ability to realize
on such Financed Vehicle in the event of a default may
be adversely affected.
To the extent the security interest is perfected, such
Trust will have a prior claim over subsequent
purchasers of such Financed Vehicle and holders of
subsequently perfected security interests. However, as
against liens for repairs of Financed Vehicles or for
taxes unpaid by the related Obligor, or through fraud
or negligence, a Trust could lose its security
interest, or the priority of its security interest, in
a Financed Vehicle. Neither the Seller nor the Servicer
will be obligated to repurchase a Receivable with
respect to which a Trust loses its security interest or
the priority of its security interest in the related
Financed Vehicle for any such cause after the Closing
Date.
Federal and state consumer protection laws impose
requirements on creditors in connection with extensions
of credit and collections of retail installment loans,
and certain of these laws make an assignee of such a
loan liable to the obligor thereon for any violation by
the lender. Unless otherwise specified in the related
Prospectus Supplement, the Seller will be obligated to
repurchase any Receivable that
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fails to comply with such requirements. See "Certain
Legal Aspects of the Receivables".
Tax Considerations..... If a Prospectus Supplement specifies that the related
Trust will be an Owner Trust, upon the issuance of the
related Series of Securities Federal Tax Counsel to
such Trust will deliver an opinion to the effect that,
for federal income tax purposes: (i) any Notes of such
Series will be characterized as debt and (ii) such
Trust will not be characterized as an association or a
publicly traded partnership taxable as a corporation.
In respect of any such Series, each holder of a Note
(each, a "Noteholder"), by the acceptance of a Note of
such Series, will agree to treat such Note as
indebtedness, and each holder of a Certificate (each, a
"Certificateholder"), by the acceptance of a
Certificate of such Series, will agree to treat such
Trust as a partnership in which such Certificateholder
is a partner for federal income tax purposes.
Alternative characterizations of such Trust and such
Certificates are possible, but would not result in
materially adverse tax consequences to
Certificateholders.
If a Prospectus Supplement specifies that the related
Trust will be a Grantor Trust, except as otherwise
provided in such Prospectus Supplement, upon the
issuance of the related Series of Certificates Federal
Tax Counsel to such Trust will deliver an opinion to
the effect that such Trust will be treated as a grantor
trust for federal income tax purposes and will not be
subject to federal income tax.
See "Certain Federal Income Tax Consequences" and
"Certain State Tax Consequences with respect to Owner
Trusts" for additional information regarding the
application of tax laws.
ERISA Considerations... Subject to the considerations discussed under "ERISA
Considerations" herein and in the related Prospectus
Supplement, and unless otherwise specified therein, (i)
the Notes of any Series issued by an Owner Trust and
(ii) any Certificates issued by a Grantor Trust that
are not subordinated to any other security and that
meet certain other requirements are eligible for
purchase by employee benefit plans.
Unless otherwise specified in the related Prospectus
Supplement, the Certificates of any Series that are
subordinated to any other Security of that Series may
not be acquired by any "employee benefit plan" as
defined in and
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subject to the Employee Retirement Income Security Act
of 1974, as amended, or by any "plan" as defined in
Section 4975 of the Code. See "ERISA Considerations"
herein and in the related Prospectus Supplement.
Legal Investment....... Investors whose investment authority is subject to
legal restrictions should consult their own legal
advisors to determine whether and to what extent the
Certificates or Notes constitute legal investments for
them.
Ratings................ It is a condition to the issuance of the Securities to
be offered hereunder that they be rated in one of the
four highest rating categories by at least one
nationally recognized statistical rating organization.
A rating is not a recommendation to purchase, hold or
sell Securities inasmuch as such rating does not
comment as to market price or suitability for a
particular investor. Ratings of Securities will address
the likelihood of the payment of principal and interest
thereon pursuant to their terms. There can be no
assurance that a rating will remain for a given period
of time or that a rating will not be lowered or
withdrawn entirely by a rating agency if in its
judgment circumstances in the future so warrant. For
more detailed information regarding the ratings
assigned to any class of a particular Series of
Securities, see "Summary of Terms-Rating of the
Securities" and "Risk Factors -Ratings of the
Securities" in the related Prospectus Supplement.
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<PAGE>
RISK FACTORS
In addition to the other information contained in this Prospectus and in
the related Prospectus Supplement to be prepared and delivered in connection
with the offering of any Series of Securities, prospective investors should
carefully consider the following risk factors before investing in any class or
classes of Securities of any such Series.
Certain Legal Aspects - Security Interests in Financed Vehicles.
Security interests in the Financed Vehicles securing Receivables will be
assigned to the related Trust. Due to administrative burden and expense,
however, the certificates of title to the Financed Vehicles will not be amended
to reflect such assignment to the Trust. In the absence of such amendments, a
Trust may not have perfected security interest in the Financed Vehicles
securing the Receivables in some states.
If a Trust does not have a perfected security interest in a Financed
Vehicle, its ability to realize in the event of a default on such Financed
Vehicle may be adversely affected. To the extent the security interest is
perfected, the Trust will have a prior claim over subsequent purchasers of such
Financed Vehicle and holders of subsequently perfected security interests;
however, the Trust could lose its security interest or the priority of its
security interest as against liens for repairs to Financed Vehicles or for
taxes unpaid by an Obligor under a Receivable or through fraud or negligence.
Neither the Seller nor the Servicer will have any obligation to repurchase a
Receivable in respect of which a Trust so loses its security interest in the
related Financed Vehicle after the date such security interest was conveyed to
such Trust. See "Certain Legal Aspects of the Receivables - Security Interests
in Financed Vehicles".
Unless otherwise provided in the related Prospectus Supplement, the
Seller will be obligated to repurchase any Receivable sold to a Trust as to
which a perfected security interest in the name of the Seller in the Financed
Vehicle securing such Receivable shall not exist as of the date such Receivable
is transferred to such Trust, if such breach shall materially adversely affect
the interest of the Trust in such Receivable and if such failure or breach is
not timely cured following discovery by or notice thereof to the Seller.
Certain Legal Aspects - Consumer Protection Laws. Federal and state
consumer protection laws impose requirements on creditors in connection with
extensions of credit and collections of retail installment obligations, and
certain of these laws make an assignee of such a loan (such as a Trust) liable
to the obligor thereon for any violation by the lender. To the extent
specified herein and in the related Prospectus Supplement, the Seller will be
obligated to repurchase any Receivable that fails to comply with such
requirements. See "Certain Legal Aspects of the Receivables - Consumer
Protection Laws".
Certain Legal Aspects - Insolvency Considerations. Each Seller intends
that the transfer of the Receivables by it under each Receivables Purchase
Agreement constitute a sale. Notwithstanding the foregoing, in the event that
such Seller were to become a debtor in a bankruptcy case a court could take the
position that the sale of Receivables to the Company
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should be treated as a pledge of such Receivables to secure a borrowing by such
Seller. If the transfer to the Trust were to be characterized as a secured
loan, to the extent that the Seller would be deemed to have granted a security
interest in the Receivables to the Trust, and that interest had been validly
perfected before the Seller's insolvency and had not been taken in
contemplation of insolvency, that security interest should not be subject to
avoidance, and payments to be with respect to the Receivables should not be
subject to recovery by a receiver of the Seller. However, in such a case,
delays in payments on the Notes and the Certificates and possible reductions in
the amount of those payments could occur.
Recent Developments. The U.S. Court of Appeals for the Tenth Circuit in
its decision in Octagon Gas Systems, Inc. v. Rimmer (In re Meridian Reserve,
Inc.) (decided May 27, 1993) concluded (noting that its position is in contrast
to that taken by another court) that accounts receivable sold by the debtor
prior to the filing for bankruptcy remain property of the debtor's bankruptcy
estate. The Seller will warrant in each Receivables Purchase Agreement that
the sale of Receivables to the related Trust is a valid sale of such
Receivables to such Trust. For a discussion of certain consequences of
characterization of a transaction as a sale or a pledge, see Certain Legal
Aspects - Bankruptcy Considerations above.
Subordination; Limited Assets. To the extent specified in the related
Prospectus Supplement, distributions of interest and principal on one or more
classes of Certificates of a Series may be subordinated in priority of payment
to interest and principal due on the Notes, if any, of such Series or one or
more classes of Certificates of such Series. Moreover, none of the Trusts will
have, nor will any such Trust be permitted or expected to have, any significant
assets or sources of funds other than the Primary Assets and, to the extent
provided in the related Prospectus Supplement, access to funds in Reserve
Account or other form of credit enhancement. The Notes, if any, of any Series
will represent obligations solely of, and the Certificates of any such Series
will represent interests solely in, the related Trust, and neither the Notes
nor the Certificates of any such Series will represent obligations of or
interests in, or be insured or guaranteed by, the Company, related Seller,
Servicer, Trustee or Indenture Trustee, or any other entity. Consequently,
holders of the Securities of any Series must rely for repayment upon payments
on the related Primary Assets and, if and to the extent available, amounts
payable under any available form of credit enhancement, as specified in the
related Prospectus Supplement.
Maturity and Prepayment Considerations - Receivables. All of the
Receivables are prepayable at any time. When used herein with respect to any
Receivable, the term "prepayment" includes prepayments in full, partial
prepayments (including those related to rebates of extended warranty contract
costs and insurance premiums) and liquidation due to default, as well as
receipts of proceeds from physical damage, credit life and disability insurance
policies and Repurchase Amounts (as defined herein) with respect to certain
other Receivables repurchased for administrative reasons. The rate of
prepayments on the Receivables may be influenced by a variety of economic,
social and other factors, including the fact that an Obligor generally may not
sell or transfer the Financed Vehicle securing a Receivable without the consent
of the Seller. The rate of prepayment on the Receivables may also be
influenced by the
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structure of the underlying loans. See "Weighted Average Life of the
Securities". In addition, pursuant to each Receivables Purchase Agreement, the
Seller will be obligated to repurchase Receivables in respect of which it is in
breach of certain representations, warranties or covenants. See "Description
of the Transfer and Servicing Agreements - Sale and Assignment of Receivables".
Any reinvestment risks resulting from a faster or slower incidence of
prepayment of Receivables held by a Trust will be borne entirely by the Holders
of the related Series of Securities. See also "Description of the Transfer and
Servicing Agreements-Termination" regarding the Servicer's option to purchase
the Receivables of a given Receivables Pool.
Maturity and Prepayment Considerations - Collateral Certificates. The
rate of payment of principal of Securities, and the aggregate amount of each
distribution on and the yield to maturity of all Securities will depend on a
number of factors, including the performance of the Collateral Certificates and
the rate of payment of principal (including prepayments) thereof. Each of the
Collateral Certificates is subject to prepayment, which may result from the
occurrence of the events described herein and in the prospectus used in
connection with the offering of such Collateral Certificates.
The rate of payment of principal of the Securities may also be affected
by the repurchase of the underlying receivables, and the corresponding
retirement of the Collateral Certificates. In such event, the amount paid in
respect of the Collateral Certificates held by the Trust would be treated as
prepayment of principal and accrued interest of the Collateral Certificates and
thus would be passed through to the Securityholders.
Risk of Commingling. With respect to each Trust, the Servicer will
deposit all payments on the related Primary Assets (from whatever source) and
all proceeds of such Primary Assets collected during the period specified in
the related Prospectus Supplement (a "Collection Period") into the related
Collection Account within two business days of receipt thereof. However, in
the event that a Servicer satisfies certain requirements for monthly or less
frequent remittances and the Rating Agencies (as such term is defined in the
related Prospectus Supplement) affirm their initial rating of the related
Securities, then for so long as such Servicer is the Servicer and provided that
(i) no Servicer Default exists and (ii) each other condition to making monthly
or less frequent deposits as may be specified by the Rating Agencies and
described in the related Prospectus Supplement is satisfied, the Servicer will
not be required to deposit such amounts into the Collection Account of such
Trust until the business day preceding each Distribution Date. The Servicer
will deposit the aggregate Repurchase Amount for Receivables purchased by the
Servicer during the related Collection Period into the applicable Collection
Account on or before the business day preceding each Distribution Date.
Pending deposit into such Collection Account, collections may be invested by
the Servicer at its own risk and for its own benefit and will not be segregated
from funds of the Servicer. If the Servicer were unable to remit such funds,
the applicable Securityholders might incur a loss. To the extent set forth in
the related Prospectus Supplement, the Servicer may, in order to satisfy the
requirements described above, obtain a letter of credit or other security for
the benefit of the related Trust to secure timely remittances of collections on
the related Primary Assets or
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payment of the aggregate Repurchase Amount with respect to Receivables
purchased by the Servicer.
Servicer Default. Unless otherwise provided in the related Prospectus
Supplement with respect to a Series of Securities issued by an Owner Trust,
upon the occurrence of a Servicer Default the related Indenture Trustee or
Noteholders may remove the Servicer without the consent of the related Trustee
or any Certificateholders. The Trustee or the Certificateholder with respect
to such Series will not have the ability to remove the Servicer if a Servicer
Default occurs. In addition, the Noteholders with respect to such Series have
the ability, with certain specified exceptions, to waive defaults by the
Servicer, including defaults that could materially adversely affect the
Certificateholders of such Series. See "Description of the Transfer and
Servicing Agreements - Waiver of Past Defaults".
Book-Entry Registration. Unless otherwise specified in the related
Prospectus Supplement, each class of the Securities of a given Series initially
will be represented by one or more certificates registered in the name of Cede
& Co. ("Cede"), or any other nominee of The Depository Trust Company ("DTC")
set forth in the related Prospectus Supplement, and will not be registered in
the names of the holders of the Securities of such Series or their nominees.
Because of this, unless and until Definitive Securities for such Series are
issued, holders of such Securities will not be recognized by the applicable
Trustee or Indenture Trustee as "Certificateholders", "Noteholders" or
"Securityholders", as the case may be (as such terms are used herein or in the
related Pooling and Servicing Agreement or the related Indenture and Trust
Agreement, as applicable). Hence, until Definitive Securities are issued,
holders of such Securities will be able to exercise the rights of
Securityholders only indirectly through DTC and its participating
organizations. See "Certain Information Regarding the Securities - Book-Entry
Registration" and "- Definitive Securities".
THE TRUSTS
With respect to each Series of Securities, the Company will establish a
separate Trust pursuant to a Trust Agreement or Pooling and Servicing
Agreement, as applicable, for the transactions described herein and in the
related Prospectus Supplement. The property of each Trust will include Primary
Assets and all payments due thereunder on and after the applicable Cutoff Date
in the case of Precomputed Receivables and all payments received thereunder on
and after the applicable Cutoff Date in the case of Simple Interest Receivables
or Collateral Certificates. On the applicable Closing Date, after the issuance
of the Notes and/or Certificates of a given Series, the Company will transfer
or sell Primary Assets to the Trust in the outstanding principal amount
specified in the related Prospectus Supplement. The property of each Trust may
also include (i) such amounts as from time to time may be held in separate
trust accounts established and maintained pursuant to the related Trust
Agreement or Pooling and Servicing Agreement, as applicable, and the proceeds
of such accounts, as described herein and in the related Prospectus Supplement;
(ii) security interests in Financed Vehicles and any other interest of a Seller
in such Financed Vehicles; (iii) the rights to proceed from claims on certain
physical damage, credit life and disability insurance policies covering
Financed Vehicles or the
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Obligors, as the case may be; (iv) any property that shall have secured a
Receivable and that shall have been acquired by the applicable Trust; and (v)
any and all proceeds of the Primary Assets or the foregoing. To the extent
specified in the related Prospectus Supplement, a Reserve Account or other form
of credit enhancement may be a part of the property of a given Trust or may be
held by the Trustee for the benefit of holders of the related Securities.
The Servicer specified in the related Prospectus Supplement, as servicer
under the Pooling and Servicing Agreement or Servicing Agreement, as
applicable, will service the Primary Assets held by each Trust and will receive
fees for such services. See "Description of the Transfer and Servicing
Agreements - Servicing Compensation and Payment of Expenses" herein and
"Description of the Transfer and Servicing Agreement - Servicing Compensation"
in the related Prospectus Supplement. To facilitate the servicing of Primary
Assets, each Seller and each Trustee will authorize the Servicer to retain
physical possession of the Receivables held by each Trust and other documents
relating thereto as custodian for each such Trust. Due to the administrative
burden and expense, the certificates of title to the Financed Vehicles will not
be amended to reflect the sale and assignment of the security interest in the
Financed Vehicles to a Trust. In the absence of such an amendment, a Trust may
not have a perfected security interest in certain of the Financed Vehicle in
some states. See "Certain Legal Aspects of the Receivables" and "Description
of the Transfer and Servicing Agreements - Sale and Assignment of Receivables".
If the protection provided to (i) holders of Notes issued by an Owner
Trust by the subordination of the related Certificates and by the Reserve
Account, if any, or any other available form of credit enhancement for such
Series or (ii) Certificateholders by any such Reserve Account or other form of
credit enhancement is insufficient, such Noteholders or Certificateholders, as
the case may be, will have to look to payments or by or on behalf of Obligors
on Receivables or on the Collateral Certificates, as applicable, and the
proceeds from the repossession and sale of Financed Vehicles that secure
defaulted Receivables for distributions of principal and interest on the
Securities. In such event, certain factors, such as the applicable Trust's not
having perfected security interests in all of the Financed Vehicles, may limit
the ability of a Trust to realize on the collateral securing the related
Primary Assets, or may limit the amount realized to less than the amount due
under Motor Vehicle Installment Contracts. Securityholders may be subject to
delays in payment on, or may incur losses on their investment in, such
Securities as a result of defaults or delinquencies by Obligors and
depreciation in the value of the related Financed Vehicles. See "Description
of the Transfer and Servicing Agreements - Credit and Cash Flow Enhancement"
and "Certain Legal Aspects of the Receivables".
The principal offices of each Trust and the related Trustee will be
specified in the applicable Prospectus Supplement.
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THE TRUSTEE
The Trustee for each Trust will be specified in the related Prospectus
Supplement. The Trustee's liability in connection with the issuance and sale
of the related Securities is limited solely to the express obligations of such
Trustee set forth in the related Trust Agreement and Servicing Agreement or the
related Pooling and Servicing Agreement, as applicable. A Trustee may resign
at any time, in which event the Servicer will be obligated to appoint a
successor trustee. The Servicer may also remove the related Trustee if such
Trustee ceases to be eligible to continue as Trustee under the related Trust
Agreement or Pooling and Servicing Agreement, as applicable, and will be
obligated to appoint a successor trustee. Any resignation or removal of a
Trustee and appointment of a successor trustee will not become effective until
the acceptance of the appointment by the successor trustee.
THE RECEIVABLES POOLS
GENERAL
The Receivables in a Receivables Pool have been or will be originated or
acquired by a Seller in the ordinary course of business, in accordance with its
credit and underwriting standards as described in the related Prospectus
Supplement.
The Receivables to be sold to each Trust will be selected from a Seller's
portfolio for inclusion in a Receivables Pool based on several criteria,
including that, unless otherwise provided in the related Prospectus Supplement,
each Receivable (i) is secured by a new or used vehicle, (ii) was originated or
acquired (either from a motor vehicle dealer or a financial institution) by the
Seller (iii) provides for level monthly payments (except for the last payment,
which may be minimally different from the level payments) that full amortize
the amount financed over the original term to maturity of the related Motor
Vehicle Installment Contract, (iv) is a Precomputed Receivable or a Simple
Interest Receivable and (v) satisfies the other criteria, if any, set forth in
the related Prospectus Supplement. No selection procedures believed by the
Seller to be adverse to Securityholders were or will be used in selecting the
Receivables.
"Precomputed Receivables" consist of either (i) monthly actuarial
receivables ("Actuarial Receivables") or (ii) receivables that provide for
allocation of payments according to the "sum of periodic balances" or "sum of
monthly payments" method, similar to the "Rule of 78s" ("Rule of 78s
Receivables"). An Actuarial Receivable provides for amortization of the loan
over a series of fixed level monthly installment payments. Each monthly
installment, including the monthly installment representing the final payment
on the Receivable, consists of (x) an amount of interest equal to 1/12 of the
stated contract interest rate under the related Motor Vehicle Installment
Contract multiplied by the unpaid principal balance of such loan, plus (y) an
amount allocable to principal equal to the remainder of the monthly payment. A
Rule of 78s Receivable provides for the payment by the obligor of a specified
total amount of payments, payable in equal monthly installments on each due
date, which total represents the principal amount financed plus add-on interest
in an amount calculated at the stated contract interest rate under
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the related Motor Vehicle Installment Contract for the term of the receivable.
The rate at which such amount of add-on interest is earned and,
correspondingly, the amount of each fixed monthly payment allocated to
reduction of the outstanding principal amount are calculated in accordance with
the Rule of 78s.
"Simple Interest Receivables" are receivables that provide for the
amortization of the amount financed thereunder over a series of fixed level
monthly payments. However, unlike the monthly payment under an Actuarial
Receivable, each monthly payment consists of an installment of interest that is
calculated on the basis of the outstanding principal balance of the receivable
multiplied by the stated contract interest rate under the related Motor Vehicle
Installment Contract and further multiplied by the period elapsed (as a
fraction of a calendar year) since the preceding payment of interest was made.
As payments are received under a Simple Interest Receivable, the amount
received is applied first to interest accrued to the date of payment and the
balance is applied to reduce the unpaid principal balance. Accordingly, if an
obligor pays a fixed monthly installment before its scheduled due date, the
portion of the payment allocable to interest for the period since the preceding
payment was made will be less than it would have been had the payment been made
as scheduled, and the portion of the payment applied to reduce the unpaid
principal balance will be correspondingly greater. Conversely, if an obligor
pays a fixed monthly installment after its scheduled due date, the portion of
the payment allocable to interest for the period since preceding payment was
made will be greater than it would have been had the payment been made as
scheduled, and the portion of the payment applied to reduce the unpaid
principal balance will be correspondingly less. In either case, the obligor is
obligated to pay a fixed monthly installment until the final scheduled payment
date, at which time the amount of the final installment may be increased or
decreased as necessary to repay the then outstanding principal balance.
In the event of the prepayment in full (voluntarily or by acceleration)
of a Rule of 78s Receivable, under the terms of the contract a "refund" or
"rebate" will be made to the Obligor of the portion of the total amount of
payments then due and payable allocable to "unearned" add-on interest,
calculated in accordance with a method equivalent to the Rule of 78s. If an
Actuarial Receivable is prepaid in full, with minor variations based upon state
law, the Actuarial Receivable requires that the rebate be calculated on the
basis of a constant interest rate. If a Simple Interest Receivable is prepaid,
rather than receive a rebate, the obligor is required to pay interest only to
the date of prepayment. The amount of a rebate under a Rule of 78s Receivable
generally will be less than the amount of a rebate on an Actuarial Receivable
and generally will be less than the remaining scheduled payments of interest
that would have been due under a Simple Interest Receivable for which all
payments were made on schedule.
Unless otherwise provided in the related Prospectus Supplement, each
Trust will account for the Rule of 78s Receivables as if such Receivables were
Actuarial Receivables. Amounts received upon prepayment in full of a Rule of
78s Receivable in excess of the then outstanding principal balance of such
Receivable and accrued interest thereon (calculated pursuant to the actuarial
method) will not be paid to Noteholders or passed through to Certificateholders
of the applicable Series, but will be paid to the Servicer as additional
servicing compensation.
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Information with respect to each Receivables Pool will be set forth in
the related Prospectus Supplement, including, to the extent appropriate, the
composition and distribution by APR and by states of origination of the
Receivables, the portion of such Receivables Pool consisting of Precomputed
Receivables and of Simple Interest Receivables, and the portion of such
Receivables Pool secured by new vehicles and by used vehicles.
DELINQUENCIES, REPOSSESSIONS AND NET LOSSES
Certain information concerning the experience of a Seller pertaining to
delinquencies, repossessions and net losses with respect to Motor Vehicle
Installment Contracts will be set forth in each Prospectus Supplement. There
can be no assurance that the delinquency, repossession and net loss experience
on any Receivables Pool will be comparable to prior experience or to such
information.
THE COLLATERAL CERTIFICATES
GENERAL
Primary Assets for a Series may consist, in whole or in part, of
Collateral Certificates which include certificates evidencing an undivided
interest in, or notes or loans secured by, motor vehicle installment loan
agreements and motor vehicle retail installment sale contracts. Such
certificates, notes or loans will have previously been offered and distributed
to the public pursuant to an effective registration statement or are being
registered under the Securities Act in connection with the offering of a Series
of Securities. Collateral Certificates will have been issued pursuant to a
pooling and servicing agreement, a sale and servicing agreement, a trust
agreement, an indenture or similar agreement (an "Underlying Trust Agreement").
The servicer (the "Underlying Servicer") of such underlying motor vehicle
installment loans or sale contracts will have entered into the Underlying Trust
Agreement with a trustee (the "Underlying Trustee").
The issuer of the Collateral Certificates (the "Underlying Issuer") will
be a financial institution, corporation, or other entity engaged generally in
the business of purchasing or originating motor vehicle installment loan
agreements and motor vehicle retail installment sale contracts; or a limited
purpose corporation organized for the purpose of, among other things,
establishing trusts and acquiring and selling receivables to such trusts, and
selling beneficial interests in such trusts; or one of such trusts. If so
specified in the related Prospectus Supplement, the Underlying Issuer may be an
affiliate of the Company. The obligations of the Underlying Issuer will
generally be limited to certain representations and warranties with respect to
the assets conveyed by it to the related trust. Unless otherwise specified in
the related Prospectus Supplement, the Underlying Issuer will not have
guaranteed any of the assets conveyed to the related trust or any of the
Collateral Certificates issued under the Underlying Trust Agreement.
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Distributions of principal and interest will be made on the Collateral
Certificates on the dates specified in the related Prospectus Supplement. The
Collateral Certificates may be entitled to receive nominal or no principal
distribution or nominal or no interest distributions. Principal and interest
distributions will be made on the Collateral Certificates by the Underlying
Trustee or the Underlying Servicer. The Underlying Issuer or the Underlying
Servicer may have the right to repurchase assets underlying the Collateral
Certificates after a certain date or under other circumstances specified in the
related Prospectus Supplement.
ENHANCEMENT RELATING TO COLLATERAL CERTIFICATES.
Enhancement in the form of reserve funds, subordination of other
Securities issued in connection with the Collateral Certificates, guarantees,
letters of credit, cash collateral accounts, insurance policies or other types
of enhancement may be provided with respect to the Receivables underlying the
Collateral Certificates or with respect to the Collateral Certificates
themselves. The type, characteristics and amount of enhancement will be a
function of certain characteristics of the Receivables and other factors and
will have been established for the Collateral Certificates on the basis of
requirements of rating agencies.
ADDITIONAL INFORMATION.
The related Prospectus Supplement for a Series for which the Primary
Assets include Collateral Certificates will specify, to the extent relevant and
to the extent such information is reasonably available to the Company and the
Company reasonably believes such information to be reliable: (i) the aggregate
approximate principal amount and type of the Collateral Certificates to be
included in the Primary Assets; (ii) certain characteristics of the receivables
which comprise the underlying assets for the Collateral Certificates; (iii) the
expected and final maturity of the Collateral Certificates; (iv) the interest
rate of the Collateral Certificates; (v) the Underlying Issuer, the Underlying
Servicer (if other than the Underlying Issuer) and the Underlying Trustee for
such Collateral Certificates; (vi) certain characteristics of the enhancement,
if any, such as reserve funds, insurance funds, insurance policies, letters of
credit or guarantees relating to the receivables underlying the Collateral
Certificates or to such Collateral Certificates themselves; (vii) the terms on
which the underlying receivables for such Collateral Certificates may, or are
required to, be purchased prior to their stated maturity or the stated maturity
of the Collateral Certificates; and (viii) the terms on which receivables may
be substituted for those originally underlying the Collateral Certificates.
If information of the nature described above representing the Collateral
Certificates is not known to the Company at the time the Certificates are
initially offered, approximate or more general information of the nature
described above will be provided in the related Prospectus Supplement and the
additional information, if available, will be set forth in a Current Report on
Form 8-K to be available to investors on the date of issuance of the related
Series and to be filed with the Commission within 15 days of the initial
issuance of such Certificates.
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WEIGHTED AVERAGE LIFE OF THE SECURITIES
The weighted average life of the Notes, if any, and the Certificates of
any Series generally will be influenced by the rate at which the principal
balances of the related Primary Assets are paid, which payment may be in the
form of scheduled amortization or prepayments. With respect to Securities
backed by Receivables and to receivables underlying Collateral Certificates,
the term "prepayments" includes prepayments in full, partial prepayments
(including those related to rebates of extended warranty contract costs and
insurance premiums), liquidations due to defaults, as well as receipts of
proceeds from physical damage, credit life and disability insurance policies,
or the Repurchase Amount of Receivables repurchased by the Company or a Seller
or purchased by a Servicer for administrative reasons. Substantially all of
the Receivables are prepayable at any time without penalty to the Obligor. The
rate of prepayment of automotive receivables is influenced by a variety of
economic, social and other factors, including the fact that an Obligor
generally may not sell or transfer the Financed Vehicle securing a receivable
without the consent of the related seller. The rate of prepayment on the
receivables may also be influenced by the structure of the loan. In addition,
under certain circumstances, the related Seller will be obligated to repurchase
Receivables from a given Trust pursuant to the related Receivables Purchase
Agreement as a result of breaches of representations and warranties, and the
Servicer will be obligated to purchase receivables from such Trust pursuant to
the Servicing Agreement or Pooling and Servicing Agreement as a result of
breaches of certain covenants. See "Description of the Transfer and Servicing
Agreements - Sale and Assignment of Receivables" and "- Servicing Procedures".
See also "Description of the Transfer and Servicing Agreements - Termination"
regarding the Servicer's option to purchase Primary Assets from a given Trust.
In light of the above considerations, there can be no assurance as to the
amount of principal payments to be made on the Notes and/or Certificates of a
Series on each Distribution Date since such amount will depend, in part, on the
amount of principal collected on the related Primary Assets during the
applicable Collection Period. Any reinvestment risks resulting from a faster
or slower incidence of payment of Primary Assets will be borne entirely by the
Noteholders and Certificateholders. The related Prospectus Supplement may set
forth certain additional information with respect to the maturity and
prepayment considerations applicable to particular Primary Assets and the
related Series of Securities.
POOL FACTORS AND TRADING INFORMATION
The "Note Pool Factor" for each class of Notes will be a seven-digit
decimal which the Servicer will compute prior to each distribution with respect
to such class of Notes indicating the remaining outstanding principal balance
of such class of Notes, as of the applicable Distribution Date (after giving
effect to payments to be made on such Distribution Date), as a fraction of the
initial outstanding principal balance of such class of Notes. The "Certificate
Pool Factor" for each class of Certificates will be a seven-digit decimal which
the Servicer will compute prior to each distribution with respect to such class
of Certificates indicating the
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remaining Certificate Balance of such class of Certificates, as of the
applicable Distribution Date (after giving effect to distributions to be made
on such Distribution Date), as a fraction of the initial Certificate Balance of
such class of Certificates. Each Note Pool Factor and each Certificate Pool
Factor will be 1.0000000 as of the related Closing Date, and thereafter will
decline to reflect reductions in the outstanding principal balance of the
applicable class of Notes or the reduction of the Certificate Balance of the
applicable class of Certificates. A Noteholder's portion of the aggregate
outstanding principal balance of the related class of Notes will be the product
of (i) the original denomination of such Noteholder's Note and (ii) the
applicable Note Pool Factor at the time of determination. A
Certificateholder's portion of the aggregate outstanding Certificate Balance
for the related class of Certificates will be the product of (a) the original
denomination of such Certificateholder's Certificate and (b) the applicable
Certificate Pool Factor at the time of determination.
Unless otherwise provided in the related Prospectus Supplement, the
Noteholders, if any, and the Certificateholders will receive reports on or
about each Distribution Date concerning payments received on the Receivables,
the Pool Balance and each Note Pool Factor or Certificate Pool Factor, as
applicable. In addition, Securityholders of record during any calendar year
will be furnished information for tax reporting purposes not later than the
latest date permitted by law. See "Certain Information Regarding the
Securities - Statements to Securityholders".
THE SELLER AND THE SERVICER
Certain information with respect to the Seller and the Servicer will be
set forth in the related Prospectus Supplement.
USE OF PROCEEDS
Unless otherwise provided in the related Prospectus Supplement, the net
proceeds from the sale of the Securities of a Series will be applied by the
applicable Trust to the purchase of the Primary Assets from [the Company] [the
Seller]. The Company will use the portion of such proceeds paid to it to
purchase the Primary Assets.
DESCRIPTION OF THE NOTES
GENERAL
Each Owner Trust will issue one or more classes of Notes pursuant to an
Indenture, a form of which has been filed as an exhibit to the Registration
Statement of which this Prospectus forms a part. The following summary does
not purport to be complete and is subject to, and is qualified in its entirely
by reference to, the provisions of the related Notes and Indenture.
Unless otherwise specified in the related Prospectus Supplement, each
class of Notes will initially by represented by one or more certificates
registered in the name of the nominee of
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DTC (together with any successor depository selected by the Trust, the
"Depository"). Unless otherwise specified in the related Prospectus
Supplement, the Notes will be available for purchase in minimum denominations
of $1,000 and integral multiples thereof in book-entry form only. The Company
has been informed by DTC that DTC's nominee will be Cede unless another nominee
is specified in the related Prospectus Supplement. Accordingly, such nominee
is expected to be the holder of record of the Notes of each class. Unless and
until Definitive Notes are issued under the limited circumstances described
herein or in the related Prospectus Supplement, no Noteholder will be entitled
to receive a physical certificate representing a Note. All references herein
and in the related Prospectus Supplement to actions by Noteholders refer to
action taken by DTC upon instructions from it participating organizations, and
all references herein and in the related Prospectus Supplement to
distributions, notices, reports and statements to Noteholders refer to
distributions, notices, reports and statements to DTC or its nominee, as
registered holder of the Notes, for distribution to Noteholders in accordance
with DTC's procedures with respect thereto. See "Certain Information Regarding
the Securities - Book-Entry Registration" and "- Definitive Securities".
DISTRIBUTION OF PRINCIPAL AND INTEREST
The timing and priority of payment, seniority, allocations of losses,
Interest Rate and amount of or method of determining payments of principal and
interest on each class of Notes of a Series will be described in the related
Prospectus Supplement. The right of holders of any class of Notes to receive
payments of principal and interest may be senior or subordinate to the rights
of holders of one or more other class or classes of Notes of such Series, as
described in the related Prospectus Supplement. Unless otherwise provided in
the related Prospectus Supplement, payments of interest on the Notes will be
made prior to payments of principal thereon. If so provided in the related
Prospectus Supplement, a Series of Notes may include one or more classes of
Strip Notes entitled to (i) principal payments with disproportionate, nominal
or no interest payments or (ii) interest payments with disproportionate,
nominal or no principal payments. Each class of Notes may have a different
Interest Rate, which may be a fixed, variable or adjustable Interest Rate (and
which may be zero for certain classes of Strip Notes), or any combination of
the foregoing. The related Prospectus Supplement will specify the Interest
Rate for each class of Notes of a Series or the method for determining such
Interest Rate. One or more classes of Notes of a Series may be redeemable in
whole or in part under the circumstances specified in the related Prospectus
Supplement, including as a result of the exercise by the Servicer of its option
to purchase the related Receivable Pool. See "Description of the Transfer and
Servicing Agreements - Termination".
To the extent specified in any Prospectus Supplement, one or more classes
of Notes of a given Series may have fixed principal payment schedules, as set
forth in such Prospectus Supplement. Holders of any Notes will be entitled to
receive payments of principal on any given Distribution Date in the applicable
amount set forth on such schedule with respect to such Notes, in the manner and
to the extent set forth in the related Prospectus Supplement.
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Unless otherwise specified in the related Prospectus Supplement, payment
of interest to Noteholders of all classes within a Series will have the same
priority. Under certain circumstances, the amount available for such payments
could be less than the amount of interest payable on the Notes on a
Distribution Date, in which case each class of Notes will receive its ratable
share (based upon the aggregate amount of interest due to such class of Notes)
of the aggregate amount available to be distributed on such date as interest on
the Notes of such Series. See "Description of the Transfer and Servicing
Agreements - Distribution" and "- Credit and Cash Flow Enhancement".
In the case of a Series of Securities issued by an Owner Trust that
includes two or more classes of Notes, the sequential order and priority of
payment in respect of principal and interest, and any schedule or formula or
other provisions applicable to the determination thereof, of each such class
will be set forth in the related Prospectus Supplement. Unless otherwise
specified in the related Prospectus Supplement, payments in respect of
principal of and interest on any class of Notes will be made on pro rata basis
among all the Noteholders of such class.
CERTAIN PROVISIONS OF THE INDENTURE
Events of Default; Rights upon Event of Default. Unless otherwise
specified in the related Prospectus Supplement, "Events of Default" in respect
of a Series of Notes under the related Indenture will consist of: (i) a default
for five days or more in the payment of any interest on any such Note: (ii) a
default in the payment of the principal of, or any installment of the principal
of, any such Note when the same becomes due and payable; (iii) a default in the
observance of performance in any material respect of any covenant or agreement
of the related Trust made in such Indenture and the continuation of any such
default for a period of 30 days after notice thereof is given to the related
Trust by the applicable Indenture Trustee or to such Trust and the related
Indenture Trustee by the holders of 25% of the aggregate outstanding principal
amount of such Notes; (iv) any representation or warranty made by such Trust in
the related Indenture or in any certificate delivered pursuant thereto or in
connection therewith having been incorrect in a material respect as of the time
made, if such breach is not cured with 30 days after notice thereof is given to
such Trust by the applicable Indenture Trustee or to such Trust and such
Indenture Trustee by the holder of 25% of the aggregate outstanding principal
amount of such Notes; and (v) certain events of bankruptcy, insolvency,
receivership or liquidation with respect to such Trust. The amount of
principal required to be paid to Noteholders of each Series under the related
Indenture on any Distribution Date generally will be limited to amounts
available to be deposited in the applicable Note Distribution Account;
therefore, unless otherwise specified in the related Prospectus Supplement, the
failure to pay principal on a class of Notes generally will not result in the
occurrence of an Event of Default until the applicable final scheduled
Distribution Date for such class of Notes.
If an Event of Default should occur and be continuing with respect to the
Notes of any Series, the related Indenture Trustee or holders of a majority in
principal amount of such Notes may declare the principal of such Notes to be
immediately due and payable. Such declaration
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may, under certain circumstances, be rescinded by the holders of a majority in
principal amount of such Notes then outstanding.
If the Notes of any Series are declared due and payable following an
Event of Default, the related Indenture Trustee may institute proceedings to
collect amounts due thereon, foreclose on the property of the Trust, exercise
remedies as a secured party, sell the related Primary Assets or elect to have
the applicable Trust maintain possession of such Primary Assets and continue to
apply collections on such Primary Assets as if there had been no declaration of
acceleration. Unless otherwise specified in the related Prospectus Supplement,
however, the Indenture Trustee will be prohibited from selling the Primary
Assets following and Event of Default, other than a default in the payment of
any principal of, or a default for five days or more in the payment of any
interest on, any Note of such Series, unless (i) the holders of all such
outstanding Notes consent to such sale, (ii) the proceeds of such sale are
sufficient to pay in full the principal of and the accrued interest on such
outstanding Notes at the date of such sale or (iii) such Indenture Trustee
determines that the proceeds of the Primary Assets would not be sufficient on
an ongoing basis to make all payments on such Notes as such payments would have
become due if such obligations had not been declared due and payable, and such
Indenture Trustee obtains the consent of the holders of 66 2/3% of the aggregate
outstanding principal amount of such Notes.
Subject to the provisions of the applicable Indenture relating to the
duties of the related Indenture Trustee, if an Event of Default occurs and is
continuing with respect to a Series of Notes, such Indenture Trustee will be
under no obligation to exercise any of the rights or powers under the Indenture
at the request or direction of any of the holders of such Notes if it
reasonably believes it will not be adequately indemnified against the costs,
expenses and liabilities that might be incurred by it in complying with such
request. Subject to the provisions for indemnification and certain limitations
contained in the related Indenture, the holders of a majority of the aggregate
outstanding principal amount of the Notes of a Series will have the right to
direct the time, method and place of conducting any proceeding or exercising
any remedy available to the related Indenture Trustee; in addition, the holders
of Notes representing a majority of the aggregate outstanding principal amount
of such Notes may, in certain cases, waive any default with respect thereto,
except a default in the payment of principal of or interest on any Note or a
default in respect of a covenant or provision of such Indenture that cannot be
modified or amended without the waiver or consent of the holders of all the
outstanding Notes of such Series.
Unless otherwise specified in the related Prospectus Supplement, no
holder of a Note will have the right to institute any proceeding with respect
to the related Indenture, unless (i) such holder previously has given to the
applicable Indenture Trustee written notice of a continuing Event of Default;
(ii) the holders of not less than 25% of the outstanding principal amount of
such Notes have made written request to such Indenture Trustee so institute
such proceeding in its own name as Indenture Trustee; (iii) such holder or
holders have offered such Indenture
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Trustee reasonable indemnity; (iv) such Indenture Trustee has for 60 days
failed to institute such proceeding; and (v) no direction inconsistent with
such written request has been given to such Indenture Trustee during such
60-day period by the holders of a majority of the outstanding principal amount
of the Notes of such Series.
With respect to any Owner Trust, none of the related Indenture Trustee in
its individual capacity, the related Trustee in its individual capacity, any
holder of a Certificate representing an ownership interest in such Trust, or
any of their respective beneficiaries, agents, officers, directors, employees,
affiliates, successors or assigns will, in the absence of an express agreement
to the contrary, be personally liable for the payment of the principal of or
interest on the related Notes or for the agreements of such Trust contained in
the applicable Indenture.
No Trust may engage in any activity other than as described herein or in
the related Prospectus Supplement. No Trust will incur, assume or guarantee
any indebtedness other than indebtedness incurred pursuant to the related Notes
and the related Indenture, pursuant to any Advances made to it by the Servicer
or otherwise in accordance with the Related Documents (as defined herein).
Certain Covenants. Each Indenture will provide that the related Trust
may not consolidate with or merge into any other entity, unless (i) the entity
formed by or surviving such consolidation or merger is organized under the laws
of the United States, any state or the District of Columbia; (ii) such entity
expressly assumes such Trust's obligation to make due and punctual payments
upon the Notes of the related Series and to perform or observe every agreement
and covenant of such Trust under the Indenture; (iii) no Event of Default shall
have occurred and be continuing immediately after such merger or consolidation;
(iv) such Trust has been advised by each Rating Agency that such merger or
consolidation will not result in the qualification, reduction or withdrawal of
its then-current rating of any class of the Notes or Certificates of such
Series; and (v) such Trust has received an opinion of counsel to the effect
that such consolidation or merger would have no material adverse tax
consequence to the Trust or to any related Noteholder or Certificateholder.
No Owner Trust will (i) except as expressly permitted by the applicable
Indenture, the applicable Transfer and Servicing Agreements or certain other
documents with respect to such Trust (the "Related Documents"), sell, transfer,
exchange or otherwise dispose of any of the assets of such Trust; (ii) claim
any credit on or make any deduction from the principal and interest payment in
respect to the related Notes (other than amounts withheld under the Code or
applicable state tax laws) or assert any claim against any present or former
holder of such Notes because of the payment of taxes levied or assessed upon
such Trust; (iii) dissolve or liquidate in whole or in part; (iv) permit the
validity or effectiveness of the related Indenture to be impaired or permit any
person to be released from any covenants or obligations with respect to the
related Notes under such Indenture except as may be expressly permitted
thereby; (v) permit any lien, charge, excise, claim, security interest,
mortgage, or other encumbrance to be created on or extent to or otherwise arise
upon or burden the assets of such Trust or any part thereof, or any interest
therein or the proceeds thereof; or (vi) permit the lien of the related
Indenture
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not to constitute a valid first priority security interest (other than with
respect to a tax, mechanics' or similar lien) in the asset of such Trust.
Each Indenture Trustee and the related Noteholders, by accepting the
related Notes, will covenant that they will not at any time institute against
the applicable Trust any bankruptcy, reorganization or other proceeding under
any federal or state bankruptcy or similar law.
Modification of Indenture. Each Owner Trustee and the related Indenture
Trustee may, with the consent of the holders of a majority of the aggregate
outstanding principal amount of the Notes of the related Series, execute a
supplemental indenture to add provisions to, change in any manner or eliminate
any provisions of, the related Indenture, or modify (except as provided below)
in any manner the rights of the related Noteholders. Unless otherwise
specified in the related Prospectus Supplement, without the consent of the
holder of each outstanding Note affected thereby, no supplemental indenture
will: (i) change the due date of any installment of principal of or interest
on any such Note or reduce the principal amount thereof, the interest rate
specified thereon or the redemption price with respect thereto or change any
place of payment where or the coin or currency in which any such Note or any
interest thereon is payable; (ii) impair the right to institute suit for the
enforcement of certain provisions of the related Indenture regarding payment;
(iii) reduce the percentage of the aggregate amount of the outstanding Notes of
such Series, the consent of the holders of which is required for any such
supplemental indenture or for any waiver of compliance with certain provisions
of the related Indenture or of certain defaults thereunder and their
consequences as provided for in such Indenture; (iv) modify or alter the
provisions of the related Indenture regarding the voting of Notes held by the
applicable Owner Trust, any other obligor on such Notes, the Seller or an
affiliate of any of them; (v) reduce the percentage of the aggregate
outstanding amount of such Notes, the consent of the holders of which is
required to direct the related Indenture Trustee to sell or liquidate the
Primary Assets if the proceeds of such sale would be insufficient to pay the
principal amount and accrued and unpaid interest on the outstanding Notes of
such Series; (vi) decrease the percentage of the aggregate principal amount of
such Notes required to amend the sections of the related Indenture that specify
the percentage of the aggregate principal amount of the Notes of such Series
necessary to amend such Indenture or certain other related agreements; or (vii)
permit the creation of any lien ranking prior to or on a parity with the lien
of the related Indenture with respect to any of the collateral for such Notes
or, except as otherwise permitted or contemplated in such Indenture, terminate
the lien of such Indenture on any such collateral or deprive the holder of any
such Note of the security afforded by the lien of such Indenture.
Unless otherwise provided in the applicable Prospectus Supplement, an
Owner Trust and the related Indenture Trustee may also enter into supplemental
indentures, without obtaining the consent of the Noteholders of the related
Series, for the purpose of, among other things, adding any provisions to or
changing in any manner or eliminating any of the provisions of the related
Indenture or of modifying in any manner the rights of such Noteholders;
provided that such action will not materially and adversely affect the interest
of any such Noteholder.
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Annual Compliance Statement. Each Owner Trust will be required to file
annually with the related Indenture Trustee a written statement as to the
fulfillment of its obligations under the Indenture.
Indenture Trustee's Annual Report. The Indenture Trustee for each Owner
Trust will be required to mail each year to all related Noteholders a brief
report relating to its eligibility and qualification to continue as Indenture
Trustee under the related Indenture, any amounts advanced by it under the
Indenture, the amount, interest rate and maturity date of certain indebtedness,
if any, owing by such Owner Trust to the applicable Indenture Trust in its
individual capacity, the property and funds physically held by such Indenture
Trustee as such and any action taken by it that materially affects the related
Notes that has not been previously reported.
Satisfaction and Discharge of Indenture. Each Indenture will be
discharged with respect to the collateral securing the related Notes upon the
delivery to the related Indenture Trustee for cancellation of all such Notes
or, with certain limitations, upon deposit with such Indenture Trustee of funds
sufficient for the payment in full of all such Notes.
THE INDENTURE TRUSTEE
The Indenture Trustee for a Series of Notes will be specified in the
related Prospectus Supplement. The Indenture Trustee for any Series may resign
at any time, in which event the related Owner Trust will be obligated to
appoint a successor indenture trustee for such Series. An Owner Trust may also
remove the related Indenture Trustee if such Indenture Trustee ceases to be
eligible to continue as such under the related Indenture or if such Indenture
Trustee becomes insolvent. In such circumstances, such Owner Trust will be
obligated to appoint a successor indenture trustee for the applicable Series of
Notes. No resignation or removal of the Indenture Trustee and appointment of a
successor indenture trustee for a Series of Notes will become effective until
the acceptance of the appointment by the successor indenture trustee for such
Series.
DESCRIPTION OF THE CERTIFICATES
GENERAL
Each Trust will issue one or more classes of Certificates pursuant to a
Trust Agreement or Pooling and Servicing Agreement, as applicable. A form of
each of the Trust Agreement and the Pooling and Servicing Agreement has been
filed as an exhibit to the Registration Statement of which this Prospectus
forms a part. The following summary does not purport to be complete and is
subject to, and is qualified in its entirety by reference to, the provisions of
the related Certificates and Trust Agreement or Pooling and Servicing
Agreement, as applicable.
Unless otherwise specified in the related Prospectus Supplement and
except for the Certificates, if any, of a Series purchased by an affiliate of
CS First Boston or a Seller or an
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affiliate of such Seller, each class of Certificates will initially be
represented by one or more certificates registered in the name of the
Depository. Unless otherwise specified in the related Prospectus Supplement,
the Certificates will be available for purchase in minimum denominations of
$10,000 and integral multiples of $1,000 in excess thereof in book-entry form
only. The Company has been informed by DTC that DTC's nominee will be Cede,
unless another nominee is specified in the related Prospectus Supplement.
Accordingly, such nominee is expected to be the holder of record of the
Certificates of any Series. Unless and until Definitive Certificates are
issued under the limited circumstances described herein or in the related
Prospectus Supplement, no Certificateholder (other than an affiliate of CS
First Boston or a Seller or an affiliate of such Seller) will be entitled to
receive a physical certificate representing a Certificate. All references
herein and in the related Prospectus Supplement to actions by
Certificateholders refer to actions taken by DTC upon instructions from the
Participants, and all references herein and in the related Prospectus
Supplement to distributions, notices, reports and statements to
Certificateholders refer to distributions, notices, reports and statements to
DTC or its nominee, as the case may be, as the registered holder of the
Certificates, for distribution to Certificateholders in accordance with DTC's
procedures with respect thereto. See "Certain Information Regarding the
Securities-Book-Entry Registration" and "-Definitive Securities". Any
Certificate of a Series owned by an affiliate of CS First Boston or a Seller or
an affiliate of such Seller will be entitled to equal and proportionate
benefits under the applicable Trust Agreement or Pooling and Servicing
Agreement, as applicable, except that such Certificates will be deemed not to
be outstanding for the purpose of determining whether the requisite percentage
of Certificateholders has given any request, demand, authorization, direction,
notice, or consent or taken any other action under the Related Documents.
DISTRIBUTIONS OF PRINCIPAL AND INTEREST
The timing and priority of distributions, seniority, allocations of
losses, Pass-Through Rate and amount of or method of determining distributions
with respect to principal and interest on each class of Certificates of a
Series will be described in the related Prospectus Supplement. Distributions
of interest on such Certificates will be made on the dates specified in the
related Prospectus Supplement (the "Distribution Date") and will be made prior
to distributions with respect to principal of such Certificates. To the extent
provided in the related Prospectus Supplement, a Series of Certificates may
include one or more classes of Strip Certificates entitled to (i) principal
distributions with disproportionate, nominal or no interest distributions or
(ii) interest distributions with disproportionate, nominal or no principal
distributions. Each class of Certificates may have a different Pass-Through
Rate, which may be a fixed, variable or adjustable Pass-Through Rate (and which
may be zero for certain classes of Strip Certificates) or any combination of
the foregoing. The related Prospectus Supplement will specify the Pass-Through
Rate for each class of Certificates of a Series or the method for determining
such Pass-Through Rate.
In the case of a Series of Securities that includes two or more classes
of Certificates, the timing, sequential order, priority of payment or amount of
distributions in respect of interest and
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principal, and any schedule or formula or other provisions applicable to the
determination thereof, of each such class will be as set forth in the related
Prospectus Supplement. In the case of Certificates issued by an Owner Trust,
distributions in respect of such Certificates will be subordinated to payments
in respect of the Notes of such Series as more fully described in the related
Prospectus Supplement. Distributions in respect of interest on and principal
of any class of Certificates will be made on a pro rata basis among all holders
of Certificates of such class.
CERTAIN INFORMATION REGARDING THE SECURITIES
BOOK-ENTRY REGISTRATION
Unless otherwise specified in the related Prospectus Supplement, DTC will
act as securities depository for each class of Securities offered hereby. Each
class of Securities initially will be represented by one or more certificates
registered in the name of Cede, the nominee of DTC. As such, it is anticipated
that the only "Noteholder" and/or "Certificateholder" with respect to a Series
of Securities will be Cede, as nominee of DTC. Beneficial owners of the
Securities ("Security Owners") will not be recognized as "Noteholders" by the
related Indenture Trustee, as such term is used in each Indenture, or as
"Certificateholders" by the related Trustee, as such term is used in each Trust
Agreement or Pooling and Servicing Agreement, and Security Owners will be
permitted to exercise the rights of Noteholders or Certificateholders only
indirectly through DTC and its participating members ("Participants").
DTC is a limited-purpose trust company organized under the laws of the
State of New York, a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the Uniform Commercial Code (the "UCC") in effect in the
State of New York, and a "clearing agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC was created to hold
securities for the Participants and to facilitate the clearance and settlement
of securities transactions between Participants through electronic
book-entries, thereby eliminating the need for physical movement of
certificates. Participants include securities brokers and dealers, banks,
trust companies and clearing corporations. Indirect access to the DTC system
also is available to banks, brokers, dealers and trust companies that clear
through or maintain a custodial relationship with a Participant, either
directly or indirectly (the "Indirect Participants").
Unless otherwise specified in the related Prospectus Supplement, Security
Owners that are not Participants or Indirect Participants but desire to
purchase, sell or otherwise transfer ownership of, or an interest in, the
Securities may do so only through Participants and Indirect Participants. In
addition, all Security Owners will receive all distributions of principal and
interest from the related Indenture Trustee or the related Trustee, as
applicable, through Participants. Under a book-entry format, Security Owners
may experience some delay in their receipt of payments, since such payments
will be forwarded by the applicable Trustee or Indenture Trustee to DTC's
nominee. DTC will then forward such payments to the Participants, which
thereafter will forward them to Indirect Participants or Security Owners.
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Under the rules, regulations and procedures creating and affecting DTC
and its operations (the "Rules"), DTC is required to make book-entry transfers
among Participants on whose behalf it acts with respect to the Securities and
to receive and transmit distributions of principal of and interest on the
Securities. Participants and Indirect Participants with which Security Owners
have accounts with respect to the Securities similarly are required to make
book-entry transfers and to receive and transmit such payments on behalf of
their respective Security Owners. Accordingly, although Security Owners will
not possess physical certificates representing the Securities, the Rules
provide a mechanism by which Participants and Indirect Participants will
receive payments and transfer or exchange interests, directly or indirectly, on
behalf of Security Owners.
Because DTC can act only on behalf of Participants, who in turn may act
on behalf of Indirect Participants and, the ability of a Security Owner to
pledge Securities to persons or entities that do not participate in the DTC
system, or otherwise take actions with respect to such Securities, may be
limited due to the lack of a physical certificate representing such Securities.
DTC has advised the Company that it will take any action permitted to be
taken by a Security Owner under the Indenture, Trust Agreement or Pooling and
Servicing Agreement, as applicable, only at the direction of one or more
Participants to whose account with DTC the Securities are credited. DTC may
take conflicting actions with respect to other undivided interests to the
extent that such actions are taken on behalf of Participants whose holdings
include such undivided interests.
Except as required by law, none of CS First Boston, the Company, the
related Seller, the related Servicer, or related Indenture Trustee, if any, or
the related Trustee will have any liability for any aspect of the records
relating to or payments made on account of beneficial ownership interests of
Securities of any Series held by DTC's nominee, or for maintaining, supervising
or reviewing any records relating to such beneficial ownership interests.
DEFINITIVE SECURITIES
Unless otherwise stated in the related Prospectus Supplement, the Notes
and/or Certificates of a given Series will be issued in fully registered,
certificated form ("Definitive Notes" and "Definitive Certificates",
respectively, and, collectively, "Definitive Securities") to Noteholders or
Certificateholders or their respective nominees, rather than to DTC or its
nominee, only if (i) the related Trustee of a Grantor Trust or the related
Indenture Trustee in the case of an Owner Trust, as applicable, determines that
DTC is no longer willing or able to discharge properly its responsibilities as
Depository with respect to the related Securities and such Indenture Trustee or
Trustee, as applicable, is unable to locate a qualified successor, (ii) the
Indenture Trustee or Trustee, as applicable, elects, at its option, to
terminate the book-entry system through DTC or (iii) after the occurrence of an
Event of Default or Servicer Default, Security Owners representing at least a
majority of the outstanding principal amount of the Notes or Certificates, as
applicable, of such Series, advise the related Trustee through DTC that the
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continuation of a book-entry system through DTC (or a successor thereto) is no
longer in the best interests of the related Security Owners.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, the related Trustee or Indenture Trustee, as applicable,
will be required to notify the related Security Owners, through Participants,
of the availability of Definitive Securities. Upon surrender by DTC of the
certificates representing all Securities of any affected class and the receipt
of instructions for re-registration, the Trustee will issue Definitive
Securities to the related Security Owners. Distributions on the related
Definitive Securities will be made thereafter by the related Trustee or
Indenture Trustee, as applicable, directly to the holders in whose name the
related Definitive Securities are registered at the close of business on the
applicable record date, in accordance with the procedures set forth herein and
in the related Indenture or the related Trust Agreement or Pooling and
Servicing Agreement, as applicable. Distributions will be made by check mailed
to the address of such holders as they appear on the register specified in the
related Indenture, Trust Agreement or Pooling and Servicing Agreement, as
applicable; however, the final payment on any Securities (whether Definitive
Securities or Securities registered in the name of a Depository or its nominee)
will be made only upon presentation and surrender of such Securities at the
office or agency specified in the notice of final distribution to
Securityholders.
Definitive Securities will be transferable and exchangeable at the
offices of the related Trustee or Indenture Trustee (or any security registrar
appointed thereby), as applicable. No service charge will be imposed for any
registration of transfer or exchange, but such Trustee or Indenture Trustee may
require payment of a sum sufficient to cover any tax or other governmental
charge imposed in connection therewith.
STATEMENTS TO SECURITYHOLDERS
With respect to each Series of Securities, on or prior to each
Distribution Date, the related Servicer will prepare and forward to the related
Indenture Trustee or Trustee to be included with the distribution to each
Securityholder of record a statement setting forth for the related Collection
Period the following information (and any other information specified in the
related Prospectus Supplement):
(i) the amount of the distribution allocable to principal of each class
of Securities of such Series;
(ii) the amount of the distribution allocable to interest on each class
of Securities of such Series;
(iii) the amount of the Servicing Fee paid to the related Servicer with
respect to the related Collection Period;
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(iv) the outstanding principal balance and Note Pool Factor for each
class of Notes, if any, and the Certificate Balance and Certificate Pool Factor
for each class of Certificates of such Series as of the related record date;
(v) the balance of any Reserve Account or other form of credit
enhancement, after giving effect to any additions thereto or withdrawals
therefrom or reductions thereto to be made on the following Distribution Date;
and
(vi) the aggregate amount of realized losses, if any, in respect of
Receivables for the related Collection Period.
Items (i), (ii) and (iv) above with respect to the Notes or Certificates
of a Series will be expressed as a dollar amount per $1,000 of initial
principal balance of such Notes or the initial Certificate Balance of such
Certificates, as applicable.
In addition, within the prescribed period of time for tax reporting
purposes after the end of each calendar year during the term of each Trust, the
related Trustee or Indenture Trustee, as applicable, will mail to each person
who at any time during such calendar year shall have been a registered
Securityholder a statement containing certain information for the purposes of
such Securityholder's preparation of federal income tax returns. See "Certain
Federal Income Tax Consequences".
LIST OF SECURITYHOLDERS
Unless otherwise provided in the related Prospectus Supplement, three or
more holders of the Notes of any Series or one or more holders of such Notes
evidencing not less than 25% of the aggregate outstanding principal balance
thereof may, by written request to the related Indenture Trustee, obtain access
to the list of all Noteholders maintained by such Indenture Trustee for the
purpose of communicating with other Noteholders with respect to their rights
under the related Indenture or under such Notes. Such Indenture Trustee may
elect not to afford the requesting Noteholders access to the list of
Noteholders if it agrees to mail the desired communication or proxy, on behalf
of and at the expense of the requesting Noteholders, to all Noteholders of such
Series.
Unless otherwise specified in the related Prospectus Supplement, three or
more holders of the Certificates of any Series or one or more holders of such
Certificates evidencing not less than 25% of the Certificate Balance of such
Certificates may, by written request to the related Trustee, obtain access to
the list of all Certificateholders maintained by such Trustee for the purpose
of communicating with other Certificateholders with respect to their rights
under the related Trust Agreement or Pooling and Servicing Agreement, as
applicable, or under such Certificates.
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DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS
The following summary describes certain terms of each Receivables
Purchase Agreement pursuant to which a Trust will purchase Receivables from a
Seller, each Trust Agreement or Pooling and Servicing Agreement pursuant to
which a Trust will be created, Certificates will be issued, and pursuant to
which the Servicer will service Receivables (in the case of a Grantor Trust),
and each Servicing Agreement pursuant to which the Servicer will service
Receivables (in the case of an Owner Trust) (collectively the "Transfer and
Servicing Agreements"). Forms of the Transfer and Servicing Agreements have
been filed as exhibits to the Registration Statement of which this Prospectus
forms a part. The following summary does not purport to be complete and is
subject to, and is qualified in its entirety by reference to, the provisions of
the related Transfer and Servicing Agreements.
SALE AND ASSIGNMENT OF RECEIVABLES
In the case of Primary Assets consisting of Receivables, on or prior to
the related Closing Date, a Seller will transfer and assign to the Company,
pursuant to a Receivables Purchase Agreement without recourse, all of its
right, title and interest in and to Receivables in the outstanding principal
amount specified in the related Prospectus Supplement, including its security
interests in the related Financed Vehicles. Each such Receivable will be
identified in a schedule appearing as an exhibit to the related Receivables
Purchase Agreement (the "Schedule of Receivables").
In each Receivables Purchase Agreement the Seller will represent and
warrant to the Company, among other things, that (i) the information set forth
in the Schedule of Receivables is correct in all material respects as of the
applicable Cutoff Date; (ii) the Obligor on each Receivable is contractually
required to maintain physical damage insurance covering the related Financed
Vehicle in accordance with the Seller's normal requirements; (iii) on the
Closing Date, to the best of its knowledge, the Receivables are free and clear
of all security interests, liens, charges and encumbrances, and no offsets,
defenses or counterclaims have been asserted or threatened; (iv) at the Closing
Date, each of the Receivables is secured by a perfected, first-priority
security interest in the related Financed Vehicle in favor of the Seller; (v)
each Receivable, at the time it was originated, complied and, on the Closing
Date complies, in all material respects with applicable federal and state laws,
including, without limitation, consumer credit, truth-in-lending, equal credit
opportunity and disclosure laws; and (vi) any other representations and
warranties that may be set forth in the related Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, as of
the last day of the second Collection Period (or, if the Seller so elects, the
last day of the first Collection Period) following the discovery by or notice
to the Seller of any breach of a representation and warranty of the Seller that
materially and adversely affects the interests of the related Trust in any
Receivable, the Seller will be obligated to repurchase such Receivable, unless
the Seller cures such breach in a timely fashion. The purchase price for any
such Receivable will be equal to the unpaid principal balance owed by the
Obligor on such Receivable, plus interest on such
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unpaid principal balance at the applicable APR to the last day of the month of
repurchase (the "Repurchase Amount"). This repurchase obligation will
constitute the sole remedy available to the Securityholders, the related
Trustee and any related Indenture Trustee for any such uncured breach.
On the related Closing Date, the Company will transfer and assign to the
related Trust, pursuant to a Trust Agreement or Pooling and Servicing
Agreement, as applicable, without recourse, all of its right, title and
interest in and to Receivables in the outstanding principal amount specified in
the related Prospectus Supplement. Concurrently with the transfer and
assignment of such Receivables to the related Trust, the related Trustee or
Indenture Trustee, as applicable, will execute, authenticate and deliver the
related Securities. Unless otherwise provided in the related Prospectus
Supplement, the net proceeds from the sale of the Securities will be applied to
the purchase of the related Receivables.
Pursuant to the terms of the Trust Agreement or the Pooling and Servicing
Agreement, as applicable, the Company will assign the representations and
warranties made by the related Seller to the related Trust for the benefit of
the related Securityholders and will make certain limited representations and
warranties with respect to the Receivables. To the extent that the related
Seller does not repurchase a Receivable in the event of a breach of its
representations and warranties with respect to such Receivable, the Company
will not be required to repurchase such Receivable unless such breach also
constitutes a breach of one of the Company's representations and warranties
with respect to such Receivable and such breach materially and adversely
affects the interests of the Securityholders in any such Receivable. Neither
the Seller nor the Company will have any other obligation with respect to the
Receivables or the Certificates.
TRUST ACCOUNTS
With respect to each Owner Trust, the Servicer will establish and
maintain with the related Indenture Trustee (a) one or more accounts, in the
name of the Indenture Trustee on behalf of the related Securityholders, into
which all payments made on or in respect of the related Primary Assets will be
deposited (the "Collection Account") and (b) an account, in the name of the
Indenture Trustee on behalf of the Noteholders, into which amounts released
from the Collection Account and any Reserve Account or other form of credit
enhancement for payment to such Noteholders will be deposited and from which
all distributions to such Noteholders will be made (the "Note Distribution
Account"). With respect to each Owner Trust and Grantor Trust, the Servicer
will establish and maintain an account with the related Trustee, in the name of
such Trustee on behalf of the Certificateholders, into which amounts released
from the Collection Account and any Reserve Account or other form of credit
enhancement for distribution to such Certificateholders will be deposited and
from which all distributions to such Certificateholders will be made (the
"Certificate Distribution Account"). With respect to any Grantor Trust, the
Servicer will also establish and maintain the Collection Account and any other
Trust Account in the name of the related Trustee on behalf of the related
Certificateholders.
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If so provided in the related Prospectus Supplement, the Servicer will
establish for each Series of Securities an additional account (the "Payahead
Account"), in the name of the related Indenture Trustee (in the case of an
Owner Trust) or Trustee (in the case of a Grantor Trust), into which, to the
extent required in the related Servicing Agreement or Pooling and Servicing
Agreement, as applicable, early payments made by or on behalf of Obligors on
Precomputed Receivables will be deposited until such time as such payments
become due. Until such time as payments are transferred from the Payahead
Account to the Collection Account, they will not constitute collected interest
or collected principal and will not be available for distribution to
Noteholders or Certificateholders. Any other accounts to be established with
respect to a Trust will be described in the related Prospectus Supplement.
For each Series of Securities, funds in the Collection Account, Note
Distribution Account and Certificate Distribution Account and any Reserve
Account or other accounts identified as such in the related Prospectus
Supplement (collectively, the "Trust Accounts") will be invested as provided in
the related Servicing Agreement or Pooling and Servicing Agreement, as
applicable, in Eligible Investments. "Eligible Investments" will generally be
limited to investments acceptable to the Rating Agencies as being consistent
with the rating of the related Securities. Except as described hereafter or in
the related Prospectus Supplement, Eligible Investments will be limited to
obligations or securities that mature on or before the date of the next
scheduled distribution to Securityholders of such Series. However, to the
extent permitted by the Rating Agencies, funds in any Reserve Account may be
invested in securities that will not mature prior to the date of such next
scheduled distribution with respect to such Notes or Certificates and will not
be sold prior to maturity to meet any shortfalls. Thus, the amount of
available funds on deposit in a Reserve Account at any time may be less than
the balance of such Reserve Account. If the amount required to be withdrawn
from a Reserve Account to cover shortfalls in collections on the related
Receivables (as provided in the related Prospectus Supplement) exceeds the
amount of available funds on deposit in such Reserve Account, a temporary
shortfall in the amounts distributed to the related Noteholders or
Certificateholders could result, which could, in turn, increase the average
life of the related Notes or Certificates. Except as otherwise specified in
the related Prospectus Supplement, investment earnings on funds deposited in
the Trust Accounts, net of losses and investment expenses (collectively,
"Investment Earnings"), will be deposited in the applicable Collection Account
on each Distribution Date and will be treated as collections of interest on the
related Receivables.
The Trust Accounts will be maintained as Eligible Deposit Accounts.
"Eligible Deposit Account" means either (a) a segregated account with an
Eligible Institution or (b) a segregated trust account with the corporate trust
department of a depository institution organized under the laws of the United
States of America or any one of the states thereof or the District of Columbia
(or any domestic branch of a foreign bank), having corporate trust powers and
acting as trustee for funds deposited in such account, so long as any of the
securities of such depository institution have a credit rating from each Rating
Agency in one of its generic rating categories that signifies investment grade.
"Eligible Institution" means, with respect to a Trust, (a) the corporate trust
department of the related Indenture Trustee or Trustee, as applicable, or (b) a
depository institution organized under the laws of the United States of America
or any one of
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the states thereof or the District of Columbia (or any domestic branch of a
foreign bank) (i) that has either (A) a long-term unsecured debt rating
acceptable to the Rating Agencies or (B) a short-term unsecured debt rating or
certificate of deposit rating acceptable to the Rating Agencies and (ii) whose
deposits are insured by the FDIC.
SERVICING PROCEDURES
To assure uniform quality in servicing the Receivables and to reduce
administrative costs, the Company and each Trust will designate the Servicer as
custodian to maintain possession, as such Trust's agent, of the related Motor
Vehicle Installment Contracts and any other documents relating to the
Receivables. The Seller's and the Servicer's accounting records and computer
systems will be marked to reflect the sale and assignment of the related
Receivables to each Trust, and UCC financing statements reflecting such sale
and assignment will be filed.
The Servicer will make reasonable efforts to collect all payments due
with respect to the Receivables and will, consistent with the related Servicing
Agreement or Pooling and Servicing Agreement, as applicable, follow such
collection procedures as it follows with respect to comparable Motor Vehicle
Installment Contracts it services for itself and others. Consistent with its
normal procedures, the Servicer may, in its discretion, arrange with the
Obligor on a Receivable to extend or modify the payment schedule, but no such
arrangement will, for purposes of any Servicing Agreement or Pooling and
Servicing Agreement, modify the original due dates or the amount of the
scheduled payments or extend the final payment date of any Receivable beyond
the Final Scheduled Maturity Date (as such term is defined with respect to any
Receivables Pool in the related Prospectus Supplement). Some of such
arrangements may result in the Servicer purchasing the Receivables for the
Repurchase Amount, while others may result in the Servicer making Advances.
The Servicer may sell the related Financed Vehicle securing any Receivable at a
public or private sale, or take any other action permitted by applicable law.
See "Certain Legal Aspects of the Receivables".
COLLECTIONS
With respect to each Trust, the Servicer will deposit all payments on the
related Primary Assets (from whatever source) and all proceeds of such Primary
Assets, collected during a Collection Period into the related Collection
Account not later than two business days after receipt thereof. However,
notwithstanding the foregoing, such amounts may be remitted to the Collection
Account by the Servicer on a monthly basis on or prior to the applicable
Distribution Date if no Servicer Default exists and each other condition to
making deposits less frequently than daily as may be specified by the Rating
Agencies or set forth in the related Prospectus Supplement is satisfied.
Pending deposit into the Collection Account, collections may be invested by the
Servicer at its own risk and for its own benefit and will not be segregated
from its own funds. If the Servicer were unable to remit such funds to the
Collection Account on any Distribution Date, Securityholders might incur a
loss. To the extent set forth in the related Prospectus Supplement, the
Servicer may, in order to satisfy the requirements described above, obtain a
letter of credit or other security for the benefit of the related Trust to
secure timely
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remittances of collections on the related Primary Assets and payment of the
aggregate Repurchase Amount with respect to Receivables repurchased by the
Servicer.
Collections on a Precomputed Receivable during any Collection Period will
be applied first to the repayment of any outstanding Precomputed Advances made
by the Servicer with respect to such Receivable (as described below), and then
to the scheduled monthly payment due on such Receivable. Any portion of such
collections remaining after the scheduled monthly payment has been made (such
excess amounts, the "Payaheads") will, unless such remaining amount is
sufficient to prepay the Precomputed Receivable in full and unless otherwise
provided in the related Prospectus Supplement, generally will be transferred to
and kept in the Payahead Account until such later Distribution Date on which
such Payaheads may be applied either to the scheduled monthly payment due
during the related Collection Period or to prepay such Receivable in full.
ADVANCES
Unless otherwise provided in the related Prospectus Supplement, to the
extent the collections of interest and principal on a Precomputed Receivable
for a Collection Period fall short of the related scheduled payment, the
Servicer will make a Precomputed Advance of the shortfall. The Servicer will
be obligated to make a Precomputed Advance on a Precomputed Receivable only to
the extent that the Servicer, in its sole discretion, expects to recoup such
Advance from subsequent collections or recoveries on such Receivable or other
Precomputed Receivables in the related Receivables Pool. The Servicer will
deposit the Precomputed Advance in the applicable Collection Account on or
before the business day proceeding the applicable Distribution Date. The
Service will recoup its Precomputed Advance from subsequent payments by or on
behalf of the related Obligor or from insurance or liquidation proceeds with
respect to the related Receivable and will release its right to reimbursement
in conjunction with its purchase of the Receivable as Servicer or, upon
determining that reimbursement from the preceding sources is unlikely, will
recoup its Precomputed Advance from any collections made on other Precomputed
Receivables in the related Receivables Pool.
Unless otherwise provided in the related Prospectus Supplement, on or
before the business day prior to each Distribution Date, the Servicer will
deposit into the related Collection Account as a Simple Interest Advance an
amount equal to the amount of interest that would have been due on the related
Simple Interest Receivables at their respective APRs for the related Collection
Period (assuming that such Simple Interest Receivables are paid on their
respective due dates) minus the amount of interest actually received on such
Simple Interest Receivables during the applicable Collection Period. If such
calculation results in a negative number, an amount equal to such amount shall
be paid to the Servicer in reimbursement of outstanding Simple Interest
Advances. In addition, in the event that a Simple Interest Receivable becomes
a Liquidated Receivable (as such term is defined in the related Prospectus
Supplement), the amount of accrued and unpaid interest thereon (but not
including interest for the then current collection Period) will be withdrawn
from the Collection Account and paid to the Servicer in
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reimbursement of outstanding Simple Interest Advances. No advances of
principal will be made with respect to Simple Interest Receivables.
NET DEPOSITS
For administrative convenience, unless the Servicer is required to remit
collections to the Collection Account on a daily basis as described under "-
Collections" above, the Servicer will be permitted to make deposits of
collections, aggregate Advances and Repurchase Amounts for any Trust for or in
respect of each Collection Period net of distributions to be made to the
Servicer with respect to such Collection Period. The Servicer also may cause a
single, net transfer to be made from the Collection Account to the Payahead
Account, or vice versa. The Servicer, however, will account to the Trustee, to
the Indenture Trustee, if any, and to the related Securityholders as if all
deposits and distributions were made individually.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
Unless otherwise specified in the related Prospectus Supplement, with
respect to each Trust the related Servicer will be entitled to receive, out of
interest collected on or in respect of the related Primary Assets, a fee for
each Collection Period (the "Servicing Fee") in an amount equal to the
percentage per annum specified in the related Prospectus Supplement (the
"Servicing Fee Rate") of the Pool Balance as of the first day of such
Collection Period. The Servicing Fee (together with any portion of the
Servicing Fee that remains unpaid from prior Distribution Dates) will be paid
solely to the extent of the Interest Distribution Amount; however, the
Servicing Fee will be paid prior to the distribution of any portion of the
Interest Distribution Amount to the holders of the Notes or Certificates of any
Series.
Unless otherwise provided in the related Prospectus Supplement, the
Servicer will also collect and retain any late fees, prepayment charges and
other administrative fees or similar charges allowed by applicable law with
respect to Receivables and will be entitled to reimbursement from each Trust
for certain liabilities. Payments by or on behalf of Obligors will be
allocated to scheduled payments under the related Motor Vehicle Installment
Contract and late fees and other charges in accordance with the Servicer's
normal practices and procedures.
If applicable, the Servicing Fee will compensate the Servicer for
performing the functions of a third party servicer of motor vehicle receivables
as an agent for the related Trust, including collecting and posting all
payments, responding to inquiries of Obligors on the Receivables, investigating
delinquencies, sending payment statements and reporting the collateral. The
Servicing Fee will also compensate the Servicer for administering the Primary
Assets, including making Advances, accounting for collection, furnishing
monthly and annual statements to the related Indenture Trust and/or Trustee,
and generating federal income tax information for such Trust and for the
related Noteholders and/or Certificateholders as well as the Trust's compliance
with the reporting provisions under the Exchange Act. The Servicing Fee also
will reimburse the Servicer for certain taxes, the fees of the related
Indenture Trustee and/or Trustee,
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accounting fees, outside auditor fees, date processing cost and other costs
incurred in connection with administering the Primary Assets.
DISTRIBUTIONS
With respect to each Series of Securities, beginning on the Distribution
Date specified in the related Prospectus Supplement, distributions of principal
and interest (or, where applicable, principal only or interest only) on each
class of Securities entitled thereto will be made by the related Trustee or
Indenture Trustee, as applicable, to the Certificateholders and Noteholders of
such Series. The timing, calculation, allocation, order, source and priorities
of, and requirements for, all payments to the holders of each class of Notes
and/or distributions to holders of each class of Certificates will be set forth
in the related Prospectus Supplement.
With respect to each Trust, on each Distribution Date collections on or
in respect of the related Primary Assets will be transferred from the
Collection Account to the Note Distribution Account or Certificate Distribution
Account, as applicable, for distribution to the Noteholders and
Certificateholders to the extent provided in the related Prospectus Supplement.
Credit enhancement, such as a Reserve Account, will be available to cover
shortfalls in the amount available for distribution on such date to the extent
specified in the related Prospectus Supplement. As more fully described in the
related Prospectus Supplement, and unless otherwise specified therein,
distributions in respect of principal of a class of Securities of a Series will
be subordinate to distributions in respect in respect of interests on such
class, and distributions in respect of one or more classes of Certificates of
such Series will be subordinate to payments in respect of the Notes, if any, of
such Series or other classes of Certificates. Distributions of principal on
the Securities of a Series may be based on the amount of principal collected or
due, or the amount of realized losses incurred, in a Collection Period.
CREDIT AND CASH FLOW ENHANCEMENT
The amounts and types of any credit and cash flow enhancement
arrangements and the provider thereof, if applicable, with respect to each
class of Securities of a Series will be set forth in the related Prospectus
Supplement. To the extent provided in the related Prospectus Supplement,
credit or cash flow enhancement may be in the form of subordination of one or
more classes of Securities, Reserve Accounts, spread accounts, letters of
credit, surety bonds, insurance policies, over-collateralization, credit or
liquidity facilities, guaranteed investment contracts, swaps or other interest
rate protection agreements, repurchase obligations, other agreements with
respect to third party payments or other support, cash deposits, or such other
arrangements that are incidental to or related to the Primary Assets included
in a Trust as may be described in the related Prospectus Supplement, or any
combination of the foregoing. If specified in the applicable Prospectus
Supplement, credit or cash flow enhancement for a class of Securities may cover
one or more other classes of Securities of the same Series, and credit
enhancement for a Series of Securities may cover one or more other Series of
Securities.
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The existence of a Reserve Account or other form of credit enhancement
for the benefit of any class or Series of Securities is intended to enhance the
likelihood of receipt by the Securityholders of such class or Series of the
full amount of principal and interest due thereon and to decrease the
likelihood that such Securityholders will experience losses. Unless otherwise
specified in the related Prospectus Supplement, the credit enhancement for a
class or Series of Securities will not provide protection against all types of
loss and will not guarantee repayment of all principal and interest thereon.
If losses occur which exceed the amount covered by such credit enhancement or
which are not covered by such credit enhancement, Securityholders will bear
their allocable share of such losses, as described in the Prospectus
Supplement. In addition, if a form of credit enhancement covers more than one
Series of Securities, Securityholders of any such Series will be subject to the
risk that such credit enhancement may be exhausted by the claims of
Securityholders of other Series.
Reserve Account. If so provided in the related Prospectus Supplement,
pursuant to the related Servicing Agreement or Pooling and Servicing Agreement,
as applicable, the Company will establish for a Series or class or classes of
Securities an account (the "Reserve Account"), which will be maintained with
the related Indenture Trustee or Trustee, as applicable. Unless otherwise
provided in the related Prospectus Supplement, a Reserve Account will be funded
by an initial deposit by the Company on the Closing Date in the amount set
forth in the related Prospectus Supplement. As further described in the
related Prospectus Supplement, the amount on deposit in the Reserve Account may
be increased or reinstated on each Distribution Date, to the extent described
in the related Prospectus Supplement, by the deposit there of amounts from
collections on the Primary Assets. The related Prospectus Supplement will
describe the circumstances under which and the manner in which distributions
may be made out of any such Reserve Account, either to holders of the
Securities covered thereby or to the Company or to any other entity.
EVIDENCE AS TO COMPLIANCE
Each Servicing Agreement or Pooling and Servicing Agreement, as
applicable, will provide that a firm of independent public accountants will
furnish annually to the related Trust and Indenture Trustee and/or Trustee a
statement as to compliance by the Servicer during the preceding twelve months
(or, in the case of the first such statement, during such shorter period that
shall have elapsed since the applicable Closing Date) with certain standards
relating to the servicing of the Receivables, the Servicer's accounting records
and computer files with respect thereto and certain other matters.
Each Servicing Agreement or Pooling and Servicing Agreement, as
applicable, will also provide for delivery to the related Trust and Indenture
Trustee and/or Trustee each year of a certificate signed by an officer of the
Servicer stating that the Servicer has fulfilled it obligations under the
related Servicing Agreement or Pooling and Servicing Agreement, as applicable,
throughout the preceding twelve months (of, in the case of the first such
certificate, during such shorter period that shall have elapsed since the
applicable Closing Date) or, if there has been a default in the fulfillment of
any such obligation, describing each such default. The Servicer will
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agree to give each Indenture Trustee and/or Trustee, as applicable, notice of
certain Servicer Defaults under the related Servicing Agreement or Pooling and
Servicing Agreement, as applicable.
Copies of the foregoing statements and certificates may be obtained by
Securityholders by a request in writing addressed to the related Trustee or
Indenture Trustee, as applicable, at the Corporate Trust Officer for such
Trustee or Indenture Trustee specified in the related Prospectus Supplement.
STATEMENTS TO TRUSTEES AND THE TRUST
Prior to each Distribution Date with respect to each Series of
Securities, the Servicer will provide to the applicable Indenture Trustee, if
any, and the applicable Trustee as of the close of business on the last day of
the preceding Collection Period a statement setting forth substantially the
same information as is required to be provided in the periodic reports provided
to Securityholders of such Series as described under "certain Information
Regarding the Securities - Reports to Securityholders".
CERTAIN MATTERS REGARDING THE SERVICER
Each Servicing Agreement and Pooling and Servicing Agreement will provide
that the Servicer may not resign from it's obligations and duties as Servicer
thereunder, except upon determination that such Servicer's performance of such
duties is not longer permissible under applicable law. No such resignation
will become effective until the related Indenture Trustee or Trustee, as
applicable, or a successor servicer has assumed the servicing obligations and
duties under the related Servicing Agreement or Pooling and Servicing
Agreement, as applicable.
Each Servicing Agreement and Pooling and Servicing Agreement will further
provide that neither the Servicer nor any of its directors, officers, employees
and agents will be under any liability to the related Trust or Securityholders
for taking any action or for refraining from taking any action pursuant to the
related Servicing Agreement or Pooling and Servicing Agreement or for errors in
judgement; provided, however, that neither the Servicer nor any such person
will be protected against any liability that would otherwise be imposed by
reason of wilful misfeasance, bad faith or negligence in the performance of the
Servicer's duties or by reason of reckless disregard of its obligations and
duties thereunder. In addition, each Servicing Agreement and Pooling and
Servicing Agreement will provide that the Servicer is under no obligation to
appear in, prosecute or defend any legal action that is not incidental to its
servicing responsibilities under such Servicing Agreement or Pooling and
Servicing Agreement, as applicable, and that, in its opinion, may cause it to
incur any expense or liability.
Under the circumstances specified in each Servicing Agreement and Pooling
and Servicing Agreement, any entity into which the Servicer may be merged or
consolidated, or any entity resulting from any merger or consolidation to which
the Servicer is a party, or any entity succeeding to all or substantially all
of the business of the Servicer, or any corporation which
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assumes the obligations of the Servicer, will be the successor to the Servicer
under the related Servicing Agreement or Pooling and Servicing Agreement, as
applicable.
SERVICER DEFAULTS
Unless otherwise provided in the related Prospectus Supplement, a
"Servicer Default" under each Servicing Agreement and Pooling and Servicing
Agreement will consist of: (i) any failure by the Servicer to deliver to the
related Trustee or Indenture Trustee, as applicable, for deposit in any of the
Trust Accounts any required payment or to direct the related Trustee or
Indenture Trust, as applicable, to make any required distributions therefrom,
which failure continues unremedied for five business days after discovery by an
officer of the Servicer or written notice of such failure is given (a) to the
Servicer by the related Trustee or Indenture Trustee, as applicable, or (b) to
the Servicer and to the related Trustee or Indenture Trustee, as applicable, by
holders of Notes, if any, evidencing not less that 25% of the aggregate
outstanding principal amount thereof or, in the event a Series of Securities
includes no Notes or if such Notes have been paid in full, by holders of
Certificates evidencing not less that 25% of the Certificate Balance; (ii) any
failure by the Servicer duly to observe or perform in any material respect any
covenant or agreement in the related Servicing Agreement or Pooling and
Servicing Agreement, as applicable, which failure materially and adversely
affects the rights of the related Securityholders and which continues
unremedied for 60 days after written notice of such failure is given to the
Servicer in the same manner described in clause (i) above; and (iii) certain
events of bankruptcy, insolvency, readjustment of debt, marshalling of assets
and liabilities or similar proceedings and certain actions by the Servicer
indicating its insolvency, reorganization pursuant to bankruptcy proceedings or
inability to pay its obligations.
RIGHTS UPON SERVICER DEFAULT
Unless otherwise provided in the related Prospectus Supplement, in the
case of any Owner Trust, as long as a Servicer Default under the related
Servicing Agreement remains unremedied, the related Indenture Trustee or
holders of Notes of the related Series evidencing not less than 25% of the
aggregate principal amount of such Notes then outstanding may terminate all the
rights and obligations of the Servicer under such Servicing Agreement,
whereupon such Indenture Trustee or a successor servicer appointed by such
Indenture Trustee will succeed to all the responsibilities, duties and
liabilities of the Servicer under such Servicing Agreement and will be entitled
to similar compensation arrangements. In the case of any Grantor Trust, unless
otherwise provided in the related Prospectus Supplement, as long as a Servicer
Default under the related Pooling and Servicing Agreement remains unremedied,
the related Trustee or holders of Certificates of the related Series evidencing
not less than 25% of the Certificate Balance may terminate all the rights and
obligations of the Servicer under such Pooling and Servicing Agreement,
whereupon such Trustee or a successor servicer appointed by such Trustee will
succeed to all the responsibilities, duties and liabilities of the Servicer
under such Pooling and Servicing Agreement and will be entitled to similar
compensation arrangements. If, however, a bankruptcy trustee or similar
official has been appointed for the Servicer, and no Servicer Default other
than such appointment has occurred, such trustee or
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official may have the power to prevent any Indenture Trustee or the related
Noteholders or such Trustee or the related Certificateholders from effecting a
transfer of servicing. In the event that the related Indenture Trustee, if
any, or the related Trustee is unwilling or unable to act as successor to the
Services, such Indenture Trustee or Trustee, as applicable, may appoint, or may
petition a court of competent jurisdiction to appoint, a successor with a net
worth of at least $100,000,000 and whose regular business includes the
servicing of motor vehicle receivables. The Indenture Trustee, if any, or the
Trustee may arrange for compensation to be paid to such paid to such successor
servicer, which in no event may be greater than the compensation payable to the
Servicer under the related Servicing Agreement or Pooling and Servicing
Agreement, as applicable.
WAIVER OF PAST DEFAULTS
Unless otherwise provided in the related Prospectus Supplement, (i) in
the case of each Owner Trust, holders of the related Notes evidencing not less
than a majority of the aggregate outstanding principal amount of the Notes (or
of Certificates evidencing not less than a majority of the outstanding
Certificate Balance, in the case of any default that does not adversely affect
the Indenture Trustee or Noteholders) and (ii) in the case of each Grantor
Trust, holders of Certificates evidencing not less than a majority of the
Certificate Balance, may, on behalf of all such Noteholders and Certificate
holders, waive any default by the Servicer in the performance of its
obligations under the related Servicing Agreement or Pooling and Servicing
Agreement, as applicable, and its consequences, except a default in making any
required deposits to or payments from any Trust Account or in respect of a
covenant or provision in the Servicing Agreement or Pooling and Servicing
Agreement, as applicable, that cannot be modified or amended without the
consent of each Securityholder (in which event the related waiver will require
the approval of holders of all of the Securities of such Series). No such
waiver will impair the Securityholders' right with respect to any subsequent
Servicer Default.
AMENDMENT
Unless otherwise specified in the related Prospectus Supplement, each of
the Transfer and Servicing Agreements may be amended by the parties thereto
without the consent of the related Noteholders or Certificateholders, for the
purpose of adding any provisions to or changing in any manner or eliminating
any of the provisions of such Transfer and Servicing Agreements or of modifying
in any manner the rights of such Noteholders or Certificateholders, provided,
that any such action will not, in the opinion of counsel satisfactory to the
related Trustee or Indenture Trustee, as applicable, materially and adversely
affect the interest of any such Noteholder or Certificateholder.
Unless otherwise specified in the related Prospectus Supplement, the
Transfer and Servicing Agreements may also be amended from time to time by the
parties thereto with the consent of the holders of Notes evidencing at least a
majority of the aggregate principal amount of the then outstanding Notes, if
any, and with the consent of the holders of Certificates evidencing at least a
majority of the aggregate principal amount of the then outstanding
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Certificates, for the purpose of adding any provisions to or changing in any
manner or eliminating any of the provisions of such Transfer and Servicing
Agreements or of modifying in any manner the rights of such Noteholders or
Certificateholders, as applicable; provided that no such amendment may (i)
increase or reduce in any manner the amount of, or accelerate or delay the
timing of, collections of payments on or in respect of the related Primary
Assets or distributions that are required to be made for the benefit of such
Noteholders or Certificateholders or (ii) reduce the aforesaid percentage of
the Notes or Certificates of such Series the holders of which are required to
consent to any such amendment, without the consent of the holders of all of the
outstanding Notes or Certificates, as the case may be, of such Series.
PAYMENT IN FULL OF THE NOTES
Upon the payment in full of all outstanding Notes of a given Series and
the satisfaction and discharge of the related Indenture, the related Trustee
will succeed to all the rights of the Indenture Trustee, and the
Certificateholders of such Series will succeed to all the rights of the
Noteholders of such Series under the related Servicing Agreement, except as
otherwise provided therein.
TERMINATION
Unless otherwise specified in the related Prospectus Supplement, the
obligations of the related Servicer, the related Seller, the related Trustee
and the related Indenture Trustee, if any, with respect to a Trust pursuant to
the related Transfer and Servicing Agreements will terminate upon the earliest
to occur of (i) the maturity or other liquidation of the last Primary Asset and
the disposition of any amounts received upon liquidation of any such remaining
Primary Asset, (iii) the payment to Noteholders, if any, and Certificateholders
of all amounts required to be paid to them pursuant to the Transfer and
Servicing Agreements and (iv) the occurrence of either event described below.
Unless otherwise specified in the related Prospectus Supplement, in order
to avoid excessive administrative expenses, the related Servicer will be
permitted, at its option, to purchase from a Trust all remaining Primary Assets
as of the end of any Collection Period, if the then outstanding Pool Balance is
10% or less of the original Pool Balance (as defined in the related Prospectus
Supplement), at a purchase price equal to the aggregate of the Repurchase
Amounts thereof as of the end of such Collection Period.
If and to the extent provided in the related Prospectus Supplement, the
Indenture Trustee or Trustee, as applicable, will, within ten days following a
Distribution Date as of which the Pool Balance is equal to or less than the
percentage of the original Pool Balance specified in the related Prospectus
Supplement, solicit bids for the purchase of the Primary Assets remaining in
such Trust, in the manner and subject to the terms and conditions set forth in
such Prospectus Supplement. If such Indenture Trustee or Trustee receives
satisfactory bids as described in such Prospectus Supplement, then the Primary
Assets remaining in such Trust will be sold to the highest bidder.
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CERTAIN LEGAL ASPECTS OF THE RECEIVABLES
SECURITY INTERESTS IN FINANCED VEHICLES
In states in which retail installment contracts such as the Receivables
evidence the credit sale of automobiles, vans and light duty trucks by dealers
to obligors, the contracts also constitute personal property security
agreements and include grants of security interests in the vehicles under the
UCC as in effect in such states. Perfection of security interests in the
automobiles, vans and light duty trucks financed, directly or indirectly, by a
Seller is generally governed by the motor vehicle registration laws of the
state in which the vehicle is located. In general, a security interest in
automobiles, vans and light-duty trucks is perfected by obtaining the
certificate of title to the financed vehicle or notation of the secured party's
lien on the vehicles' certificate of title.
All of the Motor Vehicle Installment Contracts name the Seller as obligee
or assignee and as the secured party. The Seller will take all actions
necessary under the laws of the state in which the financed vehicle is located
to perfect the Seller's security interest in such financed vehicle, including,
where applicable, having a notation of its lien recorded on such vehicle's
certificate of title. If the Seller, because of clerical error or otherwise,
has failed to take such action with respect to financed vehicle, it will not
have a perfected security interest and its security interest may be subordinate
to the interest of, among others, subsequent purchasers of the financed vehicle
that give value without notice of the Seller's security interest and to whom a
certificate of ownership is issued in such purchaser's name, holders of
perfected security interests in the financed vehicle and the trustee in
bankruptcy of the Obligor. The Seller's security interest may also be
subordinate to such third parties in the event of fraud or forgery by the
Obligor or administrative error by state recording officials or in the
circumstances noted below.
Pursuant to each Servicing Agreement and Pooling and Servicing Agreement,
the Seller will assign its interests in the Financed Vehicles securing the
related Receivables to the related Trust; however, because of administrative
burden and expense, neither the Seller nor the related Trustee will amend any
certificate of title to identify such Trust as the new secured party on the
certificates of title relating to the Financed Vehicles. Also, the Servicer
will hold certificates of title relating to the Financed Vehicles in its
possession as custodian for the Trust pursuant to the related Servicing
Agreement or Pooling and Servicing Agreement, as applicable. See "Description
of the Transfer and Servicing Agreements - Sale and Assignment of Receivables".
In most states, assignments such as those under each Trust Agreement or
Pooling and Servicing Agreement are effective conveyances of a security
interest in the related financed vehicle without amendment of any lien noted on
such vehicle's certificate of title, and the assignee succeeds thereby to the
assignor's rights as secured party. Although re-registration of the motor
vehicle is not necessary in such states to convey a perfected security interest
in the Financed Vehicles to a Trust, because the related Trust will not be
listed as legal owner on the
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certificates of title to the Financed Vehicles, a Trust's security interest
could be defeated through fraud or negligence. However, in the absence of
fraud or forgery by the vehicle owner or the Servicer or administrative error
by state of local agencies, the notation of the Seller's lien on a certificate
of title will be sufficient to protect a Trust against the rights of subsequent
purchasers of a Financed Vehicle or subsequent creditors who take a security
interest in a Financed Vehicle. If there are any Financed Vehicles as to which
the Seller fails to obtain a first-priority perfected security interest, the
Trust's security interest would be subordinate to, among others, subsequent
purchasers of such Financed Vehicles and holders of perfected security
interests therein. Such a failure, however, would constitute a breach of the
Seller's representations and warranties under the Receivables Purchase
Agreement and the Seller will be required to repurchase such Receivable from
the Trust unless the breach is cured in a timely manner. See "Description of
the Transfer and Servicing Agreements - Sale and Assignment of Receivables" and
"Risk Factors - Certain Legal Aspects - Security Interests in Financed
Vehicles".
Under the laws of most states, a perfected security interest in a motor
vehicle continues for four months after the vehicle is moved to a new state
from the one in which it is initially registered and thereafter until the owner
re-registers such motor vehicle in the new state. A majority of states require
surrender of a certificate of title to re-register a vehicle. Accordingly, a
secured party must surrender possession if it holds the certificate of title of
the vehicle or, in the case of vehicles registered in states providing for the
notation of a lien on the certificate of title but not possession by the
secured party, the secured party would receive notice of surrender from the
state of re-registration if the security interest is noted on the certificate
of title. Thus, the secured party would have the opportunity to reperfect its
security interest in the vehicle in the state of relocation. However, these
procedural safeguards will not protect the secured party if, through fraud,
forgery or administrative error, an Obligor somehow procures a new certificate
of title that does not list the secured party's lien. Additionally, in states
that do not require a certificate of title for registration of a vehicle,
re-registration could defeat perfection. In the ordinary course of servicing
the Receivables, the Servicer will take steps to effect re-perfection upon
receipt of notice of re-registration or information from the Obligor as to
relocation. Similarly, when an Obligor sells a Financed Vehicle and the
purchaser thereof attempts to re-register such vehicle, the Seller must
surrender possession of the certificate of title or will receive notice as a
result of having its lien noted thereon and accordingly will have an
opportunity to require satisfaction of the related Receivable before its lien
is released. Under each Servicing Agreement and Pooling and Servicing
Agreement, the Servicer will be obligated to take appropriate steps, at its own
expense, to maintain perfection of security interests in the related Financed
Vehicles and is obligated to purchase the related Receivable if it fails to do
so.
Under the laws of most states, liens for repairs performed on a motor
vehicle and liens for unpaid taxes take priority over even a perfected,
first-priority security interest in such vehicle. The Code also grants
priority to certain federal tax liens over the lien of a secured party. The
laws of certain states and federal law permit the confiscation of motor
vehicles by governmental authorities under certain circumstances if used in
unlawful activities, which may result in the loss of a secured party's
perfected security interest in a confiscated motor vehicle.
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In each Receivables Purchase Agreement, the Seller will represent and warrant
that, as of the date any Receivable is sold to the Trust, the security interest
in the related Financed Vehicle is or will be prior to all other present liens
(other than tax liens and other liens that arise by operation of law) upon and
security interests in such Financed Vehicle. However, liens for repairs or
taxes could arise, or the confiscation of a Financed Vehicle could occur, at
any time during the term of a Receivable. No notice will be given to the
related Trustee, the related Indenture Trustee, if any, or related
Securityholders in the event such a lien arises or confiscation occurs. Any
such lien or confiscation arising or occurring after the Closing Date will not
give rise to a repurchase obligation of the Seller under the related
Receivables Purchase Agreement.
REPOSSESSION
In the event of default by an Obligor, the holder of the related retail
installment sale contract has all the remedies of a secured party under the
UCC, except where specifically limited by other state laws. The UCC remedies
of a secured party include the right to repossession by self-help means, unless
such means would constitute a breach of the peace. Self-help repossession is
the method employed by the Servicer in most cases and is accomplished simply by
taking possession of the related motor vehicle. In cases where the Obligor
objects or raises a defense to repossession, or if otherwise required by
applicable state law, a court order must be obtained from the appropriate state
court, and the vehicle must then be recovered in accordance with that order.
In some jurisdictions, the secured party is required to notify an Obligor
debtor of the default and the intent to repossess the collateral and to give
such Obligor a period of time within which to cure the default prior to
repossession. Generally, such right to cure may only be exercised on a limited
number of occasions during the term of the related contract.
NOTICE OF SALE; REDEMPTION RIGHTS
The UCC and other state laws require the secured party to provide the
Obligor with reasonable notice of the date, time and place of any public sale
and/or the date after which any private sale of the collateral may be held.
The Obligor has the right to redeem the collateral prior to actual sale by
paying the secured party the unpaid principal balance of the obligation,
accrued interest thereon, plus reasonable expenses for repossessing, holding
and preparing the collateral for disposition and arranging for its sale, plus,
in some jurisdictions, reasonable attorneys' fees or, in some states, by
payment of delinquent installments or the unpaid principal balance of the
related obligation.
DEFICIENCY JUDGMENTS AND EXCESS PROCEEDS
The proceeds of the resale of any Financed Vehicle generally will be
applied first to the expenses of resale and repossession and then to the
satisfaction of the related indebtedness. While some states impose
prohibitions or limitations on deficiency judgments if the net proceeds from
any such resale do not cover the full amount of the indebtedness, a deficiency
judgment
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can be sought in certain other states that do not prohibit or limit such
judgments. However, the deficiency judgment would be a personal judgment
against the Obligor for the shortfall, and a defaulting Obligor can be expected
to have very little capital or sources of income available following
repossession; in many cases, therefore, it may not be useful to seek a
deficiency judgment or, if one is obtained, it may be settled at a significant
discount or be uncollectible. In addition to the notice requirement, the UCC
requires that every aspect of the sale or other disposition, including the
method, manner, time, place and terms, be "commercially reasonable".
Generally, courts have held that when a sale is not "commercially reasonable",
the secured party loses its right to a deficiency judgment. In addition, the
UCC permits the debtor or other interested party to recover for any loss caused
by noncompliance with the provisions of the UCC. Also, prior to a sale, the
UCC permits the debtor or other interested person to restrain the secured party
from disposing of the collateral if it is established that the secured party is
not proceeding in accordance with the "default" provisions under the UCC.
Occasionally, after the resale of a motor vehicle and payment of all
related expenses and indebtedness, there is a surplus of funds. In that case,
the UCC requires the creditor to remit the surplus to any holder of a
subordinate lien with respect to such vehicle or, if no such lienholder exists,
to the former owner of the vehicle.
CONSUMER PROTECTION LAWS
Numerous federal and state consumer protection laws and related
regulations impose substantial requirements upon creditors and servicers
involved in consumer finance. These laws include the Truth-in-Lending Act, the
Equal Credit Opportunity Act, the Federal Trade Commission Act, the Fair Credit
Billing Act, the Fair Credit Reporting Act, the Fair Debt Collection Practices
Act, the Magnuson-Moss Warranty Act, the Federal Reserve Board's Regulations B
and Z, the Soldiers' and Sailors' Relief Act, state adaptations of the National
Consumer Act and of the Uniform Consumer Credit Code, and state motor vehicle
retail installment sales acts, retail installment sales acts and other similar
laws. Also, the laws of certain states impose finance charge ceilings and
other restrictions on consumer transactions and require contract disclosures in
addition to those required under other restrictions on consumer transactions
and require contract disclosures in addition to those required under federal
law. These requirements impose specific statutory liabilities upon creditors
who fail to comply with their provisions. In some cases, this liability could
affect the ability of an assignee, such as a Trust, to enforce consumer finance
contracts such as Receivables.
The so-called "Holder-in-Due-Course" rule of the Federal Trade Commission
(the "FTC Rule"), the provisions of which are generally duplicated by the
Uniform Consumer Credit Code, other statutes or the common law, has the effect
of subjecting a seller in a consumer credit transaction (and certain related
creditors and their assignees) to all claims and defenses that the obligor in
the transaction could assert against the seller of the goods. Liability under
the FTC Rule is limited to the amounts paid by the obligor under the contract,
and the holder of the contract may also be unable to collect any balance
remaining due thereunder from the obligor. Most of the Receivables will be
subject to the requirements of the FTC Rule. Accordingly, each
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Trust, as holder of the related Receivables, will be subject to any claims or
defenses that the purchasers of the related Financed Vehicles may assert
against the sellers of such Financed Vehicles. If an Obligor were successful
in asserting any such claims or defenses, such claim or defense would
constitute a breach of the Seller's warranties under the related Receivables
Purchase Agreement and would create an obligation of the Seller to repurchase
the Receivable unless such breach is cured in a timely manner. See
"Description of the Transfer and Servicing Agreements - Sale and Assignment of
Receivables."
Courts have applied general equitable principles to secured parties
pursuing repossession and litigation involving deficiency balances. These
equitable principles may have the effect of relieving an obligor from some or
all of the legal consequences of a default.
In several cases, consumers have asserted that the self-help remedies of
secured parties under the UCC and related laws violate the due process
protections of the Fourteenth Amendment to the Constitution of the United
States. Courts have generally either upheld the notice provisions of the UCC
and related laws as reasonable or have found that the creditors' repossession
and resale do not involve sufficient state action to afford constitutional
protection to borrowers.
Under each Receivables Purchase Agreement the Seller will represent and
warrant that each Receivable complies in all material respects with all
applicable federal and state laws. Accordingly, if an Obligor has a claim
against a Trust for a violation of any law and such claim materially and
adversely affects the interests of such Trust in a Receivable, such violation
would constitute a breach of such representation and warranty and would create
an obligation of the Seller to repurchase such Receivable unless the breach is
cured. See "Description of the Transfer and Servicing Agreements - Sale and
Assignment of Receivables".
OTHER LIMITATIONS
In addition to the laws limiting or prohibiting deficiency judgments,
numerous other statutory provisions, including federal bankruptcy laws and
related state laws, may interfere with or affect the ability of a creditor to
realize upon collateral or enforce a deficiency judgment. For example, in a
Chapter 13 proceeding under the federal bankruptcy law, a court may prevent a
creditor from repossessing a motor vehicle and, as part of the rehabilitation
plan, may reduce the amount of the secured indebtedness to the market value of
the motor vehicle at the time of bankruptcy (as determined by the court),
leaving the party providing financing as a general unsecured creditor for the
remainder of the indebtedness. A bankruptcy court may also reduce the monthly
payments due under the related contract or change the rate of interest and time
of repayment of the indebtedness.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a general summary of certain federal income tax
consequences of the purchase, ownership and disposition of Securities. The
summary does not purport to deal with federal income tax consequences
applicable to all categories of holders, some of which may be subject to
special rules. For example, it does not discuss the tax treatment of
beneficial owners of Notes ("Note Owners") or Certificates ("Certificate
Owners") that are insurance companies, regulated investment companies or
dealers in securities. Moreover, there are no cases or Internal Revenue
Service ("IRS") rulings on similar transactions involving both debt and equity
interests issued by a trust with terms similar to those of the Notes and the
Certificates. As a result, the IRS might disagree with all or part of the
discussion below. Prospective investors are urged to consult their own tax
advisors in determining the federal, state, local, foreign and any other tax
consequences to them of the purchase, ownership and disposition of the Notes
and the Certificates.
The following summary is based upon current provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), the Treasury regulations
promulgated thereunder and judicial or ruling authority, all of which are
subject to change, which change may be retroactive. Each Trust will be
provided with an opinion of Sidley & Austin ("Federal Tax Counsel") regarding
certain federal income tax matters. An opinion of Federal Tax Counsel,
however, is not binding on the IRS or the courts. No ruling on any of the
issues discussed below will be sought from the IRS. For purposes of the
following summary, references to the Trust, the Notes, the Certificates and
related terms, parties and documents shall be deemed to refer, unless otherwise
specified herein, to each Trust and the Notes, Certificates and related terms,
parties and documents applicable to such Trust.
OWNER TRUSTS
TAX CHARACTERIZATION OF THE OWNER TRUSTS
In the case of an Owner Trust, Federal Tax Counsel will deliver its
opinion that the Trust will not be an association (or publicly traded
partnership) taxable as a corporation for federal income tax purposes. The
opinion of Federal Tax Counsel will be based on the assumption that the terms
of the Trust Agreement and related documents will be complied with, and on such
counsel's conclusions that (i) the Trust will not have certain characteristics
necessary for a trust to be classified as an association taxable as a
corporation and (ii) the nature of the income of the Trust, and the
restrictions (if any) on transfers of the Certificates, will exempt the Trust
from the rule that certain publicly traded partnerships are taxable as
corporations.
If a Trust were taxable as a corporation for federal income tax purposes,
the Trust would be subject to corporate income tax on its taxable income. The
Trust's taxable income would
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include all of its income on the related Receivables, which might be reduced by
its interest expense on the Notes. Any such corporate income tax could
materially reduce cash available to make payments on the Notes and
distributions on the Certificates, and Certificate Owners (and possibly Note
Owners) could be liable for any such tax that is unpaid by the Trust.
TAX CONSEQUENCES TO NOTE OWNERS
Treatment of the Notes as Indebtedness. The Trust will agree, and the
Note Owners will agree by their purchase of Notes, to treat the Notes as debt
for federal tax purposes. Federal Tax Counsel will, except as otherwise
provided in the related Prospectus Supplement, advise the Owner Trust that the
Notes will be classified as debt for federal income tax purposes. If, contrary
to the opinion of Federal Tax Counsel, the IRS successfully asserted that one
or more of the Notes did not represent debt for federal income tax purposes,
the Notes might be treated as equity interests in the Trust. If so treated,
the Trust might be taxable as a corporation with the adverse consequences
described above (and the resulting taxable corporation would not be able to
reduce its taxable income by deductions for interest expense on Notes
recharacterized as equity). Alternatively, the Trust might be treated as a
publicly traded partnership that would not be taxable as a corporation unless
it met certain qualifying income tests. Treatment of the Notes as equity
interests in a partnership could have adverse tax consequences to certain
holders, even if the Trust were not treated as a publicly traded partnership
taxable as a corporation. For example, income to certain tax-exempt entities
(including pension funds) would be "unrelated business taxable income", income
to foreign holders generally would be subject to U.S. tax and U.S. tax return
filing and withholding requirements, and individual holders might be subject to
certain limitations on their ability to deduct their share of Trust expenses.
The discussion below assumes that the Notes will be characterized as debt for
federal income tax purposes.
Interest Income on the Notes. The taxation of interest on a Note will
depend on whether the interest constitutes "qualified stated interest" (as
defined below). Interest on a Note that constitutes qualified stated interest
is includible in a Note Owner's income as ordinary interest income when
actually or constructively received, if such Note Owner uses the cash method of
accounting for federal income tax purposes, or when accrued, if such Note Owner
uses an accrual method of accounting for federal income tax purposes. Interest
that does not constitute qualified stated interest is included in a Note
Owner's income under the rules described below under "--Original Issue
Discount", regardless of such Note Owner's method of accounting, or, in certain
circumstances, under rules governing contingent payments under which the
interest is recognized as ordinary gross income only as the interest payments
become fixed in each accrual period. Notwithstanding the foregoing, interest
that is payable on a Note with a maturity of one year or less from its issue
date is included in a Note Owner's income under the rules described below under
"--Short Term Notes". It is believed that any prepayment premium paid as a
result of a mandatory redemption will be taxable as contingent interest when it
becomes fixed and unconditionally payable.
In general, "qualified stated interest" is stated interest that, during
the entire term of the Note, is unconditionally payable at least annually at a
single fixed rate of interest or, subject to
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certain exceptions summarized below, at a variable rate that is a single
"qualified floating rate" or a single "objective rate" (each as described
below). If stated interest is unconditionally payable at two or more qualified
floating rates, a single fixed rate and one or more qualified floating rates,
or a single fixed rate and a single objective rate that is a "qualified inverse
floating rate" (as defined below), all or a portion of the stated interest
might be treated as "qualified stated interest". Under the OID Regulations,
interest is considered unconditionally payable only if late payment or
nonpayment is expected to be penalized or reasonable remedies exist to compel
payment. If stated interest is payable at a variable rate other than in
accordance with the foregoing, the interest will not be treated as "qualified
stated interest", and it is unclear whether such payments must be treated as
part of a Note's "stated redemption price at maturity" and governed by the
rules described below under "--Original Issue Discount" or, alternatively, must
be taxed as contingent interest that is recognized as ordinary gross income
only as the interest payments become fixed in each accrual period.
Stated interest generally qualifies as "qualified floating rate" if
variations in the value of the rate can reasonably be expected to measure
contemporaneous fluctuations in the cost of newly borrowed funds in the
currency in which the Note is denominated. A variable rate will be considered
a qualified floating rate if the variable rate equals (i) the product of an
otherwise qualified floating rate and a fixed multiple that is greater than
zero but not more than 1.35 or (ii) an otherwise qualified floating rate (or
the product described in clause (i)) plus or minus a fixed rate. If the
variable rate equals the product of an otherwise qualified floating rate and a
single multiplier greater than 1.35, however, such rate will generally
constitute an objective rate, described more fully below.
Stated interest generally qualifies as an "objective rate" if variations
in the rate are determined using a single fixed formula and are based on (i)
one or more qualified floating rates, (ii) one or more rates where each rate
would be a qualified floating rate for a debt instrument denominated in a
currency other than the currency in which the Note is denominated, (ii) the
yield or changes in the price of one or more items of personal property that
are "actively traded", or (iv) a combination of rates described in the three
foregoing clauses. The IRS may designate other objective rates. An objective
rate is a qualified inverse floating rate if (a) the rate is equal to a fixed
rate minus a qualified floating rate and (b) the variations in the rate can
reasonably be expected to reflect inversely contemporaneous variations in the
cost of newly borrowed funds (disregarding certain caps, floors, governors or
similar restrictions).
All or a portion of interest that otherwise is treated as qualified
stated interest under the rules summarized above will not be treated as
qualified stated interest if, among other circumstances: (i) the variable rate
of interest is subject to one or more minimum or maximum rate floors or
ceilings which are not fixed throughout the term of the Note and which are
reasonably expected as of the issue date to cause the rate in certain accrual
periods to be significantly higher or lower than the overall expected return on
the Note determined without such floor or ceiling; (ii) it is reasonably
expected that the average value of the variable rate during the first half of
the term of the Note will be either significantly less than or significantly
greater than the average value of the rate during the final half of the term of
the Note; (iii) the
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"issue price" of the Note (as described below) exceeds the total noncontingent
principal payments by more than an amount equal to the lesser of .015
multiplied by the product of the total noncontingent principal payments and the
number of complete years to maturity from the issue date (or, in certain cases,
its weighted average maturity) and 15 percent of the total noncontingent
principal, (iv) the Note dues not provide that a qualified floating rate or
objective rate in effect at any time during the term of the Note is set at the
value of the rate on any day that is no earlier than three months prior to the
first day on which the value is in effect and no later than one year following
that first day, or (v) if interest is not unconditionally payable. In these
situations, as well as others, it is unclear whether such interest payments
constitute qualified stated interest, or must be treated either as part of a
Note's "stated redemption price at maturity" (as described below) resulting in
original issue discount, or represent contingent payments which are recognized
as ordinary gross income for federal income tax purposes only as the interest
payments become fixed in each accrual period.
Original Issue Discount. Notes may be issued with "original issue
discount". Rules governing original issue discount are set forth in Sections
1271-1273 and 1275 of the Code and the Treasury Regulations issued thereunder
in January, 1994 (the "OID Regulations"). The discussion herein is based in
part on the OID Regulations, which generally apply to debt instruments issued
on or after April 4, 1994. Note Owners also should be aware that the OID
Regulations do not address certain issues relevant to prepayable securities
such as the Notes.
In general, a Note's original issue discount, if any, is the difference
between the "stated redemption price at maturity" of the Note and its "issue
price".
The original issue discount with respect to a Note will be considered to
be zero if it is less than a specified de minimis amount of 0.25% of the Note's
stated redemption price at maturity multiplied by the number of complete years
from the date of issue of such Note to its maturity date or, in the case of
Notes that have more than one principal payment or that have interest payments
that are not qualified stated interest the weighted average maturity of the
Note. Because of the possibility of prepayments, it is not clear how the de
minimis rules will apply to the Notes. It is possible that the anticipated
rate of prepayments assumed in pricing the debt instrument (the "Prepayment
Assumption") will be required to be used in determining the weighted average
maturity of the Notes. In the absence of authority to the contrary, the Company
presently expects to apply the de minimis rule by using the Prepayment
Assumption. Generally, an original Note Owner includes de minimis original
issue discount in income as principal payments are made. The amount includable
in income with respect to each principal payment equals a pro rata portion of
the entire amount of de minimis original issue discount with respect to that
Note. Any de minimis amount of original issue discount includable in income by
a Note Owner is generally treated as a capital gain if the Note is a capital
asset in the hands of the Note Owner.
The "stated redemption price at maturity" of a Note generally will be
equal to the sum of all payments, whether denominated as principal or interest,
to be made with respect thereto other than "qualified stated interest".
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In general, the "issue price" of a Note is the first price at which a
substantial amount of the Notes of such class are sold for money to the public
(excluding bond houses, brokers or similar persons or organizations acting in
the capacity of underwriters, placement agents or wholesalers).
If the Notes are determined to be issued with original issue discount, a
holder of a Note must generally include the original issue discount in ordinary
gross income for federal income tax purposes as it accrues in advance of the
receipt of any cash attributable to such income. The amount of original issue
discount, if any, required to be included in a Note Owner's ordinary gross
income for federal income tax purposes in any taxable year will be computed in
accordance with Section 1272(a) of the Code and the OID Regulations. Under such
section and the OID Regulations, original issue discount accrues on a daily
basis under a constant yield method that takes into account the compounding of
interest. The amount of original issue discount to be included in income by a
holder of a debt instrument, such as a Note, under which principal payments may
be subject to acceleration because of prepayments of other debt obligations
securing such an instrument, is computed by taking into account the Prepayment
Assumption.
The amount of original issue discount includable in income by a Note
Owner is the sum of the "daily portions" of the original issue discount for
each day during the taxable year on which the holder held the Note. The daily
portions of original issue discount are determined by allocating to each day in
any "accrual period" a pro rata portion of the excess, if any, of the sum of
(i) the present value of all remaining payments to be made on the Note as of
the close of the "accrual period" and (ii) the payments during the accrual
period of amounts included in the stated redemption price of the Note over the
"adjusted issue price" of the Note at the beginning of the accrual period.
Generally, the "accrual period" for the Notes corresponds to the intervals at
which amounts are paid or compounded with respect to such Note, beginning with
their date of issuance and ending with the maturity date. The "adjusted issue
price" of a Note at the beginning of any accrual period is the sum of the issue
price and accrued original issue discount for each prior accrual period reduced
by the amount of payments other than payments of qualified stated interest made
during each prior accrual period. The Code requires the present value of the
remaining payments to be determined on the bases of (a) the original yield to
maturity (determined on the basis of compounding at the close of each accrual
period and properly adjusted for the length of the accrual period), (b) events,
including actual prepayments, which have occurred before the close of the
accrual period and (c) the assumption that the remaining payments will be made
in accordance with the original Prepayment Assumption. Although original issue
discount, if any, will be reported to Note Owners based on the Prepayment
Assumption, no representation is made to Note Owners that the Notes will be
prepaid at that rate or at any other rate.
In general, a subsequent purchaser of a Note will also be required to
include in such purchaser's ordinary gross income for federal income tax
purposes the original issue discount, if any, accruing with respect to such
Note, unless the price paid equals or exceeds the Note's stated redemption
price at maturity. If the price paid exceeds the Note's "adjusted issue price"
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(as described above), but does not equal or exceed the stated redemption price
at maturity, the amount of original issue discount to be accrued will be
reduced in accordance with a formula set forth in Section 1272(a)(7)(B) of the
Code. If the price paid is less than the Note's adjusted issue price, the
purchaser will be required to include in income any original issue discount on
the Note and, to the extent the price paid is less than the adjusted issue
price, the Note will be treated as having been purchased with "market
discount". See "--Market Discount", below.
The Company believes that the owner of a Note determined to be issued
with original issue discount will be required to include the original issue
discount in ordinary gross income for federal income tax purposes computed in
the manner described above. However, the OID Regulations either do not address
or are subject to varying interpretations with respect to several issues
concerning the computation of original issue discount for obligations such as
the Notes.
If a variable rate Note is deemed to have been issued with original issue
discount, as described above, the amount of original issue discount accrues on
a daily basis under a constant yield method that takes into account the
compounding of interest; provided, however, that the interest associated with
such a Note generally is assumed to remain constant throughout the term of the
Note at a rate that, in the case of a qualified floating rate, equals the value
of such qualified floating rate as of the issue date of the Note, or, in the
case of an objective rate, at a fixed rate that reflects the yield that is
reasonably expected for the Note. A holder of such a Note would then recognize
original issue discount during each accrual period which is calculated based
upon such Note's assumed yield to maturity. If the interest actually accrued
or paid during an accrual period exceeds (or is less than) the constant
interest assumed to be accrued or paid during the accrual period under the
foregoing rules, qualified stated interest or original issue discount allocable
to an accrual period is increased (or decreased) under rules set forth in the
OID Regulations.
The OID Regulations either do not address or are subject to varying
interpretations with respect to several issues concerning the computation of
original issue discount on the Notes, including variable rate Notes. Additional
information regarding the manner of reporting original issue discount to the
Service and to holders of variable rate Notes will be set forth in the
Prospectus Supplement relating to the issuance of such Notes.
Market Discount. Notes, whether or not issued with original issue
discount, will be subject to the market discount rules of the Code. A purchaser
of a Note who purchases the Note at a price that is less than the Note's
"stated redemption price at maturity" or, in the case of a Note issued with
original issue discount, at a price that is less than the Note's "adjusted
issue price" (as such terms are described above under "--Original Issue
Discount") will be required to recognize accrued market discount as ordinary
income as payments of principal are received on such Note or upon the sale or
exchange of the Note. In general, the holder of a Note may elect to treat market
discount as accruing either (i) under a constant yield method that is similar to
the method for the accrual of original issue discount or (ii) in proportion to
accruals of original issue discount (or, if there is no original issue discount,
in proportion to accruals of stated interest), in each case computed taking into
account the Prepayment Assumption. The
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amount of accrued market discount for purposes of determining the amount of
ordinary income to be recognized with respect to subsequent payments on such a
Note is to be reduced by the amount previously treated as ordinary income.
The Code provides that the market discount in respect of a Note will be
considered to be zero if the amount allocable to the Note is less than a
specified de minimis amount of 0.25% of the Note's stated redemption price at
maturity multiplied by the number of complete years remaining to its maturity
after the holder acquired the Note. If market discount is treated as de minimis
under this rule, the actual discount would be allocated among the scheduled
payments included in the stated redemption price at maturity of such Note, and
the portion of the discount allocable to each such payment would be reported as
income when such payment occurs or is due.
The Code grants authority to the Treasury Department to issue regulations
providing for the computation of accrued market discount on debt instruments
such as certain of the Notes. Until such time as regulations are issued, rules
described in the legislative history for these provisions of the Code will
apply. Note Owners who acquire a Note at a market discount should consult their
tax advisors concerning various methods which are available for accruing that
market discount.
In general, the Code requires a holder of a Note having market discount
to defer a portion of the interest deductions attributable to any indebtedness
incurred or continued to purchase or carry such Note. Alternatively, a holder
of a Note may elect to include market discount in gross income as it accrues
and, if he makes such an election, is exempt from this rule. The adjusted basis
of a Note subject to such election will be increased to reflect market discount
included in gross income, thereby reducing any gain or increasing any loss on a
sale or other taxable disposition.
Amortizable Premium. A holder of a Note who holds the Note as a capital
asset and who purchased the Note at a price greater than its stated redemption
price at maturity will be considered to have purchased the Note at a premium.
In general, the Note Owner may elect to deduct the amortizable bond premium as
it accrues under a constant yield method. A Note Owner's tax basis in the Note
will be reduced by the amount of the amortizable bond premium deducted. In
addition, it appears that the same methods which apply to the accrual of market
discount on obligations providing for principal payments prior to maturity are
intended to apply in computing the amortizable bond premium deduction with
respect to a Note. It is not clear, however, (i) whether the alternatives to
the constant-yield method which may be available for the accrual of market
discount are available for amortizing premium on Notes and (ii) whether the
Prepayment Assumption should be taken into account in determining the term of a
Note for this purpose. Note Owners who pay a premium for a Note should consult
their tax advisors concerning such an election and rules for determining the
method for amortizing bond premium.
Gain or Loss on Disposition. If a Note is sold, the selling Note Owner
will recognize gain or loss equal to the difference between the amount realized
from the sale and the selling
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Note Owner's adjusted basis in such Note. The adjusted basis generally will
equal the cost of such Note to the seller, increased by any original issue
discount and market discount on such Note included in the seller's income and
reduced (but not below zero) by any payments on the Note other than qualified
stated interest and any amortizable premium. Similarly, a Note Owner who
receives a principal payment with respect to a Note will recognize gain or loss
equal to the difference between the amount of the payment and the owner's
allocable portion of its adjusted basis in the Note. Except as discussed above
or with respect to market discount, any gain or loss recognized upon a sale,
exchange, retirement, or other disposition of a Note will be capital gain if the
Note is held as a capital asset.
Short-Term Notes. In the case of a Note with a maturity of one year or
less from its issue date (a "Short-Term Note"), no interest is treated as
qualified stated interest, and therefore all interest is included in original
issue discount. Note Owners that report income for federal income tax purposes
on an accrual method and certain other Note Owners, including banks and dealers
in securities, are required to include original issue discount in income on
such Short-Term Notes on a straight-line basis, unless an election is made to
accrue the original issue discount according to a constant yield method based
on daily compounding.
Any other Note Owner of a Short Term Note is not required to accrue
original issue discount for federal income tax purposes, unless it elects to do
so. In the case of a Note Owner that is not required, and does not elect, to
include original issue discount in income currently, any gain realized on the
sale, exchange or retirement of a Short-Term Note is ordinary income to the
extent of the original issue discount accrued on a straight-line basis (or, if
elected, according to a constant yield method based on daily compounding)
through the date of sale, exchange or retirement. In addition, Note Owners
that are not required, and do not elect, to include original issue discount in
income currently are required to defer deductions for any interest paid on
indebtedness incurred or continued to purchase or carry a Short-Term Note in an
amount not exceeding the deferred interest income with respect to such
Short-Term Note (which includes both the accrued original issue discount and
accrued interest that are payable but that have not been included in gross
income), until such deferred interest income is realized. Such a Note Owner
may elect to apply the foregoing rules (except for the rule characterizing gain
on sale, exchange or retirement as ordinary) with respect to "acquisition
discount" rather than original issue discount. Acquisition discount is the
excess of the stated redemption price at maturity of the Short-Term Note over
the Note Owner's basis in the Short-Term Note. This election applies to all
obligations acquired by the taxpayer on or after the first day of the first
taxable year to which such election applies, unless revoked with the consent of
the IRS. A Note Owner's tax basis in a Short-Term Note is increased by the
amount included in such Owner's income on such a Note.
Taxation of Certain Foreign Note Owners. As used herein, the term
"Non-United States Holder" means a Note Owner that is, for United States
federal income tax purposes, (i) a nonresident alien individual, (ii) a foreign
corporation, (iii) a nonresident alien fiduciary of a foreign estate or trust
or (iv) a foreign partnership one or more of the members of which is, for
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United States federal income tax purposes, a nonresident alien individual, a
foreign corporation or a nonresident alien fiduciary of a foreign estate or
trust.
In general, Non-United States Holders will not be subject to United
States federal withholding tax with respect to payments of principal and
interest on Notes, provided that certain conditions are met. Under United
States federal income tax law now in effect, and subject to the discussion of
backup withholding in the following section, payments of principal and interest
(including original issue discount) with respect to a Note to any Non-United
States Holder will not be subject to United States federal withholding tax,
provided, in the case of interest (including original issue discount), that (i)
such Holder does not actually or constructively own 10% or more of the total
combined voting power of all classes of equity of the Trust, (ii) such Holder
is not for federal income tax purposes a controlled foreign corporation
related, directly or indirectly, to the Trust through equity ownership, (iii)
such Holder is not a bank receiving interest described in Section 881(c)(3)(A)
of the Code and (iv) either (A) the Note Owner certifies, under penalties of
perjury, to the Trust or paying agent, as the case may be, that such Holder is
a Non-United States Holder and provides such Holder's name and address, or (B)
a securities clearing organization, bank or other financial institution that
holds customers' securities in the ordinary course of its trade or business (a
"financial institution") and holds the Note, certifies, under penalties of
perjury, to the Trust or paying agent, as the case may be, that such Note has
been received from the beneficial owner by it or by a financial institution
between it and the beneficial owner and furnishes the payor with a copy
thereof. A certificate described in this paragraph is effective only with
respect to payments of interest (including original issue discount) made to the
certifying Non-United States Holder after the issuance of the certificate in
the calendar year of its issuance and the two immediately succeeding calendar
years.
Notwithstanding the foregoing, interest described in Section 871(h)(4) of
the Code will be subject to United States withholding tax at a 30% rate (or
such lower rate as may be provided by an applicable treaty). In general,
interest described in Section 871(h)(4) of the Code includes (subject to
certain exceptions) any interest the amount of which is determined by reference
to receipts, sales or other cash flow of the issuer or a related person, any
income or profits of the issuer or a related person, any change in the value of
any property of the issuer or a related person or any dividends, partnership
distribution or similar payments made by the issuer or a related person.
Interest described in Section 871(h)(4) of the Code may include other types of
contingent interest identified by the IRS in future Treasury Regulations. If
the Trust issues Notes the interest on which is described in Section 871(h)(4)
of the Code, the United States withholding tax consequences of any such Notes
will be described in the applicable Prospectus Supplement.
If a Non-United States Holder is engaged in a trade or business in the
United States and interest (including original issue discount) on the Note is
effectively connected with the conduct of such trade or business, the Non-United
States Holder, although exempt from the withholding tax discussed in the two
preceding paragraphs, will be subject to United States federal income tax on
such interest (including original issue discount) in the same manner as if it
were a United States person (as defined below). In lieu of the certificate
described above, such Holder will
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be required to provide a properly executed IRS Form 4224 in order to claim an
exemption from withholding tax. In addition, if such Holder is a foreign
corporation, it may be subject to a branch profits tax equal to 30% (or such
lower rate as may be specified by an applicable treaty) of its effectively
connected earnings and profits for the taxable year, subject to adjustments. For
this purpose, interest (including original issue discount) on a Note will be
included in the earnings and profits of such Holder if such interest (including
original issue discount) is effectively connected with the conduct by such
Holder of a trade or business in the United States.
Generally, any gain or income (other than that attributable to accrued
interest or original issue discount) realized upon the sale, exchange,
retirement or other disposition of a Note will not be subject to United States
federal income tax unless (i) such gain or income is effectively connected with
a trade or business in the United States of the Non-United States Holder or
(ii) in the case of a Non-United States Holder who is a nonresident alien
individual, the Non-United States Holder is present in the United States for
183 days or more in the taxable year of such sale, exchange, retirement or
other disposition and either (a) such individual has a "tax home" (as defined
in Section 911(d)(3) of the Code) in the United States or (b) the gain is
attributable to an office or other fixed place of business maintained by such
individual in the United States.
Backup Withholding and Information Reporting. Under current United
States federal income tax law, information reporting requirements apply to
interest (including original issue discount) and principal payments made to,
and to the proceeds of sales before maturity by, certain non-corporate Note
Owners that are not Non-United States Holders. In addition, a 31% backup
withholding tax will apply if such non-corporate Note Owner (i) fails to
furnish its Taxpayer Identification Number ("TIN") (which, for an individual,
would be his or her Social Security Number) to the payor in the manner
required, (ii) furnishes an incorrect TIN and the payor is so notified by the
IRS, (iii) is notified by the IRS that it has failed properly to report
payments of interest and dividends or (iv) in certain circumstances, fails to
certify, under penalties of perjury, that it has not been notified by the IRS
that it is subject to backup withholding for failure properly to report
interest and dividend payments. Backup withholding will not apply with respect
to payments made to certain exempt recipients, such as corporations (within the
meaning of Section 7701(a) of the Code) and tax-exempt organizations.
In the case of a Non-United States Holder, under Treasury Regulations,
backup withholding and information reporting will not apply to payments of
principal and interest made by the Trust or any paying agent thereof on a Note
with respect to which such holder has provided the required certification under
penalties of perjury that it is a Non-United States Holder or has otherwise
established an exemption, provided that (i) the Trust or paying agent, as the
case may be, does not have actual knowledge that the payee is a United States
person and (ii) certain other conditions are satisfied.
Subject to the discussion below, payments to or through the United States
office of a broker will be subject to backup withholding and information
reporting unless the holder certifies under penalties of perjury as to its
status as a Non-United States Holder and certain other
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qualifications (and no agent of the broker who is responsible for receiving or
reviewing such statement has actual knowledge that it is incorrect) and provides
his or her name and address or the holder otherwise establishes an exemption.
In general, if principal or interest payments on a Note are collected
outside the United States by a foreign office of a custodian, nominee or other
agent acting on behalf of a Note Owner, such custodian, nominee or other agent
will not be required to apply backup withholding to such payments made to such
owner and will not be subject to information reporting. However, if such
custodian, nominee or other agent is a United States person, a controlled
foreign corporation for United States tax purposes, or a foreign person 50% or
more of whose gross income is effectively connected with its conduct of a
United States trade or business for a specified three-year period, such
custodian, nominee or other agent may be subject to certain information
reporting (but not backup withholding) requirements with respect to such
payment unless such custodian, nominee or other agent has in its records
documentary evidence that the Note Owner is not a United States person and
certain conditions are met or the Note Owner otherwise establishes an
exemption. Under proposed Treasury Regulations, backup withholding may apply
to any payment which such custodian, nominee or other agent is required to
report if such custodian, nominee or other agent has actual knowledge that the
payee is a United States person.
Under Treasury Regulations, payments on the sale, exchange or retirement
of a Note to or through a foreign office of a broker will not be subject to
backup withholding. However, if such broker is a United States person, a
controlled foreign corporation for United States tax purposes, or a foreign
person 50% or more of whose gross income is effectively connected with its
conduct of a United States trade or business for a specified three-year period,
information reporting (but not backup withholding) will be required unless such
broker has in its records documentary evidence that the Note Owner is not a
United States person and certain other conditions are met or the Note Owner
otherwise establishes an exemption. Under proposed Treasury Regulations,
backup withholding may apply to any payment which such broker is required to
report if such broker has actual knowledge that the payee is a United States
person.
Backup withholding tax is not an additional tax. Rather, any amounts
withheld from a payment to a Note Owner under the backup withholding rules will
be allowed as a refund or a credit against such owner's United States federal
income tax, provided that the required information is furnished to the IRS.
Note Owners should consult their tax advisors regarding the application
of information reporting and backup withholding to their particular situations,
the availability of an exemption therefrom, and the procedure for obtaining
such an exemption, if available.
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TAX CONSEQUENCES TO CERTIFICATES OWNERS
Treatment of the Trust as a Partnership. The Trust will agree, and the
related Certificate Owners will agree by their purchase of Certificates, to
treat the Trust as a partnership for purposes of federal and state income tax,
franchise tax and any other tax measured in whole or in part by income, with
the assets of the partnership being the assets held by the Trust, the partners
of the partnership being the Certificate Owners (including, to the extent
relevant, the Seller in its capacity as recipient of distributions from any
Reserve Fund), and the Notes being debt of the partnership. However, the
proper characterization of the arrangement involving the Trust, the
Certificates, the Notes, the Seller, the Company and the Servicer is not
certain because there is no authority on transactions closely comparable to
that contemplated herein. A variety of alternative characterizations are
possible. For example, to the extent the Certificates have certain features
characteristic of debt, the Certificates might be considered debt of the
Seller, the Company or the Trust. Any such characterization would not result
in materially adverse tax consequences to Certificate Owners as compared to the
consequences from treatment of the Certificates as equity in a partnership,
described below.
The following discussion assumes that the Certificates represent equity
interests in a partnership, that all payments on the Certificates are
denominated in United States dollars, none of the Certificates represents Strip
Certificates and that a Series of Securities includes a single class of
Certificates. If these conditions are not satisfied with respect to any given
Series of Certificates, additional tax considerations with respect to such
Certificates will be disclosed in the related Prospectus Supplement.
Partnership Taxation. As a partnership, the Trust will not be subject to
federal income tax. Rather, each Certificate Owner will be required to take
into account separately such Owner's allocated share of income, gains, losses,
deductions and credits of the Trust (whether or not there is a corresponding
cash distribution). Thus, cash basis holders will in effect be required to
report income from the Certificates on the accrual basis and Certificate Owners
may become liable for taxes on Trust income even if they have not received cash
from the Trust to pay such taxes. The Trust's income will consist primarily of
interest and finance charges earned on the related Receivables (including
appropriate adjustments for market discount, original issue discount and bond
premium) and any gain upon collection or disposition of such Primary Assets.
The Trust's deductions will consist primarily of interest accruing with respect
to the Notes, servicing and other fees, and losses or deductions upon
collection or disposition of Primary Assets.
The tax items of a partnership are allocable to the partners in
accordance with the Code, Treasury regulations and the partnership agreement
(i.e., the Trust Agreement and related documents). The Trust Agreement will
provide, in general, that the Certificate Owners will be allocated taxable
income of the Trust for each month equal to the sum of: (i) the interest or
other income that accrues on the Certificates in accordance with their terms
for such month including, as applicable, interest accruing at the related
Pass-Through Rate for such month and interest on amounts previously due on the
Certificates but not yet distributed; (ii) any Trust
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income attributable to discount on the related Receivables that corresponds to
any excess of the principal amount of the Certificates over their initial issue
price; (iii) any prepayment premium payable to the Certificate Owners for such
month; and (iv) any other amounts of income payable to the Certificate Owners
for such month. Such allocation will be reduced by any amortization by the
Trust of premium on Receivables that corresponds to any excess of the issue
price of Certificates over their principal amount. All remaining taxable
income of the Trust will be allocated to the Seller.
Based on the economic arrangement of the parties, the foregoing approach
for allocating Trust income should be permissible under applicable Treasury
regulations, although no assurance can be given that the IRS would not require
a greater amount of income to be allocated to Certificate Owners. Moreover,
even under the foregoing method of allocation, Certificate Owners may be
allocated income equal to the entire Pass-Through Rate plus the other items
described above, even though the Trust might not have sufficient cash to make
current cash distributions of such amount. In addition, because tax allocations
and tax reporting will be done on a uniform basis for all Certificate Owners,
but Certificate Owners may be purchasing Certificates at different times and at
different prices, Certificate Owners may be required to report on their tax
returns taxable income that is greater or less than the amount reported to them
by the Trust.
All of the taxable income allocated to a Certificate Owner that is a
pension, profit sharing or employee benefit plan or other tax-exempt entity
(including an individual retirement account) will constitute "unrelated
business taxable income" generally taxable to such holder under the Code.
An individual taxpayer's share of expenses of the Trust (including fees
to the Servicer, but not interest expense) would be miscellaneous itemized
deductions and thus deductible only to the extent such expenses plus all other
Section 212 expenses exceed two percent of such individual's adjusted gross
income. In addition, Section 68 of the Code provides that the amount of
itemized deductions (including those provided for in Section 212 of the Code)
otherwise allowable for the taxable year for an individual whose adjusted gross
income exceeds a threshold amount specified in the Code ($114,700 in 1995 in
the case of a joint return) will be reduced by the lessor of (i) 3% of the
excess of adjusted gross income over the specified threshold amount or (ii) 80%
of the amount of itemized deductions otherwise allowable for such taxable year.
Accordingly, such deductions might be disallowed to such individual in whole or
in part and might result in such Certificate Owner being taxed on an amount of
income that exceeds the amount of cash actually distributed to such holder over
the life of the Trust.
The Trust intends to make all tax calculations relating to income and
allocations to Certificate Owners on an aggregate basis. If the IRS were to
require that such calculations be made separately for each Receivable, the
Trust might be required to incur additional expense, but it is believed that
there would not be a material adverse effect on Certificate Owners.
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Discount and Premium. Except as otherwise provided in the related
Prospectus Supplement, it is believed that the Receivables were not issued with,
and, therefore, the Trust should not have original issue discount income.
However, the purchase price paid by the Trust for the related Primary
Assets may be greater or less than the remaining principal balance of the
Primary Assets at the time of purchase. If so, the Primary Assets will have
been acquired at a premium or market discount, as the case may be. See "Tax
Consequences to Note Owners--Market Discount" and "--Amortizable Premium"
above. (As indicated above, the Trust will make this calculation on an
aggregate basis, but might be required to recompute it on a Primary
Asset-by-Primary Asset basis.)
If the Trust acquires the Receivables at a market discount or premium,
the Trust will elect to include any such discount in income currently as it
accrues over the life of the Receivables or to offset any such premium against
interest income on the Receivables. As indicated above, a portion of such
market discount income or premium deduction may be allocated to Certificate
Owners.
Section 708 Termination. Under Section 708 of the Code, the Trust will
be deemed to terminate for federal income tax purpose if 50% or more of the
capital and profits interests in the Trust are sold or exchanged within a
12-month period. If such a termination occurs, the Trust will be considered to
distribute its assets to the partners, who would then be treated as
recontributing those assets to the Trust, as a new partnership. The Trust will
not comply with certain technical requirements that might apply when such a
constructive termination occurs. As a result, the Trust may be subject to
certain tax penalties and may incur additional expenses if it is required to
comply with those requirements. Furthermore, the Trust might not be able to
comply due to lack of data.
Disposition of Certificates. Generally, capital gain or loss will be
recognized on a sale of Certificates in an amount equal to the difference
between the amount realized and the seller's tax basis in the Certificates
sold. A Certificate Owner's tax basis in a Certificate will generally equal
its cost, increased by its share of Trust income allocable to such Certificate
Owner and decreased by any distributions received with respect to such
Certificate. In addition, both the tax basis in the Certificates and the
amount realized on a sale of a Certificate would include the Certificate
Owner's share (determined under Treasury Regulations) of the Notes and other
liabilities of the Trust. A Certificate Owner acquiring Certificates at
different prices will generally be required to maintain a single aggregate
adjusted tax basis in such Certificates and, upon a sale or other disposition
of some of the Certificates, allocate a portion of such aggregate tax basis to
the Certificates sold (rather than maintaining a separate tax basis in each
Certificate for purposes of computing gain or loss on a sale of that
Certificate).
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If a Certificate Owner is required to recognize an aggregate amount of
income (not including income attributable to disallowed itemized deductions
described above) over the life of the Certificates that exceeds the aggregate
cash distributions with respect thereto, such excess will generally give rise
to a capital loss upon the retirement of the Certificates.
Allocations Between Transferors and Transferees. In general, the Trust's
taxable income and losses will be determined monthly and the tax items for a
particular calendar month will be apportioned among the Certificate Owners in
proportion to the principal amount of Certificates owned by them as of the
close of the last day of such month. As a result, a Certificate Owner
purchasing Certificates may be allocated tax items (which will affect the
purchaser's tax liability and tax basis) attributable to periods before the
actual transaction.
The use of such a monthly convention may not be permitted by existing
Treasury Regulations. If a monthly convention is not allowed (or only applies
to transfers of less than all of the partner's interest), taxable income or
losses of the Trust might be reallocated among the Certificate Owners. The
Seller will be authorized to revise the Trust's method of allocation between
transferors and transferees to conform to a method permitted by future
regulations.
Section 754 Election. In the event that a Certificate Owner sells its
Certificates at a profit (loss), the purchasing Certificate Owner will have a
higher (lower) basis in the Certificates than the selling Certificate Owner
had. The tax basis of the Trust's assets will not be adjusted to reflect that
higher (or lower) basis unless the Trust were to file an election under Section
754 of the Code. In order to avoid the administrative complexities that would
be involved in keeping accurate accounting records, as well as potentially
onerous information reporting requirements, the Trust will not make such
election. As a result, Certificate Owners might be allocated a greater or
lesser amount of Trust income than would be appropriate based on their own
purchase price for Certificates.
Administrative Matters. The Trustee is required to keep complete and
accurate books of the Trust. Such books will be maintained for financial
reporting and tax purposes on an accrual basis, and the fiscal year of the
Trust will be the calendar year. The Trustee will file a partnership
information return (IRS Form 1065) with the IRS for each taxable year of the
Trust and will report each Certificate Owner's allocable share of items of
Trust income and expense to holders and the IRS on Schedule K-1. The Trust
will provide the Schedule K-1 information to nominees that fail to provide the
Trust with the information statement described below and such nominees will be
required to forward such information to the beneficial owners of the
Certificates. Generally, holders must file tax returns that are consistent
with the information return filed by the Trust or be subject to penalties
unless the holder notifies the IRS of all such inconsistencies.
Under Section 6031 of the Code, any person that holds Certificates as a
nominee at any time during a calendar year is required to furnish the Trust
with a statement containing certain information on the nominee, the beneficial
owners and the Certificates so held. Such information includes (i) the name,
address and taxpayer identification number of the nominee
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and (ii) as to each beneficial owner (a) the names address and identification
number of such person, (b) whether such person is a United States person, a
tax-exempt entity or a foreign government, an international organization, or
any wholly owned agency or instrumentality of either of the foregoing, and (c)
certain information on Certificates that were held, bought or sold on behalf of
such person throughout the year. In addition, brokers and financial
institutions that hold Certificates through a nominee are required to furnish
directly to the Trust information as to themselves and their ownership of
Certificates. A clearing agency registered under Section 17A of the Exchange
Act is not required to furnish any such information statement to the Trust.
The information referred to above for any calendar year must be furnished to
the Trust on or before the following January 31. Nominees, brokers and
financial institutions that fail to provide the Trust with the information
described above may be subject to penalties.
The Company will be designated as the tax matters partner for each Trust
in the related Trust Agreement and, as such, will be responsible for
representing the Certificate Owners in any dispute with the IRS. The Code
provides for administrative examination of a partnership as if the partnership
were a separate and distinct taxpayer. Generally, the statute of limitations
for partnership items does not expire before three years after the date on
which the partnership information return is filed. Any adverse determination
following an audit of the return of the Trust by the appropriate taxing
authorities could result in an adjustment of the returns of the Certificate
Owners, and, under certain circumstances, a Certificate Owner may be precluded
from separately litigating a proposed adjustment to the items of the Trust. An
adjustment could also result in an audit of a Certificate Owner's returns and
adjustments of items not related to the income and losses of the Trust.
Taxation of Certain Foreign Certificate Owners. As used herein, the
term "Non-United States Owner" means a Certificate Owner that is, for United
States federal income tax purposes, (i) a nonresident alien individual, (ii) a
foreign corporation, (iii) a nonresident alien fiduciary of a foreign estate or
trust or (iv) a foreign partnership one or more of the members of which is, for
United States federal income tax purposes, a nonresident alien individual, a
foreign corporation or a nonresident alien fiduciary of a foreign estate or
trust.
It is not clear whether the Trust would be considered to be engaged in a
trade or business in the United States for purposes of federal withholding
taxes with respect to Non-United States Owners because there is no clear
authority dealing with that issue under facts substantially similar to those
described herein. Although it is not expected that the Trust would be engaged
in a trade or business in the United States for such purposes, the Trust will
withhold as if it were so engaged in order to protect the Trust from possible
adverse consequences of a failure to withhold. The Trust expects to withhold
on the portion of its taxable income that is allocable to Non-United States
Owners pursuant to Section 1446 of the Code, as if such income were effectively
connected to a U.S. trade or business, at a rate of 35% for Non-United States
Owners that are taxable as corporations and 39.6% for all other such Owners.
Subsequent adoption of Treasury regulations or the issuance of other
administrative pronouncements may require the Trust to change its withholding
procedures. In determining a Certificate Owner's withholding
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status, the Trust may rely on IRS Form W-8, IRS Form W-9 or the Certificate
Owner's certification of nonforeign status signed under penalties of perjury.
Each Non-United States Owner might be required to file a U.S. individual
or corporate income tax return (including, in the case of a corporation, the
branch profits tax) on its share of the Trust's income. Each Non-United States
Owner must obtain a taxpayer identification number from the IRS and submit that
number to the Trust on Form W-8 in order to assure appropriate crediting of the
taxes withheld. Assuming the Trust is not engaged in a U.S. trade or business,
a Non-United States Owner would be entitled to a refund with respect to taxes
withheld by the Trust if such Owner's allocable share of interest from the
Trust constituted "portfolio interest" under the Code.
Such interest, however, may not constitute "portfolio interest" if, among
other reasons, the underlying obligation is not in registered form or if the
interest is determined without regard to the income of the Trust (in the later
case, such interest being properly characterized as a guaranteed payment under
Section 707(c) of the Code). If this were the case, Non-United States Owners
would be subject to a United States federal income and withholding tax at a
rate of 30 percent (without any deductions or other allowances for costs and
expenses incurred in producing such income), unless reduced or eliminated
pursuant to an applicable treaty. In such case, a Non-United States Owner
would only be entitled to a refund for that portion of the taxes in excess of
the taxes that should have been withheld with respect to such interest.
Backup Withholding. Distributions made on the Certificates and proceeds
from the sale of the Certificates will be subject to a "backup" withholding tax
of 31% if, in general, the Certificate Owner fails to comply with certain
identification procedures, unless the holder is an exempt recipient under
applicable provisions of the Code.
GRANTOR TRUSTS
TAX CHARACTERIZATION OF THE GRANTOR TRUSTS
Characterization. In the case of a Grantor Trust, Federal Tax Counsel
will deliver its opinion that the Trust will not be classified as an
association taxable as a corporation and that such Trust will be classified as
a grantor trust under subpart E, Part I of subchapter J of the Code. In this
case, beneficial owners of Certificates (referred to herein as "Grantor Trust
Certificateholders") will be treated for federal income tax purposes as owners
of a portion of the Trust's assets as described below. The Certificates issued
by a Trust that is treated as a grantor trust are referred to herein as
"Grantor Trust Certificates".
Taxation of Grantor Trust Certificateholders--General. Subject to the
discussion below under "--Stripped Certificates" and "--Subordinated
Certificates", each Grantor Trust Certificateholder will be treated as the
owner of a pro rata undivided interest in the Receivables
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and other assets of the Trust. Accordingly, and subject to the discussion
below of the recharacterization of the Servicing Fee, each Grantor Trust
Certificateholder must include in income its pro rata share of the interest and
other income from the Primary Assets (including any interest, original issue
discount, market discount, prepayment fees, assumption fees, and late payment
charges with respect to such assets), and, subject to certain limitations
discussed below, may deduct its pro rata share of the fees and other deductible
expenses paid by the Trust, at the same time and to the same extent as such
items would be included or deducted by the Grantor Trust Certificateholder if
the Grantor Trust Certificateholder held directly a pro rata interest in the
assets of the Trust and received and paid directly the amounts received and
paid by the Trust. Any amounts received by a Grantor Trust Certificateholder
in lieu of amounts due with respect to any Receivable because of a default or
delinquency in payment will be treated for federal income tax purposes as
having the same character as the payments they replace.
Under Sections 162 and 212 each Grantor Trust Certificateholder will be
entitled to deduct its pro rata share of servicing fees, prepayment fees,
assumption fees, any loss recognized upon an assumption and late payment
charges retained by the Servicer, provided that such amounts are reasonable
compensation for services rendered to the Trust. Grantor Trust
Certificateholders that are individuals, estates or trusts will be entitled to
deduct their share of expenses only to the extent such expenses plus all
certain itemized deductions exceed two percent of the Grantor Trust
Certificateholder's adjusted gross income. In addition, Section 68 of the Code
provides that the amount of itemized deductions (including those provided for
in Section 212 of the Code) otherwise allowable for the taxable year for an
individual whose adjusted gross income exceeds a threshold amount specified in
the Code ($114,700 in 1995 in the case of a joint return) will be reduced by
the lessor of (i) 3% of the excess of adjusted gross income over the specified
threshold amount or (ii) 80% of the amount of itemized deductions otherwise
allowable for such taxable year. The servicing compensation to be received by
the Servicer may be questioned by the Service with respect to certain
Certificates or Receivables as exceeding a reasonable fee for the services
being performed in exchange therefor, and a portion of such servicing
compensation could be recharacterized as an ownership interest retained by the
Servicer or other party in a portion of the interest payments to be made
pursuant to the Contracts. In this event, a Certificate might be treated as a
Stripped Certificate subject to the stripped bond rules of Section 1286 of the
Code and the original issue discount provisions rather than to the market
discount and premium rules. See the discussion below under "-- Stripped
Certificates". Except as discussed below under "--Stripped Certificates" or
"--Subordinated Certificates", this discussion assumes that the servicing fees
paid to the Servicer do not exceed reasonable servicing compensation.
A purchaser of a Grantor Trust Certificate will be treated as
purchasing an interest in each Primary Asset in the Trust at a price determined
by allocating the purchase price paid for the Certificate among all Primary
Assets in proportion to their fair market values at the time of the purchase of
the Certificate. To the extent that the portion of the purchase price of a
Grantor Trust Certificate allocated to a Primary Asset is less than or greater
than the portion of the stated redemption price at maturity of the Primary
Asset, the interest in the Primary Asset
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will have been acquired at a discount or premium. See "--Market Discount" and
"--Premium", below.
The treatment of any discount on a Primary Asset will depend on
whether the discount represents original issue discount or market discount.
Except as indicated otherwise in the applicable Prospectus Supplement, it is
not expected that any Primary Asset will have original issue discount (except
as discussed below under "--Stripped Certificates" or "--Subordinated
Certificates").
The information provided to Grantor Trust Certificateholders will
not include information necessary to compute the amount of discount or premium,
if any, at which an interest in each Primary Asset is acquired.
Market Discount. A Grantor Trust Certificateholder that acquires an
undivided interest in Primary Assets may be subject to the market discount
rules of Sections 1276 through 1278 to the extent an undivided interest in a
Primary Asset is considered to have been purchased at a "market discount".
Generally, the amount of market discount is equal to the amount by which the
purchase price of a Grantor Trust Certificate allocated to a Primary Asset is
less than the portion of the stated redemption price at maturity of the Primary
Asset. Market discount with respect to an interest in a Primary Asset will be
considered to be zero if the amount of market discount is less than 0.25% of
the stated redemption price at maturity of the interest in the Primary Asset
multiplied by the weighted average maturity of the Primary Asset remaining
after the date of purchase. Treasury regulations implementing the market
discount rules have not yet been issued; therefore, investors should consult
their own tax advisors regarding the application of these rules and the
advisability of making any of the elections allowed under Sections 1276 and
1278 of the Code.
The Code provides that any principal payment (whether a scheduled payment
or a prepayment) or any gain or disposition of a market discount bond shall be
treated as ordinary income to the extent that it does not exceed the accrued
market discount at the time of such payment.
The Code grants the Treasury Department authority to issue regulations
providing for the computation of accrued market discount on debt instruments
such as the Primary Assets, the principal of which is payable in more than one
installment. While the Treasury Department has not yet issued regulations,
rules described in the relevant legislative history will apply. Under those
rules, the holder of a market discount bond may elect to accrue market discount
either on the basis of a constant interest rate or, in the case of a debt
instrument not issued with original issue discount, according to the following
alternative method. Under the alternative method, the amount of market
discount that accrues during a period is equal to the product of (i) the total
remaining market discount and (ii) a fraction, the numerator of which is the
amount of stated interest paid during the accrual period and the denominator of
which is the total amount of stated interest remaining to be paid at the
beginning of the accrual period. Because the regulations
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described above have not been issued, it is impossible to predict what effect
those regulations might have on the tax treatment of a Grantor Trust
Certificateholder.
A Grantor Trust Certificateholder that acquired an interest in a Primary
Asset at a market discount also may be required to defer a portion of its
interest deductions for the taxable year attributable to any indebtedness
incurred or continued to purchase or carry such interest. Any such deferred
interest expense would not exceed the market discount that accrues during such
taxable year and is, in general, allowed as a deduction not later than the year
in which such market discount is includible in income. If such Grantor Trust
Certificateholder elects to include market discount in income currently as it
accrues on all market discount instruments acquired by such holder in that
taxable year or thereafter, the interest deferral rule described above will not
apply.
Premium. To the extent a Grantor Trust Certificateholder is considered
to have purchased an undivided interest in a Primary Asset for an amount that
is greater than the stated redemption price at maturity of such interest, such
Grantor Trust Certificateholder will be considered to have purchased the
interest in the Primary Asset with "amortizable bond premium" equal in amount
to such excess. A Grantor Trust Certificateholder who holds the Certificate as
a capital asset may elect under Section 171 of the Code to amortize such
premium. Under the Code, premium is allocated among the interest payments on
the Primary Assets to which it relates and is considered as an offset against
(and thus reduction of) such interest payments. With certain exceptions, such
an election would apply to all debt instruments held or subsequently acquired
by the electing holder. Absent such an election, the premium will be
deductible as an ordinary loss only upon disposition of the Certificate or pro
rata as principal is paid on the Primary Asset.
Stripped Certificates. Certain classes of Certificates may be subject to
the stripped bond rules of Section 1286 of the Code and for purposes of this
discussion will be referred to as "Stripped Certificates". In general, a
Stripped Certificate will be subject to the stripped bond rules where there has
been a separation of ownership of the right to receive some or all of the
principal payments on a Contract from ownership of the right to receive some or
all of the related interest payments. In general, where such separation has
occurred, under the stripped bond rules of Section 1286 of the Code the holder
of a right to receive a principal or interest payment on the bond is required
to accrue into income, on a constant yield basis under rules governing original
issue discount (see "Owner Trust--Tax Consequences to Note Owners--Original
Issue Discount"), the difference between the holder's initial purchase price
for such right and the principal or interest payment to be received with
respect to such right.
Certificates will constitute Stripped Certificates and will be subject to
these rules under various circumstances, including the following: (i) if any
servicing compensation is deemed to exceed a reasonable amount (see "--Taxation
of Grantor Trust Certificateholders--General", above); (ii) if the Company or
any other party retains a retained yield with respect to the Primary Assets
held by the Trust; (iii) if two or more classes of Certificates are issued
representing the right to non-pro rata percentages of the interest or principal
payments on the
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Contracts; or (iv) if Certificates are issued which represent the right to
interest-only payments or principal-only payments.
The tax treatment of the Stripped Certificates with respect to the
application of the original issue discount provisions of the Code is currently
unclear. However, the Trustee intends to treat each Stripped Certificate as a
single debt instrument issued on the day it is purchased for purposes of
calculating any original issue discount. Original issue discount with respect
to a Stripped Certificate must be included in ordinary gross income for federal
income tax purposes as it accrues in accordance with the constant yield method
that takes into account the compounding of interest and such accrual of income
may be in advance of the receipt of any cash attributable to such income. See
"Owner Trust--Tax Consequences to Note Owners--Original Issue Discount" above.
For purposes of applying the original issue discount provisions of the Code,
the issue price of a Stripped Certificate will be the purchase price paid by
each holder thereof and the stated redemption price at maturity may include the
aggregate amount of all payments to be made with respect to the Stripped
Certificate whether or not denominated as interest. The amount of original
issue discount with respect to a Stripped Certificate may be treated as zero
under the original issue discount de minimis rules described above.
When an investor purchases more than one class of Stripped Certificates
it is currently unclear whether for federal income tax purposes such classes of
Stripped Certificates should be treated separately or aggregated for purposes
of applying the original issue discount rules described above.
Notwithstanding the position that the Trustee intends to take, it is
possible that the Service may take a contrary position for purposes of applying
the original issue discount provisions of the Code to the Stripped
Certificates. For example, a holder of a Stripped Certificate might be treated
as the owner of (i) as many stripped bonds or stripped coupons as there are
scheduled payments of principal and/or interest on each Primary Asset or (ii) a
separate installment obligation for each Primary Asset representing the
Stripped Certificate's pro rata share of principal and/or interest payments to
be made with respect thereto. As a result of these possible alternative
characterizations, investors should consult their own tax advisors regarding
the proper treatment of Stripped Certificates for federal income tax purposes.
Subordinated Certificates. In the event the Trust issues two classes of
Grantor Trust Certificates that are identical except that one class is a
subordinate class (with a relatively high Pass Through Rate)and the other is a
senior class (with a relatively low Pass Through Rate (referred to herein as
the "Subordinate Certificates" and "Senior Certificates", respectively), the
Trust will be deemed to have acquired the following assets: (i) the principal
portion of each Primary Asset plus a portion of the interest due on each
Primary Asset (the "Trust Stripped Bond"), and (ii) a portion of the interest
due on each Primary Asset equal to the difference between the Pass Through Rate
on the Subordinate Certificates and the Pass Through Rate on the Senior
Certificates, if any, which difference is then multiplied by the Subordinate
Class Percentage (the "Trust Stripped Coupon"). The "Subordinate Class
Percentage" equals the
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initial aggregate principal amount of the Subordinate Certificates divided by
the sum of the initial aggregate principal amount of the Subordinate
Certificates and the Senior Certificates. The "Senior Class Percentage" equals
the initial aggregate principal amount of the Senior Certificates divided by
the sum of the initial aggregate principal amount of the Subordinate
Certificates and the Senior Certificates.
The Senior Certificateholders in the aggregate will own the Senior Class
Percentage of the Trust Stripped Bond and accordingly each Senior
Certificateholder will be treated as owning its pro rata share of such asset.
The Senior Certificateholders will not own any portion of the Trust Stripped
Coupon. The Subordinate Certificateholders in the aggregate own both the
Subordinate Class Percentage of the Trust Stripped Bond plus 100% of the Trust
Stripped Coupon, if any, and accordingly each Subordinate Certificateholder
will be treated as owning its pro rata share in both such assets. The Trust
Stripped Bond will be treated as a "stripped bond" and the Trust Stripped
Coupon will be treated as "stripped coupons" within the meaning of Section 1286
of the Code. Because the purchase price paid by each Subordinate
Certificateholder will be allocated between that Certificateholder's interest
in the Trust Stripped Bond and the Trust Stripped Coupon based on the relative
fair market value of each asset on the date such Subordinate Certificate is
purchased, the Trust Stripped Bond may be issued with original issue discount.
Except to the extent modified below, the income of the Trust Stripped
Bond represented by a Certificate will be reported in the same manner as
described generally above for holders of Certificates. The interest income on
the Subordinate Certificates at the Senior Certificate Pass-Through Rate and
the portion of the Servicing Fee that does not constitute excess servicing will
be treated as qualified stated interest.
The Trust Stripped Coupon will be treated as a debt instrument with
original issue discount equal to the excess of the total amount payable with
respect to such Trust Stripped Coupon (based on the prepayment assumption used
in pricing the Certificates) over the portion of the purchase price allocated
thereto. The sum of the daily portions of original issue discount on the Trust
Stripped Coupon for each day during a year in which the Subordinate
Certificateholder holds the Trust Stripped Coupon will be included in the
Subordinate Certificateholder's income.
If the Subordinate Certificateholders receive distribution of less than
their share of the Trust's receipts of principal or interest (the "Shortfall
Amount") because of the subordination of the Subordinate Certificates, holders
of Subordinate Certificates would probably be treated for federal income tax
purposes as if they had (i) received as distributions their full share of such
receipts, (ii) paid over to the Senior Certificateholders an amount equal to
such Shortfall Amount and (iii) retained the right to reimbursement of such
amounts to the extent such amounts are otherwise available as a result of
collections on the Primary Assets or amounts available from a Reserve Account
or other form of credit enhancement, if any.
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Under this analysis, (a) Subordinate Certificateholders would be required
to accrue as current income any interest income or original issue discount of
the Trust that was a component of the Shortfall Amount, even though such amount
was in fact paid to the Senior Certificateholders, (b) a loss would only be
allowed to the Subordinate Certificateholders when their right to receive
reimbursement of such Shortfall Amount became worthless (i.e., when it becomes
clear that amount will not be available from any source to reimburse such loss)
and (c) reimbursement of such Shortfall Amount prior to such a claim of
worthlessness would not be taxable income to Subordinate Certificateholders
because such amount was previously included in income. Those results should
not significantly affect the inclusion of income for Subordinate
Certificateholders on the accrual method of accounting, but could accelerate
inclusion of income to Subordinate Certificateholders on the cash method of
accounting by, in effect, placing them on the accrual method. Moreover, the
character and timing of loss deductions is unclear. Subordinate
Certificateholders are strongly urged to consult their own tax advisors
regarding the appropriate timing, amount and character of any losses sustained
with respect to the Subordinate Certificates including any loss resulting from
the failure to recover previously accrued interest or discount income.
Election to Treat All Interest as Original Issues Discount. The OID
regulations permit a Grantor Trust Certificateholder to elect to accrue all
interest, discount (including de minimis market or original issue discount) and
premium in income as interest, based on a constant yield method. If such an
election were to be made with respect to an interest in a Primary Asset with
market discount, the Certificate Owner would be deemed to have made an election
to include in income currently market discount with respect to all other debt
instruments having market discount that such Grantor Trust Certificateholder
acquires during the year of the election or thereafter. Similarly, a Grantor
Trust Certificateholder that makes this election for an interest in a Primary
Asset that is acquired at a premium will be deemed to have made an election to
amortize bond premium with respect to all debt instruments having amortizable
bond premium that such Grantor Trust Certificateholder owns or acquires. See
"- Premium". The election to accrue interest, discount and premium on a
constant yield method with respect to a Grantor Trust Certificate is
irrevocable.
Sale or Exchange of a Grantor Trust Certificate. Sale or exchange of a
Grantor Trust Certificate prior to its maturity will result in gain or loss
equal to the difference, if any, between the amount realized (exclusive of
amounts attributable to accrued and unpaid interest, which will be treated as
ordinary income) allocable to the Primary Asset and the owner's adjusted basis
in the Grantor Trust Certificate. Such adjusted basis generally will equal the
Seller's cost for the Grantor Trust Certificate, increased by the original
issue discount and any market discount included in the seller's gross income
with respect to the Grantor Trust Certificate, and reduced (but not below zero)
by any premium amortized by the Seller and by principal payments on the Grantor
Trust Certificate previously received by the seller. Such gain or loss will,
except as discussed below, be capital gain or loss to an owner for which a
Grantor Trust Certificate is a "capital asset" within the meaning of Section
1221, except that gain will be treated in whole or in part as ordinary interest
income to the extent of the Seller's interest in accrued market discount not
previously taken into income on underlying Primary Assets having a fixed
maturity
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date of more than one year from the date of origination. A capital gain or
loss will be long-term or short-term depending on whether or not the Grantor
Trust Certificate has been owned for the long-term capital gain holding period
(currently more than one year).
Notwithstanding the foregoing, any gain realized on the sale or exchange
of a Grantor Trust Certificate will be ordinary income to the extent of the
seller's interest in accrued market discount on Primary Assets not previously
taken into income. See "--Market Discount", above.
Non-United States Grantor Trust Certificate Owners. Amounts paid to
Non-United States Owners of Grantor Trust Certificates will be treated as
interest for purposes of United States withholding tax. Such interest
attributable to the underlying Receivables will not be subject to the normal
30% (or such lower rate provided for by an applicable tax treaty) withholding
tax imposed on such amounts provided that (i) the Non-U.S. Certificate Owner
does not own, directly or indirectly, 10% or more of, and is not a controlled
foreign corporation (within the definition of Section 957) related to the
Seller and (ii) such Certificate Owner fulfills certain certification
requirements. Under these requirements, the Certificate Owner must certify,
under penalty of perjury, that it is not a "United States person" and must
provide its name and address. "United States person" means a citizen or
resident of the United States, a corporation, partnership or other entity
created or organized in or under the laws of the United States or any political
subdivision thereof, or an estate or trust the income of which is includible in
gross income for United States federal income tax purposes, without regard to
its source. If, however, interest or gain is effectively connected to the
conduct of a trade or business within the United States by such Certificate
Owner, such owner will be subject to United States federal income tax thereon
at graduated rates. Potential investors who are not United States persons
should consult their own tax advisors regarding the specific tax consequences
of owning a Certificate.
Backup Withholding. Distributions made on the Grantor Trust Certificates
and proceeds from the sale of such Certificates will be subject to a "backup"
withholding tax of 31% if, in general, the Grantor Trust Certificateholder
fails to comply with certain identification procedures, unless such holder is
an exempt recipient under applicable provisions of the Code.
***
THE FEDERAL AND STATE TAX DISCUSSIONS SET FORTH ABOVE ARE INCLUDED FOR
GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A
NOTEHOLDER'S OR CERTIFICATEHOLDER'S PARTICULAR TAX SITUATION. PROSPECTIVE
PURCHASERS OF NOTES OR CERTIFICATES SHOULD CONSULT THEIR TAX ADVISORS WITH
RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND
DISPOSITION OF NOTES AND CERTIFICATES, INCLUDING THE TAX CONSEQUENCES UNDER
STATE, LOCAL AND FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES
IN FEDERAL OR OTHER TAX LAWS.
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ERISA CONSIDERATIONS
GENERAL
Set forth below are certain consequences under the Employee Retirement
Income Security Act of 1974, as amended ("ERISA") and the Code that a fiduciary
(a "Plan Fiduciary") of an "employee benefit plan" (as defined in and subject
to ERISA) or of a "plan" (as defined in Section 4975 of the Code) who has
investment discretion should consider before deciding to invest the plan's
assets in Securities. The following summary is intended to be a summary of
certain relevant ERISA issues and does not purport to address all ERISA
considerations that amy be applicable to a particular plan.
In general, the terms "employee benefit plan" as defined in ERISA and
"plan" as defined in Section 4975 of the Code (a "Plan") refer to any plan or
account of various types which provide retirement benefits or welfare benefits
to an individual or to an employer's employees and their beneficiaries. Plans
include corporate pension and profit-sharing plans, "simplified employee
pension plans", Keogh plans for self-employed individuals (including partners
in a partnership), individual retirement accounts described in Section 408 of
the Code and health insurance plans.
Each Plan Fiduciary must give appropriate consideration to the facts and
circumstances that are relevant to an investment in the Securities plays in the
Plan's investment portfolio. Each Plan Fiduciary before deciding to invest in
the Securities, must be satisfied that investment in the Securities is a
prudent investment for the Plan, that the investments of the Plan, including
the investment in the Securities, are diversified so as to minimize the risks
of large losses and that an investment in the Securities complies with the Plan
and related trust documents.
Each Plan considering acquiring a Security should consult its own legal
and tax advisors before doing so.
EXEMPT PLANS
ERISA and Section 4975 of the code do not apply to governmental plans and
certain church plans, each as defined in Section 3 of ERISA and Section 4975(g)
of the Code. However, fiduciaries with respect to these plans may be subject
to federal, state or other laws similar in effect to ERISA and Section 4975 of
the code. The discussion below does not purport to address considerations
under such federal, state or other laws.
PLAN ASSETS
It is possible that the purchase of a Security by a Plan will cause, for
purposes of Title I of ERISA and Section 4975 of the Code, the related assets
of a Trust to be treated as assets of that Plan. A regulation (the "DOL
Regulation") issued under ERISA by the United States Department of Labor (the
"DOL") contains rules for determining when an investment by a Plan
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in an entry will result in the underlying assets of the entity being plan
assets. The rules provide that the assets of an entity will not be "plan
assets" of a Plan that purchases an interest therein if such interest is not an
"equity interest". The DOL Regulation defines an equity interest as an
interest other than an instrument that is treated as indebtedness under
applicable local law and that has no substantial equity features. The DOL
Regulation provide with respect to the purchase of an equity interest by a
Plan, that the assets of an entity will not be plan assets of a Plan that
purchases an interest therein if certain exceptions apply including the
following: (i) the investment by all "benefit plan investors" is not
"significant"; or (ii) the security issued by the entity is a "publicly offered
security". The Prospectus Supplement will specify whether any of the
exceptions set forth in the regulation under ERISA may apply with respect to a
Series of Securities.
If none of the exceptions set forth in the DOL Regulation apply, the
assets of a Trust will be deemed to be the assets of each Plan investor for the
purposes of ERISA and Section 4975 of the code. In such a case, the discussion
set forth in the following sections will apply.
Consequences of Characterization as Plan Assets
If the assets of a Trust are plan assets, the Trustee will be a
fiduciary under ERISA with respect to Plan investors and its duties and
liabilities will be subject to the provision of ERISA.
In addition, Section 406 of ERISA will prohibit the Trustee, among
others, from causing the assets of the Trust to be involved, directly or
indirectly, in certain types of transactions with "parties in interest" to
investing Plans unless statutory or administrative exemption applies. If the
prohibited transaction restrictions of Section 406 of ERISA are violated, ERISA
generally provides for criminal and civil penalties upon the Plan Fiduciary and
possibly other persons. Section 4975(c) of the code generally imposes excise
tax on "disqualified persons" who engage, directly or indirectly, in similar
types of transactions with the assets of Plans subject to such Section (except
that an IRA that engages in a prohibited transaction may instead forfeit its
tax exempt status) and also requires recession of such transaction.
PROHIBITED TRANSACTION EXEMPTION FOR SENIOR CERTIFICATES ISSUED BY GRANTOR
TRUSTS
Unless otherwise specified in the related Prospectus Supplement, the
following discussion applies only to nonsubordinated Certificates (referred to
herein as "Senior Certificates") issued by a Grantor Trust.
The U.S. Department of Labor has granted to the underwriter (or in the
case of series offered by more than one underwriter, the lead underwriter)
named in each Prospectus Supplement an exemption (the "Exemption") from certain
of the prohibited transaction rules of ERISA with respect to the initial
purchase, the holding and the subsequent resale by Plans of certificates
representing interests in asset-backed pass-through trusts that consist of
certain
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receivables, loans and other obligations that meet the conditions and
requirements of the Exemption. The receivables covered by the Exemption
include motor vehicle installment sales contracts such as the Receivables. The
Exemption will apply to the acquisition, holding and resale of the Senior
Certificates by a Plan, provided that certain conditions (certain of which are
described below) are met.
Among the conditions that must be satisfied for the Exemption to apply to
the Senior Certificates are the following:
(1) The acquisition of the Senior Certificates by a Plan is on
terms (including the price for the Senior Certificates) that are at least
as favorable to the Plan as they would be in an arm's length transaction
with an unrelated party;
(2) The rights and interests evidenced by the Senior certificates
acquired by the Plan are not subordinated to the rights and interests
evidenced by other certificates of the Trust;
(3) The Senior Certificates acquired by the Plan have received a
rating at the time of such acquisition that is in one of the three
highest generic rating categories from either Standard & Poor's Ratings
Group, Moody's Investors Service, Inc., Duff & Phelps Credit Rating Co.
or Fitch Investors Services, L.P.;
(4) The related Trustee is not an affiliate of any other member
of the Restricted Group (as defined below);
(5) The sum of all payments made to the underwriters in
connection with the distribution of the Senior Certificates represents
not more than reasonable compensation for underwriting the Senior
Certificates; the sum of all payments made to and retained by the Seller
pursuant to the sale of the Contracts to the related Trust repayments
represents not more that the fair market value of such Contracts; and the
sum of all payments made to and retained by the Servicer represents not
more than reasonable compensation for the Servicer's services under the
related Pooling and Servicing Agreement and reimbursement of the
Servicer's reasonable expenses in connections therewith; and
(6) The Plan investing in the Senior Certificates is an
"accredited investor" as defined in Rule 501(a)(1) of Regulation D of the
Commission under the Securities Act.
Moreover, the Exemption would provide relief from certain self-dealing or
conflict of interest prohibited transactions if, among other requirements, (i)
in the case of the acquisition of Senior Certificates in connection with the
initial issuance, at least fifty percent of the Senior Certificates are
acquired by persons independent of the Restricted Group (as defined below),
(ii) the Benefit Plan's investment in Senior Certificates does not exceed
twenty-five percent of all of the Senior Certificates outstanding at the time
of the acquisition and (ii) immediately after the
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acquisition, no more than twenty-five percent of the assets of the benefit Plan
are invested in certificates representing an interest in one or more trusts
containing assets sold or serviced by the same entity. The Exemption does not
apply to Plans sponsored by any underwriter, the related Trustee, the related
Seller, the related Servicer, any obligor with respect to Contracts included in
the related Trust constituting more than five percent of the aggregate
unamortized principal balance of the assets in the Trust, or any affiliate of
such parties (the "Restricted Group").
The Company believes that the Exemption will apply to the acquisition and
holding by Plans of Senior Certificates sold by the underwriter or underwriters
named in the Prospectus Supplement and that all conditions of the Exemption
other that those within the control of the investors have been met. In
addition, as of the date hereof, no obligor with respect to Contracts included
in the Trust constitutes more than five percent of the aggregate unamortized
principal balance of the assets of the Trust.
PLAN OF DISTRIBUTION
On the terms and conditions set forth in an underwriting agreement with
respect to the Notes, if any, of a given Series and an underwriting agreement
with respect to the Certificates of such Series (collectively, the
"Underwriting Agreements"), the Company will agree to cause the related Trust
to sell to the underwriters named therein and in the related Prospectus
Supplement, and each of such underwriters will severally agree to purchase, the
principal amount of each class of Notes and Certificates, as the case may be,
of the related Series set forth therein and in the related Prospectus
Supplement.
In the Underwriting Agreements with respect to any given Series of
Securities, the several underwriters will agree, subject to the terms and
conditions set forth therein, to purchase all of the Notes and Certificates, as
the case may be, described therein that are offered hereby and by the related
Prospectus Supplement if any of such Notes and Certificates, as the case may
be, are purchased.
Each Prospectus Supplement will either (i) set forth the price at which
each class of Notes and Certificates, as the case may be, being offered thereby
will be offered to the public and any concessions that may be offered to
certain dealers participating in the offering of such Notes and Certificates,
as the case may be, or (ii) specify that the related Notes and Certificates, as
the case may be, are to be resold by the underwriters in negotiated
transactions at varying prices to be determined at the time of such sale.
After the initial public offering of any such Notes and Certificates, as the
case may be, such public offering prices and such concessions may be changed.
Each Underwriting Agreement will provide that the related Seller will
indemnify the related underwriters against certain civil liabilities, including
liabilities under the Securities Act, or contribute to payments the several
underwriters may be required to make in respect thereof.
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Each Trust may, from time to time, invest the funds in its Trust Accounts
in Eligible Investments acquired from such underwriters.
Pursuant to each of the Underwriting Agreements with respect to a given
Series of Securities, the closing of the sale of any class of Securities will
be conditioned on the closing of the sale of all other such classes under such
Underwriting Agreement.
The place and time of delivery for the Notes and Certificates, as the
case may be, in respect of which this Prospectus is delivered will be set forth
in the related Prospectus Supplement.
LEGAL MATTERS
Certain legal matters relating to the Securities of any Series will be
passed upon by Sidley & Austin, New York, New York. Certain federal income tax
and other matters will be passed upon for each Trust by Sidley & Austin and
certain state tax and other matters will be passed upon for each Trust by
__________________________.
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- --------------------------------------------------------------------------------
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS
SUPPLEMENT OR THE PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
DEPOSITOR OR THE UNDERWRITERS. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION.
--------------------------------
TABLE OF CONTENTS
PROSPECTUS
<TABLE>
<S> <C>
Prospectus Supplement................................................. 2
Reports to Securityholders............................................ 2
Additional Information................................................ 2
Incorporation of Certain Information by Reference..................... 2
Summary of Terms...................................................... 4
Risk Factors.......................................................... 14
The Trusts............................................................ 17
The Receivables Pools................................................. 19
The Collateral Certificates........................................... 21
Weighted Average Life of the Securities............................... 23
Pool Factors and Trading Information.................................. 23
The Seller and the Servicer........................................... 24
Description of the Certificates....................................... 30
Certain Information Regarding the Securities.......................... 32
Description of the Transfer and Servicing Agreements.................. 36
Certain Legal Aspects of the Receivables.............................. 48
Certain Federal Income Tax Consequences............................... 53
Owner Trusts.......................................................... 53
Grantor Trusts........................................................ 69
ERISA Considerations.................................................. 77
Plan of Distribution.................................................. 80
Legal Matters......................................................... 81
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Asset Backed
Securities Corporation
Depositor
[$ % Asset Backed Notes, Class]
[$ % Asset Backed Certificates]
Series 199 - ___
PROSPECTUS
CS FIRST BOSTON
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED , 1995
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus supplement shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of any
such State.
P R O S P E C T U S S U P P L E M E N T
(To Prospectus dated , 19 )
$ (Approximate)
ASSET BACKED SECURITIES CORPORATION
Depositor
Conduit Mortgage Pass-Through Certificates, Series
% Pass-Through Rate
Principal and interest payable on the day
of each month, beginning , 19
_________________
THE CERTIFICATES DO NOT REPRESENT AN INTEREST IN OR OBLIGATION OF ASSET
BACKED SECURITIES CORPORATION OR ANY AFFILIATE THEREOF. NEITHER THE
CERTIFICATES NOR THE UNDERLYING MORTGAGE LOANS ARE INSURED OR GUARANTEED BY ANY
GOVERNMENTAL AGENCY OR INSTRUMENTALITY.
The Conduit Mortgage Pass-Through Certificate, Series (the "Certificates")
offered hereby evidence undivided fractional interests in a trust to be created
by Asset Backed Securities Corporation (the "Depositor") on or about
, 199 (the "Trust"). The Trust property will consist of a pool of
[conventional] [fixed-rate] [mortgage loans [and]] [mortgage participation
certificates evidencing participation interests in such mortgage loans and
meeting the requirements of the nationally recognized rating agency or agencies
rating the Certificates (collectively, the "Rating Agency") for a rating in one
of the two highest rating categories of such Rating Agency] (the "Mortgage
Loans") and certain related property to be conveyed to the Trust by the
Depositor (the "Trust Fund"). The Mortgage Loans will be transferred to the
Trust, pursuant to a Pooling and Servicing Agreement (as defined herein), dated
as of , 19 , by the Depositor in
exchange for the Certificates and are more fully described in this Prospectus
Supplement and in the accompanying Prospectus. The Certificates offered by this
Prospectus Supplement constitute a separate series of the Certificates being
offered by the Depositor from time to time pursuant to its Prospectus dated
, 199 , which accompanies this Prospectus Supplement and of which this
Prospectus Supplement forms a part. The Prospectus contains important
information regarding this offering that is not contained herein, and
prospective investors are urged to read the Prospectus and this Prospectus
Supplement in full.
The Underwriter[s] [do[es] not] intend[s] to make a secondary market for
the Certificates [but [is] [are] under no obligation to do so]. There can be no
assurance that a secondary market will develop, or if it does develop, that it
will continue.
[The Depositor has elected to treat the Trust Fund as a Real Estate Mortgage
Investment Conduit (a "REMIC"). See "Certain Federal Income Tax Consequences"
in the Prospectus.]
_________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS TO WHICH IT
RELATES. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Price to Underwriting Proceeds to the
Public (1) Discount Depositor (1)(2)
- -------------------------------------------------------------------------------------------------------------
Per Certificate % % %
- -------------------------------------------------------------------------------------------------------------
Total $ $ $
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(1) Plus accrued interest, if any, at the applicable rate from , 19 .
(2) Before deduction of expenses payable by the Depositor estimated at $
.
---------------
</TABLE>
The Certificates are offered by the [several] Underwriter[s] when, as and if
issued and accepted by the Underwriter[s] and subject to [their] [its] right to
reject orders in whole or in part. It is expected that the Certificates, in
definitive fully registered form, will be ready for delivery on or about
, 19 .
CS FIRST BOSTON
The date of this Prospectus Supplement is ,19
<PAGE>
This Prospectus Supplement does not contain complete information about the
Certificates offered hereby. Additional information is contained in the
Prospectus, and purchasers are urged to read both this Prospectus Supplement and
the Prospectus in full. Sales of the Certificates may not be consummated unless
the purchaser has received both this Prospectus Supplement and the Prospectus.
_________________
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVERALLOT OR EFFECT
TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICES OF THE CERTIFICATES
AT LEVELS ABOVE THOSE THAT MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
_________________
Until , 19 , all dealers effecting transactions in
the Certificates, whether or not participating in this distribution, may be
required to deliver a Prospectus Supplement and a Prospectus. This is in
addition to the obligation of dealers to deliver a Prospectus Supplement and
Prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
_________________
AVAILABLE INFORMATION
The Trust will be subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith will file reports and other information with the Securities
and Exchange Commission (the "Commission"). Such reports and other information
filed by the Trust can be inspected and copied at the Public Reference Room of
the Commission at 450 Fifth Street, N.W., Washington, D.C., and at the
Commission's regional offices at 75 Park Place, 14th Floor, New York, New York
10007; and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies
of such materials can be obtained at prescribed rates from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549.
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SUMMARY OF TERMS
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus Supplement and in
the Prospectus. Capitalized terms used in this Prospectus Supplement and not
defined shall have the meanings given in the Prospectus.
SECURITIES OFFERED..... Conduit Mortgage Pass-Through Certificates, Series
, % Pass-Through Rate (the "Certificates").
AMOUNT................. $ (Approximate: subject to a permitted
variance of up to 5%).
DEPOSITOR.............. Asset Backed Securities Corporation
(the "Depositor").
MASTER SERVICER........
DENOMINATIONS.......... The minimum denomination of a Certificate (a "Single
Certificate") will initially represent
approximately $ aggregate principal amount
of the Mortgage Loans.
CUT-OFF DATE........... , 19 .
DELIVERY DATE.......... On or about , 19 .
INTEREST............... Passed through monthly at the rate of % per annum
(the "Pass-Through Rate"), on the day of each
month (each, a "Distribution Date") commencing
, 19 .
PRINCIPAL (INCLUDING
PREPAYMENTS) Passed through monthly on the Distribution Date,
commencing , 19 .
MORTGAGE POOL.......... The Mortgage Pool will consist of [fixed rate],
fully amortizing, [level-payment] mortgage loans
[and mortgage participation certificates
evidencing participation interests in such
mortgage loans that meet the requirements of the
nationally recognized rating agency or agencies
rating the Certificates (collectively the "Rating
Agency") for a rating in one of the two highest
rating categories of such Rating Agency] secured
by mortgages on one- to four-family residential
properties [located in the states of ,
and (the "Mortgage Loans").] All Mortgage Loans
will have original maturities of at least [15 but
no more than 30] years. See "Description of the
Mortgage Pool and the Underlying Properties"
herein.
[LETTER OF CREDIT...... The maximum liability of [ ] under an irrevocable
standby letter of credit for the Mortgage Pool
(the "Letter of Credit"), net of unreimbursed
payments thereunder, will be no more than [10%] of
the initial aggregate principal balance of the
Mortgage Pool (the "Letter of Credit Percentage").
The maximum amount available to be paid under the
Letter of Credit will be determined in accordance
with the Pooling and Servicing Agreement referred
to herein. The duration of coverage and the amount
of frequency of any reduction in coverage will be
in compliance with the requirements established by
the Rating Agency, in order to obtain a rating in
one of the two highest rating categories of such
Rating Agency. The amount available
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<PAGE>
under the Letter of Credit shall be reduced by the
amount of unreimbursed payments thereunder. See
"Description of the Certificates-Credit Support-
The Letter of Credit" in the Prospectus.]
[POOL INSURANCE POLICY Subject to the limitations described herein, a pool
insurance policy for certain of the Mortgage Loans
(the "Pool Insurance Policy") will cover losses
due to default on such Mortgage Loans in an
initial amount of not less than [5%] of the
aggregate principal balance as of the Cut-off Date
of all Mortgage Loans that are not covered as to
their entire outstanding principal balance by
primary policies of mortgage guaranty insurance.
The Pool Insurance Policy will be subject to the
limitations described under "Description of
Insurance-the Pool Insurance Policy" in the
Prospectus.]
HAZARD INSURANCE [AND
SPECIAL HAZARD
INSURANCE POLICY]..... All of the Mortgage Loans will be covered by
standard hazard insurance policies insuring
against losses due to various causes, including
fire, lightning and windstorm. [An insurance
policy (the "Special Hazard Insurance Policy")
will cover losses with respect to the Mortgage
Loans that result from certain other physical
risks that are not otherwise insured against
(including earthquakes and mudflows). The Special
Hazard Insurance Policy will be limited in scope
and will cover losses in an initial amount equal
to the greater of % of the aggregate principal
balance of the Mortgage Loans or times the unpaid
principal balance of the largest Mortgage Loan.]
Any hazard losses not covered by [either] standard
hazard insurance policies [or the Special Hazard
Insurance Policy] will not be insured against and
[, to the extent that the amount available under
any alternative method of credit support is
exhausted,] will be borne by holders of the
Certificates (the "Certificateholders"). The
hazard insurance policies [and the Special Hazard
Insurance Policy] will be subject to the
limitations described under "Description of
Insurance-Hazard Insurance" [and "-Special Hazard
Insurance Policies"] in the Prospectus.
[MORTGAGOR BANKRUPTCY
BOND.................. The Depositor will obtain a bond or similar form of
insurance coverage (the "Mortgagor Bankruptcy
Bond"), providing coverage against losses that
result from proceedings with respect to obligors
under the Mortgage Loans (the "Mortgagors") under
the federal Bankruptcy Code. See "Description of
the Certificates-Mortgagor Bankruptcy Bond" herein
and "Description of Insurance-The Mortgagor
Bankruptcy Bond" in the Prospectus.]
[OPTIONAL TERMINATION. The Depositor may, at its option, Repurchase from
the Trust all Mortgage Loans remaining outstanding
at such time as the aggregate unpaid principal
balance of such Mortgage Loans is less than [10%]
of the aggregate principal balance of the Mortgage
Loans on the Cut-off Date. The repurchase price
will equal the aggregate unpaid principal balance
of such Mortgage Loans together with accrued
interest thereon at the Pass-Through Rate through
the last day of the month during which such
repurchase occurs, plus the appraised value of any
property acquired in respect thereof. [Any such
repurchase will be effected in compliance with the
requirements of Section 860F(a)(iv) of the
Internal Revenue Code of 1986 (the "Code") so as
to constitute a "qualifying liquidation"
thereunder.]. See "Termination;
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<PAGE>
Repurchase of Mortgage Loans", herein and
"Description of the Certificates-Termination;
Repurchase of Certificates in the Prospectus."]
ADVANCES.............. The Servicers of the Mortgage Loans (and the Master
Servicer, with respect to each Mortgage Loan that
it services directly and otherwise, to the extent
the related Servicer does not do so) will be
obligated to advance delinquent installments of
principal and interest on the Mortgage Loans under
certain circumstances. See "Description of the
Certificates-Advances" in the Prospectus.
TRUSTEE............... See "Description of the Certificates-Trustee"
herein.
CERTIFICATE RATING.... It is a condition of issuance that the Certificates
be rated in one of the two highest rating
categories of [ ], (the ["]Rating Agency[")].
ERISA CONSIDERATIONS.. See "ERISA Considerations" in the Prospectus [and
herein].
LEGAL INVESTMENT...... The Certificates constitute "mortgage related
securities" for purposes of the Secondary Mortgage
Market Enhancement Act of 1984 (the "Enhancement
Act"), and, as such, are legal investments for
certain entities to the extent provided in the
Enhancement Act. See "Legal Investment" in the
Prospectus.
TAX ASPECTS........... The Depositor [intends] [does not intend] to make an
election to treat the Trust as a Real Estate
Mortgage Investment Conduit (a "REMIC"), pursuant
to the Internal Revenue Code of 1986, as amended.
See "Certain Federal Income Tax Consequences" in
the Prospectus.
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<PAGE>
DESCRIPTION OF THE MORTGAGE POOL
AND THE UNDERLYING PROPERTIES
The Mortgage Pool will consist of Mortgage Loans evidenced by mortgage
notes with aggregate unpaid principal balances outstanding as of the Cut-off
Date, after deducting payments of principal due on such date, of approximately
$ . This amount is subject to a permitted variance of up to %.
The Mortgage Pool will consist of -year, [fixed-rate], fully-
amortizing, [level-payment] Mortgage Loans, as more fully described in the
Prospectus.
The weighted average interest rate (individually, a "Mortgage Rate")
of the Mortgage Loans as of the Cut-off Date will be at least % but
no more than %. All Mortgage Loans will have Mortgage Rates of at
least % but no more than %. The weighted average maturity of the
Mortgage Loans, as of the Cut-off Date, will be at least years but
no more than years. All Mortgage Loans will have original
maturities of at least but no more than years. None of the Mortgage
Loans will have been originated prior to or after , 19 . None of the
Mortgage Loans will have a scheduled maturity later than .
The Mortgage Loans will have the following characteristics as of the
Cut-off Date (expressed as a percentage of the outstanding aggregate principal
balances of the Mortgage Loans having such characteristics relative to the
outstanding aggregate principal balances of all Mortgage Loans):
No more than % of the Mortgage Loans will have been originated
before , and no more than % of the Mortgage Loans
will have been originated before . See "Certain
Federal Income Tax Consequences-Mortgage Pools," "-Taxation of Owners of Trust
Fractional Certificates" and "-Market Discount and Premium" in the Prospectus
for information regarding such Mortgage Loans.
At least % of the Mortgage Loans will be Mortgage Loans each
having outstanding principal balances of less than $ .
No more than % of the Mortgage Loans will be Mortgage Loans each
having outstanding principal balances of more than $ .
No more than % of the Mortgage Loans will have had loan-to-value
ratios at origination in excess of 80%, and no Mortgage Loan will have had a
loan-to-value ratio at origination in excess of 95%.
[All the Mortgage Loans with loan-to-value ratios at origination in
excess of 80% will be covered by a policy of private mortgage insurance until
the outstanding principal balance is reduced to 75% of the Original Value. ]
At least % of the Mortgage Loans will be secured by Mortgages on
single-family dwellings.
No more than % of the Mortgage Loans will be secured by Mortgages
on condominiums.
No more than %, by aggregate principal balance, of the Mortgage
Loans will be Mortgage Loans for which Buy-Down Funds have been provided, and
no more than % of the outstanding principal balance of any such Mortgage Loan
will be represented by Buy-Down Funds.
No more than %, by aggregate principal balance, of the Mortgage
Loans will be GPM Loans.
At least % of the Mortgage Loans will be secured by an owner-
occupied Mortgaged Property. Such determination will have been made on the
basis of a representation by the Mortgagor at the time of origination of the
Mortgage Loan that such Mortgagor then intended to occupy the underlying
property or, in the absence of such a representation, various factors
indicating that the underlying property is owner-occupied.
No more than [5%] of the Mortgage Loans will be secured by Mortgages
on properties located in any one zip code.
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<PAGE>
The Mortgage Loans will be secured by Mortgages on properties located
in the states of .
Specific information with respect to the Mortgage Loans will be
available to purchasers of the Certificates offered hereby at or before the
time of issuance of such Certificates. Such specific information will include
the precise amount of the aggregate principal balances of the Mortgage Loans
outstanding as of the Cut-off Date, and will also set forth tables reflecting
the following information regarding the Mortgage Loans: years of origination,
types of dwellings on the underlying properties, the sizes of Mortgage Loans
and distribution of Mortgage Loans by Mortgage Rate, and will be set forth in a
Current Report on Form 8-K that will be filed with the Securities and Exchange
Commission by the Depositor within 15 days after the issuance of the
Certificates.
DESCRIPTION OF THE CERTIFICATES
The Certificates will be issued pursuant to the Standard Terms and
Provisions of Pooling and Servicing (the "Standard Terms"), as amended and
supplemented by a Reference Agreement to be dated as of the Cut-off Date (the
"Reference Agreement" and, together with the Standard Terms, the "Pooling and
Servicing Agreement") among the Depositor, , as master
servicer (the "Master Servicer"), and , as trustee (the
"Trustee"), a form of which has been filed as an exhibit to the Registration
Statement of which this Prospectus Supplement forms a part. Reference is made
to the accompanying Prospectus for important additional information regarding
the terms and conditions of the Pooling and Servicing Agreement and the
Certificates. Each of the Certificates at the time of issuance will qualify as a
"mortgage related security" within the meaning of the Secondary Mortgage Market
Enhancement Act of 1984.
Distributions of principal and interest as set forth above will be
made by the Master Servicer by check mailed to each Certificateholder entitled
thereto at the address appearing in the Certificate Register to be maintained
with the Trustee or, if eligible for wire transfer as provided in the Pooling
and Servicing Agreement, by wire transfer to the account of such
Certificateholder; provided, however, that the final distribution in retirement
of the Certificates will be made only upon presentation and surrender of the
Certificates at the office specified in the notice to Certificateholders of
such final distribution.
The Certificates will be transferable and exchangeable on a
Certificate Register to be maintained by the Trustee at the office or agency of
the Master Servicer maintained for that purpose in New York, New York.
Certificates surrendered to the Trustee for registration of transfer or
exchange must be accompanied by a written instrument of transfer in form
satisfactory to the Trustee. No service charge will be made for any
registration of transfer or exchange of Certificates, but payment of a sum
sufficient to cover any tax or other governmental charge may be required. Such
office or agency is currently located at .
TRUSTEE
The Trustee for the Certificates will be , a bank organized
and existing under the laws of with its principal office located at
.
THE MASTER SERVICER
The Master Servicer is a corporation that
commenced operation in . The Master Servicer is a FNMA/FHLMC
approved seller-servicer based in . As of , the Master Servicer
serviced, for other investors and for its own account, approximately
mortgage loans
with an aggregate principal balance in excess of $ . The Master Servicer
conducts operations through FHA approved branch offices in .
The Master Servicer originated approximately $ in mortgage loans in
19 . The Master Servicer's consolidated stockholders' equity as of was
approximately $ .
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<PAGE>
The information set forth above has been provided by the Master
Servicer. The Depositor makes no representation as to the accuracy or
completeness of such information.
The Master Servicer shall obtain and maintain in effect a bond,
corporate guaranty or similar form of insurance coverage (the "Performance
Bond"), insuring against loss occasioned by the errors and omissions of the
Master Servicer's officers, employees and any other person acting on behalf of
the Master Servicer in its capacity as Master Servicer and guaranteeing the
performance, among other things, of the obligations of the Master Servicer to
purchase certain Mortgage Loans and to make advances, as described in the
Prospectus under "Description of the Certificates-Assignment of Mortgage Loans"
and "-Advances," in an amount acceptable to the nationally recognized
statistical rating organization or organizations rating the Certificates
(collectively, the "Rating Agency").
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The servicing compensation payable to the Master Servicer will be
equal to an amount, payable out of each interest payment on a Mortgage Loan,
equal to the excess of each interest payment on a Mortgage Loan over the Pass-
Through Rate, less [(a)] any servicing compensation payable to the Servicer of
such Mortgage Loan under the terms of the agreement with the Master Servicer
pursuant to which such Mortgage Loan is serviced (the "Servicing Agreement")
(including such compensation paid to the Master Servicer as the direct servicer
of a Mortgage Loan for which there is no Servicer) [.] [, and (b) the amount
payable to the Depositor, as described below.] [Pursuant to the Pooling and
Servicing Agreement, on each Distribution Date, the Master Servicer will remit
to [the Depositor] in respect of each interest payment on a Mortgage Loan an
amount equal to % of the outstanding principal balance of such Mortgage Loan
before giving effect to any payments due on the preceding Due Date.] The Master
Servicer will be permitted to withdraw from the Certificate Account, in respect
of each interest payment on a Mortgage Loan, an amount equal to % of the
outstanding principal balance of such Mortgage Loan, before giving effect to
any payments due on the preceding Due Date. See "Description of the
Certificates-Servicing and Other Compensation and Payment of Expenses" in the
Prospectus for information regarding other possible compensation to the Master
Servicer and the Servicers. The Servicers and the Master Servicer will pay all
expenses incurred in connection with their responsibilities under the Servicing
Agreements and the Pooling and Servicing Agreement (subject to limited
reimbursement as described in the Prospectus), including, without limitation,
the various items of expense enumerated in the Prospectus.
Investors are advised to consult with their own tax advisors regarding
the likelihood that a portion of such servicing compensation might be
characterized as an ownership interest in the interest payments on the Mortgage
Loans ("Retained Yield") for federal income tax purposes, by reason of the
extent to which either the weighted average Mortgage Rate, or the stated
interest rates on the Mortgage Loans exceeds the Pass-Through Rate, and the tax
consequences to them of such a characterization. In this regard, there are no
authoritative guidelines for federal income tax purposes as to either the
maximum amount of servicing compensation that may be considered reasonable in
the context of this or similar transactions or whether the reasonableness of
servicing compensation should be determined on a weighted average or loan-by-
loan basis. [The Depositor intends to treat % of such servicing compensation
and % of the amount payable to it described above as Retained Yield for
federal income tax purposes in reports to the Certificateholders and to the
Internal Revenue Service.] See "Certain Federal Income Tax Consequences-
Mortgage Pools" and "-Taxation of Owners of Trust Fractional Certificates" in
the Prospectus for information regarding the characterization of servicing
compensation [and the amounts payable to the Depositor].
[TERMINATION; REPURCHASE OF MORTGAGE LOANS
The Pooling and Servicing Agreement provides that the Depositor may
purchase from the Trust all Mortgage Loans remaining in the Mortgage Pool and
thereby effect early retirement of the Certificates, provided that the
aggregate unpaid balances of the Mortgage Loans at the time of such repurchase
is less than [10%] of the aggregate principal balance of the Mortgage Loans on
the Cut-off Date. The purchase price for any such optional repurchases shall be
equal to the outstanding principal balance of such Mortgage Loans, together
with accrued interest at the Pass-Through Rate to the first day of the month
following such repurchase plus the appraised value of any acquired property
with respect to the Mortgage
S-8
<PAGE>
Loans. [Any such repurchase will be effected in compliance with the
requirements of Section 860F(a)(iv) of the Code in order to constitute a
"qualifying liquidation" thereunder.] In no event will the Trust continue
beyond the expiration of 21 years from the death of the last survivor of the
persons named in the Pooling and Servicing Agreement.]
[LETTER OF CREDIT
The maximum liability of [ ] under the Letter of Credit, net of
unreimbursed payments thereunder, for the Certificates will be no more than
[10%] of the aggregate principal balance of the Mortgage Loans on the Cut-off
Date. The duration of coverage and the amount and frequency of any reduction in
coverage will be in compliance with the requirements established by the Rating
Agency rating the Certificates, in order to obtain a rating in one of the two
highest rating categories of the Rating Agency. The precise amount of coverage
under the Letter of Credit and the duration and frequency of reduction of such
coverage will be set forth in the Current Report on Form 8-K referred to above.
See "Description of the Certificates-Credit Support-The Letter of Credit" in
the Prospectus.]
[THE POOL INSURANCE POLICY
Subject to the limitations described under "Description of Insurance-
Pool Insurance Policy" in the Prospectus, the Pool Insurance Policy will cover
losses by reason of default on the Mortgage Loans that are not covered as to
their entire outstanding principal balances by primary mortgage insurance, in
an amount equal to % of the aggregate principal balance of such Mortgage
Loans on the Cut-off Date.
The Pool Insurance Policy will be issued by , a corporation
(the "Pool Insurer"), which is engaged principally in the business of insuring
mortgage loans on residential properties against default in payment by the
Mortgagor. At , 19 , the Pool Insurer had insurance in force in the form
of primary policies covering approximately $ billion of residential mortgages.
At such date, the Pool Insurer had total assets of approximately $ million,
capital and surplus aggregating $ million and statutory contingency reserves
of $ million, resulting in total policyholders' reserves of $ million.
The information set forth above has been provided by the Pool Insurer.
The Depositor makes no representation as to the accuracy or completeness of such
information.]
[THE SPECIAL HAZARD INSURANCE POLICY
The Special Hazard Insurance Policy will cover certain risks not
otherwise insured against under hazard insurance policies, subject to the
limitations described in the Prospectus, and will be issued by , a
corporation (the "Special Hazard Insurer"). Claims under such policy will be
limited to % of the aggregate principal balance of the Mortgage Loans or
times the principal balance of the Mortgage Loan with the highest outstanding
principal balance at the Cut-off Date, whichever is greater. At , 198 , the
Special Hazard Insurer had total assets of approximately $ million and total
policyholders' surplus of $ million. The claims-paying ability of the Special
Hazard Insurer is presently rated by the Rating Agency. In accordance with
standard rating agency practice, the Rating Agency may, at any time, revise or
withdraw such rating.
The information set forth above has been provided by the Special
Hazard Insurer. The Depositor makes no representation as to the accuracy or
completeness of such information.]
[MORTGAGOR BANKRUPTCY BOND
The Depositor will obtain a bond or similar form of insurance coverage
(the "Mortgage Bankruptcy Bond") for proceedings with respect to Mortgagors
under the federal Bankruptcy Code. The Mortgagor Bankruptcy Bond will cover
certain losses resulting from a reduction by a bankruptcy court of scheduled
payments of principal and interest on a
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<PAGE>
Mortgage Loan or a reduction by such court of the principal amount of a
Mortgage Loan and will cover certain unpaid interest on the amount of such a
principal reduction from the date of the filing of a bankruptcy petition.
The initial amount of coverage provided by the Mortgagor Bankruptcy
Bond will be $ plus the greater of (i) % of the aggregate principal
balances of the Mortgage Loans secured by second residences and investor-owned
residences or (ii) times the largest principal balance of any such Mortgage
Loan. The coverage provided by the Mortgagor Bankruptcy Bond will be reduced by
payments thereunder.
The Mortgagor Bankruptcy Bond will be issued by
, a corporation. At , 19 ,
had admitted assets of approximately $ and total policyholders' surplus of
approximately $ .
The information set forth above concerning has been
provided by it. The Depositor makes no representation as to the
accuracy or completeness of such information.]
CERTIFICATE RATING
It is a condition to the issuance of the Certificates that they be
rated in one of the two highest categories of the Rating Agency prior to
issuance.
A security rating is not a recommendation to buy, sell or hold
securities and may be subject to revision or withdrawal at any time by the
assigning rating agency.
[ERISA CONSIDERATIONS]
[Describe whether any exemption from "plan asset" treatment is
available with respect to the Series.]
[State whether the Series is an Exempt or a Nonexempt Series (see
"ERISA Considerations-Prohibited Transaction Class Exemption" in the
Prospectus).]
UNDERWRITING
The Depositor has entered into an Underwriting Agreement with [several
Underwriters, for whom] CS First Boston Corporation, an affiliate of the
Depositor[, is acting as Representative]. The Underwriter[s] [named below]
[has] [have severally] agreed to purchase from the Depositor [all] [the
following respective principal amounts] of the Certificates:
[UNDERWRITER
CS First Boston Corporation ....... $
-----------------
Total ............................. $
=================
After the initial public offering, the public offering prices and the
concessions and discounts to dealers may be changed by [the Underwriter] [the
Representative].
The Depositor has agreed to indemnify the Underwriter[s] against certain
liabilities, including liabilities under the Securities Act of 1933.
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<PAGE>
LEGAL MATTERS
Certain legal matters in connection with the Certificates offered
hereby will be passed upon for the Depositor and for the Underwriter[s] by
Sidley & Austin, New York, New York.
USE OF PROCEEDS
The Depositor will apply all of the net proceeds of the offering of
the Certificates towards the simultaneous purchase of the Mortgage Loans
underlying the Certificates. Certain of the Mortgage Loans will be acquired in
privately negotiated transactions by the Depositor from one or more affiliates
of the Depositor, which will have acquired such Mortgage Loans from time to
time in privately negotiated transactions.
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<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any state in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
SUBJECT TO COMPLETION, DATED , 1995
P R O S P E C T U S S U P P L E M E N T
(To Prospectus dated , 19 )
$ (Approximate)
Asset Backed Securities Corporation
Depositor
Conduit Mortgage Pass-Through Certificates, Class A, Series
Principal and interest payable on the th day
of each month, beginning , 19
Class A-1 % of principal payments on the Mortgage Loans; % of interest
payments at an % pass-through rate on the Mortgage Loans (the "Pass-Through
Rate") (Interest at an % annual rate on unpaid Class A-1 principal amount)
Class A-2 No principal payments on the Mortgage Loans; % of interest
payments at an % Pass-Through Rate on the Mortgage Loans (Interest at an %
annual rate on the Class A-2 notional amount)
The Conduit Mortgage Pass-Through Certificates (the "Certificates") will be
composed of two classes (each, a "Class"), entitled Conduit Mortgage Pass-
Through Certificates, Class A (the "Class A Certificates"), and Conduit Mortgage
Pass-Through Certificates, Class B (the "Class B Certificates"). The Class A
Certificates offered hereby will be divided into two subclasses (each, a
"Subclass") entitled Class A-1 (the "Class A-1 Certificates") and Class A-2 (the
"Class A-2 Certificates") and will evidence undivided percentage ownership
interests in a trust (the "Trust") composed of [conventional] [fixed-rate] [one-
to four-family residential mortgage loans,] [mortgage loans secured by
multifamily residential rental properties consisting of five or more dwelling
units or apartment buildings owned by cooperative housing corporations,] [loans
made to finance the purchase of certain rights relating to cooperatively owned
properties secured by a pledge of shares of a cooperative corporation and an
assignment of a proprietary lease or occupancy agreement on a cooperative
dwelling ("Cooperative Loans"),] [and mortgage participation certificates
evidencing participation interests in such loans and meeting the requirements of
the nationally recognized rating agency or agencies rating the certificates
(collectively, the "Rating Agency") for a rating in one of the two highest
rating categories of such Rating Agency] (the "Mortgage Loans") and certain
related property to be conveyed to the Trust by the Depositor (the "Trust
Fund"). The Mortgage Loans will be transferred to the Trust, pursuant to a
Pooling and Servicing Agreement (as defined herein) dated as of , 199 , by
Asset Backed Securities Corporation ( the "Depositor") in exchange for the
Certificates and are more fully described in this Prospectus Supplement and in
the accompanying Prospectus.
The Class A-1 Certificates evidence ownership of % of each principal
payment on the Mortgage Loans and % of each interest payment on the Mortgage
Loans (representing interest at a rate of % per annum on the unpaid principal
amount of the Class A-1 Certificates). The Class A-2 Certificates evidence
ownership of % of each interest payment at the Pass-Through Rate on the
Mortgage Loans (representing interest at a rate of % per annum on the
notional amount of the Class A-2 Certificates). The rights of the Class B
Certificateholders to receive distributions with respect to the Mortgage Loans
will be subordinated to the rights of the Class A Certificateholders to the
extent described herein and in the Prospectus.
[The Depositor intends to offer the Class B Certificates to sophisticated
institutional investors from time to time in transactions not requiring
registration under the Securities Act of 1933.]
The Certificates do not represent an obligation of or interest in Asset
Backed Securities Corporation or any affiliate thereof. Neither the
Certificates nor the underlying mortgage loans are insured or guaranteed by any
governmental agency or instrumentality.
The Mortgage Loans may be prepaid at any time without penalty. [A lower
rate of principal prepayments than anticipated would negatively affect the total
return to investors in Class A-1 Certificates, which are being offered at a
discount to their principal amount.] Yields on the Class A-2 Certificates will
be extremely sensitive to the prepayment experience on the Mortgage Loans, and
prospective investors in such Certificates should fully consider the associated
risks, including the risk that such investors, in circumstances of higher than
anticipated prepayment, could fail to fully recoup their initial investment. See
"The Mortgage Pool," "Yield Considerations" and "Maturity and Prepayment
Considerations" in this Prospectus Supplement.
The Underwriter[s] [do[es] not] intend[s] to make a secondary market for
the Class A Certificates [but [is] [are] under no obligation to do so]. There
can be no assurance that a secondary market will develop or, if it does develop,
that it will continue.
[The Depositor has elected to treat the Trust Fund as a Real Estate
Mortgage Investment Conduit (a "REMIC"). See "Certain Federal Income Tax
Consequences" in the Prospectus.]
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS TO WHICH IT
RELATES. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Price to Public (1) Underwriting Discount Proceeds to the Depositor (1)(2)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Class A-1 Certificate % % %
- ----------------------------------------------------------------------------------------------------------------------------------
Per Class A-2 Certificate % % %
- ----------------------------------------------------------------------------------------------------------------------------------
Total $ $ $
- ----------------------------------------------------------------------------------------------------------------------------------
(1) Plus accrued interest, if any, at the applicable rate from , 19 .
(2) Before deducting expenses payable by the Depositor estimated at $
</TABLE>
The Class A Certificates are offered by the [several] Underwriter[s] when, as
and if issued and accepted by the Underwriter[s] and subject to [its] [their]
right to reject orders in whole or in part. It is expected that the Class A
Certificates, in definitive fully registered form, will be ready for delivery on
or about , 19 .
CS First Boston
The date of this Prospectus Supplement is , 19 .
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these
securities in any state in which such offer, solicitation or sale
would be unlawful prior to registration or qualification under the securities
laws of any such state.
<PAGE>
THIS PROSPECTUS SUPPLEMENT DOES NOT CONTAIN COMPLETE INFORMATION
ABOUT THE OFFERING OF THE CERTIFICATES OFFERED HEREBY. ADDITIONAL
INFORMATION IS CONTAINED IN THE PROSPECTUS, AND PURCHASERS ARE URGED TO
READ BOTH THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS IN FULL. SALES OF
THE CERTIFICATES OFFERED HEREBY MAY NOT BE CONSUMMATED UNLESS THE
PURCHASER HAS RECEIVED BOTH THIS PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT
OR EFFECT TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICES OF
THE CERTIFICATES OFFERED HEREBY AT LEVELS ABOVE THOSE THAT MIGHT
OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY
BE DISCONTINUED AT ANY TIME.
UNTIL , 19 , ALL DEALERS AFFECTING TRANSACTIONS IN THE
CERTIFICATES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE
REQUIRED TO DELIVER A PROSPECTUS SUPPLEMENT AND A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS SUPPLEMENT
AND PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
ADDITIONAL INFORMATION
The Trust will be subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith will file reports and other information with the
Securities and Exchange Commission (the "Commission"). Such reports and
other information filed by the Trust can be inspected and copied at the
Public Reference Room of the Commission at 450 Fifth Street, N.W.,
Washington, D.C., and at the Commission's regional offices at 75 Park
Place, 14th Floor, New York, New York 10007; and 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of such materials can be
obtained at prescribed rates from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549.
S-2
<PAGE>
SUMMARY OF TERMS
The following is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus Supplement and in the
Prospectus. Capitalized terms used in this Prospectus Supplement and not
otherwise defined shall have the meanings given in the Prospectus.
SECURITIES OFFERED................... Conduit Mortgage Pass-Through
Certificates, Class A, Series (the
"Class A Certificates").
$ Original Principal
Amount Class A-1 Certificates
(approximate).
No Original Principal Amount Class
A-2 Certificates.
The Class A-1 Certificates represent
undivided percentage interests in
approximately % of each
principal payment on the Mortgage
Loans (the "Principal Distribution")
and undivided percentage interests in
approximately % of each
interest payment at the Pass-Through
Rate on the Mortgage Loans (the
"Interest Distribution") (representing
interest at a rate of % per annum on
the unpaid principal amount of the Class
A-1 Certificates). The individual
percentage interest (the "Percentage
Interest") of any Class A-1 Certificate
will be equal to the percentage obtained
by dividing the original principal
amount of such Class A-1 Certificate by
the aggregate original principal amount
of all Class A-1 Certificates.
The Class A-2 Certificates represent
Percentage Interests in approximately
% of the Interest Distribution
(representing interest at a rate of
% per annum on the unpaid notional
amount of the Class A-2
Certificates). The Class A
Certificates will not receive
distributions of principal with
respect to the Mortgage Loans. The
Percentage Interest of any Class A-2
Certificate will be equal to the
percentage obtained by dividing the
original notional amount of such
Class A-2 Certificate by the
aggregate original notional amount of
the Class A-2 Certificates. The
notional amount of the Class A-2
Certificates is equal to the
aggregate unpaid principal amount of
the Class A Certificates, and is used
solely for purposes of determining
interest payments and certain other
rights of holders of the Class A-2
Certificates and does not represent
any interest in such principal
payments.
The Class A Certificates represent in
the aggregate an approximate
% undivided interest in the Trust
Fund. The remaining approximate
% undivided interest in the Trust
Fund is evidenced by the Class B
Certificates, which are subordinated
in certain respects to the Class A
Certificates, as more fully described
herein and in the Prospectus. [The
Class B Certificates are not being
offered hereby, and may be retained
by the Depositor or sold by the
Depositor at any time to one or more
sophisticated institutional investors
in privately negotiated transactions
not requiring registration under the
Securities Act of 1933.]
S-3
<PAGE>
DEPOSITOR............................ Asset Backed Securities Corporation
(the "Depositor").
MASTER SERVICER......................
CUT-OFF DATE......................... , 19 .
DELIVERY DATE........................ On or about , 19 .
DENOMINATIONS........................ The minimum denomination of a Class
A-1 Certificate will represent
approximately $ aggregate
principal balance of the Mortgage
Loans on the Cut-off Date. The
minimum denomination of a Class A-2
Certificate will represent
approximately $
notional amount.
INTEREST............................. Passed through monthly, on the
day of each month (each, a
"Distribution Date") commencing ,
19 . The Pass-Through Rate on the
Mortgage Loans is % per annum.
See "Description of the Certificates"
in the Prospectus.
PRINCIPAL (INCLUDING
PREPAYMENTS)........................ Passed through monthly on the
Distribution Date, commencing on
, 19 . See "Description of the
Certificates" in the Prospectus.
MORTGAGE POOL........................ The Mortgage Pool will consist of
[fixed rate,] [fully-amortizing,]
[level-payment] mortgage loans
secured by Mortgages on [one- to
four-family residential properties,
loans (the "Cooperative Loans") made
to finance the purchase of certain
rights relating to cooperatively
owned properties secured by a pledge
of shares of a cooperative
corporation (the "Cooperative") and
an assignment of a proprietary lease
or occupancy agreement on a
cooperative dwelling (a "Cooperative
Dwelling" and, together with one- to
four-family residential properties,
"Single Family Property"), or
mortgage loans secured by multifamily
residential rental properties
consisting of five or more dwelling
units or apartment buildings owned by
cooperative housing corporations
("Multifamily Property")] [located in
the states of and
] [and mortgage participation
certificates evidencing participation
interests in such loans that meet the
requirements of the nationally
recognized rated agency or agencies
rating the certificates
(collectively, the "Rating Agency")
for a rating in one of the two
highest rating categories of such
Rating Agency] (the "Mortgage
Loans"). All Mortgage Loans will have
original maturities of at least but
not more than years. See
"Description of the Mortgage Pool and
the Underlying Properties" herein.*
- -----------------
* If the Series of Certificates offered pursuant to this Version B Prospectus
Supplement evidences interests in manufactured housing conditional sales
contracts and installment loan agreements ("Contracts"), the disclosure to be
set forth will be substantially similar to the disclosure set forth in Version
E under "Summary of Terms-Contract Pool."
S-4
<PAGE>
CLASS B CERTIFICATES................. The rights of the Class B
Certificateholders to receive
distributions with respect to the
Mortgage Loans are subordinated to
the rights of the Class A
Certificateholders to receive such
distributions to the extent of the
Subordinated Amount described below.
This subordination is intended to
enhance the likelihood of regular
receipt by Class A Certificateholders
of the full amount of scheduled
payments of principal and interest
and to decrease the likelihood that
the Class A Certificateholders will
experience losses. The extent of such
subordination (the "Subordinated
Amount") will be determined as
follows: on the Cut-off Date and on
each anniversary of the Cut-off Date
until , the
Subordinated Amount will equal
% of the original aggregate principal
balance of the Mortgage Loans less
the amount of "Aggregate Losses" (as
defined in the Prospectus) since the
Cut-off Date through the last day of
the month preceding such anniversary
date; from the th anniversary
of the Cut-off Date, the Subordinated
Amount will gradually decline in
accordance with a schedule set forth
in the Pooling and Servicing
Agreement.
[RESERVE FUND........................ The protection afforded to the Class
A Certificateholders from the
subordination feature described above
will be effected both by the
preferential right of the Class A
Certificateholders to receive current
distributions with respect to the
Mortgage Loans (to the extent of the
Subordinated Amount) and by the
establishment of a reserve (the
"Reserve Fund"). The Reserve Fund is
not included in the Trust Fund. The
Reserve Fund will be created by the
Depositor and shall be funded by the
retention of all of the scheduled
distributions of principal otherwise
distributable to the Class B
Certificateholders on each
Distribution Date until the Reserve
Fund reaches an amount (the "Required
Reserve") that will equal
[; thereafter, the Reserve Fund must
be maintained at the following
levels: ]. See "Description
of the Certificates--Subordinated
Certificates" and "--Reserve Fund" in
the Prospectus.]
[OPTIONAL TERMINATION................ The Depositor may, at its option,
repurchase from the Trust all
Mortgage Loans remaining outstanding
[at such time as the aggregate unpaid
principal balance of such Mortgage
Loans is less than 10% of the
aggregate principal balance of the
Mortgage Loans on the Cut-off Date].
The repurchase price will equal [the
aggregate unpaid principal balance of
such Mortgage Loans, together with
accrued interest thereon at the
Pass-Through Rate through the last
day of the month during which such
repurchase occurs plus the appraised
value of any property with respect
thereof]. [Any such termination will
be effected in compliance with the
requirements of Section 860F(a)(iv)
of the Internal Revenue Code of 1986,
so as to constitute a "qualifying
liquidation" thereunder.] See
"Description of the
Certificates--Termination; Repurchase
of Certificates" in the Prospectus.]
ADVANCES............................. The Servicers of the Mortgage Loans
(and the Master Servicer, with
respect to each Mortgage Loan that it
services directly and otherwise, to
the extent the related Servicer does
not do so) will be obligated to
advance delinquent installments of
principal and interest on the
Mortgage Loans under certain
circumstances. See "Description of
Certificates-- Advances" in the
Prospectus.
TRUSTEE.............................. (the "Trustee").
See "Description of the Certificates--
Trustee" herein.
S-5
<PAGE>
CERTIFICATE RATING................... It is a condition of issuance of the
Class A Certificates that they be
rated in one of the two highest
rating categories of the Rating
Agency prior to issuance. See
"Rating" herein.
LEGAL INVESTMENT..................... The Class A Certificates constitute
"mortgage related securities" for
purposes of the Secondary Mortgage
Market Enhancement Act of 1984 (the
"Enhancement Act"), and, as such, are
legal investments for certain
entities to the extent provided in
the Enhancement Act. See "Legal
Investment" in the Prospectus.
ERISA CONSIDERATIONS................. See "ERISA Considerations" in the
Prospectus [and herein].
TAX ASPECTS.......................... The Depositor [intends] [does not
intend] to make an election to treat
the Trust as a Real Estate Mortgage
Investment Conduit (a "REMIC")
pursuant to the Internal Revenue Code
of 1986, as amended. See "Certain
Federal Income Tax Consequences" in
the Prospectus.
S-6
<PAGE>
DESCRIPTION OF THE MORTGAGE POOL
AND THE UNDERLYING PROPERTIES*
The Mortgage Pool will consist of Mortgage Loans evidenced by notes with
aggregate unpaid principal balances outstanding as of the Cut-off Date,
after deducting payments of principal due on such date, of approximately $
. The amount is subject to a permitted variance of up to %. The
Mortgage Pool will consist of [ ] -year, [fixed-] rate, fully-
amortizing, [level-payment] Mortgage Loans, as more
fully described in the Prospectus.
The weighted average interest rate of the Mortgage Loans as of the Cut-
off Date will be at least % but no more than %. All
Mortgage Loans will have interest rates of at least % but no
more than %. The weighted average maturity of the Mortgage
Loans, as of the Cut-off Date, will be at least years but no
more than years. All Mortgage Loans will have original
maturities of at least but no more than years.
None of the Mortgage Loans will have been originated prior to
or after 19 . None of the Mortgage Loans will have a
scheduled maturity later than .
The Mortgage Loans will have the following characteristics as of the
Cut-off Date (expressed as a percentage of the outstanding aggregate
principal balances of the Mortgage Loans having such characteristics
relative to the outstanding aggregate principal balances of all Mortgage
Loans):
No more than % of the Mortgage Loans will have been
originated before . See "Certain Federal Income
Tax Consequences--Mortgage Pools." "--Taxation of Owners of Trust
Fractional Certificates" and "--Market Discount and Premium" in the
Prospectus for information regarding such Mortgage Loans.
At least % of the Mortgage Loans will be Mortgage Loans each
having outstanding principal balances of less than $ .
No more than % of the Mortgage Loans will be Mortgage Loans
each having outstanding principal balances of more than $ .
No more than % of the Mortgage Loans will have had loan-to-
value ratios at origination in excess of 80%, and no Mortgage Loan will
have had a loan-to-value ratio at origination in excess of [95%].
All of the Mortgage Loans with loan-to-value ratios at origination in
excess of 80% will be covered by a policy of private mortgage insurance
until the outstanding principal balance is reduced to 75% of the Original
Value.
[ % of the Mortgage Loans will be secured by Mortgages on
single-family dwellings] [ % of the Mortgage Loans will be
secured by Multifamily Properties][ % of the Mortgage Loans
will be secured by a pledge of shares of a Cooperative and an assignment
of a proprietary lease or occupancy agreement on a Cooperative Dwelling.]
No more than % of the Mortgage Loans will be secured by
Mortgages on condominiums.
No more than %, by aggregate principal balance, of the
Mortgage Loans will be Mortgage Loans for which Buy-Down Funds have been
provided and no more than % of the principal balance of any
such Mortgage Loan will be represented by Buy-Down Funds.
No more than %, by aggregate principal balance, of the Mortgage
Loans will be GPM Loans.
- -------------------------
* If the Series of Certificates offered pursuant to this Version B Prospectus
Supplement evidences interests in Contracts, the disclosure to be set forth will
be substantially similar to the disclosure set forth in Version E under
"Description of the Contract Pool."
S-7
<PAGE>
At least % of the Mortgage Loans will be secured by an owner-
occupied Mortgaged Property. Such determination will have been made on the
basis of a representation by the Mortgagor at the time of origination of
the Mortgage Loan that he then intended to occupy the underlying property
or, in the absence of such a representation, various factors indicating
that such underlying property is owner-occupied.
No more than [ ]% of the Mortgage Loans will be secured by
Mortgages on properties located in any one zip code.
The Mortgage Loans will be secured by Mortgages on properties located in
the states of .
Specific information with respect to the Mortgage Loans will be
available to purchasers of the Certificates offered hereby at or before
the time of issuance of such Certificates. Such specific information will
include the precise amount of the aggregate principal balances of the
Mortgage Loans outstanding as of the Cut-off Date, and will also set forth
tables reflecting the following information regarding the Mortgage Loans:
years of origination, types of dwellings on the underlying properties, the
sizes of Mortgage Loans and distribution of Mortgage Loans by Mortgage
Rate, and will be set forth in a Current Report on Form 8-K that will be
filed with the Securities and Exchange Commission by the Depositor within
15 days after the issuance of the Certificates.
YIELD CONSIDERATIONS
PREPAYMENT EXPERIENCE ON THE MORTGAGE LOANS
The rate of principal payments on the Class A-1 Certificates and Class
A-2 Certificates, the aggregate amount of each interest payment on the
Class A-1 Certificates and Class A-2 Certificates and the yield to
maturity of the Class A-1 and Class A-2 Certificates will correspond
directly to the rate of payments of principal on the Mortgage Loans
(including, for this purpose, scheduled amortization, payments resulting
from liquidation due to default, casualty, condemnation and the like and
repurchases by the Servicers under the circumstances described herein and
in the Prospectus). The rate of principal payments on pools of mortgages
or loans are influenced by a variety of economic, geographic, social and
other factors. In general, however, if prevailing interest rates fall
significantly below the interest rates on the Mortgage Loans, the Mortgage
Loans are likely to be subject to higher prepayment rates than if
prevailing rates remain at or above the interest rates on the Mortgage
Loans. The rate of payment of principal may also be affected by any
repurchase of the Mortgage Loans by the Servicers. See "Termination;
Repurchase of Mortgage Loans" herein and "Description of the Certificates-
-Assignment of Mortgage Loans" in the Prospectus. In any such event, the
repurchase price would be passed through to Certificateholders as a
prepayment of principal. See "Maturity and Prepayment Considerations" in
the Prospectus.
[[All] [ %] of the Mortgage Loans contain "due-on-sale" provisions.
Consequently, acceleration of mortgage payments as a result of transfers
of the related mortgaged property will affect the level of prepayments on
the Mortgage Loans. In addition, Mortgagors may prepay the Mortgage Loans
at any time without penalty.]
[As the Class A-1 Certificates are being offered at discounts from their
original principal amounts, if the purchaser of a Class A-1 Certificate
calculates is anticipated yield to maturity based on an assumed rate of
payment of principal that is faster than that actually received on the
Mortgage Loans, its actual yield to maturity will be lower than that so
calculated.] Since the Class A-2 Certificates are being offered without
any original principal amount, if the purchaser of a Class A-2 Certificate
calculates its anticipated yield to maturity based on an assumed rate of
payment of principal that is slower than that actually received on the
Mortgage Loans, its actual yield to maturity will be lower than that so
calculated.
The timing of changes in the rate of prepayments of the Mortgage Loans
may significantly affect an investor's actual yield to maturity, even if
the average rate of principal payments is consistent with an investor's
expectation. In general, the earlier a prepayment of principal on the
Mortgage Loans the greater the effect on an investor's yield to maturity.
As a result, the effect on an investor's yield of principal payments
occurring at a rate higher (or lower) than the rate anticipated by the
investor during the period immediately following the issuance of the
Certificates may not be offset by a subsequent like reduction (or
increase) in the rate of principal payments.
S-8
<PAGE>
[BECAUSE THE CLASS A-1 CERTIFICATES ARE BEING OFFERED AT A DISCOUNT FROM
THEIR ORIGINAL PRINCIPAL AMOUNT, THE YIELD TO MATURITY ON SUCH
CERTIFICATES WILL BE SENSITIVE TO THE RATE OF PRINCIPAL PREPAYMENTS ON THE
MORTGAGE LOANS.]
BECAUSE THE CLASS A-2 CERTIFICATES ARE BEING OFFERED WITHOUT ANY
PRINCIPAL AMOUNT, THE YIELD TO MATURITY ON THE CLASS A-2 CERTIFICATES WILL
BE EXTREMELY SENSITIVE TO THE RATE OF PRINCIPAL PREPAYMENTS ON THE
MORTGAGE LOANS AND MAY FLUCTUATE SIGNIFICANTLY FROM TIME TO TIME.
PROSPECTIVE INVESTORS IN THE CLASS A-2 CERTIFICATES SHOULD FULLY CONSIDER
THE ASSOCIATED RISKS, INCLUDING THE RISK THAT IF THE RATE OF PRINCIPAL
PREPAYMENTS ON THE MORTGAGE LOANS IS RAPID SUCH INVESTORS MAY NOT FULLY
RECOUP THEIR INITIAL INVESTMENT.
Prepayments on mortgage loans are commonly measured relative to a
prepayment standard or model. The model used in this Prospectus
Supplement, the Standard Prepayment Assumption ("SPA"), represents an
assumed rate of prepayment each month relative to the then outstanding
principal balance of a pool of new mortgage loans. SPA assumes prepayment
rates of 0.2% per annum of the then outstanding principal balance of such
mortgage loans in the first month of life of the mortgage loans and an
additional 0.2% per annum in each month thereafter until the thirtieth
month. Beginning in the thirtieth month and in each month thereafter
during the life of the mortgage loans, SPA assumes a constant prepayment
rate of 6% per annum. SPA does not purport to be either a historical
description of the prepayment experience of any pool of mortgage loans, or
of the Mortgage Loans in the Mortgage Pool.
The following table illustrates, in general, the effect of prepayment
rates on the timing and amount of distributions on the Class A
Certificates and their resulting weighted average lives. The table does
not purport to represent the anticipated rate of prepayment on the
Mortgage Loans or the resulting anticipated rate of distributions on the
Class A Certificates.
The table sets for the projected annual aggregate distributions that
would be made on the Class A-1 and Class A-2 Certificates, and their
resulting weighted average lives, based on various assumed percentages of
SPA. The column headed "0%" assumes that no Mortgage Loans are prepaid
before maturity. The columns headed " %", " %" and "
%" assume that prepayments are made at the specified percentages of SPA.
It has been assumed in preparing the table that (i) all of the Mortgage
Loans have identical payment provisions, (ii) the original term to
maturity of each Mortgage Loan was [ ] years, (iii) all Mortgage
Loans are prepaid at the indicated percentage of SPA for the life of the
Certificates, (iv) the weighted average remaining term to maturity of the
Mortgage Loan is years, (v) the interest rate on each Mortgage
Loan is 0. % in excess of the Pass-Through Rate, and (vi) the Mortgage
Loans are not repurchased at the option of the Depositor.
S-9
<PAGE>
PROJECTED ANNUAL AGGREGATE DISTRIBUTIONS ON THE CLASS A CERTIFICATES
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
CLASS A-1 CERTIFICATES CLASS A-2 CERTIFICATES
--------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
YEAR ENDING 0% SPA % SPA % SPA % SPA 0% SPA % SPA % SPA % SPA
- ----------- ------ ----- ----- ----- ------ ----- ----- -----
$ $ $ $ $ $ $ $
------ ----- ----- ----- ------ ----- ----- -----
Total distributions.... $ $ $ $ $ $ $ $
Weighted average life
(years)(1)............
</TABLE>
(1) The weighted average life of the Class A-2 Certificates, which is
assumed to be equal to the weighted average life of the Class A-1
Certificates, is determined by (i) multiplying the amount of each assumed
principal distribution by the number of years from the date of issuance of
the Certificates to the related Distribution Date, (ii) summing the
results and (iii) dividing the sum by the total principal distributions on
the Certificates.
The characteristics of the Mortgage Loans will not correspond exactly to
those assumed in preparing the statistics above. The annual cash flows on
the Class A Certificates will therefore differ from those set forth above
even if all the Mortgage Loans prepay monthly at the related assumed
percentage of SPA. In addition, it is not likely that any Mortgage Loan
will prepay at a constant rate until maturity or that all of the Mortgage
Loans will prepay at the same rate and the timing of changes in the rate
of prepayments may significantly affect the total cash flow received by a
holder of a Class A Certificate.
The Depositor makes no representation that the Mortgage Loans will
prepay in the manner or at any of the rates assumed in the table set forth
above. Each prospective investor must make its own decision as to the
appropriate prepayment assumption to be used in deciding whether or not to
purchase the Class A Certificates.
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Certificates will be issued pursuant to the Standard Terms and
Provisions of Pooling and Servicing (the "Standard Terms") as amended and
supplemented by a Reference Agreement to be dated as of the Cut-off Date
(the "Reference Agreement" and, together with the Standard Terms, the
"Pooling and Servicing Agreement") among the Depository, ,
as master servicer (the "Master Servicer"), and , as trustee
(the "Trustee"), a form of which has been filed as an exhibit to the
Registration Statement of which this Prospectus Supplement forms a part.
Reference is made to the accompanying Prospectus for important additional
information regarding the terms and conditions of the Pooling and
Servicing Agreement and the Certificates. The Percentage Interest
evidenced by each Class A-1 Certificate will be determined by dividing the
original principal amount of such Class A-1 Certificate by the aggregate
original principal amount of all Class A-1 Certificates. The Percentage
Interest evidenced by each Class A-2 Certificate will be determined by
dividing the original notional amount of such Class A-2 Certificate by the
aggregate original notional amount of all Class A-2 Certificates. The
Class A Certificates will be issued only in fully registered form in
denominations of $ and integral multiples thereof.
S-10
<PAGE>
The Master Servicer will allocate each month's distributions of
principal and interest on the Mortgage Loans at the Pass-Through Rate as
follows: % of the monthly Principal Distribution and
% of the Interest Distribution will be allocated to the Holders of the
Class A-1 Certificates (such sum being the "Class A-1 Distribution
Amount"); % of the Interest Distribution will be allocated to the
Holders of the Class A-2 Certificates (such amount being the "Class A-2
Distribution Amount"). Holders of Class A-2 Certificates will not receive
distributions of principal with respect to the Mortgage Loans. On each
Distribution Date, the Master Servicer will distribute to each Holder of a
Class A Certificate an amount equal to the Certificateholder's Percentage
Interest evidenced by the Class A Certificate in the Class A-1 or the
Class A-2 Distribution Amount, as the case may be. The remaining
distribution will be made to the Holders of the Class B Certificates, as
more fully set forth below. Such distributions will be made to
Certificateholders of record on the Record Date for such Distribution
Date.
On each Distribution Date, the Master Servicer will distribute to the
Class A Certificateholders, in the manner set forth above, an amount (the
"Required Distribution") equal to the sum of:
(i) the aggregate undivided interest evidenced by all Class A
Certificates (such aggregate undivided interest being the sum of the
aggregate interests evidenced by the Class A Certificates in the Principal
Distribution and the Interest Distribution) (the "Senior Interest") in:
(a) until such time as the Subordinated Amount is reduced to zero, all
scheduled payments of principal and interest (including any advances
thereof), adjusted to the applicable Pass-Through Rate, which payments
became due on the due Date to which such Distribution Date relates (the
"Due Date"), whether or not such payments are actually received; and (b)
after the Subordinated Amount is reduced to zero, all payments of
principal and interest, adjusted to the applicable Pass-Through Rate due
on such Due Date or due, but not previously received, since the time the
Subordinated Amount was reduced to zero, but only to the extent such
payments are actually received or advanced prior to the Determination
Date;
(ii) the Senior Interest in all principal prepayments received during
the month prior to the month of distribution and, interest at the Pass-
Though Rate to the end of the month in which such principal prepayments
occur;
(iii) the Senior Interest in the sum of (a) the outstanding principal
balance of each Mortgage Loan or property acquired in respect thereof that
was repurchased pursuant to the Pooling and Servicing Agreement or
liquidated or foreclosed during the monthly period ending on the day prior
to the Due Date to which such distribution relates, calculated as of the
Date each such Mortgage Loan was repurchased, liquidated or foreclosed,
and (b) accrued but unpaid interest on such principal balance, adjusted to
the Pass-Through Rate, to the first day of the month following the month
of such repurchase, liquidation or foreclosure.
The Required Distribution will be distributed to the Class A
Certificateholders to the extent that there are sufficient eligible funds
available for distribution to such Class A Certificateholders on a
Distribution Date. Funds eligible for such purpose with respect to each
Distribution Date shall be as set forth in the Prospectus under "Payments
on Mortgage Loans."
If the funds in the Certificate Account eligible for distribution to the
Class A Certificateholders (including all funds required to be deposited
therein from the Reserve Fund and any Advances by the Servicers or the
Master Servicer) are not sufficient to make the full distribution of the
Required Distribution on any Distribution Date, the Master Servicer shall
distribute on such Distribution Date to the Class A Certificateholders the
amount of funds eligible for distribution to such Class A
Certificateholders. If, on any Distribution Date, prior to the time the
Subordinated Amount has been reduced to zero, the class A
Certificateholders do not receive the Required Distribution, the Holders
of the Class B Certificates will not receive any distributions on such
Distribution Date. Any amounts in the Certificate Account after the
Required Distribution is made to the Class A Certificateholders will be
paid to the holders of the Class B Certificates. Holders of the Class B
Certificates will not be required to refund any amounts that have
previously been properly distributed to them directly from the Certificate
Account, regardless of whether there are sufficient funds on such
Distribution Date to make a full distribution to the Class A
Certificateholders. The subordination of distributions allocable to
Holders of the Class B Certificates is limited to the Subordinated Amount,
which will decrease over time as more fully set forth in the Pooling and
Servicing Agreement, and such subordination will apply on any Distribution
Date only to then current distributions allocable to the Class B
Certificateholders.
S-11
<PAGE>
Distributions to Holders of Class A and Class B Certificates will be
made on a pro rata basis, in accordance with the aggregate Percentage
Interests of each Class held by each Certificateholder of the related
Class.
Distributions of principal and interest as set forth above will be made
by the Master Servicer by check mailed to each Certificateholder entitled
thereto at the address appearing in the Certificate Register to be
maintained with the Trustee or, if eligible for wire transfer as provided
in the pooling and Servicing Agreement, by wire transfer to the account of
such Certificateholder, provided, however, that the final distribution in
retirement of the Class A Certificates will be made only upon presentation
and surrender of the Class A Certificates at the office or agency
specified in the notice of Certificateholders of such final distribution.
The Class A Certificates will be transferable and exchangeable on a
Certificate Register to be maintained at the office or agency of the
Master Servicer maintained for the purpose in New York, New York. Class A
Certificates surrendered to the Trustee for registration of transfer or
exchange must be accompanied by a written instrument of transfer in form
satisfactory to the Trustee. No service charge will be made for any
registration of transfer or exchange of Class A Certificates, but payment
of a sum sufficient to cover any tax or other governmental charge may be
required. Such office or agency is currently located at
.
TRUSTEE
The Trustee for the Certificates will be , a
bank organized and existing under the laws of with its principal
office located at .
THE MASTER SERVICER
The Master Servicer is a corporation that
commenced operations in . The Master Servicer is a
FNMA/FHLMC approved seller-Servicer based in . As
of , the Master Servicer serviced, for other
investors and for its own account, approximately mortgage loans with an
aggregate principal balance in excess of $ . The
Master Servicer originated approximately $ in
mortgage loans in 19 . The Master Servicer's consolidated stockholder's
equity as of was approximately $
.
The information set forth above has been provided by the Master
Servicer. The Depositor makes no representation as to the accuracy or
completeness of such information.
The Master Servicer will obtain and maintain in effect a bond, corporate
guaranty or similar form of insurance coverage (the "Performance Bond")
insuring against loss occasioned by the errors and omissions of the Master
Servicer's officers, employees and any other person acting on behalf of
the Master Servicer in its capacity as Master Servicer and guaranteeing
the performance, among other things, of the obligations of the Master
Servicer to purchase certain Mortgage Loans and to make advances as
described in the Prospectus under "Description of the Certificates--
Assignment of Mortgage Loans" and "--Advances" in an amount and form
acceptable to the nationally recognized statistical rating organization or
organizations rating the Class A Certificates (collectively, the "Rating
Agency").
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The servicing compensation payable to the Master Servicer will be equal
to an amount, payable out of each interest payment on a Mortgage Loan,
equal to the excess of each interest payment on a Mortgage Loan over the
Pass-Through Rate, less [(a)] any serving compensation payable to the
Servicer of such Mortgage Loan under the terms of the agreement with the
Master Servicer pursuant to which such Mortgage Loan is serviced (the
"Servicing Agreement") (including such compensation paid to the Master
Servicer as the direct servicer of a Mortgage Loan for which there is no
Servicer)[.] [, and (b) the amount payable to the Depositor, as directed
below.] [Pursuant to the Pooling and Servicing Agreement, on each
Distribution Date, the Master Servicer will remit to [the Depositor] in
respect of each interest payment on a Mortgage Loan an amount equal to
% of the outstanding principal balance of such Mortgage Loan, before
giving effect to any payments due on the preceding Due Date.] The Master
Servicer will be permitted to withdraw from the Certificate Account, in
respect of each interest payment on a Mortgage Loan, an amount equal to
% of the outstanding principal balance of such
S-12
<PAGE>
Mortgage Loan, before giving effect to any payments due on the preceding
Due Date. See "Description of the Certificates--Servicing and Other
Compensation and Payment of Expenses" in the Prospectus for information
regarding other possible compensation to the Master Service and the
Servicers. The Servicers and the Master Servicer will pay all expenses
incurred in connection with their responsibilities under the Servicing
Agreements and the Pooling and Servicing Agreement (subject to limited
reimbursement as described in the Prospectus), including, without
limitation, the various items of expense enumerated in the Prospectus.
Investors are advised to consult with their own tax advisors regarding
the likelihood that a portion of such servicing compensation and amounts
payable to Depositor might be characterized as an ownership interest in
the interest payments on the Mortgage Loans ("Retained Yield") for federal
income tax purposes, by reason of the extent to which either the weighted
average Mortgage Rate, or the stated interest rates on the Mortgage Loans
exceeds the Pass-Through Rate, and the tax consequences to them of such a
characterization. In this regard, there are no authoritative guidelines
for federal income tax purposes as to either the maximum amount of
servicing compensation that may be considered reasonable in the context of
this or similar transactions or whether the reasonableness of servicing
compensation should be determined on a weighted averaged or loan-by-loan
basis. [The Depositor intends to treat % of such servicing
compensation and % of the amount payable to it described
above as Retained Yield for federal income tax purposes in reports to the
Certificateholders and to the Internal Revenue Service.] See "Certain
Federal Income Tax Consequences--Mortgage Pools" and "--Taxation of Owners
of Trust Fractional Certificates" in the Prospectus for information
regarding the characterization of servicing compensation [and the amounts
payable to the Depositor].
[TERMINATION; REPURCHASE OF MORTGAGE LOANS
The Pooling and Servicing Agreement provides that the Depositor may
purchase from the Trust all Mortgage Loans remaining in the Mortgage Pool
and thereby effect early retirement of the Certificates, provided that
[the aggregate unpaid balances of the Mortgage Loans at the time of such
repurchase is less than [10]% of the aggregate principal balance of the
Mortgage Loans on the Cut-off Date]. The purchase price for any such
repurchase [will be the outstanding principal balance of such Mortgage
Loans together with accrued and unpaid interest at the Pass-Through Rate
to the last day of the month of such repurchase, plus the appraiser value
of any property acquired in respect thereof.] [Any such repurchase will
be effected in compliance with the requirements of Section 860F(a)(iv) of
the Code in order to constitute a "qualifying liquidation" thereunder.]
In no event will the Trust continue beyond the expiration of 21 years from
the death of the last survivor of the persons named in the Pooling and
Servicing Agreement.]
RATING
It is a condition to the issuance of the Class A certificates that they
be rated " " by the Rating Agency. Such rating addresses
the likelihood that the holders of the Class A Certificates will receive
payments required under the Pooling and Servicing Agreement. In assigning
such a rating, to mortgage pass-through certificates, the Rating Agency
takes into consideration the credit quality of mortgage pool, including
any credit support providers, structural and legal aspects associated with
such certificates, and the extent to which the payment stream on such
mortgage pool is adequate to make required payments on such certificates.
Such rating does not, however, represent an assessment of the likelihood
that principal prepayments will be made by mortgagors or the degree to
which such payments might differ from that originally anticipated. As a
result, holders of the Class A Certificates might suffer a lower than
anticipated yield, and holders of the Class A-2 Certificates might fail,
in circumstances of extreme prepayment, to recoup their original
investment.
A security rating is not a recommendation to buy, sell or hold
securities and may be subject to revision or withdrawal at any time by the
assigning rating agency.
S-13
<PAGE>
[ERISA CONSIDERATIONS]*
[Describe whether any exemption from "plan asset" treatment is available
with respect to the Series.]
[State whether the Series is an Exempt or a Nonexempt Series (see "ERISA
Considerations--Prohibited Transaction Class Exemption" in the
Prospectus).]
To qualify for exemption under PTCE 83-1 (see "ERISA Considerations--
Prohibited Transaction Class Exemption" in the Prospectus), a Class A
Certificate of an Exempt Series must entitle its holder to pass-through
payments of both principal and interest on the Mortgage Loans. Because
holders of Class A-2 Certificates are only entitled to pass-through
payments of interest (but not principal). PTCE 83-1 will not exempt Plans
which acquire the Class A-2 Certificates from the prohibited transaction
rules of ERISA. Any Plan fiduciary who proposes to cause a Plan to
purchase Class A Certificates should consult with its counsel with respect
to the potential consequences under ERISA and the Code of the Plan's
acquisition and ownership of Class A Certificates. However, the other
PTCE's or the Underwriter's PTE may be applicable. See "ERISA
Considerations--Prohibited Transaction Class Exemption" in the Prospectus.
UNDERWRITING
The Depositor has entered into an Underwriting Agreement with [several
Underwriters, for whom] CS First Boston Corporation, an affiliate of the
Depositor [, is acting as Representative.] The [Underwriter[s] named
below] [has] [have severally] agreed to purchase from the Depositor the
[entire] [following respective] principal amount[s] of the Class A
Certificates:
<TABLE>
<CAPTION>
CLASS A-1 CLASS A-2
[UNDERWRITER CERTIFICATES CERTIFICATES TOTAL
------------ ------------ ------------ -----
<S> <C> <C> <C>
CS First Boston Corporation $ $ $
Total........................ $ $ $ ]
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriter[s] [is] [are] subject to certain conditions precedent, and
that the Underwriter[s] will be obligated to purchase the entire principal
amount of the Class A Certificates if any are purchased.
The Depositor has been advised [by the Representative] that the
Underwriter[s] propose[s] to offer the Class A Certificates to the public
initially at the public offering prices set forth on the cover page of
this Prospectus Supplement [, and through the Representative,] to certain
dealers at such prices less the following concessions and that the
Underwriter[s] and such dealers may allow the following discounts on sales
to certain other dealers:
<TABLE>
<CAPTION>
CONCESSION (PERCENT DISCOUNT (PERCENT OF
OF PRINCIPAL AMOUNT) PRINCIPAL AMOUNT)
------------------- ---------------------
<S> <C> <C>
Class A-1...... % %
Class A-2...... % %
</TABLE>
After the initial public offering, the public offering prices and
concessions and discounts to dealers may be changed by the
[Representative] [Underwriter].
The Depositor has agreed to indemnify the Underwriter[s] against certain
liabilities, including liabilities under the Securities Act of 1933.
- -----------------
* If the Series of Certificates offered pursuant to this Version B Prospectus
Supplement evidences interests in Contracts, the disclosure to be set forth
will be substantially similar to the disclosure set forth in Version E under
"ERISA Considerations" or in the Prospectus under "ERISA Considerations."
S-14
<PAGE>
LEGAL MATTERS
Certain legal matters in connection with the Certificates offered hereby
will be passed upon for the Depositor and for the Underwriter[s] by Sidley
& Austin, New York, New York.
USE OF PROCEEDS
The Depositor will apply the net proceeds of the offering of the Class A
Certificates towards the simultaneous purchase of the Mortgage Loans
underlying the Certificates. Certain of the Mortgage Loans will be
acquired in privately negotiated transactions by the Depositor from one or
more affiliates of the Depositor, which will have acquired such Mortgage
Loans from time to time in the open market or in privately negotiated
transactions.
S-15
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities are not to be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus supplement shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of any
State.
SUBJECT TO COMPLETION, DATED , 1995
P R O S P E C T U S S U P P L E M E N T
(To Prospectus dated , 19 )
$ (Approximate)
Asset Backed Securities Corporation
Depositor
Conduit Mortgage Pass-Through Certificates, [Class A], Series
$[Variable Rate] [ %] Class A-1 Certificates $ % Class A-3 Certificates
$[Variable Rate] [ %] Class A-2 Certificates $ % Class A-4 Certificates
The [Class A] Certificates (the "Certificates") offered hereby
evidence ownership interests in a trust to be created by Asset Backed Securities
Corporation (the "Depositor") on or about , 199 (the "Trust"). The Trust
property will consist of a pool of [conventional] [fixed rate] [mortgage loans
and] [mortgage participation certificates, evidencing participation interests in
such mortgage loans and meeting the requirements of the nationally recognized
rating agency or agencies rating the [Class A] Certificates (collectively, the
"Rating Agency") for a rating in one of the two highest rating categories of
such Rating Agency] (the "Mortgage Loans") and certain related property to be
conveyed to the Trust by the Depositor (the "Trust Fund"). The Mortgage Loans
will be transferred to the Trust, pursuant to a Pooling and Servicing Agreement
(as defined herein), dated as of , 199 , by the Depositor in exchange for the
Certificates and are more fully described in the Prospectus Supplement and in
the accompanying Prospectus.
Interest on the Class A-1, Class A-2 and Class A-3 Certificates, at
the rate of interest set forth above for each such Class, will be distributed
[monthly] on each Distribution Date, commencing , 199 . Distributions of
interest on the Class A-4 Certificates will commence after distributions in
reduction of the Stated Principal Balance (as defined herein) of the Class A-3
Certificates have reduced the Stated Principal Balance of such Class to zero.
Prior to that time, interest will accrue on the Class A-4 Certificates and the
amount so accrued will be added to the Stated Principal Balance thereof on each
Distribution Date. Distributions in reduction of Stated Principal Balance of the
Certificates of each Class will be made on a pro rata basis among the
Certificates of such Class, in the order of their respective Final Scheduled
Distribution Dates (as defined herein), so that no distribution in reduction of
the Stated Principal Balance of any Certificate will be made until the Stated
Principal Balance of each Class of Certificates having a prior Final Scheduled
Distribution Date has been reduced to zero.
Scheduled distributions on the Mortgage Loans included in the Mortgage
Pool, together with certain other funds, as set forth more fully herein, will be
sufficient to make timely distributions of interest and distributions in
reduction of Stated Principal Balance on the [Class A] Certificates and to
reduce the Stated Principal Balance thereof to zero not later than the Final
Scheduled Distribution Dates set forth herein. However, the actual final
distribution on the [Class A] Certificates could occur significantly earlier
than the Final Scheduled Distribution Dates set forth herein. The [Class A]
Certificates will be subject to Special Distributions under the circumstances
specified herein. [The Depositor intends to offer the Class B Certificates (as
defined herein) to sophisticated institutional investors in transactions not
requiring registration under the Securities Act of 1933. The rights of the Class
B Certificateholders to receive distributions with respect to the Mortgage Loans
will be subordinated to the rights of the Class A Certificateholders to the
extent described herein and in the Prospectus.]
The Underwriter[s] [do[es] not] intend to make a secondary market for
the [Class A] Certificates [but [is] [are] under no obligation to do so]. There
can be no assurance that a secondary market for the Class A Certificates will
develop or, if it does develop, that it will continue.
[The Depositor has elected to treat the Trust Fund as a Real Estate
Mortgage Investment Conduit (a "REMIC"). See "Certain Federal Income Tax
Consequences" in the Prospectus.]
THE CERTIFICATES DO NOT REPRESENT AN INTEREST IN OR OBLIGATION OF
ASSET BACKED SECURITIES CORPORATION OR ANY AFFILIATE THEREOF, NEITHER THE
CERTIFICATES NOR THE UNDERLYING MORTGAGE LOANS ARE INSURED OR GUARANTEED BY ANY
GOVERNMENTAL AGENCY OR INSTRUMENTALITY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS TO WHICH IT
RELATES. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Interest Rate Final Price to Underwritng Proceeds to the
Scheduled Public (2) Discount Depositor
Distribution (2)(3)
Date (1)
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
Per Class A-1 Certificate (4) % % %
- ----------------------------------------------------------------------------------------------------------------------------
Per Class A-2 Certificate (4) % % %
- ----------------------------------------------------------------------------------------------------------------------------
Per Class A-3 Certificate % % %
- ----------------------------------------------------------------------------------------------------------------------------
Per Class A-4 Certificate % % %
- ----------------------------------------------------------------------------------------------------------------------------
Total % % %
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) These dates are prepayments on that the calculated the Mortgage
characteristics assuming, among Loans in the of such other things,
Mortgage Pool and Mortgage Loans that there are no are as described under
"Description of the Trust Fund--The Mortgage Pool" herein.
(2) Plus accrued interest, if any, at the applicable rate from , 199 .
(3) Before deduction of expenses payable by the Depositor estimated at $ .
(4) The Class A-1 Certificates will bear interest at the per annum rate of %
through , 19 , and thereafter at a variable per annum rate of % above
the arithmetic mean of the London interbank offered rates for [ ] month
Eurodollar deposits ("LIBOR"), determined as set forth herein,
subject to a maximum interest rate of %.
(5) The Class A-2 Certificates will , 19 , and thereafter at a to [ % - ( x
LIBOR), determined bear interest at the per annum variable per annum rate
equal as set forth herein, subject to a rate of % through minimum
interest rate of %.]
The Certificates are offered by the [several] Underwriter[s] when, as and if
issued and accepted by the Underwriter[s] and subject to [its] [their] right to
reject orders in whole or in part. It is expected that the Certificates, in
definitive fully registered form, will be ready for delivery on or about 199 .
CS FIRST BOSTON
<PAGE>
THIS PROSPECTUS SUPPLEMENT DOES NOT CONTAIN COMPLETE INFORMATION ABOUT THE
CERTIFICATES OFFERED HEREBY. ADDITIONAL INFORMATION IS CONTAINED IN THE
PROSPECTUS AND PURCHASERS ARE URGED TO READ BOTH THIS PROSPECTUS SUPPLEMENT AND
THE PROSPECTUS IN FULL. SALES OF THE CERTIFICATES OFFERED HEREBY MAY NOT BE
CONSUMMATED UNLESS THE PURCHASER HAS RECEIVED BOTH THIS PROSPECTUS SUPPLEMENT
AND THE PROSPECTUS.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER[S] MAY OVERALLOT OR EFFECT
TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICES OF THE CERTIFICATES AT
LEVELS ABOVE THOSE THAT MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
UNTIL , 19 , ALL DEALERS EFFECTING TRANSACTIONS IN THE CERTIFICATES, WHETHER
OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS SUPPLEMENT AND A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF
DEALERS TO DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
AVAILABLE INFORMATION
The Trust will be subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith will file reports and other information with the Securities and
Exchange Commission (the "Commission"). Such reports and other information filed
by the Trust can be inspected and copied at the Public Reference Room of the
Commission at 450 Fifth Street, N.W., Washington, D.C., and at the Commission's
regional offices at 75 Park Place, 14th Floor, New York, New York 10007; and 500
West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
materials can be obtained at prescribed rates from the Public Reference Section
of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549.
S-2
<PAGE>
SUMMARY OF TERMS
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus Supplement and in
the Prospectus. Capitalized terms used in this Prospectus Supplement and not
defined shall have the meanings given in the Prospectus.
SECURITIES OFFERED................. Conduit Mortgage Pass-Through
Certificates, [Class A] Series (the
"[Class A] Certificates").
$[Variable] [%] Class A-1 Certificates.
$[Variable][%] Class A-2 Certificates.
$ % Class A-3 Certificates.
$ % Class A-4 Certificates.
[The Class A-1 and Class A-2
Certificates are Variable Rate
Certificates. The Class A-3 and
Class A-4 Certificates are Fixed
Interest Rate Certificates, as
described herein.]
[The Class A-4 Certificates are Compound
Interest Certificates for the purposes
of this Prospectus Supplement.]
[The Class A Certificates represent in
the aggregate an approximate % undivided
interest in the Trust Fund. The
remaining approximate % undivided
interest in the Trust Fund is
represented by the Class B Certificates,
which are subordinated in certain
respects to the Class A Certificates, as
more fully described herein and in the
Prospectus. [The Class B Certificates
are not being offered hereby, and may be
retained by the Depositor or sold by the
Depositor at any time to one or more
sophisticated institutional investors in
privately negotiated transactions not
requiring registration under the
Securities Act of 1933.]]
DENOMINATIONS AND RECORD DATES..... The [Class A] Certificates will be
issued in fully registered form in
minimum denominations of $
and integral multiples of $
in excess of such amount. [The
Record Date for each regular
distribution on the [Class A]
Certificates is the close of business
on the [last] day [of other [second]
month] immediately preceding the
applicable Distribution Date.] [The
Record Date for each regular
distribution on the Variable Rate
certificates is the close of business
on the th day of the month in
which the applicable Distribution
Date occurs. The Record Date for
each regular distributio on the Fixed
Rate Certificates is the close of
business on the th day of the
month immediately preceding the month
in which the applicable Distribution
Date occurs.]
DEPOSITOR.......................... Asset Backed Securities Corporation
(The "Depositor").
MASTER SERVICER.................... (the "Master Servicer")
CUT-OFF DATE....................... , 19 .
DELIVERY DATE...................... On or about , 19 .
INTEREST DISTRIBUTIONS............. [Interest will be distributed on [the
th day of each month] [each , ,
and ] (each, a "Distribution
Date") on the Stated Principal
Balance (as defined herein) of the
Certificates at the applicable rate
of interest specified on the cover
page hereof (the "Interest Rate") for
the Class A-1, Class A-2 and Class
A-3 Certificates, commencing
, 19 .] [Interest will be
distributed on the Class A-1
Certificates at the per annum rate of
% through , 19 , and
thereafter at a variable per annum
rate of % above LIBOR, determined
as set forth herein, subject to a
maximum interest rate of %.
Interest will be distributed on the
Class A-2 Certificates at the per
annum rate of % through
S-3
<PAGE>
, 19 , and thereafter at a variable per
annum rate equal to % -( x LIBOR),
determined as set forth herein, subject
to a minimum interest rate of %.
Interest will be distributed on the
Class A-3 and Class A-4 Certificates
(the "Fixed Rate Certificates") at the
respective per annum rates specified on
the cover page hereof.] [Interest
distributable on the Certificates will
accrue from the [first day of the month
preceding the] prior Distribution Date
(or from , 19 in the case of the First
Distribution Date) through the last day
of the [second] month preceding the then
current Distribution Date.] [Interest
will accrue on the Variable Rate
Certificates from the preceding
Distribution Date (or from , 19 in the
case of the first Distribution Date)
through the day preceding each
Distribution Date. Interest will accrue
on the Fixed Rate Certificates from the
th day of the month preceding the month
in which the prior Distribution Date
occurred (or from , 19 in the case of
the first Distribution Date) through the
th day of the month preceding the month
in which the current Distribution Date
occurs.] Distributions of interest on
the Class A-4 Certificates will commence
after distributions in reduction of
Stated Principal Balance of the Class A-
3 Certificates have reduced the Stated
Principal Balance of such Class to zero.
Prior to that time, interest will accrue
on the Class A-4 Certificates and the
amount so accrued will be added to the
Stated Principal Balance thereof on each
Distribution Date. See "Description of
the Certificates-Distributions of
Interest" herein.
[The distribution of interest on the
Class A-3 Certificates (and the addition
of accrued interest to the Stated
Principal Balance of the Class A-4
Certificates prior to the reduction of
the Stated Principal Balance of the
Class A-3 Certificates to zero) one
month after the date to which interest
accrues thereon and the calculation of
accrued interest on such Certificates
based on the assumption that
distributions in reduction of Stated
Principal Balance are made one month
prior to the date on which such
distributions actually are made will
reduce the effective yield to the
holders of the Class A-3 Certificates
from that which would be the case if
interest distributable on such
Certificates on a Distribution Date were
to accrue to such Distribution Date. See
"Description of the [Class A]
Certificates-Distributions of Interest
[on the Class A Certificates]" herein.]
DISTRIBUTIONS IN REDUCTION OF
STATED PRINCIPAL BALANCE........... The Stated Principal Balance of a [Class
A] Certificate at any time represents
the maximum specified dollar amount
(exclusive of interest at the related
Interest Rate) to which the holder
thereof is entitled from the cash flow
on the Mortgage Loans comprising the
Mortgage Pool and will decline to the
extent distributions in reduction of
Stated Principal Balance are received by
such holder. The Initial Stated
Principal Balance of each Class of
Certificates is set forth on the cover
of this Prospectus Supplement.
Allocation of distributions in reduction
of Stated Principal Balance will be made
to the [Subc] [C]lasses of the [Class A]
Certificates in the order of their
respective Final Scheduled Distribution
Dates, so that no distribution in
reduction of Stated Principal Balance
will be made to any [Subc] [C]lass of
[Class A] Certificates until
distributions in reduction of Stated
Principal Balance made to each [Subc]
[C]lass of [Class A] Certificates having
a prior Final Scheduled Distribution
Date have reduced the Stated Principal
Balance of such [Subc] [C]lass to zero.
Distributions in reduction of Stated
Principal Balance on the [Class A]
Certificates will be made on each
Distribution Date on which such
distributions are due in an aggregate
amount equal to the sum of (i) the
amount of interest accrued on the Class
A-4 Certificates from the [first day of
the month preceding the prior]
Distribution Date (or from , 19 in the
case of the first Distribution Date)
through the last day of the [second]
month preceding the then current
Distribution Date but not then
distributable (the "Accrual Distribution
Amount"), (ii) the [Class A] Stated
Principal Distribution Amount (as
described below) [and (iii) % of Excess
Cash Flow (as defined herein)]. The
[Class A]
S-4
<PAGE>
Stated Principal Distribution Amount
with respect to a Distribution Date
equals the amount, if any, by which the
aggregate Stated Principal Balance of
the [Class A] Certificates (before
taking into account the amount of
interest accrued on the Class A-4
Certificates to be added to the Stated
Principal Balance thereof on such
Distribution Date) exceeds the Asset
Value, as defined herein, of the
Mortgage Loans comprising the Mortgage
Pool as of the Business Day prior to
such Distribution Date. For purposes of
determining the Stated Principal
Distribution Amount, the Asset Value of
the Mortgage Loans comprising the
Mortgage Pool will be reduced by taking
into account [the Senior Interest (as
defined herein) in] all distributions of
principal thereof (including
prepayments) received or due to be
received by the Trustee or its nominee
during the period (a "Due Period")
ending on the Business Day prior to such
Distribution Date. See "Description of
the [Class A] Certificates--
Distributions in Reduction of Stated
Principal Balance" herein.
FINAL SCHEDULED DISTRIBUTION
DATE............................... Class A-1 Certificates .
Class A-2 Certificates .
Class A-3 Certificates .
Class A-4 Certificates .
The Final Scheduled Distribution Date
for each [Subc][C]lass of [Class A]
Certificates is the latest date on which
the Stated Principal Balance of all the
Certificates of such [Subc] [C]lass will
have been reduced to zero, and is
calculated by assuming, among other
things, that (i) scheduled interest and
principal payments (with no prepayments)
on the Mortgage Loans comprising the
Mortgage Pool are timely received and
(ii) such amounts are reinvested at an
assumed reinvestment rate of % per annum
to , 19 , % per annum from , 19 to , 19
and % per annum thereafter (the "Assumed
Reinvestment Rate"). Since the rate of
distributions in reduction of Stated
Principal Balance of each [Subc] [C]lass
of [Class A] Certificates will depend on
the rate of payment (including
prepayments) on the principal of the
Mortgage Loans, the actual final
distribution of any [Subc] [C]lass of
[Class A] Certificates could occur
significantly earlier than its Final
Scheduled Distribution Date. The rate of
payments on the Mortgage Loans will
depend on their particular
characteristics, as well as on
prevailing interest rates from time to
time and other economic factors, and no
assurance can be given as to the actual
payment experience of the Mortgage
Loans. See "Yield Considerations"
herein.
[SPECIAL DISTRIBUTIONS............. The [Class A] Certificates may receive
special distributions in reduction of
Stated Principal Balance ("Special
Distributions") on the first day of any
month, other than a month in which a
Distribution Date occurs, if, as a
result of principal prepayments on the
Mortgage Loans comprising the Mortgage
Pool and/or low reinvestment yields, the
Trustee determines, based on assumptions
specified in the Pooling and Servicing
Agreement, that interest requirements on
any portion of the [Class A]
Certificates would not be met. The
amount of any such Special Distribution
would not exceed the amount of
distributions in reduction of Stated
Principal Balance of the [Class A]
Certificates that would otherwise be
required to be made on the next
Distribution Date. As a result, a
Special Distribution on the [Class A]
Certificates would not result in a
distribution to [Class A]
Certificateholders more than two months
earlier than the Distribution Date on
which such distribution would otherwise
have been received. The [Class A]
Certificates will be redeemable in the
same priority and manner as
distributions in reduction of Stated
Principal Balance are made on a
S-5
<PAGE>
Distribution Date. See "Description of
the [Class A] Certificates--Special
Distributions" herein.]
[OPTIONAL TERMINATION.............. On any Distribution Date on or after the
[later] of or the date on which the
Stated Principal Balance of the [Class
A-3] Certificates has been reduced to
zero, the Depositor will have the right
to repurchase, in whole, but not in
part, the Mortgage Loans comprising the
Mortgage Pool. Additionally, on any
Distribution Date on which the aggregate
principal amount of the Mortgage Loans
comprising the Mortgage Pool is less
than [10%] of the initial aggregate
principal amount of such Mortgage Loans,
the Depositor will have the right to
repurchase, in whole, but not in part,
such Mortgage Loans. Any such repurchase
will be made at a purchase price equal
to [the aggregate principal amount of
such Mortgage Loans plus accrued
interest thereon to the last day of the
month of such repurchase, together with
the appraised value of any property
acquired in respect of such Mortgage
Loans]. [Any such termination will be
effected in compliance with the
requirements of Section 860F(a) (iv) of
the Internal Revenue Code of 1986 (the
"Code") so as to constitute a
"qualifying liquidation" thereunder. The
proceeds of any such repurchase will be
treated as a distribution on the
Mortgage Loans for purposes of
distributions to the Certificateholders.
In no event will the Trust continue
beyond the expiration of 21 years from
the death of the last survivor of the
person named in the Pooling and
Servicing Agreement.] See "Description
of the [Class A] Certificates--Optional
Termination" herein.]
TRUST FUND......................... The Certificates evidence ownership
interest in the Trust Fund, the assets
of which will consist of the following:
A. MORTGAGE POOL................ The Mortgage Pool will consist of
[fixed-rate,] fully amortizing, /*/If
the Series of Certificates offered
pursuant to this Version C Prospectus
Supplement evidences interest in
manufactured housing conditional sales
contracts and installment loan
agreements ("Contracts"), the disclosure
to be set forth will be substantially
similar to the disclosure set forth in
Version E under "Summary of Terms -
Contract Pool." herein./*/
B. CERTIFICATE ACCOUNT..........
[C. BUY-DOWN FUND................
- ---------------------
*If the Series of Certificates offered pursuant to this Version C Prospectus
Supplement evidences interest in manufactured housing conditional sales
contracts and installment loan agreements ("Contracts"), the disclosure to be
set forth will be substantially similar to the disclosure set forth in Version E
under "Summary of Terms-Contract Pool."
S-6
<PAGE>
[D. GPM FUND...................... The Depositor will deliver to the
Trustee cash, a letter of credit or a
guaranteed investment contract to
fund the GPM Fund for the [Class A]
Certificates. The Assumed
Reinvestment Rate for the GPM Fund
will be the same as that of the
Certificate Account. The Trustee may
withdraw excess funds in the GPM on
any Distribution Date. See
"Description of the Trust Fund--GPM
Fund" herein.]
[E. REINVESTMENT All amounts on deposit in the
AGREEMENT................... Certificate Account [and the GPM and
Buy-Down Funds] will be reinvested with
by the Trustee pursuant to a guaranteed
investment contract (the "Reinvestment
Agreement") at a rate of % per annum.
See "Description of the Trust Fund--
Reinvestment Agreement" herein.]
[F. LETTER OF CREDIT............. The maximum liability of [ ]
under an irrevocable standby letter
of credit, for the Mortgage Pool (the
"Letter of Credit"), net of
unreimbursed payments thereunder,
will be no more than [10%] of the
initial aggregate principal balance
of the Mortgage Pool (the "Letter of
Credit Percentage"). The maximum
amount available to be paid under the
Letter of Credit will be determined
in accordance with the Pooling and
Servicing Agreement referred to
herein. The duration of coverage and
the amount and frequency of any
reduction in coverage will be in
compliance with the requirements for
a rating in one of the two highest
rating categories of the Rating
Agency. The amount available under
the Letter of Credit shall be reduced
by the amount of unreimbursed
payments thereunder. See "Description
of the Certificates--Credit
Support--The Letter of Credit" in the
Prospectus.]
[G. POOL INSURANCE POLICY........ [Neither the Certificates nor the
Mortgage Loans will be insured or
guaranteed by any governmental
agency.] Subject to the limitations
described herein, a pool insurance
policy for certain of the Mortgage
Loans (the "Pool Insurance Policy"),
will cover losses due to default on
such Mortgage Loans in an initial
amount of not less than [5%] of the
aggregate principal balance as of the
first day of the month of the
creation of the Trust (the "Cut-off
Date") of all Mortgage Loans that
are not covered as to their entire
outstanding principal balance by
primary policies of mortgage guaranty
insurance. See "Description of the
Trust Fund-The Pool Insurance Policy"
herein. The Pool Insurance Policy
will be subject to the limitations
described under "Description of
Insurance-the Pool Insurance Policy"
in the Prospectus.]
[H. HAZARD INSURANCE [AND
SPECIAL HAZARD
INSURANCE All of the Mortgage Loans will be
POLICY]..................... covered by standard hazard insurance
policies insuring against losses due to
various causes, including fire,
lightning and windstorm. [An insurance
policy (the "Special Hazard Insurance
Policy") will cover losses with respect
to the Mortgage Loans that result from
certain other physical risks that are
not otherwise insured against (including
earthquakes and mudflows). The Special
Hazard Insurance Policy will be limited
in scope and will cover losses in an
initial amount equal to the greater of %
of the aggregate principal balance of
the Mortgage Loans or times the unpaid
principal balance of the largest
Mortgage Loan.] Any hazard losses not
covered by [either] standard hazard
insurance policies [or the Special
Hazard Insurance Policy] will not be
insured against and [, to the extent
that the amount available under the
Letter of Credit or any alternative
method of credit support is exhausted,]
will be borne by the Certificateholders.
See "Description of the Trust Fund--The
Special Hazard Insurance Policy" herein.
The hazard insurance policies [and the
Special Hazard Insurance Policy] will be
subject to the limitations described
under "Description of Insurance--Hazard
Insurance" and "--Special Hazard
Insurance Policies"] in the Prospectus.
S-7
<PAGE>
[I. MORTGAGOR BANKRUPTCY
BOND......................... The Depositor will obtain a bond or
similar form of insurance coverage
(the "Mortgagor Bankruptcy Bond"),
providing coverage against losses
that result from proceedings with
respect to obligors under the
Mortgage Loans (the "Mortgagor")
under the federal Bankruptcy Code.
See "Description of the Trust
Fund--Mortgagor Bankruptcy Bond"
herein and "Description of
Insurance--The Mortgagor Bankruptcy
Bond" in the Prospectus.]
[CLASS B CERTIFICATES.............. The rights of the Class B
Certificateholders to receive
distributions with respect to the
Mortgage Loans are subordinated to
the right of the Class A
Certificateholders to receive such
distributions to the extent of the
Subordinated Amount described below.
This subordination is intended to
enhance the likelihood of regular
receipt by Class A Certificateholders
of the full amount of scheduled
distributions of interest and
distributions in reduction of Stated
Principal Balance and to decrease the
likelihood that the Class A
Certificateholders will experience
losses. The extent of such
subordination (the "Subordinated
Amount") will be determined as
follows: on the Cut-off Date and on
each anniversary of the Cut-off Date
until , the
Subordinated Amount will equal % of
the original aggregate principal
balance of the Mortgage Loans less
the amount of "Aggregate Losses" (as
defined in the Prospectus) since the
Cut-off Date through the last day of
the month preceding such anniversary
date; from the th anniversary of
the Cut-off Date onward, the
Subordinated Amount will gradually
decline in accordance with a schedule
set forth in the Pooling and
Servicing Agreement.]
[RESERVE FUND...................... The protection afforded to the Class
A Certificateholders from the
subordination feature described above
will be effected both by the
preferential right of the Class A
Certificateholders to receive current
distributions with respect to the
Mortgage Loans (to the extent of the
Subordinated Amount) and by the
establishment of a reserve (the "Reserve
Fund"). The Reserve Fund is not included
in the Trust Fund. The Reserve Fund will
be created by the Depositor and shall be
funded by the retention of all of the
scheduled distributions of principal of
the Mortgage Loans otherwise
distributable to the Class B
Certificateholders on each Distribution
Date until the Reserve Fund reaches an
amount (the "Required Reserve") that
will equal [; thereafter, the Reserve
Fund must be maintained at the following
levels: ]. See "Description of the
Certificates--Subordinated Certificates"
and "--Reserve Fund" in the Prospectus.]
MASTER SERVICING AND SERVICING
AGREEMENTS........................ The Depositor will enter into a
Master Servicing Agreement with
, which will have entered into Servicing
Agreements with various entities (each a
"Servicer") with respect to the
servicing of the Mortgage Loans. Among
other things, the Servicers and the
Master Servicer are obligated under
certain circumstances to make advances
with respect to the Mortgage Loans, to
purchase any Mortgage Loans for which
mortgage insurance coverage is denied on
the grounds of fraud or
misrepresentation and to purchase
certain Mortgage Loans with respect to
which a breach of a representation or
warranty has occurred. The Depositor
will assign to the Trustee its rights
under the Master Servicing Agreement and
the Servicing Agreements with respect to
the Certificates.
ADVANCES........................... Any Servicer of the Mortgage Loans
(and the Master Servicer, with
respect to each Mortgage Loan that it
services directly and otherwise, to
the extent the applicable Servicer
does not do so) will be obligated to
advance delinquent installments of
principal and interest on the
Mortgage Loans under certain
circumstances. See "Description of
the Certificates--Advances" in the
Prospectus.
S-8
<PAGE>
SUBSTITUTION OF MORTGAGE
LOANS............................. Within three months following the
date of the issuance of the
Certificates, the Depositor may
deliver to the Trustee Mortgage Loans
in substitution for any one or more
of the Mortgage Loans initially
included in the Trust Fund but which
do not conform in one or more
respects to the description thereof
contained in this Prospectus
Supplement or in the Current Report
on Form 8-K referred to herein. See
"The Mortgage Pool-Substitution of
Mortgage Loans" in the Prospectus.
RESIDUAL CERTIFICATES............... Upon the issuance of the
Certificates, [the Depositor will
retain] an interest in the Mortgage
Pool [that] will be represented by a
class of certificates (the "Residual
Certificates") that the Depositor
will designate as "residual
interests" under Section 860G(a)(2)
of the Internal Revenue Code of 1986
(the "Code"). The Residual
Certificates will represent the right
to receive distributions equal to
% of the Excess Cash Flow, if any,
with respect to each Distribution
Date. The Residual Certificates are
not being offered hereby. [The
Depositor may, but need not, sell
some or all of such Residual
Certificates after the date of
issuance of the Certificates to
sophisticated institutional investors
in transactions not requiring
registration under the Securities Act
of 1933.]
TRUSTEE............................. (the "Trustee"). See
"Description of the [Class A]
Certificates-Trustee" herein.
LEGAL INVESTMENT.................... The [Class A] Certificates constitute
"mortgage related securities" for
purposes of the Secondary Mortgage
Market Enhancement Act of 1984 (the
"Enhancement Act"), and, as such, are
legal investments for certain
entities to the extent provided in
the Enhancement Act. See "Legal
Investment" in the Prospectus.
CERTIFICATE RATING.................. It is a condition of issuance that
the [Class A] Certificates be rated
in one of the two highest rating
categories of the Rating Agency prior
to issuance.
ERISA LIMITATIONS................... See "ERISA Considerations" in the
Prospectus.
TAX ASPECTS......................... The Depositor [intends] [does not
intend] to make an election to treat
the Trust Fund as a Real Estate
Mortgage Investment Conduit (a
"REMIC"), pursuant to the Internal
Revenue Code of 1986, as amended.
See "Certain Federal Income Tax
Consequences" in the Prospectus.
S-9
<PAGE>
DESCRIPTION OF THE TRUST FUND
THE MORTGAGE POOL/*/
The Mortgage Pool will consist of Mortgage Loans evidenced by mortgage
notes with aggregate unpaid principal balances outstanding as of the first day
of the month of the creation of the Trust (the "Cut-off Date"), after
deducting payments of principal due on such date, of approximately $ .
This amount is subject to a permitted variance of up to %. [The Mortgage
Pool will consist of -year, [fixed-rate], fully-amortizing, [level-
payment] Mortgage Loans, as more fully described in the Prospectus.]
The weighted average interest rate (individually, a "Mortgage Rate") of
the Mortgage Loans as of the Cut-off Date will be at least % but no more
than %. All Mortgage Loans will have Mortgage Rates of at least % but no
more than %. The weighted average maturity of the Mortgage Loans, as of the
Cut-off Date, will be at least years but no more than years. All
Mortgage Loans will have original maturities of at least but no more than
years. None of the Mortgage Loans will have been originated prior to
or after , 19 . None of the Mortgage Loans will have a scheduled
maturity later than .
The Mortgage Loans will have the following characteristics as of the Cut-
off Date (expressed as a percentage of the outstanding aggregate principal
balances of the Mortgage Loans having such characteristics relative to the
outstanding aggregate principal balances of all Mortgage Loans):
No more than % of the Mortgage Loans will have been originated
before , and no more than % of the Mortgage Loans will
have been originated before . See "Certain Federal Income
Tax Consequences--Mortgage Pools," "--Taxation of Owners of Trust
Fractional Certificates," and "--Market Discount and Premium" in the
Prospectus for information regarding such Mortgage Loans.
At least % of the Mortgage Loans will be Mortgage Loans each
having outstanding principal balances of less than $ .
No more than % of the Mortgage Loans will be Mortgage Loans
each having outstanding principal balances of more than $ .
No more than % of the Mortgage Loans will have had loan-to-
value ratios at origination in excess of [80]%, and no Mortgage Loan will
have had a loan-to-value ratio at origination in excess of 95%.
All of the Mortgage Loans with loan-to-value ratios at origination
in excess of 80% will be covered by a policy of primary mortgage
insurance until the outstanding principal balance is reduced to 75% of
the Original Value.
At least % of the Mortgage Loans will be secured by mortgages
on one-family dwellings.
No more than % of the Mortgage Loans will be secured by
Mortgages on condominiums.
No more than %, by aggregate principal balance, of the Mortgage
Loans will be Mortgage Loans for which Buy-Down Funds have been provided,
and no more than % of the principal balance of any such Mortgage Loan
will be represented by Buy-Down Funds.
No more than %, by aggregate principal balance, of the Mortgage
Loans will be GPM Loans.
At least % of the Mortgage Loans will be secured by a Mortgage
on an owner-occupied Mortgaged Property. Such determination will have
been made on the basis of a representation by the Mortgagor at the time
of origination of the Mortgage Loan that such Mortgagor then intended to
occupy the underlying property or, in the absence of such a
representation, on the basis of various factors indicating that the
underlying property is owner-occupied.
No more than [5%] of the Mortgage Loans will be secured by Mortgages
on properties located in any one zip code.
The Mortgage Loans will be secured by Mortgages on properties located in
the states of .
- ----------
/*/ If the Series of Certificates offered pursuant to this Version C
Prospectus Supplement evidences interests in Contracts, the disclosure to be
set forth will be substantially similar to the disclosure set forth in
Version E under "Description of the Contract Pool."
S-10
<PAGE>
Specific information with respect to the Mortgage Loans will be available
to purchasers of the Certificates offered hereby at or before the time of
issuance of such Certificates. Such specific information will include the
precise amount of the aggregate principal balances of the Mortgage Loans
outstanding as of the Cut-off Date, and will also set forth tables reflecting
the following information regarding the Mortgage Loans: years of
origination, types of dwellings on the underlying properties, the sizes of
Mortgage Loans and distribution of Mortgage Loans by Mortgage Rate, and will
be set forth in a Current Report on Form 8-K that will be filed with the
Securities and Exchange Commission by the Depositor within 15 days after the
issuance of the Certificates.
CERTIFICATE ACCOUNT
There will be deposited in an account (the "Certificate Account") to be
established with the Trustee all distributions on or with respect to the
Mortgage Loans comprising the Mortgage Pool, together with reinvestment income
thereon. [Until such time as the Subordinated Amount is reduced to zero, f]
[F]unds on deposit in the Certificate Account will be available to make
distributions in reduction of Stated Principal Balance and distributions of
interest on the Certificates on each Distribution Date, as more fully set
forth herein. [Any funds remaining in the Certificate Account after making
required distributions to holders of the Class A Certificates will be
distributed to the holders of the Class B Certificates.] [Any amounts
remaining in the Certificate Account after making required distributions on
the Class B Certificates will be distributed to the holders of the Residual
Certificates.]
[BUY-DOWN FUND
The Depositor will deliver cash, a letter of credit or a guaranteed
investment contract to the Trustee to fund the Buy-Down Fund for the [Class A]
Certificates. [The Senior Interest in] Buy-Down Mortgage Loans not valued
solely on the basis of the scheduled monthly payments required of the
Mortgagor will be valued by taking into account funds available from the Buy-
Down Fund and reinvestment income thereon at the same Assumed Reinvestment
Rate as that of the Certificate Account.
The Trustee may withdraw excess funds from the Buy-Down Fund on any
Distribution Date. Any amounts so withdrawn shall be distributed [first, to
restore the amount in the Reserve Fund to the Required Reserve, and then to
the holders of the Class B Certificates to the extent of any deficiency in
scheduled distributions on such Class B Certificates on such Distribution
Date. Any amounts remaining will be distributed] to the holders of the
Residual Certificates.]
[GPM FUND
To the extent that [the Senior Interest in] a Mortgage Loan providing for
payments during a portion of its term that are less than the actual amounts of
principal and interest payable thereon (a "GPM Loan") is valued on the basis
of its maximum principal balance, rather than on the basis of scheduled
payments by the Mortgagor, the Depositor will deliver cash, a letter of credit
or a guaranteed investment contract to fund the GPM Fund for the [Class A]
Certificates. The Assumed Reinvestment Rate for the GPM Fund is the same as
that of the Certificate Account.
The Trustee may withdraw excess funds from the GPM Fund on any
Distribution Date. Any amounts so withdrawn shall be distributed [first, to
restore the amount in the Reserve Fund to the Required Reserve, and then to
the holders of the Class B Certificates to the extent of any deficiency in
scheduled distributions on such Class B Certificates on such Distribution
Date. Any amounts remaining will be distributed] to the holders of the
Residual Certificates.]
[REINVESTMENT AGREEMENT
All amounts on deposit in the Certificate Account [, the Buy-Down
Fund and the GPM Fund] will be reinvested with by the Trustee
pursuant to a guaranteed investment contract (the "Reinvestment Agreement") at
a rate of % per annum.]
[LETTER OF CREDIT
The maximum liability of [ ] under the Letter of Credit, net of
unreimbursed payments thereunder, for the Certificates will be no more than
% of the aggregate principal balance of the Mortgage Loans on the Cut-off
Date. The duration of coverage and the amount and frequency of any reduction
in coverage will be in compliance with the requirements established by the
Rating Agency rating the Certificates in order to obtain a rating in one of
the two highest ratings categories of the Rating Agency. The precise amount of
coverage under the Letter of Credit and the duration and frequency of
reduction of such coverage will be set forth in the Current Report on Form 8-K
referred to above. See "Description of the Certificates--Credit Support--The
Letter of Credit" in the Prospectus.]
[THE POOL INSURANCE POLICY
Subject to the limitations described under "Description of Insurance--
Pool Insurance Policy" in the Prospectus, the Pool Insurance Policy will cover
losses by reason of default on the Mortgage Loans that are not covered as to
their entire outstanding principal balances by primary mortgage insurance, in
an amount equal to % of the aggregate principal balance of such Mortgage
Loans on the Cut-off Date.
S-11
<PAGE>
The Pool Insurance Policy will be issued by , a corporation
(the "Pool Insurer"), which is engaged principally in the business of insuring
mortgage loans on residential properties against default in payment by the
Mortgagor. At , 19 , the Pool Insurer had insurance in force in the
form of primary policies covering approximately $ billion of residential
mortgages. At such date, the Pool Insurer had total assets of approximately $
million, capital and surplus aggregating $ million and statutory
contingency reserves of $ million, resulting in total policyholders'
reserves of $ million. The claims-paying ability of the Pool Insurer is
currently rated by . In accordance with standard rating agency
practice, may, at any time, revise or withdraw such rating.
The information set forth above has been provided by the Pool Insurer.
The Depositor makes no representation as to the accuracy or completeness of
such information.]
[THE SPECIAL HAZARD INSURANCE POLICY
The Special Hazard Insurance Policy will cover certain risks not
otherwise insured against under hazard insurance policies, subject to the
limitations described in the Prospectus, and will be issued by ,
corporation (the "Special Hazard Insurer"). Claims under such policy will be
limited to % of the aggregate principal balance of the Mortgage Loans or
twice the principal balance of the Mortgage Loan with the highest outstanding
principal balance at the Cut-off Date, whichever is greater. At , 19
, the Special Hazard Insurer had total assets of approximately $ million
and total policyholders' surplus of $ . The claims-paying ability of the
Special Hazard Insurer is presently rated by . In accordance with
standard rating agency practice, may, at any time, revise or withdraw
such rating.
The information set forth above has been provided by the Special Hazard
Insurer. The Depositor makes no representation as to the accuracy or
completeness of such information.]
[MORTGAGOR BANKRUPTCY BOND
The Depositor will obtain a bond or similar form of insurance coverage
(the "Mortgagor Bankruptcy Bond") for proceedings with respect to Mortgagors
under the federal Bankruptcy Code. The Mortgagor Bankruptcy Bond will cover
certain losses resulting from a reduction by a bankruptcy court of
scheduled payments of principal and interest on a Mortgage Loan or a reduction
by such court of the principal amount of a Mortgage Loan and will cover
certain unpaid interest on the amount of such a principal reduction from the
date of the filing of a bankruptcy petition.
The initial amount of coverage provided by the Mortgagor Bankruptcy Bond
will be $ plus the greater of (i) % of the aggregate principal balances of
the Mortgage Loans secured by second residences and investor-owned residences
or (ii) times the largest principal balance of any such Mortgage Loan. The
coverage provided by the Mortgagor Bankruptcy Bond will be reduced by
payments thereunder.
The Mortgagor Bankruptcy Bond will be issued by , a corporation.
At , 19 , had admitted assets of approximately $ and
total policyholders' surplus of approximately $ .
The information set forth above concerning has been provided by it.
The Depositor makes no representation as to the accuracy or completeness of
such information.]
YIELD CONSIDERATIONS
Principal payments on mortgage loans may be in the form of scheduled
amortization payments or prepayments (for this purpose, the term "prepayment"
includes prepayments and liquidation due to default or other dispositions of
the loans). Prepayments on the Mortgage Loans comprising the Mortgage Pool
will be passed through to the Trustee, as the assignee of the Mortgage Loans,
and such prepayments will be [available to be] applied to distributions in
reduction of the Stated Principal Balance on the [Class A] Certificates [, as
more fully set forth herein]. Prepayments on mortgage loans are commonly
measured by a prepayment standard or model. The model used in this Prospectus
Supplement, the Standard Prepayment Assumption ("SPA"), represents an assumed
rate of prepayment each month relative to the outstanding principal balance of
a pool of mortgage loans. A prepayment assumption of 100% SPA assumes
prepayment rates of 0.2% per annum of the then outstanding principal balance
of such mortgage loans in the first month of the life of the mortgage loans
and an additional 0.2% per annum in each month thereafter until the 30th
month. Beginning in the 30th month and in each month thereafter during the
life of the mortgage loans. 100% SPA assumes a constant prepayment rate of 6%
per annum each month. As used in the table set forth below " % SPA" assumes
prepayment rates equal to % of 100% SPA; " % SPA" assumes prepayment
rates equal to % of 100% SPA; and " % SPA" assumes prepayment rates
equal to % of 100% SPA. SPA does not purport to be a historical
description of prepayment experience or a prediction of the anticipated rate
of prepayment of any pool of mortgage loans.
S-12
<PAGE>
The rate of principal prepayments on pools of mortgage loans is
influenced by a variety of economic, geographic, social and other factors,
including the level of mortgage interest rates and the rate at which
homeowners sell their homes or default on their mortgages. In general,
however, if prevailing interest rates fall significantly below the interest
rates on the Mortgage Loans comprising the Mortgage Pool, the Certificates are
likely to be subject to higher prepayment rates than if prevailing rates
remain at or above the interest rates on the Mortgage Loans comprising the
Mortgage Pool. In addition, as homeowners move or default on their mortgages,
their houses are generally sold and the mortgages prepaid. As the rate of
distributions in reduction of Stated Principal Balance of each [Subc] [C]lass
of [Class A] Certificates will depend on the rate of payment (including
prepayments) of the Mortgage Loans comprising the Mortgage Pool, the actual
final distribution made on any [Subc] [C]lass of [Class A] Certificates is
likely to occur earlier than its Final Scheduled Distribution Date.
Weighted average life refers to the average amount of time from the date
of issuance of a security until each dollar in reduction of the principal of
such security will be distributed to the investor. The weighted average life
of a [Class A] Certificate is determined by (i) multiplying the amount of each
distribution in reduction of Stated Principal Balance by the number of years
from the date of issuance of the [Class A] Certificate to the related
Distribution Date, (ii) summing the results and (iii) dividing the sum by the
total distributions in reduction of Stated Principal Balance made on the Class
A Certificate [, including, in the case of a Class A-4 Certificate, any
interest accrued and added to the Stated Principal Balance of such
Certificate].
The table set forth below has been prepared on the basis of the
characteristics of the Mortgage Loans that are expected to be included in the
Mortgage Pool. The table assumes, among other things, that each Mortgage Loan
comprising the Mortgage Pool has a remaining term to maturity of years,
bears interest at a rate of % per annum and has payments of principal
that are timely received. There may be discrepancies between the
characteristics of the Mortgage Loans actually included in the Mortgage Pool
and the characteristics of the Mortgage Loans expected to be so included. Any
such discrepancy may have an effect on the percentages of Initial Stated
Principal Balance outstanding set forth in the table (and the weighted average
lives of each Class [Subclass] of the [Class A] Certificates. In addition, to
the extent that the Mortgage Loans that actually are included in the Mortgage
Pool have characteristics that differ from those assumed in the following
table, the Stated Principal Balance of any Class [Subclass] of the [Class A]
Certificates will be reduced to zero earlier or later than indicated by the
table.
Variations in actual prepayment experience and the balance of mortgage
loans that prepay may increase or decrease the percentages of initial Stated
Principal Balance and the weighted average lives shown in the following table.
Such variation may occur even if the average prepayment experience of all such
Mortgage Loans equals the indicated levels of SPA.
Based on the foregoing assumptions, [including an assumed interest rate
of % on the Class A-1 Certificates and an assumed interest rate of
% on the Class A-2 Certificates,] the following table indicates the projected
weighted average life of each [Subc] [C]lass of [Class A] Certificates and
sets forth the percentages of the initial Stated Principal Balance of each
[Subc] [C]lass of [Class A] Certificates that would be outstanding after each
of the dates shown at various percentages of SPA.
PERCENTAGE OF INITIAL STATED PRINCIPAL BALANCE OUTSTANDING
<TABLE>
<CAPTION>
CLASS A-1 CLASS A-2 CLASS A-3 CLASS A-4
CERTIFICATES CERTIFICATES CERTIFICATES CERTIFICATES
AT THE FOLLOWING AT THE FOLLOWING AT THE FOLLOWING AT THE FOLLOWING
PERCENTAGES OF PERCENTAGES OF PERCENTAGES OF PERCENTAGES OF
SPA (1) SPA (1) SPA (1) SPA (1)
-------------- -------------- -------------- ---------------
PAYMENT DATE 0% % % % 0% % % % 0% % % % 0% % % %
- -------------------- -------------- -------------- -------------- ---------------
Original Balance
<C> <S> <C> <C> <C>
, 1995............
, 1996............
, 1997............
, 1998............
, 1999............
, 2000............
, 2001............
</TABLE>
S-13
<PAGE>
<TABLE>
<CAPTION>
<C> <S> <C> <C> <C>
CLASS A-1 CLASS A-2 CLASS A-3 CLASS A-4
CERTIFICATES CERTIFICATES CERTIFICATES CERTIFICATES
AT THE FOLLOWING AT THE FOLLOWING AT THE FOLLOWING AT THE FOLLOWING
PERCENTAGES OF PERCENTAGES OF PERCENTAGES OF PERCENTAGES OF
SPA (1) SPA (1) SPA (1) SPA (1)
-------------- -------------- -------------- ---------------
PAYMENT DATE 0% % % % 0% % % % 0% % % % 0% % % %
- -------------------- -------------- -------------- -------------- ---------------
<C> <S> <C> <C> <C>
,2002.............
,2003.............
,2004.............
,2005.............
,2006.............
,2007.............
,2008.............
,2009.............
,2010.............
,2011.............
,2012.............
,2013.............
,2014.............
,2015.............
,2016.............
Weighted average life
(Years)...........
</TABLE>
- ----------
(1) The table assumes, among other things, [at each level of SPA,] prepayment
of Mortgage Loans comprising the Mortgage Pool at the indicated rate and
Reinvestment Income at the Assumed Reinvestment Rate of % per annum [and
annual estimated administrative fees and expenses of approximately $ .]
S-14
<PAGE>
DESCRIPTION OF THE [CLASS A] CERTIFICATES
GENERAL
The Certificates will be issued pursuant to the Standard Terms and
Provisions of Pooling and Servicing (the "Standard Terms") as amended and
supplemented by a Reference Agreement to be dated as of the Cut-off Date (the
"Reference Agreement" and, together with the Standard Terms, the "Pooling and
Servicing Agreement") among the Depositor, , as master servicer (the
"Master Servicer"), and , as trustee (the "Trustee"), a form of
which has been filed as an exhibit to the Registration Statement of which this
Prospectus Supplement forms a part. Reference is made to the accompanying
Prospectus for important additional information regarding the terms and
conditions of the Pooling and Servicing Agreement and the Certificates. Each
of the [Class A] Certificates at the time of issuance will qualify as a
"mortgage related security" within the meaning of the Secondary Mortgage
Market Enhancement Act of 1984.
Distribution of principal and interest as set forth above will be made by
the Trustee by check mailed to each Certificateholder entitled thereto at the
address appearing in the Certificate Register to be maintained with the
Trustee or, if eligible for wire transfer as provided in the Pooling and
Servicing Agreement, by wire transfer to the account of such
Certificateholder; provided, however, that the final distribution in
retirement of the Certificates will be made only upon presentation and
surrender of the Certificates at the office or agency specified in the notice
to Certificateholders of such final distribution.
The [Class A] Certificates will be transferable and exchangeable on a
Certificate Register to be maintained by the Trustee at the office or agency
of the Master Servicer maintained for that purpose in New York, New York.
[Class A] Certificates surrendered to the Trustee for registration of transfer
or exchange must be accompanied by a written instrument of transfer in form
satisfactory to the Trustee. No service charge will be made for any
registration of transfer or exchange of [Class A] Certificates, but payment of
a sum sufficient to cover any tax or other governmental charge may be
required. Such office or agency of the Master Servicer is currently located at
. The Corporate Trust Office of the Trustee is currently located at .
[DISTRIBUTIONS GENERALLY]
[On each Distribution Date, the Trustee will distribute to the Class A
Certificateholders, in the manner set forth below, an amount (the "Required
Distribution") equal to the sum of:
(i) the aggregate fractional undivided interest evidenced by all
Class A Certificates (the "Senior Interest") in: (a) until such time as
the Subordinated Amount is reduced to zero, all scheduled payments of
principal and interest (including any advances thereof), net of servicing
fees and other compensation payable to the Servicers and the Master
Servicer, which payments became due on the due date to which such
Distribution Date relates (the "Due Date"), whether or not such payments
are actually received; and (b) after the Subordinated Amount is reduced
to zero, all payments of principal and interest, net of servicing fees
and other compensation payable to the Servicers and the Master Servicer,
but not previously received, since the time the Subordinated Amount was
reduced to zero, but only to the extent such payments are actually
received or advanced prior to the Determination Date;
(ii) the Senior Interest in all principal prepayments received
during the month prior to the month of distribution and, interest to the
last day of the month in which such principal prepayments occur, net of
servicing fees and other compensation payable to the Servicers and the
Master Servicer; and
(iii) the Senior Interest in the sum of (a) the outstanding
principal balance of each Mortgage Loan or property acquired in respect
thereof that was repurchased pursuant to the Pooling and Servicing
Agreement or liquidated or foreclosed during the monthly period ending on
the day prior to the Due Date to which such distribution relates,
calculated as of the date of each such Mortgage Loan as repurchased,
liquidated or foreclosed, and (b) accrued but unpaid interest on such
principal balance, net of servicing fees and other compensation payable
to the Servicers and the Master Servicer, to the first day of the month
following the month of such repurchase, liquidation or foreclosure.
The Required Distribution will be distributed to the Class A
Certificateholders, in the manner set forth below, to the extent that there
are sufficient eligible funds available for distribution to such Class A
Certificateholders on a Distribution Date. Funds eligible for such purpose
with respect to each Distribution Date shall be as set forth in the Prospectus
under "Payments on Mortgage Loans."
If the funds in the Certificate Account eligible for distribution to the
Class A Certificateholders (including all funds required to be deposited
therein from the Reserve Funds and any Advances by the Servicers or the Master
Servicer) are not sufficient to make the Required Distribution on any
Distribution Date, the Trustee shall distribute on such Distribution Date to
the Class A Certificateholders the amount of funds eligible for distribution
to such Class A Certificateholders, in the manner set forth below. If, on any
Distribution Date, prior to the time the Subordinated Amount has been reduced
to zero, the Class A Certificateholders do not receive the Required
Distribution, the holders of the Class B Certificates will not receive any
distributions on such Distribution Date. Any
S-15
<PAGE>
amounts in the Certificate Account after the Required Distribution is made to
the Class A Certificateholders will be distributed [first, to restore the
amount in the Reserve Fund to the Required Reserve, and then to the holders of
the Class B Certificates to the extent of any deficiency in the scheduled
distribution to such Certificateholders. Any excess will then be distributed
to the holders of the Residual Certificates, as set forth more fully below].
Holders of the Class B Certificates [or the Residual Certificates] will not be
required to refund any amounts that have previously been properly distributed
to them directly from the Certificate Account, regardless of whether there are
sufficient funds on such Distribution Date to make a full distribution to the
Class A Certificateholders. The subordination of distributions allocable to
holders of the Class B Certificates is limited to the Subordinated Amount,
which will decrease over time as more fully set forth in the Pooling and
Servicing Agreement, and such subordination applies on any Distribution Date
only to then current distributions allocable to the Class B
Certificateholders.
DISTRIBUTIONS OF INTEREST
The Certificates of each Class will bear interest at the Interest Rates
specified on the cover page hereof. Interest on the Class A-1 Certificates,
Class A-2 Certificates and Class A-3 Certificates will be distributable
[monthly] on each Distribution Date, commencing , 19 . [Interest
distributable on the Certificates on a Distribution Date will accrue from the
[first day of the month preceding the] prior Distribution Date (or from
, 19 (the "Accrual Date") in the case of the first Distribution Date)
through the [last] day [of the [second] month] preceding the then current
Distribution Date. [Interest will accrue on the Variable Rate Certificates
from the preceding Distribution Date (or from , 19 , in the case of
the first Distribution Date) through the th day of the month preceding
each Distribution Date. Interest will accrue on the Fixed Rate Certificates
from the th day of the month [preceding the month] in which the prior
Distribution Date occurs (or from , 19 , in the case of the first
Distribution Date) through the th day of the month [preceding the month]
in which the current Distribution Date occurs.] Distributions of interest on
the Class A-4 Certificates will commence after distributions in reduction of
Stated Principal Balance of the Class A-3 Certificates have reduced the Stated
Principal Balance of such Class to zero. Prior to that time, interest will
accrue on the Class A-4 Certificates and the amount so accrued will be added
to the Stated Principal Balance thereof on each Distribution Date. [Interest
accrued on the [Subc] [C]lass of [Class A] Certificates currently receiving
distributions in reduction of Stated Principal Balance (and on the Class A-4
Certificates) during any period described above will be calculated on the
assumption that such distributions are made (and accrued interest added to the
Stated Principal Balance of the Class A-4 Certificates) on the [[first] day of
the month preceding] the next Distribution Date, and not on the Distribution
Date when actually made or added.
[Interest will accrue on the Class A-1 and Class A-2 Certificates through
, 19 at the rates of % and %, respectively. Commencing , 19
, interest will accrue on the Variable Rate Certificates at rates determined
as set forth below. For each interest accrual period other than the first
interest accrual period
--Interest will accrue on the Class A-1 Certificates at a per annum rate
of % above LIBOR, subject to a maximum interest rate of %.
--Interest will accrue on the Class A-2 Certificates at a per annum rate
equal to % -- ( x LIBOR), subject to a minimum interest rate of %.
The rate at which interest will accrue on the Class A-2 Certificates will
thus vary inversely with changes in LIBOR. Interest will accrue on the Class
A-2 Certificates at the minimum rate of % whenever LIBOR is % or
above, and the maximum rate at which interest will accrue on the Class A-2
Certificates will be % per annum, which would be the rate in effect if
LIBOR were determined to be %.
The following table illustrates the relationship between LIBOR rates and
the rate at which interest will accrue on the Class A-1 and Class A-2
Certificates.
<TABLE>
<CAPTION>
LIBOR CLASS A-1 CLASS A-2
----- ---------- ---------
<S> <C> <C>
% % %
% % %
% % %
</TABLE>
The [Trustee] will determine LIBOR for a given interest accrual period on
the second business day prior to the Distribution Date on which such interest
accrual period commences (an "Interest Rate Determination Date"). For this
purpose, a "business day" is any day on which banks in London and New York
City are open for the transaction of international business. Promptly after
each Interest Rate Determination Date, the Trustee will cause the Interest
Rates, the Stated Principal Balances of the Variable Rate Certificates for the
interest accrual period following such Determination Date, and the amounts of
interest payable on the Distribution Date following such interest accrual
period in respect of each $1,000 of such Stated Principal Balance, to be
published in an English language newspaper of general circulation published
each business day in New York City. The Stated Principal Balances and the
Interest Rates on the Variable Rate Certificates applicable to the then
current and the immediately preceding interest accrual periods may be obtained
by telephoning the Trustee at its Corporate Trust Office at .
S-16
<PAGE>
The determination of the rates at which interest will accrue on the
Variable Rate Certificates after , 19 will be made in accordance
with the following provisions:
(i) On each Interest Rate Determination Date, the Trustee will
determine LIBOR on the basis of quotations [provided by [four] Reference
Banks as of 11:00 A.M. (London time) as such quotations appear on the
Reuters Screen LIBOR Page (as defined in the International Swap Dealers
Association, Inc. Code of Standard Wording, Assumptions and Provisions
for SWAPS, 1986 edition).] LIBOR as determined by the Trustee is the
arithmetic mean of such quotations (rounded upward, if necessary, to the
nearest multiple of of 1%).
(ii) If, on any Interest Rate Determination Date, at least two but
fewer than all of the Reference Banks provide quotations, LIBOR will be
determined in accordance with (i) above on the basis of the offered
quotations of those Reference Banks providing such quotations.
(iii) If, on any Interest Rate Determination Date, only one or none
of the Reference Banks provides such offered quotations, LIBOR will be
the higher of:
(a) LIBOR as determined on the previous Interest Rate
Determination Date; and
(b) the Reserve Interest Rate. The "Reserve Interest Rate" will
be the rate per annum (rounded upward as aforesaid) that the Trustee
determines to be either (x) the arithmetic mean of the offered
quotations that leading banks in New York City selected by the
Trustee (after consultation with the Depositor) are quoting on the
relevant Interest Rate Determination Date for [ ] month United
States dollar deposits to the principal London office of each of the
Reference Banks or those of them (being at least two in number) to
which such offered quotations are, in the opinion of the Trustee,
being so made or (y) in the event that the Trustee can determine no
such arithmetic mean, the arithmetic mean of the offered quotations
that leading banks in New York City selected by the Trustee (after
consultation with the Depositor) are quoting on such Interest Rate
Determination Date to leading European banks for [ ] month United
States dollar deposits; provided, however, that if the banks
selected as aforesaid by the Trustee are not quoting as mentioned
above, LIBOR for the next accrual period will be LIBOR as specified
in (a) above.
The rate at which interest will accrue on the Class A-1 Certificates will
in no event exceed % per annum, and the rate at which interest will accrue on
the Class A-2 Certificates will in no event be less than % per annum.
Each Reference Bank shall be a leading bank engaged in transactions in
Eurodollar deposits in the international Eurocurrency market, shall not
control, be controlled by, or be under common control with, the Depositor and
shall have an established place of business in London.
[The distribution of interest on the [Class A] Certificates (and the
addition of accrued interest to the Stated Principal Balance of the Class A-4
Certificates prior to the reduction of the Stated Principal Balance of the
Class A-3 Certificates to zero) [30] days after the date to which interest
accrues thereon and the calculation of accrued interest on the Certificates
based on the assumption that distributions in reduction of Stated Principal
Balance of the [Class A] Certificates are made [one month] prior to the actual
Distribution Date will reduce the effective yield to holders of the [Class A]
Certificates from that which would otherwise be the case if interest
distributable on the [Class A] Certificates (or added to the Stated Principal
Balance of the Class A-4 Certificates) on a Distribution Date were to accrue
to such Distribution Date.]
[The effective yield to the Class A-3 and Class A-4 Certificateholders
will be less than the yield that would otherwise be produced if interest
distributable on the Certificates (or to be added to the Stated Principal
Balance of the Class A-4 Certificates) on a Distribution Date were to accrue
to such Distribution Date because (i) on the first Distribution Date, [ ]
months' interest is distributable on the Certificates (or to be added to the
Stated Principal Balance of the Class A-4 Certificates) even though [ ]
months will have elapsed from the date on which interest begins to accrue on
the Certificates and (ii) on each succeeding Distribution Date, the interest
distributable on the Certificates (or to be added to the Stated Principal
Balance of the Class A-4 Certificates) is the interest accrued during the
period described above even though this accrual period ends [30] days prior to
such Distribution Date. In addition, during the first month of each interest
accrual period (other than the first such period) for the Class of
Certificates on which distributions in reduction of Stated Principal Balance
are being distributed, interest accrues on a principal balance that is less
than the Stated Principal Balance of such Class of Certificates, because
interest due on such Class on a Distribution Date is calculated on the Stated
Principal Balance of such Class since the preceding Distribution Date.]
DISTRIBUTIONS IN REDUCTION OF STATED PRINCIPAL BALANCE
Distributions in reduction of Stated Principal Balance on the [Class A]
Certificates will be made on each Distribution Date on which distributions are
due in an aggregate amount equal to the sum of the Accrual Distribution Amount
and the Stated Principal Distribution Amount. For purposes of determining the
Stated Principal Distribution Amount, the Asset Value of the Mortgage Loans
S-17
<PAGE>
comprising the Mortgage Pool will be reduced by taking into account [the
Senior Interest in] all distributions of principal thereof (including
prepayments) received or due to be received by the Trustee during the Due
Period prior to such Distribution Date.
Distributions in reduction of Stated Principal Balance on the [Class A]
Certificates will be made first to the Class A-1 Certificates until the Stated
Principal Balance of the Class A-1 Certificates has been reduced to zero; next
to the Class A-2 Certificates until the Stated Principal Balance of the Class
A-2 Certificates has been reduced to zero; next to the Class A-3 Certificates
until the Stated Principal Balance of the Class A-3 Certificates has been
reduced to zero; and then to the Class A-4 Certificates. Distributions in
reduction of Stated Principal Balance on [Certificates of a particular Class]
[Class A Certificates of a particular Subclass] will be made to the holder of
the Certificates of such [Class] [Subclass] either pro rata in the proportion
which the Stated Principal Balance of each Certificate of such [class]
[subclass] bears to the aggregate Stated Principal Balance of all the
Certificates of such [Class] [Subclass] or by random lot. Except as provided
herein, the Final Scheduled Distribution Date of each [Class] [Subclass] of
[Class A] Certificates has been determined based upon [the Senior Interest in]
scheduled payments of principal and interest on the Mortgage Loans comprising
the Mortgage Pool assuming no prepayments. Reinvestment Income at the Assumed
Reinvestment Rate, [and application of % of the Excess Cash Flow, as
defined herein, to the payment of Certificates.] The rate of prepayments on
the Mortgage Loans will depend on the prevailing level of interest rates and
other economic factors, and no assurance can be given as to the actual
prepayment rate of any Mortgage Loan.
The aggregate initial Asset Value of the Mortgage Loans comprising the
Mortgage Pool will be equal to at least 100% of the initial aggregate Stated
Principal Balance of the [Class A] Certificates.
The Asset Value of the Mortgage Loans comprising the Mortgage Pool will
be equal to the lesser of (a) the then present value of the [Senior Interest
in the] stream of remaining regularly scheduled monthly payments of principal
and interest on such Mortgage Loans [(after taking into account the applicable
portion of the Reserve Fund and the Buy-Down Fund)] together with Reinvestment
Income thereon from the assumed date of receipt of such payments to the next
succeeding Distribution Date at the Assumed Reinvestment Rate, discounted at
the rate of % per annum with the same frequency as distributions are made
on the Certificates and (b) the product of the Asset Value Cap calculated from
time to time in the manner provided in the Pooling and Servicing Agreement and
the then outstanding principal balance of such Mortgage Loan.
[ % of the Excess Cash Flow will be applied to the distributions on
[Class A] Certificates on each Distribution Date until such time that, even in
the event of excessive prepayments of the Mortgage Loans, sufficient funds
will be available to make distributions of interest on the [Class A]
Certificates on each succeeding Distribution Date. Thereafter, it will no
longer be necessary to provide for the possibility of a Special Distribution
on the [Class A] Certificates in respect of prepayments on such Mortgage
Loans.]
On each Distribution Date, the distributions in reduction of Stated
Principal Balance on the [Class A] Certificates will be equal to the [Class A]
Stated Principal Distribution Amount. The [Class A] Stated Principal
Distribution Amount will be the amount by which (i) the Stated Principal
Balance of the [Class A] Certificates (before taking into account the amount
of interest accrued on the Class A-4 Certificates to be added to the Stated
Principal Balance thereof on the Distribution Date), exceeds (ii) the
aggregate Asset Value of the Mortgage Loans comprising the Mortgage Pool as of
such Distribution Date.
[In addition, % of the Excess Cash Flow from the Mortgage Loans
comprising the Mortgage Pool will be applied to the distributions of the
[Class A] Certificates on each Distribution Date until ]. Excess Cash Flow
as of each Distribution Date will be the amount, if any, by which (i) the
[Senior Interest in the] cash flow received from the Mortgage Loans and
deposited in the Certificate Account for the Certificates [and any amounts
deposited in such Certificate Account from any related Buy-Down Fund and GPM
Fund on the date of issuance of the Certificates], plus any Reinvestment
Income thereon, [together with any amounts otherwise distributable to the
Class B Certificateholders or in the Reserve Fund that are required to be
distributed to holders of the Class A Certificates] exceeds (ii) the sum of
(a) the [Class A] Stated Principal Distribution Amount on such Distribution
Date and (b) all interest accrued, whether or not then payable, on the Stated
Principal Balance of the [Class A] Certificates since the preceding
Distribution Date, and (c) any Special Distributions in reduction of Stated
Principal Balance made since the preceding Distribution Date (or since the
date of issuance of the Certificates in the case of the first Distribution
Date). [On any Distribution Date, Excess Cash Flow not so applied will be
[distributed first to restore the amount in the Reserve Fund to the Required
Reserve, and then] to the holders of the Class B Certificates to the extent of
any current deficiency in scheduled distributions to such Certificateholders
on such Distribution Date.] [Any excess will then be distributed to holders of
the Residual Certificates. Any Excess Cash Flow so distributed will not be
available to make subsequent distributions on the [Class A] Certificates.]
[SPECIAL DISTRIBUTIONS
The [Class A] Certificates may receive special distributions in reduction
of Stated Principal Balance ("Special Distributions") as a consequence of
principal prepayments on the Mortgage Loans comprising the Mortgage Pool
and/or low yields then available for reinvestment. The Trustee will be
required each month to determine, based on assumptions specified in the
Pooling and Servicing Agreement, the amount that will be available in the
Certificate Account for the distribution of interest that will have accrued on
such [Class A] Certificates (the "Available Interest Amount") through the
earlier of the last day of the month of determination or the last day of the
[second] month preceding the next Distribution Date (the earlier of such dates
being referred to as the "Available Interest Accrual
S-18
<PAGE>
Date"). If the Available Interest Amount as so determined is less than the
amount of interest that will have accrued on such [Class A] Certificates to
the Available Interest Accrual Date, there will be distributed, on the first
day of the month succeeding the month of determination (the "Special
Distribution Date"), the portion of the Stated Principal Balance of the [Class
A] Certificates that will cause the Available Interest Amount to equal the
amount of interest that will have accrued to the Available Interest Accrual
Date on the Certificates to be outstanding immediately after such
distribution. The amount of the Special Distribution on the Certificates
distributed on any Special Distribution Date will not exceed the amount of
distributions in reduction of Stated Principal Balance on such Certificates
that would otherwise be required to be made on the next Distribution Date.
The Trustee will notify each registered holder of [Class A] Certificates
to receive a Special Distribution by letter mailed at least five days prior to
the date set for such Special Distribution.]
[OPTIONAL TERMINATION
On any Distribution Date on or after the [later] of or the date
on which the Stated Principal Balance of the [Class A-3] Certificates has been
reduced to zero, the Depositor will have the right to repurchase, in whole,
but not in part, the Mortgage Loans comprising the Mortgage Pool.
Additionally, on any Distribution Date on which the aggregate principal amount
of the Mortgage Loans comprising the Mortgage Pool is less than [10]% of the
initial aggregate principal amount of such Mortgage Loans, the Depositor will
have the right to repurchase, in whole, but not in part, such Mortgage Loans.
Any such repurchase will be made at a purchase price equal to [the outstanding
principal balance of such Mortgage Loans, together with accrual and unpaid
interest thereon, net of servicing fees and other compensation, to the last
day of the month of such repurchase, plus the appraised value of any property
acquired in respect thereof]. Any such termination will be effected in
compliance with the requirements of Section 860F(a)(iv) of the Code so as to
constitute a "qualifying liquidation" thereunder. The proceeds of any such
repurchase will be treated as a distribution on the Mortgage Loans for
purposes of distributions to the Certificateholders. In no event will the
Trust continue beyond the expiration of 21 years from the death of the last
survivor of the persons named in the Pooling and Servicing Agreement.]
TRUSTEE
The Trustee for the Certificates will be
, a bank organized and existing under the laws of the with
its principal office located at ,
.
THE MASTER SERVICER
The Master Servicer is a corporation that commenced operation
in , . The Master Servicer may be an affiliate of the
Depositor. The Master Servicer is a FNMA/FHLMC approved seller-servicer based
in . As of , the Master Servicer serviced, for other investors
and for its own account, approximately mortgage loans with an aggregate
principal balance in excess of $ . The Master Servicer
originated approximately $ in mortgage loans in 19 . The
Master Servicer's consolidated stockholder's equity as of was
approximately $ .
The information set forth above has been provided by the Master Servicer.
The Depositor makes no representation as to the accuracy or completeness of
such information.
The Master Servicer shall obtain and maintain in effect a bond, corporate
guaranty or similar form of insurance coverage (the "Performance Bond"),
insuring against loss occasioned by the errors and omissions of the Master
Servicer's officers, employees and any other person acting on behalf of the
Master Servicer in its capacity as Master Servicer and guaranteeing the
performance, among other things, of the obligations of the Master Servicer to
purchase certain Mortgage Loans and to make advances, as described in the
Prospectus under "Description of the Certificates--Assignment of Mortgage
Loans" and "--Advances", in an amount acceptable to the Rating Agency.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The servicing compensation payable to the Master Servicer will be equal
to % of the outstanding principal balance of each Mortgage Loan in
the Mortgage Pool less [(a)] any servicing compensation to the servicer of
each such Mortgage Loan (the "Servicer") (including such compensation paid to
the Master Servicer as the direct Servicer of a Mortgage Loan for which there
is no Servicer) under the terms of an agreement with the Master Servicer
pursuant to which the Servicer services such Mortgage Loan (a "Servicing
Agreement") [.] [, and (b) the amount payable to the Depositor, as described
below.] [Pursuant to the Pooling and Servicing Agreement, on each Distribution
Date, the Master Servicer will remit to [the Depositor] in respect of each
interest payment on a Mortgage Loan an amount equal to % of the
outstanding principal balance of such Mortgage Loan, before giving effect to
any payments due on the preceding Due Date.] The Master Servicer will be
permitted to withdraw from the Certificate Account, in respect of each
interest payment on a Mortgage Loan, an amount equal to % of the
outstanding principal balance of such Mortgage Loan, before giving effect to
any payments due on the preceding Due Date. Servicing compensation to the
Servicers of the Mortgage Loans shall be payable by withdrawal from the
related Servicing Account (as defined in the Prospectus) prior to deposit in
the Certificate Account. In addition, each Servicer (with respect to the
Mortgage Loans serviced by it) and the Master Servicer will be entitled to
S-19
<PAGE>
servicing compensation out of insurance proceeds or liquidation proceeds.
Additional servicing compensation in the form of prepayment charges,
assumption fees, late payment charges or otherwise shall be retained by the
Servicers and the Master Servicer to the extent not required to be deposited
in the Certificate Account. The Servicers and the Master Servicer will pay all
expenses incurred in connection with its responsibilities under the Servicing
Agreements and the Pooling and Servicing Agreement (subject to limited
reimbursement as described in the Prospectus), including, without limitation,
the various items of expense enumerated in the Prospectus.
CERTIFICATE RATING
It is a condition to the issuance of the [Class A] Certificates that they
be rated in one of the two highest categories of the Rating Agency.
A security rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning
Rating Agency.
[ERISA CONSIDERATIONS]/*/
[Describe whether any exemption from "plan asset" treatment is available
with respect to the Series.]
[State whether the Series is an Exempt or Nonexempt Series (see "ERISA
Considerations-Prohibited Transaction Class Exemption" in the Prospectus).]
UNDERWRITING
The Depositor has entered into an Underwriting Agreement with [several
Underwriters for whom] CS First Boston Corporation, an affiliate of the
Depositor[, is acting as Representative]. The Underwriter[s] [named below]
[has] [have severally] agreed to purchase the [entire] [following respective]
Stated Principal Balance of each [Subc] [C]lass of the [Class A] Certificates:
<TABLE>
<CAPTION>
[UNDERWRITERS CLASS A-1 CLASS A-2 CLASS A-3 CLASS A-4
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C>
CS First Boston Corporation $ $ $ $
- -----------------------------------------------------------------------
$ $ $ $
- -----------------------------------------------------------------------
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriter[s] [is] [are] subject to certain conditions precedent, and that
the Underwriter[s] will be obligated to purchase all of the Certificates if
any are purchased.
The Depositor has been advised [by the Representative] that the
Underwriter[s] propose[s] to offer each [Subc] [C]lass of the Certificates to
the public at the public offering prices set forth on the cover page of this
Prospectus Supplement and [through the Representative,] to certain dealers at
such prices less the following concessions and such dealers may allow the
following discounts on sales to certain other dealers:
<TABLE>
<CAPTION>
CONCESSION DISCOUNT
(PERCENT OF PRINCIPAL AMOUNT) (PERCENT OF
PRINCIPAL AMOUNT)
- --------------------------------------------------------------------------
<S> <C> <C>
Class A-1 Certificates % %
- --------------------------------------------------------------------------
Class A-2 Certificates % %
- --------------------------------------------------------------------------
Class A-3 Certificates % %
- --------------------------------------------------------------------------
Class A-4 Certificates % %
- --------------------------------------------------------------------------
</TABLE>
- ----------
/*/ If the Series of Certificates offered pursuant to this Version C Prospectus
Supplement evidences interests in Contracts, the disclosure to be set forth will
be substantially similar to the disclosure set forth in Version E under "ERISA
Considerations."
S-20
<PAGE>
After the initial public offering, the public offering prices and
concessions and discounts to dealers may be changed by the [Representative]
[Underwriter].
The Depositor has agreed to indemnify the Underwriter[s] against certain
civil liabilities, including liabilities under the Securities Act of 1933, as
amended.
LEGAL MATTERS
Certain legal matters in connection with the Certificates offered hereby
will be passed upon for the Depositor and for the Underwriter[s] by Sidley &
Austin, New York, New York.
USE OF PROCEEDS
The Depositor will apply the net proceeds of the offering of the
Certificates towards the simultaneous purchase of the Mortgage Loans
comprising the Mortgage Pool. All of the Mortgage Loans will be acquired in
privately negotiated transactions by the Depositor from one or more affiliates
of the Depositor, which will have acquired such Mortgage Loans from time to
time in the open market or in privately negotiated transactions.
S-21
<PAGE>
SUBJECT TO COMPLETION, DATED , 1995
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SUPPLEMENT SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY
SUCH STATE.
- --------------------------------------------------------------------------------
P R O S P E C T U S S U P P L E M E N T
(To Prospectus Dated ,19 )
- --------------------------------------------------------------------------------
$ (Approximate)
ASSET BACKED SECURITIES CORPORATION
Depositor
Conduit Mortgage Pass-Through Certificates, Series
Class -1 Certificates
$ Original Principal Amount (Approximate)
100% of principal payments of the Underlying Certificates
0% of interest payments on the Underlying Certificates
Class -2 Certificates
No Original Principal Amount
0% of principal payments on the Underlying Certificates
Interest at % Annual Rate on Class -2 Certificates notional amount
-----------------------
The Conduit Mortgage Pass-Through Certificates, Series (the
"Certificates"), offered hereby evidence undivided percentage ownership
interests in a trust (the "Trust") composed of Conventional Mortgage Pass-
Through Certificates, each having a pass-through rate of % (the "Underlying
Certificates"). The mortgage pool underlying the Underlying Certificates
consists of conventional one- to four-family residential mortgage loans
originated and serviced by and certain related property. The Underlying
Certificates will be transferred to the Trust, pursuant to a Deposit Trust
Agreement dated as of 1, 199 , by Asset Backed Securities Corporation (the
"Depositor") in exchange for the Certificates and are more fully described in
this Prospectus Supplement and in the accompanying Prospectus.
The Certificates will be issued in two classes, Class -1 (the "Class -1
Certificates") and Class -2 (the "Class -2 Certificates"). The Class -1
Certificates evidence ownership interests in all of the principal payments on
the Underlying Certificates. The Class -2 Certificates evidence ownership
interests in all of the interest payments on the Underlying Certificates, net of
a servicing fee as described herein (the "Servicing Fee"). Interest
distributions allocable to the Class -2 Certificates will be passed through
monthly at the annual rate of % (the "Annual Rate") on the then aggregate
outstanding notional amount of the Class -2 Certificates. The notional amount
is used solely for purposes of the determination of interest payments and
certain other rights and obligations of Holders of Class -2 Certificates and
does not represent an interest in principal payments on the Underlying
Certificates.
Principal payments and interest at the Annual Rate will be distributed to
the holders of Certificates ("Certificateholders" or "Holders") entitled thereto
on the [last] day of the month (or if such day is not a business day, on the
next business day) (the "Distribution Date"), or under the circumstances
described herein, on the Distribution Date in the next month. The first
distribution will be made on , 199 .
The Certificates do not represent an obligation of or interest in Asset
Backed Securities Corporation or any affiliate thereof or of , any affiliate
thereof or any other governmental agency or instrumentality.
There is currently no secondary market for the Certificates and there is no
assurance that one will develop. The Underwriter[s] expect[s] to establish a
market in the Certificates, but [is] [are] under no obligation to do so. There
is no assurance that a secondary market will develop, or, if it does develop,
that it will continue.
The yield to maturity on the Certificates will depend on the rate of
principal payments (including prepayments) on the Underlying Certificates. The
mortgage loans underlying the Underlying Certificates are conventional loans and
may be prepaid at any time without penalty. A lower rate of principal than
anticipated would negatively affect the total return to investors in Class -1
Certificates, which are being offered at a discount to their principal amount.
The yield to maturity on the Class -2 Certificates will be extremely sensitive
to the rate of principal payments on the Underlying Certificates and may
fluctuate significantly from time to time. Investors should fully consider the
associated risks, including the risk that a rapid rate of principal payments
could result in the failure of investors in Class -2 Certificates to recoup
their initial investment. See "Yield Considerations."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Price to Underwriting Proceeds to
Public Discount (1) Depositor (2)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Class -1 Certificates % % %
- ----------------------------------------------------------------------------------------------------------------------------
Per Class -2 Certificates %(3) % %(3)
- ----------------------------------------------------------------------------------------------------------------------------
Total $ $ $
- ----------------------------------------------------------------------------------------------------------------------------
(1) Calculated as a percent of gross proceeds of the offering of each Class of Certificates.
(2) Before deduction of expenses payable by the Depositor estimated at $[ ].
(3) Plus accrued interest, if any, on the Class -2 Certificates from 1, 199 (the "Cut-off Date").
</TABLE>
---------------------
The Certificates are offered by the [several] Underwriter[s] when, as and if
issued and accepted by the Underwriter[s] and subject to [its] [their] rights to
reject orders in whole or in part. It is expected that the Certificates, in
definitive, fully registered form, will be ready for delivery on or about , 199.
CS FIRST BOSTON
The date of this Prospectus Supplement is ,19
<PAGE>
THIS PROSPECTUS SUPPLEMENT DOES NOT CONTAIN COMPLETE INFORMATION ABOUT
THE OFFERING OF THE CERTIFICATES. ADDITIONAL INFORMATION IS CONTAINED IN THE
PROSPECTUS AND PURCHASERS ARE URGED TO READ BOTH THIS PROSPECTUS SUPPLEMENT AND
THE PROSPECTUS IN FULL. SALES OF THE CERTIFICATES MAY NOT BE CONSUMMATED UNLESS
THE PURCHASER HAS RECEIVED BOTH THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS .
----------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER[S] MAY OVER-ALLOT OR
EFFECT TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE
CERTIFICATES OFFERED HEREBY AT LEVELS ABOVE THOSE THAT MIGHT OTHERWISE PREVAIL
IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY
TIME.
----------------------
UNTIL , 19 , ALL DEALERS EFFECTING TRANSACTIONS IN THE
CERTIFICATES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE
REQUIRED TO DELIVER A PROSPECTUS SUPPLEMENT AND A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS SUPPLEMENT AND
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
-----------------------
AVAILABLE INFORMATION
The Trust will be subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith will file reports and other information with the Securities
and Exchange Commission (the "Commission"). Such reports and other information
filed by the Trust, can be inspected and copied at the Public Reference Room
of the Commission at 450 Fifth Street, N.W., Washington, D.C., and at the
Commission's regional offices at 75 Park Place, 14th Floor, New York, New York
10007; and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies
of such materials can be obtained at prescribed rates from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549.
S-2
<PAGE>
SUMMARY OF THE TERMS
The following is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus Supplement and the
accompanying Prospectus. Capitalized terms used in this Prospectus Supplement
and not otherwise defined herein shall have the meanings given in the
Prospectus.
SECURITIES OFFERED ........ Conduit Mortgage Pass-Through Certificates,
Series (the "Certificates").
$ original principal amount Class -1 Certificates
(approximate). No original Principal Amount
Class - 2 Certificates. The Class -1 Certificates
represent an undivided percentage ownership
interest in 100% of the monthly principal payments
on the Underlying Certificates (the "Mortgage
Certificates Principal Distribution"). The Class -
1 Certificates do not evidence an ownership
interest in the monthly interest payments on the
Underlying Certificates .
The Class -2 Certificates represent an undivided
percentage ownership interest in 100% of the
monthly interest payment on the Underlying
Certificates (the "Mortgage Certificate Interest
Certificate Interest Distribution"), net of the
Servicing Fee as described herein (such net rate
of interest on the Class -2 Certificates then
outstanding notional amount being referred to
herein as the "Annual Rate"). The Annual Rate is
%. The notional amount for the Class -2
Certificates is equal to the aggregate unpaid
principal balance of the Certificates, but is used
solely for purposes of determining interest
payments and certain other rights and obligations
of holders of Class -2 Certificates and does not
represent any interest in principal payments.
The Certificates will be issued pursuant to a
deposit trust agreement, dated as 1,19 (the
"Deposit Trust Agreement"), between, as trustee
(the "Trustee") and Asset Backed Securities
Corporation (the "Depositor").
DEPOSITOR.................. Asset Backed Securities Corporation.
CUT-OFF DATE............... , 19.
DELIVERY DATE.............. On or about ,19.
DENOMINATIONS.............. The Class -1 Certificates will be offered in
fully registered form, in minimum denominations
of $[ ] original principal amount and multiples
of $[ ] in excess thereof. The Class -2
Certificates will be offered in fully registered
form, in minimum denominations of $[ ] original
notional amount and multiples of $[ ] in excess
thereof.
PRINCIPAL................. The Class -1 Certificates will receive all
principal payments on the Underlying Certificates
(including prepayments). The Class -2
Certificates receive no principal payments on
the Underlying Certificates.
INTEREST................. The Class -2 Certificates will receive all
interest payments on the Underlying Certificates,
after deduction of the Servicing Fee, as described
herein. The Class -1 Certificates will receive no
interest payments on the Underlying Certificates.
S-3
<PAGE>
DISTRIBUTION DATES....... Distributions on the Underlying Certificates that
are received by the Trustee and become cleared
funds in the hands of the Trustee prior to 1:00
p.m. on the [last] day of each month following the
distribution date for the Underlying Certificates,
or, if such day is not a business day, on the next
business day will be distributed to
Certificateholders on such day (each, a
"Distribution Date"). Distributions on the
Underlying Certificates that are received by the
Trustee and become cleared funds in the hands of
the Trustee at or after 1:00 p.m. on any
Distribution Date will be distributed to
Certificate holders on the Distribution Date in
the next month. Distributions will be made only
if, and to the extent that, payments are made on
the Underlying Certificates and received by the
Trustee. The first Distribution Date will be ,
19 . The Cut-off Date will be , 19 .
UNDERLYING CERTIFICATES.. % [Name of Underlying Certificates] in the
aggregate outstanding principal balance of $[ ]as
of the Cut-off Date. See "The Certificate Pool".
YIELD CONSIDERATIONS..... The rate of payment of principal of the Class -1
Certificates, and the aggregate amount of each
distribution on and the yield to maturity of all
Certificates, will depend on the rate of payment
of principal (including prepayments) of the
mortgage loans underlying the Underlying
Certificates. The mortgage loans underlying the
Underlying Certificates are conventional mortgage
loans and can be prepaid at any time without
penalty. The rate of payment of principal varies
significantly from time to time and between pools
of mortgage loans at any time and will be affected
by a variety of factors.
The yield to maturity on the Class -2
Certificates, which are being offered without any
original principal amount, is extremely sensitive
to the rate of payment of principal of the
mortgage loans underlying the Underlying
Certificates and may fluctuate significantly from
time to time. Investors should fully consider the
associated risks, including the risk that if the
rate of principal payment is rapid such investors
may not recoup their initial investment. See
"Yield Considerations".
OPTIONAL TERMINATION.... The mortgage loans underlying the Underlying
Certificates are subject to repurchase at
the option of at such time as the
outstanding principal balance of such mortgage
loans is less than 10% of their outstanding
principal balance as of .The Depositor may,
in the event such option is exercised, or
otherwise, at such time as the outstanding
principal balance of the Certificates is less than
10% of their aggregate principal balance as of the
Cut-off Date purchase the Certificates, in whole,
but not in part, at the purchase price set forth
herein. See "Description of the Certificates-
Optional Termination" herein.
LEGAL INVESTMENT......... The Certificates constitute "mortgage-related
securities" for purposes of the Secondary Mortgage
Market Enhancement Act (the "Enhancement Act"),
and, as such, are legal investments for certain
entities to the extent provided in the Enhancement
Act. See "Legal Investment" in the Prospectus.
S-4
<PAGE>
TRUSTEE.................. (the "Trustee"). See "Description of the
Certificates-Trustee" herein.
CERTIFICATE RATING....... It is a condition of issuance of the Certificates "
that they be rated " "by the Rating Agency prior
to issuance. See "Rating" herein.
ERISA CONSIDERATIONS..... See "ERISA Considerations" in the Prospectus.
TAX ASPECTS.............. See "Certain Federal Income Tax Consequences" in
the Prospectus. Purchasers of Class -1 Certificates
should see "Certain Federal Income Tax
Consequences-Mortgage Pools-Taxation of Owners of
Trust Fractional Certificates" and "-Taxation of
Owners of Trust Fractional Certificates-Application
of Stripped Bond Rules" in the Prospectus for
discussions of certain tax considerations
particular to the Class -1 Certificates. Purchasers
of Class -2 Certificates should see "Certain
Federal Income Tax Consequences-Mortgage Pools-
Taxation of Owners of Trust Interest Certificates"
in the Prospectus for discussions of certain tax
considerations particular to the Class -2
Certificates.
S-5
<PAGE>
DESCRIPTION OF THE UNDERLYING CERTIFICATES
THE UNDERLYING CERTIFICATES
The Underlying Certificates are backed by a pool of conventional one to
four-family residential mortgage loans, originated and serviced by , and
certain related property conveyed to the trust by.
On the Closing Date, the Depositor will deliver to the Trustee
Underlying Certificates having an aggregate principal balance of $[ ] (subject
to a permitted variance of up to 5%) and pass-through rates of [ ]%. The
mortgage loans underlying such Underlying Certificates are expected to have a
weighted average coupon of approximately % per annum based upon actual
information regarding the coupon rates on the mortgage loans.
The Underlying Certificates are expected to have a weighted average
remaining term to maturity of approximately years based upon actual
information regarding the remaining terms to maturity of the mortgage loans
underlying the Underlying Certificates that the Depositor anticipates delivering
to the Trustee. Under the terms of Underlying Certificates, the final payment
thereon will not be later than ,.
The information presented in this section has been derived from the
Current Report on Form 8-K filed by with respect to the Underlying Certificates
and certain other publicly available statistical information regarding the
Underlying Certificates and is derived from the expected balances as of
the Cut-off Date of the mortgage loans underlying the Underlying Certificates,
such balances being estimated using the method customarily employed by
the Depositor. [Prospective investors should be aware that the Depositor may,
in certain unforeseeable circumstances, deliver to the Trustee Underlying
Certificates having characteristics different from those described herein.]
Specific information withrespect to the Underlying Certificates will be
forth in a Current Report on Form 8-K that will be filed by the Depositor, on
behalf of the Trust, with the Securities and Exchange Commission within 15
days after the issuance of the Certificates. [Set forth additional information
with respect to the Underlying Certificates.] [A copy of the Prospectus with
respect to the Underlying Certificates will be made available to any
registered holder of a Certificate upon written request of such
Certificateholder directed to ].
YIELD CONSIDERATIONS
PREPAYMENT EXPERIENCE
Because principal payments on the mortgage loans underlying the Underlying
Certificates will be passed through to the holders of the Class -1 Certificates
and will reduce the notional amount of the Class -2 Certificates, the rate of
payment of principal of the Class -1 Certificates and the aggregate amount of
distributions on Class -1 Certificates and Class -2 Certificates will be
directly related to the rate of payment of principal of the mortgage loans
underlying the Underlying Certificates. The rate of principal payments on the
underlying mortgage loans will in turn be affected by the rate of principal
prepayments thereon (including, for this purpose, payments resulting from
liquidations of the mortgage loans due to defaults, casualties, condemnations or
other dispositions). The mortgage loans are conventional and can be prepaid at
any time without penalty. Prepayments with respect to the Underlying
Certificates may also occur as a result of guaranty payments and the optional
repurchase provision on the Underlying Certificates. Accordingly, the rate of
prepayments on the underlying mortgage loans and rate of payment of principal of
the Underlying Certificates will depend upon future events and a variety of
factors, and no assurance can be given as to either such rate.
The yield to maturity of any Certificates will be affected by the rate of
payment of principal of the Underlying Certificates. Specifically, as the Class
- -1 Certificates are being offered at significant discounts from their original
principal amounts, if the purchaser of a Class -1 Certificate calculates its
anticipated yield to maturity based on an assumed rate of payment of principal
that is faster than that actually received on the Underlying Certificates, its
actual yield to maturity will be lower than that so calculated. Conversely, as
the Class -2 Certificates are being offered without any original principal
amount, if the purchaser of a Class -2 Certificate calculates its anticipated
yield to maturity based on an assumed rate of payment of principal that is
slower than that actually received on the Underlying Certificates, its actual
yield to maturity will be lower than that so calculated.
The timing of changes in the rate of prepayments on the mortgage loans
under the Underlying Certificates may significantly affect an investor's actual
yield to maturity, even if the average rate of principal payments is consistent
with an investor's expectation. In general, the earlier a prepayment of
principal on the mortgage loans underlying the Underlying Certificates the
greater the effect on an investor's yield to maturity. As a result, the effect
on an investor's yield of principal
S-6
<PAGE>
payments occurring at a rate higher (or lower) than the rate anticipated by the
investor during the period immediately following the issuance of the
Certificates may not be offset by a subsequent like reduction (or increase) in
the rate of principal payments.
[BECAUSE THE CLASS -1 CERTIFICATES ARE BEING OFFERED AT A DISCOUNT FROM
THEIR ORIGINAL PRINCIPAL AMOUNT, THE YIELD TO MATURITY THEREON WILL BE SENSITIVE
TO THE RATE OF PRINCIPAL PAYMENTS ON THE MORTGAGE LOANS UNDERLYING THE
UNDERLYING CERTIFICATES.]
BECAUSE THE CLASS -2 CERTIFICATES ARE BEING OFFERED WITHOUT ANY PRINCIPAL
AMOUNT, THE YIELD TO MATURITY ON THE CLASS -2 CERTIFICATES WILL BE EXTREMELY
SENSITIVE TO PREPAYMENT EXPERIENCE ON THE MORTGAGE LOANS UNDERLYING THE
UNDERLYING CERTIFICATES AND MAY FLUCTUATE SIGNIFICANTLY FROM TIME TO TIME.
PROSPECTIVE INVESTORS IN THE CLASS -2 CERTIFICATES SHOULD FULLY CONSIDER THE
ASSOCIATED RISKS, INCLUDING THE RISK THAT IF THE RATE OF PAYMENT IS RAPID SUCH
INVESTORS MAY NOT FULLY RECOUP THEIR INITIAL INVESTMENT.
Prepayments on mortgage loans are commonly measured relative to a
prepayment standard or model. The model used in this Prospectus Supplement, the
Standard Prepayment Assumption ("SPA"), represents an assumed rate of prepayment
each month relative to the then outstanding principal balance of a pool of new
mortgage loans. SPA assumes prepayment rates of 0.2% per annum of the then
outstanding principal balance of such mortgage loans in the first month of the
life of the mortgage loans and an additional 0.2% per annum in each month
thereafter until the thirtieth month. Beginning in the thirtieth month and in
each month thereafter during the life of the mortgage loans, SPA assumes a
constant prepayment rate of 6% per annum. SPA does not purport to be either a
historical description of the prepayment experience of any pool of mortgage
loans, or of the Mortgage Loans in the Mortgage Pool.
The following table illustrates, in general, the effect of prepayment rates
on the timing and amount of distributions on each Class of Certificates and
their resulting weighted average lives. The table does not purport to represent
the anticipated rate of prepayment on the mortgage loans underlying the
Underlying Certificates or the resulting anticipated rate of distributions of
each Class of the Certificates.
The table sets forth the projected annual aggregate distributions that
would be made on the Class -1 Certificates and Class -2 Certificates, and their
resulting weighted average lives, based on various assumed percentages of SPA.
The column headed "0%" assumes that no mortgage loans underlying the Underlying
Certificates are prepaid before maturity. The columns headed " %", " %" and " %"
assume that prepayments are made at the specified percentages of SPA. It has
been assumed in preparing the table that (i) the Underlying Certificates consist
of $ principal amount of % [Name of Underlying Certificates], (ii) the
mortgage loans underlying the Underlying Certificates have the characteristics
described above in "Description of the Underlying Certificates," (iii) all
mortgage loans are prepaid at the indicated percentage of SPA for the life of
the Certificates, (iv) the weighted average remaining term to maturity of the
mortgage loans is years, (v) the interest rate on each mortgage loan is
. % in excess of the pass-through rate on the related Underlying Certificate,
and (vi) the Certificates are not repurchased at the option of the Depositor.
S-7
<PAGE>
PROJECTED ANNUAL AGGREGATE DISTRIBUTIONS ON THE CERTIFICATES
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
Class -1 Certificates Class -2 Certificates
------------------------------------------ ---------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Year Ending 0% SPA % SPA % SPA % SPA 0% SPA % SPA % SPA % SPA
- ----------- ------ ----- ----- ----- ------ ----- ----- -----
$ $ $ $ $ $ $ $
Total distributions............ $ $ $ $ $ $ $ $
Weighted average life (years)(1)
- -------------
</TABLE>
(1) The weighted average of life of the Class -2 Certificates which is
assumed to be equal to the weighted average life of the Class -1
Certificates, is determined by (i) multiplying the amount of each assumed
principal distribution by the number of years from the date of issuance
of the Certificates to the related Distribution Date, (ii) summing the
results and (iii) dividing the sum by the total principal distributions
on the Certificates.
The characteristics of the mortgage loans underlying the Underlying
Certificates, will not correspond exactly to those assumed in preparing the
statistics above. The total cash flows of the Class -2 Certificates will
therefore differ from those set forth above even if all of the mortgage loans
prepay monthly at the related assumed prepayment rate. In addition, it is not
likely that any mortgage loan will repay at a constant rate until maturity or
that all of the mortgage loans will prepay at the same rate, and the timing of
changes in the rate of prepayments may significantly affect the total cash flow
received by Holder of a Class -2 Certificate.
The Depositor makes no representation that the mortgage loans will prepay in
the manner or at any of the rates assumed in the table set forth above. Each
investor must make his own decision as to the appropriate prepayment assumption
to be used in deciding whether or not to purchase any of the Certificates.
The actual rate of principal prepayments on pools of mortgage loans is
influenced by a variety of economic, tax, geographic, demographic, social, legal
and other factors and has fluctuated considerably in recent years. See "Yield
Considerations" in the Prospectus. In addition, the rate of principal
prepayments on the mortgage loans underlying the Underlying Certificates may
differ among pools of mortgage loans at any time because of specific factors
relating to the mortgage loans in the particular pool, including, among other
things, the age of the loans, the interest rates on the loans, the terms to
stated and remaining maturity of the loans, the geographic locations of the
properties securing the loans, the extent of the mortgagors' equity in real
property securing the loans, changes in mortgagors' housing needs, job
transfers, unemployment and servicing decisions.
Generally, however, if prevailing interest rates vary significantly from the
interest rates on the mortgage loans underlying the Underlying Certificates, the
Underlying Certificates are likely to be subject to higher or lower prepayment
rates than if prevailing rates remain at or near the interest rates on the
mortgage loans underlying the Underlying Certificates. In general, if prevailing
interest rates fall significantly below the interest rates on the mortgage loans
underlying the Underlying Certificates, the Underlying Certificates are likely
to be subject to higher prepayment rates than if prevailing rates remain at or
above the interest rates on the mortgage loans underlying the Underlying
Certificates. Conversely, if interest rates rise above the interest rates on the
mortgage loans underlying the Underlying Certificates, the rate of prepayment
would be expected to decrease.
The Depositor believes that the historical payment experience on such
securities is not necessarily indicative of the future payment experience on the
mortgage loans underlying the Underlying Certificates. Since the rate of
principal payments (including prepayments) on such mortgage loans will
significantly affect the yield to maturity on the Certificates,
S-8
<PAGE>
prospective investors are urged to consult their investment advisors as to both
the anticipated rate of future principal payments (including prepayments) on the
underlying mortgage loans and the suitability of the Certificates to their
investment objectives.
PAYMENT DELAY
The effective yield to Certificateholders will be lower than the yield
otherwise produced by the Annual Rate and purchase price since the monthly
distributions on the Underlying Certificates will not be paid to the Holders
until on or after the [last] day of the month next succeeding the month of
accrual. See "Pooling and Servicing Agreement" in the Prospectus. To the extent
that a monthly distribution on an Underlying Certificate does not become cleared
funds in the hands of the Trustee prior to 1:00 p.m. on the Distribution Date in
the month such distribution is required to be made by the issuer of such
Underlying Certificates, the effective yield to the Certificateholders will be
further reduced since such distribution will not be paid to the Holders until
the Distribution Date in the next succeeding month. See "Description of the
Certificates."
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Certificates will be issued pursuant to a deposit trust agreement, dated
as of , 19 (the "Deposit Trust Agreement"), between
, as trustee (the "Trustee"), and the Depositor. Pursuant to the Deposit Trust
Agreement, the Depositor will transfer the Underlying Certificates to the
Trustee in exchange for the Certificates on or about , 19 (the "Delivery
Date"). The Underlying Certificates will be registered in the name of the
Trustee and payments on the Underlying Certificates will be made directly to the
Trustee.
The Certificates are to be issued in two classes, Class -1 Certificates (the
"Class -1 Certificates") and Class -2 Certificates (the "Class -2
Certificates"). The Class -1 Certificates evidence the Holders' beneficial
ownership of an undivided interest in all of the principal payments of the
Underlying Certificates. The Class -2 Certificates evidence the Holders'
beneficial ownership of an undivided interest in all of the interest payments on
the Underlying Certificates after deduction of the Servicing Fee (as defined
herein). Payments of interest on the Class -2 Certificates will be passed
through monthly to Holders thereof at a % Annual Rate on the outstanding
notional amount of such Certificates as of the month preceding the month in
which the related distribution of interest is to be made.
The outstanding principal amount or notional amount, as the case may be, of
each Class of Certificates for any month will be equal to the aggregate
outstanding principal balance of the Underlying Certificates for that month. The
notional amount is used solely for purposes of the determination of interest
payments and certain other rights and obligations of Holders of Class -2
Certificates, and Holders of Class -2 Certificates shall not have any interest
in, or be entitled to any payment with respect to, principal payments on the
Underlying Certificates. The aggregate original principal amount of the Class -
1 Certificates and the aggregate original notional amount of the Class -2
Certificates will each be $ at the Cut-off Date.
Each Class -1 Certificate will evidence a Percentage Interest in the monthly
distributions of principal of the Underlying Certificates. Each Class -2
Certificate will evidence a Percentage Interest in the monthly distributions of
interest on the Underlying Certificates, net of the Servicing Fee. The
Percentage Interest evidenced by each Certificate will be determined by dividing
the denomination of such Certificate by the aggregate denominations of all
Certificates of the same Class. On each Distribution Date, the Trustee will
distribute to each Holder of a Certificate of a Class an amount equal to the
product of such Certificateholder's Percentage Interest evidenced by such
Certificate and the interest of such Class in the Mortgage Certificate Principal
Distribution or the Mortgage Certificate Interest Distribution, as applicable.
The Certificates will be issued only in fully registered form. The Class -1
Certificates will be issued in minimum denominations of $ and multiples of $
in excess thereof. The Class -2 Certificates will be issued in minimum
denominations of $ and multiples of $ in excess thereof.
Principal and interest at a % pass-through rate in respect of the Underlying
Certificates is required to be paid by the issuer of the Underlying Certificates
by check mailed directly to the registered holder thereof on the day of each
month. Payments of principal and interest will be collected by the Trustee and
held in a segregated non-interest-bearing trust account in the name of and for
the benefit of the Trust. Distributions on the Underlying Certificates that are
received by the Trustee and become cleared funds in the hands of the Trustee
prior to 1:00 p.m. on the day of the month or, if such a day is not a
business day, on the next business day, will be distributed to
Certificateholders on such day (each, a "Distribution
S-9
<PAGE>
Date"). Distributions on the Underlying Certificates that are received by the
Trustee and become cleared funds in the hands of the Trustee at or after 1:00
p.m. on any Distribution Date will be distributed to the Certificateholders on
the Distribution Date in the next month. In each case the distribution will be
made to the Holders of record of the Certificates on the close of business on
the last business day of the month preceding the month in which such
distribution is made (the "Record Date"). The first Distribution Date will be ,
19 . Distribution of principal and interest as set forth above will be made by
the Trustee by check mailed to each Certificateholder entitled thereto at the
address appearing in the Certificate Register to be maintained with the Trustee
or, at the request of a Certificateholder, by wire transfer to the account of
such Certificateholder; provided, however, that the final distribution in
retirement of a Certificate will be made only upon presentation and surrender of
the Certificate at the office of the Trustee specified in the notice to
Certificateholders of such final distribution. Wire transfers will be made at
the expense of Certificateholders requesting such wire transfers by deducting a
wire transfer fee from the related transfer.
The Certificates will be transferable and exchangeable on the Certificate
Register at the office or agency of the Trustee maintained for that purpose in
the City of New York. Certificates surrendered to the Trustee for registration
of transfer or exchange must be accompanied by a written instrument of transfer
in form satisfactory to the Trustee. No service charge will be made for any
registration of transfer or exchange of Certificates, but payment of a sum
sufficient to cover any tax or other governmental charge may be required. Such
office or agency is currently located at .
TRUSTEE
The Trustee for the Certificates will be , a bank organized
and existing under the laws of with its principal office
located at .
SERVICING FEE
The Deposit Trust Agreement provides for a servicing fee (the "Servicing Fee")
in an amount equal to % of each interest distribution on the Underlying
Certificates. The Servicing Fee will be deducted by the Trustee prior to making
any payment of interest to Holders of the Class -2 Certificates.
OPTIONAL TERMINATION
The Deposit Trust Agreement provides that the Depositor may purchase
Certificates at such time as (i) the mortgage loans underlying the Underlying
Certificates are repurchased by , or (ii) the aggregate unpaid principal
balance of the Certificates is less than [10]% of the aggregate unpaid principal
balance of the Certificates as of the Cut-off Date.
In such event the Class -1 Certificates will be repurchased at % of their
outstanding principal amount and the Class -2 Certificates will be repurchased
at % of their outstanding notional amount, in each case, as of the date of such
repurchase. In no event will the Trust continue beyond the expiration of 21
years from the death of the last survivor of the persons named in the Deposit
Trust Agreement.
RATING
It is a condition to the issuance of the Certificates that they be rated " "
by the Rating Agency. Such rating addresses the likelihood that the holders of
the Certificates will receive payments required under the Deposit Trust
Agreement. In assigning such a rating to mortgage pass-through certificates, the
Rating Agency takes into consideration the credit quality of the mortgage pool,
including any credit support providers, structural and legal aspects associated
with such certificates, and the extent to which the payment stream on such
mortgage pool is adequate to make required payments on such certificates. Such
rating does not, however, represent an assessment of the likelihood that
principal prepayments will be made by mortgagors or the degree to which such
payments might differ from that originally anticipated. As a result, holders of
the Certificates might suffer a lower than anticipated yield, and holders of the
Class -2 Certificates might fail, in circumstances of extreme prepayment, to
recoup their original investment.
A security rating is not a recommendation to buy, sell or hold securities and
may be subject to revision or withdrawal at any time by the assigning rating
agency.
S-10
<PAGE>
[ERISA CONSIDERATIONS]
[Describe whether any exemption from "plan asset" treatment is available with
respect to the Series.]
[State whether the Series is an Exempt or a Nonexempt Series (see "ERISA
Considerations-Prohibited Transaction Class Exemption" in the Prospectus).]
To qualify for exemption under PTCE 83-1 (see "ERISA-Prohibited Transaction
Class Exemption" in the Prospectus), a certificate of an Exempt Series must
entitle its holder to pass-through payments of both principal and interest on
the Mortgage Loans. Because holders of Class -1 Certificates or Class -2
Certificates are only entitled to pass-through payments of principal (but not
interest) or interest (but not principal), PTCE 83-1 will not exempt Plans that
acquire the Class -1 Certificates or Class -2 Certificates from the prohibited
transaction rules of ERISA. Any Plan fiduciary who proposes to cause a Plan to
purchase Class -1 Certificates or Class -2 Certificates should consult with its
counsel with respect to the potential consequences under ERISA and the Code of
the Plan's acquisition and ownership of such Certificates. However, one of the
other PTCE's or the Underwriter's PTE may be applicable. See "ERISA
Considerations-Prohibited Transaction Class Exemption" in the Prospectus.
UNDERWRITING
The Depositor has entered into an Underwriting Agreement with [several
Underwriters, for whom] CS First Boston Corporation, an affiliate of the
Depositor [, is acting as Representative.] The [Underwriter[s] named below]
[has] [have severally] agreed to purchase from the Depositor the [entire]
[following respective] principal amount[s] of the Certificates:
<TABLE>
<CAPTION>
Class -1 Class -2
[Underwriter Certificates Certificates Total
- --------------- ------------ ------------ -----
<S> <C> <C> <C>
CS First Boston Corporation $ $ $
Total $ $ $ ]
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriter[s]
[is] [are] subject to certain conditions precedent, and that the Underwriter[s]
will be obligated to purchase the entire principal amount of the Certificates if
any are purchased.
The Depositor has been advised [by the Representative] that the Underwriter[s]
propose[s] to offer each Class of the Certificates to the public initially at
the public offering prices set forth on the cover page of this Prospectus
Supplement [, and through the Representative,] to certain dealers at such prices
less the following concessions and that the Underwriter[s] and such dealers may
allow the following discounts on sales to certain other dealers:
<TABLE>
<CAPTION>
CONCESSION DISCOUNT
(PERCENT OF (PERCENT OF
GROSS GROSS
PROCEEDS) PROCEEDS)
------------ ------------
<S> <C> <C>
Class -1 Certificates % %
Class -2 Certificates % %
</TABLE>
After the initial public offering, the public offering prices and concessions
and discounts to dealers may be changed by the [Representative] [Underwriter].
The Depositor has agreed to indemnify the Underwriter[s] against certain
liabilities, including liabilities under the Securities Act of 1933.
S-11
<PAGE>
All of the Underlying Certificates will be acquired in a privately negotiated
transaction by the Depositor from CS First Boston Corporation on terms
substantially similar to those that the Depositor would obtain in an arm's
length transaction. CS First Boston Corporation will have acquired such
Certificates in a privately negotiated transaction.
LEGAL MATTERS
Certain legal matters in connection with Certificates offered hereby will be
passed upon for the Depositor and for the Underwriter[s] by Sidley & Austin, New
York, New York.
USE OF PROCEEDS
The Depositor will apply substantially all of the net proceeds of the offering
of the Certificates towards the simultaneous purchase of the Underlying
Certificates.
S-12
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities are not to be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus supplement shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of any
State.
SUBJECT TO COMPLETION, DATED , 1995
- --------------------------------------------------------------------------------
P R O S P E C T U S S U P P L E M E N T
(To Prospectus Dated , 1995)
- --------------------------------------------------------------------------------
$ (Approximate)
Asset Backed Securities Corporation
Depositor
Conduit Manufactured Housing Contract Pass-Through Certificates, Series
% Pass-Through Rates
Principal and interest payble on the th day
of each month, beginning , 19
---------------
THE CERTIFICATES DO NOT REPRESENT AN INTEREST IN OR OBLIGATION OF ASSET
BACKED SECURITIES CORPORATION, OR ANY AFFILIATE THEREOF. [NEITHER THE
CERTIFICATES NOR THE UNDERLYING CONTRACTS ARE INSURED OR GUARANTEED BY ANY
GOVERNMENTAL AGENCY OR INSTRUMENTALITY.]
---------------
The Conduit Manufactured Housing Contract Pass-Through Certificates, Series
, % Pass-Through Rate (the "Certificates") offered hereby evidence
undivided fractional interests in a trust to be created by Asset Backed
Securities Corporation (the "Depositor") on or about , 199 (the "Trust").
The Trust property will consist of a pool of [conventional] [FHA Insured]
[VA-guaranteed] [fixed-rate] [variable-rate] manufactured housing conditional
sales contracts and installment loan agreements (the "Contracts") and certain
related property to be conveyed to the Trust by the Depositor (the "Trust
Fund"). The Contracts will be transferred to the Trust, pursuant to a Pooling
and Servicing Agreement (as defined herein), dated as of , 199 , by the
Depositor in exchange for the Certificates and are more fully described in this
Prospectus Supplement and in the accompanying Prospectus. The Certificates
offered by this Prospectus Supplement constitute a separate series of the
Certificates being offered by the Depositor from time to time pursuant to its
Prospectus dated , 199 , which accompanies this Prospectus Supplement and
of which this Prospectus Supplement forms a part. The Prospectus contains
important information regarding this offering that is not contained herein, and
prospective investors are urged to read the Prospectus and this Prospectus
Supplement in full.
The Underwriter[s] [do[es] not] intend[s] to make a secondary market for
the Certificates [but [is] [are] under no obligation to do so]. There can be no
assurance that a secondary market will develop, or if it does develop, that it
will continue.
[The Depositor has elected to treat the Trust Fund as a Real Estate
Mortgage Investment Conduit (a "REMIC"). See "Certain Federal Income Tax
Consequences" in the Prospectus.]
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS
SUPPLEMENT OR THE PROSPECTUS TO WHICH IT RELATES. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
==============================================================================
Price to Underwriting Proceeds to the
Public (1) Discount Depositor (1)(2)
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Certificate % % %
- ------------------------------------------------------------------------------
Total $ $ $
==============================================================================
</TABLE>
(1) Plus accrued interest, if any, at the applicable rate from , 19 .
(2) Before deduction of expenses payable by the Depositor estimated at $ .
The Certificates are offered by the [several] Underwriter[s] when, as and
if issued and accepted by the Underwriter[s] and subject to [their] [its]
right to reject orders in whole or in part. It is expected that the
Certificates, in definitive fully registered form, will be ready for
delivery on or about , 199 .
CS First Boston
- --------------------------------------------------------------------------------
The date of this Prospectus Supplement is , 1995.
<PAGE>
THIS PROSPECTUS SUPPLEMENT DOES NOT CONTAIN COMPLETE INFORMATION ABOUT
THE CERTIFICATES OFFERED HEREBY. ADDITIONAL INFORMATION IS CONTAINED IN
THE PROSPECTUS, AND PURCHASERS ARE URGED TO READ BOTH THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS IN FULL. SALES OF THE CERTIFICATES MAY NOT
BE CONSUMMATED UNLESS THE PURCHASER HAS RECEIVED BOTH THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVERALLOT OR
EFFECT TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICES OF THE
CERTIFICATES AT LEVELS ABOVE THOSE THAT MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY
TIME.
UNTIL , 19 , ALL DEALERS AFFECTING TRANSACTIONS IN THE
CERTIFICATES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE
REQUIRED TO DELIVER A PROSPECTUS SUPPLEMENT AND A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS SUPPLEMENT
AND PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
AVAILABLE INFORMATION
The Trust will be subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith will file reports and other information with the
Securities and Exchange Commission (the "Commission"). Such reports and
other information filed by the Trust can be inspected and copied at the
Public Reference Room of the Commission at 450 Fifth Street, N.W.,
Washington, D.C., and at the Commission's regional offices at 75 Park
Place, 14th Floor, New York, New York 10007; and 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of such materials can be
obtained at prescribed rates from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549.
S-2
<PAGE>
SUMMARY OF TERMS
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus Supplement and in
the Prospectus. Capitalized terms used in this Prospectus Supplement and not
defined shall have the meanings given in the Prospectus.
SECURITIES OFFERED................... Conduit Manufactured Housing Contract
Pass-Through Certificates, Series
, % Pass-Through Rate (the
"Certificates").
PRINCIPAL AMOUNT..................... $ (approximate: subject to
a permitted variance of up to %).
DEPOSITOR............................ Asset Backed Securities Corporation
(the "Depositor").
MASTER SERVICER...................... (the "Master Servicer").
DENOMINATIONS........................ The minimum denomination of a
Certificate (a "Single Certificate")
will initially represent
approximately $ aggregate
principal amount of Contracts (as
hereinafter defined).
CUT-OFF DATE......................... , 19 .
DELIVERY DATE........................ On or about , 19 .
INTEREST............................. Passed through monthly at the rate of
% per annum (the "Pass-Through
Rate"), on the day of each month
(each, a "Distribution Date")
commencing , 19 to those
persons in whose name the
Certificates are registered as of
[the last Business Day of the month
preceding the Distribution Date] (the
"Record Date"). [The Pass-Through
Rate for each Contract will equal the
annual percentage rate (the "APR")
then borne by such Contract less a
fee for the servicing of the Contract
(the "Servicing Fee") [, less a fee
for the Limited Guarantee (the
"Limited Guarantee Fee")] [and less
the excess interest (the "Excess
Interest")], as described herein
under "Description of the
Certificates--Servicing Compensation,
[Limited Guarantee Fee] and Payment
of Expenses."
PRINCIPAL (INCLUDING
PREPAYMENTS)......................... Passed through monthly on the
Distribution Date, commencing
, 19 .
CONTRACT POOL........................ [Conventional] [FHA-insured]
[VA-guaranteed] [fixed rate]
[variable rate] manufactured housing
conditional sales contracts and
installment loan agreements
(collectively, the "Contracts")
secured by manufactured homes (as
described herein) (the "Manufactured
Homes") [located in the states of
and ]. The Contracts have
been originated [or acquired] by.
See "Description of the Contract
Pool" herein.
[LIMITED GUARANTEE................... Subject to the limitations described
below, the Limited Guarantee will
cover the difference between the
amount available for distribution to
the Certificateholders [including
Advances] on any [monthly]
Distribution Date and the amount due
the Certificateholders on such
Distribution Date to the extent such
shortfall is attributable to
delinquent payments by borrowers on
the Contracts (each, an "Obligor")
and losses on Defaulted Contracts
(as hereinafter defined). The first
$ of the Guarantee
Amount, as defined below, will
consist of the general
S-3
<PAGE>
guarantee obligation of .
The obligation of will be
backed by the Standby Letter of
Credit issued by and confirmed by
, (as described below). The balance
of the Guarantee Amount consists of
the Direct Letter of Credit issued
by and confirmed by
, described below (the Standby
Letter of Credit and the Direct
Letter of Credit sometimes
collectively are referred to herein
as the "Letters of Credit"). The
amount of the Limited Guarantee
(the "Guarantee Amount") on the
first Distribution Date will be $
. Thereafter, the Guarantee Amount
available on any Distribution Date,
. See "The Limited Guarantee."]
The Standby Letter of Credit (the
"Standby Letter of Credit") is an
irrevocable obligation supporting
the obligation of under
the Limited Guarantee. If does not
make a payment required of it under
the Limited Guarantee, the Trustee
immediately will draw such amount
under the Standby Letter of Credit.
If for any reason does not
honor a draw under the Standby
Letter of Credit, is
obligated to honor the Standby
Letter of Credit.
The Direct Letter of Credit (the
"Direct Letter of Credit") will be
an irrevocable direct pay letter of
credit and will be issued by and
confirmed by .
[The initial Letters of Credit will
expire no earlier than
.] The Master Servicer will be
required to replace or renew the
Letters of Credit prior to their
expiration until the Trust Fund is
terminated. In the event the Master
Servicer does not renew or replace a
Letter of Credit, prior to its
expiration, the Trustee will draw
under such Letter of Credit an
amount equal to the required
coverage of that Letter of Credit on
such date and will transfer such
funds to a separate trust fund (the
"Limited Guarantee Fund").
Thereafter the Trustee will draw
upon such funds on each Distribution
Date if and to the extent draws
would have been required under the
corresponding Letter of Credit. The
Letters of Credit will not be
available to support any obligations
of the Depositor, the Master
Servicer or the Unaffiliated Seller.
See "The Limited Guarantee."]
[LETTER OF CREDIT.................... The maximum liability of
under an irrevocable standby letter
of credit for the Contract Pool
(the "Letter of Credit"), net of
unreimbursed payments thereunder,
will be no more than [ %] of the
initial aggregate principal balance
of the Contract Pool (the "Letter of
Credit Percentage"). The maximum
amount available to be paid under
the Letter of Credit will be
determined in accordance with the
Pooling and Servicing Agreement
referred to herein. The duration
of coverage and the amount and
frequency of any reduction in
coverage will be in compliance with
the requirements established by the
Rating Agency, in order to obtain a
rating in one of the two highest
rating categories of such Rating
Agency. The amount available under
the Letter of Credit shall be
reduced by the amount of
unreimbursed payments thereunder.
See "Credit Support-Letters of
Credit" in the Prospectus.]
HAZARD INSURANCE..................... All of the Contracts will be covered by
standard hazard insurance policies with
respect to each Manufactured Home in an
amount at least equal to the lesser of
its maximum insurable value or the
remaining principal balance on the
related Contract. The standard hazard
insurance policies, at a minimum, will
provide for fire, lightning, windstorm
and extended coverage on terms and
conditions customary in manufactured
housing hazard insurance policies. See
"Description of the Certificates--Hazard
Insurance Policies" herein.
S-4
<PAGE>
[OPTIONAL TERMINATION................ The [Depositor] may, at its option,
repurchase from the Trust all Contracts
remaining outstanding at such time as
the aggregate unpaid principal balance
of such Contracts is less than [10%] of
the aggregate principal balance of the
Contracts on the Cut-off Date. The
repurchase price will equal the
aggregateunpaid principal balance of
such Contracts together with accrued
interest thereon at the Pass-Through
Rate through the last day of the month
during which such repurchase occurs,
plus the appraised value of any property
acquired in respect thereof. [Any such
repurchase will be effected in
compliance with the requirements of
Section 860F(a)(iv) of the Internal
Revenue Code of 1986 (the "Code") so as
to constitute a "qualifying liquidation"
thereunder.] See "Description of the
Certificates--Termination; Repurchase of
Certificates" herein.
ADVANCES............................. The Servicers of the Contracts (and
the Master Servicer, with respect to
each Contract that it services
directly and otherwise, to the extent
the related Servicer does not do so)
will be obligated to advance
delinquent installments of principal
and interest on the Contracts under
certain circumstances. See
"Description of the
Certificates--Advances" in the
Prospectus.
SECURITY INTERESTS AND OTHER
ASPECTS OF THE CONTRACTS............ In connection with the transfer of
the Contracts from the Depositor to
the Trustee, the Depositor has
assigned the security interests in
the Manufactured Homes securing the
Contracts to the Trustee. The
[Master Servicer] shall take such
steps as are necessary to perfect and
maintain perfection of such security
interest in each Manufactured Home
and, to the extent such interest is
perfected, the Trustee will have a
prior claim over subsequent
purchasers of the Manufactured Home
and holders of subsequently perfected
security interests. Under most state
laws Manufactured Homes constitute
personal property, and perfection of
a security interest in the
Manufactured Home is obtained,
depending on applicable state law,
either by noting the security
interest on the certificate of title
for the Manufactured Home or by
filing a financing statement under
the Uniform Commercial Code. [The
certificates of title or Uniform
Commercial Code financing statements
will not be amended to identify the
Trustee as the new secured party
because of the administrative burden
and expense.] In the absence of such
an endorsement, the Trustee may not
have a perfected security interest in
Manufactured Homes registered in
certain states. In addition, if the
Manufactured Home were relocated to
another state without reperfection of
the security interest, or if the
Manufactured Home were to become
attached to its site and a
determination were made that the
security interest was subject to real
estate title and recording laws, or
as a result of fraud or negligence,
the Trustee could lose its prior
preferred security interest in a
Manufactured Home. Federal and state
consumer protection laws impose
requirements upon creditors in
connection with extensions of credit
and collections on installment sales
contracts, and certain of these laws
make an assignee of such a contract,
such as the Trustee, liable to the
obligor thereon for any violation by
the lender. The [Master Servicer]
has agreed to repurchase any Contract
as to which it has failed to perfect
a security interest in the
Manufactured Home securing such
Contract, or as to which a breach of
federal or state laws exists if such
breach materially adversely affects
the Trustee's interest in the
Contract, unless such failure or
breach has been cured within [90]
days from notice of such breach. See
"Special Considerations" herein and
"Certain Legal Aspects of the
Mortgage Loans and Contracts--The
Contracts" in the Prospectus.
S-5
<PAGE>
TRUSTEE.............................. (the "Trustee").
CERTIFICATE RATING................... It is a condition of issuance that
the Certificates be rated in one of
the two highest rating categories of
a nationally recognized statistical
rating agency (the "Rating Agency").
ERISA CONSIDERATIONS................. See "ERISA Considerations" [in the
Prospectus] and herein.
LEGAL INVESTMENT..................... The Certificates constitute "mortgage
related securities" for purposes of
the Secondary Mortgage Market
Enhancement Act of 1984 (the
"Enhancement Act"), and, as such, are
legal investments for certain
entities to the extent provided in
the Enhancement Act. See "Legal
Investment" in the Prospectus.
TAX ASPECTS.......................... The Depositor [intends] [does not
intend] to make an election to treat
the Trust Fund as a Real Estate
Mortgage Investment Conduit (a
"REMIC"), pursuant to the Internal
Revenue Code of 1986, as amended.
See "Certain Federal Income Tax
Consequences" in the Prospectus.
S-6
<PAGE>
SPECIAL CONSIDERATIONS
Prospective Certificateholders should consider, among other things, the
following factors in connection with the purchase of the Certificates:
1. General. An investment in the Certificates may be affected by, among
other things, a downturn in regional or local economic conditions. These
regional or local economic conditions are often volatile, and historically
have affected the delinquency, loan loss and repossession experience of the
Contracts. To the extent that losses on the Contracts are not covered by
[the Limited Guarantee] [the Letter of Credit] [or] applicable insurance
policies, if any, Certificateholders will bear all risk of loss resulting
from default by Obligors and must rely on the value of the Manufactured Homes
for recovery of the outstanding principal and unpaid interest of the
defaulted Contracts. See "The Trust Fund--The Contracts" in the Prospectus.
2. Limited Obligations. The Certificates will not represent an interest
in or obligation of the Depositor. The Certificates will not be insured or
guaranteed by [any government agency or instrumentality,] CS First Boston
Corporation or any of its affiliates, including the Depositor, any Servicer
or the Master Servicer.
3. Limited Liquidity. There can be no assurance that a secondary market
will develop for the Certificates or, if it does develop, that it will
provide the holders of the Certificates with liquidity of investment or that
it will remain for the term of the Certificates.
[4. [Limited Guarantee] [Letter of Credit]. The Certificates will be
secured in part by the [Limited Guarantee] [Letter of Credit]. The
[Guarantee Amount] [Letter of Credit Percentage] will be an amount initially
equal to and will decline hereafter [by the amount of unreimbursed payments
thereunder]. The [Limited Guarantee] [Letter of Credit] will cover
delinquent payments by Obligors and losses on defaulted Contracts.
Delinquency on the Contracts may be affected by local, regional and economic
considerations. If delinquency levels are high and the [Guarantee Amount]
[Letter of Credit Percentage] is reduced to zero, the Certificateholders
will bear all losses on the Contracts. See ["The Limited Guarantee"]
["Letter of Credit"].
5. Prepayment Considerations. The prepayment experience on the Contracts
may affect the average life of the Certificates. Prepayments on the
Contracts may be influenced by a variety of economic, geographic, social and
other factors, including repossessions, aging, seasonality and interest rates
of the Contracts. Other factors affecting prepayment of Contracts include
changes in housing needs, job transfers, unemployment and servicing
decisions. See "Maturity and Prepayment Considerations" in the Prospectus.
6. Security Interests and Other Aspects of the Contracts. Each Contract
is secured by a security interest in a Manufactured Home. Perfection of
security interests in the Manufactured Homes and enforcement of rights to
realize upon the value of the Manufactured Homes as collateral for the
Contracts are subject to a number of federal and state laws, including the
Uniform Commercial Code as adopted in each state (except Louisiana) and each
state's certificate of title statutes, but generally not its real estate
laws. The steps necessary to perfect the security interest in a
Manufactured Home will vary from state to state. In addition, numerous
federal and state consumer protection laws impose requirements on lending
under conditional sales contracts and installment loan agreements such as
the Contracts, and the failure by the lender or seller of goods to comply
with such requirements could give rise to liabilities of assignees for
amounts due under such agreements and claims by such assignees may be
subject to set-off as a result of such lender's or seller's noncompliance.
These laws would apply to the Trustee as assignee of the Contracts.
Pursuant to the Pooling and Servicing Agreement, the seller will warrant
that each Contract complies with all requirements of law and will make
certain warranties relating to the validity, subsistence, perfection and
priority of the security interest in each Manufactured Home securing a
Contract. If the [Limited Guarantee or] [Letter of Credit Percentage]
insurance policies are exhausted and recovery of amounts due on the
Contracts is dependent on repossession and resale of Manufactured Homes
securing Contracts that are in default, certain other factors may limit the
ability of the Certificateholders to realize upon the Manufactured Homes or
may limit the amount realized to less than the amount due. See "Certain
Legal Aspects of the Mortgage Loans and Contracts--The Contracts" in the
Prospectus.
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<PAGE>
DESCRIPTION OF THE CONTRACT POOL
The contract pool (the "Contract Pool") will consist of [conventional]
[FHA-insured] [VA-guaranteed] fixed rate manufactured housing conditional
sales contracts and installment loan agreements (collectively, the
"Contracts") having an [approximate] aggregate principal balance as of the
Cut-off Date of $ , secured by manufactured homes (the "Manufactured
Homes"). The Manufactured Homes will consist of manufactured homes within
the meaning of 42 United States Code, Section 5402(6), which defines a
"manufactured home" as "a structure, transportable in one or more sections,
which in the traveling mode, is eight body feet or more in width or forty
body feet or more in length, or, when erected on site, is three hundred
twenty or more square feet, and which is built on a permanent chassis and
designed to be used as a dwelling with or without a permanent foundation
when connected to the required utilities, and includes the plumbing,
heating, air-conditioning, and electrical systems contained therein; except
that such term shall include any structure which meets all the requirements
of this paragraph except the size requirements and with respect to which the
manufacturer voluntarily files a certification required by the Secretary of
Housing and Urban Development and complies with the standards established
under this chapter."
The weighted average annualized percentage rate (individually, an "APR") of
the Contracts as of the Cut-off Date will be at least % but no more
than %. All Contracts will have APRs of at least % but no more
than %. The weighted average maturity of the Contracts, as of the
Cut-off Date, will be at least years but no more than years.
All Contracts will have original maturities of at least years but no
more than years. None of the Contracts will have been originated prior
to or after , 19 . None of the Contracts will have a scheduled
maturity later than .
The Contracts will have the following characteristics as of the Cut-off
Date (expressed as a percentage of the outstanding aggregate principal
balances of the Contracts having such characteristics relative to the
outstanding aggregate principal balances of all Contracts):
Approximately % of the Contracts are secured by Manufactured Homes
which were new at the time the related Contract was originated and
approximately % of the Contracts are secured by Manufactured Homes which
were used at the time the related Contract was originated.
At least % of the Contracts will be Contracts each having
outstanding principal balances of less than $ .
No more than % of the Contracts will be Contracts each having
outstanding principal balances of more than $ .
No more than % of the Contracts will have had loan-to-value ratios
at origination (based on the retail sales prices of the unit or % of
the manufacturer's invoice price, if less, plus taxes, license fees and
insurance premiums in the case of a new Manufactured Home, or based on the
lesser of the total delivered sales price or the appraised value of the
unit, including taxes, fees and insurance, in the case of a used
Manufactured Home) in excess of %, and the Contracts have a weighted
average loan to value ratio as of the Cut-off Date of % .
The Contracts will be secured by Manufactured Homes located in the
states of . No more than [5]% of the Contracts will be secured by
Manufactured Homes located in any one five digit zip code.
[At the date of issuance of the Certificates, no Contract in the
Contract Pool was more than 30 days delinquent.]
[Description of the underwriting policies for conventional Contracts
to be provided.]
Specific information with respect to the Contracts will be available to
purchasers of the Certificates offered hereby at or before the time of
issuance of such Certificates. Such specific information will include the
precise amount of the aggregate principal balances of the Contracts
outstanding as of the Cut-off Date, and will also set forth tables
reflecting the following information regarding the Contracts: years of
origination, types of
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dwellings on the underlying properties, the sizes of Contracts and
distribution of Contracts by APR, and will be set forth in a Current Report
on Form 8-K that will be filed with the Securities and Exchange Commission by
the Depositor within 15 days after the issuance of the Certificates.
DESCRIPTION OF THE CERTIFICATES
The Certificates will be issued pursuant to the Pooling and Servicing
Agreement, to be dated as of the Cut-off Date (the "Pooling and Servicing
Agreement") among the Depositor, , as master servicer (the "Master
Servicer"), and , as trustee (the "Trustee"), a form of which has been
filed as an exhibit to the Registration Statement of which this Prospectus
Supplement forms a part. Reference is made to the accompanying Prospectus
for important additional information regarding the terms and conditions of
the Pooling and Servicing Agreement and the Certificates. Each of the
Certificates at the time of issuance will qualify as a "mortgage related
security" within the meaning of the Secondary Mortgage Market Enhancement
Act of 1984.
Distributions of principal and interest as set forth above will be made by
the Master Servicer by check mailed to each Certificateholder entitled
thereto at the address appearing in the Certificate Register to be
maintained with the Trustee or, if eligible for wire transfer as provided in
the Pooling and Servicing Agreement, by wire transfer to the account of such
Certificateholder, provided, however, that the final distribution in
retirement of the Certificates will be made only upon presentation and
surrender of the Certificates at the office specified in the notice to
Certificateholders of such final distribution.
The Certificates will be transferable and exchangeable on a Certificate
Register to be maintained by the Trustee at the office or agency of the
Master Servicer maintained for that purpose in New York, New York.
Certificates surrendered to the Trustee for registration of transfer or
exchange must be accompanied by a written instrument of transfer in form
satisfactory to the Trustee. No service charge will be made for any
registration of transfer or exchange of Certificates, but payment of a sum
sufficient to cover any tax or other governmental charge may be required.
Such office or agency is currently located at , .
CONVEYANCE OF CONTRACTS
On the date of issuance of the Certificates, the Depositor will transfer,
assign, set over and otherwise convey to the Trustee all right, title and
interest of the Depositor in the Contracts, including all principal and
interest received on or with respect to the Contracts (other than receipts of
principal and interest due on the Contracts before the Cut-off Date), and all
rights under the hazard insurance policies on the related Manufactured Homes.
The Contracts will be described on a schedule attached to the Pooling and
Servicing Agreement (the "Contract Schedule"). The Contract Schedule will
include the amount of monthly payments due on each Contract as of the date of
issuance of the Certificates, the APR on each Contract and the maturity date
of each Contract. Prior to the conveyance of the Contracts to the Trustee,
the Depositor will cause to be reviewed all the Contract files, including
the certificates of title to, or other evidence of a perfected security
interest in, the Manufactured Homes, confirming the accuracy of the Contract
Schedule delivered to the Trustee.
[The Trustee, itself or through a custodian, will hold, on behalf of the
Certificateholders, the original Contracts and copies of documents and
instruments relating to each Contract and the security interest in the
Manufactured Home relating to each Contract.] In addition, in order to give
notice of the Trustee's right, title and interest in and to the Contracts,
[the Master Servicer, on behalf of] the Depositor, will deliver to the
Trustee a UCC-1 financing statement identifying the Trustee as the secured
party and identifying all the Contracts as collateral. The [Master
Servicer] will file such statement in the appropriate offices in the
appropriate states. [The Contracts will not be stamped or otherwise marked
to reflect their assignment from the Company to the Trustee. If a
subsequent purchaser were able to take physical possession of the Contracts
without notice of such assignment, the Trustee's interest in the Contracts
could be defeated.] See "Certain Legal Aspects of the Mortgage Loans and
Contracts--The Contracts" in the Prospectus.
TRUSTEE
The Trustee for the Certificates will be .
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<PAGE>
THE MASTER SERVICER
The Master Servicer is a corporation that commenced
operation in . The Master Servicer is [an FHA approved seller-
servicer] based in . As of ,
the Master Servicer serviced, for other investors and for its own account,
approximately mortgage loans with an aggregate principal
balance in excess of $ . The Master Servicer originated
approximately $ in mortgage loans in 19 . The Master Servicer's
consolidated stockholders' equity as of was approximately $ .
The information set forth above has been provided by the Master Servicer.
The Depositor makes no representation as to the accuracy or completeness of
such information.
[The Master Servicer shall obtain and maintain in effect a bond, corporate
guaranty or similar form of insurance coverage (the "Performance Bond"),
insuring against loss occasioned by the errors and omissions of the Master
Servicer's officers, employees and any other person acting on behalf of the
Master Servicer in its capacity as Master Servicer and guaranteeing the
performance, among other things, of the obligations of the Master Servicer
to purchase certain Contracts and to make advances, as described in the
Prospectus under "Description of the Certificates--Assignment of Contracts"
and "--Advances," in an amount acceptable to the nationally recognized
statistical rating organization or organizations rating the Certificates
(collectively, the "Rating Agency").
SERVICING COMPENSATION [, LIMITED GUARANTEE FEE] AND PAYMENT OF EXPENSES
The servicing compensation payable to the Master Servicer will be equal to
an amount, payable out of each interest payment on a Contract, equal to the
excess of each interest payment on a Contract over the Pass-Through Rate,
less [(a)] any servicing compensation payable to the Servicer of such
Contract under the terms of the agreement with the Master Servicer pursuant
to which such Contract is serviced (the "Servicing Agreement") (including
such compensation paid to the Master Servicer as the direct servicer of a
Contract for which there is no Servicer)[.] [, and (b) the amount payable to
the [Depositor,] [Master Servicer], as described below] [.] [, and (c) the
Limited Guarantee Fee.] [Pursuant to the Pooling and Servicing Agreement, on
each Distribution Date, the Master Servicer will remit to [the Depositor] in
respect of each interest payment on a Contract an amount equal to %
of the outstanding principal balance of such Contract before giving effect
to any payments due on the preceding Due Date.] [The Master Servicer will be
permitted to withdraw from the Certificate Account, in respect of each
interest payment on a Contract, an amount equal to % of the
outstanding principal balance of such Contract before giving effect to any
payments due on the preceding Due Date.] See "Description of the
Certificates--Servicing and Other Compensation and Payment of Expenses" in
the Prospectus for information regarding other possible compensation to the
Master Servicer and the Servicers. The Servicers and the Master Servicer
will pay all expenses incurred in connection with their responsibilities
under the Servicing Agreements and the Pooling and Servicing Agreement
(subject to limited reimbursement as described in the Prospectus),
including, without limitation, the various items of expense enumerated in
the Prospectus.
[Investors are advised to consult with their own tax advisors regarding the
likelihood that a portion of such servicing compensation might be
characterized as an ownership interest in the interest payments on the
Contracts ("Retained Yield") for federal income tax purposes, by reason of
the extent to which either the weighted average APR, or the stated interest
rates on the Contracts exceeds the Pass-Through Rate, and the tax
consequences to them of such a characterization. In this regard, there are
no authoritative guidelines for federal income tax purposes as to either the
maximum amount of servicing compensation that may be considered reasonable
in the context of this or similar transactions or whether the reasonableness
of servicing compensation should be determined on a weighted average or
contract by contract basis. [The Depositor intends to treat % of
such servicing compensation and % of the amount payable to it
described above as Retained Yield for federal income tax purposes in reports
to the Certificateholders and to the Internal Revenue Service.] See "Certain
Federal Income Tax Consequences--[ ] in the Prospectus for information
regarding the characterization of servicing compensation [and the amounts
payable to the Depositor].
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<PAGE>
[TERMINATION; REPURCHASE OF CONTRACTS
The Pooling and Servicing Agreement provides that the [Depositor] [Master
Servicer] may purchase from the Trust all Contracts remaining in the Contract
Pool and thereby effect early retirement of the Certificates, provided that
the aggregate unpaid balances of the Contracts at the time of such repurchase
is less than [10%] of the aggregate principal balance of the Contracts on
the Cut-off Date. The purchase price for any such optional repurchases
shall be equal to the outstanding principal balance of such Contracts,
together with accrued interest at the Pass-Through Rate to the first day of
the month following such repurchase plus the appraised value of any acquired
property with respect to the Contracts. [Any such repurchase will be
effected in compliance with the requirements of Section 860F(a)(iv) of the
Code in order to constitute a "qualifying liquidation" thereunder.] In no
event will the Trust continue beyond the expiration of 21 years from the
death of the last survivor of the persons named in the Pooling and Servicing
Agreement.]
INSURANCE
[FHA Insurance and VA Guarantee
% and % of the Contracts, respectively (by aggregate
principal balance as of Cut-Off Date) are subject to FHA insurance and VA
guarantees. See "Description of Insurance" in the Prospectus.]
[Primary Credit Insurance Policies
To be provided.]
[Pool Insurance Policies
To be provided.]
Hazard Insurance Policies
The Master Servicer will cause to be maintained one or more standard hazard
insurance policies with respect to each Manufactured Home in an amount at
least equal to the lesser of its maximum insurable value or the principal
amount due from the Obligor under the related Contract. Such standard
hazard insurance policies, will, at a minimum, provide fire and extended
coverage on terms and conditions customary in manufactured housing hazard
insurance policies. If a Manufactured Home, at the origination of the
related Contract, was located within a federally designated flood area, the
Master Servicer also will cause flood insurance to be maintained in an
amount equal to the lesser of the amounts described above or the maximum
amount available for such Manufactured Home under the federal flood
insurance program.
All amounts collected by the Master Servicer under a standard hazard
insurance policy will be applied either to the restoration or repair of the
Manufactured Home or against the unpaid principal balance of the related
Contract upon foreclosure and repossession of the Manufactured Home, after
reimbursing the Master Servicer for amounts previously advanced by it for
such purposes. The Master Servicer may satisfy its obligation to cause the
maintenance of standard hazard and flood insurance policies by maintaining a
blanket policy insuring against hazard and flood losses on all the
Manufactured Homes. Such blanket policy may contain a deductible clause, in
which case the Master Servicer will be required to deposit in the
Certificate Account any amount deducted in connection with insurance claims
on repossessed Manufactured Homes.
[THE LIMITED GUARANTEE
General
If amounts available in the Certificate Account [(following any Advances by
the Master Servicer)] for distribution to the Certificateholders is less than
the amount due to them as a result of defaulted Contracts and delinquent
payments of
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principal of and interest on the Contracts, the Limited Guarantee will be
available, to the extent of the Guarantee Amount, to fund such shortfall. The
Guarantee Amount on the first Distribution Date will equal $ . Thereafter,
the Guarantee Amount on any Distribution Date will equal [$ less amounts
previously paid with respect to the Limited Guarantee].
$ of the initial Guarantee Amount will be covered
by the general payment obligation of , which obligation will be
supported by the Standby Letter of Credit (described below). The balance of
the initial Guarantee Amount will be covered by the Direct Letter of Credit.
Amounts required to be paid under the Limited Guarantee will be paid first
by under its general payment obligation (or pursuant to the
Standby Letter of Credit) and after such obligation is exhausted, from the
Direct Letter of Credit. If the Guarantee Amount is reduced to zero, the
Certificateholders will bear all losses on the Contracts. As a result,
Certificateholders may be subject to delays in payments of monthly principal
and interest as a result of delinquent payments by Obligors. In the event
of a repossession and resale by the Master Servicer (as Servicer on behalf of
the Trustee) of a Manufactured Home securing a Contract in default, the
Trust Fund may not recover the entire amount of principal and interest due
on such Contract. See "The Trust Fund--The Contracts" and "Certain Legal
Aspects of the Mortgage Loans and Contracts" in the Prospectus.]
Standby Letter of Credit
The Standby Letter of Credit will be an irrevocable standby letter of
credit supporting the payment and repurchase obligations of
. The Standby Letter of Credit will be obtained initially from
, and will terminate on . will confirm the
Standby Letter of Credit issued by , meaning that if for
any reason does not honor a draw upon a Standby Letter
of Credit, will be obligated to honor such draw. The
amount of the Standby Letter of Credit on the Closing Date shall be $
. On each subsequent Distribution Date, the requisite amount of the renewed
Standby Letter of Credit or replacement Standby Letter of Credit shall be
the amount of 's obligation under the Limited Guarantee on the
immediately preceding Distribution Date.
Direct Letter of Credit
The Direct Letter of Credit will be an irrevocable direct pay letter of
credit obtained initially from and will be confirmed by
. The Direct Letter of Credit will terminate on .
The initial requisite amount of the Direct Letter of Credit shall be $
and subsequently, the requisite amount shall be
.
Maintenance of Letters of Credit
The Letters of Credit will provide that, if the institution issuing such
Letter of Credit (the "L/C Bank") does not intend to renew such Letter of
Credit, it must give notice thereof to the Master Servicer and the Trustee at
least 45 days prior to the expiration of such Letter of Credit. The Master
Servicer must then obtain a replacement Letter of Credit. If, immediately
prior to the expiration of the Letter of Credit, the Master Servicer has not
obtained a replacement Letter of Credit issued or confirmed by a L/C Bank
which is a qualified bank (an institution whose unsecured long-term debt
(or, in the case of the principal bank in a bank holding company system, the
unsecured long-term debt of such bank or the bank holding company) has a
rating satisfactory to the Rating Agency for the maintenance of the "
" rating of the Certificates, the Trustee shall draw under such expiring
Letter of Credit an amount equal to the 's obligation
under the Limited Guarantee, in the case of the Standby Letter of Credit, or
the difference between the Guarantee Amount and the 's
obligation under the Limited Guarantee, in the case of the Direct Letter of
Credit. The amounts so drawn will be deposited in a separate trust fund (the
"Limited Guarantee Fund") and will be available on each Distribution Date if
and to the extent that draws would have been required under the Standby
Letter of Credit or the Direct Letter of Credit, as the case may be. The
funds in the Limited Guarantee Fund remain the property of the issuer of
such Letter of Credit, subject to the right of the Master Servicer to make
withdrawals. Upon termination of the Pooling and Servicing Agreement, any
funds remaining in the Limited Guarantee Fund will be paid to the issuer of
such Letter of Credit. In addition, any recoveries of delinquent payments
previously advanced pursuant to the draws under a Letter of Credit, and any
recoveries in defaulted Contracts whose repurchase price was deposited in
the Certificate Account pursuant to a draw on a Letter of Credit, will be
repaid to the L/C Bank if the Letter of Credit will be reinstated by such
amount, or else will
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<PAGE>
be deposited in the Limited Guarantee Fund. In the event of insolvency of the
L/C Bank, the amount available to the Trust Fund under the Letter of Credit
or from the Limited Guarantee Fund, as the case may be, may be reduced.
In the event that the L/C Bank that issued or confirmed the Letter of
Credit ceases to be a qualified bank, the Master Servicer will use its best
efforts to obtain a substitute Letter of Credit issued or confirmed by a
qualified bank. If a substitute Letter of Credit issued or confirmed by a
qualified bank has not been obtained in 30 days, the Trustee will draw down
the requisite amount under such Letter of Credit and deposit such funds in
the Limited Guarantee Fund.]
[LETTER OF CREDIT
The maximum liability of [ ] under the Letter of Credit, net of
unreimbursed payments thereunder, for the Certificates will be no more than [
%] of the aggregate principal balance of the Contracts on the Cut-off Date.
The duration of coverage and the amount and frequency of any reduction in
coverage will be in compliance with the requirements established by the
Rating Agency rating the Certificates, in order to obtain a rating in one of
the two highest rating categories of the Rating Agency. The precise amount
of coverage under the Letter of Credit and the duration and frequency of
reduction of such coverage will be set forth in the Current Report on Form
8-K referred to above. See "Description of the Certificates--Credit Support--
The Letter of Credit" in the Prospectus.]
It is a condition to the issuance of the Certificates that they be rated in
one of the two highest categories of the Rating Agency prior to issuance.
A security rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning
rating agency.
[ERISA CONSIDERATIONS
The acquisition of a Certificate by an employee benefit plan subject to the
Employee Retirement Income Security Act of 1974, as amended ("ERISA") (a
"Plan") could result in prohibited transactions or other violations of the
fiduciary responsibility provisions of ERISA and section 4975 of the Internal
Revenue Code of 1986 (the "Code") if by virtue of such acquisition, assets
held by the Trust were deemed to be assets of the Plan. [The United States
Department of Labor ("DOL") published final regulations concerning whether or
not the assets of a Plan will be deemed to include any of the underlying
assets of an entity, for purposes of the fiduciary responsibility provisions
of ERISA, when a Plan acquires an equity interest in such entity. The final
regulations state that the assets of a Plan which acquires an equity
interest will not include any of the underlying assets of the entity if the
class of equity interests in question are (1) held by 100 or more investors
independent of the issuer and of each other, (2) freely transferable, and
(3) sold as part of an offering pursuant to an effective registration
statement under the Securities Act of 1933, and then timely registered under
section 12(b) or 12(g) of the Securities Exchange Act of 1934. It is
expected that the Certificates will meet the criteria of the regulations:
The Underwriter[s] expect[s] (although no assurances can be given) that the
Certificates will be held by at least 100 independent investors at the
conclusion of the offering made by this Prospectus; there are no
restrictions imposed on the transfer of the Certificates; and the seller
intends to cause the registration requirements to be satisfied.] In
addition, even if the Plan's assets are deemed to include the Contracts,
certain exemptions from the prohibited transaction rules could be applicable,
depending in part upon the type and circumstances of the Plan fiduciary
making the decision to acquire a Certificate. Included among these
exemptions are DOL Prohibited Transaction Exemptions 84-14 (Class Exemption
for Plan Asset Transaction Determined by Independent Qualified Professional
Asset Managers), 91-38 (Class Exemption for Certain Transactions Involving
Bank Collective Investment Funds) and 90-1 (Class Exemption for Certain
Transactions Involving Insurance Company Pooled Separate Accounts).
Employee benefit plans which are governmental plans (as defined in section
3(32) of ERISA), and certain church plans (as defined in section 3(33) of
ERISA), are not subject to ERISA requirements.
Any Plan fiduciary considering the purchase of Certificates should consult
its tax and/or legal advisors regarding these and other issues and their
potential consequences.]
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<PAGE>
UNDERWRITING
The Depositor has entered into an Underwriting Agreement with [several
Underwriters, for whom] CS First Boston Corporation, an affiliate of the
Depositor[, is acting as Representative]. The Underwriter[s] [named below]
[has] [have severally] agreed to purchase from the Depositor [all] [the
following respective principal amounts] of the Certificates:
[UNDERWRITER
------------
CS First Boston................. $
---------
Total........................... $ ]
=========
The Underwriting Agreement provides that the obligations of the
Underwriter[s] [is] [are] subject to certain conditions precedent, and that
the Underwriter[s] will be obligated to purchase the entire principal amount
of the Certificates if any are purchased.
The Depositor has been advised [by the Representative] that the
Underwriter[s] propose[s] to offer the Certificates to the public initially
at the public offering prices set forth on the cover page of this Prospectus
Supplement, and [through the Representative,] to certain dealers at such
prices less the following concessions and that the Underwriter[s] and such
dealers may allow the following discounts on sales to certain other dealers:
CONCESSION (PERCENT OF DISCOUNT (PERCENT OF
PRINCIPAL AMOUNT) PRINCIPAL AMOUNT)
---------------------- ---------------------
% %
After the initial public offering, the public offering prices and the
concessions and discounts to dealers may be changed by [the Underwriter] [the
Representative].
The Depositor has agreed to indemnify the Underwriter[s] against certain
liabilities, including liabilities under the Securities Act of 1933.
LEGAL MATTERS
Certain legal matters with respect to the Certificates offered hereby will
be passed upon for the Depositor and for the Underwriter[s] by Sidley &
Austin, New York, New York.
USE OF PROCEEDS
The Depositor will apply all of the net proceeds of the offering of the
Certificates towards the simultaneous purchase of the Contracts underlying
the Certificates. Certain of the Contracts will be acquired in privately
negotiated transactions by the Depositor from one or more affiliates of the
Depositor, which will have acquired such Contracts from time to time in
privately negotiated transactions.
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<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus supplement shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of any
State.
SUBJECT TO COMPLETION, DATED DECEMBER , 1995
- --------------------------------------------------------------------------------
P R O S P E C T U S S U P P L E M E N T
(To Prospectus dated , 19 )
- --------------------------------------------------------------------------------
$ (Approximate)
Asset Backed Securities Corporation
Depositor
Conduit Mortgage Pass-Through Certificates, Series , [Class A]
Adjustable Pass-Through Rate
[ Master Servicer ]
---------------
The Conduit Mortgage Pass-Through Certificates, Series will be comprised
of Class A Certificates and [one] [two] subclass[es] [(not offered hereby)] of
Class B Certificates (collectively, the "Certificates"). The Certificates, will
represent interests in the Master Trust Fund which will hold an interest in a
pool (the "Mortgage Pool") of adjustable rate, [conventional] mortgage loans
secured by [first mortgages or deeds of trust] [liens] on [one-to-four-unit
residential properties] [cooperative loans evidenced by promissory notes secured
by a lien on shares in cooperative housing corporations and on the related
proprietary leases] (the "Mortgage Loans") [originated] [acquired] by ("Master
Servicer"), and certain other property held in trust for the benefit of the
Certificateholders. [ ] will act as Master Servicer.
The Class A Certificates will evidence an initial interest of approximately
% in the Mortgage Loans. The remaining interest in the Mortgage Loans will be
evidenced by the Class B Certificates, which are subordinate to the Certificates
to the extent described herein and in the Prospectus. See "Description of the
Certificates--Distributions" and "--Subordination of the Class B Certificates;
Shifting Interest Credit Enhancement" herein and "Credit Support--Subordinated
Certificates" in the Prospectus.
Principal and interest on the Certificates are distributable on the [25th]
day of each month commencing (each, a "Distribution Date"). After an
initial period, the Mortgage Rate on each Mortgage Loan will adjust [semi-
annually] to a rate equal to the Index (as defined below) plus the fixed
percentage applicable to such Mortgage Loan (the "Gross Margin"), subject to the
interest rate limitations applicable to the Mortgage Loans and the other
provisions set forth herein. The Class A Certificateholders will be entitled to
receive interest on the Class A Principal Balance (as defined herein) at the
Pass-Through Rate. The Pass-Through Rate will equal the weighted average of
the Subsidiary Pass-Through Rates. The initial Pass-Through Rate is
approximately %. The Subsidiary Pass-Through Rate with respect to each
Mortgage Loan prior to its first Adjustment Date (as defined herein) will
equal the Mortgage Rate less . On and after its first Adjustment Date, the
Subsidiary Pass-Through Rate with respect to each Mortgage Loan will equal the
[description of index, e.g. monthly weighted average cost of funds for member
institutions of the 11th District of the Federal Home Loan Bank System, as
published by the Federal Home Loan Bank of San Francisco] (the "Index") plus
basis points (the "Pass-Through Margin") but not more than the lesser
of the Periodic Mortgage Rate Cap (as defined herein) less the Servicing Fee
Rate, or the Maximum Subsidiary Pass-Through Rate (as defined herein).
There is currently no secondary market for the Class A Certificates. There
can be no assurance that a secondary market for the Class A Certificates will
develop or, if it does develop, that it will continue.
An election will be made to treat the assets of the Subsidiary Trust Fund (as
defined herein) as a real estate mortgage investment conduit ("REMIC") for
purposes of federal income taxation (the "Subsidiary REMIC"). An election will
also be made to treat the assets represented by the "regular interests" in the
Subsidiary REMIC constituting a separate trust fund (the "Master Trust Fund") as
a separate REMIC (the "Master REMIC"). See "Certain Federal Income Tax
Consequences" herein.
THE CERTIFICATES DO NOT REPRESENT AN OBLIGATION OF OR AN INTEREST IN ASSET
BACKED SECURITIES CORPORATION, [MASTER SERVICER[ OR ANY OF THEIR RESPECTIVE
AFFILIATES. NEITHER THE CERTIFICATES NOR THE UNDERLYING MORTGAGE LOANS ARE
INSURED OR GUARANTEED BY ANY GOVERNMENTAL AGENCY OR INSTRUMENTALITY.
---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
[The Certificates will initially be delivered by the Depositor to
in exchange for the Mortgage Loans to be deposited by the Depositor into the
Subsidiary Trust Fund. The Class A Certificates may be sold or pledged by ,
directly or through one or more underwriters, from time to time at varying
prices to be determined at the time of such sale or pledge.] [The
Underwriter[s] propose[s] to offer the Class A Certificates from time to time
for sale in negotiated transactions or otherwise, at prices determined at the
time of sale.] See "Plan of Distribution" herein. Expenses attributable to
issuance of the Class A Certificates, estimated to be approximately $
will be paid by [the Master Servicer] [the Depositor]. [The Depositor] will be
paid a fee by of $ in connection with the transaction.
[The Class A Certificates are offered by the [several] Underwriter[s] when,
as and if issued and accepted by the Underwriter[s] and subject to [its] [their]
right to reject orders in whole or in part. It is expected that the Class A
Certificates, in definitive fully registered form, will be ready for delivery on
or about , 199 .]
The Certificates, when, as and if issued by the Depositor, are expected to be
available for delivery in New York, New York on or about , 199 .
CS First Boston
- --------------------------------------------------------------------------------
The Date of this Prospectus Supplement is , 19 .
<PAGE>
The Class A Certificates offered hereby constitute a separate series of
Conduit Mortgage and Manufactured Housing Contract Pass-Through Certificates
being offered by Asset Backed Securities Corporation from time to time pursuant
to its Prospectus dated . This Prospectus Supplement does not contain
complete information about the offering of the Class A Certificates. Additional
information is contained in the Prospectus, and purchasers are urged to read
both this Prospectus Supplement and the Prospectus in full. Sale of the Class A
Certificates may not be consummated unless the purchaser has received both this
Prospectus Supplement and the Prospectus.
[Until , no offerings of the Class A Certificates may be made by
except pursuant to this Prospectus Supplement and the Prospectus, as
supplemented as of the date of such offering. After such date, no offerings of
the Class A Certificates will be made pursuant to this Prospectus Supplement and
Prospectus.
[Until , all dealers effecting transactions in the Class A
Certificates, whether or not participating in this distribution, may be required
to deliver a Prospectus Supplement and a Prospectus. This is in addition to the
obligation of dealers to deliver a Prospectus Supplement and Prospectus when
acting as underwriter and with respect to their unsold allotments or
subscriptions.]
---------------
AVAILABLE INFORMATION
The Master Trust Fund will be subject to the information requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith, the Depositor, on behalf of the Master Trust Fund, will
file periodic reports and other information with the Securities and Exchange
Commission (the "Commission"). Such reports will not contain audited financial
information with respect to the Master Trust Fund. Such reports and other
information filed by the Depositor on behalf of the Master Trust Fund can be
inspected and copied at the Public Reference Room of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549. Copies of such materials can be obtained
at prescribed rates from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549.
S-2
<PAGE>
SUMMARY OF TERMS
This summary is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus Supplement and the
accompanying Prospectus. Capitalized terms used in this Prospectus Supplement
and not defined shall have the meanings ascribed thereto in the Prospectus.
SECURITIES OFFERED... $ Conduit Mortgage Pass-Through Certificates,
Series , [Class A,] Adjustable Pass-Through Rate (the
"Class A Certificates").
DEPOSITOR ........... Asset Backed Securities Corporation
MASTER SERVICER .....
CUT-OFF DATE ........
DELIVERY DATE ....... On or about .
DESCRIPTION OF THE
CERTIFICATES ...... Two Classes of Certificates evidencing fractional
interests in a Trust Fund (the "Master Trust Fund")
consisting of the Subsidiary Regular Interests (as
defined herein) which in the aggregate generally
represent an interest in (i) all amounts distributable
with respect to the Mortgage Loans, (ii) amounts held
in the Certificate Account, (iii) any property which
secured a Mortgage Loan and is acquired by foreclosure
or deed in lieu of foreclosure, and (iv) certain other
related property, as more fully described herein and in
the Prospectus. The Class A Certificates initially
evidence in the aggregate an interest in the Mortgage
Loans (the "Class A Percentage") of approximately %.
The remaining interest in the Mortgage Loans will be
represented by the Class B Certificates, [which will
consist of two subclasses, Class B-1 (the "Class B-1
Certificates") and Class B-2 (the "Class B-2
Certificates") together,] the "Class B Certificates").
[The Class B-1 Certificates will initially evidence an
approximate % interest in the Mortgage Loans ("the
Class B-1 Percentage") and the Class B-2 Certificates
will initially evidence an approximate % interest in
the Mortgage Loans (the "Class B-2 Percentage")
(together,] [the "Subordinate Percentage"). The Class B
Certificates will be subordinated in certain respects
to the Class A Certificates, as more fully described
herein. The Class A Percentage, [and] the Class B[-1
Percentage and the Class B-2 Percentage] will vary, as
described herein.
The Class A Certificates and the Class B Certificates are
collectively referred to herein as the "Certificates".
The Class A Certificates represent the Senior
Certificates and the Class B Certificates represent the
Subordinate Certificates, both as described in the
accompanying Prospectus. Only the Class A Certificates
are being offered hereby.
THE INDEX ........... [Description e.g., the monthly weighted average cost of
funds for member institutions of the 11th District of
the Federal Home Loan Bank System as published by the
Federal Home Loan Bank of San Francisco. The Index
published in December, 1988 (reflecting the related
weighted average cost of funds for November 1988) was
%.]
S-3
<PAGE>
THE MORTGAGE LOANS .. The Mortgage Pool will consist of adjustable rate,
[conventional] mortgage loans [originated] [acquired]
by [the Master Servicer] and secured by first mortgages
deeds of trust on one-to four-family residential
properties. All Mortgage Loans will have maturities of
at least 15 but no more than 30 years and are secured
by properties located in . [All Mortgage Loans
with a Loan-to-Value Ratio greater than 80% will have
private mortgage insurance.] See "Description of the
Mortgage Pool and Underlying Mortgage Properties"
herein.
PRINCIPAL (INCLUDING
(PREPAYMENTS) ..... Passed through monthly on the Distribution Date
commencing . On each Distribution Date the
Class A Certificateholders are entitled to receive as
payments of principal, in addition to the Class A
Percentage of all scheduled payments on account of
principal, the Class A Prepayment Percentage of both
principal prepayments in part and principal prepayments
in full received by the Master Servicer with respect to
such Mortgage Loans during the preceding calendar month
("Principal Prepayments"). See "Description of the
Certificates--Subordination of the Class B
Certificates; Shifting Interest Credit Enhancement"
herein.
INTEREST ............ Interest accrued on each Mortgage Loan will be passed
through to Certificateholders on the Distribution Date
occurring in the month in which the Due Date (as
defined herein) occurs, commencing , at the Pass-
Through Rate. The Pass-Through Rate will equal the
weighted average of the Subsidiary Pass-Through Rates.
The initial Pass-Through Rate is equal to approximately
% per annum. Prior to the first Adjustment Date after
the Cut-off Date for a Mortgage Loan, the Subsidiary
Pass-Through Rate with respect to such Mortgage Loan
will equal the Mortgage Rate less . On and after
the first Adjustment Date for a Mortgage Loan, the
Subsidiary Pass-Through Rate with respect to each
Mortgage Loan will equal the Index applicable to such
Mortgage Loan plus basis points (the "Pass-Through
Margin"), subject to the limitation that the Subsidiary
Pass-Through Rate shall not exceed the lesser of the
Periodic Mortgage Rate Cap less the Servicing Fee Rate
or the Maximum Subsidiary Pass-Through Rate. The
Maximum Subsidiary Pass-Through Rates will range from
% to % per annum. The Maximum Subsidiary Pass-
Through Rate with respect to a particular Mortgage
Loan is equal to the Maximum Mortgage Rate for such
Mortgage Loan minus the Servicing Fee Rate. The
weighted average Maximum Subsidiary Pass-Through Rate
as of the Cut-off Date will be approximately % per
annum. Following an initial period of months, during
which the rate of interest on each Mortgage Loan (the
"Mortgage Rate") is fixed, the Mortgage Rate on each
Mortgage Loan will be adjusted [monthly] [semi-
annually] [annually] on the adjustment dates (each such
date, an "Adjustment Date") specified in the related
mortgage note (each such note, a "Mortgage Note") to
equal the sum of the Index and a fixed percentage
amount (a "Gross Margin") [, subject to a semi-annual
periodic mortgage rate cap (the "Periodic Mortgage Rate
Cap") and a maximum rate at which interest may accrue
(the "Maximum Mortgage Rate"), as described more fully
herein]. Each Mortgage Loan will have been originated
with an initial Mortgage Rate below the sum of the
applicable Index and Gross Margin for such Mortgage
Loan (the "Initial Mortgage Rate") and % of the
Mortgage Loans as of the Cut-off Date are expected to
be accruing interest at their Initial Mortgage Rates.]
As of the Cut-off Date, the Mortgage Loans will
S-4
<PAGE>
bear interest at Mortgage Rates which range from %
to % per annum. The Gross Margins for the Mortgage
Loans range as of the Cut-off Date from to basis
points. The weighted average Gross Margin for the
Mortgage Loans as of the Cut-off Date will be
approximately basis points. [The Periodic Mortgage
Rate Cap for each Mortgage Loan is the Mortgage Rate in
effect immediately prior to any Adjustment Date plus or
minus basis points. The Maximum Mortgage Rate will
range from % to % per annum.] The weighted
average Maximum Mortgage Rate as of the Cut-off Date
will be % per annum. See "Description of the Mortgage
Pool and the Underlying Mortgaged Properties" herein.
When a Mortgage Loan is prepaid, in whole or in part,
between scheduled payment dates, the Mortgagor pays
interest on the amount prepaid only to the date of
prepayment and not thereafter. This generally reduces
the aggregate amount of interest which would otherwise
be distributed to the Class A and Class B
Certificateholders. To mitigate any such reduction in
yield, [amounts otherwise payable as the Servicing Fee
(as defined herein) for the period during which any
such Principal Prepayment was made will be reduced by]
[to the extent funds that interest on the Mortgage
Loans exceeds the Subsidiary Pass-Through Rate less the
Servicing Fee Rate for the period during which any such
prepayment is made, the Pooling and Servicing Agreement
provides that] such amount, if any, as may be necessary
to assure that the distributions made to the Class A
and Class B Certificateholders on the related
Distribution Date include an amount equal to a full
month's interest with respect to each prepaid Mortgage
Loan at the applicable Subsidiary Pass-Through Rate
will be paid to the Master Trust Fund. See "Description
of the Certificates--Distributions" herein.
SUBORDINATION OF THE
CLASS B CERTIFICATES;
SHIFTING INTEREST
CREDIT ENHANCEMENT ..The rights of the Class B Certificateholders to receive
distributions with respect to the Mortgage Loans are
subordinated to such rights of the Class A
Certificateholders to the extent of the Subordinated
Amount described below. This subordination feature is
intended to enhance the likelihood of regular receipt
by the holders of the Class A Certificates of the full
amount of the scheduled monthly payments of principal
and interest due them with respect to the Mortgage
Loans and to protect the Class A Certificateholders
against losses.
As of each Determination Date, the Subordinated Amount
will equal the Class B Principal Balance (as defined
herein) on such date reduced by the excess of Aggregate
Losses (as defined herein) over cumulative Realized
Losses (as defined herein) borne by the Class B
Certificateholders as of such date, if any. This
subordination feature is intended to enhance the
likelihood of regular receipt by the holders of the
Class A Certificates of the full amount of the
scheduled monthly payments of principal and interest
due them with respect to the Mortgage Loans and to
protect the Class A Certificateholders against losses.
However, in certain circumstances, the Subordinated
Amount could be depleted and payment deficiencies could
result. If, on any Distribution Date when the
Subordinated Amount is greater than zero, the aggregate
amount of payments received from the Mortgagors on the
Mortgage Loans and any Advances (as defined herein) do
not provide sufficient funds to make full distributions
to the Class A Certificateholders, the amount of the
payment deficiency, plus interest
S-5
<PAGE>
thereon at the applicable Subsidiary Pass-Through Rate,
to the extent of the Subordinated Amount, will be added
to the amount such Class A Certificateholders are
entitled to receive on the next Distribution Date. The
extent to which the Class A Certificateholders and the
Class B Certificateholders bear Realized Losses, and,
in addition, Special Hazard Realized Losses, is
described herein. See "Description of the
Certificates--Subordination of the Class B
Certificates; Shifting Interest Credit Enhancement"
herein.
The protection afforded to the holders of the Class A
Certificates will be effected (i) by the preferential
right of such holders to receive the amounts of
principal and interest otherwise distributable to the
Class B Certificateholders on each Distribution Date
with respect to the Mortgage Loans out of available
funds on deposit on such date in the Certificate
Account, and (ii) by distributing to the Class A
Certificateholders a disproportionately greater
percentage (the "Class A Prepayment Percentage") of
Principal Prepayments (as hereinafter defined) and
other payments with respect to the Mortgage Loans. The
Class A Prepayment Percentage will decline from 100%
after provided certain criteria respecting the
Mortgage Pool are met. See "Description of the
Certificates--Subordination of the Class B
Certificates; Shifting Interest Credit Enhancement"
herein.
SERVICING FEE ...... will act as Master Servicer of the Mortgage
Loans [and will enter into a Servicing Agreement on the
Delivery Date pursuant to which will subservice the
Mortgage Loans]. will receive a servicing fee (the
"Servicing Fee") as compensation for its services which
is calculated monthly and equals a fixed percentage on
the principal balance of each Mortgage Loan (the
"Servicing Fee Rate"). The Servicing Fee Rate equals
basis points. See "Description of the Mortgage Pool and
Underlying Mortgaged Properties--Servicing and Sub-
Servicing" and "Description of the Certificates--
Servicing Compensation and Payment of Expenses" herein.
ADVANCES ............ The Master Servicer will be obligated to advance cash
(the "Advances") to the Subsidiary Trust Fund for
distribution in an amount equal to delinquent
installments of principal and interest to the extent
that the Master Servicer determines such Advances will
be recoverable from future payments and collections on
the Mortgage Loans or otherwise. See "Description of
the Certificates--Advances" in the Prospectus.
DENOMINATIONS ....... The minimum denomination of a Class A Certificate (a
"Single Certificate") will initially represent $
of the Cut-off Date Principal Balance, provided that
one Certificate may be issued in such lesser amount as
is required so that the Class A Certificateholders in
the aggregate equal the Class A Principal Balance (as
defined herein).
OPTIONAL
TERMINATION ........ The holder of the Subsidiary Residual Interest has the
option to purchase all of the Mortgage Loans in the
Subsidiary Trust Fund, and thereby effect termination
of the Subsidiary Trust Fund and the Master Trust Fund,
on any Distribution Date on which the aggregate
principal balance of the Mortgage Loans remaining in
the Subsidiary Trust Fund is less than % of the
Cut-off Date Principal Balance. Additionally, the
holder of the Class B[-2] Certificate has the option to
purchase all the Subsidiary Regular Interests (as
defined herein) in the Master
S-6
<PAGE>
Trust Fund. Either of the above purchases would effect
early retirement of the Class A and Class B
Certificates. See "Description of the Certificates--
Optional Termination" herein and "Description of the
Certificates--Termination" in the Prospectus.
TAX ASPECTS ......... An election will be made to treat the assets of the
Subsidiary Trust Fund as a REMIC (the "Subsidiary
REMIC") for federal income tax purposes. An
electionwill be made to treat the assets of the Master
Trust Fund as a REMIC (the "Master REMIC"). The Class A
Certificates [and Class B-1 Certificates] will be
regular interests in the Master REMIC. The Class B[-2]
Certificate will be the residual interest in the Master
REMIC.
For further information regarding the federal income tax
consequences of investing in the Certificates, see
"Certain Federal Income Tax Consequences" in the
Prospectus.
LEGAL INVESTMENT .... The Class A Certificates constitute "mortgage-related
securities" for purposes of the Secondary Mortgage
Market Enhancement Act of 1984 (the "Enhancement Act")
for so long as they are rated as described herein, and,
as such, are legal investments for certain entities to
the extent provided in the Enhancement Act. See "Legal
Investment" herein and in the Prospectus.
ERISA
CONSIDERATIONS .... See "ERISA Considerations" herein and in the Prospectus.
TRUSTEE .............
CERTIFICATE RATING .. It is a condition of issuance that the Class A
Certificates be rated at least" "by .
See "Rating" herein.
S-7
<PAGE>
DESCRIPTION OF THE MORTGAGE POOL
AND THE UNDERLYING MORTGAGED PROPERTIES(1)
GENERAL
The Mortgage Pool consists of all of the ownership interest held by
the Subsidiary Trust Fund in Mortgage Loans evidenced by
adjustable rate promissory notes (the "Mortgage Notes") having an aggregate
principal balance at the Cut-off Date of $ . The Mortgage Notes
are secured by first trust deeds or mortgages on properties consisting primarily
of detached single family residential properties with the remaining properties
consisting of units of FNMA or FHLMC eligible condominiums and units in planned
unit developments (the "Mortgaged Properties"). All of the Mortgage Loans were
originated by . All of the Mortgage Loans were originated under
one of two origination programs, one of which is a limited documentation program
that relies primarily upon appraisals and credit reports and the other of which
generally conform to FNMA and FHLMC underwriting guidelines. The Mortgage Loans
have the additional characteristics described below and in the Prospectus. See
"The Mortgage Pools" in the Prospectus.
The Depositor will purchase the Mortgage Loans from and will cause
such Mortgage Loans to be assigned to the Trustee. See "The Trust Fund--
Mortgage Loan Program" in the Prospectus. will act as the master
servicer (the "Master Servicer") for the Mortgage Loans pursuant to the Standard
Terms and Provisions of Pooling and Servicing and Reference Agreement, dated as
of (the "Pooling and Servicing Agreement"), among the Depositor,
the Master Servicer and , as trustee (the "Trustee"). The
Mortgage Loans will be serviced by the Servicer pursuant to a Servicing
Agreement with the Master Servicer, and the Servicer will receive a fee for such
services specified in such Servicing Agreement; provided, however, that the
Master Servicer will remain liable for its servicing obligations under the
Pooling and Servicing Agreement as if the Master Servicer alone were servicing
such Mortgage Loans. See "The Trust Fund--The Mortgage Pools" in the Prospectus
and "--Servicing and Sub-Servicing" herein.
Each Mortgage Loan has a Mortgage Rate subject to [monthly] [semi-
annual] [annual] adjustment on the first day of the month specified in the
related Mortgage Note and on the first day of every month thereafter (each such
date, an "Adjustment Date"), equal to the sum of (i) the Index as most recently
[made available by the Federal Home Loan Bank of San Francisco (the "FHLB")] on
the day days, as specified for the particular Mortgage Note, prior to the
Adjustment Date and (ii) the applicable Gross Margin[; provided, however, that
any increase or decrease on any Adjustment Date will be limited by the Periodic
Mortgage Rate Cap, and in no-event will the Mortgage Rate be greater than the
Maximum Mortgage Rate]. The Index applicable on a Rate Adjustment Date is the
Index available days prior to the Adjustment Date. Effective with the first
payment due on a Mortgage Loan after each related Adjustment Date, the monthly
payment will be adjusted to an amount which will fully amortize the outstanding
principal balance of the Mortgage Loan in substantially equal payments over its
remaining term, and pay interest at the Mortgage Rate as so adjusted. [All] of
the Mortgage Loans were originated with a Mortgage Rate below the sum of the
applicable Index and Gross Margin (the "Initial Mortgage Rate") applicable for
an initial period of months from the date of origination and % of the
Mortgage Loans as of the Cut-off Date will bear interest at their Initial
Mortgage Rates. The weighted average number of months from the Cut-off Date to
the first
- -----------------------
(1) The description in this Prospectus Supplement of the Mortgage Pool and
the Mortgaged Properties is based upon the Mortgage Pool as it was
constituted at the close of business on the Cut-off Date, after
deducting the scheduled principal payments due on or before such date.
Prior to the issuance of the Certificates, Mortgage Loans may be
removed from the Mortgage Pool if, as a result of delinquencies or
otherwise, the Depositor deems such removal necessary or desirable.
Other Mortgage Loans may be included in the Mortgage Pool in lieu of
the Mortgage Loans so replaced. In addition, under certain
circumstances the Depositor or the Master Servicer may substitute
Mortgage Loans for those in the Trust Fund. See "Description of the
Certificates--Substitution of Mortgage Loans" herein and "Description
of the Certificates-- Assignment of Mortgage Loans" in the Prospectus.
The Depositor believes that the information set forth herein with
respect to the Mortgage Pool is representative of the characteristics
of such Mortgage Pool as it will be constituted at the time the
Certificates are issued, although the range Mortgage Rates and
maturities and certain other characteristics of the Mortgage Loans in
the Mortgage Pool may vary in non-material respects from those set
forth herein as a result of such deletions, repurchases or
substitutions.
S-8
<PAGE>
Adjustment Date for the Mortgage Loans is approximately months.
[Due to the application of the Periodic Mortgage Rate Caps (even assuming no
increase in the applicable Index from the date of origination to the Adjustment
Date) or the Maximum Mortgage Rate, the Mortgage Rate on any Mortgage Loan, as
adjusted on any Adjustment Date, may be less than the sum of the then applicable
Index and Gross Margin, subject to rounding.] If the Index becomes unpublished
or is otherwise unavailable, the Master Servicer will select (or cause to be
selected) an alternative index for Mortgage Loans based upon comparable
information in compliance with applicable federal laws.
The Mortgage Loans were originated in . All of the
Mortgage Loans will have [monthly] payments due on [the first day of each month]
(each a "Due Date"). At origination, of the Mortgage Loans had terms to
stated maturity of 30 years. The latest date on which any Mortgage Loan will
mature is . All Mortgage Loans had Periodic Mortgage Rate
Caps equal to basis points. The Maximum Mortgage Rates range from % to
% and the weighted average Maximum Mortgage Rate is approximately % as of
the Cut-off Date.
[Mortgage Loans that are expected to constitute approximately % of
the Initial Principal Balance of the Mortgage Pool as of the Cut-off Date will
have Mortgage Rates that will be convertible from an adjustable to a fixed
Mortgage Rate at the option of the mortgagor upon certain conditions on the
[when convertible] after origination of the related Mortgage Loan. In
determining the fixed rate applicable to a Mortgage Loan eligible for
conversion, the Master Servicer, acting on behalf of the Trustee, will. To the
extent the applicable rate is not available, the Master Servicer will quote a
fixed rate based upon comparable information. In order to be eligible to
convert the applicable Mortgage Rate on such a Mortgage Loan from an adjustable
to a fixed Mortgage Rate, the mortgagor must complete and submit to the Master
Servicer certain conversion documents and a loan modification agreement, pay the
applicable conversion fee and not be in default under the Mortgage Note or the
security documents related to such Mortgage Loan. Upon conversion, the monthly
payments of principal and interest on such Mortgage Loan will be adjusted to
provide for fully amortizing, level monthly payments until maturity. [Should
interest rates decline so that the fixed Mortgage Rate applicable upon
conversion is significantly lower than the prevailing adjustable Mortgage Rate,
due to the application of Interest Rate Caps, or is significantly lower than the
applicable Maximum Mortgage Rate on such Mortgage Loan, mortgagors may have a
significant incentive to effect a conversion.] See "Description of the
Certificates--Purchase of Converted Mortgage Loans" herein.
The Mortgage Loans have the following characteristics (information provided
as of the Cut-off Date unless otherwise indicated):*
- ---------------------------------------
* The information presented in tabular form may be presented in paragraph
form, or ranges for such information may be provided.
S-9
<PAGE>
TYPES OF MORTGAGED PROPERTIES
<TABLE>
<CAPTION>
% OF
MORTGAGE
NO. OF AGGREGATE POOL
PROPERTY TYPES LOANS BALANCES BALANCE
- -------------------------------- ------- --------- --------
<S> <C> <C> <C>
Single family detached .......... $ . %
Condominium .....................
Planned Unit Developments .......
------- --------- ------
Total ................... $ 100.00%
======= ========= ======
</TABLE>
CURRENT LOAN AMOUNTS(1)
<TABLE>
<CAPTION>
% OF
MORTGAGE
NO. OF AGGREGATE POOL
CURRENT LOAN AMOUNTS LOANS BALANCES BALANCE
- -------------------------------- ------- --------- --------
<S> <C> <C> <C>
Up to $100,000 ................ $ . %
$100,001-150,000 ..............
150,001-200,000 ...............
200,001-250,000 ...............
250,001-300,000 ...............
300,001-350,000 ...............
350,001-400,000 ...............
400,001-450,000 ...............
Over $450,001 .................
------- --------- ------
Total(2) $ 100.00%
======= ========= ======
</TABLE>
(1) The largest current loan amount is $ and the smallest
current loan amount is $ .
(2) The average outstanding principal balance is $ .
S-10
<PAGE>
LOAN-TO-VALUE RATIOS AT ORIGINATION
<TABLE>
<CAPTION>
% of
Mortgage
No. of Aggregate Pool
Loan-to-value Ratio Loans Balances Balance
- -------------------------------- ------- --------- --------
<S> <C> <C> <C>
70.00% or less................. $ . %
70.01% to 75.00%...............
75.01% to 80.00%...............
80.01% to 85.00%...............
85.01% to 90.00%...............
------- --------- ------
Total(1)............... $ 100.00%
======= ========= ======
</TABLE>
- ------------
(1) The weighted average loan-to-value ratios of the Mortgage Loans, based on
the principal amount at origination and the principal amount as of the Cut-
off Date, respectively, and the lesser of the appraised value at
origination and the purchase price paid by the Mortgagor, was % and
%, respectively.
CURRENT MORTGAGE RATES
<TABLE>
<CAPTION>
% of
Mortgage
No. of Aggregate Pool
Mortgage Rates(1) Loans Balances Balance
- -------------------------------- ------- --------- --------
<S> <C> <C> <C>
. % or less.............. $ . %
. % or less..............
. % or less..............
. % or less..............
------- --------- ------
Total(2).................. 100.00%
======= ========= ======
</TABLE>
- ------------
(1) With respect to % of the Mortgage Pool Balance, the Mortgage Rate is
the original Mortgage Rate and does not reflect application of the Index.
(2) The weighted average Mortgage Rate is approximately % per annum.
S-11
<PAGE>
MORTGAGE LOAN GROSS MARGINS
<TABLE>
<CAPTION>
% of
Mortgage
No. of Aggregate Pool
Gross Margins Loans Balances Balance
- -------------------------------- ------- --------- --------
<S> <C> <C> <C>
% ............................. $ . %
.............................
.............................
.............................
.............................
------- --------- ------
Total(1)..................... $ 100.00%
======= ========= ======
</TABLE>
- ------------
(1) The weighted average Gross Margin is approximately per annum.
MONTH IN WHICH NEXT ADJUSTMENT DATE FALLS
<TABLE>
<CAPTION>
% of
Mortgage
No. of Aggregate Pool
Month(1) Loans Balances Balance
- -------------------------------- ------- --------- --------
<S> <C> <C> <C>
............................. $ . %
.............................
.............................
.............................
.............................
------- --------- ------
Total(2)..................... $ 100.00%
======= ========= ======
</TABLE>
- -----------
(1) The adjusted Mortgage Rate will be reflected in payments received by
Certificateholders on the 25th day of the month following the month in
which the Adjustment Date occurs.
(2) The weighted average number of months to the initial Adjustment Date is
months.
S-12
<PAGE>
LIFETIME MORTGAGE RATE CAPS
<TABLE>
<CAPTION>
% of
Mortgage
No. of Aggregate Pool
Lifetime Mortgage Rate Cap Loans Balances Balance
- -------------------------------- ------- --------- --------
<S> <C> <C> <C>
% ............................ $ . %
.............................
.............................
.............................
.............................
.............................
.............................
.............................
.............................
.............................
.............................
.............................
.............................
.............................
.............................
.............................
.............................
.............................
.............................
------- --------- ------
Total(1)..................... $ 100.00%
======= ========= ======
</TABLE>
YEARS OF ORIGINATION
<TABLE>
<CAPTION>
% of
Mortgage
No. of Aggregate Pool
Month(1) Loans Balances Balance
- -------------------------------- ------- --------- --------
<S> <C> <C> <C>
% ............................ $ . %
.............................
.............................
.............................
.............................
------- --------- ------
Total........................ $ 100.00%
======= ========= ======
</TABLE>
S-13
<PAGE>
GEOGRAPHICAL DISTRIBUTION OF MORTGAGED PROPERTIES
<TABLE>
<CAPTION>
% of
Mortgage
No. of Aggregate Pool
States Loans Balances Balance
- -------------------------------- ------- --------- --------
<S> <C> <C> <C>
% ............................ $ . %
.............................
.............................
.............................
.............................
------- --------- ------
Total........................ $ 100.00%
======= ========= ======
</TABLE>
[Mortgage Loans for which the loan-to-value ratio at origination was
greater than 80% either (1) will be insured as to payment default for the amount
in excess of 75% of the principal balance by a Primary Mortgage Insurance
Policy until the principal balance of such Mortgage Loan is reduced below 80% of
the lesser of the appraised value at origination or the purchase price of the
Mortgaged Property, or (2) will be covered by a [DESCRIPTION OF ALTERNATIVE].]
Approximately % of the Mortgage Loans were made to refinance the
related Mortgaged Properties and approximately % of the Mortgage Loans have
been made to purchase the related Mortgaged Properties. Approximately % of
the Mortgage Loans will be secured by Mortgaged Properties represented to the
originator in the related loan application to be the primary residence of the
mortgagor at the time of origination. % of the Mortgage Loans are secured
by Mortgaged Properties which were second homes of the mortgagor at the time of
origination based on representations of the Mortgagor. % of the Mortgage
Loans were made to finance the purchase of homes represented by the mortgagor to
have been acquired for investment purposes.
At the date of issuance of the Certificates, no Mortgage Loan will be
delinquent in scheduled payments of principal and interest by more than 30 days
and no Mortgage Loan will have been, as of the Cut-off Date, more than 30 days
delinquent in scheduled payments of principal and interest more than once in the
previous year.
THE INDEX
[DESCRIPTION OF APPLICABLE INDEX, e.g., The Index is currently
published by the FHLB on or about the last working day of each month and is
designed to represent the monthly weighted average cost of funds for savings
institutions in the 11th District of the Federal Home Loan Bank System (Arizona,
California and Nevada) for the month prior to publication. The Index is
computed by the FHLB for each month by dividing the cost of funds (interest paid
during the month by 11th District savings institutions on savings, advances and
other borrowings) by the average of the total amount of those funds outstanding
at the end of the month and the prior month and annualizing and adjusting the
result to reflect the actual number of days in the particular month. If
necessary, before these calculations are made, the component figures are
adjusted by the FHLB to neutralize the effect of events such as member
institutions leaving the 11th District or acquiring institutions outside the
11th District. The Index has been reported each month since August 1981.]
[The Index reflects the interest costs paid on all types of funds held
by 11th District member institutions. The Index is weighted to reflect the
relative amount of each type of funds held at the end of the relevant month.
There are three major components of funds of 11th District institutions: (1)
savings deposits, (2) FHLB advances, and (3) all other borrowings, such as
reverse repurchase agreements and mortgage-backed bonds. Unlike most other
interest rate measures, the Index does not necessarily reflect current market
rates, since the component funds represent a variety of maturities whose costs
may react in different ways to changing conditions.]
S-14
<PAGE>
[A number of factors affect the performance of the Index which may
cause the Index to move in a manner different from indices tied to specific
interest rates, such as United States Treasury Bills or LIBOR. Because of the
various maturities of the liabilities upon which the Index is based, the Index
may not necessarily reflect the average prevailing market interest rates on new
liabilities of similar maturities. Additionally, the Index may not necessarily
move in the same direction as market interest rates at all times, since as
longer term deposits or borrowings mature and are renewed at prevailing market
interest rates, the Index is influenced by the differential between the prior
and the new rates on those deposits or borrowings. Moreover, as stated above,
the Index is designed to represent the average cost of funds for 11th District
savings institutions for the month prior to the month in which the Index is
published. In addition, such movement of the Index, as compared to other indices
tied to specific interest rates, may be affected by changes instituted by the
FHLB in the method used to calculate the Index. Information Bulletins announcing
the Index may be obtained by contacting the FHLB.]
[The following table sets forth the Index published in each month
(with respect to the 11th District cost of funds in the prior month) for the
four most recent calendar years and for 1988.
<TABLE>
<CAPTION>
19 19 19 19 19
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
January...................... % % % % %
February.....................
March........................
April........................
May..........................
June.........................
July.........................
August.......................
September....................
October......................
November.....................
December.....................
</TABLE>
[MASTER SERVICER]
is a , which was founded in . At
had consolidated assets of $ billion and regulatory capital of $
million. As of , had executive offices in and
savings branches located .
is subject to comprehensive regulation, examination and supervision by
the [FHLBB and the FSLIC,] which regulation is intended primarily for the
benefit of depositors. [Deposits at are insured by the FSLIC up
to $100,000 for each insured account holder, the maximum permitted by law.]
executive offices are located at
and its telephone number at that address is .
Loan Portfolio. [Description]
Loan Transactions. primary lending is [description].
has concentrated efforts on .
S-15
<PAGE>
The following table sets forth certain information with respect to
loan originations, loan purchases and sales, and repayment experience during the
periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------------------------------------
-------------- -------------- --------------
<S> <C> <C> <C>
(IN THOUSANDS)
Loans receivable at beginning of period...........
Loans originated..................................
Loans purchased...................................
Loans obtained in Equitable acquisition...........
Loans sold........................................
Loan repayments...................................
Other.............................................
-------------- -------------- --------------
Net loan activity.................................
-------------- -------------- --------------
Loan receivable at end of period..................
============== ============== ==============
</TABLE>
Loan Underwriting. has adopted written, nondiscriminatory underwriting
standards for use in originating and purchasing residential mortgage loans.
has represented to the Depositor that its underwriting standards are in
substantial conformity with standards set up by the FNMA and the FHLMC, which
conformity facilitates sales of such loans in the secondary market. A detailed
loan application is obtained or reviewed to determine the borrower's ability to
repay, and confirmation of the more significant information is obtained through
the use of credit reports, financial statements and verifications. An appraisal
of the property, conducted by an appraiser meeting the qualifications set forth
in FHLBB guidelines, is required to determine the adequacy of the collateral.
also requires that a survey be conducted and title insurance be obtained,
insuring the priority of its mortgage lien, and, for loans with a loan-to-value
ratio of 80% or more, that private mortgage insurance be obtained if available.
All loan applications must be reviewed by underwriters to ensure that
guidelines are met. Such guidelines are approved by
Board of Directors. has represented to the Depositor that each Mortgage
Loan meets the credit, appraisal and underwriting standards established by
and described above.
[Approximately % of the Mortgage Loans were originated under
the limited documentation program of . has represented that each of the
Mortgage Loans originated under a limited documentation program satisfies the
standards established and followed by for originating and acquiring
mortgage loans under its limited documentation program. Under the program,
does not evaluate the borrower's assets-to-liabilities ratio, but did verify the
borrower's income and availability of funds for down payment, and relies
primarily on a credit report on the borrower (which is required to be favorable)
and at least one appraisal as evidence of the value of the property securing the
loan. The limited documentation program was not available for loans
secured by condominiums and was available only for owner-occupied primary
residences. Under such program, loan-to-value ratios were limited to
% for loans under $ and to % for loans under $
, except that for loans in certain locations and having certain characteristics,
lower maximum loan-to-value ratios were established.
Loan Portfolio Qualify. In accordance with the requirements of the
Competitive Equality Banking Act of 1987 (the "CEBA"), the FHLBB in December
1987 adopted amendments to its classification of assets regulation. Prior to
December 1987, to monitor an insured institution's asset quality the FHLBB
defined certain assets of savings institutions as scheduled items and
established certain operating restrictions based upon ratios relating to such
assets. The regulation as amended eliminates entirely the "scheduled items"
classification, but retains the existing classification categories of
substandard, doubtful and loss, while altering the effects of the respective
classifications with respect to valuation allowance requirements and minimum
regulatory capital requirements. Specific loss reserves are no longer required
for assets
S-16
<PAGE>
classified as doubtful and institutions are required to charge off or
set aside loss reserves for 100% of the amount of any asset, or portion of an
asset, classified as a loss. The amended regulation requires institutions to
classify their own assets and to establish prudent general allowances for loan
losses, subject to examiner review. Greater examiner discretion, consistent with
the asset classification practices of the banking regulatory agencies, is
permitted by the amended regulation. The amended regulation also requires
institutions to establish loss reserves for off-balance-sheet items when loss
becomes probable and estimable.
One measure of an institution's asset quality is the level of non-
performing loans in its portfolio. Non-performing loans consist of (i) non-
accrual loans, (ii) loans that are 90 or more days contractually past due as to
interest or principal but that are well-secured and in the process of collection
or renewal in the normal course of business, and (iii) loans that have been
renegotiated to provide a deferral of interest or principal because of a
deterioration in the financial condition of the borrower ("restructured loans").
generally places conventional mortgage loans on non-accrual status when more
than 90 days past due. Where the underlying collateral is a "home" (as defined
in the Rules and Regulations for the Federal Home Loan Bank System), the loan is
placed on non-accrual status when the amount of interest receivable plus all
loan balances secured by the home exceeds 90% of the appraised value of the
security property, provided there is a reasonable expectation of interest
collection.
The following table sets forth information regarding the non-performing
loans as of the dates indicated.
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------------------------------
19 19 19
-------------- -------------- --------------
<S> <C> <C> <C>
(IN THOUSANDS)
Non-accrual loans................................. $ $ $
Accruing loans 90 days or more past due...........
Restructured loans................................
</TABLE>
Loan Servicing. The following table sets forth the dollar amounts of
conventional mortgage loans serviced by for itself and other lenders at the
dates indicated.
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------------------------------
19 19 19
-------------- -------------- --------------
<S> <C> <C> <C>
(IN THOUSANDS)
Conventional mortgage loans........................
</TABLE>
Loss and Delinquency Experience. The following table sets forth the
delinquency and foreclosure experience of residential conventional mortgage
loans in the mortgage loan portfolio serviced by and other entities at
the dates indicated.
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------------------------------------------------------------
19 19 19 19
------------------ ------------------ ------------------ ------------------
AMOUNT PERCENTAGE AMOUNT PERCENTAGE AMOUNT PERCENTAGE AMOUNT PERCENTAGE
OF OF TOTAL OF OF TOTAL OF OF TOTAL OF OF TOTAL
LOANS LOANS LOANS LOANS LOANS LOANS LOANS LOANS
------ ---------- ------ ---------- ------ ---------- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Conventional mortgage loans
delinquent for:
60-89 days................... $ $ $ $
90 days and over.............
In foreclosure...............
Total.................. $ $ $ $
</TABLE>
S-17
<PAGE>
The allowance for loan losses is maintained at an amount management
deems adequate to cover estimated losses. In determining the level to be
maintained, management considers factors such as current economic trends in
specific geographic areas, historical loss experience, borrowers' ability to
repay and repayment performance and estimated collateral values, as well as
considerations such as the availability of indemnifications, mortgage insurance
and seller-provided recourse.
The statistics shown above represent the loss experience for the
total conventional mortgage loan portfolio (including residential and commercial
loans) for each of the periods presented, whereas the aggregate loss experience
on the Mortgage Loans will depend on the results obtained over the life of the
Mortgage Pool.
SERVICING [AND SUB-SERVICING]
The Mortgage Loans will be serviced in accordance with procedures as
described generally in the accompanying Prospectus under the heading
"Description of the Certificates--Servicing by Unaffiliated Sellers." [ , as
Master Servicer, will enter into a Servicing Agreement with (the "Servicer")
pursuant to which the Servicer will sub-service the Mortgage Loans.
acquired the Mortgage Loans from the Servicer. The Servicer has serviced the
Mortgage Loans since their origination. The Servicing Agreement can be
terminated without cause, but in such event or a successor master servicer
would be required to pay a fee to the Servicer or sell the Servicer's interest
in the Servicing Agreement in an auction proceeding upon termination. may
determine to terminate the Servicer and to service the Mortgage Loans itself or
through other sub-servicers who may be affiliates of .]
[The Servicing Agreement provides for servicing compensation equal to
a rate of basis points per annum on the outstanding principal balance of the
Mortgage Pool. In addition, the Servicer is entitled to retain certain late
payment fees, assumption fees and conversion fees related to the Mortgage Loans.
The Servicing Agreement does not require the Servicer to make Advances or to pay
any amount from its servicing compensation with respect to interest on Principal
Prepayments on Mortgage Loans.]
Except as described below, when any Mortgaged Property is conveyed by
the Mortgagor, the Master Servicer generally will enforce, and will cause any
Servicer to enforce, any due-on-sale clause contained in the Mortgage Loan, to
the extent permitted under applicable law and governmental regulations.
Acceleration of Mortgage Loans as a result of enforcement of such due-on-sale
provisions in connection with transfers of the related Mortgaged Properties will
affect the level of prepayments on the Mortgage Loans, thereby affecting the
weighted average life of the related Class A Certificates. See "Maturity and
Prepayment Considerations" in the Prospectus.
All of the Mortgage Loans include a rider to the Mortgage providing
that assumption of the remaining unpaid principal balance of the Mortgage Loan
will be permitted if the borrower provides information required to evaluate the
creditworthiness of the proposed transferee and the transferee is determined to
be creditworthy. In connection with such assumption, a reasonable fee may be
charged as a condition to the loan assumption and any such fee collected in
connection with a Mortgage Loan in the Subsidiary Trust Fund will be retained by
[or the Servicer]. The assumption of Mortgage Loans by buyers of the related
Mortgaged Properties may also affect the level of prepayments on the Mortgage
Loans, thereby affecting the weighted average life of the Class A Certificates.
INSURANCE
A Standard Hazard Insurance Policy will be maintained with respect to
each Mortgage Loan in an amount equal to the maximum insurable value of the
improvements securing such Mortgage Loan or the principal balance of such
Mortgage Loan, whichever is less. See "Description of Insurance--Standard
Hazard Insurance Policies" in the Prospectus. [No Mortgage Pool Insurance
Policy, Special Hazard Insurance Policy or Mortgagor Bankruptcy Insurance will
be maintained with respect to the Mortgage Pool, nor will any Mortgage Loan
included in the Mortgage Pool be subject to FHA Insurance or a VA Guaranty.]
S-18
<PAGE>
YIELD CONSIDERATIONS
The effective yield to holders of the Class A Certificates will depend
upon, among other things, the price at which the Class A Certificates are
purchased and the amount and rate at which principal, including both scheduled
and unscheduled payments thereof, is paid to Class A Certificateholders.
The rate of principal payments on the Class A Certificates, the
aggregate amount of each monthly interest payment on the Class A Certificates
and the yield to maturity of the Class A Certificates will be directly related
to the rate of payments of principal on the Mortgage Loans. Principal payments
on the Mortgage Loans may be in the form of scheduled principal payments or
prepayments (for this purpose, the term "prepayment" includes payments resulting
from optional prepayments by the Mortgagors, refinancings, liquidation of the
Mortgage Loans due to defaults, casualties, condemnations or the like and
repurchases by the Depositor or the Master Servicer, as the case may be). Any
such prepayments will result in distributions to Certificateholders of amounts
which would otherwise be distributed over the remaining term of the Mortgage
Loans. In general, the prepayment rate may be influenced by a number of
economic, geographic, social and other factors, including general economic
conditions and homeowner mobility. Other factors affecting prepayment of
mortgage loans include changes in mortgagors' housing needs, job transfers,
unemployment, mortgagors' net equity in the mortgaged properties and servicing
decisions.
The Mortgage Loans may be prepaid by the Mortgagors at any time
without payment of any prepayment fee or penalty. As described herein under
"Description of the Certificates--Subordination of the Class B Certificates;
Shifting Interest Credit Enhancement", all or a disproportionately large
percentage of principal prepayments on the Mortgage Loans will be distributed to
the holders of the Class A Certificates during at least the first fourteen years
after the Cut-off Date. In general, defaults on Mortgage Loans are expected to
occur with greater frequency in their early years, although little data is
available with respect to the rate of default on adjustable rate Mortgage loans.
Increases in the monthly payments on the Mortgage Loans in excess of those
assumed in underwriting such Mortgage Loans may result in a default rate higher
than that on conventional mortgage loans with fixed mortgage rates.
Prepayments, liquidations and purchases of the Mortgage Loans will result in
distributions to Certificateholders of amounts which would otherwise be
distributed over the remaining terms of the Mortgage Loans. Since the rate of
payment of principal on the Mortgage Loans will depend on future events and a
variety of factors (as described more fully herein and in the Prospectus under
"Yield Considerations" and "Maturity and Prepayment Considerations"), no
assurance can be given as to such rate or the rate of principal prepayments.
[Mortgage Loans that are expected to constitute approximately % of
the initial aggregate principal balance of the Mortgage Loans as of the Cut-off
Date will provide that the mortgagor may, during a specified period of time,
convert the adjustable rate of the related Mortgage Loan to a fixed rate. The
conversion option may be exercised during periods of rising interest rates as
mortgagors attempt to limit their risk of higher rates. If mortgagors were to
exercise their conversion rights in such an interest rate environment, a
purchase of the Mortgage Loan by the Master Servicer would have the same effect
on Certificateholders as a prepayment at a time when prepayments generally would
not be expected. The availability of fixed rate mortgage loans at competitive
interest rates during periods of falling interest rates may also encourage
mortgagors to exercise the conversion option. The convertible ARM loan is a
relatively new type of mortgage loan, so there can be no certainty as to the
rate at which conversions will take place or as to the rate of prepayments in
stable or changing interest rate environments. The Master Servicer is obligated
to purchase Converted Mortgage Loans. Consequently, the exercise of the
conversion option by mortgagors will generally result in prepayment of principal
with respect to the Mortgage Pool.]
[The rate at which mortgagors exercise their conversion rights and the
resulting purchase of Converted Mortgage Loans by the Master Servicer will
affect the rate of payment of principal, and hence the effective yield on the
Class A Certificates. The purchase price paid will be passed through to the
Certificateholders as principal in the month following the month of such
purchase. The effective yield on the Class A Certificates also will be affected
by the failure of the Master Servicer to purchase Converted Mortgage Loans and
the resulting retention of fixed rate Mortgage Loans in the Mortgage Pool. See
"Description of the Certificates--Purchase of Converted Mortgage Loans" herein.]
The timing of changes in the rate of prepayments on the Mortgage Loans
may significantly affect an investor's actual yield to maturity, even if the
average rate of principal payments experienced over time is consistent with an
investor's expectations. In general, the earlier a prepayment of principal on
the Mortgage Loans, the greater will be the effect on the
S-19
<PAGE>
investor's yield to maturity. As a result, the effect on an investor's yield of
principal payments occurring at a rate higher (or lower) than the rate
anticipated by the investor during the period immediately following the issuance
of the Certificates would not be fully offset by a subsequent like reduction (or
increase) in the rate of principal payments.
All of the Mortgage Loans comprising the Mortgage Pool are adjustable
rate mortgage loans. The yield to maturity of the Class A Certificates will be
affected by the Mortgage Rates on the Mortgage Loans as they adjust from time to
time. The Depositor is not aware of any publicly available statistics relating
to the principal prepayment experience of adjustable rate mortgage loans over an
extended period of time, and the Depositor's experience with respect to
adjustable rate mortgage loans is insufficient to draw any conclusions with
respect to the expected prepayment rates on the Mortgage Loans comprising the
Mortgage Pool. The rate of payments (including prepayments) on adjustable rate
mortgage loans has fluctuated in recent years. As is the case with conventional
fixed-rate mortgage loans, adjustable rate mortgage loans may be subject to a
greater rate of principal prepayments in a declining interest rate environment.
For example, if prevailing mortgage rates fell significantly below the then
current Mortgage Rates on the Mortgage Loans or significantly below the Maximum
Mortgage Rates on the Mortgage Loans, the rate of prepayment would be expected
to increase due to the availability of fixed-rate mortgage loans at competitive
interest rates, which may encourage Mortgagors to refinance the Mortgage Loans
in order to obtain a lower fixed interest rate. Conversely, if prevailing
mortgage rates rose significantly above the then current Mortgage Rates on the
Mortgage Loans, the rate of prepayment on the Mortgage Loans would be expected
to decrease.
[The Mortgage Rates on the Mortgage Loans will adjust semi-annually
(although not on the same Adjustment Dates) and such semi-annual increases and
decreases in the Mortgage Rates on the Mortgage Loans will be limited by the
Periodic Mortgage Rate Cap and Maximum Mortgage Rates applicable to the Mortgage
Loans. In addition, such Mortgage Rates will be based on the Index (which may
not rise and fall consistently with interest rates on other types of adjustable
rate residential mortgage loans) plus the Gross Margin for the Mortgage Loans
(which may be different from then current margins on residential mortgage
loans). As a result, the Mortgage Rates on the Mortgage Loans at any time may
not equal the prevailing rates for similar adjustable rate mortgage loans, and
the rate of prepayment may be lower or higher than would otherwise be
anticipated. See "Yield Considerations" and "Maturity and Prepayment
Considerations" in the Prospectus.]
In addition, if on any Distribution Date, after taking into account
any Advances, amounts otherwise distributable to the Subsidiary Residual
Certificateholder and permitted withdrawals from the Certificate Account, there
are not sufficient funds to pay the principal and interest on the Class A
Certificates, the amount of the resulting shortfall, and in the case of interest
shortfalls, interest at the applicable Pass-Through Rate, will be added to the
amount the Class A Certificateholders are entitled to receive on the next
Distribution Date. See "Description of the Certificates--Distributions" herein.
If any shortfalls occur, the weighted average life of the Class A Certificates
will be increased over that which would result had such shortfalls not occurred.
The after-tax yield to Certificateholders may be affected by lags
between the time interest income accrues to the Certificateholders and the time
the related income is received. See "Certain Federal Income Tax Consequences"
herein and in the Prospectus.
The effective yield to the holders of Class A Certificates will be
lower than the yield otherwise produced by the Pass-Through Rate and purchase
price because monthly interest will not be payable to such holders until the
25th day (or if such day is not a Business Day, then on the next succeeding
Business Day) of the month following the month in which interest accrues on the
Mortgage Loans.
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Certificates offered hereby will be issued pursuant to the Pooling
and Servicing Agreement, a form of which has been filed as an exhibit to the
Registration Statement. Reference is made to the Prospectus for additional
information regarding the terms and conditions of the Pooling and Servicing
Agreement. The following summaries do not purport to
S-20
<PAGE>
be complete and are subject to, and are qualified in their entirety by reference
to, the provisions of the Pooling and Servicing Agreement. When particular
provisions or terms used in the Pooling and Servicing Agreement are referred to,
the actual provisions (including definitions of terms) are incorporated by
reference.
The Class A Certificates will be transferable and exchangeable at the
office of the Trustee located at . No service charge will be made for any
registration of transfer or exchange of the Class A Certificates on the
Certificate Register maintained by the Trustee, but the Trustee may require the
payment of a sum sufficient to cover any related tax or other governmental
charge. There is at present no market for the Class A Certificates and there
can be no assurance that a secondary market will develop or that if it does
develop, it will continue. Fluctuating market interest rates may affect the
market value of the Class A Certificates.
DISTRIBUTIONS
Distributions of principal and interest on the Certificates will be
made on the [25th] day of each month, or, if such day is not a Business Day, the
next succeeding Business Day (each a "Distribution Date"), beginning , to
the persons in whose names the Certificates are registered at the close of
business on the last day of the month preceding the month in which payment is
made (the "Record Date"). Certain calculations with respect to the Certificates
will be made on the [15th] day of each month, or if such day is not a Business
Day, the next succeeding Business Day (the "Determination Date").
Principal received on each Mortgage Loan will be passed through
monthly as described below on the Distribution Date occurring in the month in
which the Due Date occurs. Principal prepayments received during the period
from the first day of any month to the last day of such month (a "Prepayment
Period") will be passed through on the Distribution Date occurring in the month
following receipt. When a Mortgage Loan is prepaid, in whole or in part,
between scheduled payment dates, the Mortgagor pays interest on the amount
prepaid only to the date of prepayment and not thereafter. The Master Servicer
is not required to pay any part of its servicing compensation to assure that
distributions made to Certificateholders on the related Distribution Date
include an amount equal to one full month's interest at the applicable
Subsidiary Pass-Through Rate.
Interest received by the Subsidiary Trust Fund on each Mortgage Loan
will be passed through monthly on the Distribution Date occurring in the month
in which the Due Date occurs, at the Subsidiary Pass-Through Rate for such
Mortgage Loan. The Pass-Through Rate will equal the weighted average of the
Subsidiary Pass-Through Rates for the Mortgage Loans. Prior to the first
Adjustment Date with respect to each Mortgage Loan that occurs after the Cut-off
Date, the Subsidiary Pass-Through Rate for such Mortgage Loan will equal the
Initial Mortgage Rate less . Thereafter, the Subsidiary Pass-Through Rate
with respect to each Mortgage Loan will equal the Index applicable to each
Mortgage Loan plus basis points (the "Pass-Through Margin") subject to the
limitation that the Subsidiary Pass-Through Rate shall not exceed the lesser of
the Periodic Mortgage Rate Cap less the Servicing Fee Rate and the Maximum
Subsidiary Pass-Through Rate. The Maximum Subsidiary Pass-Through Rate with
respect to a Mortgage Loan shall equal the Maximum Mortgage Rate for such
Mortgage Loan minus the Servicing Fee Rate. The Master Servicer will receive a
servicing fee (the "Servicing Fee") as compensation for the servicing of each
Mortgage Loan which is calculated monthly and equals a fixed percentage of the
principal balance of the Mortgage Loan (the "Servicing Fee Rate"). [Prior to
the first Adjustment Date with respect to a Mortgage Loan that occurs after the
Cut-off Date, the Servicing Fee Rate will be basis points for such Mortgage
Loan. Subsequent to the first Adjustment Date with respect to a Mortgage Loan
that occurs after the Cut-off Date, the Servicing Fee Rate shall equal basis
points. See "Description of the Mortgage Pool and the Underlying Mortgaged
Properties" above and "Servicing Compensation and Payment of Expenses" below.
The amount of interest on each Mortgage Loan available to be distributed on each
Distribution Date may be expected to change, among other reasons, as the
Mortgage Rate and the Subsidiary Pass-Through Rate vary with the Index and as
the Mortgage Rate reaches the Periodic Mortgage Rate Cap and the Maximum
Mortgage Rate (which will not be the same for all Mortgage Loans).
The Master Servicer will deposit in the Certificate Account the
payments and collections described in "Description of the Certificates--Payments
on Mortgage Loans" in the Prospectus.
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<PAGE>
On each Distribution Date, the amount required to be distributed to
the Class A Certificateholders will equal the lesser of the Class A Distribution
Amount and the Master Trust Fund Aggregate Distribution.
The "Class A Distribution Amount" means generally, as of any
Distribution Date, an amount equal to the sum of: (a) one month's interest at
the Pass-Through Rate on the Class A Certificate Principal Balance as of such
Distribution Date; (b) the outstanding balance of all previously due and unpaid
Interest Shortfalls (as defined below) owed to the Class A Certificateholders
with accrued interest thereon at the Pass-Through Rate; (c) the outstanding
balance of all previously due and unpaid Principal Shortfalls (as defined below)
owed to the Class A Certificateholders; (d) the Class A Percentage of each
scheduled payment of principal due on the preceding Due Date on the Mortgage
Loans; (e) the Class A Prepayment Percentage of any Principal Prepayments
received during the related Prepayment Period on the Mortgage Loans; (f) with
respect to Mortgage Loans which became Liquidated Loans during the related
Prepayment Period, the Class A Percentage of the aggregate principal balance of
such Mortgage Loans, net of certain related unreimbursed advances with respect
thereto; (g) the Class A Percentage of any insurance proceeds received during
the related Prepayment Period, net of certain related unreimbursed advances with
respect thereto; and (h) with respect to Mortgage Loans purchased by the Master
Servicer pursuant to the Pooling and Servicing Agreement during the related
Prepayment Period, the Class A Percentage of the aggregate principal Balances of
such Mortgage Loans, net of certain related unreimbursed advances with respect
thereto.
At any time when the Subordinated Amount is equal to zero, the amount
calculated under clauses (a) through (h) above shall not include any amount in
respect of Monthly Payments due on Mortgage Loans which were not actually
received (but shall include payments from funds attributable to advances by the
Master Servicer).
The "Master Trust Fund Aggregate Distribution" shall mean, on any
Distribution Date, the sum of all amounts distributed with respect to the
Subsidiary Regular Interests, as described below.
On each Distribution Date the aggregate amount required to be
distributed to the holders of the Subsidiary Regular Interests is equal to the
lesser of (x) the Subsidiary Trust Fund Regular Distribution and (y) the sum of
(i) one month's interest at the Subsidiary Pass-Through Rate on the principal
balance of each Mortgage Loan, (ii) each payment of the principal due on the
related Due Date on each Mortgage Loan, (iii) any delinquent Mortgagor payment
of principal and interest on such Mortgage Loan received prior to the related
Determination Date, after adjustment of the interest portion of such payment to
the related Subsidiary Pass-Through Rate and deduction of unreimbursed advances
by the Master Servicer with respect to the preceding delinquent payment, (iv)
for each Mortgage Loan which was the subject of a Principal Prepayment during
the related Prepayment Period, the amount of such Principal Prepayment, (v) for
each Mortgage Loan which became a Liquidated Loan during the related Prepayment
Period, the principal balance of such Mortgage Loan, net of certain unreimbursed
advances by the Master Servicer, (vi) with respect to any Mortgage Loan
purchased by the Master Servicer pursuant to the Agreement, the principal
balance of such Mortgage Loan net of certain unreimbursed advances by the Master
Servicer, and (vii) amounts representing insurance proceeds with respect to a
Mortgage Loan.
The "Subsidiary Trust Fund Regular Distribution" means, generally, as
of any Distribution Date, an amount equal to the amount on deposit in the
Certificate Account as of the close of business on the related Determination
Date except: (a) amounts received on particular Mortgage Loans as late payments
or other recoveries of principal or interest (including Liquidation Proceeds,
insurance proceeds, and condemnation awards) and respecting which the Master
Servicer previously made an unreimbursed Advance of such amounts; (b) amounts
representing reimbursement for certain losses and expenses incurred by the
Master Servicer, as described in the Pooling and Servicing Agreement; (c) all
amounts representing scheduled monthly payments due after the immediately
preceding Due Date; (d) all Principal Prepayments (and interest thereon),
Liquidation Proceeds, insurance proceeds, condemnation awards and repurchase
proceeds received after the related Prepayment Period, including payments of
interest representing interest accrued after the last day of the related Due
Period; (e) all income from Eligible Investments held in the Certificate Account
for the account of the Master Servicer; and (f) certain amounts distributable to
the holder of the Subsidiary Residual Interest pursuant to the Pooling and
Servicing Agreement.
The "Class A Certificate Principal Balance" on any Distribution Date
will equal the portion of the unpaid principal balance of the Mortgage Loans
evidenced by the Class A Certificates as of the Cut-off Date (the "Initial Class
A Certificate Principal Balance") less the sum of payments or recoveries of, or
with respect to, principal of the Mortgage Loans previously
S-22
<PAGE>
distributed to the Class A Certificateholders and any Realized Losses (as
defined below) including, subject to certain limitations, Special Hazard
Realized Losses (as defined below) previously allocated to the Class A
Certificates. The Initial Class A Certificate Principal Balance is expected to
be approximately $ . See "--Subordination of the Class B Certificates; Shifting
Interest Credit Enhancement" herein.
The "Class B Principal Balance" on any Distribution Date will equal
the Scheduled Principal Balance (as defined below) of the Mortgage Loans minus
the Class A Certificate Principal Balance.
The "Scheduled Principal Balance" of the Mortgage Loans as of the time
of any determination will equal the aggregate principal balance of the Mortgage
Loans as of the Cut-off Date, after application of any scheduled principal
payments due on or before the Cut-off Date, whether or not received, reduced by
the principal portion of all scheduled payments of principal and interest due on
or before the date of determination, whether or not received, and by all
Principal Prepayments distributed to Certificateholders on or before the date of
determination, and further reduced by Realized Losses (as defined below) with
respect to the Mortgage Loans that have been allocated to one or more classes of
Certificates on or before the date of determination.
The "Class A Percentage" shall mean, as to any Distribution Date, the
lesser of 100% and the percentage obtained by dividing the Class A Certificate
Principal Balance by the Scheduled Principal Balance. The "Class A Prepayment
Percentage" shall initially be 100% and shall decline thereafter as provided
under "Subordination of the Class B Certificates; Shifting Interest Credit
Enhancement".
"Interest Shortfall" shall mean, as to any Distribution Date, any
excess of the amount computed pursuant to clause (a) of the term "Class A
Distribution Amount" over the amount of interest distributed to the Class A
Certificateholders on such Distribution Date. "Principal Shortfall" shall mean,
as to any Distribution Date the excess of the sum of the amounts computed
pursuant to clauses (a) through (h) of the term "Class A Distribution Amount"
over the amounts distributed to the Class A Certificateholders (the
"Shortfall"), less the Interest Shortfall.
All distributions will be made by or on behalf of the Trustee to the
persons in whose names the Certificates are registered at the close of business
on each Record Date, which will be the last Business Day of the month preceding
the month in which the related Distribution Date occurs. Such distributions
shall be made either (i) by check mailed to the address of each
Certificateholder as it appears in the Certificate Register or (ii) to any
holder of Certificates having an initial principal balance in excess of
$5,000,000, by wire transfer in immediately available funds to the account of
such Certificateholder specified in writing to the Trustee.
[On the sixth day of any month or the next succeeding Business Day,
the Master Servicer or the Trustee will provide upon request the Class A
Certificate Principal Balance after giving effect to monthly payments due on the
immediately preceding Due Date.]
SUBORDINATION OF THE CLASS B CERTIFICATES;
SHIFTING INTEREST CREDIT ENHANCEMENT
The rights of the Class B Certificateholders to receive certain
distributions with respect to the Mortgage Loans are subordinate to such rights
of the Class A Certificateholders to the extent of the Subordinated Amount. As
of each Determination Date, the Subordinated Amount will equal the Class B
Principal Balance on such date, reduced by the excess, if any, of Aggregate
Losses over cumulative Realized Losses borne by the Class B Certificateholders.
Realized Losses shall not be allocated to the Class A Certificates
until after such time as the allocation of such Realized Losses to the Class B
Certificates has reduced the Class B Principal Balance to zero. At such time,
Realized Losses shall be allocated to the Class A Certificates, pro rata among
such Certificates in proportion to their outstanding Class A Certificate
Principal Balances immediately prior to the relevant Distribution Date.
[Notwithstanding the above, Special Hazard Realized Losses shall be allocated
first to the Class B Certificates only until such time as Special Hazard
Realized Losses equal the Special Hazard Subordination Amount, which will be %
of the Cut-off Date Principal Balance. Thereafter,
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<PAGE>
Special Hazard Realized Losses shall be allocated to the Class A Certificates
and the Class B Certificates, pro rata among such Certificates in proportion to
their outstanding Principal Balances immediately prior to the relevant
Distribution Date.] Any allocation of Realized Losses (or Special Hazard
Realized Losses) to a Class A Certificate or a Class B Certificate on a
Distribution Date shall be made by reducing the Principal Balance thereof by the
amount so allocated, which allocation shall be deemed to have occurred on such
Distribution Date. [Any allocation to the Class B Certificates of a Realized
Loss or a Special Hazard Realized Loss prior to reducing the Special Hazard
Subordination Amount to zero shall have the effect of increasing the Class A
Percentage of future payments of principal on the Mortgage Loans and thereby
decreasing the Subordinate Percentage of such payments of principal.]
"Realized Loss" is defined in the Pooling and Servicing Agreement (i)
with respect to any Liquidated Loan, as the excess of the outstanding principal
balance of such Liquidated Loan over the Liquidation Proceeds, if any, received
in connection with such Liquidated Loan, after application of all withdrawals
permitted to be made by the Master Servicer pursuant to the Pooling and
Servicing Agreement, (ii) with respect to any Mortgage Loan which has become
subject to a valuation by a court of competent jurisdiction of the Mortgaged
Property in an amount less than the then outstanding indebtedness under the
Mortgage Loan, which valuation results from a proceeding under the United States
Bankruptcy Code, as amended from time to time (11 U.S.C.) (a "Deficient
Valuation"), as the excess of the outstanding principal balance of such Mortgage
Loan over the principal amount as reduced in the Deficient Valuation, or (iii)
with respect to any Mortgage Loan purchased by the Master Servicer or the
Depositor pursuant to the Pooling and Servicing Agreement, as the excess,
if any, of 100% of the principal balance of such Mortgage Loan, together with
accrued and unpaid interest at the applicable Subsidiary Pass-Through Rate to
the first day of the month following the month of such purchase, giving effect
to the amount of any unreimbursed Advances made by the Master Servicer with
respect to such Mortgage Loan, over the purchase price for such Mortgage Loan as
the same may be reduced pursuant to an Opinion of Counsel to prevent such amount
from being taxed to the Trust Fund as a "prohibited transaction", as defined in
Section 860F(a)(2) of the Code. Realized losses may result from, among other
things, Special Hazard Realized Losses. ["Special Hazard Realized Loss" means
with respect to any Mortgage Loan finally liquidated in connection with any
physical damage not covered under a Standard Hazard Insurance Policy or a flood
insurance policy, other than normal wear and tear or other circumstances set
forth in the Pooling and Servicing Agreement an amount equal to the unpaid
principal balance of the Mortgage Loan as of the date of such liquidation,
together with interest at the applicable Mortgage Rate, less the applicable
Servicing Fee, from the Due Date as to which interest was last paid to the Due
Date next succeeding such liquidation, less the proceeds, if any, received in
connection with such liquidation after application of all withdrawals from the
Certificate Account by the Master Servicer permitted pursuant to the Pooling and
Servicing Agreement.]
"Liquidated Loan" means a Mortgage Loan which, as of the close of
business on the Business Day next preceding the Due Date, has been liquidated
through deed in lieu of foreclosure, sale in foreclosure, trustee's sale or
other realization as provided by applicable law of real property subject to the
related Mortgage and any security agreements or with respect to which payment
under related private mortgage insurance or hazard insurance and/or from any
public or governmental authority on account of a taking or condemnation of any
such property has been received.
The protection afforded to the Class A Certificateholders will be
effected by the preferential right of the Class A Certificateholders to receive
the amount of principal and interest otherwise available for distribution to the
Class B Certificateholders on each Distribution Date out of available funds on
deposit in the distribution account for the Master Trust Fund and by
distributing to the Class A Certificateholders a disproportionately greater
percentage of Principal Prepayments received by the Master Trust Fund from the
Certificate Account, to the extent described herein (the "Class A Prepayment
Percentage"). This disproportionate distribution will have the effect of
accelerating the amortization of the Class A Certificates while increasing the
respective interest in the Mortgage Loan evidenced by the Class B Certificates.
Increasing the respective interest of the Class B Certificates relative to that
of the Class A Certificates is intended to preserve the availability of the
subordination provided by the Class B Certificates.
The Class A Prepayment Percentage for any Distribution Date occurring
before or in will, except as provided below, equal 100%. The Class A
Prepayment Percentage for any Distribution Date occurring subsequent to will be
determined as follows: (a) for any Distribution Date occurring subsequent to
and before or in , the Class A Prepayment Percentage will equal the Class A
Percentage plus % of the Subordinate Percentage for such
Distribution Date, except that prior to the Distribution Date next succeeding
the first Distribution Date, if any, after . , as of which the
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<PAGE>
Step-down Criteria are satisfied, the Class A Prepayment Percentage will be
100%; (b) for any Distribution Date occurring subsequent to and before or in
, the Class A Prepayment Percentage will equal the Class A Percentage plus
% of the Subordinate Percentage for such Distribution Date, except that prior to
the Distribution Date next succeeding the first Distribution Date, if any, after
as of which the Step-down Criteria are satisfied, the Class A Prepayment
Percentage will be the Class A Prepayment Percentage in effect in ; (c) for
any Distribution Date occurring subsequent to and before or in , the Class A
Prepayment Percentage will equal the Class A Percentage plus % of the
Subordinate Percentage for such Distribution Date, except that prior to the
Distribution Date next succeeding the first Distribution Date, if any, after
as of which the Step-down Criteria are satisfied, the Class A Prepayment
Percentage will be the Class A Prepayment Percentage in effect in ; (d) for
any Distribution Date occurring subsequent to and before or in , the
Class A Prepayment Percentage will equal the Class A Percentage plus % of the
Subordinated Percentage for such Distribution Date, except that prior to the
Distribution Date next succeeding the first Distribution Date, if any, after
as of which the Step-down Criteria are satisfied, the Class A Prepayment
Percentage will be the Class A Prepayment Percentage in effect in ; and (e)
for any Distribution Date occurring subsequent to , the Class A Prepayment
Percentage will equal the Class A Percentage as of such Distribution Date except
that prior to the Distribution Date next succeeding the first Distribution Date,
if any, after as of which the Step-down Criteria are satisfied, the Class A
Prepayment Percentage will be the Class A Prepayment Percentage in effect in
. The foregoing is subject to the following: (i) if on any Distribution Date
the distribution of all Principal Prepayments received in the prior month to the
holders of the Class A Certificates would reduce the outstanding Class A
Certificate Principal Balance below zero, the Class A Prepayment Percentage for
such Distribution Date will be limited to the percentage necessary to reduce the
Class A Principal Certificate Balance to zero and thereafter the Class A
Percentage shall be zero; and (ii) if the Class A Percentage on any Distribution
Date is greater than the initial Class A Percentage, the Class A Prepayment
Percentage for such Distribution Date shall be 100%.
The Step-down Criteria shall be met as of any Distribution Date in the
12 months commencing subsequent to February of the year specified in the table
below provided that as of such Distribution Date (a) no more than one time
during the preceding months have the principal balances of outstanding Mortgage
Loans days or more delinquent (including loans in foreclosure and the book
value of owned real estate) exceeded % of the Scheduled Principal Balance
at such time, and (b) cumulative Advances deemed to be nonrecoverable as a
percentage of the principal amount of the Class B Certificates as of the Cut-off
Date (the "Subordinated Amount") do not exceed the amounts in the following
table:
<TABLE>
<CAPTION>
CUMULATIVE
NON-RECOVERABLE
ADVANCES AS A
PERCENTAGE OF THE
YEAR SUBORDINATED AMOUNT
- ------------------------------------- -------------------
<S> <C>
.................................
.................................
.................................
.................................
.................................
or thereafter.......................
</TABLE>
The definition of "Step-down Criteria" may be amended by the Depositor
and the Trustee, with prior written notice of such amendment to the Rating
Agency, in a manner that will not result in the lowering or withdrawal of the
then current rating of the Class A Certificates. Such amendment shall not
require the consent of any Certificateholder.
[PURCHASE OF CONVERTED MORTGAGE LOANS
The Pooling and Servicing Agreement provides that is obligated to
purchase from the Subsidiary Trust Fund any Converted Mortgage Loan in the month
following the month in which the related mortgagor exercises the conversion
option, for a price equal to the lesser of (a) 100% of the unpaid principal
balance of such Mortgage Loan, and (b) the Subsidiary Trust Fund's adjusted
federal income tax basis on the date such Mortgage Loan is to be purchased, in
each case plus accrued interest, if any, at the applicable Subsidiary Pass-
Through Rate in effect immediately prior to such conversion
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<PAGE>
to the last day of the month in which such Mortgage Loan became a Converted
Mortgage Loan, net of the applicable amounts due to the Master Servicer with
respect to that Mortgage Loan. will be obligated to deposit the amount
of the purchase price in the Certificate Account for distribution on the
Distribution Date in the month following the month of such conversion.
In the event defaults upon its obligation to repurchase any
Converted Mortgage Loan, the Trustee may attempt to sell the Mortgage Loan for
the price which was to be paid by the Master Servicer. A Converted Mortgage
Loan will remain in the Trust as a Mortgage Loan with a fixed Mortgage Rate
unless and until purchased by the Master Servicer or otherwise sold in
accordance with the Pooling and Servicing Agreement. So long as serves as
Master Servicer, the failure of the Master Servicer to repurchase a Converted
Mortgage Loan, after notice, is an Event of Default under the Pooling and
Servicing Agreement. The Trustee and a successor master servicer under the
Pooling and Servicing Agreement will not have any obligation to purchase any
Converted Mortgage Loan.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The Servicing Fee payable to the Master Servicer will be payable out
of each interest payment on a Mortgage Loan and will be an adjustable amount
equal to one month's interest (or in the case of any payment of interest which
accompanies a Principal Prepayment made by the Mortgagor, interest for the
number of days covered by such payment of interest) at the applicable Servicing
Fee Rate on the principal balance of such Mortgage Loan. The Servicing Fee Rate
is not the same for each Mortgage Loan. The Servicing Fee Rate is basis
points. The Master Servicer will be permitted to retain or withdraw from the
Certificate Account, in respect of each interest payment received on a Mortgage
Loan, the Servicing Fee with respect to such Mortgage Loan, calculated on the
basis of the same principal amount and period respecting which the interest
payment is computed. In addition, , as holder of the Subsidiary Residual
Interest Certificate, will receive an amount equal to (i) with respect to each
Mortgage Loan, the principal balance of such Mortgage Loan times the difference,
if any, between the Mortgage Rate (net of the Servicing Fee) and the Subsidiary
Pass-Through Rate, [less such amount as may be necessary to assure that the
distributions made to the Subsidiary Regular Certificateholder on the related
Distribution Date include an amount equal to one full month's interest at the
applicable Subsidiary Pass-Through Rate], and (ii) gains, if any, arising from
sale of Mortgaged Property acquired as a result of foreclosure in respect of a
Mortgage Loan or arising from a repurchase pursuant to an optional termination.
See "Certain Federal Income Tax Consequences" in the Prospectus. See
"Description of the Certificates--Servicing Compensation and Payment of
Expenses" in the Prospectus for information regarding other possible
compensation to the Master Servicer.
The Master Servicer will pay all expenses incurred in connection with
its responsibilities under the Pooling and Servicing Agreement (subject to
limited reimbursement as described in the Prospectus), including, without
limitation, any amounts payable to the Servicer or any other sub-servicer, the
fees and expenses of the Trustee and the other various items of expense
enumerated in the Prospectus.
[ADJUSTMENT TO SERVICING FEE IN CONNECTION WITH PREPAID MORTGAGE LOANS
When a Mortgage Loan is prepaid, in whole or in part, between schedule
payment dates, the Mortgagor pays interest on the amount prepaid only to the
date of prepayment and not thereafter. As a result, the aggregate amount of
interest which would otherwise be distributed to Certificateholders may be
reduced. To mitigate this reduction in yield, the Pooling and Servicing
Agreement provides that with respect to any such Principal Prepayment, the
Servicing Fee otherwise payable to the Master Servicer will be reduced in such
amount, if any, as may be necessary to assure that the distributions made to
Certificateholders on the related Distribution Date include an amount equal to
one full month's interest at the applicable Subsidiary Pass-Through Rate for
such Mortgage Loan. Thus, so long as there are sufficient funds otherwise
payable from the Servicing Fee on each Distribution Date, Certificateholders
will always receive a full month's interest with respect to any such principal
prepayments. See "Distributions" above.]
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<PAGE>
THE TRUSTEE
, a banking association, will act as Trustee for the Certificates
pursuant to the Pooling and Servicing Agreement. The Trustee's principal
executive offices are located at , and its telephone number is ( ) .
REPURCHASE OR SUBSTITUTION OF MORTGAGE LOANS
Under certain circumstances, the Master Servicer may be required to
repurchase one or more Mortgage Loans from the Subsidiary Trust Fund.
Generally, the repurchase obligation arises when the documentation with respect
to a Mortgage Loan is discovered to be materially defective or when a breach of
a representation or warranty is discovered, which breach materially and
adversely affects the interests of Certificateholders. See "Description of the
Certificates-Assignment of Mortgage Loans" in the Prospectus.
In the event of a repurchase of a Mortgage Loan, the repurchase price
would be equal to the sum of the outstanding principal balance of such Mortgage
Loan on the date of repurchase plus interest accrued thereon at the Subsidiary
Pass-Through Rate to the first day of the month following the month in which
such repurchase is effected; provided, however, that if such repurchase at the
price so determined would result in net income to the Subsidiary Trust Fund that
would be subject to tax as income derived from a "prohibited transaction," as
defined in Section 860F(a)(2) of the Code, or would otherwise subject the
Subsidiary Trust Fund to tax, then, notwithstanding the foregoing, the
repurchase price for such Mortgage Loan shall be the maximum amount such that
the repurchase would not result in such tax, as evidenced by an Opinion of
Counsel, in form and substance satisfactory to the Trustee, which shall be
delivered in the event of any such reduction.
Within a period of three months, or in the case of a "defective
obligation" within the meaning of Section 860(G)(a)(4)(B) of the Code, within
two years from the Delivery Date of the Certificates, the Depositor or the
Master Servicer may, instead of repurchasing a Mortgage Loan required to be
repurchased pursuant to the Pooling and Servicing Agreement, deliver a mortgage
loan (a "Replacement Mortgage Loan") in substitution for any Mortgage Loan that
would otherwise have been repurchased (a "Deleted Mortgage Loan"). Generally,
the repurchase obligation arises when the documentation with respect to a
Mortgage Loan is discovered to be materially defective or when a breach of a
representation or warranty is discovered, which breach materially and adversely
affects the interests of Certificateholders. See "Description of the
Certificates--Assignment of Mortgage Loans" in the Prospectus.
To the extent that the Depositor or the Master Servicer, as the case
may be, elects to deliver a Replacement Mortgage Loan for a Mortgage Loan it
would otherwise be obligated to repurchase, such Replacement Mortgage Loan must,
on the date of such substitution: (a) have an outstanding principal balance,
after deduction of payments due in the month of substitution, not in excess of
the principal balance of the Deleted Mortgage Loan; (b) have a Maximum Mortgage
Rate no lower than (and not more than 1% per annum higher than) the Maximum
Mortgage Rate of the Deleted Mortgage Loan; (c) have the same Index, Gross
Margin, Periodic Mortgage Rate Cap and frequency of Adjustment Dates as those of
the Deleted Mortgage Loan; (d) be accruing interest at a rate no lower than and
have the same Payment Adjustment Date as the Payment Adjustment Date of the
Deleted Mortgage Loan; (e) have a Loan-to-Value Ratio no higher than that of the
Deleted Mortgage Loan; (f) have a term to maturity no greater than (and not more
than one year less than) that of the Deleted Mortgage Loan; and (g) comply with
each representation and warranty with respect to Mortgage Loans in the Pooling
and Servicing Agreement. Upon any such substitution, the Depositor or the
Master Servicer, as the case may be, will deliver the Mortgage File relating to
the Replacement Mortgage Loan to the Trustee and the Trustee will release the
Deleted Mortgage Loan (or any property acquired in respect thereof) from the
Subsidiary Trust Fund.
For any month in which a Replacement Mortgage Loan is substituted for
any Deleted Mortgage Loan, the Master Servicer will determine the amount, if
any, by which the aggregate principal balance of all such Replacement Mortgage
Loans as of the date of substitution is less than the aggregate principal
balance of all such Deleted Mortgage Loans (after application of the scheduled
principal portion of the monthly payments due in such month). The amount of any
such shortage shall be deposited by the Depositor or the Master Servicer, as the
case may be, from its own funds into the Certificate Account in the month of
substitution, without any reimbursement therefor, and will be distributed to
Certificateholders on
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<PAGE>
the Distribution Date in the month following such substitution. See "Description
of the Certificates--Distributions on Certificates" in the Prospectus.
VOTING RIGHTS
At any time that any Class A Certificates or Class B Certificates are
outstanding, the voting rights of a Class A Certificate or Class B Certificate
are obtained by dividing the then outstanding principal balance of such
Certificate by the aggregate principal balances at such time of all the Class A
Certificates and Class B Certificates.
[OPTIONAL TERMINATION
The Pooling and Servicing Agreement provides that the holder of the
Subsidiary Residual Interest Certificate, at its option, may purchase from the
Subsidiary Trust Fund all Mortgage Loans remaining in the Mortgage Pool and all
property acquired in respect of a Mortgage Loan, provided that the aggregate
unpaid balance of the Mortgage Loans at the time of any such repurchase is less
than % of the Cut-off Date Principal Balance. Additionally, the holder
of the Class B[-2] Certificate, at its option, may purchase from the Master
Trust Fund all Subsidiary Regular Interests remaining in the Master Trust Fund
and all other property in such Trust Fund, provided that the Subsidiary Regular
Interests at the time of any such repurchase represent interests in less than %
of the Cut-off Date Principal Balance of the Mortgage Loans. The purchase price
for any such repurchase will be 100% of the unpaid principal balance of each
Mortgage Loan or Subsidiary Regular Interest, as the case may be, together with
accrued and unpaid interest with respect to each Mortgage Loan through the last
day of the month of such repurchase. Any property acquired in respect of a
Mortgage Loan and remaining in the applicable Trust Fund at the time such
optional termination is effected will be purchased at its appraised value.
Either of the above purchases would thereby effect early retirement of the Class
A Certificates.]
LEGAL INVESTMENT
The Class A Certificates will constitute, for so long as they are
rated as described below, "mortgage-related securities" for purposes of the
Secondary Mortgage Market Enhancement Act of 1984 (the "Enhancement Act"), and,
as such, will be legal investments for certain entities to the extent provided
in the Enhancement Act. Such investments, however, will be subject to general
regulatory considerations governing investment practices under state and federal
law. Institutions whose investment activities are subject to review by certain
regulatory authorities may be, or may become, subject to restrictions, which may
be retroactively imposed by such regulatory authorities, on the investment by
such institutions in certain mortgage-related securities. Investors should
consult their own legal advisors to determine whether, and to what extent, the
Class A Certificates may be purchased by such investors. See "Legal Investment"
in the Prospectus.
RATING
It is a condition to the issuance of the Certificates that the Class A
Certificates be rated at least " " by . (" "). Securities rated " " by
are " ".
[The ratings of Moody's on mortgage pass-through Certificates address
the likelihood of the receipt by certificateholders of all distributions on the
underlying mortgage loans. Moody's rating opinions address the structural,
legal, issuer and tax-related aspects associated with the Certificates,
including the nature of the underlying mortgage loans. Moody's ratings on pass-
through Certificates do not represent any assessment of the likelihood of
principal prepayments by mortgagors (including, in the case of the Class A
Certificates, prepayments resulting from the repurchase of Converted Mortgage
Loans) or of the degree to which such payments might differ from that originally
anticipated. Moody's rating of the Class A Certificates will not represent any
assessment of the Master Servicer's ability to repurchase Converted Mortgage
Loans. The rating does not address the possibility that Certificateholders
might suffer a lower than anticipated yield.]
S-28
<PAGE>
ERISA CONSIDERATIONS
[A fiduciary of any employee benefit plan and certain other retirement
plans and arrangements (including individual retirement accounts, and annuities,
Keogh plans, and collective investment funds in which such funds, accounts,
annuities or arrangements are invested) that are subject to the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), or the Code should
carefully review with legal advisors whether the purchase or holding of
Certificates could give rise to a transaction that is prohibited or not
otherwise permissible either under ERISA or the Code. See "ERISA
Considerations" in the Prospectus.]
PLAN OF DISTRIBUTION
[The Master Servicer has agreed, pursuant to the Purchase Agreement
dated (the "Purchase Agreement"), to pay the Depositor a fee of $ in
connection with the exchange of the Certificates and the residual interest in
the Subsidiary REMIC for the Mortgage Loans. The Depositor will sell the
Certificates and such residual interest to the Master Servicer in exchange for
the Mortgage Loans subject to the terms and conditions set forth in the Purchase
Agreement. Pursuant to the Purchase Agreement, the Depositor or its affiliates
have certain preferential rights in connection with resales of the Class A
Certificates.]
[ may be deemed, by virtue of the exchange, to be an "Underwriter"
within the meaning of the Securities Act of 1933, as amended (the "Securities
Act") in connection with reoffers and sales by of the Class A Certificates.
Until , such reoffers and sales by Master Servicer will be made pursuant to
this Prospectus Supplement and the Prospectus, as amended and supplemented as of
the date of such reoffering. After such date, this Prospectus Supplement and
Prospectus may not be used in connection with such reoffers and sales. The
Depositor has been advised by that such reoffers and sales may
be made by from time to time in negotiated transactions or
otherwise at varying prices determined at the time of sale, and may be made to
or through one or more Underwriters, agents or dealers, including, without
limitation, the Depositor or one of its affiliates, who may receive compensation
in the form of underwriting discounts, concessions or commissions.]
[The Purchase Agreement provides that will indemnify the
Depositor and its affiliates against certain liabilities, including liabilities
under the Securities Act, or contribute to payments the Depositor and its
affiliates, as the case may be required to make in respect thereof.]
[The Depositor has entered into an Underwriting Agreement with
[several Underwriters, for whom] CS First Boston Corporation, an affiliate of
the Depositor[, is acting as Representative.] The [Underwriter[s] named below[
[has] [have severally] agreed to purchase from the Depositor the [entire]
[following respective] principal amounts[s] of the Class A Certificates:
<TABLE>
<CAPTION>
CLASS A-1 CLASS A-2
UNDERWRITER CERTIFICATES CERTIFICATES TOTAL
- ---------------------------- ------------ ------------ -----
<S> <C> <C> <C>
CS First Boston Corporation. $ $ $
Total.................... $ $ $ ]
</TABLE>
[The Underwriting Agreement provides that the obligations of the
Underwriter[s] [is] [are] subject to certain conditions precedent, and that the
Underwriter[s] will be obligated to purchase the entire principal amount of the
Class A Certificates if any are purchased.]
The Underwriter[s] [[has] [have] advised the Depositor that the
Underwriter[s] propose[s] to offer the Class A Certificates from time to time
for sale in one or more negotiated transactions or otherwise at prices to be
determined at the time of sale. The Underwriter[s] may effect such transactions
by selling the Class A Certificates to or through dealers and such dealers may
receive compensation in the form of underwriting discounts, concessions or
commissions from the Underwriter[s] and any purchasers of the Class A
Certificates for whom they may act as agent.
S-29
<PAGE>
The Underwriter[s] and any dealers that participate with the
Underwriter[s] in the distribution of the Certificates may be deemed to be
underwriters, and any discounts or commissions received by them and any profit
on the resale of Class A Certificates by them may be deemed to be underwriting
discounts or commissions, under the Securities Act.
[The Depositor has agreed to indemnify the Underwriter[s] against
certain liabilities, including liabilities under the Securities Act or to
contribute to payments the Underwriter[s] may be required to make in respect
thereof.]
LEGAL MATTERS
The legality of the Certificates will be passed upon for the Depositor
and for the Underwriter[s] by Sidley & Austin. The material federal income tax
consequences of the Class A Certificates will be passed upon for the Depositor
by Sidley & Austin.
USE OF PROCEEDS
[The Certificates are being initially sold and delivered by the
Depositor to in exchange for the Mortgage Loans to be deposited
by the Depositor in the Subsidiary Trust Fund. Other than its fee in
connection with such exchange the Depositor will receive no other proceeds from
the sale of the Certificates. may subsequently sell the Certificates in
one or more transactions. It is expected that will use the proceeds of
such sale for general corporate purposes. See "Plan of Distribution" herein.]
[The Depositor will apply the net proceeds of the offering of the
Class A Certificates towards the simultaneous purchase of the Mortgage Loans
underlying the Certificates. Certain of the Mortgage Loans will be acquired
in privately negotiated transactions by the Depositor from one or more
affiliates.]
S-30
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION. THESE SECURITIES MAY
NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME A FINAL
PROSPECTUS IS DELIVERED. THIS PROSPECTUS SUPPLEMENT SHALL NOT CONSTITUTE AN
OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY
SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE
WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES
LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DECEMBER __, 1995
PROSPECTUS SUPPLEMENT
(To Prospectus Dated , 19 )
$ (Approximate)
Asset Backed Securities Corporation
Depositor
[Adjustable Rate] Conduit Mortgage Pass-Through Certificates, Series
Class A-1 Certificates
The [Adjustable Rate] Conduit Mortgage Pass-Through Certificates, Series (the
"Certificates") will be comprised of [three] classes of certificates:
[Class A-1,] [Class IO] [and] [Class R.] Only the Class A-1 Certificates are
offered hereby. The Certificates evidence 100% of the beneficial ownership
interest in a trust fund (the "Trust Fund") to be created by Asset Backed
Securities Corporation (the "Depositor"), the assets of which will consist
primarily of [(a) classes (or portions of classes) of mortgage pass-through
certificates (the "Mortgage Certificates"), each of which is part of one of
series of mortgage pass-through certificates initially sold by
and acquired by the Depositor in the secondary market,] [(b) a Reserve Fund]
[and] [(c) a Yield Support Agreement] provided by .] The
Certificates will be issued pursuant to a [Pooling Trust Agreement (the
"Pooling Agreement") among the Depositor, ,
as Certificate Administrator and ., as Trustee.
See "Description of the Certificates".
As more fully described herein, commencing with a rate of % per annum,
interest will accrue, to the extent of funds available therefor, on the Class
A-1 Certificates at a per annum rate of % in excess of the [specify
index], determined as set forth herein. The amount of interest accrued on the
Class A-1 Certificates will be reduced by the amount of certain prepayment
interest shortfalls and deferred interest as described herein under
"Description of Certificates-Distributions-Interest Distributions". Interest
generally will be paid , to the extent funds are available therefor as
described herein on the day of each or,
if any such day is not a business day on the following business day, beginning
in . Each such day is referred to as a "Distribution Date". See
"Summary of Terms-Distribution Date" and "Description of the Certificates"
herein.
Principal payments on the Class A-1 Certificates will be made on each
Distribution Date to the extent funds are available therefor, as described
herein, until the principal balance of the Class A-1 Certificates has been
reduced to zero. See "Description of the Certificates-Distributions-Principal
Distributions".
Prospective investors in the Certificates should consider the factors discussed
under "Risk Factors" in this Prospectus Supplement on Page S- .
(cover continued on next page)
THE CLASS A-1 CERTIFICATES DO NOT REPRESENT INTERESTS IN OR OBLIGATIONS OF ASSET
BACKED SECURITIES CORPORATION , THE TRUSTEE, THE CERTIFICATE ADMINISTRATOR OR
ANY OF THEIR AFFILIATES. NEITHER THE CERTIFICATES NOR THE UNDERLYING MORTGAGE
LOANS ARE INSURED OR GUARANTEED BY ANY GOVERNMENTAL AGENCY OR INSTRUMENTALITY OR
BY ANY OTHER PARTY.
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 SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The Class A-1 Certificates will be offered by CS First Boston Corporation
("First Boston") from time to time to the public in negotiated transactions or
otherwise at varying prices to be determined at the time of sale. Proceeds to
the Depositor from the sale of the Class A-1 Certificates are anticipated to be
approximately $ , plus accrued interest thereon at the Certificate Rate from
, but before deducting expenses payable by the Depositor, estimated to
be $ .
The Class A-1 Certificates are offered by First Boston when, as and if
delivered to and accepted by First Boston, subject to prior sale, withdrawal or
modification of the offer without notice, the approval of counsel and other
conditions. It is expected that the Class A-1 Certificates will be delivered
[only through the same day funds settlement system of the Depository Trust
Company] on or about .
CS FIRST BOSTON
The date of this Prospectus Supplement is , 19
<PAGE>
Prospective investors should consider:
[. The yield on the Class A-1 Certificates will be sensitive to, among
things, the rate and timing of principal payments on the Mortgage
Certificates (which likely will be different for different Mortgage
Certificates) and the level of [specify index.]]
[. As described under "Risk Factors-Basis Risk" and "Yield and Prepayment
Considerations-Basis Risk; [specify index]" herein, under some
prepayment and interest rate scenarios, an investor may not receive all
interest accrued at the Class A-1 Pass-Through Rate on the Class A-1
Certificates with respect to one or more Distribution Dates on such
Distribution Dates, or in certain cases, prior to the retirement of the
Class A-1 Certificates.]
The description of the Mortgage Certificates and the Mortgage Loans
contained in this Prospectus Supplement is qualified in its entirety by
reference to the actual terms and provisions of the Prospectuses and Prospectus
Supplements related to each of the Mortgage Certificates (collectively, the
"Underlying Disclosure Documents") and the Pooling and Servicing Agreements
relating to each of the Mortgage Certificates (collectively, the "Underlying
Pooling Agreements"). Copies of the Underlying Disclosure Documents and the
Underlying Pooling Agreements are available from First Boston by calling
at . Investors are urged to obtain copies of
such documents and read this Prospectus Supplement in conjunction therewith.
[The Class A-1 Certificates will be issued only in book-entry form, and the
purchasers thereof will not be entitled to receive definitive certificates
except in the limited circumstances set forth herein. The Class A-1 Certificates
will be registered in the name of Cede & Co., as nominee of The Depository Trust
Company, which will be the "holder" or "Certificateholder" of such Certificates,
as such terms are used herein. See "Description of the Certificates" herein.]
The Class A-1 Certificates may not be an appropriate investment for
individual investors. There is currently no secondary market for the Class A-1
Certificates and there can be no assurance that a secondary market will develop
or, if it does develop, that it will provide Certificateholders with liquidity
of investment at any particular time or for the life of the Class A-1
Certificates. First Boston intends to act as a market maker in the Class A-1
Certificates, subject to applicable provisions of federal and state securities
laws and other regulatory requirements, but is under no obligation to do so and
any such market making may be discontinued at any time. There can be no
assurance that any investor will be able to sell a Class A-1 Certificate at a
price which is equal to or greater than the price at which such Certificate was
purchased.
[An election will be made to treat the portion of the Trust Fund consisting
of the Mortgage Certificates as a real estate mortgage investment conduit (the
"REMIC") for federal income tax purposes. As described more fully herein and in
the Prospectus, the payments on the Class A-1 Certificates which are derived
from the Mortgage Certificates and the Class IO Certificates will constitute
"regular interests" in the REMIC and the Class R Certificate will constitute the
"residual interest" in the REMIC. See "Summary Information-Federal Income Tax
Status" and "Certain Federal Income Tax Consequences" herein and "Certain
Federal Income Tax Consequences" in the Prospectus.]
The Class A-1 Certificates represent one Class of a separate Series of
Certificates, which Class is being offered by the Depositor pursuant to the
Prospectus dated accompanying this Prospectus Supplement. The
Prospectus shall not be considered complete without this Prospectus Supplement
and any prospective investor shall not purchase any Certificate offered hereby
unless it shall have received both the Prospectus and this Prospectus
Supplement. The Prospectus contains important information regarding this
offering which is not contained herein, and prospective investors are urged to
read the Prospectus and this Prospectus Supplement in full.
UNTIL ALL DEALERS EFFECTING TRANSACTIONS IN THE CLASS A-1
CERTIFICATES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION MAY BE REQUIRED
TO DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS. THIS IS IN ADDITION TO THE
OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
<PAGE>
SUMMARY OF TERMS
The following summary is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus Supplement and in the
Prospectus. Capitalized terms used herein and not defined shall have the
meaning given in the Prospectus.
Securities Offered... $ initial Principal Balance
of [Adjustable Rate] Conduit Mortgage Pass-Through
Certificates, Series , Class A-1, [evidencing a class
of "regular interests" in the REMIC] [and the rights to
certain amounts from the Reserve Fund.]
Other Securities..... [Adjustable Rate] Conduit Mortgage Pass-Through
Certificates, Series , Class IO, [evidencing a
class of "regular interests" in the REMIC], [and] the
Class R Certificate, [evidencing the "residual
interest" in the REMIC]. The Class IO Certificates and
the Class R Certificate are not offered hereby.
The Class A-1, Class IO and Class R Certificates are
referred to collectively herein as the "Certificates".
Forms of Certificates;
Denominations...... [The Class A-1 Certificates will be issued as book-entry
certificates, through the facilities of The Depository
Trust Company. See "Description of the Certificates-
Book-Entry Form" herein. The Class A-1 Certificates
will be issued, maintained and transferred in book-
entry form only in minimum denominations of $1,000
initial principal balance and integral multiples of
$1,000 initial principal balance in excess thereof.]
Depositor............ Asset Backed Securities Corporation
Certificate
Administrator...... Certain administrative functions with respect to the
Certificates will be performed by .
Trustee..............
Cut-off Date.........
Closing Date......... On or about
Final Scheduled
Distribution Date..
The Trust Fund....... The Class A-1 Certificates evidence interests in a trust
fund (the "Trust Fund"), the assets of which will
consist primarily of [(a) classes (or portions of
classes) of mortgage pass-through certificates (the
"Mortgage Certificates"), each of which is part of one
of series of mortgage pass-through certificates
initially sold by and which were
acquired by the Depositor in the secondary market,
[(b) a Reserve Fund] [and] [(c) a Yield Support
Agreement provided by .] [See "-The
Reserve Fund" and "-The Yield Support Agreement"
below.] The Trust Fund will be established and the
Certificates will be issued pursuant to a [Pooling
Trust Agreement] (the "Pooling
S-3
<PAGE>
Agreement"), dated as of . See
"Description of the Class A-1 Certificates-General"
herein.
Distribution Date.... Distributions on the Certificates will be made
on the th day of each, beginning in ,
or, if any such day is not a business day, the
following business day. Each such day on which
distributions are made, a "Distribution Date".
Record Date.......... The "Record Date" for each Distribution Date will be the
close of business on the last day of the calendar month
preceding the month in which such Distribution Date
occurs or, if such last day is not a business day, the
preceding business day.
Distributions on
Certificates....... Interest Distributions on the Class A-1 Certificates.
The amount of interest payable on the Class A-1
Certificates on each Distribution Date will be equal to
the sum of (x) the lesser of the Interest Accrual
Amount (as defined below) of the Class A-1 Certificates
for such Distribution Date and Interest Available Funds
(as defined herein under "Description of the
Certificates-Distributions-Interest Distributions") for
such Distribution Date and (y) the lesser of the
Interest Shortfall Amount (as defined below) of the
Class A-1 Certificates and the excess, if any, of the
Interest Available Funds for such Distribution Date
over the Interest Accrual Amount of the Class A-1
Certificates for such Distribution Date. The "Interest
Accrual Amount" for the Class A-1 Certificates on each
Distribution Date will equal the product of (i)
of the Class A-1 Pass-Through Rate for such
Distribution Date and (ii) the outstanding Principal
Balance thereof (subject to reduction in respect of
Deferred Interest and Prepayment Interest Shortfalls
incurred with respect to the Mortgage Loans underlying
the Mortgage Certificates). The "Interest Shortfall
Amount" of the Class A-1 Certificates is equal to the
sum of the amounts for all previous Distribution Dates
by which the Interest Accrual Amount of the Class A-1
Certificates exceeded the Interest Available Funds for
such Distribution Dates (to the extent such amounts
have not been paid on subsequent Distribution Dates),
together with interest accrued thereon at the Class A-1
Pass-Through Rate in effect from time to time. See
"Description of the Certificates-Distributions".
The "Class A-1 Pass-Through Rate" during the initial
Interest Accrual Period will be % per annum. During
each succeeding Interest Accrual Period, the Class A-1
Pass-Through Rate will be % in excess of [specify
index] on the day prior to the first day of such
Interest Accrual Period, or, if such [second day] is
not a business day, the preceding business day (each, a
"Reset Date"), determined as described herein under
"Description of the Class A Certificates-Determination
of [specify index]". The "Interest Accrual Period" with
respect to each Distribution Date is the period from
the th day of the [ month] preceding the month in
which such Distribution Date occurs through the th day
of the month in which such Distribution Date occurs.
Interest on the Certificates will be calculated on the
basis of [specify interest calculation convention].
S-4
<PAGE>
See "Description of the Certificates-Distributions".
[DUE TO THE FACTORS DISCUSSED UNDER "RISK FACTORS-BASIS
RISK", INTEREST AVAILABLE FUNDS MAY NOT ALWAYS BE
SUFFICIENT TO PAY THE FULL INTEREST ACCRUAL AMOUNT WITH
RESPECT TO THE CLASS A-1 CERTIFICATES ON EACH
DISTRIBUTION DATE.]
Principal Distributions on the Class A-1 Certificates.
Distributions in respect of principal on the Class A-1
Certificates will be made on each Distribution Date in
an amount equal to the sum of all amounts distributed
in respect of principal on the Mortgage Certificates
during the Collection Period ending on such
Distribution Date.
Interest Distributions on the Class IO Certificates. The
Interest Accrual Amount for the Class IO Certificates
on each Distribution Date will equal the product of (i)
of the Class IO Pass-Through Rate for
such Distribution Date and (ii) the outstanding
Principal Balance of the Class A-1 Certificates,
subject to reduction in respect of Deferred Interest
and Prepayment Interest Shortfalls.
During each Interest Accrual Period the "Class IO Pass-
Through Rate" will be equal to the excess, if any, of
(X) the weighted average of the Weighted Average
Mortgage Certificate Pass-Through Rate for each of the
Underlying Series Distribution Dates that occurs in the
Collection Period related to such Interest Accrual
Period (determined as described herein) (such weighted
average, the "Mortgage Certificate Pass-Through Rate")
over (Y) the Class A-1 Pass-Through Rate for such
Interest Accrual Period. The "Weighted Average Mortgage
Certificate Pass-Through Rate" with respect to any
Underlying Series Distribution Date will be equal to
the weighted average of the pass-through rates of the
Mortgage Certificates applicable to such Underlying
Series Distribution Date, weighted on the basis of the
outstanding principal balances thereof prior to
distributions on such Underlying Series Distribution
Date. The Weighted Average Mortgage Certificate Pass-
Through Rate with respect to the Underlying Series
Distribution Date in is approximately %. The
"Collection Period" with respect to each Distribution
Date is the period commencing on the day after the
previous Distribution Date (or, in the case of the
first Collection Period, on ) and ending on such
Distribution Date. See "Description of the Certificates
-Distributions".
[Reserve Fund........ On the Closing Date, the Depositor will deposit or cause
to be deposited into an account (the "Reserve Fund")
maintained by the Certificate Administrator [(i) cash
in the amount of $ [and] [(ii) the Class IO
Certificates]. All distributions on the Class IO
Certificates will be made to the Certificate
Administrator for deposit into the Reserve Fund.
Amounts on deposit in the Reserve Fund from time to
time will be available on each Distribution Date to be
paid to holders of the Class A-1 Certificates to the
extent that distributions on account of interest
received on the Mortgage Certificates in the related
Collection Period are insufficient to pay such holders'
Interest Accrual Amount for such date together with any
overdue interest. NO ASSURANCE CAN BE GIVEN THAT
AMOUNTS ON DEPOSIT IN THE RESERVE FUND FROM TIME TO
TIME WILL,
S-5
<PAGE>
TOGETHER WITH THE BALANCE OF INTEREST AVAILABLE FUNDS
ON ANY DISTRIBUTION DATE, BE SUFFICIENT TO ALLOW THE
DISTRIBUTION OF THE FULL INTEREST ACCRUAL AMOUNT WITH
RESPECT TO THE CLASS A-1 CERTIFICATES ON ANY SUCH
DISTRIBUTION DATE. The Reserve Fund will be an asset of
the Trust Fund, but will not be an asset of the REMIC.
See "Description of the Certificates-Reserve Fund"
herein.]
[The Yield Support
Agreement.......... On the Closing Date, the Trustee will enter into a yield
support agreement (the "Yield Support Agreement") with
, a (the "Yield Support
Counterparty").
Pursuant to the terms of the Yield Support Agreement,
in the event that [specify index] on any Reset Date
(determined as described herein under "Description of
the Certificates-Determination of [specify index]")
exceeds % (which rate is equal to [specify index] as
set with respect to the first Interest Accrual Period
plus %) (the "Strike Rate"), the Yield Support
Counterparty will be obligated to pay to the
Certificate Administrator, for the benefit of the
holders of the Class A-1 Certificates, on the
Distribution Date related to the Interest Accrual
Period following such Reset Date, an amount equal to
of the product of (x) the difference between
[specify index] at such Reset Date (determined as
described above) and the Strike Rate and (y) the
Principal Balance of the Class A-1 Certificates
outstanding prior to distributions on such Distribution
Date. Amounts paid by the Yield Support Counterparty on
any Distribution Date will be paid to the Certificate
Administrator for deposit into the Reserve Fund. NO
ASSURANCE CAN BE GIVEN THAT AMOUNTS PAID BY THE YIELD
SUPPORT COUNTERPARTY ON ANY DISTRIBUTION DATE WILL,
TOGETHER WITH THE BALANCE OF THE INTEREST AVAILABLE
FUNDS FOR SUCH DISTRIBUTION DATE, BE SUFFICIENT TO
ALLOW FULL DISTRIBUTIONS IN RESPECT OF INTEREST ON THE
CLASS A-1 CERTIFICATES ON SUCH DISTRIBUTION DATE OR ON
ANY FUTURE DISTRIBUTION DATES.
The Yield Support Agreement will terminate upon the
reduction of the Principal Balance of the Class A-1
Certificates to zero. The Yield Support Agreement may
also be terminated by the Trustee under the
circumstances described herein under "Description of
the Certificates-The Yield Support Agreement-
Termination".]
[Optional Repurchase
of the Mortgage
Certificates....... The beneficial owner of the Class IO Certificates will
have the option to purchase the Mortgage Certificates
from the Trust Fund on any Distribution Date on which
the Mortgage Certificate Balance is equal to % or less
of the Mortgage Certificate Balance as of the Cut-off
Date. See "Description of the Certificates-Optional
Repurchase of the Mortgage Certificates" herein.]
Ratings.............. It is a condition of the issuance of the Certificates
that the Class A-1 Certificates be rated " "
by [and] " " by
(" " and, collectively with , the "Rating
Agencies").
S-6
<PAGE>
The ratings of and on mortgage securities
address the likelihood of the receipt by the holders
thereof of all distributions of principal and interest
to which such holders are entitled. THE RATING AGENCIES
NOTE THAT THE ENTITLEMENT OF THE CLASS A-1 CERTIFICATES
TO INTEREST AT A RATE IN EXCESS OF THE MORTGAGE
CERTIFICATE PASS-THROUGH RATE IS SUBJECT TO THE
AVAILABILITY OF INTEREST AVAILABLE FUNDS. There is no
assurance that such ratings will continue for any
period of time or that they will not be revised or
withdrawn entirely by such rating agency if, in its
judgment, circumstances so warrant. A revision or
withdrawal of such ratings may have an adverse effect
on the market price of the Class A-1 Certificates. A
security rating is not a recommendation to buy, sell or
hold securities.
The Depositor has not requested a rating on the Class A-1
Certificates from any other rating agency, although
data with respect to the Mortgage Loans and Mortgage
Certificates may have been provided to other agencies
solely for their informational purposes. There can be
no assurance that if a rating is assigned to the Class
A-1 Certificates by any other rating agency, such
rating will be as high as that assigned by and
. See "Ratings".
Mortgage
Certificates....... [The assets of the REMIC will consist primarily of
classes (or a portion of such classes) of senior
mortgage pass-through certificates (the "Mortgage
Certificates"), each of which is a part of one of
separate series of mortgage pass-through certificates
sold by (each an "Underlying
Series"), identified in the following table.
========================================================
UNDERLYING SERIES
Series Designation Class of Mortgage Certificates
------------------ ------------------------------
=========================================================
[Each of the Mortgage Certificates evidences a senior
interest in a mortgage pool (each, an "Underlying
Mortgage Pool") previously formed by . Payments
on each Class of Mortgage Certificates will be made on
the 25th day of each month (or if such day is not a
business day, the succeeding business day) (each, an
"Underlying Series Distribution Date") primarily from
amounts received in respect of the mortgage loans that
constitute the corpus of the related Underlying
Mortgage Pool (in the aggregate, the "Mortgage Loans").
Such amounts, together with any payments under the
Yield Support Agreement and payments from the Reserve
Fund, are the sole source of funds for payments on the
Class A-1 Certificates. As of the Underlying Series
Distribution Date occurring in , after giving
effect to distributions and principal balance
reductions on such date, the Mortgage Certificates had
approximately the characteristics set forth under "The
Mortgage Certificates".]
S-7
<PAGE>
The Mortgage Loans... [The Mortgage Loans are contained in separate pools
of adjustable interest rate, conventional, residential
first mortgage loans having approximately the
characteristics set forth in the table entitled
"Selected Mortgage Loan Data" under "Description of the
Mortgage Loans". The interest rate on each Mortgage
Loan is subject to adjustment periodically (as
specified in the related mortgage note) to a rate equal
to the sum (subject to rounding) of (i) a specified
index and (ii) an individual gross margin, subject to
certain limitations.
The Mortgage Loans are subject to overall maximum
interest rates. Some of the Mortgage Loans are also
subject to a minimum interest rate. Some of the
Mortgage Loans are subject to negative amortization.
Some of the Mortgage Loans have mortgage interest rates
that may be converted to fixed interest rates at the
option of the mortgagor. Upon conversion to a fixed
rate, such Mortgage Loans generally are required to be
purchased by the servicer of the related Underlying
Mortgage Pool. See "Description of the Mortgage Loans"
and "Yield and Prepayment Considerations". ]
[Optional Repurchase of Mortgage Loans. The Underlying
Mortgage Pool with respect to each Mortgage Certificate
is subject to special termination (a "Special
Termination") at such time as the aggregate outstanding
principal balance of all the mortgage loans underlying
all the mortgage certificates of the related Underlying
Series is equal to or less than % of the initial
aggregate principal balance of such mortgage loans. See
"The Mortgage Certificates-Special Termination" herein.
In addition, the Mortgage Loan Servicer with respect to
each Underlying Series has the option to repurchase the
Mortgage Loans from the related Underlying Mortgage
Pool at such time as the aggregate scheduled principal
balance thereof is reduced to less than % of the
original aggregate principal balance thereof. See "The
Mortgage Certificates-Optional Termination" herein. Any
such repurchase may accelerate the rate at which
principal payments are made on the Class A-1
Certificates.]
Certain Prepayment
and Yield
Considerations..... NO INVESTMENT SHOULD BE MADE IN THE CLASS A-1
CERTIFICATES UNLESS AN INVESTOR HAS CONSIDERED
CAREFULLY THE ASSOCIATED RISKS OF INVESTING IN SUCH
CLASS A-1 CERTIFICATES AS DISCUSSED BELOW AND UNDER
"RISK FACTORS" AND "YIELD AND PREPAYMENT
CONSIDERATIONS" HEREIN.
Prepayments. The rate of principal payments on the Class
A-1 Certificates will be affected by the rate of
principal payments on the Mortgage Loans (including,
for this purpose, prepayments, which may include
amounts received by virtue of condemnation, insurance
or foreclosure). If a Class A-1 Certificate is
purchased at a discount from its initial principal
balance by a purchaser that calculates its anticipated
yield to maturity based on an assumed rate of payment
of principal that is faster than that actually
experienced on the Mortgage Loans, the actual yield to
maturity will be lower than that so calculated.
Furthermore, if a Certificate is purchased at a premium
by a purchaser that calculates its anticipated yield to
maturity
S-8
<PAGE>
based on an assumed rate of payment of principal that
is slower than that actually experienced on the
Mortgage Loans, the actual yield to maturity will be
lower than that so calculated.
Timing of Payments. The timing and amount of payments,
including prepayments, on the Mortgage Loans may
significantly affect an investor's yield. In general,
the earlier a prepayment of principal on the Mortgage
Loans, the greater will be the effect on an investor's
yield to maturity. As a result, the effect on an
investor's yield of principal prepayments occurring at
a rate higher (or lower) than the rate anticipated by
the investor during the period immediately following
the issuance of the Class A-1 Certificates will not be
offset by a subsequent like reduction (or increase) in
the rate of principal prepayments.
[Basis Risk; [specify index]. The interest rate payable
to the Holders of the Class A-1 Certificates is based
on [specify index]. However, the Mortgage Certificates
bear interest at adjustable rates based on COFI, CMT
and CBE (the "Indices"). [Specify index] and such
Indices may respond to different economic and market
factors, and there is no necessary correspondence
between them. NO ASSURANCE CAN BE GIVEN THAT AMOUNTS ON
DEPOSIT IN THE RESERVE FUND FROM TIME TO TIME OR
PAYMENTS UNDER THE YIELD SUPPORT AGREEMENT WILL BE
SUFFICIENT TO MAKE UP ANY AMOUNT BY WHICH THE INTEREST
COLLECTED ON THE MORTGAGE CERTIFICATES IS LESS THAN THE
INTEREST ACCRUAL AMOUNT OF THE CLASS A-1 CERTIFICATES.]
See "Risk Factors" and "Yield and Prepayment
Considerations" herein for a fuller discussion of the
factors affecting the yield to maturity of the Class
A-1 Certificates.
Liquidity............ There is currently no secondary market for the Class A-1
Certificates and there can be no assurance that a
secondary market will develop or, if it does develop,
that it will provide Certificateholders with liquidity
of investment at any particular time or for the life of
the Class A-1 Certificates. There is no assurance that
any such market, if established, will continue. Each
Certificateholder will receive monthly reports
pertaining to the Class A-1 Certificates and the
Mortgage Certificates. There are a limited number of
sources which provide certain information about
mortgage-backed securities in the secondary market;
however, there can be no assurance that any of these
sources will provide information about the Class A-1
Certificates or the Mortgage Certificates. Investors
should consider the effect of limited information on
the liquidity of the Class A-1 Certificates.
Federal Income Tax
Status............. An election will be made to treat [the portion of] the
Trust Fund [consisting of the Mortgage Certificates] as
a REMIC for federal income tax purposes. The [payments
on the] Class A-1 Certificates [which are derived from
the Mortgage Certificates,] and the Class IO
Certificates, will be designated as regular interests
in the REMIC, and the Class R Certificate will be
designated as the residual interest in the REMIC.
S-9
<PAGE>
The arrangement under which the Reserve Fund is held
should not be treated as an association taxable as a
corporation. An investor in the Class A-1 Certificates
will be treated for federal income tax purposes as
purchasing a REMIC regular interest and a contractual
right to receive amounts from the Reserve Fund.] See
"Certain Federal Income Tax Consequences" [herein] and
in the Prospectus.*
ERISA
Considerations..... A fiduciary of any employee benefit plan subject to the
Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), or Section 4975 of the Internal
Revenue Code of 1986, as amended (the "Code"), or a
governmental plan subject to any federal, state or
local law ("Similar Law") which is, to a material
extent, similar to the foregoing provisions of ERISA or
the Code (collectively, a "Plan"), should carefully
review with its legal advisors whether the purchase or
holding of Class A-1 Certificates could give rise to a
transaction prohibited or not otherwise permissible
under ERISA, the Code or Similar Law. See "ERISA
Considerations" in this Prospectus Supplement and in
the Prospectus.
Legal Investment..... The Class A-1 Certificates will constitute "mortgage
related securities" for purposes of the Secondary
Mortgage Market Enhancement Act of 1984 ("SMMEA") so
long as they are rated in one of the two highest rating
categories by at least one nationally recognized
statistical rating organization. As such, the Class A-1
Certificates are legal investments for certain entities
to the extent provided in SMMEA. However, there are
regulatory requirements and considerations applicable
to regulated financial institutions and restrictions on
the ability of such institutions to invest in certain
types of mortgage related securities. Prospective
purchasers of the Class A-1 Certificates should consult
their own legal, tax and accounting advisors in
determining the suitability of and consequences to them
of the purchase, ownership and disposition of the Class
A-1 Certificates. See "Legal Investment Considerations"
in this Prospectus Supplement and "Legal Investment" in
the Prospectus.
________________
* Depending on the terms of the A-1 Certificates and the arrangement under
which the Reserve Fund is held, the discussion of federal income tax
consequences contained in "Summary of Terms-Federal Income Tax Status" and in
"Certain Federal Income Tax Consequences" in this Prospectus Supplement may be
revised appropriately to reflect such terms.
S-10
<PAGE>
SPECIAL CONSIDERATIONS
Prospective investors should consider the following factors in connection
with a purchase of the Class A-1 Certificates.
1. General. An investment in certificates (such as the Class A-1
Certificates) evidencing interests in mortgage loans may be affected, among
other things, by a decline in real estate values or a decline in mortgage market
rates. Recently such declines in real estate values have been experienced in
several significant market areas within the United States. If relevant
residential real estate markets should experience an overall decline in property
values such that the outstanding balances of the Mortgage Loans in a particular
Underlying Mortgage Pool become equal to or greater than the value of the
related mortgaged properties, the actual rates of delinquencies, foreclosures
and losses could be higher than those now generally experienced in the mortgage
lending industry. To the extent that such losses are not covered by the classes
of certificates which are subordinate to the Mortgage Certificates from that
pool and the cash available in the related Underlying Reserve Funds, holders of
the Class A-1 Certificates will bear all risk of loss resulting from default by
mortgagors and will have to depend primarily on the value of the mortgaged
properties for recovery of the outstanding principal and unpaid interest of the
defaulted Mortgage Loans.
2. Limited Obligations. The Certificates will not represent an interest in
or obligation of the Depositor, the Trustee, the Certificate Administrator, or
any of the Depository Institutions. The Certificates will not be insured or
guaranteed by any government agency or instrumentality.
[3. Basis Risk. The interest rate payable to the holders of the Class A-1
Certificates is based on [specify index]. However, the underlying Mortgage Loans
bear interest based on the Indices calculated at various frequencies. [Specify
index] and the Indices respond to different economic and market factors, and
there is not necessarily a correlation between them. Thus, it is possible, for
example, that [specify index] may rise during periods in which the Indices are
stable or are falling or that, even if both [specify index] and the Indices rise
during the same period, [specify index] may rise much more sharply than the
Indices. NO ASSURANCE CAN BE GIVEN THAT AMOUNTS ON DEPOSIT IN THE RESERVE FUND
FROM TIME TO TIME OR PAYMENTS UNDER THE YIELD SUPPORT AGREEMENT WILL BE
SUFFICIENT TO MAKE UP ANY AMOUNT BY WHICH THE INTEREST COLLECTED ON THE MORTGAGE
CERTIFICATES IS LESS THAN THE INTEREST ACCRUAL AMOUNT OF THE CLASS A-1
CERTIFICATES.]
4. Limited Liquidity. There is currently no secondary market for the Class
A-1 Certificates and there can be no assurance that a secondary market will
develop or, if it does develop, that it will provide Certificateholders with
liquidity of investment at any particular time or for the life of the Class A-1
Certificates. First Boston intends to act as a market maker in the Class A-1
Certificates, subject to applicable provisions of federal and state securities
laws and other regulatory requirements, but is under no obligation to do so and
any such market making may be discontinued at any time. There can be no
assurance that any investor will be able to sell a Class A-1 Certificate at a
price which is equal to or greater than the price at which such Certificate was
purchased.
5. Prepayment and Yield Considerations. The prepayment experience on the
Mortgage Loans will affect the average life of the Class A-1 Certificates.
Prepayments on the Mortgage Loans may be influenced by a variety of economic,
geographic, social and other factors, including the difference between the
interest rates on the Mortgage Loans and prevailing mortgage interest rates.
Other factors affecting prepayment of Mortgage Loans include changes in housing
needs, job transfers, unemployment and servicing decisions. See "Yield and
Prepayment Considerations." In addition, the yield on the Class A-1 Certificates
will be sensitive to, among other things, the level of [specify index].
[Add additional Risk Factors, including one or more relating to
Mortgage Certificates and/or underlying Mortgage Loans]
The following table sets forth the Concentrations by state for each of the
Underlying Mortgage Pools that exceed % of the original aggregate principal
balance thereof as of the Underlying Series Cut-off Date. Such information was
derived from the Underlying Disclosure Documents and the Depositor cannot
provide any assurances as to the accuracy or completeness of such information.
S-11
<PAGE>
GEOGRAPHIC CONCENTRATION
(GREATER THAN % OF PRINCIPAL BALANCE)
<TABLE>
<CAPTION>
Percentage Percentage
as of as of
Underlying Underlying
Series Series
Cut-off Series Cut-off
Series Designation State Date Designation State Date
- ------------------ ----- ---------- ----------- ----- ----------
<S> <C> <C> <C> <C> <C>
</TABLE>
DESCRIPTION OF THE CERTIFICATES
GENERAL
The [Adjustable Rate] Conduit Mortgage Pass-Through Certificates, Series
will include the following [three] classes: the [Class A-1] Certificates, the
[Class IO] Certificates and the [Class R] Certificates (collectively, the
"Certificates"). Only the Class A-1 Certificates are offered hereby.
The Certificates evidence 100% of the beneficial ownership interest in a
trust fund (the "Trust Fund"), the assets of which will consist primarily of
[(a) classes (or portions of classes) of mortgage pass-through certificates
(the "Mortgage Certificates"), each of which is part of one of series of
mortgage pass-through certificates initially sold by and
acquired by the Depositor in the secondary market,] [(b) a Reserve Fund] [and]
[(c) a Yield Support Agreement provided by .] [See "-The
Reserve Fund" and "-The Yield Support Agreement" below.] The Trust Fund will be
established and the Certificates will be issued pursuant to a [Pooling Trust
Agreement] (the "Pooling Agreement"), dated as of among
the Depositor, the Certificate Administrator and the Trustee.
[The Class A-1 Certificates will be issued as book-entry certificates (the
"Book-Entry Certificates") through the facilities of The Depository Trust
Company. See "-Book-Entry Form" below. The Class A-1 Certificates will be
issued, maintained and transferred only in minimum denominations of $1,000
initial principal balance and integral multiples of $1,000 initial principal
balance in excess thereof. The "Record Date" for distributions on the Class A-1
Certificates is , with respect to the initial Distribution Date, and with
respect to each subsequent Distribution Date, the last day of the calendar
month immediately preceding the month in which the applicable Distribution Date
occurs or, if such last day is not a business day, the preceding business day.
The undivided percentage interest (the "Percentage Interest") represented by
any Class A-1 Certificate will be equal to the percentage obtained by dividing
the initial Principal Balance of such Class A-1 Certificate by the aggregate
initial Principal Balance of all Class A-1 Certificates.]
DISTRIBUTIONS
Distributions on the Certificates will be made on the th day of
each , beginning in or, if any such day is
not a business day, the following business day (each such day on which
distributions are made, a "Distribution Date"). Distributions to a holder of a
Class A-1 Certificate will be made on each Distribution Date in an amount equal
to such holder's Percentage Interest multiplied by the amount, if any, to be
distributed to the Class A-1 Certificates. Distributions will be made on each
Distribution Date to holders of record on the related Record Date, [which,
S-12
<PAGE>
unless Definitive Certificates are issued under the circumstances described
below under "-Book Entry Form", will be Cede & Co. as nominee for DTC.]
Interest Distributions. Distributions in respect of interest on each Class
of Certificates (other than the Class R Certificates) on each Distribution Date
will be made only up to the amount of the Interest Available Funds for such
Distribution Date. The amount of interest payable on the Class A-1 Certificates
on each Distribution Date will be equal to the sum of (x) the lesser of the
Interest Accrual Amount of the Class A-1 Certificates for such Distribution Date
and Interest Available Funds for such Distribution Date and (y) the lesser of
the Interest Shortfall Amount of the Class A-1 Certificates and the excess, if
any, of the Interest Available Funds for such Distribution Date over the
Interest Accrual Amount of the Class A-1 Certificates for such Distribution
Date.
The "Interest Accrual Period" with respect to each Distribution Date is
the period commencing on the th day of the [ month] preceding the month
in which such Distribution Date occurs and ending on the th day of the month
in which such Distribution Date occurs.
The "Interest Accrual Amount" for the Class A-1 Certificates on each
Distribution Date will equal the product of (i) of the Class A-1
Pass-Through Rate for such Distribution Date and (ii) the outstanding Principal
Balance thereof, subject to reduction in respect of Deferred Interest and
Prepayment Interest Shortfalls incurred with respect to the Mortgage Loans
underlying the Mortgage Certificates. The "Class A-1 Pass-Through Rate" during
the initial Interest Accrual Period will be % per annum. During each
succeeding Interest Accrual Period, the Class A-1 Pass-Through Rate will be
% in excess of [specify index] determined (as described below under
"-Determination of [specify index]") ("[specify index]") on the [ day
prior to the first day] of such Interest Accrual Period or, if such day
is not a business day, the preceding business day (each, a "Reset Date"). The
"Interest Shortfall Amount" of the Class A-1 Certificates is equal to the sum
of the amounts for all previous Distribution Dates by which the Interest
Accrual Amount of the Class A-1 Certificates exceeded the Interest Available
Funds for such Distribution Dates (to the extent such amounts have not been
paid on subsequent Distribution Dates), together with interest accrued thereon
at the Class A-1 Pass-Through Rate in effect from time to time.
"Interest Available Funds" with respect to any Distribution Date will be
equal to the sum of (a) all payments in respect of interest received by the
Certificate Administrator on the Mortgage Certificates during the related
Collection Period, (b) interest earned on amounts invested in the Certificate
Account [and] [(c) all amounts on deposit in the Reserve Fund (including any
payments made by the Yield Support Counterparty on such Distribution Date under
the Yield Support Agreement) (up to the excess of the Interest Accrual Amount
and the Interest Shortfall Amount of the Class A-1 Certificates over the amount
described in clauses (a) and (b) above)]. Interest Available Funds will be
distributed on each Distribution Date first to pay the Interest Accrual Amount
of the Class A-1 Certificates and next to pay the Interest Shortfall Amount of
the Class A-1 Certificates. Any Interest Available Funds remaining after such
distributions will be deposited in the Reserve Fund.
DUE TO THE FACTORS DISCUSSED UNDER "RISK FACTORS-BASIS RISK", INTEREST
AVAILABLE FUNDS MAY NOT ALWAYS BE SUFFICIENT TO PAY THE FULL INTEREST ACCRUAL
AMOUNT WITH RESPECT TO CLASS A-1 CERTIFICATES ON EACH DISTRIBUTION DATE.
The Interest Accrual Amount for the Class IO Certificates on each
Distribution Date will equal the product of (i) of the Class IO Pass-Through
Rate for such Distribution Date and (ii) the outstanding Principal Balance of
the Class A-1 Certificates, subject to reduction in respect of Deferred
Interest and Prepayment Interest Shortfalls. The Class R Certificates are not
entitled to distributions in respect of interest and, therefore, have no
Interest Accrual Amount. During each Interest Accrual Period the "Class IO
Pass-Through Rate" will be equal to the excess, if any, of (X) the weighted
average of the Weighted Average Mortgage Certificate Pass-Through Rate for each
of the Underlying Series Distribution Dates that occurs during the Collection
Period related to such Interest Accrual Period (determined as described herein)
(such weighted average, the "Quarterly Mortgage Certificate Pass-Through Rate")
over (Y) the Class A-1 Pass-Through Rate for such Interest Accrual Period. The
"Weighted Average Mortgage Certificate Pass-Through Rate" with respect to any
Underlying Series Distribution Date will be equal to the weighted average of
the pass-through rates of the Mortgage Certificates applicable to such
Underlying Series Distribution Date, weighted on the basis of the outstanding
principal balances of such classes prior to distributions on such Underlying
Series Distribution Date. The Weighted Average Mortgage
S-13
<PAGE>
Certificate Pass-Through Rate with respect to the Underlying Series
Distribution Date in is approximately %. The "Collection
Period" with respect to a Distribution Date is the period commencing on the day
after the preceding Distribution Date (or, in the case of the first Collection
Period, on ) and ending on such Distribution Date.
Interest on the Certificates will be calculated on the basis of [specify
interest calculation convention].
Deferred Interest allocated to the Mortgage Certificates on each Underlying
Series Distribution Date occurring during the Collection Period related to any
Distribution Date (as reported on the remittance reports relating to such
Mortgage Certificates) will be allocated between the Class A-1 Certificates and
the Class IO Certificates on the related Distribution Date, pro rata, based on
the Interest Accrual Amounts of each thereof (before reduction for such Deferred
Interest). See "Description of the Underlying Mortgage Loans" and "The Mortgage
Certificates-Distributions on the Mortgage Certificates." The amount of Deferred
Interest allocated in reduction of the Interest Accrual Amount of the Class A-1
Certificates will be added to the Principal Balance of such Class as of such
Distribution Date.
Prepayment Interest Shortfalls allocated to the Mortgage Certificates on
each Underlying Series Distribution Date occurring during the Collection Period
related to any Distribution Date (as reported on the remittance reports relating
to such Mortgage Certificates) will be allocated between the Class A-1
Certificates and the Class IO Certificates on the related Distribution Date, pro
rata, based on the Interest Accrual Amounts thereof (before reduction for such
interest shortfall on such Distribution Date). See "The Mortgage Certificates-
Distributions on the Mortgage Certificates" herein.
The "Principal Balance" of the Class A-1 Certificates as of any
Distribution Date will be equal to the Mortgage Certificate Balance as of the
preceding Distribution Date. The "Mortgage Certificate Balance" as of any
Distribution Date will be equal to the sum of the Mortgage Certificate Balances
(after giving effect to all distributions and other principal balance reductions
on the Mortgage Certificates and any Deferred Interest added to the principal
balance thereof during the Collection Period ending on such Distribution Date).
Neither the Class IO Certificates nor the Class R Certificate have any Principal
Balance and, therefore, neither is entitled to distributions in respect of
principal.
Determination Of [specify index]. [describe procedures for determining
index]
Historical [specify index]. Listed below are historical values of [specify
index] since:
[SPECIFY INDEX]
MONTHLY AVERAGES
<TABLE>
<CAPTION>
YEAR
-------------------------------------------
MONTH(1) 199 199 199 199 199
- -------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
</TABLE>
Principal Distributions. Distributions in respect of principal on the Class
A-1 Certificates will be made on each Distribution Date in an amount equal to
the sum of all amounts distributed in respect of principal on the Mortgage
Certificates during the Collection Period ending on such Distribution Date.
Principal payments on the Class A-1 Certificates will be made on each
Distribution Date to the extent funds are available therefor until the Principal
Balance of the Class A-1 Certificates has been reduced to zero.
[RESERVE FUND
The Pooling Agreement will require the Certificate Administrator to
establish a separate trust account, which it will hold for the benefit of the
Trustee on behalf of the holders of the Class A-1 Certificates (the "Reserve
Fund").
S-14
<PAGE>
On the Closing Date, the Depositor will deposit or cause to be deposited
into the Reserve Fund, [(i) cash in the amount of $ [and] [(ii) the Class
IO Certificates]. All distributions on the Class IO Certificates will be made
to the Certificate Administrator for deposit into the Reserve Fund. In
addition, all payments by the Yield Support Counterparty pursuant to the Yield
Support Agreement will be deposited in the Reserve Fund. Amounts on deposit in
the Reserve Fund from time to time will be available on each Distribution Date
to be paid to holders of the Class A-1 Certificates to the extent that amounts
described in clauses (a) and (b) of the definition of Interest Available Funds
are insufficient to pay the Interest Accrual Amount and Interest Shortfall
Amount of the Class A-1 Certificates for such Distribution Date. The Reserve
Fund will be an asset of the Trust Fund, but will not be an asset of the REMIC.
Amounts in the Reserve Fund will be invested in "eligible assets," as defined
in the Pooling Agreement, at the discretion of the Certificate Administrator,
provided each such investment matures no later than the succeeding Distribution
Date.
The Depositor will not have any obligation to deposit additional monies in
the Reserve Fund after the Closing Date.
NO ASSURANCE CAN BE GIVEN THAT AMOUNTS ON DEPOSIT IN THE RESERVE FUND FROM
TIME TO TIME WILL, TOGETHER WITH THE BALANCE OF INTEREST AVAILABLE FUNDS ON ANY
DISTRIBUTION DATE, BE SUFFICIENT TO ALLOW THE DISTRIBUTION OF THE FULL INTEREST
ACCRUAL AMOUNT WITH RESPECT TO THE CLASS A-1 CERTIFICATES ON ANY SUCH
DISTRIBUTION DATE.
Due to the factors described under "Special Considerations-Basis Risk" and
"Yield and Prepayment Considerations-Basis Risk; [specify index]," changes in
the levels of COFI, CMT and CBE may not necessarily correlate with changes in
[specify index]. Accordingly, the Class IO Certificates (payments on which,
together with payments under the Yield Support Agreement, are the sole source
of payments into the Reserve Fund after the Closing Date) will not be entitled
to any payments under certain interest rate scenarios. See "-Distributions"
above. In addition, the Yield Support Counterparty will not be obligated to
make any payments under the Yield Support Agreement unless [specify index]
exceeds the Strike Rate. See "-The Yield Support Agreement" below. The
following table, which was prepared on the basis of the Modeling Assumptions,
illustrates the balances that would be available in the Reserve Fund on the
date indicated under the interest rate scenarios (the "Rate Scenarios")
described in the following paragraph and at the various percentages of CPR
indicated. Each of the Rate Scenarios set forth below assumes [describe
assumptions].
"Rate Scenario I" [describe assumptions].
"Rate Scenario II" [describe assumptions].
"Rate Scenario III" [describe assumptions].
PROJECTED BALANCE AVAILABLE AT
<TABLE>
<CAPTION>
PERCENT OF CPR
---------------------------------------
% % %
----------- ----------- -----------
<S> <C> <C> <C>
Rate Scenario I............
Rate Scenario II...........
Rate Scenario III..........
</TABLE>
[THE YIELD SUPPORT AGREEMENT]
The following is a summary of certain features of the Yield Support
Agreement (as defined below).
General. On the Closing Date, the Trustee, acting on behalf of the holders
of the Class A-1 Certificates, will enter into a yield support agreement
(the "Yield Support Agreement") with , a
S-15
<PAGE>
(the "Yield Support Counterparty"). The Yield Support Agreement will be
governed by and construed in accordance with the laws of .
Payment Terms. Pursuant to the terms of the Yield Support Agreement, in
the event that [specify index] on any Reset Date (determined as described below
under "-Determination of [specify index]") exceeds % (which rate is equal
to [specify index] as set with respect to the first Interest Accrual Period
plus %) (the "Strike Rate"), the Yield Support Counterparty will be
obligated to pay to the Certificate Administrator, for the benefit of the
holders of the Class A-1 Certificates, on the Distribution Date related to the
Interest Accrual Period following such Reset Date, an amount equal to
one-fourth of the product of (x) the difference between [specify index] at such
Reset Date (determined as described above) and the Strike Rate and (y) the
Principal Balance of the Class A-1 Certificates outstanding prior to
distributions on such Distribution Date. Amounts paid by the Yield Support
Counterparty on any Distribution Date will be paid to the Certificate
Administrator for deposit into the Reserve Fund.
NO ASSURANCE CAN BE GIVEN THAT AMOUNTS PAID BY THE YIELD SUPPORT
COUNTERPARTY ON ANY DISTRIBUTION DATE WILL, TOGETHER WITH THE BALANCE OF THE
INTEREST AVAILABLE FUNDS FOR SUCH DISTRIBUTION DATE, BE SUFFICIENT TO ALLOW FULL
DISTRIBUTIONS IN RESPECT OF INTEREST ON THE CLASS A-1 CERTIFICATES ON SUCH
DISTRIBUTION DATE OR ON ANY FUTURE DISTRIBUTION DATES. THE OBLIGATIONS OF THE
YIELD SUPPORT COUNTERPARTY WITH RESPECT TO THE SECURITIES OFFERED HEREBY ARE
LIMITED TO THOSE SPECIFICALLY SET FORTH IN THE YIELD SUPPORT AGREEMENT AND ARE
SUBJECT TO CERTAIN CONDITIONS AS DESCRIBED IN THE YIELD SUPPORT AGREEMENT.
Termination. Unless earlier terminated as described below, the Yield
Support Agreement will terminate upon the reduction of the Principal Balance of
the Class A-1 Certificates to zero.
Pursuant to the Yield Support Agreement, certain events may occur in
respect of the Yield Support Counterparty that will give the Trustee the right
to terminate the Yield Support Agreement subject to the terms and provisions
thereof. The Trustee will have the right to terminate the Yield Support
Agreement if any of the following events occur:
(i) the Yield Support Counterparty fails to make any payment due
under the Yield Support Agreement and such nonpayment continues for three
business days after notice from the Trustee;
(ii) the Yield Support Counterparty fails to perform or observe
its obligations under such Yield Support Agreement (other than its
obligation to make any payment due under such Yield Support Agreement) and
such failure continues for a period of 30 days after notice from the
Trustee;
(iii) any representation made by the Yield Support Counterparty
under such Yield Support Agreement proves to have been incorrect or
misleading in any material respect as of the time it was made;
(iv) certain events of bankruptcy or insolvency occur with respect
to the Yield Support Counterparty;
(v) the Yield Support Counterparty undertakes certain mergers,
consolidations or transfers of its assets or is dissolved;
(vi) a withholding tax is imposed on payments by the Yield Support
Counterparty under such Yield Support Agreement; or
(vii) a change in law occurs after the Closing Date which makes it
unlawful for the Yield Support Counterparty to perform its obligations in
respect of the Yield Support Agreement.
Breakage Fee. If the Yield Support Agreement is terminated by the Trustee,
the market value of the Yield Support Agreement will be established by the
Trustee on the basis of market quotations of the cost to the Trust Fund of
entering into a replacement yield support agreement, in accordance with the
procedures set forth in the Yield Support Agreement (such amount, the "Breakage
Fee"). The Yield Support Counterparty will be required to pay the Trustee, for
the benefit of the holders of the Class A-1 Certificates the amount of any
Breakage Fee. Upon any such termination of the Yield Support
S-16
<PAGE>
Agreement, the Trustee will apply any Breakage Fee paid by the Yield Support
Counterparty to the purchase of a similar yield support agreement from another
counterparty.
The Yield Support Counterparty.
As of , the end of its most recent fiscal year, the Yield
Support Counterparty and its subsidiaries had, on a consolidated basis, total
assets of approximately $ , total liabilities of approximately $ ,
and stockholders' equity of approximately $ .
The Yield Support Counterparty's outstanding senior unsecured indebtedness
has been rated by , by , and by .
Copies of the Yield Support Counterparty's annual reports are available
from by contacting , at .
The above information was provided by the Yield Support Counterparty. No
other information contained herein (including but not limited to the statements
concerning the Yield Support Agreement and the rights under the Yield Support
Agreement of the holders of the securities offered hereby) has been provided by
the Yield Support Counterparty.]
[OPTIONAL REPURCHASE OF THE MORTGAGE CERTIFICATES
The beneficial owner of the Class IO Certificates will have the option, but
not the obligation, to purchase the Mortgage Certificates from the Trust Fund on
any Distribution Date on which the Mortgage Certificate Balance is equal to % or
less of the Mortgage Certificate Balance as of the Cut-off Date at a price equal
to the outstanding Principal Balance of the Class A-1 Certificates together with
accrued interest thereon at the then-applicable Class A-1 Pass-Through Rate
through the following Distribution Date.]
DENOMINATIONS
The Class A-1 Certificates will be issued in minimum denominations of
$[1,000] initial principal balance and integral multiples of $1,000 initial
principal balance in excess thereof.
[BOOK-ENTRY FORM
The Class A-1 Certificates initially will be represented by one physical
certificate registered in the name of Cede & Co. ("Cede"), as nominee of DTC,
which will be the "holder" or "Certificateholder" of such Certificates, as such
terms are used herein. No person acquiring an interest in the Class A-1
Certificates (a "Beneficial Owner") will be entitled to receive a Class A-1
Certificate in certificated form (a "Definitive Certificate") representing such
person's interest in the Class A-1 Certificates, except as set forth below.
Unless and until Definitive Certificates are issued under the limited
circumstances described herein, all references to actions taken by
Certificateholders or holders shall refer to actions taken by DTC upon
instructions from its DTC Participants (as defined below), and all references
herein to distributions, notices, reports and statements to Certificateholders
or holders shall refer to distributions, notices, reports and statements to DTC
or Cede, as the registered holder of the Class A-1 Certificates, as the case
may be, for distribution to Beneficial Owners in accordance with DTC
procedures.
DTC is a limited purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York UCC and a "clearing agency"
registered pursuant to Section 17A of the Securities Exchange Act of 1934, as
amended. DTC was created to hold securities for its participating organizations
("DTC Participants") and to facilitate the clearance and settlement of
securities transactions among DTC Participants through electronic book-entries,
thereby eliminating the need for physical movement of certificates. DTC
Participants include securities brokers and dealers (including First Boston),
banks, trust companies and clearing corporations. Indirect access to the DTC
system also is available to banks, brokers, dealers, trust companies and other
S-17
<PAGE>
institutions that clear through or maintain a custodial relationship with a DTC
Participant, either directly or indirectly ("Indirect DTC Participants").
Under the rules, regulations and procedures creating and affecting DTC and
its operations (the "Rules"), DTC is required to make Class A-1 transfers of
Class A-1 Certificates among DTC Participants on whose behalf it acts with
respect to the Class A-1 Certificates and to receive and transmit distributions
of principal of and interest on the Class A-1 Certificates. DTC Participants and
Indirect DTC Participants with which Beneficial Owners have accounts with
respect to the Class A-1 Certificates similarly are required to make Class A-1
transfers and receive and transmit such payments on behalf of their respective
Beneficial Owners.
Beneficial Owners that are not DTC Participants or Indirect DTC
Participants but desire to purchase, sell or otherwise transfer ownership of, or
other interests in, Class A-1 Certificates may do so only through DTC
Participants and Indirect DTC Participants. In addition, Beneficial Owners will
receive all distributions of principal and interest from the Certificate
Administrator, or a paying agent on behalf of the Certificate Administrator,
through DTC Participants. DTC will forward such distributions to its DTC
Participants, which thereafter will forward them to Indirect DTC Participants or
Beneficial Owners. Beneficial Owners will not be recognized by the Trustee, the
Certificate Administrator or any paying agent as Certificateholders, as such
term is used in the Pooling and Servicing Agreement, and Beneficial Owners will
be permitted to exercise the rights of Certificateholders only indirectly
through DTC and its DTC Participants.
Because DTC can only act on behalf of DTC Participants, who in turn act on
behalf of Indirect DTC Participants and certain banks, the ability of a
Beneficial Owner to pledge Class A-1 Certificates to persons or entities that
do not participate in the DTC system, or to otherwise act with respect to such
Class A-1 Certificates, may be limited due to the lack of a physical
certificate for such Class A-1 Certificates. In addition, under a Class A-1
format, Beneficial Owners may experience delays in their receipt of payments,
since distributions will be made by the Certificate Administrator, or a paying
agent on behalf of the Certificate Administrator, to Cede, as nominee for DTC.
DTC has advised the Depositor that it will take any action permitted to be
taken by a Certificateholder under the Pooling Agreement only at the direction
of one or more DTC Participants to whose accounts with DTC the Class A-1
Certificates are credited. Additionally, DTC has advised the Depositor that it
will take such actions with respect to specified voting interests only at the
direction of and on behalf of DTC Participants whose holdings of Class A-1
Certificates evidence such specified voting interests. DTC may take conflicting
actions with respect to voting interests to the extent that DTC Participants
whose holdings of Class A-1 Certificates evidence such voting interests
authorize divergent action.
Neither the Depositor, the Certificate Administrator nor the Trustee will
have any responsibility for any aspect of the records relating to or payments
made on account of beneficial ownership interests of the Class A-1 Certificates
held by Cede, as nominee for DTC, or for maintaining, supervising or reviewing
any records relating to such beneficial ownership interests. In the event of the
insolvency of DTC, a DTC Participant or an indirect DTC Participant in whose
name Class A-1 Certificates are registered, the ability of the Beneficial Owners
of such Class A-1 Certificates to obtain timely payment and, if the limits of
applicable insurance coverage by the Securities Investor Protection Corporation
are exceeded or if such coverage is otherwise unavailable, ultimate payment, of
amounts distributable with respect to such Class A-1 Certificates may be
impaired.
The Class A-1 Certificates will be converted to Definitive Certificates and
re-issued to Beneficial Owners or their nominees, rather than to DTC or its
nominee, only if (i) the Certificate Administrator is advised that DTC is no
longer willing or able to discharge properly its responsibilities as depository
with respect to the Class A-1 Certificates and the Certificate Administrator is
unable to locate a qualified successor, (ii) the Certificate Administrator, at
its option, elects to terminate the book-entry system through DTC or (iii)after
the occurrence of a dismissal or resignation of the Certificate Administrator
under the Pooling Agreement, Beneficial Owners representing not less than 51%
of the voting interests of the outstanding Class A-1 Certificates advise the
Trustee through DTC, in writing, that the continuation of a book-entry system
through DTC (or a successor thereto) is no longer in the Beneficial Owners'
best interest.
Upon the occurrence of any event described in the immediately preceding
paragraph, the Certificate Administrator (or, if the Certificate Administrator
has been dismissed, the Trustee) will be required to notify all Beneficial
Owners through
S-18
<PAGE>
DTC Participants of the availability of Definitive Certificates. Upon
surrender by DTC of the physical certificates representing the Class A-1
Certificates and receipt of instructions for re-registration, the Certificate
Administrator will reissue the Class A-1 Certificates as Definitive
Certificates to Beneficial Owners. ]
TERMINATION
The Trust Fund will terminate upon the earlier of (a) the distribution to
holders of the Certificates of all amounts required to be distributed to them
pursuant to the Pooling Agreement and (b) the termination of the Pooling
Agreement.
CERTIFICATE ACCOUNT
All payments and collections in respect of the Mortgage Certificates will
be deposited in an account maintained by the Certificate Administrator (the
"Certificate Account") in the name of the Trustee with a depository institution
(which may be the Certificate Administrator) and in a manner acceptable to each
Rating Agency. See "Description of the Certificates -Payments on the Mortgage
Loans" and "-Collection of Payments on Mortgage Certificates" in the Prospectus.
Any earnings on investment of amounts in the Certificate Account will be
available for distribution to the holders of the Certificates as Interest
Available Funds. The rate at which such funds are invested from time to time is
referred to herein as the "Reinvestment Rate".
ACTIONS IN RESPECT OF THE MORTGAGE CERTIFICATES
If at any time the Trustee, as the Mortgage Certificateholder, is requested
in such capacity to take any action or to give any consent, approval or waiver,
including without limitation in connection with an amendment of an Underlying
Pooling Agreement or if an event of default occurs under an Underlying Pooling
Agreement with respect to the Mortgage Loan Servicer or the Mortgage Loan
Trustee thereunder, the Pooling Agreement provides that the Trustee, in its
capacity as certificateholder, may take action in connection with the
enforcement of any rights and remedies available to it in such capacity with
respect thereto, will promptly notify all of the holders of the Certificates and
will act only in accordance with written directions of holders of the
Certificates evidencing in excess of 50% of the Voting Rights.
VOTING RIGHTS
Certain actions specified in the Prospectus that may be taken by holders
of the Certificates evidencing a specified percentage of all undivided interest
in the Trust Fund may be taken by holders of the Certificates entitled in the
aggregate to such percentage of the Voting Rights. At any time that any
certificates are outstanding, the "Voting Rights" under the Pooling Agreement
will be allocated [ %] to the Class R Certificate, % to the Class IO
Certificate and the remainder to the Class A-1 Certificate.
CERTIFICATE ADMINISTRATOR
will act as Certificate Administrator. [Describe business of Certificate
Administrator]
TRUSTEE
will act as the Trustee. [Describe business of Trustee]
S-19
<PAGE>
THE MORTGAGE CERTIFICATES
GENERAL
The description of the Mortgage Certificates contained in this Prospectus
Supplement is a general summary of certain characteristics of the Mortgage
Certificates and does not purport to be complete. Such description is subject
to, and is qualified in its entirety by reference to, the actual terms and
provisions of the Prospectuses and Prospectus Supplements related to each of
the Mortgage Certificates (collectively, the "Underlying Disclosure Documents")
and the Pooling and Servicing Agreements relating to each of the Mortgage
Certificates (collectively, the "Underlying Pooling Agreements"). Copies of the
Underlying Disclosure Documents and the Underlying Pooling Agreements are
available from First Boston by calling at .
Investors are urged to obtain copies of such documents and read this Prospectus
Supplement in conjunction therewith.
The assets of the REMIC will consist primarily of classes (or portions
of classes) of senior mortgage pass-through certificates (the "Mortgage
Certificates"), each of which is a part of one of separate series of
mortgage pass-through certificates (each an "Underlying Series").
[Each of the Mortgage Certificates was issued pursuant to a separate
Underlying Pooling Agreement, generally dated as of the first day of the month
of initial issuance of the related Underlying Series (as to each, the
"Underlying Series Cut-off Date"), generally among , the servicer or
master servicer of the related Mortgage Loans (each, a "Mortgage Loan Servicer")
and the trustee of the related Mortgage Certificates (each, a "Mortgage Loan
Trustee").]
Certain characteristics of the Mortgage Certificates are described below.
Certain of the information with respect to the Mortgage Certificates has been
derived from the original offering documents relating to such Mortgage
Certificates and from publicly available data and other data available to the
Depositor with respect thereto. IT SHOULD BE NOTED THAT THERE MAY HAVE BEEN
MATERIAL CHANGES IN FACTS AND CIRCUMSTANCES SINCE THE DATES SUCH DOCUMENTS WERE
PREPARED, INCLUDING, BUT NOT LIMITED TO, CHANGES IN PREPAYMENT SPEEDS AND
PREVAILING INTEREST RATES AND OTHER ECONOMIC FACTORS, WHICH MAY LIMIT THE
USEFULNESS OF, AND BE DIRECTLY CONTRARY TO THE ASSUMPTIONS USED IN PREPARING,
THE INFORMATION SET FORTH IN SUCH DOCUMENTS.
The Mortgage Certificates were each issued on the dates set forth in the
following table for each such Mortgage Certificate, each in an offering
registered by under the Securities Act of 1933, as amended (the
"Securities Act").
MORTGAGE CERTIFICATES DATE OF ISSUANCE
--------------------- ----------------
[Each Underlying Series consists of multiple classes of mortgage pass-
through certificates representing interests in separate trusts (each, an
"Underlying Trust Fund"), previously formed by , each such Underlying
Trust Fund consisting, in part, of [a] [multiple] mortgage pools. Each of the
Mortgage Certificates evidences a senior interest in a separate mortgage pool
(each, an "Underlying Mortgage Pool"), which is part of one of the Underlying
Trust Funds, consisting primarily of adjustable interest rate, conventional,
one- to four-family, residential first mortgage loans (the "Mortgage Loans"),
sold by to the related Mortgage Loan Trustee for the benefit of holders
of the certificates of the related Underlying Series. Except as set forth in the
following sentence, the Underlying Series relating to each class of Mortgage
Certificates includes at least one class of certificates (as to each Underlying
Series, the "Related Subordinated Certificates") which represents an interest in
the same Underlying Mortgage Pool as such class of Mortgage Certificates and
which is subordinated to such class of Mortgage Certificates.]
S-20
<PAGE>
Each of the Mortgage Certificates has been assigned the ratings set forth
in the following table by the rating agencies identified therein:
The following table sets forth expected approximate characteristics of the
Mortgage Certificates based on remittance reports received with respect to the
Underlying Series Distribution Dates occurring in .
SUMMARY DESCRIPTION OF THE MORTGAGE CERTIFICATES
(BASED ON THE REMITTANCE REPORTS)
<TABLE>
<CAPTION>
Mortgage
Certificate
Pass-
Percentage Through
Interest of Class Current Rate
Represented by Current Mortgage as of the
Mortgage Underlying Certificate Cut-off
Original Class Certificate in Mortgage Current Balance in Predominant Date
Underlying Series Class Balance Trust Fund Pool Balance Class Balance Trust Fund Index %
- ----------------- ----- -------------- ----------------- ------------ ------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ % $ $ $
</TABLE>
On the Closing Date, the Principal Balance of the Class A-1 Certificates
will equal the aggregate principal balance of the Mortgage Certificates. In the
event that any of the actual characteristics as of the Cut-off Date of the
Mortgage Certificates varies materially from those described herein, revised
information regarding the Mortgage Certificates will be made available to
purchasers of the Class A-1 Certificates on or before the Closing Date.
[DISTRIBUTIONS ON THE MORTGAGE CERTIFICATES
The following is a discussion of the characteristics of the Mortgage
Certificates in general. The precise characteristics of specific Mortgage
Certificates may vary from the general descriptions set forth below. There are
substantial variations among the Underlying Pooling Agreements for the various
Underlying Series. The following discussion does not purport to describe with
specificity the terms of any specific Underlying Pooling Agreement, but is
instead a general description of the major economic terms of the Mortgage
Certificates, with certain major variations from the general descriptions with
respect to certain Mortgage Certificates or groups of Mortgage Certificates
noted. Investors are urged to obtain the Underlying Pooling Agreements and the
Underlying Disclosure Documents from First Boston and read such agreements in
conjunction with this Prospectus Supplement.
[Describe distributions on Mortgage Certificates]
DESCRIPTION OF THE MORTGAGE LOANS
GENERAL
[As of the Cut-off Date, the Mortgage Certificates represented
approximately $ of the beneficial interest in separate Underlying
Mortgage Pools which, in turn, were comprised of mortgage loans having an
aggregate principal balance as of such date of approximately $ .
[Describe terms of underlying Mortgage Loans]
S-21
<PAGE>
[YIELD AND PREPAYMENT CONSIDERATIONS
Prepayments and Excess Cash. The rate of principal payments on the Class
A-1 Certificates will be affected by the rate of principal payments on the
Mortgage Loans (including, for this purpose, prepayments, which may include
amounts received by virtue of condemnation, insurance or foreclosure).
Principal prepayments may be influenced by a variety of economic,
geographic, demographic, social, tax, legal and other factors. In general, if
prevailing interest rates fall significantly below the interest rates on the
Mortgage Loans, the Mortgage Loans are likely to be subject to higher
prepayments than if prevailing rates remain at or above the interest rates on
such Mortgage Loans. Conversely, if prevailing interest rates rise above the
interest rates on such Mortgage Loans, the rate of prepayments would be expected
to decrease. Other factors affecting prepayment of the Mortgage Loans include
changes in borrowers' housing needs, job transfers, unemployment, borrowers' net
equity in the mortgaged properties and servicing decisions.
All of the Mortgage Loans are adjustable rate mortgage loans ("ARMs"). The
Depositor is not aware of any publicly available statistics that set forth
principal prepayment experience or prepayment forecasts of ARMs over an extended
period of time. The prepayment experience of the Mortgage Certificates is
insufficient to draw any conclusions with respect to the expected prepayment
rates of the Mortgage Loans. The rate of principal prepayments with respect to
ARMs has fluctuated in recent years. As is the case with conventional fixed rate
mortgage loans, ARMs may be subject to a greater rate of principal prepayments
in a declining interest rate environment. For example, if prevailing interest
rates fall significantly, ARMs could be subject to higher prepayment rates than
if prevailing interest rates remain constant because the availability of fixed
rate mortgage loans at competitive interest rates may encourage mortgagors to
refinance their ARMs to "lock in" a lower fixed interest rate. No assurances can
be given as to the rate of prepayments on the Mortgage Loans in stable or
changing interest rate environments.
Excess Cash related to each of the Underlying Mortgage Pools (and other
mortgage pools that are part of the Underlying Trust Funds) will be allocated in
reduction of the Mortgage Certificate Principal Balances of the Certificates in
various ways. See "The Mortgage Certificates-Principal Distributions".
If a Class A-1 Certificate is purchased at a discount from its initial
principal amount by a purchaser that calculates its anticipated yield to
maturity based on an assumed rate of payment of principal that is faster than
that actually experienced on the Mortgage Loans, the actual yield to maturity
will be lower than that so calculated. Similarly, if a Certificate is purchased
at a premium by a purchaser that calculates its anticipated yield to maturity
based on an assumed rate of payment of principal that is slower than that
actually experienced on the Mortgage Loans, the actual yield to maturity will
be lower than that so calculated.
Timing of Payments. The timing of changes in the rate of prepayments on the
Mortgage Loans may significantly affect an investor's actual yield to maturity,
even if the average rate of principal payments is consistent with an investor's
expectations. In general, the earlier a prepayment of principal of the Mortgage
Loans, the greater the effect on an investor's yield to maturity. The effect on
an investor's yield of principal payments occurring at a rate higher (or lower)
than the rate anticipated by the investor during the period immediately
following the issuance of the Certificates may not be offset by a subsequent
like decrease (or increase) in the rate of principal payments.
Basis Risk; [specify index]. The interest rate payable to the Holders of
the Class A-1 Certificates is based on [specify index]. However, the Mortgage
Loans bear interest at adjustable rates based on the Indices. [Specify index]
and the Indices may respond to different economic and market factors, and there
is not necessarily a correlation between them. Thus, it is possible, for
example, that [specify index] may rise during periods in which the Indices of
the Mortgage Loans are stable or are falling, or that even if both [specify
index] and the Indices rise during the same period [specify index] may rise much
more rapidly and sharply than the Indices. THERE CAN BE NO ASSURANCE THAT FUNDS
AVAILABLE IN THE RESERVE FUND PAYMENTS UNDER THE YIELD SUPPORT AGREEMENT WILL BE
SUFFICIENT TO MAKE UP ANY AMOUNT BY WHICH THE INTEREST COLLECTED ON THE MORTGAGE
CERTIFICATES IS LESS THAN THE INTEREST ACCRUAL AMOUNT OF THE CLASS A-1
CERTIFICATES.
S-22
<PAGE>
Mortgage Certificates. The Trust Fund contains Mortgage Certificates which
were issued at different times, are backed by different pools of Mortgage Loans,
have different allocations of principal and interest and payment priorities
among various classes, and may perform differently in various interest and
prepayment rate environments. The performance characteristics of the Class A-1
Certificates will reflect a combination of the performance characteristics of
the various Mortgage Certificates. As a result, it will be difficult to predict
the likely yield and payment experience of the Class A-1 Certificates.
Special Terminations. Each of the Underlying Mortgage Pools is subject to
termination as described under "Description of the Mortgage Certificates-Special
Termination". Any such termination may have the effect of decreasing the
weighted average life of the Class A-1 Certificates.
Convertible ARM Loans. As discussed above under "Description of the
Mortgage Loans," borrowers under certain of the Mortgage Loans have the option
to convert their Mortgage Loan to a fixed rate loan. As previously discussed,
the related Mortgage Loan Servicers are obligated to purchase any such converted
mortgage loans. Unless and until such a purchase is effected, a converted
mortgage loan will stay in the Underlying Mortgage Pool and the Mortgage
Interest Rate will be fixed rather than based on an Index. The yield on the
Class A-1 Certificates may thus be adversely affected. In addition, the purchase
of a Converted Mortgage Loan may affect the rate of principal payments on the
Class A-1 Certificates and, as a result, the yield on such Certificates.
WEIGHTED AVERAGE LIVES
The weighted average life of a security refers to the average amount of
time that will elapse from the date of its issuance until each dollar of
principal of such security will be distributed to the investor. The weighted
average life of a Class A-1 Certificate is determined by (a) multiplying the
amount of the reduction, if any, of the principal balance of such Certificate
from one Distribution Date (or, in the case of the first distribution, from
) to the next Distribution Date by the number of years from the date
of issuance to the second such Distribution Date, (b) summing the results and
(c) dividing the sum by the aggregate amount of the reductions in the principal
balance of such Certificate referred to in clause (a). The weighted average
lives of the Class A-1 Certificates will be influenced by, among other factors,
the rate at which principal is paid on the Mortgage Loans.
CPR MODEL
Prepayments on mortgage loans are commonly measured relative to a
prepayment or model. The model used in this Prospectus Supplement, known as a
conditional or a constant prepayment rate ("CPR"), represents a rate of payment
of unscheduled principal on the Mortgage Loans expressed as an annualized
percentage of the outstanding principal balance of the Mortgage Loans at the
beginning of each period. CPR does not purport to be a historical description of
prepayment experience or a prediction of the anticipated rate of prepayment of
any pool of mortgage loans, including the Mortgage Loans.
WEIGHTED AVERAGE LIFE AND PRE-TAX YIELD TABLES
For each of the following tables it was assumed (the "Modeling
Assumptions") that (i) the Mortgage Loans underlying each of the Mortgage
Certificates have, on a weighted average basis, the characteristics set forth in
the following table following this paragraph; (ii) each Mortgage Loan underlying
a Mortgage Certificate has a Mortgage Interest Rate as of the Cut-off Date,
remaining term to maturity and loan age equivalent to the weighted average
mortgage interest rate of such Mortgage Loans, the weighted average remaining
term to maturity and the weighted average loan age of such Mortgage Loans as of
the Cut-off Date, as reported, respectively, in the applicable Remittance
Reports prepared by the Mortgage Loan Servicers; (iii) scheduled monthly
payments of principal and interest on the Mortgage Loans will be timely received
on the first day of each month (with no defaults); (iv) principal prepayments on
the Mortgage Loans will be received on the last day
S-23
<PAGE>
of each month at the percentages of CPR indicated; (v) all amounts due with
respect to the Mortgage Loans are applied to the payment of the Mortgage
Certificates on the 25th of the month as described in the applicable Underlying
Disclosure Documents; (vi) no Deferred Interest accrues with respect to any
Mortgage Loan; (vii) for the first Interest Accrual Period, the Class A-1
Pass-Through Rate is %; (viii) the Closing Date is ; (ix)
each distribution on the Class A-1 Certificates is made on the th
day of the relevant month, commencing on ; and (x) the Class
A-1 Certificates are purchased at par.]
S-24
<PAGE>
ASSUMED MORTGAGE LOAN CHARACTERISTICS
<TABLE>
<CAPTION>
Weighted Mortgage
Average Certificate Months Months
Mortgage Mortgage Pass Until Next Until Next
Cert- Interest Servicing Periodic Through Remaining Gross Net Rate Payment
ificates INDEX Rate Fee Cap NetCap Seasoning Rate Term Margin Margin Adjustment Adjustment
- -------- ----- -------- --------- -------- ------ --------- ----------- --------- ------ ------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
S-25
<PAGE>
Based on the Modeling Assumptions and the further assumptions that (i)
[specify index] with respect to each Interest Accrual Period is equal to %,
(ii) CMT with respect to each Interest Accrual Period is equal to %,
(iii) COFI with respect to each Interest Accrual Period is equal to % and
(iv) the Reinvestment Rate with respect to each Interest Accrual Period is
equal to , the following table indicates the percentages of the initial
Principal Balance of the Class A-1 Certificates that would be outstanding after
each of the dates shown at various constant percentages of CPR. Such tables
also indicate, based on such assumptions, the weighted average life of the
Class A-1 Certificates under each of the following four scenarios (the
"Termination Scenarios") concerning the Auction and Special Terminations of the
Underlying Series. See "Description of the Certificates-Mandatory Auction" and
"The Mortgage Certificates-Special Termination".
"Termination Scenario I" [specify assumptions].
"Termination Scenario Ii" [specify assumptions].
"Termination Scenario Iii" [specify assumptions].
"Termination Scenario Iv" [specify assumptions].
PERCENT OF ORIGINAL PRINCIPAL BALANCE OUTSTANDING
<TABLE>
<CAPTION>
CLASS A-1
CPR PREPAYMENT ASSUMPTION
------------------------------------------------------
DISTRIBUTION DATE
- ----------------- ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
Weighted Average Life (1)
Termination Scenario I
Terminiation Scenario II
Termination Scenario III
Termination Scenario IV
- -------------
(1) The weighted average life of a Class A-1 Certificate is determined by (i)
multiplying the principal payment on the Class A-1 Certificates by the
number of years from the date of issuance of the Class A-1 Certificate to
the related Distribution Date, (ii) adding the results and (iii) dividing
the sum by the aggregate principal payments on the Class A-1 Certificates.
S-26
<PAGE>
The following tables set forth, based upon the Modeling Assumptions, and
assuming the constant rate of CPR indicated in the heading for each table, the
projected yield to maturity, on a corporate bond equivalent basis, and the
projected Principal Balance of the Class A-1 Certificates as of .
PROJECTED YIELD TO MATURITY AND
OUTSTANDING PRINCIPAL BALANCE UNDER RATE SCENARIO I
<TABLE>
<CAPTION>
PERCENT OF CPR
--------------------------------------
% % %
------------ ----------- -----------
<S> <C> <C> <C>
Yield to Maturity............... % % %
Outstanding Principal Balance
as of......................... $ $ $
</TABLE>
PROJECTED YIELD TO MATURITY AND
OUTSTANDING PRINCIPAL BALANCE UNDER RATE SCENARIO II
<TABLE>
<CAPTION>
PERCENT OF CPR
--------------------------------------
% % %
------------ ----------- -----------
<S> <C> <C> <C>
Yield to Maturity............... % % %
Outstanding Principal Balance
as of......................... $ $ $
</TABLE>
PROJECTED YIELD TO MATURITY AND
OUTSTANDING PRINCIPAL BALANCE UNDER RATE SCENARIO III
<TABLE>
<CAPTION>
PERCENT OF CPR
--------------------------------------
% % %
------------ ----------- -----------
<S> <C> <C> <C>
Yield to Maturity............... % % %
Outstanding Principal Balance
as of......................... $ $ $
</TABLE>
Each of the Rate Scenarios assumes that the levels of [specify index], COFI
and CMT rise significantly above current levels. The actual yield to an investor
will significantly lower if the actual levels of such indices fall, remain
constant, or rise less than the amounts assumed in the Rate Scenarios. No
prediction can be made as to the actual level of any such index at any future
date.
The yields set forth in the above table were calculated by determining the
monthly discount rates which, when applied to the assumed stream of cash flows
to be paid on the Class A-1 Certificates, would cause the discounted present
value of such assumed stream of cash flows to equal the assumed purchase price
of the Class A-1 Certificates indicated in the Modeling Assumption above and
converting such monthly rates to corporate bond equivalent rates. Such
calculation does not take into account variations that may occur in the
interest rates at which investors may be able to reinvest funds received by
them as payments of principal of and interest on the Class A-1 Certificates and
consequently does not purport to reflect the return of any investment in the
Class A-1 Certificates when such reinvestment rates are considered.
S-27
<PAGE>
ACTUAL EXPERIENCE WILL VARY FROM ASSUMPTIONS
Discrepancies will exist between the characteristics of the actual Mortgage
Certificates and the underlying Mortgage Loans and the characteristics assumed
therefor in preparing the tables contained herein. To the extent that the
Mortgage Certificates and Mortgage Loans have characteristics which differ from
those assumed in preparing the tables, the Class A-1 Certificates may mature
earlier or later than indicated by the tables and the weighted average lives and
pre-tax yields may also differ. In addition, it is unlikely that the Mortgage
Loans will prepay at any constant rate or at the same rate, or that [specify
index] will remain constant at any level. The timing of changes in the rate of
prepayment and level of [specify index] may significantly affect the yield
realized by a holder of the Class A-1 Certificates.
THE MORTGAGE LOAN SERVICERS
The names of the Mortgage Loan Servicers related to each of the Mortgage
Certificates are set forth in the following table:
MORTGAGE LOAN SERVICERS
MORTGAGE CERTIFICATES SERVICER
--------------------- --------
The preceding information with respect to the Mortgage Loan Servicers was
derived by the Depositor from publicly available information which the
Depositor believes to be reliable. However, the Depositor makes no
representations with respect thereto and assumes no responsibility for the
accuracy or completeness thereof.
[CERTAIN FEDERAL INCOME TAX CONSEQUENCES
General. An election will be made to treat the portion of the Trust Fund
consisting of the Mortgage Certificates as a REMIC for federal income tax
purposes. The [payments on the] Class A-1 Certificates [which are derived from
the Mortgage Certificates], and the Class IO Certificates will be designated as
regular interests in the REMIC, and the Class R Certificate will be designated
as the residual interest in the REMIC.
[A purchaser of the Class A-1 Certificates will be treated for tax purposes
as purchasing a REMIC regular interest and a contractual right to receive
amounts from the Reserve Fund. Under general tax principles, a purchaser of more
than one asset must allocate its purchase price between the assets based on
their relative fair market values on the date of purchase. An investor that
disposes of its Class A-1 Certificates must make a similar allocation of its
amount realized.
The Certificate Administrator intends to treat the value of the contractual
right to receive payments from the Reserve Fund as de minimis. Consequently, the
Certificate Administrator intends to report assuming that the entire purchase
price for the Class A-1 Certificates is allocated to the REMIC regular interest.
Based on this assumption, it is anticipated that the REMIC regular interest will
be issued [at a premium] [with de minimis original issue discount] for federal
income tax purposes. An investor in the Class A-1 Certificates that accounts for
its investment using this method of allocation would report amounts with respect
to the Reserve Fund and Yield Support Agreement as income when received or
accrued, in accordance with such investor's regular method of tax accounting.
S-28
<PAGE>
The Internal Revenue Service may contend, however, that a portion of the
purchase price paid by an investor in the Class A-1 Certificates should be
allocated to the investor's rights with respect to the Reserve Fund. Under this
approach, the investor would allocate a lesser amount of its purchase price to
the REMIC regular interest than described in the preceding paragraph, which may
result in the creation of, or a greater amount of, original issue discount or
market discount with respect to the REMIC regular interest. The proper method
of recovery of the investor's purchase price allocated to its contractual
rights with respect to the Reserve Fund is not clear. Although not free from
doubt, the contractual arrangement relating to the Reserve Fund should
constitute a "notional principal contract" for federal income tax purposes.
Investors should consult their own tax advisors regarding an investment in the
Class A-1 Certificates, in particular with respect to the recovery of any
purchase price allocated to such notional principal contract.
Status of Class A-1 Certificates. The investment status of that portion of
the Class A-1 Certificates that constitutes a REMIC regular interest is
described in the Prospectus under "Certain Federal Income Tax Consequences-REMIC
Trust Funds-Characterization of Investments in REMIC Certificates." The interest
of an investor in the Class A-1 Certificates relating to the Reserve Fund would
not constitute:
. a "real estate asset" under Section 856(c)(5)(A) of the Internal Revenue
Code (the "Code") if held by a real estate investment trust;
. a "qualified mortgage" under Code Section 860G(a)(3) or a "permitted
investment" under Code Section 860G(a)(5) if held by a REMIC; or
. an asset described in Code Section 7701(a)(19)(C) if held by a thrift.
Income received from the Reserve Fund will not constitute income described in
Code Section 856(c)(3)(B) for a real estate investment trust.
Taxation of REMIC Regular Interest. The portion of the Class A-1
Certificates which constitutes a REMIC regular interest generally will be
treated as a newly originated debt instrument for federal income tax purposes.
Beneficial Owners of the Class A-1 Certificates will be required to report
income with respect to such REMIC regular interest in accordance with the
accrual method of accounting. The Prepayment Assumption (as defined in the
Prospectus) that the Certificate Administrator intends to use in determining the
rate of accrual of original issue discount or premium is 18% CPR. No
representation is made as to the actual rate at which prepayments will occur.
Taxation of Foreign Investors. To the extent the contractual arrangement
relating to the Reserve Fund constitutes a notional principal contract, income
or gain thereon will not be subject to U.S. withholding tax.]
See "Certain Federal Income Tax Consequences-General" and "-REMIC Trust
Funds" in the Prospectus.]
[ERISA CONSIDERATIONS
The Department of Labor has granted to First Boston an individual
administrative exemption Prohibited Transaction Exemption 89-90, 54 Fed. Reg.
42597 (Oct. 17, 1989) (the "Exemption"), from certain of the prohibited
transaction rules of ERISA and certain related excise taxes imposed by the Code
with regard to the initial purchase, the holding and the subsequent resale by
ERISA Plans of certificates in pass-through trusts that meet the conditions and
requirements of the Exemption. The Exemption should apply to the liquidation,
holding, and resale of the Class A-1 Certificates by an ERISA Plan, provided
that specified conditions (certain of which are described below) are met.
Among the conditions which must be satisfied for the Exemption to apply to
the acquisition by an ERISA Plan of the Class A-1 Certificates are the
following: (1) the acquisition of the Certificates by an ERISA Plan is on terms
(including the price for such Certificates) that are at least as favorable to
the ERISA Plan as they would be in an arm's-length transaction with an unrelated
party; (2) the rights and interests evidenced by the Certificates acquired by
the ERISA Plan are not subordinated to the
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<PAGE>
rights and interests evidenced by other certificates of the Trust; (3) the
Certificates acquired by the ERISA Plan have received a rating at the time of
such acquisition that is in one of the three highest generic rating categories
from any of S&P, Fitch, Duff & Phelps Credit Rating Co. or Moody's; (4) the sum
of all payments made to First Boston in connection with the distribution of the
Class A-1 Certificates represents not more than reasonable compensation for
underwriting such Certificates; and (5) the sum of all payments made to and
retained by the Certificate Administrator represents not more than reasonable
compensation for the Certificate Administrator's services under the Pooling
Agreement and reimbursement of the Certificate Administrator's reasonable
expenses in connection therewith.
In addition, it is a condition that the ERISA Plan investing in the Class
A-1 Certificates be an "accredited investor" as defined in Rule 501(a)(1) of
Regulation D of the Commission under the Securities Act.
The Exemption does not apply to the acquisition and holding of Class A-1
Certificates by ERISA Plans sponsored by the Issuer, First Boston, the Trustee,
the Certificate Administrator, or any affiliate of such parties. Moreover, the
Exception provides relief from certain self-dealing/conflict of interest
prohibited transactions, only if, among other requirements (i) an ERISA Plan's
investment in the Class A-1 Certificates does not exceed 25% of all of that
Class outstanding at the time of the acquisition and (ii) immediately after the
acquisition, no more than 25% of the assets of an ERISA Plan with respect to
which the person who has discretionary authority or renders advice are invested
in certificates representing an interest in a trust containing assets sold or
serviced by the same person.]
USE OF PROCEEDS
The proceeds from the sale of the Class A-1 Certificates (net of expenses
incurred in connection with the issuance of the Class A-1 Certificates) will be
used by the Depositor to purchase the Mortgage Certificates.
[LEGAL INVESTMENT CONSIDERATIONS
The Class A-1 Certificates will constitute "mortgage related securities"
for purposes of the Secondary Mortgage Market Enhancement Act of 1984 ("SMMEA")
so long as they are rated in one of the two highest rating categories by at
least one nationally recognized statistical rating organization. As such, the
Class A-1 Certificates will constitute legal investments for certain entities to
the extent provided in SMMEA. However, institutions subject to the jurisdiction
of the Office of the Comptroller of the Currency, the Board of Governors of the
Federal Reserve System, the Federal Deposit Insurance Corporation, the Office of
Thrift Supervision, the National Credit Union Administration or other federal or
state banking, insurance or other regulatory authorities should review
applicable rules, policies and guidelines of such authorities before purchasing
any of the Class A-1 Certificates, as such Certificates may be deemed to be
unsuitable investments, or may otherwise be restricted, under one or more of
these rules, policies and guidelines (in certain cases irrespective of SMMEA).
It should also be noted that certain states have enacted legislation limiting to
varying extent the ability of certain entities (in particular insurance
companies) to invest in "mortgage related securities." The appropriate
characterization of the Class A-1 Certificates under various legal investment
restrictions, and thus the ability of investors subject to these restrictions to
purchase Class A-1 Certificates, may be subject to significant interpretive
uncertainties. Investors should consult with their own legal advisors in
determining whether and to what extent the Class A-1 Certificates constitute
legal investments for such investors. See "Legal Investment" in the Prospectus.]
METHOD OF DISTRIBUTION
First Boston proposes to place the Class A-1 Certificates from time to time
in one or more negotiated transactions, or otherwise, at varying prices to be
determined in each case, at the time of sale. The Class A-1 Certificates are
offered subject to prior sale and acceptance and to certain other conditions.
S-30
<PAGE>
LEGAL MATTERS
Certain legal matters will be passed upon for the Depositor and First
Boston by Sidley & Austin, New York, New York.
RATINGS
It is a condition to the issuance of the Class A-1 Certificates that such
Certificates be rated " " by and " " by .
The ratings of and on mortgage pass-through certificates
address the likelihood of the receipt by holders hereof of all distributions of
principal and interest to which such holders are entitled. THE RATING
AGENCIES NOTE THAT THE ENTITLEMENT OF THE CLASS A-1 CERTIFICATES TO INTEREST AT
A RATE IN EXCESS OF THE MORTGAGE CERTIFICATE PASS-THROUGH RATE IS SUBJECT TO
THE AVAILABILITY OF INTEREST AVAILABLE FUNDS. There is no assurance that
such ratings will continue for any period of time or that they will not be
revised or withdrawn entirely by such rating agency if, in its judgment,
circumstances so warrant. A revision or withdrawal of such ratings may have an
adverse effect on the market price of the Class A-1 Certificates. A security
rating is not a recommendation to buy, sell or hold securities.
and rating opinions address the structural, legal and issuer
aspects associated with the certificates, including the nature of the
underlying mortgage assets and the credit quality of the credit support
provider, if any. and ratings on pass-through certificates do not
represent any assessment of the likelihood that principal prepayments may
differ from those originally anticipated and consequently the timing of such
prepayments may adversely affect an investor's anticipated yield.
The Depositor has not requested a rating on the Certificates from any
other rating agency, although data with respect to the Mortgage Loans or the
Mortgage Certificates may have been provided to other agencies solely for their
informational purposes. There can be no assurance that if a rating is assigned
to the Class A-1 Certificates by any other rating agency, such rating will be
as high as that assigned by or .
S-31
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED DECEMBER 6, 1995
P R O S P E C T U S
Asset Backed Securities Corporation
Depositor
Conduit Mortgage and Manufactured Housing Contract
Pass-Through Certificates
(Issuable in Series)
---------------
The Conduit Mortgage and Manufactured Housing Contract Pass-Through Certificates
(the "Certificates") offered hereby and by the related Prospectus Supplements
will be offered from time to time in series (each, a "Series") in one or more
separate classes (each, a "Class"), which may be divided into one or more
subclasses(each, a "Subclass"), that represent interests in specified
percentages of principal and interest (a "Percentage Interest") with respect to
the related Mortgage Pool or the Contract Pool (each, as defined below), or that
have been assigned a Stated Principal Balance and an Interest Rate (as such
terms are defined herein), as more fully set forth herein, and will evidence the
undivided interest or beneficial interest specified in the related Prospectus
Supplement in one of a number of trusts, each to be created by Asset Backed
Securities Corporation (the "Depositor") from time to time. The trust property
of each trust (the "Trust Fund") will consist of a pool containing one- to four-
family residential mortgage loans, mortgage loans secured by multifamily
residential rental properties consisting of five or more dwelling units or
apartment buildings owned by cooperative housing corporations, loans made to
finance the purchase of certain rights relating to cooperatively owned
properties secured by a pledge of shares of a cooperative corporation and an
assignment of a proprietary lease or occupancy agreement on a cooperative
dwelling, mortgage participation certificates evidencing participation interests
in such loans that are acceptable to the nationally recognized statistical
rating agency or agencies rating the related Series of Certificates
(collectively, the "Rating Agency") for a rating in one of the four highest
rating categories of such. Rating Agency (such loans and participation
certificates being referred to collectively hereinafter as the "Mortgage
Loans"), or certain conventional mortgage pass-through certificates (the
"Mortgage Certificates") and related property (the "Mortgage Pool") or a pool of
manufactured housing conditional sales contracts and installment loan agreements
(the "Contracts") or participation certificates representing participation
interests in such Contracts and related property (the "Contract Pool") conveyed
to such trust by the Depositor. The Mortgage Loans may be conventional mortgage
loans, conventional cooperative loans, mortgage loans insured by the Federal
Housing Administration (the "FHA"), or mortgage loans partially guaranteed by
the Veterans Administration (the "VA"), or any combination of the foregoing,
bearing fixed or variable rates of interest. The Contracts may be conventional
contracts, contracts insured by the FHA or partially guaranteed by the VA, or
any combination of the foregoing, bearing fixed or variable rates of interest,
as specified in the related Prospectus Supplement. If so specified in the
related Prospectus Supplement, the rights of the holders of the Certificates of
one or more Classes or Subclasses of a Series to receive distributions with
respect to the related Mortgage Pool or Contract Pool may be subordinated to
such rights of the holders of the Certificates of one or more Classes or
Subclasses of such Series to the extent described herein and in such Prospectus
Supplement. As provided in the applicable Prospectus Supplement, the timing of
payments, whether of principal or of interest, to any one or more of such
Classes or Subclasses may be on a sequential or a pro rata basis. The Prospectus
Supplement with respect to each Series will also set forth specific information
relating to the Trust Fund with respect to the Series in respect of which the
Prospectus is being delivered, together with specific information regarding the
Certificates of such Series.
The Certificates do not represent an obligation of or interest in the Depositor
or any affiliate thereof. Neither the Certificates, the Mortgage Loans, the
Contracts nor the Mortgage Certificates are insured or guaranteed by any
governmental agency or instrumentality, except to the extent provided herein.
Offers of the Certificates may be made through one or more different methods,
including offerings through underwriters, which may include CS First Boston
Corporation, an affiliate of the Depositor, as more fully described under "Plan
of Distribution" and in the related Prospectus Supplement. Certain offerings of
the Certificates, as specified in the related Prospectus Supplement, may be made
in one or more transactions exempt from the registration requirements of the
Securities Act of 1933. Such offerings are not being made pursuant to the
Registration Statement of which this Prospectus forms a part.
There will have been no public market for the Certificates of any Series prior
to the offering thereof. No assurance can be given that such a market will
develop as a result of such offering or, if it does develop, that it will
continue.
The Depositor, as specified in the applicable Prospectus Supplement, may elect
to treat the Trust Fund with respect to certain Series of Certificates as one or
more Real Estate Mortgage Investment Conduits (each, a "REMIC"). See "Certain
Federal Income Tax Consequences".
If so specified in the Prospectus Supplement relating to a Series of
Certificates, the Certificates of such Series may be subject to early
termination and may receive Special Distributions (as defined herein) in
reduction of Stated Principal Balance (as defined herein) under the
circumstances described herein and in such Prospectus Supplement.
This Prospectus may not be used to consummate sales of the Certificates offered
hereby unless accompanied by a Prospectus Supplement.
---------------
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.
CS First Boston
The date of this Prospectus is , 199 .
<PAGE>
PROSPECTUS SUPPLEMENT
The Prospectus Supplement with respect to each Series of Certificates
will, among other things, set forth with respect to such Series of Certificates:
(i) the identity of each Class or Subclass within such Series; (ii) the
undivided interest, Percentage Interest, Stated Principal Balance or notional
amount of each Class or Subclass of Certificates; (iii) the Pass-Through Rate,
Interest Rate or Annual Rate borne by each Class or Subclass within such Series;
(iv) certain information concerning the Mortgage Loans, the Mortgage
Certificates, the Contracts, if any, and the other assets comprising the Trust
Fund for such Series; (v) the final Distribution Date of each Class or Subclass
of Certificates within such Series; (vi) the identity of each Class or Subclass
of Compound Interest Certificates, if any, within such Series; (vii) the method
used to calculate the amount to be distributed with respect to each Class or
Subclass of Certificates; (viii) the order of application of distributions to
each of the Classes or Subclasses within such Series, whether sequential, pro
rata, or otherwise; (ix) the Distribution Dates with respect to such Series; (x)
information with respect to the terms of the Residual Certificates or
Subordinated Certificates offered hereby, if any are offered; (xi) information
with respect to the method of credit support, if any, with respect to such
Series; and (xii) additional information with respect to the plan of
distribution of such Series of Certificates.
ADDITIONAL INFORMATION
This Prospectus contains, and the Prospectus Supplement for each
Series of Certificates will contain, a summary of the material terms of the
documents referred to herein and therein, but neither contains nor will contain
all of the information set forth in the Registration Statement of which this
Prospectus and the related Prospectus Supplement is a part. For further
information, reference is made to such Registration Statement and the exhibits
thereto which the Depositor has filed with the Securities and Exchange
Commission (the "Commission"), under the Securities Act of 1933, as amended (the
"Securities Act"). Statements contained in this Prospectus and any Prospectus
Supplement as to the contents of any contract or other document referred to are
summaries and in each instance reference is made to the copy of the contract or
other document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference. Copies of the
Registration Statement may be obtained from the Commission, upon payment of the
prescribed charges, or may be examined free of charge at the Commission's
offices. Reports and other information filed with the Commission can be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Regional Offices of the Commission at 75 Park Plaza, Room 1102, New York, New
York 10007; and Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such material can be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. Copies of the Pooling and Servicing Agreement
pursuant to which a Series of Certificates is issued will be provided to each
person to whom a Prospectus and the related Prospectus Supplement are delivered,
upon written or oral request directed to: Secretary, Asset Backed Securities
Corporation, Park Avenue Plaza, 55 East 52nd Street, New York, New York 10055,
(212) 909-2000.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
There are incorporated herein by reference all documents and reports
filed or caused to be filed by the Depositor with respect to a Trust Fund
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), prior to the termination of the offering
of Certificates offered hereby. The Depositor will provide or cause to be
provided without charge to each person to whom this Prospectus is delivered in
connection with the offering of one or more Classes of Certificates, upon
request, a copy of any or all such documents or reports incorporated herein by
reference, in each case to the extent such documents or reports relate to one or
more of such Classes of such Certificates, other than the exhibits to such
documents (unless such exhibits are specifically incorporated by reference in
such documents). Requests to the Depositor should be directed to: Secretary,
Asset Backed Securities Corporation, Park Avenue Plaza, 55 East 52nd Street, New
York, New York 10055, telephone number (212) 909-2000.
2
<PAGE>
SUMMARY OF TERMS
The following is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus, and by reference to the
information with respect to each Series of Certificates contained in the related
Prospectus Supplement. Certain capitalized terms used and not otherwise defined
herein shall have the meanings given elsewhere in this Prospectus.
SECURITIES OFFERED...Conduit Mortgage and Manufactured Housing Contract Pass-
Through Certificates (the "Certificates"), issuable in
series (each, a "Series"). The Certificates may be issued
in one or more classes (each, a "Class") and such Classes
may be divided into one or more subclasses (each, a
"Subclass"). One or more of such Classes or Subclasses of
a Series may be subordinated to one or more Classes or
Subclasses of such Series, as specified in the related
Prospectus Supplement (any such Class or Subclass to
which another Class or Subclass is subordinated being
hereinafter referred to as a "Senior Class" or a "Senior
Subclass", respectively, and any such subordinated Class
or Subclass being hereinafter referred to as a
"Subordinated Class" or "Subordinated Subclass",
respectively). One or more of such Classes or Subclasses
of Certificates of a Series (the "Residual Certificates")
may evidence a residual interest in the related Trust
Fund (as defined below). If so specified in the related
Prospectus Supplement, one or more Classes or Subclasses
of Certificates within a Series (the "Multi-Class
Certificates") may be assigned a principal balance (a
"Stated Principal Balance" or a "Certificate Principal
Balance") based on the cash flow from the Mortgage Loans
(as hereinafter defined), Mortgage Certificates (as
hereinafter defined), the Contracts (as hereinafter
defined) and/or the other assets in the Trust Fund if
specified as such in the related Prospectus Supplement
and a stated annual interest rate, determined in the
manner set forth in such Prospectus Supplement, which may
be fixed or variable (an "Interest Rate"). If so
specified in the related Prospectus Supplement, one or
more such Classes or Subclasses may receive unequal
amounts of the distributions of principal and interest on
the Mortgage Loans, the Contracts and the Mortgage
Certificates included in the related Trust Fund, as
specified in such Prospectus Supplement (any such Class
or Subclass receiving the higher proportion of principal
distributions being referred to hereinafter as a
"Principal Weighted Class" or "Principal Weighted
Subclass, "respectively, and any such Class or Subclass
receiving the higher proportion of interest distributions
being referred to hereinafter as an "Interest Weighted
Class" or an "Interest Weighted Subclass", respectively).
If so specified in the related Prospectus Supplement, the
allocation of the principal and interest distributions
may involve as much as 100% of each distribution of
principal or interest being allocated to one or more
Classes or Subclasses and 0% to another. If so specified
in the related Prospectus Supplement, one or more Classes
or Subclasses may receive disproportionate amounts of
certain distributions of principal, which proportions may
change over time subject to certain conditions. Payments
may be applied to any one or more Class or Subclass on a
sequential or pro rata basis, or otherwise, as specified
in the related Prospectus Supplement. Each Certificate
will represent the undivided interest, beneficial
interest or percentage interest specified in the related
Prospectus Supplement in one of a number of trusts to be
created by the Depositor from time to time. The trust
property of each trust (the "Trust Fund") will consist of
(a) one or more mortgage pools (each, a "Mortgage Pool")
containing (i) conventional one-to four-family
residential, mortgage loans, (ii) loans (the "Cooperative
Loans") made to finance
3
<PAGE>
the purchase of certain rights relating to cooperatively
owned properties secured by the pledge of shares issued
by a cooperative corporation (the "Cooperative") and the
assignment of a proprietary lease or occupancy agreement
providing the exclusive right to occupy a particular
dwelling unit (a "Cooperative Dwelling" and, together
with one- to four-family residential properties, "Single
Family Property"), (iii) mortgage loans secured by
multifamily residential rental properties consisting of
five or more dwelling units or apartment buildings owned
by cooperative housing corporations ("Multifamily
Property"), purchased by the Depositor either directly or
through one or more affiliates from an affiliate or from
unaffiliated sellers, (iv) mortgage participation
certificates evidencing participation interests in such
loans that are acceptable to the nationally recognized
rating agency or agencies identified in the related
Prospectus Supplement (collectively, the "Rating Agency")
rating the Certificates of such Series for a rating in
one of the four highest rating categories of such Rating
Agency (such loans and mortgage participation
certificates being referred to collectively hereinafter
as the "Mortgage Loans"), or (v) certain conventional
mortgage pass-through certificates (the "Mortgage
Certificates") issued by one or more trusts established
by one or more private entities or (b) one or more
contract pools (each, a "Contract Pool") containing
manufactured housing conditional sales contracts and
installment loan agreements (the "Contracts") or
participation certificates representing participation
interests in such Contracts (such Contracts, together
with the Mortgage Loans and the Mortgage Certificates,
being referred to collectively hereinafter as the "Trust
Assets") purchased by the Depositor either directly or
through one or more affiliates or Unaffiliated Sellers,
and related property conveyed to such trust by the
Depositor.
Unless otherwise specified in the related Prospectus
Supplement, each Series of Certificates will be offered
in fully registered form only, in one or more Classes,
which may be divided into one or more Subclasses
evidencing the right to receive a share of principal
payments and the percentages of interest payments on the
underlying Mortgage Loans, Mortgage Certificates or
Contracts at the Pass-Through Rate for the related
Mortgage Pool or Contract Pool. If so specified in the
related Prospectus Supplement, Multi-Class Certificates
of a Series may be issued with the Stated Principal
Balances and the Interest Rates therein specified. At the
time of issuance, each Certificate offered by means of
this Prospectus and the related Prospectus Supplements
will be rated in one of the four highest rating
categories by at least one Rating Agency. The minimum
undivided interest, percentage interest or beneficial
interest in a Mortgage Pool or Contract Pool, the minimum
notional amount to be evidenced by a Certificate of a
Class or Subclass, or the minimum denomination in which a
Certificate of a Class or Subclass is to be issued will
be set forth in the related Prospectus Supplement.
DEPOSITOR............Asset Backed Securities Corporation, a Delaware
corporation.
MASTER SERVICER......The entity, if any, named as Master Servicer in the
applicable Prospectus Supplement, which may be an
affiliate of the Depositor. See "Description of the
Certificates".
INTEREST.............Interest will be distributed on the days specified in the
Prospectus Supplement with respect to a Series, or if any
such day is not a business day, the next succeeding
business day (the "Distribution Date"), at the rate, or
pursuant to the method of determining such rate,
specified in the related Prospectus Supplement for each
Class
4
<PAGE>
or Subclass within such Series, commencing on the day
specified in such Prospectus Supplement, in the manner
specified in such Prospectus Supplement. See "Yield
Considerations" and "Description of the Certificates-
Payments on Mortgage Loans" and "-Payments on Contracts".
PRINCIPAL (INCLUDING
PREPAYMENTS).........Unless otherwise specified in the related Prospectus
Supplement, principal on each Trust Asset underlying a
Series of Certificates will be distributed on each
Distribution Date, commencing on the date specified in
the related Prospectus Supplement in the priority and
manner specified in such Prospectus Supplement. If so
specified in the Prospectus Supplement with respect to a
Series that includes Multi-Class Certificates,
distributions on such Multi-Class Certificates may be
made in reduction of the Stated Principal Balance, in an
amount equal to the Stated Principal Distribution Amount.
Unless otherwise specified in the related Prospectus
Supplement, the Stated Principal Distribution Amount will
equal the amount by which the Stated Principal Balance of
such Class of Multi-Class Certificates (before taking
into account the amount of interest accrued and added to
the Stated Principal Balance of any Class or of Compound
Interest Certificates) exceeds the Asset Value (as
defined herein) of the Trust Assets and other property in
the related Trust Fund as of the Business Day prior to
the related Distribution Date. See "Maturity and
Prepayment Considerations" and "Description of the
Certificates-Payments on Mortgage Loans" and "-Payments
on Contracts". If so specified in the Prospectus
Supplement relating to a Series, the Multi-Class
Certificates of such Series which have other than monthly
Distribution Dates may receive special distributions in
reduction of the Stated Principal Balance ("Special
Distributions") in any month, other than a month in which
a Distribution Date occurs, if, as a result of principal
prepayments on the Trust Assets included in the related
Trust Fund and/or low reinvestment yields, the Trustee
determines, based on assumptions specified in the related
Pooling and Servicing Agreement, that the amount of cash
anticipated to be on deposit in the Certificate Account
for such Series on the next Distribution Date may be less
than the sum of the interest distributions and the amount
of distributions in reduction of Stated Principal Balance
to be made on such Distribution Date. Unless otherwise
specified in the related Prospectus Supplement, Special
Distributions will be made on such Certificates in the
same priority and manner as distributions in reduction of
Stated Principal Balance would be made on the next
Distribution Date for such Certificates. See "Description
of the Certificates-Special Distributions".
THE MORTGAGE POOLS...If so specified in the related Prospectus Supplement, the
Certificates of a Series will represent the interest
specified in such Prospectus Supplement in the Mortgage
Pool or Pools included in the Trust Fund for such Series.
Unless otherwise specified in the applicable Prospectus
Supplement, the original principal amount of each
Mortgage Loan in a Mortgage Pool will not be more than
95% (such ratio, the "Loan-to-Value Ratio") of the value
of the property securing such Mortgage Loan (the
"Mortgaged Property"), based upon an appraisal of the
Mortgaged Property considered acceptable to the
originator of such Mortgage Loan or the sales price,
whichever is less (the "Original Value"). Unless
otherwise specified in the applicable Prospectus
Supplement, Mortgage Loans secured by Single Family
Property having an original principal amount exceeding
80% of the Original Value will be covered by a policy of
private mortgage insurance until the outstanding
5
<PAGE>
principal amount is reduced to the percentage of the
Original Value set forth in the related Prospectus
Supplement as a result of principal payments by the
borrower (the "Mortgagor").
Unless otherwise specified in the applicable Prospectus
Supplement, the principal balance at origination of each
Mortgage Loan that is secured by Single Family Property
will not exceed $500,000. Mortgage Loans in a Mortgage
Pool will all have original maturities of 10 to 40 years,
unless otherwise specified in the applicable Prospectus
Supplement. Mortgage Pools may be formed from time to
time in varying sizes.
FIXED PASS-THROUGH
RATE MORTGAGE POOLS..Unless otherwise specified in the related Prospectus
Supplement, with respect to each Mortgage Pool included
in the Trust Fund with respect to a Series bearing a
fixed Pass-Through Rate, the Depositor will be obligated
to deliver Mortgage Loans that (i) have interest rates
(the "Mortgage Rates") at least 3/8 of 1% over the
interest rate (the "Pass-Through Rate") for such Series,
(ii) conform to the eligibility requirements for such
Series set forth in the related Prospectus Supplement,
and (iii) have an aggregate principal balance equal to
the amount specified in such Prospectus Supplement,
subject to a permitted variance of up to 10%.
VARIABLE PASS-
THROUGH RATE
MORTGAGE POOLS.......If so specified in the related Prospectus Supplement, the
Depositor may establish one or more Mortgage Pools, each
of which will have a variable as opposed to a fixed Pass-
Through Rate. Unless otherwise provided in the applicable
Prospectus Supplement, the variable Pass-Through Rate
will equal the weighted average of the Mortgage Rates of
all of the Mortgage Loans in the Mortgage Pool minus the
fixed percentage servicing fee for each Mortgage Loan set
forth in the related Prospectus Supplement or in a
Current Report on Form 8-K. A Mortgage Pool with a
variable Pass-Through Rate may be composed of Mortgage
Loans that have fluctuating Mortgage Rates. The
characteristics of a variable Pass-Through Rate and its
effect on the yield to Certificateholders as well as the
servicing compensation payable to the related Servicer
and the Master Servicer and the amounts, if any, with
respect to such Mortgage Loans payable to the Depositor
or to the person or entity specified in the related
Prospectus Supplement will be more fully described in
such Prospectus Supplement.
MORTGAGE
CERTIFICATES.........If so specified in the related Prospectus Supplement, the
Trust Fund for a Series of Certificates may include
Mortgage Certificates issued by one or more trusts
established by one or more private entities, with the
respective aggregate principal balances and the
characteristics described in such Prospectus Supplement.
Each Mortgage Certificate included in a Trust Fund will
evidence an interest of the type specified in the related
Prospectus Supplement in a pool of mortgage loans of the
type described in such Prospectus Supplement, secured
principally by mortgages on one- to four-family
residences, mortgages on multi-family residential rental
properties or apartment buildings owned by cooperative
housing corporations or by pledges of shares of
cooperative corporations and assignments of proprietary
leases or occupancy agreements on cooperative dwellings,
unless otherwise specified in such Prospectus Supplement.
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THE CONTRACT POOLS...If so specified in the related Prospectus Supplement, the
Certificates of a Series will represent the interest
specified in such Prospectus Supplement in the Contract
Pool or Pools included in the Trust Fund for such Series.
Unless otherwise specified in the applicable Prospectus
Supplement, the Contracts will be fixed rate Contracts.
Such Contracts, as specified in the related Prospectus
Supplement, will consist of manufactured housing
conditional sales contracts and installment loan
agreements and will be conventional Contracts or
Contracts insured by the FHA or partially guaranteed by
the VA. Each Contract may be secured by a new or used
unit of manufactured housing (a "Manufactured Home").
The related Prospectus Supplement will specify the range of
terms to maturity of the Contracts at origination and the
maximum Loan-to-Value Ratio at origination (the "Contract
Loan-to-Value Ratio"). Because manufactured homes, unlike
site-built homes, generally depreciate in value, the
Loan-to-Value Ratios of some of the Contracts may be
higher at the Cut-off Date than at origination and may
increase over time. Unless otherwise specified in the
related Prospectus Supplement, Contracts that are
conventional Contracts will not be covered by primary
mortgage insurance policies or primary credit insurance
policies. Each Manufactured Home which secures a Contract
will be covered by a standard hazard insurance policy
(which may be a blanket policy) to the extent described
herein or in the related Prospectus Supplement insuring
against hazard losses due to various causes, including
fire, lightning and windstorm. A Manufactured Home
located in a federally designated flood area will be
required to be covered by flood insurance. Contract Pools
may be formed from time to time in varying sizes.
None of the Contracts will have been originated by the
Depositor or any of its affiliates.
YIELD
CONSIDERATIONS.......If so specified in the applicable Prospectus Supplement, an
assumed rate of prepayment will be used to calculate the
expected yield to maturity on each Class of the
Certificates of a Series. The yield on any Class of
Certificates, the purchase price of which is greater than
the aggregate amount of the Principal Distributions to be
made to such Class (a "Premium Certificate"), is likely
to be adversely affected by a higher than anticipated
level of principal prepayments on the Trust Assets
included in related Trust Fund. This effect on yield will
intensify with any increase in the amount by which the
purchase price of such Certificate exceeds the aggregate
amount of such Principal Distributions. If the
differential is particularly wide and a high level of
prepayments occurs, it is possible for Holders of Premium
Certificates not only to suffer a lower than anticipated
yield but, in extreme cases, to fail to recoup fully
their initial investment. Conversely, a lower than
anticipated level of principal prepayments (which can be
anticipated to increase the expected yield to Holders of
Certificates that are Premium Certificates) will likely
result in a lower than anticipated yield to Holders of
Certificates of a Class the purchase price of which is
less than the aggregate amount of the Principal
Distributions to be made to such Class (a "Discount
Certificate"). The Prospectus Supplement for each Series
of Certificates that includes an Interest Weighted or a
Principal Weighted Class will set forth certain yield
calculations on each such Class based upon a range of
specified prepayment assumptions on the Trust Assets
included in the related Trust Fund.
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The yield to Certificateholders will also be adversely
affected because interest will accrue on the Mortgage
Loans, the Contracts or the mortgage loans underlying the
Mortgage Certificates included in a Trust Fund, from the
first day of the month preceding the month in which a
Distribution Date occurs, but the distribution of such
interest will be made no earlier than the 25th day of the
succeeding month unless otherwise provided in the
applicable Prospectus Supplement. The adverse effect on
yield of this delay will intensify with any increase in
the period of time by which the Distribution Date for a
Series of Certificates succeeds the date on which
distributions on the Mortgage Loans, the Contracts, or
the Mortgage Certificates are received by the Master
Servicer or the Trustee. See "Yield Considerations".
CREDIT SUPPORT.......Neither the Certificates nor the Trust Assets are insured
or guaranteed by any guarantee. Credit support will be
provided on the Mortgage Pools or Contract Pools by one
or more irrevocable letters of credit (the "Letter of
Credit"), a policy of mortgage pool insurance (the "Pool
Insurance Policy"), a bond or similar form of insurance
coverage against certain losses in the event of the
bankruptcy of a Mortgagor (the "Mortgagor Bankruptcy
Bond") or any combination of the foregoing specified in
the applicable Prospectus Supplement. In lieu or in
addition to the foregoing credit support arrangements if
so specified in the related Prospectus Supplement, the
Certificates of a Series may be issued in one or more
Classes or Subclasses. Payments on the Certificates of
one or more Classes or Subclasses (the "Senior
Certificates") may be supported by a prior right to
receive distributions attributable or otherwise payable
to another Class or Subclass (the "Subordinated
Certificates") to the extent specified in the related
Prospectus Supplement (the "Subordinated Amount"). In
addition, if so specified in the related Prospectus
Supplement, one or more Classes or Subclasses of
Subordinated Certificates may be subordinated to another
Class or Subclass of Subordinated Certificates and may be
entitled to receive disproportionate amounts of
distributions of principal. If so specified in the
related Prospectus Supplement, a reserve (the "Reserve
Fund") and certain other accounts or funds may be
established to support payments on the Certificates. A
Prospectus Supplement with respect to a Series may also
provide for additional or alternative forms of credit
support, including a guarantee or surety bond, acceptable
to the Rating Agency ("Alternative Credit Support").
A. LETTER OF CREDIT..If so specified in the applicable Prospectus Supplement,
the issuer of one or more Letters of Credit (the "L/C
Bank") will deliver to the Trustee the Letters of Credit
for the Mortgage Pool or Contract Pool. Unless otherwise
specified in the related Prospectus Supplement, to the
extent described herein, the L/C Bank will honor the
Trustee's demands with respect to such Letter of Credit,
to the extent of the amount available thereunder, to make
payments to the Certificate Account on each Distribution
Date in an amount equal to the amount sufficient to
repurchase each Liquidating Loan that has not been
purchased by the related Servicer or the Master Servicer
pursuant to the terms of the applicable Servicing
Agreement or Pooling and Servicing Agreement referred to
herein. Unless otherwise provided in the related
Prospectus Supplement, the term "Liquidating Loan" means:
(a) each Mortgage Loan with respect to which foreclosure
proceedings have been commenced (and the Mortgagor's
right of reinstatement has expired), (b) each Mortgage
Loan with respect to which the Servicer or the Master
Servicer has agreed to accept a deed to the property in
lieu of foreclosure, (c) each Cooperative Loan as to
which the shares of the related Cooperative and the
related proprietary lease or occupancy agreement have
been sold or offered for sale or (d) each Contract with
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respect to which repossession proceedings have been
commenced. The liability of the L/C Bank under the Letter
of Credit will be reduced by the amount of unreimbursed
payments thereunder. In the event that at any time there
remains no amount available under the Letter of Credit
for a specific Mortgage Pool or Contract Pool, and
coverage under another form of credit support, if any, is
exhausted, any losses will be borne by the holder of
Certificates of the Series evidencing interests in such
Mortgage Pool or Contract Pool, as specified in the
related Prospectus Supplement.
Unless otherwise specified in the related Prospectus
Supplement, the maximum liability of the L/C Bank under
the Letter of Credit for a Mortgage Pool or Contract Pool
will be an amount equal to a percentage (not greater than
10% of the initial aggregate principal balance of the
Mortgage Loans in such Mortgage Pool or Contracts in such
Contract Pool) (the "L/C Percentage"), set forth in the
Prospectus Supplement, relating to such Mortgage Pool or
Contract Pool. The maximum amount available at any time
to be paid under the Letter of Credit will be determined
in accordance with the provisions of the applicable
Pooling and Servicing Agreement referred to herein. The
duration of coverage and the amount and frequency of any
reduction in coverage provided by the Letter of Credit
with respect to a Series of Certificates will be in
compliance with requirements established by the Rating
Agency rating such Series and will be set forth in the
related Prospectus Supplement. If so specified in the
related Prospectus Supplement, the Letter of Credit with
respect to a Series of Certificates may, in addition to
or in lieu of the foregoing, provide coverage with
respect to the unpaid principal or notional amount of the
Certificates of a Class or Classes within such Series.
See "Credit Support-Letter of Credit".
B. POOL INSURANCE....If so specified in the applicable Prospectus Supplement,
the Master Servicer will obtain a Pool Insurance Policy
to cover any loss (subject to the limitations described
below) by reason of default by the Mortgagors on the
related Mortgage Loans to the extent not covered by any
policy of primary mortgage insurance (a "Primary Mortgage
Insurance Policy"). The amount of coverage provided by
the Pool Insurance Policy for a Mortgage Pool will be
specified in the related Prospectus Supplement. A Pool
Insurance Policy for a Mortgage Pool, however, will not
be a blanket policy against loss, because claims
thereunder may only be made for particular defaulted
Mortgage Loans and only upon satisfaction of certain
conditions precedent. See "Description of Insurance-Pool
Insurance Policies".
The Master Servicer, if any, or the Depositor or the
applicable Servicer will be required to use its best
reasonable efforts to maintain the Pool Insurance Policy
for each such Mortgage Pool and to present claims
thereunder to the issuer of such Pool Insurance Policy
(the "Pool Insurer") on behalf of the Trustee and the
Certificateholders. See "Description of the Certificates-
Presentation of Claims".
C. MORTGAGOR
BANKRUPTCY
BOND..............If so specified in the related Prospectus Supplement, the
Master Servicer, if any, or the Depositor or the
applicable Servicer will obtain and use its best
reasonable efforts to maintain a Mortgagor Bankruptcy
Bond for such Series covering certain losses resulting
from action that may be taken by a bankruptcy court in
connection with the bankruptcy of a Mortgagor. The level
of coverage provided by such
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<PAGE>
Mortgagor Bankruptcy Bond will be specified in the
applicable Prospectus Supplement. See "Description of
Insurance-Mortgagor Bankruptcy Bond".
D. SUBORDINATED
CERTIFICATES.........If so specified in the related Prospectus Supplement, the
rights of holders of the Certificates of one or more
Subordinated Classes or Subclasses of a Series to receive
distributions with respect to the Mortgage Loans in the
Mortgage Pool or Contracts in the Contract Pool for such
Series, or with respect to a Subordinated Pool (as
defined herein), will be subordinated to the rights of
the holders of the Certificates of one or more Classes or
Subclasses of such Series to receive such distributions
to the extent described in the related Prospectus
Supplement, and limited to the Subordinated Amount set
forth in the related Prospectus Supplement. This
subordination will be intended to enhance the likelihood
of regular receipt by holders of the Senior Certificates
of the full amount of scheduled payments of principal and
interest due them and to reduce the likelihood that the
holders of such Senior Certificates will experience
losses. See "Credit Support-Subordinated Certificates".
E. SHIFTING
INTEREST..........If so specified in the applicable Prospectus Supplement,
the protection afforded to holders of Senior Certificates
of a Series by the subordination of certain rights of
holders of Subordinated Certificates of such Series to
distributions on the related Mortgage Loans or Contracts
may be effected by the preferential right of the holders
of the Senior Certificates to receive, prior to any
distribution being made in respect of the holders of the
related Subordinated Certificates, current distributions
on the related. Mortgage Loans or Contracts of principal
and interest due them on each Distribution Date out of
funds available for distribution on such date in the
related Certificate Account and by the distribution to
the holders of the Senior Certificates on each
Distribution Date of a greater than pro rata percentage
of certain principal prepayments or other recoveries of
principal specified in the related Prospectus Supplement
on a Mortgage Loan or Contract that are received in
advance of their scheduled Due Dates and are not
accompanied by an amount as to interest representing
scheduled interest due on any date or dates in any month
or months subsequent to the month of prepayment (the
"Principal Prepayments"). The allocation of a greater
than pro rata share of such amounts to the Senior
Certificates will have the effect of accelerating the
amortization of the Senior Certificates while increasing
the respective interest in the Trust Fund evidenced by
the Subordinated Certificates. Increasing the respective
interest of the Subordinated Certificates relative to
that of the Senior Certificates is intended to preserve
the availability of the benefits of the subordination
provided by the Subordinated Certificates. See
"Description of the Certificates-Distributions of
Principal and Interest" and "- Distributions on
Certificates" and "Credit Support-Shifting Interest".
F. RESERVE FUND......If so specified in the related Prospectus Supplement, a
Reserve Fund may be established for such Series. Unless
otherwise specified in such Prospectus Supplement, such
Reserve Fund will not be included in the corpus of the
Trust Fund for such Series. If so specified in the
related Prospectus Supplement, such Reserve Fund may be
created by the deposit, in escrow, by the Depositor, of a
separate pool of mortgage loans, cooperative loans or
manufactured housing conditional sales contracts and
installment loan agreements (the "Subordinated Pool"),
with the aggregate principal balance specified in the
related Prospectus Supplement, or by the deposit of cash
in the amount specified in the related Prospectus
Supplement (the "Initial Deposit"). The Reserve Fund will
be funded by the retention of
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specified distributions on the Trust Assets of the
related Mortgage Pool or Contract Pool, and/or on the
mortgage loans, cooperative loans or manufactured housing
conditional sales contracts and installment loan
agreements in the Subordinated Pool, until the Reserve
Fund (without taking into account the amount of any
Initial Deposit) reaches an amount (the "Required
Reserve") set forth in the related Prospectus Supplement.
Thereafter, specified distributions on the Trust Assets
of the related Mortgage Pool or Contract Pool, and/or on
the mortgage loans, cooperative loans or manufactured
housing conditional sales contracts and installment loan
agreements in the Subordinated Pool, will be retained to
the extent necessary to maintain such Reserve Fund
(without taking into account the amount of the Initial
Deposit, if any) at the related Required Reserve. In no
event will the Required Reserve for any Series ever be
required to exceed the lesser of the Subordinated Amount
for such Series or the outstanding aggregate principal
amount of Certificates of the Subordinated Classes or
Subclasses of such Series specified in the related
Prospectus Supplement. If so specified in the related
Prospectus Supplement, the Reserve Fund with respect to
such Series may be funded at a lesser amount or in
another manner acceptable to the Rating Agency rating
such Series. See "Credit Support-Subordinated
Certificates" and "-Reserve Fund".
G. OTHER FUNDS.......Assets consisting of cash, certificates of deposit or
letters of credit, or any combination thereof, in the
aggregate amount specified in the related Prospectus
Supplement, will be deposited by the Depositor in one or
more accounts to be established with respect to a Series
of Certificates by the Depositor with the Trustee on the
related Delivery Date if such assets are required to make
timely distributions in respect of principal of, and
interest on, the Certificates of such Series, are
otherwise required as a condition to the rating of such
Certificates in the rating category specified in the
Prospectus Supplement, or are required in order to
provide for certain contingencies or in order to make
certain distributions regarding Certificates which
represent interests in GPM Loans (a "GPM Fund") or Buy-
Down Loans (a "Buy-Down Fund"). Following each
Distribution Date, amounts may be withdrawn from any such
fund and used and/or distributed in accordance with the
Pooling and Servicing Agreement under the conditions and
to the extent specified in the related Prospectus
Supplement.
H. SWAP AGREEMENT....If so specified in the Prospectus Supplement relating to a
Series of Certificates, the Trust will enter into or
obtain an assignment of a swap agreement or similar
agreement pursuant to which the Trust will have the right
to receive certain payments of interest (or other
payments) as set forth or determined as described
therein. See "Credit Support-Swap Agreement".
HAZARD INSURANCE
AND SPECIAL
HAZARD INSURANCE
POLICIES.............Unless otherwise specified in the applicable Prospectus
Supplement, all of the Mortgage Loans (except for the
Cooperative Loans) and the Contracts will be covered by
standard hazard insurance policies insuring against
losses due to various causes, including fire, lightning
and windstorm. In addition, the Depositor will, if so
specified in the applicable Prospectus Supplement, obtain
an insurance policy (the "Special Hazard Insurance
Policy") covering losses that result from certain other
physical risks that are not otherwise insured against
(including earthquakes and mudflows). The Special Hazard
Insurance Policy will belimited in scope and will cover
losses in an amount specified in the applicable
Prospectus Supplement. Any hazard losses not covered by
either standard hazard policies or the Special
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Hazard Insurance Policy will not be insured against and
to the extent that the amount available under any other
method of credit support available for such Series is
exhausted, will be borne by Certificateholders of such
Series. The hazard insurance policies and the Special
Hazard Insurance Policy will be subject to the
limitations described under "Description of Insurance-
Standard Hazard Insurance Policies on Mortgage Loans", "-
Standard Hazard Insurance Policies on the Manufactured
Homes" and"-Special Hazard Insurance Policies".
SUBSTITUTION OF
TRUST ASSETS.........If so specified in the Prospectus Supplement relating to a
Series of Certificates, within the period following the
date of issuance of such Certificates specified in such
Prospectus Supplement, the Depositor or one or more
Servicers will deliver to the Trustee with respect to
such Series' Trust Assets in substitution for any one or
more of the Trust Assets included in the Trust Fund
relating to such Series which do not conform in one or
more material respects to the representations and
warranties in the related Pooling and Servicing
Agreement. See "Description of the Certificates-
Assignment of Mortgage Loans", "-Assignment of Contracts"
and"-Assignment of Mortgage Certificates".
ADVANCES.............The Servicers of the Mortgage Loans and Contracts (and the
Master Servicer, if any, with respect to each Mortgage
Loan and Contract that it services directly, and
otherwise to the extent the related Servicer does not do
so) will be obligated to advance delinquent installments
of principal and interest on the Mortgage Loans and
Contracts (the "Advances") under certain circumstances.
See "Description of the Certificates-Advances".
OPTIONAL
TERMINATION..........If so specified in the Prospectus Supplement with respect
to a Series, the Depositor or such other persons as may
be specified in a Prospectus Supplement may purchase the
Trust Assets in the related Trust Fund and any property
acquired in respect thereof at the time, in the manner
and at the price specified in such Prospectus Supplement.
In the event that the Depositor elects to treat the
related Trust Fund as a Real Estate Mortgage Investment
Conduit (a "REMIC") under the Internal Revenue Code of
1986, as amended (the "Code"), any such repurchase will
be effected only in compliance with the requirements of
Section 860F(a)(4) of the Code, so as to constitute a
"qualified liquidation" thereunder. The exercise of the
right of repurchase will effect early retirement of the
Certificates of that Series. See "Maturity and Prepayment
Considerations" and "Description of the Certificates-
Termination".
ERISA LIMITATIONS....A fiduciary of any employee benefit plan subject to the
Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), or Section 4975 of the Code should
carefully review with its own legal advisers whether the
purchase or holding of Certificates could give rise to a
transaction prohibited or otherwise impermissible under
ERISA or Section 4975 of the Code. See "ERISA
Considerations".
TAX STATUS...........See "Certain Federal Income Tax Consequences".
LEGAL INVESTMENT.....If so specified in the related Prospectus Supplement
relating to a Series of Certificates, a Class or Subclass
of such certificates will constitute a "mortgage related
security" under the Secondary Mortgage Market Enhancement
Act of 1984 ("SMMEA") if and for so long as it is rated
in one of the two highest rating categories by at least
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<PAGE>
one nationally recognized statistical rating
organization. Such Classes or Subclasses, if any, will be
legal investments for certain types of institutional
investors to the extent provided in SMMEA, subject, in
any case, to any other regulations which may govern
investments by such institutional investors. See "Legal
Investment".
USE OF PROCEEDS......The Depositor will use the net proceeds from the sale of
each Series for one or more of the following purposes:
(i) to purchase the related Trust Assets, (ii) to repay
indebtedness which has been incurred to obtain funds to
acquire such Trust Assets, (iii) to establish any reserve
funds described in the related Prospectus Supplement and
(iv) to pay costs of structuring, guaranteeing and
issuing such Certificates. If so specified in the related
Prospectus Supplement, the purchase of the Trust Assets
for a Series may be effected by an exchange of
Certificates by the Depositor with the seller of such
Trust Assets. See "Use of Proceeds".
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THE TRUST FUND
Ownership of the Mortgage or Contract Pool or Pools included in the Trust
Fund (as hereinafter defined) for a Series of Certificates may be evidenced by
one or more Classes of Certificates, which may consist of one or more
Subclasses, as specified in the Prospectus Supplement for such Series. Each
Certificate will evidence the undivided interest, beneficial interest or
notional amount specified in the related Prospectus Supplement in one or more
Mortgage Pools containing one or more Mortgage Loans or Contract Pools
containing Contracts, having an aggregate principal balance of not less than
approximately$50,000,000 as of the first day of the month of its creation (the
"Cut-off Date"), unless otherwise specified in the applicable Prospectus
Supplement. If so specified in the related Prospectus Supplement, each Class or
Subclass of the Certificates of a Series will evidence the percentage interest
specified in such Prospectus Supplement in the payments of principal and
interest on the Mortgage Loans in the related Mortgage Pool or Pools or on the
Contracts in the related Contract Pool or Pools (a "Percentage Interest"). To
the extent specified in the related Prospectus Supplement, each Mortgage Pool or
Contract Pool with respect to a Series will be covered by a Letter of Credit, a
Pool Insurance Policy, a Special Hazard Insurance Policy, a Mortgagor Bankruptcy
Bond, by the subordination of the rights of the holders of the Subordinated
Certificates of a Series to the rights of the holders of the Senior
Certificates, which, if so specified in the related Prospectus Supplement, may
include Certificates of a Subordinated Class or Subclass and the establishment
of a Reserve, by the right of one or more Classes or Subclasses of Certificates
to receive a disproportionate amount of certain distributions of principal or
another form or forms of Alternative Credit Support acceptable to the Rating
Agency rating the Certificates of such Series or by any combination of the
foregoing. See "Description of Insurance" and "Credit Support".
THE MORTGAGE POOLS
If so specified in the Prospectus Supplement with respect to a Series, the
Trust Fund for such Series may include (a) one or more Mortgage Pools containing
(i) conventional one- to four-family residential, first and/or second mortgage
loans, (ii) Cooperative Loans made to finance the purchase of certain rights
relating to cooperatively owned properties secured by the pledge of shares
issued by a Cooperative and the assignment of a proprietary lease or occupancy
agreement providing the exclusive right to occupy a particular Cooperative
Dwelling, (iii) mortgage loans secured by Multifamily Property,(iv) mortgage
participation certificates evidencing participation interests in such loans that
are acceptable to the Rating Agency rating the Certificates of such Series for a
rating in one of the four highest rating categories of such Rating Agency, or
(v) certain conventional Mortgage Certificates issued by one or more trusts
established by one or more private entities or (b) one or more Contract Pools
containing manufactured housing conditional sales contracts and installment loan
agreements or participation certificates representing participation interests in
such Contracts purchased by the Depositor either directly or through one or more
affiliates or Unaffiliated Sellers, and related property conveyed to such trust
by the Depositor.
A Mortgage Pool may include Mortgage Loans insured by the FHA ("FHA
Loans")and/or Mortgage Loans partially guaranteed by the Veterans Administration
(the"VA" and such mortgage loans are referred to as "VA Loans"). All Mortgage
Loans will be evidenced by promissory notes (the "Mortgage Notes") secured by
first mortgages or first or second deeds of trust or other similar security
instruments creating a first lien, as applicable, on the Mortgaged Properties(as
defined below). Single Family Property and Multifamily Property will consist of
single family detached homes, attached homes (single family units having a
common wall), individual units located in condominiums, multifamily residential
rental properties, apartment buildings owned by cooperative housing corporations
and such other type of homes or units as are set forth in the related Prospectus
Supplement. Each such detached or attached home or multifamily property will be
constructed on land owned in fee simple by the Mortgagor or on land leased by
the Mortgagor for a term at least two years greater than the term of the
applicable Mortgage Loan. Attached homes may consist of duplexes, triplexes and
fourplexes (multifamily structures where each Mortgagor owns the land upon which
the unit is built with the remaining adjacent land owned in common). Multifamily
Property may include mixed commercial and residential buildings. The Mortgaged
Properties may include investment properties and vacation and second homes.
Mortgage Loans secured by Multifamily Property may also be secured by an
assignment of leases and rents and operating or other cash flow guarantees
relating to the Mortgaged Properties to the extent specified in the related
Prospectus Supplement.
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Unless otherwise specified below or in the applicable Prospectus
Supplement, each Mortgage Loan in a Mortgage Pool will (i) have an individual
principal balance at origination of not less than $25,000 nor more than
$500,000, (ii)have monthly payments due on the first day of each month (the "Due
Date"),(iii) be secured by Mortgaged Properties or relate to Cooperative Loans
located in any of the 50 states or the District of Columbia, and (iv) consist of
fully-amortizing Mortgage Loans, each with a 10 to 40 year term at origination,
a fixed or variable rate of interest and level or variable monthly payments over
the term of the Mortgage Loan. Unless otherwise specified in the related
Prospectus Supplement, the Loan-to-Value Ratio (as hereinafter described) of
such Mortgage Loans at origination will not exceed 95% on any Mortgage Loan with
an original principal balance of $150,000 or less, 90% on any Mortgage Loan with
an original principal balance in excess of $150,000 through $200,000,85% on any
Mortgage Loan with an original principal balance in excess of$200,000 through
$300,000 and 80% on any Mortgage Loan with an original principal balance
exceeding $300,000. If so specified in the related Prospectus Supplement, a
Mortgage Pool may also include fully amortizing, adjustable rate Mortgage Loans
("ARM Loans") with (unless otherwise specified in the applicable Prospectus
Supplement) a 30-year term at origination and a mortgage interest rate adjusted
periodically (with corresponding adjustments in the amount of monthly payments)
to equal the sum (which may be rounded) of a fixed margin and an index described
in such Prospectus Supplement, subject to any applicable restrictions on such
adjustments. The Mortgage Pools may also include other types of Mortgage Loans
to the extent set forth in the applicable Prospectus Supplement.
Unless otherwise specified in the applicable Prospectus Supplement, no
Mortgage Loan will have a Loan-to-Value Ratio at origination in excess of
95%,regardless of its original principal balance. The Loan-to-Value Ratio is the
ratio, expressed as a percentage, of the principal amount of the Mortgage Loan
at the date of determination to the lesser of (a) the appraised value determined
in an appraisal obtained by the originator and (b) the sales price for such
property (the "Original Value"). Unless otherwise specified in the related
Prospectus Supplement, with respect to a Mortgage Loan secured by a mortgage on
a vacation or second home or an investment property (other than Multifamily
Property), no income derived from the property will be considered for
underwriting purposes, the Loan-to-Value Ratio (taking into account any
secondary financing) of such Mortgage Loan may not exceed 80% and the original
principal balance of the Mortgage Loan may not exceed $250,000.
If so specified in the related Prospectus Supplement, a Mortgage Pool may
contain Mortgage Loans with fluctuating Mortgage Rates. Any such Mortgage Loan
may provide that on the day on which the Mortgage Rate adjusts, the amount of
the monthly payments on the Mortgage Loan will be adjusted to provide for the
payment of the remaining principal amount of the Mortgage Loan with level
monthly payments of principal and interest at the new Mortgage Rate to the
maturity date of the Mortgage Loan. Alternatively, the Mortgage Loan may provide
that the Mortgage Rate adjusts more frequently than the monthly payment. As a
result, a greater or lesser portion of the monthly payment will be applied to
the payment of principal on the Mortgage Loan, thus increasing or decreasing the
rate at which the Mortgage Loan is repaid. See "Yield Considerations". In the
event that an adjustment to the Mortgage Rate causes the amount of interest
accrued in any month to exceed the amount of the monthly payment on such
Mortgage Loan, the excess (the "Deferred Interest") will be added to the
principal balance of the Mortgage Loan (unless otherwise paid by the Mortgagor),
and will bear interest at the Mortgage Rate in effect from time to time. The
amount by which the Mortgage Rate or monthly payment may increase or decrease
and the aggregate amount of Deferred Interest on any Mortgage Loan may be
subject to certain limitations, as described in the related Prospectus
Supplement.
If so specified in the Prospectus Supplement for the related Series, the
Mortgage Rate on certain ARM Loans will be convertible from an adjustable rate
to a fixed rate, at the option of the Mortgagor under certain circumstances.
Unless otherwise specified in the related Prospectus Supplement, the Pooling and
Servicing Agreement will provide that the Unaffiliated Seller from which such
convertible ARM Loans were acquired will be obligated to repurchase from the
Trust Fund any such ARM Loan as to which the conversion option has been
exercised (a "Converted Mortgage Loan"), at a purchase price set forth in the
related Prospectus Supplement. The amount of such purchase price will be
required to be deposited in the Certificate Account and will be distributed to
the Certificateholders on the Distribution Date in the month following the month
of the exercise of the conversion option. The obligation of the Unaffiliated
Seller to repurchase Converted Mortgage Loans may or may not be supported by
cash, letters of credit, third party guarantees or other similar arrangements.
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If provided for in the applicable Prospectus Supplement, a Mortgage Pool
may contain Mortgage Loans pursuant to which the monthly payments made by the
Mortgagor during the early years of the Mortgage Loan will be less than the
scheduled monthly payments on the Mortgage Loan ("Buy-Down Loans"). The
resulting difference in payment shall be compensated for from an amount
contributed by the Depositor, the seller of the related Mortgaged Property, the
Servicer or another source and placed in a custodial account (the "Buy-Down
Fund") by the Servicer, or if so specified in the related Prospectus Supplement,
with the Trustee. In lieu of a cash deposit, if so specified in the related
Prospectus Supplement, a letter of credit or guaranteed investment contract may
be delivered to the Trustee to fund the Buy-Down Fund. See"Description of the
Certificates-Payments on Mortgage Loans". Buy-Down Loans included in a Mortgage
Pool will provide for a reduction in monthly interest payments by the Mortgagor
for a period of up to the first four years of the term of such Mortgage Loans.
If provided for in the applicable Prospectus Supplement, a Mortgage Pool
may contain Mortgage Loans pursuant to which the monthly payments by the
Mortgagor during the early years of the related Mortgage Note are less than the
amount of interest that would otherwise be payable thereon, with the interest
not so paid added to the outstanding principal balance of such Mortgage Loan
("GPM Loans").If so specified in the related Prospectus Supplement, the
resulting difference in payment shall be compensated for from an amount
contributed by the Depositor or another source and delivered to the Trustee (the
"GPM Fund"). In lieu of cash deposit, the Depositor may deliver to the Trustee a
letter of credit, guaranteed investment contract or another instrument
acceptable to the Rating Agency rating the related Series to fund the GPM Fund.
FHA Loans will be insured by the Federal Housing Administration (the
"FHA")as authorized under the National Housing Act, as amended, and the United
States Housing Act of 1937, as amended. Such FHA loans will be insured under
various FHA programs including the standard FHA 203-b programs to finance the
acquisition of one- to four-family housing units, the FHA 245 graduated payment
mortgage program and the FHA 221 and 223 programs to finance certain multifamily
residential rental properties. FHA Loans generally require a minimum down
payment of approximately 5% of the original principal amount of the FHA Loan. No
FHA Loan may have an interest rate or original principal amount exceeding the
applicable FHA limits at the time of origination of such FHA Loan.
VA Loans will be partially guaranteed by the VA under the Servicemen's
Readjustment Act of 1944, as amended (the "Servicemen's Readjustment Act"). The
Servicemen's Readjustment Act permits a veteran (or in certain instances the
spouse of a veteran) to obtain a mortgage loan guarantee by the VA covering
mortgage financing of the purchase of a one- to four-family dwelling unit at
interest rates permitted by the VA. The program has no mortgage loan limits,
requires no down payment from the purchasers and permits the guarantee of
mortgage loans of up to 30 years' duration. However, no VA Loan will have an
original principal amount greater than five times the partial VA guarantee for
such VA Loan. The maximum guarantee that may be issued by VA under this program
is 50% of the principal amount of the Mortgage Loan if the principal amount of
the Mortgage Loan is $45,000 or less, the lesser of $36,000 and 40% of the
principal amount of the Mortgage Loan if the principal amount of the Mortgage
Loan is greater than $45,000 but less than or equal to $144,000, and the lesser
of $46,000 and 25% of the principal amount of the Mortgage Loan if the principal
amount of the Mortgage Loan is greater than $144,000.
The Prospectus Supplement (or, if such information is not available in
advance of the date of such Prospectus Supplement, a Current Report on Form 8-K
to be filed with the Commission) for each Series of Certificates the Trust Fund
with respect to which contains Mortgage Loans will contain information as to the
type of Mortgage Loans that will comprise the related Mortgage Pool or Pools and
information as to (i) the aggregate principal balance of the Mortgage Loans as
of the applicable Cut-off Date, (ii)the type of Mortgaged Properties securing
the Mortgage Loans, (iii) the original terms to maturity of the Mortgage Loans,
(iv) the largest in principal balance of the Mortgage Loans, (v) the earliest
origination date and latest maturity date of the Mortgage Loans, (vi) the
aggregate principal balance of mortgage Loans having Loan-to-Value Ratios at
origination exceeding 80%, (vii)the interest rate or range of interest rates
borne by the Mortgage Loans,(viii) the average outstanding principal balance of
the Mortgage Loans, (ix)the geographical distribution of the Mortgage Loans, (x)
the number and aggregate principal balance of Buy-Down Loans or GPM Loans, if
applicable, (xi)with respect to ARM Loans, the adjustment dates, the highest,
lowest and weighted average margin, and the maximum Mortgage Rate variation at
the time of any periodic adjustment and over the life of such ARM Loans, and
(xii) with respect to Mortgage Loans secured by Multifamily Property or such
other Mortgage Loans as are specified in the Prospectus Supplement, whether the
Mortgage
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Loan provides for an interest only period and whether the principal amount of
such Mortgage Loan is amortized on the basis of a period of time that extends
beyond the maturity date of the Mortgage Loan.
No assurance can be given that values of the Mortgaged Properties in a
Mortgage Pool have remained or will remain at their levels on the dates of
origination of the related Mortgage Loans. If the real estate market should
experience an overall decline in property values such that the outstanding
balances of the Mortgage Loans and any secondary financing on the Mortgaged
Properties in a particular Mortgage Pool become equal to or greater than the
value of the Mortgaged Properties, the actual rates of delinquencies,
foreclosures and losses could be higher than those now generally experienced in
the mortgage lending industry. In addition, the value of property securing
Cooperative Loans and the delinquency rate with respect to Cooperative Loans
could be adversely affected if the current favorable tax treatment of
cooperative stockholders were to become less favorable. See "Certain Legal
Aspects of the Mortgage Loans and Contracts-The Mortgage Loans". To the extent
that such losses are not covered by the methods of credit support or the
insurance policies described herein or by Alternative Credit Support, they will
be borne by holders of the Certificates of the Series evidencing interests in
the Mortgage Pool.
Multifamily lending is generally viewed as exposing the lender to a greater
risk of loss than one- to four-family residential lending. Multifamily lending
typically involve larger loans to single borrowers or groups of related
borrowers than residential one- to four-family mortgage loans. Furthermore, the
repayment of loans secured by income producing properties is typically dependent
upon the successful operation of the related real estate project. If the cash
flow from the project is reduced (for example, if leases are not obtained or
renewed), the borrower's ability to repay the loan may be impaired. Multifamily
real estate can be affected significantly by supply and demand in the market for
the type of property securing the loan and, therefore, may be subject to adverse
economic conditions. Market values may vary as a result of economic events or
governmental regulations outside the control of the borrower or lender, such as
rent control laws, which impact the future cash flow of the property.
Corresponding to the greater lending risk is a generally higher interest rate
applicable to multifamily mortgage lending.
The Depositor will cause the Mortgage Loans constituting each Mortgage Pool
to be assigned to the Trustee named in the applicable Prospectus Supplement, for
the benefit of the holders of the Certificates of such Series (the
"Certificateholders"). The Master Servicer, if any, named in the related
Prospectus Supplement will service the Mortgage Loans, either by itself or
through other mortgage servicing institutions, if any (each, a "Servicer"),
pursuant to a Pooling and Servicing Agreement, as described herein, among the
Master Servicer, if any, the Depositor and the Trustee (the "Pooling and
Servicing Agreement") and will receive a fee for such services. See "-Mortgage
Loan Program" and "Description of the Certificates". With respect to those
Mortgage Loans serviced by a Servicer, such Servicer will be required to service
the related Mortgage Loans in accordance with the Seller's Warranty and
Servicing Agreement between the Servicer and the Depositor (a "Servicing
Agreement") and will receive the fee for such services specified in such
Servicing Agreement; however, any Master Servicer will remain liable for its
servicing obligations under the Pooling and Servicing Agreement as if the Master
Servicer alone were servicing such Mortgage Loans.
The Depositor will make certain representations and warranties regarding
the Mortgage Loans, but its assignment of the Mortgage Loans to the Trustee will
be without recourse. See "Description of the Certificates Assignment of Mortgage
Loans". The Master Servicer's obligations with respect to the Mortgage Loans
will consist principally of its contractual servicing obligations under the
Pooling and Servicing Agreement (including its obligation to enforce certain
purchase and other obligations of Servicers and/or Unaffiliated Sellers, as more
fully described herein under "-Mortgage Loan Program-Representations by
Unaffiliated Sellers; Repurchases" and "Description of the Certificates-
Assignment of Mortgage Loans" and "-Servicing by Unaffiliated Sellers") and its
obligations to make Advances in the event of delinquencies in payments on or
with respect to the Mortgage Loans or in connection with prepayments and
liquidations of such Mortgage Loans, in amounts described herein under
"Description of the Certificates-Advances". Unless otherwise specified in the
related Prospectus Supplement, such Advances with respect to delinquencies will
be limited to amounts that the Master Servicer believes ultimately would be
reimbursable under any applicable Letter of Credit, Pool Insurance Policy,
Special Hazard Insurance Policy, Mortgagor Bankruptcy Bond or other policy of
insurance, from amounts in the Reserve Fund, under any Alternative Credit
Support or out of the proceeds of liquidation of the Mortgage Loans, cash in the
Certificate Account or otherwise. See "Description of the Certificates-
Advances", "Credit Support" and "Description of Insurance".
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Unless otherwise specified in the applicable Prospectus Supplement, each
Mortgage Pool included in the related Trust Fund will be composed of Mortgage
Loans evidencing interests in Mortgage Loans that bear interest at annual rates
that will exceed by at least 3/8 of 1% the fixed or variable Pass-Through Rate
established for the Mortgage Pool. To the extent and in the manner specified in
the related Prospectus Supplement, Certificateholders of a Series will be
entitled to receive distributions based on the payments of principal on the
underlying Mortgage Loans, plus interest on the principal balance thereof at the
Pass-Through Rate. The difference between a Mortgage Rate and the related Pass-
Through Rate (less any servicing compensation payable to the Servicers of such
Mortgage Loans and the amount, if any, payable to the Depositor or the person or
entity specified in the applicable Prospectus Supplement) may be retained by the
Master Servicer as servicing compensation to it. See"Description of the
Certificates-Servicing Compensation and Payment of Expenses".
MORTGAGE LOAN PROGRAM
The Mortgage Loans will have been purchased by the Depositor either
directly or through affiliates, from one or more affiliates or from sellers
unaffiliated with the Depositor ("Unaffiliated Sellers"). Mortgage Loans
acquired by the Depositor will have been originated in accordance with the
underwriting criteria specified below under "Underwriting Standards" or as
otherwise described in a related Prospectus Supplement.
Underwriting Standards
Except in the case of certain Mortgage Loans originated by Unaffiliated
Sellers in accordance with their own underwriting criteria ("Closed Loans") or
such other standards as may be described in the applicable Prospectus
Supplement, all prospective Mortgage Loans will be subject to the underwriting
standards adopted by the Depositor. See "Closed Loan Program" below for a
description of underwriting standards applicable to Closed Loans. Unaffiliated
Sellers will represent and warrant that Mortgage Loans originated by them and
purchased by the Depositor have been originated in accordance with the
applicable underwriting standards established by the Depositor or such other
standards as may be described in the applicable Prospectus Supplement. The
following discussion describes the underwriting standards of the Depositor with
respect to any Mortgage Loan that it purchases.
The mortgage credit approval process for one- to four-family residential
loans follows a standard procedure that generally complies with FHLMC and FNMA
regulations and guidelines (except that certain Mortgage Loans may have higher
loan amount and qualifying ratios) and applicable federal and state laws and
regulations. The credit approval process for Cooperative Loans follows a
procedure that generally complies with applicable FNMA regulations and
guidelines (except for the loan amounts and qualifying ratios) and applicable
federal and state laws and regulations. The originator of a Mortgage Loan (the
"Originator") generally will review a detailed credit application by the
prospective mortgagor designed to provide pertinent credit information,
including a current balance sheet describing assets and liabilities and a
statement of income and expenses, as well as an authorization to apply for a
credit report that summarizes the prospective mortgagor's credit history with
local merchants and lenders and any record of bankruptcy. In addition, an
employment verification is obtained from the prospective mortgagor's employer
wherein the employer reports the length of employment with that organization,
the current salary, and gives an indication as to whether it is expected that
the prospective mortgagor will continue such employment in the future. If the
prospective mortgagor is self-employed, he or she is required to submit copies
of signed tax returns. The prospective mortgagor may also be required to
authorize verification of deposits at financial institutions. In certain
circumstances, other credit considerations may cause the Originator or Depositor
not to require some of the above documents, statements or proofs in connection
with the origination or purchase of certain Mortgage Loans.
An appraisal generally will be required to be made on each residence to be
financed. Such appraisal generally will be made by an appraiser who meets FNMA
requirements as an appraiser of one- to four-family residential properties. The
appraiser is required to inspect the property and verify that it is in good
condition and that, if new, construction has been completed. The appraisal
generally will be based on the appraiser's judgment of value, giving appropriate
weight to both the market value of comparable homes and the cost of replacing
the residence. These underwriting standards also require a search of the public
records relating to a mortgaged property for liens and judgments against such
mortgaged property.
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Based on the data provided, certain verifications and the appraisal, a
determination is made by the Originator as to whether the prospective mortgagor
has sufficient monthly income available to meet the prospective mortgagor's
monthly obligations on the proposed loan and other expenses related to the
residence (such as property taxes, hazard and primary mortgage insurance and, if
applicable, maintenance) and other financial obligations and monthly living
expenses. Each Originator's lending guidelines for conventional mortgage loans
generally will specify that mortgage payments plus taxes and insurance and all
monthly payments extending beyond one year (including those mentioned above and
other fixed obligations, such as car payments) would equal no more than
specified percentages of the prospective mortgagor's gross income. These
guidelines will be applied only to the payments to be made during the first year
of the loan. For FHA and VA Loans, the Originator's lending guidelines will
follow HUD and VA guidelines, respectively. Other credit considerations may
cause an Originator to depart from these guidelines. For example, when two
individuals co-sign the loan documents, the incomes and expenses of both
individuals may be included in the computation.
The Mortgaged Properties may be located in states where, in general, a
lender providing credit on a single-family property may not seek a deficiency
judgment against the Mortgagor but rather must look solely to the property for
repayment in the event of foreclosure. The Depositor's underwriting standards
applicable to all states (including anti-deficiency states) require that the
value of the property being financed, as indicated by the appraisal, currently
supports and is anticipated to support in the future the outstanding loan
balance.
Certain of the types of Mortgage Loans that may be included in the Mortgage
Pools or Subsidiary Trust Funds may involve additional uncertainties not present
in traditional types of loans. For example, Buy-Down Loans and GPM Loans provide
for escalating or variable payments by the Mortgagor. These types of Mortgage
Loans are underwritten on the basis of a judgment that the Mortgagor will have
the ability to make larger monthly payments in subsequent years. In some
instances the Mortgagor's income may not be sufficient to enable it to continue
to make scheduled loan payments as such payments increase.
To the extent specified in the related Prospectus Supplement, the Depositor
may purchase Mortgage Loans for inclusion in a Trust Fund that are underwritten
under standards and procedures which vary from and are less stringent than those
described herein. For instance, Mortgage Loans may be underwritten under a
"limited documentation" program if so specified in the related Prospectus
Supplement. With respect to such Mortgage Loans, minimal investigation into the
borrowers' credit history and income profile is undertaken by the Originator and
such Mortgage Loans may be underwritten primarily on the basis of an appraisal
of the Mortgaged Property or Cooperative Dwelling and the Loan-to-Value Ratio at
origination. Thus, if the Loan-to-Value Ratio is less than a percentage
specified in the related Prospectus Supplement, the originator may forego
certain aspects of the review relating to monthly income, and traditional ratios
of monthly or total expenses to gross income may not be considered.
The underwriting standards for Mortgage Loans secured by Multifamily
Property will be described in the related Prospectus Supplement.
Qualifications of Unaffiliated Sellers
Unless otherwise specified in the applicable Prospectus Supplement with
respect to an Unaffiliated Seller of Closed Loans secured by residential
properties, each Unaffiliated Seller must be an institution experienced in
originating conventional mortgage loans and/or FHA Loans or VA Loans in
accordance with accepted practices and prudent guidelines, and must maintain
satisfactory facilities to originate those loans. In addition, except as
otherwise specified, the Depositor requires adequate financial stability and
adequate servicing experience, where appropriate, as well as satisfaction of
certain other criteria.
Representations by Unaffiliated Sellers; Repurchases
Unless otherwise specified in the related Prospectus Supplement, each
Unaffiliated Seller (or the Master Servicer, if the Unaffiliated Seller is also
the Master Servicer under the Pooling and Servicing Agreement) will have made
representations and warranties in respect of the Mortgage Loans sold by such
Unaffiliated Seller to the Depositor. Such representations and warranties will
generally include, among other things: (i) with respect to each Mortgaged
Property, that
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title insurance (or in the case of Mortgaged Properties located in areas where
such policies are generally not available, an attorney's certificate of title)
and any required hazard and primary mortgage insurance was effective at the
origination of each Mortgage Loan, and that each policy (or certificate of
title) remained in effect on the date of purchase of the Mortgage Loan from the
Unaffiliated Seller; (ii) that the Unaffiliated Seller had good and marketable
title to each such Mortgage Loan; (iii) with respect to each Mortgaged Property,
that each mortgage constituted a valid first lien on the Mortgaged Property
(subject only to permissible title insurance exceptions); (iv) that there were
no delinquent tax or assessment liens against the Mortgaged Property; and (v)
that each Mortgage Loan was current as to all required payments (unless
otherwise specified in the related Prospectus Supplement). With respect to a
Cooperative Loan, the Unaffiliated Seller will represent and warrant that (a)
the security interest created by the cooperative security agreements constituted
a valid first lien on the collateral securing the Cooperative Loan (subject to
the right of the related Cooperative to cancel shares and terminate the
proprietary lease for unpaid assessments and to the lien of the related
Cooperative for unpaid assessments representing the Mortgagor's pro rata share
of the Cooperative's payments for its mortgage, current and future real property
taxes, maintenance charges and other assessments to which like collateral is
commonly subject) and (b) the related cooperative apartment was free from damage
and was in good repair.
All of the representations and warranties of an Unaffiliated Seller in
respect of a Mortgage Loan will have been made as of the date on which such
Unaffiliated Seller sold the Mortgage Loan to the Depositor or its affiliate. A
substantial period of time may have elapsed between such date and the date of
initial issuance of the Series of Certificates evidencing an interest in such
Mortgage Loan. Since the representations and warranties of an Unaffiliated
Seller do not address events that may occur following the sale of a Mortgage
Loan by an Unaffiliated Seller, the repurchase obligation described below will
not arise if, during the period commencing on the date of sale of a Mortgage
Loan by the Unaffiliated Seller to or on behalf of the Depositor, the relevant
event occurs that would have given rise to such an obligation had the event
occurred prior to sale of the affected Mortgage Loan. However, the Depositor
will not include any Mortgage Loan in the Trust Fund for any Series of
Certificates if anything has come to the Depositor's attention that would cause
it to believe that the representations and warranties of an Unaffiliated Seller
will not be accurate and complete in all material respects in respect of such
Mortgage Loan as of the related Cut-off Date.
The only representations and warranties to be made for the benefit of
holders of Certificates of a Series in respect of any Mortgage Loan relating to
the period commencing on the date of sale of such Mortgage Loan to the Depositor
or its affiliates will be certain limited representations of the Depositor and
of the Master Servicer described below under "Description of the Certificates-
Assignment of Mortgage Loans". If the Master Servicer is also an Unaffiliated
Seller of Mortgage Loans with respect to a particular Series, such
representations will be in addition to the representations and warranties made
in its capacity as an Unaffiliated Seller.
Upon the discovery of the breach of any representation or warranty made by
an Unaffiliated Seller in respect of a Mortgage Loan that materially and
adversely affects the interests of the Certificateholders of the related Series,
such Unaffiliated Seller or the Servicer of such Mortgage Loan will be obligated
to repurchase such Mortgage Loan at a purchase price equal to 100% of the unpaid
principal balance thereof at the date of repurchase or, in the case of a Series
of Certificates as to which the Depositor has elected to treat the related Trust
Fund as a REMIC, as defined in the Code, at such other price as may be necessary
to avoid a tax on a prohibited transaction, as described in Section 860F(a) of
the Code, in each case together with accrued interest at the Pass-Through Rate
for the related Mortgage Pool, to the first day of the month following such
repurchase and the amount of any unreimbursed Advances made by the Master
Servicer or the Servicer, as applicable, in respect of such Mortgage Loan. The
Master Servicer will be required to enforce this obligation for the benefit of
the Trustee and the Certificateholders, following the practices it would employ
in its good faith business judgment were it the owner of such Mortgage Loan.
Unless otherwise specified in the applicable Prospectus Supplement, and subject
to the ability of the Depositor, the Unaffiliated Seller or the Servicer to
substitute for certain Mortgage Loans as described below, this repurchase
obligation constitutes the sole remedy available to the Certificateholders of
such Series for a breach of representation or warranty by an Unaffiliated Seller
The obligation of the Master Servicer to purchase a Mortgage Loan if an
Unaffiliated Seller or a Servicer defaults on its obligation to do so is subject
to limitations, and no assurance can be given that Unaffiliated Sellers will
carry out their respective repurchase obligations with respect to Mortgage
Loans. However, to the extent that a breach of the representations and
warranties of an Unaffiliated Seller may also constitute a breach of the
representations and warranties made by the
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Depositor or by the Master Servicer with respect to the insurability of the
Mortgage Loans, the Depositor may have a repurchase obligation, and the Master
Servicer may have the limited purchase obligation, in each case as described
below under "Description of the Certificates-Assignment of Mortgage Loans".
Closed Loan Program
The Depositor may also acquire Closed Loans that have been originated by
Unaffiliated Sellers in accordance with underwriting standards acceptable to the
Depositor. Unless otherwise specified in the applicable Prospectus Supplement,
Closed Loans for which 11 or fewer monthly payments have been received will be
further subject to the Depositor's customary underwriting standards. Unless
otherwise specified in the applicable Prospectus Supplement, Closed Loans for
which 12 to 60 monthly payments have been received will be subject to a review
of payment history and will conform to the Depositor's guidelines for the
related mortgage program. In the event one or two payments were over 30 days
delinquent, a letter explaining the delinquencies will be required of the
Mortgagor. Unless otherwise specified in the applicable Prospectus Supplement,
the Depositor will not purchase for inclusion in a Mortgage Pool a Closed Loan
for which (i) more than two monthly payments were over 30 days delinquent, (ii)
one payment was over 60 days delinquent, or (iii) more than 60 monthly payments
were received.
MORTGAGE CERTIFICATES
If so specified in the Prospectus Supplement with respect to a Series, the
Trust Fund for such Series may include certain conventional mortgage pass-
through certificates (the "Mortgage Certificates") issued by one or more trusts
established by one or more private entities and evidencing, unless otherwise
specified in such Prospectus Supplement, the entire interest in a pool of
mortgage loans. A description of the mortgage loans underlying the Mortgage
Certificates, the related pooling and servicing arrangements and the insurance
arrangements in respect of such mortgage loans will be set forth in the
applicable Prospectus Supplement or in the Current Report on Form 8-K referred
to below. Such Prospectus Supplement (or, if such information is not available
in advance of the date of such Prospectus Supplement, a Current Report on Form
8-K to be filed by the Depositor with the Commission within 15 days of the
issuance of the Certificates of such Series) will also set forth information
with respect to the entity or entities forming the related mortgage pool, the
issuer of any credit support with respect to such Mortgage Certificates, the
aggregate outstanding principal balance and the pass-through rate borne by each
Mortgage Certificate included in the Trust Fund, together with certain
additional information with respect to such Mortgage Certificates. The inclusion
of Mortgage Certificates in a Trust Fund with respect to a Series of
Certificates is conditioned upon their characteristics being in form and
substance satisfactory to the Rating Agency rating the related Series of
Certificates. Mortgage Certificates, together with the Mortgage Loans and
Contracts, are referred to herein as the "Trust Assets".
THE CONTRACT POOLS
If so specified in the Prospectus Supplement with respect to a Series, the
Trust Fund for such Series may include a Contract Pool evidencing interests in
manufactured housing conditional sales contracts and installment loan agreements
(the "Contracts") originated by a manufactured housing dealer in the ordinary
course of business and purchased by the Depositor. The Contracts may be
conventional manufactured housing contracts or contracts insured by the FHA or
partially guaranteed by the VA. Each Contract will be secured by a Manufactured
Home, as defined below. Unless otherwise specified in the related Prospectus
Supplement, the Contracts will be fully amortizing and will bear interest at a
fixed annual percentage rate ("APR")
The Manufactured Homes securing the Contracts consist of manufactured homes
within the meaning of 42 United States Code, Section 5402(6), which defines a
"manufactured home" as "a structure, transportable in one or more sections,
which in the traveling mode, is eight body feet or more in width or forty body
feet or more in length, or, when erected on site, is three hundred twenty or
more square feet, and which is built on a permanent chassis and designed to be
used as a dwelling with or without a permanent foundation when connected to the
required utilities, and includes the plumbing, heating, air conditioning, and
electrical systems contained therein; except that such term shall include any
structure which meets all the
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requirements of [this] paragraph except the size requirements and with respect
to which the manufacturer voluntarily files a certification required by the
Secretary of Housing and Urban Development and complies with the standards
established under [this] chapter".
The Depositor will cause the Contracts constituting each Contract Pool to
be assigned to the Trustee named in the related Prospectus Supplement for the
benefit of the related Certificateholder. The Master Servicer specified in the
related Prospectus Supplement will service the Contracts, either by itself or
through other Servicers, pursuant to the Pooling and Servicing Agreement. See
"Description of the Certificates-Servicing by Unaffiliated Sellers". With
respect to those Contracts serviced by the Master Servicer through a Servicer,
the Master Servicer will remain liable for its servicing obligations under the
Agreement as if the Master Servicer alone were servicing such Contracts. The
Contract documents, if so specified in the related Prospectus Supplement, may be
held for the benefit of the Trustee by a Custodian (the "Custodian") appointed
pursuant to a Custodial Agreement (the "Custodial Agreement") among the
Depositor, the Trustee and the Custodian.
Unless otherwise specified in the related Prospectus Supplement, each
Contract Pool will be composed of Contracts bearing interest at the annual fixed
APRs specified in the Prospectus Supplement. Each registered holder of a
Certificate will be entitled to receive periodic distributions, which will be
monthly unless otherwise specified in the related Prospectus Supplement, of all
or a portion of principal on the underlying Contracts or interest on the
principal balance thereof at the Pass-Through Rate, or both. Unless otherwise
stated in the related Prospectus Supplement, the difference between the APR on a
Contract and the related Pass-Through Rate (less sub-servicing compensation),
will be retained by the Master Servicer as servicing compensation to it. See
"Description of the Certificates-Payments on Contracts".
The related Prospectus Supplement (or, if such information is not available
in advance of the date of such Prospectus Supplement, a Current Report on Form
8-K to be filed with the Commission) will specify, for the Contracts contained
in the related Contract Pool, among other things: (a) the dates of origination
of the Contracts; (b) the weighted average APR on the Contracts; (c) the range
of outstanding principal balances as of the Cut-off Date; (d) the average
outstanding principal balance of the Contracts as of the Cut-off Date; (e) the
weighted average term to maturity as of the Cut-off Date; and (f) the range of
original maturities of the Contracts.
With respect to the Contracts included in the Contract Pool, the Depositor,
the Master Servicer or such other party, as specified in the related Prospectus
Supplement, will make or cause to be made representations and warranties as to
the types and geographical distribution of such Contracts and as to the accuracy
in all material respects of certain information furnished to the Trustee in
respect of each such Contract. In addition, the Master Servicer or the
Unaffiliated Seller of the Contracts will represent and warrant that, as of the
Cut-off Date, unless otherwise specified in the Prospectus Supplement no
Contract was more than 30 days delinquent as to payment of principal and
interest. Upon a breach of any representation that materially and adversely
affects the interest of the Certificateholder in a Contract, the Master
Servicer, the Unaffiliated Seller or such other party, as appropriate, will be
obligated either to cure the breach in all material respects or to purchase the
Contract or, if so specified in the related Prospectus Supplement, to substitute
another Contract as described below. This repurchase or substitution obligation
constitutes the sole remedy available to the Certificateholders or the Trustee
for a breach of representation by the Master Servicer, the Unaffiliated Seller
or such other party.
If so specified in the related Prospectus Supplement, in addition to making
certain representations and warranties regarding its authority to enter into,
and its ability to perform its obligations under, the Agreement, the Master
Servicer will make certain representations and warranties, except to the extent
that another party specified in the Prospectus Supplement makes any such
representations, to the Trustee with respect to the enforceability of coverage
under any applicable insurance policy or hazard insurance policy. See
"Description of Insurance" for information regarding the extent of coverage
under certain of such insurance policies. Upon a breach of the insurability
representation that materially and adversely affects the interests of the
Certificateholders in a Contract, the Master Servicer, the Unaffiliated Seller
or such other party, as appropriate, will be obligated either to cure the breach
in all material respects or, unless otherwise specified in the related
Prospectus Supplement, to purchase such Contract at a price equal to the
principal balance thereof as of the date of purchase plus accrued interest at
the related Pass-Through-Rate to the first day of the month following the month
of purchase. The Master Servicer, if required by the Rating Agency rating the
Certificates, will procure a surety bond, guaranty, letter of credit or other
instrument (the "Performance Bond") acceptable to such Rating Agency to support
this purchase obligation. See
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"Credit Support-Performance Bond". The purchase obligation constitutes the sole
remedy available to the Certificateholders or the Trustee for a breach of the
Master Servicer's or seller's insurability representation.
Unless otherwise provided in the related Prospectus Supplement, if the
Depositor discovers or receives notice of any breach of its representations and
warranties relating to a Contract within two years or such other period as may
be specified in the related Prospectus Supplement of the date of the initial
issuance of the Certificates, the Depositor may remove such Contract from the
Trust Fund ("Deleted Contract"), rather than repurchase the Contract as provided
above, and substitute in its place another Contract ("Substitute Contract"). Any
Substitute Contract, on the date of substitution, will (i) have an outstanding
principal balance, after deduction of all scheduled payments due in the month of
substitution, not in excess of the outstanding principal balance of the Deleted
Contract (the amount of any shortfall to be distributed to Certificateholders in
the month of substitution), (ii) have an APR not less than (and not more than 1%
greater than) the APR of the Deleted Contract, (iii) have a Pass-Through Rate
equal to the Pass-Through Rate of the Deleted Contract, (iv) have a remaining
term to maturity not greater than (and not more than one year less than) that of
the Deleted Contract and (v) comply with all the representations and warranties
set forth in the Pooling and Servicing Agreement as of the date of substitution.
This repurchase or substitution obligation constitutes the sole remedy available
to the Certificateholders or the Trustee for any such breach.
Underwriting Policies
Conventional Contracts will comply with the underwriting policies of the
Originator or Unaffiliated Seller of the Contracts described in the related
Prospectus Supplement. Except as described below or in the related Prospectus
Supplement, the Depositor believes that these policies were consistent with
those utilized by mortgage lenders or manufactured home lenders generally during
the period of origination.
With respect to a Contract made in connection with the Obligor's purchase
of a Manufactured Home, the "appraised value" is the amount determined by a
professional appraiser. The appraiser must personally inspect the Manufactured
Home and prepare a report which includes market data based on recent sales of
comparable Manufactured Homes and, when deemed applicable, a replacement cost
analysis based on the current cost of a similar Manufactured Home. Unless
otherwise specified in the related Prospectus Supplement, the Contract Loan-to-
Value Ratio is equal to the original principal amount of the Contract divided by
the lesser of the "appraised value" or the sales price for the Manufactured
Home.
THE DEPOSITOR
The Depositor is a special purpose Delaware corporation organized for the
purpose of causing the issuance of Certificates and other securities issued
under the Registration Statement backed by receivables or underlying securities
of various types and acting as settlor or depositor with respect to trusts,
custody accounts or similar arrangements or as general or limited partner in
partnerships formed to issue securities. It is not expected that the Depositor
will have any significant assets. The Depositor is an indirect, wholly owned
finance subsidiary of Collateralized Mortgage Securities Corporation, which is a
wholly owned subsidiary of CS First Boston Securities Corporation, which is a
wholly owned subsidiary of CS First Boston, Inc. Neither CS First Boston
Securities Corporation, nor CS First Boston, Inc., nor any of their affiliates,
has guaranteed, will guarantee or is or will be otherwise obligated with respect
to any Series of Certificates. The Depositor's principal executive office is
located at Park Avenue Plaza, 55 East 52nd Street, New York, New York 10055, and
its telephone number is (212) 909-2000.
Trust Assets will be acquired by the Depositor directly or through one or
more affiliates.
USE OF PROCEEDS
The Depositor will apply all or substantially all of the net proceeds from
the sale of each Series offered hereby and by the related Prospectus Supplement
to purchase the Trust Assets, to repay indebtedness which has been incurred to
obtain funds to acquire the Trust Assets, to establish the Reserve Funds, if
any, for the Series and to pay costs of structuring and
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issuing the Certificates. If so specified in the related Prospectus Supplement,
Certificates may be exchanged by the Depositor for Trust Assets. Unless
otherwise specified in the related Prospectus Supplement, the Trust Assets for
each Series of Certificates will be acquired by the Depositor either directly,
or through one or more affiliates which will have acquired such Trust Assets
from time to time either in the open market or in privately negotiated
transactions.
YIELD CONSIDERATIONS
Each monthly payment on a Mortgage Loan is calculated as one-twelfth of the
applicable Mortgage Rate multiplied by the unpaid principal balance of such
Mortgage Loan. Unless otherwise specified in the related Prospectus Supplement,
the amount of such interest payment distributed monthly to Certificateholders
with respect to each Mortgage Loan will be similarly calculated based on the
applicable Pass-Through Rate for the related Mortgage Pool. The Pass-Through
Rate for a Mortgage Pool will be either fixed or variable, as specified in the
related Prospectus Supplement.
Each monthly accrual of interest on a Contract is calculated as one-twelfth
of the product of the APR and the principal balance outstanding on the scheduled
payment date for such Contract in the preceding month. Unless otherwise
specified in the related Prospectus Supplement, the Pass-Through Rate with
respect to each Contract will be calculated on a Contract-by-Contract basis and
the Servicing Fee applicable to each Contract from the applicable APR.
With respect to a Mortgage Pool or a Contract Pool bearing a fixed Pass-
Through Rate, each Mortgage Loan or Contract will have a Mortgage Rate or APR
that exceeds the Pass-Through Rate by at least 3/8 of 1% unless otherwise
specified in the related Prospectus Supplement. The difference between a
Mortgage Rate or APR and the related fixed Pass-Through Rate for the Mortgage
Pool or Contract Pool (less any servicing compensation payable to the related
Servicers and the amounts, if any, payable to the Depositor or the person or
entity specified in the related Prospectus Supplement) will be retained by the
Master Servicer as servicing compensation to it. See "Description of the
Certificates-Servicing Compensation and Payment of Expenses". Although Mortgage
Rates and APRs in a fixed Pass-Through Rate Mortgage Pool or Contract Pool,
respectively, may vary, unless otherwise specified in the related Prospectus
Supplement, disproportionate principal prepayments among Mortgage Loans bearing
different Mortgage Rates or APRs will not affect the return to
Certificateholders since, as set forth above, the Pass-Through Rate may not
exceed any Mortgage Rate or APR.
With respect to Mortgage Pools having a variable Pass-Through Rate, the
Pass-Through Rate will equal the weighted average of the Mortgage Rates on all
the Mortgage Loans in the Mortgage Pool, minus the servicing compensation
payable to the Master Servicer and the Servicer of such Mortgage Loans and the
amounts, if any, retained by the Depositor or an Unaffiliated Seller or paid to
the person or entity specified in the related Prospectus Supplement. The
servicing fee and such other amounts will be fixed as to each Mortgage Loan at a
rate per annum, and may vary among Mortgage Loans. Because the Mortgage Rates in
such a Mortgage Pool will differ and the aggregate servicing compensation and
such other amounts to be retained or distributed with respect to each Mortgage
Loan will be fixed, it is likely that the weighted average of the Mortgage
Rates, and the corresponding variable Pass-Through Rate, will change as the
Mortgage Loans amortize and as a result of prepayments.
If so specified in the related Prospectus Supplement, a Mortgage Pool may
contain Mortgage Loans with fluctuating Mortgage Rates that adjust more
frequently than the monthly payment with respect to such Mortgage Loans. As a
result, the portion of each monthly payment allocated to principal may vary from
month to month. Negative amortization with respect to a Mortgage Loan will occur
if an adjustment to the Mortgage Rate causes the amount of interest accrued in
any month, calculated at the new Mortgage Rate for such period, to exceed the
amount of the monthly payment or if the allowable increase in any monthly
payment is limited to an amount that is less than the amount of interest accrued
in any month. The amount of any resulting Deferred Interest will be added to the
principal balance of the Mortgage Loan and will bear interest at the Mortgage
Rate in effect from time to time. To the extent that, as a result of the
addition of any Deferred Interest, the Mortgage Loan negatively amortizes over
its term, the weighted average life of the certificates of the related Series
will be greater than would otherwise be the case. As a result, the yield on any
such Mortgage Loan at any time may be less than the yields on similar adjustable
rate mortgage loans, and the rate of prepayment may be lower or higher than
would otherwise be anticipated.
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Generally, when a full prepayment is made on a Mortgage Loan or Contract,
the Mortgagor or the borrower under a Contract (the "Obligor"), is charged
interest for the number of days actually elapsed from the due date of the
preceding monthly payment up to the date of such prepayment, at a daily interest
rate determined by dividing the Mortgage Rate or APR by 365. Full prepayments
will reduce the amount of interest paid by the Mortgagor or the Obligor because
interest on the principal amount of any Mortgage Loan or Contract so prepaid
will be paid only to the date of prepayment instead of for a full month;
however, unless otherwise provided in the applicable Prospectus Supplement, the
Master Servicer with respect to a Series will be required to advance from its
own funds the portion of any interest at the related Pass-Through Rate that is
not so received. Partial prepayments generally are applied on the first day of
the month following receipt, with no resulting reduction in interest payable for
the period in which the partial prepayment is made. Unless otherwise specified
in the related Prospectus Supplement, full and partial prepayments, together
with interest on such full and partial prepayments at the Pass-Through Rate for
the related Mortgage Pool or Contract Pool to the last day of the month in which
such prepayments occur, will be deposited in the Certificate Account and will be
available for distribution to Certificateholders on the next succeeding
Distribution Date in the manner specified in the related Prospectus Supplement.
See "Maturity and Prepayment Considerations".
Generally, the effective yield to holders of Certificates having a monthly
Distribution Date will be lower than the yield otherwise produced by the Pass-
Through Rate with respect to a Mortgage Pool or Contract Pool or the pass-
through rate borne by a Mortgage Certificate because, while interest will accrue
on each Mortgage Loan or Contract, or mortgage loan underlying a Mortgage
Certificate, to the first day of the month, the distribution of such interest to
holders of such Certificates will be made no earlier than the 25th day of the
month following the month of the accrual (unless otherwise provided in the
applicable Prospectus Supplement). The adverse effect on yield will intensify
with any increase in the period of time by which the Distribution Date with
respect to a Series of Certificates succeeds such 25th day. With respect to the
Multi-Class Certificates of a Series having other than monthly Distribution
Dates, the yield to holders of such Certificates will also be adversely affected
by any increase in the period of time from the date to which interest accrues on
such Certificate to the Distribution Date on which such interest is distributed.
In the event that the Certificates of a Series are divided into two or more
Classes or Subclasses and that a Class or Subclass is an Interest Weighted
Class, in the event that such Series includes a Class of Residual Certificates,
or as otherwise may be appropriate, the Prospectus Supplement for such Series
will indicate the manner in which the yield to Certificateholders will be
affected by different rates of prepayments on the Mortgage Loans, on the
Contracts or on the mortgage loans underlying the Mortgage Certificates. In
general, the yield on Certificates that are offered at a premium to their
principal or notional amount ("Premium Certificates") is likely to be adversely
affected by a higher than anticipated level of principal prepayments on the
Mortgage Loans, on the Contracts or on the mortgage loans underlying the
Mortgage Certificates. This relationship will become more sensitive as the
amount by which the Percentage Interest of such Class in each Interest
Distribution is greater than the corresponding Percentage Interest of such Class
in each Principal Distribution. If the differential is particularly wide (e.g.,
the Interest Distribution is allocated primarily or exclusively to one Class or
Subclass and the Principal Distribution primarily or exclusively to another) and
a high level of prepayments occurs, there is a possibility that
Certificateholders of Premium Certificates will not only suffer a lower than
anticipated yield but, in extreme cases, will fail to recoup fully their initial
investment. Conversely, a lower than anticipated level of principal prepayments
(which can be anticipated to increase the expected yield to holders of
Certificates that are Premium Certificates) will likely result in a lower than
anticipated yield to holders of Certificates that are offered at a discount to
their principal amount ("Discount Certificates"). If so specified in the
applicable Prospectus Supplement, a disproportionately large amount of Principal
Prepayments may be distributed to the holders of the Senior Certificates at the
times and under the circumstances described therein.
In the event that the Certificates of a Series include one or more Classes
or Subclasses of Multi-Class Certificates, the Prospectus Supplement for such
Series will set forth information, measured relative to a prepayment standard or
model specified in such Prospectus Supplement, with respect to the projected
weighted average life of each such Class or Subclass and the percentage of the
initial Stated Principal Balance of each such Subclass that would be outstanding
on special Distribution Dates for such Series based on the assumptions stated in
such Prospectus Supplement, including assumptions that prepayments on the
Mortgage Loans or Contracts or on the mortgage loans underlying the Mortgage
Certificates in the related Trust Fund are made at rates corresponding to the
various percentages of such prepayment standard or model.
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MATURITY AND PREPAYMENT CONSIDERATIONS
Unless otherwise specified in the related Prospectus Supplement, the
scheduled maturities of all of the Mortgage Loans (or the mortgage loans
underlying the Mortgage Certificates) at origination will not be less than
approximately 10 years or exceed 40 years and all the Contracts will have
maturities at origination of not more than 20 years, but such Mortgage Loans (or
such underlying mortgage loans) or Contracts may be prepaid in full or in part
at any time. Unless otherwise specified in the applicable Prospectus Supplement,
no such Mortgage Loan (or mortgage loan) or Contract will provide for a
prepayment penalty and each will contain (except in the case of FHA and VA
Loans) due-on-sale clauses permitting the mortgagee or obligee to accelerate the
maturity thereof upon conveyance of the Mortgaged Property, Cooperative Dwelling
or Manufactured Home.
The FHA has compiled statistics relating to one- to four-family, level
payment mortgage loans insured by the FHA under the National Housing Act of
1934, as amended, at various interest rates, all of which permit assumption by
the new buyer if the home is sold. Such statistics indicate that while some of
such mortgage loans remain outstanding until their scheduled maturities, a
substantial number are paid prior to their respective stated maturities. The
Actuarial Division of HUD has prepared tables which, assuming full mortgage
prepayments at the rates experienced by FHA, set forth the percentages of the
original number of FHA Loans in pools of level payment mortgage loans of varying
maturities that will remain outstanding on each anniversary of the original date
of such mortgage loans (assuming they all have the same origination date) ("FHA
Experience"). Published information with respect to conventional residential
mortgage loans indicates that such mortgage loans have historically been prepaid
at higher rates than government insured loans because, unlike government insured
mortgage loans, conventional mortgage loans may contain due-on-sale clauses that
allow the holder thereof to demand payment in full of the remaining principal
balance of such mortgage loans upon sales or certain transfers of the mortgaged
property. There are no similar statistics with respect to the prepayment rates
of cooperative loans or loans secured by multifamily properties.
It is customary in the residential mortgage industry in quoting yields (a)
on a pool of 30-year fixed-rate, level payment mortgages, to compute the yield
as if the pool were a single loan that is amortized according to a 30-year
schedule and is then prepaid in full at the end of the twelfth year and (b) on a
pool of 15-year fixed-rate, level payment mortgages, to compute the yield as if
the pool were a single loan that is amortized according to a 15-year schedule
and then is prepaid in full at the end of the seventh year.
Prepayments on residential mortgage loans are also commonly measured
relative to a prepayment standard or model. If so specified in the Prospectus
Supplement relating to a Series of Certificates, the model used in a Prospectus
Supplement will be the Standard Prepayment Assumption ("SPA"). SPA represents an
assumed rate of prepayment relative to the then outstanding principal balance of
a pool of mortgages. A prepayment assumption of 100% of SPA assumes prepayment
rates of 0.2% per annum of the then outstanding principal balance of such
mortgages in the first month of the life of the mortgages and an additional 0.2%
per annum in each month thereafter until the thirtieth month and in each month
thereafter during the life of the mortgages, 100% of SPA assumes a constant
prepayment rate of 6% per annum each month.
Information regarding FHA Experience, other published information, SPA or
any other rate of assumed prepayment, as applicable, will be set forth in the
Prospectus Supplement with respect to a Series of Certificates. There is,
however, no assurance that prepayment of the Mortgage Loans underlying a Series
of Certificates will conform to FHA Experience, mortgage industry custom, any
level of SPA, or any other rate specified in the related Prospectus Supplement.
A number of factors, including homeowner mobility, economic conditions,
enforceability of due-on-sale clauses, mortgage market interest rates, mortgage
recording taxes and the availability of mortgage funds, may affect prepayment
experience on residential mortgage loans.
The terms of the Pooling and Servicing Agreement will require the Servicer
or the Master Servicer to enforce any due-on-sale clause to the extent it has
knowledge of the conveyance or the proposed conveyance of the underlying
Mortgaged Property or Cooperative Dwelling; provided, however, that any
enforcement action that would impair or threaten to impair any recovery under
any related Insurance Policy will not be required or permitted. See "Description
of the Certificates-Enforcement of "Due-On-Sale" Clauses; Realization Upon
Defaulted Mortgage Loans" and "Certain Legal Aspects of the Mortgage Loans And
Contracts-The Mortgage Loans-"Due-On-Sale" Clauses" for a description of certain
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provisions of each Pooling and Servicing Agreement and certain legal
developments that may affect the prepayment experience on the Mortgage Loans.
At the request of the Mortgagor, the Servicer may refinance the Mortgage
Loans in any Mortgage Pool by accepting prepayments thereon and making new loans
secured by a mortgage on the same property. Upon such refinancing, the new loans
will not be included in the Mortgage Pool and the related Servicer will be
required to repurchase the affected Mortgage Loan. A Mortgagor may be legally
entitled to require the Servicer to allow such a refinancing. Any such
repurchase will have the same effect as a prepayment in full of the related
Mortgage Loan.
There are no uniform statistics compiled for prepayments of contracts
relating to Manufactured Homes. Prepayments on the Contracts may be influenced
by a variety of economic, geographic, social and other facts, including
repossessions, aging, seasonality and interest rate fluctuations. Other factors
affecting prepayment of mortgage loans or Contracts include changes in housing
needs, job transfers, unemployment and servicing decisions. An investment in
Certificates evidencing interests in Contracts may be affected by, among other
things, a downturn in regional or local economic conditions. These regional or
local economic conditions are often volatile, and historically have affected the
delinquency, loan loss and repossession experience of the Contracts. To the
extent that losses on the Contracts are not covered by the Subordination Amount,
if any, Letters of Credit, applicable Insurance Policies, if any, or by any
Alternative Credit Support, holders of the Certificates of a Series evidencing
interests in such Contracts will bear all risk of loss resulting from default by
Obligors and will have to look primarily to the value of the Manufactured Homes,
which generally depreciate in value, for recovery of the outstanding principal
and unpaid interest of the defaulted Contracts. See "The Trust Fund-The Contract
Pools".
While most Contracts will contain "due-on-sale" provisions permitting the
holder of the Contract to accelerate the maturity of the Contract upon
conveyance by the borrower, the Master Servicer may permit proposed assumptions
of Contracts where the proposed buyer meets the underwriting standards described
above. Such assumption would have the effect of extending the average life of
the Contract. FHA Mortgage Loans and Contracts and VA Mortgage Loans and
Contracts are not permitted to contain "due on sale" clauses, and are freely
assumable.
Mortgage Loans made with respect to Multifamily Properties may have
provisions that prevent prepayment for a number of years and may provide for
payments of interest only during a certain period followed by amortization of
principal on the basis of a schedule extending beyond the maturity of the
related Mortgage Loan. Prepayments of Mortgage Loans secured by Multifamily
Property may be affected by these and other factors, including changes in
interest rates and the relative tax benefits associated with ownership of
Multifamily Property.
If set forth in the applicable Prospectus Supplement, the Depositor or
other specified entity will have the option to repurchase the Trust Assets
included in the related Trust Fund under the conditions stated in such
Prospectus Supplement. For any Series of Certificates for which the Depositor
has elected to treat the Trust as a REMIC pursuant to the provisions or the
Code, any such repurchase will be effected in compliance with the requirements
of Section 860F(a)(4) of the Code so as to constitute a "qualifying liquidation"
thereunder. In addition, the Depositor will be obligated, under certain
circumstances, to repurchase certain of the Trust Assets. The Master Servicer
and Unaffiliated Sellers will also have certain repurchase obligations, as more
fully described herein. In addition, the mortgage loans underlying the Mortgage
Certificates may be subject to repurchase under circumstances similar to those
described above. Such repurchases will have the same effect as prepayments in
full. See "The Trust Fund-Mortgage Loan Program-Representations by Unaffiliated
Sellers; Repurchases", "Description of the Certificates-Assignment of Mortgage
Loans", "-Assignment of Mortgage Certificates", "-Assignment of Contracts" and
"-Termination".
DESCRIPTION OF THE CERTIFICATES
Each Series of Certificates will be issued pursuant to an agreement
consisting of either (a) a Pooling and Servicing Agreement or (b) a Reference
Agreement (the "Reference Agreement") and the Standard Terms and Provisions of
Pooling and Servicing Agreement (such Standard Terms, the "Standard Terms"),
either the Standard Terms together with the Reference Agreement or the Pooling
and Servicing Agreement referred to as the "Pooling and Servicing Agreement")
among
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the Depositor, the Master Servicer, if any, and the Trustee named in the
applicable Prospectus Supplement or a deposit trust agreement between the
Depositor and the Trustee (the "Deposit Trust Agreement", together with the
Pooling and Servicing Agreement, the "Agreement"). Forms of the Pooling and
Servicing Agreement and the Deposit Trust Agreement have been filed as exhibits
to the Registration Statement of which this Prospectus is a part. The following
summaries describe certain provisions common to each Pooling and Servicing
Agreement and Deposit Trust Agreement. The summaries do not purport to be
complete and are subject to, and are qualified in their entirety by reference
to, all of the provisions of the Pooling and Servicing Agreement or Deposit
Trust Agreement for the applicable Series and the related Prospectus Supplement.
Wherever defined terms of the Pooling and Servicing Agreement or Deposit Trust
Agreement are referred to, such defined terms are thereby incorporated herein by
reference.
GENERAL
Unless otherwise specified in the Prospectus Supplement with respect to a
Series, each Certificate offered hereby and by means of the related Prospectus
Supplement will be issued in fully registered form and will represent the
undivided interest or beneficial interest attributable to such Class or Subclass
in the Trust Fund. The Trust Fund with respect to a Series will consist of: (i)
such Mortgage Loans, Contracts, and Mortgage Certificates and distributions
thereon as from time to time are subject to the applicable Agreement; (ii) such
assets as from time to time are identified as deposited in the Certificate
Account referred to below; (iii) property acquired by foreclosure of Mortgage
Loans or deed in lieu of foreclosure, or Manufactured Homes acquired by
repossession; (iv) the Letter of Credit, if any, with respect to such Series;
(v) the Pool Insurance Policy, if any, with respect to such Series (described
below under "Description of Insurance"); (vi) the Special Hazard Insurance
Policy, if any, with respect to such Series (described below under "Description
of Insurance"); (vii) the Mortgagor Bankruptcy Bond and proceeds thereof, if
any, with respect to such Series (as described below under "Description of
Insurance"); (viii) the Performance Bond and proceeds thereof, if any, with
respect to such Series; (ix) the Primary Mortgage Insurance Policies, if any,
with respect to such Series (as described below under "Description of
Insurance"); (x) the Depositor's rights under the Warranty and Servicing
Agreement with respect to the Mortgage Loans or Contracts, if any, with respect
to such Series; and (xi) the GPM and Buy-Down Funds, if any, with respect to
such Series; or, in lieu of some or all of the foregoing, such Alternative
Credit Support as shall be described in the applicable Prospectus Supplement.
Upon the original issuance of a Series of Certificates, Certificates
representing the minimum undivided interest or beneficial ownership interest in
the related Trust Fund or the minimum notional amount allocable to each Class
will evidence the undivided interest, beneficial ownership interest or
percentage ownership interest specified in the related Prospectus Supplement.
If so specified in the related Prospectus Supplement, one or more Servicers
or the Depositor may directly perform some or all of the duties of a Master
Servicer with respect to a Series.
If so specified in the Prospectus Supplement for a Series with respect to
which the Depositor has elected to treat the Trust Fund as a REMIC under the
Code, ownership of the Trust Fund for such Series may be evidenced by Multi-
Class Certificates and Residual Certificates. Distributions of principal and
interest with respect to Multi-Class Certificates may be made on a sequential or
concurrent basis, as specified in the related Prospectus Supplement. If so
specified in the related Prospectus Supplement, one or more of such Classes or
Subclasses may be Compound Interest Certificates.
The Residual Certificates, if any, included in a Series will be designated
by the Depositor as the "residual interest" in the related REMIC for purposes of
Section 860G(a)(2) of the Code, and will represent the right to receive
distributions as specified in the Prospectus Supplement for such Series. All
other Classes of Certificates of such Series will constitute "regular interests"
in the related REMIC, as defined in the Code. If so specified in the related
Prospectus Supplement, such Residual Certificates may be offered hereby and by
means of such Prospectus Supplement. See "Certain Federal Income Tax
Consequences".
If so specified in the Prospectus Supplement for a Series which includes
Multi-Class Certificates, each Trust Asset in the related Trust Fund will be
assigned an initial "Asset Value". Unless otherwise specified in the related
Prospectus Supplement, the Asset Value of each Trust Asset in the related Trust
Fund will be the Stated Principal Balance of each Class or Classes of
Certificates of such Series that, based upon certain assumptions, can be
supported by distributions on such
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Trust Assets allocable to such Class or Subclass, together with reinvestment
income thereon, to the extent specified in the related Prospectus Supplement,
and amounts available to be withdrawn from any Buy-Down, GPM Fund or Reserve
Fund for such Series. The method of determining the Asset Value of the Trust
Assets in the Trust Fund for such a Series that includes Multi-Class
Certificates will be specified in the related Prospectus Supplement.
If so specified in the Prospectus Supplement with respect to a Series,
ownership of the Trust Fund for such Series may be evidenced by one or more
Classes or Subclasses of Certificates that are Senior Certificates and
Subordinated Certificates, each representing the undivided interests in the
Trust Fund specified in such Prospectus Supplement. If so specified in the
related Prospectus Supplement, one or more Classes or Subclasses or Subordinated
Certificates of a Series may be subordinated to the right of the holders of
Certificates of one or more Classes or Subclasses within such Series to receive
distributions with respect to the Mortgage Loans or Contracts in the related
Trust Fund, in the manner and to the extent specified in such Prospectus
Supplement. If so specified in the related Prospectus Supplement, the holders of
each Subclass of Senior Certificates will be entitled to the Percentage
Interests in the principal and/or interest payments on the underlying Mortgage
Loans or Contracts specified in such Prospectus Supplement. If so specified in
the related Prospectus Supplement, the Subordinated Certificates of a Series
will evidence the right to receive distributions with respect to a specific pool
of Mortgage Loans or Contracts, which right will be subordinated to the right of
the holders of the Senior Certificates of such Series to receive distributions
with respect to such specific pool of Mortgage Loans or Contracts, as more fully
set forth in such Prospectus Supplement. If so specified in the related
Prospectus Supplement, the holders of the Senior Certificates may have the right
to receive a greater than pro rata percentage of Principal Prepayments in the
manner and under the circumstances described in the Prospectus Supplement.
If so specified in the related Prospectus Supplement, the Depositor may
sell certain Classes or Subclasses of the Certificates of a Series, including
one or more Classes or Subclasses of Subordinated or Residual Certificates, in
privately negotiated transactions exempt from registration under the Securities
Act. Such Certificates will be transferable only pursuant to an effective
registration statement or an applicable exemption under the Securities Act and
pursuant to any applicable state law. Alternatively, if so specified in the
related Prospectus Supplement, the Depositor may offer one or more Classes or
Subclasses of the Subordinated or Residual Certificates of a Series by means of
this Prospectus and such Prospectus Supplement.
The Certificates of a Series offered hereby and by means of the related
Prospectus Supplements will be transferable and exchangeable at the office or
agency maintained by the Trustee for such purpose set forth in the related
Prospectus Supplement, unless such Prospectus Supplement provides otherwise. No
service charge will be made for any transfer or exchange of Certificates, but
the Trustee may require payment of a sum sufficient to cover any tax or other
governmental charge in connection with such transfer or exchange.
DISTRIBUTIONS OF PRINCIPAL AND INTEREST
Beginning on the date specified in the related Prospectus Supplement,
distributions of principal and interest on the Certificates of a Series will be
made by the Master Servicer or Trustee, if so specified in the Prospectus
Supplement, on each Distribution Date to persons in whose name the Certificates
are registered at the close of business on the day specified in such Prospectus
Supplement (the "Record Date"). Such distributions of interest will be made
periodically at the intervals, in the manner and at the per annum rate specified
in the related Prospectus Supplement, which rate may be fixed or variable.
Interest on the Certificates will be calculated on the basis of a 360-day year
consisting of twelve 30-day months, unless otherwise specified in the related
Prospectus Supplement. Distributions of principal on the Certificates will be
made in the priority and manner and in the amounts specified in the related
Prospectus Supplement.
If so specified in the Prospectus Supplement with respect to a Series of
Certificates, distributions of interest and principal to a Certificateholder
will be equal to the product of the undivided interest evidenced by such
Certificate and the payments of principal and interest (adjusted to the related
Pass-Through Rate) on or with respect to the Mortgage Loans or Contracts
(including any Advances thereof) or the Mortgage Certificates included in the
Trust Fund with respect to such Series.
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If so specified in the related Prospectus Supplement, distributions on a
Class or Subclass of Certificates of a Series may be based on the Percentage
Interest evidenced by a Certificate of such Class or Subclass in the
distributions (including any Advances thereof) of principal (the "Principal
Distribution") and interest (adjusted to the Pass-Through Rate for the related
Mortgage Pool or Contract Pool) (the "Interest Distribution") on or with respect
to the Mortgage Loans, the Contracts or the Mortgage Certificates in the related
Trust Fund. Unless otherwise specified in the related Prospectus Supplement, on
each Distribution Date, the Trustee will distribute to each holder of a
Certificate of such Class or Subclass an amount equal to the product of the
Percentage Interest evidenced by such Certificate and the interest of such Class
or Subclass in the Principal Distribution and the Interest Distribution. A
Certificate of such a Class or Subclass may represent a right to receive a
percentage of both the Principal Distribution and the Interest Distribution or a
percentage of either the Principal Distribution or the Interest Distribution, as
specified in the related Prospectus Supplement.
If so specified in the related Prospectus Supplement, the holders of the
Senior Certificates may have the right to receive a percentage of Principal
Prepayments that is greater than the percentage of regularly scheduled payment
of principal such holder is entitled to receive. Such percentages may vary from
time to time, subject to the terms and conditions specified in the Prospectus
Supplement.
Unless otherwise specified in the Prospectus Supplement relating to a
Series of Certificates that includes Multi-Class Certificates, distributions of
interest on each such Class or Subclass will be made on the Distribution Dates,
and at the Interest Rates, specified in such Prospectus Supplement. Unless
otherwise specified in the Prospectus Supplement relating to such a Series of
Certificates, distributions of interest on each Class or Subclass of Compound
Interest Certificates of such Series will be made on each Distribution Date
after the Stated Principal Balance of all Certificates of such Series having a
Final Scheduled Distribution Date prior to that of such Class or Subclass of
Compound Interest Certificates has been reduced to zero. Prior to such time,
interest on such Class or Subclass of Compound Interest Certificates will be
added to the Stated Principal Balance thereof on each Distribution Date for such
Series.
Unless otherwise specified in the Prospectus Supplement relating to a
Series of Certificates that includes Multi-Class Certificates, distributions in
reduction of the Stated Principal Balance of such Certificates will be made as
described herein. Distributions in reduction of the Stated Principal Balance of
such Certificates will be made on each Distribution Date for such Series to the
holders of the Certificates of the Class or Subclass then entitled to receive
such distributions until the aggregate amount of such distributions have reduced
the Stated Principal Balance of such Certificates to zero. Allocation of
distributions in reduction of Stated Principal Balance will be made to each
Class or Subclass of such Certificates in the order specified in the related
Prospectus Supplement, which, if so specified in such Prospectus Supplement, may
be concurrently. Unless otherwise specified in the related Prospectus
Supplement, distributions in reduction of the Stated Principal Balance of each
Certificate of a Class or Subclass then entitled to receive such distributions
will be made pro rata among the Certificates of such Class or Subclass.
Unless otherwise specified in the Prospectus Supplement relating to a
Series of Certificates that includes Multi-Class Certificates, the maximum
amount which will be distributed in reduction of Stated Principal Balance to
holders of Certificates of a Class or Subclass then entitled thereto on any
Distribution Date will equal, to the extent funds are available in the
Certificate Account, the sum of (i) the amount of the interest, if any, that has
accrued but is not yet payable on the Compound Interest Certificates of such
Series since the prior Distribution Date (or since the date specified in the
related Prospectus Supplement in the case of the first Distribution Date) (the
"Accrual Distribution Amount"); (ii) the Stated Principal Distribution Amount;
and (iii) to the extent specified in the related Prospectus Supplement, the
applicable percentage of the Excess Cash Flow specified in such Prospectus
Supplement.
Unless otherwise specified in the Prospectus Supplement relating to a
Series of Certificates that includes Multi-Class Certificates, the "Stated
Principal Distribution Amount" with respect to a Distribution Date will equal
the sum of the Accrual Distribution Amount, if any, and the amount, if any, by
which the then outstanding Stated Principal Balance of the Multi-Class
Certificates of such Series (before taking into account the amount of interest
accrued on any Class of Compound Interest Certificates of such Series to be
added to the Stated Principal Balance thereof on such Distribution Date) exceeds
the Asset Value of the Trust Assets in the Trust Fund underlying such Series as
of the end of a period (a "Due Period") specified in the related Prospectus
Supplement. For purposes of determining the Stated Principal Distribution Amount
with respect to a Distribution Date, the Asset Value of the Trust Assets will be
reduced to take into account the
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interest evidenced by such Classes or Subclasses of Certificates in the
principal distributions on or with respect of such Trust Assets received by the
Trustee during the preceding Due Period.
Unless otherwise specified in the Prospectus Supplement relating to a
Series of Certificates that includes Multi-Class Certificates, Excess Cash Flow
represents the excess of (i) the interest evidenced by such Multi-Class
Certificates in the distributions received on the Mortgage Loans or Contracts
underlying such Series in the Due Period preceding a Distribution Date for such
Series (and, in the case of the first Due Period, the amount deposited in the
Certificate Account on the closing day for the sale of such Certificates),
together with income from the reinvestment thereof, and, to the extent specified
in such Prospectus Supplement, the amount of cash withdrawn from any Reserve,
GPM or Buy-Down Fund for such Series in the Due Period preceding such
Distribution Date, over (ii) the sum of all interest accrued, whether or not
then distributable, on the Multi-Class Certificates since the preceding
Distribution Date (or since the date specified in the related Prospectus
Supplement in the case of the first Distribution Date), the Stated Principal
Distribution Amount for the then current Distribution Date and, if applicable,
any payments made on any Certificates of such Class or Subclass pursuant to any
special distributions in reduction of Stated Principal Balance during such Due
Period.
The Stated Principal Balance of a Multi-Class Certificate of a Series at
any time represents the maximum specified dollar amount (exclusive of interest
at the related Interest Rate) to which the holder thereof is entitled from the
cash flow on the Trust Assets in the Trust Fund for such Series, and will
decline to the extent distributions in reduction of Stated Principal Balance are
received by such holder. The Initial Stated Principal Balance of each Class or
Subclass within a Series that has been assigned a Stated Principal Balance will
be specified in the related Prospectus Supplement.
Distributions (other than the final distribution in retirement of the
Certificates) will be made by check mailed to the address of the person entitled
thereto as it appears on the Certificate Register, except that, with respect to
any holder of a Certificate meeting the requirements specified in the applicable
Prospectus Supplement, distributions shall be made by wire transfer in
immediately available funds, provided that the Trustee shall have been furnished
with appropriate wiring instructions not less than two Business Days prior to
the related Distribution Date. The final distribution in retirement of
Certificates will be made only upon presentation and surrender of the
Certificates at the office or agency designated by the Master Servicer for such
purpose, as specified in the final distribution notice to Certificateholders.
ASSIGNMENT OF MORTGAGE CERTIFICATES
Pursuant to the applicable Agreement for a Series of Certificates that
includes Mortgage Certificates in the related Trust Fund, the Depositor will
cause such Mortgage Certificates to be transferred to the Trustee together with
all principal and interest distributed on such Mortgage Certificates after the
Cut-off Date. Each Certificate included in a Trust Fund will be identified in a
schedule appearing as an exhibit to the applicable Agreement. Such schedule will
include information as to the principal balance of each Mortgage Certificate as
of the date of issuance of the Certificates and its coupon rate, maturity and
original principal balance. In addition, such steps will be taken by the
Depositor as are necessary to cause the Trustee to become the registered owner
of each Mortgage Certificate which is included in a Trust Fund and to provide
for all distributions on each such Mortgage Certificate to be made directly to
the Trustee.
In connection with such assignment, the Depositor will make certain
representations and warranties in the Agreement as to, among other things, its
ownership of the Mortgage Certificates. In the event that these representations
and warranties are breached, and such breach or breaches adversely affect the
interests of the Certificateholders in the Mortgage Certificates, the Depositor
will be required to repurchase the affected Mortgage Certificates at a price
equal to the principal balance thereof as of the date of purchase together with
accrued and unpaid interest thereon at the related pass-through rate to the
distribution date for such Mortgage Certificates or, in the case of a Series in
which an election has been made to treat the related Trust Fund as a REMIC, at
the lesser of the price set forth above, or the adjusted tax basis, as defined
in the Code, of such Mortgage Certificates. The Mortgage Certificates with
respect to a Series may also be subject to repurchase, in whole but not in part,
under the circumstances and in the manner described in the related Prospectus
Supplement. Any amounts received in respect of such repurchases will be
distributed to Certificateholders on the immediately succeeding Distribution
Date.
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If so specified in the related Prospectus Supplement, within the specified
period following the date of issuance of a Series of Certificates, the Depositor
may, in lieu of the repurchase obligation set forth above, and in certain other
circumstances, deliver to the Trustee Mortgage Certificates ("Substitute
Mortgage Certificates") in substitution for any one or more of the Mortgage
Certificates ("Deleted Mortgage Certificates") initially included in the Trust
Fund. The required characteristics or any such Substitute Mortgage Certificates
and any additional restrictions relating to the substitution of Mortgage
Certificates will be set forth in the related Prospectus Supplement.
ASSIGNMENT OF MORTGAGE LOANS
The Depositor will cause the Mortgage Loans constituting a Mortgage Pool to
be assigned to the Trustee, together with all principal and interest received on
or with respect to such Mortgage Loans after the Cut-off Date, but not including
principal and interest due on or before the Cut-off Date. The Trustee will,
concurrently with such assignment, deliver the Certificates to the Depositor in
exchange for the Mortgage Loans. Each Mortgage Loan will be identified in a
schedule appearing as an exhibit to the related Pooling and Servicing Agreement.
Such schedule will include information as to the adjusted principal balance of
each Mortgage Loan as of the Cut-off Date, as well as information respecting the
Mortgage Rate, the currently scheduled monthly payment of principal and
interest, the maturity of the Mortgage Note and the Loan-to-Value Ratio at
origination.
In addition, the Depositor will, as to each Mortgage Loan that is not a
Cooperative Loan, deliver or cause to be delivered to the Trustee (or to the
custodian hereinafter referred to) the Mortgage Note endorsed to the order of
the Trustee, the Mortgage with evidence of recording indicated thereon (except
for any Mortgage not returned from the public recording office, in which case
the Depositor will deliver a copy of such Mortgage together with its certificate
that the original of such Mortgage was delivered to such recording office) and
an assignment of the Mortgage in recordable form. Assignments of the Mortgage
Loans to the Trustee will be recorded in the appropriate public office for real
property records, except in states where, in the opinion of counsel acceptable
to the Trustee, such recording is not required to protect the Trustee's interest
in the Mortgage Loan against the claim of any subsequent transferee or any
successor to or creditor of the Depositor or the Originator of such Mortgage
Loan.
The Depositor will cause to be delivered to the Trustee, its agent, or a
custodian, with respect to any Cooperative Loan, the related original security
agreement, the proprietary lease or occupancy agreement, the recognition
agreement, an executed financing statement and the relevant stock certificate
and related blank stock powers. The Master Servicer will file in the appropriate
office a financing statement evidencing the Trustee's security interest in each
Cooperative Loan.
The Trustee (or the custodian hereinafter referred to) will, generally
within 60 days after receipt thereof, review and hold such documents in trust
for the benefit of the Certificateholders. Unless otherwise specified in the
applicable Prospectus Supplement, if any such document is found to be defective
in any material respect, the Trustee will promptly notify the Master Servicer
and the Depositor, and the Master Servicer will notify the related Servicer. If
the Servicer cannot cure the defect within 60 days after notice is given to the
Master Servicer, the Servicer will be obligated either to substitute for the
related Mortgage Loan a Replacement Mortgage Loan or Loans, or to purchase
within 90 days of such notice the related Mortgage Loan from the Trustee at a
price equal to the principal balance thereof as of the date of purchase or, in
the case of a Series as to which an election has been made to treat the related
Trust Fund as a REMIC, at such other price as may be necessary to avoid a tax on
a prohibited transaction, as described in Section 860F(a) of the Code, in each
case together with accrued interest at the applicable Pass-Through Rate, to the
first day of the month following such repurchase, plus the amount of any
unreimbursed Advances made by the Master Servicer or the Servicer, as
applicable, in respect of such Mortgage Loan. The Master Servicer is obligated
to enforce the repurchase obligation of the Servicer, to the extent described
above under "The Trust Fund-Mortgage Loan Program-Representations by
Unaffiliated Sellers; Repurchases". Unless otherwise specified in the applicable
Prospectus Supplement, this purchase obligation constitutes the sole remedy
available to the Certificateholders or the Trustee for a material defect in a
constituent document.
Unless otherwise specified in the applicable Prospectus Supplement, with
respect to the Mortgage Loans in a Mortgage Pool, the Depositor will make
representations and warranties as to the types and geographical distribution of
such Mortgage Loans and as to the accuracy in all material respects of certain
information furnished to the Trustee in respect of
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each such Mortgage Loan. In addition, unless otherwise specified in the related
Prospectus Supplement, the Depositor will represent and warrant that, as of the
Cut-off Date for the related Series of Certificates, no Mortgage Loan is more
than 30 days delinquent as to payment of principal and interest. Upon a breach
of any representation or warranty by the Depositor that materially and adversely
affects the interest of the Certificateholders, the Depositor will be obligated
either to cure the breach in all material respects or to purchase the Mortgage
Loan at the purchase price set forth above. Unless otherwise specified in the
applicable Prospectus Supplement and subject to the ability of the Depositor, if
so specified in the applicable Prospectus Supplement, to substitute for certain
Mortgage Loans as described below, this repurchase obligation constitutes the
sole remedy available to the Certificateholders or the Trustee for a breach of
representation or warranty by the Depositor.
Within the period specified in the related Prospectus Supplement, following
the date of issuance of a Series of Certificates, the Depositor, the Master
Servicer or the related Servicer, as the case may be, may deliver to the Trustee
Mortgage Loans ("Substitute Mortgage Loans") in substitution for any one or more
of the Mortgage Loans ("Deleted Mortgage Loans") initially included in the Trust
Fund but which do not conform in one or more respects to the description thereof
contained in the related Prospectus Supplement, or as to which a breach of a
representation or warranty is discovered, which breach materially and adversely
affects the interests of the Certificateholders. The required characteristics of
any such Substitute Mortgage Loan and any additional restrictions relating to
the substitution of Mortgage Loans will generally be as described under "The
Trust Fund-The Mortgage Pools" with respect to the substitution of Mortgage
Loans.
In addition to making certain representations and warranties regarding its
authority to enter into, and its ability to perform its obligations under the
Pooling and Servicing Agreement relating to a Series of Certificates, the Master
Servicer may make certain representations and warranties to the Trustee in such
Pooling and Servicing Agreement with respect to the enforceability of coverage
under any applicable Primary Insurance Policy, Pool Insurance Policy, Special
Hazard Insurance Policy or Mortgagor Bankruptcy Bond. See "Description of
Insurance" for information regarding the extent of coverage under certain of the
aforementioned insurance policies. Upon a breach of any such representation or
warranty that materially and adversely affects the interests of the
Certificateholders of such Series in a Mortgage Loan, the Master Servicer will
be obligated either to cure the breach in all material respects or to purchase
such Mortgage Loan at the price calculated as set forth above
To the extent described in the related Prospectus Supplement, the Master
Servicer will procure a surety bond, corporate guaranty or another similar form
of insurance coverage acceptable to the Rating Agency rating the related Series
of Certificates to support, among other things, this purchase obligation. Unless
otherwise stated in the applicable Prospectus Supplement, the aforementioned
purchase obligation constitutes the sole remedy available to the
Certificateholders or the Trustee for a breach of the Master Servicer's
insurability representation. The Master Servicer's obligation to purchase
Mortgage Loans upon such a breach is subject to limitations.
The Trustee will be authorized, with the consent of the Depositor and the
Master Servicer, to appoint a custodian pursuant to a custodial agreement to
maintain possession of documents relating to the Mortgage Loans as the agent of
the Trustee.
Pursuant to each Pooling and Servicing Agreement, the Master Servicer,
either directly or through Servicers, will service and administer the Mortgage
Loans assigned to the Trustee as more fully set forth below.
ASSIGNMENT OF CONTRACTS
The Depositor will cause the Contracts constituting the Contract Pool to be
assigned to the Trustee, together with principal and interest due on or with
respect to the Contracts after the Cut-off Date, but not including principal and
interest due on or before the Cut-off Date. If the Depositor is unable to obtain
a perfected security interest in a Contract prior to transfer and assignment to
the Trustee, the Unaffiliated Seller will be obligated to repurchase such
Contract. The Trustee, concurrently with such assignment, will authenticate and
deliver the Certificates. Each Contract will be identified in a schedule
appearing as an exhibit to the Agreement (the "Contract Schedule"). Unless
otherwise specified in the related Prospectus Supplement, the Contract Schedule
will specify, with respect to each Contract, among other things: the original
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principal amount and the adjusted principal balance as of the close of business
on the Cut-off Date; the APR; the current scheduled monthly level payment of
principal and interest; and the maturity of the Contract.
In addition, the Depositor, as to each Contract, will deliver or cause to
be delivered to the Trustee, or, as specified in the related Prospectus
Supplement, the Custodian, the original Contract and copies of documents and
instruments related to each Contract and the security interest in the
Manufactured Home securing each Contract. In order to give notice of the right,
title and interest of the Certificateholders to the Contracts, the Depositor
will cause a UCC-1 financing statement to be executed by the Depositor
identifying the Trustee as the secured party and identifying all Contracts as
collateral. Unless otherwise specified in the related Prospectus Supplement, the
Contracts will not be stamped or otherwise marked to reflect their assignment
from the Depositor to the Trust Fund. Therefore, if a subsequent purchaser were
able to take physical possession of the Contracts without notice of such
assignment, the interest of the Certificateholders in the Contracts could be
defeated. See "Certain Legal Aspects of Mortgage Loans and Contracts-The
Contracts".
The Trustee (or the Custodian) will review and hold such documents in trust
for the benefit of the Certificateholders. Unless otherwise provided in the
related Prospectus Supplement, if any such document is found to be defective in
any material respect, the Unaffiliated Seller must cure such defect within 60
days, or within such other period specified in the related Prospectus Supplement
the Unaffiliated Seller, not later than 90 days or within such other period
specified in the related Prospectus Supplement, after the Trustee's notice to
the Unaffiliated Seller of the defect. If the defect is not cured, the
Unaffiliated Seller will repurchase the related Contract or any property
acquired in respect thereof from the Trustee at a price equal to the remaining
unpaid principal balance of such Contract (or, in the case of a repossessed
Manufactured Home, the unpaid principal balance of such Contract immediately
prior to the repossession) or, in the case of a Series as to which an election
has been made to treat the related Trust Fund as a REMIC, at such other price as
may be necessary to avoid a tax on a prohibited transaction, as described in
Section 860F(a) of the Code, in each case together with accrued but unpaid
interest to the first day of the month following repurchase at the related Pass-
Through Rate, plus any unreimbursed Advances respecting such Contract. Unless
otherwise specified in the related Prospectus Supplement, the repurchase
obligation constitutes the sole remedy available to the Certificateholders or
the Trustee for a material defect in a Contract document.
Unless otherwise specified in the related Prospectus Supplement, each
Unaffiliated Seller of Contracts will have represented, among other things, that
(i) immediately prior to the transfer and assignment of the Contracts, the
Unaffiliated Seller had good title to, and was the sole owner of each Contract
and there had been no other sale or assignment thereof, (ii) as of the date of
such transfer, the Contracts are subject to no offsets, defenses or
counterclaims, (iii) each Contract at the time it was made complied in all
material respects with applicable state and federal laws, including usury, equal
credit opportunity and disclosure laws, (iv) as of the date of such transfer,
each Contract is a valid first lien on the related Manufactured Home and such
Manufactured Home is free of material damage and is in good repair, (v) as of
the date of such transfer, no Contract is more than 30 days delinquent in
payment and there are no delinquent tax or assessment liens against the related
Manufactured Home and (vi) with respect to each Contract, the Manufactured Home
securing the Contract is covered by a Standard Hazard Insurance Policy in the
amount required in the Pooling and Servicing Agreement and that all premiums now
due on such insurance have been paid in full.
All of the representations and warranties of a seller in respect of a
Contract will have been made as of the date on which such seller sold the
Contract to the Depositor or its affiliate; the date such representations and
warranties were made may be a date prior to the date of initial issuance of the
related series of Certificates. A substantial period of time may have elapsed
between the date as of which the representations and warranties were made and
the later date of initial issuance of the related Series of Certificates. Since
the representations and warranties referred to in the preceding paragraph are
the only representations and warranties that will be made by a seller, the
seller's repurchase obligation described below will not arise if, during the
period commencing on the date of sale of a Contract by the seller to the
Depositor or its affiliate, the relevant event occurs that would have given rise
to such an obligation had the event occurred prior to sale of the affected
Contract. Nothing, however, has come to the Depositor's attention that would
cause it to believe that the representations and warranties referred to in the
preceding paragraph will not be accurate and complete in all material respects
in respect of Contracts as of the date of initial issuance of the related series
of Certificates.
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The only representations and warranties to be made for the benefit of
Certificateholders in respect of any Contract relating to the period commencing
on the date of sale of such Contract to the Depositor or its affiliate will be
certain limited representations of the Depositor and of the Master Servicer
described above under "The Trust Fund-The Contract Pools".
If an Unaffiliated Seller cannot cure a breach of any representation or
warranty made by it in respect of a Contract that materially and adversely
affects the interest of the Certificateholders in such Contract within 90 days
(or such other period specified in the related Prospectus Supplement) after
notice from the Master Servicer, such Unaffiliated Seller will be obligated to
repurchase such Contract at a price equal to, unless otherwise specified in the
related Prospectus Supplement, the principal balance thereof as of the date of
the repurchase or, in the case of a Series as to which an election has been made
to treat the related Trust Fund as a REMIC, at such other price as may be
necessary to avoid a tax on a prohibited transaction, as described in Section
860F(a) of the Code, in each case together with accrued and unpaid interest to
the first day of the month following repurchase at the related Pass-Through
Rate, plus the amount of any unreimbursed Advances in respect of such Contract
(the "Purchase Price"). The Master Servicer will be required under the
applicable Pooling and Servicing Agreement to enforce this obligation for the
benefit of the Trustee and the Certificateholders, following the practices it
would employ in its good faith business judgment were it the owner of such
Contract. Except as otherwise set forth in the related Prospectus Supplement,
this repurchase obligation will constitute the sole remedy available to
Certificateholders or the Trustee for a breach of representation by an
Unaffiliated Seller.
Neither the Depositor nor the Master Servicer will be obligated to purchase
a Contract if an Unaffiliated Seller defaults on its obligation to do so, and no
assurance can be given that sellers will carry out their respective repurchase
obligations with respect to Contracts. However, to the extent that a breach of
the representations and warranties of an Unaffiliated Seller may also constitute
a breach of a representation made by the Depositor or the Master Servicer, the
Depositor or the Master Servicer may have a purchase obligation as described
above under "The Trust Fund-The Contract Pools".
SERVICING BY UNAFFILIATED SELLERS
Each Unaffiliated Seller of a Mortgage Loan or a Contract may have the
option to act as the Servicer (or Master Servicer) for such Mortgage Loan or
Contract pursuant to a Servicing Agreement. A representative form of Servicing
Agreement has been filed as an exhibit to the Registration Statement of which
this Prospectus is a part. The following description does not purport to be
complete and is qualified in its entirety by reference to the form of Servicing
Agreement and by the discretion of the Master Servicer or Depositor to modify
the Servicing Agreement and to enter into different Servicing Agreements. The
Pooling and Servicing Agreement provides that, if for any reason the Master
Servicer for such Series of Certificates is no longer the Master Servicer of the
related Mortgage Loans or Contracts, the Trustee or any successor master
servicer must recognize the Servicer's rights and obligations under such
Servicing Agreement.
A Servicer may delegate its servicing obligations to third-party servicers,
but continue to act as Servicer under the related Servicing Agreement. The
Servicer will be required to perform the customary functions of a servicer,
including collection of payments from Mortgagors and Obligors and remittance of
such collections to the Master Servicer, maintenance of primary mortgage, hazard
insurance, FHA insurance and VA guarantees and filing and settlement of claims
thereunder, subject in certain cases to (a) the right of the Master Servicer to
approve in advance any such settlement; (b) maintenance of escrow accounts of
Mortgagors and Obligors for payment of taxes, insurance, and other items
required to be paid by the Mortgagor pursuant to terms of the related Mortgage
Loan or the Obligor pursuant to the related Contract; (c) processing of
assumptions or substitutions; (d) attempting to cure delinquencies; (e)
supervising foreclosures or repossessions; (f) inspection and management of
Mortgaged Properties, Cooperative Dwellings or Manufactured Homes under certain
circumstances; and (g) maintaining accounting records relating to the Mortgage
Loans and Contracts. A Servicer will also be obligated to make Advances in
respect of delinquent installments of principal and interest on Mortgage Loans
and Contracts (as described more fully below under "-Payments on Mortgage Loans"
and "-Payments on Contracts"), and in respect of certain taxes and insurance
premiums not paid on a timely basis by Mortgagors and Obligors.
As compensation for its servicing duties, a Servicer will be entitled to
amounts from payments with respect to the Mortgage Loans and Contracts serviced
by it. The Servicer will also be entitled to collect and retain, as part of its
servicing
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compensation, certain fees and late charges provided in the Mortgage Note or
related instruments. The Servicer will be reimbursed by the Master Servicer for
certain expenditures that it makes, generally to the same extent that the Master
Servicer would be reimbursed under the applicable Pooling and Servicing
Agreement.
Each Servicer will be required to agree to indemnify the Master Servicer
for any liability or obligation sustained by the Master Servicer in connection
with any act or failure to act by the Servicer in its servicing capacity.
Each Servicer will be required to service each Mortgage Loan or Contract
pursuant to the terms of the Servicing Agreement for the entire term of such
Mortgage Loan or Contract, unless the Servicing Agreement is earlier terminated
by the Master Servicer or unless servicing is released to the Master Servicer.
Unless otherwise set forth in the Prospectus Supplement, the Master Servicer may
terminate a Servicing Agreement upon 30 days' written notice to the Servicer,
without cause, upon payment of an amount equal to the fair market value of the
right to service the Mortgage Loans or Contracts serviced by any such Servicer
under such Servicing Agreement, or if such fair market value cannot be
determined, a specified percentage of the aggregate outstanding principal
balance of all such Mortgage Loans or Contracts, or immediately upon the giving
of notice upon certain stated events, including the violation of such Servicing
Agreement by the Servicer.
The Master Servicer may agree with a Servicer to amend a Servicing
Agreement. The Master Servicer may also, at any time and from time to time,
release servicing to third-party servicers, but continue to act as Master
Servicer under the related Pooling and Servicing Agreement. Upon termination of
a Servicing Agreement, the Master Servicer may act as servicer of the related
Mortgage Loans or Contracts or enter into one or more new Servicing Agreements.
If the Master Servicer acts as servicer, it will not assume liability for the
representations and warranties of the Servicer that it replaces. If the Master
Servicer enters into a new Servicing Agreement, each new Servicer must be an
Unaffiliated Seller or meet the standards for becoming an Unaffiliated Seller or
have such servicing experience that is otherwise satisfactory to the Master
Servicer. The Master Servicer will make reasonable efforts to have the new
Servicer assume liability for the representations and warranties of the
terminated Servicer, but no assurance can be given that such an assumption will
occur. In the event of such an assumption, the Master Servicer may, in the
exercise of its business judgment, release the terminated Servicer from
liability in respect of such representations and warranties. Any amendments to a
Servicing Agreement or new Servicing Agreements may contain provisions different
from those described above that are in effect in the original Servicing
Agreements. However, the Pooling and Servicing Agreement with respect to a
Series will provide that any such amendment or new agreement may not be
inconsistent with or violate such Pooling and Servicing Agreement.
PAYMENTS ON MORTGAGE LOANS
The Master Servicer will, unless otherwise specified in the Prospectus
Supplement with respect to a Series of Certificates, establish and maintain a
separate account or accounts in the name of the Trustee (the "Certificate
Account"), which must be maintained with a depository institution and in a
manner acceptable to the Rating Agency rating the Certificates of a Series.
If so specified in the applicable Prospectus Supplement, the Master
Servicer, in lieu of establishing a Certificate Account, may establish a
separate account or accounts in the name of the Trustee (the "Custodial
Account") meeting the requirements set forth herein for the Certificate Account.
In such a case, amounts in such Custodial Account, after making the required
deposits and withdrawals specified below, shall be remitted to the Certificate
Account maintained by the Trustee for distribution to Certificateholders in the
manner set forth herein and in such Prospectus Supplement.
In those cases where a Servicer is servicing a Mortgage Loan pursuant to a
Servicing Agreement, the Servicer will establish and maintain an account (the
"Servicing Account") that will comply with either the standards set forth above
or, subject to the conditions set forth in the Servicing Agreement, be
maintained with a depository, meeting the requirements of the Rating Agency
rating the Certificates of the related Series, and that is otherwise acceptable
to the Master Servicer. The Servicer will be required to deposit into the
Servicing Account on a daily basis all amounts enumerated in the following
paragraph in respect of the Mortgage Loans received by the Servicer, less its
servicing compensation. On the date specified in the Servicing Agreement, the
Servicer shall remit to the Master Servicer all funds held in the Servicing
Account with respect to each Mortgage Loan. The Servicer will also be required
to advance any monthly installment of principal and
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interest that was not timely received, less its servicing fee, provided that,
unless otherwise specified in the related Prospectus Supplement, such
requirement shall only apply to the extent such Servicer determines in good
faith any such advance will be recoverable out of Insurance Proceeds, proceeds
of the liquidation of the related Mortgage Loans or otherwise.
The Certificate Account may be maintained with a depository institution
that is an affiliate of the Master Servicer. The Master Servicer will deposit in
the Certificate Account for each Series of Certificates on a daily basis the
following payments and collections received or made by it subsequent to the Cut-
off Date (other than payments due on or before the Cut-off Date) in the manner
set forth in the related Prospectus Supplement:
(i) all payments on account of principal, including principal prepayments,
on the Mortgage Loans, net of any portion of such payments that represent
unreimbursed or unrecoverable Advances made by the related Servicer;
(ii) all payments on account of interest on the Mortgage Loans, net of any
portion thereof retained by the Servicer, if any, as its servicing fee;
(iii) all proceeds of (A) any Special Hazard Insurance Policy, Primary
Mortgage Insurance Policy, FHA Insurance, VA Guarantee, Mortgagor Bankruptcy
Bond or Pool Insurance Policy with respect to such Series of Certificates and
any title, hazard or other insurance policy covering any of the Mortgage
Loans included in the related Mortgage Pool (to the extent such proceeds are
not applied to the restoration of the related property or released to the
Mortgagor in accordance with customary servicing procedures) (collectively,
"Insurance Proceeds") or any Alternative Credit Support established in lieu
of any such insurance and described in the applicable Prospectus Supplement;
and (B) all other cash amounts received and retained in connection with the
liquidation of defaulted Mortgage Loans, by foreclosure or otherwise, other
than Insurance Proceeds, payments under the Letter of Credit or proceeds of
any Alternative Credit Support, if any, with respect to such Series
("Liquidation Proceeds"), net of expenses of liquidation, unpaid servicing
compensation with respect to such Mortgage Loans and unreimbursed or
unrecoverable Advances made by the Servicers of the related Mortgage Loans;
(iv) all payments under the Letter of Credit, if any, with respect to
such Series;
(v) all amounts required to be deposited therein from the Reserve Fund,
if any, for such Series;
(vi) any Advances made by a Servicer or the Master Servicer (as
described herein under "-Advances");
(vii) any Buy-Down Funds (and, if applicable, investment earnings thereon)
required to be deposited in the Certificate Account, as described below; and
(viii) all proceeds of any Mortgage Loan repurchased by the Master
Servicer, the Depositor, any Servicer or any Unaffiliated Seller (as
described under "The Trust Fund-Mortgage Loan Program-Representations by
Unaffiliated Sellers; Repurchases" or "-Assignment of Mortgage Loans" above
or repurchased by the Depositor as described under "-Termination" below)
With respect to each Buy-Down Loan, if so specified in the related
Prospectus Supplement, the Master Servicer or the related Servicer will deposit
the Buy-Down Funds with respect thereto in a custodial account complying with
the requirements set forth above for the Certificate Account, which, unless
otherwise specified in the related Prospectus Supplement, may be an interest-
bearing account. The amount of such required deposits, together with investment
earnings thereon at the rate specified in the applicable Prospectus Supplement,
will provide sufficient funds to support the full monthly payments due on such
Buy-Down Loan on a level debt service basis. Neither the Master Servicer nor the
Depositor will be obligated to add to the Buy-Down Fund should investment
earnings prove insufficient to maintain the scheduled level of payments on the
Buy-Down Loans. To the extent that any such insufficiency is not recoverable
from the Mortgagor under the terms of the related Mortgage Note, distributions
to Certificateholders will be affected. With respect to each Buy-Down Loan, the
Master Servicer will withdraw from the Buy-Down Fund and deposit in the
Certificate Account on or before each Distribution Date the amount, if any, for
each Buy-Down Loan that, when added to the amount due on that date from the
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Mortgagor on such Buy-Down Loan, equals the full monthly payment that would be
due on the Buy-Down Loan if it were not subject to the buy-down plan.
If the Mortgagor on a Buy-Down Loan prepays such loan in its entirety, or
defaults on such loan and the Mortgaged Property is sold in liquidation thereof,
during the period when the Mortgagor is not obligated, on account of the buy-
down plan, to pay the full monthly payment otherwise due on such loan, the
related Servicer will withdraw from the Buy-Down Fund and deposit in the
Certificate Account the amounts remaining in the Buy-Down Fund with respect to
such Buy-Down Loan. In the event of a default with respect to which a claim,
including accrued interest supplemented by amounts in the Buy-Down Fund with
respect to the related Buy-Down Loan, has been made, the Master Servicer or the
related Servicer will pay an amount equal to the remaining amounts in the Buy-
Down Fund with respect to the related Buy-Down Loan, to the extent the claim
includes accrued interest supplemented by amounts in the Buy-Down Fund, to the
related Pool Insurer or the insurer under the related Primary Insurance Policy
(the "Primary Insurer") if the Mortgaged Property is transferred to the Pool
Insurer or the Primary Insurer, as the case may be, which pays 100% of the
related claim (including accrued interest and expenses) in respect of such
default, to the L/C Bank in consideration of such payment under the related
Letter of Credit, or to the guarantor or other person which pays the same
pursuant to Alternative Credit Support described in the applicable Prospectus
Supplement. In the case of any such prepaid or defaulted Buy-Down Loan the
amounts in the Buy-Down Fund in respect of which were supplemented by investment
earnings, the Master Servicer will withdraw from the Buy-Down Fund and remit to
the Depositor or the Mortgagor, depending on the terms of the related buy-down
plan, any investment earnings remaining in the related Buy-Down Fund.
If so specified in the Prospectus Supplement with respect to a Series, in
lieu of, or in addition to the foregoing, the Depositor may deliver cash, a
letter of credit or a guaranteed investment contract to the Trustee to fund the
Buy-Down Fund for such Series, which shall be drawn upon by the Trustee in the
manner and at the times specified in such Prospectus Supplement.
PAYMENTS ON CONTRACTS
A Certificate Account meeting the requirements set forth under "Description
of the Certificates-Payments on Mortgage Loans" will be established in the name
of the Trustee.
There will be deposited in the Certificate Account on a daily basis the
following payments and collections received or made by it subsequent to the Cut-
off Date (including scheduled payments of principal and interest due after the
Cut-off Date but received by the Master Servicer on or before the Cut-off Date):
(i) all Obligor payments on account of principal, including principal
prepayments, on the Contracts;
(ii) all Obligor payments on account of interest on the Contracts,
adjusted to the Pass-Through Rate;
(iii) all Liquidation Proceeds received with respect to Contracts or
property acquired in respect thereof by foreclosure or otherwise;
(iv) all Insurance Proceeds received with respect to any Contract, other
than proceeds to be applied to the restoration or repair of the Manufactured
Home or released to the Obligor;
(v) any Advances made as described under "-Advances" and certain other
amounts required under the Pooling and Servicing Agreement to be deposited in
the Certificate Account;
(vi) all amounts received from Credit Support provided with respect to a
Series of Certificates;
(vii) all proceeds of any Contract or property acquired in respect thereof
repurchased by the Master Servicer, the Depositor or otherwise as described
above or under "-Termination" below; and
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(viii) all amounts, if any, required to be transferred to the Certificate
Account from the Reserve Fund.
COLLECTION OF PAYMENTS ON MORTGAGE CERTIFICATES
The Mortgage Certificates included in the Trust Fund with respect to a
Series of Certificates will be registered in the name of the Trustee so that all
distributions thereon will be made directly to the Trustee. The Pooling and
Servicing Agreement will require the Trustee, if it has not received a
distribution with respect to any Mortgage Certificate by the second business day
after the date on which such distribution was due and payable pursuant to the
terms of such Mortgage Certificate, to request the issuer or guarantor, if any,
of such Mortgage Certificate to make such payment as promptly as possible and
legally permitted and to take such legal action against such issuer or guarantor
as the Trustee deems appropriate under the circumstances, including the
prosecution of any claims in connection therewith. The reasonable legal fees and
expenses incurred by the Trustee in connection with the prosecution of any such
legal action will be reimbursable to the Trustee out of the proceeds of any such
action and will be retained by the Trustee prior to the deposit of any remaining
proceeds in the Certificate Account pending distribution thereof to
Certificateholders of the affected Series. In the event that the Trustee has
reason to believe that the proceeds of any such legal action may be insufficient
to reimburse it for its projected legal fees and expenses, the Trustee will
notify such Certificateholders that it is not obligated to pursue any such
available remedies unless adequate indemnity for its legal fees and expenses is
provided by such Certificateholders.
DISTRIBUTIONS ON CERTIFICATES
On each Distribution Date with respect to a Series of Certificates as to
which credit support is provided by means other than the creation of a
Subordinated Class or Subclasses and the establishment of a Reserve Fund, the
Master Servicer will withdraw from the applicable Certificate Account funds on
deposit therein and distribute, or, if so specified in the applicable Prospectus
Supplement, will withdraw from the Custodial Account funds on deposit therein
and remit to the Trustee, who will distribute, such funds to Certificateholders
of record on the applicable Record Date. Such distributions shall occur in the
manner described herein under "Description of the Certificates-Distributions of
Principal and Interest" and in the related Prospectus Supplement. If so
specified in the applicable Prospectus Supplement, the Master Servicer will
withdraw from the applicable Certificate Account funds on deposit therein and
distribute them to the Trustee. Such funds shall consist of the aggregate of all
previously undistributed payments on account of principal (including principal
prepayments, if any) and interest received after the Cut-off Date and on or
prior to the 20th day (or if such day is not a business day, the next preceding
business day) of the month of such distribution or such other day as may be
specified in the related Prospectus Supplement (in either case the
"Determination Date"), except:
(i) all payments that were due on or before the Cut-off Date;
(ii) all principal prepayments received during the month of distribution
and all payments of interest representing interest for the month of
distribution or any portion thereof;
(iii) all payments which represent early receipt (other than prepayments)
of scheduled payments of principal and interest due on a date or dates
subsequent to the first day of the month of distribution;
(iv) amounts received on particular Mortgage Loans or Contracts as late
payments of principal or interest and respecting which the Master Servicer
has made an unreimbursed Advance;
(v) amounts representing reimbursement for other Advances which the Master
Servicer has determined to be otherwise nonrecoverable and amounts
representing reimbursement for certain losses and expenses incurred or
Advances made by the Master Servicer and discussed below; and
(vi) that portion of each collection of interest on a particular Mortgage
Loan in such Mortgage Pool or on a particular Contract in such Contract Pool
that represents (A) servicing compensation to the Master Servicer, (B)
amounts payable to the entity or entities specified in the applicable
Prospectus Supplement or permitted
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withdrawals from the Certificate Account out of payments under the Letter of
Credit, if any, with respect to the Series, (C) related Insurance Proceeds or
Liquidation Proceeds, (D) amounts in the Reserve Fund, if any, with respect
to the Series or (E) proceeds of any Alternative Credit Support, each
deposited in the Certificate Account to the extent described under
"Description of the Certificates-Maintenance of Insurance Policies", "-
Presentation of Claims", "-Enforcement of Due-on-Sale Clauses; Realization
Upon Defaulted Mortgage Loans" and "-Enforcement of Due-on-Sale Clauses;
Realization Upon Defaulted Contracts" or in the applicable Prospectus
Supplement.
Except as otherwise specified in the related Prospectus Supplement, no
later than the Business Day immediately preceding the Distribution Date for a
Series of Certificates, the Master Servicer will furnish a statement to the
Trustee setting forth the amount to be distributed on the next succeeding
Distribution Date on account of principal and interest on the Mortgage Loans or
Contracts, stated separately or the information enabling the Trustee to
determine the amount of distribution to be made on the Certificates and a
statement setting forth certain information with respect to the Mortgage Loans
or Contracts.
If so specified in the applicable Prospectus Supplement, the Trustee will
establish and maintain the Certificate Account for the benefit of the holders of
the Certificates of the related Series in which the Trustee shall deposit, as
soon as practicable after receipt, each distribution made to the Trustee by the
Master Servicer, as set forth above, with respect to the Mortgage Loans or
Contracts, any distribution received by the Trustee with respect to the Mortgage
Certificates, if any, included in the Trust Fund and deposits from any Reserve
Fund or GPM Fund. If so specified in the applicable Prospectus Supplement, prior
to making any distributions to Certificateholders, any portion of the
distribution on the Mortgage Certificates that represents servicing
compensation, if any, payable to the Trustee shall be deducted and paid to the
Trustee.
Funds on deposit in the Certificate Account may be invested in Eligible
Investments maturing in general not later than the Business Day preceding the
next Distribution Date. Unless otherwise provided in the Prospectus Supplement,
all income and gain realized from any such investment will be for the benefit of
the Master Servicer. The Master Servicer will be required to deposit the amount
of any losses incurred with respect to such investments out of its own funds,
when realized. The Certificate Account established pursuant to the Deposit Trust
Agreement shall be a non-interest bearing account or accounts.
The timing and method of distribution of funds in the Certificate Account
to Classes or Subclasses of Certificates having differing terms, whether
subordinated or not, to the extent not described herein, shall be set forth in
the related Prospectus Supplement.
SPECIAL DISTRIBUTIONS
To the extent specified in the Prospectus Supplement relating to a Series
of Certificates, one or more Classes of Multi-Class Certificates that do not
provide for monthly Distribution Dates may receive Special Distributions in
reduction of Stated Principal Balance ("Special Distributions") in any month,
other than a month in which a Distribution Date occurs, if, as a result of
principal prepayments on the Trust Assets in the related Trust Fund and/or low
reinvestment yields, the Trustee determines, based on assumptions specified in
the related Pooling and Servicing Agreement, that the amount of cash anticipated
to be on deposit in the Certificate Account on the next Distribution Date for
such Series and available to be distributed to the holders of the Certificates
of such Classes or Subclasses may be less than the sum of (i) the interest
scheduled to be distributed to holders of the Certificates of such Classes or
Subclasses and (ii) the amount to be distributed in reduction of Stated
Principal Balance or such Certificates on such Distribution Date. Any such
Special Distributions will be made in the same priority and manner as
distributions in reduction of Stated Principal Balance would be made on the next
Distribution Date.
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REPORTS TO CERTIFICATEHOLDERS
Unless otherwise specified or modified in the related Prospectus Supplement
for each Series, the Master Servicer or the Trustee will include with each
distribution to Certificateholders of record of such Series, or within a
reasonable time thereafter, a statement generally setting forth, among other
things, the following information, if applicable (per each Certificate, as to
(i) through (iii) or (iv) through (vi) below, as applicable):
(i) to each holder of a Certificate, other than a Multi-Class Certificate
or Residual Certificate, the amount of such distribution allocable to
principal of the Trust Assets, separately identifying the aggregate amount of
any Principal Prepayments included therein, and the portion, if any, advanced
by a Servicer or the Master Servicer;
(ii) to each holder of a Certificate, other than a Multi-Class Certificate
or Residual Certificate, the amount of such distribution allocable to
interest on the related Trust Assets and the portion, if any, advanced by a
Servicer or the Master Servicer;
(iii) to each holder of a Certificate, the amount of servicing
compensation with respect to the related Trust Assets and such other
customary information as the Master Servicer deems necessary or desirable to
enable Certificateholders to prepare their tax returns;
(iv) to each holder of a Multi-Class Certificate on which an interest
distribution and a distribution in reduction of Stated Principal Balance are
then being made, the amount of such interest distribution and distribution in
reduction of Stated Principal Balance, and the Stated Principal Balance of
each Class after giving effect to the distribution in reduction of Stated
Principal Balance made on such Distribution Date or on any Special
Distribution Date occurring subsequent to the last report;
(v) to each holder of a Multi-Class Certificate on which a distribution of
interest only is then being made, the aggregate Stated Principal Balance of
Certificates outstanding of each Class or Subclass after giving effect to the
distribution in reduction of Stated Principal Balance made on such
Distribution Date and on any Special Distribution Date occurring subsequent
to the last such report and after including in the aggregate Stated Principal
Balance the Stated Principal Balance of the Compound Interest Certificates,
if any, outstanding and the amount of any accrued interest added to the
Compound Value of such Compound Interest Certificates on such Distribution
Date;
(vi) to each holder of a Compound Interest Certificate (but only if such
holder shall not have received a distribution of interest on such
Distribution Date equal to the entire amount of interest accrued on such
Certificate with respect to such Distribution Date):
(a) the information contained in the report delivered pursuant to
clause (v) above;
(b) the interest accrued on such Class or Subclass of Compound Interest
Certificates with respect to such Distribution Date and added to the Compound
Value of such Compound Interest Certificate; and
(c) the Stated Principal Balance of such Class or Subclass of Compound
Interest Certificates after giving effect to the addition thereto of all
interest accrued thereon;
(vii) in the case of a series of Certificates with a variable Pass-Through
Rate, the weighted average Pass-Through Rate applicable to the distribution
in question;
(viii) the amount or the remaining obligations of an L/C Bank with respect
to a Letter of Credit, after giving effect to the declining amount available
and any payments thereunder and other amounts charged thereto on the
applicable Distribution Date, expressed as a percentage of the amount
reported pursuant to (x) below, and the amount of coverage remaining under
the Pool Insurance Policy, Special Hazard Insurance Policy, Mortgagor
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Bankruptcy Bond, or Reserve Fund as applicable, in each case, as of the
applicable Determination Date, after giving effect to any amounts with
respect thereto distributed to Certificateholders on the Distribution Date;
(ix) in the case of a Series of Certificates benefiting from the
Alternative Credit Support described in the related Prospectus Supplement,
the amount of coverage under such Alternative Credit Support as of the close
of business on the applicable Determination Date, after giving effect to any
amounts with respect thereto distributed to Certificateholders on the
Distribution Date;
(x) the aggregate scheduled principal balance of the Trust Assets as of a
date not earlier than such Distribution Date after giving effect to payments
of principal distributed to Certificateholders on the Distribution Date;
(xi) the book value of any collateral acquired by the Mortgage Pool or
Contract Pool through foreclosure, repossession or otherwise; and
(xii) the number and aggregate principal amount of Mortgage Loans or
Contracts one month and two months delinquent.
In addition, within a reasonable period of time after the end of each
calendar year, the Master Servicer, or the Trustee, if specified in the
applicable Prospectus Supplement, will cause to be furnished to each
Certificateholder of record at any time during such calendar year a report as to
the aggregate of amounts reported pursuant to (i) through (iii) or (iv) through
(vi) above and such other information as in the judgment of the Master Servicer
or the Trustee, as the case may be, is needed for the Certificateholder to
prepare its tax return, as applicable, for such calendar year or, in the event
such person was a Certificateholder of record during a portion of such calendar
year, for the applicable portion of such year.
ADVANCES
Unless otherwise stated in the related Prospectus Supplement, each Servicer
and the Master Servicer (with respect to Mortgage Loans or Contracts serviced by
it and with respect to Advances required to be made by the Servicers that were
not so made) will be obligated to advance funds in an amount equal to the
aggregate scheduled installments of payments of principal and interest (adjusted
to the applicable Pass-Through Rate) that were due on the Due Date with respect
to a Mortgage Loan or Contract and that were delinquent (including any payments
that have been deferred by the Servicer or the Master Servicer) as of the close
of business on the date specified in the Pooling and Servicing Agreement, to be
remitted no later than the close of business on the business day immediately
preceding the Distribution Date, subject to (unless otherwise provided in the
applicable Prospectus Supplement) their respective determinations that such
advances are reimbursable under any Letter of Credit, Pool Insurance Policy,
Primary Mortgage Insurance Policy, Mortgagor Bankruptcy Bond, from the proceeds
of Alternative Credit Support, from cash in the Reserve Fund, the Servicing or
Certificate Accounts or otherwise. In making such advances, the Servicers and
Master Servicer will endeavor to maintain a regular flow of scheduled interest
and principal payments to the Certificateholders, rather than to guarantee or
insure against losses. Any such Advances are reimbursable to the Servicer or
Master Servicer out of related recoveries on the Mortgage Loans respecting which
such amounts were advanced. In addition, such Advances are reimbursable from
cash in the Reserve Fund, the Servicing or Certificate Accounts to the extent
that the Servicer or the Master Servicer, as the case may be, shall determine
that any such Advances previously made are not ultimately recoverable. The
Servicers and the Master Servicer generally will also be obligated to make
advances in respect of certain taxes and insurance premiums not paid by
Mortgagors or Obligors on a timely basis and, to the extent deemed recoverable,
foreclosure costs, including reasonable attorney's fees. Funds so advanced are
reimbursable out of recoveries on the related Mortgage Loans. This right of
reimbursement for any Advance will be prior to the rights of the
Certificateholders to receive any amounts recovered with respect to such
Mortgage Loans or Contracts. Unless otherwise provided in the applicable
Prospectus Supplement, the Servicers and the Master Servicer will also be
required to advance an amount necessary to provide a full month's interest
(adjusted to the applicable Pass-Through Rate) in connection with full or
partial prepayments, liquidations, defaults and repurchases of the Mortgage
Loans or Contracts. Any such Advances will not be reimbursable to the Servicers
or the Master Servicer.
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COLLECTION AND OTHER SERVICING PROCEDURES
The Master Servicer, directly or through the Servicers, as the case may be,
will make reasonable efforts to collect all payments called for under the
Mortgage Loans or Contracts and will, consistent with the applicable Pooling and
Servicing Agreement and any applicable Letter of Credit, Pool Insurance Policy,
Special Hazard Insurance Policy, Primary Mortgage Insurance Policy, Mortgagor
Bankruptcy Bond, or Alternative Credit Support, follow such collection
procedures as it follows with respect to mortgage loans or contracts serviced by
it that are comparable to the Mortgage Loans or Contracts, except when, in the
case of FHA or VA Loans, applicable regulations require otherwise. Consistent
with the above, the Master Servicer may, in its discretion, waive any late
payment charge or any prepayment charge or penalty interest in connection with
the prepayment of a Mortgage Loan or Contract or extend the due dates for
payments due on a Mortgage Note or Contract for a period of not greater than 270
days, provided that the insurance coverage for such Mortgage Loan or Contract or
the coverage provided by any Letter of Credit or any Alternative Credit Support,
will not be adversely affected.
Under the Pooling and Servicing Agreement, the Master Servicer, either
directly or through Servicers, to the extent permitted by law, may establish and
maintain an escrow account (the "Escrow Account") in which Mortgages or Obligors
will be required to deposit amounts sufficient to pay taxes, assessments,
mortgage and hazard insurance premiums and other comparable items. This
obligation may be satisfied by the provision of insurance coverage against loss
occasioned by the failure to escrow insurance premiums rather than causing such
escrows to be made. Withdrawals from the Escrow Account may be made to effect
timely payment of taxes, assessments, mortgage and hazard insurance, to refund
to Mortgagors or Obligors amounts determined to be overages, to pay interest to
Mortgagors or Obligors on balances in the Escrow Account, if required, and to
clear and terminate such account. The Master Servicer will be responsible for
the administration of each Escrow Account and will be obliged to make advances
to such accounts when a deficiency exists therein. Alternatively, in lieu of
establishing an Escrow Account, the Servicer may procure a performance bond or
other form of insurance coverage, in an amount acceptable to the Rating Agency
rating the related Series of Certificates, covering loss occasioned by the
failure to escrow such amounts.
MAINTENANCE OF INSURANCE POLICIES
To the extent that the applicable Prospectus Supplement does not expressly
provide for a method of credit support described below under "Credit Support" or
for Alternative Credit Support in lieu of some or all of the insurance coverage
set forth below, the following paragraphs on insurance shall apply.
STANDARD HAZARD INSURANCE
To the extent specified in a related Prospectus Supplement, the terms of
each Servicing Agreement will require the Servicer to cause to be maintained for
each Mortgage Loan or Contract that it services (and the Master Servicer will be
required to maintain for each Mortgage Loan or Contract serviced by it directly)
a policy of standard hazard insurance (a "Standard Hazard Insurance Policy")
covering the Mortgaged Property underlying such Mortgage Loan or Manufactured
Home underlying such Contract in an amount at least equal to the maximum
insurable value or the improvements securing such Mortgage Loan or Contract or
the principal balance of such Mortgage Loan or Contract, whichever is less. Each
Servicer or the Master Servicer, as the case may be, shall also maintain on
property acquired upon foreclosure, or deed in lieu of foreclosure, of any
Mortgage Loan or Contract, a Standard Hazard Insurance Policy in an amount that
is at least equal to the maximum insurable value of the improvements that are a
part of the Mortgaged Property or Manufactured Home. Any amounts collected by
the Servicer or the Master Servicer under any such policies (other than amounts
to be applied to the restoration or repair of the Mortgaged Property or
Manufactured Home or released to the borrower in accordance with normal
servicing procedures) shall be deposited in the related Servicing Account for
deposit in the Certificate Account or, in the case of the Master Servicer, shall
be deposited directly into the Certificate Account. Any cost incurred in
maintaining any such insurance shall not, for the purpose of calculating monthly
distributions to Certificateholders, be added to the amount owing under the
Mortgage Loan or Contract, notwithstanding that the terms of the Mortgage Loan
or Contract may so permit. Such cost shall be recoverable by the Servicer only
by withdrawal of funds from the Servicing Account or by the Master Servicer only
by withdrawal from the Certificate Account, as described in the Pooling and
Servicing Agreement. No
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earthquake or other additional insurance is to be required of any borrower or
maintained on property acquired in respect of a Mortgage Loan or Contract, other
than pursuant to such applicable laws and regulations as shall at any time be in
force and as shall require such additional insurance. When the Mortgaged
Property or Manufactured Home is located at the time of origination of the
Mortgage Loan or Contract in a federally designated flood area, the related
Servicer (or the Master Servicer, in the case of each Mortgage Loan or Contract
serviced by it directly) will cause flood insurance to be maintained, to the
extent available, in those areas where flood insurance is required under the
National Flood Insurance Act of 1968, as amended.
The Depositor will not require that a standard hazard or flood insurance
policy be maintained on the Cooperative Dwelling relating to any Cooperative
Loan. Generally, the cooperative corporation itself is responsible for
maintenance of hazard insurance for the property owned by the cooperative and
the tenant-stockholders of that cooperative do not maintain individual hazard
insurance policies. To the extent, however, that a Cooperative and the related
borrower on a Cooperative Loan do not maintain such insurance or do not maintain
adequate coverage or any insurance proceeds are not applied to the restoration
of damaged property, any damage to such borrower's Cooperative Dwelling or such
Cooperative's building could significantly reduce the value of the collateral
securing such Cooperative Loan to the extent not covered by other credit
support.
The Pooling and Servicing Agreement will require the Master Servicer to
perform the aforementioned obligations of the Servicer in the event the Servicer
fails to do so. In the event that the Master Servicer obtains and maintains a
blanket policy insuring against hazard losses on all of the related Mortgage
Loans or Contracts, it will conclusively be deemed to have satisfied its
obligations to cause to be maintained a Standard Hazard Insurance Policy for
each Mortgage Loan or Contract that it services. This blanket policy may contain
a deductible clause, in which case the Master Servicer will, in the event that
there has been a loss that would have been covered by such policy absent such
deductible, deposit in the Certificate Account the amount not otherwise payable
under the blanket policy because of the application of such deductible clause.
Since the amount of hazard insurance to be maintained on the improvements
securing the Mortgage Loans or Contracts may decline as the principal balances
owing thereon decrease, and since residential properties have historically
appreciated in value over time, in the event of partial loss, hazard insurance
proceeds may be insufficient to fully restore the damaged Mortgaged Property or
Manufactured Home. See "Description of Insurance-Special Hazard Insurance
Policies" for a description of the limited protection afforded by a Special
Hazard Insurance Policy against losses occasioned by certain hazards that are
otherwise uninsured against as well as against losses caused by the application
of the coinsurance provisions contained in the Standard Hazard Insurance
Policies.
SPECIAL HAZARD INSURANCE
If so specified in the related Prospectus Supplement, the Master Servicer
will be required to exercise its best reasonable efforts to maintain the Special
Hazard Insurance Policy, if any, with respect to a Series of Certificates in
full force and effect, unless coverage thereunder has been exhausted through
payment of claims, and will pay the premium for the Special Hazard Insurance
Policy on a timely basis; provided, however, that the Master Servicer shall be
under no such obligation if coverage under the Pool Insurance Policy with
respect to such Series has been exhausted. In the event that the Special Hazard
Insurance Policy is cancelled or terminated for any reason (other than the
exhaustion of total policy coverage), the Master Servicer will exercise its best
reasonable efforts to obtain from another insurer a replacement policy
comparable to the Special Hazard Insurance Policy with a total coverage that is
equal to the then existing coverage of the Special Hazard Insurance Policy;
provided that if the cost of any such replacement policy is greater than the
cost of the terminated Special Hazard Insurance Policy, the amount of coverage
under the replacement Special Hazard Insurance Policy may be reduced to a level
such that the applicable premium will not exceed the cost of the Special Hazard
Insurance Policy that was replaced. Certain characteristics of the Special
Hazard Insurance Policy are described under "Description of Insurance-Special
Hazard Insurance Policies".
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POOL INSURANCE
To the extent specified in a related Prospectus Supplement, the Master
Servicer will exercise its best reasonable efforts to maintain a Pool Insurance
Policy with respect to a Series of Certificates in effect throughout the term of
the Pooling and Servicing Agreement, unless coverage thereunder has been
exhausted through payment of claims, and will pay the premiums for such Pool
Insurance Policy on a timely basis. In the event that the Pool Insurer ceases to
be a qualified insurer because it is not qualified to transact a mortgage
guaranty insurance business under the laws of the state of its principal place
of business or any other state which has jurisdiction over the Pool Insurer in
connection with the Pool Insurance Policy, or if the Pool Insurance Policy is
cancelled or terminated for any reason (other than the exhaustion of total
policy coverage), the Master Servicer will exercise its best reasonable efforts
to obtain a replacement policy of pool insurance comparable to the Pool
Insurance Policy and may obtain, under the circumstances described above with
respect to the Special Hazard Insurance Policy, a replacement policy with
reduced coverage. In the event the Pool Insurer ceases to be a qualified insurer
because it is not approved as an insurer by FHLMC, FNMA or any successors
thereto, the Master Servicer will agree to review, not less often than monthly,
the financial condition of the Pool Insurer with a view towards determining
whether recoveries under the Pool Insurance Policy are jeopardized and, if so,
will exercise its best reasonable efforts to obtain from another qualified
insurer a replacement insurance policy under the above-stated limitations.
Certain characteristics of the Pool Insurance Policy are described under
"Description of Insurance-Pool Insurance Policies".
PRIMARY MORTGAGE INSURANCE
To the extent specified in the related Prospectus Supplement, the Master
Servicer will be required to keep in force and effect for each Mortgage Loan
secured by Single Family Property serviced by it directly, and each Servicer of
a Mortgage Loan secured by Single Family Property will be required to keep in
full force and effect with respect to each such Mortgage Loan serviced by it, in
each case to the extent required by the underwriting standards of the Depositor,
a Primary Mortgage Insurance Policy issued by a qualified insurer (the "Primary
Mortgage Insurer") with regard to each Mortgage Loan for which such coverage is
required pursuant to the applicable Servicing Agreement and the Pooling and
Servicing Agreement and to act on behalf of the Trustee (the "Insured") under
each such Primary Mortgage Insurance Policy. Neither the Servicer nor the Master
Servicer will cancel or refuse to renew any such Primary Mortgage Insurance
Policy in effect at the date of the initial issuance of a Series of Certificates
that is required to be kept in force under the Pooling and Servicing Agreement
or applicable Servicing Agreement unless the replacement Primary Mortgage
Insurance Policy for such cancelled or non- renewed policy is maintained with an
insurer whose claims-paying ability is acceptable to the Rating Agency rating
the Certificates. See "Description of Insurance-Primary Mortgage Insurance
Policies."
MORTGAGOR BANKRUPTCY BOND
If so specified in the related Prospectus Supplement, the Master Servicer
will exercise its best reasonable efforts to maintain a Mortgagor Bankruptcy
Bond for a Series of Certificates in full force and effect throughout the term
of the Pooling and Servicing Agreement, unless coverage thereunder has been
exhausted through payment of claims, and will pay the premiums for such
Mortgagor Bankruptcy Bond on a timely basis. At the request of the Depositor,
coverage under a Mortgagor Bankruptcy Bond will be cancelled or reduced by the
Master Servicer to the extent permitted by the Rating Agency rating the related
Series of Certificates, provided that such cancellation or reduction does not
adversely affect the then current rating of such Series. See "Description of
Insurance-Mortgagor Bankruptcy Bond".
PRESENTATION OF CLAIMS
The Master Servicer, on behalf of itself, the Trustee and the
Certificateholders, will present claims to HUD, the VA, the Pool Insurer, the
Special Hazard Insurer, the issuer of the Mortgagor Bankruptcy Bond, and each
Primary Mortgage Insurer, as applicable, and take such reasonable steps as are
necessary to permit recovery under such insurance policies or Mortgagor
Bankruptcy Bond, if any, with respect to a Series concerning defaulted Mortgage
Loans or Contracts or Mortgage Loans or Contracts that are the subject of a
bankruptcy proceeding. All collections by the Master Servicer under any FHA
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insurance or VA guarantee, any Pool Insurance Policy, any Primary Mortgage
Insurance Policy or any Mortgagor Bankruptcy Bond and, where the related
property has not been restored, any Special Hazard Insurance Policy, are to be
deposited in the Certificate Account, subject to withdrawal as heretofore
described. In those cases in which a Mortgage Loan or Contract is serviced by a
Servicer, the Servicer, on behalf of itself, the Trustee and the
Certificateholders, will present claims to the applicable Primary Mortgage
Insurer and to the FHA and the VA, as applicable, and all collections thereunder
shall be deposited in the Servicing Account, subject to withdrawal, as set forth
above, for deposit in the Certificate Account
If any property securing a defaulted Mortgage Loan or Contract is damaged
and proceeds, if any, from the related Standard Hazard Insurance Policy or the
applicable Special Hazard Insurance Policy are insufficient to restore the
damaged property to a condition sufficient to permit recovery under any Pool
Insurance Policy or any Primary Mortgage Insurance Policy, neither the related
Servicer nor the Master Servicer, as the case may be, will be required to expend
its own funds to restore the damaged property unless it determines, and, in the
case of a determination by a Servicer, the Master Servicer agrees, (i) that such
restoration will increase the proceeds to Certificateholders on liquidation of
the Mortgage Loan or Contract after reimbursement of the expenses incurred by
the Servicer or the Master Servicer, as the case may be, and (ii) that such
expenses will be recoverable through proceeds of the sale of the Mortgaged
Property or proceeds of any related Pool Insurance Policy, any related Primary
Mortgage Insurance Policy or otherwise.
If recovery under a Pool Insurance Policy or any related Primary Mortgage
Insurance Policy is not available because the related Servicer or the Master
Servicer has been unable to make the above determinations or otherwise, the
Servicer or the Master Servicer is nevertheless obligated to follow such normal
practices and procedures as are deemed necessary or advisable to realize upon
the defaulted Mortgage Loan. If the proceeds of any liquidation of the Mortgaged
Property or Manufactured Home are less than the principal balance of the
defaulted Mortgage Loan or Contract, respectively, plus interest accrued thereon
at the Pass-Through Rate, and if coverage under any other method of credit
support with respect to such Series is exhausted, the related Trust Fund will
realize a loss in the amount of such difference plus the aggregate of expenses
incurred by the Servicer or the Master Servicer in connection with such
proceedings and which are reimbursable under the related Servicing Agreement or
the Pooling and Servicing Agreement. In the event that any such proceedings
result in a total recovery that is, after reimbursement to the Servicer or the
Master Servicer of its expenses, in excess of the principal balance of the
related Mortgage Loan or Contract, together with accrued and unpaid interest
thereon at the applicable Pass-Through Rates, the Servicer and the Master
Servicer will be entitled to withdraw amounts representing normal servicing
compensation on such Mortgage Loan or Contract from the Servicing Account or the
Certificate Account, as the case may be.
ENFORCEMENT OF DUE-ON-SALE CLAUSES; REALIZATION UPON DEFAULTED MORTGAGE LOANS
Each Servicing Agreement and the Pooling and Servicing Agreement with
respect to Certificates representing interests in a Mortgage Pool will provide
that, when any Mortgaged Property has been conveyed by the borrower, such
Servicer or the Master Servicer, as the case may be, will, to the extent it has
knowledge of such conveyance, exercise its rights to accelerate the maturity of
such Mortgage Loan under any "due-on-sale" clause applicable thereto, if any,
unless it reasonably believes that such enforcement is not exercisable under
applicable law or regulations or if such exercise would result in loss of
insurance coverage with respect to such Mortgage Loan. In either case, where the
due-on-sale clause will not be exercised, the Servicer or the Master Servicer is
authorized to take or enter into an assumption and modification agreement from
or with the person to whom such Mortgaged Property has been or is about to be
conveyed, pursuant to which such person becomes liable under the Mortgage Note
and, unless prohibited by applicable state law, the Mortgagor remains liable
thereon, provided that the Mortgage Loan will continue to be covered by any Pool
Insurance Policy and any related Primary Mortgage Insurance Policy. In the case
of an FHA Loan, such an assumption can occur only with HUD approval of the
substitute Mortgagor. Each Servicer and the Master Servicer will also be
authorized, with the prior approval of the Insurer under any required insurance
policies, to enter into a substitution of liability agreement with such person,
pursuant to which the original Mortgagor is released from liability and such
person is substituted as Mortgagor and becomes liable under the Mortgage Note.
Under the Servicing Agreements and the Pooling and Servicing Agreement, the
Servicer or the Master Servicer, as the case may be, will foreclose upon or
otherwise comparably convert the ownership of properties securing such of the
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related Mortgage Loans as come into and continue in default and as to which no
satisfactory arrangements can be made for collection of delinquent payments. In
connection with such foreclosure or other conversion, the Servicer or the Master
Servicer will follow such practices and procedures as are deemed necessary or
advisable and as shall be normal and usual in its general mortgage servicing
activities and in accordance with FNMA guidelines, except when, in the case of
FHA or VA Loans, applicable regulations require otherwise. However, neither the
Servicer nor the Master Servicer will be required to expend its own funds in
connection with any foreclosure or towards the restoration of any property
unless it determines and, in the case of a determination by a Servicer, the
Master Servicer agrees (i) that such restoration and/or foreclosure will
increase the proceeds of liquidation of the related Mortgage Loan to
Certificateholders after reimbursement to itself for such expenses and (ii) that
such expenses will be recoverable to it either through Liquidation Proceeds,
Insurance Proceeds, payments under the Letter of Credit, or amounts in the
Reserve Fund, if any, with respect to the related Series, or otherwise.
Any prospective purchaser of a Cooperative Dwelling will generally be
required to obtain the approval of the board of directors of the related
Cooperative before purchasing the shares and acquiring rights under the
proprietary lease or occupancy agreement securing the Cooperative Loan. See
"Certain Legal Aspects of the Mortgage Loans and Contracts-The Mortgage Loans-
Foreclosure" herein. This approval is usually based on the purchaser's income
and net worth and numerous other factors. Although the Cooperative's approval is
unlikely to be unreasonably withheld or delayed, the necessity of acquiring such
approval could limit the number of potential purchasers for those shares and
otherwise limit the Trust Fund's ability to sell and realize the value of those
shares.
The market value of any Multifamily Property obtained in foreclosure or by
deed in lieu of foreclosure will be based substantially on the operating income
obtained from renting the dwelling units. Since a default on a Mortgage Loan
secured by Multifamily Property is likely to have occurred because operating
income, net of expenses, is insufficient to make debt service payments on the
related Mortgage Loan, it can be anticipated that the market value of such
property will be less than was anticipated when such Mortgage Loan was
originated. To the extent that the equity in the property does not absorb the
loss in market value and such loss is not covered by other credit support, a
loss may be experienced by the related Trust Fund. With respect to Multifamily
Property consisting of an apartment building owned by a Cooperative, the
Cooperative's ability to meet debt service obligations on the Mortgage Loan, as
well as all other operating expenses, will be dependent in large part on the
receipt of maintenance payments from the tenant-stockholders, as well as any
rental income from units or commercial areas the Cooperative might control.
Unanticipated expenditures may in some cases have to be paid by special
assessments of the tenant-stockholders. The Cooperative's ability to pay the
principal amount of the Mortgage Loan at maturity may depend on its ability to
refinance the Mortgage Loan. The Depositor, the Unaffiliated Seller and the
Master Servicer will have no obligation to provide refinancing for any such
Mortgage Loan.
ENFORCEMENT OF "DUE-ON-SALE" CLAUSES; REALIZATION UPON DEFAULTED CONTRACTS
Each Servicing Agreement and Pooling and Servicing Agreement with respect
to Certificates representing interests in a Contract Pool will provide that,
when any Manufactured Home securing a Contract is about to be conveyed by the
Obligor, the Master Servicer, to the extent it has knowledge of such prospective
conveyance and prior to the time of the consummation of such conveyance, may
exercise its rights to accelerate the maturity of such Contract under the
applicable "due-on-sale" clause, if any, unless it is not exercisable under
applicable law. In such case, the Master Servicer is authorized to take or enter
into an assumption agreement from or with the person to whom such Manufactured
Home has been or is about to be conveyed, pursuant to which such person becomes
liable under the Contract and, unless determined to be materially adverse to the
interests of Certificateholders, with the prior approval of the Pool Insurer, if
any, to enter into a substitution of liability agreement with such person,
pursuant to which the original Obligor is released from liability and such
person is substituted as Obligor and becomes liable under the Contract. Where
authorized by the Contract, the APR may be increased, upon assumption, to the
then-prevailing market rate, but shall not be decreased.
Under the Servicing Agreement or the Pooling and Servicing Agreement, the
Master Servicer will repossess or otherwise comparably convert the ownership of
properties securing such of the related Manufactured Homes as come into and
continue in default and as to which no satisfactory arrangements can be made for
collection of delinquent payments. In connection with such repossession or other
conversion, the Servicer or Master Servicer will follow such practices and
procedures as it shall deem necessary or advisable and as shall be normal and
usual in its general Contract servicing
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activities. The Servicer or Master Servicer, however, will not be required to
expend its own funds in connection with any repossession or towards the
restoration of any property unless it determines (i) that such restoration or
repossession will increase the proceeds of liquidation of the related Contract
to the Certificateholders after reimbursement to itself for such expenses and
(ii) that such expenses will be recoverable to it either through liquidation
proceeds or through insurance proceeds.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
Under the Pooling and Servicing Agreement for a Series of Certificates, the
Depositor or the person or entity specified in the related Prospectus Supplement
and any Master Servicer will be entitled to receive an amount described in such
Prospectus Supplement. The Master Servicer's primary compensation generally will
be equal to the difference, with respect to each interest payment on a Mortgage
Loan, between the Mortgage Rate and the Pass-Through Rate for the related
Mortgage Pool and with respect to each interest payment on a Contract, between
the APR and the Pass-Through Rate for the related Contract (less any servicing
compensation payable to the Servicer of the related Mortgage Loan or Contract,
if any, as set forth below, and the amount, if any, payable to the Depositor or
to the person or entity specified in the applicable Prospectus Supplement). As
compensation for its servicing duties, a Servicer will be entitled to receive a
monthly servicing fee in the amount specified in the related Servicing
Agreement. Such servicing compensation shall be payable by withdrawal from the
related Servicing Account prior to deposit in the Certificate Account. Each
Servicer (with respect to the Mortgage Loans or Contracts serviced by it) and
the Master Servicer will be entitled to servicing compensation out of Insurance
Proceeds, Liquidation Proceeds, or Letter of Credit payments. Additional
servicing compensation in the form of prepayment charges, assumption fees, late
payment charges or otherwise shall be retained by the Servicers and the Master
Servicer to the extent not required to be deposited in the Certificate Account.
The Servicers and the Master Servicer, unless otherwise specified in the
related Prospectus Supplement, will pay from their servicing compensation
certain expenses incurred in connection with the servicing of the Mortgage Loans
or Contracts, including, without limitation, payment of the Insurance Policy
premiums and, in the case of the Master Servicer, fees or other amounts payable
for any Alternative Credit Support, payment of the fees and disbursements of the
Trustee (and any custodian selected by the Trustee), the Certificate Register
and independent accountants and payment of expenses incurred in enforcing the
obligations of Servicers and Unaffiliated Sellers. Certain of these expenses may
be reimbursable by the Depositor pursuant to the terms of the Pooling and
Servicing Agreement. In addition, the Master Servicer will be entitled to
reimbursement of expenses incurred in enforcing the obligations of Servicers and
Unaffiliated Sellers under certain limited circumstances.
As set forth in the preceding section, the Servicers and the Master
Servicer will be entitled to reimbursement for certain expenses incurred by them
in connection with the liquidation of defaulted Mortgage Loans or Contracts. The
related Trust Fund will suffer no loss by reason of such expenses to the extent
claims are fully paid under the Letter of Credit, if any, the related insurance
policies, from amounts in the Reserve Fund or under any applicable Alternative
Credit Support described in a Prospectus Supplement. In the event, however, that
claims are either not made or fully paid under such Letter of Credit, Insurance
Policies or Alternative Credit Support, or if coverage thereunder has ceased, or
if amounts in the Reserve Fund are not sufficient to fully pay such losses, the
related Trust Fund will suffer a loss to the extent that the proceeds of the
liquidation proceedings, after reimbursement of the expenses of the Servicers or
the Master Servicer, as the case may be, are less than the principal balance of
the related Mortgage Loan or Contract. In addition, the Servicers and the Master
Servicer will be entitled to reimbursement of expenditures incurred by them in
connection with the restoration of a Mortgaged Property, Cooperative Dwelling or
Manufactured Home, such right of reimbursement being prior to the rights of the
Certificateholders to receive any payments under the Letter of Credit, or from
any related Insurance Proceeds, Liquidation Proceeds, amounts in the Reserve
Fund or any proceeds of Alternative Credit Support.
Under the Deposit Trust Agreement, the Trustee will be entitled to deduct,
from distributions of interest with respect to the Mortgage Certificates, a
specified percentage of the unpaid principal balance of each Mortgage
Certificate as servicing compensation. The Trustee shall be required to pay all
expenses, except as expressly provided in the Deposit Trust Agreement, subject
to limited reimbursement as provided therein.
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EVIDENCE AS TO COMPLIANCE
The Master Servicer will deliver to the Depositor and the Trustee, on or
before the date specified in the Pooling and Servicing Agreement, an Officer's
Certificate stating that (i) a review of the activities of the Master Servicer
and the Servicers during the preceding calendar year and of its performance
under the Pooling and Servicing Agreement has been made under the supervision of
such officer, and (ii) to the best of such officer's knowledge, based on such
review, the Master Servicer and each Servicer has fulfilled all its obligations
under the Pooling and Servicing Agreement and the applicable Servicing Agreement
throughout such year, or, if there has been a default in the fulfillment of any
such obligation, specifying each such default known to such officer and the
nature and status thereof. Such Officer's Certificate shall be accompanied by a
statement of a firm of independent public accountants to the effect that, on the
basis of an examination of certain documents and records relating to servicing
of the Mortgage Loans or Contracts, conducted in accordance with generally
accepted accounting principles in the mortgage banking industry, the servicing
of the Mortgage Loans or Contracts was conducted in compliance with the
provisions of the Pooling and Servicing Agreement and the Servicing Agreements,
except for such exceptions as such firm believes it is required to report.
CERTAIN MATTERS REGARDING THE MASTER SERVICER, THE DEPOSITOR AND THE TRUSTEE
The Master Servicer under each Pooling and Servicing Agreement will be
named in the applicable Prospectus Supplement. The entity acting as Master
Servicer may be an Unaffiliated Seller and have other normal business
relationships with the Depositor and/or affiliates of the Depositor and may be
an affiliate of the Depositor. In the event there is no Master Servicer under a
Pooling and Servicing Agreement, all servicing of Mortgage Loans or Contracts
will be performed by a Servicer pursuant to a Servicing Agreement.
The Master Servicer may not resign from its obligations and duties under
the Pooling and Servicing Agreement except upon a determination that its duties
thereunder are no longer permissible under applicable law. No such resignation
will become effective until the Trustee or a successor servicer has assumed the
Master Servicer's obligations and duties under the Pooling and Servicing
Agreement.
The Trustee under each Pooling and Servicing Agreement or Deposit Trust
Agreement will be named in the applicable Prospectus Supplement. The commercial
bank or trust company serving as Trustee may have normal banking relationships
with the Depositor and/or its affiliates and with the Master Servicer and/or its
affiliates.
The Trustee may resign from its obligations under the Pooling and Servicing
Agreement at any time, in which event a successor trustee will be appointed. In
addition, the Depositor may remove the Trustee if the Trustee ceases to be
eligible to act as Trustee under the Pooling and Servicing Agreement or if the
Trustee becomes insolvent, at which time the Depositor will become obligated to
appoint a successor Trustee. The Trustee may also be removed at any time by the
holders of Certificates evidencing voting rights aggregating not less than 50%
of the voting rights evidenced by the Certificates of such Series. Any
resignation and removal of the Trustee, and the appointment of a successor
trustee, will not become effective until acceptance of such appointment by the
successor Trustee.
The Trustee may resign at any time from its obligations and duties under
the Deposit Trust Agreement by executing an instrument in writing resigning as
Trustee, filing the same with the Depositor, mailing a copy of a notice of
resignation to all Certificateholders then of record, and appointing a qualified
successor trustee. No such resignation will become effective until the successor
trustee has assumed the Trustee's obligations and duties under the Deposit Trust
Agreement.
Each Pooling and Servicing Agreement and Deposit Trust Agreement will also
provide that neither the Depositor nor the Master Servicer nor any director,
officer, employee or agent of the Depositor or the Master Servicer or the
Trustee, or any responsible officers of the Trustee will be under any liability
to the Certificateholders, for the taking of any action or for refraining from
the taking of any action in good faith pursuant to the Pooling and Servicing
Agreement, or for errors in judgment; provided, however, that none of the
Depositor, the Master Servicer or the Trustee nor any such person will be
protected against, in the case of the Master Servicer and the Depositor, any
breach of representations or warranties made by them, and in the case of the
Master Servicer, the Depositor and the Trustee, against any liability that would
otherwise be
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imposed by reason of willful misfeasance, bad faith or negligence in the
performance of its duties or by reason of reckless disregard of its obligations
and duties thereunder. Each Pooling and Servicing Agreement and Deposit Trust
Agreement will further provide that the Depositor, the Master Servicer and the
Trustee and any director, officer and employee or agent of the Depositor, the
Master Servicer or the Trustee shall be entitled to indemnification, by the
Trust Fund in the case of the Depositor and Master Servicer and by the Master
Servicer in the case of the Trustee and will be held harmless against any loss,
liability or expense incurred in connection with any legal action relating to
the applicable Agreement or the Certificates and in the case of the Trustee,
resulting from any error in any tax or information return prepared by the Master
Servicer or from the exercise of any power of attorney granted pursuant to the
Pooling and Servicing Agreement, other than any loss, liability or expense
related to any specific Mortgage Loan, Contract or Mortgage Certificate (except
any such loss, liability or expense otherwise reimbursable pursuant to the
applicable Agreement) and any loss, liability or expense incurred by reason of
willful misfeasance, bad faith or negligence in the performance of their duties
thereunder or by reason of reckless disregard of their obligations and duties
thereunder. In addition, each Agreement will provide that neither the Depositor
nor the Master Servicer, as the case may be, will be under any obligation to
appear in, prosecute or defend any legal action that is not incidental to its
duties under the Agreement and that in its opinion may involve it in any expense
or liability. The Depositor or the Master Servicer may, however, in their
discretion, undertake any such action deemed by them necessary or desirable with
respect to the applicable Agreement and the rights and duties of the parties
thereto and the interests of the Certificateholders thereunder. In such event,
the legal expenses and costs of such action and any liability resulting
therefrom will be expenses, costs and liabilities of the Trust Fund, and the
Master Servicer or the Depositor, as the case may be, will be entitled to be
reimbursed therefor out of the Certificate Account.
DEFICIENCY EVENT
To the extent a deficiency event is specified in the related Prospectus
Supplement, a deficiency event (a "Deficiency Event") with respect to the
Certificates of each Series may be defined in the Pooling and Servicing
Agreement as being the inability of the Trustee to distribute to holders of one
or more Classes of Certificates of such Series, in accordance with the terms
thereof and the Pooling and Servicing Agreement, any distribution of principal
or interest thereon when and as distributable, in each case because of the
insufficiency for such purpose of the funds then held in the related Trust Fund.
To the extent a deficiency event is specified in the related Prospectus
Supplement, upon the occurrence of a Deficiency Event, the Trustee is required
to determine whether or not the application on a monthly basis (regardless of
the frequency of regular Distribution Dates) of all future scheduled payments on
the Mortgage Loans, Contracts and Mortgage Certificates included in the related
Trust Fund and other amount receivable with respect to such Trust Fund towards
payments on such Certificates in accordance with the priorities as to
distributions of principal and interest set forth in such Certificates will be
sufficient to make distributions of interest at the applicable Interest Rates
and to distribute in full the principal balance of each such Certificate on or
before the latest Final Distribution Date of any outstanding Certificates of
such Series.
To the extent a deficiency event is specified in the related Prospectus
Supplement, the Trustee will obtain and rely upon an opinion or report of a firm
of independent accountants of recognized national reputation as to the
sufficiency of the amounts receivable with respect to such Trust Fund to make
such distributions on the Certificates, which opinion or report will be
conclusive evidence as to such sufficiency. Pending the making of any such
determination, distributions on the Certificates shall continue to be made in
accordance with their terms.
To the extent a deficiency event is specified in the related Prospectus
Supplement, in the event that the Trustee makes a positive determination, the
Trustee will apply all amounts received in respect of the related Trust Fund
(after payment of fees and expenses of the Trustee and accountants for the Trust
Fund) to distributions on the Certificates of such Series in accordance with
their terms, except that such distributions shall be made monthly and without
regard to the amount of principal that would otherwise be distributable on any
Distribution Date. Under certain circumstances following such positive
determination, the Trustee may resume making distributions on such Certificates
expressly in accordance with their terms.
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To the extent a deficiency event is specified in the related Prospectus
Supplement, if the Trustee is unable to make the positive determination
described above, the Trustee will apply all amounts received in respect of the
related Trust Fund (after payment of Trustee and accountants' fees and expenses)
to monthly distributions on the Certificates of such series pro rata, without
regard to the priorities as to distribution of principal set forth in such
Certificates, and such Certificates will, to the extent permitted by applicable
law, accrue interest at the highest Interest Rate borne by any Certificate of
such Series, or in the event any Class of such Series shall accrue interest at a
floating rate, at the weighted average Interest Rate, calculated on the basis of
the maximum interest rate applicable to the Class having such floating interest
rate and on the original principal amount of the Certificates of that Class. In
such event, the holders of a majority in outstanding principal balance of such
Certificates may direct the Trustee to sell the related Trust Fund, any such
direction being irrevocable and binding upon the holders of all Certificates of
such Series and upon the owners of the residual interests in such Trust Fund. In
the absence of such a direction, the Trustee may not sell all or any portion of
such Trust Fund.
EVENTS OF DEFAULT
Events of Default under each Pooling and Servicing Agreement will consist
of: (i) any failure to make a specified payment which continues unremedied, in
most cases, for five business days after the giving of written notice; (ii) any
failure by the Trustee, the Servicer or the Master Servicer, as applicable, duly
to observe or perform in any material respect any other of its covenants or
agreements in the Pooling and Servicing Agreement which failure shall continue
for 60 days (15 days in the case of a failure to pay the premium for any
insurance policy) or any breach of any representation and warranty made by the
Master Servicer or the Servicer, if applicable, which continues unremedied for
120 days after the giving of written notice of such failure or breach; (iii)
certain events of insolvency, readjustment of debt, marshalling of assets and
liabilities or similar proceedings regarding the Master Servicer or a Servicer,
as applicable; and (iv) any lowering, withdrawal or notice of an intended or
potential lowering, of the outstanding rating of the Certificates by the Rating
Agency rating such Certificates because the existing or prospective financial
condition or mortgage loan servicing capability of the Master Servicer is
insufficient to maintain such rating.
RIGHTS UPON EVENT OF DEFAULT
So long as an Event of Default with respect to a Series of Certificates
remains unremedied, the Depositor, the Trustee or the holders of Certificates
evidencing not less than 25% of the voting rights evidenced by the Certificates
of such Series may terminate all of the rights and obligations of the Master
Servicer under the Pooling and Servicing Agreement and in and to the Mortgage
Loans and Contracts and the proceeds thereof, whereupon (subject to applicable
law regarding the Trustee's ability to make advances) the Trustee or, if the
Depositor so notifies the Trustee and the Master Servicer, the Depositor or its
designee, will succeed to all the responsibilities, duties and liabilities of
the Master Servicer under such Pooling and Servicing Agreement and will be
entitled to similar compensation arrangements. In the event that the Trustee
would be obligated to succeed the Master Servicer but is unwilling or unable so
to act, it may appoint, or petition to a court of competent jurisdiction for the
appointment of, a successor master servicer. Pending such appointment, the
Trustee (unless prohibited by law from so acting) shall be obligated to act in
such capacity. The Trustee and such successor master servicer may agree upon the
servicing compensation to be paid to such successor, which in no event may be
greater than the compensation to the Master Servicer under the Pooling and
Servicing Agreement.
AMENDMENT
Each Pooling and Servicing Agreement may be amended by the Depositor, the
Master Servicer and the Trustee, without the consent of the Certificateholders,
(i) to cure any ambiguity, (ii) to correct or supplement any provision therein
that may be inconsistent with any other provision therein, or (iii) to make any
other provisions with respect to matters or questions arising under such Pooling
and Servicing Agreement that are not inconsistent with the provisions thereof,
provided that such action will not adversely affect in any material respect the
interests of any Certificateholder of the related Series. The Pooling and
Servicing Agreement may also be amended by the Depositor, the Master Servicer
and the Trustee with the consent of holders of Certificates evidencing not less
than 66 2/3% of the voting rights evidenced by the Certificates, for the
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purpose of adding any provisions to or changing in any manner or eliminating any
of the provisions of such Pooling and Servicing Agreement or of modifying in any
manner the rights of the Certificateholders; provided, however, that no such
amendment may (i) reduce in any manner the amount of, delay the timing of or
change the manner in which payments received on or with respect to Mortgage
Loans and Contracts are required to be distributed with respect to any
Certificate without the consent of the holder of such Certificate, (ii)
adversely affect in any material respect the interests of the holders of a Class
or Subclass of the Senior Certificates, if any, of a Series in a manner other
than that set forth in (i) above without the consent of the holders of the
Senior Certificates of such Subclass evidencing not less than 662/3% of such
Class or Subclass, (iii) adversely affect in any material respect the interests
of the holders of the Subordinated Certificates of a Series in a manner other
than that set forth in (i) above without the consent of the holders of
Subordinated Certificates evidencing not less than 662/3% of such Class or
Subclass, or (iv) reduce the aforesaid percentage of the Certificates, the
holders of which are required to consent to such amendment, without the consent
of the holders of the Class affected thereby.
The Deposit Trust Agreement for a Series may be amended by the Trustee and
the Depositor without Certificateholder consent, to cure any ambiguity, to
correct or supplement any provision therein that may be inconsistent with any
other provision therein, or to make any other provisions with respect to matters
or questions arising thereunder that are not inconsistent with any other
provisions thereof, provided that such action will not, as evidenced by an
opinion of counsel, adversely affect the interests of any Certificateholders of
that Series in any material respect. The Deposit Trust Agreement for each Series
may also be amended by the Trustee and the Depositor with the consent of the
Holders of Certificates evidencing Percentage Interests aggregating not less
than 662/3% of each Class of the Certificates of such Series affected thereby
for the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of such Agreement or modifying in any manner
the rights of Certificateholders of that Series; provided, however, that no such
amendment may (i) reduce in any manner the amount of, or delay the timing of, or
change the manner in which payments received on Mortgage Certificates are
required to be distributed in respect of any Certificate, without the consent of
the Holder of such Certificate or (ii) reduce the aforesaid percentage of
Certificates the Holders of which are required to consent to any such amendment,
without the consent of the Holders of all Certificates of such Series then
outstanding.
TERMINATION
The obligations created by the Pooling and Servicing Agreement for a Series
of Certificates will terminate upon the earlier of (a) the repurchase of all
Mortgage Loans or Contracts and all property acquired by foreclosure of any such
Mortgage Loan or Contract and (b) the later of (i) the maturity or other
liquidation of the last Mortgage Loan or Contract subject thereto and the
disposition of all property acquired upon foreclosure of any such Mortgage Loan
or Contract and (ii) the payment to the Certificateholders of all amounts held
by the Master Servicer and required to be paid to them pursuant to such Pooling
and Servicing Agreement. The obligations created by the Deposit Trust Agreement
for a Series of Certificates will terminate upon the distribution to
Certificateholders of all amounts required to be distributed to them pursuant to
such Deposit Trust Agreement. In no event, however, will the trust created by
either such Agreement continue beyond the expiration of 21 years from the death
of the last survivor of certain persons identified therein. For each Series of
Certificates, the Master Servicer will give written notice of termination of the
applicable Agreement of each Certificateholder, and the final distribution will
be made only upon surrender and cancellation of the Certificates at an office or
agency specified in the notice of termination.
If so provided in the related Prospectus Supplement, the Pooling and
Servicing Agreement for each Series of Certificates will permit, but not
require, the Depositor or such other person as may be specified in the
Prospectus Supplement to repurchase from the Trust Fund for such Series all
remaining Mortgage Loans or Contracts subject to the Pooling and Servicing
Agreement at a price specified in such Prospectus Supplement. In the event that
the Depositor elects to treat the related Trust Fund as a REMIC under the Code,
any such repurchase will be effected in compliance with the requirements of
Section 860F(a)(4) of the Code, in order to constitute a "qualifying
liquidation" thereunder. The exercise of any such right will effect early
retirement of the Certificates of that Series, but the right so to repurchase
may be effected only on or after the aggregate principal balance of the Mortgage
Loans or Contracts for such Series at the time of repurchase is less than a
specified percentage of the aggregate principal balance at the Cut-off Date for
the Series, or on or after the date set forth in the related Prospectus
Supplement.
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CREDIT SUPPORT
Credit support for a Series of Certificates may be provided by one or more
Letters of Credit, the issuance of Subordinated Classes or Subclasses of
Certificates (which may, if so specified in the related Prospectus Supplement,
be issued in notional amounts) the provision for shifting interest credit
enhancement, the establishment of a Reserve Fund, the method of Alternative
Credit Support specified in the applicable Prospectus Supplement, or any
combination of the foregoing, in addition to, or in lieu of, the insurance
arrangements set forth below under Description of Insurance. The amount and
method of credit support will be set forth in the Prospectus Supplement with
respect to a Series of Certificates.
LETTERS OF CREDIT
The Letters of Credit, if any, with respect to a Series of Certificates will be
issued by the bank or financial institution specified in the related Prospectus
Supplement (the "L/C Bank"). The maximum obligation of the L/C Bank under the
Letter of Credit will be to honor requests for payment thereunder in an
aggregate fixed dollar amount, net of unreimbursed payments thereunder, equal to
the percentage of the aggregate principal balance on the related Cut-off Date of
the Mortgage Loans or Contracts evidenced by each Series (the "L/C Percentage")
specified in the Prospectus Supplement for such Series. The duration of coverage
and the amount and frequency of any reduction in coverage provided by the Letter
of Credit with respect to a Series of Certificates will be in compliance with
the requirements established by the Rating Agency rating such Series and will be
set forth in the Prospectus Supplement relating to such Series of Certificates.
The amount available under the Letter of Credit in all cases shall be reduced to
the extent of the unreimbursed payments thereunder. The obligations of the L/C
Bank under the Letter of Credit for each Series of Certificates will expire 30
days after the latest of the scheduled final maturity dates of the Mortgage
Loans or Contracts in the related Mortgage Pool or Contract Pool or the
repurchase of all Mortgage Loans or Contracts in the Mortgage Pool or Contract
Pool in the circumstances specified above. See "Description of the Certificates-
Termination".
Unless otherwise specified in the applicable Prospectus Supplement, under
the Pooling and Servicing Agreement, the Master Servicer will be required not
later than three business days prior to each Distribution Date to determine
whether a payment under the Letter of Credit will be necessary on the
Distribution Date and will, no later than the third business day prior to such
Distribution Date, advise the L/C Bank and the Trustee of its determination,
setting forth the amount of any required payment. On the Distribution Date, the
L/C Bank will be required to honor the Trustee's request for payment thereunder
in an amount equal to the lesser of (A) the remaining amount available under the
Letter of Credit and (B) the outstanding principal balances of any Liquidating
Loans to be assigned on such Distribution Date (together with accrued and unpaid
interest thereon at the related Mortgage Rate or APR to the related Due Date).
The proceeds of such payments under the Letter of Credit will be deposited into
the Certificate Account and will be distributed to Certificateholders, in the
manner specified in the related Prospectus Supplement, on such Distribution
Date, except to the extent of any unreimbursed Advances, servicing compensation
due to the Servicers and the Master Servicer and other amounts payable to the
Depositor or the person or entity named in the applicable Prospectus Supplement
therefrom.
If at any time the L/C Bank makes a payment in the amount of the full
outstanding principal balance and accrued interest on a Liquidating Loan, it
will be entitled to receive an assignment by the Trustee of such Liquidating
Loan, and the L/C Bank will thereafter own such Liquidating Loan free of any
further obligation to the Trustee or the Certificateholders with respect
thereto. Payments made to the Certificate Account by the L/C Bank under the
Letter of Credit with respect to such a Liquidating Loan will be reimbursed to
the L/C Bank only from the proceeds (net of liquidation costs) of such
Liquidating Loan. The amount available under the Letter of Credit will be
increased to the extent it is reimbursed for such payments.
To the extent the proceeds of liquidation of a Liquidating Loan acquired by
the L/C Bank in the manner described in the preceding paragraph exceed the
amount of payments made with respect thereto, the L/C Bank will be entitled to
retain such proceeds as additional compensation for issuance of the Letter of
Credit.
Prospective purchasers of Certificates of a Series with respect to which
credit support is provided by a Letter of Credit must look to the credit of the
L/C Bank, to the extent of its obligations under the Letter of Credit, in the
event of default
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by Mortgagors or Obligors. If the amount available under the Letter of Credit is
exhausted, or the L/C Bank becomes insolvent, and amounts in the Reserve Fund,
if any, with respect to such Series are insufficient to pay the entire amount of
the loss and still be maintained at the level specified in the related
Prospectus Supplement (the "Required Reserve"), the Certificateholders (in the
priority specified in the related Prospectus Supplement) will thereafter bear
all risks of loss resulting from default by Mortgagors or Obligors (including
losses not covered by insurance or Alternative Credit Support), and must look
primarily to the value of the properties securing defaulted Mortgage Loans or
Contracts for recovery of the outstanding principal and unpaid interest.
In the event that a Subordinated Class or Subclass of a Series of
Certificates is issued with a notional amount, the coverage provided by the
Letter of Credit with respect to such Series, and the terms and conditions of
such coverage, will be set forth in the related Prospectus Supplement.
SUBORDINATED CERTIFICATES
To the extent specified in the Prospectus Supplement with respect to a
Series of Certificates, credit support may be provided by the subordination of
the rights of the holders of one or more Classes or Subclasses of Certificates
to receive distributions with respect to the Mortgage Loans in the Mortgage Pool
or Contracts in the Contract Pool underlying such Series, or with respect to a
Subordinated Pool of mortgage loans or manufactured housing conditional sales
contracts and installment loan agreements, to the rights of the Senior
Certificateholders or holders of one or more Classes or Subclasses of
Subordinated Certificates of such Series to receive such distributions, to the
extent of the applicable Subordinated Amount. In such a case, credit support may
also be provided by the establishment of a Reserve Fund, as described below. The
Subordinated Amount, as described below, will be reduced by an amount equal to
Aggregate Losses. Aggregate Losses are defined in the related Pooling and
Servicing Agreement for any given period as the aggregate amount of
delinquencies, losses and other deficiencies in the amounts due to the holders
of the Certificates of one or more classes or Subclasses of such Series paid or
borne by the holders of one or more Classes or Subclasses of Subordinated
Certificates of such Series ("payment deficiencies"), but excluding any payments
of interest on any amounts originally due to the holders of the Certificates of
a Class or Subclass to which the applicable Class or Subclass of Subordinated
Certificates are subordinated on a previous Distribution Date, but not paid as
due, whether by way of withdrawal from the Reserve Fund (including, prior to the
time that the Subordinated Amount is reduced to zero, any such withdrawal of
amounts attributable to the Initial Deposit, if any), reduction in amounts
otherwise distributable to the Subordinated Certificateholders on any
Distribution Date or otherwise, less the aggregate amount of previous payment
deficiencies recovered by the related Trust Fund during such period in respect
of the Mortgage Loans or Contracts giving rise to such previous payment
deficiencies, including, without limitation, such recoveries resulting from the
receipt of delinquent principal and/or interest payments, Liquidation Proceeds
or Insurance Proceeds (net, in each case, of servicing compensation, foreclosure
costs and other servicing costs, expenses and unreimbursed Advances relating to
such Mortgage Loans or Contracts). The Prospectus Supplement for each Series of
Certificates with respect to which credit support will be provided by one or
more Classes or Subclasses of Subordinated Certificates will set forth the
Subordinated Amount for such Series. If specified in the related Prospectus
Supplement, the Subordinated Amount will decline over time in accordance with a
schedule which will also be set forth in the related Prospectus Supplement.
SHIFTING INTEREST
If specified in the Prospectus Supplement for a Series of Certificates for
which credit enhancement is provided by shifting interest as described herein,
the rights of the holders of the Subordinated Certificates of a Series to
receive distributions with respect to the Mortgage Loans or Contracts in the
related Trust Fund or Subsidiary Trust will be subordinated to such right of the
holders of the Senior Certificates of the same Series to the extent described in
such Prospectus Supplement. This subordination feature is intended to enhance
the likelihood of regular receipt by holders of Senior Certificates of the full
amount of scheduled monthly payments of principal and interest due them and to
provide limited protection to the holders of the Senior Certificates against
losses due to mortgagor defaults.
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The protection afforded to the holders of Senior Certificates of a Series
by the shifting interest subordination feature will be effected by distributing
to the holders of the Senior Certificates a disproportionately greater
percentage (the "Senior Prepayment Percentage") of Principal Prepayments. The
initial Senior Prepayment Percentage will be the percentage specified in the
related Prospectus Supplement and will decrease in accordance with the schedule
and subject to the conditions set forth in the Prospectus Supplement. This
disproportionate distribution of Principal Prepayments will have the effect of
accelerating the amortization of the Senior Certificates while increasing the
respective interest of the Subordinated Certificates in the Mortgage Pool or
Contract Pool. Increasing the respective interest of the Subordinated
Certificates relative to that of the Senior Certificates is intended to preserve
the availability of the benefits of the subordination provided by the
Subordinated Certificates.
SWAP AGREEMENT
If so specified in the Prospectus Supplement relating to a Series of
Certificates, the Trust will enter into or obtain an assignment of a swap
agreement or other similar agreement pursuant to which the Trust will have the
right to receive certain payments of interest (or other payments) as set forth
or determined as described therein. The Prospectus Supplement relating to a
Series of Certificates having the benefit of an interest rate swap agreement
will describe the material terms of such agreement and the particular risks
associated with the interest rate swap feature, including market and credit
risk, the effect of counterparty defaults and other risks, if any, addressed by
the rating. The Prospectus Supplement relating to such Series of Certificates
also will set forth certain information relating to the corporate status,
ownership and credit quality of the counterparty or counterparties to such swap
agreement.
RESERVE FUND
If so specified in the related Prospectus Supplement, credit support with
respect to a Series of Certificates may be provided by the establishment and
maintenance with the Trustee for such Series of Certificates, in trust, of a
Reserve Fund for such Series. Unless otherwise specified in the applicable
Prospectus Supplement, the Reserve Fund for a Series will not be included in the
Trust Fund for such Series. The Reserve Fund for each Series will be created by
the Depositor and shall be funded by the retention by the Master Servicer of
certain payments on the Mortgage Loans or Contracts, by the deposit with the
Trustee, in escrow, by the Depositor of a Subordinated Pool of mortgage loans or
manufactured housing conditional sales contracts and installment loan agreements
with the aggregate principal balance, as of the related Cut-off Date, set forth
in the related Prospectus Supplement, by any combination of the foregoing, or in
another manner specified in the related Prospectus Supplement. Following the
initial issuance of the Certificates of a Series and until the balance of the
Reserve Fund first equals or exceeds the Required Reserve, the Master Servicer
will retain specified distributions on the Mortgage Loans or Contracts and/or on
the mortgage loans or manufactured housing conditional sales contracts and
installment loan agreements in the Subordinated Pool otherwise distributable to
the holders of Subordinated Certificates and deposit such amounts in the Reserve
Fund. After the amounts in the Reserve Fund for a Series first equal or exceed
the applicable Required Reserve, the Master Servicer will retain such
distributions and deposit so much of such amounts in the Reserve Fund as may be
necessary, after the application of such distributions to amounts due and unpaid
on the Certificates or on the Certificates of such Series to which the
applicable Class or Subclass of Subordinated Certificates are subordinated and
the reimbursement of unreimbursed Advances and liquidation expenses, to maintain
the Reserve Fund at the Required Reserve. The balance in the Reserve Fund in
excess of the Required Reserve shall be paid to the applicable Class or Subclass
of Subordinated Certificates, or to another specified person or entity, as set
forth in the related Prospectus Supplement, and shall be unavailable thereafter
for future distribution to Certificateholders of either Class. The Prospectus
Supplement for each Series will set forth the amount of the Required Reserve
applicable from time to time. The Required Reserve may decline over time in
accordance with a schedule which will also be set forth in the related
Prospectus Supplement.
Amounts held in the Reserve Fund for a Series from time to time will
continue to be the property of the Subordinated Certificateholders of the
Classes or Subclasses specified in the related Prospectus Supplement until
withdrawn from the Reserve Fund and transferred to the Certificate Account as
described below. If on any Distribution Date the amount in the Certificate
Account available to be applied to distributions on the Senior Certificates of
such Series, after giving effect to any Advances made by the Servicers or the
Master Servicer on such Distribution Date, is less than the amount required
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to be distributed to such Senior Certificateholders (the "Required
Distribution") on such Distribution Date, the Master Servicer will withdraw from
the Reserve Fund and deposit into the Certificate Account the lesser of (i) the
entire amount on deposit in the Reserve Fund available for distribution to the
Senior Certificateholders (which amount will not in any event exceed the
Required Reserve) or (ii) the amount necessary to increase the funds in the
Certificate Account eligible for distribution to the Senior Certificateholders
on such Distribution Date to the Required Distribution; provided, however, that
in no event will any amount representing investment earnings on amounts held in
the Reserve Fund be transferred into the Certificate Account or otherwise used
in any manner for the benefit of the Senior Certificateholders. If so specified
in the applicable Prospectus Supplement, the balance, if any, in the Reserve
Fund in excess of the Required Reserve shall be released, to the Subordinated
Certificateholders. Unless otherwise specified in the related Prospectus
Supplement, whenever the Reserve Fund is less than the Required Reserve, holders
of the Subordinated Certificates of the applicable Class or Subclass will not
receive any distributions with respect to the Mortgage Loans or Contracts other
than amounts attributable to interest on the Mortgage Loans or Contracts after
the initial Required Reserve has been attained and amounts attributable to any
income resulting from investment of the Reserve Fund as described below. Whether
or not the amount of the Reserve Fund exceeds the Required Reserve on any
Distribution Date, the holders of the Subordinated Certificates of the
applicable Class or Subclass are entitled to receive from the Certificate
Account their share of the proceeds of any Mortgage Loan or Contract, or any
property acquired in respect thereof, repurchased by reason of defective
documentation or the breach of a representation or warranty pursuant to the
Pooling and Servicing Agreement. Amounts in the Reserve Fund shall be applied in
the following order:
(i) to the reimbursement of Advances determined by the Master Servicer and
the Servicers to be otherwise unrecoverable, other than Advances of interest in
connection with prepayments in full, repurchases and liquidations, and the
reimbursement of liquidation expenses incurred by the Servicers and the Master
Servicer if sufficient funds for such reimbursement are not otherwise available
in the related Servicing Accounts and Certificate Account;
(ii) to the payment to the holders of the Senior Certificates of such
Series of amounts distributable to them on the related Distribution Date in
respect of scheduled payments of principal and interest due on the related Due
Date to the extent that sufficient funds in the Certificate Account are not
available therefor; and
(iii) to the payment to the holders of the Senior Certificates of such
Series of the principal balance or purchase price, as applicable, of Mortgage
Loans or Contracts repurchased, liquidated or foreclosed during the period
ending on the day prior to the Due Date to which such distribution relates and
interest thereon at the related Pass-Through Rate, to the extent that sufficient
funds in the Certificate Account are not available therefor.
Amounts in the Reserve Fund in excess of the Required Reserve, including
any investment income on amounts therein, as set forth below, shall then be
released to the holders of the Subordinated Certificates, or to such other
person as is specified in the applicable Prospectus Supplement, as set forth
above.
Funds in the Reserve Fund for a Series shall be invested as provided in the
related Pooling and Servicing Agreement in certain types of eligible
investments. The earnings on such investments will be withdrawn and paid to the
holders of the applicable Class or Subclass of Subordinated Certificates in
accordance with their respective interests in the Reserve Fund in the priority
specified in the related Prospectus Supplement. Investment income in the Reserve
Fund is not available for distribution to the holders of the Senior Certificates
of such Series or otherwise subject to any claims or rights of the holders of
the applicable Class or Subclass of Senior Certificates. Eligible investments
for monies deposited in the Reserve Fund will be specified in the Pooling and
Servicing Agreement for a Series of Certificates for which a Reserve Fund is
established and in some instances will be limited to investments acceptable to
the Rating Agency rating the Certificates of such Series from time to time as
being consistent with its outstanding rating of such Certificates. Such eligible
investments will be limited, however, to obligations or securities that mature
at various time periods up to 30 days according to a schedule in the Pooling and
Servicing Agreement based on the current balance of the Reserve Fund at the time
of such investment or the contractual commitment providing for such investment.
The time necessary for the Reserve Fund of a Series to reach and maintain
the applicable Required Reserve at any time after the initial issuance of the
Certificates of such Series and the availability of amounts in the Reserve Fund
for
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distributions on such Certificates will be affected by the delinquency,
foreclosure and prepayment experience of the Mortgage Loans or Contracts in the
related Trust Fund and/or in the Subordinated Pool and therefore cannot be
accurately predicted.
PERFORMANCE BOND
If so specified in the related Prospectus Supplement, the Master Servicer
may be required to obtain a Performance Bond that would provide a guarantee of
the performance by the Master Servicer of one or more of its obligations under
the Agreement, including its obligation to advance delinquent installments of
principal and interest on Mortgage Loans or Contracts and its obligation to
repurchase Mortgage Loans or Contracts in the event of a breach by the Master
Servicer of a representation or warranty contained in the Agreement. In the
event that the outstanding credit rating of the obligor of the Performance Bond
is lowered by the Rating Agency, with the result that the outstanding rating on
the Certificates would be reduced by such Rating Agency, the Master Servicer
will be required to secure a substitute Performance Bond issued by an entity
with a rating sufficient to maintain the outstanding rating on the Certificates
or to deposit and maintain with the Trustee cash in the amount specified in the
applicable Prospectus Supplement.
DESCRIPTION OF INSURANCE
To the extent that the applicable Prospectus Supplement does not expressly
provide for a form of credit support specified above or for Alternative Credit
Support in lieu of some or all of the insurance mentioned below, the following
paragraphs on insurance shall apply with respect to the Mortgage Loans included
in the related Trust Fund. Unless otherwise specified in the related Prospectus
Supplement, each Manufactured Home that secures a Contract will be covered by a
standard hazard insurance policy and other insurance policies to the extent
described in the related Prospectus Supplement. Any material changes in such
insurance from the description that follows or the description of any
Alternative Credit Support will be set forth in the applicable Prospectus
Supplement.
PRIMARY MORTGAGE INSURANCE POLICIES
To the extent specified in the related Prospectus Supplement, each
Servicing Agreement will require the Servicer to cause a Primary Mortgage
Insurance Policy to be maintained in full force and effect with respect to each
Mortgage Loan that is secured by a Single Family Property covered by the
Servicing Agreement requiring such insurance and to act on behalf of the Insured
with respect to all actions required to be taken by the Insured under each such
Primary Mortgage Insurance Policy. Any primary mortgage insurance or primary
credit insurance policies relating to the Contracts underlying a Series of
Certificates will be described in the related Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, the amount
of a claim for benefits under a Primary Mortgage Insurance Policy covering a
Mortgage Loan in the related Mortgage Pool (herein referred to as the "Loss")
will consist of the insured portion of the unpaid principal amount of the
covered Mortgage Loan (as described herein) and accrued and unpaid interest
thereon and reimbursement of certain expenses, less (i) all rents or other
payments collected or received by the Insured (other than the proceeds of hazard
insurance) that are derived from or in any way related to such Mortgaged
Property, (ii) hazard insurance proceeds in excess of the amount required to
restore such Mortgaged Property and which have not been applied to the payment
of such Mortgage Loan, (iii) amounts expended but not approved by the Primary
Mortgage Insurer, (iv) claim payments previously made by the Primary Mortgage
Insurer, and (v) unpaid premiums.
Unless otherwise specified in the related Prospectus Supplement, as
conditions precedent to the filing of or payment of a claim under a Primary
Mortgage Insurance Policy covering a Mortgage Loan in the related Mortgage Pool,
the Insured will be required to, in the event of default by the Mortgagor: (i)
advance or discharge (A) all hazard insurance premiums and (B) as necessary and
approved in advance by the Primary Mortgage Insurer, (1) real estate property
taxes, (2) all expenses required to preserve, repair and prevent waste to the
Mortgaged Property so as to maintain such Mortgaged Property in at least as good
a condition as existed at the effective date of such Primary Mortgage Insurance
Policy, ordinary wear and tear excepted, (3) property sales expenses, (4) any
outstanding liens (as defined in such Primary Mortgage
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Insurance Policy) on the Mortgaged Property and (5) foreclosure costs, including
court costs and reasonable attorneys' fees; (ii) in the event of a physical loss
or damage to the Mortgaged Property, have restored and repaired the Mortgaged
Property to at least as good a condition as existed at the effective date of
such Primary Mortgage Insurance Policy, ordinary wear and tear excepted; and
(iii) tender to the Primary Mortgage Insurer good and merchantable title to and
possession of the mortgaged property.
Unless otherwise specified in the related Prospectus Supplement, other
provisions and conditions of each Primary Mortgage Insurance Policy covering a
Mortgage Loan in the related Mortgage Pool generally will provide that: (a) no
change may be made in the terms of such Mortgage Loan without the consent of the
Primary Mortgage Insurer; (b) written notice must be given to the Primary
Mortgage Insurer within 10 days after the Insured becomes aware that a Mortgagor
is delinquent in the payment of a sum equal to the aggregate of two scheduled
monthly payments due under such Mortgage Loan or that any proceedings affecting
the Mortgagor's interest in the Mortgaged Property securing such Mortgage Loan
have commenced, and thereafter the Insured must report monthly to the Primary
Mortgage Insurer the status of any such Mortgage Loan until such Mortgage Loan
is brought current, such proceedings are terminated or a claim is filed; (c) the
Primary Mortgage Insurer will have the right to purchase such Mortgage Loan, at
any time subsequent to the 10 days' notice described in (b) above and prior to
the commencement of foreclosure proceedings, at a price equal to the unpaid
principal amount of the Mortgage Loan, plus accrued and unpaid interest thereon
and reimbursable amounts expended by the Insured for the real estate taxes and
fire and extended coverage insurance on the Mortgaged Property for a period not
exceeding 12 months, and less the sum of any claim previously paid under the
Primary Mortgage Insurance Policy and any due and unpaid premiums with respect
to such policy; (d) the Insured must commence proceedings at certain times
specified in the Primary Mortgage Insurance Policy and diligently proceed to
obtain good and merchantable title to and possession of the Mortgaged Property;
(e) the Insured must notify the Primary Mortgage Insurer of the price specified
in (c) above at least 15 days prior to the sale of the Mortgaged Property by
foreclosure, and bid such amount unless the Mortgage Insurer specifies a lower
or higher amount; and (f) the Insured may accept a conveyance of the Mortgaged
Property in lieu of foreclosure with written approval of the Mortgage Insurer
provided the ability of the Insured to assign specified rights to the Primary
Mortgage Insurer are not thereby impaired or the specified rights of the Primary
Mortgage Insurer are not thereby adversely affected.
Unless otherwise specified in the related Prospectus Supplement, the
Primary Mortgage Insurer will be required to pay to the Insured either: (1) the
insured percentage of the Loss; or (2) at its option under certain of the
Primary Mortgage Insurance Policies, the sum of the delinquent monthly payments
plus any advances made by the Insured, both to the date of the claim payment,
and thereafter, monthly payments in the amount that would have become due under
the Mortgage Loan if it had not been discharged plus any advances made by the
Insured until the earlier of (A) the date the Mortgage Loan would have been
discharged in full if the default had not occurred or (B) an approved sale. Any
rents or other payments collected or received by the Insured which are derived
from or are in any way related to the Mortgaged Property will be deducted from
any claim payment.
FHA INSURANCE AND VA GUARANTEES
The FHA is responsible for administering various federal programs,
including mortgage insurance, authorized under the National Housing Act, as
amended, and the United States Housing Act of 1937, as amended. Any FHA
Insurance or VA Guarantees relating to Contracts underlying a Series of
Certificates will be described in the related Prospectus Supplement.
The insurance premiums for FHA Loans are collected by HUD approved lenders
or by the Servicers of such FHA Loans and are paid to the FHA. The regulations
governing FHA single-family mortgage insurance programs provide that insurance
benefits are payable either upon foreclosure (or other acquisition of
possession) and conveyance of the mortgaged premises to HUD or upon assignment
of the defaulted FHA Loan to HUD. With respect to a defaulted FHA Loan, the
Servicer of such FHA Loan will be limited in its ability to initiate foreclosure
proceedings. When it is determined, either by the Servicer or HUD, that default
was caused by circumstances beyond the Mortgagor's control, the Servicer will be
expected to make an effort to avoid foreclosure by entering, if feasible, into
one of a number of available forms of forbearance plans with the Mortgagor. Such
plans may involve the reduction or suspension of scheduled mortgage payments for
a specified period, with such payments to be made upon or before the maturity
date of the mortgage, or the recasting of payments due
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under the mortgage up to or beyond the scheduled maturity date. In addition,
when a default caused by such circumstances is accompanied by certain other
criteria, HUD may provide relief by making payments to the Servicer of such
Mortgage Loan in partial or full satisfaction of amounts due thereunder (which
payments are to be repaid by the Mortgagor to HUD) or by accepting assignment of
the Mortgage Loan from the Servicer. With certain exceptions, at least three
full monthly installments must be due and unpaid under the Mortgage Loan, and
HUD must have rejected any request for relief from the Mortgagor before the
Servicer may initiate foreclosure proceedings.
HUD has the option, in most cases, to pay insurance claims in cash or in
debentures issued by HUD. Presently, claims are being paid in cash, and claims
have not been paid in debentures since 1965. HUD debentures issued in
satisfaction of FHA insurance claims bear interest at the applicable HUD
debenture interest rate. The Servicer of each FHA Loan in a Mortgage Pool will
be obligated to purchase any such debenture issued in satisfaction of a
defaulted FHA Loan serviced by it for an amount equal to the principal amount of
the FHA Loan.
The amount of insurance benefits generally paid by the FHA is equal to the
entire unpaid principal balance of the defaulted FHA Loan, adjusted to reimburse
the Servicer of such FHA Loan for certain costs and expenses and to deduct
certain amounts received or retained by such Servicer after default. When
entitlement to insurance benefits results from foreclosure (or other acquisition
of possession) and conveyance to HUD, the Servicer is compensated for no more
than two-thirds of its foreclosure costs, and is compensated for interest
accrued and unpaid prior to such date in general only to the extent it was
allowed pursuant to a forbearance plan approved by HUD. When entitlement to
insurance benefits results from assignment of the FHA Loan to HUD, the insurance
payment includes full compensation for interest accrued and unpaid to the
assignment date. The insurance payment itself, upon foreclosure of an FHA Loan,
bears interest from a date 30 days after the mortgagor's first uncorrected
failure to perform any obligation or make any payment due under the Mortgage
Loan and, upon assignment, from the date of assignment, to the date of payment
of the claim, in each case at the same interest rate as the applicable HUD
debenture interest rate as described above.
The maximum guarantee that may be issued by the VA under a VA Loan is 50%
of the principal amount of the VA Loan if the principal amount of the Mortgage
Loan is $45,000 or less, the lesser of $36,000 and 40% if the principal amount
of the VA Loan if the principal amount of such VA Loan is greater than $45,000
but less than or equal to $144,000, and the lesser of $46,000 and 25% of the
principal amount of the Mortgage Loan if the principal amount of the Mortgage
Loan is greater than $144,000. The liability on the guarantee is reduced or
increased pro rata with any reduction or increase in the amount of indebtedness,
but in no event will the amount payable on the guarantee exceed the amount of
the original guarantee. The VA may, at its option and without regard to the
guarantee, make full payment to a mortgage holder of unsatisfied indebtedness on
a Mortgage upon its assignment to the VA.
With respect to a defaulted VA Loan, the Servicer is, absent exceptional
circumstances, authorized to announce its intention to foreclose only when the
default has continued for three months. Generally, a claim for the guarantee is
submitted after liquidation of the Mortgaged Property.
The amount payable under the guarantee will be the percentage of the VA
Loan originally guaranteed applied to indebtedness outstanding as of the
applicable date of computation specified in the VA regulations. Payments under
the guarantee will be equal to the unpaid principal amount of the VA Loan,
interest accrued on the unpaid balance of the VA Loan to the appropriate date of
computation and limited expenses of the mortgagee, but in each case only to the
extent that such amounts have not been recovered through liquidation of the
Mortgaged Property. The amount payable under the guarantee may in no event
exceed the amount of the original guarantee.
STANDARD HAZARD INSURANCE POLICIES ON MORTGAGE LOANS
The Standard Hazard Insurance Policies covering the Mortgage Loans in a
Mortgage Pool will provide for coverage at least equal to the applicable state
standard form of fire insurance policy with extended coverage. In general, the
standard form of fire and extended coverage policy will cover physical damage
to, or destruction of, the improvements on the Mortgaged Property caused by
fire, lightning, explosion, smoke, windstorm, hail, riot, strike and civil
commotion, subject to the conditions and exclusions particularized in each
policy. Because the Standard Hazard Insurance Policies relating to
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such Mortgage Loans will be underwritten by different insurers and will cover
Mortgaged Properties located in various states, such policies will not contain
identical terms and conditions. The most significant terms thereof, however,
generally will be determined by state law and generally will be similar. Most
such policies typically will not cover any physical damage resulting from the
following: war, revolution, governmental actions, floods and other water-related
causes, earth movement (including earthquakes, landslides and mudflows), nuclear
reaction, wet or dry rot, vermin, rodents, insects or domestic animals, theft
and, in certain cases, vandalism. The foregoing list is merely indicative of
certain kinds of uninsured risks and is not intended to be all-inclusive.
The Standard Hazard Insurance Policies covering Mortgaged Properties
securing Mortgage Loans typically will contain a "coinsurance" clause which,
in effect, will require the insured at all times to carry insurance of a
specified percentage (generally 80% to 90%) of the full replacement value of the
dwellings, structures and other improvements on the Mortgaged Property in order
to recover the full amount of any partial loss. If the insured's coverage falls
below this specified percentage, such clause will provide that the insurer's
liability in the event of partial loss will not exceed the greater of (i) the
actual cash value (the replacement cost less physical depreciation) of the
dwellings, structures and other improvements damaged or destroyed or (ii) such
proportion of the loss, without deduction for depreciation, as the amount of
insurance carried bears to the specified percentage of the full replacement cost
of such dwellings, structures and other improvements.
The Depositor will not require that a standard hazard or flood insurance
policy be maintained on the Cooperative Dwelling relating to any Cooperative
Loan. Generally, the cooperative corporation itself is responsible for
maintenance of hazard insurance for the property owned by the cooperative and
the tenant-stockholders of that cooperative do not maintain individual hazard
insurance policies. To the extent, however, that a Cooperative and the related
borrower on a Cooperative Loan do not maintain such insurance or do not maintain
adequate coverage or any insurance proceeds are not applied to the restoration
of damaged property, any damage to such borrower's Cooperative Dwelling or such
Cooperative's building could significantly reduce the value of the collateral
securing such Cooperative Loan to the extent not covered by other credit
support.
Any losses incurred with respect to Mortgage Loans due to uninsured risks
(including earthquakes, mudflows and, with respect to Mortgaged Properties
located other than in HUD designated flood areas, floods) or insufficient hazard
insurance proceeds and any hazard losses incurred with respect to Cooperative
Loans could affect distributions to the Certificateholders.
With respect to Mortgage Loans secured by Multifamily Property, certain
additional insurance policies may be required with respect to the Multifamily
Property; for example, general liability insurance for bodily injury and
property damage, steam boiler coverage where a steam boiler or other pressure
vessel is in operation, and rent loss insurance to cover income losses following
damage or destruction of the Mortgaged Property. The related Prospectus
Supplement will specify the required types and amounts of additional insurance
that may be required in connection with Mortgage Loans secured by Multifamily
Property and will describe the general terms of such insurance and conditions to
payment thereunder.
STANDARD HAZARD INSURANCE POLICIES ON THE MANUFACTURED HOMES
The terms of the Pooling and Servicing Agreement will require the Master
Servicer to cause to be maintained with respect to each Contract one or more
Standard Hazard Insurance Policies which provide, at a minimum, the same
coverage as a standard form fire and extended coverage insurance policy that is
customary for manufactured housing, issued by a company authorized to issue such
policies in the state in which the Manufactured Home is located, and in an
amount which is not less than the maximum insurable value of such Manufactured
Home or the principal balance due from the Obligor on the related Contract,
whichever is less; provided, however, that the amount of coverage provided by
each Standard Hazard Insurance Policy shall be sufficient to avoid the
application of any co-insurance clause contained therein. When a Manufactured
Home's location was, at the time of origination of the related Contract, within
a federally designated flood area, the Master Servicer also shall cause such
flood insurance to be maintained, which coverage shall be at least equal to the
minimum amount specified in the preceding sentence or such lesser amount as may
be available under the federal flood insurance program. Each Standard Hazard
Insurance Policy caused to be maintained by the Master Servicer shall contain
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a standard loss payee clause in favor of the Master Servicer and its successors
and assigns. If any Obligor is in default in the payment of premiums on its
Standard Hazard Insurance Policy or Policies, the Master Servicer shall pay such
premiums out of its own funds, and may add separately such premium to the
Obligor's obligation as provided by the Contract, but may not add such premium
to the remaining principal balance of the Contract.
The Master Servicer may maintain, in lieu of causing individual Standard
Hazard Insurance Policies to be maintained with respect to each Manufactured
Home, and shall maintain, to the extent that the related Contract does not
require the Obligor to maintain a Standard Hazard Insurance Policy with respect
to the related Manufactured Home, one or more blanket insurance policies
covering losses on the Obligor's interest in the Contracts resulting from the
absence or insufficiency of individual Standard Hazard Insurance Policies. Any
such blanket policy shall be substantially in the form and in the amount carried
by the Master Servicer as of the date of the Pooling and Servicing Agreement.
The Master Servicer shall pay the premium for such policy on the basis described
therein and shall pay any deductible amount with respect to claims under such
policy relating to the Contracts. If the insurer thereunder shall cease to be
acceptable to the Master Servicer, the Master Servicer shall exercise its best
reasonable efforts to obtain from another insurer a replacement policy
comparable to such policy.
If the Master Servicer shall have repossessed a Manufactured Home on behalf
of the Trustee, the Master Servicer shall either (i) maintain at its expense
hazard insurance with respect to such Manufactured Home or (ii) indemnify the
Trustee against any damage to such Manufactured Home prior to resale or other
disposition.
POOL INSURANCE POLICIES
If so specified in the related Prospectus Supplement, the Master Servicer
will obtain a Pool Insurance Policy for a Mortgage Pool underlying Certificates
of such Series. Such Pool Insurance Policy will be issued by the Pool Insurer
named in the applicable Prospectus Supplement. Any Pool Insurance Policy for a
Contract Pool underlying a Series of Certificates will be described in the
related Prospectus Supplement. Each Pool Insurance Policy will cover any loss
(subject to the limitations described below) by reason of default to the extent
the related Mortgage Loan is not covered by any Primary Mortgage Insurance
Policy, FHA insurance or VA guarantee. The amount of the Pool Insurance Policy,
if any, with respect to a Series will be specified in the related Prospectus
Supplement. A Pool Insurance Policy, however, will not be a blanket policy
against loss, because claims thereunder may only be made for particular
defaulted Mortgage Loans and only upon satisfaction of certain conditions
precedent described below. Any Pool Insurance Policies relating to the Contracts
will be described in the related Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, the Pool
Insurance Policy will provide that as a condition precedent to the payment of
any claim the Insured will be required (i) to advance hazard insurance premiums
on the Mortgaged Property securing the defaulted Mortgage Loan; (ii) to advance,
as necessary and approved in advance by the Pool Insurer, (a) real estate
property taxes, (b) all expenses required to preserve and repair the Mortgaged
Property, to protect the Mortgaged Property from waste, so that the Mortgaged
Property is in at least as good a condition as existed on the date upon which
coverage under the Pool Insurance Policy with respect to such Mortgaged Property
first became effective (ordinary wear and tear excepted), (c) property sales
expenses, (d) any outstanding liens on the Mortgaged Property and (e)
foreclosure costs including court costs and reasonable attorneys' fees; and
(iii) if there has been physical loss or damage to the Mortgaged Property, to
restore the Mortgaged Property to its condition (reasonable wear and tear
excepted) as of the issue date of the Pool Insurance Policy. It also will be a
condition precedent to the payment of any claim under the Pool Insurance Policy
that the Insured maintain a Primary Mortgage Insurance Policy that is acceptable
to the Pool Insurer on all Mortgage Loans that have Loan-to-Value Ratios at the
time of origination in excess of 80%. FHA insurance and VA guarantees will be
deemed to be an acceptable Primary Mortgage Insurance Policy under the Pool
Insurance Policy. Assuming satisfaction of these conditions, the Pool Insurer
will pay to the Insured the amount of loss, determined as follows: (i) the
amount of the unpaid principal balance of the Mortgage Loan immediately prior to
the Approved Sale (as described below) of the Mortgaged Property, (ii) the
amount of the accumulated unpaid interest on such Mortgage Loan to the date of
claim settlement at the applicable Mortgage Rate and (iii) advances as described
above, less (a) all rents or other payments (excluding proceeds of fire and
extended coverage insurance) collected or received by the Insured, which are
derived from or in any way related to the Mortgaged Property, (b) amounts paid
under applicable fire and extended coverage policies
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which are in excess of the cost of restoring and repairing the Mortgaged
Property and which have not been applied to the payment of the Mortgage Loan,
(c) any claims payments previously made by the Pool Insurer on the Mortgage
Loan, (d) due and unpaid premiums payable with respect to the Pool Insurance
Policy and (e) all claim payments received by the Insured pursuant to any
Primary Mortgage Insurance Policy. An "Approved Sale" is (1) a sale of the
Mortgaged Property acquired because of a default by the Mortgagor to which the
Pool Insurer has given prior approval, (2) a foreclosure or trustee's sale of
the Mortgaged Property at a price exceeding the maximum amount specified by the
Pool Insurer, (3) the acquisition of the Mortgaged Property under the Primary
Insurance Policy by the Primary Mortgage Insurer or (4) the acquisition of the
Mortgaged Property by the Pool Insurer. The Pool Insurer must be provided with
good and merchantable title to the Mortgaged Property as a condition precedent
to the payment of any Loss. If any Mortgaged Property securing a defaulted
Mortgage Loan is damaged and the proceeds, if any, from the related Standard
Hazard Insurance Policy or the applicable Special Hazard Insurance Policy are
insufficient to restore the Mortgaged Property to a condition sufficient to
permit recovery under the Pool Insurance Policy, the Master Servicer or the
Servicer of the related Mortgage Loan will not be required to expend its own
funds to restore the damaged Mortgaged Property unless it is determined (A) that
such restoration will increase the proceeds to the Certificateholders of the
related Series on liquidation of the Mortgage Loan, after reimbursement of the
expenses of the Master Servicer or the Servicer, as the case may be, and (B)
that such expenses will be recoverable by it through payments under the Letter
of Credit, if any, with respect to such Series, Liquidation Proceeds, Insurance
Proceeds, amounts in the Reserve Fund, if any, or payments under any Alternative
Credit Support, if any, with respect to such Series.
No Pool Insurance Policy will insure (and many Primary Mortgage Insurance
Policies may not insure) against loss sustained by reason of a default arising
from, among other things, (i) fraud or negligence in the origination or
servicing of a Mortgage Loan, including misrepresentation by the Mortgagor, the
Unaffiliated Seller, the Originator or other persons involved in the origination
thereof, (ii) the exercise by the Insured of its right to call the Mortgage
Loan, or the term of the Mortgage Loan is shorter than the amortization period
and the defaulted payment is for an amount more than twice the regular periodic
payments of principal and interest for such Mortgage Loan, or (iii) the exercise
by the Insured of a "due-on-sale" clause or other similar provision in the
Mortgage Loan; provided, in either case (ii) or (iii), such exclusion shall not
apply if the Insured offers a renewal or extension of the Mortgage Loan or a new
Mortgage Loan at the market rate in an amount not less than the then outstanding
principal balance with no decrease in the amortization period. A failure of
coverage attributable to one of the foregoing events might result in a breach of
the Master Servicer's insurability representation described under "Description
of the Certificates-Assignment of Mortgage Loans" above, and in such event,
subject to the limitations described therein, might give rise to an obligation
on the part of the Master Servicer to purchase the defaulted Mortgage Loan if
the breach materially and adversely affects the interests of the
Certificateholders of the related Series and cannot be cured by the Master
Servicer. Depending upon the nature of the event, a breach of representation
made by the Depositor or an Unaffiliated Seller may also have occurred. Such a
breach, if it materially and adversely affects the interests of the
Certificateholders of such Series and cannot be cured, would give rise to a
repurchase obligation on the part of the Unaffiliated Seller as more fully
described under "The Trust Fund-Mortgage Loan Program-Representations by
Unaffiliated Sellers; Repurchases" and "Description of the Certificates-
Assignment of Mortgage Loans."
The original amount of coverage under the Pool Insurance Policy will be
reduced over the life of the Certificates of the related Series by the aggregate
dollar amount of claims paid less the aggregate of the net amounts realized by
the Pool Insurer upon disposition of all foreclosed Mortgaged Properties covered
thereby. The amount of claims paid will include certain expenses incurred by the
Master Servicer or by the Servicer of the defaulted Mortgage Loan as well as
accrued interest on delinquent Mortgage Loans to the date of payment of the
claim. Accordingly, if aggregate net claims paid under a Pool Insurance Policy
reach the original policy limit, coverage under the Pool Insurance Policy will
lapse and any further losses will be borne by the holders of the Certificates of
such Series. In addition, unless the Master Servicer or the related Servicer
could determine that an Advance in respect of a delinquent Mortgage Loan would
be recoverable to it from the proceeds of the liquidation of such Mortgage Loan
or otherwise, neither such Servicer nor the Master Servicer would be obligated
to make an Advance respecting any such delinquency, since the Advance would not
be ultimately recoverable to it from either the Pool Insurance Policy or from
any other related source. See "Description of the Certificates-Advances".
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SPECIAL HAZARD INSURANCE POLICIES
If so specified in the related Prospectus Supplement, the Master Servicer
shall obtain a Special Hazard Insurance Policy for the Mortgage Pool underlying
a Series of Certificates. Any Special Hazard Insurance Policies for a Contract
Pool underlying a Series of Certificates will be described in the related
Prospectus Supplement. The Special Hazard Insurance Policy for the Mortgage Pool
underlying the Certificates of a Series will be issued by the Special Hazard
Insurer named in the applicable Prospectus Supplement. Each Special Hazard
Insurance Policy will, subject to the limitations described below, protect
against loss by reason of damage to Mortgaged Properties caused by certain
hazards (including vandalism and earthquakes and, except where the Mortgagor is
required to obtain flood insurance, floods and mudflows) not insured against
under the standard form of hazard insurance policy for the respective states in
which the Mortgaged Properties are located. See "Description of the
Certificates-Maintenance of Insurance Policies" and "-Standard Hazard
Insurance". The Special Hazard Insurance Policy will not cover losses occasioned
by war, certain governmental actions, nuclear reaction and certain other perils.
Coverage under a Special Hazard Insurance Policy will be at least equal to the
amount set forth in the related Prospectus Supplement.
Subject to the foregoing limitations, each Special Hazard Insurance Policy
will provide that, when there has been damage to the Mortgaged Property securing
a defaulted Mortgage Loan and to the extent such damage is not covered by the
Standard Hazard Insurance Policy, if any, maintained by the Mortgagor, the
Master Servicer or the Servicer, the Special Hazard Insurer will pay the lesser
of (i) the cost of repair or replacement of such Mortgaged Property or (ii) upon
transfer of such Mortgaged Property to the Special Hazard Insurer, the unpaid
balance of such Mortgage Loan at the time of acquisition of such Mortgaged
Property by foreclosure or deed in lieu of foreclosure, plus accrued interest to
the date of claim settlement (excluding late charges and penalty interest) and
certain expenses incurred in respect of such Mortgaged Property. No claim may be
validly presented under a Special Hazard Insurance Policy unless (i) hazard
insurance on the Mortgaged Property has been kept in force and other
reimbursable protection, preservation and foreclosure expenses have been paid
(all of which must be approved in advance as necessary by the insurer) and (ii)
the insured has acquired title to the Mortgaged Property as a result of default
by the Mortgagor. If the sum of the unpaid principal balance plus accrued
interest and certain expenses is paid by the Special Hazard Insurer, the amount
of further coverage under the related Special Hazard Insurance Policy will be
reduced by such amount less any net proceeds from the sale of the Mortgaged
Property. Any amount paid as the cost of repair of the Mortgaged Property will
further reduce coverage by such amount.
The terms of the Pooling and Servicing Agreement will require the Master
Servicer to maintain the Special Hazard Insurance Policy in full force and
effect throughout the term of the Pooling and Servicing Agreement. If a Pool
Insurance Policy is required to be maintained pursuant to the Pooling and
Servicing Agreement, the Special Hazard Insurance Policy will be designed to
permit full recoveries under the Pool Insurance Policy in circumstances where
such recoveries would otherwise be unavailable because Mortgaged Property has
been damaged by a cause not insured against by a Standard Hazard Insurance
Policy. In such event the Pooling and Servicing Agreement will provide that, if
the related Pool Insurance Policy shall have terminated or been exhausted
through payment of claims, the Master Servicer will be under no further
obligation to maintain such Special Hazard Insurance Policy.
MORTGAGOR BANKRUPTCY BOND
In the event of a personal bankruptcy of a Mortgagor, a bankruptcy court
may establish the value of the related Mortgaged Property or Cooperative
Dwelling at an amount less than the then outstanding principal balance of the
related Mortgage Loan. The amount of the secured debt could be reduced to such
value, and the holder of such Mortgage Loan thus would become an unsecured
creditor to the extent the outstanding principal balance of such Mortgage Loan
exceeds the value so assigned to the Mortgaged Property or Cooperative Dwelling
by the bankruptcy court. In addition, certain other modifications of the terms
of a Mortgage Loan can result from a bankruptcy proceeding. If so specified in
the related Prospectus Supplement, losses resulting from a bankruptcy proceeding
affecting the Mortgage Loans in a Mortgage Pool with respect to a Series of
Certificates will be covered under a Mortgagor Bankruptcy Bond (or any other
instrument that will not result in a downgrading of the rating of the
Certificates of a Series by the Rating Agency that rated such Series). Any
Mortgagor Bankruptcy Bond will provide for coverage in an amount acceptable to
the Rating Agency rating the Certificates of the related Series, which will be
set forth in the related Prospectus Supplement. Subject to the terms of the
Mortgagor
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Bankruptcy Bond, the issuer thereof may have the right to purchase any Mortgage
Loan with respect to which a payment or drawing has been made or may be made for
an amount equal to the outstanding principal amount of such Mortgage Loan plus
accrued and unpaid interest thereon. The coverage of the Mortgagor Bankruptcy
Bond with respect to a Series of Certificates may be reduced as long as any such
reduction will not result in a reduction of the outstanding rating of the
Certificates of such Series by the Rating Agency rating such Series.
CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS AND CONTRACTS
The following discussion contains summaries of certain legal aspects of
mortgage loans and manufactured housing conditional sales contracts and
installment loan agreements which are general in nature. Because such legal
aspects are governed by applicable state law (which laws may differ
substantially), the summaries do not purport to be complete nor to reflect the
laws of any particular state, nor to encompass the laws of all states in which
the security for the Mortgage Loans or Contracts is situated. The summaries are
qualified in their entirety by reference to the applicable federal and state
laws governing the Mortgage Loans and Contracts.
THE MORTGAGE LOANS
General
The Mortgage Loans (other than the Cooperative Loans) comprising or underlying
the Trust Assets for a Series will be secured by either first mortgages or deeds
of trust, depending upon the prevailing practice in the state in which the
underlying property is located. The filing of a mortgage, deed of trust or deed
to secure debt creates a lien or title interest upon the real property covered
by such instrument and represents the security for the repayment of an
obligation that is customarily evidenced by a promissory note. It is not prior
to the lien for real estate taxes and assessments or other charges imposed under
governmental police powers. Priority with respect to such instruments depends on
their terms, the knowledge of the parties to the mortgage and generally on the
order of recording with the applicable state, county or municipal office. There
are two parties to a mortgage: the mortgagor, who is the borrower and homeowner,
and the mortgagee, who is the lender. In a mortgage state, the mortgagor
delivers to the mortgagee a note or bond evidencing the loan and the mortgage.
Although a deed of trust is similar to a mortgage, a deed of trust has three
parties: the borrower-homeowner called the trustor (similar to a mortgagor) a
lender called the beneficiary (similar to a mortgagee) and a third-party grantee
called the trustee. Under a deed of trust, the borrower grants the property,
irrevocably until the debt is paid, in trust, generally with a power of sale, to
the trustee to secure payment of the loan. The trustee's authority under a deed
of trust and the mortgagee's authority under a mortgage are governed by the
express provisions of the deed of trust or mortgage, applicable law and, in some
cases, with respect to the deed of trust, the directions of the beneficiary.
Foreclosure
Foreclosure of a mortgage is generally accomplished by judicial action.
Generally, the action is initiated by the service of legal pleadings upon all
parties having an interest of record in the real property. Delays in completion
of the foreclosure occasionally may result from difficulties in locating
necessary parties defendant. When the mortgagee's right to foreclosure is
contested, the legal proceedings necessary to resolve the issue can be time-
consuming. After the completion of a judicial foreclosure proceeding, the court
may issue a judgment of foreclosure and appoint a receiver or other officer to
conduct the sale of the property. In some states, mortgages may also be
foreclosed by advertisement, pursuant to a power of sale provided in the
mortgage. Foreclosure of a mortgage by advertisement is essentially similar to
foreclosure of a deed of trust by non-judicial power of sale.
Though a deed of trust may also be foreclosed by judicial action,
foreclosure of a deed of trust is generally accomplished by a non-judicial
trustee's sale under a specific provision in the deed of trust that authorizes
the trustee to sell the property upon a default by the borrower under the terms
of the note or deed of trust. In some states, the trustee must record a notice
of default and send a copy to the borrower-trustor and to any person who has
recorded a request for a copy of a notice of default and notice of sale. In
addition, the trustee must provide notice in some states to any other individual
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having an interest in the real property, including any junior lienholders. If
the loan is not reinstated within any applicable cure period, a notice of sale
must be posted in a public place and, in most states, published for a specified
period of time in one or more newspapers. In addition, some state laws require
that a copy of the notice of sale be posted on the property and sent to all
parties having an interest of record in the property.
In some states, the borrower-trustor has the right to reinstate the loan at
any time following default until shortly before the trustee's sale. In general,
the borrower, or any other person having a junior encumbrance on the real
estate, may, during a reinstatement period, cure the default by paying the
entire amount in arrears plus the costs and expenses incurred in enforcing the
obligation. Certain state laws control the amount of foreclosure expenses and
costs, including attorneys' fees, which may be recovered by a lender.
In case of foreclosure under either a mortgage or a deed of trust, the sale
by the receiver or other designated officer, or by the trustee, is a public
sale. However, because of a number of factors, including the difficulty a
potential buyer at the sale would have in determining the exact status of title
and the fact that the physical condition of the property may have deteriorated
during the foreclosure proceedings, it is uncommon for a third party to purchase
the property at the foreclosure sale. Rather, it is common for the lender to
purchase the property from the trustee or receiver for a credit bid less than or
equal to the unpaid principal amount of the note, accrued and unpaid interest
and the expenses of foreclosure. Thereafter, subject to the right of the
borrower in some states to remain in possession during the redemption period,
the lender will assume the burdens of ownership, including obtaining hazard
insurance and making such repairs at its own expense as are necessary to render
the property suitable for sale. The lender commonly will obtain the services of
a real estate broker and pay the broker a commission in connection with the sale
of the property. Depending upon market conditions, the ultimate proceeds of the
sale of the property may not equal the lender's investment in the property. Any
loss may be reduced by the receipt of mortgage insurance proceeds.
Cooperative Loans
If specified in the Prospectus Supplement relating to a Series of
Certificates, the Mortgage Loans may also contain Cooperative Loans evidenced by
promissory notes secured by security interests in shares issued by private
corporations which are entitled to be treated as housing cooperatives under the
Code and in the related proprietary leases or occupancy agreements granting
exclusive rights to occupy specific dwelling units in the corporations'
buildings. The security agreement will create a lien upon, or grant a title
interest in, the property that it covers, the priority of which will depend on
the terms of the particular security agreement as well as the order of
recordation of the agreement in the appropriate recording office. Such a lien or
title interest is not prior to the lien for real estate taxes and assessments
and other charges imposed under governmental police powers.
A corporation that is entitled to be treated as a housing cooperative under
the Code owns all the real property or some interest therein sufficient to
permit it to own the building and all separate dwelling units therein. The
cooperative is directly responsible for property management and, in most cases,
payment of real estate taxes and hazard and liability insurance. If there is a
blanket mortgage or mortgages on the cooperative apartment building and/or
underlying land, as is generally the case, or an underlying lease of the land,
as is the case in some instances, the cooperative, as property mortgagor, is
also responsible for meeting these mortgage or rental obligations. The interest
of the occupancy under proprietary leases or occupancy agreements as to which
that cooperative is the landlord are generally subordinate to the interest of
the holder of a blanket mortgage and to the interest of the holder of a land
lease. If the cooperative is unable to meet the payment obligations (i) arising
under a blanket mortgage, the mortgagee holding a blanket mortgage could
foreclose on that mortgage and terminate all subordinate proprietary leases and
occupancy agreements or (ii) arising under its land lease, the holder of the
land lease could terminate it and all subordinate proprietary leases and
occupancy agreements. Also, a blanket mortgage on a cooperative may provide
financing in the form of a mortgage that does not fully amortize, with a
significant portion of principal being due in one final payment at maturity. The
inability of the cooperative to refinance a mortgage and its consequent
inability to make such final payment could lead to foreclosure by the mortgagee.
Similarly, a land lease has an expiration date and the inability of the
cooperative to extend its term or, in the alternative, to purchase the land
could lead to termination of the cooperative's interest in the property and
termination of all proprietary leases and occupancy agreements. A foreclosure by
the holder of a blanket mortgage could eliminate or significantly diminish the
value of any collateral held by the lender who financed an individual tenant-
stockholder of cooperative shares including, in the case of
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the Cooperative Loans, the collateral securing the Cooperative Loans. Similarly,
the termination of the land lease by its holder could eliminate or significantly
diminish the value of any collateral held by the lender who financed an
individual tenant-stockholder of the cooperative shares or, in the case of the
Cooperative Loans, the collateral securing the Cooperative Loans.
Each cooperative is owned by tenant-stockholders who, through ownership of
stock or shares in the corporation, receive proprietary leases or occupancy
agreements which confer exclusive rights to occupy specific units. Generally, a
tenant-stockholder of a cooperative must make a monthly payment to the
cooperative representing such tenant-stockholder's pro rata share of the
cooperative's payments for its blanket mortgage, real property taxes,
maintenance expenses and other capital or ordinary expenses. An ownership
interest in a cooperative and accompanying occupancy rights are financed through
a cooperative share loan evidenced by a promissory note and secured by a
security interest in the occupancy agreement or proprietary lease and in the
related cooperative shares. The lender takes possession of the share certificate
and a counterpart of the proprietary lease or occupancy agreement, and a
financing statement covering the proprietary lease or occupancy agreement and
the cooperative shares is filed in the appropriate state and local offices to
perfect the lender's interest in its collateral. Subject to the limitations
discussed below, upon default of the tenant-stockholder, the lender may sue for
judgment on the promissory note, dispose of the collateral at a public or
private sale or otherwise proceed against the collateral or tenant-stockholder
as an individual as provided in the security agreement covering the assignment
of the proprietary lease or occupancy agreement and the pledge of cooperative
shares. See "-Realizing upon Cooperative Loan Security" below.
Tax Aspects of Cooperative Loans
In general, a "tenant-stockholder" (as defined in Section 216(b)(2) of the
Code) of a corporation that qualifies as a "cooperative housing corporation"
within the meaning of Section 216(b)(1) of the Code is allowed a deduction for
amounts paid or accrued within his taxable year to the corporation representing
his proportionate share of certain interest expenses and certain real estate
taxes allowable as a deduction under Section 216(a) of the Code to the
corporation under Sections 163 and 164 of the Code. In order for a corporation
to qualify under Section 216(b)(1) of the Code for its taxable year in which
such items are allowable as a deduction to the corporation, such section
requires, among other things, that at least 80% of the gross income of the
corporation be derived from its tenant-stockholder. By virtue of this
requirement the status of a corporation for purposes of Section 216(b)(1) of the
Code must be determined on a year-to-year basis. Consequently, there can be no
assurance that cooperatives relating to the Cooperative Loans will qualify under
such section for any particular year. In the event that such a cooperative fails
to qualify for one or more years, the value of the collateral securing any
related Cooperative Loans could be significantly impaired because no deduction
would be allowable to tenant-stockholders under Section 216(a) of the Code with
respect to those years. In view of the significance of the tax benefits accorded
tenant-stockholders of a corporation that qualifies under Section 216(b)(1) of
the Code, the likelihood that such a failure would be permitted to continue over
a period of years appears remote.
Realizing upon Cooperative Loan Security
The cooperative shares and proprietary lease or occupancy agreement owned
by the tenant- stockholder and pledged to the lender are, in almost all cases,
subject to restrictions on transfer as set forth in the cooperative's
certificate of incorporation and by-laws, as well as in the proprietary lease or
occupancy agreement. The proprietary lease or occupancy agreement, even while
pledged, may be cancelled by the cooperative for failure by the tenant-
stockholder to pay rent or other obligations or charges owed by such tenant-
stockholder, including mechanics' liens against the cooperative apartment
building incurred by such tenant-stockholder. Commonly, rent and other
obligations and charges arising under a proprietary lease or occupancy agreement
which are owed to the cooperative are made liens upon the shares to which the
proprietary lease or occupancy agreement relates. In addition, the proprietary
lease or occupancy agreement generally permits the cooperative to terminate such
lease or agreement in the event the borrower defaults in the performance of
covenants thereunder. The lender and the cooperative will typically enter into a
recognition agreement which establishes the rights and obligations of both
parties in the event of a default by the tenant-stockholder on its obligations
under the proprietary lease or occupancy agreement. A default by the tenant-
stockholder under the proprietary lease or occupancy agreement will usually
constitute a default under the security agreement between the lender and the
tenant-stockholder.
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The recognition agreement generally provides that, in the event that the
tenant-stockholder has defaulted under the proprietary lease or occupancy
agreement, the cooperative will take no action to terminate such lease or
agreement until the lender has been provided with an opportunity to cure the
default. The recognition agreement typically provides that if the proprietary
lease or occupancy agreement is terminated, the cooperative will recognize the
lender's lien against proceeds from a sale of the cooperative apartment subject,
however, to the cooperative's right to sums due under such proprietary lease or
occupancy agreement or that have become liens on the shares relating to the
proprietary lease or occupancy agreement. The total amount owed to the
cooperative by the tenant-stockholder, which the lender generally cannot
restrict and does not monitor, could reduce the value of the collateral below
the outstanding principal balance of the cooperative loan and accrued and unpaid
interest thereon.
Recognition agreements also provide that in the event the lender succeeds
to the tenant- shareholder's shares and proprietary lease or occupancy agreement
as the result of realizing upon the collateral for a cooperative loan, the
lender must obtain the approval or consent of the cooperative as required by the
proprietary lease before transferring the cooperative shares or assigning the
proprietary lease. Such approval or consent is usually based on the prospective
purchaser's income and net worth, among other factors, and may significantly
reduce the number of potential purchasers, which could limit the ability of the
lender to sell and realize upon the value of the collateral. Generally, the
lender is not limited in any rights it may have to dispossess the tenant-
shareholders.
The terms of the Cooperative Loans do not require either the Mortgagor or
the Cooperative to obtain title insurance of any type. Consequently, the
existence of any prior liens or other imperfections of title also may adversely
affect the marketability of the Cooperative Dwelling in the event of
foreclosure.
In New York, lenders generally realize upon the pledged shares and
proprietary lease or occupancy agreement given to secure a cooperative loan by
public sale in accordance with the provisions of Article 9 of the Uniform
Commercial Code (the "UCC") and the security agreement relating to those shares.
Article 9 of the UCC requires that a sale be conducted in a "commercially
reasonable" manner. Whether a sale has been conducted in a "commercially
reasonable" manner will depend on the facts in each case. In determining
commercial reasonableness, a court will look to the notice given the debtor and
the method, manner, time, place and terms of the sale. Generally, a sale
conducted according to the usual practice of banks selling similar collateral
will be considered reasonably conducted.
Article 9 of the UCC provides that the proceeds of the sale will be applied
first to pay the costs and expenses of the sale and then to satisfy the
indebtedness secured by the lender's security interest. The recognition
agreement, however, generally provides that the lender's right to reimbursement
is subject to the right of the cooperative corporation to receive sums due under
the proprietary lease or occupancy agreement. If there are proceeds remaining,
the lender must account to the tenant-stockholder for the surplus. Conversely,
if a portion of the indebtedness remains unpaid, the tenant-stockholder is
generally responsible for the deficiency. See "Anti-Deficiency Legislation and
Other Limitations on Lenders" below.
In the case of foreclosure on a Multifamily Property that was converted
from a rental building to a building owned by a cooperative housing corporation
under a non-eviction plan, some states require that a purchaser at a foreclosure
sale take the property subject to rent control and rent stabilization laws which
apply to certain tenants who elected to remain in the building but not to
purchase shares in the cooperative when the building was so converted. Any such
restrictions could adversely affect the number of potential purchasers for and
the value of such property.
Rights of Redemption
In some states, after a sale pursuant to a deed of trust or foreclosure of
a mortgage, the borrower and certain foreclosed junior lienors are given a
statutory period in which to redeem the property from the foreclosure sale. In
certain other states, this right of redemption applies only to a sale following
judicial foreclosure, and not a sale pursuant to a non-judicial power of sale.
In most states where the right of redemption is available, statutory redemption
may occur upon payment of the foreclosure purchase price, accrued interest and
taxes. In some states, the right to redeem is an equitable right. The effect of
a statutory right of redemption is to diminish the ability of the lender to sell
the foreclosed property. The exercise of a right of redemption would defeat the
title of any purchaser from the lender subsequent to foreclosure or sale
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under a deed of trust. Consequently, the practical effect of the redemption
right is to force the lender to retain the property and pay the expenses of
ownership until the redemption period has run.
Anti-Deficiency Legislation and Other Limitations on Lenders
Certain states have imposed statutory restrictions that limit the remedies
of a beneficiary under a deed of trust or a mortgagee under a mortgage. In some
states, statutes limit the right of the beneficiary or mortgagee to obtain a
deficiency judgment against the borrower following foreclosure or a non-judicial
sale under a deed of trust. A deficiency judgment is a personal judgment against
the former borrower equal in most cases to the difference between the amount due
to the lender and the net amount realized upon the foreclosure sale. Other
statutes prohibit a deficiency judgment where the loan proceeds were used to
purchase a dwelling occupied by the borrower.
Some state statutes may require the beneficiary or mortgagee to exhaust the
security afforded under a deed of trust or mortgage by foreclosure in an attempt
to satisfy the full debt before bringing a personal action against the borrower.
In certain other states, the lender has the option of bringing a personal action
against the borrower on the debt without first exhausting such security;
however, in some of these states, the lender, following judgment on such
personal action, may be deemed to have elected a remedy and may be precluded
from exercising remedies with respect to the security. Consequently, the
practical effect of the election requirement, when applicable, is that lenders
will usually proceed first against the security rather than bringing a personal
action against the borrower.
Other statutory provisions may limit any deficiency judgment against the
former borrower following a foreclosure sale to the excess of the outstanding
debt over the fair market value of the property at the time of such sale. The
purpose of these statutes is to prevent a beneficiary or a mortgagee from
obtaining a large deficiency judgment against the former borrower as a result of
low or no bids at the foreclosure sale.
In some states, exceptions to the anti-deficiency statutes are provided for
in certain instances where the value of the lender's security has been impaired
by acts or omissions of the borrower, for example, in the event of waste of the
property.
In the case of cooperative loans, lenders generally realize on cooperative
shares and the accompanying proprietary lease or occupancy agreement given to
secure a cooperative loan under Article 9 of the UCC. Some courts have
interpreted section 9-504 of the UCC to prohibit a deficiency award unless the
creditor establishes that the sale of the collateral (which, in the case of a
Cooperative Loan, would be the shares of the Cooperative and the related
proprietary lease or occupancy agreement) was conducted in a commercially
reasonable manner.
In addition to anti-deficiency and related legislation, numerous other
federal and state statutory provisions, including the federal bankruptcy laws,
the federal Soldiers' and Sailors' Civil Relief Act of 1940 and state laws
affording relief to debtors, may interfere with or affect the ability of a
secured mortgage lender to realize upon its security. For example, in a Chapter
13 proceeding under the federal Bankruptcy Code, when a court determines that
the value of a home is less than the principal balance of the loan, the court
may prevent a lender from foreclosing on the home, and, as part of the
rehabilitation plan, reduce the amount of the secured indebtedness to the value
of the home as it exists at the time of the proceeding, leaving the lender as a
general unsecured creditor for the difference between that value and the amount
of outstanding indebtedness. A bankruptcy court may grant the debtor a
reasonable time to cure a payment default, and in the case of a mortgage loan
not secured by the debtor's principal residence, also may reduce the monthly
payments due under such mortgage loan, change the rate of interest and alter the
mortgage loan repayment schedule. Certain court decisions have applied such
relief to claims secured by the debtor's principal residence.
The Code provides priority to certain tax liens over the lien of the
mortgage or deed of trust. The laws of some states provide priority to certain
tax liens over the lien of the mortgage or deed of trust. Numerous federal and
some state consumer protection laws impose substantive requirements upon
mortgage lenders in connection with the origination, servicing and the
enforcement of mortgage loans. These laws include the federal Truth in Lending
Act, Real Estate Settlement Procedures Act, Equal Credit Opportunity Act, Fair
Credit Billing Act, Fair Credit Reporting Act, and related statutes and
regulations.
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These federal laws and state laws impose specific statutory liabilities upon
lenders who originate or service mortgage loans and who fail to comply with the
provisions of the law. In some cases, this liability may affect assignees of the
mortgage loans.
Unless otherwise specified in the related Prospectus Supplement, each
Mortgage Loan secured by Multifamily Property will be a non-recourse loan to the
Mortgagor. As a result, the Mortgagor's obligation to repay the Mortgage Loan
can be enforced only against the Mortgaged Property regardless of whether the
Mortgagor has other assets from which it could repay the loan.
Unless otherwise specified in the related Prospectus Supplement, the
mortgage securing each Mortgage Loan relating to Multifamily Property will
contain an assignment of rents and an assignment of leases, pursuant to which
the borrower assigns its right, title and interest as landlord under each lease
and the income derived therefrom to the Depositor, while retaining a license to
collect the rents so long as there is no default. In the event the borrower
defaults, the license terminates and the Trustee (as the assignee of such
assignment) is entitled to collect the rents. The Trustee may enforce its right
to such rents by seeking the appointment of a receiver to collect the rents
immediately after giving notice to the borrower of the default.
"Due-on-Sale" Clauses
The forms of note, mortgage and deed of trust relating to conventional
Mortgage Loans may contain a "due-on-sale" clause permitting acceleration of the
maturity of a loan if the borrower transfers its interest in the property. The
enforceability of these clauses has been subject of legislation or litigation in
many states, and in some cases the enforceability of these clauses was limited
or denied. However, the Garn-St Germain Depository Institutions Act of 1982 (the
"Garn-St Germain Act") preempts state constitutional, statutory and case law
that prohibits the enforcement of due-on-sale clauses and permits lenders to
enforce these clauses in accordance with their terms, subject to certain limited
exceptions. The Garn-St Germain Act does "encourage" lenders to permit
assumption of loans at the original rate of interest or at some other rate less
than the average of the original rate and the market rate.
The Garn-St Germain Act also sets forth nine specific instances in which a
mortgage lender covered by the Garn-St Germain Act may not exercise a due-on-
sale clause, notwithstanding the fact that a transfer of the property may have
occurred. These include intra-family transfers, certain transfers by operation
of law, leases of fewer than three years and the creation of a junior
encumbrance. Regulations promulgated under the Garn-St Germain Act also prohibit
the imposition of prepayment penalty upon the acceleration of a loan pursuant to
a due-on-sale clause.
The inability to enforce a due-on-sale clause may result in a mortgage loan
bearing an interest rate below the current market rate being assumed by a new
home buyer rather than being paid off, which may have an impact upon the average
life of the Mortgage Loans and the number of Mortgage Loans which may be
outstanding until maturity.
Enforceability of Certain Provisions
Standard forms of note, mortgage and deed of trust generally contain
provisions obligating the borrower to pay a late charge if payments are not
timely made and in some circumstances may provide for prepayment fees or
penalties if the obligation is paid prior to maturity. In certain states, there
are or may be specific limitations upon late charges which a lender may collect
from a borrower for delinquent payments. State and federal statutes or
regulations may also limit a lender's right to collect a prepayment penalty when
the prepayment is caused by the lender's acceleration of the loan pursuant to a
due-on-sale clause. Certain states also limit the amounts that a lender may
collect from a borrower as an additional charge if the loan is prepaid. Under
the Servicing Agreements and the Pooling and Servicing Agreement, late charges
and prepayment fees (to the extent permitted by law and not waived by the
Servicers) will be retained by the Servicers or Master Servicer as additional
servicing compensation.
Courts have imposed general equitable principles upon foreclosure. These
equitable principles are generally designed to relieve the borrower from the
legal effect of defaults under the loan documents. Examples of judicial remedies
that may be fashioned include judicial requirements that the lender undertake
affirmative and sometimes expensive actions to determine the causes for the
borrower's default and the likelihood that the borrower will be able to
reinstate the loan. In
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some cases, courts have substituted their judgment for the lender's judgment and
have required lenders to reinstate loans or recast payment schedules to
accommodate borrowers who are suffering from temporary financial disability. In
some cases, courts have limited the right of lenders to foreclose if the default
under the mortgage instrument is not monetary, such as the borrower failing to
adequately maintain or insure the property or the borrower executing a second
mortgage or deed of trust affecting the property. In other cases, some courts
have been faced with the issue whether federal or state constitutional
provisions reflecting due process concerns for adequate notice require that
borrowers under the deeds of trust receive notices in addition to the
statutorily-prescribed minimum requirements. For the most part, these cases have
upheld the notice provisions as being reasonable or have found that the sale by
a trustee under a deed of trust or under a mortgage having a power of sale does
not involve sufficient state action to afford constitutional protections to the
borrower.
Environmental Considerations
Under the federal Comprehensive Environmental Response Compensation and
Liability Act, as amended, and similar state laws, a secured party which takes a
deed in lieu of foreclosure or purchases a mortgaged property at a foreclosure
sale may become liable in certain circumstances for the costs of environmental
investigation and remedial action ("Cleanup Costs") if hazardous wastes or
hazardous substances have been released or disposed of on the property. Such
Cleanup Costs may be substantial. It is possible that such costs could become a
liability of the Trust Fund and reduce the amounts otherwise distributable to
the Certificateholders if a Mortgaged Property securing a Mortgage Loan became
the property of the Trust Fund in certain circumstances and if such Cleanup
Costs were incurred.
Except as otherwise specified in the related Prospectus Supplement, each
Unaffiliated Seller will represent, as of the date of delivery of the related
Series of Certificates, that to the best of its knowledge no Mortgaged Property
secured by Multifamily Property is subject to an environmental hazard that would
have to be eliminated under applicable law before the sale of, or which could
otherwise affect the marketability of, such Mortgaged Property or which would
subject the owner or operator of such Mortgaged Property or a lender secured by
such Mortgaged Property to liability under law, and that there are no liens
which relate to the existence of any clean-up of a hazardous substance (and to
the best of its knowledge no circumstances are existing that under law would
give rise to any such lien) affecting the Mortgaged Property which are or may be
liens prior to or on a parity with the lien of the related mortgage. The
Agreement will further provide that the Master Servicer, acting on behalf of the
Trust Fund, may not acquire title to a Mortgaged Property or take over its
operation unless the Master Servicer has received a report from a qualified
independent person selected by the Master Servicer setting forth whether such
Mortgaged Property is subject to or presents any toxic wastes or environmental
hazards and an estimate of the cost of curing or cleaning up such hazard.
THE CONTRACTS
General
As a result of the Depositor's assignment of the Contract to the Trustee,
the Certificateholders will succeed collectively to all of the rights (including
the right to receive payment on the Contracts) and will assume certain
obligations of the Depositor. Each Contract evidences both (a) the obligation of
the Obligor to repay the loan evidenced thereby and (b) the grant of a security
interest in the Manufactured Home to secure repayment of such loan. Certain
aspects of both features of the Contracts are described more fully below.
The Contracts generally are "chattel paper" as defined in the Uniform
Commercial Code in effect in the states in which the Manufactured Homes
initially were registered. Pursuant to the UCC, the sale of chattel paper is
treated in a manner similar to perfection of a security interest in chattel
paper. Under the Pooling and Servicing Agreement, the Master Servicer or the
Depositor, as the case may be, will transfer physical possession of the
Contracts to the Trustee or its custodian. In addition, the Master Servicer will
make an appropriate filing of a UCC-1 financing statement in the appropriate
states to give notice of the Trustee's ownership of the Contracts. Unless
otherwise specified in the related Prospectus Supplement, the Contracts will not
be stamped or marked otherwise to reflect their assignment from the Depositor to
the Trustee. Therefore, if a subsequent purchaser were able to take physical
possession of the Contracts without notice of such assignment, the Trustee's
interest in the Contracts could be defeated.
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Security Interests in the Manufactured Homes
The law governing perfection of a security interest in a Manufactured Home
varies from state to state. Security interests in manufactured homes may be
perfected either by notation of the secured party's lien on the certificate of
title or by delivery of the required documents and payment of a fee to the state
motor vehicle authority, depending on state law. In some nontitle states,
perfection pursuant to the provisions of the UCC is required. The lender or
Master Servicer may effect such notation or delivery of the required documents
and fees, and obtain possession of the certificate of title, as appropriate
under the laws of the state in which any manufactured home securing a
manufactured housing conditional sales contract is registered. In the event the
Master Servicer or the lender fails, due to clerical errors, to effect such
notation or delivery, or files the security interest under the wrong law (for
example, under a motor vehicle title statute rather than under the UCC, in a few
states), the Certificateholders may not have a first priority security interest
in the Manufactured Home securing a Contract. As manufactured homes have become
larger and often have been attached their sites without any apparent intention
to move them, courts in many states have held that manufactured homes, under
certain circumstances, may become subject to real estate title and recording
laws. As a result, a security interest in a manufactured home could be rendered
subordinate to the interests of other parties claiming an interest in the home
under applicable state real estate law. In order to perfect a security interest
in a manufactured home under real estate laws, the holder of the security
interest must file either a "fixture filing" under the provisions of the UCC or
a real estate mortgage under the real estate laws of the state where the
manufactured home is located. These filings must be made in the real estate
records office of the county where the manufactured home is located.
Substantially all of the Contracts will contain provisions prohibiting the
borrower from permanently attaching the Manufactured Home to its site. So long
as the Obligor does not violate this agreement, a security interest in the
Manufactured Home will be governed by the certificate of title laws or the UCC,
and the notation of the security interest on the certificate of title or the
filing of a UCC financing statement will be effective to maintain the priority
of the seller's security interest in the Manufactured Home. If, however, a
Manufactured Home is permanently attached to its site, other parties could
obtain an interest in the Manufactured Home which is prior to the security
interest originally retained by the Unaffiliated Seller and transferred to the
Depositor. With respect to a Series of Certificates and as described in the
related Prospectus Supplement, the Master Servicer may be required to perfect a
security interest in the Manufactured Home under applicable real estate laws. If
such real estate filings are not required and if any of the foregoing events
were to occur, the only recourse of the Certificateholders would be against the
Unaffiliated Seller pursuant to its repurchase obligation for breach of
warranties. Based on the representations of the Unaffiliated Seller, the
Depositor, however, believes that it has obtained a perfected first priority
security interest by proper notation or delivery of the required documents and
fees with respect to substantially all of the Manufactured Homes securing the
Contracts.
The Depositor will assign its security interests in the Manufactured Homes
to the Trustee on behalf of the Certificateholders. Unless otherwise specified
in the related Prospectus Supplement, neither the Depositor nor the Trustee will
amend the certificates of title to identify the Trustee as the new secured
party. Accordingly, the Depositor or such other entity as may be specified in
the Prospectus Supplement will continue to be named as the secured party on the
certificates of title relating to the Manufactured Homes. In most states, such
assignment is an effective conveyance of such security interest without
amendment of any lien noted on the related certificate of title and the new
secured party succeeds to the assignor's rights as the secured party. However,
in some states there exists a risk that, in the absence of an amendment to the
certificate of title, such assignment of the security interest might not be held
effective against creditors of the assignor.
In the absence of fraud, forgery or permanent affixation of the
Manufactured Home to its site by the Manufactured Home owner, or administrative
error by state recording officials, the notation of the lien of the Depositor on
the certificate of title or delivery of the required documents and fees will be
sufficient to protect the Certificateholders against the rights of subsequent
purchasers of a Manufactured Home or subsequent lenders who take a security
interest in the Manufactured Home. If there are any Manufactured Homes as to
which the security interest assigned to the Depositor and the Certificateholders
is not perfected, such security interest would be subordinate to, among others,
subsequent purchasers for value of Manufactured Homes and holders of perfected
security interests. There also exists a risk in not identifying the
Certificateholders as the new secured party on the certificate of title that,
through fraud or negligence, the security interest of the Certificateholders
could be released.
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In the event that the owner of a Manufactured Home moves it to a state
other than the state in which such Manufactured Home initially is registered,
under the laws of most states the perfected security interest in the
Manufactured Home would continue for four months after such relocation and
thereafter only if and after the owner re-registers the Manufactured Home in
such state. If the owner were to relocate a Manufactured Home to another state
and not re-register the Manufactured Home in such state, and if steps are not
taken to re-perfect the Trustee's security interest in such state, the security
interest in the Manufactured Home would cease to be perfected. A majority of
states generally require surrender of a certificate of title to re-register a
Manufactured Home; accordingly, the Trustee, or the Master Servicer as custodian
for the Trustee, must surrender possession if it holds the certificate of title
to such Manufactured Home or, in the case of Manufactured Homes registered in
states which provide for notation of lien, the Trustee would receive notice of
surrender if the security interest in the Manufactured Home is noted on the
certificate of title. Accordingly, the Trustee would have the opportunity to re-
perfect its security interest in the Manufactured Home in the state of
relocation. In states which do not require a certificate of title for
registration of a Manufactured Home, re-registration could defeat perfection. In
the ordinary course of servicing manufactured housing conditional sales
contracts and installment loan agreements, the Master Servicer takes steps to
effect such re-perfection upon receipt of notice of re-registration or
information from the Obligor as to relocation. Similarly, when an Obligor under
a manufactured housing conditional sales contract or installment loan agreement
sells a Manufactured Home, the Trustee, or the Master Servicer as custodian for
the Trustee, must surrender possession of the certificate of title or will
receive notice as a result of its lien noted thereon and accordingly will have
an opportunity to require satisfaction of the related manufactured housing
conditional sales contract or installment loan agreement before release of the
lien. Under the Pooling and Servicing Agreement, the Master Servicer, on behalf
of the Depositor, is obligated to take such steps, at the Master Servicer's
expense, as are necessary to maintain perfection of security interests in the
Manufactured Homes.
Under the laws of most states, liens for repairs performed on a
Manufactured Home take priority even over a perfected security interest. The
Depositor will represent in the Pooling and Servicing Agreement that it has no
knowledge of any such liens with respect to any Manufactured Home securing
payment on any Contract. However, such liens could arise at any time during the
term of a Contract. No notice will be given to the Trustee or Certificateholders
in the event such a lien arises and such lien would not give rise to a
repurchase obligation on the part of the party specified in the Pooling and
Servicing Agreement.
Enforcement of Security Interests in Manufactured Homes
The Master Servicer on behalf of the Trustee, to the extent required by the
related Pooling and Servicing Agreement, may take action to enforce the
Trustee's security interest with respect to Contracts in default by repossession
and resale of the Manufactured Homes securing such Defaulted Contracts. Except
in Louisiana, so long as the Manufactured Home has not become subject to the
real estate law, a creditor can repossess a Manufactured Home securing a
Contract by voluntary surrender, by "self-help" repossession that is "peaceful"
(i.e., without breach of the peace) or, in the absence of voluntary surrender
and the ability to repossess without breach of the peace, by judicial process.
The holder of a Contract must give the debtor a number of days notice, which
varies from 10 to 30 days depending on the state, prior to commencement of any
repossession. The UCC and consumer protection laws in most states place
restrictions on repossession sales, including requiring prior notice to the
debtor and commercial reasonableness in effecting such a sale. The law in most
states also requires that the debtor be given notice of any sale prior to resale
of the unit so that the debtor may redeem at or before such resale. In the event
of such repossession and resale of a Manufactured Home, the Trustee would be
entitled to be paid out of the sale proceeds before such proceeds could be
applied to the payment of the claims of unsecured creditors or the holders of
subsequently perfected security interests or, thereafter, to the debtor.
Under the laws applicable in most states, a creditor is entitled to obtain
a deficiency judgment from a debtor for any deficiency on repossession and
resale of the Manufactured Home securing such debtor's loan. However, some
states impose prohibitions or limitations on deficiency judgments.
Certain other statutory provisions, including federal and state bankruptcy
and insolvency laws and general equitable principles, may limit or delay the
ability of a lender to repossess and resell collateral or enforce a deficiency
judgment.
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Consumer Protection Laws
The so-called "Holder-in-Due-Course" rule of the Federal Trade Commission
is intended to defeat the ability of the transferor of a consumer credit
contract which is the seller of goods which gave rise to the transaction (and
certain related lenders and assignees) to transfer such contract free of notice
of claims by the debtor thereunder. The effect of this rule is to subject the
assignee of such a contract to all claims and defenses which the debtor could
assert against the seller of goods. Liability under this rule is limited to
amounts paid under a Contract; however, the Obligor also may be able to assert
the rule to set off remaining amounts due as a defense against a claim brought
against such Obligor. Numerous other federal and state consumer protection laws
impose requirements applicable to the origination and lending pursuant to the
Contracts, including the Truth in Lending Act, the Federal Trade Commission Act,
the Fair Credit Billing Act, the Fair Credit Reporting Act, the Equal Credit
Opportunity Act, the Fair Debt Collection Practices Act and the Uniform Consumer
Credit Code. In the case of some of these laws, the failure to comply with their
provisions may affect the enforceability of the related Contract.
Transfers of Manufactured Homes, Enforceability of "Due-on-Sale" Clauses
The Contracts, in general, prohibit the sale or transfer of the related
Manufactured Homes without the consent of the Depositor or the Master Servicer
and permit the acceleration of the maturity of the Contracts by the Depositor or
the Master Servicer upon any such sale or transfer that is not consented to.
Unless otherwise specified in the related Prospectus Supplement, the Depositor
or the Master Servicer expects that it will permit most transfers of
Manufactured Homes and not accelerate the maturity of the related Contracts. In
certain cases, the transfer may be made by a delinquent Obligor in order to
avoid a repossession proceeding with respect to a Manufactured Home.
In the case of a transfer of a Manufactured Home after which the Depositor
desires to accelerate the maturity of the related Contract, the Depositor's
ability to do so will depend on the enforceability under state law of the "due-
on-sale" clause. The Garn-St Germain Act preempts, subject to certain exceptions
and conditions, state laws prohibiting enforcement of "due-on-sale" clauses
applicable to the Manufactured Homes. In some states the Depositor or the Master
Servicer may be prohibited from enforcing a "due-on-sale" clause in respect of
certain Manufactured Homes.
Applicability of Usury Laws
Title V of the Depository Institutions Deregulation and Monetary Control
Act of 1980, as amended ("Title V"), provides that, subject to the following
conditions, state usury limitations shall not apply to any loan that is secured
by a first lien on certain kinds of manufactured housing. The Contracts would be
covered if they satisfy certain conditions, among other things, governing the
terms of any prepayments, late charges and deferral fees and requiring a 30-day
notice period prior to instituting any action leading to repossession of or
foreclosure with respect to the related unit.
Title V authorized any state to reimpose limitations on interest rates and
finance charges by adopting before April 1, 1983 a law or constitutional
provision that expressly rejects application of the federal law. Fifteen states
adopted such a law prior to the April 1, 1983 deadline. In addition, even where
Title V was not so rejected, any state is authorized by the law to adopt a
provision limiting discount points or other charges on loans covered by Title V.
In any state in which application of Title V was expressly rejected or a
provision limiting discount points or other charges has been adopted, no
Contract which imposes finance charges or provides for discount points or
charges in excess of permitted levels has been included in the Trust Assets or
Fund. The Depositor, or the party specified in the related Pooling and Servicing
Agreement will represent that all of the Contracts comply with applicable usury
laws.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
I. GENERAL
The following is a general discussion of the anticipated material federal
income tax consequences of the purchase, ownership and disposition of
Certificates. As used hereinafter in "Certain Federal Income Tax Consequences",
"Mortgage Loans" shall include Mortgage Certificates and Contracts and "Mortgage
Pool" shall include "Contract Pool". The following
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discussion does not purport to discuss all federal income tax consequences that
may be applicable to particular categories of investors, some of which may be
subject to special rules. Further, the authorities on which this discussion are
based are subject to change or differing interpretation, which change or
differing interpretation could apply retroactively. This discussion does not
address the state or local tax consequences of the purchase, ownership and
disposition of such Certificates. Investors should consult their own tax
advisers in determining the federal, state, local, or other tax consequences to
them of the purchase, ownership and disposition of the Certificates offered
hereunder, particularly with respect to the federal income tax changes effected
by the Tax Reform Act of 1986 (the "1986 Act") as explained by the Conference
Committee Report (the "Committee Report") accompanying such 1986 Act.
The following discussion addresses securities of two general types: (i)
certificates ("REMIC Certificates") representing interests in a Mortgage Pool
("REMIC Mortgage Pool") which the Master Servicer elects to have treated as a
real estate mortgage investment conduit ("REMIC") under Code Sections 860A
through 860G ("REMIC Provisions") and (ii) certificates ("Trust Certificates")
representing certain interests in a Mortgage Pool which the Master Servicer does
not elect to have treated as a REMIC. REMIC Certificates and Trust Certificates
will be referred to collectively as "Certificates".
Under the REMIC Provisions, REMICs may issue one or more classes of
"regular" interests and must issue one and only one class of "residual"
interests. A REMIC Certificate representing a regular interest in a REMIC
Mortgage Pool will be referred to as a "REMIC Regular Certificate" and a REMIC
Certificate representing a residual interest in a REMIC Mortgage Pool will be
referred to as a "REMIC Residual Certificate".
A Trust Certificate representing an undivided equitable ownership interest
in the principal of the Mortgage Loans constituting the related Mortgage Pool,
together with interest thereon at a remittance rate (which may be less than,
greater than, or equal to the pass-through rate), will be referred to as a
"Trust Fractional Certificate" and a Trust Certificate representing an equitable
ownership of all or a portion of the interest paid on each Mortgage Loan
constituting the related Mortgage Pool (net of normal servicing fees) will be
referred to as a "Trust Interest Certificate."
The following discussion is based in part upon the rules governing original
issue discount that are set forth in Code Sections 1271 through 1273 and 1275
and in Treasury regulations issued under the original issue discount provisions
of the Code (the "OID Regulations"), and the Treasury regulations issued under
the provisions of the Code relating to REMICs (the "REMIC Regulations"). The OID
Regulations generally are effective with respect to debt instruments issued on
or after April 4, 1994.
II. REMIC TRUST FUNDS
A. Classification of REMIC Trust Funds
With respect to each series of REMIC Certificates relating to a REMIC
Mortgage Pool, Sidley & Austin, New York, New York, will deliver their opinion
generally to the effect that, assuming that (i) a REMIC election is made timely
in the required form, (ii) there is ongoing compliance with all provisions of
the related Pooling and Servicing Agreement, (iii) certain representations set
forth in the Pooling and Servicing Agreement are true and (iv) there is
continued compliance with applicable provisions of the Code, as it may be
amended from time to time, and applicable Treasury regulations issued
thereunder, such REMIC Mortgage Pool will qualify as a REMIC and the classes of
interests offered will be considered to be "regular interests" or "residual
interests" in that REMIC Mortgage Pool within the meaning of the REMIC
Provisions.
Holders of REMIC Certificates ("REMIC Certificateholders") should be aware
that, if an entity electing to be treated as a REMIC fails to comply with one or
more of the ongoing requirements of the Code for REMIC status during any taxable
year, the Code provides that the entity will not be treated as a REMIC for such
year and thereafter. In such event, an entity electing to be treated as a REMIC
may be taxable as a separate corporation under Treasury regulations, and the
REMIC Certificates issued by such entity may not be accorded the status
described below under the heading "Characterization of Investments in REMIC
Certificates". In the case of an inadvertent termination of REMIC status, the
Code provides the Treasury Department with authority to issue regulations
providing relief. Any such relief, however, may
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be accompanied by sanctions, such as the imposition of a corporate tax on all or
a portion of the REMIC's income for the period of time in which the requirements
for REMIC status are not satisfied.
Among the ongoing requirements in order to qualify for REMIC treatment is
that substantially all of the assets of the Trust Fund (as of the close of the
third calendar month beginning after the creation of the REMIC and continually
thereafter) must consist of only "qualified mortgages" and "permitted
investments". In order to be a "qualified mortgage", or to support treatment of
a certificate of participation therein as a "qualified mortgage" an obligation
must be principally secured by an interest in real property. The REMIC
Regulations treat an obligation secured by manufactured housing qualifying as a
single family residence under Code Section 25(e)(10) as an obligation secured by
real property, without regard to the treatment of the obligation or the property
under state law. Under Code Section 25(e)(10), a single family residence
includes any manufactured home that has a minimum of 400 square feet of living
space and a minimum width in excess of 102 inches and that is of a kind
customarily used at a fixed location.
B. Characterization of Investments in REMIC Certificates
In general, REMIC Certificates are not treated for federal income tax
purposes as ownership interests in the assets of a REMIC Mortgage Pool. However,
(i) REMIC Certificates held by a mutual savings bank or a domestic building and
loan association will constitute "qualifying real property loans" within the
meaning of Code Section 593(d) in the same proportion that the assets of the
REMIC Mortgage Pool underlying such Certificates ("Assets") would be so treated;
(ii) REMIC Certificates held by a domestic building and loan association will
constitute a "regular or residual interest in a REMIC" within the meaning of
Code Section 7701(a)(19)(C)(xi) in the same proportion that the Assets would be
treated as "loans secured by an interest in real property" within the meaning of
Code Section 7701(a)(19)(C)(v) or as other assets described in Code Section
7701(a)(19)(C)(i) through (x); and (iii) REMIC Certificates held by a real
estate investment trust will constitute "real estate assets" within the meaning
of Code Section 856(c)(5)(A), and any amount includible in gross income on the
REMIC Certificates will be considered "interest on obligations secured by
mortgages on real property or on interests in real property" within the meaning
of Code Section 856(c)(3)(B) in the same proportion that, the Assets and income
of the REMIC would be treated as "interests in real property" as defined in Code
Section 856(c)(6)(C) (or, as provided in the Committee Report, as "real estate
assets" as defined in Code Section 856(c)(6)(B)) and as "interest on obligations
secured by mortgages on real property or on interests in real property",
respectively. See, in this regard, "Characterization of Investments in Trust
Certificates-Buydown Mortgage Loans", below. Moreover, if 95% or more of the
Assets qualify for any of the foregoing treatments, the REMIC Certificates (and
income thereon) will qualify for the corresponding status in their entirety.
Investors should be aware that the investment of amounts in any Reserve Fund or
GPM Fund in non-qualifying assets would, and, holding property acquired by
foreclosure pending sale might, reduce the amount of the REMIC Certificates that
would qualify for the foregoing treatment. The REMIC Regulations provide that
payments on Mortgage Loans held pending distribution are considered part of the
Mortgage Loans for purposes of Code Sections 593(d) and 856(c)(5)(A); it is
unclear whether such collected payments would be so treated for purposes of Code
Section 7701(a)(19)(C)(v), but there appears to be no reason why analogous
treatment should not be given to such collected payments under that provision.
The determination as to the percentage of the REMIC's assets (or income) that
will constitute assets (or income) described in the foregoing sections of the
Code will be made with respect to each calendar quarter based on the average
adjusted basis (or average amount of income) of each category of the assets held
(or income accrued) by the REMIC during such calendar quarter. The REMIC will
report those determinations to Certificateholders in the manner and at the times
required by applicable Treasury regulations. The Prospectus Supplement or the
related Current Report on Form 8-K for each Series of REMIC Certificates will
describe the Assets as of the Cut-off Date. REMIC Certificates held by certain
financial institutions will constitute an "evidence of indebtedness" within the
meaning of Code Section 582(c)(1); in addition, regular interests in any other
REMIC acquired by a REMIC in accordance with the requirements of Section
860G(a)(3)(A)(i) and (ii) or Section 860G(a)(4)(B) of the Code will be treated
as "qualified mortgages" within the meaning of Code Section 860D(a)(4).
For purposes of characterizing an investment in REMIC Certificates, a
Contract secured by a Manufactured Home qualifying as a "single family
residence" under section 25(e)(10) will constitute (i) a "qualifying real
property loan" within the meaning of Code Section 593(d), (ii) a "real estate
asset" within the meaning of Code Section 856, and (iii) an asset described in
Code section 7701(a)(19)(C). With respect to the Contracts included in a Trust
Fund that makes an election
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to be treated as a REMIC, each Unaffiliated Seller will represent and warrant
that each of the Manufactured Homes securing such Contracts meets definition of
a "single family residence".
C. Tiered REMIC Structures
For certain series of Certificates, two or more separate elections may be
made to treat designated portions of the related Trust Fund as REMICs ("Tiered
REMICs") for federal income tax purposes. Upon the issuance of any such series
of Certificates, Sidley & Austin, counsel to the Depositor, will deliver their
opinion generally to the effect that, assuming compliance with all provisions of
the related Pooling and Servicing Agreement, the Tiered REMICs will each qualify
as a REMIC and the REMIC Certificates issued by the Tiered REMICs, respectively,
will be considered to evidence ownership of REMIC Regular Certificates or REMIC
Residual Certificates in the related REMIC within the meaning of the REMIC
Provisions.
Solely for purposes of determining whether the REMIC Certificates will be
"qualifying real property loans" under Section 593(d) of the Code, "real estate
assets" within the meaning of Section 856(c)(5)(A) of the Code, and assets
described in Section 7701(a)(19)(C) of the Code, and whether the income on such
Certificates is interest described in Section 856(c)(3)(B) of the Code, the
Tiered REMICs will be treated as one REMIC.
D. Taxation of Owners of REMIC Regular Certificates
Except as otherwise stated in this discussion, the REMIC Regular
Certificates will be treated for federal income tax purposes as debt instruments
issued by the REMIC Mortgage Pool and not as ownership interests in the REMIC
Mortgage Pool or its Assets. In general, interest, original issue discount and
market discount paid or accrued on a REMIC Regular Certificate will be treated
as ordinary income to the holder of such REMIC Regular Certificate.
Distributions in reduction of the stated redemption price at maturity of the
REMIC Regular Certificate will be treated as a return of capital to the extent
of such holder's basis in such REMIC Regular Certificate. Holders of REMIC
Regular Certificates that otherwise report income under a cash method of
accounting will be required to report income with respect to REMIC Regular
Certificates under an accrual method.
1. Original Issue Discount
Certain REMIC Regular Certificates may be issued with "original issue
discount" within the meaning of Code Section 1273(a). Any holders of REMIC
Regular Certificates issued with original issue discount generally will be
required to include original issue discount in income as it accrues, in
accordance with a constant interest method that takes into account the
compounding of interest, in advance of the receipt of the cash attributable to
such income. The Master Servicer will report annually (or more frequently if
required) to the Internal Revenue Service ("IRS") and to Certificateholders such
information with respect to the original issue discount accruing on the REMIC
Regular Certificates as may be required under Code Section 6049 and the
regulations thereunder. See "Reporting and Other Administrative Matters of
REMICs" below.
Rules governing original issue discount are set forth in Code Sections 1271
through 1273 and 1275 and in the OID Regulations. Code Section 1272(a)(6)
provides special original issue discount rules applicable to REMIC Regular
Certificates. Regulations have not yet been proposed or adopted interpreting
Code Section 1272(a)(6).
Code Section 1272(a)(6) requires that a mortgage prepayment assumption
("Prepayment Assumption") be used in computing the accrual of original issue
discount on REMIC Regular Certificates, and for certain other federal income tax
purposes. The Prepayment Assumption is to be determined in the manner prescribed
in Treasury regulations. To date, no such regulations have been promulgated. The
Committee Report indicates that the regulations will provide that the Prepayment
Assumption, if any, used with respect to a particular transaction must be the
same as that used by the parties in pricing the transaction. The Master Servicer
will use a Prepayment Assumption in reporting original issue discount that is
consistent with this standard. However, neither the Depositor nor the Master
Servicer makes any representation that the Mortgage Loans will in fact prepay at
the rate reflected in the Prepayment Assumption or at any other rate. Each
investor must make its own decision as to the appropriate prepayment assumption
to be used in deciding whether or not to purchase
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any of the REMIC Regular Certificates. The Prospectus Supplement with respect to
a series of REMIC Certificates will disclose the Prepayment Assumption to be
used in reporting original issue discount, if any, and for certain other federal
income tax purposes.
The total amount of original issue discount on a REMIC Regular Certificate
is the excess of the "stated redemption price at maturity" of the REMIC Regular
Certificate over its "issue price". Except as discussed in the following two
paragraphs, in general, the issue price of a particular class of REMIC Regular
Certificates offered hereunder will be the price at which a substantial amount
of REMIC Regular Certificates of that class are first sold to the public
(excluding bond houses and brokers), and the stated redemption price at maturity
of a REMIC Regular Certificate will be its Stated Principal Balance.
If a REMIC Regular Certificate is sold with accrued interest that relates
to a period prior to the issue date of such REMIC Regular Certificate, the
amount paid for the accrued interest will be treated instead as increasing the
issue price of the REMIC Regular Certificate. In addition, that portion of the
first interest payment in excess of interest accrued from the date of initial
issuance of the Certificates (the "Closing Date") to the first Distribution Date
will be treated for federal income tax reporting purposes as includible in the
stated redemption price at maturity of the REMIC Regular Certificates, and as
excludible from income when received as a payment of interest on the first
Distribution Date (except to the extent of any market discount accrued as of
that date). The OID Regulations suggest, however, that some or all of this pre-
issuance accrued interest "may" be treated as a separate asset (and hence not
includible in a REMIC Regular Certificate's issue price or stated redemption
price at maturity), whose cost is recovered entirely out of interest paid on the
first Distribution Date.
The stated redemption price at maturity of a REMIC Regular Certificate is
equal to the total of all payments to be made on such Certificate other than
"qualified stated interest". Under the OID Regulations, "qualified stated
interest" is interest that is unconditionally payable at least annually during
the entire term of the Certificate at either (i) a single fixed rate that
appropriately takes into account the length of the interval between payments or
(ii) a current value of a single "qualified floating rate" or "objective rate"
(each, a "Single Variable Rate"). A "current value" is the value of a variable
rate on any day that is no earlier than three months prior to the first day on
which that value is in effect and no later than one year following that day. A
"qualified floating rate" is a rate whose variations can reasonably be expected
to measure contemporaneous variations in the cost of newly borrowed funds in the
currency in which the Certificate is denominated. Such a rate remains qualified
even though it is multiplied by a fixed, positive multiple not exceeding 1.35,
increased or decreased by a fixed rate, or both. Certain combinations of rates
constitute a single qualified floating rate, including (i) interest stated at a
fixed rate for an initial period of less than one year followed by a qualified
floating rate if the value of the floating rate at the Closing Date is intended
to approximate the fixed rate, and (ii) two or more qualified floating rates
that can reasonably be expected to have approximately the same values throughout
the term of the Certificate. A combination of such rates is conclusively
presumed to be a single floating rate if the values of all rates on the Closing
Date are within 0.25 percentage points of each other. A variable rate that is
subject to an interest rate cap, floor, "governor" or similar restriction on
rate adjustment may be a qualified floating rate only if such restriction is
fixed throughout the term of the instrument, or is not reasonably expected as of
the Closing Date to cause the yield on the debt instrument to differ
significantly from the expected yield absent the restriction. An "objective
rate" is a rate (other than a qualified floating rate) determined using a single
formula fixed for the life of the Certificate, which is based on (i) one or more
qualified floating rates (including a multiple or inverse of a qualified
floating rate), (ii) one or more rates each of which would be a qualified
floating rate for a debt instrument denominated in a foreign currency, (iii) the
yield or changes in price of one or more items of "actively traded" personal
property, (iv) a combination of the foregoing objective rates, or (v) a rate
designated by the IRS. However, a variable rate is not an objective rate if it
is reasonably expected that the average value of the rate during the first half
of the Certificate's term will differ significantly from the average value of
such rate during the final half of its term. Proposed regulations issued on
December 16, 1994, which are not yet effective, would expand the definition of
an objective rate. A combination of interest stated at a fixed rate for an
initial period of less than one year followed by an objective rate is treated as
a single objective rate if the value of the objective rate at the Closing Date
is intended to approximate the fixed rate; such a combination of rates is
conclusively presumed to be a single objective rate if the objective rate on the
Closing Date does not differ from the fixed rate by more than 0.25 percentage
points. The qualified stated interest payable with respect to certain variable
rate debt instruments not bearing stated interest at a Single Variable Rate is
discussed below under "Variable Rate Certificates". Under the foregoing rules,
some of the payments of interest on a Certificate bearing a fixed rate of
interest for an initial period followed by a qualified floating rate of interest
in subsequent periods could be treated as included in the
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stated redemption price at maturity if the initial fixed rate were to differ
sufficiently from the rate that would have been set using the formula applicable
to subsequent periods. See "Variable Rate Certificates". REMIC Regular
Certificates offered hereby other than such Certificates providing for variable
rates of interest are not anticipated to have stated interest other than
"qualified stated interest", but if any such REMIC Regular Certificates are so
offered, appropriate disclosures will be made in the Prospectus Supplement. Some
or all of the payments on REMIC Regular Certificates providing for the accretion
of interest will be included in the stated redemption price at maturity of such
Certificates. Further, because interest is payable to Certificateholders only to
the extent that amounts are received with respect to the Mortgage Loans, such
interest may not be considered "unconditionally payable" and hence may not be
considered qualified stated interest; however, the Master Servicer will not
adopt such treatment for purposes of information reporting.
Under a de minimis rule in the Code, as interpreted in the OID Regulations,
original issue discount on a REMIC Regular Certificate will be considered to be
zero if such original issue discount is less than 0.25% of the stated redemption
price at maturity of the REMIC Regular Certificate multiplied by the weighted
average life of the REMIC Regular Certificate. For this purpose, the weighted
average life of the REMIC Regular Certificate is computed as the sum of the
amounts determined by multiplying the amount of each payment under the
instrument (other than a payment of qualified stated interest) by a fraction,
whose numerator is the number of complete years from the issue date until such
payment is made and whose denominator is the stated redemption price at maturity
of such REMIC Regular Certificate. The IRS may take the position that this rule
should be applied taking into account the Prepayment Assumption and the effect
of any anticipated investment income. Under the OID Regulations, REMIC Regular
Certificates bearing only qualified stated interest except for any "teaser"
rate, interest holiday or similar provision would be treated as subject to the
de minimis rule if the greater of the foregone interest or any excess of the
Certificates' stated principal amount over their issue price is less than such
de minimis amount.
The OID Regulations generally would treat de minimis original issue
discount as includible in income as each principal payment is made, based on the
product of the total amount of such de minimis original issue discount and a
fraction, whose numerator is the amount of such principal payment and whose
denominator is the outstanding principal balance of the REMIC Regular
Certificate. The OID Regulations also would permit a Certificateholder to elect
to accrue de minimis original issue discount (together with stated interest,
market discount and original issue discount) into income currently based on a
constant yield method. See "Taxation of Owners of REMIC Regular Certificates-
Market Discount and Premium.
Each holder of a REMIC Regular Certificate must include in gross income the
sum of the "daily portions" of original issue discount on its REMIC Regular
Certificate for each day during its taxable year on which it held such REMIC
Regular Certificate. For this purpose, in the case of an original holder of a
REMIC Regular Certificate, the daily portions of original issue discount will be
determined as follows. A calculation will first be made of the portion of the
original issue discount that accrued during each accrual period, that is (unless
otherwise stated in the applicable Prospectus Supplement) each period that ends
on a date that corresponds to a Distribution Date on the REMIC Regular
Certificate and begins on the first day following the immediately preceding
accrual period (or in the case of the first such period, begins on the Closing
Date). For any accrual period such portion will equal the excess, if any, of (i)
the sum of (A) the present value of all of the distributions remaining to be
made on the REMIC Regular Certificate, if any, as of the end of the accrual
period and (B) distributions made on such REMIC Regular Certificate during the
accrual period of amounts included in the stated redemption price at maturity,
over (ii) the adjusted issue price of such REMIC Regular Certificate at the
beginning of the accrual period. The present value of the remaining payments
referred to in the preceding sentence will be calculated based on (i) the yield
to maturity of the REMIC Regular Certificate, calculated as of the settlement
date, giving effect to the Prepayment Assumption, (ii) events (including actual
prepayments) that have occurred prior to the end of the accrual period and (iii)
the Prepayment Assumption. The adjusted issue price of a REMIC Regular
Certificate at the beginning of any accrual period will equal the issue price of
such Certificate, increased by the aggregate amount of original issue discount
with respect to such REMIC Regular Certificate that accrued in prior accrual
periods, and reduced by the amount of any distributions made on such REMIC
Regular Certificate in prior accrual periods of amounts included in the stated
redemption price at maturity. The original issue discount accruing during any
accrual period will then be allocated ratably to each day during the period to
determine the daily portion of original issue discount for each day. With
respect to an accrual period between the settlement date and the first
Distribution Date on the REMIC Regular Certificate that is shorter than a full
accrual period, the OID Regulations permit the daily portions of original issue
discount to be determined according to any reasonable method.
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A subsequent purchaser of a REMIC Regular Certificate that purchases such
REMIC Regular Certificate at a cost (not including payment for accrued qualified
stated interest) less than its remaining stated redemption price at maturity
will also be required to include in gross income, for each day on which it holds
such REMIC Regular Certificate, the daily portions of original issue discount
with respect to such REMIC Regular Certificate, but reduced, if such cost
exceeds the "adjusted issue price", by an amount equal to the product of (i)
such daily portions and (ii) a constant fraction, whose numerator is such excess
and whose denominator is the sum of the daily portions of original issue
discount on such REMIC Regular Certificate for all days on or after the day of
purchase. The adjusted issued price of a REMIC Regular Certificate on any given
day is equal to the sum of the adjusted issue price (or, in the case of the
first accrual, the issue price) of the REMIC Regular Certificate at the
beginning of the accrual period during which such day occurs and the daily
portions of original issue discount for all days during such accrual period
prior to such day, reduced by the aggregate amount of distributions made during
such accrual period prior to such day other than distributions of qualified
stated interest.
Variable Rate Certificates. REMIC Regular Certificates bearing interest at
one or more variable rates are subject to certain special rules. The qualified
stated interest payable with respect to certain variable rate debt instruments
not bearing interest at a Single Variable Rate generally is determined under the
OID Regulations by converting such instruments into fixed rate debt instruments.
Instruments qualifying for such treatment generally include those providing for
stated interest at (i) more than one qualified floating rate, or (ii) a single
fixed rate and (a) one or more qualified floating rates or (b) a single
"qualified inverse floating rate" (each, a "Multiple Variable Rate"). A
qualified inverse floating rate is an objective rate equal to a fixed rate
reduced by a qualified floating rate, the variations in which can reasonably be
expected to inversely reflect contemporaneous variations in the cost of newly
borrowed funds (disregarding permissible rate caps, floors, governors and
similar restrictions such as are described above).
Purchasers of REMIC Regular Certificates bearing a variable rate of
interest should be aware that there is uncertainty concerning the application of
Section 1272(a)(6) of the Code and the OID Regulations to such Certificates. In
the absence of other authority, the Master Servicer intends to be guided by the
provisions of the OID Regulations governing variable rate debt instruments in
adapting the provisions of Section 1272(a)(6) of the Code to such Certificates
for the purpose of preparing reports furnished to Certificateholders. The effect
of the application of such provisions generally will be to cause
Certificateholders holding Certificates bearing interest at a Single Variable
Rate to take into account for each period an amount corresponding approximately
to the sum of (i) the qualified stated interest accruing on the outstanding face
amount of the REMIC Regular Certificate as the stated interest rate for that
Certificate varies from time to time and (ii) the amount of original issue
discount that would have been attributable to that period on the basis of a
constant yield to maturity for a bond issued at the same time and issue price as
the REMIC Regular Certificate, having the same face amount and schedule of
payments of principal as such Certificate, subject to the same Prepayment
Assumption, and bearing interest at a fixed rate equal to the value of the
applicable qualified floating rate or qualified inverse floating rate in the
case of a Certificate providing for either such rate, or equal to the fixed rate
that reflects the reasonably expected yield on the Certificate in the case of a
Certificate providing for an objective rate other than an inverse floating rate,
in each case as of the issue date. Certificateholders holding REMIC Regular
Certificates bearing interest at a Multiple Variable Rate generally will take
into account interest and original issue discount under a similar methodology,
except that the amounts of qualified stated interest and original issue discount
attributable to such a Certificate first will be determined for an "equivalent"
debt instrument bearing fixed rates, the assumed fixed rates for which are (a)
for each qualified floating rate, the value of each such rate as of the Closing
Date (with appropriate adjustment for any differences in intervals between
interest adjustment dates), (b) for a qualified inverse floating rate, the value
of the rate as of the Closing Date, and (c) for any other objective rate, the
fixed rate that reflects the yield that is reasonably expected for the
Certificate. If the interest paid or accrued with respect to a Multiple Variable
Rate Certificate during an accrual period differs from the assumed fixed
interest rate, such difference will be an adjustment (to interest or original
issue discount, as applicable) to the Certificateholder's taxable income for the
taxable period or periods to which such difference relates.
In the case of a Certificate that provides for stated interest at a fixed
rate in one or more accrual periods and either one or more qualified floating
rates or a qualified inverse floating rate in other accrual periods, the fixed
rate is first converted into an assumed variable rate. The assumed variable rate
will be a qualified floating rate or a qualified inverse floating rate according
to the type of actual variable rates provided by the Certificate, and must be
such that the fair market value of the REMIC Regular Certificate as of issuance
is approximately the same as the fair market value of an otherwise identical
debt instrument that provides for the assumed variable rate in lieu of the fixed
rate. The REMIC Regular Certificate is then subject
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to the determination of the amount and accrual of original issue discount as
described above, by reference to the hypothetical variable rate instrument.
Purchasers of variable rate REMIC Regular Certificates further should be
aware that the provisions of the OID Regulations applicable to variable rate
debt instruments have been limited and may not apply to some REMIC Regular
Certificates having variable rates. If such a Certificate is not governed by the
provisions of the OID Regulations applicable to variable rate debt instruments,
it may be subject to provisions of proposed Treasury regulations applicable to
instruments having contingent payments. The application of those provisions to
instruments such as variable rate REMIC Regular Certificates is subject to
differing interpretations. Prospective purchasers of variable rate REMIC Regular
Certificates are advised to consult their tax advisers concerning the tax
treatment of such Certificates.
2. Market Discount and Premium
A Certificateholder that purchases a REMIC Regular Certificate at a market
discount, that is, at a purchase price less than the REMIC Regular Certificate's
stated redemption price at maturity, or, in the case of a REMIC Regular
Certificate issued with original issued discount, the REMIC Regular
Certificate's adjusted issue price (as defined under "Taxation of Owners of
REMIC Regular Certificates-Original Issue Discount"), will recognize market
discount upon receipt of each payment of principal. In particular, such a holder
will generally be required to allocate each payment of principal on a REMIC
Regular Certificate first to accrued market discount, and to recognize ordinary
income, to the extent such principal payment does not exceed the aggregate
amount of accrued market discount on such REMIC Regular Certificate not
previously included in income. Such market discount must be included in income
in addition to any original issue discount includible in income with respect to
such REMIC Regular Certificate.
A Certificateholder may elect to include market discount in income
currently as it accrues, rather than including it on a deferred basis in
accordance with the foregoing. If made, such election will apply to all market
discount bonds acquired by such Certificateholder on or after the first day of
the first taxable year to which such election applies. In addition, the OID
Regulations permit a Certificateholder to elect to accrue all interest, discount
(including de minimis market or original issue discount) and premium in income
as interest, based on a constant yield method. If such an election were made for
a REMIC Regular Certificate with market discount, the Certificateholder would be
deemed to have made an election to currently include market discount in income
with respect to all other debt instruments having market discount that such
Certificateholder acquires during the year of the election or thereafter.
Similarly, a Certificateholder that makes this election for a Certificate that
is acquired at a premium is deemed to have made an election to amortize bond
premium, as described below, with respect to all debt instruments having
amortizable bond premium that such Certificateholder owns or acquires. The
election to accrue interest, discount and premium on a constant yield method
with respect to a Certificate is irrevocable without the consent of the IRS.
Under a statutory de minimis exception, market discount with respect to a
REMIC Regular Certificate will be considered to be zero for purposes of Code
Sections 1276 through 1278 if such market discount is less than 0.25% of the
stated redemption price at maturity of such REMIC Regular Certificate multiplied
by the number of complete years to maturity remaining after the date of its
purchase. In interpreting a similar de minimis rule with respect to original
issue discount on obligations payable in installments, the OID Regulations refer
to the weighted average maturity of obligations, and it is likely that the same
rule will be applied in determining whether market discount is de minimis. It
appears that de minimis market discount on a REMIC Regular Certificate would be
treated in a manner similar to original issue discount of a de minimis amount.
See "Taxation of Holders of REMIC Regular Certificates-Original Issue Discount".
Such treatment would result in discount being included in income at a slower
rate than discount would be required to be included using the method described
above. However, Treasury regulations implementing the market discount de minimis
exception have not been issued in proposed, temporary or final form, and the
precise treatment of de minimis market discount on obligations payable in more
than one installment therefore remains uncertain.
The 1986 Act grants authority to the Treasury Department to issue
regulations providing for the method for accruing market discount of more than a
de minimis amount on debt instruments, the principal of which is payable in more
than one installment. Until such time as regulations are issued by the Treasury
Department, certain rules described in the Committee Report will apply. Under
those rules, the holder of a bond purchased with more than de minimis market
discount
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may elect to accrue such market discount either on the basis of a constant yield
method or on the basis of the appropriate proportionate method described below.
Under the proportionate method for obligations issued with original issue
discount, the amount of market discount that accrues during a period is equal to
the product of (i) the total remaining market discount, multiplied by (ii) a
fraction, the numerator of which is the original issue discount accruing during
the period and the denominator of which is the total remaining original issue
discount at the beginning of the period. Under the proportionate method for
obligations issued without original issue discount, the amount of market
discount that accrues during a period is equal to the product of (i) the total
remaining market discount, multiplied by (ii) a fraction, the numerator of which
is the amount of stated interest paid during the accrual period and the
denominator of which is the total amount of stated interest remaining to be paid
at the beginning of the period. The Prepayment Assumption, if any, used in
calculating the accrual of original issue discount is to be used in calculating
the accrual of market discount under any of the above methods. Because the
regulations referred to in this paragraph have not been issued, it is not
possible to predict what effect such regulations might have on the tax treatment
of a REMIC Regular Certificate purchased at a discount in the secondary market.
Further, a purchaser generally will be required to treat a portion of any
gain on sale or exchange of a REMIC Regular Certificate as ordinary income to
the extent of the market discount accrued to the date of disposition under one
of the foregoing methods, less any accrued market discount previously reported
as ordinary income. Such purchaser also may be required to defer a portion of
its interest deductions for the taxable year attributable to any indebtedness
incurred or continued to purchase or carry such REMIC Regular Certificate. Any
such deferred interest expense is, in general, allowed as a deduction not later
than the year in which the related market discount income is recognized. If such
holder elects to include market discount in income currently as it accrues on
all market discount instruments acquired by such holder in that taxable year or
thereafter, the interest deferral rule described above will not apply.
A REMIC Regular Certificate purchased at a cost (not including payment for
accrued qualified stated interest) greater than its remaining stated redemption
price at maturity will be considered to be purchased at a premium. The holder of
such a REMIC Regular Certificate may elect to amortize such premium under the
constant yield method. The OID Regulations also permit Certificateholders to
elect to include all interest, discount and premium in income based on a
constant yield method, further treating the Certificateholder as having made the
election to amortize premium generally, as described above. The Committee Report
indicates a Congressional intent that the same rules that will apply to accrual
of market discount on installment obligations will also apply in amortizing bond
premium under Code Section 171 on installment obligations such as the REMIC
Regular Certificates.
3. Treatment of Subordinated Certificates
As described above under "Credit Support-Subordinated Certificates",
certain Series of Certificates may contain one or more Classes or Subclasses of
Subordinated Certificates. Holders of Subordinated Certificates will be required
to report income with respect to such Certificates on the accrual method without
giving effect to delays and reductions in distributions attributable to defaults
or delinquencies on any Mortgage Loans, except possibly, in the case of income
that constitutes qualified stated interest, to the extent that it can be
established that such amounts are uncollectible. As a result, the amount of
income reported by a Certificateholder of a Subordinated Certificate in any
period could significantly exceed the amount of cash distributed to such
Certificateholder in that period.
Although not entirely clear, it appears that a corporate holder or a holder
who holds a Regular Certificate in the course of a trade or business generally
should be allowed to deduct as an ordinary loss any loss sustained on account of
partial or complete worthlessness of a Subordinated Certificate. Although
similarly unclear, a noncorporate holder who does not hold such Regular
Certificate in the course of a trade or business generally should be allowed to
deduct as a short-term capital loss any loss sustained on account of complete
worthlessness of a Subordinated Certificate. Special rules are applicable to
banks and thrift institutions, including rules regarding reserves for bad debts.
Holders of Subordinated Certificates should consult their own tax advisers
regarding the appropriate timing, character and amount of any loss sustained
with respect to Subordinated Certificates.
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E. Taxation of Owners of REMIC Residual Certificates
1. General
An owner of a REMIC Residual Certificate ("Residual Owner") generally will
be required to report its daily portion of the taxable income or, subject to the
limitation described below in "Taxation of Owners of REMIC Residual
Certificates-Basis Rules and Distributions", the net loss of the REMIC Mortgage
Pool for each day during a calendar quarter that the Residual Owner owned such
REMIC Residual Certificate. For this purpose, the daily portion will be
determined by allocating to each day in the calendar quarter, using a 30 days
per month/90 days per quarter/360 days per year counting convention (unless
otherwise disclosed in the applicable Prospectus Supplement), its ratable
portion of the taxable income or net loss of the REMIC Mortgage Pool for such
quarter, and by allocating the daily portions among the Residual Owners (on such
day) in accordance with their percentage of ownership interests on such day. Any
amount included in the gross income of, or allowed as a loss to, any Residual
Owner by virtue of the rule referred to in this paragraph will be treated as
ordinary income or loss. Purchasers of REMIC Residual Certificates should be
aware that taxable income from such Certificates may exceed cash distributions
with respect thereto in any taxable year. For example, if the Mortgage Loans are
acquired by a REMIC at a discount, then the holder of a residual interest may
recognize income without corresponding cash distributions. This result could
occur because a payment produces recognition by the REMIC of discount on the
Mortgage Loan while all or a portion of such payment could be used in whole or
in part to make principal payments on REMIC Regular Certificates issued without
substantial discount. Taxable income may also be greater in earlier years as a
result of the fact that interest expense deductions, expressed as a percentage
of the outstanding principal amount of the REMIC Regular Certificates, will
increase over time as the lower yielding sequences of Certificates are paid,
whereas interest income with respect to any given Mortgage Loan will remain
constant over time as a percentage of the outstanding principal amount of that
loan.
Any payments received by a holder of a REMIC Residual Certificate in
connection with the acquisition of such Certificate will be taken into account
in determining the income of such holder for federal income tax purposes.
Although it appears likely that any such payment would be includible in income
immediately upon its receipt, the IRS might assert that such payment should be
included in income over time according to an amortization schedule or according
to some other method. Because of the uncertainty concerning the treatment of
such payments, holders of REMIC Residual Certificates should consult their tax
advisers concerning the treatment of such payments for income tax purposes.
2. Taxable Income or Net Loss of the REMIC Trust Fund
The taxable income or net loss of the REMIC Mortgage Pool will reflect a
netting of income from the Mortgage Loans, any cancellation of indebtedness
income due to the allocation of Realized Losses to REMIC Regular Certificates,
and the deductions and losses allowed to the REMIC Mortgage Pool. Such taxable
income or net loss for a given calendar quarter will be determined in the same
manner as for an individual having the calendar year as his taxable year and
using the accrual method of accounting, with certain modifications. The first
modification is that a deduction will be allowed for accruals of interest
(including original issue discount) on the REMIC Regular Certificates. Second,
market discount equal to the excess of any Mortgage Loan's adjusted issue price
(as determined under "Taxation of Owners of REMIC Regular Certificates-Market
Discount and Premium") over its fair market value at the time of its transfer to
the REMIC Mortgage Pool generally will be included in income as it accrues,
based on a constant yield method and on the Prepayment Assumption. For this
purpose, the Master Servicer intends to treat the fair market value of the
Mortgage Loans as being equal to the aggregate issue prices of the REMIC Regular
Certificates and REMIC Residual Certificates; if one or more classes of REMIC
Regular Certificates or REMIC Residual Certificates are retained by the
Depositor, the Master Servicer will estimate the value of such retained
interests in order to determine the fair market value of the Mortgage Loans for
this purpose. Third, no item of income, gain, loss or deduction allocable to a
prohibited transaction (see "Prohibited Transactions and Other Possible REMIC
Taxes", below) will be taken into account. Fourth, the REMIC Mortgage Pool
generally may not deduct any item that would not be allowed in calculating the
taxable income of a partnership by virtue of Code Section 703(a)(2). Fifth, the
REMIC Regulations provide that the limitation on miscellaneous itemized
deductions imposed on individuals by Code Section 67 will not be applied at the
Mortgage Pool level to the servicing fees paid to the Master Servicer or sub-
servicers if any. (See, however, "Pass-Through of Servicing Fees", below.) If
the deductions allowed to the REMIC
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Mortgage Pool exceed its gross income for a calendar quarter, such excess will
be the net loss for the REMIC Mortgage Pool for that calendar quarter.
3. Basis Rules and Distributions
Any distribution by a REMIC Mortgage Pool to a Residual Owner will not be
included in the gross income of such Residual Owner to the extent it does not
exceed the adjusted basis of such Residual Owner's interest in a REMIC Residual
Certificate. Such distribution will reduce the adjusted basis of such interest,
but not below zero. To the extent a distribution exceeds the adjusted basis of
the REMIC Residual Certificate, it will be treated as gain from the sale of the
REMIC Residual Certificate. (See "Sales of REMIC Certificates", below.) The
adjusted basis of a REMIC Residual Certificate is equal to the amount paid for
such REMIC Residual Certificate, increased by amounts included in the income of
the Residual Owner (see "Taxation of Owners of REMIC Residual Certificates-Daily
Portions" above), and decreased by distributions and by net losses taken into
account with respect to such interest.
A Residual Owner is not allowed to take into account any net loss for any
calendar quarter to the extent such net loss exceeds such Residual Owner's
adjusted basis in its REMIC Residual Certificate as of the close of such
calendar quarter (determined without regard to such net loss). Any loss
disallowed by reason of this limitation may be carried forward indefinitely to
future calendar quarters and, subject to the same limitation, may be used only
to offset income from the REMIC Residual Certificate.
The effect of these basis and distribution rules is that a Residual Owner
may not amortize its basis in a REMIC Residual Certificate, but may only recover
its basis through distributions, through the deduction of any net losses of the
REMIC Mortgage Pool or upon the sale of its REMIC Residual Certificate. See
"Sales of REMIC Certificates", below. The Residual Owner does, however, receive
reduced taxable income over the life of the REMIC because the REMIC's basis in
the underlying REMIC Mortgage Pool includes the fair market value of the REMIC
Regular Certificates and REMIC Residual Certificates.
4. Excess Inclusions
Any "excess inclusions" with respect to a REMIC Residual Certificate are
subject to certain special tax rules. With respect to a Residual Owner, the
excess inclusion for any calendar quarter is defined as the excess (if any) of
the daily portions of taxable income over the sum of the "daily accruals" for
each day during such quarter that such REMIC Residual Certificate was held by
such Residual Owner. The daily accruals are determined by allocating to each day
during a calendar quarter its ratable portion of the product of the "adjusted
issue price" of the REMIC Residual Certificate at the beginning of the calendar
quarter and 120 percent of the long-term "applicable federal rate" (generally,
an average of current yields on Treasury securities of comparable maturity, and
hereafter the "AFR") in effect at the time of issuance of the REMIC Residual
Certificate. For this purpose, the adjusted issue price of a REMIC Residual
Certificate as of the beginning of any calendar quarter is the issue price of
the REMIC Residual Certificate, increased by the amount of daily accruals for
all prior quarters and decreased by any distributions made with respect to such
REMIC Residual Certificate before the beginning of such quarter. The issue price
of a REMIC Residual Certificate is the initial offering price to the public
(excluding bond houses and brokers) at which a substantial amount of the REMIC
Residual Certificates were sold.
For Residual Owners, other than thrift institutions described in Code
Section 593, an excess inclusion cannot be offset by deductions, losses or loss
carryovers from other activities. For Residual Owners that are subject to tax on
unrelated business taxable income (as defined in Code Section 511), an excess
inclusion is treated as unrelated business taxable income. For Residual Owners
that are nonresident alien individuals or foreign corporations generally subject
to United States 30% withholding tax, even if interest paid to such Residual
Owners is generally eligible for exemptions from such tax, an excess inclusion
will be subject to such tax and no tax treaty rate reduction or exemption may be
claimed with respect thereto. See "Foreign Investors in REMIC Certificates."
Provisions enacted by the "Technical and Miscellaneous Revenue Act of 1988"
(the "1988 Act") cause the above-described exception for thrift institutions
generally to apply only to those residual interests held and deductions, losses
and loss carryovers incurred directly by such institutions (and not by other
members of an affiliated group of corporations filing
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a consolidated income tax return) or certain wholly owned direct subsidiaries of
such institutions formed and operated exclusively in connection with the
organization and operation of one or more REMICs. The REMIC Regulations further
limit this exception to residual interests having "significant value". In order
to have significant value, the REMIC Residual Certificates must have an
aggregate issue price, at issuance, at least equal to two percent of the
aggregate issue prices of all of the related REMIC Regular and Residual
Certificates. In addition, the anticipated weighted average life of the REMIC
Residual Certificates must equal or exceed 20 percent of the anticipated
weighted average life of the REMIC, based on the Prepayment Assumption and on
any required or permitted clean up calls or required liquidation provided for in
the REMIC's organizational documents. Although it has not done so, the Treasury
also has authority to issue regulations that, if REMIC Residual Certificates are
found in the aggregate not to have "significant value", would treat as excess
inclusions with respect to any REMIC Residual Certificate the entire daily
portion of taxable income for such REMIC Residual Certificate. Each Prospectus
Supplement pursuant to which REMIC Residual Certificates are offered will state
whether such REMIC Residual Certificates will have, or may be regarded as
having, significant value under the REMIC Regulations; provided, however, that
any disclosure that a REMIC Residual Certificate will have "significant value"
will be based upon certain assumptions, and the Depositor will make no
representation that a REMIC Residual Certificate will have "significant value"
for purposes of the above described rules or that a REMIC Residual Owner will
receive distributions of amounts calculated pursuant to those assumptions.
In the case of any REMIC Residual Certificates held by a real estate
investment trust, the aggregate excess inclusions with respect to such REMIC
Residual Certificates, reduced (but not below zero) by the real estate
investment trust taxable income (within the meaning of Code Section 857(b)(2),
excluding any net capital gain), will be allocated among the shareholders of
such trust in proportion to the dividends received by such shareholders from
such trust, and any amount so allocated will be treated as an excess inclusion
with respect to a REMIC Residual Certificate as if held directly by such
shareholder.
5. Noneconomic REMIC Residual Certificates
Under the REMIC Regulations, transfers of "noneconomic" REMIC Residual
Certificates will be disregarded for all federal income tax purposes if "a
significant purpose of the transfer was to enable the transferor to impede the
assessment or collection of tax". If such transfer is disregarded, the purported
transferor will continue to remain liable for any taxes due with respect to the
income on such "noneconomic" REMIC Residual Certificate. The REMIC Regulations
provide that a REMIC Residual Certificate is noneconomic unless, at the time of
its transfer and based on the Prepayment Assumption and any required or
permitted clean-up calls or required liquidation provided for in the REMIC's
organizational documents, (1) the present value of the expected future
distributions (discounted using the AFR) on the REMIC Residual Certificate
equals at least the product of the present value of the anticipated excess
inclusions and the highest tax rate applicable to corporations for the year of
the transfer, and (2) the transferor reasonably expects that the transferee will
receive distributions with respect to the REMIC Residual Certificate at or after
the time the taxes accrue on the anticipated excess inclusions in an amount
sufficient to satisfy the accrued taxes. Accordingly, all transfers of REMIC
Residual Certificates that may constitute noneconomic residual interests will be
subject to certain restrictions under the terms of the related Pooling and
Servicing Agreement that are intended to reduce the possibility of any such
transfer being disregarded. Such restrictions will require each party to a
transfer to provide an affidavit that no purpose of such transfer is to impede
the assessment or collection of tax, including certain representations as to the
financial condition of the prospective transferee. Prior to purchasing a REMIC
Residual Certificate, prospective purchasers should consider the possibility
that a purported transfer of such REMIC Residual Certificate by such a purchaser
to another purchaser at some future date may be disregarded in accordance with
the above-described rules, which would result in the retention of tax liability
by such purchaser. The applicable Prospectus Supplement will disclose whether
offered REMIC Residual Certificates may be considered "noneconomic" residual
interests under the REMIC Regulations; provided, however, that any disclosure
that a REMIC Residual Certificate will or will not be considered "noneconomic"
will be based upon certain assumptions, and the Depositor will make no
representation that a REMIC Residual Certificate will not be considered
"noneconomic" for purposes of the above-described rules or that a REMIC Residual
Owner will receive distributions calculated pursuant to such assumptions. See
"Foreign Investors in REMIC Certificates" below for additional restrictions
applicable to transfers of certain REMIC Residual Certificates to foreign
persons
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6. Tax-Exempt Investors
Tax-exempt organizations (including employee benefit plans) that are
subject to tax on unrelated business taxable income (as defined in Code Section
511) will be subject to tax on any excess inclusions attributed to them as
owners of Residual Certificates. Excess inclusion income associated with a
Residual Certificate may significantly exceed cash distributions with respect
thereto. See "Excess Inclusions".
Generally, tax-exempt organizations that are not subject to federal income
taxation on "unrelated business taxable income" pursuant to Code Section 511 are
treated as "disqualified organizations" under provisions of the 1988 Act. Under
provisions of the Pooling and Servicing Agreement, such organizations generally
are prohibited from owning Residual Certificates. See "Sales of REMIC
Certificates".
7. Real Estate Investment Trusts
If the applicable Prospectus Supplement so provides, a Mortgage Pool may
hold Mortgage Loans bearing interest based wholly or partially on Mortgagor
profits, Mortgaged Property appreciation, or similar contingencies. Such
interest, if earned directly by a real estate investment trust ("REIT"), would
be subject to the limitations of Code sections 856(f) and 856(j). Treasury
Regulations treat a REIT holding a REMIC Residual Certificate for a principal
purpose of avoiding such Code provisions as receiving directly the income of the
REMIC Mortgage Pool, hence potentially jeopardizing its qualification for
taxation as a REIT and exposing such income to taxation as a prohibited
transaction at a 100 percent rate.
8. Mark-to-Market Rules
Code Section 475 generally requires that securities dealers include
securities in inventory at their fair market value, recognizing gain or loss as
if the securities were sold at the end of each tax year. Prospective purchasers
of the REMIC Residual Certificates should be aware that on January 3, 1995, the
Internal Revenue Service released proposed regulations (the "Proposed Mark to
Market Regulations") under Code Section 475 relating to the requirement that a
securities dealer mark to market securities held for sale to customers. This
mark-to-market requirement applies to all securities of a dealer, except to the
extent that the dealer has specifically identified a security as held for
investment. The Proposed Mark to Market Regulations provide that, for purposes
of this mark-to-market requirement, a REMIC Residual Certificate is not treated
as a security and thus may not be marked to market. The Proposed Mark to Market
Regulations would apply to all REMIC Residual Certificates acquired on or after
January 4, 1995.
F. Sales of REMIC Certificates
If a REMIC Certificate is sold, the seller will recognize gain or loss
equal to the difference between the amount realized on the sale and its adjusted
basis in the REMIC Certificate. The adjusted basis of a REMIC Regular
Certificate generally will equal the cost of such REMIC Regular Certificate to
the seller, increased by any original issue discount or market discount included
in the seller's gross income with respect to such REMIC Regular Certificate and
reduced by premium amortization deductions and distributions previously received
by the seller of amounts included in the stated redemption price at maturity of
such REMIC Regular Certificate. The adjusted basis of a REMIC Residual
Certificate will be determined as described under "Taxation of Owners of REMIC
Residual Certificates-Basis Rules and Distributions". Gain from the disposition
of a REMIC Regular Certificate that might otherwise be treated as a capital gain
will be treated as ordinary income to the extent that such gain does not exceed
the excess, if any, of (i) the amount that would have been includible in such
holder's income had income accrued at a rate equal to 110% of the AFR as of the
date of purchase over (ii) the amount actually includible in such holder's
income. Except as otherwise provided under "Taxation of Owners of REMIC Regular
Certificates-Market Discount and Premium" and under Code Section 582(c), any
additional gain or any loss on the sale or exchange of a REMIC Certificate will
be capital gain or loss, provided such REMIC Certificate is held as a capital
asset (generally, property held for investment) within the meaning of Code
Section 1221. The Code currently provides for a top marginal tax rate of 39.6%
for individuals while maintaining a maximum marginal rate for the long-term
capital gains of individuals at 28%. There is no such rate differential for
corporations. In addition, the distinction between a capital gain or loss and
ordinary income or loss remains relevant for other purposes, including
limitations on the use of capital losses to offset ordinary income.
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All or a portion of any gain from the sale of a REMIC Certificate that
might otherwise be capital gain may be treated as ordinary income (i) if such
Certificate is held as part of a "conversion transaction" as defined in Code
Section 1258(c), up to the amount of interest that would have accrued on the
holder's net investment in the conversion transaction at 120% of the appropriate
applicable Federal rate under Code Section 1274(d) in effect at the time the
taxpayer entered into the transaction reduced by any amount treated as ordinary
income with respect to any prior disposition or other termination of a position
that was held as part of such transaction, or (ii) in the case of a noncorporate
taxpayer that has made an election under Code Section 163(d)(4) to have net
capital gains taxed as investment income at ordinary income rates.
If a Residual Owner sells a REMIC Residual Certificate at a loss, the loss
will not be recognized if, within six months before or after the sale of the
REMIC Residual Certificate, such Residual Owner purchases another residual in
any REMIC or any interest in a taxable mortgage pool (as defined in Code Section
7701(i)) comparable to a residual interest in a REMIC. Such disallowed loss will
be allowed upon the sale of the other residual interest (or comparable interest)
if the rule referred to in the preceding sentence does not apply to that sale.
While the Committee Report states that this rule may be modified by Treasury
regulations, the REMIC Regulations do not address this issue and it is not clear
whether any such modification will in fact be implemented or, if implemented,
what its precise nature or effective date would be.
The 1988 Act makes transfers of a residual interest to certain
"disqualified organizations" subject to an additional tax on the transferor in
an amount equal to the maximum corporate tax rate applied to the present value
(using a discount rate equal to the AFR) of the total anticipated excess
inclusions with respect to such residual interest for the periods after the
transfer. For this purpose, "disqualified organizations" includes the United
States, any state or political subdivision of a state, any foreign government or
international organization or any agency or instrumentality of any of the
foregoing; any tax-exempt entity (other than a Code Section 521 cooperative)
which is not subject to the tax on unrelated business income; and any rural
electrical or telephone cooperative. The anticipated excess inclusions must be
determined as of the date that the REMIC Residual Certificate is transferred and
must be based on events that have occurred up to the time of such transfer, the
Prepayment Assumption, and any required or permitted clean-up calls or required
liquidation provided for in the REMIC's organizational documents. The tax
generally is imposed on the transferor of the REMIC Residual Certificate, except
that it is imposed on an agent for a disqualified organization if the transfer
occurs through such agent. The Pooling and Servicing Agreement requires, as a
prerequisite to any transfer of a Residual Certificate, the delivery to the
Trustee of an affidavit of the transferee to the effect that it is not a
disqualified organization and contains other provisions designed to render any
attempted transfer of a Residual Certificate to a disqualified organization
void.
In addition, if a "pass-through entity" includes in income excess
inclusions with respect to a REMIC Residual Certificate, and a disqualified
organization is the record holder of an interest in such entity at any time
during any taxable year of such entity, then a tax will be imposed on such
entity equal to the product of (i) the amount of excess inclusions on the REMIC
Residual Certificate for such taxable year that are allocable to the interest in
the pass-through entity held by such disqualified organization and (ii) the
highest marginal federal income tax rate imposed on corporations. A pass-through
entity will not be subject to this tax for any period, however, if the record
holder of an interest in such entity furnishes to such entity (i) such holder's
social security number and a statement under penalties of perjury that such
social security number is that of the record holder or (ii) a statement under
penalties of perjury that such record holder is not a disqualified organization.
For these purposes, a "pass-through entity" means any regulated investment
company, real estate investment trust, trust, partnership or certain other
entities described in Section 860E(e)(6) of the Code. In addition, a person
holding an interest in a pass-through entity as a nominee for another person
shall, with respect to such interest, be treated as a pass-through entity.
Legislation presently pending before the United States Congress would apply this
tax on an annual basis to "large partnerships". Generally, such legislation
would treat partnerships that have, or have had, 100 or more partners as large
partnerships for this purpose. Such legislation would not limit application of
tax to excess inclusions allocable to disqualified organizations, and in fact
would apply the tax to large partnerships having no disqualified organizations
as partners. No prediction can be made whether such legislation will be enacted
in its current or modified form.
G. Pass-Through of Servicing Fees
The general rule is that Residual Certificateholders take into account
taxable income or net loss of the related REMIC Mortgage Pool. Under that rule,
servicing compensation of the Master Servicer and the subservicers (if any)
would be allocated to the holders of the REMIC Residual Certificates, and
therefore would not affect the income or deductions of
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holders of REMIC Regular Certificates. However, in the case of a "single-class
REMIC", such expenses and an equivalent amount of additional gross income will
be allocated among all holders of REMIC Regular Certificates and REMIC Residual
Certificates for purposes of the limitations on the deductibility of certain
miscellaneous itemized deductions by individuals contained in Code Sections
56(b)(1) and 67. Generally, any holder of a REMIC Residual Certificate and any
holder of a REMIC Certificate issued by a "single-class REMIC" who is an
individual, estate or trust (including such a person that holds an interest in a
pass-through entity holding such a REMIC Certificate) will be able to deduct
such expenses in determining regular taxable income only to the extent that such
expenses together with certain other miscellaneous itemized deductions of such
individual, estate or trust exceed 2% of adjusted gross income; such a holder
may not deduct such expenses to any extent in determining liability for
alternative minimum tax. Accordingly, REMIC Residual Certificates, and REMIC
Regular Certificates receiving an allocation of servicing compensation, may not
be appropriate investments for individuals, estates or trusts, and such persons
should carefully consult with their own tax advisers regarding the advisability
of an investment in such Certificates.
A "single-class REMIC" is a REMIC that either (i) would be treated as an
investment trust under the provisions of Treasury Regulation Section 301.7701-
4(c) in the absence of a REMIC election, or (ii) is substantially similar to
such an investment trust and is structured with the principal purpose of
avoiding the allocation of investment expenses to holders of REMIC Regular
Certificates. Unless otherwise stated in the related Prospectus Supplement, the
Depositor intends to treat a REMIC Mortgage Pool as other than a "single-class
REMIC", consequently allocating servicing compensation expenses and related
income amounts entirely to REMIC Residual Certificates and in no part to REMIC
Regular Certificates.
H. Prohibited Transactions and Other Possible REMIC Taxes
The Code imposes a tax on REMIC Mortgage Pools equal to 100 percent of the
net income derived from "prohibited transactions". In general, a prohibited
transaction means the disposition of a Mortgage Loan other than pursuant to
certain specified exceptions, the receipt of income from a source other than a
Mortgage Loan or certain other permitted investments, the receipt of
compensation for services, or gain from the disposition of an asset purchased
with the payments on the Mortgage Loans for temporary investment pending
distribution on the REMIC Certificates. The Code also imposes a 100 percent tax
on the value of any contribution of assets to the REMIC after the "start-up day"
(the day on which the regular and residual interests are issued), other than
pursuant to specified exceptions, and subjects "net income from foreclosure
property" to tax at the highest corporate rate. It is not anticipated that a
REMIC Mortgage Pool will engage in any such transactions or receive any such
income.
I. Termination of a REMIC Trust Fund
In general, no special tax consequences will apply to a holder of a REMIC
Regular Certificate upon the termination of the REMIC Mortgage Pool by virtue of
the final payment or liquidation of the last Mortgage Loan remaining in the
REMIC Mortgage Pool. If a Residual Owner's adjusted basis in its REMIC Residual
Certificate at the time such termination occurs exceeds the amount of cash
distributed to such Residual Owner in liquidation of its interest, then,
although the matter is not entirely free from doubt, it appears that the
Residual Owner would be entitled to a loss (which could be a capital loss) equal
to the amount of such excess.
J. Reporting and Other Administrative Matters of REMICs
Reporting of interest income, including any original issue discount, with
respect to REMIC Regular Certificates is required annually, and may be required
more frequently under Treasury regulations. Certain holders of REMIC Regular
Certificates who are generally exempt from information reporting on debt
instruments, such as corporations, banks, registered securities or commodities
brokers, real estate investment trusts, registered investment companies, common
trust funds, charitable remainder annuity trusts and unitrusts, will be provided
interest and original issue discount income information and the information set
forth in the following paragraph upon request in accordance with the
requirements of the Treasury regulations. The information must be provided by
the later of 30 days after the end of the quarter for which the information was
requested, or two weeks after the receipt of the request. The REMIC Mortgage
Pool must also comply with rules requiring the face of a REMIC Certificate
issued at more than a de minimis discount to disclose the amount of original
issue discount and the issue date and requiring such information to be reported
to the Treasury Department.
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The REMIC Regular Certificate information reports must include a statement
of the "adjusted issue price" of the REMIC Regular Certificate at the beginning
of each accrual period. In addition, the reports must include information
necessary to compute the accrual of any market discount that may arise upon
secondary trading of REMIC Regular Certificates. Because exact computation of
the accrual of market discount on a constant yield method would require
information relating to the holder's purchase price which the REMIC Mortgage
Pool may not have, it appears that this provision will only require information
pertaining to the appropriate proportionate method of accruing market discount.
The responsibility for complying with the foregoing reporting rules will be
borne by the Master Servicer.
For purposes of the administrative provisions of the Code, REMIC Pools will
be treated as partnerships and the holders of Residual Certificates will be
treated as partners. The Master Servicer will file federal income tax
information returns on behalf of the related REMIC Pool, and will be designated
as agent for and will act on behalf of the "tax matters person" with respect to
the REMIC Pool in all respects.
As agent for the tax matters person, the Master Servicer will, subject to
certain notice requirements and various restrictions and limitations, generally
have the authority to act on behalf of the REMIC and the Residual Owners in
connection with the administrative and judicial review of items of income,
deduction, gain or loss of the REMIC Mortgage Pool, as well as the REMIC
Mortgage Pool's classification. Residual Owners will generally be required to
report such REMIC Mortgage Pool items consistently with their treatment on the
REMIC Mortgage Pool's federal income tax information return and may in some
circumstances be bound by a settlement agreement between the Master Servicer, as
agent for the tax matters person, and the IRS concerning any such REMIC Mortgage
Pool item. Adjustments made to the REMIC Mortgage Pool tax return may require a
Residual Owner to make corresponding adjustments on its return, and an audit of
the REMIC Mortgage Pool's tax return, or the adjustments resulting from such an
audit, could result in an audit of a Residual Owner's return.
K. Backup Withholding with Respect to REMIC Certificates
Payments of interest and principal on REMIC Regular Certificates, as well
as payment of proceeds from the sale of REMIC Certificates, may be subject to
the "backup withholding tax" under Section 3406 of the Code at a rate of 31
percent if recipients of such payments fail to furnish to the payor certain
information, including their taxpayer identification numbers, or otherwise fail
to establish an exemption from such tax. Any amounts deducted and withheld from
a distribution to a recipient would be allowed as a credit against such
recipient's federal income tax. Furthermore, certain penalties may be imposed by
the IRS on a recipient of payments that is required to supply information but
that does not do so in the manner required.
L. Foreign Investors in REMIC Certificates
1. REMIC Regular Certificates
Except as qualified below, payments made on a REMIC Regular Certificate to
a REMIC Regular Certificateholder that is not a U.S. Person, as hereinafter
defined (a "non-U.S. Person"), or to a person acting on behalf of such a
Certificateholder, generally will be exempt from U.S. federal income and
withholding taxes, provided that (a) the holder of the Certificate is not
subject to U.S. tax as a result of a connection to the United States other than
ownership of such Certificate, (b) the holder of such Certificate signs a
statement under penalties of perjury that certifies that such holder is a Non-
U.S. Person, and provides the name and address of such holder, and (c) the last
U.S. Person in the chain of payment to the holder received such statement from
such holder or a financial institution holding on its behalf and does not have
actual knowledge that such statement is false. If the holder does not qualify
for exemption, distributions of interest, including distributions in respect of
accrued original issue discount, to such holder may be subject to a withholding
tax rate of 30 percent, subject to reduction under any applicable tax treaty.
"U.S. Person" means a citizen or resident of the United States, a
corporation, partnership or other entity created or organized in or under the
laws of the United States or any political subdivision thereof, or an estate or
trust that is subject to U.S. federal income tax regardless of the source of its
income.
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Holders of REMIC Regular Certificates should be aware that the IRS may take
the position that exemption from U.S. withholding taxes does not apply to such a
holder that also directly or indirectly owns 10 percent or more of the REMIC
Residual Certificates. Further, the foregoing rules will not apply to exempt a
"United States shareholder" (as such term is defined in Code Section 951) of a
controlled foreign corporation from taxation on such United States shareholder's
allocable portion of the interest or original issue discount income earned by
such controlled foreign corporation.
2. REMIC Residual Certificates
Amounts paid to a Residual Owner that is a Non-U.S. Person generally will
be treated as interest for purposes of applying the withholding tax on Non-U.S.
Persons with respect to income on its REMIC Residual Certificate. However, it is
unclear whether distributions on REMIC Residual Certificates will be eligible
for the general exemption from withholding tax that applies to REMIC Regular
Certificates as described above. Treasury Regulations provide that, for purposes
of the portfolio interest exception, payments to the foreign owner of a REMIC
Residual Certificate are to be considered paid on the obligations held by the
REMIC, rather than on the Certificate itself. Such payments would thus only
qualify for the portfolio interest exception if the underlying obligations held
by the REMIC would so qualify. Such withholding tax generally would be imposed
at a rate of 30 percent but would be subject to reduction under any tax treaty
applicable to the Residual Owner. However, there is no exemption from
withholding tax nor may the rate of such tax be reduced, under a tax treaty or
otherwise, with respect to any distribution of income that is an excess
inclusion. Although no regulations have been proposed or adopted addressing
withholding on residual interests held by non-U.S. Persons, the provisions of
the REMIC Regulations, described below, relating to the transfer of residual
interests to non-U.S. Persons can be read as implying that withholding with
respect to excess inclusion income is to be determined by reference to the
amount of the accrued excess inclusion income rather than to the amount of cash
distributions. If the IRS were successfully to assert such a position, cash
distributions on Residual Certificates held by non-U.S. Persons could be subject
to withholding at rates as high as 100 percent, depending on the relationship of
accrued excess inclusion income to cash distributions with respect to such
Residual Certificates. See "Taxation of Owners of REMIC Residual Certificates-
Excess Inclusions".
Certain restrictions relating to transfers of REMIC Residual Certificates
to and by investors who are not "U.S. Persons" (as defined above) ("non-U.S.
Persons") are also imposed by the REMIC Regulations. First, transfers of REMIC
Residual Certificates to a non-U.S. Person that have "tax avoidance potential"
are disregarded for all federal income tax purposes. If such transfer is
disregarded, the purported transferor of such a REMIC Residual Certificate to a
non-U.S. Person would continue to remain liable for any taxes due with respect
to the income on such REMIC Residual Certificate. A transfer of a REMIC Residual
Certificate has tax avoidance potential unless, at the time of the transfer, the
transferor reasonably expects (1) that the REMIC will distribute to the
transferee Residual Certificateholder amounts that will equal at least 30
percent of each excess inclusion, and (2) that such amounts will be distributed
at or after the time at which the excess inclusion accrues and not later than
the close of the calendar year following the calendar year of accrual. This rule
does not apply to transfers if the income from the REMIC Residual Certificate is
taxed in the hands of the transferee as income effectively connected with the
conduct of a U.S. trade or business. Second, if a non-U.S. Person transfers a
REMIC Residual Certificate to a U.S. Person (or to a non-U.S. Person in whose
hands income from the REMIC Residual Certificate would be effectively
connected), and the transfer has the effect of allowing the transferor to avoid
tax on accrued excess inclusions, that transfer is disregarded for all federal
income tax purposes and the purported non-U.S. Person transferor continues to be
treated as the owner of the REMIC Residual Certificate. Thus, the REMIC's
liability to withhold 30 percent of the accrued excess inclusions is not
terminated even though the REMIC Residual Certificate is no longer held by a
non-U.S. Person.
M. State and Local Taxation
Many states do not automatically conform to changes in the federal income
tax laws. Consequently, a REMIC Mortgage Pool that would not qualify as a fixed
investment trust for federal income tax purposes may be characterized as a
corporation, a partnership, or some other entity for purposes of state income
tax law. Such characterization could result in entity level income or franchise
taxation of the REMIC Mortgage Pool formed in, owning mortgages or property in,
or having servicing activity performed in a state without conforming REMIC
provisions in its income or franchise tax law. Further, REMIC Regular
Certificateholders resident in non-conforming states may have their ownership of
REMIC Regular Certificates characterized as an interest other than debt of the
REMIC such as stock or a partnership interest. Investors are
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advised to consult their tax advisers concerning the state and local income tax
consequences of their purchase and ownership of REMIC Regular Certificates.
III. MORTGAGE POOLS
A. Classification of Mortgage Pools
With respect to each series of Trust Certificates for which they are
identified as counsel to the Depositor in the applicable Prospectus Supplement,
Sidley & Austin will deliver their opinion to the effect that the arrangements
pursuant to which such Mortgage Pool will be administered and such Trust
Certificates will be issued will not be classified as an association taxable as
a corporation and that each such Mortgage Pool will be classified as a trust
whose taxation will be governed by the provisions of subpart E, Part I of
subchapter J of the Code.
B. Characterization of Investments in Trust Certificates
1. Trust Fractional Certificates
In the case of Trust Fractional Certificates, counsel to the Depositor will
deliver an opinion that, in general (and subject to the discussion below of
Contracts and under "Buydown Mortgage Loans"), (i) Trust Fractional Certificates
held by a thrift institution taxed as a "mutual savings bank" or "domestic
building and loan association" will represent interests in "qualifying real
property loans" within the meaning of Code Section 593(d); (ii) Trust Fractional
Certificates held by a thrift institution taxed as a "domestic building and loan
association" will represent "loans . . . secured by an interest in real
property" within the meaning of Code Section 7701 (a)(19)(C)(v); (iii) Trust
Fractional Certificates held by a real estate investment trust will represent
"real estate assets" within the meaning of Code Section 856(c)(5)(A) and
interest on Trust Fractional Certificates will be considered "interest on
obligations secured by mortgages on real property or on interests in real
property" within the meaning of Code Section 856(c)(5)(B); and (iv) Trust
Fractional Certificates acquired by a REMIC in accordance with the requirements
of Section 860G(a)(3)(A)(i) and (ii) or Section 860G(a)(4)(B) of the Code will
be treated as "qualified mortgages" within the meaning of Code Section
860D(a)(4). In the case of a Trust Fractional Certificate evidencing interests
in Contracts, such Certificates will qualify for the treatment described in (i)
through (iv) of the preceding sentence only to the extent of the fraction of
such Certificate corresponding to the fraction of the Contract Pool that
consists of Contracts that would receive such treatment if held directly by the
Trust Fractional Certificateholder.
2. Trust Interest Certificates
With respect to each Series of Certificates for which they are identified
as counsel to the Depositor in the applicable Prospectus Supplement, Sidley &
Austin will advise the Depositor that in their opinion, based on the legislative
history, a REMIC that acquires a Trust Interest Certificate in accordance with
the requirements of Section 860G(a)(3)(A)(i) and (ii) or Section 860G(a)(4)(B)
of the Code will be treated as owning a "Qualified Mortgage" within the meaning
of Section 860(G)(a)(3) of the Code.
Although there appears to be no policy reason not to accord to Trust
Interest Certificates the treatment described above for Trust Fractional
Certificates, there is no authority addressing such characterization for
instruments similar to Trust Interest Certificates. Consequently, it is unclear
to what extent, if any, (1) a Trust Interest Certificate owned by a "domestic
building and loan association" within the meaning of Code Section 7701 (a)(19)
will be considered to represent "loans . . . secured by an interest in real
property" within the meaning of Code Section 7701(a)(19)(C)(v); (2) a Trust
Interest Certificate owned by a financial institution described in Code Section
593(a) will be considered to represent "qualifying real property loans" within
the meaning of Code Section 593(d); or (3) a real estate investment trust which
owns a Trust Interest Certificate will be considered to own "real estate assets"
within the meaning of Code Section 856(c)(5)(A), and interest income thereon
will be considered "interest on obligations secured by mortgages on real
property" within the meaning of Code Section 856(c)(3)(B). Prospective
purchasers to which such characterization of an investment in Trust Interest
Certificates is material should consult their own tax advisers regarding whether
the Trust Interest Certificates, and the income therefrom, will be so
characterized.
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3. Buydown Mortgage Loans
It is contemplated that the assets of certain Mortgage Pools may include
Buydown Mortgage Loans. The characterization of an investment in Buydown
Mortgage Loans will depend upon the precise terms of the related Buydown
Agreement. There are no directly applicable precedents with respect to the
federal income tax treatment or the characterization of investments in Buydown
Mortgage Loans. Accordingly, holders of Trust Certificates should consult their
own tax advisers with respect to characterization of investments in Mortgage
Pools that include Buydown Mortgage Loans.
Although the matter is not entirely free from doubt, the portion of a Trust
Certificate representing an interest in Buydown Mortgage Loans may be considered
to represent an investment in "loans . . . secured by an interest in real
property" within the meaning of Code Section 7701(a)(19)(C)(v) and "qualifying
real property loans" within the meaning of Code Section 593(d) to the extent the
outstanding principal balance of the Buydown Mortgage Loans exceeds the amount
held from time to time in the Buydown Fund. It is also possible that the entire
interest in Buydown Mortgage Loans may be so considered, because the fair market
value of the real property securing each Buydown Mortgage Loan will exceed the
amount of such loan at the time it is made. Purchasers and their tax advisers
are advised to review Section 1.593-11(d)(2) of the Treasury Regulations, which
suggests that this latter treatment may be available, and to compare Revenue
Ruling 81-203, 1981-2 C.B. 137, which may be read to imply that apportionment is
generally required whenever more than a minimal amount of assets other than real
property may be available to satisfy purchasers' claims.
For similar reasons, the portion of such Trust Certificate representing an
interest in Buydown Mortgage Loans may be considered to represent "real estate
assets" within the meaning of Code Section 856(c)(5)(A). Purchasers and their
tax advisers are advised to review Section 1.856-5(c)(1)(i) of the Treasury
Regulations, which specifies that if a mortgage loan is secured by both real
property and by other property and the value of the real property alone equals
or exceeds the amount of the loan, then all interest income will be treated as
"interest on obligations secured by mortgages on real property" within the
meaning of Code Section 856(c)(3)(B).
C. Taxation of Owners of Trust Fractional Certificates
Each holder of a Trust Fractional Certificate (a "Trust Fractional
Certificateholder") will be treated as the owner of an undivided percentage
interest in the principal of, and possibly a different undivided percentage
interest in the interest portion of, each of the Mortgage Loans included in a
Mortgage Pool. Accordingly, each Trust Fractional Certificateholder must report
on its federal income tax return its allocable share of income from its
interests, as described below, at the same time and in the same manner as if it
had held directly interests in the Mortgage Loans and received directly its
share of the payments on such Mortgage Loans. Because those interests represent
interests in "stripped bonds" or "stripped coupons" within the meaning of Code
Section 1286, such interests may be considered to be newly issued debt
instruments, and thus to have no market discount or premium, and the amount of
original issue discount may differ from the amount of original issue discount on
the Mortgage Loans and the amount includible in income on account of a Trust
Fractional Certificate may differ significantly from the amount payable thereon
from payments of interest on the Mortgage Loans. Each Trust Fractional
Certificateholder may report and deduct its allocable share of the servicing and
related fees and expenses paid to or retained by the Company at the same time,
to the same extent, and in the same manner as such items would have been
reported and deducted had it held directly interests in the Mortgage Loans and
paid directly its share of the servicing and related fees and expenses. A holder
of a Trust Fractional Certificate who is an individual, estate or trust will be
allowed a deduction for servicing fees in determining its regular tax liability
only to the extent that the aggregate of such holder's miscellaneous itemized
deductions exceeds two percent of adjusted gross income, and will be allowed no
deduction for such fees in determining its liability for alternative minimum
tax. Amounts received by Trust Fractional Certificateholders in lieu of amounts
due with respect to any Mortgage Loan but not received by the Depositor from the
Mortgagor will be treated for federal income tax purposes as having the same
character as the payments which they replace.
Purchasers of Trust Fractional Certificates identified in the applicable
Prospectus Supplement as representing interests in Stripped Mortgage Loans
should read the material under the headings "Application of Stripped Bond
Rules", "Market Discount and Premium" and "Allocation of Purchase Price" for a
discussion of particular rules applicable to their Certificates.
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Purchasers of Trust Fractional Certificates identified in the applicable
Prospectus Supplement as representing interests in Unstripped Mortgage Loans
should read the material under the headings "Treatment of Unstripped
Certificates", "Market Discount and Premium", and "Allocation of Purchase Price"
for a discussion of particular rules applicable to their Certificates. However,
the IRS has indicated that under some circumstances it will view a portion of
servicing and related fees and expenses paid to or retained by the Master
Servicer or sub-servicers as an interest in the Mortgage Loans, essentially
equivalent to that portion of interest payable with respect to each Mortgage
Loan that is retained by the Depositor ("Retained Yield"). If such a view were
sustained with respect to a particular Mortgage Pool, such purchasers would be
subject to the rules set forth under "Application of Stripped Bond Rules" rather
than those under "Treatment of Unstripped Certificates". Unless otherwise stated
in the related Prospectus Supplement, the Depositor does not expect any
Servicing Fee or Master Servicing Fee to constitute a retained interest in the
Mortgage Loans; nevertheless, any such expectation generally will be a matter of
uncertainty, and prospective purchasers are advised to consult their own tax
advisers with respect to the existence of a retained interest and any effects on
investment in Trust Fractional Certificates.
1. Application of Stripped Bond Rules
Each Mortgage Pool will consist of an interest in each of the Mortgage
Loans relating thereto, exclusive of the Depositor's Retained Yield, if any.
With respect to each Series of Certificates for which they are identified as
counsel to the Depositor in the applicable Prospectus Supplement, Sidley &
Austin will advise the Depositor that, in their opinion, any Retained Yield will
be treated for federal income tax purposes as an ownership interest retained by
the Depositor in a portion of each interest payment on the underlying Mortgage
Loans. Unless otherwise stated in the Prospectus Supplement, the sale of the
Trust Certificates associated with any Mortgage Pool for which there is a class
of Trust Interest Certificates or two or more Classes of Trust Fractional
Certificates bearing different interest rates or of Trust Certificates
identified in the Prospectus Supplement as representing interests in "Stripped
Mortgage Loans" will be treated for federal income tax purposes as having
effected a separation in ownership between the principal of each Mortgage Loan
and some or all of the interest payable thereon. As a consequence, each Stripped
Mortgage Loan (generally, a Mortgage Loan having Retained Yield or included in a
Mortgage Pool having either Trust Interest Certificates or more than one class
of Trust Fractional Certificates or identified in the Prospectus Supplement as
related to a Class of Trust Certificates identified as representing interests in
Stripped Mortgage Loans) will become subject to the "stripped bond" rules of the
Code (the "Stripped Bond Rules"). The effect of applying those rules will
generally be to require each Trust Fractional Certificateholder to accrue and
report income attributable to its share of the principal and interest on each of
the Stripped Mortgage Loans as original issue discount on the basis of the yield
to maturity of such Stripped Mortgage Loans, as determined in accordance with
the provisions of the Code dealing with original issue discount. For a
description of the general method of calculating original issue discount, see
"REMIC Trust Funds-Taxation of Owners of REMIC Regular Certificates-Original
Issue Discount". The yield to maturity of a Trust Fractional Certificateholder's
interest in the Stripped Mortgage Loans will be calculated taking account of the
price at which the holder purchased the Certificate and the holder's share of
the payments of principal and interest to be made thereon. Although the
provisions of the Code and the OID Regulations do not directly address the
treatment of instruments similar to Trust Fractional Certificates, in reporting
to Trust Fractional Certificateholders the Trustee intends to treat such
Certificates as a single obligation with payments corresponding to the aggregate
of the payments allocable thereto from each of the Mortgage Loans, and to
determine the amount of original issue discount on such certificates
accordingly. See "Aggregate Reporting".
Under Treasury regulations, original issue discount so determined with
respect to a particular Stripped Mortgage Loan may be considered to be zero
under the de minimis rule described above, in which case it is treated as market
discount. See "REMIC Trust Funds-Taxation of Owners of REMIC Regular
Certificates-Original Issue Discount". Those regulations also provide that
original issue discount so determined with respect to a particular Stripped
Mortgage Loan will be treated as market discount if the rate of interest on the
Stripped Mortgage Loan, including a reasonable Servicing Fee, is no more than
one percentage point less than the unstripped rate of interest. See "-Market
Discount and Premium". The Trustee intends to apply the foregoing de minimis and
market discount rules on an aggregate poolwide basis, although it is possible
that investors may be required to apply them on a loan by loan basis. The loan
by loan information required for such application of those rules may not be
available. See "Aggregate Reporting".
Subsequent purchasers of the Certificates may be required to include
"original issue discount" in income in an amount computed using the price at
which such subsequent purchaser purchased the Certificate. Further, such
purchasers
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may be required to determine if the above described de minimis and market
discount rules apply at the time a Trust Fractional Certificate is acquired,
based on the characteristics of the Mortgage Loans at that time.
Variable Rate Certificates. Purchasers of Trust Fractional Certificates
bearing a variable rate of interest should be aware that there is considerable
uncertainty concerning the application of the OID Regulations to Mortgage Loans
bearing a variable rate of interest. Although such regulations are subject to a
different interpretation, as discussed below, in the absence of other contrary
authority in preparing reports furnished to Certificateholders the Trustee
intends to treat Stripped Mortgage Loans bearing a variable rate of interest
(other than those treated as having market discount pursuant to the regulations
described above) as subject to the provisions therein governing variable rate
debt instruments. The effect of the application of such provisions generally
will be to cause Certificateholders holding Trust Fractional Certificates
bearing interest at a Single Variable Rate or at a Multiple Variable Rate (as
defined above under "REMIC Trust Funds-Taxation of Owners of REMIC Regular
Certificates-Original Issue Discount") to accrue original issue discount and
interest as though the value of each variable rate were a fixed rate, which is
(a) for each qualified floating rate, the value of each such rate as of the
Closing Date (with appropriate adjustment for any differences in intervals
between interest adjustment dates), (b) for a qualified inverse floating rate,
the value of the rate as of Closing Date, and (c) for any other objective rate,
the fixed rate that reflects the yield that is reasonably expected for the Trust
Fractional Certificate. If the interest paid or accrued with respect to such
Variable Rate Trust Fractional Certificate during an accrual period differs from
the assumed fixed interest rate, such difference will be an adjustment (to
interest or original issue discount, as applicable) to the Certificateholder's
taxable income for the taxable period or periods to which such difference
relates.
Prospective purchasers of Trust Fractional Certificates bearing a variable
rate of interest should be aware that the provisions in the OID Regulations
applicable to variable rate debt instruments may not apply to certain adjustable
and variable rate mortgage loans, possibly including the Mortgage Loans, or to
stripped certificates representing interests in such Mortgage Loans. If variable
rate Trust Fractional Certificates are not governed by the provisions of the OID
Regulations applicable to variable rate debt instruments, such Certificates may
be subject to the provisions of proposed Treasury regulations applicable to
instruments having contingent payments. The application of those provisions to
instruments such as the Trust Fractional Certificates is subject to differing
interpretations. Prospective purchasers of variable rate Trust Fractional
Certificates are advised to consult their tax advisers concerning the tax
treatment of such Certificates.
Aggregate Reporting. The Trustee intends in reporting information relating
to original issue discount to Certificateholders to provide such information on
an aggregate poolwide basis. Applicable law is unclear, however, and it is
possible that investors may be required to compute original issue discount on a
mortgage loan by mortgage loan (or the rights to individual payments) basis
taking account of an allocation of their basis in the Certificates among the
interests in the various mortgage loans represented by such Certificates
according to their respective fair market values. Investors should be aware that
it may not be possible to reconstruct after the fact sufficient mortgage by
mortgage information should a computation on that basis be required by the IRS.
Because the treatment of the Certificates under the OID Regulations is both
complicated and uncertain, Certificateholders should consult their tax advisers
to determine the proper method of reporting amounts received or accrued on
Certificates.
2. Treatment of Unstripped Certificates.
Mortgage Loans in a Mortgage Pool for which there is neither any Class of
Trust Interest Certificates, nor more than one Class of Trust Fractional
Certificates, nor any Retained Yield otherwise identified in the Prospectus
Supplement as being Unstripped Mortgage Loans ("Unstripped Mortgage Loans") will
be treated as wholly owned by the Trust Fractional Certificateholders of a
Mortgage Pool. Trust Fractional Certificateholders using the cash method of
accounting must take into account their pro rata shares of original issue
discount qualified stated interest (as described in "REMIC Trust Funds--Taxation
of Owners of REMIC Regular Certificates--Original Issue Discount") from
Unstripped Mortgage Loans as and when collected by the Trustee. Trust Fractional
Certificateholders using an accrual method of accounting must take into account
their pro rata shares of qualified stated interest from Unstripped Mortgage
Loans as it accrues or is received
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by the Trustee, whichever is earlier, and Trust Fractional Certificateholders
using the cash method of accounting must take into account their pro rata shares
of such interest as it is received by the Trustee.
Code Sections 1272 through 1275 provide rules for the current inclusion in
income of original issue discount on obligations issued by natural persons on or
after March 2, 1984. Generally those sections provide that original issue
discount should be included on the basis of a constant yield to maturity.
However, the application of the original issue discount rules to mortgages is
unclear in certain respects. The Treasury Department has issued the OID
Regulations relating to original issue discount, which generally address the
treatment of mortgages issued on or after April 4, 1994. The OID Regulations
provide a new de minimis rule for determining whether certain self-amortizing
installment obligations, such as the Mortgage Loans, are to be treated as having
original issue discount. Such obligations would have original issue discount if
the points charged at origination (or other loan discount) exceeded the greater
of one-sixth of one percent times the number of full years to final maturity or
one-fourth of one percent times weighted average maturity. The OID Regulations
treat certain variable rate mortgage loans as having original issue discount
because of an initial rate of interest that differs from that determined by the
mechanism for setting the interest rate during the remainder of the loan, or
because of the use of an index that does not vary in a manner approved the OID
Regulations. For a description of the general method of calculating the amount
of original issue discount see "REMIC Trust Funds-Taxation of Owners of REMIC
Regular Certificates-Original Issue Discount" and "Application of Stripped Bond
Rules-Variable Rate Certificates".
A subsequent purchaser of a Trust Fractional Certificate that purchases
such Certificate at a cost (not including payment for accrued qualified stated
interest) less than its allocable portion of the aggregate of the remaining
stated redemption prices at maturity of the Unstripped Mortgage Loans will also
be required to include in gross income, for each day on which it holds such
Trust Fractional Certificate, its allocable share of the daily portion of
original issue discount with respect to each Unstripped Mortgage Loan, but
reduced, if the cost of such subsequent purchaser's interest in such Unstripped
Mortgage Loan exceeds its "adjusted issue price", by an amount equal to the
product of (i) such daily portion and (ii) a constant fraction, whose numerator
is such excess and whose denominator is the sum of the daily portions of
original issue discount allocable to such subsequent purchaser's interest for
all days on or after the day of purchase. The adjusted issue price of an
Unstripped Mortgage Loan on any given day is equal to the sum of the adjusted
issue price (or, in the case of the first accrual period, the issue price) of
such Unstripped Mortgage Loan at the beginning of the accrual period during
which such day occurs and the daily portions of original issue discount for all
days during such accrual period prior to such day, reduced by the aggregate
amount of payments made during such accrual period prior to such day other than
payments of qualified stated interest.
3. Market Discount and Premium
In general, if the Stripped Bond Rules do not apply to a Trust Fractional
Certificate, a purchaser of a Trust Fractional Certificate will be treated as
acquiring market discount bonds to the extent that the share of such purchaser's
purchase price allocable to any Unstripped Mortgage Loan is less than its
allocable share of the "adjusted issue price" of such Mortgage Loan. See
"Treatment of Unstripped Certificates" and "Application of Stripped Bond Rules".
Thus, with respect to such Mortgage Loans, a holder will be required, under Code
Section 1276, to include as ordinary income the previously unrecognized accrued
market discount in an amount not exceeding each principal payment on any such
Mortgage Loans at the time each principal payment is received or due, in
accordance with the purchaser's method of accounting, or upon a sale or other
disposition of the Certificate. In general, the amount of market discount that
has accrued is determined on a ratable basis. A Trust Fractional
Certificateholder may, however, elect to determine the amount of accrued market
discount on a constant yield to maturity basis. This election is made on a
bond-by-bond basis and is irrevocable. In addition, the description of the
market discount rules in "Taxation of Owners of REMIC Regular Certificates-
Market Discount and Premium" with respect to (i) conversion to ordinary income
of a portion of any gain recognized on sale or exchange of a market discount
bond, (ii) deferral of interest expense deductions, (iii) the de minimis
exception from the market discount rules and (iv) the elections to include in
income either market discount or all interest, discount and premium as they
accrue, is also generally applicable to Trust Fractional Certificates. Treasury
regulations implementing the market discount rules, including the 1986 Act
amendments thereto, have not yet been issued and investors therefore should
consult their own tax advisers regarding the application of these rules.
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If a Trust Fractional Certificate is purchased at a premium, under existing
law such premium must be allocated to each of the Mortgage Loans (on the basis
of its relative fair market value). The portion of any premium allocated to
Unstripped Mortgage Loans originated after September 27, 1985 can be amortized
and deducted under the provisions of the Code relating to amortizable bond
premium. The portion of such premium allocated to Unstripped Mortgage Loans
originated on or before September 27, 1985 may only be deducted upon the sale or
final distribution in respect of any such Mortgage Loan, as the special rules of
the Code that permit the amortization of such premium apply in the case of debt
instruments other than corporate and governmental obligations, only to
obligations issued after that date. Upon such a sale or final distribution in
respect of such a Mortgage Loan, the premium, if any, allocable thereto would be
recognized as a short-term or long-term capital loss by a Certificateholder
holding the interests in Mortgage Loans represented by such Certificate as
capital assets, depending on how long the Certificate had been held.
The application of the Stripped Bond Rules to Stripped Mortgage Loans will
generally cause any premium allocable to Stripped Mortgage Loans to be amortized
automatically by adjusting the rate of accrual of interest and discount to take
account of the allocable portion of the actual purchase price of the
Certificate. In that event, no additional deduction for the amortization of
premium would be allowed. It is possible that the IRS may take the position that
the application of the Stripped Bond Rules to the Stripped Mortgage Loans should
be adjusted so as not to take account of any premium allocable to a Stripped
Mortgage Loan originated on or before September 27, 1985. Any such premium would
then be subject to the provisions of the Code relating to the amortization of
bond premium, including the limitations described in the preceding paragraph on
the amortization of premium allocable to Mortgage Loans originated on or before
September 27, 1985.
4. Allocation of Purchase Price
As noted above, it is anticipated that a purchaser of a Trust Fractional
Certificate relating to Unstripped Mortgage Loans will be required to allocate
the purchase price thereof to the undivided interest it acquires in each of the
Mortgage Loans, in proportion to the respective fair market values of the
portions of such Mortgage Loans included in the Mortgage Pool at the time the
Certificate is purchased. The Depositor believes that it may be reasonable to
make such allocation in proportion to the respective principal balances of the
Mortgage Loans, where the interests in the Mortgage Loans represented by a Trust
Fractional Certificate have a common remittance rate and other common
characteristics, and otherwise so as to produce a common yield for each interest
in a Mortgage Loan, provided the Mortgage Loans are not so diverse as to evoke
differing prepayment expectations. However, if there is any significant
variation in interest rates among the Mortgage Loans, a disproportionate
allocation of the purchase price taking account of prepayment expectations may
be required
D. Taxation of Owners of Trust Interest Certificates
With respect to each Series of Certificates for which they are identified
as counsel to the Depositor in the applicable Prospectus Supplement, Sidley &
Austin will advise the Depositor that, in their opinion, each holder of a Trust
Interest Certificate (a "Trust Interest Certificateholder") will be treated as
the owner of an undivided interest in the interest portion ("Interest Coupon")
of each of the Mortgage Loans. Accordingly, and subject to the discussion under
"Application of Stripped Bond Rules" below, each Trust Interest
Certificateholder is treated as owning its allocable share of the entire
Interest Coupon from the Mortgage Loans, will report income as described below,
and may deduct its allocable share of the servicing and related fees and
expenses paid to or retained by the Depositor at the same time and in the same
manner as such items would have been reported under the Trust Interest
Certificateholder's tax accounting method had it held directly an interest in
the Interest Coupon from the Mortgage Loans, received directly its share of the
amounts received with respect to the Mortgage Loans and paid directly its share
of the servicing and related fees and expenses. An individual, estate or trust
holder of a Trust Interest Certificate will be allowed a deduction for servicing
fees in determining its regular tax liability only to the extent that the
aggregate of such holder's miscellaneous itemized deductions exceeds two percent
of adjusted gross income, and will be allowed no deduction for such fees in
determining its liability for alternative minimum tax. Amounts, if any, received
by Trust Interest Certificateholders in lieu of amounts due with respect to any
Mortgage Loan but not received by the Master Servicer from the Mortgagor will be
treated for federal income tax purposes as having the same character as the
payment which they replace.
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1. Application of Stripped Bond Rules
A Trust Interest Certificate will consist of an undivided interest in the
Interest Coupon of each of the Mortgage Loans. With respect to each Series of
Certificates for which they are identified as counsel to the Depositor in the
applicable Prospectus Supplement, Sidley & Austin will advise the Depositor
that, in their opinion a Trust Interest Certificate will be treated for federal
income tax purposes as comprised of an ownership interest in a portion of the
Interest Coupon of each of the Mortgage Loans (a "Stripped Interest") separated
by the Depositor from the right to receive principal payments and the remainder,
if any, of each interest payment on the underlying Mortgage Loan. As a
consequence, the Trust Interest Certificates will become subject to the Stripped
Bond Rules. Each Trust Interest Certificateholder will be required to apply the
Stripped Bond Rules to its interest in the Interest Coupon under the method
prescribed by the Code, taking account of the price at which the holder
purchased the Trust Interest Certificate and the Trust Interest
Certificateholder's share of the scheduled payments to be made thereon. The
Stripped Bond Rules generally require a holder of Stripped Coupons to accrue and
report income from such Stripped Coupons daily on the basis of the yield to
maturity of such stripped bonds or coupons, as determined in accordance with the
provisions of the Code dealing with original issue discount. For a discussion of
the general method of calculating the amount of original issue discount, see
"REMIC Trust Funds-Taxation of Owners of REMIC Regular Certificates-Original
Issue Discount". The provisions of the Code and the OID Regulations do not
directly address the treatment of instruments similar to Trust Interest
Certificates. In reporting to Trust Interest Certificateholders such
Certificates will be treated as a single obligation with payments corresponding
to the aggregate of the payments allocable thereto from each of the Mortgage
Loans. See "Aggregate Reporting". Alternatively, Trust Interest
Certificateholders may be required by the IRS to treat their interests in each
scheduled payment on each Stripped Interest (or their interests in all scheduled
payments from each of the Stripped Interests) as a separate obligation for
purposes of allocating purchase price and computing original issue discount.
Because prepayment of a Mortgage Loan will eliminate part or all of any
subsequent payments in the related Stripped Interest, and because each Mortgage
Loan may prepay at any time, yield to maturity for a Trust Interest Certificate
cannot be unambiguously computed pursuant to the provisions of the Code
governing original issue discount, and Trust Interest Certificates may be viewed
as representing interests in contingent principal debt instruments. Based on
the Trustee's intent to report on an aggregate poolwide basis, each of the Trust
Interest Certificates would be treated as a single installment obligation every
payment of which was contingent in amount. Such an installment obligation may
then be subject to the rules contained in the proposed Treasury regulations
issued on December 16, 1994 relating to contingent principal debt instruments.
Aggregate Reporting. The Trustee intends in reporting information relating
to original issue discount to Certificateholders to provide such information on
an aggregate poolwide basis. Applicable law is unclear, however, and it is
possible that investors may be required to compute original issue discount
either on a mortgage loan by mortgage loan basis or on a payment by payment
basis taking account of an allocation of their basis in the Certificates among
the interests in the various mortgage loans represented by such Certificates
according to their respective fair market values. The effect of an aggregate
computation for the inclusion of original issue discount in income is to defer
the recognition of losses due to early prepayments relative to a computation on
a mortgage by mortgage basis. Investors should be aware that it may not be
possible to reconstruct after the fact sufficient mortgage by mortgage
information should a computation on that basis be required by the IRS.
Because the treatment of the Trust Interest Certificates under current law,
and the application of the proposed regulations relating to contingent principal
debt instrument are both complicated and uncertain, Trust Interest
Certificateholders should consult their tax advisers to determine the proper
method of reporting amounts received or accrued on Trust Interest Certificates.
E. Prepayments
The 1986 Act contains a provision requiring original issue discount on
certain obligations issued after December 31, 1986 to be calculated taking into
account a prepayment assumption and requiring such discount to be taken into
income on the basis of a constant yield to assumed maturity taking account of
actual prepayments. The proper treatment of interests, such as the Trust
Fractional Certificates and the Trust Interest Certificates, in debt instruments
that are subject to prepayment
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is unclear. Trust Fractional Certificateholders and Trust Interest
Certificateholders should consult their tax advisors as to the proper reporting
of income from Trust Fractional Certificates and Trust Interest Certificates, as
the case may be, in light of the possibility of prepayment and, with respect to
the Trust Interest Certificates, as to the possible application of the rules
relating to contingent principal debt instruments.
F. Sales of Trust Certificates
If a Certificate is sold, gain or loss will be recognized by the holder
thereof in an amount equal to the difference between the amount realized on the
sale and the Certificateholder's adjusted tax basis in the Certificate. Such tax
basis will equal the Certificateholder's cost for the Certificate, increased by
any original issue or market discount with respect to the interest in the
Mortgage Loans represented by such Certificate previously included in income,
and decreased by any deduction previously allowed for premium and by the amount
of payments, other than payments of qualified stated interest, previously
received with respect to such Certificate. The portion of any such gain
attributable to accrued market discount not previously included in income will
be ordinary income, as will gain attributable to a Certificate which is part of
a "conversion transaction" or which the holder elects to treat as ordinary. See
"REMIC Trust Funds-Sales of REMIC Certificates" above. Any remaining gain or any
loss will be capital gain or loss if the Certificate was held as a capital asset
except to the extent that section 582(c) of the Code applies to such gain or
loss.
G. Trust Reporting
The Master Servicer will furnish to each holder of a Trust Fractional
Certificate with each distribution a statement setting forth the amount of such
distribution allocable to principal on the underlying Mortgage Loans and to
interest thereon at the Pass-Through Rate. In addition, the Master Servicer will
furnish, within a reasonable time after the end of each calendar year, to each
holder of a Trust Certificate who was such a holder at any time during such
year, information regarding the amount of servicing compensation received by the
Master Servicer and sub-servicer (if any) and such other customary factual
information as the Master Servicer deems necessary or desirable to enable
holders of Trust Certificates to prepare their tax returns.
H. Back-up Withholding
In general, the rules described in "REMIC Trust Funds-Back-up Withholding"
will also apply to Trust Certificates.
I. Foreign Certificateholders
Payments in respect of interest or original issue discount (including
amounts attributable to servicing fees) on the Mortgage Loans to
Certificateholders who are not citizens or residents of the United States,
corporations or other entities organized in or under the laws of the United
States or of any State thereof, or United States estates or trusts, will
generally be subject to 30% United States withholding tax, unless such
Certificateholders have provided required certification as to their non-United
States status under penalty of perjury and then will be free of such tax only to
the extent that the underlying Mortgages were issued after July 18, 1984. This
withholding tax may be reduced or eliminated by an applicable tax treaty.
Notwithstanding the foregoing, if any such payments are effectively connected
with a United States trade or business conducted by the Certificateholder, they
will be subject to regular United States income tax, but will ordinarily be
exempt from United States withholding tax.
J. State and Local Taxation
In addition to the federal income tax consequences described in "Certain
Federal Income Tax Consequences", potential investors should consider the state
income tax consequences of the acquisition, ownership, and disposition of the
Certificates. State income tax law may differ substantially from the
corresponding federal law, and this discussion does not purport to describe any
aspect of the income tax laws of any state. Therefore, potential investors
should consult their own tax advisers with respect to the various state tax
consequences of an investment in the Certificates.
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ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
imposes certain restrictions on employee benefit plans subject to ERISA ("ERISA
Plans") and on those persons who are ERISA fiduciaries with respect to the
assets of such ERISA Plans. In accordance with the general fiduciary standards
of ERISA, an ERISA Plan fiduciary should consider whether an investment in the
Certificates is permitted by the documents and instruments governing the Plan,
consistent with the Plan's overall investment policy and appropriate in view of
the composition of its investment portfolio.
Employee benefit plans which are governmental plans and certain church
plans (if no election has been made under Section 410(d) of the Code) are not
subject to ERISA requirements. Accordingly, assets of such plans may be invested
in the Certificates subject to the provisions of applicable federal and state
law and, in the case of any such plan which is qualified under Section 401(a) of
the Code and exempt from taxation under Section 501(a) of the Code, the
restrictions imposed under Section 503 of the Code.
In addition to imposing general fiduciary standards, ERISA and section 4975
of the Code prohibit a broad range of transactions involving assets of ERISA
Plans and other plans subject to Section 4975 of the Code (together with ERISA
Plans, "Plans") and certain persons ("Parties in Interest") who have certain
specified relationships to the Plans and taxes and/or imposes other penalties on
any such transaction under ERISA and/or Section 4975 of the Code, unless an
exemption applies. If the assets of a Trust Fund are treated for ERISA purposes
as the assets of the Plans that purchase or hold Certificates of the applicable
Series, an investment in Certificates of that Series by or with "plan assets" of
a Plan might constitute or give rise to a prohibited transaction under ERISA or
Section 4975 of the Code, unless a statutory or administrative exemption
applies. Violation of the prohibited transaction rules could result in the
imposition of excise taxes and/or other penalties under ERISA and/or Section
4975 of the Code.
FINAL PLAN ASSETS REGULATION
The United States Department of Labor ("DOL") has issued a final regulation
(the "Final Regulation") under which assets of an entity in which a Plan makes
an equity investment will be treated as assets of the investing Plan in certain
circumstances. Unless the Final Regulation provides an exemption from this "plan
asset" treatment, and if such an exemption is not otherwise available under
ERISA, an undivided portion of the assets of a Trust Fund will be treated, for
purposes of applying the fiduciary standards and prohibited transaction rules of
ERISA and Section 4975 of the Code, as an asset of each Plan which becomes a
Certificateholder of the applicable Series.
The Final Regulation provides an exemption from "plan asset" treatment for
securities issued by an entity if, immediately after the most recent acquisition
of any equity interest in the entity, less than 25% of the value of each class
of equity interests in the entity, excluding interests held by a person who has
discretionary authority or control with respect to the assets of the entity (or
any affiliate of such a person), are held by "benefit plan investors" (e.g.,
Plans, governmental and other benefit plans not subject to ERISA and entities
holding assets deemed to be "plan assets"). Because the availability of this
exemption to any Trust Fund depends upon the identity of the Certificateholders
of the applicable Series at any time, there can be no assurance that any Series
or Class of Certificates will qualify for this exemption.
PROHIBITED TRANSACTION CLASS EXEMPTIONS
Prohibited Transaction Class Exemption 83-1 (Class Exemption for Certain
Transactions Involving Mortgage Pool Investment Trusts) ("PTCE 83-1") permits,
subject to certain conditions, certain transactions involving the creation,
maintenance and termination of certain residential mortgage pools and the
acquisition and holding of certain residential mortgage pool pass-through
certificates by Plans, regardless of whether (a) the mortgage pool is exempt
from "plan asset" treatment or (b) the transactions would otherwise be
prohibited under ERISA or Section 4975 of the Code. A Series of Certificates
will be an "Exempt Series" if the general conditions (described below) of PTCE
83-1 are satisfied, and if the applicable Series of Certificates evidences
ownership interests in Trust Assets which do not include Mortgage Certificates,
Cooperative Loans, Mortgage Loans secured by cooperative buildings, Mortgage
Loans secured by Multifamily Property,
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or Contracts (collectively "Nonexempt Assets"). An investment by a Plan in
Certificates of an Exempt Series (1) will be exempt from the prohibitions of
Section 406(a) of ERISA (relating generally to Plan transactions involving
Parties in Interest who are not fiduciaries) if the Plan purchases the
Certificates at no more than fair market value, and (2) will be exempt from the
prohibitions of Sections 406(b) (1) and (2) of ERISA (relating generally to Plan
transactions with fiduciaries) if, in addition, (i) the purchase is approved by
an independent fiduciary, (ii) the Plan pays no more for the Certificates than
would be paid in an arm's length transaction with an unrelated party, (iii) no
sales commission or other fee is paid to the Depositor as Mortgage Pool sponsor,
(iv) the Plan does not purchase more than 25% of the Certificates of that Series
and (v) at least 50% of the Certificates of that Series is purchased by persons
independent of the Depositor, the Trustee and the Insurer, as applicable. It
does not appear that PTCE 83-1 applies to a Series of Certificates with respect
to which the Trust Assets include Nonexempt Assets (a "Nonexempt Series"). See
"The Trust Fund-The Mortgage Pools" and "-The Contract Pools". Accordingly, it
appears that PTCE 83-1 will not exempt Plans that acquire Certificates of a
Nonexempt Series from the prohibited transaction rules of ERISA and Section 4975
of the Code. The applicable Prospectus Supplement will state whether a Series of
Certificates is an Exempt Series or a Nonexempt Series.
PTCE 83-1 sets forth three general conditions that must be satisfied for
any transaction to be eligible for exemption: (1) the existence of a pool
trustee who is not an affiliate of the pool sponsor; (2) the maintenance of a
system of insurance or other protection for the pooled mortgage loans and
property securing such loans, and for indemnifying certificateholders against
reductions in pass-through payment due to property damage or defaults in loan
payments; and (3) a limitation on the amount of the payment retained by the pool
sponsor, together with other benefits inuring to it, to not more than adequate
consideration for selling the mortgage loans and reasonable compensation for
services provided by the pool sponsor to the mortgage pool.
The Trustee for all Series will be unaffiliated with the Depositor, and,
accordingly, the first general condition will be satisfied. With respect to the
second general condition of PTCE 83-1, the credit support method represented by
the issuance of a Subordinated Class or Subclasses of Certificates and/or the
establishment of a Reserve Fund, with respect to any Exempt Series for which
such a method of Credit Support is provided (see "Credit Support-Subordinated
Certificates" and "-Reserve Fund"), is substantially similar to a system for
protecting Certificateholders against reductions in pass-through payments which
has been reviewed and accepted by the DOL as an alternative to pool insurance or
a letter of credit indemnification system. This may support a Plan fiduciary's
conclusion that the second general condition is satisfied with respect to any
such Exempt Series although, in the absence of a ruling to this effect, there
can be no assurance that these features will be so viewed by the DOL. In
addition, the Depositor intends to use its best efforts to establish, for each
Exempt Series for which credit support is provided by a Letter of Credit (see
"Credit Support-Letters of Credit") and/or the insurance arrangements set forth
above under "Description of Insurance" (an "Insured Series"), a system that will
adequately protect the Mortgage Pools and indemnity Certificateholders of the
applicable Series against pass-through payment reductions resulting from
property damage or defaults in loan payments. With respect to the third general
condition of PTCE 83-1, the Depositor intends to use its best efforts to
establish a compensation system which will produce for the Depositor total
compensation that will not exceed adequate consideration for forming the
Mortgage Pool and selling the Certificates. However, the Depositor does not
guarantee that its systems will be sufficient to meet the second and third
general conditions (described above) with respect to any Exempt Series.
If an Exempt Series of Certificates is subdivided into two or more Classes
or Subclasses which are entitled to disproportionate allocations of the
principal and interest payments on the Mortgage Loans held by the applicable
Trust Fund, the availability of the exemption afforded by PTCE 83-1 may be
adversely affected, as described in the applicable Prospectus Supplement.
Moreover, if the Certificateholders of any Class or Subclass of Certificates are
entitled to pass-through payment of principal (but no or only nominal interest)
or interest (but no or only nominal principal), it appears that PTCE 83-1 will
not exempt Plans which acquire Certificates of that Class or Subclass from the
prohibited transaction rules of ERISA and Section 4975 of the Code.
If an Exempt Series of Certificates includes a Class of Subordinated
Certificates, PTCE 83-1 will not provide an exemption from the prohibited
transaction rules of ERISA for Plans that acquire such Subordinated
Certificates.
If for any reason PTCE 83-1 does not provide an exemption for a particular
Plan Certificateholder, one of three other prohibited transaction class
exemptions issued by the DOL might apply, i.e., PTCE 91-38 (formerly PTCE 80-51)
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<PAGE>
(Class Exemption for Certain Transactions Involving Bank Collective Investment
Funds), PTCE 90-1 (formerly PTCE 78-19) (Class Exemption for Certain
Transactions Involving Insurance Company Pooled Separate Accounts) or PTCE 84-14
(Class Exemption for Plan Asset Transactions Determined by Independent Qualified
Professional Asset Managers). There can be no assurance that any of these class
exemptions will apply with respect to any particular Plan Certificateholder or,
even if it were to apply, that the exemption would apply to all transactions
involving the applicable Trust Fund. Any person who is a fiduciary by reason of
his or her authority to invest "plan assets" of any Plan (a "Plan investor") and
who is considering the use of "plan assets" of any Plan to purchase the offered
Certificates should consult with its counsel with respect to the potential
applicability of ERISA and the Code to such investments, and should determine on
its own whether PTCE 83-1 or another exemption would be applicable (and whether
all conditions have been satisfied with respect to any such exemptions), and
whether the offered Certificates are an appropriate investment for a Plan.
Moreover, each Plan fiduciary should determine whether, under the general
fiduciary standards of investment prudence and diversification, an investment in
the offered Certificates is appropriate for the Plan, taking into account the
overall investment policy of the Plan and the composition of the Plan's
investment portfolio.
UNDERWRITER'S PTE
CS First Boston Corporation ("First Boston") is the recipient of a final
prohibited transaction exemption, 54 Fed. Reg. 42597 (Oct. 17, 1989) (the
"Underwriter's PTE" or "CS First Boston Corporation's PTE" if specified in the
applicable Prospectus Supplement), which may accord protection from violations
under Sections 406 and 407 of ERISA and Section 4975 of the Code for Plans that
acquire Certificates. The Underwriter's PTE applies to certificates (a) which
represent (1) a beneficial ownership interest in the assets of a trust and
entitle the holder to pass-through payments of principal, interest and/or other
payments made with respect to the assets of the trust, or (2) an interest in a
REMIC if the certificates are issued by and are obligations of a trust; and (b)
with respect to which First Boston or any of its affiliates is either the sole
underwriter, the manager or co-manager of the underwriting syndicate or a
selling or placement agent. The corpus of a trust to which the Underwriter's PTE
applies may consist of (i) obligations which bear interest or are purchased at a
discount and which are secured by (A) single-family residential, multifamily
residential or commercial real property (including obligations secured by
leasehold interests on commercial real property) or (B) shares issued by a
cooperative housing association; and (ii) "guaranteed governmental mortgage pool
certificates" (as defined in the Final Regulation).
Plans acquiring Certificates may be eligible for protection under the
Underwriter's PTE if:
(a) assets of the type included as Trust Assets have been included in other
investment pools ("Other Pools");
(b) certificates evidencing interests in Other Pools have been both (1)
rated in one of the three highest generic rating categories by Standard & Poor's
Corporation, Moody's Investors Service, Inc., Duff & Phelps Inc. or Fitch
Investors Service, Inc., and (2) purchased by investors other than Plans, for at
least one year prior to a Plan's acquisition of Certificates in reliance upon
the Underwriter's PTE;
(c) at the time of such acquisition, the Class of Certificates acquired by
the Plan has received a rating in one of the rating categories referred to in
condition (b) above;
(d) the Trustee is not an affiliate of any member of the Restricted Group
(as defined below);
(e) the applicable Series of Certificates evidences ownership in Trust
Assets which may include non Subordinated Mortgage Certificates (whether or not
interest and principal payable with respect to the Mortgage Certificates are
guaranteed by the GNMA, FHLMC or FNMA);
(f) the Class of Certificates acquired by the Plan are not subordinated to
other Classes of Certificates of that Series with respect to the right to
receive payment in the event of defaults or delinquencies on the underlying
Trust Assets;
(g) the Plan is an "accredited investor" (as defined in Rule 501(a)(1) of
Regulation D under the Securities Act);
100
<PAGE>
(h) the acquisition of the Certificates by a Plan is on terms (including
the price for the Certificates) that are at least as favorable to the Plan as
they would be in an arm's length transaction with an unrelated party; and
(i) the sum of all payments made to and retained by the Underwriter or
members of any underwriting syndicate in connection with the distribution of the
Certificates represents not more than reasonable compensation for underwriting
the Certificates; the sum of all payments made to and retained by the Seller
pursuant to the sale of the Trust Assets to the Trust represents not more than
the fair market value of such Trust Assets; and the sum of all payments made to
and retained by the Master Servicer and all Servicers represents not more than
reasonable compensation for such Servicers' services under the Pooling and
Servicing Agreement and reimbursement of such Servicers' reasonable expenses in
connection herewith.
In addition, the Underwriter's PTE will not apply to a Plan's investment in
Certificates if the Plan fiduciary responsible for the decision to invest in a
Class of Certificates is a Mortgagor or Obligor with respect to more than 5% of
the fair market value of the obligations constituting the Trust Assets or an
affiliate of such person, unless:
(1) in the case of an acquisition in connection with the initial issuance
of any Series of Certificates, at least 50% of each Class of Certificates in
which Plans have invested is acquired by persons independent of the Restricted
Group and at least 50% of the aggregate interest in the Trust is acquired by
persons independent of the Restricted Group;
(2) the Plan's investment in any Class of Certificates does not exceed 25%
of the outstanding Certificates of that Class at the time of acquisition;
(3) immediately after such acquisition, no more than 25% of the Plan assets
with respect to which the investing fiduciary has discretionary authority or
renders investment advice are invested in certificates evidencing interest in
trusts sponsored or containing assets sold or serviced by the same entity; and
(4) the Plan is not sponsored by the Depositor, any Underwriter, the
Trustee, any Servicer, any Pool, Special Hazard or Primary Mortgage Insurer or
the obligor under any other credit support mechanism, a Mortgagor or Obligor
with respect to obligations constituting more than 5% of the aggregate
unamortized principal balance of the Trust Assets on the date of the initial
issuance of Certificates, or any of their affiliates (the "Restricted Group").
Each Series of Certificates generally is expected to satisfy condition (a)
unless otherwise specified in the applicable Prospectus Supplement. If a Series
includes a Class of Subordinated Certificates, that Class will not satisfy
condition (f). Additionally, the Prospectus permits the issuance of Certificates
rated in one of the four highest rating categories, so a particular Class of a
Series may not satisfy condition (c).
Whether the other conditions in the Underwriter's PTE will be satisfied as
to Certificates or any particular Class will depend upon the relevant facts and
circumstances existing at the time the Plan acquires Certificates of that Class.
Any Plan investor who proposes to use "plan assets" of a Plan to acquire
Certificates in reliance upon the Underwriter's PTE should determine whether the
Plan satisfies all of the applicable conditions and consult with its counsel
regarding other factors that may affect the applicability of the Underwriter's
PTE.
GENERAL CONSIDERATIONS
Any member of the Restricted Group, a Mortgagor or Obligor, or any of their
affiliates might be considered or might become a Party in Interest with respect
to a Plan. In that event, the acquisition or holding of Certificates of the
applicable Series or Class by, on behalf of or with "plan assets" of such Plan
might be viewed as giving rise to a prohibited transaction under ERISA and
Section 4975 of the Code, unless PTCE 83-1, the Underwriter's PTE or another
exemption is available. Accordingly, before a Plan investor makes the investment
decision to purchase, to commit to purchase or to hold Certificates of any
Series or Class, the Plan investor should determine (a) whether the second and
third general conditions and the specific conditions (described briefly above)
of PTCE 83-1 have been satisfied; (b) whether the Underwriter's PTE is
applicable; (c) whether any other prohibited transaction exemption (if required)
is available under ERISA and Section 4975 of the Code; or (d) whether an
exemption from "plan asset" treatment is available to the applicable Trust Fund.
The
101
<PAGE>
Plan investor should also consult the ERISA discussion, if any, in the
applicable Prospectus Supplement for further information regarding the
application of ERISA to any Series or Class of Certificates.
Subordinated Certificates are not available for purchase by or with "plan
assets" of any Plan, other than a governmental or church plan which is not
subject to ERISA or Section 4975 of the Code (as described above), and any
acquisition of Subordinated Certificates by, on behalf of or with "plan assets"
of any such Plan will be treated as null and void for all purposes.
ANY PLAN INVESTOR WHO PROPOSES TO USE "PLAN ASSETS" OF ANY PLAN TO PURCHASE
CERTIFICATES OF ANY SERIES OR CLASS SHOULD CONSULT WITH ITS COUNSEL WITH RESPECT
TO THE POTENTIAL CONSEQUENCES UNDER ERISA AND SECTION 4975 OF THE CODE OF THE
ACQUISITION AND OWNERSHIP OF SUCH CERTIFICATES.
LEGAL INVESTMENT
The applicable Prospectus Supplement for a Series of Certificates will
specify whether a Class or Subclass of such Certificates, as long as it is rated
in one of the two highest rating categories by one or more nationally recognized
statistical rating organizations, will constitute a "mortgage related security"
for purposes of the Secondary Mortgage Market Enhancement Act of 1984 ("SMMEA").
Such Class or Subclass, if any, constituting a "mortgage related security" will
be a legal investment for persons, trusts, corporations, partnerships,
associations, business trusts and business entities (including depository
institutions, insurance companies, trustees and state government employee
retirement systems) created pursuant to or existing under the laws of the United
States or of any state (including the District of Columbia and Puerto Rico)
whose authorized investments are subject to state regulation to the same extent
that, under applicable law, obligations issued by or guaranteed as to principal
and interest by the United States or any agency or instrumentality thereof
constitute legal investments for such entities.
Pursuant to SMMEA, a number of states enacted legislation, on or prior to
the October 3, 1991 cutoff for such enactments, limiting to varying extents the
ability of certain entities (in particular, insurance companies) to invest in
"mortgage related securities", in most cases by requiring the affected investors
to rely solely upon existing state law, and not SMMEA. Accordingly, the
investors affected by such legislation will be authorized to invest in
Certificates qualifying as "mortgage related securities" only to the extent
provided in such legislation.
SMMEA also amended the legal investment authority of federally-chartered
depository institutions as follows: federal savings and loan associations and
federal savings banks may invest in, sell or otherwise deal in mortgage related
securities without limitation as to the percentage of their assets represented
thereby, federal credit unions may invest in such securities, and national banks
may purchase such securities for their own account without regard to the
limitations generally applicable to investment securities set forth in 12 U.S.C.
24 (Seventh), subject in each case to such regulations as the applicable federal
regulatory authority may prescribe. In this connection, federal credit unions
should review NCUA Letter to Credit Unions No. 96, as modified by Letter to
Credit Unions No. 108, which includes guidelines to assist federal credit unions
in making investment decisions for mortgage related securities. The NCUA has
adopted rules, codified as 12 C.F.R. Section 703.5(f)-(k), which prohibit
federal credit unions from investing in certain mortgage related securities
(including securities such as certain Series, Classes or Subclasses of
Certificates), except under limited circumstances.
All depository institutions considering an investment in the Certificates
should review the "Supervisory Policy Statement on Securities Activities" dated
January 28, 1992, as revised April 15, 1994 (the "Policy Statement") of the
Federal Financial Institutions Examination Council.
The Policy Statement which has been adopted by the Board of Governors of
the Federal Reserve System, the Office of the Comptroller of the Currency, the
FDIC and the Office of Thrift Supervision and by the NCUA (with certain
modifications), prohibits depository institutions from investing in certain
"high-risk mortgage securities" (including securities such as certain Series,
Classes or Subclasses of the Certificates), except under limited circumstances,
and sets forth certain investment practices deemed to be unsuitable for
regulated institutions.
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<PAGE>
Institutions whose investment activities are subject to regulation by
federal or state authorities should review rules, policies and guidelines
adopted from time to time by such authorities before purchasing any
Certificates, as certain Series, Classes or Subclasses may be deemed unsuitable
investments, or may otherwise be restricted, under such rules, policies or
guidelines (in certain instances irrespective of SMMEA).
The foregoing does not take into consideration the applicability of
statutes, rules, regulations, orders, guidelines or agreements generally
governing investments made by a particular investor, including, but not limited
to, "prudent investor" provisions, percentage-of-assets limits, provisions which
may restrict or prohibit investment in securities which are not "interest
bearing" or "income paying", and, with regard to any Certificates issued in
book-entry form, provisions which may restrict or prohibit investments in
securities which are issued in book-entry form.
Except as to the status of certain Classes of Certificates as "mortgage
related securities", no representation is made as to the proper characterization
of the Certificates for legal investment purposes, financial institution
regulatory purposes, or other purposes, or as to the ability of particular
investors to purchase Certificates under applicable legal investment
restrictions. The uncertainties described above (and any unfavorable future
determinations concerning legal investment or financial institution regulatory
characteristics of the Certificates) may adversely affect the liquidity of the
Certificates.
Investors should consult their own legal advisers in determining whether
and to what extent such Certificates constitute legal investments for such
investors.
PLAN OF DISTRIBUTION
Each Series of Certificates offered hereby and by means of the related
Prospectus Supplements may be sold directly by the Depositor or may be offered
through CS First Boston Corporation, an affiliate of the Depositor, or
underwriting syndicates represented by CS First Boston Corporation (the
"Underwriters"). The Prospectus Supplement with respect to each such Series of
Certificates will set forth the terms of the offering of such Series or
Certificates and each Subclass within such Series, including the name or names
of the Underwriters, the proceeds to the Depositor, and either the initial
public offering price, the discounts and commissions to the Underwriters and any
discounts or concessions allowed or reallowed to certain dealers, or the method
by which the price at which the Underwriters will sell such Certificates will be
determined.
Unless otherwise specified in the Prospectus Supplement, the Underwriters
will be obligated to purchase all of the Certificates of a Series described in
the Prospectus Supplement with respect to such Series if any such Certificates
are purchased. The Certificates may be acquired by the Underwriters for their
own account and may be resold from time to time in one or more transactions,
including negotiated transactions, at a fixed public offering price or at
varying prices determined at the time of sale.
If so indicated in the Prospectus Supplement, the Depositor will authorize
Underwriters or other persons acting as the Depositor's agents to solicit offers
by certain institutions to purchase the Certificates from the Depositor pursuant
to contracts providing for payment and delivery on a future date. Institutions
with which such contracts may be made include commercial and savings banks,
insurance companies, pension funds, investment companies, educational and
charitable institutions and others, but in all cases such institutions must be
approved by the Depositor. The obligation of any purchaser under any such
contract will be subject to the condition that the purchase of the offered
Certificates shall not at the time of delivery be prohibited under the laws of
the jurisdiction to which such purchaser is subject. The Underwriters and such
other agents will not have any responsibility in respect of the validity or
performance of such contracts.
The Depositor may also sell the Certificates offered hereby and by means of
the related Prospectus Supplements from time to time in negotiated transactions
or otherwise, at prices determined at the time of sale. The Depositor may effect
such transactions by selling Certificates to or through dealers, and such
dealers may receive compensation in the form of underwriting discounts,
concessions or commissions from the Depositor and any purchasers of Certificates
for whom they may act as agents.
103
<PAGE>
The place and time of delivery for each Series of Certificates offered
hereby and by means of the related Prospectus Supplement will be set forth in
the Prospectus Supplement with respect to such Series.
LEGAL MATTERS
Certain legal matters in connection with the Certificates offered hereby
will be passed upon for the Depositor and for the Underwriters by Sidley &
Austin, New York, New York.
104
<PAGE>
INDEX OF TERMS
Page on which
Term is defined
Term in the Prospectus
- ---- -----------------
Accrual Distribution Amount.................................... 30
Advances....................................................... 12
AFR............................................................ 83
Agreement...................................................... 28
Approved Sale.................................................. 61
APR............................................................ 21
ARM Loans...................................................... 15
Asset Value.................................................... 29
Assets......................................................... 79
Certificate Account............................................ 39
Certificate Principal Balance.................................. 3
Certificateholders............................................. 17
Certificates................................................... 1
Class.......................................................... 1
Cleanup Costs.................................................. 69
Closed Loans................................................... 18
Closing Date................................................... 76
Code........................................................... 12
Committee Report............................................... 73
Contract Pool.................................................. 1
Contract Schedule.............................................. 34
Contracts...................................................... 1
Converted Mortgage Loan........................................ 15
Cooperative.................................................... 3
Cooperative Dwelling...............................................
Cooperative Loans..................................................
Custodial Account.............................................. 36
Custodial Agreement............................................ 22
Custodian...................................................... 22
Deferred Interest.............................................. 15
Deficiency Event............................................... 50
Deleted Contract............................................... 23
Deleted Mortgage Certificates.................................. 32
Deleted Mortgage Loans......................................... 33
Deposit Trust Agreement........................................ 28
Depositor...................................................... 1
Determination Date............................................. 39
Discount Certificate........................................... 7
Distribution Date.............................................. 4
DOL............................................................ 98
Due Date....................................................... 15
Due Period..................................................... 31
ERISA.......................................................... 12
ERISA Plans.................................................... 98
Escrow Account................................................. 42
Exempt Series.................................................. 99
FHA............................................................ 1
105
<PAGE>
FHA Experience................................................. 26
FHA Loans...................................................... 14
Final Regulation............................................... 98
First Boston................................................... 100
GPM Fund....................................................... 11
GPM Loans...................................................... 16
Initial Deposit................................................ 10
Insurance Proceeds............................................. 37
Insured Series................................................. 99
Interest Coupon................................................ 95
Interest Distribution.......................................... 30
Interest Rate.................................................. 3
Interest Weighted Class........................................ 3
Interest Weighted Subclass..................................... 3
IRS............................................................ 76
L/C Bank....................................................... 8
L/C Percentage................................................. 9
Letter of Credit............................................... 8
Liquidating Loan............................................... 8
Liquidation Proceeds........................................... 37
Loss........................................................... 57
Manufactured Home.............................................. 7
Master Servicer................................................ 4
Mortgage Certificates.......................................... 1
Mortgage Loans................................................. 1
Mortgage Notes................................................. 14
Mortgage Pool.................................................. 1
Mortgage Rates................................................. 6
Mortgaged Property............................................. 5
Mortgagor...................................................... 5
Mortgagor Bankruptcy Bond...................................... 8
Multifamily Property........................................... 14
Multiple Variable Rate......................................... 78
Nonexempt Assets............................................... 99
Nonexempt Series............................................... 99
non-U.S. Person................................................ 89
Obligo......................................................... 25
OID Regulations................................................ 74
Original Value................................................. 5
Originator..................................................... 18
Other Pools.................................................... 100
Parties in Interest............................................ 98
Percentage Interest............................................ 1
Performance Bond............................................... 22
Plans.......................................................... 98
Policy Statement............................................... 103
Pool Insurance Policy.......................................... 8
Pool Insurer................................................... 9
Premium Certificate............................................ 7
Prepayment Assumption.......................................... 76
Primary Insurer................................................ 38
Primary Mortgage Insurance Policy.............................. 9
Primary Mortgage Insurer....................................... 45
106
<PAGE>
Principal Distribution......................................... 30
Principal Prepayments.......................................... 10
Principal Weighted Class....................................... 3
Purchase Price................................................. 35
Rating Agency.................................................. 1
Record Date.................................................... 29
Reference Agreement............................................ 8
REIT........................................................... 4
REMIC.......................................................... 1
REMIC Certificateholders....................................... 74
REMIC Certificates............................................. 73
REMIC Mortgage Pool............................................ 73
REMIC Provisions............................................... 73
REMIC Regular Certificate...................................... 73
REMIC Regulations.............................................. 74
REMIC Residual Certificate..................................... 73
Required Distribution.......................................... 55
Required Reserve............................................... 11
Reserve Fund................................................... 8
Residual Certificates.......................................... 3
Residual Owner................................................. 81
Restricted Group............................................... 101
Retained Yield................................................. 92
Securities Act................................................. 2
Senior Certificates............................................ 8
Senior Class................................................... 3
Senior Prepayment Percentage................................... 54
Senior Subclass................................................ 3
Series......................................................... 1
Servicer....................................................... 17
Servicing Account.............................................. 36
Servicing Agreement............................................ 17
Single Family Property......................................... 5
Single Variable Rate........................................... 76
Single-Class REMIC............................................. 86
SMMEA.......................................................... 12
SPA............................................................ 26
Special Distributions.......................................... 5
Special Hazard Insurance Policy................................ 11
Standard Hazard Insurance Policy............................... 43
Standard Terms................................................. 28
Stated Principal Balance....................................... 1
Stated Principal Distribution Amount........................... 30
Stripped Bond Rules............................................ 92
Stripped Interest.............................................. 96
Stripped Mortgage Loan......................................... 92
Subclass....................................................... 1
Subordinated Amount............................................ 8
Subordinated Certificates...................................... 8
Subordinated Class............................................. 3
Subordinated Pool.............................................. 10
Subordinated Subclass.......................................... 3
Substitute Contract............................................ 23
107
<PAGE>
Substitute Mortgage Certificates............................... 32
Substitute Mortgage Loans...................................... 33
Tiered REMICS.................................................. 75
Title V........................................................ 73
Trust Assets................................................... 4
Trust Certificates............................................. 73
Trust Fractional Certificate................................... 73
Trust Fractional Certificateholder............................. 91
Trust Fund..................................................... 1
Trust Interest Certificate..................................... 90
Trust Interest Certificateholder...................................
U.S. Person.................................................... 88
UCC............................................................ 66
Unaffiliated Sellers........................................... 18
Underwriters................................................... 103
Unstripped Mortgage Loans...................................... 94
VA............................................................. 1
VA Loans....................................................... 14
108
<PAGE>
- --------------------------------------------------------------------------------
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS
SUPPLEMENT OR THE PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
DEPOSITOR OR THE UNDERWRITERS. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION.
--------------------------------
TABLE OF CONTENTS
PROSPECTUS
<TABLE>
<S> <C>
Prospectus Supplement................................................. 2
Additional Information................................................ 2
Incorporation of Certain Information by Reference..................... 2
Summary of Terms...................................................... 3
The Trust Fund........................................................ 14
The Depositor......................................................... 23
Use of Proceeds....................................................... 23
Yield Considerations.................................................. 24
Maturity and Prepayment Consideration................................. 26
Description of the Certificates....................................... 27
Credit Support........................................................ 53
Description of Insurance.............................................. 57
Certain Legal Aspects of the Mortgage
Loans and Contracts................................................. 64
Certain Federal Income Tax Consequences............................... 73
ERISA Considerations.................................................. 98
Legal Investment...................................................... 102
Plan of Distribution.................................................. 103
Legal Matters......................................................... 104
Index of Terms........................................................ 105
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Asset Backed
Securities Corporation
Depositor
$
_________ Conduit Mortgage
Pass-Through Certificates,
Series 199 -___
PROSPECTUS
CS FIRST BOSTON
- --------------------------------------------------------------------------------
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the Registration Statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
Subject to Completion, Dated [ ], 199[ ]
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED [ ], 199[ ]
CSFB CARD ACCOUNT MASTER TRUST, 1995-[ ]
$[ ] [(Approximate)] [ %] [Floating Rate] [Adjustable Rate] [Variable Rate]
[Class A] Asset Backed [Senior/Subordinate] Certificates, Series 199[ ]-[ ]
[$[ ] [(Approximate)] [ %] [Floating Rate] [Adjustable Rate] [Variable
Rate] [Class B] Asset Backed [Senior/Subordinate] Certificates,
Series 199[ ]-[ ]]
ASSET BACKED SECURITIES CORPORATION, DEPOSITOR
Seller [and Servicer] Name], as Seller [and Servicer] of the Receivables
[Servicer Name, as Servicer]
The [ %] [Floating Rate][Adjustable Rate] [Variable Rate] [Class A]
Asset Backed Certificates, Series 199[ ]-[ ] (the "[Class A] Certificates")
[and the] [ %] [Floating Rate] [Adjustable Rate] [Variable Rate] [Class B]
Asset Backed Certificates, Series 199[ ]-[ ] (the "[Class B] Certificates,"
and together with the Class [A] Certificates, the "Certificates")] offered
hereby represent fractional undivided interests in the CSFB Card Account Master
Trust (the "Trust") formed pursuant to a [Master] Pooling and Servicing
Agreement among [Servicer Name,] [(the "Servicer"),] [Seller [and Servicer]
Name], (the "Seller"), Asset Backed Securities Corporation, (the "Depositor")
and [Trustee Name], as trustee (the "Trustee") (the "Agreement"). The property
of the Trust includes, among other assets, a portfolio of [consumer] [corporate]
[revolving] [credit card] [charge card] [debit card] receivables
([collectively,] the "Receivables") generated or to be generated from time to
time in a portfolio of [consumer] [corporate] [revolving] [credit card] [charge
card] [debit card] accounts [owned
(Continued on the following page)
----------
THE CERTIFICATES REPRESENT INTERESTS IN THE TRUST AND DO NOT REPRESENT INTERESTS
IN OR OBLIGATIONS OF THE DEPOSITOR, THE SELLER, THE TRUSTEE, OR ANY AFFILIATE
THEREOF, EXCEPT TO THE LIMITED EXTENT DESCRIBED HEREIN. A CERTIFICATE IS NOT
A DEPOSIT AND IS NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION
("THE FDIC"). THE RECEIVABLES ARE NOT INSURED OR GUARANTEED BY THE FDIC
OR ANY OTHER GOVERNMENTAL AGENCY OR INSTRUMENTALITY.
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 SUPPLEMENT. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
====================================================================================================
Price to Public Underwriting Discount Proceeds to the Seller (1)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per [Class A] Certificate
- ----------------------------------------------------------------------------------------------------
[Per [Class B] Certificate]
- ----------------------------------------------------------------------------------------------------
Total
====================================================================================================
</TABLE>
(1) Before deduction of expenses payable by the Seller, estimated to be $[ ].
----------
The Certificates are offered by the Underwriters when, as and if
issued by the Trust and accepted by the Underwriters and subject to the
Underwriters' right to reject orders in whole or in part. It is expected that
the Certificates will be [delivered in book-entry form] [available for delivery]
on or about [ ] through the facilities of [The Depository Trust Company]
[CEDEL S.A.] [or] [Euroclear System]] [(at the offices of[ ]]. [The
Certificates will be offered in Europe and the United States of America.]
----------
Underwriters of the Certificates
[LOGO] CS First Boston
The date of this Prospectus Supplement is [ ], 199[ ]
<PAGE>
by the Seller] (the "Accounts"), all monies due in payment of the Receivables,
collections thereon and certain other property, as described more fully herein.
The [Seller] [Depositor] will own the remaining undivided interest in the Trust
not represented by the Certificates and the other certificates or interests
issued by the Trust. [The Trust will also issue the Collateral Interest (as
defined herein), [an uncertificated] undivided interest in certain assets of the
Trust and certain other property described herein, which will be subordinated to
the Certificates as described herein and will be issued in the initial amount of
$[ ].] [The fractional undivided interest in the Trust represented by the
Class B Certificates will be subordinated to fund payments with respect to the
Class A Certificates to the extent described herein. No principal payments will
be made in respect of the Class B Certificates until the final principal payment
has been made in respect of the Class A Certificates.] The Depositor [has
offered] [from time to time may offer] other series of certificates that
evidence undivided interests in the Trust which may have terms significantly
different from the Certificates. The issuance of additional series of
certificates may impact the timing or amount of payments received by the holders
of the Certificates.
[Only the [Class A] Certificates [and the [Class B] Certificates] are being
offered hereby.]
Interest will accrue on the [Class A] Certificates at the rate of [[ ]%
per annum] [insert Class A Certificate Rate formula] (the "[Class A] Certificate
Rate"). [Interest will accrue on the [Class B] Certificates at the rate of
[[ ]% per annum] [insert [Class B] Certificate Rate formula] (the "[Class B]
Certificate Rate").] Interest with respect to the Certificates will be
distributed on the [ ] day of each [month] [quarter] [semi-annual period] (an
"Interest Period") (or if such a day is not a business day, the next succeeding
business day) commencing on the [ ], 199[ ] Distribution Date.
Principal with respect to the [Class A] Certificates is scheduled to be
paid on the [ ], 199[ ] Distribution Date, but may be paid earlier or later
under certain circumstances described herein. [Principal with respect to the
[Class B] Certificates is scheduled to be paid on the [ ], 199[ ]
Distribution Date, but may be paid earlier or later under circumstances
described herein.] See "MATURITY CONSIDERATIONS" and "SERIES PROVISIONS -- Pay
Out Events" herein. [Principal payments will not be made in respect of the
[Class B] Certificates until the final principal payment has been paid in
respect of the [Class A] Certificates.] See -- "DESCRIPTION OF THE CERTIFICATES
- -- Principal Payments" herein.
The Termination Date for the Certificates is the [ ], 199[ ]
Distribution Date. The first Distribution Date with respect to the Certificates
is the [ ], 199[ ] Distribution Date.
The Certificates initially will be represented by certificates which will
be [registered in the name of the Cede & Co., the nominee of The Depository
Trust Company] [definitive certificates]. The interests of holders of
beneficial interests in the Certificates will be [represented by book-entries on
the records of The Depository Trust Company and participating members thereof]
[registered on the Certificates]. [Definitive Certificates will be available to
Certificate Owners only under the limited circumstances described in the
Prospectus. See "DESCRIPTION OF THE CERTIFICATES -- Definite Certificates" in
the Prospectus.]
There currently is no secondary market for the Certificates, and there can
be no assurance that one will develop. The Underwriters expect, but are not
obligated, to make a market in the Certificates. There is no assurance that any
such market will develop or continue. Potential investors should consider,
among other things, the information set forth in "SPECIAL CONSIDERATIONS" herein
and in the Prospectus.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE
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 90 days after the date of this Prospectus Supplement, all
dealers effecting transactions in the Certificates, whether or not participating
in this distribution, may be required to deliver a Prospectus Supplement and
Prospectus. This is in addition to the obligation of dealers acting as
underwriters to deliver a Prospectus Supplement and Prospectus with respect to
their unsold allotments and subscriptions.
--------------------
The Certificates offered hereby constitute a separate series of Asset
Backed Certificates being offered by Asset Backed Securities Corporation from
time to time pursuant to its Prospectus dated [ ], 199[ ]. This Prospectus
Supplement does not contain complete information about the offering of the
Certificates. Additional information is contained in the Prospectus and
investors are urged to read both this Prospectus Supplement and the Prospectus
in full. Sales of the Certificates may not be consummated unless the purchaser
has received both this Prospectus Supplement and the Prospectus.
S-2
<PAGE>
SUMMARY
The following is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus Supplement and the
accompanying Prospectus. Certain capitalized terms used in this summary are
defined elsewhere in this Prospectus Supplement or in the Glossary of Terms in
the Prospectus.
<TABLE>
<S> <C>
Trust CSFB Card Account Master Trust (the
"Trust").
Title of Securities.................... $[ ] [ %][Floating
Rate][Adjustable Rate] [Variable
Rate] [Class A] Asset Backed
Certificates, Series 199[ ]-[ ] (the
"[Class A] Certificates") [;and
$[ ] [ %][Floating Rate]
[Adjustable Rate] [Variable Rate]
Class B Asset Backed Certificates,
Series 199[ ]-[ ] (the "[Class B]
Certificates," and together with
[Class A] Certificates, the
"Certificates")].
Initial Invested Amount................ $[ ] (the "Initial Invested
Amount").
[[Class A] Initial Invested Amount..... $[ ] (the "[Class A] Initial
Invested Amount").]
[[Class B] Initial Invested Amount..... $[ ] (the "[Class B] Initial
Invested Amount").]
[Collateral Initial Invested Amount.... $[ ] ("the Collateral Initial
Invested Amount").]
[Initial Cash Collateral Amount........ $[ ] ("the Initial Cash
Collateral Amount").]
[Required Seller's Amount.............. For any date [ ]% of the Invested
Amount ("Required Seller's Amount").]
[Class A] Certificate Rate............. The [Class A] Certificate Rate for an
Interest Period will be a rate per
annum equal to [insert Class A
</TABLE>
S-3
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<TABLE>
<S> <C>
Certificate Rate formula] for a
period of [one] [three] [six] months
[(or following a Pay Out Event, for
a period of one month)].
[[Class B] Certificate Rate............ The [Class B] Certificate Rate for an
Interest Period will be a rate per
annum equal to [insert Class B
Certificate Rate formula] for a
period of [one] [three] [six] months
[(or following a Pay Out Event, for
a period of one month)].]
Interest Payment Dates................. The [ ] day of each [month]
[quarter] [semi-annual period] (an
"Interest Period") (or if any such
day is not a business day, the next
succeeding business day), commencing
on the [ ], 199[ ] Distribution
Date.
[Class A] [Controlled Amortization
Amount] [Controlled Accumulation
Amount]................................ For each Distribution Date with
respect to the [Class A] [Controlled
Amortization] [Accumulation] Period,
$[ ][; except that if the
commencement of the [Class A] Controlled
Accumulation Period is delayed as
described herein under "SERIES
PROVISIONS -- Principal Payments," the
[Class A] Controlled Accumulation Amount
for each Distribution Date with respect
to the [Class A] Accumulation Period
will be determined as described under
"DESCRIPTION OF THE CERTIFICATES --
Application of Collections -- Payments
of Principal."]
In general, on each Distribution Date
during the [Class A] [Accumulation
Period] [Controlled Amortization
Period], collections of Principal
Receivables and certain other amounts
allocable to the [Class A]
Certificateholders' Interest will be
[deposited in the Principal Funding
Account] [distributed to the [Class A]
Certificateholders as repayment of
principal
</TABLE>
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<S> <C>
with respect to the [Class A]
Certificates], in an amount equal to the
[Controlled Accumulation Amount]
[Controlled Amortization Amount] and any
[Controlled Accumulation Amount]
[Controlled Amortization Amount]
previously due but not [paid to
Certificateholders] [deposited in the
Principal Funding Account] on a prior
Distribution Date.
[On each Distribution Date with respect
to the [Class B] [Controlled
Amortization Period] [Accumulation
Period] [which shall commence after the
principal amount of the [Class A]
Certificates has been paid in full]
collections of Principal Receivables and
certain other amounts allocable to the
[Class B] Certificateholders' Interest
will be [deposited in the Principal
Funding Account] [distributed to the
[Class B] Certificateholders as a
repayment of principal with respect to
the [Class B] Certificates], in an
amount equal to the [Controlled
Amortization Amount] [Controlled
Accumulation Amount] and any [Controlled
Amortization Amount] [Controlled
Accumulation Amount] previously due but
not [paid to [Class B]
Certificateholders] [deposited in the
Principal Funding Account] on a prior
Distribution Date. ]
[On the earlier to occur of a Pay Out
Event or the Expected Final Payment
Date, amounts on deposit in the
Principal Funding Account will be
distributed to Certificateholders as a
repayment of principal in respect of the
Certificates.]
[Class A] Expected Final Payment Date.. The [ ], 199[ ] Distribution Date.
[Class B Expected Final Payment Date... The [ ], 199[ ] Distribution Date.]
Cut-Off Date........................... [ ], 199[ ].
Issuance Date.......................... [ ], 199[ ].
</TABLE>
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The Certificates; the Collateral
Interest............................... Each of the Certificates offered hereby
represents an undivided interest in the
Trust. [The portion of the Trust assets
allocated to the Certificates will be
further allocated among] [the interests
of the holders of the Class A
Certificates (the "Class A
Certificateholders' Interest"), and the
interests of the holders of the Class B
Certificates (the "Class B
Certificateholders' Interest")] [and the
interest of the holders of the
[Seller's] Certificate (the "[Seller's]
Interest"), as described below]. [The
Class A Certificateholders' Interest and
the Class B Certificateholders' Interest
are sometimes collectively referred to
herein as the Certificateholders'
Interest.]
[In addition, an undivided interest in
the Trust (the "Collateral Interest") in
the initial amount of $[ ] (an amount
that represents [ ]% of the sum of the
Initial Invested Amount and the Initial
Collateral Invested Amount) constitutes
the Credit Enhancement for the
Certificates. The provider of such
Credit Enhancement is the "Collateral
Interest Holder."]
The principal amount of the [Class A]
Certificateholders' Interest [and the
Class B Certificateholders' Interest]
will remain fixed at the aggregate
initial principal amount of the [Class
A] Certificates [and the Class B
Certificates, respectively,] except as
otherwise provided herein. [The Class B
Certificateholders' Interest will
decline in certain circumstances as a
result of (a) the allocation to the
Class B Certificateholders' Interest of
Defaulted Amounts otherwise allocable to
the Class A Certificateholders' Interest
and (b) the reallocation of collections
of Principal Receivables otherwise
allocable to the Class B
Certificateholders' Interest to fund
certain payments in respect of the Class
A Certificates. Any such reductions in
the Class B Certificateholders' Interest
may be reimbursed out of Excess Spread,
if any, [and]
</TABLE>
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Excess Finance Charges allocable to
Series 199[ ]-[ ] [, and certain amounts
withdrawn from the Cash Collateral
Account as described herein].]
[During the Accumulation Period, for the
sole purpose of allocating collections
of Finance Charge Receivables and the
Defaulted Amount with respect to each
Monthly Period, the [Class A]
Certificateholders' Interest [and (after
the Class B Principal Commencement Date)
the Class B Certificateholders'
Interest] will be further reduced by the
amount [on deposit in the Principal
Funding Account] (as so reduced, [the
"Class A Adjusted Invested Amount" and
the "Class B Adjusted Invested Amount,"
respectively, and collectively,] the
"Adjusted Invested Amount").]
[During the Controlled Amortization
Period, for the sole purpose of
allocating collections of Finance Charge
Receivables and the Defaulted Amount
with respect to each Monthly Period, the
[Class A] Certificateholders' Interest
[and (after the Class B Principal
Commencement Date) the Class B
Certificateholders' Interest] will be
further reduced as principal is paid to
the Certificateholders (as so reduced,
[the "Class A Adjusted Invested Amount"
and the "Class B Adjusted Invested
Amount," respectively, and
collectively,] the "Adjusted Invested
Amount").]
The Certificateholders' Interest [and
the Collateral Interest] will include
the right to receive (but only to the
extent needed to make required payments
under the Agreement and the Series
Supplement and subject to any
reallocation of such amounts as
described herein) varying percentages of
the collections of Finance Charge
Receivables and Principal Receivables
and will be allocated a varying
percentage of the Defaulted Amount with
respect to each Monthly Period. Finance
Charge Receivables collections and the
Defaulted Amount will be
</TABLE>
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<PAGE>
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<S> <C>
allocated to the Certificates based on
the Floating Allocation Percentage.
[Such amounts will be further allocated
to the Class A Certificates and the
Class B Certificates based on the Class
A Floating Percentage and the Class B
Floating Percentage, respectively.]
Collections of Principal Receivables
will be allocated to the Certificates
based on the Principal Allocation
Percentage. Such percentage will vary
depending on whether the Certificates
are in their Revolving Period,
[Accumulation Period] [Controlled
Amortization Period] or Rapid
Amortization Period. See also
"DESCRIPTION OF THE CERTIFICATES --
Allocation Percentages" herein. [Such
amounts will be further allocated to the
Class A Certificates and the Class B
Certificates as described herein. See
"DESCRIPTION OF THE CERTIFICATES --
Allocation Percentages" herein.]
[Following the occurrence of a Pay Out
Event and a withdrawal of funds from the
Cash Collateral Account, a portion of
the Certificateholders' Interest
(corresponding to the aggregate amount
of such withdrawal) will be allocated to
the Cash Collateral Depositor.]
[Issuance of Additional Certificates..] [After the completion of the offering made hereby, the
Depositor may cause the Trustee to issue
additional Certificates of Series
199[ ]-[ ] ("Additional Certificates")
from time to time during the Revolving
Period, provided that certain conditions
described herein under "DESCRIPTION OF
THE CERTIFICATES -- Issuance of
Additional Certificates" are met. In
connection with each Issuance of
Additional Certificates, the outstanding
principal amounts of the [Class A]
Certificates [and the Class B
Certificates] [and the aggregate amount
of the Collateral Interest] will be
increased pro rata. When issued, the
Additional Certificates [of a class]
will be identical in all respects to the
other outstanding Certificates [of that
class]. See
</TABLE>
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<S> <C>
"DESCRIPTION OF THE CERTIFICATES --
Issuance of Additional Receivables
Certificates" herein.]
Receivables............................ The Receivables arise in Accounts that
have been selected from the Seller's
portfolio based on selection criteria
provided in the Agreement as applied on
[ ], 199[ ] (the "Initial Cut-Off
Date"). The aggregate amount of
Receivables in the Accounts as of the
Initial Cut-Off Date was $[ ], comprised
of $[ ] of Principal Receivables and
$[ ] of Finance Charge Receivables.
The aggregate undivided interest in the
Principal Receivables evidenced by the
Certificates will never exceed the
Investor Amount, regardless of the total
amount of Principal Receivables at any
time in the Trust.
[On [ ], 199[ ] (the "Closing
Date"), the Depositor will purchase
Receivables (the "[Initial]
Receivables") having an aggregate
principal balance of approximately
$[ ] as of [ ], 199[ ] (the
"[Initial] Cut-Off Date"), from
the Seller pursuant to an Agreement to
be dated as of [ ], 199[ ].]
[On and following the Closing Date,
pursuant to the Agreement, the Depositor
will be obligated, subject only to the
availability thereof, to purchase from
the Seller and sell to the Trust, and
the Trust will be obligated to purchase,
subject to the satisfaction of certain
conditions set forth therein, additional
Receivables generated from Subsequent
Accounts (the "Subsequent Receivables")
from time to time during the Funding
Period having an aggregate principal
balance equal to approximately $[ ]
(such amount being equal to an amount on
deposit in the Pre-Funding Account (the
"Pre-Funding Amount") on the Closing
Date). The Depositor will designate as a
cut-off date (each a "Subsequent Cut-off
Date") the date as of which particular
Subsequent Receivables are conveyed to
the Trust. It is expected
</TABLE>
S-9
<PAGE>
<TABLE>
<S> <C>
that certain of the Subsequent
Receivables arising between the Initial
Cut-off Date and the Closing Date will
be conveyed to the Trust on the Closing
Date and that other Subsequent
Receivables will be conveyed to the
Trust as frequently as daily thereafter
on dates specified by the [Depositor]
[Seller] (each date on which Subsequent
Receivables are conveyed to the Trust
being referred to as a "Subsequent
Transfer Date") occurring during the
Funding Period. ]
[The [Initial] Receivables will be
selected[, and the Subsequent
Receivables will be selected,] from the
Receivables owned by the Seller based on
the criteria specified in the Agreement
and described herein.]
Subsequent Receivables may be originated
at a later date using credit criteria
different from those which were applied
to the [Initial] Receivables and may be
of a different credit quality and
seasoning. In addition, following the
transfer of Subsequent Receivables to
the Trust, the characteristics of the
entire pool of Receivables included in
the Trust may vary significantly from
those of the Initial Receivables.
Denominations.......................... The Certificates will be offered for
purchase in denominations of [$1,000]
and integral multiples thereof,
[except that one Certificate may be
issued in a denomination that is not
an integral multiple of $1,000].
[Except in certain limited
circumstances as described in the
Prospectus under "DESCRIPTION OF THE
CERTIFICATES -- Definitive
Certificates," the Certificates will
[only] be available in [book-entry]
[or] [definitive] form.]
[Registration of Certificates.......... The Certificates initially will be
issued in book-entry form. Persons
acquiring beneficial ownership
interests in the Certificates
("Certificate Owners") may elect to
hold their Certificate interests
through
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
[The Depository Trust Company ("DTC"),
in the United States,] [or Centrale de
Livraison de Valeurs Mobilieres S.A.
("CEDEL")] [or the Euroclear System
("Euroclear")] in Europe]. Transfers
within [DTC], [CEDEL] [or] [Euroclear],
[as the case may be,] will be in
accordance with the usual rules and
operating procedures of the relevant
system. The Certificates will be
evidenced by one or more Certificates
registered in the name of [Cede & Co.
("Cede"), as the nominee of DTC] [or]
[one of the relevant depositaries
(collectively, the "European
Depositaries")]. [Cross-market transfers
between persons holding directly or
indirectly through DTC, on the one hand,
and counterparties holding directly or
indirectly through CEDEL or Euroclear,
on the other, will be effected in DTC
through [Citibank N.A. ("Citibank")] or
[Morgan Guaranty Trust Company of New
York ("Morgan")], the relevant
depositaries of [CEDEL] [or]
[Euroclear,] [respectively,] and each a
participating member of DTC.] [The
Certificates will be registered in the
name of Cede & Co.] [The interests of
the Certificateholders will be
represented by book-entries on the
records of DTC and participating members
thereof.] No Certificate Owner will be
entitled to receive a definitive
certificate representing such person's
interest, except in the event that
Definitive Certificates (as defined
herein) are issued under the limited
circumstances described herein.]
[All references in this Prospectus
Supplement to any Certificates reflect
the rights of Certificate Owners only as
such rights may be exercised through DTC
and its participating organizations for
so long as such Certificates are held by
DTC. See "SPECIAL CONSIDERATIONS-- Book-
Entry Certificates" in the Prospectus.]
Depositor.............................. Asset Backed Securities Corporation.
[Seller................................ Insert information regarding Seller.]
</TABLE>
S-11
<PAGE>
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<S> <C>
[Servicer.............................. Insert information regarding
Servicer, if different from the
Seller.]
Servicing Fee.......................... The Servicing Fee Rate for the
Certificates [shall be [ %] per
annum] [shall be, with respect to
any Distribution Date, equal to
one-twelfth of the product of [ %]
and [the sum of] the Adjusted Invested
Amount [and the [Collateral] Invested
Amount], as of the last day of the
Monthly Period preceding such
Distribution Date]. The [Class A]
Servicing Fee, [and] [the Class B
Servicing fee] [and] [the [Collateral]
Interest Servicing Fee] will be paid on
each Distribution Date.
Revolving Period and [Controlled
Amortization Period] [Accumulation
Period]................................ The "Revolving Period" with respect to
the Certificates means the period from
and including the [Initial] Cut-Off
Date, to, but not including, the earlier
of (a) the day on which the [Controlled
Amortization Period] [Accumulation
Period] commences, and (b) in the event
that a Pay Out Event shall occur, the
day on which the Rapid Amortization
Period commences.
[Unless a Pay Out Event occurs and the
Rapid Amortization Period commences, the
Certificates will have an accumulation
period (the "Accumulation Period"),
which will commence at the close of
business on [ ], 199[ ]; provided, that
subject to the conditions set forth
herein, the day on which the Revolving
Period ends and the Accumulation Period
begins may be delayed to no later than
the close of business on [ ], 199[ ].
The Accumulation Period will end on the
earliest of (a) the commencement of a
the Rapid Amortization Period, (b)
payment in full of the Invested Amount
of the Certificates and (c) the
Termination Date.]
</TABLE>
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<S> <C>
[During the Accumulation Period, until
the Certificates are paid in full,
collections of Principal Receivables and
certain other amounts allocable to the
Certificateholders' Interest will be
deposited on each Distribution Date in a
trust account (the "Principal Funding
Account") and used to make principal
distributions to the Certificateholders
when due.]
[The controlled amortization period with
respect to the Certificates (the
"Controlled Amortization Period"), is
scheduled to commence at the close of
business on the last day of the [ ].
The Controlled Amortization Period will
end on the earliest of (a) the
commencement of the Rapid Amortization
Period, (b) the payment in full of the
Invested Amount or (c) the Termination
Date. In general, on each Distribution
Date during the Controlled Amortization
Period, collections of Principal
Receivables and certain other amounts
allocable to the Certificateholders'
Interest will be distributed to the
Certificateholders as a repayment of
principal with respect to the
Certificates, in a amount equal to the
Controlled Amortization Amount and any
Controlled Amortization Amount
previously due but not paid to
Certificateholders on a prior
Distribution Date.]
During the Revolving Period, no
principal will be payable with respect
to the Certificates; rather, collections
of Principal Receivables and certain
other amounts (other than Reallocated
Principal Receivables) otherwise
allocable to the Certificateholders
[will] [may], subject to certain
limitations, be treated as Shared
Principal Collections and applied to
cover principal due to or for the
benefit of the certificateholders of
other Series, or be paid from the Trust
to the holder of the [Seller's]
Certificate to maintain the
Certificateholders' Interest in the
Trust.
</TABLE>
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[No principal will be payable to the
[Class A] Certificateholders until the
[ ], 199[ ] Distribution Date (the
"Expected Final Payment Date"), or after
the occurrence of a Pay Out Event and
the commencement of the Rapid
Amortization Period, the first
Distribution Date with respect to the
Rapid Amortization Period[. No principal
will be payable to the [Class B]
Certificateholders until the Class A
Invested Amount has been paid in full.]
[No principal will be payable to the
[Collateral] Interest Holder until the
[Class B] Invested Amount has been paid
in full]; provided that during the
Revolving Period or the [Controlled
Amortization Period] [Accumulation
Period], certain collections of
Principal Receivables allocable to the
Certificateholders' Interest will be
paid to the [Collateral] Interest Holder
to the extent the [Collateral] Invested
Amount exceeds the Required [Collateral]
Invested Amount.]
[Funds on deposit in any Principal
Funding Account may be invested in
permitted investments or subject to a
guaranteed rate or investment contract
or other arrangement intended to assure
a minimum return on the investment of
such funds. Investment earnings on such
funds may be applied to pay interest on
the Certificates.]
Additional Amounts
Available to Certificate
holders................................ The [Class A] Required Amount means,
with respect to any Distribution
Date, the amount, if any, by which
the sum of (i) current and overdue
[Class A] Monthly Interest, (ii)
current and overdue [Class A]
Additional Interest, (iii) current
and overdue [Class A] Servicing Fee
and (iv) the [Class A] Default
Amount with respect to the related
Distribution Date exceeds [Class A]
Available Funds. If the [Class A]
Required Amount is greater than
zero, then Excess Spread and Excess
Finance Charges allocable to Series
199[ ]-[ ] will be applied to fund
the
</TABLE>
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<PAGE>
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<S> <C>
deficiency. [If Excess Spread and
Excess Finance Charges allocable to
Series 199[ ]-[ ] with respect to
such Distribution Date are
insufficient to fund the [Class A]
Required Amount, then amounts, if
any, on deposit in the Cash
Collateral Account and available to
make payments with respect to the
[Class A] Certificates with respect
to such Distribution Date will then
be used to fund the remaining
[Class A] Required Amount.] [If [such
amounts, if any, on deposit in the
Cash Collateral Account and
available to make payments with
respect to the [Class A]
Certificates with respect to such
Distribution Date (together with]
Excess Spread and Excess Finance
Charges with respect to such
Distribution Date[)] are
insufficient to fund the remaining
[Class A] Required Amount, then
Principal Receivables allocable to
the [Class B] Invested Amount with
respect to the related Monthly
Period will be used to fund the
remaining [Class A] Required Amount
("Reallocated Principal
Receivables"). If such Reallocated
Principal Receivables with respect
to such Monthly Period (together
with Excess Spread and Excess
Finance Charges [, and amounts, if
any, on deposit in the Cash
Collateral Account] available to
make payments with respect to the
[Class A] Certificates) are
insufficient to fund the remaining
[Class A] Required Amount for the
related Distribution Date, then a
portion of the [Collateral] Invested
Amount, if any, will be reduced by
the amount of such deficiency (but
not more than the [Class A] Default
Amount for such Monthly Period). [If
such reduction would cause the
[Collateral] Invested Amount to be
reduced below zero, then the
[Collateral] Invested Amount will be
reduced to zero and the [Class B]
Invested amount, if any, will be
reduced by the amount by which the
[Collateral] Invested Amount would
have been reduced below zero (but
not by more than the excess of the
[Class A] Default Amount for such
Monthly Period over the amount of
such reduction in the Collateral
Invested Amount) to avoid a
charge-off with respect to the
[Class A] Certificates. If the
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<S> <C>
[Collateral] Invested Amount is
reduced to zero and the [Class B]
Invested Amount would be reduced to
a negative number, then the [Class A]
Invested amount will be reduced
(but not by more than the excess, if
any, of the [Class A] Default Amount
for such Monthly Period over the
amount of such reductions in the
[Collateral] Invested Amount [and
the [Class B] Invested Amount] with
respect to such Monthly Period)
(such reduction, a "[Class A]
Charge-Off"). If the [Collateral]
Invested Amount and the [Class B]
Invested Amount are reduced to zero,
then the [Class A]
Certificateholders will bear
directly the credit and other risks
associated with their undivided
interest in the Trust. See
"DESCRIPTION OF THE CERTIFICATES
--Reallocation of Cash Flows; [Class B]
Invested Amount".
[The [Class B] Required Amount means,
with respect to any Distribution
Date, the amount, if any, by which
the sum of (i) current and overdue
[Class B] Monthly Interest, (ii)
current and overdue [Class B]
Additional Interest, (iii) current
and overdue [Class B] Servicing Fee
and (iv) the [Class B] Default
Amount, exceeds [Class B] Available
Funds (the [Class B] Required Amount
together with the [Class A] Required
Amount being the "Required Amount").
If the [Class B] Required Amount is
greater than zero, then Excess
Spread and Excess Finance Charges
allocable to the Series 199[ ]-[ ]
(and not required to pay the [Class
A] Required Amount or reimburse
[Class A] Charge-Offs) will be
applied to fund the deficiency. [If
Excess Spread and Excess Finance
Charges allocable to Series 199[ ]-[
] with respect to such Distribution
Date and not required to pay the
[Class A] Required Amount are less
than the [Class B] Required Amount,
then the amounts, if any, on deposit
in the Cash Collateral Account and
available to make payments with
respect to the [Class B]
Certificates with respect to such
Distribution Date will be withdrawn
and applied to
</TABLE>
S-16
<PAGE>
<TABLE>
<S> <C>
fund the [Class B] Required Amount.] If
[amounts, if any, in deposit in the Cash
Collateral Account and available to make
payments with respect to the [Class B]
Certificates with respect to such
Distribution Date (together with] Excess
Spread and Excess Finance Charges with
respect to such Distribution Date[ )]
are insufficient to fund the remaining
[Class B] Required Amount, then the
[Collateral] Invested Amount, if any,
will be reduced by the amount of such
deficiency (but not more than the [Class
B] Default Amount for such Monthly
Period). If such reduction would cause
the [Collateral] Invested Amount to be
reduced below zero, then the [Class B]
Invested amount will be reduced by the
amount by which the [Collateral]
Invested Amount would have been reduced
below zero (but not by more than the
excess of the [Class B] Default Amount
for such Monthly Period over the
reduction in the [Collateral] Invested
Amount with respect to such Monthly
Period) (such reduction, a "[Class B]
Charge-Off"). In the event of a
reduction of the [Class B] Invested
Amount, the amount of principal and
interest available fund payments with
respect to the [Class B] Certificates
will be decreased.]
[Subordination of the [Class B]
Certificates.......................... The fractional undivided interest in
the Trust represented by the [Class B]
Certificates [and the [Collateral]
Interest] will be subordinated to the
extent necessary to fund payments
with respect to the [Class A]
Certificateholders' Interests until
the final payment of principal is
made in respect of the [Class A]
Certificates. In addition, as more
fully described herein, the [Class B]
Certificateholders' Interest may be
reduced, thereby reducing the amount
of principal and interest payable to
the [Class B] Certificateholders, if
the portion of the Defaulted Amount
allocable to the [Class A]
Certificateholders' Interest with
respect to any Distribution Date
exceeds the amount of Collections of
Finance Charge
</TABLE>
S-17
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<TABLE>
<S> <C>
Receivables and amounts available to
be withdrawn from the Cash
Collateral Account, in respect of
the [Class A] Certificates on such
Distribution Date and applied to
reimburse such Defaulted
Receivables. Furthermore,
collections of Principal Receivables
allocable to the [Class B]
Certificateholders' Interest
("Reallocated Principal
Receivables") with respect to any
Distribution Date may be applied to
cover shortfalls in amounts
available to pay interest due to the
[Class A] Certificateholders, the
[Class A] Servicing Fee and the
portion of the Defaulted Amount
allocable to the [Class A]
Certificateholders' Interest with
respect such Distribution Date. In
the event such Reallocated Principal
Receivables are reallocated to the
[Class A] Certificates, the [Class B]
Invested Amount may be reduced,
thereby reducing the amount of
principal and interest payable to
the [Class B] Certificateholders.]
[Cash Collateral Account............... A cash collateral account (the "Cash
Collateral Account") will be established
in the name of the Trustee for the
benefit of the Certificateholders. The
Cash Collateral Account will be funded
on the Issuance Date in the amount of at
least $[ ] or such higher amount as
is specified by each Rating Agency (the
"Initial Cash Collateral Amount"), [of
which not less than $[ ] the
("Initial Shared Collateral Amount")
will be for the benefit of both the
[Class A] Certificates and the [Class B]
Certificates and the remaining $[ ]
(the "Initial [Class B] Collateral
Amount") will be for the exclusive
benefit of the [Class B] Certificates.]
The Cash Collateral Account will serve
as [additional] Credit Enhancement with
respect the Series 199[ ]-[ ]
Certificates.]
[On each Distribution Date, the
Available Shared Collateral Amount will
be applied to fund the following amounts
in the following priority: [(a)] with
respect the [Class A] Certificates, the
excess,
</TABLE>
S-18
<PAGE>
<TABLE>
<S> <C>
if any, of the [Class A] Required Amount
with respect to such Distribution Date
over the amount of Excess Spread and
Excess Finance Charges allocated to the
Series 199[ ]-[ ] and available to fund
such [Class A] Required amount [and (b)
with respect to the [Class B]
Certificates, the excess, if any, of the
[Class B] Required Amount with respect
to the related Monthly Period over the
amount of Excess Spread and Excess
Finance Charges allocated to Series
199[ ]-[ ] and available to fund such
[Class B] Required Amount].]
[On each Distribution Date, Excess
Spread and Excess Finance Charges
available to Series 199[ ]-[ ] will be
applied to increase the amount on
deposit in the Cash Collateral Account
(to the extent such amount is less than
the Required Cash Collateral Amount). In
addition, if on any Distribution Date
the amount on deposit in the Cash
Collateral Account exceeds the Required
Cash Collateral Amount such excess will
be withdrawn and paid to the Cash
Collateral Depositor for application in
accordance with the [Collateral Loan]
Agreement.]
[On the first Special Payment Date
following an Pay Out Event, the
Available Shared Collateral Amount
(after giving effect to other
withdrawals from the Cash Collateral
Account on such Distribution Date) will
be applied to pay principal of the
[[Class A]] Certificates [and the
remainder of the Available Cash
Collateral Amount will be applied to pay
principal of the [Class B]
Certificates]. Following such
withdrawals from the Cash Collateral
Account on such Special Payment Date,
the Cash Collateral Account will be
terminated and no further deposits to,
or withdrawals from, the Cash Collateral
Account will be made for the benefit of
the Certificate holders.]
</TABLE>
S-19
<PAGE>
<TABLE>
<S> <C>
[The Required Cash Collateral Amount may
be reduced without the consent of the
Certificate holders, if the [Seller]
[Depositor] shall have received written
notice from each Rating Agency that such
reduction will not have a Ratings Effect
and the [Seller] [Depositor] shall have
delivered to the Trustee a certificate
of an authorized officer to the effect
that, based on the facts known to such
officer at such time, in the reasonable
belief of the [Seller] [Depositor], such
reduction will not cause a Pay Out Event
or an event that, after the giving of
notice or the lapse of time, would
constitute a Pay Out Event, to occur
with respect to Series 199[ ]-[ ].]
[Excess Finance Charges................ The Certificates will be included in
a group of Series ("Group [ ]")
which [have been and] will be issued
by the Trust from time to time.
Subject to certain limitations,
Excess Finance Charges, if any, with
respect to a Series included in
Group [ ] will be applied to
cover any shortfalls with respect to
amounts payable from collections of
Finance Charge Receivables allocable
to any other Series in Group [ ].]
[Shared Principal Collections.......... Collections of Principal Receivables
and certain other amounts otherwise
allocable to other Series, to the
extent such collections are not
needed to make payments to or
deposits for the benefit of the
certificateholders of such other
Series, [will] [may] be applied to
cover principal payments due to or
for the benefit of the holders of
the Certificates.]
Rapid Amortization Period;
Principal Payments..................... During the period beginning with the
occurrence of any Pay Out Event and
ending on the earlier of (i) the day
after the Payment Date on which the
Invested Amount has been paid in
full and (ii) the Termination Date
(the "Rapid Amortization
Period"),
</TABLE>
S-20
<PAGE>
<TABLE>
<S> <C>
collections of Principal
Receivables allocable to the
Invested Amount will no longer be
paid from the Trust to the
Collateral Interest Holder or to
Shared Series as described above but
instead will be distributed on each
Payment Date to the
Certificateholders beginning with
the Payment Date following the
commencement of the Rapid
Amortization Period.
[Minimum [Seller's] Percentage......... The Minimum [Seller's] Percentage
applicable to the Certificates is
[ %].]
Record Date............................ The last day of the month preceding
any Distribution Date.
Optional Repurchase.................... The Invested Amount will be subject
to optional purchase by the
[Depositor] [Seller] on any
Distribution Date after the Adjusted
Invested Amount is less than or equal
to [ ]% of the Initial Invested
Amount, unless certain events as
specified in the Agreement have
occurred. The purchase price on the
Distribution Date on which such
purchase occurs will be equal to the
Adjusted Invested Amount plus accrued
and unpaid interest on the
Certificates as described herein.
[Mandatory Prepayment.................. The Certificates will be prepaid, in
part, pro rata on the basis of their
initial principal amounts, on the
Distribution Date on or immediately
following the last day of the Funding
Period in the event that any amount
remains on deposit in the Pre-Funding
Account after giving effect to the
purchase of all Subsequent
Receivables, including any such
purchase on such date (a "Mandatory
Prepayment"). The aggregate
principal amount of Certificates to
be prepaid will be an amount equal to
the Certificates' Pre-Funded
Percentage of the amount then on
deposit in the Pre-Funding Account.]
[Pre-Funding Account................... During the period (the "Funding
Period") from and
</TABLE>
S-21
<PAGE>
<TABLE>
<S> <C>
including the Closing Date until the
earlier of (i) the date on which (a)
the amount on deposit in the
Pre-Funding Account is less that
$[ ], (b) a Payout Event occurs or
(c) certain events of insolvency occur
with respect to the [Depositor] [or]
[Seller] [or] [the Servicer] or (ii)
the close of business on the [ ],
199[ ] Payment Date, the Pre-Funded
Amount will be maintained as an
account in the name of the Trustee
(the "Pre-Funding Account"). The
Pre-Funded Amount will initially
equal approximately $[ ], and
during the Funding Period, will be
reduced by the amount thereof used
to purchase Subsequent Receivables
in accordance with the Agreement and
the amount thereof deposited in the
Reserve Account in connection with
the purchase of such Subsequent
Receivables. The Depositor expects
that the Pre-Funded Amount will be
reduced to less than $[ ] by the
[ ], 199[ ] Distribution Date. Any
Pre-Funded Amount remaining at the
end of the Funding Period will be
payable to the Certificateholders
[pro rata] in proportion to the
respective Pre-Funded Percentage of
each class of the Certificates.]
Final Payment of Principal and
Interest; Termination of Trust......... The interest of the Certificateholders
in the Trust will terminate following
the earlier of (i) the day after the
Payment Date on which the Investor
Amount is paid in full and (ii) [ ],
(the "Expected Termination Date"). All
principal and interest will be due and
payable no later than the Expected ]
Termination Date.
Trustee................................ [Insert information regarding Trustee.]
Tax Considerations..................... In the opinion of Sidley & Austin
("Federal Tax Counsel"), although no
transaction closely comparable to
that contemplated herein has been
the subject of any Treasury
regulation, revenue ruling or
judicial decision, based upon its
analysis of the factors discussed
below, the Seller is properly
treated
</TABLE>
S-22
<PAGE>
<TABLE>
<S> <C>
as the owner of the Receivables
for federal income tax purposes
and accordingly, the
Certificates, when issued, will be
properly characterized for federal
income tax purposes as indebtedness
of the Seller that is secured by the
Receivables. The Seller, by
entering into the Agreement, each
Certificateholder, by the acceptance
of a Certificate, and each
Certificate Owner, by virtue of
accepting a beneficial interest in a
Certificate, will agree to treat the
Certificates (or the beneficial
interests therein) as indebtedness
of the Seller secured by the
Receivables for federal, state and
local income and franchise tax
purposes and for the purposes of any
other tax imposed on or measured by
income. See "Certain Federal Income
Tax Consequences" in the Prospectus
for additional information
concerning the application of
federal income tax laws to the Trust.
ERISA Considerations................... Under the regulations issued by the
Department of Labor, the Trust's
assets would not be deemed "plan
assets" of any employee benefit plan
holding interests in the Certificates
if certain conditions are met, such
that the Certificates would
constitute "publicly-offered
securities," including that interests
in the Certificates be held by at
least 100 persons independent of the
Depositor and each other upon
completion of the public offering
being made hereby. [The Underwriters
expect, although no assurance can be
given, that interests in the
Certificates will be held by at least
100 such persons, and it is
anticipated that the other conditions
of the "publicly-offered security"
exception contained in the
regulations will be met.] If the
Trust's assets were deemed to be
"plan assets" of such a plan, there
is uncertainty as to whether existing
exemptions from the "prohibited
transaction" rules of the Employee
Retirement Income Security Act of
1974, as amended ("ERISA") would
apply to all transactions involving
the Trust's assets. [Accordingly,] [A
fiduciary of] any employee benefit
plan [subject to ERISA or the CODE]
contemplating purchasing interests in
</TABLE>
S-23
<PAGE>
<TABLE>
<S> <C>
Certificates should consult their
counsel before making a purchase.
See "ERISA Considerations" in the
Prospectus.
Certificate Rating...................... It is a condition to the issuance of
the [Class A] Certificates that they
be rated [in the highest rating
category] by a Rating Agency, as
defined herein. [It is a condition
to issuance of the [Class B]
Certificates that they be rated in
[one of the three highest rating
categories] by a Rating Agency as
defined herein.] There is no
assurance that such rating will
continue for any period of time or
that it will not be revised or
withdrawn entirely by such rating
agency, if, in its judgment,
circumstances so warrant. A
revision or withdrawal of such
rating may have an adverse effect on
the market price of the Securities.
A security rating is not a
recommendation to buy, sell or hold
securities.
</TABLE>
S-24
<PAGE>
SPECIAL CONSIDERATIONS
[Limited Liquidity. There is currently no market for the
Certificates. The Underwriters expect to make a market in the Certificates, but
are not obligated to do so. There can be no assurance that a secondary market
will develop or, if it does develop, that such market will provide
Certificateholders with liquidity of investment or that it will continue for the
life of the Certificates.]
[The Receivables and the Pre-Funding Account. On the Closing Date,
the Depositor will transfer to the Trust the approximately $[ ] of Initial
Receivables and the approximately $[ ] Pre-Funded Amount on deposit in the
Pre-Funding Account. If the principal amount of eligible Receivables originated
by [Seller] during the Funding Period is less than the Pre-Funded Amount, the
Depositor will have insufficient Receivables to sell to the Trust on the
Subsequent Transfer Dates, thereby resulting in a prepayment of principal to the
Certificateholders as described in the following paragraph. See "Social,
Economic and Other Factors" below. In addition, any conveyance of Subsequent
Receivables is subject to the satisfaction, on or before the related Subsequent
Transfer Date, of certain selection criteria.
[To the extent that amounts on deposit in the Pre-Funding Account have
not been fully applied to the conveyance of Subsequent Receivables to the Trust
by the end of the Funding Period, the Certificateholders will receive, on the
Distribution Date on or immediately following the last day of the Funding
Period, a prepayment of principal in an amount equal to the applicable Pre-
Funded Percentage, in respect of [a class of] the Certificates, of the Pre-
Funded Amount remaining in the Pre-Funding Account following the purchase of any
Subsequent Receivables on such Payment Date. It is anticipated that the
principal amount of Subsequent Receivables sold to the Trust will not be exactly
equal to the amount on deposit in the Pre-Funding Account and that therefore
there will be at least a nominal amount of principal prepaid to the
Certificateholders.]
[Each Subsequent Receivable must satisfy the eligibility criteria
specified in the Sale and Servicing Agreement at the time of its addition.
However, Subsequent Receivables may have been originated by the Seller at a
later date using credit criteria different from those which were applied to the
Initial Receivables and may be of a different credit quality and seasoning.
Therefore, following the transfer of Subsequent Receivables to the Trust, the
characteristics of the entire Receivables Pool included in the Trust may vary
significantly from those of the Initial Receivables. See "The Receivables"
herein.]
[Social, Economic and Other Factors. The ability of the Trust to
purchase Subsequent Receivables is largely dependent upon a variety of social
and economic factors. Economic factors include interest rates, unemployment
levels, the rate of inflation and consumer perceptions of economic conditions
generally. However, the Depositor is unable to determine and has no basis to
predict whether or to which extent economic or social factors will affect the
availability of Subsequent Receivables.]
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<PAGE>
[Rating of the Certificates. It is a condition to issuance of the
[Class A] Certificates that they be rated in the highest rating category by one
of Moody's Investors Service, Inc. ("Moody's") or by Standard & Poor's Ratings
Group, a division of McGraw-Hill, Inc. ("S&P") (each of S&P and Moody's being
hereinafter referred to as a "Rating Agency"). [It is a condition to the
issuance of the [Class B] Certificates that they be rated [in one of the three
highest rating categories] by at least one Rating Agency.] The rating of the
Certificates is based primarily on the value of the Receivables and the
availability of the Enhancement as support for the Certificates. The ratings of
the Certificates are not a recommendation to purchase, hold or sell
Certificates, and such ratings do not comment as to the marketability of the
Certificates, any market price or suitability for a particular investor. There
is no assurance that any rating will remain in effect for any given period of
time or that any rating will not be lowered or withdrawn entirely by a Rating
Agency, as the case may be, if in its judgment circumstances so warrant.]
[Limited Amounts of Credit Enhancement. Although Credit Enhancement
with respect to the [Class A] Certificates will be provided by the Cash
Collateral Account (up to the Required Shared Collateral Amount) [and, with
respect to the [Class B] Certificates, will be provided by the Cash Collateral
Account,] [and by the subordination in respect of certain payments of the
Collateral Interest to the [Class A] Certificates [and the [Class B]
Certificates]] the amount available thereunder is limited and will be reduced by
payments made pursuant thereto. If the amount available under [the Cash
Collateral Account has been reduced to zero,] [and the] Collateral Invested
Amount has been reduced to zero], then the [Class A] Certificateholders [and
[Class B] Certificateholders] will [each] bear directly the credit and other
risks associated with their respective undivided interests in the Trust.]
[Effect of Subordination of [Class B] Certificates; Principal
Payments. The [Class B]Certificates are subordinated in right of payment of
principal to the [Class A] Certificates. Payments of principal in respect of
the [Class B] Certificates will not commence until after the final principal
payment with respect to the [Class A] Certificates has been made as described
herein. Moreover, the [Class B] Invested Amount may be reduced if the [Class A]
Required Amount for any Monthly Period is greater than zero and is not funded
from Excess Spread and Excess Finance Charges allocated to Series 199[ ]-[ ],
[and] from amounts, if any, on deposit in the Cash Collateral Account, [and]
from reductions in the [Collateral] Invested Amount, if any. To the extent the
[Class B] Invested Amount is reduced, the percentage of collections of Finance
Charge Receivables allocable to the [Class B] Certificateholders' Interest in
future Monthly Periods will be reduced. Moreover, to the extent the amount of
such reduction in the [Class B] Invested Amount is not reimbursed, the amount of
principal and interest distributable to the [Class B] Certificateholders will be
reduced. See "DESCRIPTION OF THE CERTIFICATES -- Allocation Percentages" and
"-- Reallocation of Cash Flows; [Class B] Invested Amount" herein. If the
[Class B] Invested Amount is reduced to zero, then the [Class A]
Certificateholders will bear directly the credit and other risks associated with
their undivided interest in the Trust.]
S-26
<PAGE>
[Discount Option. Pursuant to the Agreement, the Depositor has the
option to designate a fixed percentage of Receivables that otherwise would be
treated as Principal Receivables to be treated as Finance Charge Receivables.
Any such designation would result in an increase in the amount of Finance Charge
Receivables and a slower rate of payment of collections in respect of Principal
Receivables than otherwise would occur. Pursuant to the Agreement, the
Depositor can make such a designation without notice to, or the consent of, the
Certificateholders. The Depositor must provide [ ] days' prior written notice
to [the Servicer,] [the Seller,] [the Trustee], [any provider of Enhancement]
and each Rating Agency of any such designation, and such designation will become
effective only if (i) in the reasonable belief of the Depositor such designation
would not cause a Series 199[ ]-[ ] Pay Out Event to occur or an event which
with notice or the lapse of time or both would constitute a Series 199[ ]-[ ]
Pay Out Event and (ii) each Rating Agency confirms in writing its then current
rating on any outstanding Series.
[Book-Entry Registration. The Certificates initially will be
represented by 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. As a result, unless and until Definitive Certificates are issued,
Certificate Owners will not be recognized by the Trustee as Certificateholders,
as that term is used in the Agreement. Until such time, Certificate Owners will
only be able to exercise the rights of Certificateholders indirectly through
[DTC] [CEDEL] [or] [Euroclear] and [its] [their respective] participating
members.]
MATURITY CONSIDERATIONS
The Agreement and the Series Supplement provide that [Class A]
Certificateholders will not receive payments of principal until the [first
Distribution Date with respect to the Controlled Amortization Period, which is
the [ ] Distribution Date] [[Class A] Expected Final Payment Date,] unless a
Pay Out Event shall occur. [Class A] Certificateholders will receive payments of
principal on each Distribution Date following the Monthly Period in which a Pay
Out Event occurs (each such Distribution Date, a "Special Payment Date") until
the [Class A] Invested Amount has been paid in full or the Termination Date has
occurred. [The [Class B] Certificateholders will not begin to receive payments
of principal until the final principal payment on the [Class A] Certificates has
been made.]
[On each Distribution Date with respect to the [Class A] Accumulation
Period, amounts equal to the lesser of (a) Available Principal Collections for
the related Monthly Period on deposit in the Collection Account, (b) the sum of
the applicable Controlled Accumulation Amount for such Monthly Period and any
applicable Deficit Controlled Accumulation Amount (the "Controlled Deposit
Amount") and (c) the [Class A] Adjusted Invested Amount will be deposited in
the Principal Funding Account until the Principal Funding Account Balance is
equal to the [Class A] Invested Amount. [After the Class A Invested Amount has
been paid in full, on
S-27
<PAGE>
each Distribution Date with respect to the [Class B] Accumulation Period,
amounts equal to the lesser of (a) Available Principal Collections for the
related Monthly Period on deposit in the Collection Account, (b) the applicable
Controlled Deposit Amount and (c) the [Class B] Adjusted Invested Amount will be
deposited in the Principal Funding Account until the Principal Funding Account
Balance equals the [Class B] Invested Amount.] See "DESCRIPTION OF THE
CERTIFICATES -- Principal Payments" for a discussion of circumstances under
which the commencement of the Accumulation Period may be delayed.]
[On each Distribution Date during the Controlled Amortization Period,
the Certificateholders will be entitled to receive monthly payments of
principal, until the Certificates have been paid in full, in an amount equal to
the lesser of (a) Available Principal Collections for the related Monthly Period
on deposit in the Collection Account, (b) the Controlled Distribution Amount,
which is equal to the sum of the Controlled Amortization Amount and any existing
Deficit Controlled Amortization Amount and (c) the Invested Amount.]
[The [Depositor] [Seller] may, at or after the time at which the
[Controlled Amortization Period] [Accumulation Period] commences for Series
199[ ]-[ ], cause the Trust to issue another Series (or some portion thereof,
to the extent that the full principal amount of such other Series is not
otherwise outstanding at such time) as a Paired Series with respect to Series
199[ ]-[ ] to be used to finance the increase in the Seller's Interest caused
by the accumulation of principal in the Principal Funding Account with respect
to Series 199[ ]-[ ]. No assurances can be given as to whether such other
Series will be issued and, if issued, the terms thereof. Because the terms of
the Certificates may vary from the terms of such other series, the Pay Out
Events with respect to such other series may vary from the Pay Out Events with
respect to Series 199[ ]-[ ] and may include Pay Out Events which are unrelated
to the status of [the Seller,] [or] [the Servicer] [or] the Receivables, such as
Pay Out Events related to the continued availability and rating of certain
providers of Enhancement to such other Series. If a Pay Out Event does occur
with respect to any such Paired Series prior to the payment in full of the
Certificates, the final payment of principal to the Certificateholders may be
delayed.]
Should a Pay Out Event occur with respect to the Certificates and the
Rapid Amortization Period commence, (a) [any amount on deposit in the Principal
Funding Account will be paid to the Certificateholders on the first Special
Payment Date, and] the Certificateholders will be entitled to receive Available
Principal Collections on each Distribution Date with respect to such Rapid
Amortization Period [or following the Expected Final Payment Date, as the case
may be,] as described herein until the [Class A] Invested Amount [and [Class B]
Invested Amount] [is] [are] paid in full or until the Termination Date occurs
and (b) any amount on deposit in the Excess Funding Account will be released and
treated as Shared Principal Collections to the extent needed to cover principal
payments due to or for the benefit of any Series entitled to the benefits of
Shared Principal Collections. In addition, on the first Special Payment Date
following the occurrence of an Pay Out Event, after giving effect to any payment
of principal on such date, (a) an amount equal to the lesser of (i) the
Available Shared Collateral Amount (after giving effect
S-28
<PAGE>
to any withdrawal from the Cash Collateral Account on such date of amounts to
fund the [Class A] Required Amount [and the [Class B] Required Amount]) and (ii)
the unpaid principal amount of the [Class A] Certificates (less the Principal
Funding Account Balance allocable to the [Class A] Certificates), will be
withdrawn from the Cash Collateral Account and distributed to the [Class A]
Certificateholders as a payment of principal of the [Class A] Certificates, and
(b) an amount equal to the lesser of (i) the remainder of the Available Cash
Collateral Amount and (ii) the unpaid principal amount of the [Class B]
Certificates [(less the Principal Funding Account Balance, if any, allocable to
the [Class B] Certificates),] will be withdrawn from the Cash Collateral Account
and distributed to the [Class B] Certificateholders as a payment of principal of
the [Class B] Certificates.
The ability of Certificateholders to receive payments of principal [on
the applicable Expected Final Payment Date] [on each Distribution Date during
the Controlled Amortization Period] depends on the payment rates on the
Receivables, the amount of outstanding Receivables, delinquencies, charge-offs
and new borrowings on the Accounts, the potential issuance by the Trust of
additional Series and the availability of Shared Principal Collections. The
amount of outstanding Receivables and the delinquencies, charge-offs and new
borrowings on the Accounts may vary from month to month due to seasonal
variations, the availability of other sources of credit, legal factors, general
economic conditions and spending and borrowing habits of individual
accountholders. Monthly payment rates on the Receivables may vary because,
among other things, accountholders may fail to make a required minimum payment,
may only make payments as low as the minimum required amount or may make
payments as high as the entire outstanding balance. Monthly payment rates may
also vary due to seasonal purchasing and payment habits of accountholders and to
changes in any terms of rebate programs in which accountholders participate.
The Depositor cannot predict, and no assurance can be given, as to the
accountholder monthly payment rates that will actually occur in any future
period, as to the actual rate of payment of principal of the Certificates or
whether the terms of any previously or subsequently issued Series might have an
impact on the amount or timing of any such payment of principal. [The foregoing
factors will affect both the Class A Certificates and the [Class B]
Certificates.]
There can be no assurance that collections of Principal Receivables
with respect to the Trust Portfolio, and thus the rate at which
Certificateholders could expect to receive payments of principal on the
Certificates during the Rapid Amortization Period [or the rate at which the
Principal Funding Account could be funded during the Accumulation Period,] [or
the rate at which payments of principal will be made during the Controlled
Amortization Period,] will be similar to the historical experience set forth in
the "Accountholder Monthly Payment Rates for the Identified Pool" table under
"The Identified Pool" herein. [The Depositor may shorten the [Class A]
Accumulation Period and, in such event, there can be no assurance that there
will be sufficient time to accumulate all amounts necessary to pay the [Class A]
Invested Amount on the [Class A] Expected Final Payment Date.]
S-29
<PAGE>
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 might not
have an impact on the timing or amount of payments received by
Certificateholders. Further, if a Pay Out Event occurs, the average life and
maturity of the [Class A] Certificates [and [Class B] Certificates,
respectively,] could be significantly reduced.
Due to the reasons set forth above, there can be no assurance [that
deposits in the Principal Funding Account will be made in accordance with the
applicable Controlled Accumulation Amount] [that payments of principal will be
made in accordance with the applicable Controlled Amortization Amount] or that
the actual number of months elapsed from the date of issuance of the [Class A]
Certificates [and the [Class B] Certificates] to their respective final
Distribution Dates will equal the expected number of months.
MASTER TRUST CONSIDERATIONS
Impact of Additional Series. The Trust, as a master trust, may issue
additional Series from time to time. While the 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 by, or
consent of, holders of the Certificates of any previously issued Series. Such
terms may include methods for determining applicable investor percentages and
allocating collections, provisions creating different or additional security or
other Series Enhancements, provisions subordinating such Series to another
Series or other Series (if the Supplement relating to such Series so permits) to
such Series, and any other amendment or supplement to the Pooling Agreement
which is made applicable only to such Series. The obligation of the Trustee to
issue any new Series is subject to the following conditions, among others: (a)
the [Seller] [Depositor] shall have received written notice that such issue will
not result in any Rating Agency's reducing or withdrawing its rating of the
Certificates of any outstanding Series (any such reduction or withdrawal is
referred to herein as a "Ratings Effect") and (b) the [Seller] [Depositor] shall
have delivered to the Trustee and certain providers of Series Enhancement a
certificate of an authorized officer to the effect that, based on the facts
known to such officer at the time, in the reasonable belief of the [Seller]
[Depositor], such issuance will not at the time of its occurrence cause a Pay
Out Event or an event that, after the giving of notice or the lapse of time,
would constitute a Pay Out Event, to occur with respect to any Series. There
can be no assurance, however, that the terms of any other Series, including any
Series issued from time to time hereafter, might not have an impact on the
timing or amount of payments received by a Certificateholder.
Impact of Discount Option. Pursuant to the Pooling Agreement, the
[Seller] [Depositor] has the option from time to time to designate a fixed or
variable percentage of Receivables that otherwise would be treated as Principal
Receivables to be treated as Finance Charge Receivables. Any such designation
would result in an increase in the amount of Finance Charge Receivables and a
slower payment rate of collections in respect of Principal Receivables
S-30
<PAGE>
than otherwise would occur. Pursuant to the Pooling Agreement, the [Seller]
[Depositor] can make such a designation without notice to or the consent of
Certificateholders. Thereafter, pursuant to the Pooling Agreement, the [Seller]
[Depositor] may, without notice to or the consent of Certificateholders, reduce
or eliminate the percentage of Receivables subject to such a designation. The
[Seller] [Depositor] must provide 30 days prior written notice to the Servicer,
the Trustee, any provider of Series Enhancement and each Rating Agency of any
such designation or reduction of Principal receivables to be treated as Finance
Charge Receivables, and such designation or reduction will become effective only
if (i) the [Seller] [Depositor] shall have delivered to the Trustee and certain
providers of Series Enhancement a certificate of an authorized officer to the
effect that, based on the facts known to such officer at the time, in the
reasonable belief of the [Seller] [Depositor], such designation or reduction
would not at the time of its occurrence cause a Pay Out Event or an event that,
after the giving of notice or the lapse of time would constitute a Pay Out
Event, to occur with respect to any Series and (ii) the [Seller] [Depositor]
shall have received written notice from each Rating Agency that such designation
or reduction will not have a Ratings Effect and (iii) in the case of a reduction
or withdrawal, the [Seller] [Depositor] shall have delivered to the Trustee a
certificate of an authorized officer to the effect that, in the reasonable
belief of the [Seller] [Depositor], such reduction or withdrawal shall not have
adverse regulatory implications for the [Seller] [Depositor].
Impact of Addition of Trust Assets. The [Seller] [Depositor] expects,
and in some cases will be obligated, to designate Additional Accounts, the
Receivables in which will be conveyed to the Trust. Such Additional Accounts
may include accounts originated using criteria different from those which were
applied to the Accounts previously included in the Trust because such Additional
Accounts were originated at a different date or were part of a portfolio of
accounts which were not part of the Bank One portfolio at the time Accounts were
previously conveyed to the Trust or which were acquired from other institutions.
Moreover, Additional Accounts may or may not be accounts of the same type as
those previously included in the Trust. Consequently, there can be no assurance
that such Additional Accounts will be of the same credit quality as the Accounts
previously included in the Trust. In addition, such Additional Accounts may
consist of accounts which have characteristics different from the
characteristics of Accounts previously included in the Trust, including lower
periodic rate finance charges and other fees and charges, which may have the
effect of reducing the average yield on the portfolio of Accounts included in
the Trust, different payment rates and higher loss or delinquency experience,
which may have the effect of reducing the average yield on the portfolio of
accounts included in the Trust. The designation of Additional Accounts will be
subject to the satisfaction of certain conditions, including that (a) the
[Seller] [Depositor] shall have received written notice from each Rating Agency
that such addition will not have a Ratings Effect and (b) the [Seller]
[Depositor] shall have delivered to the Trustee and certain providers of Series
Enhancement a certificate of an authorized officer to the effect that, based on
the facts known to such officer at the time, in the reasonable belief of the
[Seller] [Depositor], such addition will not at the time of its occurrence cause
a Pay Out Event or an event that, after the giving of notice or the lapse of
time, would
S-31
<PAGE>
constitute a Pay Out Event, to occur with respect to any Series. Although the
addition of Participations will require an amendment to the Pooling Agreement,
no consent of Certificateholders will be required for any such amendment.
THE IDENTIFIED POOL
GENERAL
A pool of [consumer] [corporate] [revolving] [credit] [charge] [debit]
card accounts owned by the Seller was identified (the "Identified Pool"), from
which the Accounts included in the Trust as of the Cut-Off Date (the "Trust
Portfolio") were selected based on the eligibility criteria specified in the
Agreement. Set forth below is certain information with respect to the
Identified Pool. There can be no assurance that the yield, loss and delinquency
experience with respect to the Receivables will be comparable to that set forth
below with respect to the entire Identified Pool.
DELINQUENCY AND LOSS EXPERIENCE
The following tables set forth the delinquency and loss experience for
the Identified Pool for each of the periods shown. Because the Trust Portfolio
is only a portion of the Identified Pool, actual delinquency and loss experience
with respect to the Receivables is expected to be different from that set forth
below for the Identified Pool.
DELINQUENCY AS PERCENTAGE OF THE IDENTIFIED POOL
(Dollars in Thousands)
<TABLE>
<CAPTION>
Year Ended
----------------------------------------------------------
At Month End
[ ] 31, 199[ ] 199[ ] 199[ ] 199[ ]
------------------
Number of
Days
Delinquent Amount Percentage Amount Percentage Amount Percentage Amount Percentage
------ ---------- ------ ---------- ------ ---------- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
30 to 59
Days........
60 to 89
Days........
90 Days or
Greater.....
Totals
</TABLE>
S-32
<PAGE>
LOSS EXPERIENCE FOR THE IDENTIFIED POOL
(Dollars in Thousands)
<TABLE>
<CAPTION>
Three Three
Months Months Year Ended
Ended Ended ----------------------
[ ], 199[ ] [ ], 199[ ] 199[ ] 199[ ] 199[ ]
-------------- -------------- ------ ------ ------
<S> <C> <C> <C> <C> <C>
Average Receivables Outstanding...
Gross Losses......................
Gross Losses as a Percentage of
Average Receivables Outstanding...
Recoveries........................
Net Losses........................
Net Losses as a Percentage of
Average Receivables Outstanding...
</TABLE>
REVENUE EXPERIENCE
The following table sets forth the revenues from the Finance Charges
and Fees billed and Interchange received with respect to the Identified Pool for
each of the periods shown.
REVENUE EXPERIENCE FOR THE IDENTIFIED POOL
(Dollars in Thousands)
<TABLE>
<CAPTION>
Year Ended
----------------------
Three Months
Ended
[ ], 199[ ] 199[ ] 199[ ] 199[ ]
-------------- ------ ------ ------
<S> <C> <C> <C> <C>
Average Receivables Outstanding....
Finance Charges and Fees...........
Yield from Finance Charges and Fees
Interchange........................
Yield from Interchange.............
Yield from Finance Charges,
Fees and Interchange...............
</TABLE>
There can be no assurance that the yield experience with respect to
the Receivables will be comparable to that set forth above for the Identified
Pool. In addition, revenue from the Receivables will depend on the types of
fees and charges assessed on the Accounts, and could be
S-33
<PAGE>
adversely affected by future changes made by the Seller in such fees and charges
or by other factors.
PAYMENT RATES
The following table sets forth the highest and lowest accountholder
monthly payment rates for the Identified Pool during any single month in each of
the periods shown and the average accountholder monthly payment rates for all
months during each of the periods shown, in each case calculated as a percentage
of average monthly account balances during the periods shown. Monthly payment
rates shown in the table are based on amounts which would be payments of
Principal Receivables and Finance Charge Receivables with respect to the
Accounts.
ACCOUNTHOLDER MONTHLY PAYMENT RATES
FOR THE IDENTIFIED POOL
<TABLE>
<CAPTION>
Year Ended
----------------------
Three Months
Ended
[ ], 199[ ] 199[ ] 199[ ] 199[ ]
-------------- ------ ------ ------
<S> <C> <C> <C> <C>
Lowest........
Highest.......
Average.......
</TABLE>
THE RECEIVABLES
The aggregate amount of Receivables in the Accounts, as of [ ],
19[ ] was $[ ] consisting of $[ ] of Principal Receivables and $[ ] of
Finance Charge Receivables. The Accounts had an average balance of $[ ] and
an average credit limit of $[ ]. The percentage of the aggregate total
Receivables balance to the aggregate total credit limit was [ ]%. As of
[ ], 19[ ] all of the Accounts in the Trust Portfolio were [VISA/1/]
[MasterCard/1/] [private label] [other] credit card accounts, of which [ ]%
were standard accounts and [ ]% were premium accounts.
- ---------------
/1/ VISA and MasterCard are registered trademarks of VISA USA, Inc. and
MasterCard International Incorporated, respectively.
S-34
<PAGE>
The following tables summarize the Trust Portfolio by various criteria
as of [ ], 19[ ]. References to "Receivables Outstanding" in the following
tables include both Finance Charge Receivables and Principal Receivables.
Because the future composition of the Trust Portfolio may change over time,
these tables are not necessarily indicative of the composition of the Trust
Portfolio at any subsequent time.
COMPOSITION BY ACCOUNT BALANCE
TRUST PORTFOLIO
(as of [ ], 19[ ])
(Dollars in Thousands)
<TABLE>
<CAPTION>
Percentage
Percentage of of Total
Number of Total Number of Receivables Receivables
Account Balance Range Accounts Accounts Outstanding Outstanding
--------------------- --------- --------------- ----------- -----------
<S> <C> <C> <C> <C>
Credit Balance..................................
No Balance......................................
More than $0 and less than or equal to $1,500...
$1500.01 -- $5,000..............................
$5,000 -- $10,000...............................
Over $10,000....................................
</TABLE>
COMPOSITION BY CREDIT LIMIT
TRUST PORTFOLIO
(as of [ ], 19[ ])
(Dollars in Thousands)
<TABLE>
<CAPTION>
Percentage
Percentage of of Total
Number of Total Number of Receivables Receivables
Credit Limit Range Accounts Accounts Outstanding Outstanding
------------------ --------- --------------- ----------- -----------
<S> <C> <C> <C> <C>
Less than or equal to $1,500.00.................
$1,500.01 -- $5,000.00..........................
$5,000.01 -- $10,000.00.........................
Over $10,000.00.................................
Total........................................
</TABLE>
S-35
<PAGE>
COMPOSITION BY PAYMENT STATUS
TRUST PORTFOLIO
(as of [ ], 19[ ])
(Dollars in Thousands)
<TABLE>
<CAPTION>
Percentage
Percentage of of Total
Number of Total Number of Receivables Receivables
Payment Status Accounts Accounts Outstanding Outstanding
-------------- --------- --------------- ----------- -----------
<S> <C> <C> <C> <C>
Current to 29 days..............................
Past due 30 - 59 days...........................
Past due 60 - 89 days...........................
Past due 90+ days...............................
Total........................................
</TABLE>
COMPOSITION BY ACCOUNT AGE
TRUST PORTFOLIO
(as of [ ], 19[ ])
(Dollars in Thousands)
<TABLE>
<CAPTION>
Percentage
Percentage of of Total
Number of Total Number of Receivables Receivables
Account Age Accounts Accounts Outstanding Outstanding
----------- --------- --------------- ----------- -----------
<S> <C> <C> <C> <C>
Not more than 6 months..........................
Over 6 months to 12 months......................
Over 1 year to 2 years..........................
Over 2 years to 3 years.........................
Over 3 years to 4 years.........................
Over 4 years....................................
Total
</TABLE>
S-36
<PAGE>
COMPOSITION OF ACCOUNTS BY ACCOUNTHOLDER BILLING ADDRESS
TRUST PORTFOLIO
(as of [ ], 19[ ])
(Dollars in Thousands)
<TABLE>
<CAPTION>
Percentage
Percentage of of Total
Number of Total Number of Receivables Receivables
Location Accounts Accounts Outstanding Outstanding
-------- --------- --------------- ----------- -----------
<S> <C> <C> <C> <C>
Alaska.........................................
Arizona........................................
Arkansas.......................................
California.....................................
Colorado.......................................
Connecticut....................................
Delaware.......................................
District of Columbia...........................
Florida........................................
Georgia........................................
Hawaii.........................................
Idaho..........................................
Illinois.......................................
Indiana........................................
Iowa...........................................
Kansas.........................................
Kentucky.......................................
Louisiana......................................
Maine..........................................
Maryland.......................................
Massachusetts..................................
Michigan.......................................
Minnesota......................................
Mississippi....................................
Missouri.......................................
Montana........................................
Nebraska.......................................
Nevada.........................................
New Hampshire..................................
New Jersey.....................................
New Mexico.....................................
New York.......................................
North Carolina.................................
North Dakota...................................
Ohio...........................................
Oklahoma.......................................
Oregon.........................................
Pennsylvania...................................
Rhode Island...................................
South Carolina.................................
South Dakota...................................
Tennessee......................................
Texas..........................................
Utah...........................................
Vermont........................................
Virginia.......................................
Washington.....................................
West Virginia..................................
Alabama........................................
Wyoming........................................
Other..........................................
</TABLE>
S-37
<PAGE>
USE OF PROCEEDS
The net proceeds from the sale of the Certificates will be paid to the
Depositor. The Depositor will use such proceeds to pay the Seller the purchase
price of the Receivables [and the Seller will use such proceeds for general
corporate purposes].
THE SELLER
[Insert description of the Seller.]
[THE SERVICER]
[Insert description of the Servicer, if different from the Seller.]
DESCRIPTION OF THE CERTIFICATES
The Certificates will be issued pursuant to the Agreement and the
Series Supplement. The following summary describes certain terms applicable to
the Certificates. Reference should be made to the Prospectus for additional
information concerning the Certificates and the Agreement.
INTEREST PAYMENTS
Interest on the [Class A] Certificates [and the [Class B] Certificates]
will accrue from the [Issuance Date] [Closing Date] on the [Class A] Invested
Amount [and [Class B] Invested Amount, respectively,] at the [Class A]
Certificate Rate [and [Class B] Certificate Rate, respectively]. Interest
will be distributed on [ ] [and on the [ ] day of each Interest Period]
[and on each Interest Payment Date thereafter] (or if any such day is not a
business day, the next succeeding business day), commencing on the [ ],
19[ ] Distribution Date, to Certificateholders in whose names the
Certificates were registered at the close of business on the last day of the
calandar month preceding the date of such payment (a "Record Date"). Interest
for any Interest Payment Date or Special Payment Date will accrue from and
including the preceding Interest Payment Date or Special Payment Date (or in the
case of the first Interest Payment Date, from and including the [Issuance Date]
[Closing Date]) to but excluding such Interest Payment Date or Special Payment
Date.
Interest payments or deposits with respect to the [Class A]
Certificates for each Distribution Date will be calculated on the [Class A]
Invested Amount as of the preceding Record
S-38
<PAGE>
Date (or in the case of the initial Distribution Date, on the initial [Class A]
Invested Amount) based upon the [Class A] Certificate Rate. Interest payments
or deposits with respect to each Distribution Date will be calculated on the
basis of [the actual number of days in the period from and including the
preceding Distribution Date (or in the case of the initial Distribution Date the
Closing Date) to but excluding such Distribution Date and a 360-day year] [a
360-day year of twelve 30-day months]. On each Distribution Date, [Class A]
Monthly Interest and [Class A] Monthly Interest previously due but not deposited
in the Interest Funding Account (as defined below) or distributed in respect of
[Class A] Certificates will be (i) paid to [Class A] Certificateholders from
[Class A] Available Funds if such Distribution Date is an Interest Payment Date
or Special Payment Date, or (ii) deposited in an Eligible Deposit Account in the
name of the Trustee and for the benefit of the Certificateholders (the "Interest
Funding Account"), if such Distribution Date is not an Interest Payment Date or
Special Payment Date. To the extent [Class A] Available Funds allocated to the
[Class A] Certificateholders' Interest for such Monthly Period are insufficient
to pay such interest, Excess Spread and Excess Finance Charges allocated to
Series 199[ ]-[ ], amounts, if any, on deposit in the Cash Collateral Account up
to the Available Shared Collateral Amount and Reallocated Principal Receivables
will be used to make such payments.
"[Class A] Available Funds" means, with respect to any Monthly Period,
an amount equal to the sum of (i) the [Class A] Floating Percentage of
collections of Finance Charge Receivables allocated to the Certificates with
respect to such Monthly Period (including any investment earnings and certain
other amounts that are to be treated as collections of Finance Charge
Receivables in accordance with the Agreement and the Series Supplement, but
excluding the portion of collections of Finance Charge Receivables attributable
to Interchange that is allocable to Servicer Interchange); (ii) [if such Monthly
Period relates to a Distribution Date that occurs prior to the [Class B]
Principal Commencement Date,] the Principal Funding Investment Proceeds, if any,
with respect to the related Distribution Date; [and] (iii) amounts, if any, to
be withdrawn from the Reserve Account which are required to be included in
[Class A] Available Funds pursuant to the Series Supplement with respect to such
Distribution Date; [and (iv) Excess Spread, if any, for such Monthly Period].
[Interest payments on the [Class B] Certificates for each Payment Date
will be calculated on the [Class B] Invested Amount as of the preceding Record
Date (or in the case of the initial Interest Payment Date, on the initial
[Class B] Invested Amount) based upon the [Class B] Certificate Rate.
Interest will be calculated on the basis of [the actual number of days in the
period from and including the preceding Distribution Date (or in the case of the
initial Distribution Date the Closing Date) to but excluding such Distribution
Date and a 360-day year] [a 360-day year of twelve 30-day months]. On each
Distribution Date, [Class B] Monthly Interest and [Class B] Monthly Interest
previously due but not distributed to [Class B] Certificateholders will be paid
from [Class B] Available Funds for such Distribution Date and, if necessary,
from Excess Spread and Excess Finance Charges allocated to Series 199[ ]-[ ] and
amounts, if any, on deposit in the Cash Collateral Account up to the Available
Cash Collateral Amount.
S-39
<PAGE>
["[Class B] Available Funds" means, with respect to any Monthly
Period, an amount equal to the sum of (i) the [Class B] Floating Percentage of
collections of Finance Charge Receivables allocated to the Certificates with
respect to such Monthly Period (including any investment earnings and certain
other amounts that are to be treated as collections of Finance Charge
Receivables in accordance with the Agreement, but excluding the portion of
collections of Finance Charge Receivables attributable to Interchange that is
allocable to Servicer Interchange); (ii) if such Monthly Period relates to a
Distribution Date that occurs on or after the [Class B] Principal Commencement
Date, the Principal Funding Investment Proceeds, if any, with respect to the
related Distribution Date; and (iii) amounts, if any, to be withdrawn from the
Reserve Account which are required to be included in [Class B] Available Funds
pursuant to the Series Supplement with respect to such Distribution Date; [and
(iv) Excess Spread, if any, for such Monthly Period].]
PRINCIPAL PAYMENTS
During the Revolving Period (which begins on the Cut-Off Date and ends
on the day before the commencement of the [Controlled Amortization Period]
[Accumulation Period] or, if earlier, the Rapid Amortization Period), no
principal payments will be made to Certificateholders.
[On each Distribution Date during the Revolving Period, unless a
reduction in the Required Collateral Amount has occurred, collections of
Principal Receivables allocable to the Certificateholders' Interest and the
Collateral Indebtedness Interest will, subject to certain limitations, including
the allocation of any Reallocated Principal Collections with respect to the
related Monthly Period to pay the Required Amount, be paid to the Seller to
purchase additional Receivables in order to maintain the Invested Amount, and if
necessary, be treated as Shared Principal Collections. If a reduction in the
Required Collateral Amount has occurred, collections of Principal Receivables
allocable to the Collateral Indebtedness Amount will be applied in accordance
with the Collateral Agreement to reduce the Collateral Indebtedness Amount to
the Required Collateral Amount.]
[During the Accumulation Period (on or prior to the respective
Expected Final Payment Dates), principal will be deposited in the Principal
Funding Account as described below and on the [Class A] Expected Final Payment
Date will be distributed to [Class A] Certificateholders up to the [Class A]
Invested Amount [and then to [Class B] Certificateholders on the [Class B]
Expected Final Payment Date up to the [Class B] Invested Amount]. During the
Rapid Amortization Period, which will begin upon the occurrence of a Pay Out
Event, and until the Termination Date occurs, principal will be paid [first] to
the [Class A] Certificateholders until the [Class A] Invested Amount has been
paid in full[, and then to the [Class B] Certificateholders until the [Class B]
Invested Amount has been paid in full].]
S-40
<PAGE>
[During the Controlled Amortization Period, which is scheduled to
begin on [ ], 199[ ], and during the Rapid Amortization Period, which will
begin upon the occurrence of a Pay Out Event, and until the Termination Date,
principal will be paid to the Certificateholders on each Distribution Date until
the Invested Amount has been paid in full.]
[On each Distribution Date during the Controlled Amortization Period
unless an Rapid Amortization Period commences, the Certificateholders will be
entitled to receive [for each related Monthly Period since the previous Interest
Payment Date] the lesser of (a) collections of Principal Receivables received
during each such Period allocated to the Series 199[ ]-[ ] Certificates [Shares
Principal Collections allocated Series 199[ ]-[ ]] [and] [Miscellaneous Payments
allocated to Series 199[ ]-[ ]] [other amounts].]
[On each Distribution Date with respect to the [Class A] Accumulation
Period, amounts equal to the least of (a) Available Investor Principal
Collections for the related Distribution Date on deposit in the Collection
Account, (b) the applicable Controlled Deposit Amount for such Distribution Date
and (c) the [Class A] Adjusted Invested Amount, will be deposited in the
Principal Funding Account until the Principal Funding Account Balance is equal
to the [Class A] Invested Amount. Amounts on deposit in the Principal Funding
Account will be paid to the [Class A] Certificateholders on the [Class A]
Expected Final Payment Date. [After the Class A Invested Amount has been paid in
full, on each Distribution Date with respect to the [Class B] Accumulation
Period, an amount equal to the least of (a) Available Investor Principal
Collections for the related Distribution Date on deposit in the Collection
Account (minus the portion of such Available Investor Principal Collections
applied to Class A Monthly Principal on such Distribution Date), (b) the
applicable Controlled Deposit Amount for such Monthly Period and (c) the [Class
B] Adjusted Invested Amount will be deposited in the Principal Funding Account
until the Principal Funding Account Balance equals the [Class B] Invested
Amount. Amounts on deposit in the Principal Funding Account in respect of the
[Class B] Certificates will be paid to the [Class B] Certificateholders on the
[Class B] Expected Final Payment Date.]
[If a Pay Out Event occurs with respect to Series 199[ ]-[ ] during
the Accumulation Period, the Rapid Amortization Period will commence and any
amount on deposit in the Principal Funding Account will be paid [first] to the
[Class A] Certificateholders on the first Special Payment Date [and then, to the
extent the Class A Invested Amount is paid in full, to the [Class B]
Certificateholders]. If, on an Expected Final Payment Date, monies on deposit
in the Principal Funding Account are insufficient to pay the scheduled principal
amount, a Pay Out Event will occur and the Rapid Amortization Period will
commence. [After payment in full of the Class A Invested Amount, the [Class B]
Certificateholders will be entitled to receive an amount equal to the [Class B]
Invested Amount.]
"Available Principal Collections" means, with respect to any Period,
an amount equal to the [sum of (a) (i)] an amount equal to the Principal
Allocation Percentage of all collections of Principal Receivables received
during such Monthly Period (minus the amount of
S-41
<PAGE>
Reallocated Principal Collections with respect to such Monthly Period used to
fund the [Class A] Required Amount) [plus (b) the amount of Miscellaneous
Payments, if any, for such Monthly Period allocated to Series 199[ ]-[ ],] [plus
(c) any Shared Principal Collections with respect to other Series that are
allocated to Series 199[ ]-[ ],] [plus (d) any other amounts which pursuant to
the Series Supplement are to be treated as Available Investor Principal
Collections with respect to the related Distribution Date].
[The Accumulation Period is scheduled to commence at the close of
business on [ ]; however, the [Depositor] [Seller] may, upon notice to [the
Trustee,] [the Seller,] [the Servicer,] [the Depositor,] [each Rating Agency]
[and the Cash Collateral Holder] elect to postpone the commencement of the
Accumulation Period, and extend the length of the Revolving Period. The
Depositor may make such election only if the Accumulation Period Length
(determined as described below) is less than [ ] [twelve months]. On each
Determination Date until the Accumulation Period begins, the [Depositor]
[Seller] [Servicer] will determine the "Accumulation Period Length", which is
the number of months expected to be required to fully fund the Principal Funding
Account no later than the Expected Final Payment Date, based on (i) the expected
Monthly Period collections of Principal Receivables expected to be distributable
to the Certificateholders of all Series (excluding certain other Series),
assuming a principal payment rate no greater than the lowest Monthly Principal
payment rate on the Receivables for the preceding twelve months and (ii) the
amount of principal expected to be distributable to Certificateholders of all
Series (excluding certain other Series) which are not expected to be in their
revolving period during the Accumulation Period. If the Accumulation Period
Length is less than [ ] [twelve] months, the [Depositor] [Seller] may, at its
option, postpone the commencement of the Accumulation Period such that the
number of months included in the Accumulation Period will be equal to or exceed
the Accumulation Period Length. The effect of the foregoing calculation is to
permit the reduction of the length of the Accumulation Period based on the
invested amounts of certain other Series which are expected to be in their
revolving periods during the Accumulation Period or on increases in the
principal payment rate occurring after the Series Issuance Date. The
[Depositor] [Seller] may not postpone or further postpone the commencement date
of the Accumulation Period after a Pay Out Event (as defined with respect to
each other outstanding Series) shall have occurred and is continuing with
respect to any other outstanding Series. The length of the Accumulation Period
will not be less than one month. If the commencement of the Accumulation Period
is delayed in accordance with the foregoing, and if a Pay Out Event occurs after
the date originally scheduled as the commencement of the Accumulation Period,
then it is probable that the Certificateholders would receive some of their
principal later than if the Accumulation Period had not been delayed.]
On each Distribution Date with respect to the Rapid Amortization
Period until the [Class A] Invested Amount has been paid in full or the
Termination Date occurs, the [Class A] Certificateholders will be entitled to
receive Available Investor Principal Collections in an amount up to the [Class
A] Invested Amount. [After payment in full of the Class A Invested Amount, the
[Class B] Certificateholders will be entitled to receive on each Distribution
Date, Available
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Principal Collections until the earlier of the date on which the [Class B]
Invested Amount is paid in full or the Termination Date.] In addition, on the
first Special Payment Date following the occurrence of a Pay Out Event, after
giving effect to any payment of principal on such date, principal payments will
be made to the [Class A] Certificateholders [and the [Class B]
Certificateholders] from amounts on deposit in the Cash Collateral Account.
[On each Distribution Date commencing with the [Class B] Principal
Commencement Date, unless a Pay Out Event has occurred, a withdrawal will be
made from the Cash Collateral Account to pay principal with respect to the
[Class B] Certificates to the extent that the [Class B] Initial Invested Amount
minus the sum of the aggregate amount of principal payments previously
distributed to [Class B] Certificateholders or deposited in the Principal
Funding Account in respect of the [Class B] Certificates exceeds the [Class B]
Invested Amount on the last day of the related Monthly Period (determined after
giving effect to any change made to the [Class B] Invested Amount as a result of
unreimbursed charge-offs on the following Distribution Date).]
[During the Rapid Amortization Period, collections of Principal
Receivables allocable to the Collateral Indebtedness will be deposited in the
Cash Collateral Account. Amounts will be retained in the Cash Collateral Account
at its required level and be made available to cover shortfalls with respect to
the Certificates. [In addition, on the first Special Payment Date following the
occurrence of an Pay Out Event, after giving effect to any payment of principal
on such date as described under "Application of Collection Payments of
Principal," principal payments will be made to the Certificateholders from
amounts or deposit in the Cash Collateral Account as described under "Cash
Collateral Account" below.]]
[SUBORDINATION OF THE [CLASS B] CERTIFICATES]
[The [Class B] Certificateholders' Interest will be subordinated
(other than with respect to the Initial [Class B] Collateral Amount) to the
extent necessary to fund certain payments with respect to the Class A
Certificates. Certain principal payments otherwise allocable to the [Class B]
Certificateholders may be reallocated to the Class A Certificateholders and the
[Class B] Invested Amount may be decreased. To the extent the [Class B]
Invested Amount is reduced, the percentage of collections of Finance Charge
Receivables allocated to the [Class B] Certificateholders in subsequent Monthly
Periods will be reduced. Moreover, to the extent the amount of such reduction
in the [Class B] Invested Amount is not reimbursed, the amount of principal and
interest distributable to the [Class B] Certificateholders will be reduced.]
ALLOCATION PERCENTAGES
Pursuant to the Agreement, the [Seller] [Servicer] will allocate among
the Certificateholders' Interest, the certificateholders' interest for all other
Series of certificates issued and outstanding and the Seller's Interest [and the
Collateral Interest], all collections of Finance
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Charge Receivables and Principal Receivables and the Defaulted Amount with
respect to each Monthly Period.
Collection of Finance Charge Receivables and the Defaulted Amount with
respect to any Monthly Period will be allocated to Series 199[ ]-[ ] based on
the Floating Allocation Percentage. The "Floating Allocation Percentage" means,
with respect to any Monthly Period, the percentage equivalent (which percentage
shall never exceed 100%) of a fraction, the numerator of which is the sum of the
Adjusted Invested Amount and the Collateral Invested Amount, if any, as of the
last day of the preceding Monthly Period (or with respect to the first Monthly
Period, the Initial Invested Amount as of the Issuance Date) and the denominator
of which is the sum of the total amount of the Principal Receivables in the
Trust as of such day (or with respect to the first Monthly Period, the total
amount of Principal Receivables in the Trust on the Cut-Off Date) and the
principal amount on deposit in the Excess Funding Account as of such day. [Such
amounts so allocated will be further allocated between the [Class A]
Certificateholders and the [Class B] Certificateholders in accordance with the
[Class A] Floating Percentage and the [Class B] Floating Percentage,
respectively. The "[Class A] Floating Percentage" 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 [Class A] Adjusted
Investment Amount 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 Issuance
Date) and the denominator of which is equal to the Adjusted Invested Amount as
of the close of business on such day (or with respect to the first Monthly
Period, the Initial Invested Amount). The "[Class B] Floating Percentage"
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 [Class B] Adjusted Invested Amount as of the close of business on
such day (or with respect to the first Monthly Period, the Initial Invested
Amount).]
Collections of Principal Receivables will be allocated to Series
199[ ]-[ ] based on the Principal Allocation Percentage. The "Principal
Allocation Percentage" means, with respect to any Monthly Period, the percentage
equivalent (which percentage shall never exceed 100%) of a fraction, the
numerator of which is (a) during the Revolving Period, the Invested Amount as of
the last day of the immediately preceding Monthly Period (or, in the case of the
first Monthly Period the Issuance Date) and (b) during the [Controlled
Amortization Period] [Accumulation Period] or the Rapid Amortization Period, the
Invested Amount as of the last day of the Revolving Period, and the denominator
of which is the greater of (i) the sum of the total amount of Principal
Receivables in the Trust as of the last day of the immediately preceding Monthly
Period and the principal amount on deposit in the Excess Funding Account as of
such last day (or, in the case of the first Monthly Period, the Cut-Off Date)
and (ii) the sum of the numerators used to calculate the principal allocation
percentages for all Series outstanding as of the date as to which such
determination is being made; provided, however, that because the Certificates
offered hereby are subject to being paired with a future Series, if a Pay Out
Event occurs with respect to such a paired Series during the [Controlled
Amortization Period] [Accumulation Period] with respect to
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Series 199[ ]-[ ], [the Depositor] [the Seller] [the Servicer] may, by written
notice delivered to the [the Trustee] [and] [the Seller] [and] [the Servicer],
designate a different numerator for the foregoing fraction, provided that such
numerator is not less than the Adjusted Invested Amount as of the last day of
the revolving period for such paired Series and [the Depositor] [the Seller]
[the Servicer] shall have received written notice from each Rating Agency that
such designation will not have a Ratings Effect, and [the Depositor] [the
Seller] [the Servicer] shall have delivered to the Trustee a certificate of an
authorized officer to the effect that, based on the facts known to such officer
at the time, in the reasonable belief of [the Depositor] [the Seller] [the
Servicer], such designation will not cause a Pay Out Event or an event that,
after the giving of notice or the lapse of time, would constitute a Pay Out
Event, to occur with respect to Series 199[ ]-[ ].
[Such amounts so allocated to the Certificateholders will be further
allocated between the [Class A] Certificateholders and the [Class B]
Certificateholders based on the [Class A] Principal Percentage and the [Class B]
Principal Percentage, respectively. The "[Class A] Principal Percentage" means,
with respect to any Monthly Period (a) during the Revolving Period, the
percentage equivalent (which shall never exceed 100%) of a fraction, the
numerator of which is equal to the [Class A] Invested Amount as of the last day
of the immediately preceding Monthly Period (or, in the case of the first
Monthly Period, the [Class A] Initial Invested Amount), and the denominator of
which is equal to the Invested Amount as of such day, (or, in the case of the
first Monthly Period, the Initial Invested Amount) and (b) during the
[Controlled Amortization Period] [Accumulation Period] or the Rapid Amortization
Period, the percentage equivalent (which shall never exceed 100%) of a fraction,
the numerator of which is the [Class A] Invested Amount as of the last day of
the Revolving Period, and the denominator of which is the Invested Amount as of
such last day. The "[Class B] Principal Percentage" means, with respect to any
Monthly Period, (i) during the Revolving Period, the percentage equivalent
(which percentage shall never exceed 100%) of a fraction, the numerator of which
is the [Class B] Invested Amount as of the last day of the immediately preceding
Monthly Period (or, in the case of the first Monthly Period, the [Class B]
Initial Invested Amount) and the denominator of which is the Invested Amount as
of such day (or, in the case of the first Monthly Period, the Initial Invested
Amount) and (ii) during the [Controlled Amortization Period] [Accumulation
Period] or the Rapid Amortization Period, the percentage equivalent (which
percentage shall never exceed 100%) of a fraction, the numerator of which is the
[Class B] Invested Amount as of the last day of the Revolving Period, and the
denominator of which is the Invested Amount as of such last day.]
As used herein, the following terms have the meanings indicated:
"[Class A] Invested Amount" for any date means an amount equal to (i)
the [Class A] Initial Invested Amount, minus (ii) the aggregate amount of
-----
principal payments made to the [Class A] Certificateholders on or prior to such
date and minus (iii) the excess, if any, of the aggregate amount of [Class A]
-----
Investor Charge-Offs for all prior Distribution Dates over the
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<PAGE>
aggregate amount of any reimbursements of [Class A] Investor Charge-Offs for all
Distribution Dates prior to such date.
["[Class B] Invested Amount" for any date means an amount equal to (i)
the Initial [Class B] Invested Amount, minus (ii) the aggregate amount of
-----
principal payments made to [Class B] Certificateholders on or prior to such date
(other than principal payments made from the proceeds of amounts received from
the Cash Collateral Account for the purpose of reimbursing previous reductions
in the [Class B] Invested Amount), minus (iii) the excess, if any, of the
-----
aggregate amount of [Class B] Investor Charge-Offs for all prior Distribution
Dates over the aggregate amount of any reimbursement of [Class B] Investor
Charge-Offs for all Distribution Dates preceding such date, minus (iv) the
-----
amount of Reallocated Principal Receivables for all prior Distribution Dates
which have been used to fund the [Class A] Required Amount with respect to such
Distribution Dates (excluding any Reallocated Principal Receivables that have
resulted in a reduction of the Collateral Invested Amount), minus (v) an amount
-----
equal to the amount by which the [Class B] Invested Amount has been reduced to
fund the [Class A] Default Amount on all prior Distribution Dates as described
under "[Class A] Investor Charge-Offs" and plus (vi) the amount of Excess Spread
----
and Excess Finance Charges allocated to Series 199[ ]-[ ] and available on all
prior Distribution Dates for the purpose of reimbursing amounts deducted
pursuant to the foregoing clauses (iii), (iv) and (v).]
"[Class A] Adjusted Invested Amount", for any date of determination,
means an amount equal to the then current [Class A] Invested Amount, minus the
-----
funds on deposit in the Principal Funding Account of such date.
["[Class B] Adjusted Invested Amount", for any date of determination,
means (a) if such date occurs prior to the [Class B] Principal Commencement
Date, an amount equal to the [Class B] Invested Amount and (b) if such date
occurs on or after the [Class B] Principal Commencement Date, an amount equal to
the [Class B] Invested Amount minus the funds on deposit in the Principal
-----
Funding Account on such date.]
["Collateral Indebtedness Amount" means an amount equal to (a) the
initial Collateral Indebtedness Amount, minus (b) the aggregate amount of
deposits made to the Cash Collateral Account from Principal Collections, minus
(c) the aggregate amount of Reallocated Principal Collections allocable to the
Collateral Indebtedness Amount for all prior Distribution Dates which have been
used to fund the Required Amount, minus (d) an amount equal to the aggregate
amount by which the Collateral Indebtedness Amount has been reduced to fund the
Investor Default Amount on all prior Distribution Dates as described under "--
Defaulted Receivables; Investor Charge-Offs", minus (e) an amount equal to the
product of the Collateral Floating Percentage and the Investor Default Amount
(the "Collateral Defaulted Amount") with respect to any Distribution Date that
is not funded out of Available Funds [and Excess Finance Charges allocated to
Series 199[ ]-[ ] and available for such purpose on such Distribution
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<PAGE>
Date], and plus (f) the aggregate amount of Available Funds [and Excess Finance
Charges] allocated and available to reimburse amounts deducted pursuant to the
foregoing clauses (c), (d) and (e) provided, however, that the Collateral
Indebtedness Amount may not be reduced below zero.]
["Collateral Invested Amount" means for any date, an amount equal to
(a) the amount withdrawn from the Cash Collateral Account and applied to the
payment of principal of the Certificates on the first Special Payment Date
following an Pay Out Event, minus (b) the aggregate amount of principal payments
made to the Collateral Interest Holder prior to such date minus (c) the amount
by which the Collateral Invested Amount has been reduced to fund the [Class A]
Default Amount [and the [Class B] Default Amount] on all prior Distribution
Dates as described below, minus (d) the amount by which the Collateral Invested
Amount has been reduced by Reallocated Principal Receivables applied to
reimburse the Required Amount and plus (e) the aggregate amount of Excess Spread
and Excess Finance Charges allocated to Series 199[ ]-[ ] and available on all
prior Distribution Dates for the purpose of reimbursing amounts deducted
pursuant to the foregoing clauses (c) and (d). In the absence of the occurrence
of a Pay Out Event and a related withdrawal from the Cash Collateral Account to
pay principal of the Certificates, the Collateral Invested Amount will be zero.]
["Invested Amount", for any date, means an amount equal to the sum of
the [Class A] Invested Amount and the [Class B] Invested Amount] [and the
Collateral Invested Amount].]
[PRINCIPAL FUNDING ACCOUNT]
[The [Seller] [Servicer] [Depositor] will establish and maintain in
the name of the Trustee, on behalf of the Trust, the Principal Funding Account,
as an Eligible Account held for the benefit of the Certificateholders. During
the Accumulation Period, the Servicer will transfer collections in respect of
Principal Receivables, Shared Principal Collections allocated to Series 199[ ]-
[ ], [Miscellaneous Payments allocated to Series 199[ ]-[ ]] and other amounts
described herein to be treated in the same manner as collections of Principal
Receivables from the Collection Account to the Principal Funding Account.
[Unless a Pay Out Event has occurred with respect to the Certificates,
all amounts on deposit in the Principal Funding Account (the "Principal Funding
Account Balance") on any Distribution Date (after giving effect to any deposits
to, or withdrawals from the Principal Funding Account to be made on such
Distribution Date) will be invested until the following Distribution Date by the
Trustee at the direction of [the Seller] [the Servicer] [the Depositor] in
Eligible Investments. On each Distribution Date with respect to the
Accumulation Period [(on or prior to the [Class B] Expected Final Payment Date)]
the interest and other investment income (net of investment expenses and losses)
earned on such investments (the "Principal Funding Investment Proceeds") will be
withdrawn from the Principal Funding Account and will be treated as a portion of
[Class A] Available Funds, [prior to the [Class B] Principal Commencement Date
and,
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<PAGE>
thereafter, [Class B] Available Funds]. If such investments with respect to any
such Distribution Date yield less than the applicable Certificate Rate, the
Principal Funding Investment Proceeds with respect to such Distribution Date
will be less than the Covered Amount for such following Distribution Date. It
is intended that any such shortfall will be funded from [Class A] Available
Funds [or [Class B] Available Funds, as the case may be] (including a withdrawal
from the Reserve Account, if necessary) [or a withdrawal from the Cash
Collateral Account] [other sources]. The Available Reserve Account Amount at
any time will be limited and there can be no assurance that sufficient funds
will be available to fund any such shortfall.
The "Covered Amount" shall mean [(a)] for any Distribution Date with
respect to the [Class A] Accumulation Period or the first Special Payment Date,
[if such Special Payment Date occurs prior to the [Class B] Principal
Commencement Date,] an amount equal to one [twelfth] [quarter] [half] of the
product of (i) the [Class A] Certificate Rate and (ii) the Principal Funding
Account Balance, if any, as of the preceding Distribution Date [and (b) for any
Distribution Date with respect to the [Class B] Accumulation Period or the first
Special Payment Date, if such Special Payment Date occurs on or after the
[Class B] Principal Commencement Date, an amount equal to one [twelfth]
[quarter] [half] of the product of (i) the [Class B] Certificate Rate and (ii)
the Principal Funding Account Balance, if any, as of the preceding Distribution
Date].
[RESERVE ACCOUNT]
The [Seller] [Servicer] [Depositor] will establish and maintain in the
name of the Trustee, on behalf of the Trust, an Eligible Deposit Account for the
benefit of the Certificateholders (the "Reserve Account"). The Reserve Account
is established to assure the subsequent distribution of interest on the
Certificates as provided in this Prospectus Supplement during the Accumulation
Period. On each Distribution Date from and after the Reserve Account Funding
Date, but prior to the termination of the Reserve Account, the Trustee, acting
pursuant to the [Servicer's] [Seller's] [Depositor's] instructions, will apply
Excess Spread and Excess Finance Charges allocated to Series 199[ ]-[ ] (to the
extent described below under "Application of Collections--Payment of Interest,
Fees and Other Items") to increase the amount on deposit in the Reserve Account
(to the extent such amount is less than the Required Reserve Account Amount).
[In addition, on each Distribution Date, the [Seller] [Depositor] will have the
option, but will not be required, to make a deposit in the Reserve Account (to
the extent that the amount on deposit in the Reserve Account is less than the
Required Reserve Account Amount).]
[The "Reserve Account Funding Date" will be the Distribution Date with
respect to the Monthly Period which commences no later than three months prior
to the Distribution Date with respect to the Monthly Period which commences the
[Class A] Accumulation Period or such earlier date as the Servicer may
designate. The "Required Reserve Account Amount" for any Distribution Date on
or after the Reserve Account Funding Date will be equal to the product of [ %]
of the [Class A] Invested Amount as of the preceding Distribution Date and the
Reserve
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<PAGE>
Account Factor as of such Distribution Date, or such lower amount approved by
each Rating Agency. On each Distribution Date, after giving effect to any
deposit to be made to, and any withdrawal to be made from, the Reserve Account
on such Distribution Date, the Trustee will withdraw from the Reserve Account an
amount equal to the excess, if any, of the amount on deposit in the Reserve
Account over the Required Reserve Account Amount and shall distribute such
excess to, or at the direction of, [the Seller] [the Depositor]. The "Reserve
Account Factor" for any Distribution Date will be equal to the percentage (not
to exceed 100%) equivalent of a fraction, the numerator of which is the number
of Monthly Periods scheduled to be included in the Accumulation Period (as such
may have been postponed at the option of the [Seller] [Depositor] [Servicer]) as
of such Distribution Date and the denominator of which is [ ].]
[Provided that the Reserve Account has not terminated as described
below, all amounts on deposit in the Reserve Account on any Distribution Date
(after giving effect to any deposits to, or withdrawals from, the Reserve
Account to be made on such Distribution Date) will be invested until the
following Distribution Date by the Trustee at the direction of the [Seller]
[Servicer] [Depositor] in Eligible Investments. The interest and other
investment income (net of investment expenses and losses) earned on such
investments will be retained in the Reserve Account (to the extent the amount on
deposit therein is less than the Required Reserve Account Amount) or deposited
in the Collection Account and treated as collections of Finance Charge
Receivables.]
[On or before each Distribution Date with respect to the Accumulation
Period (on or prior to the [Class A] Expected Final Payment Date) and on the
first Special Payment Date, a withdrawal will be made from the Reserve Account,
and the amount of such withdrawal will be deposited in the Collection Account
and included in [Class A] Available Funds, [prior to the [Class B] Principal
Commencement Date, and, thereafter, in [Class B] Available Funds,] in an amount
equal to the lesser of (a) the Available Reserve Account Amount with respect to
such Distribution Date or Special Payment Date and (b) the excess, if any, of
the Covered Amount with respect to such Distribution Date or Special Payment
Date over the Principal Funding Investment Proceeds with respect to such
Distribution Date or Special Payment Date; provided that the amount of such
withdrawal shall be reduced to the extent that funds otherwise would be
available to be deposited in the Reserve Account on such Distribution Date or
Special Payment Date. On each Distribution Date, the amount available to be
withdrawn from the Reserve Account (the "Available Reserve Account Amount") will
be equal to the lesser of the amount on deposit in the Reserve Account (before
giving effect to any deposit to be made to the Reserve Account on such
Distribution Date) and the Required Reserve Account Amount for such Distribution
Date.]
[The Reserve Account will be terminated following the earlier to occur
of (a) the termination of the Trust pursuant to the Agreement, (b) the date on
which the Certificates are paid in full and (c) if the Accumulation Period has
not commenced, the occurrence of a Pay Out Event with respect to Series 199[ ]-
[ ] or, if the Accumulation Period has commenced, the earlier of the first
Special Payment Date and the [[Class B]] Expected Final Payment Date. Upon the
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<PAGE>
termination of the Reserve Account, all amounts on deposit therein (after giving
effect to any withdrawal from the Reserve Account on such date as described
above) will be distributed to, or at the direction of, the Depositor. Any
amounts withdrawn from the Reserve Account and distributed to, or at the
direction of, the Depositor as described above will not be available for
distribution to the Certificateholders.]
REALLOCATION OF CASH FLOWS; [CLASS B] INVESTED AMOUNT
With respect to each Distribution Date, on each Determination Date,
the Servicer will determine the "[Class A] Required Amount," which will be equal
to the amount, if any, by which (a) the sum of (i) [Class A] [Monthly]
[Quarterly] [Semi-Annual] Interest for such Distribution Date, (ii) any
[Class A] [Monthly] [Quarterly] [Semi-Annual] Interest previously due but not
paid to [Class A] Certificateholders on a prior Distribution Date, (iii) any
[Class A] additional Interest, (iv) the [Class A] Servicing Fee for such
Distribution Date and any unpaid [Class A] Servicing fee and (v) the [Class A]
Default Amount, if any, for such Distribution Date, exceeds the [Class A]
Available Funds. If the [Class A] Required Amount is greater than zero, Excess
Spread and Excess Finance Charges allocated to Series 199[ ]-[ ] and available
for such purpose will be used to fund the [Class A] Required Amount with respect
to such Distribution Date. If such Excess Spread and Excess Finance Charges
available with respect to such Distribution Date are less than the [Class A]
Required Amount, then amounts, if any, on deposit in the Cash Collateral Account
available to pay amounts in respect of the [Class A] Certificates will then be
used to fund the remaining [Class A] Required Amount. [If such Excess Spread and
Excess Finance Charges and amounts available from the Cash Collateral Account
are insufficient to fund the [Class A] Required Amount, then collections of
Principal Receivables allocable to the [Class B] Certificates for the related
Monthly Period will then be used to fund the remaining [Class A] Required Amount
("Reallocated Principal Receivables").] If Reallocated Principal Receivables
with respect to the related Monthly Period (together with Excess Spread and
Excess Finance Charges allocated to Series 199[ ]-[ ] and amounts available from
the Cash Collateral Account) are insufficient to fund the [Class A] Required
Amount for such related Monthly Period, then the Collateral Invested Amount, if
any, will be reduced by the amount of such excess (but not by more than the
[Class A] Default Amount for such Distribution Date). In the event that such
reduction would cause the Collateral Invested Amount to be a negative number,
the Collateral Invested Amount will be reduced to zero, and the [Class B]
Invested Amount will be reduced by the amount by which the Collateral Invested
Amount would have been reduced below zero (but not by more than the excess of
the [Class A] Default Amount, if any, for such Distribution Date over the amount
of such reduction, if any, of the Collateral Invested Amount with respect to
such Distribution Date). In the event that such reduction would cause the
[Class B] Invested Amount to be a negative number, then the [Class B] Invested
Amount will be reduced to zero, and the [Class A] Invested Amount will be
reduced by the amount by which the [Class B] Invested Amount would have been
reduced below zero (but not by more than the excess, if any, of the [Class A]
Default Amount for such Distribution Date over the amount of the reductions, if
any, of the Collateral Invested Amount and the [Class B] Invested Amount with
respect to such
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Distribution Date as described above).] Any such reduction in the [Class A]
Invested Amount will have the effect of slowing or reducing the return of
principal and interest to the [Class A] Certificateholders. In such case, the
[Class A] Certificateholders will bear directly the credit and other risks
associated with their undivided interest in the Trust.
Reductions of the [Class A] [or [Class B]] Invested Amount shall
thereafter be reimbursed and the [Class A] [or Class B] Invested Amount will be
increased on each Distribution Date by the amount, if any, of Excess Spread and
Excess Finance Charges. See "APPLICATION OF COLLECTIONS -- Excess Spread;
Excess Finance Charges". When such reductions of the [Class A] and [Class B]
Invested Amount have been fully reimbursed, reductions of the [Collateral]
Invested Amount shall be reimbursed and the [Collateral] Invested Amount
increased in a similar manner.
APPLICATION OF COLLECTIONS
Payment of Interest, Fees and Other Items. On each Distribution Date,
the Trustee, acting pursuant to the [Seller's] [Servicer's] instructions, will
apply the [Class A] Available Funds [and [Class B] Available Funds] (each as
defined under "--Interest Payments" above) on deposit in the Collection Account
in the following priority:
(A) On each Distribution Date, an amount equal to the [Class A] Available
Funds with respect to such Distribution Date will be distributed in the
following priority:
(i) an amount equal to [Class A] Monthly Interest for such
Distribution Date, plus the amount of any [Class A] Monthly Interest
previously due but not distributed to the [Class A] Certificateholders on a
prior Distribution Date, plus any additional interest with respect to
interest amounts that were due but not distributed to the [Class A]
Certificateholders on a prior Distribution Date at a rate equal to the
[Class A] Certificate Rate [plus [ %] per annum ("[Class A] Additional
Interest"),] will be:
[(x)] distributed to [Class A] Certificateholders [if such
Distribution Date is an Interest Payment Date or (y) deposited in the
Interest Funding Account, if such Distribution Date is not an Interest
Payment Date or Special Payment Date for distribution to [Class A]
Certificateholders on the next Interest Payment Date or Special
Payment Date];
(ii) an amount equal to the [Class A] Servicing Fee for such
Distribution Date, plus the amount of any [Class A] Servicing Fee
previously due but not distributed to the Servicer on a prior Distribution
Date, will be distributed to the Servicer (unless such amount has been
netted against deposits to the Collection Account);
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(iii) an amount equal to the [Class A] Default Amount for such
Distribution Date will be treated as a portion of Available Investor
Principal Collections for such Distribution Date; and
(iv) the balance, if any, shall constitute Excess Spread and shall
be allocated and distributed as described under "--Excess Spread; Excess
Finance Charges" below.
[(B) On each Distribution Date, an amount equal to the [Class B] Available
Funds with respect to such Distribution Date will be distributed in the
following priority:]
[(i) an amount equal to [Class B] Monthly Interest for such
Distribution Date, plus the amount of any [Class B] Monthly Interest
previously due but not distributed to the [Class B] Certificateholders on a
prior Distribution Date, plus any additional interest with respect to
interest amounts that were due but not distributed to the [Class B]
Certificateholders on a prior Distribution Date at a rate equal to the
[Class B] Certificate Rate plus [ %] per annum ("[Class B] Additional
Interest"), will be:]
[(x)] distributed to [Class B] Certificateholders [if such
Distribution Date is an Interest Payment Date or (y) deposited in the
Interest Funding Account, if such Distribution Date is not an Interest
Payment Date or Special Payment Date for distribution to [Class
B]Certificateholders on the next Interest Payment Date or Special
Payment Date];]
[(ii) an amount equal to the [Class B] Servicing Fee for such
Distribution Date, plus the amount of any [Class B] Servicing Fee
previously due but not distributed to the Servicer on a prior Distribution
Date, will be distributed to the Servicer (unless such amount has been
netted against deposits to the Collection Account); and]
[(iii) the balance, if any, shall constitute Excess Spread and shall
be allocated and distributed as described under "--Excess Spread; Excess Finance
Charges" below.]
"[Class A] Monthly Interest" means, with respect to any Distribution
Date, an amount equal to the product of (i) a fraction, the numerator of which
is the actual number of days in the period from and including the prior
Distribution Date to but excluding such Distribution Date and the denominator of
which is 360, (ii) the [Class A] Certificate Rate and (iii) the [Class A]
Invested Amount as of the preceding Record Date.
["[Class B] Monthly Interest" means, with respect to any Distribution
Date, an amount equal to the product of (i) a fraction, the numerator of which
is the actual number of days in the period from and including the prior
Distribution Date to but excluding such Distribution Date and the denominator of
which is 360, (ii) the [Class B] Certificate Rate and (iii) the [Class B]
Invested Amount as of the preceding Record Date.]
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"Excess Spread" means, with respect to any Distribution Date, an
amount equal to the sum of the amounts described in clause (A)(iv) above [and
clause (B)(iii) above,] [in the definition of [Class A] Montly Interest [and
[Class B] Monthly Interest]].
Excess Spread; Excess Finance Charges. On each Distribution Date, the
Trustee, acting pursuant to the Servicer's instructions, will apply Excess
Spread and Excess Finance Charges allocated to Series 199[ ]-[ ] with respect to
the related Monthly Period to make the following distributions in the following
priority to the extent funds are available:
[(a)] an amount equal to the [Class A] Required Amount, if any, with
respect to such Distribution Date will be used to fund any deficiency
pursuant to clauses (A) (i), (ii) and (iii) above in such order of
priority;
[(b)] [an amount equal to the aggregate amount of [Class A] Investor
Charge-Offs which have not been previously reimbursed (after giving effect
to the allocation on such Distribution Date of certain other amounts
applied for that purpose) will be treated as a portion of Available
Investor Principal Collections for such Distribution Date as described
under "--Payments of Principal" below;]
[(c)] [an amount equal to the [Class B] Required Amount, if any, with
respect to such Distribution Date will be used first (I) to fund any
deficiency pursuant to clauses (B) (i) and (ii) above under "--Payment of
Interest, Fees and Other Items" in such order of priority, and (II) second
to pay any [Class B] Default Amount with respect to such Distribution
Date].
[(d)] [an amount equal to the aggregate by which the [Class B]
Invested Amount has been reduced pursuant to clauses (iii), (iv) and (v) of
the definition of "[Class B] Invested Amount" under "--Allocation
Percentages" above (but not in excess of the aggregate amount of such
reductions which have not been previously reimbursed) shall be treated as a
portion of Available Investor Principal Collections for such Distribution
Date;]
[(e)] [an amount equal to [the "Cash Collateral Fee" (as described in
the Loan Agreement (the "[Loan] Agreement") among the [Depositor] [Seller],
the Cash Collateral Depositor and the Trustee) for such Distribution Date
shall be distributed to the Cash Collateral Depositor for application in
accordance with the [Loan] Agreement;]
[(f)] [an amount equal to the aggregate amount by which the
Collateral Invested Amount has been reduced pursuant to clauses (c) and (d)
of the definition of "Collateral Invested Amount" under "--Allocation
Percentages" above (but not in excess of the aggregate amount of such
reductions which have not been previously reimbursed) shall be treated as a
portion of Available Principal Collections for such Distribution Date;]
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[(g)] [an amount equal to the Monthly Servicing Fee due but not paid
to the Servicer on such Distribution Date or a prior Distribution Date
shall be paid to the Servicer;]
[(h)] [an amount up to the excess, if any, of the Required Cash
Collateral Amount over the remaining Available Cash Collateral Amount shall
be deposited into the Cash Collateral Account;]
[(i)] [on each Distribution Date from and after the Reserve Account
Funding Date, but prior to the date on which the Reserve Account
terminates, an amount up to the excess, if any, of the Required Reserve
Account Amount over the Available Reserve Account Amount shall be deposited
into the Reserve Account;]
[(j)] [an amount equal to the aggregate of any other amounts then due
to the Collateral Interest Holder pursuant to the [Loan] Agreement (to the
extent such amounts are payable pursuant to the [Loan] Agreement out of
Excess Spread and Excess Finance Charges) shall be distributed to the
Collateral Interest Holder for application in accordance with the [Loan]
Agreement; and
[(k)] the balance, if any, will constitute a portion of Excess
Finance Charges for such Distribution Date and will be available for
allocation to other Series in Group [ ] or to the [Seller] [Depositor] as
described in "Description of the Certificates -- Sharing of Excess Finance
Charges" in the Prospectus.
Payments of Principal. On each Distribution Date, the Trustee, acting
pursuant to the [Seller's] [Servicer's] instructions, will distribute Available
Principal Collections (see "--Principal Payments" above) on deposit in the
Collection Account in the following priority:
(i) on each Distribution Date with respect to the Revolving Period,
all such Available Principal Collections will be distributed [or deposited] in
the following priority:
[(a)] [an amount equal to the excess, if any, of the
Collateral Invested Amount over the Required Collateral Invested Amount
will be paid to the Collateral Interest Holder; and]
[(b)] [the balance]
[such Available Principal Collections] will be treated as Shared Principal
Collections and applied in accordance with the Agreement and the Series
Supplement.]
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(ii) on each Distribution Date with respect to the [Controlled Amortization
Period] [Accumulation Period] or the Rapid Amortization Period, all such
Available Principal collections will be distributed [or deposited] in the
following priority:
[(a)] [an amount equal to [Class A] Monthly Principal, up to the
[Class A] Adjusted Invested Amount on such Distribution Date will be
distributed to [Class A] Certificateholders [if such Distribution Date is a
Principal Distribution Date or deposited in the Principal Funding Account
if such Distribution Date is not a Principal Distribution Date] (during the
[Class A] Accumulation Period) or distributed to the [Class A]
Certificateholders (during the Rapid Amortization Period)[; and]]
[(b) for each Distribution Date after the [Class A] Adjusted
Invested Amount has been paid in full, an amount equal to [Class B] Monthly
Principal, up to the [Class B] Adjusted Invested Amount on such
Distribution Date, will be distributed to [Class B] Certificateholders [if
such Distribution Date is a Principal Distribution Date or deposited in the
Principal Funding Account if such Distribution Date is not a Principal
Distribution Date] (during the [Class B] Accumulation Period) or
distributed to the Class B Certificateholders (during the Rapid
Amortization Period);]
[(a)] [an amount equal to [Class A] Monthly Principal, up to the
[Class A] Adjusted Invested Amount on such Distribution Date will be
deposited in the Principal Funding Account (during the [Class A]
Accumulation Period) or distributed to the [Class A] Certificateholders
(during the Rapid Amortization Period)[; and]]
[(b) for each Distribution Date beginning on the [Class B] Principal
Commencement Date, an amount equal to [Class B] Monthly Principal for such
Distribution Date, up to the [Class B] Adjusted Invested Amount on such
Distribution Date, will be deposited in the Principal Funding Account
(during the [Class B] Accumulation Period) or distributed to the [Class B]
Certificateholders (during the Rapid Amortization Period)].
(c) for each Distribution Date with respect to the Rapid
Amortization Period, beginning with the Distribution Date on which the
Invested Amount is paid in full, an amount equal to the balance, if any, of
such Available Principal collections then on deposit in the Collection
Account, to the extent of the Collateral Invested Amount, if any, shall be
distributed to the Collateral Interest Holder for application in accordance
with the [Loan] Agreement; and
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(d) for each Distribution Date, after giving effect to paragraphs
(a), (b) and (c) above, an amount equal to the balance, if any, of such
Available Principal Collections will be allocated to Shared Principal
Collections and applied in accordance with the Agreement.
"[Class A] Monthly Principal" with respect to any Distribution Date
relating to the [Class A] [Controlled Amortization Period] [Accumulation Period]
or the Rapid Amortization Period will equal the lesser of (i) the Available
Principal Collections on deposit in the Collection Account with respect to such
Distribution Date, (ii) for each Distribution Date with respect to the [Class A]
[Controlled Amortization Period] [Accumulation Period], [and on or prior to the
[Class A] Expected Final Payment Date,] the [Controlled Distribution Amount]
[Controlled Deposit Amount] for such Distribution Date and (iii) the [Class A]
Adjusted Invested Amount on such Distribution Date.
["[Class B] Monthly Principal" with respect to any Distribution Date
relating to the [Class B] [Controlled Amortization Period] [Accumulation Period]
or the Rapid Amortization Period, after the [Class A] Certificates have been
paid in full, will equal the lesser of (i) the Available Principal Collections
on deposit in the Collection Account with respect to such Distribution Date
(minus the portion of such Available Principal Collections applied to [Class A]
Monthly Principal on such Distribution Date), (ii) for each Distribution Date
with respect to the [Class B] [Controlled Amortization Period] [Accumulation
Period], [and on or prior to the [Class B] Expected Final Payment Date,] the
[Controlled Distribution Amount] [Controlled Deposit Amount] for such
Distribution Date and (iii) the [Class B] Adjusted Invested Amount on such
Distribution Date.]
["Controlled Accumulation Amount" means [(a)] for any Distribution Date
with respect to the [Class A] Accumulation Period, $[ ]; provided, however,
that, if the commencement of the [Class A] Accumulation Period is delayed as
described above under "--Principal Payments", the Accumulation Amount for each
Distribution Date may be different for each Distribution Date with respect to
the [Class A] Accumulation Period and will be determined by the [Seller]
[Servicer] [Depositor] in accordance with the [Agreement] [and the Series
Supplement] based on the principal payment rates for the Accounts and on the
invested amounts of other Principal Sharing Series that are scheduled to be in
their revolving periods and then scheduled to create Shared Principal
Collections during the [Class A] Accumulation Period[; and (b) for any
Distribution Date with respect to the [Class B] Accumulation Period, an amount
equal to [$ ] [the [Class B] Invested Amount] as of the [Class B] Principal
Commencement Date].]]
["Deficit Controlled Accumulation Amount" means (a) on the first
Distribution Date with respect to the [Class A] Accumulation Period [or the
[Class B] Accumulation Period,] the excess, if any, of the Controlled
Accumulation Amount for such Distribution Date over the amount [deposited in the
Principal Funding Account on such Distribution Date] [distributed from
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the Collection Account as [Class A] Monthly Principal [or [Class B] Monthly
Principal, as the case may be,] for such Distribution Date] and (b) on each
subsequent Distribution Date with respect to the [Class A] Accumulation Period
[or the [Class B] Accumulation Period,] the excess, if any, of the Controlled
Deposit Amount for such subsequent Distribution Date plus any Deficit Controlled
Accumulation Amount for the prior Distribution Date over the amount [deposited
in the Principal Funding Account on such Distribution Date] [distributed from
the Collection Account as [Class A] Monthly Principal [or [Class B] Monthly
Principal, as the case may be,] for such subsequent Distribution Date].]]
["Controlled Deposit Amount" means, for any Distribution Date with
respect to the Accumulation Period, an amount equal to the sum of the Controlled
Accumulation Amount for such Distribution Date and any Deficit Controlled
Accumulation Amount for the immediately preceding Distribution Date.]
[CASH COLLATERAL ACCOUNT]
[The Trust will have the benefit of the Cash Collateral Account for
the benefit of the Certificateholders [and the Collateral Interest Holder], as
their interests appear in the Series Supplement, and in the case of the
Collateral Interest Holder, in the [Loan] Agreement (which interest, in the case
of the Collateral Interest Holder, will be subordinated to the interests of the
Certificateholders as provided in the Series Supplement). The Cash Collateral
Account will be one or more Eligible Deposit Accounts. Funds on deposit in the
Cash Collateral Account will be invested in certain Eligible Investments that
mature on or before the business day immediately preceding the next Distribution
Date. [On each Distribution Date, all interest and earnings (net of losses and
investment expenses) accrued since the preceding Distribution Date on funds on
deposit in the Cash Collateral Account shall be paid to the Collateral Interest
Holder for application in accordance with the [Loan] Agreement.]]
[The Cash Collateral Account will be funded on the Issuance Date in
the Initial Cash Collateral Amount which amount will include the proceeds of an
advance to be made by one or more lenders to be selected by the Seller (such
lender or lenders, the "Collateral Interest Holders"). Such advance will be
repaid pursuant to the [Loan] Agreement. The Cash Collateral Account will be
terminated following the earliest to occur of (a) the date on which the
Certificates are paid in full, (b) the date on which the entire Available Cash
Collateral Amount is distributed to the Certificateholders as a result of the
occurrence of an Pay Out Event, (c) the Termination Date and (d) the
termination of the Trust pursuant to the Agreement.]
[On each Distribution Date, the amount available to be withdrawn from
the Cash Collateral Account (the "Available Cash Collateral Amount") will be
equal to the lesser of the amount on deposit in the Cash Collateral Account
(before giving effect to any deposit to be made
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to, or withdrawal from, the Cash Collateral Account on such Distribution Date)
or the Required Cash Collateral Amount.]
[The "Required Cash Collateral Amount" means, with respect to any
Distribution Date, the lesser of the (a) [the sum of] [the Required Shared
Collateral Amount] [and] [the Initial [Class B] Collateral Amount] as of such
Distribution Date and (b) the adjusted Invested Amount as of such Distribution
Date.]
[The "Required Shared Collateral Amount" means, with respect to any
Distribution Date, the product of (a) the Adjusted Invested Amount as of such
Distribution Date after taking into account distributions made on such date and
(b) [ ]% or such higher percentage as is specified by each Rating Agency;
provided, however, that (i) if there are any withdrawals from the Cash
Collateral Account to fund the [Class A] Required Amount [or the [Class B]
Required Amount,] or a Pay Out Event occurs with respect to Series 199[ ]-[ ],
then the Required Shared Collateral Amount for any Distribution Date shall equal
the Required Shared Collateral Amount on the Distribution Date immediately
preceding such withdrawal or Pay Out Event and (ii) notwithstanding the
foregoing, the Required Shared Collateral Amount with respect to any
Distribution Date will not be less than $[ ].]
[The Required Shared Collateral Amount [and the Initial [Class B]
Collateral Amount] may be reduced without the consent of the Certificateholders,
if the [Depositor] [Seller] shall have received written notice from each Rating
Agency that such reduction will not have a Ratings Effect and the [Depositor]
[Seller] shall have delivered to the Trustee a certificate of an authorized
officer to the effect that, based on the facts known to such officer at the
time, in the reasonable belief of the [Depositor] [Seller], such reduction will
not cause a Pay Out Event or an event that, after the giving of notice of the
lapse of time, would constitute a Pay Out Event, to occur with respect to Series
199[ ]-[ ].]
[On each Distribution Date, one or more withdrawals will be made from
the Cash Collateral Account in an amount up to the Available Shared Collateral
Amount, to fund the following amounts in the following priority:]
[(a)] the excess, if any, of the [Class A] Required Amount
with respect to the related Distribution Date over the amount of
Excess Spread and Excess Finance Charges allocated to Series 199[ ]-[
] and available to fund such [Class A] Required Amount will be used
first to fund any deficiency in current [Class A] Monthly Interest,
overdue [Class A] Monthly Interest and any current or overdue [Class
A] Additional Interest, second to fund any deficiency in the [Class A]
Servicing Fee and any overdue [Class A] Servicing Fee and third to pay
the [Class A] Default Amount, if any, for such Distribution Date[;
and]
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[(b) the excess, if any, of the [Class B] Required Amount with
respect to the related Distribution Date over the amount of Excess
Spread and Excess Finance Charges allocated to Series 199[ ]-[ ] and
available to fund such [Class B] Required Amount will be used first to
fund any deficiency in current [Class B] Monthly Interest, overdue
[Class B] Monthly Interest and any current or overdue [Class B]
Additional Interest, second to fund any deficiency in the [Class B]
Servicing Fee and any overdue [Class B] Servicing Fee, and third to
pay the [Class B] Default Amount, if any, for such Distribution Date.]
On each Distribution Date, the "Available Shared Collateral Amount"
shall equal the lesser of (a) the Required Shared Collateral Amount and (b) the
excess, if any, of the amount on deposit in the Cash Collateral Account for such
Distribution Date over the Initial [Class B] Collateral Amount.
On the first Special Payment Date following a Pay Out Event described
in clause (e) under "--Pay Out Events" after giving effect to any payment of
principal on such date described under "--Application of Collections -- Payments
of Principal", the Available Shared Collateral Amount (after giving effect to
any withdrawal from the Cash Collateral Account on such date to fund the
Required Amount) will be applied to pay principal of the [Class A] Certificates
[and the remainder of the Available Cash Collateral Amount will be applied to
pay principal of the [Class B] Certificates].
[On each Distribution Date commencing with the [Class B] Principal
Commencement Date, unless as Pay Out Event has occurred, a withdrawal will be
made from the Cash Collateral Account, to the extent of the Available Cash
Collateral Amount, in an amount equal to the excess, if any, of the [Class B]
Initial Invested Amount (minus the sum of the aggregate amount of principal
payments previously deposited to the Principal Funding Account or distributed in
respect of the [Class B] Certificates) over the [Class B] Invested Amount on the
last day of the related Monthly Period (determined after giving effect to any
changes to be made in the [Class B] Invested Amount pursuant to clauses (iii),
(iv), (v) or (vi) of the definition of "[Class B] Invested Amount" under "--
Allocation Percentages" on the following Distribution Date).]
[In the event of a sale of the Receivables and an early termination of
the Trust due to an Insolvency Event, an optional repurchase of the
Certificateholders' Interest by the [Depositor] [Seller] Servicer], a sale of a
portion of the Receivables in connection with the Termination Date, a repurchase
or sale of the Certificateholders' Interest and the certificateholders' interest
of all other Series in connection with a Servicer Default or a reassignment of
the Certificateholders' Interest and the certificateholders' interest of all
other Series in connection with a breach by the [Seller] [Depositor] [Servicer]
of certain representations and warranties, any Available Cash Collateral Amount
on the related Distribution Date (after giving effect to all other withdrawals
from the Cash Collateral Account on such Distribution Date
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as described above) will be withdrawn from the Cash Collateral Account and the
proceeds thereof will be distributed to [Class B] Certificateholders to the
extent of all previous reductions of the [Class B] Invested Amount [pursuant to
clauses (iii), (iv) or (v) of the definition of "[Class B] Invested Amount"
under "--Allocation Percentages" above.]
On each Distribution Date, the [Seller] [Servicer] or the Trustee,
acting pursuant to the [Seller's] [Servicer's] instructions, will apply Excess
Spread and Excess Finance Charges allocated to Series 199[ ]-[ ] (to the extent
described above under "--Application of Collections -- Excess Spread; Excess
Finance Charges") to increase the amount on deposit in the Cash Collateral
Account to the extent such amount is less than the Required Cash Collateral
Amount. In addition, if on any Distribution Date the amount on deposit in the
Cash Collateral Account exceeds the Required Cash Collateral Amount, such excess
will be withdrawn and paid to the Collateral Interest Holder for application in
accordance with the [Loan] Agreement.
DEFAULTED RECEIVABLES CHARGE-OFFS
On each Determination Date, the Servicer will calculate the Investor
Default Amount for the preceding Monthly Period. The term "Investor Default
Amount" means, for any Monthly Period, the product of (i) the Floating
Allocation Percentage with respect to such Monthly Period and (ii) the Defaulted
Amount for such Monthly Period. [A portion of the Investor Default Amount will
be allocated to the [Class A] Certificateholders (the "[Class A] Default
Amount") on each Distribution Date in an amount equal to the product of the
[Class A] Floating Percentage applicable during the related Monthly Period and
the Investor Default Amount for such Monthly Period. A portion of the Investor
Default Amount will be allocated to the [Class B] Certificateholders (the
"[Class B] Default Amount") in an amount equal to the product of the [Class B]
Floating Percentage applicable during the related Monthly Period and the
Investor Default Amount for such Monthly Period. An amount equal to the
[Class A] Default Amount for each Monthly Period will be paid from [Class A]
Available Funds, Excess Spread and Excess Finance Charges allocated to Series
199[ ]-[ ] or from amounts available under the Cash Collateral Account and
Reallocated Principal Receivables and applied as described above in
"--Application of Collections -- Payment of Interest, Fees and Other Items" and
"--Reallocation of Cash Flows; [Class B] Invested Amount". An amount equal to
the [Class B] Default Amount for each Monthly Period will be paid from Excess
Spread and Excess Finance Charges allocated to Series 199[ ]-[ ] or from
amounts, if any, available under the Cash Collateral Account and applied as
described above in "--Application of Collections -- Payment of Interest, Fees
and Other Items".]
On each Distribution Date, if the [Class A] Required Amount for such
Distribution Date exceeds the sum of Excess Spread and Excess Finance Charges
allocable to Series 199[ ]-[ ], then amounts, if any, on deposit in the Cash
Collateral Account up to the Available Shared Collateral Amount and Reallocated
Principal Receivables, the Collateral Invested Amount, if any,
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will be reduced by the amount of such excess, but not by more than the [Class A]
Default Amount for such Distribution Date. [In the event that such reduction
would cause the Collateral Invested Amount to be a negative number, the
Collateral Invested Amount will be reduced to zero, and the [Class B] Invested
Amount will be reduced by the amount by which the Collateral Invested Amount
would have been reduced below zero, but not by more than the excess, if any, of
the [Class A] Default Amount for such Distribution Date over the amount of such
reduction, if any, of the Collateral Invested Amount with respect to such
Distribution Date. In the event that such reduction would cause the [Class B]
Invested Amount to be a negative number, the [Class B] Invested Amount will be
reduced to zero, and the [Class A] Invested Amount will be reduced by the amount
by which the [Class B] Invested Amount would have been reduced below zero, but
not by more than the excess, if any, of the [Class A] Default Amount for such
Distribution Date over the amount of the reductions, if any, of the Collateral
Invested Amount and the [Class B] Invested Amount with respect to such
Distribution Date as described above (a "[Class A] Charge-Off"), which will
have the effect of slowing or reducing the return of principal to the [Class A]
Certificateholders.] If the [Class A] Invested Amount has been reduced by the
amount of any [Class A] Charge-Offs, it will thereafter be increased on any
Distribution Date (but not by an amount in excess of the aggregate [Class A]
Charge-Offs) by the amount of Excess Spread and Excess Finance Charges allocated
to Series 199[ ]-[ ] and available for such purpose.
[On each Distribution Date, if the [Class B] Required Amount for such
Distribution Date exceeds the sum of Excess Spread and Excess Finance Charges
allocable to Series 199[ ]-[ ] and not required to pay the [Class A] Required
Amount and amounts, if any, on deposit in the Cash Collateral Account which are
allocated and available to fund such amount, then the Collateral Invested
Amount, if any, will be reduced by the amount of such excess. In the event that
such reduction would cause the Collateral Invested Amount to be a negative
number, the Collateral Invested Amount will be reduced to zero, and the
[Class B] Invested Amount will be reduced by the amount by which the Collateral
Invested Amount would have been reduced below zero, but not by more than the
excess, if any, of the [Class B] Default Amount for such Distribution Date over
the amount of such reduction, if any, of the Collateral Invested Amount with
respect to such Distribution Date (a "[Class B] Charge-Off").]
[If on any Distribution Date Reallocated Principal Receivables for
such Distribution Date are applied to fund the Required Amount, the Collateral
Invested Amount, if any, will be reduced by the amount of such Reallocated
Principal Receivables. In the event such reductions would cause the Collateral
Investment Amount to be a negative number, the Collateral Invested Amount shall
be reduced to zero, and the [Class B] Invested Amount will be reduced by the
amount by which the Collateral Invested Amount would have been reduced below
zero.]
[The [Class B] Invested Amount will thereafter be reimbursed (but not
in excess of the aggregate unreimbursed [Class B] Charge-Offs) on any
Distribution Date by the amount of Excess Spread and Excess Finance Charges
allocated to Series 199[ ]-[ ] and available for such purpose.]
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[Any such reductions of the Collateral Invested Amount shall
thereafter be reimbursed and the Collateral Invested Amount increased (but not
by any amount in excess of the aggregate reductions of the Collateral Invested
Amount) on any Distribution Date by the amount of Excess Spread and Excess
Finance Charges allocated to Series 199[ ]-[ ] and available for such purpose as
described under "--Application of Collections -- Payment of Interest, Fees and
Other Items".]
ISSUANCE OF ADDITIONAL CERTIFICATES
The Series Supplement provides that from time to time during the
Revolving Period, the [Depositor] [Seller] may, subject to certain conditions
described below, cause the Trustee to issue Additional Certificates (each such
issuance, an "Additional Issuance"). When issued, the Additional Certificates
[of each class] will be identical in all respects to the other outstanding
Certificates [of that class] and will be equally and ratably entitled to the
benefits of the Agreement and the Series Supplement without preference, priority
or distinction.
In connection with each Additional Issuance, the outstanding principal
amounts of the [Class A] Certificates [and the [Class B] Certificates] and the
aggregate amount of Credit Enhancement will all be increased pro rata. The
additional Credit Enhancement provided in connection with an Additional Issuance
may take the form of an increase in the Required Cash Collateral Amount or
another form of Credit Enhancement, provided that the form and amount of
additional Credit Enhancement will not cause a Ratings Effect.
Following an Additional Issuance, the [Controlled Amortization Amount]
[Controlled Accumulation Amounts] of each Class will be increased
proportionately to reflect the principal amount of Additional Certificates.
Additional Certificates may be issued only upon the satisfaction of
certain conditions provided in the Series Supplement, including the following:
(a) on or before the fifth business day immediately preceding the date on which
the Additional Certificates are to be issued, the [Depositor] [Seller] shall
have given the Trustee, [the Seller,] [the Servicer,] each Rating Agency and any
provider of Credit Enhancement written notice of such issuance and the date upon
which it is to occur, (b) after giving effect to the Additional Issuance, the
total amount of Principal Receivables shall be at least equal to the Required
Principal Balance, (c) the [Depositor] [Seller] shall have delivered to the
Trustee an amended Series Supplement, executed by each of the parties to such
agreement; (d) the [Depositor] [Seller] shall have received written notice from
each Rating Agency that such Additional Issuance will not have a Ratings Effect;
(e) the [Depositor] [Seller] shall have delivered to the Trustee a certificate
of an authorized officer to the effect that, based on the facts known to such
officer at the time, in the reasonable belief of the [Depositor] [Seller], such
Additional Issuance will not cause a Pay Out Event or an event that, after the
giving of notice or the lapse of time, would constitute a Pay Out Event, to
occur with respect to Series 199[ ]-[ ];
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(f) as of the date of the Additional Issuance and taking the Additional Issuance
into account, the amount of Credit Enhancement with respect to Series
199[ ]-[ ], together with any additional Credit Enhancement, shall not be less
than the amount required so that the additional issuance will not result in a
Ratings Effect; (g) as of the date of the Additional Issuance, all amounts due
and owing to the holders of Certificates shall have been paid, and there shall
not be any unreimbursed [Class A] Charge-Offs [or [Class B] Charge-Offs]; (h)
the excess of the principal amount of the Additional Certificates over their
issue price shall not exceed the maximum amount permitted under the Code without
the creation of original issue discount; (i) the [Seller's] remaining interest
in Principal Receivables shall not be less than [ %] of the total amount of
Principal Receivables, in each case as of the date upon which the Additional
issuance is to occur after giving effect to such issuance; (j) the [Depositor]
[Seller] shall have delivered to the Trustee, each Rating Agency and any
provider of Credit Enhancement, a Tax Opinion with respect to the Additional
Issuance; (k) the [Depositor] [Seller] shall have obtained additional Credit
Enhancement for the benefit of the holders of Certificates, provided that the
ratio of the sum of the Required Cash Collateral Amount and the amount of such
Credit Enhancement to the Invested Amount (after giving effect to such
Additional Issuance) shall be greater than or equal to the ratio of the Required
Cash Collateral Amount to the Invested Amount (before giving effect to such
Additional Issuance); (l) the [Depositor] [Seller] shall have delivered to each
Rating Agency (i) an opinion of counsel to the effect that such Additional
Issuance will not violate applicable Federal Securities laws and (ii) such other
documents as the Rating Agencies may request; and (m) the ratio of the
[Controlled Amortization Amount] [Controlled Accumulation Amount] (after giving
effect to such Additional Issuance) to the Invested Amount (after giving effect
to such Additional Issuance) shall be equal to the ratio of the [Controlled
Amortization Amount] [Controlled Accumulated Amount] (before giving effect to
such Additional Issuance) to the Invested Amount (before giving effect to such
Additional Issuance).
There are no restrictions on the time or amount of any Additional
Issuance, provided that the conditions described above are met. As of the date
of any Additional Issuance, the [Class A] Invested Amount [and the [Class B]
Invested Amount] will be increased to reflect the initial principal balance of
the Additional Certificates of the respective classes.
[PAIRED SERIES]
[The Series 199[ ]-[ ] Certificates may be paired with one or more
other Series (each a "Paired Series"). Each Paired Series either will be
prefunded with an initial deposit to a prefunding account in an amount up to the
initial principal balance of such Paired Series and primarily from the proceeds
of the sale of such Paired Series or will have a variable principal amount. Any
such prefunding account will be held for the benefit of such Paired Series and
not for the benefit of Certificateholders. As funds are accumulated in the
Principal Funding Account, either (i) in the case of a prefunded Paired Series,
an equal amount of funds on deposit in any prefunding account for such prefunded
Paired Series will be released (which funds will be distributed to the Seller)
or (ii) in the case of a Paired Series having a variable principal amount,
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an interest in such variable Paired Series, in an equal or lesser amount may be
sold by the Trust (and the proceeds thereof will be distributed to the Seller)
and, in either case, the invested amount in the Trust of such Paired Series will
increase by up to a corresponding amount. Upon payment in full of Series
199[ ]-[ ], assuming that there have been no unreimbursed charge-offs with
respect to any related Paired Series, the aggregate invested amount of such
related Paired Series will have been increased by an amount up to an aggregate
amount equal to the Series 199[ ]-[ ] Invested Amount paid to the
Certificateholders. There can be no assurance, however, that the terms of any
Paired Series might not have an impact on the timing or amount of payments
received by Certificateholders. See "Maturity Considerations" herein.
REQUIRED PRINCIPAL BALANCE; ADDITION TO ACCOUNTS
The obligation of the Trustee to authenticate certificates of a new
Series and to execute and deliver the related Series Supplement shall be subject
to the conditions described in the Prospectus and to the additional condition
that, as of the Series Issuance Date and after giving effect to such issuance,
the aggregate amount of Principal Receivables in the Trust equals or exceeds the
Required Principal Balance. The "Required Principal Balance" means, as of any
date of determination, the sum of the initial invested amount (as defined in the
relevant Supplement) of each Series outstanding on such date (other than any
Series or portion thereof (as "Excluded Series") which is designated in the
relevant Supplement as then being an Excluded Series) minus the principal amount
on deposit in the Excess Funding Account on such date; provided, however, that
if at any time the only Series outstanding are Excluded Series and Pay Out Event
has occurred with respect to one or more such Series, the Required Principal
Balance shall mean the sum of the "Invested Amount" (as defined in the relevant
Supplement) of each such Excluded Series as of the earliest date on which any
such pay Out Event is deemed to have occurred minus the principal amount on
deposit in the Excess Funding Account; and provided further that the Required
Principal Balance may be reduced to a lesser amount without the consent of the
Certificateholders, if the [Depositor] [Seller] shall have received written
notice from each Rating Agency that such reduction will not have a Ratings
Effect.
If, as of the close of business on the last business day of any
Monthly Period, the aggregate amount of Principal Receivables in the Trust is
less than the Required Principal Balance on such date, the [Depositor] [Seller]
shall on or before the [ ] [tenth] business day following such day, unless
the amount of Principal Receivables in the Trust equals or exceeds the Required
Principal Balance as of the close of business on any day after the last business
day of such Monthly Period and prior to such tenth business day, make an
Addition to the Trust such that, after giving effect to such Addition, the
amount of Principal Receivables in the Trust is at least equal to the Required
Principal Balance.
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PAY OUT EVENTS
The Pay Out Events with respect to the Certificates will include each
of the events specified in the Prospectus and the following:
(a) failure on the part of the [Depositor] [Seller] [Servicer] (i) to make
any payment or deposit required by it under the Agreement or the Series
Supplement within [five] [ ] business days after the day such payment or
deposit is required to be made; or (ii) to observe or perform any of its other
covenants or agreements set forth in the Agreement the Series Supplement, which
failure has a material adverse effect on the Series 199[ ]-[ ]
Certificateholders and which continues unremedied for a period of [60] [ ]
days (or for such longer period, not in excess of [150] [ ] days, as may be
reasonably necessary to remedy such failure; provided that such failure is
capable of remedy within [150] [ ] days or less and the [Seller] [Servicer]
[Depositor] delivers an officer's certificate to the effect that the [Seller]
[Servicer] [Depositor] has commenced, or will promptly commence and diligently
pursue, all reasonable efforts to remedy such failure) after the earlier to
occur of the discovery thereof by the [Seller] [Servicer] [Depositor] or written
notice;
(b) any representation or warranty made by [Seller] [Servicer] [Depositor]
in the Agreement or the Series Supplement or any information required to be
given by the [Depositor] [Seller] [Servicer] to the Trustee to identify the
Accounts proves to have been incorrect in any material respect when made and
continues to be incorrect in any material respect for a period of [60] [ ]
days (or for such longer period, not in excess of [150] [ ] days, as may be
reasonably necessary to remedy such breach; provided that such misrepresentation
is capable of remedy within [150] [ ] days or less and the [Seller]
[Servicer] [Depositor] delivers an officer's certificate to the effect that the
[Seller] [Servicer] [Depositor] has commenced or will promptly commence and
diligently pursue, all reasonable efforts to remedy such misrepresentation)
after the earlier to occur of discovery thereof by the [Seller] [Servicer]
[Depositor] or written notice and as a result of which the interests of the
Certificateholders are materially and adversely affected; provided, however,
that a Pay Out Event shall not be deemed to occur thereunder if the [Seller]
[Servicer] [Depositor] has repurchased the related Receivables or all such
Receivables, if applicable, during such period in accordance with the provisions
of the Agreement;
(c) a failure by the [Depositor] [Seller] to make an Addition to the Trust
within five business days after the day on which it is required to make such
Addition pursuant to the Agreement or the Series Supplement;
(d) the occurrence of any Servicer Default with respect to the
Certificates;
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(e) the average Portfolio Yield for any three consecutive Monthly
Periods is less than the average of the Base Rates with respect to Series
199[ ]-[ ] for such Monthly Periods;
(f) the failure to pay in full the [Class A] Invested Amount on the [Class
A] Expected Final Expected Final Payment Date[, or the [Class B] Invested Amount
on the [Class B] Expected Final Payment Date]; and
(g) the [Depositor] [Seller] is unable for any reason to transfer
Receivables to the Trust in accordance with the Agreement or the Series
Supplement.
Then, in the case of any event described in subparagraph (a), (b) or
(d), after the applicable grace period, if any, set forth in such subparagraphs,
either the Trustee or the holders of Certificates evidencing more than 50% of
the aggregate unpaid principal amount of Series 199[ ]-[ ] by notice then given
in writing to the [Seller] [Servicer] [Depositor] (and to the Trustee if given
by the Certificateholders) may declare that a Pay Out Event has occurred with
respect to Series 199[ ]-[ ] as of the date of such notice, and, in the case of
any event described in subparagraph (c), (e), (f) or (g), a Pay Out Event shall
occur with respect to Series 199[ ]-[ ], without any notice or other action on
the part of the Trustee immediately upon the occurrence of such event.
For purposes of the Pay Out Event described in clause (e) above, the
terms "Base Rate" and "Portfolio Yield" will be defined as follows with respect
to the Certificates:
"Base Rate" means, with respect to any Monthly Period, the annualized
percentage equivalent of a fraction, the numerator of which is equal to the sum
of [Class A] Monthly Interest, [[Class B] Monthly Interest] and the Monthly
Servicing Fee with respect to Series 199[ ]-[ ] for the related Distribution
Date and the denominator of which is the Invested Amount as of the last day of
the preceding Monthly Period.
"Portfolio Yield" means, with respect to any Monthly Period, the
annualized percentage equivalent of a fraction, the numerator of which is equal
to (a) the Floating Allocation Percentage of collections of Finance Charge
Receivables (including any investment earnings and certain other amounts that
are to be treated as Finance Charge Receivables in accordance with the
Agreement) for such Monthly Period calculated on a billed basis, plus (b) the
amount of Principal Funding Investment Proceeds for the related Distribution
Date, plus (c) the amount of funds withdrawn from the Reserve Account and which
are required to be included as [Class A] Available Funds [or [Class B] Available
Funds], in each case for the Distribution Date with respect to such Monthly
Period minus (d) the Investor Default Amount for the Distribution Date with
respect to such Monthly Period, and the denominator of which is the Invested
Amount as of the last day of the preceding Monthly Period.
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<PAGE>
If the proceeds of any sale of the Receivables following the
occurrence of an Insolvency Event with respect to the [Depositor] [Seller]
[Servicer] allocated to the [Class A] Invested Amount and the proceeds of any
collections on the Receivables in the Collection Account are not sufficient to
pay in full the remaining amount due on the [Class A] Certificates, then the
[Class A] Certificateholders will suffer a corresponding loss [and no such
proceeds will be available to the [Class B] Certificateholders].
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The share of the Servicing Fee allocable to Series 199[ ]-[ ] with
respect to any Distribution Date (the "Monthly Servicing Fee") shall be equal to
one twelfth of the product of (a) [ %] (the "Servicing Fee Rate") and (b) the
sum of the Adjusted Invested Amount and the Collateral Invested Amount, if any,
as of the last day of the Monthly Period preceding such Distribution Date (the
amount calculated pursuant to this clause (b) is referred to as the "Servicing
Base Amount"); provided, however, that the Monthly Servicing Fee with respect to
the first Distribution Date will be [$ ] [equal to the Servicing Fee accrued
on the Initial Invested Amount at the Servicing Fee Rate for the period from the
Issuance Date to but excluding the first Distribution Date calculated on the
basis of the actual number of days in the period from the Issuance Date to such
first Distribution Date and a 360-day year]. On each Distribution Date, but
only if [Servicer Name] or the Trustee is the Servicer, Interchange with respect
to the related Monthly Period that is on deposit in the Collection Account shall
be withdrawn from the Collection Account and paid to the Servicer as payment of
a portion of the Monthly Servicing Fee with respect to such Monthly Period. The
"Servicer Interchange" for any Monthly Period for which [Servicer Name] or the
Trustee is the Servicer will be equal to the product of (a) the Floating
Allocation Percentage for such Monthly Period and (b) the portion of Finance
Charge Receivables allocated to the Trust with respect to such Monthly Period
that is attributed to Interchange; provided, however, that Servicer Interchange
for a Monthly Period shall not exceed one twelfth of the product of (i) the sum
of the Invested Amount and the Collateral Investment Amount, if any, as of the
last day of such Monthly Period and (ii) [ %]. In the case of any
insufficiency of Servicer Interchange on deposit in the Collection Account, a
portion of the Monthly Servicing Fee with respect to such Monthly Period will
not be paid to the extent of such insufficiency and in no event shall the Trust,
the Trustee or the Certificateholders be liable for the share of the Servicing
Fee to be paid out of Servicer Interchange.
[The share of the Monthly Servicing Fee allocable to the [Class A]
Certificateholders (after giving effect to the distribution of any Servicer
Interchange to the Servicer) with respect to any Distribution Date (the
"[Class A] Servicing Fee") shall be equal to one twelfth of the product of (a)
the [Class A] Floating Percentage, (b) [ %], or if [Servicer Name] or the
Trustee is not the Servicer, [ %] (the "Net Servicing Fee Rate") and (c) the
Servicing Base Amount; provided, however, with respect to the first Distribution
Date, the [Class A] Servicing Fee shall be equal to the [Class A]
Certificateholders' share of the Monthly Servicing Fee for the period from the
Issuance Date to but excluding the first Distribution Date.
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[The share of the Monthly Servicing Fee allocable to the [Class B]
Certificateholders (after giving effect to any distribution of Servicer
Interchange to the Servicer) with respect to any Distribution Date (the
"[Class B] Servicing Fee") shall be equal to one twelfth of the product of (a)
the [Class B] Floating Percentage, (b) the Net Servicing Fee Rate and (c) the
Servicing Base Amount; provided, however, with respect to the first Distribution
Date, the [Class B] Servicing Fee shall be equal to the [Class B]
Certificateholders' share of the Monthly Servicing Fee for the period from the
Series Issuance Date to but excluding the first Distribution Date. The remainder
of the Servicing Fee shall be paid by the [Depositor] [Seller] or the
certificateholders of other Series (as provided in the related Supplements) or,
to the extent of any insufficiency of Servicer Interchange as described above,
not be paid and in no event shall the Trust, the Trustee or the
Certificateholders be liable for the share of the Servicing Fee to be paid by
the [Depositor] [Seller] or the Certificateholders of any other Series or to be
paid out of Servicer Interchange. The [Class A] Servicing Fee [and the [Class B]
Servicing Fee] shall be payable to the Servicer solely to the extent amounts are
available for distribution in respect thereof.]
SERIES TERMINATION
If on the Distribution Date which is two months prior to the
Termination Date, the Invested Amount or the Collateral Invested Amount, if any
(in each case after giving effect to all changes therein on such date) exceeds
zero, the Servicer will, within the 40-day period beginning on such date,
solicit bids for the sale of interests in the Principal Receivables or certain
Principal Receivables, together in each case with the related Finance Charge
Receivables, in an amount equal to the sum of the Invested Amount and the
Collateral Invested Amount, if any, at the close of business on the last day of
the Monthly Period preceding the Termination Date (after giving effect to all
distributions required to be made on the Termination Date). The [Depositor]
[Seller] (provided that the sum of the Invested Amount and the Collateral
Invested Amount, if any, is less than or equal to [ %] of the Initial
Invested Amount), and the Collateral Interest Holder will be entitled to
participate in, and to receive notice of each bid submitted in connection with,
such bidding. Upon the expiration of 40-day period, the Trustee will determine
(a) which bid is the highest cash purchase offer (the "Highest Bid") and (b) the
amount (the "Available Final Distribution Amount") which otherwise would be
available in the Collection Account on the Termination Date for distribution to
the Certificateholders and the Collateral Interest Holder. The Servicer will
sell such Receivables on the Termination Date to the bidder who provided the
Highest Bid and will deposit the proceeds of such sale in the Collection Account
for allocation (together with the Available Final Distribution Amount) to the
Certificateholders' Interest.
REPORTS
No later than the third business day prior to each Distribution Date,
the Servicer will forward to the Trustee, [the Collateral Interest Holder] [the
Cash Collateral Depositor] [the Depositor] the Paying Agent and each Rating
Agency a statement (the "Monthly Report") prepared by the Servicer setting forth
certain information with respect to the Trust and the Certificates,
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including: (a) the aggregate amount of Principal Receivables and Finance Charge
Receivables in the Trust as of the end of such Monthly Period; (b) the [Class A]
Invested Amount [and] [the [Class B] Invested Amount] [and] [the Collateral
Invested Amount] at the close of business on the last day of the preceding
Monthly Period; (c) the Floating Allocation Percentage and, during the
[Controlled Amortization Period] [Accumulation Period] or Rapid Amortization
Period with respect to such Series, the Principal Allocation Percentage with
respect to the Certificates; (d) the amount of collections of Principal
Receivables and Finance Charge Receivables processed during the related Monthly
Period and the portion thereof allocated to the Certificateholders' Interest;
(e) the aggregate outstanding balance of Accounts which were 30, 60, and 90 days
or more delinquent as of the end of such Monthly Period; (f) the Defaulted
Amount with respect to such Monthly Period and the portion thereof allocated to
the Certificateholders' Interest [and the Collateral Interest Holder]; (g) the
amount, if any, of [Class A] Charge-Offs [and [Class B] Charge-Offs]; (h) the
Monthly Servicing Fees; (i) the Portfolio Yield for such Monthly Period; (j) the
amount to be withdrawn from the Cash Collateral Account, if any, to fund the
[Class A] Required Amount [or the [Class B] Required Amount] for such
Distribution Date; (k) the Available Cash Collateral Amount, the Available
Shared Collateral Amount and the Required Cash Collateral with respect to Series
199[ ]-[ ] and (l) Reallocated Principal Receivables.
UNDERWRITING
Subject to the terms and conditions set forth in the underwriting
agreement (the "Underwriting Agreement") between the Depositor and the
underwriters named below (the "Underwriters"), the Depositor has agreed to sell
to the Underwriters, and each of the Underwriters has severally agreed to
purchase, the principal amount of the [Class A] Certificates [and [Class B]
Certificates] set forth opposite its name (the "Underwritten Certificates"):
<TABLE>
<CAPTION>
Principal Amount Principal Amount
of [Class A] of [Class B]
Underwriter Certificates Certificates
----------- ---------------- ----------------
<S> <C> <C>
CS First Boston.......
[Other underwriter]...
Total.................
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters to pay for and accept delivery of the Underwritten Certificates are
subject to the approval of certain legal matters by their counsel and to certain
other conditions. All of the Certificates offered hereby will be issued if any
are issued. Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all the Underwritten Certificates
offered hereby, if any are taken.
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<PAGE>
The Underwriters propose initially to offer the [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 [ ]% of the principal
amount of the [Class A] Certificates. The Underwriters may allow, and such
dealers may reallow, concessions not in excess of [ ]% of the principal
amount of the [Class A] Certificates to certain brokers and dealers. After the
initial public offering, the public offering price and other selling terms may
be changed by the Underwriters.
[The Underwriters propose initially to offer the [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 [ ]% of
the principal amount of the [Class B] Certificates. The Underwriters may allow,
and such dealers may reallow, concessions not in excess of [ ]% of the
principal amount of the [Class B] Certificates to certain brokers and dealers.
After the initial public offering, the public offering price and other selling
terms may be changed by the Underwriters.]
The Depositor 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.
In the ordinary course of their respective businesses, the
Underwriters and their respective affiliates have engaged and may engage in
investment banking and/or commercial banking transactions with the Depositor and
its affiliates.
S-70
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INDEX OF DEFINED TERMS
Accounts.......................................................
Accumulation Period............................................
Additional Certificates........................................
Adjusted Invested Amount.......................................
Available Final Distribution Amount............................
Available Principal Collections................................
Available Reserve Account Amount...............................
Available Shared Collateral Amount.............................
Base Rate......................................................
Cash Collateral Account........................................
Cash Collateral Depositor......................................
Certificateholders.............................................
Certificate Owners.............................................
Certificates...................................................
[Class A] Accumulation Amount..................................
[Class A] Accumulation Period..................................
[Class A] Additional Interest..................................
[Class A] Adjusted Invested Amount.............................
[Class A] Available Funds......................................
[Class A] Certificate Rate.....................................
[Class A] Certificateholders' Interest.........................
[Class A] Certificates.........................................
[Class A] Controlled Accumulation..............................
[Class A] Controlled Amortization Amount.......................
[Class A] Controlled Amortization Period.......................
[Class A] Floating Percentage..................................
[Class A] Initial Invested Amount..............................
[Class A] Invested Amount......................................
[Class A] Charge Off...........................................
[Class A] Default Amount.......................................
[Class A] Monthly Interest.....................................
[Class A] Principal Commencement Date..........................
[Class A] Principal Percentage.................................
[Class A] Required Amount......................................
[Class A] Servicing Fee........................................
[Class B] Accumulation Amount..................................
[Class B] Accumulation Period..................................
[Class B] Additional Interest..................................
[Class B] Adjusted Invested Amount.............................
[Class B] Available Funds......................................
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<PAGE>
[Class B] Certificate Rate.....................................
[Class B] Certificateholders' Interest.........................
[Class B] Certificates.........................................
[Class B] Controlled Amortization Amount.......................
[Class B] Controlled Amortization Period.......................
[Class B] Floating Percentage..................................
[Class B] Initial Invested Amount..............................
[Class B] Invested Amount......................................
[Class B] Charge Off...........................................
[Class B] Default Amount.......................................
[Class B] Monthly Interest.....................................
[Class B] Principal Commencement Date..........................
[Class B] Principal Percentage.................................
[Class B] Required Amount......................................
[Class B] Servicing Fee........................................
Closing Date...................................................
Code...........................................................
Collateral Additional Interest.................................
Collateral Available Funds.....................................
Collateral Charge-Off..........................................
Collateral Default Amount......................................
Collateral Floating Percentage.................................
Collateral Initial Invested Amount.............................
Collateral Interest............................................
Collateral Interest Holder.....................................
Collateral Interest Servicing Fee..............................
Collateral Invested Amount.....................................
Collateral Monthly Interest....................................
Collateral Principal Percentage................................
Collateral Rate................................................
Controlled Accumulation Amount.................................
Controlled Accumulation Period.................................
Controlled Accumulation Period Length..........................
Controlled Amortization Amount.................................
Controlled Amortization Period.................................
Controlled Deposit Amount......................................
Covered Amount.................................................
Credit Enhancement.............................................
Cut-Off Date...................................................
Defaulted Amount...............................................
Deficit Controlled Accumulation Amount.........................
Definitive Certificates........................................
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<PAGE>
Depositor......................................................
Distribution Date..............................................
Excess Spread..................................................
Excess Finance Charge Receivables..............................
Expected Final Payment Date....................................
Final Scheduled Payment Date...................................
Finance Charge Receivables.....................................
Floating Allocation Percentage.................................
Funding Period.................................................
Group [ ].....................................................
Initial Cash Collateral Amount.................................
Initial [Class B] Collateral Amount............................
Initial Cut-Off Date...........................................
Initial Invested Amount........................................
Initial Shared Collateral Amount...............................
Interest Funding Account.......................................
Interest Payment Date..........................................
Interest Period................................................
Invested Amount................................................
Investor Default Amount........................................
Issuance Date..................................................
Loan Agreement.................................................
Mandatory Prepayment...........................................
Monthly Period.................................................
Monthly Report.................................................
Monthly Servicing Fee..........................................
Paired Series..................................................
Pay Out Event..................................................
Period Length Determination Date...............................
Pooling and Servicing Agreement................................
Pre-Funding Account............................................
Principal Allocation Percentage................................
Principal Funding Account......................................
Principal Funding Account......................................
Principal Funding Investment Proceeds..........................
Principal Receivables..........................................
Rapid Amortization Period......................................
Rating Agency..................................................
Ratings Effect.................................................
Reallocated Principal Receivables..............................
Reallocated Principal Collections..............................
Receivables....................................................
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<PAGE>
Required Amount................................................
Required Cash Collateral Amount................................
Required Collateral Invested Amount............................
Required Reserve Account Amount................................
Required [Seller's] Amount.....................................
Reserve Account................................................
Reserve Account Funding Date...................................
Revolving Period...............................................
Series Supplement..............................................
[Servicer].....................................................
Servicing Fee..................................................
Shared Principal Collections...................................
Special Payment Date...........................................
Subsequent Cut-Off Date........................................
Subsequent Receivables.........................................
Subsequent Transfer Date.......................................
Termination Date...............................................
Trust..........................................................
Trust Portfolio................................................
Trustee........................................................
Underwriters...................................................
Underwriting Agreement.........................................
S-74
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the Registration Statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, soliciation or sale would be unlawful prior to
registration or qualification under the securities laws of any such State.
Subject to Completion, Dated [ ], 199[ ]
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED [ ], 199[ ]
CARD ACCOUNT TRUST, SERIES 199[ ]-[ ]
$[ ] [ %] [Floating Rate] [Adjustable Rate] [Variable Rate] Asset Backed Notes,
[Class] [1]
$[ ] [ %] [Floating Rate] [Adjustable Rate] [Variable Rate] Asset Backed Notes,
[Class] [2]
$[ ] [ %] [Floating Rate] [Adjustable Rate] [Variable Rate] Asset Backed
Certificates, [Class] [3]
ASSET BACKED SECURITIES CORPORATION, DEPOSITOR
The CSFB Card Account Trust 199[ ]-[ ] (the "Trust") will be formed
pursuant to a trust agreement to be dated as of [ ], 199[ ] (the "Trust
Agreement") and entered into by Asset Backed Securities Corporation (the
"Depositor"), and [Owner Trustee name], as owner trustee (the "Owner Trustee").
The Trust will issue $[ ] aggregate principal amount of Class [1] [ %]
[Floating Rate] [Adjustable Rate] [Variable Rate] Asset Backed Notes (the "Class
[1] Notes") and $[ ] aggregate principal amount of Class [2] [% ] [Floating
Rate ] [Adjustable Rate] [Variable Rate] Asset Back Notes (the "Class [2] Notes"
and, together with the Class [1] Notes, the "Notes"). The Notes will be issued
pursuant to an indenture to be dated as of [ ], 199[ ] (the "Indenture"),
between the Trust and [Indenture Trustee name] as indenture trustee (the
"Indenture Trustee"). The Trust will also issue $[ ] aggregate
(Continued on the following page)
--------------------
THE SECURITIES REPRESENT INTERESTS IN OR OBLIGATIONS OF THE TRUST ONLY AND DO
NOT REPRESENT INTERESTS IN OR OBLIGATIONS OF THE DEPOSITOR, OWNER TRUSTEE,
INDENTURE TRUSTEE OR ANY AFFILIATE THEREOF, EXCEPT TO THE EXTENT
PROVIDED HEREIN. NEITHER THE SECURITIES NOR THE UNDERLYING
ASSETS ARE INSURED OR GUARANTEED
BY ANY GOVERNMENTAL AGENCY.
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 SUPPLEMENT. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Price to Public Underwriting Discount Proceeds to the
Seller (1)
<S> <C> <C> <C>
Per [Class A] Certificate
[Per Class B Certificate]
Total
</TABLE>
===============================================================================
(1) Before deduction of expenses payable by the Seller, estimated ].
to be $[
--------------------
The Securities offered hereby will be purchased by CS First Boston
Corporation (the "Underwriter") from the Depositor and will, in each case, be
offered by the Underwriter from time to time to the public in negotiated
transactions or otherwise at varying prices to be determined at the time of
sale. [The aggregate proceeds to the Depositor from the sale of the Notes are
expected to be $[ ] and from the sale of the Certificates are expected to be
$[ ] before deducting expenses payable by the Depositor of $[ ].
The Securities are offered subject to prior sale and subject to the
Underwriter's right to reject orders in whole or in part. It is expected that
the Notes will be [available for delivery] [delivered in book-entry form] [at
the offices of the Underwriter] [through the facilities of The Depository Trust
Company] [(in the United States)] [and] [Cedel S.A. and the Euroclear System (in
Europe)] on or about [ ], 199[ ] [at the offices of the Underwriter]. [The
Securities will be offered in the United States of America and in Europe.]
--------------------
Underwriters of the Securities
LOGO CS First Boston
The date of this Prospectus Supplement is [ ], 199[ ].
<PAGE>
principal amount of Class [3] [% ] [Floating Rate] [Adjustable Rate] [Variable
Rate] Asset Backed Certificates (the "Class [3] Certificates" or the
"Certificates" and, together with the Notes, the "Securities"). Terms used and
not otherwise defined herein shall have the respective meanings ascribed to such
terms in the Prospectus dated [ ], 199[ ] attached hereto (the "Prospectus").
The Trust will consist of certain asset backed certificates
(collectively, the "CRB Securities") each issued pursuant to a pooling and
servicing agreement or master pooling and servicing agreement (collectively, the
"Agreements"). Each of the CRB Securities evidences an interest in a trust fund
created by one of the Agreements, the property of which includes a portfolio of
[charge card] [credit card] [consumer] [corporate] [debit card] [revolving]
receivables (collectively, the "Receivables") generated or to be generated from
time to time in the ordinary course of business in a portfolio of [charge card]
[credit card] [consumer] [debit card] [revolving] accounts (collectively, the
"Accounts"), all monies due in payment of the Receivables and certain other
properties, as more fully described herein. [In addition, the Trust will enter
into the Ancillary Agreements (as defined herein).]
The per annum rate of interest on the Class [1] Notes for each
[monthly] [quarterly] [semi-annually] Interest Accrual Period (as defined
herein) will equal [ %] [insert interest formula]. The per annum rate of
interest on the Class [2] Notes for each [monthly] [quarterly] [semi-annually]
Interest Accrual Period (as defined herein) will equal [ %] [insert interest
formula]. Interest on the Notes will be payable on the [ ] day of each [month]
[quarter] [semi-annual period] or, if any such day is not a Business Day, on the
next succeeding Business Day (the "Payment Date") commencing [ ], 199[ ].
Principal of the Class [1] Notes will be payable on each Payment Date,
commencing with the [ ], 199[ ] Payment Date (or earlier under certain
circumstances) to the extent described herein pro rata to the holders of the
Class [1] Notes. Principal of the Class [2] Notes will be payable on each
Payment Date, commencing with the [ ], 199[ ] Payment Date (or earlier under
certain circumstances) to the extent described herein pro rata to the holders of
the Class [2] Notes.
The Certificates will represent fractional undivided interests in the
Trust. Interest at a rate equal to [ %] [insert interest formula] will be
distributed to the Certificateholders on each Payment Date. Principal, to the
extent described herein, will be distributed to the Certificateholders on each
Payment Date, commencing with the [ ], 199[ ] Payment Date. Distributions
of principal and interest on the Certificates will be subordinated in priority
to payments due on the Notes as described herein.
There is currently no market for the Securities offered hereby and
there can be no assurance that such a market will develop or if it does develop
that it will continue. See "RISK FACTORS" herein.
Until ninety days after the date of this Prospectus Supplement, all
dealers effecting transactions in the Securities whether or not participating in
this distribution, may be required to deliver a Prospectus Supplement and
Prospectus to investors [and may be required to deliver a Global Prospectus
Supplement to non-U.S. investors]. This is in addition to the obligation of
dealers acting as underwriters to deliver a Prospectus Supplement and Prospectus
with respect to their unsold allotments or subscriptions.
--------------------
The Securities offered hereby constitute part of a separate series of
Asset Backed Securities being offered by the Depositor from time to time
pursuant to its Prospectus dated [ ], 199[ ]. This Prospectus Supplement
does not contain complete information about the offering of the Securities.
Additional information is contained in the Prospectus and investors are urged to
read both this Prospectus Supplement and the Prospectus in full as well as any
prospectus relating to the CRB Securities. [Non-U.S. investors are also urged
to read the Global Prospectus Supplement.] Sales of the Securities may not be
consummated unless the purchaser has received both this Prospectus Supplement
and the Prospectus [and, if a non-U.S. purchaser, the Global Prospectus
Supplement].
S-2
<PAGE>
SUMMARY
The following summary of certain pertinent information is
qualified in its entirety by reference to the detailed information
appearing elsewhere in this Prospectus Supplement and in the accompanying
Prospectus and in the prospectus and prospectus supplement for each of the
CRB Securities. Certain capitalized terms used herein are defined
elsewhere in the Prospectus Supplement or in the Prospectus.
Securities Offered.................... (i) [ %] [Floating Rate] [Adjustable
Rate] [Variable Rate] Asset Backed
Notes, [Class] [1] (the "[Class] [1]
Notes");
(ii) [ %] [Floating Rate]
[Adjustable Rate] Variable Rate]
Asset Backed Notes, [Class] [2] (the
"Class [2] Notes" and, together with
the [Class] [1] Notes, the "Notes");
and
(iii) [ %] [Floating Rate]
[Adjustable Rate] [Variable Rate]
Asset Backed Certificates, [Class]
[3] (the "[Class] [3] Certificates"
or the "Certificates" and, together
with the Notes, the "Securities").
Trust................................. Card Account Trust, Series 199[ ]-[
] (the "Trust" or the "Issuer").
Depositor............................. Asset Backed Securities Corporation.
Indenture............................. The Notes will be issued pursuant to
an indenture dated as of [ ], 199[
] (the "Indenture") between the Trust
and [insert Indenture Trustee name],
in its capacity as indenture trustee
(the "Indenture Trustee"). The
Indenture Trustee will allocate
distributions of principal and
interest received in respect of the
CRB Securities to holders of the
Notes (the "Noteholders") in
accordance with the terms of the
Indenture.
S-3
<PAGE>
Trust Agreement....................... Pursuant to a trust agreement dated
as of [ ], 199[ ] (the "Trust
Agreement"), among the Depositor and
[insert Owner Trustee name] in its
capacity as owner trustee (the "Owner
Trustee"), the Trust will issue the
[Class] [3] Certificates in an
initial aggregate amount of $[ ].
The Certificates will represent
fractional undivided interests in the
Trust.
CRB Securities........................ The CRB Securities are described
herein and in Appendix A attached to
this Prospectus Supplement. The CRB
Securities will consist of certain
eligible asset backed certificates,
as more fully described herein, each
issued pursuant to a pooling and
servicing agreement or master pooling
and servicing agreement
(collectively, the "Agreements").
Description of Notes.................. Each Class of Notes will be secured
by a specified group of assets of the
Trust pursuant to the Indenture.
A. Interest Rates
Payable on Notes............ [Class] [1] [ %] [insert interest
rate index, margin above index and
cap, if any] (the "[Class] [1] Note
Rate").
[Class] [2] [ %] [insert interest
rate index, margin above index and
cap, if any] (the "[Class] [2] Note
Rate").
B. Interest Payments............ Interest will accrue on the unpaid
principal amount of the Notes at the
respective per annum interest rates
specified herein. Interest will be
payable to Noteholders on each
Payment Date. Interest in respect of
a Payment Date will accrue on the
Notes from and including the
preceding Payment Date (in the case
of the first Payment Date, from and
including [ ], 199[ ] (the
"Closing Date")) to but excluding such
S-4
<PAGE>
current Payment Date (each, an
"Interest Accrual Period"). Interest
will be calculated on the basis of
the [actual number of days in each
Interest Accrual Period divided by
360] [a 360 day year of twelve 30 day
months]. A failure to pay interest
on any Class of Notes on any Payment
Date that continues for five days
constitutes an Event of Default under
the Indenture. [Except for payments
made pursuant to the Ancillary
Agreements described below,] interest
on the [Class] [1] Notes will be
payable only from interest received
on the [Group] [1] CRB Securities and
interest on the [Class] [2] Notes
will be payable only from interest
received on the [Group] [2] CRB
Securities.
C. Principal Payments........... No principal will be payable to the
Noteholders until the [ ], 199[ ]
Payment Date with respect to the
[Class] [1] Notes and the [ ],
199[ ] Payment Date with respect to
the [Class] [2] Notes, or, upon the
occurrence of an CRB Securities
Amortization Event, the first Payment
Date thereafter, as described herein.
Principal payable on the [Class] [1]
Notes on a Payment Date will
generally be equal to [insert [Class]
[1] Note Percentage]% (the "[Class]
[1] Note Percentage") of the
principal received on the [Group] [1]
CRB Securities only on such Payment
Date, as calculated by the Indenture
Trustee, and will be paid pro rata to
the holders of the [Class] [1] Notes.
Principal payable on the [Class] [2]
Notes on a Payment Date will
generally be equal to [insert [Class]
[1] Note Percentage]% (the "[Class]
[2] Note Percentage") of the
principal received on the [Group] [2]
CRB Securities only on such Payment
Date, as calculated by the
S-5
<PAGE>
Indenture Trustee, and will be paid
pro rata to the holders of the
[Class] [2] Notes.
D. Payment Date................. The [ ] day of each [month]
[quarter] [semi-annual period] or, if
such day is not a Business Day, the
next succeeding Business Day,
commencing with [ ], 199[ ]. A
"Business Day" is any day other than
a Saturday or Sunday or another day
on which banking institutions in New
York, New York [or London, England]
are authorized or obligated by law,
regulations or executive order to be
closed.
E. Record Date.................. Payments on the Notes will be made to
the Noteholders in whose name the
Notes were registered at the close of
business on the last day of the month
prior to the [month] [quarter]
[semi-annual period] in which such
payment occurs.
F. Final Scheduled
Payment Date................. To the extent not previously paid,
the principal balance of the [Class]
[1] Notes will be due on the [ ],
199[ ] Payment Date and the principal
balance of the [Class] [2] Notes will
be due on the [ ], 199[ ] Payment
Date. Failure to pay the full
principal balance of each Class of
Notes on or before the applicable
final scheduled payment dates
constitutes an Event of Default under
the Indenture.
G. Final Legal
Maturity..................... [ ], [ ].
H. Form and
Registration................. [The Notes will initially be
delivered in book-entry form
("Book-Entry Notes"). Noteholders
may elect to hold their interests
through The Depository Trust Company
("DTC"), in the United States, or
S-6
<PAGE>
Centrale de Livraison de Valeurs
Mobilieres S.A. ("Cedel") or the
Euroclear System ("Euroclear'), in
Europe. Transfers within DTC, Cedel
or Euroclear, as the case may be,
will be in accordance with the usual
rules and operating procedures of the
relevant system. So long as the
Notes are Book-Entry Notes, such
Notes will be evidenced by one or
more securities registered in the
name of Cede & Co. ("Cede"), as the
nominee of DTC or one of the relevant
depositaries (collectively, the
"European Depositaries").
Cross-market transfers between
persons holding directly or
indirectly through DTC, on the one
hand, and counterparties holding
directly or indirectly through Cedel
or Euroclear, on the other, will be
effected in DTC through Citibank N.A.
("Citibank") or Morgan Guaranty Trust
Company of New York ("Morgan"), the
relevant depositaries of Cedel and
Euroclear, respectively, and each a
participating member of DTC. The
Notes will initially be registered in
the name of Cede. The interests of
such Noteholders will be represented
by book entries on the records of DTC
and participating members thereof.
No Noteholder will be entitled to
receive a definitive note
representing such person's interest,
except in the event that Notes in
fully registered, certificated form
("Definitive Notes") are issued under
the limited circumstances described
in "CERTAIN INFORMATION REGARDING THE
SECURITIES--Definitive Securities" in
the Prospectus. All references in
this Prospectus Supplement to Notes
reflect the rights of Noteholders
only as such rights may be exercised
through DTC and its participating
organizations for so long as such
Notes are held by DTC. See "RISK
FACTORS--
S-7
<PAGE>
Book Entry Registration" and "CERTAIN
INFORMATION REGARDING THE
SECURITIES--Book Entry Registration"
in the Prospectus and "Annex 1"
thereto.]
[The Notes will be Definitive Notes.
See "CERTAIN INFORMATION REGARDING
THE SECURITIES--Definitive
Securities" in the Prospectus.
I. Denominations................ The Notes will be issued in minimum
denominations of $[ ] and integral
multiples of $1,000 in excess thereof.
J. Title........................ DTC, Cedel and Euroclear, or their
respective nominees, will be deemed
the registered holders of Book-Entry
Notes. Title to each Definitive Note
will be held by the Noteholder (or
its nominee) in whose same such Note
has been registered.
Description of Certificates........... Each certificate will represent an
undivided interest in the Trust as
herein described.
A. [Class] [3].................. The [Class] [3] Certificates
represent $[ ] aggregate principal
amount. Interest thereon will accrue
at a rate per annum equal to [ %]
[insert interest formula] [the
product of [insert [Group] [1]
interest formula] and the ratio that
the principal amount of the [Group]
[1] CRB Securities bears to the
aggregate principal amount of the CRB
Securities, [such amount being
subject to a maximum rate of [insert
[Group] [1] interest cap, if any]];
plus the product of [insert [Group]
[2] interest formula] and the ratio
that the principal amount of the
[Group] [2] CRB Securities bears to
the aggregate principal amount of the
CRB Securities, [such amount being
subject to a maximum rate of [insert
[Group] [2] interest cap, if any]],
payable
S-8
<PAGE>
[monthly] [quarterly] [semi-annually]
on each Payment Date[, provided that
the rate of interest on the [Class]
[3] Certificates shall not exceed
[insert Certificate interest cap, if
any] per annum] (the "[Class] [3]
Certificate Rate").
B. Interest Distributions
on the [Class] [3]
Certificates................. Interest will accrue on the unpaid
principal amount of the [Class] [3]
Certificates at the per annum rate
specified herein. Except as
otherwise provided herein, interest
will be distributed to [Class] [3]
Certificateholders on each Payment
Date. Interest in respect of a
Payment Date will accrue on the
[Class] [3] Certificates during the
preceding Interest Accrual Period and
will be calculated [on the basis of
the actual number of days in such
Interest Accrual Period divided by
360] [on the basis of a 360 day year
of twelve 30 day months].
C. Principal Distributions
on the [Class] [3]
Certificates................. No principal will be distributable to
[Class] [3] Certificateholders until
the [ ], 199[ ] Payment Date or,
upon the occurrence of an CRB
Securities Amortization Event, the
first Payment Date thereafter, as
described herein.
Principal distributable on the
[Class] [3] Certificates will
generally equal [the sum of] [insert
[Group] [1] Certificate Percentage]%
(the "[Group] [1] Certificate
Percentage") of the principal
received on the [Group] [1] CRB
Securities and [insert [Group] [2]
Certificate Percentage]% (the
"[Group] [2] Certificate Percentage")
of the
S-9
<PAGE>
principal received on the [Group] [2]
CRB Securities.
D. Record Date.................. Distribution on the Certificates will
be made to Certificateholders in
whose name the Certificates were
registered at the close of business
on the last day of the month prior to
the [month] [quarter] [semi-annual
period] in which such payment occurs.
E. Subordination................ Distributions of interest on the
Certificates with respect to the
[Group] [1] CRB Securities and the
[Group] [2] CRB Securities will be
subordinated in priority of payment
to the payment of interest due on the
[Class] [1] Notes and [Class] [2]
Notes respectively. Distributions of
principal on the Certificates with
respect to the [Group] [1] CRB
Securities and the [Group] [2] CRB
Securities will be subordinated in
priority of payment to the payment of
principal due on the [Class] [1]
Notes and [Class] [2] Notes,
respectively. Consequently,
Certificateholders will not receive
distributions of interest with
respect to the [Group] [1] CRB
Securities or the [Group] [2] CRB
Securities until the full amount of
interest due on the respective Class
of Notes on such Payment Date is paid
in full and will not receive any
distributions of principal with
respect to the [Group] [1] CRB
Securities or the [Group] [2] CRB
Securities until the full amount of
principal due on the respective Class
of Notes on such Payment Date is paid
in full.
F. Form......................... [The Certificates will initially be
delivered in book-entry form
("Book-Entry Certificates").
Certificateholders may elect to hold
their interests through The
Depository Trust Company ("DTC"), in
the United States, or Centrale de
Livraison de
S-10
<PAGE>
Valeurs Mobilieres S.A. ("Cedel") or
the Euroclear System ("Euroclear'),
in Europe. Transfers within DTC,
Cedel or Euroclear, as the case may
be, will be in accordance with the
usual rules and operating procedures
of the relevant system. So long as
the Certificates are Book-Entry
Certificates, such Certificates will
be evidenced by one or more
securities registered in the name of
Cede & Co. ("Cede"), as the nominee
of DTC or one of the relevant
depositaries (collectively, the
"European Depositaries").
Cross-market transfers between
persons holding directly or
indirectly through DTC, on the one
hand, and counterparties holding
directly or indirectly through Cedel
or Euroclear, on the other, will be
effected in DTC through Citibank N.A.
("Citibank") or Morgan Guaranty Trust
Company of New York ("Morgan"), the
relevant depositaries of Cedel and
Euroclear, respectively, and each a
participating member of DTC. The
Certificates will initially be
registered in the name of Cede. The
interests of such Certificateholders
will be represented by book entries
on the records of DTC and
participating members thereof. No
Certificateholder will be entitled to
receive a definitive certificate
representing such person's interest,
except in the event that Certificates
in fully registered, certificated
form ("Definitive Certificates") are
issued under the limited
circumstances described in "CERTAIN
INFORMATION REGARDING THE SECURITIES
-- Definitive Securities" in the
Prospectus. All references in this
Prospectus Supplement to Certificates
reflect the rights of
Certificateholders only as such
rights may be exercised through DTC
and its participating organizations
for so long as
S-11
<PAGE>
such Certificates are held by DTC.
See "RISK FACTORS -- Book-Entry
Registration" and "CERTAIN
INFORMATION REGARDING THE SECURITIES
-- Book-Entry Registration" in the
Prospectus and "Annex 1" thereto.]
[The Certificates will be Definitive
Certificates. See "CERTAIN
INFORMATION REGARDING THE
SECURITIES--Definitive Securities" in
the Prospectus.]
G. Denominations................ The Certificates will be issued in
minimum denominations of $[ ] and
integral multiples of $1000 in excess
thereof and will not be eligible to
be resold or subdivided into units
smaller than the minimum denomination
for issuance, except that one
Certificate will be issued in a
denomination of $[ ] and will be
held by the Depositor. [In addition,
non-United States persons will not be
permitted to purchase Certificates.
Such restrictions will be set forth
in a legend contained in the
registered form of Certificate. By
accepting delivery of a Certificate,
the holder will be deemed to have
agreed to comply with such
restrictions. Any attempt to
transfer [Class] [3] Certificates in
violation of the foregoing
restrictions will be null and void
and such transfer will not be
recorded by the registrar.]
H. Title........................ Title to each Definitive Certificate
will be held by the Certificateholder
(or its nominee) in whose name such
Certificate has been registered.
[Ancillary Arrangements............... On the Closing Date the Trust will
enter into ancillary arrangements
(such agreements, the "Ancillary
S-12
<PAGE>
Arrangements"). [Insert description
of Ancillary Arrangements.]
[Calculation of LIBOR................. LIBOR applicable to the calculation
of the [Class] [1] Note Rate in
respect of a Payment Date shall be
equal to the weighted average of the
LIBOR interest rates (weighted on the
basis of the outstanding principal
balances of the [Group] [1] CRB
Securities immediately prior to such
date) applicable to the distributions
of interest on the [Group] [1] CRB
Securities distributable on such
date.]
[LIBOR applicable to the calculation
of the [Class] [2] Note Rate in
respect of a Payment Date shall be
equal to the weighted average of the
LIBOR interest rates (weighted on the
basis of the outstanding principal
balances of the [Group] [2] CRB
Securities immediately prior to such
date) applicable to the distributions
of interest on the [Group] [2] CRB
Securities distributable on such
date.]
[LIBOR applicable to the calculation
of the interest rate on the [Class]
[3] Certificates in respect of a
Payment Date shall be equal to the
weighted average of the LIBOR
interest rates (weighted on the basis
of the outstanding principal balances
of the CRB Securities immediately
prior to such date) applicable to the
distributions of interest on the CRB
Securities distributable on such
date.]
[The LIBOR applicable to the CRB
Securities is described under
"Description of the CRB
Securities--Interest Distributions"
herein.]
Tax Considerations.................... In the opinion of Sidley & Austin
("Federal
S-13
<PAGE>
Tax Counsel"), the Trust will not be
an association (or publicly traded
partnership) taxable as a corporation
for federal income tax purposes. The
Trust will agree, and the Note Owners
will agree by their purchase of
Notes, to treat the Notes as debt for
federal tax purposes. Federal Tax
Counsel has advised the Trust that
the Notes will be classified as debt
for federal income tax purposes. The
Trust will also agree, and the
related Certificate Owners will agree
by their purchase of Certificates, to
treat the Trust as a partnership for
purposes of federal and state income
tax, franchise tax and any other tax
measured in whole or in part by
income, with the assets of the
partnership being the assets held by
the Trust, the partners of the
partnership being the Certificate
Owners (including, to the extent
relevant, the Depositor in its
capacity as recipient of
distributions from any Reserve Fund)
and the Notes being debt of the
partnership. See "CERTAIN FEDERAL
INCOME TAX CONSEQUENCES" in the
Prospectus for additional information
concerning the application of federal
income tax laws to the Trust.
Legal Investment...................... Institutions whose investment
activities are subject to legal
investment laws and regulations or to
review by certain regulatory
authorities may be subject to
restrictions on investment in the
Securities. See "LEGAL INVESTMENT
CONSIDERATIONS" herein.
ERISA................................. [State whether the Notes may be
classified as indebtedness without
substantial equity features for ERISA
purposes.]
S-14
<PAGE>
Rating................................ It is a condition to the issuance of
each Class of Notes that they be
rated [in the highest rating
category] by a Rating Agency, as
defined herein. It is a condition to
the issuance of the [Class] [3]
Certificates that they be rated [in
one of the [three] highest rating
categories] by a Rating Agency.
There is no assurance that such
rating will continue for any period
of time or that it will not be
revised or withdrawn entirely by such
rating agency, if, in its judgment,
circumstances so warrant. A revision
or withdrawal of such rating may have
an adverse effect on the market price
of the Securities. A security rating
is not a recommendation to buy, sell
or hold securities.
S-15
<PAGE>
RISK FACTORS
Limited Liquidity. There is currently no secondary market for the
Securities. CS First Boston currently intends to make a market in the Securities
but is under no obligation to do so. There can be no assurance that a secondary
market will develop in the Securities or, if a secondary market does develop,
that it will provide holders of the Securities with liquidity of investment or
will continue for the life of the Securities.
Trust's Relationship to the Depositor. The Depositor is not obligated to
make any payments in respect of the Securities or the CRB Securities.
Maturity Assumptions. The rate of payment of principal of each Class of
Securities, the aggregate amount of each distribution on, and the yield to
maturity of, each Class of Securities will depend on the rate of payment of
principal of the CRB Securities. Each Series of CRB Securities is subject to
early amortization upon the occurrence of any of the amortization events
applicable to such CRB Securities as described herein and in the prospectus used
in connection with the offering of such CRB Securities.
The rate of payment of principal of the Securities may also be affected by
the repurchase by each CRB Securities Issuer of the CRB Securities issued by it,
pursuant to a repurchase option which is exercisable after the aggregate
principal balance of the CRB Securities is less than [ %] of their original
principal balance at the purchase price equal to a percentage of the principal
balance of such CRB Securities, plus accrued and unpaid interest. In such event
the repurchase price paid by the CRB Securities Issuer would be passed through
to the Certificateholders and Noteholders as a payment of principal.
Rating of the Certificates and Notes. It is a condition to the issuance and
sale of each Class of the Notes that they each be rated [in the highest rating
category] by Moody's Investors Service, Inc. ("Moody's") and by Standard &
Poor's Ratings Group, a division of McGraw-Hill, Inc. ("S&P") (each of S&P and
Moody's being hereinafter referred to as a "Rating Agency"). A rating is not a
recommendation to purchase, hold or sell securities, inasmuch as such rating
does not comment as to market price or suitability for a particular investor.
The ratings address the likelihood of the receipt of distributions due on the
Securities pursuant to their terms. However, a Rating Agency does not evaluate,
and the ratings of the Securities do not address, the possibility that investors
may receive a lower yield than anticipated. There can be no assurance that a
rating will remain for any given period of time or that a rating will not be
lowered or withdrawn entirely by a Rating Agency if in its judgment
circumstances in the future so warrant.
Risks Attendant to Investments in the Certificates. Distributions of
interest on the Certificates with respect to the [Group] [1] CRB Securities and
the [Group] [2] CRB Securities will be subordinated in priority of payment to
the interest due on the [Class] [1] Notes and [Class] [2] Notes, respectively.
Distributions of principal on the Certificates with respect to the [Group] [1]
CRB Securities and the [Group] [2] CRB Securities will be subordinated in
priority of payment to the payment of principal due on the [Class] [1] Notes and
[Class] [2] Notes, respectively. Consequently, the Certificateholders will not
receive any distributions of Interest with respect an Interest Accrual Period
until the full amount of interest on the respective Class of Notes on such
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Payment Date has been paid in full and will not receive any distributions of
principal with respect to the [Group] [1] CRB Securities or the [Group] [2] CRB
Securities until the full amount of principal due on the respective Class of
Notes on such Payment Date is paid in full.
THE TRUST
GENERAL
The Issuer, Card Account Trust, Series 199[ ]-[ ], is [insert description
of Trust] After its formation, the Issuer will not engage in any activity other
than [(i)] [acquiring, holding and managing the CRB Securities and the other
assets of the Trust and proceeds therefrom,] [(ii)] [issuing the Notes and the
Certificates,] [(iii)] [making payments on the Notes and the Certificates] [and]
[(iv)] [engaging in other activities that are necessary, suitable or convenient
to accomplish the foregoing or are incidental thereto or connected therewith].
DESCRIPTION OF THE NOTES
GENERAL
The Notes will be issued pursuant to the Indenture dated as of [ ], 199[],
between the Trust and [Indenture Trustee name], as Indenture Trustee. The
Depositor will provide a copy of the Indenture to prospective investors without
charge upon request.
The following summaries describe certain terms of the Notes and the
Indenture. The summaries do not purport to be complete and are subject to, and
qualified in their entirety by reference to, the provisions of the Indenture.
Wherever particular defined terms of the Indenture are referred to, such defined
terms are thereby incorporated herein by reference. See "THE INDENTURE" herein
for a summary of additional terms of the Indenture.
The Notes will be issued [in fully registered form only] and each class of
Notes will be secured by a specified group of assets of the Trust. The Notes
will be freely transferable and exchangeable at the corporate trust office of
the Indenture Trustee. The Depositor will retain at least [ ]% of the
outstanding principal interest of each Class of Notes at all times prior to the
payment in full of the Notes.
PAYMENTS ON NOTES
Payments on the Notes, as described below, will be made by the Indenture
Trustee on the Payment Date to persons in whose names the Notes are registered
on the last day of the month preceding the [month] [quarter] [semi-annual
period] in which such Payment Date occurs (the "Record Date"). Payments to each
Noteholder will be made through the facilities of The Depository Trust Company
("DTC") (in the United States) or Cedel or Euroclear (in Europe) to an account
specified in writing by such holder as of the preceding Record Date or in such
other manner as may be agreed to by the Indenture Trustee and such holder. The
final payment in retirement of a Note will be made only upon surrender of the
Note to the Indenture Trustee at the
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office thereof specified in the notice to Noteholders of such final payment.
Notice will be mailed prior to the Payment Date on which the final payment of
principal and interest on a Note is expected to be made to the holder thereof.
PAYMENTS OF INTEREST
Interest on the principal balances of the Classes of the Notes will accrue
at the respective per annum interest rates specified below and will be payable
monthly on each Payment Date.
Interest in respect of a Payment Date will accrue on the outstanding
principal of the Notes from and including the preceding Payment Date (in the
case of the first Payment Date, from and including [ ], 199[ ] (the "Closing
Date") to but including such current Payment Date (each, an "Interest Accrual
Period"). Interest will be calculated on the basis of [the actual number of days
in each Interest Accrual Period divided by 360] [a 360 day year of twelve 30 day
months].
Except for payments made pursuant to the Ancillary Arrangements described
below, interest payments on the [Class] [1] Notes will be funded from the
collections of interest on the [Group] [1] CRB Securities on such date, and
interest payments on the [Class] [2] Notes will be funded from the collections
of interest on the [Group] [2] CRB Securities on such date. Interest on all of
the CRB Securities is payable on the [ ] day of each [month] [quarter] [semi-
annual period] or, if such day is not a Business Day, the next succeeding
Business Day (each a "CRB Securities Distribution Date"). If interest
collections on the [Group] [1] CRB Securities or the [Group] [2] CRB Securities
[plus amounts received with respect to the respective Ancillary Arrangements]
are not sufficient to pay the interest due on the respective classes of Notes
for any Payment Date and such default continues for five days, an Event of
Default will occur in respect of all of the Notes.
[Calculation of LIBOR. LIBOR applicable to the calculation of the interest
rates on the [Class] [1] Notes in respect of a Payment Date shall be calculated
by the Indenture Trustee and shall be equal to the weighted average of the LIBOR
interest rates (weighted on the basis of the outstanding principal balances of
the [Group] [1] CRB Securities immediately prior to such CRB Securities
Distribution Date) applicable to the distributions of interest on the [Group]
[1] CRB Securities distributable on such CRB Securities Distribution Date. LIBOR
applicable to the calculation of the interest rates on the [Class] [2] Notes in
respect of a Payment Date shall be calculated by the Indenture Trustee and shall
be equal to the weighted average of the LIBOR interest rates (weighted on the
basis of the outstanding principal balances of the [Group] [2] CRB Securities
immediately prior to such CRB Securities Distribution Date) applicable to the
distributions of interest on the [Group] [2] CRB Securities distributable on
such CRB Securities Distribution Date. The LIBOR applicable to the CRB
Securities is described under "DESCRIPTION OF THE CRB SECURITIES--Interest
Distributions" herein. The Indenture Trustee shall transmit the results of its
calculations of LIBOR to any securities exchange to which application to list
the Notes has been made prior to the Closing Date.]
[Class] [1]. The [Class] [1] Notes will bear interest at an annual rate
equal to [insert [Class] [1] interest rate formula, interest rate index and
margin above index, if any] on the aggregate principal amount of the [Class] [1]
Notes [, subject to a maximum rate of [insert interest
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rate cap, if any] [until the [ ], 199[ ] Payment Date, and, subsequently,
subject to no maximum rate]] (the "[Class] [1] Note Rate").
[Class] [2]. The [Class] [2] Notes will bear interest at an annual rate
equal to [insert [Class] [1] interest rate formula, interest rate index and
margin above index, if any] on the aggregate principal amount of the [Class] [2]
Notes [, subject to a maximum rate of [insert interest rate cap, if any] [until
the [ ], 199[ ] Payment Date, and, subsequently, subject to no maximum rate]]
(the "[Class] [2] Note Rate").
PAYMENTS OF PRINCIPAL
Principal payments to the Noteholders are expected to commence on the [ ],
199[ ] Payment Date with respect to the [Class] [1] Notes and the [ ], 199[ ]
Payment Date with respect to the [Class] [2] Notes. If, however, an CRB
Securities Amortization Event (as defined herein) shall occur, principal
payments on the Notes will commence on the first Payment Date after such CRB
Securities Amortization Event.
On each Payment Date in respect of which principal is distributed on the
[Group] [1] CRB Securities, principal payments will be made on the [Class] [1]
Notes in an amount generally equal to [insert [Class] [1] Note Percentage] (the
"[Class] [1] Note Percentage") of the principal distributed on the [Group] [1]
CRB Securities only. Such principal will be applied pro rata in accordance with
the outstanding principal balances of the [Class] [1] Notes. The principal
balance of the [Class] [1] Notes, to the extent not previously paid, will be due
on the [ ], 199[ ] Payment Date (the "[Class] [1] Final Schedule Payment Date").
On each Payment Date in respect of which principal is distributed on the
[Group] [2] CRB Securities, principal payments will be made on the [Class] [2]
Notes in an amount generally equal to [insert [Class] [2] Note Percentage] (the
"[Class] [2] Note Percentage") of such principal distributed on the [Group] [2]
CRB Securities only. Such principal will be applied pro rata in accordance with
the outstanding principal balances of the [Class] [2] Notes. The principal
balance on the [Class] [2] Notes, to the extent not previously paid, will be due
on the [ ], 199[ ] Payment Date (the "[Class] [2] Final Schedule Payment Date").
Principal on the [Class] [1] Notes will be payable solely from principal on
the [Group] [1] CRB Securities and principal on the [Class] [2] Notes will be
payable solely from principal on the [Group] [2] CRB Securities.
[ANCILLARY ARRANGEMENTS]
[On the Closing Date the Trust will enter into ancillary arrangements (such
agreements, the "Ancillary Arrangements").] [Insert description of the Ancillary
Arrangements.]
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DISTRIBUTIONS ON THE CRB SECURITIES; COLLECTION ACCOUNT
All distributions on the CRB Securities will be remitted directly to an
account (the "Collection Account") to be established with the Indenture Trustee
under the Indenture on the Closing Date. The Indenture Trustee will hold such
moneys uninvested and without liability for interest thereon for the benefit of
holders of the Securities. The CRB Securities Distribution Date in each month is
the Payment Date for such month.
[ASSIGNMENT OF CRB SECURITIES]
[The Depositor will acquire the CRB Securities for deposit into the Trust
from [insert Seller name]. At the time of issuance of the Securities, the
Depositor will cause the beneficial interest in such CRB Securities, which will
be held in book-entry form through the facilities of The Depository Trust
Company, to be delivered to the Indenture Trustee's participant account at The
Depository Trust Company.]
TERMINATION
All obligations of the Depositor and the Indenture Trustee created by the
Indenture will terminate upon the payment to Noteholders of all amounts required
to be paid to them pursuant to the Indenture. In addition, the occurrence of
certain CRB Securities Amortization Events (as defined herein) may lead to an
early termination of the obligations of the Depositor and the Indenture Trustee
created by the Indenture.
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Certificates will be issued pursuant to the Trust Agreement dated as of
[ ], 199[ ], among the Depositor and [insert Owner Trustee name] as Owner
Trustee. The Depositor will provide a copy of the Trust Agreement to prospective
investors without charge upon request.
The following summaries describe certain terms of the Certificates and the
Trust Agreement. The summaries do not purport to be complete and are subject to,
and qualified in their entirety by reference to, the provisions of the Trust
Agreement. Wherever particular defined terms of the Trust Agreement are referred
to, such defined terms are thereby incorporated herein by reference. See "THE
TRUST AGREEMENT" herein for a summary of additional terms of the Trust
Agreement.
The Certificates will be issued [in fully registered, certificated form
only] and will represent undivided interests in the Trust. Subject to the
limitations described in this paragraph, the Certificates will be freely
transferable and exchangeable at the corporate trust office of the Owner
Trustee. The Certificates will be issued in minimum denominations of $[ ] and
will not be eligible to be resold or subdivided in units smaller than the
minimum denomination for issuance [, except for one Certificate issued in a
denomination of $[ ] which will be held by the Depositor]. In addition, non-
United States persons will not be permitted to purchase Certificates.
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Such restrictions will be set forth in a legend contained in the registered form
of Certificate. By accepting delivery of a Certificate the holder will be deemed
to have agreed to comply with such restrictions. Any attempt to transfer
Certificates in violation of the foregoing restrictions will be null and void
and such transfer will not be recorded by the registrar. The Depositor will
retain at least [ ]% of the outstanding principal amount of the Certificates at
all times prior to the termination of the Trust Agreement.
[DISTRIBUTIONS ON CERTIFICATES]
[Pursuant to an administration agreement entered into between the Trust,
Indenture Trustee, [insert Administrator name], as administrator (the
"Administrator") and the Owner Trustee (the "Administration Agreement"),
distributions on the Certificates, as described below, will be made on behalf of
the Owner Trustee by the Administrator on the Payment Date to persons in whose
names the Certificates are registered on the Record Date. Distributions to each
Certificateholder will be made by the Administrator to an account specified in
writing by such holder as of the preceding Record Date or in such other manner
as may be agreed to by the Owner Trustee and such holder. The final distribution
in retirement of a Certificate will be made only upon surrender of the
Certificate to the Owner Trustee at the office thereof specified in the notice
to Certificateholders of such final distribution. Notice will be mailed prior to
the Payment Date on which the final distribution of principal and interest on a
Certificate is expected to be made to the holder thereof.]
DISTRIBUTIONS OF INTEREST
Interest on the principal balance of the [Class] [3] Certificates will
accrue at the per annum interest rate specified below and will be distributable
[monthly] [quarterly] [semi-annually] on each Payment Date. Interest in respect
of a Payment Date will accrue on the outstanding principal of the Certificates
from and including the preceding Payment Date (in the case of the first Payment
Date, from and including the Closing Date) to but excluding such current Payment
Date (each, and "Interest Accrual Period"). Interest will be calculated on the
basis of [the actual number of days in each Interest Accrual Period divided by
360] [a 360 day year of twelve 30 day months].
[Calculation of LIBOR: LIBOR applicable to the calculation of the interest
rates on the [Class] [3] Certificates in respect of a Payment Date shall be
calculated by the Indenture Trustee and shall be equal to the weighted average
of the LIBOR interest rates (weighted on the basis of the outstanding principal
balances of the CRB Securities immediately prior to such CRB Securities
Distribution Date) applicable to distributions of interest on the CRB Securities
distributable on such CRB Securities Distribution Date. The LIBOR applicable to
the CRB Securities is described under "DESCRIPTION OF THE CRB SECURITIES--
Interest Distributions" herein. The Indenture Trustee shall transmit the results
of its calculations of LIBOR to any securities exchange to which application to
list the Certificates has been made prior to the Closing Date.]
[Class] [3]. The [Class] [3] Certificates will bear interest on the
aggregate principal amount of such Certificates at an annual rate equal to (x)
[insert [Class] [3] index] [plus (i) [insert [Group] [1] interest rate formula]
multiplied by the ratio that the principal amount of the [Group]
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[1] Underlying Assets bears to the aggregate principal amount of the CRB
Securities [,such amount being subject to a maximum rate of [insert interest
rate cap, if any]]; [plus (ii) [insert [Group] [2] interest rate formula]
multiplied by the ratio that the principal amount of the [Group] [2] CRB
Securities bears to the aggregate principal amount of the CRB Securities [, such
amount being subject to a maximum rate of [insert interest rate cap, if any]]].
DISTRIBUTIONS OF PRINCIPAL
Principal distributions to Certificateholders are expected to commence on
the [ ], 199[ ] Payment Date. If, however, an CRB Securities Amortization Event
(as defined herein) shall occur, principal distributions on the Certificates
will commence on the first Payment Date after such CRB Securities Amortization
Event.
On each Payment Date in respect of which principal is distributed on the
CRB Securities, principal distributions will, subject to the prior rights of the
holders of the Notes described under "Subordination" below, be made on the
[Class] [3] Certificates in an amount generally equal to [insert [Group] [1]
Certificate percentage]% (the "[Group] [1] Certificate Percentage) of the
principal amount on the [Group] [1] CRB Securities and [insert [Group] [2]
Certificate Percentage]% (the "[Group] [2] Certificate Percentage") of the
principal distributed on the [Group] [2] CRB Securities. Such principal will be
applied pro rata in accordance with the outstanding principal balances of the
[Class] [3] Certificates. The principal balance of the [Class] [3] Certificates
at any time will be equal to the outstanding principal balance of the CRB
Securities at such time multiplied by the [Class] [3] Certificate Percentage at
such time. As more fully described herein, the outstanding principal balance of
the CRB Securities will be reduced as a result of principal payments on the
Receivables that are distributed in respect of the CRB Securities.
SUBORDINATION
Distributions of interest on the [Class] [3] Certificates with respect to
the [Group] [1] CRB Securities and the [Group] [2] CRB Securities will be
subordinated in priority of payment to the payment of interest due on the
[Class] [1] Notes and [Class] [2] Notes, respectively. Distributions of
principal on the Certificates with respect to the [Group] [1] CRB Securities and
the [Group] [2] CRB Securities will be subordinated in priority of payment of
principal due on the [Class] [1] Notes and [Class] [2] Notes, respectively.
Consequently, the Certificateholders will not receive any distributions of
interest with respect to the [Group] [1] CRB Securities or the [Group] [2] CRB
Securities with respect to a Payment Date until the full amount of interest due
on the respective Class of Notes on such Payment Date is paid in full and will
not receive any distributions of principal with respect to the [Group] [1] CRB
Securities or the [Group] [2] CRB Securities until the full amount of principal
due on the respective Class of Notes on such Payment Date is paid in full.
TERMINATION
All obligations of the Depositor and the Owner Trustee created by the Trust
Agreement will terminate upon the distribution to Certificateholders of all
amounts required to be distributed
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to them pursuant to the Trust Agreement. In addition, the occurrence of certain
CRB Securities Amortization Events (as defined herein) will lead to an early
termination of the obligations of the Depositor and the Owner Trustee created by
the Trust Agreement.
DESCRIPTION OF THE CRB SECURITIES
The table below sets forth certain of the characteristics of the CRB
Securities. The table does not purport to be complete and is subject to, and
qualified in its entirety by reference to, the prospectuses and prospectus
supplements pursuant to which the CRB Securities were offered and sold. The CRB
Securities are not listed on any securities exchange.
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DESCRIPTION OF THE CRB SECURITIES
Issuer..................................
Servicer................................
Trustee.................................
Designation.............................
Principal Amount to be Sold to Trust....
Approximate percentage of total CRB
Securities to be Sold to Trust.........
Initial Certificate Amount..............
Series Termination Date.................
Certificate Rate........................
Monthly Distribution Date...............
Commencement of Controlled Amortization
Period.................................
Minimum Seller's Percentage.............
Cash Collateral Guaranty Amount.........
Percentage of Subordinated Class B
Certificates...........................
Optional Repurchase Percentage..........
Ratings (Moody's/S&P)...................
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GENERAL
This Prospectus Supplement sets forth certain relevant terms with respect
to the CRB Securities, but does not provide detailed information with respect to
the CRB Securities. Appendix A to this Prospectus Supplement contains excerpts
from each prospectus pursuant to which the CRB Securities were offered and sold.
This Prospectus Supplement relates only to the Securities offered hereby and
does not relate to the CRB Securities.
CRB SECURITIES CONSIDERATIONS; RECENT DEVELOPMENTS
Each of the CRB Securities represents an obligation of the related CRB
Issuer only. Prospective investors in the Securities should consider carefully
the risk factors and special considerations [insert applicable references] in
each CRB Securities Offering Document and should avail themselves of the same
information concerning each CRB Seller, CRB Servicer and CRB Issuer as they
would if they were purchasing the CRB Securities or similar investments backed
by Receivables. Each CRB Issuer [or [ ], as originator of a CRB Issuer,] is
subject to the informational requirements of the Exchange Act. Accordingly, each
CRB Issuer or [ ] files annual and periodic reports and other information,
including monthly Servicer Reports (collectively, "CRB Issuer Exchange Act
Reports") with the Commission. Copies of such CRB Issuer Exchange Act Reports,
each CRB Securities Offering Document, Servicer Reports and other information
(collectively, the "CRB Securities Disclosure") may be inspected and copied at
certain offices of the Commission at the addresses listed under "Available
Information" in the Prospectus. If any CRB Issuer or [ ] ceases to be subject to
the informational requirements of the Exchange Act, the Depositor will not be
relieved from the informational requirements of the Exchange Act.
Neither the Depositor nor the Underwriter participated in the [offering of
the CRB Securities or in the] preparation of the publicly available information
referred to above or of any CRB Securities Offering Document, nor has the
Depositor or the Underwriter made any due diligence inquiry with respect to the
information provided therein. Although neither the Depositor nor the Underwriter
is aware of any material misstatements or omissions in any CRB Securities
Offering Document speaking as of its date, the information provided therein or
in the other publicly available documents referred to above cannot be verified
by the Depositor or the Underwriter as to accuracy or completeness. Information
set forth in each CRB Securities Offering Document speaks only as of the date of
such CRB Securities Offering Document; there can be no assurance that all events
occurring prior to the date hereof that would affect the accuracy or
completeness of any statements included in such CRB Securities Offering Document
or in the other publicly available documents filed by or on behalf of the CRB
Issuer have been publicly disclosed.
[Describe any other recent material developments that may exist based on
publicly available information.]
AN INVESTMENT IN THE SECURITIES IS DIFFERENT FROM, AND SHOULD NOT BE
CONSIDERED A SUBSTITUTE FOR, AN INVESTMENT IN THE CRB SECURITIES.
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Set forth below is certain information excerpted and summarized from each
prospectus relating to the CRB Securities.
The CRB Securities have been issued pursuant to Agreements entered into
between various sellers and various trustees. See "Appendix A" for further
description of the various CRB Securities Issuers. The following summary
describes certain general terms of such Agreements, but investors should refer
to the Agreements themselves for all the terms governing the CRB Securities.
Each of the CRB Securities represents an undivided interest in one of the
CRB Securities Issuers, including the right to a percentage of cardholder
payments on the Receivables underlying such issue of CRB Securities. The assets
of each CRB Securities Issuer include a pool of Receivables arising under
Accounts, funds collected or to be collected from cardholders in respect of the
Receivables and services in the Accounts, monies on deposit in certain accounts
of the CRB Securities Issuers, the right to draw upon various enhancements and
may also include the right to receive certain interchange fees attributed to
cardholder charges for merchandise. Each of the CRB Securities represents the
right to receive payments of interest for the related interest period at the
applicable CRB Securities Certificate Rate (as defined herein) for such interest
period from collections of Receivables and, in certain circumstances, from draws
on applicable enhancement, and payments of principal during the CRB Securities
Amortization Period (as defined herein) funded from collections of Receivables.
Each seller of CRB Securities (each, a "Seller") holds the interest in the
Receivables of an CRB Securities Issuer not represented by the CRB Securities
and any other series of securities issued by the CRB Securities Issuer. Such
Seller holds an undivided interest in the CRB Securities Issuer (the "Seller's
Interest"), including the right to a percentage (the "Seller's Percentage") of
all cardholder payments on the Receivables.
THE [GROUP] [1] CRB SECURITIES
The [Group] [1] CRB Securities will consist of the CRB Securities issued by
the following CRB Securities Issuers: [insert description of [Group] [1] card
issuers].
THE [GROUP] [2] CRB SECURITIES
The [Group] [2] CRB Securities will consist of the CRB Securities issued by
the following CRB Securities Issuers: [insert description of [Group] [2] card
issuers].
INTEREST DISTRIBUTIONS
Interest accrues on the CRB Securities at the certificate rate for each
class and series of CRB Securities (a "CRB Securities Certificate Rate"), from
the date of the initial issuance of the CRB Securities. Interest at the
applicable rate will be distributed to the holders of the CRB Securities
[monthly] [quarterly] [semi-annually] on each CRB Securities Distribution Date.
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Interest on the CRB Securities is calculated [on the basis of the actual
number of days in the related interest period and a 360-day year] [on the basis
of a 360 day year of twelve 30 day months].
[The CRB Securities all bear interest at a rate per annum of [insert
description of CRB Securities interest rates]. [LIBOR is determined according to
[the Reuters Screen LIBO Page (as defined in the International Swap Dealers
Association, Inc. Code of Standard Wording, Assumption and Provisions for SWAPS,
1986 edition) ("Reuters LIBOR")] [the Telerate Page 3750 of the Dow Jones
Telerate Service (or such other page as may replace Telerate Page 3750 on that
service for the purpose of displaying London interbank offered rates of major
banks) ("Telerate LIBOR")].
PRINCIPAL DISTRIBUTION
Generally, principal distributions due to the holders of the CRB Securities
are scheduled to commence on the first CRB Securities Distribution Date with
respect to a controlled amortization period for a series of CRB Securities (a
"CRB Securities Controlled Amortization Period"), but may be distributed earlier
or later than such date. However, if a Rapid Amortization Event, Early
Amortization Event, Pay Out Event, Liquidation Event or Economic Pay Out Event
(as such terms are defined in the Agreements) (each such event, a "CRB
Securities Amortization Event") occurs, [monthly] [quarterly] [semi-annual]
distributions of principal to the holders of the CRB Securities will begin on
the first CRB Securities Distribution Date following the occurrence of such CRB
Securities Amortization Event. See "CRB Securities Amortization Events" below.
If an CRB Securities Amortization Event does not occur, principal will be
distributed to the holders of the CRB Securities on the first CRB Securities
Distribution Date during the applicable CRB Securities Controlled Amortization
Period. If, however, the amount of principal distributed on the scheduled final
CRB Securities Distribution Date is not sufficient to pay the holders of the CRB
Securities in full, then monthly distributions of principal to the holders of
CRB Securities will occur on each CRB Securities Distribution Date after the
scheduled final CRB Securities Distribution Date.
INVESTOR PERCENTAGE AND SELLER'S PERCENTAGE
Pursuant to the Agreements, all amounts collected on Receivables will be
allocated between the investor interest of the holders of the CRB Securities,
the investor interest of any other Series, and the Seller's Interest by
reference to the investor percentage of the holders of the CRB Securities, the
investor percentage of any other Series, and the Seller's Percentage.
The Seller's Percentage in all cases means the excess of 100% over the
aggregate investor percentages of all Series then outstanding.
ALLOCATION OF COLLECTIONS
The CRB Securities Servicer will deposit any payments collected by the CRB
Securities Servicer with respect to the Receivables and will generally allocate
such amounts as follows:
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(a) an amount equal to the applicable Seller's Percentage of the aggregate
amount of deposits in respect of Principal Receivables and Finance
Charge Receivables, respectively, will be paid to the holder of the
Seller's Interest,
(b) an amount equal to the applicable investor percentage of the aggregate
amount of such deposits in respect of Finance Charge Receivables will
be deposited into an account for the benefit of the holders of the CRB
Securities,
(c) during the revolving period, an amount generally equal to the
applicable investor percentage of the aggregate amount of such
collections in respect of Principal Receivables will be paid to the
holder of the Seller's Certificate; provided, however, that such
amount may not exceed the amount equal to the Seller's Interest,
(d) during the CRB Securities Controlled Amortization Period or after the
occurrence of an CRB Securities Amortization Event, collections of
Principal Receivables will be allocated to the holders of CRB
Securities based on the investor percentage.
The term "Seller's Interest" also encompasses the terms Seller's Certificate,
Transferor's Certificate, Exchangeable Seller's Certificate and Exchangeable
Transferor's Certificate. "Principal Receivables" generally consist of amounts
charged by cardholders for merchandise and services, amounts advanced as cash
advances and the interest portion of any participation interests. "Finance
Charge Receivables" generally consist of monthly periodic charges, annual fees,
cash advance fees, late charges, over-limit fees and all other fees billed to
cardholders, including administrative fees.
CRB SECURITIES AMORTIZATION EVENTS
The following is a summary of the typical CRB Securities Amortization
Events for each series of CRB Securities. Certain additional CRB Securities
Amortization Events unique to particular series of CRB Securities are described
following this summary:
(a) failure to make payments to holders of CRB Securities within the time
periods given in the Agreements,
(b) material breaches of certain representations, warranties or covenants
or failure to observe or perform in a material respect any covenant or
agreement under an Agreement,
(c) occurrence of a material default by a servicer of the Receivables
underlying a series of CRB Securities (a "CRB Securities Servicer"),
(d) failure to maintain the Seller's Interest in an amount at least equal
to minimum Seller's Percentage of Principal Receivables in the CRB
Securities Issuer as of such date,
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(e) failure to maintain a certain minimum level of Receivables or
Accounts, or if the Seller is unable to transfer Receivables or
Accounts to an CRB Securities Issuer,
(f) certain events of bankruptcy or insolvency relating to the Seller,
(g) an CRB Securities Issuer becomes an "investment company" within the
meaning of the Investment Company Act of 1940, as amended,
(h) any reduction of the portfolio yield or excess spread (averaged out
over any three consecutive months) to a rate below a certain rate
provided in the Agreement for such period,
(i) the available amount of the Cash Collateral Guaranty is less than 3%
of the amount of the investor interest for the underlying series of
CRB Securities.
[Insert additional Amortization Events for particular CRB Securities.]
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
Generally, the CRB Securities Servicer's compensation for its servicing
activities and reimbursement for its expenses for any monthly period will be a
servicing fee (a "CRB Securities Servicing Fee") payable monthly. The CRB
Securities Servicing Fee will be allocated among the Seller's Interest and the
investor interests of all Series issued by the CRB Securities Issuer.
Generally, the CRB Securities Servicer will pay from its servicing
compensation certain expenses incurred in connection with servicing the
Receivables including, without limitation, payment of the fees and disbursements
of the CRB Securities Trustee and independent accountants and other fees which
are not expressly stated in the related Agreement to be payable by the CRB
Securities Issuer or the holders of CRB Securities.
THE DEPOSITOR
The Depositor is a special-purpose Delaware corporation organized for the
purpose of issuing the Securities and other securities issued under the
Registration Statement backed by receivables or underlying securities of various
types and acting as settlor or depositor with respect to trusts, custody
accounts or similar arrangements or as general or limited partner in
partnerships formed to issue securities. It is not expected that the Depositor
will have any significant assets. The Depositor is an indirect, wholly owned
finance subsidiary of Collateralized Mortgage Securities Corporation which is a
wholly owned subsidiary of CS First Boston Securities Corporation, which is a
wholly owned subsidiary of CS First Boston, Inc. Neither CS First Boston
Securities Corporation nor CS First Boston, Inc. nor any of their affiliates has
guaranteed, will guarantee or is or will be otherwise obligated with respect to
any Series of Securities.
The Depositor's principal executive office is located at Park Avenue Plaza,
55 East 52nd Street, New York, New York 10055, and its telephone number is (212)
909-2000.
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THE INDENTURE
The following summary describes certain terms of the Indenture. The summary
does not purport to be complete and is subject to, and qualified in its entirety
by reference to, the provisions of the Indenture. Whenever particular sections
or defined terms of the Indenture are referred to, such sections or defined
terms are thereby incorporated herein by reference. See "DESCRIPTION OF THE
NOTES" herein for a summary of certain additional terms of the Indenture.
COLLECTION OF DISTRIBUTIONS ON CRB SECURITIES
The CRB Securities will be assets of the Trust. All distributions on the
CRB Securities will be made directly to the Indenture Trustee. The obligation of
the Indenture Trustee in making payments on the Notes is limited to
distributions on the CRB Securities [and payments in respect of the Ancillary
Arrangements] which were actually received by it. However, if the Indenture
Trustee has not received a distribution with respect to the CRB Securities by
the [ ] Business Day after the date on which such distribution was due and
payable pursuant to the terms of such CRB Securities, the Indenture will require
it to take such actions as are permissible pursuant to the related CRB
Securities Agreement to ensure that the distribution be made as promptly as
possible and legally permitted, and to take such legal action as the Indenture
Trustee deems appropriate under the circumstances, including the prosecution of
any claims in connection therewith. The reasonable legal fees and expenses
incurred by the Indenture Trustee in connection with the prosecution of any
legal action will be reimbursable to the Indenture Trustee out of the proceeds
of any such action and will be retained by the Indenture Trustee prior to the
deposit of any remaining proceeds in the Collection Account pending distribution
thereof to Noteholders. Payments on the Notes will be reduced by an aggregate
amount equal to such fees and expenses in proportion to the payments of
principal and interest that would have been otherwise made on the Notes on the
Payment Date following the recovery of any such proceeds. In the event that the
Indenture Trustee has reason to believe that the proceeds of any such legal
action may not be sufficient to reimburse it for its projected legal fees and
expenses, the Indenture Trustee will notify the Noteholders that it is not
obligated to pursue any such available remedies unless adequate indemnity for
its legal fees and expenses is provided by the Noteholders.
REPORTS TO NOTEHOLDERS
The Indenture Trustee will mail to each Noteholder, at such Noteholder's
request, at its address listed on the Note Register maintained with the
Indenture Trustee, a report stating (i) the amounts of principal and interest,
respectively, paid on each $1,000 in face amount of Notes, (ii) the outstanding
principal balance of each Class of Notes and (iii) the outstanding balances of
the [Group] [1] CRB Securities or the [Group] [2] CRB Securities.
The Indenture Trustee shall forward by mail to each Noteholder the most
current CRB Securities Distribution Date Statement (as defined in the Indenture)
received by the Indenture Trustee as of the date of such request.
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EVENTS OF DEFAULT; RIGHTS UPON EVENT OF DEFAULT
With respect to the Notes, "Events of Default" under the Indenture will
consist of: (i) a default for [ ] days or more in the payment of any interest on
any Note; (ii) a default in the payment of the principal of, or any installment
of the principal of, any Note when the same becomes due and payable; (iii) a
default in the observance or performance of any covenant or agreement of the
Trust made in the Indenture and the continuation of any such default for a
period of [ ] days after notice thereof is given to the Trust by the Indenture
Trustee, or to the Trust and the Indenture Trustee, or to the Trust and the
Indenture Trustee by the holders of at least [ %] in principal amount of the
Notes then outstanding; (iv) any representation or warranty made by the Trust in
the Indenture or in any certificate delivered pursuant thereto or in connection
therewith having been incorrect in a material respect as of the time made, and
such breach not having been cured within 30 days after notice thereof is given
to the Trust by the Indenture Trustee or to the Trust and the Indenture Trustee
by the holders of at least [ %] in principal amount of Notes then outstanding;
or (v) certain events of bankruptcy, insolvency, receivership or liquidation of
the Trust. The amount of principal required to be paid to Noteholders under the
Indenture will generally be limited to amounts available to be deposited in the
Collection Account. Therefore, the failure to pay principal on a Class of Notes
generally will not result in the occurrence of an Event of Default until the
final scheduled Payment Date for such Class of Notes.
If there is an Event of Default with respect to a Note due to late payment
or nonpayment of interest due on a Note, additional interest will accrue on such
unpaid interest at the interest rate on the Note (to the extent lawful) until
such interest is paid. Such additional interest on unpaid interest shall be due
at the time such interest is paid. If there is an Event of Default due to late
payment or nonpayment of principal on a Note, interest will continue to accrue
on such principal at the interest rate on the Note until such principal is paid.
If an Event of Default should occur and be continuing with respect to the
Notes, the Indenture Trustee or holders of [ %] in principal amount of each
Class of Notes then outstanding may declare the principal of such Class of Notes
to be immediately due and payable. Such declaration may, under certain
circumstances, be rescinded by the holders of [ %] in principal amount of the
applicable Class of Notes then outstanding.
If the Notes are due and payable following an Event of Default with respect
thereto, the Indenture Trustee may institute proceedings to collect amounts due
or to foreclose on Trust property, exercise remedies as a secured party, sell
the CRB Securities or elect to have the Trust maintain possession of the CRB
Securities and continue to apply collections on the CRB Securities as if there
had been no declaration or acceleration. The Indenture Trustee is prohibited
from selling the CRB Securities following an Event of Default, other than a
default in the payment of any principal of, or a default for five days or more
in the payment of any interest on, any Note, unless (i) the holders of all
outstanding Notes consent to such sale, (ii) the proceeds of such sale are
sufficient to pay in full the principal of and the accrued interest on the
outstanding Notes at the date of such sale or (iii) the Indenture Trustee
determines that the proceeds of CRB Securities would not be sufficient on an
ongoing basis to make all payments on the Notes as such payments
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would have become due if such obligations had not been declared due and payable,
and the Indenture Trustee obtains the consent of the holders of at least [ %] of
the aggregate outstanding amount of the Notes.
If an Event of Default occurs and is continuing with respect to the Notes,
the Indenture Trustee will be under no obligation to exercise any of the rights
or powers under the Indenture at the request or direction of any of the holders
of the Notes, if the Indenture Trustee reasonably believes it will not be
adequately indemnified against the costs, expenses and liabilities which might
be incurred by it in complying with such request. Subject to the provisions for
indemnification and certain limitations contained in the Indenture, the holders
of [ %] in principal amount of the Notes then outstanding may, in certain cases,
waive any default in respect thereto, except a default in the payment of
principal or interest or a default in respect of a covenant or provision of the
Indenture that cannot be modified without the waiver or consent of all the
holders of the outstanding Notes.
No holder of a Note will have the right to institute any proceeding with
respect to the Indenture, unless (i) such holder previously has given the
Indenture Trustee written notice of a continuing Event of Default, (ii) the
holders of not less than [ %] in principal amount of the outstanding Notes have
made written request to the Indenture Trustee to institute such proceeding in
its own name as Indenture Trustee, (iii) such holder or holders have offered the
Indenture Trustee reasonable indemnity, (iv) the Indenture Trustee has for [ ]
days failed to institute such proceeding and (v) no direction inconsistent with
such written request has been given to the Indenture Trustee during the [ ]-day
period by the holders of [ %] in principal amount of the Notes.
In addition, the Indenture Trustee and the Noteholders, by accepting the
Notes, will covenant that they will not at any time institute against the Trust
any bankruptcy, reorganization or other proceeding under any federal or state
bankruptcy or similar law.
With respect to the Trust, neither the Indenture Trustee nor the Owner
Trustee in its individual capacity, nor any holder of a Certificate representing
an ownership interest in the Trust nor any of their respective owners,
beneficiaries, agents, officers, directors, employees, affiliates, successors or
assigns will, in the absence of an express agreement to the contrary, be
personally liable for the payment of the principal of or interest on the Notes
or for the agreements of the Trust contained in the Indenture.
CERTAIN COVENANTS
The Indenture will provide that the Trust may not consolidate with or merge
into any other entity, unless (i) the entity formed by or surviving such
consolidation or merger is organized under the laws of the United States, any
state or the District of Columbia, (ii) such entity expressly assumes the
Trust's obligation to make due and punctual payments upon the Notes and the
performance or observance of any agreement and covenant of the Trust under the
Indenture, (iii) no Event of Default shall have occurred and be continuing
immediately after such merger or consolidation, (iv) the Trust has been advised
that the ratings of the Securities then in effect would not be reduced or
withdrawn by a Rating Agency as a result of such merger or consolidation and
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(v) the Trust has received an opinion of counsel to the effect that such
consolidation or merger would have no material adverse tax consequence to the
Trust or to any Noteholder or Certificateholder.
The Trust will not, among other things, (i) except as expressly permitted
by the Indenture, sell, transfer, exchange or otherwise dispose of any of the
assets of the Trust, (ii) claim any credit on or make any deduction from the
principal and interest payable in respect of the Notes (other than amounts
withheld under the Code or applicable state law) or assert any claim against any
present or former holder of Notes because of the payment of taxes levied or
assessed upon the Trust, (iii) dissolve or liquidate in whole or in part, (iv)
permit the validity or effectiveness of the Indenture to be impaired or permit
any person to be released from any covenants or obligations with respect to the
Notes under the Indenture except as may be expressly permitted thereby or (v)
permit any lien, charge, excise, claim, security interest, mortgage or other
encumbrance to be created on or extent to or otherwise arise upon or burden the
assets of the Trust or any part thereof, or any interest therein or the proceeds
thereof.
The Trust may not engage in any activity other than as specified under "The
Trust" herein. The Trust will not incur, assume or guarantee any indebtedness
other than indebtedness incurred pursuant to the Notes and the Indenture.
ANNUAL COMPLIANCE STATEMENT
The Trust will be required to file annually with the Indenture Trustee a
written statement as to the fulfillment of its obligations under the Indenture.
INDENTURE TRUSTEE'S ANNUAL REPORT
The Indenture Trustee will be required to mail each year to all Noteholders
a report relating to any change in its eligibility and qualification to continue
as Indenture Trustee under the Indenture, any amounts advanced by it under the
Indenture, the amount, interest rate and maturity date of any indebtedness owing
by the Trust to the Indenture Trustee in its individual capacity, any change in
the property and funds physically held by the Indenture Trustee in its
individual capacity, any change in the property and funds physically held by the
Indenture Trustee as such and any action taken by it that materially affects the
Notes and that has not been previously reported, but if no such changes have
occurred then no report shall be required.
SATISFACTION AND DISCHARGE OF INDENTURE
The Indenture will be discharged with respect to the collateral securing
the Notes upon the delivery to the Indenture Trustee for cancellation of all
Notes, or with certain limitations, upon deposit with the Indenture Trust of
funds sufficient for the payment in full of all the Notes.
MODIFICATION OF INDENTURE
With the consent of the holders of [ %] in principal amount of the Notes,
the Trust and the Indenture Trustee may execute a supplemental indenture to add
provisions to, change in any
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manner or eliminate any provisions of, the Indenture, or modify (except as
provided below) in any manner rights of the Noteholders.
Without the consent of the holder of each outstanding Note affected
thereby, however, no supplemental indenture will: (i) change the due date of any
installment of principal of or interest on any Note or reduce the principal
amount thereof, the interest rate specified thereon, or the redemption price
with respect thereto, or change any place of payment where or the coin or
currency in which any Note or interest thereon is payable; (ii) impair the right
to institute suit for the enforcement of certain provisions of the Indenture
regarding payment; (iii) reduce the percentage of the aggregate amount of the
outstanding Notes, the consent of the holders of which is required for any
waiver of compliance with certain provisions of the Indenture or of certain
defaults thereunder and their consequences as provided for in the Indenture;
(iv) modify or alter the provisions of the Indenture regarding the voting of
Notes held by the Trust, the Depositor or an affiliate of any of them; (v)
reduce the percentage of the aggregate outstanding amount of Notes, the consent
of the holders of which is required to direct the Indenture Trustee to sell or
liquidate the CRB Securities if the proceeds of such sale would be insufficient
to pay the principal amount and accrued but unpaid interest on the outstanding
Notes; (vi) decrease the percentage of the aggregate principal amount of Notes
required to amend the sections of the Indenture which specify the applicable
percentage of aggregate principal amount of the Notes necessary to amend the
Indenture or certain other related agreements; or (vii) permit the creation of
any lien ranking prior to or on a parity with the lien of the Indenture with
respect to any of the collateral for the Notes or, except as otherwise permitted
or contemplated in the Indenture, terminate the lien of the Indenture on any
such collateral or deprive the holder of any Note of the security afforded by
the lien of the Indenture.
The Trust and the Indenture Trustee may also enter into supplemental
indentures, without obtaining the consent of the Noteholders, for the purpose
of, among other things, adding any provisions to or changing in any manner or
eliminating any of the provisions of the Indenture or of modifying in any manner
the rights of the Noteholders; provided that such action will not materially and
adversely affect the interest of any Noteholder.
VOTING RIGHTS
At all times, the voting rights of Noteholders under the Indenture will be
allocated among the Notes pro rata in accordance with their outstanding
principal balances.
CERTAIN MATTERS REGARDING THE INDENTURE TRUSTEE AND THE DEPOSITOR
Neither the Depositor, the Indenture Trustee nor any director, officer or
employee of the Depositor or the Indenture Trustee will be under any liability
to the Trust or the related Noteholders for any action taken or for refraining
from the taking of any action in good faith pursuant to the Indenture or for
errors in judgment; provided, however, that none of the Indenture Trustee, the
Depositor and any director, officer or employee thereof will be protected
against any liability which would otherwise be imposed by reason of willful
malfeasance, bad faith or negligence in the performance of duties or by reason
of reckless disregard of obligations and duties under the Indenture.
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Subject to certain limitations set forth in the Indenture, the Indenture
Trustee and any director, officer, employee or agent of the Indenture Trustee
shall be indemnified by the Trust and held harmless against any loss, liability
or expense incurred in connection with investigating, preparing to defend or
defending any legal action, commenced or threatened, relating to the Indenture
or the CRB Securities other than any loss, liability or expense incurred by
reason of willful malfeasance, bad faith or gross negligence in the performance
of its duties under such Indenture or by reason of reckless disregard of its
obligations and duties under the Indenture. Any such indemnification by the
Trust will reduce the amount distributable to the Noteholders.
All persons into which the Indenture Trustee may be merged or with which it
may be consolidated or any person resulting from such merger or consolidation
shall be the successor of the Indenture Trustee under each Indenture.
THE TRUST AGREEMENT
The following summary describes certain terms of the Trust Agreement. The
summary does not purport to be complete and is subject to, and qualified in its
entirety by reference to, the provisions of the Trust Agreement. Whenever
particular sections or defined terms of the Trust Agreement are referred to,
such sections or defined terms are thereby incorporated herein by reference. See
"DESCRIPTION OF THE CERTIFICATES" herein for a summary of certain additional
terms of the Trust Agreement.
COLLECTION OF DISTRIBUTIONS ON CRB SECURITIES
The CRB Securities will be assets of the Trust. All distributions thereon
will be made directly to the Indenture Trustee. Pursuant to the Administration
Agreement, distributions on the Certificates will be made to Certificateholders
by the Administrator acting on behalf of the Owner Trustee.
EXERCISE OF REMEDIES
The Trust Agreement provides that until all the Notes have been paid in
full, the Indenture Trustee will take all actions to collect any distributions
due on the CRB Securities or to exercise remedies pursuant to the Indenture.
REPORTS TO CERTIFICATEHOLDERS
The Owner Trustee will mail to each Certificateholder, at such
Certificateholder's request, at its address listed on the Certificate Register
maintained with the Owner Trustee, a report stating (i) the amounts of principal
and interest, respectively, distributed on each $1,000 in face amount of
Certificates and (ii) the outstanding balances of the CRB Securities.
The Owner Trustee shall forward by mail to each Certificateholder the most
current CRB Securities Distribution Date Statement (as defined in the Trust
Agreement) received by the Owner Trustee as of the date of such request.
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AMENDMENT
The Trust Agreement may be amended by the Depositor and the Owner Trustee,
without consent of the Noteholders or Certificateholders, to cure any ambiguity,
to correct or supplement any provision or for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions
thereof or of modifying in any manner the rights of such Noteholders or
Certificateholders; provided, however, that such action will not, as evidenced
by an opinion of counsel satisfactory to the Owner Trustee, adversely affect in
any material respect the interests of any Noteholders or Certificateholders.
The Trust Agreement may also be amended by the Depositor and the Owner Trustee
with the consent of the holders of Notes evidencing at least [ %] in principal
amount of then outstanding Notes and Certificateholders owning Voting Interests
(as herein defined) aggregating not less than [ %] of the aggregate Voting
Interests for the purpose of adding any provisions to or changing in any manner
or eliminating any of the provisions of the Trust Agreement or modifying in any
manner the rights of the Noteholders or Certificateholders; provided, however,
that no such amendment may (i) increase or reduce in any manner the amount of,
or delay the timing of, collections of payments on the CRB Securities or
distributions that are required to be made for the benefit of such Noteholders
or Certificateholders or (ii) reduce the aforesaid percentage of the Notes or
the Voting Interests of Certificates which are required to consent to any such
amendment, without the consent of all the outstanding Notes or Certificates, as
the case may be.
INSOLVENCY EVENT
"Insolvency Event" means, with respect to any Person, any of the following
events or actions: certain events of insolvency, readjustment of debt,
marshaling of assets and liabilities or similar proceedings with respect to such
Person and certain actions by such Person indicating its insolvency,
reorganization pursuant to bankruptcy proceedings or inability to pay its
obligations.
If an insolvency Event occurs with respect to the Depositor, the CRB
Securities will be liquidated and the Trust will be terminated. Upon termination
of the Trust, the Owner Trustee shall direct the Indenture Trustee promptly to
sell the assets of the Trust (other than the Collection Account) in a
commercially reasonable manner and on commercially reasonable terms. The
proceeds from any such sale, disposition or liquidation of the CRB Securities
will be treated as collections on the CRB Securities and deposited in the
Collection Account. If the proceeds from the liquidation of the [Group] [1] CRB
Securities or the [Group] [2] CRB Securities and any respective amounts on
deposit in the Collection Account are not sufficient to pay the [Class] [1]
Notes or [Class] [2] Notes, respectively, and the Certificates in full, the
amount of principal returned to the respective Noteholders and
Certificateholders will be reduced and some or all of the Noteholders and
Certificateholders will incur a loss.
The Trust Agreement will provide that the Owner Trustee does not have the
power to commence a voluntary proceeding in bankruptcy with respect to the Trust
without the unanimous prior approval of all Certificateholders (including the
Depositor) of the Trust and the delivery to the Owner Trustee by each
Certificateholder (including the Depositor) of a certificate certifying that the
Certificateholder reasonably believes that the Trust is insolvent.
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LIABILITY OF THE DEPOSITOR
Under the Trust Agreement, the Depositor will agree 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 Noteholder or a Certificateholder in
the capacity of an investor with respect to the Trust) arising out of or based
on the arrangement created by the Trust Agreement.
VOTING INTERESTS
As of any date, the aggregate principal balance of all Certificates
outstanding will constitute the voting interest of the Issuer (the "Voting
Interests"), except that, for purposes of determining Voting Interests,
Certificates owned by the Issuer or its affiliates (other than the Depositor)
will be disregarded and deemed not to be outstanding; and except that, in
determining whether the Owner Trustee is protected in relying upon any such
request, demand, authorization, direction, notice, consent or waiver, only
Certificates that the Owner Trustee knows to be so owned will be so disregarded.
Certificates so owned that have been pledged in good faith may be regarded as
outstanding if the pledgee establishes to the satisfaction of the Owner Trustee
the pledgor's right so to act with respect to such Certificates and that the
pledgee is not the Issuer or its affiliates.
CERTAIN MATTERS REGARDING THE OWNER TRUSTEE AND THE DEPOSITOR
Neither the Depositor, the Owner Trustee, nor any director, officer or
employee of the Depositor or the Owner Trustee will be under any liability to
the Trust or the related Certificateholders for any action taken or for
refraining from the taking of any action in good faith pursuant to the Trust
Agreement or for errors in judgment; provided, however, that none of the Owner
Trustee, the Depositor and any director, officer or employee thereof will be
protected against any liability which would otherwise be imposed by reason of
willful malfeasance, bad faith or negligence in the performance of duties or by
reason of reckless disregard of obligations and duties under the Trust
Agreement.
Subject to certain limitations set forth in the Trust Agreement, the Owner
Trustee and any director, officer, employee or agent of the Owner Trustee shall
be indemnified by the Trust and held harmless against any loss, liability or
expense incurred in connection with investigating, preparing to defend or
defending any legal action, commenced or threatened, relating to the Trust
Agreement or the CRB Securities other than any loss, liability or expense
incurred by reason of willful malfeasance, bad faith or gross negligence in the
performance of its duties under such Trust Agreement or by reason of reckless
disregard of its obligations and duties under the Trust Agreement. Any such
indemnification by the Trust will reduce the amount distributable to the
Certificateholders.
All persons into which the Owner Trustee may be merged or with which it may
be consolidated or any person resulting from such merger or consolidation shall
be the successor of the Owner Trustee under each Trust Agreement.
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[ADMINISTRATION AGREEMENT]
[The Indenture Trustee, in its capacity as Administrator, will enter into
the Administration Agreement with the Trust and the Owner Trustee pursuant to
which the Administrator will agree, to the extent provided in such
Administration Agreement, to provide notices and perform other administrative
obligations required by the Indenture and the Trust Agreement.]
THE INDENTURE TRUSTEE
[Insert Indenture Trustee name] is the Indenture Trustee under the
Indenture. The mailing address of the Indenture Trustee is [insert Indenture
Trustee address].
THE OWNER TRUSTEE
[Insert Owner Trustee name] is the Owner Trustee under the Trust Agreement.
The mailing address of the Owner Trustee is [insert Owner Trustee address].
USE OF PROCEEDS
[The net proceeds from the sale of the Certificates and the Notes will be
applied by the Depositor on the Closing Date towards the purchase price of the
CRB Securities, the payment of expenses related to such purchase and other
corporate purposes.] [The Depositor will transfer approximately [ %] of the net
proceeds from the sale of the Securities to the Trust to fund the purchase price
to the Trust of the CRB Securities and the payment of expenses related to such
purchase.]
ERISA CONSIDERATIONS
[State whether the Notes may be classified as indebtedness without
substantial equity features for ERISA purposes.]
LEGAL INVESTMENT CONSIDERATIONS
The appropriate characterization of the Securities under various legal
investment restrictions, and thus the ability of investors subject to these
restrictions to purchase Securities, may be subject to significant interpretive
uncertainties. All investors whose investment authority is subject to legal
restrictions should consult their own legal advisors to determine whether, and
to what extent, the Securities will constitute legal investments for them.
The Depositor makes no representation as to the proper characterization of
the Securities for legal investment or financial institution regulatory
purposes, or as to the ability of particular investors to purchase Securities
under applicable legal investment restrictions. The uncertainties described
above (and any unfavorable future determinations concerning legal investment or
financial institution regulatory characteristics of the Securities) may
adversely affect the liquidity of the Securities.
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UNDERWRITING
Subject to the terms and conditions set forth in the respective
underwriting agreements, relating to the Notes and the Certificates (the
"Underwriting Agreements"), the Depositor has agreed to cause the Trust to sell
to CS First Boston Corporation (the "Underwriter"), and the Underwriter has
agreed to purchase, all of the Securities.
The underwriter proposes to offer the Securities to the public initially at
the public offering prices set forth on the cover page of this Prospectus
Supplement, and to certain dealers at such prices less a concession of [ %] per
[Class] [1] Note, [ %] per [Class] [2] Note and [ %] per Certificate; and, the
Underwriter and such dealers may allow a discount of [ %] per [Class] [1] Note,
[ %] per [Class] [2] Note and [ %] per Certificate on sales to certain other
dealers; and after the initial public offering of the Securities, such public
offering prices and the concessions and discounts to dealers may be changed by
the Underwriter.
The Underwriting Agreements provide that the Seller will indemnify the
Underwriter against certain liabilities, including liabilities under applicable
securities laws, or contribute to payments the Underwriter may be required to
make in respect thereof.
The Trust may, from time to time, invest the funds in the Trust Accounts in
Eligible Investments acquired from the Underwriter.
The closing of the sale of the Certificates is conditioned on the closing
of the sale of the Notes, and the closing of the sale of the Notes is
conditioned on the closing of the sale of the Certificates.
Upon receipt of a request by an investor who has received an electronic
Prospectus Supplement and Prospectus from the Underwriter within the period
during which there is an obligation to deliver a Prospectus Supplement and
Prospectus, the Depositor or the Underwriter will promptly deliver, or cause to
be delivered, without charge, a paper copy of the Prospectus Supplement and the
Prospectus.
LEGAL MATTERS
Certain legal matters will be passed upon by Sidley & Austin, New York, New
York.
RATING
It is a condition to issuance that each Class of the Notes be rated [in the
highest rating category by a Rating Agency]. It is a condition to issuance that
the Certificates be rated [in one of the [three] highest rating categories by a
Rating Agency].
A securities rating addresses the likelihood of the receipt by
Certificateholders and Noteholders of distributions on the CRB Securities. The
rating takes into consideration the characteristics of the CRB Securities and
the structural, legal and tax aspects associated with the
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Certificates and Notes. The ratings on the Securities do not, however,
constitute statements regarding the possibility that Certificateholders or
Noteholders might realize a lower than anticipated yield.
A securities rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning rating
organization. Each securities rating should be evaluated independently of
similar ratings on different securities.
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INDEX OF DEFINED TERMS
Accounts..............................................................
Administration Agreement..............................................
Administrator.........................................................
Agreements............................................................
Ancillary Arrangements................................................
Book-Entry Notes......................................................
Book-Entry Certificate................................................
Business Day..........................................................
Cash Collateral.......................................................
Cash Collateral Account...............................................
Cash Collateral Guaranty..............................................
Cede..................................................................
Cedel.................................................................
Certificates..........................................................
Citibank..............................................................
[Class] [1] Final Scheduled Payment Date..............................
[Class] [1] Note Percentage...........................................
[Class] [1] Notes.....................................................
[Class] [2] Final Scheduled Payment Date..............................
[Class] [2] Note Percentage...........................................
[Class] [2] Notes.....................................................
[Class] [3] Certificates..............................................
Closing Date..........................................................
Code..................................................................
Collateral Amount.....................................................
Collateral Invested Amount............................................
Collection Account....................................................
CRB Securities........................................................
CRB Securities Amortization Event.....................................
CRB Securities Certificate Rate.......................................
CRB Securities Controlled Amortization Period.........................
CRB Securities Distribution Date......................................
CRB Securities Servicer...............................................
CRB Securities Servicing Fee..........................................
Definitive Notes......................................................
Depositor.............................................................
DTC...................................................................
ERISA.................................................................
ERISA Counsel.........................................................
Euroclear.............................................................
European Depositaries.................................................
Event of Default......................................................
Final Legal Maturity..................................................
S-41
<PAGE>
Foreign Person........................................................
[Group] [1] CRB Securities............................................
[Group] [1] Certificate Percentage....................................
[Group] [2] CRB Securities............................................
[Group] [2] Certificate Percentage....................................
Holdings..............................................................
Indenture.............................................................
Indenture Trustee.....................................................
Insolvency Event......................................................
Interest Accrual Period...............................................
Issuer................................................................
Labor.................................................................
LIBOR.................................................................
Moody's...............................................................
Morgan................................................................
Noteholders...........................................................
Notes.................................................................
Owner Trustee.........................................................
Parties In Interest...................................................
Payment Date..........................................................
Plan..................................................................
Plan Asset Regulation.................................................
Prospectus............................................................
Rating Agency.........................................................
Receivables...........................................................
Record Date...........................................................
Required Collateral Amount............................................
Reuters LIBOR.........................................................
Securities............................................................
Seller................................................................
Seller's Interest.....................................................
Seller's Percentage...................................................
S&P...................................................................
Telerate LIBOR........................................................
Trust.................................................................
Trust Agreement.......................................................
Underwriter...........................................................
Voting Interests......................................................
S-42
<PAGE>
APPENDIX A
TABLE OF CONTENTS
APPENDIX A PAGE
- ---------- ----
This Appendix A contains excepts from each prospectus pursuant to which the
CRB Securities were offered and sold.
Capitalized terms used in the excerpts included in this Appendix A have the
meanings defined either within the text of such excerpt or within the related
prospectus. Such terms are not applicable to any other section of this
Prospectus Supplement or Prospectus unless such terms are defined as such in the
Prospectus Supplement or the Prospectus. Complete copies of the prospectus
relating to a particular series of CRB Securities may be obtained upon request
from the Depositor.
S-43
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the Registration Statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
Subject to Completion dated [ ], 199[ ]
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED [ ], 1995
CARD ACCOUNT TRUST, SERIES 199[ ]-[ ]
$[ ] [Class A] [ %] [Floating Rate] [Adjustable Rate] [Variable Rate]
Asset Backed Certificates
$[ ] [Class B] [ %] [Floating Rate] [Adjustable Rate] [Variable Rate]
Asset Backed Certificates
ASSET BACKED SECURITIES CORPORATION, DEPOSITOR
The CSFB Card Account Trust 199[ ]-[ ] (the "Trust") will be formed
pursuant to a pooling agreement dated as of [ ], 199[ ] (the "Pooling
Agreement") [between] [among] Asset Backed Securities Corporation (the
"Depositor"), [and] [Trustee name], as trustee (the "Trustee") [and [Seller
name], as Seller]. The Trust will issue $ [ ] aggregate principal amount of
[Class A] [ %] [Floating Rate] [Adjustable Rate] [Variable Rate] Asset Backed
Certificates (the "[Class A] Certificates") [and $ [ ] aggregate principal
amount of [Class B] [ %] [Floating Rate] [Adjustable Rate]
(Continued on the following page)
--------------------
THE CERTIFICATES REPRESENT INTERESTS IN THE TRUST ONLY AND DO NOT REPRESENT
INTERESTS IN THE DEPOSITOR, TRUSTEE OR ANY AFFILIATE THEREOF, EXCEPT TO THE
EXTENT PROVIDED HEREIN. NEITHER THE CERTIFICATES NOR THE UNDERLYING
ASSETS ARE INSURED OR GUARANTEED BY ANY GOVERNMENTAL AGENCY.
THESE CERTIFICATES 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 SUPPLEMENT.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
====================================================================================================================================
Price to Public Underwriting Discount Proceeds to the Seller (1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per [Class A] Certificate
- ------------------------------------------------------------------------------------------------------------------------------------
[Per Class B Certificate]
- ------------------------------------------------------------------------------------------------------------------------------------
Total
====================================================================================================================================
</TABLE>
(1) Before deduction of expenses payable by the Seller, estimated to be $[ ].
--------------------
The Certificates offered hereby will be purchased by CS First Boston
Corporation (the "Underwriter") from the Depositor and will, in each case, be
offered by the Underwriter from time to time to the public in negotiated
transactions or otherwise at varying prices to be determined at the time of
sale. The aggregate proceeds to the Depositor from the sale of the Certificates
are expected to be $[ ] before deducting expenses payable by the Depositor
of $[ ].
The Certificates are offered subject to prior sale and subject to the
Underwriter's right to reject orders in whole or in part. It is expected that
the Certificates will be [available for delivery] [delivered in book-entry form]
[at the offices of the Underwriter] [through the facilities of The Depository
Trust Company] on or about [ ], 199[ ]. [The Certificates will be offered in
the United States of America and in Europe].
--------------------
Underwriters of the Securities
[LOGO] CS First Boston
The date of this Prospectus Supplement is [ ], 199[ ].
<PAGE>
[Variable Rate] Asset Backed Certificates (the "[Class B] Certificates," and
together with the [Class A] Certificates, the "Certificates")]. Terms used and
not otherwise defined herein shall have the respective meanings ascribed to such
terms in the Prospectus dated [ ], 199[ ] attached hereto (the "Prospectus").
The Trust will consist of certain asset backed certificates (collectively,
the "Card Receivables Backed Securities," or "CRB Securities") each issued
pursuant to a pooling and servicing agreement or master pooling and servicing
agreement (collectively, the "Agreements"). Each of the CRB Securities
evidences an interest in a trust created by one of the Agreements, the property
of which includes a portfolio of [charge card] [credit card] [consumer]
[corporate] [debit card] [revolving] receivables (collectively, the
"Receivables") generated or to be generated from time to time in the ordinary
course of business in a portfolio of [charge card] [credit card] [consumer]
[corporate] [debit card] [revolving] accounts (collectively, the "Accounts"),
all monies due in payment of the Receivables and certain other properties, as
more fully described herein. The CRB Securities [will be transferred to the
Trust by the Depositor] [will be purchased by the Trust with funds received from
the Depositor in exchange for the Certificates] pursuant to the Pooling
Agreement. [In addition, the Trust will enter into the Ancillary Arrangements
(as defined herein).] [The trust may also draw on funds on deposit in a Reserve
Account, to the extent described herein, to meet shortfalls in amounts due to
Certificateholders on any Distribution Date.]
The [Class A] Certificates will represent in the aggregate fractional
undivided interests in [approximately [ %] of] the Trust. [The Class B
Certificates[, which are not being offered hereby,] will represent in the
aggregate fractional undivided interests in [approximately [ %] of] the
Trust.]
Distributions on the Certificates will be made on the [ ] day of each
[month] [quarter] [semi-annual period] or, if any such day is not a Business
Day, on the next succeeding Business Day (the "Distribution Date") commencing [
], 199[ ].
Interest at a rate equal to [ %] [insert Class A Certificate Rate
formula] will be distributed to the [Class A] Certificateholders on each
Distribution Date. [Interest at a rate equal to [ %] [insert Class B
Certificate Rate formula] will be distributed to the Class B Certificateholders
on each Distribution Date.]
Principal, to the extent described herein, will be distributed to the
[Class A] Certificateholders on each Distribution Date, commencing with the [
], 199[ ] Distribution Date (or earlier under certain circumstances).
[Principal, to the extent described herein, will be distributed to the [Class B]
Certificateholders on each Distribution Date, commencing with the [ ], 199 [ ]
Distribution Date (or earlier under certain circumstances).]
There is currently no market for the Certificates offered hereby and there
can be no assurance that such a market will develop or if it does develop that
it will continue. See "RISK FACTORS" herein.
Until ninety days after the date of this Prospectus Supplement, all dealers
effecting transactions in the Certificates, whether or not participating in this
distribution, may be required to deliver a Prospectus Supplement and Prospectus
to investors [and may be required to deliver a Global Prospectus Supplement to
non-U.S. investors]. This is in addition to the obligation of dealers acting as
underwriters to deliver a Prospectus Supplement and Prospectus with respect to
their unsold allotments or subscriptions.
--------------------
The Certificates offered hereby constitute part of a separate series of
Asset Backed Certificates being offered by the Depositor from time to time
pursuant to its Prospectus dated [ ], 199[ ]. This Prospectus Supplement
does not contain complete information about the offering of the Certificates.
Additional information is contained in the Prospectus and investors are urged to
read both this Prospectus Supplement and the Prospectus in full as well as any
prospectus relating to the CRB Securities. Sales of the Certificates may not be
consummated unless the purchaser has received both this Prospectus Supplement
and the Prospectus.
S-2
<PAGE>
SUMMARY OF TERMS
The following summary of certain pertinent information is qualified in its
entirety by reference to the detailed information appearing elsewhere in this
Prospectus Supplement and in the accompanying Prospectus and in the prospectus
supplement for each of the CRB Securities. Certain capitalized terms used herein
are defined elsewhere in this Prospectus Supplement or in the Prospectus.
Securities Offered ................ [Class A] [ %] [Floating Rate]
[Adjustable Rate] Asset Backed
Certificates (the "[Class A]
Certificates"); and
[[Class B] [ %] [Floating Rate]
[Adjustable Rate] Asset Backed
Certificates (the "[Class B]
Certificates" and, together with the
[Class A] Certificates, the
"Certificates").]
Trust ............................. Card Account Trust 199[ ]-[ ] (the
"Trust" or the "Issuer"), a trust
established pursuant to the Pooling
Agreement (as defined herein).
Depositor ......................... Asset Backed Securities Corporation is a
special-purpose Delaware corporation
organized for the purpose of issuing the
Certificates and other securities issued
under the Registration Statement backed
by receivables or underlying securities
of various types and acting as settlor
or depositor with respect to trusts,
custody accounts or similar arrangements
or as general or limited partner in
partnerships formed to issue securities.
It is not expected that the Depositor
will have any significant assets. The
Depositor is an indirect, wholly owned
finance subsidiary of Collateralized
Mortgage Securities Corporation, which
is a wholly owned subsidiary of CS First
Boston Securities Corporation, which is
a wholly owned subsidiary of CS First
Boston, Inc. Neither CS First Boston
Securities Corporation nor CS First
Boston, Inc., nor any of their
affiliates, has guaranteed, will
guarantee or is or will be otherwise
obligated with respect to any Series of
Securities.
S-3
<PAGE>
The Depositor's principal executive
office is located at Park Avenue Plaza,
55 East 52nd Street, New York, New York
10055, and its telephone number is (212)
909-2000.
Pooling Agreement ............. Pursuant to a pooling agreement dated as
of [ ], 199[ ] (the "Pooling
Agreement"), among the Depositor and
[insert Trustee name] in its capacity as
trustee (the "Trustee"), the Trust will
issue the [Class A] Certificates in an
initial aggregate amount of $[ ] [and
the Class B Certificate in an initial
aggregate amount of $[ ]].
CRB Securities ................ The CRB Securities are described herein
and in Appendix A attached to this
Prospectus Supplement. The CRB
Securities will consist of certain asset
backed certificates, as more fully
described herein, each issued pursuant
to a pooling and servicing agreement or
master pooling and servicing agreement
(collectively, the "Agreements") .
Description of
Certificates................... Each of the Certificates will represent
a fractional undivided interest in the
Trust as described herein.
The [Class A] Certificates will evidence
in the aggregate an undivided ownership
interest in approximately [ %] of the
Trust (the "Class A Percentage") [and
the [Class B] Certificates will evidence
in the aggregate an undivided ownership
interest in approximately [ %] of the
Trust (the "Class B Percentage")]. [Only
the Class A Certificates are being
offered hereby.] [The Class B
Certificates will be subordinated to the
Class A Certificates to the extent
described herein.] See "THE
CERTIFICATES" herein.
Interest Distribution on the
Certificates................... Interest will accrue on the unpaid
principal amount of the [Class A]
Certificates at a rate per annum equal
to [insert [Class A] Certificate Rate
formula] payable [monthly] [quarterly]
[semi-annually] on each Distribution
Date [subject to a maximum rate of [ ]%
until the [ ], 199[ ] Distribution Date]
[, and subsequently subject to no
maximum rate] (the "[Class A]
Certificate Rate").
S-4
<PAGE>
Interest will accrue on the unpaid
principal amount of the [Class B]
Certificates at a rate per annum equal
to [insert Class B Certificate Rate
formula] payable [monthly] [quarterly]
[semi-annually] on each Distribution
Date [subject to a maximum rate of [ ]%
until the [ ], 199[ ] Distribution Date]
[, and subsequently subject to no
maximum rate.]
Interest will be distributed to
Certificate on each Distribution Date
[to the extent that funds are available
therefor, from] [(i)] the Interest
Distribution Amount , [(ii)] [the
Reserve Account,] [and] [(iii)] [amounts
payable to the Trust pursuant to the
Ancillary Arrangements]. Interest in
respect of a Distribution Date will
accrue on the Certificates from and
including the preceding Distribution
Date (in the case of the first
Distribution Date, from and including [
], 199[ ] (the "Closing Date")) to but
excluding such Distribution Date (each,
a "Collection Period") [and will be
calculated on the basis of the actual
number of days in such Collection Period
divided by 360] [and will be calculated
on the basis of a 360 day year of twelve
30 day months].
Principal Distributions
on the Certificates .......... No principal will be distributable to
Certificateholders until the [ ], 199[ ]
Distribution Date or, upon the
occurrence of a CRB Securities
Amortization Event, the first
Distribution Date thereafter, as
described herein.
Principal distributable on the
Certificates will equal the principal
received on the CRB Securities.
Principal of the [Class A] Certificates
will be payable on each Distribution
Date, pro rata to the [Class A]
Certificateholders, in a maximum amount
equal to the [Class A] Principal
Distributable Amount for the related
Collection Period. The [Class A]
Principal Distributable Amount with
respect to any Distribution Date will
equal the [Class A] Percentage of the
Principal Distribution Amount for the
related Collection Period.
S-5
<PAGE>
[On each Distribution Date, [subject to
the prior distribution on such date of
the Class A Interest Distributable
Amount and the Class A Principal
Distributable Amount,] the Trustee will
distribute to holders of the [Class B]
Certificateholders (i) the [Class B]
Interest Distributable Amount to the
extent of funds available therefor from
the [Class B] Percentage of the Interest
Distribution Amount and the Reserve
Account and (ii) the [Class B] Principal
Distributable Amount. The [Class B]
Principal Distributable Amount with
respect to any Distribution Date will
equal the [Class B] Percentage of the
Principal Distribution Amount for the
related Collection Period.]
The outstanding principal amount, if
any, of the [Class A] Certificates [and
the [Class B] Certificates] will be
payable in full on [ ], 199[ ] (the
"Final Scheduled Distribution Date").
Optional Prepayment ........... If the Depositor exercises its option to
purchase the CRB Securities, which it
may do after the aggregate principal
balance of the CRB Securities (the "Pool
Balance") declines to [ %] or less of
the initial Pool Balance, the [Class A]
Certificateholders will receive an
amount equal to the [Class A]
Certificate Balance together with
accrued interest at the [Class A]
Certificate Rate, [and the [Class B]
Certificateholders will receive an
amount equal to the Class B Certificate
Balance together with accrued interest
at the Class B Certificate Rate], and
the Certificates will be retired.
[Credit Enhancement] .......... [Subordination. The rights of the [Class
B] Certificateholders to receive
distributions to which they would
otherwise be entitled with respect to
the Receivables are subordinated to the
rights of the [Class A]
Certificateholders, as described more
fully herein.]
[Reserve Account. The Reserve Account
will be created with an initial deposit
by the Depositor on the Closing Date of
cash or eligible investments having a
value of at least $[ ] (the "Reserve
Account Initial Deposit"). Funds will be
withdrawn from the Reserve Account on
any
S-6
<PAGE>
Distribution Date if, and to the extent
that, the Total Distribution Amount for
the related Collection Period is less
than the [Class A] Distributable Amount.
Such funds will be distributed to the
[Class A] Certificateholders. In
addition, after giving effect to any
such withdrawal and distribution to the
[Class A] Certificateholders, funds will
be withdrawn from the Reserve Account
if, and to the extent that, the portion
of the Total Distribution Amount
remaining after payment of the [Class A]
Distributable Amount is less than the
[Class B] Distributable Amount. Such
funds will be distributed to the [Class
B] Certificateholders.]
[On each Distribution Date, the Reserve
Account will be reinstated up to the
Required Reserve Account Balance by the
deposit thereto of the portion, if any,
of the Total Distribution Amount
remaining after payment of the [Class A]
Distributable Amount [and the [Class B]
Distributable Amount]. The "Required
Reserve Account Balance" with respect to
any Distribution Date generally will be
equal to [insert Required Reserve
Account Balance formula]. Certain
amounts in the Reserve Account on any
Distribution Date (after giving effect
to all distributions to be made on such
Distribution Date) in excess of the
Specified Reserve Account Balance for
such Distribution Date will be released
to the Depositor and will no longer be
available to the Certificateholders.]
[The Reserve Account will be maintained
with the Trustee as a segregated trust
account, but will not be part of the
Trust.]
Distribution Date ............. The [ ] day of each [month] [quarter]
[semi-annual period] or, if such day is
not a Business Day, the next succeeding
Business Day, commencing on [ ], 199[ ].
A "Business Day" is any day other than a
Saturday or Sunday or another day on
which banking institutions in New York,
New York are authorized or obligated by
law, regulations or executive order to
be closed.
Record Date ................... Distributions on the Certificates will
be made to Certificateholders in whose
name the Certificates were
S-7
<PAGE>
registered at the close of business on
the last day of the month prior to the
[month] [quarter] [semi-annual period]
in which such distribution occurs.
Form and Registration ......... [The Certificates will initially be
delivered in book-entry form ("Book-
Entry Certificates"). Certificateholders
will initially hold their interests
through the Depository Trust Company
("DTC"). Transfers within DTC will be in
accordance with the usual rules and
operating procedures of DTC. So long as
the Certificates are Book-Entry
Certificates, such Certificates will be
evidenced by one or more securities
registered in the name of Cede & Co.
("Cede"), as the nominee of DTC. No
Certificateholder 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 in
"CERTAIN INFORMATION REGARDING THE
SECURITIES--Definitive Securities" in
the Prospectus. All references in this
Prospectus Supplement to Certificates
reflect the rights of Certificateholders
only as such rights may be exercised
through DTC and its participating
organizations for so long as such
Certificates are held by DTC. See "RISK
FACTORS--Book-Entry Registration" and
"CERTAIN INFORMATION REGARDING THE
SECURITIES--Book-Entry Registration" in
the Prospectus and Annex I thereto.]
Denominations ................. The Certificates will be issued in
minimum denominations of $[ ] and
integral multiples of $1,000 in excess
thereof.
[Ancillary Arrangements........ On the Closing Date the Trust will
enter into ancillary arrangements (such
agreements, the "Ancillary
Arrangements").]
[Calculation of LIBOR ......... LIBOR applicable to the calculation of
the interest rate on the Certificates in
respect of a Distribution Date shall be
equal to the weighted average of the
LIBOR Interest rates (weighted on the
basis of the outstanding principal
balances of the CRB Securities
immediately prior to such
S-8
<PAGE>
date) applicable to the distribution of
interest on the CRB Securities
distributable on such date.]
Tax Considerations ............ In the opinion of Sidley & Austin
("Federal Tax Counsel"), the Trust
will be classified as a grantor trust
for federal income tax purposes and
will not be classified as an
association taxable as a corporation.
Subject to the discussion under
"Certain Federal Income Tax
Consequences" in the Prospectus, each
Owner of a beneficial interest in the
Certificates must include in income
its pro rata share of interest and
other income from the CRB Securities
and, subject to certain limitations,
may deduct its pro rata share of fees
and other deductible expenses paid by
the Trust. See "Certain Federal
Income Tax Consequences" in the
Prospectus for additional information
concerning the application of federal
income tax laws to the Trust and the
Certificates.
Legal Investment .............. Institutions whose investment
activities are subject to legal
investment laws and regulations or to
review by certain regulatory
authorities may be subject to
restrictions on investment in the
Certificates. See "LEGAL INVESTMENT
CONSIDERATIONS" herein.
ERISA ......................... Except as otherwise described herein,
the Certificates may not be acquired
by an employee benefit plan subject
to the Employee Retirement Income
Security Act of 1974, as amended
("ERISA"), by any individual
retirement account or by any other
"plan" as defined in Section 4975 of
the Code. See "ERISA CONSIDERATIONS"
herein and in the Prospectus.
Rating ........................ It is a condition to the issuance of
the [Class A] Certificates that they
be rated [in the highest rating
category] by at least one Rating
Agency, as defined herein. [It is a
condition to the issuance of the
[Class B] Certificates that they be
rated [in one of the three highest
rating categories] by at least one
Rating Agency.] There is no assurance
that such rating will continue for
any period of time or that it will
not be revised or withdrawn
S-9
<PAGE>
entirely by such rating agency if, in
its judgement, circumstances so
warrant. A revision or withdrawal
of such rating may have an adverse
effect on the market price of the
Certificates. A security rating is
not a recommendation to buy, sell or
hold securities.
S-10
<PAGE>
SPECIAL CONSIDERATIONS
Limited Liquidity. There is currently no secondary market for the
Certificates. CS First Boston currently intends to make a market in the
Certificates but is under no obligation to do so. There can be no assurance that
a secondary market will develop in the Certificates or, if a secondary market
does develop, that it will provide holders of the Certificates with liquidity of
investment or will continue for the life of the Certificates.
Trust's Relationship to the Depositor. The Depositor is not obligated to
make any payments in respect of the Certificates or the CRB Securities.
Maturity Assumptions. The rate of payment of principal of the
Certificates, the aggregate amount of each distribution on, and the yield to
maturity of, the Certificates will depend on the rate of payment of principal of
the CRB Securities. Each series of the CRB Securities is subject to early
amortization upon the occurrence of any of the amortization events applicable to
such CRB Securities as described herein and in the prospectus used in connection
with the offering of such CRB Securities.
The rate of payment of principal of the Certificates may also be affected
by the repurchase by an issuer of CRB Securities (a "CRB Issuer") of the CRB
Securities it has issued pursuant to a purchase option, which may be exercised
after the aggregate principal balance of such CRB Securities is less than [ %]
of their original principal balance at a purchase price equal to a percentage of
the principal balance of such CRB Securities plus accrued and unpaid interest.
In such event, the repurchase price paid by the Issuer would be passed through
to the Certificateholders as a payment of principal.
Rating of the Certificates. It is a condition to the issuance and sale of
the [Class A] Certificates that they be rated [in the highest rating category]
by [at least one of] [Moody's Investors Service, Inc. ("Moody's")] [and]
[Standard & Poor's Ratings Group, a division of McGraw-Hill, Inc. ("S&P")]
([each of] [Moody's] [and] [S&P] [being hereinafter referred to as] a "Rating
Agency"). [It is a condition to the issuance and sale of the Class B
Certificates that they be rated [in one of the three highest] rating categories
by [at least one Rating Agency.] A rating is not a recommendation to purchase,
hold or sell securities, inasmuch as such rating does not comment as to market
price or suitability for a particular investor. The ratings address the
likelihood of the receipt of distributions due on the Certificates pursuant to
their terms. However, a Rating Agency does not evaluate, and the ratings of the
Certificates do not address, the possibility that investors may receive a lower
yield than anticipated. There can be no assurance that a rating will remain for
any given period of time or that a rating will not be lowered or withdrawn
entirely by a Rating Agency if in its judgment circumstances in the future so
warrant.
S-11
<PAGE>
THE TRUST
GENERAL
The Issuer, Card Account Trust 199[ ]-[ ], is a trust formed
pursuant to the Pooling Agreement for the transactions described in this
Prospectus Supplement. After its formation, the Issuer will not engage in any
activity other than (i) acquiring, holding and managing the CRB Securities and
the other assets of the Trust and proceeds therefrom, (ii) issuing the
Certificates, (iii) making distributions on the Certificates and (iv) engaging
in other activities that are necessary, suitable or convenient to accomplish the
foregoing or are incidental thereto or connected therewith.
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Certificates will be issued pursuant to the Pooling Agreement
dated as of [ ], 199[ ] [between] [among] the Depositor [and] [insert Trustee
name], as Trustee [and [Seller name], as Seller.] The Depositor will provide a
copy of the Pooling Agreement to prospective investors without charge upon
request.
The following summaries describe certain terms of the Certificates and
the Pooling Agreement. The summaries do not purport to be complete and are
subject to, and qualified in their entirety by reference to, the provisions of
the Pooling Agreement. Wherever particular defined terms of the Pooling
Agreement are referred to, such defined terms are thereby incorporated herein by
reference. See "THE POOLING AGREEMENT" herein for a summary of additional terms
of the Pooling Agreement.
The Certificates will be issued in book-entry form only ("Book-Entry
Certificates") and will represent undivided interests in the Trust. The
Certificates will be issued in minimum denominations of $[ ] and integral
multiples of $1,000 in excess thereof.
[BOOK-ENTRY CERTIFICATES]
[The Book-Entry Certificates will be issued in one or more
certificates which equal the aggregate initial principal balance of the
Certificates and which will be held by a nominee of The Depository Trust Company
(together with any successor depository selected by the Depositor, the
"Depository"). Beneficial interests in the Book-Entry Certificates will be held
indirectly by investors through the book-entry facilities of the Depository, as
described herein. Investors may hold such beneficial interests in the Book-
Entry Certificates in minimum denominations representing an original principal
amount of $[ ] and integral multiples of $1,000 in excess thereof. The
Depositor has been informed by the Depository that its nominee will be Cede &
Co. ("Cede"). Accordingly, Cede is expected to be the holder of record of the
Book-Entry
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<PAGE>
Certificates. Except as described in the Prospectus under "CERTAIN INFORMATION
REGARDING THE SECURITIES--Definitive Securities," no person acquiring a Book-
Entry Certificate (each, a "beneficial owner") will be entitled to receive a
Definitive Certificate.]
[Unless and until Definitive Certificates are issued, it is
anticipated that the only "Certificateholder" of the Book-Entry Certificates
will be Cede, as nominee of the Depository. Beneficial owners of the Book-Entry
Certificates will not be Certificateholders as that term is used in the Pooling
Agreement. Beneficial owners are only permitted to exercise the rights of
Certificateholders indirectly through the Depository and its participating
organizations. Any reports on the Trust provided to Cede, as nominee of the
Depository, may be made available to beneficial owners upon request, in
accordance with the rules, regulations and procedures creating and affecting the
Depository, and to the Depository's participating organizations to whose
Depository accounts the Book-Entry Certificates of such beneficial owners are
credited.]
[For a description of the procedures generally applicable to the Book-
Entry Certificates, see "CERTAIN INFORMATION REGARDING THE SECURITIES--Book-
Entry Registration" in the Prospectus.]
DISTRIBUTION ON CERTIFICATES
Distributions on the Certificates, as described below, will be made by
the Trustee on the Distribution Date to persons in whose names the Certificates
are registered on the last day of the month preceding the [month] [quarter]
[semi-annual period] in which such Distribution Date occurs (the "Record Date").
Distributions to each Certificateholder will be made by the Trustee to an
account specified in writing by such holder as of the preceding Record Date or
in such other manner as may be agreed to by the Trustee and such holder. The
final distribution in retirement of a Certificate will be made only upon
surrender of the Certificate to the Trustee at the office thereof specified in
the notice to Certificateholders of such final distribution. Notice will be
mailed prior to the Distribution Date on which the final distribution of
principal and interest on a Certificate is expected to be made to the holder
thereof.
DISTRIBUTIONS OF INTEREST
The [Class A] Certificates will bear interest on the aggregate
principal amount of the [Class A] Certificates of an annual rate equal to
[insert Class A Certificate Rate formula], [subject to a maximum rate of [insert
cap if any] until the [ ], 199[ ] Distribution Date] [,and subsequently
subject to no maximum rate] (the "[Class A] Certificate Rate").
[The [Class B] Certificates will bear interest on the aggregate
principal amount of the [Class B] Certificates of an annual rate equal to
[insert Class B Certificate Rate formula], [subject to a maximum rate of [insert
cap if any] until the [ ], 199[ ] Distribution Date][, and subsequently
subject to no maximum rate] (the "Class B Certificate Rate").]
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Interest accrued on the Certificates will be distributable [monthly]
[quarterly] [semi-annually] [on each Distribution Date] [to the extent of funds
available therefor from] [(i)] [the Interest Distribution Amount] [(ii)]
[amounts, if any, on deposit in the Reserve Account] [and] [(iii)] [amounts
payable to the Trust pursuant to the Ancillary Arrangements]. Interest in
respect of a Distribution Date will accrue on the outstanding principal amount
of the Certificates from and including the preceding Distribution Date (in the
case of the first Distribution Date, from and including the Closing Date) to but
excluding such current Distribution Date (each, a "Collection Period").
Interest will be calculated [on the basis of the actual number of days in each
Collection Period divided by 360] [on the basis of a 360 day year of twelve 30
day months].
[Calculation of LIBOR: LIBOR applicable to the calculation of the
interest rates on the Certificates in respect of a Distribution Date shall be
calculated by the Trustee and shall be equal to the weighted average of the
LIBOR interest rates (weighted on the basis of the outstanding principal
balances of the CRB Securities immediately prior to such Distribution Date)
applicable to the distribution of interest on the CRB Securities distributable
on the CRB Securities Distribution Date (as defined herein) occurring on such
Distribution Date. The LIBOR applicable to the CRB Securities is described
under "DESCRIPTION OF THE CRB SECURITIES--Interest Distributions" herein.]
On each Distribution Date, interest distributions on the CRB
Securities in excess of the amount required to be distributed as interest to
Certificateholders on any Distribution Date shall be available to pay the
expenses of the Trust (including the fees and expenses of the Trustee), and any
remaining amounts shall be distributed to the Depositor.
DISTRIBUTIONS OF PRINCIPAL
No principal will be distributable to [Class A] Certificateholders
until the [ ], 199[ ] Distribution Date, or upon the occurrence of a CRB
Securities Amortization Event, the First Distribution Date thereafter, as
described herein. [No principal will be distributable to the [Class B]
Certificateholders until the principal amount of the [Class A] Certificates has
been paid in full.] Principal distributions to [Class A] Certificateholders are
expected to commence on the [ ], 199[ ] Distribution Date. [Principal
distributions to the [Class B] Certificateholders are expected to commence on
the [ ], 199[ ] Distribution Date.] If, however, a CRB Securities
Amortization Event (as defined herein) shall occur, principal distributions on
the Certificates will commence on the first Distribution Date after such CRB
Securities Amortization Event.
On each CRB Securities Distribution Date in respect of which principal
is distributed on the CRB Securities, principal distributions will be made on
the Certificates on the Distribution Date occurring on such date in an amount
equal to the principal distributed on the CRB Securities. Such principal will be
distributed on a pro rata basis in accordance with the outstanding principal
balances of the Certificates. Principal of the [Class A] Certificates will be
payable on each Distribution Date, pro rata to the [Class A] Certificateholders,
in a maximum amount equal to the [Class A] Principal Distributable Amount for
the related Collection Period. The [Class A] Principal
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Distributable Amount with respect to any Distribution Date will equal the [Class
A] Percentage of the Principal Distribution Amount for the related Collection
Period.
On each Distribution Date, subject to the prior distribution on such
date of the [Class A] Interest Distributable Amount and the [Class A] Principal
Distributable Amount, the Trustee will distribute to holders of the [Class B]
Certificateholders (i) the [Class B] Interest Distributable Amount to the extent
of funds available therefor from the [Class B] Percentage of the Interest
Distribution Amount and the Reserve Account and (ii) the [Class B] Principal
Distributable Amount. The [Class B] Principal Distributable Amount with respect
to any Distribution Date will equal the [Class B] Percentage of the Principal
Distribution Amount for the related Collection Period. The outstanding
principal amount of the [Class A] Certificates [and the [Class B] Certificates],
if any, will be payable in full on [ ], 199[ ] (the "Final Scheduled
Distribution Date").
The aggregate principal balance of the Certificates at any time will
be equal to the outstanding principal balance of the CRB Securities at such
time. As more fully described herein, the outstanding principal balance of the
CRB Securities will be reduced as a result of principal payments on the
Receivables that are distributed in respect of the CRB Securities.
[ANCILLARY ARRANGEMENTS]
[On the Closing Date the Trust will enter into ancillary arrangements
(such agreements, the "Ancillary Arrangements")].
[Insert description of Ancillary Arrangements.]
[RESERVE ACCOUNT]
[The Reserve Account will be created with an initial deposit by the
Depositor on the Closing Date of cash or eligible investments having a value of
at least $[ ] (the "Reserve Account Initial Deposit"). Funds will be
withdrawn from the Reserve Account on any Distribution Date if, and to the
extent that, the Total Distribution Amount for the related Collection Period is
less than the [Class A] Distributable Amount. Such funds will be distributed to
the [Class A] Certificateholders. In addition, after giving effect to any such
withdrawal and distribution to the [Class A] Certificateholders, funds will be
withdrawn from the Reserve Account if, and to the extent that, the portion of
the Total Distribution Amount remaining after payment of the [Class A]
Distributable Amount is less than the [Class B] Distributable Amount. Such
funds will be distributed to the [Class B] Certificateholders.]
[On each Distribution Date, the Reserve Account will be reinstated up
to the Required Reserve Account Balance by the deposit thereto of the portion,
if any, of the Total Distribution Amount remaining after payment of the [Class
A] Distributable Amount and the [Class B] Distributable Amount. The "Required
Reserve Account Balance" with respect to any Distribution Date generally will be
equal to [insert Required Reserve Account Balance formula]. Certain
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amounts in the Reserve Account on any Distribution Date (after giving effect to
all distributions to be made on such Distribution Date) in excess of the
Specified Reserve Account Balance for such Distribution Date will be released to
the Depositor and will no longer be available to the Certificateholders.]
[The Reserve Account will be maintained with the Trustee as a
segregated trust account, but will not be part of the Trust.]
DISTRIBUTIONS ON THE CRB SECURITIES; COLLECTION ACCOUNT
All distributions on the CRB Securities will be remitted directly to
an account (the "Collection Account") to be established with the Trustee under
the Pooling Agreement on the Closing Date. The Trustee will hold such moneys
uninvested and without liability for interest thereon for the benefit of holders
of the Certificates. [The "CRB Securities Distribution Date" in each [month]
[quarter] [semi-annual period] is the Distribution Date for such [month]
[quarter] [semi-annual period.]
[[ASSIGNMENT] [PURCHASE] OF CRB SECURITIES]
[The Depositor will acquire the CRB Securities for deposit into the
Trust from [insert Seller name, if any]. At the time of issuance of the
Certificates, the Depositor will cause the beneficial interest in such CRB
Securities, which will be held in book-entry form through the facilities of The
Depository Trust Company, to be delivered to the Trustee's participant account
at The Depository Trust Company.] [The CRB Securities will be purchased by the
Trust with funds received from the Depositor in exchange for the Certificates.]
DESCRIPTION OF THE CRB SECURITIES
The table below sets forth certain of the characteristics of the CRB
Securities. The table does not purport to be complete and is subject to, and
qualified in its entirety by reference to, the prospectuses pursuant to which
the CRB Securities were offered and sold. The CRB Securities are not listed on
any securities exchange.
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DESCRIPTION OF THE CRB SECURITIES
- --------------------------------------------------------------------
Issuer
- --------------------------------------------------------------------
Servicer
- --------------------------------------------------------------------
Trustee
- --------------------------------------------------------------------
Designation
- --------------------------------------------------------------------
Principal Amount to be Sold to Trust
- --------------------------------------------------------------------
Approximate percentage of total CRB Securities to be Sold to Trust
- --------------------------------------------------------------------
Initial Certificate Amount
- --------------------------------------------------------------------
Series Termination Date
- --------------------------------------------------------------------
Certificate Rate
- --------------------------------------------------------------------
Monthly Distribution Date
- --------------------------------------------------------------------
Commencement of Controlled Amortization Period
- --------------------------------------------------------------------
Minimum Seller's Percentage
- --------------------------------------------------------------------
Cash Collateral Guaranty Amount
- --------------------------------------------------------------------
Percentage of Subordinated Class B Certificates
- --------------------------------------------------------------------
Optional Repurchase Percentage
- --------------------------------------------------------------------
Ratings (Moody's/S&P)
- --------------------------------------------------------------------
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GENERAL
This Prospectus Supplement sets forth certain relevant terms with
respect to the CRB Securities, but does not provide detailed information with
respect to the CRB Securities. Appendix A to this Prospectus Supplement contains
excerpts from each prospectus pursuant to which the CRB Securities were offered
and sold. This Prospectus Supplement relates only to the Certificates offered
hereby and does not relate to the CRB Securities.
CRB SECURITIES CONSIDERATIONS; RECENT DEVELOPMENTS
Each of the CRB Securities represents an obligation of the related CRB
Issuer only. Prospective investors in the Securities should consider carefully
the risk factors and special considerations [insert applicable references] in
each CRB Securities Offering Document and should avail themselves of the same
information concerning each CRB Seller, CRB Servicer and CRB Issuer as they
would if they were purchasing the CRB Securities or similar investments backed
by Receivables. Each CRB Issuer [or [ ], as originator of a CRB Issuer,] is
subject to the informational requirements of the Exchange Act. Accordingly,
each CRB Issuer or [ ] files annual and periodic reports and other
information, including Monthly Servicer Reports (collectively, "CRB Issuer
Exchange Act Reports") with the Commission. Copies of such CRB Issuer Exchange
Act Reports, each CRB Securities Offering Document, Servicer Reports and other
information, including Monthly Servicer Reports (collectively, the "CRB
Securities Disclosure") may be inspected and copied at certain offices of the
Commission at the addresses listed under "Available Information" in the
Prospectus. If any CRB Issuer or [ ] ceases to be subject to the
informational requirements of the Exchange Act, the Depositor will not be
relieved from the informational requirements of the Exchange Act.
Neither the Depositor nor the Underwriter participated in the
[offering of the CRB Securities or in the] preparation of the publicly available
information referred to above or of any CRB Securities Offering Document, nor
has the Depositor or the Underwriter made any due diligence inquiry with respect
to the information provided therein. Although neither the Depositor nor the
Underwriter is aware of any material misstatements or omissions in any CRB
Securities Offering Document speaking as of its date, the information provided
therein or in the other publicly available documents referred to above cannot be
verified by the Depositor or the Underwriter as to accuracy or completeness.
Information set forth in each CRB Securities Offering Document speaks only as of
the date of such CRB Securities Offering Document; there can be no assurance
that all events occurring prior to the date hereof that would affect the
accuracy or completeness of any statements included in such CRB Securities
Offering Document or in the other publicly available documents filed by or on
behalf of the CRB Issuer have been publicly disclosed.
[Describe any other recent material developments that may exist based
on publicly available information.]
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<PAGE>
AN INVESTMENT IN THE SECURITIES IS DIFFERENT FROM, AND SHOULD NOT BE
CONSIDERED A SUBSTITUTE FOR, AN INVESTMENT IN THE CRB SECURITIES.
Set forth below is certain information excerpted and summarized from
each prospectus relating to the CRB Securities.
The CRB Securities have been issued pursuant to Agreements entered
into between various [sellers] [depositors] [or] [transferors] and various
trustees. See "Appendix A" for a further description of the various CRB
Issuers. The following summary describes certain general terms of such
Agreements, but investors should refer to the Agreements themselves for all the
terms governing the CRB Securities.
Each of the CRB Securities represents an undivided interest in one of
the CRB Issuers, including the right to a percentage of cardholder payments on
the Receivables underlying such CRB Securities. The assets of each CRB Issuer
include a pool of Receivables arising under Accounts, funds collected or to be
collected from cardholders in respect of the Receivables in the Accounts, monies
on deposit in certain accounts of the CRB Issuers, and the right to draw upon
various enhancements. The assets of each CRB Issuer may also include the right
to receive certain interchange fees attributed to cardholder charges for
merchandise. Each of the CRB Securities represents the right to receive
payments of interest for the related interest period at the applicable CRB
Securities Certificate Rate (as defined herein) for such interest period from
collections of Receivables and, in certain circumstances, from draws on
applicable enhancement, and payments of principal during the CRB Securities
Amortization Period (as defined herein) [or payments of principal on the
Expected Final Payment Date] funded from collections of Receivables.
[Each seller of CRB Securities (each, a "Seller") holds the interest
in the Receivables of a CRB Issuer not represented by the CRB Securities and any
other series of securities issued by the CRB Issuer. Such Seller holds an
undivided interest in the CRB Issuer (the "Seller's Interest"), including the
right to a percentage (the "Seller's Percentage") of all cardholder payments on
the Receivables.]
INTEREST DISTRIBUTIONS
Interest accrues on the CRB Securities at the certificate rate for
each class and series of CRB Securities (a "CRB Securities Certificate Rate"),
from the date of the initial issuance of the CRB Securities. Interest at the
applicable rate will be distributed to the holders of the CRB Securities monthly
on each CRB Securities Distribution Date.
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Interest on the CRB Securities is calculated [on the basis of a 360
day year of twelve 30 day months].
The CRB Securities [all] bear interest at [ %] [a rate [ ] per
annum above the arithmetic mean of London interbank offered quotations for one-
month Eurodollar deposits ("LIBOR")] [; provided, however, that the rate at
which interest will accrue on the CRB Securities will in no event exceed [insert
interest rate cap] per annum]. [LIBOR is determined according to [the Reuters
Screen LIBO Page (as defined in the International Swap Dealers Association, Inc.
Code of Standard Wording, Assumption and Provisions for SWAPS, 1986 edition)
("Reuters LIBOR")] [Telerate Page 3750 of the Dow Jones Telerate Service (or
such other page as may replace Telerate Page 3750 on that service for the
purpose of displaying London interbank offered rates of major banks) ("Telerate
LIBOR")].]
PRINCIPAL DISTRIBUTIONS
Generally, principal distributions due to the holders of the CRB
Securities are scheduled to commence on the first CRB Securities Distribution
Date with respect to a controlled amortization period for a series of CRB
Securities (a "CRB Securities Controlled Amortization Period"), but may be
distributed earlier or later than such date. However, if a Rapid Amortization
Event, Early Amortization Event, Payout Event, Liquidation Event or Economic Pay
Out Event (as such terms are defined in the Agreements) (each such event, a "CRB
Securities Amortization Event") occurs, monthly distributions of principal to
the holders of the CRB Securities will begin on the first CRB Securities
Distribution Date following the occurrence of such CRB Securities Amortization
Event. See "CRB Securities Amortization Events" below.
If a CRB Securities Amortization Event does not occur, principal will
be distributed to the holders of the CRB Securities on the [earlier of the]
first CRB Securities Distribution Date during the applicable CRB Securities
Controlled Amortization Period] [and the first CRB Securities Expected Final
Payment Date]. If, however, the amount of principal distributed on the
scheduled final CRB Securities Distribution Date is not sufficient to pay the
holders of the CRB Securities in full, then monthly distributions of principal
to the holders of CRB Securities will occur on each CRB Securities Distribution
Date after the scheduled final CRB Securities Distribution Date until such
holders of the CRB Securities are paid in full.
INVESTOR PERCENTAGE AND SELLER'S PERCENTAGE
Pursuant to the Agreements, all amounts collected on Receivables will
be allocated between the investor interest of the holders of the CRB Securities,
the investor interest of any other series, and the Seller's Interest by
reference to the investor percentage of the holders of the CRB Securities, the
investor percentage of any other series, and the Seller's Percentage.
The Seller's Percentage in all cases means the excess of 100% over the
aggregate investor percentages of all series then outstanding.
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ALLOCATION OF COLLECTIONS
The CRB Servicer will deposit any payments collected by the CRB
Servicer with respect to the Receivables and will generally allocate such
amounts as follows:
(a) an amount equal to the applicable Seller's Percentage of the
aggregate amount of deposits in respect of Principal Receivables
and Finance Charge Receivables, respectively, will be paid to the
holder of the Seller's Interest,
(b) an amount equal to the applicable investor percentage of the
aggregate amount of such deposits in respect of Finance Charge
Receivables will be deposited into an account for the benefit of
the holders of the CRB Securities ,
(c) during the revolving period, an amount generally equal to the
applicable investor percentage of the aggregate amount of such
collections in respect of Principal Receivables will be paid to
the holder of the Seller's Certificate; provided, however, that
such amount may not exceed the amount equal to the Seller's
Interests,
(d) during the CRB Securities Controlled Amortization Period or after
the occurrence of a CRB Securities Amortization Event, collections
of Principal Receivables will be allocated to the holders of CRB
Securit ies based on the applicable investor percentage,
[(e) on the Expected Final Payment Date, collections of Principal
Receivables that have been deposited into a Principal Funding
Account during the Controlled Accumulation Period will be
allocated to the holders of CRB Securities.]
The term "Seller's Interest" also encompasses the terms Seller's Certificate,
Exchangeable Seller's Certificate, Transferor's Certificate and Exchangeable
Transferor's Certificate. "Principal Receivables" generally consist of amounts
charged by cardholders for merchandise and services, amounts advanced as cash
advances and the interest portion of any participation interests. "Finance
Charge Receivables" generally consist of monthly periodic charges, annual fees,
cash advance fees, late charges, over-limit fees and all other fees billed to
cardholders, including administrative fees.
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<PAGE>
CRB SECURITIES AMORTIZATION EVENTS
The following is a summary of the typical CRB Securities Amortization
Events for each series of CRB Securities. Certain additional CRB Securities
Amortization Events unique to particular series of CRB Securities are described
following this summary:
(a) failure to make payments to holders of CRB Securities within the
time periods given in the Agreements,
(b) material breaches of certain representations, warranties or
covenants or failure to observe or perform in a material respect
any covenant or agreement under an Agreement,
(c) occurrence of a material default by a servicer of the Receivables
underlying a series of CRB Securities (a "CRB Servicer"),
(d) failure to maintain the Seller's Interest in an amount at least
equal to the minimum Seller's Percentage of Principal Receivables
in the CRB Issuer as of such date,
(e) failure to maintain a certain minimum level of Receivables or
Accounts, or inability of the Seller to transfer Receivables or
Accounts to a CRB Issuer,
(f) certain events of bankruptcy or insolvency relating to the Seller,
(g) Issuer becomes an "investment company" within the meaning of the
Investment Company Act of 1940, as amended,
(h) any reduction of the portfolio yield or excess spread (averaged
over any three consecutive months) to a rate below a certain rate
provided in the Agreement for such period,
(i) the available amount of the Cash Collateral Guaranty is less than
3% of the amount of the investor interest for the underlying
series of CRB Securities.
[Insert additional Amortization Events for particular CRB Securities.]
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
Generally, the CRB Servicer's compensation for its servicing
activities and reimbursement for its expenses for any monthly period will be a
servicing fee (a "CRB Securities Servicing Fee") payable monthly. The CRB
Securities Servicing Fee will be allocated among the Seller's Interest and the
investor interests of all series issued by the CRB Issuer.
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<PAGE>
Generally, the CRB Servicer will pay from its servicing compensation,
certain expenses incurred in connection with servicing the Receivables
including, without limitation, payment of the fees and disbursements of the CRB
Trustee and independent accountants and other fees which are not expressly
stated in the related Agreement to be payable by the CRB Issuer or the holders
of CRB Securities.
THE DEPOSITOR
The Depositor is a special-purpose Delaware corporation organized for
the purpose of issuing the Certificates and other securities issued under the
Registration Statement backed by receivables or underlying securities of various
types and acting as settlor or depositor with respect to trusts, custody
accounts or similar arrangements or as general or limited partner in
partnerships formed to issue securities. It is not expected that the Depositor
will have any significant assets. The Depositor is an indirect, wholly owned
finance subsidiary of Collateralized Mortgage Securities Corporation, which is a
wholly owned subsidiary of CS First Boston Securities Corporation, which is a
wholly owned subsidiary of CS First Boston, Inc. Neither CS First Boston
Securities Corporation nor CS First Boston, Inc. nor any of their affiliates has
guaranteed, will guarantee or is or will be otherwise obligated with respect to
any Series of Certificates.
The Depositor's principal executive office is located at Park Avenue
Plaza, 55 East 52nd Street, New York, New York 10055, and its telephone number
is (212) 909-2000.
THE POOLING AGREEMENT
The following summary describes certain terms of the Pooling
Agreement. The summary does not purport to be complete, and is subject to, and
qualified in its entirety by reference to, the provisions of the Pooling
Agreement. Whenever particular sections or defined terms of the Pooling
Agreement are referred to, such section or defined terms are thereby
incorporated herein by reference. See "DESCRIPTION OF THE CERTIFICATES" herein
for a summary of certain additional terms of the Pooling Agreement.
COLLECTION OF DISTRIBUTIONS ON CRB SECURITIES
The CRB Securities will be assets of the Trust. All distributions on
the CRB Securities will be made directly to the Trustee. The obligation of the
Trustee in making distributions on the Certificates is limited to distributions
on the CRB Securities [and] [payments actually received by the Trust pursuant to
the Ancillary Arrangements] [and] [amounts available in the Reserve Account].
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<PAGE>
REPORTS TO CERTIFICATEHOLDERS
The Trustee will mail to each Certificateholder, at such
Certificateholder's request, at its address listed on the Certificate Register
maintained with the Trustee a report stating (i) the amounts of principal and
interest, respectively, distributed on each $1,000 in face amount of
Certificates and (ii) the outstanding balances of the CRB Securities.
The Trustee shall forward by mail to each Certificateholder the most
current CRB Securities Distribution Date Statement (as defined in the Pooling
Agreement) received by the Trustee as the date of such request.
AMENDMENT
The Pooling Agreement may be amended by the Depositor and the Trustee,
without the consent of the Certificateholders, to cure any ambiguity, to correct
or supplement any provisions therein which may be inconsistent with any other
provisions of the Pooling Agreement, to add to the duties of the Depositor, or
to add or amend any provisions of the Pooling Agreement as required by a Rating
Agency in order to maintain or improve any rating of the Certificates (it being
understood that, after obtaining the ratings in effect on the Closing Date,
neither the Depositor nor the Trustee is obligated to obtain, maintain, or
improve any such rating) or to add any other provisions with respect to matters
or questions arising under the Pooling Agreement which shall not be inconsistent
with the provisions of the Pooling Agreement; provided, however, that such
action will not, as evidenced by an opinion of counsel satisfactory to the
Trustee, adversely affect in any material respect the interests of any
Certificateholders. The Pooling Agreement may also be amended by the Depositor
and the Trustee with the consent of Certificateholders owning Voting Rights (as
herein defined) aggregating not less than [ ]% of the aggregate Voting Rights
for the purpose of the Pooling Agreement or modifying in any manner the rights
of the Certificateholders; provided, however, that no such amendment may (i)
increase or reduce in any manner the amount of, or delay the timing of,
collections of distributions on the CRB Securities or distributions that are
required to be made for the benefit of such Certificateholders or (ii) reduce
the aforesaid percentage of the Voting Rights of Certificates which are required
to consent to any such amendment.
TERMINATION; RETIREMENT OF THE CERTIFICATES
The Trust will terminate on the Distribution Date following the
earliest of (i) the Distribution Date on which the aggregate principal balance
of the Certificates has been reduced to zero, (ii) the final payment or other
liquidation of the last CRB Securities in the Trust and (iii) the Distribution
Date in [ ], 199[ ]. In no event, however, will the Trust created by the
Pooling Agreement continue after the death of certain individuals named in the
Pooling Agreement. Written notice of termination of the Pooling Agreement will
be given to each Certificateholder, and the final distribution will be made only
upon surrender and cancellation of the Certificates at an officer or agency
appointed by the Trustee which will be specified in the notice of termination.
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ACTION IN RESPECT OF THE CRB SECURITIES
If at any time the Trustee, as the holder of the CRB Securities, is
requested in such capacity to take any action or to give any consent, approval
or waiver, including without limitation in connection with an amendment of an
Agreement, or if any Event of Default (as defined in the Agreements) occurs
under the Agreements, the Pooling Agreement provides that the Trustee, in its
capacity as certificateholder of the CRB Securities, may take action in
connection with the enforcement of any rights and remedies available to it in
such capacity with respect thereto, will promptly notify all of the holders of
the Certificates and will act only in accordance with the written directions of
holders of the Certificate evidencing at least [ ]% of the Voting Rights.
VOTING RIGHTS
At all times, the "Voting Rights" of Certificateholders under the
Pooling Agreement will be allocated among the Certificates in proportion to
their respective Percentage Interests. The "Percentage Interest" represented by
a Certificate will be equal to the percentage derived by dividing the
denomination of such Certificate by the original aggregate principal balance of
the Certificates as of the Closing Date.
CERTAIN MATTERS REGARDING THE TRUSTEE AND THE DEPOSITOR
Neither the Depositor, the Trustee nor any director, officer or
employee of the Depositor or the Trustee will be under any liability to the
Trust or the Certificateholders for any action taken or for refraining from the
taking of any action in good faith pursuant to the Pooling Agreement or for
errors in judgment; provided, however, that none of the Trustee, the Depositor
and any director, officer or employee thereof will be protected against any
liability which would otherwise be imposed by reason of willful malfeasance, bad
faith or negligence in the performance of duties or by reason of reckless
disregard of obligations and duties under the Pooling Agreement.
The Trustee may have normal banking relationships with the Depositor
and/or its affiliates.
The Trustee may resign at any time, in which event the Depositor will
be obligated to appoint a successor Trustee. The Depositor may also remove the
Trustee if the Trustee ceases to be eligible to continue as such under the
Pooling Agreement or if the Trustee becomes insolvent. Upon becoming aware of
such circumstances, the Depositor will be obligated to appoint a successor
Trustee. Any resignation or removal of the Trustee and appointment of a
successor Trustee will not become effective until acceptance of the appointment
by the successor Trustee.
No holder of a Certificate will have any right under the Pooling
Agreement to institute any proceeding with respect to the Pooling Agreement
unless such holder previously has given to the Trustee written notice of default
and unless Certificateholders holding at least [ %] of the Voting Rights have
made written requests upon the Trustee to institute such proceeding in its own
name as Trustee thereunder and have offered to the Trustee reasonable indemnity
and the Trustee for
S-25
<PAGE>
[ ] days has neglected or refused to institute any such proceeding. The
Trustee will be under no obligation to exercise any of the trusts or powers
vested in it by the Pooling Agreement or to make any litigation thereunder or in
relation thereto at the request, order or direction of any of the
Certificateholders, unless such Certificateholders have offered to the Trustee
reasonable security or indemnity against the cost, expenses and liabilities
which may be incurred therein or thereby.
The Trustee and the Certificateholders, by accepting the Certificates,
will covenant that they will not at any time institute against the Depositor or
the Trust any bankruptcy, reorganization or other proceeding under any federal
or state bankruptcy or similar law.
THE TRUSTEE
[ ] is Trustee under the Pooling Agreement. [ ] is a [ ]
banking corporation, and its principal offices are located at [ ]. The
Depositor or any of its affiliates may maintain normal commercial banking
relations with the Trustee and its affiliates.
USE OF PROCEEDS
[The net proceeds from the sale of the Certificates will be applied by
the Depositor on the Closing Date towards the purchase price of the CRB
Securities, the payment of expenses related to such purchase and other corporate
purposes.] [The Depositor will transfer approximately [ %] of the net
proceeds from the sale of the Certificates to the Trust to fund the purchase
price to the Trust of the CRB Securities and the payment of expenses related to
such purchase.
ERISA CONSIDERATIONS
Under current law the purchase and holding of the Certificates by or
on behalf of any Plan may result in a "prohibited transaction" within the
meaning of ERISA and the Code. Consequently, Certificates may not be transferred
to a proposed transferee that is a Plan subject to ERISA or that is described in
Section 4975(e)(1) of the Code, or a person acting on behalf of any such Plan or
using the assets of such plan unless the Trustee and the Depositor receive an
opinion of counsel reasonably satisfactory to the Trustee and the Depositor to
the effect that the purchase and holding of such Certificate will not result in
the assets of the Trust being deemed to be "plan assets" for ERISA purposes and
will not result in any non-exempt prohibited transaction under ERISA or Section
4975 of the Code and will not subject the Trustee or the Depositor to any
obligation in addition to those undertaken in the Pooling Agreement. See "ERISA
CONSIDERATIONS" in the Prospectus.
S-26
<PAGE>
LEGAL INVESTMENT CONSIDERATIONS
The appropriate characterization of the Certificates under various
legal investments restrictions, and thus the ability of investors subject to
these restrictions to purchase Certificates, may be subject to significant
interpretive uncertainties. All investors whose investment authority is subject
to legal restrictions should consult their own legal advisors to determine
whether, and to what extent, the Certificates will constitute legal investments
for them.
The Depositor makes no representation as to the proper
characterization of the Certificates for legal investments or financial
institution regulatory purposes, or as to the ability of particular investors to
purchase Certificates under applicable legal investment restrictions. The
uncertainties described above (and any unfavorable future determinations
concerning legal investment or financial institution regulatory characteristics
of the Certificates) may adversely affect the liquidity of the Certificates.
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting
Agreement, the Depositor has agreed to cause the Trust to sell to CS First
Boston Corporation (the "Underwriter"), and the Underwriter has agreed to
purchase, the entire principal amount of the Certificates.
The Underwriter proposes to offer the Certificates to the public
initially at the public offering price set forth on the cover page of this
Prospectus Supplement, and to certain dealers at such price less a concession of
[ %] per Certificates; the Underwriter and such dealers may allow a discount
of [ %] per Certificates on sales to certain other dealers; and after the
initial public offering of the Certificates, the public offering price and the
concessions and discounts to dealers may be changed by the Underwriter.
The Underwriting Agreement provides that the Seller will indemnify the
Underwriter against certain liabilities under applicable securities laws, or
contribute to payments the Underwriter may be required to make in respect
thereof.
The Trust may, from time to time, invest the funds in the Trust
Accounts in Eligible Investments acquired from the Underwriter.
Upon receipt of a request by an investor who has received an
electronic Prospectus Supplement and Prospectus from the Underwriter within the
period during which there is an obligation to deliver a Prospectus Supplement
and Prospectus, the Company or the Underwriter will promptly deliver, or cause
to be delivered, without charge, a paper copy of the Prospectus Supplement and
Prospectus.
S-27
<PAGE>
LEGAL MATTERS
Certain legal matters with respect to the Certificates will be passed
upon by Sidley & Austin, New York, New York.
RATING
It is a condition to issuance that the [Class A] Certificates be rated
[in the highest rating category] by a Rating Agency. [It is a condition to
issuance that the Class B Certificates be rated [in one of the three highest
rating categories by a Rating Agency.]
A securities rating addresses the likelihood of the receipt by
Certificateholders of distributions on the CRB Securities. The rating takes
into consideration the characteristics of the CRB Securities and the structural,
legal and tax aspects associated with the Certificates. The ratings on the
Certificates do not, however constitute statements regarding the possibility
that Certificateholders might realize a lower than anticipated yield.
A securities rating is not a recommendation to buy, sell or hold
securities and may be subject to revision or withdrawal at any time by the
assigning rating organization. Each securities rating should be evaluated
independently of similar ratings on different securities.
S-28
<PAGE>
INDEX OF DEFINED TERMS
Accounts.....................................................
Agreement Date...............................................
Agreements...................................................
Ancillary Arrangements.......................................
Beneficial Owner.............................................
Book-Entry Certificates......................................
Business Day.................................................
Cash Collateral..............................................
Cash Collateral Account......................................
Cash Collateral Guaranty.....................................
Cede.........................................................
Certificateholder............................................
Certificates.................................................
[Class A] Percentage.........................................
[Class A] Certificate Rate...................................
[Class B] Percentage.........................................
[Class B] Certificate Rate...................................
Closing Date.................................................
Code.........................................................
Collection Account...........................................
Collection Period............................................
CRB Securities...............................................
CRB Securities Amortization Event............................
CRB Securities Certificate Rate..............................
CRB Securities Controlled Amortization Period................
CRB Securities Distribution Date.............................
CRB Securities Servicing Fee.................................
CRB Servicer.................................................
CRB Servicer Reports.........................................
CRB Securities Servicing Fee.................................
Depositor....................................................
Depository...................................................
Distribution Date............................................
DTC..........................................................
ERISA........................................................
Final Scheduled Distribution Date............................
Federal Tax Counsel..........................................
Finance Charge Receivables...................................
Holdings.....................................................
Interest Distributable Amount................................
IRS..........................................................
S-29
<PAGE>
Issuer.......................................................
Labor........................................................
LIBOR........................................................
Moody's......................................................
Parties in Interest..........................................
Percentage Interest..........................................
Plans........................................................
Plan Asset Regulation........................................
Pool Balance.................................................
Pooling Agreement............................................
Principal Distributable Amount...............................
Principal Receivables........................................
Prospectus...................................................
Rating Agency................................................
Receivables..................................................
Record Date..................................................
Required Reserve Account Balance.............................
Reserve Account..............................................
Reserve Account Initial Deposit..............................
Reuters LIBOR................................................
S&P..........................................................
Seller.......................................................
Seller's Interest............................................
Seller's Percentage..........................................
Swap Regulations.............................................
Telerate LIBOR...............................................
Trust........................................................
Trustee......................................................
Underwriter..................................................
U.S. Certificateholder.......................................
Voting Rights................................................
Withholding Agent............................................
S-30
<PAGE>
APPENDIX A
TABLE OF CONTENTS
This Appendix A contains excerpts from each prospectus pursuant to which
the CRB Securities were offered and sold.
Capitalized terms used in the excerpts included in this Appendix A have the
meanings defined either within the text of such excerpt or within the related
prospectus. Such terms are not applicable to any other section of this
Prospectus Supplement or Prospectus unless such terms are defined as such in the
Prospectus Supplement or the Prospectus. Complete copies of the prospectus
relating to a particular series of CRB Securities may be obtained upon request
from the Depositor.
S-31
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
Subject to completion
Preliminary Prospectus dated [ ], 199[ ]
PROSPECTUS
CS FIRST BOSTON CARD RECEIVABLES TRUSTS
Asset Backed Notes
Asset Backed Certificates
(Issuable in Series)
ASSET BACKED SECURITIES CORPORATION, DEPOSITOR
--------------------------
The Asset Backed Notes (the "Notes") and the Asset Backed Certificates
(the "Certificates" and, together with the Notes, the "Securities") described
herein may be sold from time to time in one or more series (each, a "Series"),
in amounts, at prices and on terms to be determined at the time of sale and to
be set forth in a supplement to this Prospectus (a "Prospectus Supplement").
Each Series of Securities will be issued by a trust (each, a "Trust") to be
formed pursuant to a Trust Agreement, Pooling and Servicing Agreement, Master
Pooling and Servicing Agreement or similar agreement (an "Agreement") as
described herein. Each such Series may include one or more classes (each, a
"Class") of Notes and/or one or more classes of Certificates.
The property of each Trust will include certain Base Assets (as defined
herein), which may consist of credit card, charge card or certain other types of
Receivables or Participations (each as defined herein) or certain "card
receivables backed securities" ("CRB Securities", as defined herein), and may
also include certain Series Enhancements (as defined herein) or other assets as
described herein or in the related Prospectus Supplement. Any such Receivables
will consist of one or more pools of receivables arising from time to time in
the ordinary course of business in one or more portfolios of credit card, charge
card or certain other types of accounts (collectively, "Accounts"). Any
Participations included in the Base Assets for a Series will consist of
undivided interests in one or more pools of Receivables, and any CRB Securities
included therein will consist of asset backed securities representing interests
in, or notes or loans secured by, one or more underlying pools of Receivables.
For Base Assets consisting of Receivables, the property of the related
Trust will include the right to receive all monies due thereunder net (to the
extent provided in the related Prospectus Supplement) of certain amounts payable
to the servicer of such Receivables specified in such Prospectus Supplement (the
"servicer"), which servicer may also be the Seller. Unless otherwise indicated
in the related Prospectus Supplement, the Base Assets for a Series will be
(Continued on the following page)
--------------------------
EXCEPT AS OTHERWISE SPECIFIED IN THE RELATED PROSPECTUS SUPPLEMENT, THE NOTES OF
A SERIES WILL REPRESENT OBLIGATIONS OF, AND THE CERTIFICATES OF A SERIES WILL
REPRESENT BENEFICIAL INTERESTS IN, THE RELATED TRUST ONLY, AND WILL NOT
REPRESENT OBLIGATIONS OF OR INTERESTS IN, AND ARE NOT GUARANTEED OR INSURED BY,
CS FIRST BOSTON CORPORATION, THE DEPOSITOR, ANY OF THEIR RESPECTIVE AFFILIATES,
OR ANY UNITED STATES GOVERNMENTAL AGENCY.
PROSPECTIVE INVESTORS SHOULD CONSIDER THE FACTORS SET FORTH UNDER "RISK FACTORS"
IN THIS PROSPECTUS AND IN THE RELATED PROSPECTUS SUPPLEMENT.
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.
Retain this Prospectus for future reference. This Prospectus may not
be used to consummate sales of Securities of any Series unless accompanied by a
Prospectus Supplement.
---------------------
Underwriters of the Securities
[LOGO] CS FIRST BOSTON
This date of this Prospectus is [ ], 1995.
<PAGE>
(Continued from the previous page)
sold to the Trust by Asset Backed Securities Corporation, a Delaware
corporation (the "Depositor"), and any Receivables included in the Base Assets
for a Series will have been purchased by the Depositor from the seller or
sellers designated in the related Prospectus Supplement (collectively, the
"Seller"). Series Enhancement with respect to a Series may include Credit
Enhancement (as defined herein) and/or certain types of Ancillary Arrangements
(as defined herein).
Except as otherwise specified in the related Prospectus Supplement, each
Class of Securities of any Series will represent the right to receive a
specified amount of payments of principal and interest on the related Base
Assets, at the rates, on the dates and in the manner described herein and in
the related Prospectus Supplement. As more fully described herein and in the
related Prospectus Supplement, distributions on any Class of Securities may be
senior or subordinate to distributions on one or more other Classes of
Securities of the same Series, and payments on the Certificates of a Series may
be subordinated in priority to payments on the Notes of such Series. If
provided in the related Prospectus Supplement, a Series of Securities may
include one or more classes of Securities entitled to principal distributions
with disproportionate, nominal or no distributions in respect of interest, or
to interest distributions with disproportionate, nominal or no distributions in
respect of principal.
-2-
<PAGE>
PROSPECTUS SUPPLEMENT
The Prospectus Supplement relating to a Series of Securities to be
offered hereunder will, among other things, set forth with respect to such
Series of Securities: (i) the aggregate principal amount, interest rate and
authorized denominations of each Class of such Securities; (ii) certain
information concerning the Base Assets and the related Seller and Servicer, as
applicable; (iii) the terms of any Series Enhancement applicable to any Class
or Classes of such Securities; (iv) information concerning any other assets in
the related Trust; (v) the expected date or dates on which the principal amount
of each Class of such Securities will be paid to holders of such Securities;
(vi) the extent to which any Class within such Series is subordinated to any
other Class of such Series; and (vii) additional information with respect to
the plan of distribution of such Securities. To the extent that the terms of
this Prospectus conflict or are otherwise inconsistent with the terms of the
related Prospectus Supplement, the terms of such related Prospectus Supplement
shall govern.
REPORTS TO SECURITYHOLDERS
Unless and until Definitive Securities (as defined herein) are issued,
unaudited reports containing information concerning the related Trust will be
sent by the Trustee on behalf of such Trust or by the related Indenture Trustee
annually and on each Distribution Date specified in the related Prospectus
Supplement only to Cede & Co. ("Cede"), as nominee for the Depository Trust
Company ("DTC") and registered holder of the Securities (the "Securityholder").
Such reports will not constitute financial statements prepared in accordance
with generally accepted accounting principles. See "ADDITIONAL INFORMATION
REGARDING THE SECURITIES - Book Entry registration" and "DESCRIPTION OF THE
TRUST OR POOLING AGREEMENT - Reports to Holders" . The Depositor, as
originator of the Trust, will file with the Securities and Exchange Commission
(the "Commission") such periodic reports as are required under the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and the rules and
regulations of the Commission thereunder but may at any time cease to file any
reports that are no longer so required.
AVAILABLE INFORMATION
The Depositor, as originator of the Trusts, has filed with the Commission
a Registration Statement on Form S-3 (together with all amendments and exhibits
thereto, the "Registration Statement") under the Securities Act of 1933, as
amended, (the "Securities Act") with respect to the Securities being offered
hereby. This Prospectus does not contain all of the information set forth in
the Registration Statement, certain parts of which have been omitted in
accordance with the rules and regulations of the Commission. For further
information, reference is made to the Registration Statement, which is
available for inspection without charge at the public reference facilities of
the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549, and the regional offices of the Commission at Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511, and Seven World Trade
Center, Suite 1300, New York, New York 10048. Copies of such information can
be obtained from the Public Reference Section of the Commission at Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents filed by the Depositor on behalf of the Trust referred to
in the accompanying Prospectus Supplement with the Commission pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act, after the date of this
Prospectus and prior to the termination of the offering of the Securities
offered by such Trust shall be deemed to be incorporated by reference in this
Prospectus and to be a part hereof from the dates of filing of such documents.
Any statement contained herein or in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
(or in the accompanying Prospectus Supplement) or in any subsequently filed
document that also is or is deemed to be
-3-
<PAGE>
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or supersede, to constitute a part of this Prospectus.
The Depositor on behalf of any Trust will provide without charge to each
person to whom a copy of this Prospectus is delivered, on the written or oral
request of such person, a copy of any or all of the documents incorporated
herein by reference, except the exhibits to such documents. Requests for such
copies should be directed to the Secretary of Asset Backed Securities
Corporation, Park Avenue Plaza, 55 East 52nd Street, New York, New York 10055.
Telephone requests may be directed to the Secretary of Asset Backed Securities
Corporation at (212) 909-2000.
-4-
<PAGE>
SUMMARY OF TERMS
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus and by reference to
the information with respect to each Series contained in the related Prospectus
Supplement to be prepared and delivered in connection with the offering of
Certificates and/or Notes of such Series.
Issuer............... With respect to any Series of Securities, a Trust formed
pursuant to either (i) a trust agreement (a "Trust
Agreement") between the Depositor and the Trustee for
such Trust (each such Trust being referred to herein as
an "Owner Trust") or (ii) a pooling and servicing
agreement, master pooling and servicing agreement or
similar agreement (a "Pooling Agreement") among the
Depositor, the Seller, the Servicer (if other than the
Seller) and the Trustee for such Trust (each such Trust
being referred to herein as a "Grantor Trust").
Depositor............ The Depositor is a special-purpose Delaware corporation
organized for the purpose of causing the issuance of the
Securities and other securities issued under the
Registration Statement backed by receivables or
underlying securities of various types and acting as
settlor or depositor with respect to trusts, custody
accounts or similar arrangements or as general or limited
partner in partnerships formed to issue securities. It is
not expected that the Depositor will have any significant
assets. The Depositor is an indirect, wholly owned
finance subsidiary of Collaterized Mortgage Securities
Corporation, which is a wholly owned subsidiary of CS
First Boston Securities Corporation, which is a wholly
owned subsidiary of CS First Boston, Inc. Neither
Collaterized Mortgage Securities Corporation, CS First
Boston Securities Corporation nor CS First Boston, Inc.
nor any of their affiliates has guaranteed, will
guarantee or is or will be otherwise obligated with
respect to any Series of Securities.
-5-
<PAGE>
The Depositor's principal executive office is located at
Park Avenue Plaza, 55 East 52nd Street, New York, New
York 10055, and its telephone number is (212) 909-2000.
Trustee............. With respect to each Trust, the trustee specified in the
related Prospectus Supplement (the "Trustee").
Servicer............ With respect to each Trust for which the Base Assets
include Receivables or Participations, the servicer
specified in the related Prospectus Supplement (the
"Servicer").
Indenture Trustee... With respect to any Series of Securities that includes
one or more classes of Notes, the indenture trustee
specified in the related Prospectus Supplement (the
"Indenture Trustee").
Securities Offered.. Each Series of Securities issued by a Trust will include
one or more classes (each a "Class") of Certificates and
may also include one or more Classes of Notes. Any Series
of Securities issued under a Pooling Agreement will only
include Certificates (such Certificates being sometimes
referred to herein as "Receivables Pooling
Certificates"). Each Class of Notes will be issued
pursuant to an indenture (each, an "Indenture") between
the related Trust and the Indenture Trustee specified in
the related Prospectus Supplement. Each Class of
Certificates will be issued pursuant to the related Trust
Agreement or Pooling Agreement. The related Prospectus
Supplement will specify which Class or Classes of Notes
and/or Certificates of the related Series are being
offered thereby.
A Trust may issue one or more classes of additional
Certificates representing interests in the assets of such
Trust that are not being offered by this Prospectus or
any related Prospectus Supplement.
-6-
<PAGE>
Notes............... Unless otherwise specified in the related Prospectus
Supplement, each Class of Notes will have a stated
principal amount and will bear interest at a specified
rate or rates (with respect to each Class of Notes, the
"Interest Rate"). Each Class of Notes may have a
different Interest Rate, which may be a fixed, variable
or adjustable Interest Rate or any combination of the
foregoing. The related Prospectus Supplement will specify
the Interest Rate, or the method for determining the
Interest Rate, for each Class of Notes.
A Series of Securities may include two or more Classes of
Notes that differ as to timing and priority of payments,
seniority, Interest Rate or amount of payments of
principal or interest. Additionally, payments of
principal or interest in respect of any such Class or
Classes may or may not be made upon the occurrence of
specified events or on the basis of collections from
designated portions of the Base Assets. If specified in
the related Prospectus Supplement, one or more Classes of
Notes ("Strip Notes") may be entitled to (i) principal
payments with disproportionate, nominal or no interest
payments or (ii) interest payments with disproportionate,
nominal or no principal payments. See "DESCRIPTION OF THE
NOTES - Distributions of Principal and Interest".
Unless otherwise specified in the related Prospectus
Supplement, Notes will be available for purchase in
denominations of $1,000 and integral multiples thereof
and will be available in book-entry form only. Unless
otherwise specified in the related Prospectus Supplement,
Noteholders will be able to receive Definitive Notes (as
defined herein under "RISK FACTORS - Book-Entry
Registration") only in the limited circumstances
described herein or in
-7-
<PAGE>
the related Prospectus Supplement. See "CERTAIN
INFORMATION REGARDING THE SECURITIES - Definitive
Securities".
If a Servicer, Seller or Depositor with an option to
purchase the Base Assets of a Trust exercises such option
(or if not and, if and to the extent provided in the
related Prospectus Supplement, satisfactory bids for the
purchase of such Base Assets are received), in the manner
and on the respective terms and conditions described
under "DESCRIPTION OF THE TRUST OR POOLING AGREEMENT -
Termination", the outstanding Notes will be redeemed as
set forth in the related Prospectus Supplement.
The Certificates..... Unless otherwise specified in the related Prospectus
Supplement, each class of Certificates will have an
original principal amount and will accrue interest on
such original principal amount at a specified rate (with
respect to each class of Certificates, the "Pass-Through
Rate"). Each Class of Certificates may have a different
Pass- Through Rate, which may be a fixed, variable or
adjustable Pass-Through Rate, or any combination of the
foregoing. The related Prospectus Supplement will specify
the Pass- Through Rate, or the method for determining the
applicable Pass-Through Rate, for each Class of
Certificates.
A Series of Securities may include two or more Classes of
Certificates that differ as to timing and priority of
distributions, seniority, allocations of losses, Pass-
Through Rate or amount of distributions in respect of
principal or interest. Additionally, distributions in
respect of principal or interest in respect of any such
Class or Classes may or may not be made upon the
occurrence of specified events or on the basis of
collections from designated portions of the related Base
Assets. If specified in the related Prospectus
Supplement, one or more Classes of
-8-
<PAGE>
Certificates ("Strip Certificates") may be entitled to
(i) principal distributions with disproportionate,
nominal or no interest distributions or (ii) interest
distributions with disproportionate, nominal or no
principal distributions. See "DESCRIPTION OF THE
CERTIFICATES - Payments of Principal" and "- Payments of
Interest". If a Series of Securities includes Classes of
Notes, distributions in respect of the Certificates may
be subordinated in priority of payment to payments on the
Notes to the extent specified in the related Prospectus
Supplement.
Unless otherwise specified in the related Prospectus
Supplement, Certificates will be available for purchase
in a minimum denomination of $100,000 and in integral
multiples of $1,000 in excess thereof and will be
available in book-entry form only. Unless otherwise
specified in the related Prospectus Supplement,
Certificateholders will be able to receive Definitive
Certificates (as defined under "RISK FACTORS - Book Entry
Registration") only in the limited circumstances
described herein or in the related Prospectus Supplement.
See "CERTAIN INFORMATION REGARDING THE SECURITIES -
Definitive Securities".
If a Servicer, Seller or Depositor with an option to
purchase the Base Assets of a Trust exercises such option
(or if not and, if and to the extent provided in the
related Prospectus Supplement, satisfactory bids for the
purchase of such Base Assets are received), in the manner
and on the respective terms and conditions described
under "DESCRIPTION OF THE TRUST OR POOLING AGREEMENT -
Termination", the Certificates will be prepaid as set
forth in the related Prospectus Supplement.
Receivables Pooling Certificates
-9-
<PAGE>
A. Certificateholders'
Interest; Seller's
Interest......... In the case of a Series of Receivables Pooling
Certificates, a portion of the assets of the related
Trust will be allocated among the Certificateholders of
such Series (the "Certificateholders' Interest") and the
remainder will be allocated to the interest of the Seller
or Depositor therein (the "Seller's Interest") and as
otherwise provided in the related Prospectus Supplement.
The Seller's Interest represents the right to the assets
of the Trust not allocated to the Certificateholders'
Interest of any Series or any interests in the Trust
issued as Series Enhancement. In the case of a master
Trust, the related Seller may cause the issuance of
additional Series from time to time and any such issuance
will have the effect of decreasing the Seller's Interest.
The Seller's Interest may be evidenced by an exchangeable
certificate that is subject to certain transfer
restrictions. The aggregate principal amount of the
Certificateholders' Interest will, except as provided
herein or in the related Prospectus Supplement, remain
fixed at the aggregate initial principal amount of the
Certificates of such Series and the principal amount of
the Seller's Interest will fluctuate as the amount of the
Principal Receivables held by the Trust changes from time
to time. If so provided in the related Prospectus
Supplement, in certain circumstances, interests in the
assets of a Trust may be allocated to a Credit Enhancer,
and in the case of a master Trust interests in the assets
of the Trust may be allocated to the Certificateholders
of more than one Series.
B. Issuance of
Additional
Series.......... Unless otherwise provided in the related Prospectus
Supplement, in the case of a master Trust, the related
Pooling Agreement will provide that pursuant to one or
more supplements to such Pooling Agreement (each, a
"Supplement"), the related Seller may cause the related
Trustee to issue one or more new Series
-10-
<PAGE>
and accordingly cause a reduction in the Seller's
Interest represented by the Seller's Certificate. Under
such Pooling Agreement, such Seller may define, with
respect to any Series, the principal terms of such
Series. A new Series will only be issued upon
satisfaction of the conditions described herein or in the
related Prospectus Supplement.
C. Collections...... All collections of Receivables with respect to a given
Trust will be allocated by the related Servicer as
amounts collected on Principal Receivables and on Finance
Charge Receivables. The Servicer will allocate between
the Certificateholders' Interest of each Series (if more
than one) of such Trust and the Seller's Interest all
amounts collected with respect to Finance Charge
Receivables and Principal Receivables and the Defaulted
Amount (as defined under "DESCRIPTION OF THE
CERTIFICATES -Receivables Pooling Certificates -
Collections"). Collections of Finance Charge Receivables
and the Defaulted Amount will be allocated to each such
Series at all times based upon its Floating Allocation
Percentage. Collections of Principal Receivables will be
allocated to each such Series at all times based upon its
Principal Allocation Percentage. The Floating Allocation
Percentage and the Principal Allocation Percentage with
respect to each such Series will be determined as set
forth in the related Supplement and, with respect to each
such Series offered hereby, in the related Prospectus
Supplement. See "DESCRIPTION OF THE CERTIFICATES -
Allocation Percentages". Collections will be deposited in
the related Collection Account and invested in the manner
described under "PROSPECTUS SUMMARY-Servicing" and
"SERVICING OF RECEIVABLES-Deposits to the Collection
Account".
D. Interest......... Interest will accrue on the invested amount of the
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<PAGE>
Receivables Pooling Certificates of a Series or Class
offered hereby specified in the related Prospectus
Supplement (the "Invested Amount" of such Series or
Class) at the per annum rate either specified in or
determined in the manner specified in the related
Prospectus Supplement. If the Prospectus Supplement for a
Series of Receivables Pooling Certificates so provides,
the interest rate and interest payment dates applicable
to each Certificate of that Series may be subject to
adjustment from time to time. Any such interest rate
adjustment would be determined by reference to one or
more indices or by a remarketing firm, in each case as
described in the Prospectus Supplement for such Series.
Except as otherwise provided herein or in the related
Prospectus Supplement, collections of Finance Charge
Receivables and certain other amounts allocable to the
Certificateholders' Interest of a Series offered hereby
will be used to make interest payments to
Certificateholders of such Series on each Interest
Payment Date with respect thereto, provided that if a
Rapid Amortization Period commences with respect to such
Series, thereafter interest will be distributed to such
Certificateholders monthly on each Special Payment Date.
If the Interest Payment Dates for a Series or Class occur
less frequently than monthly, collections of Finance
Charge Receivables or other amounts (or the portion
thereof allocable to such Class) will be deposited in one
or more trust accounts (each an "Interest Funding
Account") and used to make interest payments to
Certificateholders of such Series or Class on the
following Interest Payment Date with respect thereto. If
a Series has more than one Class of Receivables Pooling
Certificates, each such Class may have a separate
Interest Funding Account.
E. Principal......... The principal of any Receivables Pooling Certificates
will be scheduled to be paid either in full on an
expected date specified in the related
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<PAGE>
Prospectus Supplement (the "Expected Final Payment
Date"), in which case such Series will have an
Accumulation Period as described below under
"Accumulation Period", or in installments commencing on a
date specified in the related Prospectus Supplement (the
"Principal Commencement Date"), in which case such
Certificates will have a Controlled Amortization Period
as described below under "Controlled Amortization
Period". If such a Series has more than one Class of
Certificates, a different method of paying principal,
Expected Final Payment Date and/or Principal Commencement
Date may be assigned to each Class. The payment of
principal with respect to the Certificates of such a
Series or Class may be made or commence earlier than the
applicable Expected Final Payment Date or Principal
Commencement Date, as the case may be, and the final
principal payment with respect to the Certificates of
such Series or Class may be made earlier or later than
the applicable Expected Final Payment Date or Principal
Commencement Date, if a Pay Out Event occurs with respect
to such Series or Class or under certain other
circumstances described herein or in the related
Prospectus Supplement.
F. Revolving Period. Receivables Pooling Certificates will have a revolving
period (a "Revolving Period"), which will commence on the
date specified in the related Prospectus Supplement as
the Series Cut- Off Date and continue until the earlier
of (a) the commencement of the Rapid Amortization Period
with respect to such Series and (b) the date specified in
the related Prospectus Supplement as the last day of the
Revolving Period with respect to such Series. During the
Revolving Period with respect to such Series, collections
of Principal Receivables and certain other amounts
otherwise allocable to the Certificateholders' Interest
of such Series will be distributed to or for the benefit
of the Certificateholders of other Series (if so
provided
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<PAGE>
in the related Prospectus Supplement) or the Seller or
the Depositor in respect of the Seller's Interest.
G. Accumulation
Period........... If so specified by the related Prospectus Supplement in
the case of a Series of Receivables Pooling
Certificates, and unless a Rapid Amortization Period
commences with respect to such Series, the Certificates
of such Series will have an accumulation period (the
"Accumulation Period"). The Accumulation Period will
commence on the close of business on the date specified
or determined in the manner specified in the related
Prospectus Supplement and continue until the earliest of
(a) the commencement of a Rapid Amortization Period with
respect to such Series, (b) payment in full of the
Invested Amount of the Certificates of such Series or (c)
the occurrence of the Series Termination Date with
respect to such Series.
During the Accumulation Period with respect to a Series
of Receivables Pooling Certificates, collections of
Principal Receivables and certain other amounts allocable
to the Certificateholders' Interest of such Series will
be deposited on each Distribution Date (which date during
each calendar month will be specified in the related
Prospectus Supplement) in a trust account established for
the benefit of the Certificateholders of such Series (a
"Principal Funding Account") and used to make principal
distributions to such Certificateholders when due. The
amount to be deposited in the Principal Funding Account
on any such Distribution Date may, but will not
necessarily, be limited to an amount (the "Controlled
Deposit Amount") equal to the amount specified in the
related Prospectus Supplement (the "Controlled
Accumulation Amount") plus any existing deficit with
respect to the Controlled Accumulation Amount arising
from prior Distribution Dates (the "Deficit Controlled
Accumulation Amount"). If a Series
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<PAGE>
of Receivables Pooling Certificates has more than one
Class, each Class may have a separate Principal Funding
Account and Controlled Accumulation Amount. In addition,
the related Prospectus Supplement may describe certain
priorities among such Classes with respect to deposits of
principal into such Principal Funding Accounts. In
general, unless a Pay Out Event shall have occurred prior
thereto, on the Expected Final Payment Date for a
particular Series or Class, all amounts accumulated in
the Principal Funding Account with respect to such Series
or Class during the Accumulation Period will be
distributed as a single repayment of principal with
respect to such Series or Class.
H. Controlled
Amortization
Period........... If the related Prospectus Supplement so specifies with
respect to a Series of Receivables Pooling Certificates,
unless a Rapid Amortization Period commences with respect
to such Series, the Certificates of such Series will have
an amortization period during which collections of
Principal Receivables allocable to Certificates within
one or more Classes of such Series will be used to make
periodic installment payments of principal with respect
to such Certificates (the "Controlled Amortization
Period"). The Controlled Amortization Period will
commence at the close of business on the date specified
or determined in the manner specified in the related
Prospectus Supplement and continue until the earlier of
(a) the commencement of the Rapid Amortization Period
with respect to such Series, (b) payment in full of the
Invested Amount of the Certificates of such Series or (c)
the Series Termination Date with respect to such Series.
During the Controlled Amortization Period with respect to
a Series, collections of Principal Receivables and
certain other amounts allocable to the
Certificateholders' Interest of such Series will be used
on each Distribution Date to make principal distributions
to Certificateholders of
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<PAGE>
such Series or any Class of such Series then scheduled to
receive such distributions. The amount to be distributed
to Certificateholders of any Series on any Distribution
Date may, but will not necessarily, be limited to an
amount (the "Controlled Distribution Amount") equal to an
amount (the "Controlled Amortization Amount") specified
in the related Prospectus Supplement plus any existing
deficit with respect to the Controlled Amortization
Amount arising from prior Distribution Dates (the
"Deficit Controlled Amortization Amount"). If a Series of
Receivables Pooling Certificates has more than one Class,
each Class may have a separate Controlled Amortization
Amount. In addition, the related Prospectus Supplement
may describe certain priorities among such Classes with
respect to such distributions.
I. Rapid Amortization
Period........... During the period beginning at the close of business on
the Business Day immediately preceding the day on which a
Pay Out Event is deemed to have occurred with respect to
a Series of Receivables Pooling Certificates and ending
upon the earlier to occur of (i) the payment in full of
the Invested Amount of the Certificates of such Series
and any amount required to be paid to a provider of
Series Enhancement with respect thereto or (ii) the
Series Termination Date (the "Rapid Amortization
Period"), collections of Principal Receivables and
certain other amounts allocable to the
Certificateholders' Interest of such Series will be
distributed as principal payments to the
Certificateholders of such Series monthly on each
Distribution Date beginning with the first Special
Payment Date with respect to such Series. During the
Rapid Amortization Period with respect to a Series,
distributions of principal to Certificateholders will not
be subject to any Controlled Deposit Amount or Controlled
Distribution Amount. In addition, upon the commencement
of the Rapid Amortization
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<PAGE>
Period with respect to a Series, any funds on deposit in
a Principal Funding Account with respect to such Series
will be paid to the Certificateholders of the relevant
Class or Series on the first Special Payment Date with
respect to such Series. See "Pay Out Events" below for a
discussion of the events which might lead to the
commencement of the Rapid Amortization Period with
respect to a Series.
J. Pay Out Events... As described above, the Revolving Period with respect to
a Series of Receivables Pooling Certificates will
continue until the commencement of the Accumulation
Period or the Controlled Amortization Period with respect
thereto, which will continue until the Invested Amount of
such Series shall have been paid in full or the Series
Termination Date with respect to such Series occurs,
unless a Pay Out Event occurs with respect to such Series
prior to any of such dates. Except as otherwise provided
in the related Prospectus Supplement with respect to such
Series, a "Pay Out Event" with respect to such Series
refers to any of the following events and any other
events specified as such in the related Prospectus
Supplement:
(a) the occurrence of an Insolvency Event (as defined
under "DESCRIPTION OF THE CERTIFICATES -Receivables
Pooling Certificates- Pay Out Events") relating to
the Seller or the Depositor, or
(b) the Trust becomes an investment company within the
meaning of the Investment Company Act of 1940, as
amended (the "Investment Company Act").
In the case of any event described above, a Pay Out Event
with respect to the affected Series will
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<PAGE>
be deemed to have occurred without any notice or other
action on the part of the Trustee or the
Certificateholders of such Series immediately upon the
occurrence of such event. The Rapid Amortization Period
with respect to a Series will commence at the close of
business on the day immediately preceding the day on
which a Pay Out Event occurs with respect thereto.
Distributions of principal to the Certificateholders of
such Series will begin on the Distribution Date next
following the month during which such Pay Out Event
occurs (such Distribution Date and each following
Distribution Date with respect to such Series, a "Special
Payment Date"). Any amounts on deposit in a Principal
Funding Account or an Interest Funding Account with
respect to such Series at such time will be distributed
on the first such Special Payment Date to the
Certificateholders of such Series. If a Series has more
than one Class of Certificates, each Class may have
different Pay Out Events which, in the case of any Series
of Certificates offered hereby, will be described in the
related Prospectus Supplement.
In addition to the consequences of a Pay Out Event
discussed above, if any Insolvency Event occurs with
respect to the Seller, pursuant to the Pooling Agreement,
on the day of such Insolvency Event, the Seller will
immediately cease to transfer Principal Receivables
directly or indirectly to the Trust and promptly give
notice to the Trustee of such Insolvency Event. Under the
terms of the Pooling Agreement applicable to such Series,
within 15 days the Trustee will publish a notice of the
occurrence of the Insolvency Event stating that the
Trustee intends to sell, dispose of or otherwise
liquidate the Receivables in a commercially reasonable
manner and on commercially reasonable terms unless within
90 days from the date such notice is published the
holders of Certificates of each
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<PAGE>
Series or, if a Series includes more than one Class, each
Class of such Series evidencing more than 50% of the
aggregate unpaid principal amount of each such Series or
Class and certain other interested parties specified in
the related Prospectus Supplement instruct the Trustee
not to dispose of or liquidate the Receivables and to
continue transferring Principal Receivables as before
such Insolvency Event. The proceeds from any such sale,
disposition or liquidation of the Receivables will be
deposited in the Collection Account and allocated as
described in the applicable Pooling Agreement and the
related Prospectus Supplement. If the sum of (a) the
portion of such proceeds allocated to the
Certificateholders' Interest of any Series and (b) the
proceeds of any collections of the Receivables in the
Collection Account allocated to the Certificateholders'
Interest of such Series is not sufficient to pay the
Invested Amount of the Certificates of such Series in
full, such Certificateholders will incur a loss.
K. Paired Series..... If so specified in the related Prospectus Supplement, a
Series of Certificates may be paired with another Series
issued by the related Trust (a "Paired Series") on or
prior to the commencement of a Accumulation Period or
Controlled Amortization Period for such Series. As the
principal amount of the Series having a Paired Series is
reduced, the principal amount of the Paired Series will
increase by an equal amount. Upon payment in full of such
Series, the principal amount of the Paired Series will be
equal to the amount of the principal paid to
Certificateholders of such Series.
Final Scheduled
Payment Date....... The Final Scheduled Payment Date for each Class of
Certificates of a Series is the date after which no
Certificates of such Class are expected to remain
outstanding, calculated on the basis of the assumptions
applicable to such Series
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<PAGE>
described in the related Prospectus Supplement. The Final
Scheduled Payment Date of a Class may equal the maturity
date of the Base Asset in the related Trust which has the
latest stated maturity, or will be determined as
described herein and in the related Prospectus
Supplement.
The actual final Payment Date of the Certificates of any
Class will depend principally upon the rate of payment
(including early amortization, prepayments and
repurchases) of the Receivables underlying or comprising
the Base Assets in the related Trust and, in the case of
Certificates backed by CRB Securities, the terms of such
CRB Securities. Unless otherwise specified in the related
Prospectus Supplement, the actual final Payment Date of
Securities of a given Class is likely to occur earlier
(and may occur substantially earlier) than the Final
Scheduled Payment Date of such Class as a result of the
application of prepayments to the reduction of the
principal balance of such Certificates or if any early
amortization period occurs with respect to the Base
Assets underlying such Class, but may also occur later
than the applicable Final Scheduled Payment Date. See
"RISK FACTORS" and "DESCRIPTION OF THE CERTIFICATES"
herein for a more detailed description of factors that
may affect the timing of principal payments on the
Certificates.
The Trust Property
General............ On or prior to the date of issuance of a Series of
Securities specified in the related Prospectus Supplement
(the "Closing Date"), the Depositor will transfer Base
Assets to the related Trust (after acquiring such Base
Assets, in certain cases, from the seller or sellers
specified in the related Prospectus Supplement
(collectively, the "Seller")) having the aggregate
principal balance specified in such Prospectus Supplement
as of the date specified therein (the "Series Cutoff
Date"). Alternatively, if so specified in the
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<PAGE>
related Prospectus Supplement, in certain circumstances
the Depositor may transfer cash to the Trust and the
Trust will use such cash to acquire such Base Assets.
The assets of the Trust may also include one or more
types of Series Enhancement (as described below), certain
Ancillary Arrangements (as described below) and certain
trust accounts, including the related Collection Account,
Distribution Account and Reserve Account and any other
account or asset identified in the applicable Prospectus
Supplement. See "DESCRIPTION OF THE TRUST OR POOLING
AGREEMENT - Trust Accounts".
A. Base Assets..... The Base Assets for a Series may consist of any
combination of the following assets, to the extent and as
specified in the related Prospectus Supplement: (1)
Receivables and Participations in Receivables and (2) CRB
Securities. To the extent set forth in the related
Prospectus Supplement, the Base Assets for a Series (x)
may be purchased by the Depositor from the related Seller
and transferred to the related Trust, (y) may be
purchased by the Depositor in the open market or in
privately negotiated transactions (including transactions
with entities affiliated with the Depositor) and
transferred to the Trust or (z) may be purchased by the
related Trust in the open market or in privately
negotiated transactions.
(1) Receivables and
Participations
(a) General.... The assets of the Trust created with respect to a Series
may include a pool of receivables ("Receivables") arising
from time to time in the ordinary course of business in
one or more designated portfolios of credit card, charge
card or certain other types of accounts ("Accounts"),
together with any monies due under such
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<PAGE>
Receivables net, if and as provided in the related
Prospectus Supplement, of certain amounts payable to the
related Servicer.
Any designated Accounts will meet the criteria provided
in the applicable Agreement applied as of the applicable
Series Cut-Off Date specified therein. The Accounts will
consist of certain initial Accounts described in the
related Prospectus Supplement ("Initial Accounts") and
any Additional Accounts (as described below), but will
not include any Removed Accounts (as described below).
Pursuant to the applicable Agreement: (a) the Seller of
the Initial Accounts may (subject to certain limitations
and conditions), and in some circumstances will be
obligated to, designate additional Accounts ("Additional
Accounts"), the Receivables arising in which will be
added to the Trust or, in lieu thereof or in addition
thereto, transfer eligible Participations to the Trust
and (b) such Seller will have the right (subject to
certain limitations and conditions), but not the
obligation, to remove the Receivables in certain Accounts
from the Trust ("Removed Accounts").
All new Receivables arising during the term of a Trust in
any designated Accounts (including in any Additional
Accounts) will be the property of the Trust. Accordingly,
the amount of Receivables in the Trust will fluctuate as
new Receivables are generated and as existing Receivables
are collected, charged off as uncollectible or otherwise
adjusted. Receivables may be payable in U.S. dollars or
in any foreign currency.
"Participations" are undivided interests in a pool of
assets primarily consisting of Receivables owned by a
Seller or an affiliate of the Seller, together with any
collections thereon.
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<PAGE>
Unless otherwise set forth in the related Prospectus
Supplement, the Receivables comprising or underlying the
Base Assets in a Trust will principally consist of Credit
Card Receivables and/or Charge Card Receivables (as
described below).
(b) Credit Card
Receivables..... "Credit Card Receivables" are receivables due to issuers
of credit cards (such as VISA or MasterCard credit cards)
from the holders of such cards, including receivables for
periodic finance charges, annual membership fees, cash
advance fees, late charges on amounts charged for
merchandise and services and certain other designated
fees (collectively, "Finance Charge Receivables") and
receivables representing amounts charged by cardholders
for merchandise and services, amounts advanced to
cardholders as cash advances and certain other fees
billed to cardholders on the Accounts (collectively,
"Principal Receivables"). In addition, certain
Interchange attributed to cardholder charges for
merchandise and services in the Accounts may be treated
as Finance Charge Receivables.
"Interchange" consists of certain fees received by a
credit card-issuing bank from the VISA USA, Inc.
("VISA"/1/) and MasterCard International Incorporated
("MasterCard International"/1/) associations as partial
compensation for taking credit risk, absorbing fraud
losses and funding receivables for a limited period prior
to initial billing.
- -------------------------
/1/ VISA and MasterCard are registered trademarks of VISA USA, Inc. And
MasterCard International Incorporated, respectively.
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<PAGE>
Recoveries of charged-off Finance Charge Receivables will
be treated as collections of Finance Charge Receivables
and recoveries of charged-off Principal Receivables will
be applied against charge-offs of Principal Receivables.
From time to time, subject to certain conditions, certain
of the amounts described above which are included in
Principal Receivables may be treated as Finance Charge
Receivables.
(c) Charge Card
Receivables "Charge Card Receivables" are receivables due from
charge account customers of merchants who permit their
customers to maintain charge card accounts, and generally
represent amounts charged on the designated Accounts for
merchandise and services and annual membership fees and
certain other administrative fees billed to such
customers. Inasmuch as Receivables originated under
charge card Accounts are generally not subject to a
monthly finance charge, a portion of the collections on
the Charge Card Receivables will be treated as "yield",
with the remainder treated as payments of principal.
(2) CRB Securities.. Base Assets for a Series may consist, in whole or in
part, of asset backed securities ("card receivables
backed securities" or "CRB Securities") consisting of
certificates representing undivided interests in, or
notes or loans secured by, Receivables arising in
Accounts (as described above). Such certificates, notes
or loans will have previously been offered and
distributed to the public pursuant to an effective
registration statement registered under the Securities
Act or will be so registered, offered and distributed
concurrently with the offering of a Series of Securities.
See "THE TRUST ASSETS -- CRB Securities" . Unless
otherwise specified in the Prospectus Supplement relating
to a Series of Securities, payments on the CRB Securities
will
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<PAGE>
be distributed directly to the Trustee as registered
owner of such CRB Securities or, where applicable, to the
Indenture Trustee as pledgee thereof.
The related Prospectus Supplement for a Series which
includes CRB Securities Base Assets will specify (such
disclosure may be on an approximate basis), to the extent
relevant and to the extent such information is reasonably
available to the Depositor and the Depositor reasonably
believes such information to be reliable, (i) the
approximate aggregate principal amount and type of the
CRB Securities; (ii) certain characteristics of the
Receivables which comprise the underlying assets for the
CRB Securities; (iii) the expected maturity and the final
maturity of the CRB Securities; (iv) the certificate rate
for the CRB Securities; (v) the issuer or issuers of the
CRB Securities (collectively, the "CRB Issuer"), the
servicer or servicers of the CRB Securities
(collectively, the "CRB Servicer") and the trustee or
trustees of the Securities (collectively, the "CRB
Trustee"); (vi) certain characteristics of enhancement,
if any, relating to the CRB Securities, such as reserve
funds, insurance policies, letters of credit or
guarantees; (vii) any rapid or early amortization events
applicable to the CRB Securities; (viii) the terms on
which the CRB Securities or the underlying Receivables
may, or are required to, be repurchased prior to the
stated maturity of such CRB Securities; and (ix) the
terms on which substitute Receivables may be delivered to
replace those initially deposited with the CRB Trustee.
See "THE TRUST ASSETS - CRB Securities".
B. Collection, Distri-
bution, Pre-Funding
and other Trust
Accounts......... Unless otherwise provided in the related Prospectus
Supplement, all payments on or with respect to the Base
Assets for a Series will be
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<PAGE>
remitted directly to an account (the "Collection
Account") to be established for such Series with the
related Trustee (or the related Indenture Trustee), or
with the related Servicer in the name of such Trustee (or
Indenture Trustee).
Unless otherwise provided in the related Prospectus
Supplement, the Trustee (or the Indenture Trustee) shall
be required to apply a portion of the amount in the
Collection Account, together with reinvestment earnings
thereon at the rate or rates specified in the related
Prospectus Supplement, to the payment, if and as provided
in the related Prospectus Supplement, of certain amounts
payable to the Servicer under the related Agreement and
any other person specified in the related Prospectus
Supplement, and to deposit a portion of the amount in the
Collection Account into one or more separate accounts
(each a "Payment Account" or "Funding Account", as the
case may be) to be established for such Series, each in
the manner and at the times established in the related
Prospectus Supplement. All amounts deposited in any such
Payment Account will be available unless otherwise
specified in the related Prospectus Supplement, for (i)
application to the payment of principal of and/or
interest on certain Classes of the Securities of such
Series on the next Payment Date, (ii) the making of
adequate provision for future payments on certain Classes
of Securities and/or (iii) any other purpose specified in
the related Prospectus Supplement. After applying the
funds in the Collection Account as described above, any
funds remaining in the Collection Account may be paid
over to the Servicer, the Depositor, any provider of
Credit Enhancement with respect to such Series (a "Credit
Enhancer") or any other person entitled thereto in the
manner and at the times established in the related
Prospectus Supplement.
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<PAGE>
A Prospectus Supplement may also provide that the assets
of a Trust will include a Pre-Funding Account (the "Pre-
Funding Account"). In such event, to the extent provided
in the related Prospectus Supplement, the Depositor
and/or the Seller will be obligated (subject only to the
availability thereof) to deposit, and the related Trust
will be obligated to accept (subject to the satisfaction
of certain conditions described in the applicable
Agreement), additional Base Assets (the "Additional Base
Assets") from time to time during the Funding Period
specified in the related Prospectus Supplement having an
aggregate principal balance approximately equal to the
amount on deposit in the Pre-Funding Account (the "Pre-
Funded Amount") on the related Closing Date.
From time to time, various additional accounts may be
created under the terms of the documents related to a
specific Series.
Series Enhancement... If stated in the Prospectus Supplement relating to a
Series, enhancement may be provided with respect to one
or more Classes of the Securities of such Series in the
form of one of more types of Credit Enhancement (as
described below) or Ancillary Arrangements (as described
below), or both. The Series Enhancement will support the
payments on the Securities and may be used for other
purposes, to the extent and under the conditions
specified in such related Prospectus Supplement. See
"SERIES ENHANCEMENT".
Credit Enhancement with respect to a Trust or any Class
or Classes of Securities may include any one or more of
the following: the subordination of one or more Classes
of such Securities to other Classes of such Securities, a
letter of credit, the establishment of a cash collateral
guaranty or account, a reserve fund, a surety bond or
insurance, a spread account or the use of cross support
features or another method
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<PAGE>
of Credit Enhancement described in the related Prospectus
Supplement. Ancillary Arrangements may take the form of
guaranteed rate agreements, maturity liquidity
facilities, tax protection agreements, interest rate cap,
floor or collar agreements, interest rate or currency
swap agreements or other similar arrangements that are
incidental or related to the Base Assets included in a
Trust. If so specified in the related Prospectus
Supplement, any such Credit Enhancement or Ancillary
Arrangements may be provided by the Depositor or an
affiliate thereof.
Servicing............ For Series for which the Base Assets include Receivables
or Participations, the Servicer designated in the related
Prospectus Supplement will be responsible for servicing,
managing and making collections on such Receivables or
Participations. The Servicer may perform such functions
alone, through subservicers or in conjunction with a
master servicer, as described in such Prospectus
Supplement. In performing these functions, the Servicer
will be required to exercise the same degree of skill and
care that it customarily exercises with respect to
similar receivables owned or serviced by it. Under
certain limited circumstances, the Servicer may resign or
be removed, in which event either the Trustee or a third
party Servicer will act as Servicer. The Servicer will
receive a periodic fee as servicing compensation and may,
as specified herein and in the related Prospectus
Supplement, receive certain additional compensation. See
"SERVICING OF RECEIVABLES".
Tax Considerations... In the case of an Owner Trust, Sidley & Austin
("Federal Tax Counsel") will deliver its opinion that the
Trust will not be an association (or publicly traded
partnership) taxable as a corporation for federal income
tax purposes.
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<PAGE>
The Owner Trust will agree, and the beneficial owners of
the Notes (each a "Note Owner") will agree by their
purchase of Notes, to treat the Notes as debt for federal
tax purposes. Federal Tax Counsel will, except as
otherwise provided in the related Prospectus Supplement,
advise the Owner Trust that the Notes will be classified
as debt for federal income tax purposes. The Owner Trust
will also agree, and the related beneficial owners of the
Certificates (each a "Certificate Owner") will agree by
their purchase of Certificates, to treat the Owner Trust
as a partnership for purposes of federal and state income
tax, franchise tax and any other tax measured in whole or
in part by income, with the assets of the partnership
being the assets held by the Trust, the partners of the
partnership being the Certificate Owners (including, to
the extent relevant, the Seller or Depositor in its
capacity as recipient of distributions from any reserve
fund), and the Notes being debt of the partnership. See
"CERTAIN FEDERAL INCOME TAX CONSEQUENCES -- Owner Trusts"
herein for additional information concerning the
application of federal income tax laws to each Owner
Trust and the related Securities.
In the case of a Grantor Trust, Federal Tax Counsel will
deliver its opinion that the Grantor Trust will be
classified as a grantor trust for federal income tax
purposes and will not be classified as an association
taxable as a corporation. In general, each owner of a
beneficial interest in the Certificates must include in
income its pro rata share of interest and other income
from the Receivables, Participations or CRB Securities
and other assets of the Trust and, subject to certain
limitations, may deduct its pro rata share of fees and
other deductible expenses paid by the Grantor Trust. See
"CERTAIN FEDERAL INCOME TAX CONSEQUENCES-- Grantor
Trusts" herein for additional information concerning the
application of federal income tax
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laws to each Grantor Trust and the related Certificates.
In the case of a Master Trust, Federal Tax Counsel will
deliver its opinion that, although no transaction closely
comparable to that contemplated herein has been the
subject of any Treasury regulation, revenue ruling or
judicial decision, based upon its analysis of the factors
discussed below, the Seller is properly treated as the
owner of the Receivables or CRB Securities and the other
assets of the Trust for federal income tax purposes and
accordingly, the Certificates, when issued, will be
properly characterized for federal income tax purposes as
indebtedness of the Seller that is secured by the
Receivables. The Seller, by entering into the Agreement,
each Certificateholder, by the acceptance of a
Certificate, and each Certificate Owner, by virtue of
accepting a beneficial interest in a Certificate, will
agree to treat the Certificates (or the beneficial
interests therein) as indebtedness of the Seller secured
by the assets of the Trust for federal, state and local
income and franchise tax purposes and for the purposes of
any other tax imposed on or measured by income. See
"CERTAIN FEDERAL INCOME TAX CONSEQUENCES--Master Trusts"
herein for additional information concerning the
application of federal income tax laws to each Master
Trust and the related Certificates.
Certain ERISA
Considerations...... Subject to the considerations discussed under "ERISA
CONSIDERATIONS" herein and in the related Prospectus
Supplement, and unless otherwise specified therein, the
Notes of any Series issued by a Trust are eligible for
purchase by employee benefit plans.
Persons investing assets of employee benefit plans
subject to the Employee Retirement Income Security Act of
1974, as amended ("ERISA") or of plans as defined in
Section 4975 of the Code
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should read "ERISA Considerations" herein and consult
their own legal advisors to determine whether and to what
extent the Certificates constitute permissible
investments for such employee benefit plans.
Legal Investment..... Investors whose investment authority is subject to legal
restrictions should consult their own legal advisors to
determine whether and to what extent the Certificates or
Notes constitute legal investments for them.
Use of Proceeds...... The Depositor will use the net proceeds from the sale of
each Series of Securities for one or more of the
following purposes: (i) to purchase the related Base
Assets and/or Series Enhancement, (ii) to repay
indebtedness which has been incurred to obtain funds to
acquire such Base Assets and/or Series Enhancement, (iii)
to fund the purchase of such Base Assets and/or Series
Enhancement by the related Trust on the Closing Date or
to establish a Pre-Funding Account for such Series, (iv)
to establish any Reserve Account or Cash Collateral
Accounts described in the related Prospectus Supplement
or (v) to pay costs of structuring and issuing such
Securities. If so specified in the related Prospectus
Supplement, the purchase of the Base Assets for a Series
may be effected in whole or in part by an exchange of
Certificates with the Seller of such Base Assets. See
"USE OF PROCEEDS".
Ratings.............. It will be a requirement for the issuance of any Class
of Securities of a Series offered by this Prospectus and
the related Prospectus Supplement that such Securities be
rated by at least one Rating Agency in one of its four
highest applicable rating categories. The rating or
ratings applicable to such Securities will be as set
forth in the related Prospectus Supplement. For more
detailed information regarding the ratings assigned to
any Class of a particular
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Series of Securities, see "SUMMARY OF TERMS - Rating of
the Securities" and "RISK FACTORS - Ratings of the
Securities" in the related Prospectus Supplement.
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RISK FACTORS
In addition to the other information contained in this Prospectus and in
the related Prospectus Supplement to be prepared and delivered in connection
with the offering of any Series of Securities, prospective investors should
carefully consider the following risk factors before investing in any Class or
Classes of Securities of any such Series.
Limited Liquidity. There can be no assurance that a secondary market for
any Class of Securities of any Series will develop or, if it does develop, that
such market will provide holders of such Securities with liquidity of investment
or that it will continue for the life of such Securities. The Underwriters
presently expect to make a secondary market in certain Classes of the Securities
offered hereby and pursuant to the related Prospectus Supplements, but have no
obligation to do so.
Dependency on Cardholder Repayments; Maturity and Repayment Considerations.
The Receivables comprising or underlying the Base Assets for any Series of
Securities offered hereunder may be paid at any time, and there is no assurance
that there will be new Receivables created in the related Accounts, that
Receivables will be added to the related Trust or any underlying CRB Trust (as
defined herein, under "TRUST ASSETS -- CRB Securities") or that any particular
pattern of accountholder repayments will occur. The actual rate of accumulation
of principal in a Principal Funding Account with respect to a Series of
Receivables Pooling Certificates during an Accumulation Period and the rate of
distributions of principal with respect to any such Series during a Controlled
or Rapid Amortization Period will depend on, among other factors, the rate of
accountholder repayments, the timing of the receipt of repayments and the rate
of default by accountholders. As a result, no assurance can be given that the
Invested Amount of a Class of Receivables Pooling Certificates will be paid on
the Expected Final Payment Date, if any, with respect to such Class or that
payment of the principal during the Controlled Amortization Period, if any, with
respect to such Class will equal the Controlled Amortization Amount, if any,
with respect to such Class or will follow any expected pattern.
Accountholder monthly payment rates with respect to Accounts are dependent
upon a variety of factors, including seasonal purchasing and payment habits of
accountholders, the availability of other sources of credit, general economic
conditions, tax laws and the terms of the Accounts, including the periodic rate
finance charges assessed on the Accounts (which are subject to change by the
Seller). Increased convenience use, in which accountholders pay their Account
balances in full on or prior to the due date and thus avoid all finance charges,
would decrease the effective yield on the Accounts and could cause the
commencement of a Rapid Amortization Period for one or more Series, as well as a
decrease in protection to holders of Securities against defaults under the
Accounts. No assurance can be given as to the accountholder payment rates which
will actually occur in any future period.
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The rate of payment of principal of Securities of a Series for which the
Base Assets consist of CRB Securities, and the aggregate amount of each
distribution on and the yield to maturity of such Securities, will depend on a
number of factors, including the performance of such CRB Securities and the rate
of payment of principal (including prepayments) thereof, which will in turn
depend in large part on the rate of repayment of the underlying Receivables and
the possible occurrence of any related Pay Out Events. The rate of payment of
principal of such Securities may also be affected by the repurchase of the
Receivables underlying the CRB Securities, and the corresponding retirement of
such CRB Securities. See "MATURITY CONSIDERATIONS" in the related Prospectus
Supplement.
Generation of Additional Receivables. The continuation of the Revolving
Period for any Series of Receivables Pooling Certificates will depend on the
continued generation of new Receivables for the related Trust. A decline in
the amount of Receivables in the Accounts for any reason (including the decision
by accountholders to use competing sources of credit, an economic downturn,
increased convenience use or other factors) could result in the occurrence of a
Pay Out Event with respect a Series and commencement of a Rapid Amortization
Period with respect to such Series. In such event, Certificateholders would
bear the risk of reinvestment of the principal amounts of their Certificates.
The Pooling Agreement for such a Series will provide that if the Seller's
Interest is not maintained at a minimum level equal to an amount specified in
the Pooling Agreement and the related Prospectus Supplement (the "Required
Seller's Interest"), then the Seller will be required to transfer Additional
Accounts to the Trust. In the event that the Seller fails to transfer such
Additional Accounts to the Trust pursuant to the Pooling Agreement, a Pay Out
Event will occur unless otherwise provided in the related Prospectus Supplement.
Limited Nature of Rating. Any rating assigned to any Class of Securities
of a Series by Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's
Ratings Group, a division of McGraw-Hill, Inc. ("S&P"), or such other nationally
recognized rating agency specified in the related Prospectus Supplement (each, a
"Rating Agency"), will reflect such Rating Agency's assessment solely of the
likelihood that Securityholders will receive the payments of interest and
principal required to be made under the applicable Agreement or Indenture and
will be based primarily on the value of the Base Assets in the Trust and the
availability of any Series Enhancement with respect to such Class or Series.
The rating will not be a recommendation to purchase, hold or sell Securities of
such Class or Series, and such rating will not comment as to the marketability
of such Securities, 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 circumstances so warrant.
Book-Entry Registration. Unless otherwise specified in the related
Prospectus Supplement, each Class of the Securities of a given Series initially
will be represented by one or more certificates registered in the name of Cede &
Co. ("Cede"), or any other nominee of The Depository Trust Company ("DTC") set
forth in the related Prospectus Supplement, and will not be issued in fully
registered, certified form to the holders of the Securities of such Series or
their
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nominees ("Definitive Certificates", in the case of Certificates so issued in
fully registered, certified form, "Definitive Notes", in the case of Notes so
issued in fully registered, certified form, and collectively, "Definitive
Securities"). Because of this, unless and until Definitive Securities for such
Series are issued, holders of such Securities will not be recognized by the
applicable Trustee or Indenture Trustee as "Certificateholders", "Noteholders"
or "Securityholders", as the case may be (as such terms are used herein or in
the related Agreement or the related Indenture, as applicable). Hence, until
Definitive Securities are issued, holders of such Securities will be able to
exercise the rights of Securityholders only indirectly through DTC and its
participating organizations. See "CERTAIN INFORMATION REGARDING THE SECURITIES
- -- Book-Entry Registration" and "-- Definitive Securities" .
Certain Legal Aspects -- Consumer Protection Laws. The Accounts and
Receivables are subject to numerous federal and state consumer protection laws
which impose requirements on the making, enforcement and collection of consumer
loans. The United States Congress and the states may enact laws and amendments
to existing laws to regulate further the credit card and consumer revolving loan
industry or to reduce finance charges or other fees or charges applicable to
credit card and other consumer revolving loan accounts. Such laws, as well as
any new laws or rulings which may be adopted, may adversely affect the ability
of a Servicer to collect on the Receivables comprising or underlying the Base
Assets for a Series or maintain the current level of periodic finance charges
and other fees and charges with respect to Accounts. In addition, failure by a
Servicer to comply with such requirements could adversely affect the ability of
such Servicer to enforce the Receivables. In October 1987, November 1991 and
March 1994, members of Congress attempted unsuccessfully to limit the maximum
annual percentage rate that may be assessed on credit card accounts. In
addition, in May 1992, two members of the House Banking Committee asked the
United States General Accounting Office (the "GAO") to undertake a study of
competition in the credit card industry and particularly to address how a
government imposed limit on credit card interest rates could affect credit
availability. In Spring 1994, the GAO released its study on competitive pricing
and disclosure in the credit card industry. The GAO did not recommend that
Congress enact legislation capping interest rates on credit cards, but did
recommend monitoring of the industry. The Depositor cannot predict what action,
if any, will be taken by Congress as a result thereof. If federal legislation
were enacted which contained an interest rate cap substantially lower than the
annual percentage rates currently assessed on the Accounts, it is possible that
the average yield on the portfolio of Accounts in a Trust would be reduced and
therefore a Pay Out Event could occur with respect to the related Series of
Securities, if the related Prospectus Supplement so provides. See "DESCRIPTION
OF THE CERTIFICATES __ Pay Out Events". In addition, during recent years, there
has been increased consumer awareness with respect to the level of finance
charges and fees and other practices of credit card issuers and other consumer
revolving loan providers. As a result of these developments and other factors,
there can be no assurance as to whether any federal or state legislation will be
promulgated which would impose additional limitations on the monthly periodic
rate finance charges or other fees or charges relating to the Accounts.
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Application of federal and state bankruptcy and debtor relief laws would
affect the interests of Securityholders in the Receivables comprising or
underlying the Base Assets for a Series if such laws result in any Receivables
being charged off as uncollectible when there are no funds available from Series
Enhancement or other sources.
Certain Legal Aspects -- Transfers of Receivables. For Series involving a
transfer of Receivables to the related Trust, the related Seller (and to a
certain extent the Depositor) will warrant in the related Agreement that such
transfer of the Receivables to the Trust is and will be either a valid transfer
and assignment of all right, title and interest of the Seller in the Receivables
and all proceeds thereof to the Trust or the grant to the Trust of a security
interest in such Receivables. The Seller (and to a certain extent the
Depositor) will take certain actions required to perfect the Trust's interest in
the Receivables and will warrant that if the transfer to the Trust is deemed to
be a grant to the Trust of a security interest in the Receivables, the Trustee
will have a first priority perfected security interest therein. If any such
transfer of the Receivables and the proceeds thereof to the Trust is deemed to
create a security interest therein, a tax or government lien on property of the
Seller (or of the Depositor) arising before such Receivables come into existence
(or are transferred to the Depositor) may have priority over the Trust's
interest in such Receivables. See "CERTAIN LEGAL ASPECTS OF RECEIVABLES --
Transfer of Receivables".
Certain Legal Aspects -- Receivership of a Seller. If any Seller is a
regulated financial institution, to the extent that such Seller grants a
security interest in the Receivables directly or indirectly to the Trust and
that security interest is validly perfected before any insolvency of the Seller
and is not granted or taken in contemplation of insolvency or with the intent to
hinder, delay or defraud the Seller or its creditors, that security interest
should not be subject to avoidance in the event of insolvency and receivership
of the Seller, and payments to the Trust with respect to the Receivables should
not be subject to recovery by a conservator or receiver for the Seller. If,
however, any such conservator or receiver were to assert a contrary position, or
were to require the Trustee to establish its right to those payments by
submitting to and completing the administrative claims procedure established
under the Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA"), or the conservator or receiver were to request a stay or proceedings
with respect to the Seller as provided under FIRREA, delays in payments on the
Securities and possible reductions in the amount of those payments could occur.
If a conservator or receiver were appointed for the Seller, new Principal
Receivables would not thereafter be transferred to the related Trust and the
Trustee would sell the portion of the Receivables allocable to each related
Series in accordance with the Agreement (unless the Securityholders holding the
required percentage of the outstanding Securities of each Class within such
Series instruct otherwise), thereby causing early termination of such Trust and
a loss to the holders of such Securities if the net proceeds of such sale and
any related Series Enhancement were insufficient to pay such Securities in full.
Upon the occurrence of a Pay Out Event, if a conservator or receiver were
appointed for the Seller or the Depositor and no Pay Out Event other than such
conservatorship, receivership or insolvency of the Seller or the Depositor
existed, the
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conservator or receiver may have the power to prevent the early sale,
liquidation or disposition of the Receivables and the commencement of the Rapid
Amortization Period. In addition, a conservator or receiver for the Seller or
the Depositor may have the power to cause early payment of the Securities. See
"CERTAIN LEGAL ASPECTS OF THE RECEIVABLES -- Certain Matters Relating to
Receivership".
Certain Legal Aspects -- Receivership of a Servicer. In the event of a
Servicer Default with respect to a Series, if a conservator or receiver is
appointed for the Servicer, and no Servicer Default other than such
conservatorship or receivership or insolvency of the Servicer exists, the
conservator or receiver may have the power to prevent either the Trustee or the
Securityholders from effecting a transfer of servicing to a successor Servicer.
Certain Legal Concerns Applicable to Accounts. Since October 1991, a
number of lawsuits and administrative actions have been filed in several states
against out-of-state banks (both federally insured state-chartered banks and
federally insured national banks) which issue cards. These actions challenge
various fees and charges (such as late fees, over-the-limit fees, returned
payment check fees and annual membership fees) assessed against residents of the
states in which suits were filed, based on restrictions or prohibitions under
such states' laws alleged to be applicable to the out-of-state cards' issuers.
There can be no assurance that one of the Sellers will not be named as a
defendant in future lawsuits or administrative actions challenging the fees and
charges which it assesses residents of other states. In October 1991, the
United States District Court for the State of Massachusetts held that Greenwood
Trust Company (a federally-insured, Delaware-chartered bank that issues the
Discover credit card) was prohibited by Massachusetts law from assessing late
charges on credit card accounts of Massachusetts residents. On August 6, 1992,
that decision was reversed by the United States Court of Appeals for the First
Circuit, which held that the Massachusetts law was preempted by federal law
permitting the charges in question. In November 1992, the Commonwealth of
Massachusetts petitioned the United States Supreme Court to accept the case. On
January 11, 1993, the U.S. Supreme Court denied the petition of the Commonwealth
to review the decision of the First Circuit. The California Supreme Court in
March 1992 refused to review a lower court's determination that the practice by
Wells Fargo Bank of charging its cardholders over-the-limit and late payment
fees violated California laws that require banks to limit such charges to their
costs. On November 29, 1995, the Supreme Court of New Jersey ruled that a
national bank that issued credit cards in New Jersey but is located in another
state, and that is entitled under the National Bank Act to charge borrowers
interest at a rate allowed by the laws of the State where the bank is located,
was not entitled to charge New Jersey cardholders certain late payment fees,
notwithstanding the fact that the state in which the bank is located permits
such late payment fees, because late payment fees are not defined as interest
within the meaning of the National Bank Act and because New Jersey state law
forbade the charging of such late payment fees. Such actions and similar actions
which may be brought in other states as a result of such actions, if resolved
adversely to card issuers, could have the effect of limiting certain charges,
other than periodic finance charges, that could be assessed on accounts of
residents of such states and could require card issuers to pay refunds and civil
penalties with respect to charges previously imposed on cardholders in such
states. Consequently
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such actions could have an adverse impact on a Seller's card operations. One
potential effect of any such litigation involving a Seller, if successful, would
be to reduce the Net Portfolio Yield for a Series. The terms "Portfolio Yield"
and "Net Portfolio Yield" have the meanings set forth in the Prospectus
Supplement relating to such Series. If such a reduction occurs, a Pay Out Event
may occur.
Competition. The credit card and charge card industry is highly
competitive. There is increased competitive use of advertising, target
marketing and pricing competition in interest rates and annual cardholder fees
as both traditional and new credit card and charge card issuers seek to expand
or to enter the market. As a result of this competition, certain major credit
card and charge card issuers assess finance charges for selected portions of
their portfolio at rates lower than the rates currently being assessed on the
Accounts. A Seller's ability to compete in the credit card and charge card
industry will affect its ability to generate new Receivables.
Social, Geographic and Economic Factors. Changes in card use, payment
patterns and the rate of defaults by cardholders may result from a variety of
social, economic and geographic factors. Economic factors include the rate of
inflation and relative interest rates offered for various types of loans.
Adverse changes in economic conditions in any states where cardholders are
located could have a direct impact on the timing and amount of payments on the
Securities of any Series. The Depositor is unable to determine and has no basis
to predict whether, or to what extent, economic, social or geographic factors
will affect future card use or repayment patterns. New credit card issuers have
been entering the market while other issuers have been seeking to expand market
share through increased advertising, target marketing and pricing competition.
Additionally, the use of incentive or affinity programs (e.g., gift awards for
card usage) may affect card usage patterns.
In 1992, a jury in Federal court in Utah held that the VISA association
violated antitrust laws when it denied membership in VISA to a subsidiary of
Sears Roebuck & Co., on the basis that another Sears subsidiary is the issuer of
the Discover card, a competitor of the VISA credit card. In April 1993, a motion
by VISA for a new trail was denied. VISA is currently appealing this decision
to the United States Court of Appeals for the Tenth Circuit. MasterCard has
settled a similar lawsuit. This settlement by MasterCard and/or a final
decision against, or a similar settlement by, VISA could result in increased
competition among issuers of VISA and MasterCard credit cards and thereby have
adverse consequences for members of the VISA and MasterCard associations.
A Seller's Ability to Change Terms of the Receivables. The Seller or other
originator of any Receivables comprising or underlying the Base Assets of a
Trust may have the right to determine the finance charges and the other fees and
charges which will be applicable from time to time on its Accounts, to alter the
minimum monthly payment required under the Accounts and to change various other
terms of its agreement with cardholders with respect to the Accounts. A
decrease in the finance charges and other fees and charges assessed on the
Accounts would decrease the effective yield on the Accounts and could result in
the occurrence of a Pay Out Event for one or
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more Series and commencement of the Rapid Amortization Period for such Series.
Under the applicable Agreement, a Seller may agree that, unless required by law
or as is otherwise necessary in its good faith judgment to maintain its credit
card business on a competitive basis, it will not reduce the annual percentage
rate at which finance charges are assessed on the Receivables or the other fees
and charges assessed on the Accounts, if, as a result of such reduction, the Net
Portfolio Yield for any Series as of such date would be less than the Base Rate
for such Series. The term "Base Rate" for a Series has the meaning set forth in
the Prospectus Supplement relating to such Series. A Seller may also covenant
that it will change the terms relating to the Accounts only if the change is
made applicable to the comparable segment of the accounts owned and serviced by
the Seller with characteristics the same as or substantially similar to the
Accounts, except as otherwise restricted by the terms of the applicable
cardholder agreement. In servicing Accounts, a Servicer will be required to
exercise the same care and apply the same policies that it exercises in handling
similar matters for its own comparable accounts. Except as set forth above or as
otherwise set forth in the applicable Prospectus Supplement, an Agreement may
not contain any restrictions on the ability of a Seller to change the terms of
the Accounts or the Receivables. There can be no assurance that changes in
applicable law, changes in the marketplace or prudent business practice might
not result in a determination by a Seller to decrease finance charges or other
fees and charges for existing accounts, or take actions which would otherwise
change the terms of the Accounts.
Subordination; Limited Assets. To the extent specified in the related
Prospectus Supplement, distributions of interest and principal on one or more
Classes of Certificates of a Series may be subordinated in priority of payment
to interest and principal due on the Notes, if any, of such Series or one or
more Classes of Certificates of such Series. Moreover, none of the Trusts will
have, nor will any such Trust be permitted or expected to have, any significant
assets or sources of funds other than the Base Assets and, to the extent
provided in the related Prospectus Supplement, a Reserve Account or other form
of Series Enhancement. The Notes, if any, of any Series will represent
obligations solely of, and the Certificates of any such Series will represent
interests solely in, the related Trust, and neither the Notes nor the
Certificates of any such Series will represent obligations of or interests in,
or be insured or guaranteed by, the Depositor or the related Seller, Servicer,
Trustee or Indenture Trustee, or any other entity. Consequently, holders of the
Securities of any Series must rely for repayment upon payments on the related
Base Assets and, if and to the extent available, amounts available under any
available form of Series Enhancement, as specified in the related Prospectus
Supplement.
Risk of Commingling. With respect to each Trust for which a Servicer has
been appointed, such Servicer will deposit all payments on the related Base
Assets (from whatever source) and all proceeds of such Base Assets collected
during the period specified in the related Prospectus Supplement (a "Collection
Period") into the related Collection Account within two business days of receipt
thereof. However, in the event that a Servicer satisfies certain requirements
for monthly or less frequent remittances and the Rating Agencies affirm their
initial rating of the related Securities, then for so long as such servicer is
the Servicer and provided that (i) no Servicer Default exists and (ii) each
other condition to making monthly or less frequent deposits as may
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be specified by the Rating Agencies and described in the related Prospectus
Supplement is satisfied, the Servicer will not be required to deposit such
amounts into the Collection Account of such Trust until the business day
preceding each Distribution Date. The Servicer will deposit the aggregate amount
(the "Repurchase Amount") paid for the purchase of Receivables by the Servicer
during the related Collection Period into the applicable Collection Account on
or before the business day preceding each Distribution Date. Pending deposit
into such Collection Account, collections may be invested by the Servicer at its
own risk and for its own benefit and will not be segregated from funds of the
Servicer. If the Servicer were unable to remit such funds, the applicable
Securityholders might incur a loss. To the extent set forth in the related
Prospectus Supplement, the Servicer may, in order to satisfy the requirements
described above, obtain a letter of credit or other security for the benefit of
the related Trust to secure timely remittances of collections on the related
Base Assets or payment of the aggregate Repurchase Amount with respect to
Receivables purchased by the Servicer.
Servicer Default. With respect to a Series of Securities that includes
Notes, unless otherwise provided in the related Prospectus Supplement, upon the
occurrence of a Servicer Default the related Indenture Trustee or Noteholders
will have the right to remove the Servicer without the consent of the related
Trustee or any Certificateholders, and the Trustee or the Certificateholder with
respect to such Series will not have the ability to remove the Servicer if a
Servicer Default occurs. In addition, the Noteholders with respect to such
Series would have the ability, with certain specified exceptions, to waive
defaults by the Servicer, including defaults that could materially adversely
affect the Certificateholders of such Series.
THE TRUSTS
The Depositor will establish each Trust pursuant to an Agreement. The
Trustee of each such Trust will be a commercial bank, savings and loan
association or trust company identified as such Trustee in the related
Prospectus Supplement. The property of the Trust will include certain Base
Assets and may also include certain Series Enhancements and other assets
specified in the related Prospectus Supplement.
Each Trust will issue one or more Series of Securities that will include
one or more Classes of Certificates and may also include one or more Classes of
Notes. Any Notes included in a Series will be issued pursuant to an Indenture
entered into between the related Trust and an indenture trustee (the "Indenture
Trustee"). The Indenture Trustee will also be a commercial bank, savings and
loan association or trust company identified as such Indenture Trustee in the
related Prospectus Supplement.
A form of Trust Agreement, a form of Pooling Agreement and a form of
Indenture have each been filed as an exhibit to the Registration Statement of
which this Prospectus forms a part. The Agreement and, if applicable, the
Indenture relating to a particular Series of Securities will be
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filed as an exhibit to a report on Form 8-K to be filed with the Commission
within 15 days following the issuance of such Series of Securities.
TRUST ASSETS
GENERAL
The assets of the Trust for a Series of Certificates will include certain
Base Assets described below and may include Certain Series Enhancements with
respect to such Series and certain other assets described in the related
Prospectus Supplement.
The Base Assets for a Series will consist of one or more of the following
types of assets: (a) Receivables, (b) Participations in Receivables or (c) CRB
Securities. The Base Assets for a Series may be purchased by the Depositor from
the Seller identified in the related Prospectus Supplement or, with respect to
CRB Securities, may be purchased by the Depositor in the open market or in
privately negotiated transactions (which may include transactions with
affiliates of the Depositor), and then, in each such case, will be transferred
by the Depositor to the Trust in exchange for Securities issued by the Trust.
Alternatively, the Trust may purchase some or all of the Base Assets in the open
market or in privately negotiated transactions with cash obtained by the Trust
in exchange for the issuance of Securities of the Trust to the Depositor.
If so specified in the related Prospectus Supplement, the assets of the
Trust for a Series may include monies on deposit in a Pre-Funding Account
established with the Trustee (or the Indenture Trustee), which monies are to be
used for the purchase of additional Base Assets during a Funding Period
specified in such Prospectus Supplement.
The following is a brief description of the Base Assets expected to be
included in Trusts. Specific information regarding the Base Assets with respect
to a Series of Securities will be provided in the related Prospectus Supplement
and, to the extent not contained in the related Prospectus Supplement, in a
report on Form 8-K to be filed with the Commission within 15 days after the
initial issuance of such Securities.
RECEIVABLES AND PARTICIPATIONS
General. The Base Assets for a Series may consist, in whole or in part, of
Receivables arising from time to time in the ordinary course of business in a
portfolio of consumer, corporate, revolving credit card, charge card or debit
card accounts (collectively, the "Accounts"). The Receivables may be payable
in U.S. dollars or in any other foreign currency. The Accounts will consist of
the Initial Accounts described below, as well as any Additional Accounts added
to the Trust from time to time as provided below, but will not include any
Removed Accounts removed from the Trust as provided below.
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A Seller will initially convey to the related Trust (or will convey to the
Depositor, which will promptly reconvey to such Trust) all Receivables existing
on the Series Cut-Off Date in the Initial Accounts, together with all
Receivables arising in such Initial Accounts from time to time after the Series
Cut-Off Date until the termination of such Trust. After the Series Cut-Off
Date, a Seller may convey to the related Trust (which conveyance may be through
the Depositor) Receivables arising in certain Additional Accounts, in each case
in accordance with the provisions of the applicable Pooling Agreement. In
addition, pursuant to the related Agreement, a Seller in some circumstances
will be obligated to designate Additional Accounts the Receivables arising in
which will be conveyed to the related Trust. The Seller will convey to the
Trust all Receivables arising in any such Additional Accounts, whether such
Receivables are then existing or thereafter created. The addition to a Trust of
Receivables arising in Additional Accounts or Participations will be subject to
certain conditions. Pursuant to the related Pooling Agreement, a Seller will
also have the right (subject to certain limitations and conditions), but not the
obligation, to remove the Receivables in any Account that becomes a Removed
Account. The amount of Receivables in a Trust will fluctuate from day to day as
new Receivables are generated or added to the Trust and as existing Receivables
are collected, charged-off as uncollectible, removed or otherwise adjusted. If
so specified in the related Prospectus Supplement, a Seller will be able to
include Participations in the related Trust in lieu of or in addition to
Receivables.
Credit Card Accounts and Receivables. "Credit Card Receivables" are
receivables arising under credit card accounts ("Credit Card Accounts"),
including Finance Charge Receivables and Principal Receivables. In addition,
certain Interchange attributed to cardholder charges for merchandise and
services in the Accounts may be treated as Finance Charge Receivables.
Recoveries of charged-off Finance Charge Receivables will be treated as
collections of Finance Charge Receivables and recoveries of charged-off
Principal Receivables will be applied against charge-offs of Principal
Receivables. From time to time, subject to certain conditions, certain of the
amounts described above which are included in Principal Receivables may be
treated as Finance Charge Receivables. "Interchange" consists of certain fees
received by a credit card issuer from the VISA and MasterCard International
associations as partial compensation for taking credit risk, absorbing fraud
losses and funding receivables for a limited period prior to initial billing.
Under the VISA and MasterCard International systems, a portion of the
Interchange in connection with cardholder charges for merchandise and services
is passed from banks which clear the transactions for merchants to credit card-
issuing banks. VISA and MasterCard International may from time to time change
the amount of Interchange reimbursed to banks issuing their credit cards.
Charge Card Accounts and Receivables. "Charge Card Receivables" are
receivables arising under customer charge accounts ("Charge Card Accounts"), and
generally represent amounts charged on designated Accounts for merchandise and
services, and all annual membership fees and certain other administrative fees
billed to the designated Accounts. Receivables arising under Charge Card
Accounts are generally not subject to monthly finance charges.
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There are distinctions between Credit Card Accounts and Charge Card
Accounts. Credit Card Accounts offer revolving credit plans to customers.
Charge Card Accounts generally have no pre-set spending limit and are designed
for use as a convenient method of payment for the purchase of merchandise and
services. Charge Card Accounts generally cannot be used as a means of financing
such purchases. Accordingly, the full balance of a month's purchases is billed
to cardmembers and is due upon receipt of the billing statement. By contrast,
revolving credit plans allow customers to make a minimum monthly payment and to
borrow the remaining outstanding balance from the credit card issuer up to a
predetermined limit. As a result of these payment requirement differences, the
Charge Card Accounts have a high monthly payment rate and balances which turn
over rapidly relative to their charge volume when compared to Credit Card
Accounts.
Another distinction between Charge Card Accounts and Credit Card Accounts
is that Charge Card Account balances are generally not subject to monthly
finance charges. As described above, the full Account balance is billed monthly
and is due upon receipt of the billing statement. Cardmembers do not have the
option of using their Charge Card Accounts to extend payment and to pay a
finance charge on the remaining outstanding balance. Credit Card Accounts, by
contrast, do allow customers to pay a specified minimum portion of an
outstanding amount and to finance the balance at a finance charge rate
determined by the credit card issuer. (Because Charge Card Account balances are
not assessed finance charges, for the purpose of providing yield to the Trust, a
portion of Collections on Receivables in Charge Card Accounts received in any
Monthly Period equal to the product of Collections and a yield factor which may
be specified in the related Prospectus Supplement (the "Yield Factor") will
generally be treated as Yield Collections). Each related Prospectus Supplement,
where applicable, will describe the Yield Calculation for a specific portfolio
of Charge Card Accounts.
Additional Information Relating to Receivables
The related Prospectus Supplement for each Series will provide information
with respect to any Receivables that constitute Base Assets as of the Series
Cut-off Date, including, among other things, the aggregate principal balance of
the Receivables and whether the Receivables are Credit Card Receivables or
Charge Card Receivables.
The eligibility criteria which shall apply with respect to the inclusion of
Receivables in the Base Assets for a Series will be specified in the related
Prospectus Supplement. The information provided in the related Prospectus
Supplement with respect to such Receivables will include, among other things:
(a) underwriting criteria; (b) the loss and delinquency experience for the
portfolio of Receivables; (c) the composition of the portfolio by Account
balance; and (d) the geographic distribution of Accounts and Receivables. The
related Prospectus Supplement will also specify any other limitations on the
types or characteristics of Receivables included in the Base Assets for a
Series.
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If information of the nature described above respecting the Receivables
included in the Base Assets of a Series is not known to the Seller at the time
the Securities of the Series are initially offered, approximate or more general
information of the nature described above will be provided in the related
Prospectus Supplement and additional information will be set forth in a Current
Report on Form 8-K to be available to investors on the date of issuance of the
related Securities and to be filed with the Commission within 15 days after the
initial issuance of such Securities.
CRB SECURITIES
General. Base Assets for a Series may consist, in whole or in part, of
card receivables backed securities ("CRB Securities") consisting of certificates
evidencing an undivided interest in, or notes or loans secured by, Receivables
generated in Accounts. Such certificates, notes or loans will have previously
been offered and distributed to the public pursuant to an effective registration
statement registered under the Securities Act or will be so registered, offered
and distributed concurrently with the offering of the related Series of
Securities. CRB Securities will have been issued pursuant to a pooling and
servicing agreement, a master pooling and servicing agreement, a sale and
servicing agreement, a trust agreement, indenture or similar agreement (a "CRB
Agreement"). The Securities represent an undivided interest in or obligation of
a Trust formed pursuant to a CRB Agreement (a "CRB Trust"). The seller/servicer
of the underlying Receivables will have entered into the CRB Agreement with the
trustee under such CRB Agreement (the "CRB Trustee"). Receivables underlying a
CRB Security will be serviced by a servicer (the "CRB Servicer") directly or by
one or more sub-servicers who may be subject to the supervision of the CRB
Servicer.
The issuer of the CRB Securities (the "CRB Issuer") will be a financial
institution, corporation or other entity engaged generally in the business of
issuing credit or charge cards; any form of store, merchandiser or service
provider that issues credit or charge cards; or a limited purpose corporation
organized for the purpose of, among other things, establishing trusts and
acquiring and selling receivables to such trusts, and selling beneficial
interests in such trusts; or one of such trusts. If so specified in the related
Prospectus Supplement, the CRB Issuer may be an affiliate of the Depositor. The
obligations of the CRB Issuer will generally be limited to certain
representations and warranties with respect to the assets conveyed by it to the
related trust. Unless otherwise specified in the related Prospectus Supplement,
the CRB Issuer will not have guaranteed any of the assets conveyed to the
related trust or any of the CRB Securities issued under the CRB Agreement.
Distributions of principal and interest will be made on the CRB Securities
on the dates specified in the related Prospectus Supplement. The CRB Securities
may be entitled to receive nominal or no principal distributions or nominal or
no interest distributions. Principal and interest distributions will be made on
the CRB Securities by the CRB Trustee or the CRB Servicer. The CRB Issuer or
the CRB Servicer may have the right to repurchase assets underlying the CRB
Securities after a certain date or under other circumstances specified in the
related Prospectus Supplement.
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Underlying Receivables. The Receivables underlying the CRB Securities may
consist of Credit Card Receivables, Charge Card Receivables or other specified
types of Receivables.
Credit Enhancement Relating to CRB Securities. Credit Enhancement in the
form of reserve funds, subordination of other CRB Securities, guarantees,
letters of credit, cash collateral accounts, insurance policies or other types
of Credit Enhancement may be provided with respect to the Receivables underlying
the CRB Securities or with respect to the CRB Securities themselves. The type,
characteristics and amount of Credit Enhancement will be a function of certain
characteristics of the Receivables and other factors and will have been
established for the CRB Securities on the basis of requirements of the
applicable Rating Agencies.
Additional Information. The related Prospectus Supplement for a Series for
which the Base Assets include CRB Securities will specify, to the extent
relevant and to the extent such information is reasonably available to the
Depositor and the Depositor reasonably believes such information to be reliable,
(i) the aggregate approximate principal amount and type of the CRB Securities to
be included in the Base Assets; (ii) certain characteristics of the Receivables
which comprise the underlying assets for the CRB Securities, including (A)
whether such Receivables are Credit Card Receivables, Charge Card Receivables or
other types of Receivables, (B) the fees and charges associated with such
Receivables and (C) the servicing fee or range of servicing fees with respect to
such Receivables; (iii) the expected and final maturity of the CRB Securities;
(iv) the interest rate of the CRB Securities; (v) the CRB Issuer, the CRB
Servicer (if other than the CRB Issuer) and the CRB Trustee for such CRB
Securities; (vi) certain characteristics of the credit enhancement, if any,
relating to the Receivables underlying the CRB Securities or to such CRB
Securities themselves; (vii) the terms on which the underlying Receivables for
such CRB Securities may be, or are required to be, purchased prior to their
stated maturity or the stated maturity of the CRB Securities; and (viii) the
terms on which Receivables may be substituted for those originally underlying
the CRB Securities.
If information of the nature described above representing the CRB
Securities is not known to the Depositor at the time the related Series of
Securities are initially offered, approximate or more general information of the
nature described above will be provided in the related Prospectus Supplement and
the additional information, if available, will be set forth in a Current Report
on Form 8-K to be available to investors on the date of issuance of the related
Series of Securities and to be filed with the Commission within 15 days of the
initial issuance of such Securities.
Collection and Payment Accounts
A separate Collection Account will be established by the Trustee (or, in
the case of a Series that includes Notes, the Indenture Trustee), or by the
Servicer in the name of the Trustee (or the Indenture Trustee), for each Series
of Securities for receipt of the amount of cash, if any, specified in the
related Prospectus Supplement to be initially deposited therein by the
Depositor, all amounts received on or with respect to the Base Assets and,
unless or except to the extent otherwise specified in the related Prospectus
Supplement, any income earned thereon. Certain
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amounts on deposit in such Collection Account and certain amounts available
pursuant to any Series Enhancement, as provided in the related Prospectus
Supplement, will be deposited in one or more related Payment Accounts, which
will also be established by the Trustee (or the Indenture Trustee) for such
Series of Securities, for payment to the related holders of such Securities. The
Trustee (or Indenture Trustee) will invest the funds in the Collection and
Payment Accounts in Eligible Investments maturing, with certain exceptions, in
the case of funds in the Collection Account, not later than the day preceding
the date such funds are due to be deposited in the applicable Payment Account or
otherwise paid, and in the case of funds in a Payment Account, not later than
the day preceding the next Payment Date for the related Class or Classes of
Securities. Eligible Investments include among other investments, obligations of
the United States and certain agencies thereof, federal funds, certificates of
deposits, commercial paper, demand and time deposits and banker's acceptances,
certain repurchase agreements of United States government securities and certain
guaranteed investment contracts, in each case, acceptable to the applicable
Rating Agencies.
From time to time, various other accounts, which may include a Pre-Funding
Account may be created under the terms of the documents related to a specific
Series.
SERIES ENHANCEMENT
General
For any Series or Securities, Series Enhancement may be provided with
respect to one or more Classes thereof. Series Enhancement may consist of
Credit Enhancement (as described below), Ancillary Arrangements (as described
below), or both.
Credit Enhancement in General
"Credit Enhancement" with respect to a Series of Securities or one or more
specific Classes of such Series may take the form of the subordination of one or
more Classes of such Securities to other Classes of such Series, a letter of
credit, the establishment of a cash collateral guaranty or account, a surety
bond, insurance, the use of cross support features or another method of Credit
Enhancement described in the related Prospectus Supplement, or any combination
of the foregoing. If so specified in the related Prospectus Supplement, any
form of Credit Enhancement may be structured so as to be drawn upon by more than
one Class of Securities of a Series to the extent described therein.
Unless otherwise specified in the related Prospectus Supplement for a
Series, any Credit Enhancement will not provide protection against all risks of
loss and will not guarantee repayment of the entire principal balance of the
Securities and interest thereon. If losses occur which exceed the amount
covered by the Credit Enhancement or which are not covered by the Credit
Enhancement, holders of Securities will bear their allocable share of
deficiencies.
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If Credit Enhancement is provided with respect to a Series, the related
Prospectus Supplement will include a description of (a) the amount payable under
such Credit Enhancement, (b) any conditions to payment thereunder not otherwise
described herein, (c) the conditions (if any) under which the amount payable
under such Credit Enhancement may be reduced and under which such Credit
Enhancement may be terminated or replaced and (d) any material provisions of any
agreement relating to such Credit Enhancement. Additionally, the related
Prospectus Supplement may set forth certain information with respect to the
issuer of any third-party Credit Enhancement, including (i) a brief description
of its principal business activities, (ii) its principal place of business,
place of incorporation and the jurisdiction under which it is chartered or
licensed to do business, (iii) if applicable, the identity of regulatory
agencies which exercise primary jurisdiction over the conduct of its business
and (iv) its total assets and its stockholders' or policyholders' surplus, if
applicable, as of the date specified in the related Prospectus Supplement. If
so specified in the related Prospectus Supplement, the issuer of such third
party Credit Enhancement may have a subordinated interest in the Trust, the
Receivables or certain cash flows in respect of the Receivables to the extent
described in such Prospectus Supplement (the "Enhancement Invested Amount").
Subordination
If so specified in the related Prospectus Supplement, one or more Series of
Securities or one or more Classes of Securities of a Series or one or more
classes of other certificated or uncertificated interests in the assets of a the
related Trust ("Collateral Indebtedness Interests") may be subordinated to one
or more other Series or one or more Classes of such Series. If so specified in
the related Prospectus Supplement, the rights of holders of the subordinated
Securities or Collateral Indebtedness Interests to receive distributions of
principal and/or interest on any Payment Date will be subordinated to such
rights of the holders of the Securities which are senior to such subordinated
Securities to the extent set forth in the related Prospectus Supplement. The
related Prospectus Supplement will also set forth information concerning the
amount of subordination of a Series or Class of subordinated Securities or
Collateral Indebtedness Interests, the circumstances in which such subordination
will be applicable, the manner, if any, in which the amount of subordination
will decrease over time and the conditions under which amounts available from
payments that would otherwise be made to holders of such subordinated Securities
or Collateral Indebtedness Interests will be distributed to holders of
Securities which are senior to such subordinated Securities or Collateral
Indebtedness Interests. The amount of subordination will decrease whenever
amounts otherwise payable to the holders of subordinated Securities or
Collateral Indebtedness Interests are paid to the holders of the Securities
which are senior to such subordinated Securities or Collateral Indebtedness
Interests. If so specified in the related Prospectus Supplement, subordination
may apply only in the event of certain types of losses not covered by another
Credit Enhancement.
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Letter of Credit
If so specified in the related Prospectus Supplement, support for a Series
of Securities or one or more Classes of a Series may be provided by one or more
letters of credit. A letter of credit may provide limited protection against
certain losses in addition to or in lieu of another form of Credit Enhancement.
The issuer of the letter of credit named in the related Prospectus Supplement
(the "L/C Bank") will be obligated to honor demands with respect to such letter
of credit, to the extent of the amount available thereunder, to provide funds
under the circumstances and subject to such conditions as are specified in the
related Prospectus Supplement. The liability of the L/C Bank under its letter
of credit may be reduced by the amount of unreimbursed payments thereunder.
The maximum liability of a L/C Bank under its letter of credit will
generally be an amount equal to a percentage specified in the related Prospectus
Supplement of the initial principal amount of a Series of Securities or a Class
of such Series. The maximum amount available at any time to be paid under a
letter of credit will be determined in the manner specified therein and in the
related Prospectus Supplement.
Cash Collateral Guaranty or Account
If so specified in the related Prospectus Supplement, support for a Series
of Securities or one or more Classes of a Series may be provided by a guaranty
(a "Cash Collateral Guaranty") secured by the deposit of cash or certain
permitted investments in an account (a "Cash Collateral Account") reserved for
the beneficiaries of the Cash Collateral Guaranty, or by a Cash Collateral
Account alone. Any such Cash Collateral Account will generally take the form of
a cash collateral trust formed pursuant to a trust agreement involving a cash
collateral depositor and a cash collateral trustee. The Cash Collateral
Guaranty will generally be an obligation of the cash collateral trust and not of
the cash collateral depositor, the cash collateral trustee (except to the extent
of amounts on deposit in the Cash Collateral Account), or the related Trustee,
Indenture Trustee, Seller, Servicer or the Depositor. The amount available
pursuant to a Cash Collateral Guaranty or a Cash Collateral Account will be the
lesser of the amount on deposit in the Cash Collateral Account and an amount
specified in the related Prospectus Supplement. The related Prospectus
Supplement will set forth the circumstances under which payments will be made to
beneficiaries of a Cash Collateral Guaranty from the related Cash Collateral
Account or from the Cash Collateral Account directly.
Reserve Account
If so specified in the related Prospectus Supplement, the Depositor may
deposit cash, a letter or letters of credit, short-term investments or other
instruments acceptable to the applicable Rating Agency or Rating Agencies in one
or more reserve accounts (each, a "Reserve Account") to be established in the
name of the Trustee (or the Indenture Trustee). Any such Reserve Account will
be used, as specified in such Prospectus Supplement, by the Trustee (or the
Indenture Trustee) to
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make required payments of principal of or interest on the Securities of the
related Series or one or more Classes thereof, to make adequate provision for
future payments on one or more Classes of such Securities or for any other
purpose specified in the Agreement with respect to such Series, to the extent
that funds are not otherwise available for such purpose. In the alternative or
in addition to such deposit, a Reserve Account for a Series may be funded
through application of all or a portion of the excess cash flow from the Base
Assets for such Series, to the extent described in the related Prospectus
Supplement. If applicable, the initial amount of the Reserve Account and the
Reserve Account maintenance requirements for a Series will be described in the
related Prospectus Supplement. Amounts deposited in a Reserve Account will be
invested by the Trustee (or the Indenture Trustee) in Eligible Investments
meeting certain specified maturity criteria.
Surety Bond or Insurance Policy
If so specified in the related Prospectus Supplement, Credit Enhancement
for a Series or one or more Classes of Securities of a Series may be provided by
the issuance of insurance by one or more insurance companies. Such insurance
will guarantee distributions of interest or principal on the affected Securities
in the manner and amount specified in the related Prospectus Supplement.
If so specified in the related Prospectus Supplement, Credit Enhancement
for a Series or one or more Classes of Securities of a Series may take the form
of a surety bond purchased for the benefit of the holders of such Securities to
assure distributions of interest or principal with respect to such Securities in
the manner and amount specified in the related Prospectus Supplement.
Spread Account
If so specified in the related Prospectus Supplement, support for a Series
or one or more Classes of Securities of a Series may be provided by the periodic
deposit of certain available excess cash flow from the Trust assets into an
account (the "Spread Account") intended to assure the subsequent distribution of
interest and principal on such Securities in the manner specified in the related
Prospectus Supplement.
Ancillary Arrangements
If so specified in the related Prospectus Supplement, the Trust may enter
into one or more derivative arrangements that are related to or incidental to
one or more of the Base Assets for a Series ("Ancillary Arrangements"). Such
Ancillary Arrangements may take the form of guaranteed rate agreements, maturity
liquidity facilities, tax protection agreements, interest rate cap, floor or
collar agreements, interest rate or currency swap agreements or other similar
arrangements. If so specified in the related Prospectus Supplement, such
Ancillary Arrangements may be entered into with the Depositor or an affiliate
thereof. The related Prospectus Supplement will to the extent appropriate
contain analogous disclosure with respect to any such Ancillary Arrangements as
is set forth herein or in such Prospectus Supplement with respect to the Base
Assets.
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SERVICING OF RECEIVABLES
General
Customary servicing functions with respect to any Receivables included in
the Base Assets for a Series or underlying any Participations included therein
will be provided by the Servicer named in the related Prospectus Supplement
pursuant to the related Agreement. In general, comparable servicing functions
will be performed by the CRB Servicer with respect to the Receivables underlying
any CRB Securities included in the Base Assets.
Collection Procedures
The Servicer will make reasonable efforts to collect all payments required
to be made under the Accounts and will, consistent with the terms of the related
Agreement for a Series and any applicable Credit Enhancement, follow such
collection procedures as it follows with respect to comparable receivables held
in its own portfolio.
Deposits to the Collection Account
Unless otherwise specified in the related Prospectus Supplement and subject
to certain exceptions that will be described therein, the Servicer will deposit
any collections on the Receivables in a Monthly Period (which period will be
defined for each Servicer in the related Prospectus Supplement) into the
Collection Account within two business days of the Date of Processing (or, in
the case of Interchange, on each Distribution Date) to the extent such
collections are allocable to the Certificateholders' Interest of any Series and
are required to be deposited into an account for the benefit of, or distributed
to, the Certificateholders of any Series or the issuer of any Series
Enhancement. In certain limited circumstances, the Servicer will not be
required to segregate, and will be permitted to use for its own benefit
collections on the Receivables received by it during each Monthly Period until
the related Distribution Date. The "Distribution Date" for each calendar month
will be specified in the Prospectus Supplement. Unless otherwise specified in
the related Prospectus Supplement and subject to certain exceptions that will be
described therein, on the earlier of (i) the second business day following the
Date of Processing and (ii) the day on which the Servicer deposits any
collections into the Collection Account, the Servicer will pay to the Seller its
allocable portion of any collections then held by the Servicer. The "Date of
Processing" will generally be the business day on which a record of any
transaction is first recorded on the Servicer's computer file of consumer
revolving accounts (without regard to the effective date of such recordation).
Unless otherwise specified in the related Prospectus Supplement, the
Servicer will establish the Collection Account in the name of the Trustee (or,
for a Series that includes Notes, the Indenture Trustee). Unless otherwise
indicated in the related Prospectus Supplement, the Collection Account will be
an account maintained (i) at a depository institution, the long-term
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unsecured debt obligations of which at the time of any deposit therein are rated
as described in the related Prospectus Supplement and as specified by the Rating
Agencies rating the Securities of such Series or (ii) in an account or accounts
the deposits in which are insured to the maximum extent available by the FDIC or
which are secured in a manner meeting requirements established by such Rating
Agencies.
Unless otherwise specified in the related Prospectus Supplement, the funds
held in the Collection Account may be invested, pending remittance to the
Trustee (or the Indenture Trustee), in Eligible Investments. If so specified in
the related Prospectus Supplement, the Servicer will be entitled to receive as
additional compensation any interest or other income earned on funds in the
Collection Account. The related Prospectus Supplement will describe the
obligations of the Servicer (if different from those described above), the
Seller, the Trustee, the Indenture Trustee and/or the Depositor to deposit
certain payments and/or collections received by them in respect of the Trust
assets into the Collection Account. In addition, to the extent so provided in
the related Prospectus Supplement, if the Servicer deposits in the Collection
Account for a Series any amount not required to be deposited therein, it may, at
any time, withdraw such amount from such Collection Account.
Servicing Compensation and Payment Of Expenses
Except as otherwise provided in the related Prospectus Supplement, the
Servicer will be entitled to receive a servicing fee in an amount to be
determined as specified in the related Prospectus Supplement (the "Servicing
Fee"). The Servicing Fee may be fixed or variable, as specified in the related
Prospectus Supplement.
As specified in the related Prospectus Supplement, the Servicer may be
required to pay certain expenses incurred in connection with the servicing of
the Receivables including, without limitation, the payment of the fees and
expenses of the Trustee (and Indenture Trustee) and independent accountants,
payment of the cost of any Series Enhancement and payment of expenses incurred
in preparation of reports to holders of Securities. To the extent specified in
the related Prospectus Supplement, the rights of the Servicer to receive funds
from the Collection Account for a Series, whether as the Servicing Fee or other
compensation, or for the reimbursement of expenses or otherwise, may be
subordinate to the rights of holders of the Securities of such Series.
Evidence as to Compliance
The Pooling Agreement for a Series may provide that, each year, a firm of
independent public accountants will furnish a statement to the Trustee to the
effect that such firm has examined certain documents and records relating to the
servicing of the Receivables by the Servicer and that, on the basis of such
examination, such firm is of the opinion that the servicing has been conducted
in compliance with the Pooling Agreement, except for (i) such exceptions as such
firm believes to be immaterial and (ii) such other exceptions as are set forth
in such statement. The Pooling Agreement for a Series will provide for delivery
to the Trustee for such Series of an annual
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statement signed by an officer of the Servicer to the effect that the Servicer
has fulfilled its obligations under the Pooling Agreement throughout the
preceding calendar year. Comparable statements and reports may be required to be
delivered to the Indenture Trustee pursuant to any Indenture relating to such
Series.
Certain Matters Regarding the Servicer
Any Servicer for a Series will be identified in the related Prospectus
Supplement. The Servicer may be an affiliate of the Seller or the Depositor and
may have other business relationships with the Seller, the Depositor or their
respective affiliates.
If certain events (each a "Servicer Default") occur with respect to the
Servicer under an Agreement, the related Trustee (or a specified percentage of
the holders of Securities as set forth in the related Prospectus Supplement) may
terminate the Servicer, in which case the Trustee will appoint a successor
Servicer. Unless otherwise specified in the related Prospectus Supplement,
Servicer Defaults and the rights of the Trustee and the holders of Securities
upon the occurrence of a Servicer Default under the Agreement for a Series will
be substantially similar to those described under "DESCRIPTION OF THE TRUST OR
POOLING AGREEMENT -- Servicer Defaults" and "-- Rights upon Servicer Defaults".
Unless otherwise provided in the related Prospectus Supplement, the
Servicer may not resign from its obligations and duties under the Agreement,
except (a) upon determination that (i) the performance of its duties under the
Agreement is no longer permissible under applicable law and (ii) there is no
reasonable action which the Servicer could take to make the performance of its
duties hereunder permissible under applicable law, (b) in connection with a
conveyance, consolidation or merger by the Servicer with any corporation, or
conveyance or transfer of its properties or assets substantially as an entirety
to any other person permitted under the Agreement or (c) upon the satisfaction
of the following conditions: (i) the acceptance and assumption, by an agreement
supplemental thereto, executed and delivered to the Trustee, in form
satisfactory to the Trustee, of the obligations and duties of the Servicer
thereunder by a proposed successor Servicer, (ii) the Servicer having given
written notice to each applicable Rating Agency of such transfer and each such
Rating Agency having notified the Servicer in writing to the effect
that its then current rating of the Securities of any Series will not be reduced
or withdrawn as a result of such transfer, (iii) the provider of Credit
Enhancement, if any, having consented in writing to such transfer (such consent
not to be unreasonably withheld) and (iv) the proposed successor Servicer being
an Eligible Servicer (as defined below). Notwithstanding anything in the
Pooling Agreement to the contrary, any successor Servicer appointed under clause
(c) will be deemed to be a successor Servicer. Any such determination
permitting the resignation of the Servicer will be evidenced as to clause (a)
above by an opinion of counsel to such effect delivered to the Trustee. No such
resignation will become effective until the Trustee or a successor Servicer
shall have assumed the responsibilities and obligations of the Servicer in
accordance with the Pooling Agreement.
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"Eligible Servicer" means the Trustee (or the Indenture Trustee) or an
entity which, at the time of its appointment as Servicer (i) is an established
financial institution having capital or a net worth of not less than
$100,000,000, (ii) is servicing a portfolio of consumer credit card or charge
card accounts, (iii) is legally qualified and has the capacity to service the
Accounts, (iv) has demonstrated the ability to professionally and completely
service a portfolio of similar accounts in accordance with standards of skill
and care customary in the industry and (v) is qualified to use the software that
is then currently being used to service the Accounts or obtains the right to use
or has its own software which is adequate to perform its duties under the
Pooling Agreement.
Indemnification
Except to the extent otherwise provided therein, each Pooling Agreement
will provide that the Servicer will indemnify the Trust, the Trustee and the
holders of all Securities of a Series from and against any loss, liability,
expense, damage or injury suffered or sustained by reason of any acts, omissions
or alleged acts or omissions arising out of activities of the Servicer with
respect to the Trust or the Trustee or any co-trustee pursuant to the Pooling
Agreement, including those arising from acts or omissions of the Servicer
pursuant to the Pooling Agreement, including but not limited to any judgment,
award, settlement, reasonable attorneys' fees and other costs or expenses
incurred in connection with the defense of any actual or threatened action,
proceeding or claim; provided, however, that the Servicer shall not indemnify:
(i) the Trust or the Trustee if such acts, omissions or alleged acts or
omissions constitute fraud, gross negligence, breach of fiduciary duty or
misconduct by the Trustee; (ii) the Trust, the Trustee or the holders of such
Securities for any liability, cost or expense of the Trust with respect to any
action taken by the Trust at the request of such holders in accordance with the
Pooling Agreement or with respect to any Federal, state or local income or
franchise taxes (or any interest or penalties with respect thereto) required to
be paid by the Trust or such holders to any taxing authority; or (iii) the Trust
or such holders for any losses incurred by any of them as a result of defaulted
Receivables or Receivables which are written off as uncollectible unless such
write-off is caused by a breach of the Pooling Agreement by the Servicer.
Subject to certain exceptions in the Pooling Agreement, any indemnification
pursuant to the Pooling Agreement will be only from the assets of the Servicer.
DESCRIPTION OF THE NOTES
General
The following summaries describe certain provisions in the Indentures which
are anticipated to be common to any Notes included in a Series of Securities.
The summaries do not purport to be complete and are subject to, and are
qualified in their entirety by reference to, the provisions of the related
Notes, Indenture and Prospectus Supplement. Where particular provisions or
terms used in such Notes or Indentures are referred to herein,
the actual provisions (including definitions of terms) are incorporated herein
by reference as part of such summaries.
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The Notes included in any Series will be issued in one or more Classes.
The Notes will only be issued in fully registered form, without coupons, in the
authorized denominations for each Class specified in the related Prospectus
Supplement. Upon satisfaction of the conditions, if any, applicable to a Class
of Notes of a Series, as described in the related Prospectus Supplement, the
transfer of the Notes may be registered, and the instruments evidencing such
Notes may be exchanged, at the office of the registrar (which may be the
Indenture Trustee) appointed from time to time pursuant to the Indenture (the
"Registrar") without the payment of any service charge other than any tax or
governmental charge payable in connection with such registration of transfer or
exchange. If specified in the related Prospectus Supplement, one or more
Classes of Notes of a Series may be available in book-entry form only.
Unless otherwise provided in the related Prospectus Supplement, payments of
principal of and interest on the Notes of a Series will be made on the dates
specified in the related Prospectus Supplement (the "Payment Dates") by check
mailed to holders of such Notes, registered as such at the close of business on
the record date applicable to such Payment Dates at their addresses appearing on
the register of Notes for such Series, except that (a) payments may be made by
wire transfer (at the expense of the Noteholder requesting payment by wire
transfer) in certain circumstances described in the related Prospectus
Supplement and (b) final payments of principal in retirement of any Note will be
made only upon presentation and surrender of such Note at the office of the
Indenture Trustee specified in the related Prospectus Supplement. Notice of the
final payment on a Note will be mailed to the holder of such Note before the
Payment Date on which the final principal payment on any Note is expected to be
made to the holder of such Note.
Payments of principal of and interest on the Notes will be made by the
Indenture Trustee, or a paying agent provided for under the Indenture, as
specified in the related Prospectus Supplement.
Payments of Interest and Principal
Unless otherwise specified in the related Prospectus Supplement, each Class
of Notes of a Series will have a stated principal amount and will bear interest
at a specified Interest Rate. Each Class of Notes may have a different Interest
Rate, which may be fixed, variable or an adjustable Interest Rate, or any
combination of the foregoing. The Notes included in any Series may include one
or more Classes of Notes entitled to (i) principal payments with
disproportionate, nominal or no interest payments or (ii) interest payments with
disproportionate, nominal or no principal payments. The related Prospectus
Supplement will specify the Interest Rate for each Class of Notes or the method
for determining such Interest Rate. The right of holders of any Class of Notes
to receive payments of principal and interest may be senior or subordinate to
the rights of holders of one or more other Class or Classes of Notes of such
Series, as described in the related Prospectus Supplement. Unless otherwise
provided in such Prospectus Supplement, payments of interest on Notes will be
made prior to payments of principal thereon.
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One or more Classes of Notes of a Series may be redeemable in whole or in
part under the circumstances specified in the related Prospectus Supplement,
including as the result of the exercise by the Servicer, the Seller or the
Depositor of any option that it may have to purchase the Base Assets of the
related Trust. To the extent specified in the related Prospectus Supplement,
one or more Classes of Notes of a Series may have fixed principal payment
schedules as set forth therein. Holders of Notes will have the right to receive
payments of principal on any given Payment Date in the applicable amount set
forth in such schedule with respect to such Notes. Notes may also be subject to
prepayment of principal to the extent set forth in the related Prospectus
Supplement.
With respect to a Series that includes two or more Classes of Notes, each
Class may differ as to the timing and priority of payments, seniority,
allocations of losses, Interest Rates or amount of payments of principal or
interest, and payments of principal or interest in respect of any such Class or
Classes may be subject to the occurrence of specified events or may be made on
the basis of collections from designated portions of the Base Assets.
CERTAIN PROVISIONS OF THE INDENTURE
Events of Default; Rights upon Event of Default. Unless otherwise
specified in the related Prospectus Supplement, "Events of Default" in respect
of a Series of Notes under the related Indenture will consist of: (i) a default
for five days or more in the payment of any interest on any such Note: (ii) a
default in the payment of the principal of, or any installment of the principal
of, any such Note when the same becomes due and payable; (iii) a default by the
related Trust in the observance or performance in any material respect of any
covenant or agreement made in such Indenture and the continuation of any such
default for a period of 30 days after notice thereof is given to the related
Trust by the applicable Indenture Trustee or to such Trust and the related
Indenture Trustee by the holders of 25% of the aggregate outstanding principal
amount of such Notes; (iv) any representation or warranty made by such Trust in
the related Indenture or in any certificate delivered pursuant thereto or in
connection therewith having been incorrect in any material respect as of the
time made, if such breach is not cured with 30 days after notice thereof is
given to such Trust by the applicable Indenture Trustee or to such Trust and
such Indenture Trustee by the holders of 25% of the aggregate outstanding
principal amount of such Notes; and (v) certain events of bankruptcy,
insolvency, receivership or liquidation with respect to such Trust. The amount
of principal required to be paid to Noteholders of each Series under the related
Indenture on any Payment Date generally will be limited to amounts available to
be deposited in the applicable Payment Account; therefore, unless otherwise
specified in the related Prospectus Supplement, the failure to pay principal on
a Class of Notes generally will not result in the occurrence of an Event of
Default until the applicable final scheduled Payment Date for such Class of
Notes.
Unless otherwise specified in the related Prospectus Supplement, if an
Event of Default should occur and be continuing with respect to the Notes of any
Series, the related Indenture Trustee or holders of a majority in principal
amount of such Notes may declare the principal of
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such Notes to be immediately due and payable. Such declaration may, under
certain circumstances, be rescinded by the holders of a majority in principal
amount of such Notes then outstanding. If the Notes of any Series are declared
due and payable following an Event of Default, the related Indenture Trustee may
institute proceedings to collect amounts due thereon, foreclose on the property
of the Trust, exercise remedies as a secured party, sell the related Base Assets
or elect to have the applicable Trust maintain possession of such Base Assets
and continue to apply collections on such Base Assets as if there had been no
declaration of acceleration. Unless otherwise specified in the related
Prospectus Supplement, however, the Indenture Trustee will be prohibited from
selling the Base Assets following an Event of Default, other than a default in
the payment of any principal of, or a default for five days or more in the
payment of any interest on, any Note of such Series, unless (i) the holders of
all such outstanding Notes consent to such sale, (ii) the proceeds of such sale
are sufficient to pay in full the principal of and the accrued and unpaid
interest on such outstanding Notes at the date of such sale or (iii) such
Indenture Trustee determines that the proceeds of the Base Assets would not be
sufficient on an ongoing basis to make all payments on such Notes as such
payments would become due if such obligations had not been declared due and
payable, and such Indenture Trustee obtains the consent of the holders of
66-2/3% of the aggregate outstanding principal amount of such Notes.
Subject to the provisions of the applicable Indenture relating to the
duties of the related Indenture Trustee, if an Event of Default occurs and is
continuing with respect to a Series of Notes, such Indenture Trustee will be
under no obligation to exercise any of the rights or powers under the Indenture
at the request or direction of any of the holders of such Notes if it reasonably
believes it will not be adequately indemnified against the costs, expenses and
liabilities that might be incurred by it in complying with such request.
Subject to the provisions for indemnification and certain limitations contained
in the related Indenture, the holders of a majority of the aggregate outstanding
principal amount of the Notes of a Series will have the right to direct the
time, method and place of conducting any proceeding or exercising any remedy
available to the related Indenture Trustee; in addition, the holders of Notes
representing a majority of the aggregate outstanding principal amount of such
Notes may, in certain cases, waive any default with respect thereto, except a
default in the payment of principal of or interest on any Note or a default in
respect of a covenant or provision of such Indenture that cannot be modified or
amended without the waiver or consent of the holders of all the outstanding
Notes of such Series.
Unless otherwise specified in the related Prospectus Supplement, no holder
of a Note will have the right to institute any proceeding with respect to the
related Indenture, unless (i) such holder previously has given to the applicable
Indenture Trustee written notice of a continuing Event of Default; (ii) the
holders of not less than 25% of the outstanding principal amount of such Notes
have made written request to such Indenture Trustee to so institute such
proceeding in its own name as Indenture Trustee; (iii) such holder or holders
have offered such Indenture Trustee reasonable indemnity; (iv) such Indenture
Trustee has for 60 days failed to institute such proceeding; and (v) no
direction inconsistent with such written request has been given to such
Indenture Trustee during such 60-day period by the holders of a majority of the
outstanding principal amount of the Notes of such Series.
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With respect to any Series of Securities that includes Notes, none of the
related Indenture Trustee in its individual capacity, the related Trustee in its
individual capacity, any holder of a Certificate representing an ownership
interest in such Trust or any other holder of an interest in such Trust, or any
of their respective beneficiaries, agents, officers, directors, employees,
affiliates, successors or assigns will, in the absence of an express agreement
to the contrary, be personally liable for the payment of the principal of or
interest on the related Notes or for the agreements of such Trust contained in
the related Indenture.
No Trust may engage in any activity other than as described herein or in
the related Prospectus Supplement. Except as may be provided in the related
Prospectus Supplement, no Trust will incur, assume or guarantee any indebtedness
other than indebtedness incurred pursuant to the related Notes and the related
Indenture.
Certain Covenants. Unless otherwise specified in the related Prospectus
Supplement, each Indenture will provide that the related Trust may not
consolidate with or merge into any other entity, unless (i) the entity formed by
or surviving such consolidation or merger is organized under the laws of the
United States, any state of the United States or the District of Columbia; (ii)
such entity expressly assumes such Trust's obligation to make due and punctual
payments upon the Notes of the related Series and to perform or observe every
agreement and covenant of such Trust under the Indenture; (iii) no Event of
Default shall have occurred and be continuing immediately after such merger or
consolidation; (iv) such Trust has been advised by each Rating Agency that such
merger or consolidation will not result in the qualification, reduction or
withdrawal of its then-current rating of any Class of the Notes or Certificates
of such Series; and (v) such Trust has received an opinion of counsel to the
effect that such consolidation or merger would have no material adverse tax
consequence to the Trust or to any related Noteholder or Certificateholder.
No Trust relating to a Series of Securities that includes Notes will (i)
except as expressly permitted by the applicable Indenture, the applicable Trust
Agreement or Pooling Agreement or certain other documents with respect to such
Trust (the "Related Documents"), sell, transfer, exchange or otherwise dispose
of any of the assets of such Trust; (ii) claim any credit on or make any
deduction from principal and interest payments in respect of the related Notes
(other than amounts withheld under the Code or applicable state tax laws) or
assert any claim against any present or former holder of such Notes because of
the payment of taxes levied or assessed upon such Trust; (iii) dissolve or
liquidate in whole or in part; (iv) permit the validity or effectiveness of the
related Indenture to be impaired or permit any person to be released from any
covenants or obligations with respect to the related Notes under such Indenture
except as may be expressly permitted thereby; (v) permit any lien, charge,
excise, claim, security interest, mortgage, or other encumbrance to be created
on or extend to or otherwise arise upon or burden the assets of such Trust or
any part thereof, or any interest therein or the proceeds thereof; or (vi)
permit the lien of the related Indenture not to constitute a valid first
priority security interest (other than with respect to a tax, mechanics' or
similar lien) in the assets of such Trust.
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Each Indenture Trustee and the related Noteholders, by accepting the
related Notes, will covenant that they will not at any time institute against
the applicable Trust any bankruptcy, reorganization or other proceeding under
any federal or state bankruptcy or similar law.
Modification of Indenture. The Trust and the related Indenture Trustee
may, with the consent of the holders of a majority of the aggregate outstanding
principal amount of the Notes of the related Series, execute a supplemental
indenture to add provisions to, change in any manner or eliminate any provisions
of, the related Indenture, or modify (except as provided below) in any manner
the rights of the related Noteholders, provided that, unless otherwise specified
in the related Prospectus Supplement, without the consent of the holder of each
outstanding Note affected thereby, no supplemental indenture will: (i) change
the due date of any installment of principal of or interest on any such Note or
reduce the principal amount thereof, the interest rate specified thereon or the
redemption price with respect thereto or change any place of payment where or
the coin or currency in which any such Note or any interest thereon is payable;
(ii) impair the right to institute suit for the enforcement of certain
provisions of the related Indenture regarding payment; (iii) reduce the
percentage of the aggregate amount of the outstanding Notes of such Series, the
consent of the holders of which is required for any such supplemental indenture
or for any waiver of compliance with certain provisions of the related Indenture
or of certain defaults thereunder and their consequences as provided for in such
Indenture; (iv) modify or alter the provisions of the related Indenture
regarding the voting of Notes held by the applicable Trust, any other obligor on
such Notes, the Seller or an affiliate of any of them; (v) reduce the percentage
of the aggregate outstanding amount of such Notes, the consent of the holders of
which is required to direct the related Indenture Trustee to sell or liquidate
the Base Assets in the Trust if the proceeds of such sale would be insufficient
to pay the principal amount and accrued and unpaid interest on the outstanding
Notes of such Series; (vi) decrease the percentage of the aggregate principal
amount of such Notes required to amend the sections of the related Indenture
that specify the percentage of the aggregate principal amount of the Notes of
such Series necessary to amend such Indenture or certain other related
agreements; or (vii) permit the creation of any lien ranking prior to or on a
parity with the lien of the related Indenture with respect to any of the
collateral for such Notes or, except as otherwise permitted or contemplated in
such Indenture, terminate the lien of such Indenture on any such collateral or
deprive the holder of any such Note of the security afforded by the lien of
such Indenture.
Unless otherwise provided in the applicable Prospectus Supplement, the
Trust and the related Indenture Trustee may also enter into supplemental
indentures, without obtaining the consent of the Noteholders of the related
Series, for the purpose of, among other things, adding any provisions to or
changing in any manner or eliminating any of the provisions of the related
Indenture or of modifying in any manner the rights of such Noteholders; provided
that such action will not materially and adversely affect the interest of any
such Noteholder.
Annual Compliance Statement. Each Trust for a Series of Securities that
includes Notes will be required to file annually with the related Indenture
Trustee a written statement as to the fulfillment of its obligations under the
related Indenture.
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Indenture Trustee's Annual Report. The Indenture Trustee for each Trust
for a Series of Securities that includes Notes will be required to mail each
year to all related Noteholders a brief report relating to its eligibility and
qualification to continue as Indenture Trustee under the related Indenture, any
amounts advanced by it under the Indenture, the amount, interest rate and
maturity date of certain indebtedness owing by such Trust to the applicable
Indenture Trustee in its individual capacity, the property and funds physically
held by such Indenture Trustee as such and any action taken by it that
materially affects the related Notes that has not been previously reported.
Satisfaction and Discharge of Indenture. Each Indenture will be discharged
with respect to the collateral securing the related Notes upon the delivery to
the related Indenture Trustee for cancellation of all such Notes or, with
certain limitations, upon deposit with such Indenture Trustee of funds
sufficient for the payment in full of all such Notes.
The Indenture Trustee
The Indenture Trustee for a Series of Notes will be specified in the
related Prospectus Supplement. The Indenture Trustee for any Series may resign
at any time, in which event the related Trust will be obligated to appoint a
successor indenture trustee for such Series. The Trust may also remove the
related Indenture Trustee if such Indenture Trustee ceases to be eligible to
continue as such under the related Indenture or if such Indenture Trustee
becomes insolvent. In such circumstances, such Trust will be obligated to
appoint a successor indenture trustee for the applicable Series of Notes. No
resignation or removal of the Indenture Trustee and appointment of a successor
indenture trustee for a Series of Notes will become effective until the
acceptance of the appointment by the successor indenture trustee for such
Series.
DESCRIPTION OF THE CERTIFICATES
General
The following summaries describe certain provisions in the Agreements which
generally are anticipated to be common to the Certificates of each Series, as
well as certain provisions of the Pooling Agreement which are anticipated to be
common to Series consisting of Receivables only Certificates. The summaries do
not purport to be complete and are subject to, and are qualified in their
entirety by reference to, the provisions of the Prospectus Supplement and
Agreement relating to each Series of Certificates. Where particular provisions
or terms used in such Certificates or Agreements are referred to herein, the
actual provisions (including definitions of terms) are incorporated herein by
reference as part of such summaries.
Unless otherwise specified in the related Prospectus Supplement, each Class
of Certificates will have an original principal amount and will accrue interest
on such original principal amount at a specified Pass-Through Rate. Each Class
of Certificates may have a different Pass-Through
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Rate, which may be a fixed, variable or adjustable Pass-Through Rate, or any
combination of the foregoing. The related Prospectus Supplement will specify the
Pass-Through Rate, or the method for determining the applicable Pass-Through
Rate, for each Class of Certificates.
A Series of Securities may include two or more Classes of Certificates that
differ as to timing and priority of distributions, seniority, allocations of
losses, Pass-Through Rate or amount of distributions in respect of principal or
interest. Additionally, distributions in respect of principal or interest in
respect of any such Class or Classes may or may not be made upon the occurrence
of specified events or on the basis of collections from designated portions of
the related Base Assets. If specified in the related Prospectus Supplement, one
or more Classes of Certificates may be Strip Certificates. If a Series of
Securities includes Classes of Notes, distributions in respect of the
Certificates may be subordinated in priority of payment to payments on the Notes
to the extent specified in the related Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement,
Certificates will be available for purchase in a minimum denomination of
$100,000 and in integral multiples of $1,000 in excess thereof and will be
available in book-entry form only. Unless otherwise specified in the related
Prospectus Supplement, Certificateholders will be able to receive Definitive
Certificates only in the limited circumstances described herein or in the
related Prospectus Supplement. The Certificates of each Series will be issued
only in fully registered form, without coupons, in the authorized denominations
for each Class specified in the related Prospectus Supplement. Upon
satisfaction of the conditions, if any, applicable to a Class of Certificates of
a Series, as described in the related Prospectus Supplement, the transfer of the
Certificates may be registered and the Certificates may be exchanged at the
office of the Trustee specified in the related Prospectus Supplement without the
payment of any service charge other than any tax or governmental charge payable
in connection with such registration of transfer or exchange.
Unless otherwise provided in the related Prospectus Supplement, payments of
principal of and interest on the Certificates of a Series will be made on the
dates specified in the related Prospectus Supplement (the "Payment Dates") by
check mailed to Certificateholders of such Series, registered as such at the
close of business on the record date applicable to each Payment Date at their
addresses appearing on the register of Certificates for such Series, except that
(a) payments may be made by wire transfer (at the expense of the
Certificateholder requesting payment by wire transfer) in certain circumstances
described in the related Prospectus Supplement and (b) final payments of
principal in retirement of any Certificate will be made only upon presentation
and surrender of such Certificate at the office of the Trustee specified in the
related Prospectus Supplement. Notice of the final payment on a Certificate
will be mailed to the holder of such Certificate before the Payment Date on
which the final principal payment on any Certificate is expected to be made to
the holder of such Certificate.
Payments of principal of and interest on the Certificates will be made by
the Trustee, or a paying agent on behalf of the Trustee, as specified in the
related Prospectus Supplement. Unless otherwise provided in the related
Prospectus Supplement, all payments with respect to the Base
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Assets for a Series, together with reinvestment income thereon, amounts
withdrawn from any Reserve Account and amounts available pursuant to any other
Series Enhancement will be deposited directly into the Collection Account net
(if and as provided in the related Prospectus Supplement) of certain amounts
payable to the Servicer under the related Agreement and specified in the related
Prospectus Supplement, and will thereafter be deposited into the applicable
Payment Accounts and be available to make payments on Certificates of such
Series on the next Payment Date, as the case may be. See "THE TRUST ASSETS --
Collection and Payment Accounts" .
PAYMENTS OF INTEREST
The Certificates of each Class which by their terms are entitled to receive
interest will bear interest (calculated, unless otherwise specified in the
related Prospectus Supplement, on the basis of a 360-day year of twelve 30-day
months) from the date and at the rate per annum specified, or calculated in the
method described, in the related Prospectus Supplement. Interest on such
Certificates of a Series will be payable on the Payment Dates specified in the
related Prospectus Supplement. The rate of interest on one or more Classes of
Certificates of a Series may be floating. A Class of Certificates may by its
terms be "Principal Only Certificates", which may not be entitled to receive any
interest distributions or may be entitled to receive only nominal interest
distributions. A Class of Certificate may by its terms be "Zero Coupon
Certificates", the interest on which is not paid on the related Payment Date,
but will accrue and be added to the principal thereof on such Payment Date.
Interest payable on the Certificates on a Payment Date will include all
interest accrued during the related period specified in the related Prospectus
Supplement. In the event interest accrues during the calendar month preceding a
Payment Date, the effective yield to Certificateholders will be reduced from the
yield that would otherwise be obtainable if interest payable on the Certificates
were to accrue through the day immediately preceding such Payment Date.
PAYMENTS OF PRINCIPAL
On each Payment Date for Certificates of a Series, principal payments will
be made to the holders of such Certificates on which principal is then payable,
to the extent set forth in the related Prospectus Supplement. Such payments
will be made in an aggregate amount determined as specified in the related
Prospectus Supplement and will be allocated among the respective Classes of a
Series in the manner, at the times and in the priority (which may, in certain
cases, include allocation by random lot) set forth in the related Prospectus
Supplement.
With respect to each Class of Certificates not issued pursuant to a Pooling
Agreement, a "Final Scheduled Payment Date" will be specified in the related
Prospectus Supplement, which will be the date (calculated on the basis of the
assumptions applicable to such Series described therein) on which the entire
aggregate principal balance of such Class is expected to be reduced to zero.
Because payments received on the Base Assets will generally be used to make
distributions in reduction of the outstanding principal amounts of such
Certificates, it is likely that
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the final principal payment with respect to a Class of Certificates will occur
earlier, and may occur substantially earlier than its Final Scheduled Payment
Date.
RECEIVABLES POOLING CERTIFICATES
Certificateholders' Interest; Seller's Interest. In the case of a Series
of Receivables Pooling Certificates, a portion of the assets of the related
Trust will be allocated among the Certificateholders' Interest and the remainder
will be allocated to the Seller's Interest and as otherwise provided in the
related Prospectus Supplement. The Seller's Interest represents the rights to
the assets of the Trust not allocated to the Certificateholders' Interest of any
Series or any interests in the Trust issued as Series Enhancement. In the case
of a master Trust, the related Seller may cause the issuance of additional
Series of Certificates from time to time and any such issuance will have the
effect of decreasing the Seller's Interest. The Seller's Interest may be
evidenced by an exchangeable certificate that is subject to certain transfer
restrictions. The aggregate principal amount of the Certificateholders' Interest
will, except as provided herein or in the related Prospectus Supplement, remain
fixed at the aggregate initial principal amount of the Certificates of such
Series and the principal amount of the Seller's Interest will fluctuate as the
amount of the Principal Receivables held by the Trust changes from time to time.
If so provided in the related Prospectus Supplement, in certain circumstances,
interests in the assets of a Trust may be allocated to a Credit Enhancer, and in
the case of a master Trust interests in the assets of the Trust may be allocated
to the Certificateholders of more than one Series.
Issuance of Additional Series. Unless otherwise provided in the related
Prospectus Supplement, in the case of a master Trust, the related Pooling
Agreement will provide that pursuant to one or more supplements to such Pooling
Agreement (each, a "Supplement"), the related Seller may cause the related
Trustee to issue one or more new Series of Certificates and accordingly cause a
reduction in the Seller's Interest represented by the Seller's Certificate.
Under such Pooling Agreement, such Seller may define, with respect to any
Series, the principal terms of such Series. A new Series will only be issued
upon satisfaction of certain conditions including, among others, that (a) the
Seller shall have received written notice from each Rating Agency that such
issuance will not have a Ratings Effect and (b) the Seller shall have delivered
to the Trustee and certain providers of Series Enhancement a certificate of an
authorized officer to the effect that, based on the facts known to such officer
at the time, in the reasonable belief of the Seller, such issuance will not at
the time of its occurrence cause a Pay Out Event or an event that, after the
giving of notice or the lapse of time, would constitute a Pay Out Event, to
occur with respect to any Series and (c) as otherwise provided in the related
Prospectus Supplement.
Allocation Percentage. Pursuant to the Agreement, all amounts collected
with respect to Finance Charge Receivables and Principal Receivables and the
Defaulted Amount with respect to any Monthly Period will be allocated among the
Certificateholders' Interest of each Series and the Seller's Interest, and all
Adjustment Payments and Deposit Amounts deposited in the Collection Account
(collectively, "Miscellaneous Payments") with respect to any Monthly Period will
be allocate among the Certificateholders' Interest of each Series, as follows:
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(a) collections of Finance Charge Receivables and the Defaulted Amount will
at all times be allocated to the Certificateholders' Interest of a
Series based on the Floating Allocation Percentage of such Series;
(b) collections of Principal Receivables will at all times be allocated to
the Certificateholders' Interest of a Series based on the Principal
Allocation Percentage of such Series; and
(c) miscellaneous Payments will at all times be allocated among the
Certificateholder's Interest of each Series based on their respective
Invested Amounts.
The "Floating Allocation Percentage" and the "Principal Allocation Percentage"
with respect to any Series will be determined as set forth in the related
Supplement and, with respect to each Series offered hereby, in the related
Prospectus Supplement. Amounts not allocated to the Certificateholders'
Interest of any Series as described above will be allocated to the Seller's
Interest.
Collections. All collections of Receivables with respect to a given Trust
will be allocated by the related Servicer as amounts collected on Principal
Receivables and on Finance Charge Receivables. The Servicer will allocate
between the Certificateholders' Interest of each Series (if more than one) of
such Trust and the Seller's Interest all amounts collected with respect to
Finance Charge Receivables and Principal Receivables and the Defaulted Amount.
The "Defaulted Amount" for any Monthly Period will be an amount (not less than
zero) equal to (a) the amount of Principal Receivables which were charged off as
uncollectible in such Monthly Period in accordance with the Servicer's customary
and usual servicing procedures ("Defaulted Receivables") for such Monthly Period
minus (b) the sum of (i) the amount of any Defaulted Receivables of which either
the Seller or the Servicer becomes obligated to accept reassignment or
assignment during such Monthly Period (unless an Insolvency Event shall have
occurred with respect to the Seller or the Servicer, in which event the amount
of such Defaulted Receivables will not be added to the sum so subtracted), (ii)
the aggregate amount of recoveries (net of collection expenses) received in such
Monthly Period with respect to both Finance Charge Receivables and Principal
Receivables previously charged off as uncollectible and (iii) the excess, if
any, for the immediately preceding Monthly Period of the sum computed pursuant
to this clause (b) for such Monthly Period over the amount of Principal
Receivables which became Defaulted Receivables in such Monthly Period.
Collections of Finance Charge Receivables and the Defaulted Amount will be
allocated to each such Series at all times based upon its Floating Allocation
Percentage. Collections of Principal Receivables will be allocated to each such
Series at all times based upon its Principal Allocation Percentage. The
Floating Allocation Percentage and the Principal Allocation Percentage with
respect to each such Series will be determined as set forth in the related
Supplement and, with respect to each such Series offered hereby, in the related
Prospectus Supplement. Collections will be deposited in the related Collection
Account and invested in the manner described under "SERVICING OF RECEIVABLES --
Deposits in the Collection Account".
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Interest. Interest will accrue on the Invested Amount of the Receivables
Pooling Certificates of a Series or Class offered hereby at the per annum rate
either specified in or determined in the manner specified in the related
Prospectus Supplement. If the Prospectus Supplement for a Series of Receivables
Pooling Certificates so provides, the interest rate and interest payment dates
applicable to each Class of Certificates of that Series may be subject to
adjustment from time to time. Any such interest rate adjustment would be
determined by reference to one or more indices or by a remarketing firm, in each
case as described in the Prospectus Supplement for such Series. Except as
otherwise provided herein or in the related Prospectus Supplement, collections
of Finance Charge Receivables and certain other amounts allocable to the
Certificateholders' Interest of a Series offered hereby will be used to make
interest payments to Certificateholders of such Series on each Interest Payment
Date with respect thereto, provided that if a Rapid Amortization Period
commences with respect to such Series, thereafter interest will be distributed
to such Certificateholders monthly on each Special Payment Date. If the
Interest Payment Dates for a Series or Class occur less frequently than monthly,
collections or other amounts (or the portion thereof allocable to such Class)
will be deposited in one or more Interest Funding Accounts and used to make
interest payments to Certificateholders of such Series or Class on the following
Interest Payment Date with respect thereto. If a Series has more than one Class
of Receivables Pooling Certificates, each such Class may have a separate
Interest Funding Account.
Principal. The principal of any Receivables Pooling Certificates will be
scheduled to be paid either in full on the related Expected Final Payment Date,
in which case such Series will have an Accumulation Period as described below
under " -- Accumulation Period", or in installments commencing on the related
Principal Commencement Date, in which case such Certificates will have a
Controlled Amortization Period as described below under " -- Controlled
Amortization Period". If such a Series has more than one Class of Certificates,
a different method of paying principal, Expected Final Payment Date and/or
Principal Commencement Date may be assigned to each Class. The principal with
respect to the Certificates of such a Series or Class may be made or commence
earlier than the applicable Expected Final Payment Date or Principal
Commencement Date, as the case may be, and the final principal payment with
respect to the Certificates of such Series or Class may be made earlier or later
than the applicable Expected Final Payment Date or Principal Commencement Date,
if a Pay Out Event occurs with respect to such Series or Class or under certain
other circumstances described herein or in the related Prospectus Supplement.
Revolving Period. In the case of Receivables Pooling Certificates, such
Certificates will have a Revolving Period, which will commence on the date
specified in the related Prospectus Supplement as the Series Cut-Off Date and
continue until the earlier of (a) the commencement of the Rapid Amortization
Period with respect to such Series and (b) the date specified in the related
Prospectus Supplement as the last day of the Revolving Period with respect to
such Series. During the Revolving Period with respect to such Series,
collections of Principal Receivables and certain other amounts otherwise
allocable to the Certificateholders' Interest of such Series will be distributed
to or for the benefit of the Certificateholders of other Series (if so provided
in the related Prospectus Supplement) or the Seller or the Depositor in respect
of the Seller's Interest.
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Accumulation Period. If so specified by the related Prospectus Supplement
in the case of a Series of Receivables Pooling Certificates, and unless a Rapid
Amortization Period commences with respect to such Series, one or more Classes
of Certificates of such Series will have an Accumulation Period. The
Accumulation Period will commence on the close of business on the date specified
or determined in the manner specified in the related Prospectus Supplement and
continue until the earlier of (a) the commencement of a Rapid Amortization
Period with respect to such Series, (b) payment in full of the Invested Amount
of the Certificates of such Series or (c) the occurrence of the Series
Termination Date with respect to such Series.
During the Accumulation Period with respect to a Series of Receivables
Pooling Certificates, collections of Principal Receivables and certain other
amounts allocable to the Certificateholders' Interest of such Series will be
deposited on each Distribution Date in a Principal Funding Account established
for the benefit of the Certificateholders of such Series and used to make
principal distributions to such Certificateholders when due. The amount to be
deposited in the Principal Funding Account on any such Distribution Date may,
but will not necessarily, be limited to the Controlled Deposit Amount equal to
the Controlled Accumulation Amount specified in the related Prospectus
Supplement plus any existing Deficit Controlled Accumulation Amount. If a
Series of Receivables Pooling Certificates has more than one Class, each Class
may have a separate Principal Funding Account and Controlled Accumulation
Amount. In addition, the related Prospectus Supplement may describe certain
priorities among such Classes with respect to deposits of principal into such
Principal Funding Accounts. In general, unless a Pay Out Event shall have
occurred prior thereto, on the Expected Final Payment Date for a particular
Series or Class, all amounts accumulated in the Principal Funding Account with
respect to such Series or Class during the Accumulation Period will be
distributed as a single repayment of principal with respect to such Series or
Class.
Controlled Amortization Period. If the related Prospectus Supplement so
specifies with respect to a Series of Receivables Pooling Certificates, unless a
Rapid Amortization Period commences with respect to such Series, one or more
Classes of Certificates of such Series will have a Controlled Amortization
Period. The Controlled Amortization Period will commence at the close of
business on the date specified or determined in the manner specified in the
related Prospectus Supplement and will continue until the earlier of (a) the
commencement of the Rapid Amortization Period with respect to such Series, (b)
payment in full of the Invested Amount of the Certificates of such Series or (c)
the occurrence of the Series Termination Date with respect to such Series.
During the Controlled Amortization Period with respect to a Series, collections
of Principal Receivables and certain other amounts allocable to the
Certificateholders' Interest of such Series will be used on each Distribution
Date to make principal distributions to Certificateholders of such Series or any
Class of such Series then scheduled to receive such distributions. The amount to
be distributed to Certificateholders of any Series on any Distribution Date may,
but will not necessarily, be limited to a Controlled Distribution Amount which
will be equal to the Controlled Amortization Amount specified in the related
Prospectus Supplement plus any existing Deficit Controlled Amortization Amount.
If a Series of Receivables Pooling Certificates has more than one Class, each
Class may have a separate Controlled Amortization
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Amount. In addition, the related Prospectus Supplement may describe certain
priorities among such Classes with respect to such distributions.
Rapid Amortization Period. During the Rapid Amortization Period,
collections of Principal Receivables and certain other amounts allocable to the
Certificateholders' Interest of such Series will be distributed as principal
payments to the Certificateholders of such Series monthly on each Distribution
Date beginning with the first Special Payment Date with respect to such Series.
During the Rapid Amortization Period with respect to a Series, distributions of
principal to Certificateholders will not be subject to any Controlled Deposit
Amount or Controlled Distribution Amount. In addition, upon the commencement of
the Rapid Amortization Period with respect to a Series, any funds on deposit in
a Principal Funding Account with respect to such Series will be paid to the
Certificateholders of the relevant Class or Series on the first Special Payment
Date with respect to such Series. See "DESCRIPTION OF THE CERTIFICATES -- Pay
Out Events" below for a discussion of the events which might lead to the
commencement of the Rapid Amortization Period with respect to a Series.
Pay Out Events. As described above, the Revolving Period with respect to a
Series of Receivables Pooling Certificates will continue until the commencement
of the Accumulation Period or the Controlled Amortization Period with respect
thereto, which will continue until the Invested Amount of such Series shall have
been paid in full or the Series Termination Date with respect to such Series
occurs, unless a Pay Out Event occurs with respect to such Series prior to any
of such dates. Except as otherwise provided in the related Prospectus
Supplement with respect to such Series, a "Pay Out Event" with respect to such
Series refers to any of the following events and any other events specified as
such in the related Prospectus Supplement:
(a) the occurrence of an "Insolvency Event" (which shall mean the
appointment of the FDIC as receiver of the Seller or another person
specified in related Prospectus Supplement) or certain other events
relating to the bankruptcy, insolvency or receivership of the Seller or
the Depositor (or such other person specified in the related Prospectus
Supplement).
(b) the Trust becomes an investment company within the meaning of the
Investment Company Act.
In the case of any event described above, a Pay Out Event with respect to
the affected Series will be deemed to have occurred without any notice or other
action on the part of the Trustee or the Certificateholders of such Series
immediately upon of the occurrence of such event. The Rapid Amortization Period
with respect to a Series will commence at the close of business on the day
immediately preceding the day on which a Pay Out Event occurs with respect
thereto. Distributions of principal to the Certificateholders of such Series
will begin on the Distribution Date next following the month during which such
Pay Out Event occurs (such Distribution Date and each following Distribution
Date with respect to such Series, a "Special Payment Date"). Any amounts on
deposit in a Principal Funding Account or an Interest Funding Account with
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respect to such Series at such time will be distributed on the first such
Special Payment Date to the Certificateholders of such Series. If a Series has
more than one Class of Certificates, each Class may have different Pay Out
Events which, in the case of any Series of Certificates offered hereby, will be
described in the related Prospectus Supplement.
In addition to the consequences of a Pay Out Event discussed above, if any
Insolvency Event occurs with respect to the Seller, pursuant to the Pooling
Agreement, on the day of such Insolvency Event, the Seller will immediately
cease to transfer Principal Receivables directly or indirectly to the Trust and
promptly give notice to the Trustee of such Insolvency Event. Under the terms
of the Pooling Agreement applicable to such Series, within 15 days the Trustee
will publish a notice of the occurrence of the Insolvency Event stating that the
Trustee intends to sell, dispose of or otherwise liquidate the Receivables in a
commercially reasonable manner and on commercially reasonable terms unless
within 90 days from the date such notice is published the holders of
Certificates of each Series or, if a Series includes more than one Class, each
Class of such Series evidencing more than 50% of the aggregate unpaid principal
amount of each such Series or Class and certain other interested parties
specified in the related Prospectus Supplement instruct the Trustee not to
dispose of or liquidate the Receivables and to continue transferring Principal
Receivables as before such Insolvency Event. The proceeds from any such sale,
disposition or liquidation of the Receivables will be deposited in the
Collection Account and allocated as described in the applicable Pooling
Agreement and the related Prospectus Supplement. If the sum of (a) the portion
of such proceeds allocated to the Certificateholders' Interest of any Series and
(b) the proceeds of any collections of the Receivables in the Collection Account
allocated to the Certificateholders' Interest of such Series, together with any
related rights under any applicable Series Enhancement, is not sufficient to pay
the Invested Amount of the Certificates of such Series in full, such
Certificateholders will incur a loss.
Paired Series. If so specified in the related Prospectus Supplement, a
Series of Receivables Pooling Certificates may be paired with another Series
issued by the related Trust (a "Paired Series") on or prior to the commencement
of the Accumulation Period or Amortization Period for such Series. As the
principal amount of the Series having a Paired Series is reduced, the principal
amount of the Paired Series will increase by an equal amount. Upon payment in
full of the Series having a Paired Series, the principal amount of the Paired
Series will be equal to the principal amount paid to Certificateholders of the
Series having a Paired Series.
Optional Termination; Final Payment of Principal. If specified in the
Prospectus Supplement with respect to any Series of Certificates offered hereby
and subject to any conditions described therein, on any day occurring on or
after the day that the principal amount of the Certificates of a Series and the
Enhancement Invested Amount, if any, with respect to such Series is reduced to a
percentage of the initial outstanding aggregate principal amount of the
Certificates of such Series set forth in such Prospectus Supplement, the Seller
will have the option to repurchase the Certificateholders' Interest of such
Series. The purchase price will be equal to the sum of the principal amount
such Series (less the amount, if any, on deposit in any Principal Funding
Account with respect
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to such Series), plus the Enhancement Invested Amount, if any, with respect to
such Series, plus accrued and unpaid interest on the unpaid principal amount of
the Certificates (including the Collateral Indebtedness Interest, if any) and
(if applicable) on the Enhancement Invested Amount (and accrued and unpaid
interest with respect to interest amounts that were due but not paid on a prior
Payment Date) through (a) if the day on which such repurchase occurs is a
Distribution Date, the day preceding such Distribution Date or (b) if the day on
which such repurchase occurs is not a Distribution Date, the day preceding the
Distribution Date following such day, at the applicable certificate rate.
Following any such repurchase and the deposit of the aggregate purchase price
into the Collection Account, the Certificateholders of such Series will have no
further rights with respect to the Receivables. In the event that the Seller
shall fail for any reason to deposit the aggregate purchase price for the
Certificateholders' Interest of a Series, payments would continue to be made to
the Certificateholders of such Series as described herein and in the related
Prospectus Supplement.
In any event, the last payment of principal and interest on the Securities
of a Series will be due and payable not later than the date (the "Series
Termination Date") specified in the related Prospectus Supplement. In the event
that the principal amount of the Securities of any such Series or the
Enhancement Invested Amount is greater than zero on the Series Termination Date,
the Trustee will sell or cause to be sold interests in the Base Assets of the
related Trust, as specified in the Pooling Agreement, in an amount equal to the
sum of the principal amount of the outstanding Securities and the Enhancement
Invested Amount, if any, with respect to such Series at the close of business on
the Series Termination Date. The net proceeds of such sale will be deposited in
the Collection Account and allocated to the Securityholders of such Series or
the holder of the Enhancement Invested Amount after such Securityholders are
paid in full, as provided in the Pooling Agreement with respect to such Series.
The Depositor may, at its option, purchase a Class of Certificates of any
Series, on any Distribution Date under the circumstances, if any, specified in
the Prospectus Supplement relating to such Series. Alternatively, if so
specified in the related Prospectus Supplement for a Series of Certificates, the
Depositor, the Servicer, or another entity designated in the related Prospectus
Supplement may, at its option, cause an early termination of a Trust by
repurchasing all of the Base Assets from such Trust on or after a date specified
in the related Prospectus Supplement, or on or after such time as the aggregate
outstanding principal amount of the Certificates or Base Assets, as specified in
the related Prospectus Supplement, is less than the amount or percentage
specified in the related Prospectus Supplement. Notice of such purchase or
termination must be given by the Depositor, the Servicer or the Trustee prior to
the related date. The purchase or repurchase price will be set forth in the
related Prospectus Supplement.
In addition, the related Prospectus Supplement may provide other
circumstances under which holders of Certificates of a Series could be fully
paid significantly earlier than would otherwise be the case as a result of the
occurrence of a Rapid Amortization Event.
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CERTAIN INFORMATION REGARDING THE SECURITIES
BOOK-ENTRY REGISTRATION
If so specified in the related Prospectus Supplement, holders of
Securities may hold their Securities through DTC (in the United States) or CEDEL
or Euroclear (in Europe) if they are participants of such systems, or indirectly
through organizations which are participants in such systems.
Cede, as nominee for DTC, will hold one or more global Securities.
Unless and until Definitive Securities are issued under the limited
circumstances described in the related Prospectus Supplement, all references
herein or in such Prospectus Supplement to actions by holders of Securities
shall refer to actions taken by DTC upon instructions from its participating
organizations (the "Participants") and all references herein to distributions,
notices, reports and statements to holders of Securities shall refer to
distributions, notices, reports and statements to DTC or Cede, as the registered
holder of the Securities, as the case may be, for distribution to the beneficial
owners of such Securities in accordance with DTC procedures.
CEDEL and Euroclear will hold omnibus positions on behalf of their
participants through customers' securities accounts in CEDEL's and Euroclear's
names on the books of their respective Depositaries which in turn will hold such
positions in customers' securities accounts in the Depositaries' names on
the books of DTC. Citibank, N.A. will act as depositary for CEDEL and Morgan
Guaranty Trust Company of New York will act as depositary for Euroclear (in such
capacities, the "Depositaries").
Transfers between DTC Participants will occur in the ordinary way in
accordance with DTC rules. Transfers among CEDEL Participants or Euroclear
Participants will occur in the ordinary way in accordance with the applicable
rules and operating procedures of CEDEL and Euroclear.
Cross-market transfers between persons holding directly or indirectly
through DTC on the one hand, and directly or indirectly through CEDEL or
Euroclear, on the other, will be effected in DTC in accordance with DTC rules on
behalf of the relevant European international clearing system by its Depositary;
however, such cross-market transactions will require delivery of instructions to
the relevant European international clearing system by the counterparty in such
system in accordance with its rules and procedures and within its established
deadlines (European time). The relevant European international clearing system
will, if the transaction meets its settlement requirements, deliver instructions
to its Depositary to take action to effect final settlement on its behalf by
delivering or receiving securities in DTC, and making or receiving payment in
accordance with normal procedures for same-day funds settlement applicable to
DTC. CEDEL Participants and Euroclear Participants may not deliver instructions
directly to the Depositaries.
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Because of time-zone differences, credits of securities received in
CEDEL or Euroclear as a result of a transaction with a DTC Participant will be
made during subsequent securities settlement processing and dated the business
day following the DTC settlement date. Such credits or any transactions in such
securities settled during such processing will be reported to the relevant
Euroclear Participant or CEDEL 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. For additional information regarding clearance and settlement
procedures for the Securities, see Annex I hereto and for information with
respect to tax documentation procedures relating to the Securities, see Annex I
hereto and "CERTAIN FEDERAL INCOME TAX CONSEQUENCES -- Foreign Investors" .
DTC is a limited-purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York UCC, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
was created to hold securities for its Participants and 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, banks, trust companies and clearing
corporations and may include certain other organizations (including the
Underwriters). 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").
Holders of Securities that are not Participants or Indirect
Participants but desire to purchase, sell or otherwise transfer ownership of, or
other interests in, Securities may do so only through Participants and Indirect
Participants. In addition, holders of Securities will receive all distributions
of principal of and interest on the Securities from the Trustee (or the
Indenture Trustee), as paying agent, or its successor in such capacity (the
"Paying Agent"), through the Participants who in turn will receive them from
DTC. Under a book-entry format, holders of Securities may experience some delay
in their receipt of payments, since such payments will be forwarded by the
Paying Agent to Cede, as nominee for DTC. DTC will forward such payments to its
Participants which thereafter will forward them to Indirect Participants or
holders of Securities. It is anticipated that the only "Certificateholder",
"Noteholder" and/or "Securityholder" for a Series will be Cede, as nominee of
DTC. Holders of Securities would not then be recognized by the Trustee as
"Certificateholders", "Noteholders" or "Securityholders", as such terms are used
in the Agreement, and holders of Securities would only be permitted to exercise
the rights of a "Certificateholder", "Noteholder" or "Securityholder" indirectly
through the Participant who in turn will exercise such rights 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
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respect to the Securities and is required to receive and transmit distributions
of principal of and interest on the Securities. Participants and Indirect
Participants with which holders of Securities have accounts with respect to the
Securities similarly are required to make book-entry transfers and receive and
transmit such payments on behalf of their respective holders of Securities.
Accordingly, although holders of Securities will not possess Securities, holders
of Securities will receive payments and will be able to transfer their
interests.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants, the ability of a holder of Securities to pledge
Securities to persons or entities that do not participate in the DTC system, or
otherwise take actions in respect of such Securities, may be limited due to the
lack of a physical certificate or instrument for such Securities.
DTC will take any action permitted to be taken by a
"Certificateholder", "Noteholder" or "Securityholder" under the applicable
Agreement or Indenture only at the direction of one or more Participants to
whose account with DTC the relevant Securities are credited. Additionally, DTC
will take such actions with respect to specified percentages of the
Certificateholders', Noteholders' or Securityholders' interests 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.
Centrale de Livraison de Valeurs Mobilieres S.A. ("CEDEL") is
incorporated under the laws of Luxembourg as a professional depositary. CEDEL
holds securities for its participating organizations ("CEDEL Participants") and
facilitates the clearance and settlement of securities transactions between
CEDEL Participants through electronic book-entry changes in accounts of CEDEL
Participants, thereby eliminating the need for physical movement of
certificates. Transactions may be settled in CEDEL, in any of 28 currencies
including United States dollars. CEDEL provides to the CEDEL Participants, among
other things, services for safekeeping, administration, clearance and settlement
of internationally traded securities and securities lending and borrowing.
CEDEL interfaces with domestic markets in several countries. As a professional
depositary, 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. 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 ("Euroclear") was created in 1968 to hold
securities for its participants ("Euroclear Participants") and to clear and
settle transactions between Euroclear Participants through simultaneous
electronic book-entry delivery against payment, thereby eliminating both the
need for physical movement of certificates and the risk resulting from transfers
of securities and cash that are not simultaneous.
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The Euroclear System has subsequently been extended to clear and
settle transactions between Euroclear Participants counterparties both in CEDEL
and in many domestic securities markets. Transactions may be settled in any of
32 settlement currencies, including United States dollars. In addition to
safekeeping (custody) and securities clearance and settlement, the Euroclear
System includes securities lending and borrowing and money transfer services.
The Euroclear System is operated by the Brussels, Belgium office of Morgan
Guaranty Trust Company of New York (the "Euroclear Operator"), under contract
with Euroclear Clearance System S.C., a Belgian cooperative corporation that
establishes policy on behalf of Euroclear Participants. 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.
All operations are conducted by the Euroclear Operator and all
Euroclear securities clearance accounts and cash accounts are accounts with the
Euroclear Operator. They 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 all transfers of securities and cash, both within the
Euroclear System and receipts and withdrawals of securities and cash. All
securities in the Euroclear System are held on a fungible basis without
attribution of specific certificates to specific securities clearance accounts.
Euroclear Participants include banks (including central banks),
securities brokers and dealers and other professional financial intermediaries
and may include the Underwriters. Indirect access to the Euroclear System is
also available to other firms that clear through or maintain a custodial
relationship with a Euroclear Participant, either directly or indirectly. The
Euroclear Operator acts under the Terms and Conditions only on behalf of
Euroclear Participants, and has no record of or relationship with persons
holding through Euroclear Participants.
Distributions with respect to Securities 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 FEDERAL INCOME TAX CONSEQUENCES". CEDEL or the
Euroclear Operator, as the case may be, will take any other action permitted to
be taken by a Certificateholder, Noteholder or Securityholder under the
applicable Agreement or Indenture 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 Securities among participants of
DTC, CEDEL and Euroclear, they are
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under no obligation to perform or continue to perform such procedures and such
procedures may be discontinued at any time.
Definitive Securities
The Securities of any Series will be issued as Definitive Securities,
rather than to DTC or its nominee, only if (i) the Depositor advises the Trustee
(and any Indenture Trustee) in writing that DTC is no longer willing or able to
discharge properly its responsibilities as depository with respect to the
Securities, and the Trustee (or the Indenture Trustee) or the Depositor are
unable to locate a qualified successor, (ii) the Depositor, at its option,
elects to terminate the book-entry system through DTC or (iii) after the
occurrence of a Servicer Default, holders of Securities of the related Series
evidencing not less than 50% of the aggregate unpaid principal amount of such
Securities 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 holders of such Securities.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, DTC is required to notify all Participants of the
availability through DTC of Definitive Securities. Upon surrender by DTC of the
physical certificates or notes held by Cede that represent the Securities, and
instructions for registration, the Trustee (or the Indenture Trustee) will issue
such Securities in the form of Definitive Securities, and thereafter the Trustee
(or the Indenture Trustee) will recognize the holders of such Definitive
Securities as holders of Securities, under the applicable Agreement or Indenture
and the related Prospectus Supplement ("Holders").
If Definitive Securities are issued, distribution of principal and
interest on the Definitive Securities will be made by the Paying Agent or the
Trustee (or the Indenture Trustee) directly to the Holders in whose names the
Definitive Securities were registered on the related Record Date in accordance
with the procedures set forth herein and in the related Agreement, Indenture and
Prospectus Supplement. Distributions will be made by check mailed to the
address of each Holder as it appears on the register maintained by the Trustee
(or the Indenture Trustee), except that the final payment on any Definitive
Security will be made only upon presentation and surrender of such Definitive
Security on the date for such final payment at such office or agency as is
specified in the notice of final distribution to Holders. The Trustee (or the
Indenture Trustee) will provide such notice to Holders not later than the date
specified in the related Prospectus Supplement.
Definitive Securities will be transferable and exchangeable at the
offices of the Transfer agent specified pursuant to the applicable Agreement or
Indenture (the "Transfer Agent") and the 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.
DESCRIPTION OF THE TRUST OR POOLING AGREEMENT
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The following summaries describe certain provisions in the Trust
Agreements and Pooling Agreements which are anticipated to be common to any
Series of Securities. The summaries do not purport to be complete and are
subject to, and are qualified in their entirety by reference to, the provisions
of the related Agreement. Where particular provisions or terms used in an
Agreement are referred to herein, the actual provisions (including definitions
of terms) are incorporated herein by reference as part of such summaries.
ASSIGNMENT OF BASE ASSETS TO THE TRUST
Assignment of Receivables; Pre-Funding Account. For any Series of
Receivables Pooling Certificates, pursuant to the related Agreement, the Seller
will sell and assign to the related Trust on the Closing Date specified in the
related Prospectus Supplement (the "Closing Date"), either directly or by
assignment to the Depositor and reassignment by the Depositor to the Trust,
without recourse to the Seller (or the Depositor), all Receivables in the
Initial Accounts outstanding as of the Series Cut-Off Date, and will similarly
sell and assign to the Trust all Receivables in the Additional Accounts as of
the applicable additional cut-off dates and all Receivables thereafter created
under the Initial Accounts or the Additional Accounts (other than the Removed
Accounts) any Participations added to the Trust and the proceeds of all of the
foregoing. To the extent specified in the related Prospectus Supplement, a
portion of the proceeds from the sale of the Securities of a Series may be
applied by the Depositor to the deposit of a Pre-Funded Amount into a Pre-
Funding Account. Where a Pre-Funding Account is provided for, the related
Prospectus Supplement will specify the terms, conditions and manner under which
additional Receivables will be purchased by the Trust from time to time during
the Funding Period provided for therein.
In connection with any transfer of any such Receivables, the Seller
will annotate and indicate in its computer files that such Receivables have been
conveyed to the Trust. In addition, the Seller will provide to the Trustee a
computer file or a microfiche list containing a true and complete list showing
each Account, the Receivables of which have been designated for inclusion in the
Trust, identified by account number, collection status, the amount of
Receivables outstanding and the amount of Principal Receivables as of the
initial Series Cut-Off Date, or additional Cut-Off Date. The Seller will not
deliver to the Trustee any other records or agreements relating to such Accounts
or the Receivables. The records and agreements relating to such Accounts and
the Receivables maintained by the Seller or the Servicer will not be segregated
by the Seller or the Servicer from other documents and agreements relating to
other accounts and receivables and will not be stamped or marked to reflect the
transfer of the Receivables to the Trust. Each Seller will file the UCC
financing statements meeting the requirements of applicable state law with
respect to the Receivables. See "RISK FACTORS -- Certain Legal Aspects --
Transfer of Receivables" and "RISK FACTORS-- Certain Legal Aspects -- Risk of
Commingling" and "CERTAIN LEGAL ASPECTS OF THE RECEIVABLES".
Assignment of CRB Securities; Pre-Funding Account. For Series for
which the Base Assets include CRB Securities, unless otherwise provided in the
related Prospectus Supplement, all or
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a portion of the net proceeds received from the sale of the Securities of such
Series will be applied to the purchase of the related CRB Securities from the
Depositor or other Seller on the Closing Date and, to the extent specified in
the related Prospectus Supplement, to the deposit of a Pre- Funded Amount into a
Pre-Funding Account. Where a Pre-Funding Account is provided for, the related
Prospectus Supplement will specify the terms, conditions and manner under which
additional CRB Securities will be purchased by the Trust from time to time
during the Funding Period provided for therein. The Trustee will cause any CRB
Securities purchased by the Trust to be registered in the name of the Trustee
(or its nominee or correspondent) or, where applicable, the Indenture Trustee,
and the Trustee (or its agent or correspondent) or such Indenture Trustee will
have possession of any certificated CRB Securities. Unless otherwise specified
in the related Prospectus Supplement, the Trustee will not be in possession of
or be assignee of record of any underlying assets for a CRB Security. See "THE
TRUST ASSETS --CRB Securities".
Each CRB Security to be transferred to the Trust will be identified in
a schedule appearing as an exhibit to the related Agreement (the "CRB
Schedule"), which will specify the original principal amount, outstanding
principal balance as of the Cut-off Date (or subsequent cut-off date), annual
pass-through rate or interest rate and maturity date for each such CRB Security.
In the Agreement, to the extent that any CRB Securities are purchased from the
Depositor, the Depositor will represent and warrant to the Trustee regarding the
CRB Securities: (i) that the information contained in the CRB Schedule is true
and correct in all material respects; (ii) that, immediately prior to the
conveyance of the CRB Securities, the Depositor had good title thereto, and was
the sole owner thereof; (iii) that there has been no other sale by it of such
CRB Securities; and (iv) that there is no existing lien, charge, security
interest or other encumbrance on such CRB Securities.
Repurchase and Substitution of Non-Conforming Base Assets
In general, the Depositor and/or the Seller or another entity will
make certain representations and warranties to the Trust regarding the Base
Assets to be purchased by the Trust. To the extent described in the related
Prospectus Supplement, the Agreement will provide that if the Depositor, the
Seller or such other entity cannot cure a breach of any such representations and
warranties in all material respects within the time period specified in such
Prospectus Supplement after notification by the Trustee of such breach, and if
such breach is of a nature that materially and adversely affects the value of
such Base Asset the Depositor, the Seller or such other entity will be required
to repurchase the affected Base Assets on the terms and conditions and in the
manner described in such Prospectus Supplement. If provided in the related
Prospectus Supplement, the Depositor, the Seller or such other entity may,
rather than repurchase a Base Asset as described above, remove such Base Asset
from the Trust (the "Removed Base Asset") and substitute in its place one or
more other Base Assets meeting the qualifications described in such Prospectus
Supplement (each, a "Qualifying Substitute Base Asset"). Unless otherwise
provided in the related Prospectus Supplement, the above-described cure,
repurchase or substitution obligations constitute the sole remedies available to
holders of Securities or the Trustee (or Indenture Trustee) for a breach of a
representation or warranty in respect of a Base Asset. Where Base Assets are
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purchased by a Depositor from a Seller and reconveyed to the Trustee, unless
otherwise specified in the related Prospectus Supplement, the Depositor's only
source of funds to effect any cure, repurchase or substitution will be through
the enforcement of the corresponding obligations of such Seller to the
Depositor.
TRUST ACCOUNTS
With respect to any Series of Securities that includes Notes, the
Servicer will establish and maintain with the related Indenture Trustee (a) one
or more accounts, in the name of the Indenture Trustee on behalf of the related
Securityholders, into which all payments made on or in respect of the related
Base Assets will be deposited (the "Collection Account") and (b) one or more
accounts, in the name of the Indenture Trustee on behalf of the Noteholders,
into which amounts released from the Collection Account and any Reserve Account
or other form of Series Enhancement for payment to such Noteholders will be
deposited and from which all payments to such Noteholders will be made (the
"Note Payment Account"). With respect to each Trust, the Servicer will
establish and maintain one or more accounts with the related Trustee, in the
name of such Trustee on behalf of the Certificateholders, into which amounts
released from the Collection Account and any Reserve Account or other form of
Series Enhancement for distribution to such Certificateholders will be deposited
and from which all distributions to such Certificateholders will be made (the
"Certificate Payment Account"). With respect to any Series that does not
include Notes, the Servicer will also establish and maintain the Collection
Account and any other account in the name of the related Trustee on behalf of
the related Certificateholders.
For each Series of Securities, funds in the Collection Account, Note
Payment Account and Certificate Payment Account and any Reserve Account or other
accounts identified as such in the related Prospectus Supplement (collectively,
the "Trust Accounts") will be invested as provided in the related Agreement or
Indenture in Eligible Investments. "Eligible Investments" will generally be
limited to investments acceptable to the Rating Agencies as being consistent
with the rating of the related Securities. Except as described hereafter or in
the related Prospectus Supplement, Eligible Investments will be limited to
obligations or securities that mature on or before the date of the next
scheduled distribution to Securityholders of such Series. However, to the
extent permitted by the Rating Agencies, funds in any Reserve Account may be
invested in securities that will not mature prior to the date of such next
scheduled distribution with respect to such Notes or Certificates and will not
be sold prior to maturity to meet any shortfalls. Thus, the amount of available
funds on deposit in a Reserve Account at any time may be less than the balance
of such Reserve Account. If the amount required to be withdrawn from a Reserve
Account to cover shortfalls in collections on the related Receivables (as
provided in the related Prospectus Supplement) exceeds the amount of available
funds on deposit in such Reserve Account, a temporary shortfall in the amounts
distributed to the related Noteholders or Certificateholders could result, which
could, in turn, increase the average life of the related Notes or Certificates.
Except as otherwise specified in the related Prospectus Supplement, investment
earnings on funds deposited in the Trust Accounts, net of losses and investment
expenses
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(collectively, "Investment Earnings"), will be treated as collections of
interest on the related Receivables.
The Trust Accounts will be maintained as Eligible Deposit Accounts.
"Eligible Deposit Account" means either (a) a segregated account with an
Eligible Institution or (b) a segregated trust account with the corporate trust
department of a depository institution organized under the laws of the United
States of America or any one of the states thereof or the District of Columbia
(or any domestic branch of a foreign bank), having corporate trust powers and
acting as trustee for funds deposited in such account, so long as any of the
securities of such depository institution have a credit rating from each Rating
Agency in one of its generic rating categories that signifies investment grade.
"Eligible Institution" means, with respect to a Trust, (a) the corporate trust
department of the related Indenture Trustee or Trustee, as applicable, or (b) a
depository institution organized under the laws of the United States of America
or any one of the states thereof or the District of Columbia (or any domestic
branch of a foreign bank) (i) that has either (A) a long-term unsecured debt
rating acceptable to the Rating Agencies or (B) a short-term unsecured debt
rating or certificate of deposit rating acceptable to the Rating Agencies and
(ii) whose deposits are insured by the FDIC.
REPORTS TO CERTIFICATEHOLDERS
The Trustee will prepare and forward to each Certificateholder on each
Distribution Date, or as soon thereafter as is practicable, a statement setting
forth, to the extent applicable to any Series, the information specified in the
related Prospectus Supplement for such Series. In addition, within a reasonable
period of time after the end of each calendar year the Trustee, unless otherwise
specified in the related Prospectus Supplement, will furnish to each holder of
record at any time during such calendar year a statement setting forth the
information specified in such Prospectus Supplement, which will include
information intended to enable holders of Certificates to prepare their tax
returns. Information in the Distribution Date reports and the annual reports
provided to the holders will not have been examined and reported upon by an
independent public accountant. However, any Servicer will provide to the
Trustee an annual report by independent public accountants with respect to the
Servicer's servicing of the Receivables. See "SERVICING OF RECEIVABLES --
Evidence as to Compliance".
SERVICER DEFAULTS
Unless otherwise specified in the related Prospectus Supplement,
"Servicer Defaults" under the Agreement for a Series will include (i) any
failure by the Servicer to deposit amounts in the Collection Account and any
Payment Account to enable the Trustee to distribute to Securityholders of such
Series any required payment, which failure continues unremedied for five days
after the giving of written notice of such failure to the Servicer by the
Trustee for such Series, or to the Servicer and the Trustee by the holders of
the required percentage of any Class of Securities of such Series specified in
the related Prospectus Supplement, (ii) any failure by the Servicer duly to
observe or perform in any material respect any other of its covenants or
agreements in the
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Agreement which continues unremedied for 30 days after the giving of written
notice of such failure to the Servicer by the Trustee, or to the Servicer and
the Trustee by the holders of the required percentage of any Class of Securities
of such Series and (iii) certain events of insolvency, readjustment of debt,
marshalling of assets and liabilities or similar proceedings and certain actions
by the Servicer indicating its insolvency, reorganization or inability to pay
its obligations.
RIGHTS UPON SERVICER DEFAULTS
So long as a Servicer Default remains unremedied under the Agreement
for a Series (and subject to any right of any Indenture Trustee), the Trustee
for such Series or holders of the required percentage of any Class of Securities
specified in the related Prospectus Supplement may terminate all of the rights
and obligations of the Servicer as servicer under the Agreement in and to the
Receivables, whereupon the Trustee will succeed to all the responsibilities,
duties and liabilities of the Servicer under the Agreement and will be entitled
to reasonable servicing compensation not to exceed the applicable Servicing Fee,
together with other servicing compensation in the form of assumption fees, late
payment charges or as otherwise provided in the Agreement.
In the event that the Trustee is unwilling or unable so to act, it may
select, or petition a court of competent jurisdiction to appoint, a financial
institution, bank or loan servicing institution with a net worth of at least
$15,000,000 to act as successor Servicer under the provisions of such Agreement
relating to the servicing of the Receivables. The successor Servicer would be
entitled to reasonable servicing compensation in an amount not to exceed the
Servicing Fee as set forth in the related Prospectus Supplement, together with
the other servicing compensation in the form of assumption fees, late payment
charges or otherwise, as provided in the Agreement.
During the continuance of any Servicer Default under the Agreement for
a Series, the Trustee for such Series will have the right to take action to
enforce its rights and remedies and to protect and enforce the rights and
remedies of the Securityholders of such Series, and holders of the required
percentages of the Securities specified in the related Prospectus Supplement may
direct the time, method and place of conducting any proceeding for any remedy
available to the Trustee or exercising any trust or power conferred upon the
Trustee. However, the Trustee will not be under any obligation to pursue any
such remedy or to exercise any of such trusts or powers unless such
Securityholders have offered the Trustee reasonable security or indemnity
against the costs, expenses and liabilities which may be incurred by the Trustee
therein or thereby. Also, the Trustee may decline to follow any such direction
if the Trustee determines that the action or proceeding so directed may not
lawfully be taken or would involve it in personal liability or be unjustly
prejudicial to the nonassenting Securityholders.
No Securityholder of a Series, solely by virtue of such holder's
status as a Securityholder, will have any right under the Agreement for such
Series to institute any proceeding with respect to the Agreement, unless such
holder previously has given to the Trustee for such Series written notice of
default and unless the holders of the required percentages of the outstanding
Securities
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specified in the related Prospectus Supplement have made written request upon
the Trustee to institute such proceeding in its own name as Trustee thereunder
and have offered to the Trustee reasonable indemnity, and the Trustee for 60
days has neglected or refused to institute any such proceeding.
THE TRUSTEE
The identity of the commercial bank, savings and loan association or
trust company named as the Trustee for each Series of Certificates will be set
forth in the related Prospectus Supplement. The entity serving as Trustee may
have normal banking relationships with the Depositor, the Seller or the
Servicer. In addition, for the purpose of meeting the legal requirements of
certain local jurisdictions, the Trustee will have the power to appoint co-
trustees or separate trustees of all or any part of the Trust relating to a
Series of Securities. In the event of such appointment, all rights, powers,
duties and obligations conferred or imposed upon the Trustee by the Agreement
relating to such Series will be conferred or imposed upon the Trustee and each
such separate trustee or co-trustee jointly, or in any jurisdiction in which the
Trustee shall be incompetent or unqualified to perform certain acts, singly upon
such separate trustee or co-trustee who shall exercise and perform such rights,
powers, duties and obligations solely at the direction of the Trustee. The
Trustee may also appoint agents to perform any of the responsibilities of the
Trustee, which agents shall have any or all of the rights, powers, duties and
obligations of the Trustee conferred on them by such appointment; provided that
the Trustee shall continue to be responsible for its duties and obligations
under the Agreement.
DUTIES OF THE TRUSTEE
The Trustee will make no representations as to the validity or
sufficiency of the Agreement, the Securities or of any Base Asset, Series
Enhancement or related documents. If no Servicer Default (as defined in the
related Agreement) has occurred, the Trustee is required to perform only those
duties specifically required of it under the Agreement. Upon receipt of the
various certificates, statements, reports or other instruments required to be
furnished to it, the Trustee is required to examine them to determine whether
they are in the form required by the related Agreement; however, the Trustee
will not be responsible for the accuracy or content of any such documents
furnished by it or the Securityholders to the Servicer under the Agreement.
The Trustee may be held liable for its own negligent action or failure
to act, or for its own misconduct; provided, however, that the Trustee will not
be personally liable with respect to any action taken, suffered or omitted to be
taken by it in good faith in accordance with the direction of the
Securityholders upon a Servicer Default. See "-- Rights Upon Servicer Defaults"
above. The Trustee is not required to expend or risk its own funds or otherwise
incur any financial liability in the performance of any of its duties under an
Agreement, or in the exercise of any of its rights or powers, if it has
reasonable grounds for believing that repayment of such funds or adequate
indemnity against such risk or liability is not reasonably assured to it.
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REPLACEMENT OF THE TRUSTEE
The Trustee may, upon written notice to the Depositor, resign at any
time, in which event the Depositor will be obligated to use its best efforts to
appoint a successor Trustee. If no successor Trustee has been appointed and has
accepted the appointment within 30 days after giving such notice of resignation,
the resigning Trustee may petition any court of competent jurisdiction for
appointment of a successor Trustee. The Trustee may also be removed at any time
(i) by the Depositor, if the Trustee ceases to be eligible to continue as such
under the related Agreement, (ii) if the Trustee becomes insolvent or (iii) by
the holders of the required percentages of the outstanding Securities specified
in the related Prospectus Supplement upon 30 days' advance written notice to the
Trustee and to the Depositor. Any resignation or removal of the Trustee and
appointment of a successor Trustee will not become effective until acceptance of
the appointment by the successor Trustee.
AMENDMENT OF THE AGREEMENT
Unless otherwise specified in the related Prospectus Supplement, the
Agreement for each Series of Securities may be amended by the Depositor and the
related Trustee, and where applicable the Seller and the Servicer, without
notice to or consent of the Securityholders (i) to cure any ambiguity, (ii) to
correct any defective provisions or to correct or supplement any provision
therein which may be inconsistent with any other provision therein, (iii) to add
to the duties of the Depositor, Seller or Servicer, (iv) to add any other
provisions with respect to matters or questions arising under such Agreement or
related Series Enhancement, (v) to add or amend any provisions of such
Agreement as required by a Rating Agency in order to maintain or improve the
rating of any Class of the Securities, or (vi) to comply with any requirements
imposed by the Code; provided that any such amendment pursuant to clause (iv)
above will not adversely affect in any material respect the interests of any
Securityholders of such Series, as evidenced by an opinion of counsel. Any such
amendment except pursuant to clause (vi) of the preceding sentence shall be
deemed not to adversely affect in any material respect the interests of any
Securityholder if the Trustee receives written confirmation from each Rating
Agency rating such Securities that such amendment will not cause such Rating
Agency to reduce the then current rating thereof. The Agreement for each Series
may also be amended by the Depositor and the Trustee, and where applicable the
Seller and the Servicer, with the consent of the holders of the required
percentages of the outstanding Securities of each Series affected thereby
specified in the related Prospectus Supplement, for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
such Agreement or modifying in any manner the rights of Securityholders of such
Series; provided, however, that no such amendment may (a) reduce the amount or
delay the timing of payments on any Security without the consent of the holder
of such Security; or (b) reduce the aforesaid percentage of aggregate
outstanding principal amount of Securities of each Class, the holders of which
are required to consent to any such amendment without the consent of the holders
of 100% of the aggregate outstanding principal amount of each Class of
Securities affected thereby.
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LIST OF CERTIFICATEHOLDERS
Upon written request of three or more Certificateholders of record of
a Series for purposes of communicating with other Certificateholders with
respect to their rights under the Agreement or under the Certificates for such
Series, which request is accompanied by a copy of the communication which such
Certificateholders propose to transmit, the Trustee will afford such
Certificateholders access during business hours to the most recent list of
Certificateholders of that Series held by the Trustee.
No Agreement will provide for the holding of any annual or other
meeting of Certificateholders.
Termination
The obligations created by the Agreement for a Series will terminate
upon the distribution to Certificateholders of all amounts distributable to them
pursuant to such Agreement after the earlier of (i) the final payment or other
liquidation of the last Base Asset remaining in the Trust for such Series or
(ii) the repurchase, as described below, by the Servicer from the Trustee for
such Series of all Base Assets and other property at that time subject to the
Agreement. The Agreement for each Series will permit, but will not require, the
Servicer, the Seller and/or the Depositor to repurchase from the Trust for such
Series all remaining Base Assets at a price equal to 100% of the aggregate
principal amount of such Base Assets plus, with respect to any property acquired
in respect of a Base Asset, if any, the outstanding principal amount of the
related Base Asset, and unreimbursed expenses (that are reimbursable pursuant to
the terms of the Agreement), plus accrued interest thereon at the weighted
average rate on the related Base Assets through the last day of the Monthly
Period in which such repurchase occurs. The exercise of such right will effect
early retirement of the Certificates of such Series, but the Servicer's right to
so purchase is subject to the aggregate Principal Balance of the Base Assets at
the time of repurchase being less than a fixed percentage, to be set forth in
the related Prospectus Supplement, of the Cut-off Date aggregate Principal
Balance. In no event, however, will the trust created by the Agreement continue
beyond the expiration of 21 years from the death of the last survivor of certain
persons identified therein. For each Series, the Servicer or the Trustee, as
applicable, will give written notice of termination of the Agreement to each
Certificateholder, and the final distribution will be made only upon surrender
and cancellation of the Certificates at an office or agency specified in the
notice of termination. If so provided in the related Prospectus Supplement for
a Series, the Depositor or another entity may effect an optional termination of
the Trust under the circumstances described in such related Prospectus
Supplement. See "DESCRIPTION OF THE CERTIFICATES--Optional Termination; Final
Payment of Principal".
Payment in Full of the Notes
Upon the payment in full of all outstanding Notes of a given Series
and the satisfaction and discharge of the related Indenture, the related Trustee
will succeed to all the rights of the
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Indenture Trustee, and the Certificateholders of such Series will succeed to all
the rights of the Noteholders of such Series under the related Trust Agreement
or Pooling Agreement, except as otherwise provided therein.
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES
The following discussion contains summaries of certain legal aspects
of credit, charge and debit card receivables which are general in nature.
Because certain of such legal aspects are governed by applicable state law
(which laws may differ substantially), the summaries do not purport to be
complete nor to reflect the laws of any particular state, nor to encompass the
laws of all states in which Receivables originate. The summaries are qualified
in their entirety by reference to the applicable federal and state laws
governing the Receivables.
TRANSFER OF RECEIVABLES
With respect to each transfer of Receivables to a Trust, the Seller
and/or the Depositor will warrant in the applicable Agreement that such transfer
constitutes either a valid transfer and assignment to the Trust of all right,
title and interest of the Seller (and the Depositor) in and to the Receivables
free and clear from liens arising from or through the Seller (or the Depositor),
except, to the extent specified in the related Prospectus Supplement, for
certain potential tax liens, any interest of the Seller or the Depositor as
holder of the Seller's Interest and the Servicer's right to receive interest and
investment earnings (net of losses and investment expenses) in respect of the
Collection Account, or a valid grant to the Trust of a security interest in the
Receivables. The Seller and/or the Depositor will also warrant in the Agreement
that, in the event the transfer of the Receivables to the Trust is deemed to
create a security interest under the Uniform Commercial Code (the "UCC") as in
effect in the state in which its principal office is located, there will exist a
valid, subsisting and enforceable first priority perfected security interest in
the Receivables in favor of the Trust and a valid, subsisting and enforceable
first priority perfected security interest in the Receivables created thereafter
in the relevant Accounts in favor of the Trust on and after their creation
except for certain liens as described in the Agreement.
The Receivables are generally considered to be "accounts" for purposes
of the UCC. Both the transfer of accounts and the transfer of accounts as
security for an obligation are treated under Article 9 of the UCC as creating a
security interest therein and are subject to its provisions, and the filing of
appropriate financing statements is required to perfect the security interest of
the Trust. Financing statements covering the Receivables will be filed with the
appropriate governmental authority to protect the interest of the Depositor in
the Trust.
There are certain limited circumstances under the UCC in which a prior
or subsequent transferee of Receivables coming into existence after the date on
which such Receivables are transferred to the Trust could have an interest in
such Receivables with priority over the Trust's
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interest. Under the Agreement, however, the Seller and/or the Depositor will
warrant that the Receivables have been transferred to the Trust free and clear
of the lien of any third party, except for certain tax and other governmental
liens. In addition, the Seller and the Depositor will each covenant that, except
as permitted by the Agreement, it will not sell, pledge, assign, transfer or
grant any lien on any Receivable (or any interest therein) other than to the
Trust. A tax or other government lien on property of the Seller or the Depositor
arising prior to the time a Receivable comes into existence may also have
priority over the interest of the Trust in such Receivable. In addition, if a
Seller is a Bank, if the FDIC were appointed as receiver of the Bank, certain
administrative expenses of the receiver may also have priority over the interest
of the Trust in such Receivables.
A case recently decided by the United States Court of Appeals for the
Tenth Circuit contains language to the effect that accounts sold by an entity
which subsequently became bankrupt remained property of the debtor's bankruptcy
estate. If a Seller were to become a debtor under the federal bankruptcy code
and a court were to follow the reasoning of the Tenth Circuit, Securityholders
could experience a delay or reduction in distributions.
Certain Matters Relating to Receivership
It is likely that many of the Sellers of Receivables to a Trust
hereunder will be banking institutions. FIRREA, which became effective August
9, 1989, sets forth certain powers that the FDIC could exercise if it were
appointed as receiver of a Seller which is a national bank.
Subject to clarification by FDIC regulations or interpretations, it
would appear from the positions taken by the FDIC before the passage of FIRREA
that the FDIC in its capacity as receiver for a Seller would not interfere with
the timely transfer to the Trust of payments collected on the Receivables or
interfere with the timely liquidation of Receivables as described below. To the
extent that a Seller granted a security interest in the Receivables to the
related Trust (or granted such a security interest to the Depositor which was
then assigned the related Trust), and that interest was validly perfected before
the Seller's insolvency and was not taken or granted in contemplation of
insolvency or with the intent to hinder, delay or defraud the Seller or its
creditors, that security interest should not be subject to avoidance, and
payments to the Trust with respect to the Receivables should not be subject to
recovery by the FDIC as receiver of the Seller. If, however, the FDIC were to
assert a contrary position, or were to require the related Trustee to establish
its right to those payments by submitting to and completing the administrative
claims procedure established under FIRREA, delays in payments on the Securities
of any Series relating to such Seller outstanding at such time and possible
reductions in the amount of those payments could occur.
Each Agreement as to which a banking institution is the Seller will
provide that, upon the appointment of a receiver for the Seller, the Seller will
promptly give notice thereof to the Trustee, and a Pay Out Event will occur.
Under the Agreement, no new Principal Receivables will be transferred to the
Trust and, unless otherwise instructed within a specified period by the
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holders of the required percentages of outstanding Securities specified in the
related Prospectus Supplement or unless otherwise prohibited by law, the Trustee
will proceed to sell, dispose of or otherwise liquidate the Receivables in a
commercially reasonable manner and on commercially reasonable terms. The
proceeds from the sale of the Receivables would then be treated by the Trustee
as collections on the Receivables. This procedure could by delayed as described
above. The net proceeds of any such sale will first be treated by the Trustee as
collections on the Finance Charge Receivables, if any. Upon the occurrence of a
Pay Out Event, if a conservator or receiver is appointed for the Seller or the
Depositor and no Pay Out Event other than such conservatorship or receivership
or insolvency of the Seller or the Depositor exists, the conservator or receiver
may have the power to prevent the early sale, liquidation or disposition of the
Receivables and the commencement of a Rapid Amortization Period with respect to
any outstanding Series. In addition, a conservator or receiver for the Seller or
the Depositor may have the power to cause early payment of the Certificates.
If a Seller that is a banking institution is servicing its Receivables
and a conservator or receiver is appointed for the Servicer, and no Servicer
Default other than such conservatorship or receivership or insolvency of the
Servicer exist, the conservator or receiver may have the power to prevent either
the Trustee or the Certificateholders from effecting a transfer of servicing to
a successor Servicer.
CONSUMER PROTECTION LAWS
The relationship of cardholder and card issuer is extensively
regulated by Federal and state consumer protection laws. The most significant
of these laws include the Federal Truth-in- Lending Act, Equal Credit
Opportunity Act, Fair Credit Reporting Act, Electronic Funds Transfer Act and,
to the extent that the Seller is a bank, the National Bank Act (if such Seller
is a national banking association), as well as the banking statutes of the state
in which the bank is located, and comparable statutes in the states in which
cardholders reside. These statutes impose disclosure requirements when an
account is advertised, when it is opened, at the end of monthly billing cycles,
upon account renewal for accounts on which annual fees are assessed, and at year
end and, in addition, limit cardholder liability for unauthorized use, prohibit
certain discriminatory practices in extending credit, and impose certain
limitations on the type of account-related charges that may be assessed. Newly
adopted Federal legislation requires card issuers to disclose to consumers the
interest rates, annual cardholder fees, grace periods, and balance calculation
methods associated with their accounts. Cardholders are entitled under current
law to have payments and credits applied to the account promptly, to receive
prescribed notices and to have billing errors resolved promptly.
Various proposed laws and amendments to existing laws have been
introduced in Congress and certain state and local legislatures that, if
enacted, would further regulate the credit card industry. Certain such laws
would, among other things, impose a ceiling on the rate at which a financial
institution may assess finance charges on credit card accounts that would be
substantially below the rates of the finance charges currently assessed by most
Sellers on their accounts. A
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proposed bill of this nature was defeated in the United States House of
Representatives in 1987, and on November 14, 1991, the United States Senate
approved by a vote of 74 to 19 a measure which could have established, if it
were enacted as law, a ceiling on credit card interest rates of 4% above the
rate that the IRS charges on the underpayment of taxes. Such a law would, in
effect, reduce all interest rates on credit cards to 14% per annum until the IRS
calculates the new rate, which is currently done on a quarterly basis. Although
this proposed legislation was not passed by Congress, the issue of federal
regulation of interest rates on credit cards continues to be debated, and there
can be no assurance that such a bill will not become law in the future. The
potential effect of any legislation which limits the amount of finance charges
that may be charged on credit cards could be to reduce the Net Portfolio Yield
of each Series. If such Net Portfolio Yield of a Series is reduced, a Pay Out
Event for such Series may occur, and the Rapid Amortization Period for such
Series would commence.
Since October 1991, a number of lawsuits and administrative actions
have been filed in several states against out-of-state banks (both federally
insured state-chartered banks and federally insured national banks) which issue
cards. These actions challenge various fees and charges (such as late fees,
overlimit fees, returned payment check fees and annual membership fees) assessed
against residents of the states in which such suits were filed, based on
restrictions or prohibitions under such states' laws alleged to be applicable to
the out-of-state card issuers. In October 1991, the United States District Court
for the State of Massachusetts held that Greenwood Trust Company (a federally-
insured, Delaware-charted bank that issues the Discover credit card) was
prohibited by Massachusetts law from assessing late charges on credit card
accounts of Massachusetts residents. On August 6, 1992, the decision was
reversed by the United States Court of Appeals for the First Circuit, which held
that the Massachusetts law was preempted by federal law permitting the charges
in question. In November 1992, the Commonwealth of Massachusetts petitioned the
United States Supreme Court to accept the case. On January 11, 1993, the U.S.
Supreme Court denied the petition of the Commonwealth to review the decision of
the First Circuit. The California Supreme Court in March 1992 refused to review
a lower court's determination that the practice by Wells Fargo Bank of charging
its cardholders over-the-limit and late payment fees violated California laws
that require banks to limit such charges to their costs. On November 29, 1995,
the Supreme Court of New Jersey ruled that a national bank that issued credit
cards in New Jersey but is located in another state, and that is entitled under
the National Bank Act to charge borrowers interest at a rate allowed by the laws
of the State where the bank is located, was not entitled to charge New Jersey
cardholders certain late payment fees, notwithstanding the fact that the state
in which the bank is located permits such late payment fees, because late
payment fees are not defined as interest within the meaning of the National Bank
Act and because New Jersey state law forbade the charging of such late payment
fees. Such actions and similar actions which may be brought in other states as a
result of such actions, if resolved adversely to card issuers, could have the
effect of limiting certain charges, other than periodic finance charges, that
could be assessed on accounts of residents of such states and could require card
issuers to pay refunds and civil penalties with respect to charges previously
imposed on cardholders in such states.
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The Trust may be liable for certain violations of consumer protection
laws that apply to the Receivables, either as assignee of the Seller with
respect to obligations arising before transfer of the Receivables to the Trust
or as a party directly responsible for obligations arising after the transfer.
In addition, a cardholder may be entitled to assert such violations by way of
set-off against his obligation to pay the amount of Receivables owing. Each
Seller will covenant in the Agreement to accept the retransfer of all
Receivables in an Account if any Receivable in such Account has not been created
in compliance with the requirements of such laws.
Application of Federal and state bankruptcy and debtor relief laws
would adversely affect the interests of the Certificateholders if such laws
result in any Receivables being written off as uncollectible.
THE DEPOSITOR
General
The Depositor is a special purpose Delaware corporation organized for
the purpose of causing the issuance of the Securities and other securities
issued under the Registration Statement backed by receivables or underlying
securities of various types and acting as settlor or depositor with respect to
trusts, custody accounts or similar arrangements or as general or limited
partner in partnerships formed to issue securities. It is not expected that the
Depositor will have any significant assets. The Depositor is an indirect,
wholly owned finance subsidiary of Collateralized Mortgage Securities
Corporation, which is a wholly owned subsidiary of CS First Boston Securities
Corporation, which is a wholly owned subsidiary of CS First Boston, Inc.
Neither CS First Boston Securities Corporation, nor CS First Boston, Inc., nor
any of their affiliates, has guaranteed, will guarantee or is or will be
otherwise obligated with respect to any Series of Securities. The Depositor's
principal executive office is located at Park Avenue Plaza, 55 East 52nd Street,
New York, New York 10055, and its telephone number is (212) 909-2000.
USE OF PROCEEDS
The Depositor will use the net proceeds from the sale of each Series
of Securities for one or more of the following purposes: (i) to purchase the
related Base Assets and/or Series Enhancement, (ii) to repay indebtedness which
has been incurred to obtain funds to acquire such Base Assets and/or Series
Enhancement, (iii) to fund the purchase of such Base Assets and/or Series
Enhancement by the related Trust on the Closing Date or to establish a Pre-
Funding Account for such Series, (iv) to establish any Reserve Account or Cash
Collateral Accounts described in the related Prospectus Supplement or (v) to pay
costs of structuring and issuing such Securities. If so specified in the
related Prospectus Supplement, the purchase of the Base Assets for a Series may
be effected in whole or in part by an exchange of Securities with the Seller of
such Base Assets.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a general summary of certain federal income tax
consequences of the purchase, ownership and disposition of Securities. The
summary does not purport to deal with federal income tax consequences applicable
to all categories of holders, some of which may be subject to special rules.
For example, it does not discuss the tax treatment of beneficial owners of Notes
("Note Owners") or Certificates ("Certificate Owners", together with Note
Owners, "Security Owners") that are insurance companies, regulated investment
companies or dealers in securities. Moreover, there are no cases or Internal
Revenue Service ("IRS") rulings on similar transactions involving both debt and
equity interests issued by a trust with terms similar to those of the Notes and
the Certificates. As a result, the IRS might disagree with all or part of the
discussion below. Prospective investors are urged to consult their own tax
advisors in determining the federal, state, local, foreign and any other tax
consequences to them of the purchase, ownership and disposition of the Notes and
the Certificates.
The following summary is based upon current provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), the Treasury regulations
promulgated thereunder and judicial or ruling authority, all of which are
subject to change, which change may be retroactive. Each Trust will be provided
with an opinion of Sidley & Austin ("Federal Tax Counsel") regarding certain
federal income tax matters. An opinion of Federal Tax Counsel, however, is not
binding on the IRS or the courts. No ruling on any of the issues discussed
below will be sought from the IRS. For purposes of the following summary,
references to the Trust, the Notes, the Certificates and related terms, parties
and documents shall be deemed to refer, unless otherwise specified herein, to
each Trust and the Notes, Certificates and related terms, parties and documents
applicable to such Trust.
OWNER TRUSTS
Tax Characterization of the Owner Trusts
In the case of an Owner Trust, Federal Tax Counsel will deliver its
opinion that the Trust will not be an association (or publicly traded
partnership) taxable as a corporation for federal income tax purposes. The
opinion of Federal Tax Counsel will be based on the assumption that the terms of
the Trust Agreement and related documents will be complied with, and on such
counsel's conclusions that (i) the Trust will not have certain characteristics
necessary for a trust to be classified as an association taxable as a
corporation and (ii) the nature of the income of the Trust, or the restrictions
(if any) on transfers of the Certificates, will exempt the Trust from the rule
that certain publicly traded partnerships are taxable as corporations.
If an Owner Trust were taxable as a corporation for federal income tax
purposes, the Owner Trust would be subject to corporate income tax on its
taxable income. The Trust's taxable income
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would include all of its income on the related Base Assets, which might be
reduced by its interest expense on the Notes. Any such corporate income tax
could materially reduce cash available to make payments on the Notes and
distributions on the Certificates, and Certificate Owners (and possibly Note
Owners) could be liable for any such tax that is unpaid by the Trust.
TAX CONSEQUENCES TO NOTE OWNERS
Treatment of the Notes as Indebtedness. The Trust will agree, and the
Note Owners will agree by their purchase of Notes, to treat the Notes as debt
for federal tax purposes. Federal Tax Counsel will, except as otherwise
provided in the related Prospectus Supplement, advise the Owner Trust that the
Notes will be classified as debt for federal income tax purposes. As noted
above, there are no cases or IRS rulings on similar transactions involving both
debt and equity interests issued by a trust with terms similar to those of the
Notes and the Certificates and, as a result, the IRS might disagree will such
conclusion. If, contrary to the opinion of Federal Tax Counsel, the IRS
successfully asserted that one or more of the Notes did not represent debt for
federal income tax purposes, the Notes might be treated as equity interests in
the Trust. If so treated, the Trust might be taxable as a corporation with the
adverse consequences described above (and the resulting taxable corporation
would not be able to reduce its taxable income by deductions for interest
expense on Notes recharacterized as equity). Alternatively, the Trust might be
treated as a publicly traded partnership that would be taxable as a corporation
unless it met certain qualifying income tests. Treatment of the Notes as equity
interests in a partnership could have adverse tax consequences to certain
holders, even if the Trust were not treated as a publicly traded partnership
taxable as a corporation. For example, income to certain tax-exempt entities
(including pension funds) would be "unrelated business taxable income", income
to foreign holders generally would be subject to U.S. federal income tax and
U.S. federal tax return filing and withholding requirements, and individual
holders might be subject to certain limitations on their ability to deduct their
share of Trust expenses. The discussion below assumes that the Notes will be
characterized as debt for federal income tax purposes.
Interest Income on the Notes. The taxation of interest on a Note will
depend on whether the interest constitutes "qualified stated interest" (as
defined below). Interest on a Note that constitutes qualified stated interest
is includible in a Note Owner's income as ordinary interest income when actually
or constructively received, if such Note Owner uses the cash method of
accounting for federal income tax purposes, or when accrued, if such Note Owner
uses an accrual method of accounting for federal income tax purposes. Interest
that does not constitute qualified stated interest is included in a Note Owner's
income under the rules described below under "-- Original Issue Discount",
regardless of such Note Owner's method of accounting, or, in certain
circumstances, under rules governing contingent payments under which the
interest is recognized as ordinary gross income only as the interest payments
become fixed in each accrual period. Notwithstanding the foregoing, interest
that is payable on a Note with a maturity of one year or less from its issue
date is included in a Note Owner's income under the rules described below under
"--Short Term Notes". It is believed that any prepayment premium paid as a
result of a
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mandatory redemption will be taxable as contingent interest when it becomes
fixed and unconditionally payable.
In general, "qualified stated interest" is stated interest that,
during the entire term of the Note, is unconditionally payable at least annually
at a single fixed rate of interest or, subject to certain exceptions summarized
below, at a variable rate that is a single "qualified floating rate" or a single
"objective rate" (each as described below). If stated interest is
unconditionally payable at two or more qualified floating rates, a single fixed
rate and one or more qualified floating rates, or a single fixed rate and a
single objective rate that is a "qualified inverse floating rate" (as defined
below), all or a portion of the stated interest might be treated as "qualified
stated interest" See --Original Issue Discount", below. Under Treasury
Regulations issued in January 1994 under Sections 1271-1273 and 1275 of the Code
(the "OID Regulations"), interest is considered unconditionally payable only if
late payment or nonpayment is expected to be penalized or reasonable remedies
exist to compel payment. If stated interest is payable at a variable rate other
than in accordance with the foregoing, the interest will not be treated as
"qualified stated interest", and it is unclear whether such payments must be
treated as part of a Note's "stated redemption price at maturity" (as described
below) and governed by the rules described below under "-- Original Issue
Discount" or, alternatively, must be taxed as contingent interest that is
recognized as ordinary gross income only as the interest payments become fixed
in each accrual period.
Stated interest generally qualifies as a "qualified floating rate" if
variations in the value of the rate can reasonably be expected to measure
contemporaneous fluctuations in the cost of newly borrowed funds in the currency
in which the Note is denominated. A variable rate will be considered a
qualified floating rate if the variable rate equals (i) the product of an
otherwise qualified floating rate and a fixed multiple that is greater than zero
but not more than 1.35 or (ii) an otherwise qualified floating rate (or the
product described in clause (i)) plus or minus a fixed rate. If the variable
rate equals the product of an otherwise qualified floating rate and a single
multiplier greater than 1.35, however, such rate will generally constitute an
objective rate, described more fully below.
Stated interest generally qualifies as an "objective rate" if
variations in the rate are determined using a single fixed formula and are based
on (i) one or more qualified floating rates, (ii) one or more rates where each
rate would be a qualified floating rate for a debt instrument denominated in a
currency other than the currency in which the Note is denominated, (ii) the
yield or changes in the price of one or more items of personal property that are
"actively traded", or (iv) a combination of rates described in the three
foregoing clauses. The IRS may designate other objective rates. An objective
rate is a "qualified inverse floating rate" if (a) the rate is equal to a fixed
rate minus a qualified floating rate and (b) the variations in the rate can
reasonably be expected to reflect inversely contemporaneous variations in the
cost of newly borrowed funds (disregarding certain caps, floors, governors or
similar restrictions).
All or a portion of interest that otherwise is treated as qualified
stated interest under the rules summarized above will not be treated as
qualified stated interest if, among other
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circumstances: (i) the variable rate of interest is subject to one or more
minimum or maximum rate floors or ceilings which are not fixed throughout the
term of the Note and which are reasonably expected as of the issue date to cause
the rate in certain accrual periods to be significantly higher or lower than the
overall expected return on the Note determined without such floor or ceiling;
(ii) it is reasonably expected that the average value of the variable rate
during the first half of the term of the Note will be either significantly less
than or significantly greater than the average value of the rate during the
final half of the term of the Note; (iii) the "issue price" of the Note (as
described below) exceeds the total noncontingent principal payments by more than
an amount equal to the lesser of .015 multiplied by the product of the total
noncontingent principal payments and the number of complete years to maturity
from the issue date (or, in certain cases, its weighted average maturity) and 15
percent of the total noncontingent principal, (iv) the Note does not provide
that a qualified floating rate or objective rate in effect at any time during
the term of the Note is set at the value of the rate on any day that is no
earlier than three months prior to the first day on which the value is in effect
and no later than one year following that first day, or (v) if interest is not
unconditionally payable. In these situations, as well as others, it is unclear
whether such interest payments must be treated either as part of a Note's
"stated redemption price at maturity" (as described below) resulting in original
issue discount, or represent contingent payments which are recognized as
ordinary gross income for federal income tax purposes only as the interest
payments become fixed in each accrual period.
Original Issue Discount. Notes may be issued with "original issue
discount". Rules governing original issue discount are set forth in Sections
1271-1273 and 1275 of the Code and the OID Regulations. The discussion herein
is based in part on the OID Regulations, which generally apply to debt
instruments issued on or after April 4, 1994. Note Owners also should be aware
that the OID Regulations do not address certain issues relevant to prepayable
securities such as the Notes.
In general, a Note's original issue discount, if any, is the
difference between the "stated redemption price at maturity" of the Note and its
"issue price".
The original issue discount with respect to a Note will be considered
to be zero if it is less than a specified de minimis amount of 0.25% of the
Note's stated redemption price at maturity multiplied by the number of complete
years from the date of issue of such Note to its maturity date or, in the case
of Notes that have more than one principal payment or that have interest
payments that are not qualified stated interest, the weighted average maturity
of the Note. Because of the possibility of prepayments, it is not clear how the
de minimis rules will apply to the Notes. It is possible that the anticipated
rate of prepayments assumed in pricing the debt instrument (the "Prepayment
Assumption") will be required to be used in determining the weighted average
maturity of the Notes. In the absence of authority to the contrary, the
Depositor presently expects to apply the de minimis rule by using the Prepayment
Assumption. Generally, an original Note Owner includes de minimis original
issue discount in income as principal payments are made. The amount includable
in income with respect to each principal payment equals a pro rata portion of
the entire amount of de minimis original issue discount with respect
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to that Note. Any de minimis amount of original issue discount includable in
income by a Note Owner is generally treated as a capital gain if the Note is a
capital asset in the hands of the Note Owner.
The "stated redemption price at maturity" of a Note generally will be
equal to the sum of all payments, whether denominated as principal or interest,
to be made with respect thereto other than "qualified stated interest" (as
described above). In the absence of authority to the contrary and if otherwise
appropriate, [the Depositor expects to determine the stated redemption price at
maturity of a Note by assuming that the anticipated rate of prepayment for such
Note will occur in such a manner that the initial interest rate for a Note will
not change.]
In general, the "issue price" of a Note is the first price at which a
substantial amount of the Notes of such class are sold for money to the public
(excluding bond houses, brokers or similar persons or organizations acting in
the capacity of underwriters, placement agents or wholesalers).
If a Note is determined to be issued with original issue discount, the
Note Owner must generally include the original issue discount in ordinary gross
income for federal income tax purposes as it accrues in advance of the receipt
of any cash attributable to such income. The amount of original issue discount,
if any, required to be included in a Note Owner's ordinary gross income for
federal income tax purposes in any taxable year will be computed in accordance
with Section 1272(a) of the Code and the OID Regulations. Under such section and
the OID Regulations, original issue discount accrues on a daily basis under a
constant yield method that takes into account the compounding of interest.
The amount of original issue discount includable in income by a Note
Owner is the sum of the "daily portions" of the original issue discount for each
day during the taxable year on which the holder held the Note. The daily
portions of original issue discount are determined by allocating to each day in
any "accrual period" a pro rata portion of the excess, if any, of (A) the sum of
(i) the present value of all remaining payments to be made on the Note as of the
close of the "accrual period" and (ii) the payments during the accrual period of
amounts included in the stated redemption price of the Note over (B) the
"adjusted issue price" of the Note at the beginning of the accrual period.
Generally, the "accrual period" for the Notes corresponds to the intervals at
which amounts are paid or compounded with respect to such Note, beginning with
their date of issuance and ending with the maturity date. The "adjusted issue
price" of a Note at the beginning of any accrual period is the sum of the issue
price and accrued original issue discount for each prior accrual period reduced
by the amount of payments other than payments of qualified stated interest made
during each prior accrual period. The Code and certain related legislative
history require, pending the issuance of Treasury Regulations the present value
of the remaining payments to be determined on the bases of (a) the original
yield to maturity (determined on the basis of compounding at the close of each
accrual period and properly adjusted for the length of the accrual period), (b)
events, including actual prepayments, which have occurred before the close of
the accrual period and (c) the assumption that the remaining payments will be
made in accordance with the original Prepayment Assumption. Although original
issue discount, if any, will be
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reported to Note Owners based on the Prepayment Assumption, no representation is
made to Note Owners that the Notes will be prepaid at that rate or at any other
rate.
In general, a subsequent purchaser of a Note will also be required to
include in such purchaser's ordinary gross income for federal income tax
purposes the original issue discount, if any, accruing with respect to such
Note, unless the price paid equals or exceeds the Note's stated redemption price
at maturity. If the price paid exceeds the Note's "adjusted issue price" (as
described above), but does not equal or exceed the stated redemption price at
maturity, the amount of original issue discount to be accrued will be reduced in
accordance with a formula set forth in Section 1272(a)(7)(B) of the Code. If
the price paid is less than the Note's adjusted issue price, the purchaser will
be required to include in income any original issue discount on the Note and, to
the extent the price paid is less than the adjusted issue price, the Note will
be treated as having been purchased with "market discount". See "--Market
Discount", below.
If a variable rate Note is deemed to have been issued with original
issue discount, as described above, the amount of original issue discount
accrues on a daily basis under a constant yield method that takes into account
the compounding of interest; provided, however, that the interest associated
with such a Note generally is assumed to remain constant throughout the term of
the Note at a rate that, in the case of a qualified floating rate, equals the
value of such qualified floating rate as of the issue date of the Note, or, in
the case of an objective rate, at a fixed rate that reflects the yield that is
reasonably expected for the Note. A holder of such a Note would then recognize
original issue discount during each accrual period which is calculated based
upon such Note's assumed yield to maturity. If the interest actually accrued or
paid during an accrual period exceeds (or is less than) the constant interest
assumed to be accrued or paid during the accrual period under the foregoing
rules, qualified stated interest or original issue discount allocable to an
accrual period is increased (or decreased) under rules set forth in the OID
Regulations.
The Depositor believes that the owner of a Note determined to be
issued with original issue discount will be required to include the original
issue discount in ordinary gross income for federal income tax purposes computed
in the manner described above. However, the OID Regulations either do not
address or are subject to varying interpretations with respect to several issues
concerning the computation of original issue discount for obligations such as
the Notes.
Market Discount. Notes, whether or not issued with original issue
discount, will be subject to the market discount rules of the Code. A purchaser
of a Note who purchases the Note at a price that is less than the Note's "stated
redemption price at maturity" or, in the case of a Note issued with original
issue discount, at a price that is less than the Note's "adjusted issue price"
(as such terms are described above under "--Original Issue Discount") will be
required to recognize accrued market discount as ordinary income as payments of
principal are received on such Note or upon the sale or exchange of the Note. In
general, the holder of a Note may elect to treat market discount as accruing
either (i) under a constant yield method that is similar to the method for the
accrual of original issue discount or (ii) in proportion to accruals of original
issue discount (or, if there is no original issue discount, in proportion to
accruals of stated interest), in each case
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computed taking into account the Prepayment Assumption. The amount of accrued
market discount for purposes of determining the amount of ordinary income to be
recognized with respect to subsequent payments on such a Note is to be reduced
by the amount previously treated as ordinary income under the market discount
rule.
The Code provides that the market discount in respect of a Note will
be considered to be zero if the market discount is less than a specified de
minimis amount of 0.25% of the Note's stated redemption price at maturity
multiplied by the number of complete years remaining to its maturity after the
holder acquired the Note. If market discount is treated as de minimis under this
rule, the actual discount would be allocated among the scheduled payments
included in the stated redemption price at maturity of such Note, and the
portion of the discount allocable to each such payment would be reported as
income when such payment occurs or is due.
The Code grants authority to the Treasury Department to issue
regulations providing for the computation of accrued market discount on debt
instruments, such as certain of the Notes, that are subject to repayment. Until
such time as regulations are issued, rules described in the legislative history
for these provisions of the Code will apply. Note Owners who acquire a Note at a
market discount should consult their tax advisors concerning various methods
which are available for accruing that market discount.
In general, the Code requires a holder of a Note having market
discount to defer a portion of the interest deductions attributable to any
indebtedness incurred or continued to purchase or carry such Note.
Alternatively, a holder of a Note may elect to include market discount in gross
income as it accrues and, if he makes such an election, is exempt from this
rule. The adjusted basis of a Note subject to such election will be increased to
reflect market discount included in gross income, thereby reducing any gain or
increasing any loss on a sale or other taxable disposition.
Amortizable Premium. A Note Owner who holds the Note as a capital
asset and who purchased the Note at a price greater than its stated redemption
price at maturity will be considered to have purchased the Note at a premium. In
general, the Note Owner may elect to deduct the amortizable bond premium as it
accrues under a constant yield method. A Note Owner's tax basis in the Note will
be reduced by the amount of the amortizable bond premium deducted. In addition,
it appears that the same methods which apply to the accrual of market discount
on obligations providing for principal payments prior to maturity are intended
to apply in computing the amortizable bond premium deduction with respect to a
Note. It is not clear, however, (i) whether the alternatives to the constant-
yield method which may be available for the accrual of market discount are
available for amortizing premium on Notes and (ii) whether the Prepayment
Assumption should be taken into account in determining the term of a Note for
this purpose. Note Owners who pay a premium for a Note should consult their tax
advisors concerning such an election and rules for determining the method for
amortizing bond premium.
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Election to Treat All Interest as Original Issues Discount. The OID
Regulations permit an election to accrue all interest, discount (including de
minimis market or original issue discount) (reduced by any premium) in income as
interest, based on a constant yield method. If such an election were to be made
with respect to a Note, the Note Owner would be deemed to have made an election
to include in income currently market discount with respect to all other debt
instruments having market discount that such Note Owner acquires during the year
of the election or thereafter. Similarly, a Note Owner that makes this election
for a Note that is acquired at a premium will be deemed to have made an election
to amortize bond premium with respect to all debt instruments having amortizable
bond premium that such Note Owner owns or acquires. See "-- Amortizable
Premium", above. The election to accrue interest, discount and premium on a
constant yield method with respect to a Note is irrevocable.
Gain or Loss on Disposition. If a Note is sold, the selling Note
Owner will recognize gain or loss equal to the difference between the amount
realized from the sale and the selling Note Owner's adjusted basis in such Note.
The adjusted basis generally will equal the cost of such Note to the seller,
increased by any original issue discount and market discount on such Note
included in the seller's income, and reduced (but not below zero) by any
payments on the Note other than qualified stated interest and reduced further by
any amortizable premium. Similarly, a Note Owner who receives a principal
payment with respect to a Note will recognize gain or loss equal to the
difference between the amount of the payment and the owner's allocable portion
of its adjusted basis in the Note. Except as discussed above or with respect to
market discount, any gain or loss recognized upon a sale, exchange, retirement,
or other imposition of a Note will be capital gain if the Note is held as a
capital asset.
Short-Term Notes. In the case of a Note with a maturity of one year
or less from its issue date (a "Short-Term Note"), no interest is treated as
qualified stated interest, and therefore all interest is included in original
issue Discount. Note Owners that report income for federal income tax purposes
on an accrual method and certain other Note Owners, including banks and dealers
in securities, are required to include original issue discount in income on such
Short-Term Notes on a straight-line basis, unless an election is made to accrue
the original issue discount according to a constant yield method based on daily
compounding.
Any other Note Owner of a Short-Term Note is not required to accrue
original issue discount for federal income tax purposes, unless it elects to do
so. In the case of a Note Owner that is not required, and does not elect, to
include original issue discount in income currently, any gain realized on the
sale, exchange or retirement of a Short-Term Note is ordinary income to the
extent of the original issue discount accrued on a straight-line basis (or, if
elected, according to a constant yield method based on daily compounding)
through the date of sale, exchange or retirement. In addition, Note Owners that
are not required, and do not elect, to include original issue discount on a
Short-Term Note in income currently are required to defer deductions for any
interest paid on indebtedness incurred or continued to purchase or carry such
Short-Term Note in an amount not exceeding the deferred interest income with
respect to such Short-Term Note (which includes both the accrued original issue
discount and accrued interest that are payable but
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that have not been included in gross income), until such deferred interest
income is realized. Such a Note Owner may elect to apply the foregoing rules
(except for the rule characterizing gain on sale, exchange or retirement as
ordinary) with respect to "acquisition discount" rather than original issue
discount. Acquisition discount is the excess of the stated redemption price at
maturity of the Short-Term Note over the Note Owner's basis in the Short-Term
Note. This election applies to all obligations acquired by the taxpayer on or
after the first day of the first taxable year to which such election applies,
unless revoked with the consent of the IRS. A Note Owner's tax basis in a Short-
Term Note is increased by the amount included in such Owner's income on such a
Note.
Taxation of Certain Foreign Note Owners. As used herein, the term
"Non-United States Holder" means a Note Owner that is, for United States federal
income tax purposes, (i) a nonresident alien individual, (ii) a foreign
corporation, (iii) a nonresident alien fiduciary of a foreign estate or trust or
(iv) a foreign partnership one or more of the members of which is, for United
States federal income tax purposes, a nonresident alien individual, a foreign
corporation or a nonresident alien fiduciary of a foreign estate or trust.
In general, Non-United States Holders will not be subject to United
States federal withholding tax with respect to payments of principal and
interest on Notes (including original issue discount), provided that certain
conditions are met. Under United States federal income tax law now in effect,
and subject to the discussion of backup withholding in the following section,
payments of principal and interest (including original issue discount) with
respect to a Note to any Non-United States Holder will not be subject to United
States federal withholding tax, provided, in the case of interest (including
original issue discount), that (i) such Holder does not actually or
constructively own 10% or more of the total combined voting power of all classes
of equity of the Trust, (ii) such Holder is not for federal income tax purposes
a controlled foreign corporation related, directly or indirectly, to the Trust
through equity ownership, (iii) such Holder is not a bank receiving interest
described in Section 881(c)(3)(A) of the Code and (iv) either (A) the Non-
United States Holder certifies, under penalties of perjury, to the Trust or
paying agent, as the case may be, that such Holder is a Non-United States Holder
and provides such Holder's name and address, or (B) a securities clearing
organization, bank or other financial institution that holds customers'
securities in the ordinary course of its trade or business (a "financial
institution") and holds the Note, certifies, under penalties of perjury, to the
Trust or paying agent, as the case may be, that such Note has been received from
the beneficial owner by it or by a financial institution between it and the
beneficial owner and furnishes the payor with a copy thereof. A certificate
described in this paragraph is effective only with respect to payments of
interest (including original issue discount) made to the certifying Non-United
States Holder after the issuance of the certificate in the calendar year of its
issuance and the two immediately succeeding calendar years.
Notwithstanding the foregoing, interest described in Section 871(h)(4)
of the Code will be subject to United States withholding tax at a 30% rate (or
such lower rate as may be provided by an applicable treaty). In general,
interest described in Section 871(h)(4) of the Code includes (subject to certain
exceptions) any interest the amount of which is determined by reference to
receipts, sales or other cash flow of the issuer or a related person, any income
or profits of the
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issuer or a related person, any change in the value of any property of the
issuer or a related person or any dividends, partnership distribution or similar
payments made by the issuer or a related person. Interest described in Section
871(h)(4) of the Code may include other types of contingent interest identified
by the IRS in future Treasury Regulations.
If a Non-United States Holder is engaged in a trade or business in the
United States and interest (including original issue discount) on the Note is
effectively connected with the conduct of such trade or business, the Non-United
States Holder, although exempt from the withholding tax discussed in the two
preceding paragraphs, will be subject to United States federal income tax on
such interest (including original issue discount) in the same manner as if it
were a United States person (as defined below). In lieu of the certificate
described above, such Holder will be required to provide a properly executed IRS
Form 4224 in order to claim an exemption from withholding tax. In addition, if
such Holder is a foreign corporation, it may be subject to a branch profits tax
equal to 30% (or such lower rate as may be specified by an applicable treaty) of
its effectively connected earnings and profits for the taxable year, subject to
adjustments. For this purpose, interest (including original issue discount) on
a Note will be included in the earnings and profits of such Holder if such
interest (including original issue discount) is effectively connected with the
conduct by such Holder of a trade or business in the United States.
Generally, any gain or income (other than that attributable to accrued
interest or original issue discount) realized upon the sale, exchange,
retirement or other disposition of a Note by a Non- United States Holder will
not be subject to United States federal income tax unless (i) such gain or
income is effectively connected with a trade or business in the United States of
the Non-United States Holder or (ii) in the case of a Non-United States Holder
who is a nonresident alien individual, the Non-United States Holder is present
in the United States for 183 days or more in the taxable year of such sale,
exchange, retirement or other disposition and either (a) such individual has a
"tax home" (as defined in Section 911(d)(3) of the Code) in the United States or
(b) the gain is attributable to an office or other fixed place of business
maintained by such individual in the United States.
Backup Withholding and Information Reporting. Under current United
States federal income tax law, information reporting requirements apply to
interest (including original issue discount) and principal payments made to, and
to the proceeds of sales before maturity by, certain Note Owners that are United
States persons. "United States person" means a citizen or resident of the
United States, a corporation, partnership or other entity created or organized
in or under the laws of the United States or any political subdivision thereof,
or an estate or trust the income of which is includible in gross income for
United States federal income tax purposes, without regard to its source.
In addition, a 31% backup withholding tax will apply if such Note
Owner (i) fails to furnish its Taxpayer Identification Number ("TIN") (which,
for an individual, would be his or her Social Security Number) to the payor in
the manner required, (ii) furnishes an incorrect TIN and the payor is so
notified by the IRS, (iii) is notified by the IRS that it has failed properly to
report
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payments of interest and dividends or (iv) in certain circumstances, fails to
certify, under penalties of perjury, that it has not been notified by the IRS
that it is subject to backup withholding for failure properly to report interest
and dividend payments. Backup withholding will not apply with respect to
payments made to certain exempt recipients, such as corporations (within the
meaning of Section 7701(a) of the Code) and tax-exempt organizations.
In the case of a Non-United States Holder, under Treasury Regulations,
backup withholding and information reporting will not apply to payments of
principal and interest made by the Trust or any paying agent thereof on a Note
with respect to which such holder has provided the required certification under
penalties of perjury that it is a Non-United States Holder or has otherwise
established an exemption, provided that (i) the Trust or paying agent, as the
case may be, does not have actual knowledge that the payee is a United States
person and (ii) certain other conditions are satisfied.
Subject to the discussion below, payments to or through the United
States office of a broker will be subject to backup withholding and information
reporting unless the holder certifies under penalties of perjury as to its
status as a Non-United States Holder and certain other qualifications (and no
agent of the broker who is responsible for receiving or reviewing such statement
has actual knowledge that it is incorrect) and provides his or her name and
address or the holder otherwise establishes an exemption.
In general, if principal or interest payments on a Note are collected
outside the United States by a foreign office of a custodian, nominee or other
agent acting on behalf of a Note Owner, such custodian, nominee or other agent
will not be required to apply backup withholding to such payments made to such
owner and will not be subject to information reporting. However, if such
custodian, nominee or other agent is a United States person, a controlled
foreign corporation for United States tax purposes, or a foreign person 50% or
more of whose gross income is effectively connected with its conduct of a United
States trade or business for a specified three-year period, such custodian,
nominee or other agent may be subject to certain information reporting (but not
backup withholding) requirements with respect to such payment unless such
custodian, nominee or other agent has in its records documentary evidence that
the Note Owner is not a United States person and certain conditions are met or
the Note Owner otherwise establishes an exemption. Under proposed Treasury
Regulations, backup withholding may apply to any payment which such custodian,
nominee or other agent is required to report if such custodian, nominee or other
agent has actual knowledge that the payee is a United States person.
Under Treasury Regulations, payments on the sale, exchange or
retirement of a Note to or through a foreign office of a broker will not be
subject to backup withholding. However, if such broker is a United States
person, a controlled foreign corporation for United States tax purposes, or a
foreign person 50% or more of whose gross income is effectively connected with
its conduct of a United States trade or business for a specified three-year
period, information reporting (but not backup withholding) will be required
unless such broker has in its records documentary evidence that the Note Owner
is not a United States person and certain other conditions are met
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or the Note Owner otherwise establishes an exemption. Under proposed Treasury
Regulations, backup withholding may apply to any payment which such broker is
required to report if such broker has actual knowledge that the payee is a
United States person.
Backup withholding tax is not an additional tax. Rather, any amounts
withheld from a payment to a Note Owner under the backup withholding rules will
be allowed as a refund or a credit against such owner's United States federal
income tax, provided that the required information is furnished to the IRS.
Note Owners should consult their tax advisors regarding the
application of information reporting and backup withholding to their particular
situations, the availability of an exemption therefrom, and the procedure for
obtaining such an exemption, if available.
Tax Consequences to Certificate Owners
Treatment of the Trust as a Partnership. The Trust will agree, and
the related Certificate Owners will agree by their purchase of Certificates, to
treat the Trust as a partnership for purposes of federal and state income tax,
franchise tax and any other tax measured in whole or in part by income, with the
assets of the partnership being the assets held by the Trust, the partners of
the partnership being the Certificate Owners (including, to the extent relevant,
the Seller or the Depositor in its capacity as recipient of distributions from
any reserve fund), and the Notes being debt of the partnership. However, the
proper characterization of the arrangement involving the Trust, the
Certificates, the Notes, the Seller, the Depositor and the Servicer is not
certain because there is no authority on transactions closely comparable to that
contemplated herein. A variety of alternative characterizations are possible.
For example, to the extent the Certificates have certain features characteristic
of debt, the Certificates might be considered debt of the Seller, the Depositor
or the Trust. Any such characterization is not expected to result in materially
adverse tax consequences to Certificate Owners as compared to the consequences
from treatment of the Certificates as equity in a partnership, described below.
The following discussion assumes that the Certificates represent
equity interests in a partnership, none of the Certificates represents Strip
Certificates and that a Series of Securities includes a single class of
Certificates. If these conditions are not satisfied with respect to any given
Series of Certificates, additional tax considerations with respect to such
Certificates will be disclosed in the related Prospectus Supplement.
Partnership Taxation. As a partnership, the Trust will not be subject
to federal income tax. Rather, each Certificate Owner will be required to take
into account separately such Owner's allocated share of income, gains, losses,
deductions and credits of the Trust (whether or not there is a corresponding
cash distribution). Thus, cash basis holders will in effect be required to
report income from the Certificates on the accrual basis and Certificate Owners
may become liable for taxes on Trust income even if they have not received cash
from the Trust to pay such taxes. The
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Trust's income will consist primarily of interest and finance charges earned on
the related Base Assets (including appropriate adjustments for market discount,
original issue discount and bond premium) and any gain upon collection or
disposition of such Base Assets. The Trust's deductions will consist primarily
of interest accruing with respect to the Notes to the extent the Notes are
property characterized as debt, as discussed above under "--Tax Consequences to
Note Owners", servicing and other fees, and losses or deductions upon collection
or disposition of Receivables.
The tax items of a partnership are allocable to the partners in
accordance with the Code, Treasury regulations and the partnership agreement
(i.e., the Trust Agreement and related documents). The Trust Agreement is
expected to provide, in general, that the Certificate Owners will be allocated
taxable income of the Trust for each month equal to the sum of: (i) the interest
or other income that accrues on the Certificates in accordance with their terms
for such month including, as applicable, interest accruing at the related Pass-
Through Rate for such month and interest on amounts previously due on the
Certificates but not yet distributed; (ii) any Trust income attributable to
discount on the related Base Assets that corresponds to any excess of the
principal amount of the Certificates over their initial issue price; (iii) any
prepayment premium payable to the Certificate Owners for such month; and (iv)
any other amounts of income payable to the Certificate Owners for such month.
Such allocation will be reduced by any amortization by the Trust of premium on
Base Assets that corresponds to any excess of the issue price of Certificates
over their principal amount. All remaining taxable income of the Trust will be
allocated to the Seller.
Based on the economic arrangement of the parties, the foregoing
approach for allocating Trust income should be permissible under applicable
Treasury regulations, although no assurance can be given that the IRS would not
require a greater amount of income to be allocated to Certificate Owners.
Moreover, even under the foregoing method of allocation, Certificate Owners may
be allocated income equal to the entire Pass-Through Rate plus the other items
described above, even though the Trust might not have sufficient cash to make
current cash distributions of such amount. In addition, because tax allocations
and tax reporting will be done on a uniform basis for all Certificate Owners,
but Certificate Owners may be purchasing Certificates at different times and at
different prices, Certificate Owners may be required to report on their tax
returns taxable income that is greater or less than the amount reported to them
by the Trust.
All of the taxable income allocated to a Certificate Owner that is a
pension, profit sharing or employee benefit plan or other tax-exempt entity
(including an individual retirement account) will generally constitute
"unrelated business taxable income" taxable to such holder under the Code.
A non-Corporate Certificate Owner's share of expenses of the Trust
(including fees to the Servicer, but not interest expense) would generally be
"miscellaneous itemized deductions" and thus deductible only to the extent such
expenses plus all other miscellaneous itemized deductions exceed two percent of
such Certificate Owner's adjusted gross income. In addition, Section 68 of the
Code provides that the amount of all "itemized deductions" otherwise allowable
for the taxable year for an individual whose adjusted gross income exceeds a
threshold amount specified
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in the Code ($114,700 in 1995 in the case of a joint return) will be reduced by
the lesser of (i) 3% of the excess of adjusted gross income over the specified
threshold amount or (ii) 80% of the amount of itemized deductions otherwise
allowable for such taxable year. Accordingly, such deductions might be
disallowed to such individual in whole or in part and might result in such
Certificate Owner being taxed on an amount of income that exceeds the amount of
cash actually distributed to such holder over the life of the Trust.
The Trust intends to make all tax calculations relating to income and
allocations to Certificate Owners on an aggregate basis. If the IRS were to
require that such calculations be made separately for each Base Assets, the
Trust might be required to incur additional expense, but it is believed that
there would not be a material adverse effect on Certificate Owners.
Discount and Premium. Except as otherwise provided in the related
Prospectus Supplement, it is believed that the Base Assets were not issued with,
and, therefore, the Trust should not have original issue discount income.
However, the purchase price paid by the Trust for the related Base
Assets may be greater or less than the remaining principal balance of the
Receivables at the time of purchase. If so, the Receivables will have been
acquired at a premium or market discount, as the case may be. See "Tax
Consequences to Note Owners--Market Discount" and "--Amortizable Premium" above.
(As indicated above, the Trust will make this calculation on an aggregate basis,
but might be required to recompute it on a Receivable-by-Receivable basis.)
If the Trust acquires the Base Assets at a market discount or premium,
the Trust will elect to include any such discount in income currently as it
accrues over the life of the Base Assets or to offset any such premium against
interest income on the Base Assets. As indicated above, a portion of such
market discount income or premium deduction may be allocated to Certificate
Owners.
Section 708 Termination. Under Section 708 of the Code, the Trust
will be deemed to terminate for federal income tax purpose if 50% or more of the
capital and profits interests in the Trust are sold or exchanged within a 12-
month period. If such a termination occurs, the Trust will be considered to
distribute its assets to the partners, who would then be treated as
recontributing those assets to the Trust, as a new partnership. The Trust will
not comply with certain technical requirements that might apply when such a
constructive termination occurs. As a result, the Trust may be subject to
certain tax penalties and may incur additional expenses if it is required to
comply with those requirements. Furthermore, the Trust might not be able to
comply due to lack of data.
Disposition of Certificates. Generally, capital gain or loss will be
recognized on a sale of Certificates in an amount equal to the difference
between the amount realized and the seller's tax basis in the Certificates sold.
A Certificate Owner's tax basis in a Certificate will generally equal the
Certificate's cost, increased by the share of Trust income allocable to such
Certificate Owner
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with respect to such Certificates and decreased by any distributions received
with respect to such Certificate. In addition, both the tax basis in the
Certificates and the amount realized on a sale of a Certificate would include
the Certificate Owner's share (determined under Treasury Regulations) of the
Notes and other liabilities of the Trust. A Certificate Owner acquiring
Certificates at different prices will generally be required to maintain a single
aggregate adjusted tax basis in such Certificates and, upon a sale or other
disposition of some of the Certificates, allocate a portion of such aggregate
tax basis to the Certificates sold (rather than maintaining a separate tax basis
in each Certificate for purposes of computing gain or loss on a sale of that
Certificate).
If a Certificate Owner is required to recognize an aggregate amount of
income (not including income attributable to disallowed itemized deductions
described above) over the life of the Certificates that exceeds the aggregate
cash distributions with respect thereto, such excess will generally give rise to
a capital loss upon the retirement of the Certificates.
Allocations Between Transferors and Transferees. In general, the
Trust's taxable income and losses will be determined monthly and the tax items
for a particular calendar month will be apportioned among the Certificate Owners
based on the principal amount of Certificates owned by them as of the close of
the last day of such month. As a result, a Certificate Owner purchasing
Certificates may be allocated tax items (which will affect the purchaser's tax
liability and tax basis) attributable to periods before the actual transaction.
The use of such a monthly convention may not be permitted by existing
Treasury Regulations. If a monthly convention is not allowed (or only applies to
transfers of less than all of the partner's interest), taxable income or losses
of the Trust might be reallocated among the Certificate Owners. The Seller will
be authorized to revise the Trust's method of allocation between transferors and
transferees.
Section 754 Election. In the event that a Certificate Owner sells its
Certificates at a profit (loss), the purchasing Certificate Owner will have a
higher (lower) basis in the Certificates than the selling Certificate Owner had.
The tax basis of the Trust's assets will not be adjusted to reflect that higher
(or lower) basis unless the Trust were to file an election under Section 754 of
the Code. In order to avoid the administrative complexities that would be
involved in keeping accurate accounting records, as well as potentially onerous
information reporting requirements, the Trust will not make such election. As a
result, Certificate Owners might be allocated a greater or lesser amount of
Trust income than would be appropriate based on their own purchase price for
Certificates.
Administrative Matters. The Trustee is required to keep complete and
accurate books of the Trust. Such books will be maintained for financial
reporting and tax purposes on an accrual basis, and the fiscal year of the Trust
will be the calendar year. The Trustee will file a partnership information
return (IRS Form 1065) with the IRS for each taxable year of the Trust and will
report each Certificate Owner's allocable share of items of Trust income and
expense to Certificate
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Owners and the IRS on Schedule K-1. The Trust will provide the Schedule K-1
information to nominees that fail to provide the Trust with the information
statement described below and such nominees will be required to forward such
information to the beneficial owners of the Certificates. Generally, Certificate
Owners must file tax returns that are consistent with the information return
filed by the Trust or be subject to penalties unless the holder notifies the IRS
of all such inconsistencies.
Under Section 6031 of the Code, any person that holds Certificates as
a nominee at any time during a calendar year is required to furnish the Trust
with a statement containing certain information on the nominee, the beneficial
owners and the Certificates so held. Such information includes (i) the name,
address and taxpayer identification number of the nominee and (ii) as to each
beneficial owner (a) the names address and identification number of such person,
(b) whether such person is a United States person, a tax-exempt entity or a
foreign government, an international organization, or any wholly owned agency or
instrumentality of either of the foregoing, and (c) certain information on
Certificates that were held, bought or sold on behalf of such person throughout
the year. In addition, brokers and financial institutions that hold
Certificates through a nominee are required to furnish directly to the Trust
information as to themselves and their ownership of Certificates. A clearing
agency registered under Section 17A of the Exchange Act is not required to
furnish any such information statement to the Trust. The information referred
to above for any calendar year must be furnished to the Trust on or before the
following January 31. Nominees, brokers and financial institutions that fail to
provide the Trust with the information described above may be subject to
penalties.
Except as provided otherwise in the relevant Prospective Supplement,
the Depositor will be designated as the tax matters partner for each Trust in
the related Trust Agreement and, as such, will be responsible for representing
the Certificate Owners in any dispute with the IRS. The Code provides for
administrative examination of a partnership as if the partnership were a
separate and distinct taxpayer. Generally, the statute of limitations for
partnership items does not expire before three years after the date on which the
partnership information return is filed. Any adverse determination following an
audit of the return of the Trust by the appropriate taxing authorities could
result in an adjustment of the returns of the Certificate Owners, and, under
certain circumstances, a Certificate Owner may be precluded from separately
litigating a proposed adjustment to the items of the Trust. An adjustment could
also result in an audit of a Certificate Owner's returns and adjustments of
items not related to the income and losses of the Trust.
Taxation of Certain Foreign Certificate Owners. As used herein, the
term "Non-United States Owner" means a Certificate Owner that is, for United
States federal income tax purposes, (i) a nonresident alien individual, (ii) a
foreign corporation, (iii) a nonresident alien fiduciary of a foreign estate or
trust or (iv) a foreign partnership one or more of the members of which is, for
United States federal income tax purposes, a nonresident alien individual, a
foreign corporation or a nonresident alien fiduciary of a foreign estate or
trust.
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It is not clear whether the Trust would be considered to be engaged in
a trade or business in the United States for purposes of federal withholding
taxes with respect to Non-United States Owners because there is no clear
authority dealing with that issue under facts substantially similar to those
described herein. Although it is not expected that the Trust would be engaged in
a trade or business in the United States for such purposes, the Trust will
withhold as if it were so engaged in order to protect the Trust from possible
adverse consequences of a failure to withhold. The Trust expects to withhold on
the portion of its taxable income that is allocable to Non-United States Owners
pursuant to Section 1446 of the Code, as if such income were effectively
connected to a U.S. trade or business, at a rate of 35% for Non-United States
Owners that are taxable as corporations and 39.6% for all other Non-United
States Owners. Subsequent adoption of Treasury regulations or the issuance of
other administrative pronouncements may require the Trust to change its
withholding procedures. In determining a Certificate Owner's withholding status,
the Trust may rely on IRS Form W-8, IRS Form W-9 or the Certificate Owner's
certification of nonforeign status signed under penalties of perjury.
Each Non-United States Owner might be required to file a U.S.
individual or corporate income tax return (including, in the case of a
corporation, the branch profits tax) on its share of the Trust's income. Each
Non-United States Owner must obtain a taxpayer identification number from the
IRS and submit that number to the Trust on Form W-8 in order to assure
appropriate crediting of the taxes withheld. Assuming that the Trust is
determined not to be engaged in a U.S. trade or business, a Non-United States
Owner might be entitled to a refund with respect to taxes withheld by the Trust
if and to the extent that, among other things, such Owner's allocable share of
interest from the Trust constituted "portfolio interest" under the Code.
Such interest, however, may not constitute "portfolio interest" if,
among other reasons, the underlying obligation is not in registered form or if
the interest is determined without regard to the income of the Trust (in the
later case, such interest being properly characterized as a guaranteed payment
under Section 707(c) of the Code). If this were the case, Non-United States
Owners would be subject to a United States federal income and withholding tax at
a rate of 30 percent (without any deductions or other allowances for costs and
expenses incurred in producing such income), unless reduced or eliminated
pursuant to an applicable treaty. In such case, a Non- United States Owner
would only be entitled to a refund for that portion of the taxes in excess of
the taxes that should have been withheld with respect to such interest.
Backup Withholding. Distributions made on the Certificates and
proceeds from the sale of the Certificates will be subject to a "backup"
withholding tax of 31% if, in general, the Certificate Owner fails to comply
with certain identification procedures, unless the certificate owner is an
exempt recipient under applicable provisions of the Code.
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GRANTOR TRUSTS
TAX CHARACTERIZATION OF THE GRANTOR TRUSTS
Characterization. In the case of a Grantor Trust, Federal Tax Counsel
will deliver its opinion that the Trust will not be classified as an association
taxable as a corporation and that such Trust will be classified as a grantor
trust under subpart E, Part I of subchapter J of the Code. In this case,
beneficial owners of Certificates (referred to herein as "Grantor Trust
Certificateholders") will be treated for federal income tax purposes as owners
of a portion of the Trust's assets as described below. The Certificates issued
by a Trust that is treated as a grantor trust are referred to herein as "Grantor
Trust Certificates".
Taxation of Grantor Trust Certificateholders--General. Subject to the
discussion below under "--Stripped Certificates" and "--Subordinated
Certificates", each Grantor Trust Certificateholder will be treated as the owner
of a pro rata undivided interest in the Base Assets and other assets of the
Trust. Accordingly, and subject to the discussion below of the
recharacterization of the Servicing Fee, each Grantor Trust Certificateholder
must include in income its pro rata share of the interest and other income from
the Base Assets (including any interest, original issue discount, market
discount, prepayment fees, assumption fees, and late payment charges with
respect to the Receivables), and, subject to certain limitations discussed
below, may deduct its pro rata share of the fees and other deductible expenses
paid by the Trust, at the same time and to the same extent as such items would
be included or deducted by the Grantor Trust Certificateholder if the Grantor
Trust Certificateholder held directly a pro rata interest in the assets of the
Trust and received and paid directly the amounts received and paid by the Trust.
Any amounts received by a Grantor Trust Certificateholder in lieu of amounts due
with respect to Base Assets because of a default or delinquency in payment will
be treated for federal income tax purposes as having the same character as the
payments they replace.
Under Sections 162 and 212 each Grantor Trust Certificateholder will
be entitled to deduct its pro rata share of servicing fees, prepayment fees,
assumption fees, any loss recognized upon an assumption and late payment charges
retained by the Servicer, provided that such amounts are reasonable compensation
for services rendered to the Trust. A non-corporate Grantor Trust
Certificateholder's share of expenses of the Trust would generally be
"miscellaneous itemized deductions" and thus deductible only to the extent such
expenses plus all other miscellaneous itemized deductions exceed two percent of
such Grantor Trust Certificateholder's adjusted gross income. In addition,
Section 68 of the Code provides that the amount of "itemized deductions"
otherwise allowable for the taxable year for an individual whose adjusted gross
income exceeds a threshold amount specified in the Code ($114,700 in 1995 in the
case of a joint return) will be reduced by the lesser of (i) 3% of the excess of
adjusted gross income over the specified threshold amount or (ii) 80% of the
amount of itemized deductions otherwise allowable for such taxable year. In
addition, such deductions are not allowable for purposes of the alternative
minimum tax.
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The servicing compensation to be received by the Servicer might be
questioned by the IRS with respect to certain Certificates or Base Assets as
exceeding a reasonable fee for the services being performed in exchange
therefor, and a portion of such servicing compensation could be recharacterized
as an ownership interest retained by the Servicer or other party in a portion of
the interest payments to be made pursuant to the Base Assets. In this event, a
Certificate might be treated as a Stripped Certificate subject to the stripped
bond rules of Section 1286 of the Code and therefore be subject to the original
issue discount rules. See the discussion below under "--Stripped Certificates".
Except as discussed below under "--Stripped Certificates" or "--Subordinated
Certificates", this discussion assumes that the servicing fees paid to the
Servicer do not exceed reasonable servicing compensation.
A purchaser of a Grantor Trust Certificate will be treated as
purchasing an interest in each Base Assets in the Trust at a price determined by
allocating the purchase price paid for the Certificate among all Base Assets in
proportion to their fair market values at the time of the purchase of the
Certificate. To the extent that the portion of the purchase price of a Grantor
Trust Certificate allocated to a Base Assets is less than or greater than the
portion of the stated redemption price at maturity of the Base Assets, the
interest in the Base Assets will have been acquired at a discount or premium.
See "--Market Discount" and "--Premium", below.
The treatment of any discount on a Base Assets will depend on whether
the discount represents original issue discount or market discount. Except as
indicated otherwise in the applicable Prospectus Supplement, it is not expected
that any Base Assets will have original issue discount (except as discussed
below under "--Stripped Certificates" or "--Subordinated Certificates").
The information provided to Grantor Trust Certificateholders will not
include information necessary to compute the amount of discount or premium, if
any, at which an interest in each Receivable is acquired.
Market Discount. A Grantor Trust Certificateholder that acquires an
undivided interest in Base Assets may be subject to the market discount rules of
Sections 1276 through 1278 of the Code to the extent an undivided interest in a
Receivable is considered to have been purchased at a "market discount".
Generally, the amount of market discount is equal to the amount by which the
purchase price of a Grantor Trust Certificate allocated to a Base Asset is less
than the allocable portion of the Base Asset's stated redemption price at
maturity. Market discount with respect to an interest in a Base Asset will be
considered to be zero if the amount of market discount is less than 0.25% of the
stated redemption price at maturity of the interest in the Base Asset multiplied
by the weighted average maturity of the Base Asset remaining after the date of
purchase. Treasury regulations implementing the market discount rules have not
yet been issued; therefore, investors should consult their own tax advisors
regarding the application of these rules and the advisability of making any of
the elections allowed under Sections 1276 and 1278 of the Code.
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The Code provides that any principal payment (whether a scheduled
payment or a prepayment) or any gain or disposition of a market discount bond
shall be treated as ordinary income to the extent that it does not exceed the
accrued market discount at the time of such payment.
The Code grants the Treasury Department authority to issue regulations
providing for the computation of accrued market discount on debt instruments
such as certain of the Base Assets, the principal of which is payable in more
than one installment. While the Treasury Department has not yet issued
regulations, rules described in the relevant legislative history will apply.
Under those rules, the holder of a market discount bond may elect to accrue
market discount either on the basis of a constant interest rate or, in the case
of a debt instrument not issued with original issue discount, according to the
following alternative method. Under the alternative method, the amount of
market discount that accrues during a period is equal to the product of (i) the
total remaining market discount and (ii) a fraction, the numerator of which is
the amount of stated interest paid during the accrual period and the denominator
of which is the total amount of stated interest remaining to be paid at the
beginning of the accrual period. Because the regulations described above have
not been issued, it is impossible to predict what effect those regulations might
have on the tax treatment of a Grantor Trust Certificateholder.
A Grantor Trust Certificateholder that acquired an interest in a Base
Asset at a market discount also may be required to defer a portion of its
interest deductions for the taxable year attributable to any indebtedness
incurred or continued to purchase or carry such interest. Any such deferred
interest expense would not exceed the market discount that accrues during such
taxable year and is, in general, allowed as a deduction not later than the year
in which such market discount is includible in income. If such Grantor Trust
Certificateholder elects to include market discount in income currently as it
accrues on all market discount instruments acquired by such holder in that
taxable year or thereafter, the interest deferral rule described above will not
apply.
Premium. To the extent a Grantor Trust Certificateholder is
considered to have purchased an undivided interest in a Base Asset for an amount
that is greater than the stated redemption price at maturity of such interest,
such Grantor Trust Certificateholder will be considered to have purchased the
interest in the Base Asset at a "premium" equal in amount to such excess. A
Grantor Trust Certificateholder who holds the Certificate as a capital asset may
elect under Section 171 of the Code to amortize such premium. Under the Code,
premium is allocated among the interest payments on the Base Asset to which it
relates and is considered as an offset against (and thus reduction of) such
interest payments. With certain exceptions, such an election would apply to all
debt instruments held or subsequently acquired by the electing holder. Absent
such an election, the premium will be deductible as a loss only upon disposition
of the Certificate or pro rata as principal is paid on the Base Asset.
Stripped Certificates. Certain classes of Certificates may be subject
to the stripped bond rules of Section 1286 of the Code and for purposes of this
discussion will be referred to as "Stripped Certificates". In general, a
Stripped Certificate will be subject to the stripped bond rules where
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there has been a separation of ownership of the right to receive some or all of
the principal payments on a Base Asset from ownership of the right to receive
some or all of the related interest payments. In general, where such separation
has occurred, under the stripped bond rules of Section 1286 of the Code the
holder of a right to receive a principal or interest payment on the Base Asset
is required to accrue into income, on a constant yield basis under rules
governing original issue discount (see "Owner Trust--Tax Consequences to Note
Owners--Original Issue Discount"), the difference between the holder's initial
purchase price for such right and the principal or interest payment to be
received with respect to such right.
Certificates will constitute Stripped Certificates and will be subject
to these rules under various circumstances, including the following: (i) if any
servicing compensation is deemed to exceed a reasonable amount (see "--Taxation
of Grantor Trust Certificateholders--General", above); (ii) if the Company or
any other party retains a retained yield with respect to the Base Assets held by
the Trust; (iii) if two or more classes of Certificates are issued representing
the right to non-pro rata percentages of the interest or principal payments on
the Base Assets; or (iv) if Certificates are issued which represent the right to
interest-only payments or principal-only payments.
The tax treatment of the Stripped Certificates with respect to the
application of the original issue discount provisions of the Code is currently
unclear. However, the Trustee intends to treat each Stripped Certificate as a
single debt instrument issued on the day it is purchased for purposes of
calculating any original issue discount. Original issue discount with respect
to a Stripped Certificate must be included in ordinary gross income for federal
income tax purposes as it accrues in accordance with the constant yield method
that takes into account the compounding of interest and such accrual of income
may be in advance of the receipt of any cash attributable to such income. See
"Owner Trust--Tax Consequences to Note Owners--Original Issue Discount" above.
For purposes of applying the original issue discount provisions of the Code, the
issue price of a Stripped Certificate will be the purchase price paid by each
holder thereof and the stated redemption price at maturity may include the
aggregate amount of all payments to be made with respect to the Stripped
Certificate whether or not denominated as interest. The amount of original issue
discount with respect to a Stripped Certificate may be treated as zero under the
original issue discount de minimis rules described above.
When an investor purchases more than one class of Stripped
Certificates it is currently unclear whether for federal income tax purposes
such classes of Stripped Certificates should be treated separately or aggregated
for purposes of applying the original issue discount rules described above.
Notwithstanding the position that the Trustee intends to take, it is
possible that the Service may take a contrary position for purposes of applying
the original issue discount provisions of the Code to the Stripped Certificates.
For example, a holder of a Stripped Certificate might be treated as the owner of
(i) as many stripped bonds or stripped coupons as there are scheduled payments
of principal and/or interest on each Base Asset or (ii) a separate installment
obligation for each
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Base Asset representing the Stripped Certificate's pro rata share of principal
and/or interest payments to be made with respect thereto. As a result of these
possible alternative characterizations, investors should consult their own tax
advisors regarding the proper treatment of Stripped Certificates for federal
income tax purposes.
Subordinated Certificates. In the event the Trust issues two classes
of Grantor Trust Certificates that are identical except that one class is a
subordinate class (with a relatively higher Pass-Through Rate) and the other is
a senior class (with a relatively lower Pass - Through Rate), (referred to
herein as the "Subordinate Certificates" and "Senior Certificates",
respectively), the Trust would deemed to have acquired the following assets:
(i) the principal portion of each Receivable plus a portion of the interest due
on each Receivable (the "Trust Stripped Bond"), and (ii) a portion of the
interest due on each Receivable equal to the difference between the Pass -
Through Rate on the Subordinate Certificates and the Pass - Through Rate on the
Senior Certificates, if any, which difference is then multiplied by the
Subordinate Class Percentage (the "Trust Stripped Coupon"). The "Subordinate
Class Percentage" equals the initial aggregate principal amount of the
Subordinate Certificates divided by the sum of the initial aggregate principal
amount of the Subordinate Certificates and the Senior Certificates. The "Senior
Class Percentage" equals the initial aggregate principal amount of the Senior
Certificates divided by the sum of the initial aggregate principal amount of the
Subordinate Certificates and the Senior Certificates.
The Senior Certificateholders in the aggregate will own the Senior
Class Percentage of the Trust Stripped Bond and accordingly each Senior
Certificateholder will be treated as owning its pro rata share of such asset.
The Senior Certificateholders will not own any portion of the Trust Stripped
Coupon. The Subordinate Certificateholders in the aggregate own both the
Subordinate Class Percentage of the Trust Stripped Bond plus 100% of the Trust
Stripped Coupon, if any, and accordingly each Subordinate Certificateholder will
be treated as owning its pro rata share in both such assets. The Trust Stripped
Bond will be treated as a "stripped bond" and the Trust Stripped Coupon will be
treated as "stripped coupons" within the meaning of Section 1286 of the Code.
Because the purchase price paid by each Subordinate Certificateholder will be
allocated between that Certificateholder's interest in the Trust Stripped Bond
and the Trust Stripped Coupon based on the relative fair market value of each
asset on the date such Subordinate Certificate is purchased, the Trust Stripped
Bond may be issued with original issue discount.
Except to the extent modified below, the income of the Trust Stripped
Bond represented by a Certificate will be reported in the same manner as
described generally above for holders of Certificates. The interest income on
the Subordinate Certificates at the Senior Certificate Pass- Through Rate and
the portion of the Servicing Fee that does not constitute excess servicing may
be treated as qualified stated interest.
The Trust Stripped Coupon will be treated as a debt instrument with
original issue discount equal to the excess of the total amount payable with
respect to such Trust Stripped Coupon over the portion of the purchase price
allocated thereto. The sum of the daily portions of original issue
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discount on the Trust Stripped Coupon for each day during a year in which the
Subordinate Certificateholder holds the Trust Stripped Coupon will be included
in the Subordinate Certificateholder's income. It is unclear whether a
Subordinated Certificateholder's interest in Trust Stripped Bonds and Trust
Stripped Coupons should be treated separately, or aggregated and treated as a
single debt instrument for purposes of applying the original issue discount
rules. However, the Trustee intends to treat each Subordinated
Certificateholder's interest in Trust Stripped Bonds and Trust Stripped Coupons
as a single debt instrument issued on the day it is purchased for purposes of
calculating any original issue discount.
If the Subordinate Certificateholders receive distribution of less
than their share of the Trust's receipts of principal or interest (the
"Shortfall Amount") because of the subordination of the Subordinate
Certificates, holders of Subordinate Certificates would probably be treated for
federal income tax purposes as if they had (i) received as distributions their
full share of such receipts, (ii) paid over to the Senior Certificateholders an
amount equal to such Shortfall Amount and (iii) retained the right to
reimbursement of such amounts to the extent such amounts are otherwise available
as a result of collections on the Receivables or amounts available from a
Reserve Account or other form of credit enhancement, if any.
Under this analysis, (a) Subordinate Certificateholders would be
required to accrue as current income any interest income or original issue
discount on the Receivables that was a component of the Shortfall Amount, even
though such amount was in fact paid to the Senior Certificateholders, (b) a loss
would only be allowed to the Subordinate Certificateholders when their right to
receive reimbursement of such Shortfall Amount became worthless (i.e., when it
becomes clear that amount will not be available from any source to reimburse
such loss) and (c) reimbursement of such Shortfall Amount prior to such a claim
of worthlessness would not be taxable income to Subordinate Certificateholders
because such amount was previously included in income. Those results should not
significantly affect the inclusion of income for Subordinate Certificateholders
on the accrual method of accounting, but could accelerate inclusion of income to
Subordinate Certificateholders on the cash method of accounting by, in effect,
placing them on the accrual method. Moreover, the character and timing of loss
deductions is unclear. Subordinate Certificateholders are strongly urged to
consult their own tax advisors regarding the appropriate timing, amount and
character of any losses sustained with respect to the Subordinate Certificates
including any loss resulting from the failure to recover previously accrued
interest or discount income.
Election to Treat All Interest as Original Issues Discount. The OID
Regulations permit a Grantor Trust Certificateholder to elect to accrue all
interest, discount (including de minimis market or original issue discount)
(reduced by any premium) in income as interest, based on a constant yield
method. If such an election were to be made with respect to an interest in a
Base Asset with market discount, the Certificate Owner would be deemed to have
made an election to include in income currently market discount with respect to
all other debt instruments having market discount that such Grantor Trust
Certificateholder acquires during the year of the election or thereafter.
Similarly, a Grantor Trust Certificateholder that makes this election for an
interest
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in a Base Asset that is acquired at a premium will be deemed to have made an
election to amortize bond premium with respect to all debt instruments having
amortizable bond premium (including other Base Assets) that such Grantor Trust
Certificateholder owns or acquires. See "-- Premium", above. The election to
accrue interest, discount and premium on a constant yield method with respect to
a Grantor Trust Certificate is irrevocable.
Sale or Exchange of a Grantor Trust Certificate. Sale or exchange of
a Grantor Trust Certificate prior to its maturity will be treated as a sale or
exchange of the Grantor Trust Certificateholder's interest in the assets of the
Grantor Trust and will result in gain or loss equal to the difference, if any,
between the amount realized (exclusive of amounts attributable to accrued and
unpaid interest, which will be treated as ordinary income) and the owner's
adjusted basis in those assets. Such adjusted basis generally will equal the
Seller's cost for the Grantor Trust Certificate, increased by the original issue
discount and any market discount included in the seller's gross income with
respect to the Grantor Trust Certificate, and reduced (but not below zero) by
any premium amortized by the Seller and by principal payments on the Grantor
Trust Certificate previously received by the seller. Such gain or loss will be
capital gain or loss to an owner for which the interests in the assets of the
Grantor Trust represented by the Grantor Trust Certificate are "capital assets"
within the meaning of Section 1221, except that gain will be treated in whole or
in part as ordinary interest income to the extent of the Seller's interest in
accrued market discount not previously taken into income on underlying Base
Assets having a fixed maturity date of more than one year from the date of
origination. A capital gain or loss will be long-term or short-term depending
on whether or not the Grantor Trust Certificate has been owned for the long-term
capital gain holding period (currently more than one year).
Non-United States Grantor Trust Certificate Owners. Amounts paid to
Non-United States Owners (as defined above under "Owner Trusts--Tax Consequences
to Certificate Owners-- Taxation of Certain Foreign Certificate Owners) of
Grantor Trust Certificates will be treated as interest for purposes of United
States withholding tax. Such interest attributable to the underlying
Receivables will not be subject to the normal 30% (or such lower rate provided
for by an applicable tax treaty) withholding tax imposed on such amounts
provided that such Owner fulfills certain certification and other requirements.
Under these requirements, such Owner must certify, under penalty of perjury,
that it is not a "United States person" (as defined above under "Owner Trusts--
Tax Consequences to Note Owners--Backup Withholding and Information Reporting")
and must provide its name and address. If, however, interest or gain is
effectively connected to the conduct of a trade or business within the United
States by such Owner, such owner will be subject to United States federal income
tax thereon at graduated rates. Potential investors who are not United States
persons should consult their own tax advisors regarding the specific tax
consequences of owning a Certificate.
Backup Withholding. Distributions made on the Grantor Trust
Certificates and proceeds from the sale of such Certificates will be subject to
a "backup" withholding tax of 31% if, in general, the Grantor Trust
Certificateholder fails to comply with certain identification procedures, unless
such Owner is an exempt recipient under applicable provisions of the Code.
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MASTER TRUSTS
TREATMENT OF THE CERTIFICATES AS INDEBTEDNESS
In the case of a Master Trust, Federal Tax Counsel will deliver its
opinion that, although no transaction closely comparable to that contemplated
herein has been the subject of any Treasury regulation, revenue ruling or
judicial decision, based upon its analysis of the factors discussed below, the
Depositor (or the Seller) is properly treated as the owner of the Receivables
for federal income tax purposes and, accordingly, the Certificates, when issued,
will be properly characterized for federal income tax purposes as indebtedness
of the the Depositor (or the Seller) that is secured by the Receivables.
The Seller and Certificate Owners will express in the Agreement the
intent that, for federal, state and local income and franchise tax purposes, and
for the purposes of any other tax imposed on or measured by income, the
Certificates will be indebtedness of the Seller secured by the Receivables. The
Seller, by entering into the Agreement, each Certificate holder, by the
acceptance of a Certificate, and each Certificate Owner, by virtue of accepting
a beneficial interest in a Certificate, will agree to treat the Certificates (or
the beneficial interests therein) as indebtedness of the Seller secured by the
Receivables for federal, state and local income and franchise tax purposes and
for the purposes of any other tax imposed on or measured by income. However,
because different criteria are used in determining the non-tax accounting
treatment of a transaction, the Seller is expected to treat the Agreement for
financial accounting purposes as a transfer of an ownership interest in the
Receivables and not as creating a debt obligation of the Seller.
The economic substance of a transaction generally determines its
federal income tax consequences and the form of a transaction, while a relevant
factor, is generally not conclusive evidence of its economic substance. In
appropriate circumstances the courts have allowed taxpayers, as well as the IRS,
to treat a transaction in accordance with its economic substance,
notwithstanding that participants characterized the transaction differently for
nontax purposes. In some instances, however, courts have held that a taxpayer
is bound by the particular form it has chosen for a transaction, even if the
substance of the transaction does not accord with its form. Based on the advice
of Federal Tax Counsel, the Depositor believes that the rationale of those cases
will not apply to this transaction.
The determination of whether the economic substance of a transfer of
an interest in property is a sale or a loan secured by the transferred property
depends on numerous factors that indicate whether the transferor has
relinquished (and the transferee has obtained) substantial incidents of
ownership in the property. Among the primary factors considered are whether the
transferee has obtained the opportunity for gain if the property increases in
value, has assumed the risk of loss if the property decreases in value and, in
the case of accounts receivable such as the Receivables, whether the transferee,
at the time of transfer, has a fixed interest in the proceeds of the receivable
when collected. Federal Tax Counsel will consider such factors in rendering its
opinion that the
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Certificates are properly characterized for federal income tax purposes as
indebtedness of the Seller secured by the Receivables. Contrary
characterizations that could be asserted by the IRS are described under
"Possible Characterization of the Arrangement as a Partnership or Association
Taxable as a Corporation" below. Except as otherwise expressly indicated, the
following discussion assumes that the Certificates are properly treated as debt
obligations of the Seller for federal income tax purposes.
Interest Income to Certificate Owners. It is anticipated that the
Certificates will be issued at par value (or at an insubstantial discount from
par value) and therefore, except as discussed below or in the applicable
Prospectus Supplement, will not be issued with original issue discount.
As discussed above under "Owner Trust--Tax Consequences to Note
Owners--Interest Income on the Notes" and "--Original Issue Discount", interest
that constitutes "qualified stated interest" is includible in a Certificate
Owner's income as ordinary interest income when it is received or accrued in
accordance with the Certificate Owner's method of tax accounting. Interest that
does not constitute "qualified stated interest" is generally included in the
Certificate's stated redemption price at maturity and is included in the
Certificate Owner's income under the rules governing original issue discount.
One requirement for treatment as "qualified stated interest" is that
the interest be "unconditionally payable". Under the OID Regulations, interest
is considered unconditionally payable only if late payment or nonpayment is
expected to be penalized or reasonable remedies exist to compel payment. The IRS
has recently clarified this rule in a published ruling. Because the Certificate
Owners will not have available default remedies ordinarily available to holders
of debt instruments, the IRS could take the position that the interest payable
on the Certificates is not "unconditionally payable" within the meaning of the
Original issue discount Regulations. In such case, all or a portion of the
stated interest on a Certificate would be included in a Certificate Owner's
income under the rules governing original issue discount (and the actual receipt
of stated interest would not be included in income). Under the rules summarized
below, if the yield on the Certificates is not materially different from the
coupon, this treatment would have no significant effect on Certificate Owners
using the accrual method of accounting. However, cash method Certificate Owners
may be required to report income with respect to the Certificates in advance of
the receipt of cash attributable to such income. The Certificate Owners may be
required to accrue any carryover amount in income in advance of the receipt of
cash with respect to such regardless of whether such Certificate Owners are on
the cash or accrual method of accounting.
If the Certificates were treated as being issued with Original issue
discount, the following rules would apply. The excess of the payments with
respect to the Certificates over their issue price (in this case, the first
price at which a substantial amount of the Certificates is sold, excluding sales
to brokers or similar persons acting in the capacity of underwriters, placement
agents or wholesalers) would constitute original issue discount. A Certificate
Owner must include original issue discount in income as interest over the term
of the Certificate under a constant yield method. In general, original issue
discount must be included in income in advance of the receipt
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of cash representing that income. In the case of a debt instrument as to which
the repayment of principal may be accelerated as a result of the prepayment of
other obligations securing the debt instrument, the periodic inclusion of
original issue discount is determined under a special provision by taking into
account prepayment assumptions used in pricing the debt instrument and actual
prepayment experience. If this provision applies to the Certificates, the amount
of original issue discount which will accrue in any given "accrual period" may
either increase or decrease depending upon the actual prepayment rate. In the
event of a carryover amount, an accrual basis taxpayer will likely be required
to accrue the amount of each carryover amount even though such carryover amount
will not be paid until a later time. The amount and rate of accrual of original
issue discount with respect to securities similar to the Certificates are
calculated based on a reasonable assumed prepayment rate (the "Prepayment
Assumption") and adjustments are made in the amount and rate of accrual of such
discount to reflect differences between the actual prepayment rate and the
Prepayment Assumption. It is anticipated that future Treasury regulations will
provide that the assumed prepayment rate for securities such as the Certificates
will be the rate used in pricing the initial offering of the securities. No
representation is made that, in fact, the Receivables will be prepaid at a rate
based on the Prepayment Assumption or at any other rate.
Market Discount and Premium. A Certificate Owner who purchases a
Certificate at a market discount may be subject to the "market discount" rules
of the Code. These rules provide, in part, for the treatment of gain
attributable to accrued market discount as ordinary income upon the receipt of
partial principal payments or on the sale or other disposition of the
Certificate, and for the deferral of interest deductions with respect to debt
incurred to acquire or carry the market discount Certificate. See "Owner
Trusts--Tax Consequences to Note Owners--Market Discount.
If a Certificate is purchased by a Certificate Owner at a premium,
such premium will be amortized as an offset to interest income (with a
corresponding reduction in the Certificate Owner's basis) under a constant yield
method over the term of the Certificate if an election under Section 171 of the
Code is made or is previously in effect. See "Owner Trusts--Tax Consequences to
Note Owners--Premium.
Disposition of Certificates. If a Certificate is sold, exchanged or
otherwise disposed of, a Certificate Owner generally will recognize gain or loss
in an amount equal to the difference between the amount realized on the sale,
exchange or disposition and the Certificate Owner's adjusted tax basis in the
Certificate. The adjusted tax basis of a Certificate generally will equal the
cost of the Certificate to the Certificate Owner, increased by any original
issue discount or market discount previously includible in the Certificate
Owner's gross income, and reduced by the portion of the basis of the Certificate
allocable to payments on the Certificate previously received by the Certificate
Owner and any amortized premium. Subject to the market discount rules, gain or
loss on the sale or other disposition of a Certificate will generally be capital
gain or loss if the Certificate is held by the Certificate Owner as a capital
asset. Capital gain or loss will be long-term if the Certificate is held by the
Certificate Owner for more than one year and otherwise will be short-term.
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Possible Characterization of the Arrangement as a Partnership or Association
Taxable as a Corporation
Although, as described above, Federal Tax Counsel will deliver an
opinion that the Certificates are properly characterized as debt of the Seller
for federal income tax purposes, such opinion is not binding on the IRS or the
courts and no assurance can be given that this characterization would prevail.
If the IRS were to contend successfully that the Certificates were not debt
obligations of the Seller for federal income tax purposes, the arrangement among
the Seller and the Certificate Owners might be classified for federal income tax
purposes as either a partnership (including a publicly traded partnership) or an
association taxable as a corporation that owns the Receivables.
If the Certificates were treated as interests in a partnership, the
partnership would probably 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" that
is not "derived in the conduct of a financial or insurance business." If a
deemed partnership between the Seller and the Certificate Owners 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 Seller and the
Certificate Owners as partners in such a partnership according to their
respective interests therein.
The income reportable by the Certificate Owners as partners could
differ from the income reportable by the Certificate Owners as holders of debt
obligations of the Seller. For example, a cash basis Certificate Owner might be
required to report income when it accrued to the partnership rather than when it
is received by the Certificate Owner. Moreover, an individual's share of
expenses of the partnership would be miscellaneous itemized deductions that, in
the aggregate, are allowed as deductions only to the extent they exceed two
percent of the individual's adjusted gross income, and an individual Certificate
Owner's deduction for such holder's share of expenses of the partnership would
be subject to reduction under Section 68 of the Code if the individual's
adjusted gross income exceeded certain limits. As a result, the individual
might be taxed on a greater amount of income than the stated rate on the
Certificates.
If, alternatively, the arrangement created by the Agreement were
treated as either an association taxable as a corporation or a "publicly traded
partnership" taxable as a corporation, the resulting entity may be subject to
federal income taxes at corporate tax rates on its taxable income from the
Receivables. Because neither the Seller nor the Depositor will provide any
indemnity for income taxes such a tax might result in reduced distributions to
Certificate Owners and Certificate Owners might be liable for a share of such a
tax. Moreover, distributions by the entity would probably not be deductible in
computing the entity's taxable income and all or part of the distributions to
Certificate Owners would generally be treated as dividend income to the
Certificate Owners.
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Since the Seller will treat the Certificates as indebtedness for
federal income tax purposes, the Seller will not comply with the tax reporting
requirements that would apply under these alternative characterizations of the
Certificates.
Foreign Investors
Subject to the discussion of backup withholding below, and assuming
the Certificates represent debt obligations of the Seller for federal income tax
purposes, Foreign Investors generally will not be subject to United States
federal withholding tax with respect to payments of principal and interest on
Certificates, provided that certain conditions are met. Under United States
federal income tax law now in effect, payments of principal and interest
(including original issue discount) with respect to a Certificate to any Foreign
Investor will not be subject to United States federal withholding tax, provided,
in the case of interest (including original issue discount), that (i) such
Investor does not actually or constructively own 10% or more of the total
combined voting power of all classes of equity of the Trust, (ii) such Investor
is not for federal income tax purposes a controlled foreign corporation related,
directly or indirectly, to the Trust through equity ownership, (iii) such
Investor is not a bank receiving interest described in Section 881(c)(3)(A) of
the Code and (iv) either (A) the Foreign Investor certifies, under penalties of
perjury, to the Trust or paying agent, as the case may be, that such Investor is
a Foreign Investor and provides such Investor's name and address, or (B) a
securities clearing organization, bank or other financial institution that holds
customers' securities in the ordinary course of its trade or business (a
"financial institution") and holds the Certificate, certifies, under penalties
of perjury, to the Trust or paying agent, as the case may be, that such
Certificate has been received from the beneficial owner by it or by a financial
institution between it and the beneficial owner and furnishes the payor with a
copy thereof. A certificate described in this paragraph is effective only with
respect to payments of interest (including original issue discount) made to the
certifying Foreign Investor after the issuance of the certificate in the
calendar year of its issuance and the two immediately succeeding calendar years.
As used herein, the term "Foreign Investor" means a Certificate Owner
that is, for United States federal income tax purposes, (i) a nonresident alien
individual, (ii) a foreign corporation, (iii) a nonresident alien fiduciary of a
foreign estate or trust or (iv) a foreign partnership one or more of the members
of which is, for United States federal income tax purposes, a nonresident alien
individual, a foreign corporation or a nonresident alien fiduciary of a foreign
estate or trust.
Notwithstanding the foregoing, interest described in Section 871(h)(4)
of the Code will be subject to United States withholding tax at a 30% rate (or
such lower rate as may be provided by an applicable treaty). In general,
interest described in Section 871(h)(4) of the Code includes (subject to certain
exceptions) any interest the amount of which is determined by reference to
receipts, sales or other cash flow of the issuer or a related person, any income
or profits of the issuer or a related person, any change in the value of any
property of the issuer or a related person or any dividends, partnership
distribution or similar payments made by the issuer or a related person.
Interest described in Section 871(h)(4) of the Code may include other types of
contingent
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interest identified by the IRS in future Treasury Regulations. If the Trust
issues Certificates the interest on which is described in Section 871(h)(4) of
the Code, the United States withholding tax consequences of any such
Certificates will be described in the applicable Prospectus Supplement.
If a Foreign Investor is engaged in a trade or business in the United
States and interest (including original issue discount) on the Certificate is
effectively connected with the conduct of such trade or business, the Foreign
Investor, although exempt from the withholding tax discussed above, will be
subject to United States federal income tax on such interest (including original
issue discount) in the same manner as if it were a United States person (as
defined below). In lieu of the certificate described above, such Investor will
be required to provide a properly executed IRS Form 4224 in order to claim an
exemption from withholding tax. In addition, if such Investor is a foreign
corporation, it may be subject to a branch profits tax equal to 30% (or such
lower rate as may be specified by an applicable treaty) of its effectively
connected earnings and profits for the taxable year, subject to adjustments.
For this purpose, interest (including original issue discount) on a Certificate
will be included in the earnings and profits of such Investor if such interest
(including original issue discount) is effectively connected with the conduct by
such Investor of a trade or business in the United States.
Generally, any gain or income (other than that attributable to accrued
interest or original issue discount) realized upon the sale, exchange,
retirement or other disposition of a Certificate will not be subject to United
States federal income tax unless (i) such gain or income is effectively
connected with a trade or business in the United States of the Foreign Investor
or (ii) in the case of a Foreign Investor who is a nonresident alien individual,
the Foreign Investor is present in the United States for 183 days or more in the
taxable year of such sale, exchange, retirement or other disposition and either
(a) such individual has a "tax home" (as defined in Section 911(d)(3) of the
Code) in the United States or (b) the gain is attributable to an office or other
fixed place of business maintained by such individual in the United States.
If the IRS were to contend successfully that the Certificates
represent interests in a partnership (not taxable as a corporation), a
Certificate Owner that is a nonresident alien, foreign corporation or foreign
estate or trust 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 the branch profits tax in the case of a corporation, and would be
subject to withholding tax on its share of partnership income. If the
Certificates were recharacterized as interests in a association taxable as a
corporation or a "publicly traded partnership" taxable as a corporation, to the
extent distributions under the Agreement were treated as dividends, a
nonresident alien individual or foreign corporation would generally be subject
to withholding tax on the gross amount of such dividends at the rate of 30% (or
lower rate as provided by an applicable treaty). In either case, and assuming
the Certificates are recharacterized as partnership interests or equity
interests in a corporation, a Certificate Owner that is a nonresident alien,
foreign corporation, foreign partnership or foreign estate or trust might be
subject to federal income tax on any gain from the sale of the Certificates.
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BACKUP WITHHOLDING
Distributions made on the Certificates and proceeds from the sale of
such Certificates will be subject to a "backup" withholding tax of 31% if, in
general, the Certificate Owners fails to comply with certain identification
procedures, unless such Owner is an exempt recipient under applicable provisions
of the Code.
CERTAIN STATE AND LOCAL TAX CONSIDERATIONS
An investment in the Securities may have state or local income,
franchise, personal property or other tax consequences. Such consequences may
depend upon, among other things, the tax laws of the jurisdiction where the
Security Owners reside or are doing business, the characterization of the Trust
(e.g., as a trust, partnership or other entity) for state or local tax purposes,
whether the Trust is considered to be doing business in a particular
jurisdiction, and the classification of the Securities as equity or debt or as
an undivided interest in the underlying Base Assets under the laws of a
jurisdiction.
Generally, the tax treatment of the Securities for federal income tax
purposes should apply for state and local tax purposes. Thus, if the
Certificates or Notes are treated as indebtedness for federal income tax
purposes, they should likewise be treated as indebtedness for state and local
tax purposes. In such case, Certificate Owners and Note Owners not otherwise
subject to state or local tax would not become subject to such tax solely
because of their ownership of the Securities. However, a Security Owner already
subject to tax in a state or locality could be required to pay additional tax as
a result of such holder's ownership or disposition of Securities.
If some or all of the Securities are treated as equity interests in a
partnership (not treated as a publicly traded partnership taxable as a
corporation) for federal income tax purposes, such Securities generally should
be treated as partnership interests for state and local income tax purposes. In
such case, the partnership should be viewed as a passive holder of investments
and, as a result, should not be subject to state or local taxation and the
Security Owners should not be subject to taxation on income received through the
partnership unless they are already subject to tax in such jurisdiction.
However, if the state or local jurisdiction viewed such partnership as doing
business in such jurisdiction, Security Owners would normally be subject to
taxation in such jurisdiction on their allocable share of the partnership's
income even though they otherwise had no contact with such jurisdiction.
Additionally, notwithstanding the flow-through treatment that generally applies
to partnerships, some states and localities impose an entity level tax on
partnerships and trusts doing business within their jurisdiction.
The foregoing discussion presents some of the state and local tax
consequences that might apply to Security Owners. Additional tax disclosure
will be provided in the Prospectus Supplement if necessary. However, because of
the variation in each state's and locality's tax laws based in whole or in part
upon income, it is impossible to predict tax consequences to Note Owners and
Certificate Owners all of the taxing jurisdictions in which they are already
subject to
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tax. Accordingly, Security Owners are strongly urged to consult their own tax
advisors with respect to state and local tax consequences arising out of the
purchase, ownership and disposition of Securities.
***
THE TAX DISCUSSIONS SET FORTH ABOVE ARE INCLUDED FOR GENERAL
INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A NOTE OWNER'S OR
CERTIFICATE OWNER'S PARTICULAR TAX SITUATION. PROSPECTIVE PURCHASERS OF NOTES
OR CERTIFICATES SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE TAX
CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF NOTES AND
CERTIFICATES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL AND FOREIGN AND
OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX LAWS.
ERISA CONSIDERATIONS
GENERAL
Set forth below are certain consequences under ERISA and the Code that
a fiduciary (a "Plan Fiduciary") of an "employee benefit plan" (as defined in
and subject to ERISA) or of a "plan" (as defined in Section 4975 of the Code)
who has investment discretion should consider before deciding to invest the
plan's assets in Securities. The following summary is intended to be a summary
of certain relevant ERISA issues and does not purport to address all ERISA
considerations that may be applicable to a particular plan.
In general, the terms "employee benefit plan" as defined in ERISA and
"plan" as defined in Section 4975 of the Code (a "Plan") refer to any plan or
account of various types which provide retirement benefits or welfare benefits
to an individual or to an employer's employees and their beneficiaries. Plans
include corporate pension and profit-sharing plans, "simplified employee pension
plans", Keogh plans for self-employed individuals (including partners in a
partnership), individual retirement accounts described in Section 408 of the
Code and health insurance plans.
Each Plan Fiduciary must give appropriate consideration to the facts
and circumstances that are relevant to an investment in the Securities,
including the role that an investment in the Securities plays in the Plan's
investment portfolio. Each Plan Fiduciary, before deciding to invest in the
Securities, must be satisfied that investment in the Securities is a prudent
investment for the Plan, that the investments of the Plan, including the
investment in the Securities, are diversified
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so as to minimize the risks of large losses and that an investment in the
Securities complies with the Plan and related trust documents.
Each Plan considering acquiring a Security should consult its own
legal and tax advisors before doing so.
EXEMPT PLANS
ERISA and Section 4975 of the Code do not apply to governmental plans
and certain church plans, each as defined in Section 3 of ERISA and Section
4975(g) of the Code. However, fiduciaries with respect to these plans may be
subject to federal, state or other laws similar in effect to ERISA and Section
4975 of the Code. The discussion below does not purport to address
considerations under such federal, state or other laws.
INELIGIBLE PURCHASERS
Securities may not be purchased with the assets of a Plan that is
sponsored by or maintained by the Depositor, the Trustee, the Issuer, the
Servicer or any of their respective affiliates. Securities may not be purchased
with the assets of a Plan if the Depositor, the Trustee, the Issuer, the
Servicer or any of their respective affiliates or any employees thereof: (i)
has investment discretion with respect to the investment of such Plan assets; or
(ii) has authority or responsibility to give or regularly gives investment
advice with respect to such Plan assets for a fee, pursuant to an agreement or
understanding that such advice will serve as a primary basis for investment
decisions with respect to such Plan assets and that such advice will be based on
the particular investment needs of the Plan. A party that is described in
clause (i) or (ii) of the preceding sentence is a fiduciary under ERISA and the
Code with respect to the Plan, and any such purchase might result in a
"prohibited transaction" under ERISA and the Code.
PLAN ASSETS
It is possible that the purchase of a Security by a Plan will cause,
for purposes of Title I of ERISA and Section 4975 of the Code, the related Base
Assets to be treated as assets of that Plan. A regulation (the "DOL
Regulation") issued under ERISA by the United States Department of Labor (the
"DOL") contains rules for determining when an investment by a Plan in an entity
will result in the underlying assets of the entity being plan assets. Those
rules provide that the assets of an entity will not be "plan assets" of a Plan
that purchases an interest therein if such interest is not an "equity interest".
The DOL Regulation defines an equity interest as an interest other than an
instrument that is treated as indebtedness under applicable local law and that
has no substantial equity features. The DOL Regulation provides, with respect to
the purchase of an equity interest by a Plan, that the assets of an entity will
not be plan assets of a Plan that purchases an interest therein if certain
exceptions apply including the following: (i) the investment by all "benefit
plan investors" is not "significant"; or (ii) the security issued by the entity
is a "publicly
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offered security". The Prospectus Supplement will specify whether any of the
exceptions set forth in the regulation under ERISA may apply with respect to a
Series of Securities.
With respect to clause (i) of the preceding paragraph, the term
"benefit plan investors" includes all plans and accounts of the types described
above under "General" as employee benefit plans and accounts, whether or not
subject to ERISA, as well as entities that hold "plan assets" due to investments
made in such entities by any of such plans or accounts. Investments by benefit
plan investors will be deemed not significant if benefit plan investors own, in
the aggregate, less than a 25% interest in the entity, determined without regard
to the investments of persons with discretionary authority or control over the
assets of such entity, of any person who provides investment advice for a fee
with respect to such assets and of "affiliates" of such persons (within the
meaning of the DOL Regulation).
With respect to clause (ii) of the second preceding paragraph, a
publicly offered security is one which is (a) "freely transferable", (b) part of
a class of securities that is "widely held" and (c) either as (1) part of a
class of securities registered under Section 12(b) or 12(g) of the Exchange Act,
or (2) sold to the Plan as part of a public offering pursuant to an effective
registration statement under the Securities Act and registered under the
Exchange Act within 120 days (or such later time as may be allowed by the
Securities and Exchange Commission) after the end of the fiscal year of the
issues in which the offering of such security occurred. Whether a security is
"freely transferable" is based on all relevant facts and circumstances. A class
of securities is "widely held" only if it is of a class of securities owned by
100 or more investors independent of the issuer and of each other.
If none of the exceptions set forth in the DOL Regulation (including
those discussed above) apply, the Base Assets will be deemed to be the assets of
each benefit plan investor for purposes of ERISA. In such a case, the
discussion set forth in the following sections will apply.
Consequences of Characterization as Plan Assets
If the Base Assets are plan assets, the Trustee, or, in the case of
Notes, the Depositor or its affiliate will be a fiduciary under ERISA with
respect to Plan investors, and its duties and liabilities will be subject to the
provisions of ERISA. Generally, the fiduciary provisions of ERISA require Plan
Fiduciaries to act for the exclusive benefit of participants and beneficiaries
of the Plan, to employ the care, skill, prudence and diligence that a prudent
man acting in a like capacity and familiar with such matters would use in the
conduct of an enterprise of a like character and with like aims, to diversify
investments so as to minimize the risk of large losses and to comply with the
Plan and trust documents of the Plan.
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Prohibited Transactions
If the Base Assets are plan assets, Section 406 of ERISA will prohibit
the Trustee, among others, from causing the assets of the Issuer to be involved,
directly or indirectly, in certain types of transactions with "parties in
interest" to investing Plans unless a statutory or administrative exemption
applies. If the prohibited transaction restrictions of Section 406 of ERISA are
violated, ERISA generally provides for criminal and civil penalties upon the
Plan Fiduciary and possibly other persons. Section 4975(c) of the Code
generally imposes an excise tax on "disqualified persons" who engage, directly
or indirectly, in similar types of transactions with the assets of Plans subject
to such Section (except that an IRA that engages in a prohibited transaction may
instead forfeit its tax-exempt status) and also requires recision of such
transaction.
The types of transactions subject to the prohibited transaction
restrictions of ERISA and Section 4975(c) of the Code include: (i) sales,
exchanges or leases of property (such as the Securities), (ii) loans or other
extensions of credit and (iii) the furnishing of goods and services. As
described in Section 406(b)(1) or Section 4975(c)(1)(E) of the Code, the use of
plan assets by or for the benefit of parties in interest or disqualified persons
may also constitute a prohibited type of transaction.
The Depositor, the Trustee, the Issuer, the Servicer and certain other
persons and certain affiliates thereof, might be considered or might become a
party in interest or disqualified person with respect to a Plan. If so, the
acquisition, holding or disposition of Securities by or on behalf of such Plan
could give rise to one or more "prohibited transactions" within the meaning of
Section 406 ERISA and Section 4975(c) of the Code unless an exemption described
below or some other exemption is available. In particular, the sale of a
Security by the Underwriters or the services provided by the Trustee to such
Plan would appear in certain circumstances to be a prohibited transaction unless
an exemption applies.
There are numerous exemptions to the prohibited transaction
restrictions of Section 406 of ERISA and Section 4975 of the Code, and the
applicability of any particular exemption depends upon the circumstances.
Certain exemptions are described below:
The prohibited transaction restrictions of Section 406(a) of ERISA and
Sections 4975(c)(1)(A) through (D) of the Code also do not apply to the purchase
or sale of Securities by a Plan from a party in interest that is a registered
broker-dealer if the conditions set forth in Prohibited Transaction Class
Exemption 75-1 ("PTCE 75-1") are satisfied. That exemption, however, does not
extend to violations of Section 406(b) of ERISA or Section 4975(c)(1)(E) of the
Code. The conditions that must be satisfied for PTCE 75-1 to apply as follows:
(i) the broker-dealer is registered under the Exchange Act and
customarily purchases and sells securities for its own account in the
ordinary course of its business as a broker-dealer;
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(ii) the transaction is at least as favorable to the Plan as an
arm's-length transaction with an unrelated party and, at the time of the
transaction, was not a prohibited transaction within the meaning of Section
503(b) of the Code;
(iii) the broker dealer is not a fiduciary with respect to the Plan
and is a party in interest with respect to the Plan solely because it or an
affiliate provides services to the Plan; and
(iv) for a period of six years from the date of the transaction, the
Plan maintains or causes to be maintained such records as are necessary to
determine whether the foregoing conditions have been met, and such records
are unconditionally available for examination during normal business hours by
the DOL and certain other persons.
Section 408(b)(2) of ERISA and Section 4975(d)(2) of the Code permit
the payment of fees to parties in interest that perform services for a Plan if
(i) such services are appropriate and helpful for the establishment or operation
of the Plan, (ii) such services are provided under a reasonable arrangement
(including termination upon reasonably short notice without penalty); and (iii)
no more than reasonable compensation is paid therefor.
Before purchasing any Securities, a Plan Fiduciary should consult with
its counsel and determine whether there exists any prohibition to the
acquisition and holding of such Securities. In particular, a Plan Fiduciary
should determine whether the Underwriters, the Issuer, the Trustee, the
Depositor or the Servicer are parties in interest with respect to the Plan and
whether any prohibited transaction exemptions, such as the Underwriter's
Exemption PTCE 75-1, Section 408(b)(2) of ERISA or Section 4975(d)(2) of the
Code, apply. A Prospectus Supplement may specify that Plans may not purchase a
Security if no Exemption would apply.
Prohibited Transaction Class Exemptions
Certain prohibited transaction class exemptions ("PTCEs") issued by
DOL, including PTCE 84-14 (qualified professional asset managers), PTCE 90-1
(insurance company pooled separate accounts) and PTCE 91-38 (bank collective
investment fund), may apply to Plans purchasing Securities and to some or all
transactions involving the Securities if the conditions for an applicable
exemption are satisfied.
Except as otherwise set forth, the foregoing statements regarding the
consequences under ERISA of an investment in Securities are based on the
provisions of the Code and ERISA as currently in effect, and the existing
administrative and judicial interpretations thereunder. No assurance can be
given that administrative, judicial or legislative changes will not occur that
would not make the foregoing statements incorrect or incomplete.
Acceptance of subscriptions on behalf of individual retirement
accounts or other Plans is in no respect a representation by the Depositor the
Issuer, the Trustee, the Servicer or any other party that this investment meets
all relevant legal requirements with respect to investments by any
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particular Plan or that such investment is appropriate for any particular Plan.
Each Plan Fiduciary should consult with attorneys and financial advisors as to
the propriety of such an investment in light of the circumstances of the
particular Plan and current tax law.
PLAN OF DISTRIBUTION
On the terms and conditions set forth in an underwriting agreement
with respect to the Notes, if any, of a given Series and an underwriting
agreement with respect to the Certificates of such Series (collectively, the
"Underwriting Agreements"), the Depositor will agree to cause the related Trust
to sell to the underwriters named therein and in the related Prospectus
Supplement, and each of such underwriters will severally agree to purchase, the
principal amount of each Class of Notes and Certificates, as the case may be, of
the related Series set forth therein and in the related Prospectus Supplement.
In the Underwriting Agreements with respect to any given Series of
Securities, the several underwriters will agree, subject to the terms and
conditions set forth therein, to purchase all of the Notes and Certificates, as
the case may be, described therein that are offered hereby and by the related
Prospectus Supplement if any of such Notes and Certificates, as the case may be,
are purchased.
Each Prospectus Supplement will either (i) set forth the price at
which each Class of Notes and Certificates, as the case may be, being offered
thereby will be offered to the public and any concessions that may be offered to
certain dealers participating in the offering of such Notes and Certificates, as
the case may be, or (ii) specify that the related Notes and Certificates, as the
case may be, are to be resold by the underwriters in negotiated transactions at
varying prices to be determined at the time of such sale. After the initial
public offering of any such Notes and Certificates, as the case may be, such
public offering prices and such concessions may be changed.
Each Underwriting Agreement will provide that the related Seller will
indemnify the related underwriters against certain civil liabilities, including
liabilities under the Securities Act, or contribute to payments the several
underwriters may be required to make in respect thereof.
Each Trust may, from time to time, invest the funds in its Trust
Accounts in Eligible Investments acquired from such underwriters.
Pursuant to each of the Underwriting Agreements with respect to a
given Series of Securities, the closing of the sale of any Class of Securities
will be conditioned on the closing of the sale of all other such Classes under
such Underwriting Agreement.
The place and time of delivery for the Notes and Certificates, as the
case may be, in respect of which this Prospectus is delivered will be set forth
in the related Prospectus Supplement.
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LEGAL MATTERS
Certain legal matters relating to the Securities of any Series will be
passed upon by Sidley & Austin, New York, New York. Certain federal income tax
and other matters will be passed upon for each Trust by Sidley & Austin and
certain state tax and other matters will be passed upon for each Trust by
[ ].
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INDEX OF DEFINED TERMS
TERM PAGE
- ---- ----
Accounts................................................................
Accumulation Period.....................................................
Adjusted Issue Price....................................................
Additional Accounts.....................................................
Additional Base Assets..................................................
Agreement...............................................................
Ancillary Arrangements..................................................
Asset Backed Certificates...............................................
Asset Backed Notes......................................................
Base Assets.............................................................
Carryover Amount........................................................
Cash Collateral Guaranty................................................
Cash Collateral Account.................................................
Cede....................................................................
CEDEL...................................................................
CEDEL Participants......................................................
Certificateholder.......................................................
Certificateholders......................................................
Certificateholder's Interest............................................
Certificates............................................................
Class of Receivables Pooling Certificates...............................
CODE....................................................................
Collateral Indebtedness Interests.......................................
Collection Account......................................................
Collection Period.......................................................
Commission..............................................................
Controlled Accumulation Amount..........................................
Controlled Amortization Period..........................................
Controlled Amortization Amount..........................................
Controlled Deposit Amount...............................................
CRB Trust...............................................................
CRB Servicer............................................................
CRB Trustee.............................................................
CRB Issuer..............................................................
Credit Enhancement......................................................
Credit Card Accounts....................................................
Credit Card Receivables.................................................
Date of Processing......................................................
Defaulted Amount........................................................
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TERM PAGE
- ---- ----
Definitive Securities...................................................
Depositaries............................................................
Depositor...............................................................
Distribution Date.......................................................
DTC.....................................................................
Due Period..............................................................
Eligible Deposit Account................................................
Eligible Institution....................................................
Eligible Investments....................................................
Eligible Servicer.......................................................
Enhancement Invested Amount.............................................
ERISA...................................................................
Euroclear...............................................................
Euroclear Operator......................................................
Euroclear Participants..................................................
Exchange Act............................................................
Exemption...............................................................
Expected Final Payment Date.............................................
Expected Final Payment..................................................
Federal Tax Counsel.....................................................
Final Scheduled Payment Date............................................
Finance Charge Receivables..............................................
FIRREA..................................................................
Floating Allocation Percentage..........................................
Foreign Investor........................................................
GAO.....................................................................
Grantor Trust Certificateholder.........................................
Holders.................................................................
Indenture Trustee.......................................................
Indirect Participants...................................................
Initial Accounts........................................................
Insolvency Event........................................................
Interest Rate...........................................................
Investment Earnings.....................................................
IRS.....................................................................
L\C Bank................................................................
Labor...................................................................
Lump Sum Additions......................................................
Master Pooling and Servicing Agreement..................................
Master Trust............................................................
Maturity Assumptions....................................................
Net Portfolio Yield.....................................................
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TERM PAGE
- ---- ----
Non-United States Holder................................................
Non-United States Owner.................................................
Notes...................................................................
Note Distribution Account...............................................
Noteholder..............................................................
Noteholders.............................................................
objective rate..........................................................
OID Regulations.........................................................
Owner Trust.............................................................
Paired Series...........................................................
Participations..........................................................
Pass-Through Rate.......................................................
Pay Out Events..........................................................
Paying Agent............................................................
payment date............................................................
Plan....................................................................
Plan Assets Regulation..................................................
Pooling Agreement.......................................................
Pre-Funded Amount.......................................................
Pre-Funding Account.....................................................
Prepayment Assumption...................................................
Principal Allocation Percentage.........................................
Principal Funding Account...............................................
Principal Receivables...................................................
Principal Only Certificates.............................................
Principal Funding Account...............................................
Principal Commencement..................................................
Prospectus..............................................................
Prospectus Supplement...................................................
Qualifying Substitute Base Asset........................................
Rapid Amortization Period...............................................
Rating Agency...........................................................
Rating Effect...........................................................
Receivables Pooling Certificates........................................
Registrar...............................................................
Related Documents.......................................................
Removed Accounts........................................................
Removed Base Asset......................................................
Repurchase Amount.......................................................
Required Seller's Interest..............................................
Reserve Account.........................................................
Reserve Account.........................................................
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TERM PAGE
- ---- ----
Restricted Group........................................................
Revolving Period........................................................
Sale and Servicing Agreement............................................
Securities..............................................................
Securityholder..........................................................
Securityholders.........................................................
Seller..................................................................
Senior Certificate......................................................
Senior Class Percentage.................................................
Series..................................................................
Series Cut-Off Date.....................................................
Series Enhancement......................................................
Series of Receivables Pooling Certificates..............................
Series of Securities....................................................
Series Termination Date.................................................
Servicer Default........................................................
Servicer................................................................
Servicing Fee...........................................................
Short Term Note.........................................................
Shortfall Amount........................................................
Special Payment Date....................................................
Spread Account..........................................................
stated redemption price at maturity.....................................
Stripped Certificates...................................................
Stripped Certificates...................................................
Subordinate Certificates................................................
Subordinate Certificateholder...........................................
Subordinate Class Percentage............................................
tax home................................................................
TIN.....................................................................
Transfer Agent..........................................................
Trust Accounts..........................................................
Trust Stripped Bond.....................................................
Trust Stripped Coupon...................................................
Trustee.................................................................
UCC.....................................................................
Underwriter.............................................................
Underwriting Agreements.................................................
United States Person....................................................
Yield Calculation.......................................................
Yield Factor............................................................
Zero Coupon Certificates................................................
-128-
<PAGE>
ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND
TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered
Certificates (the "Global Securities") will be available only in book entry
form. Unless otherwise specified in a Prospectus Supplement for a Series,
investors in the Global Securities may hold such Global Securities through any
of DTC, CEDEL or Euroclear. The Global Securities will be tradeable as home
market instruments in both the European and U.S. domestic markets. Initial
settlement and all secondary trades will settle in same day funds.
Secondary market trading between investors holding Global Securities
through CEDEL and Euroclear will be conducted in the ordinary way in accordance
with their normal rules and operating procedures and in accordance with
conventional eurobond practice (i.e., seven calendar day settlement).
Secondary market trading between investors holding Global Securities
through DTC will be conducted according to the rules and procedures applicable
to U.S. corporate debt obligations.
Secondary cross-market trading between CEDEL or Euroclear and DTC
participants holding Global Securities will be effected on a delivery-against-
payment basis through Citibank and Morgan as the respective depositaries of
CEDEL and Euroclear and as participants in DTC.
Non-U.S. holders of Global Securities will be exempt from U.S.
withholding taxes, provided that such holders meet certain requirements and
deliver appropriate U.S. tax documents to the securities clearing organizations
or their participants.
INITIAL SETTLEMENT
All Global Securities will he held in book-entry form by DTC in the
name of Cede & Co. as nominee of DTC. Investors' interests in the Global
Securities will be represented through financial institutions acting on their
behalf as direct and indirect participants in DTC. As a result, CEDEL and
Euroclear will hold positions on behalf of their participants through their
respective Depositaries, Citibank and Morgan, which in turn will hold such
positions in accounts as participants of DTC.
Investors electing to hold their Global Securities through DTC will
follow the settlement practices applicable to conventional asset-backed
securities. Investor securities custody accounts will be credited with their
holdings against payment in same-day funds on the settlement date.
AI-1
<PAGE>
Investors electing to hold their Global Securities through CEDEL or
Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global security
and no "lock-up" or restricted period. Global Securities will be credited to
the securities custody accounts on the settlement date against payment in same-
day funds.
SECONDARY MARKET TRADING
Since the purchaser determines the place of delivery, it is important
to establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desire value
date.
Trading between DTC participants. Secondary market trading between
DTC participants will be settled using the procedures applicable to conventional
asset-backed securities.
Trading between CEDEL and/or Euroclear Participants. Secondary market
trading between CEDEL Participants or Euroclear Participants will be settled
using the procedures applicable to conventional eurobonds in same-day funds.
Trading between DTC seller and CEDEL or Euroclear purchaser. When
Global Securities are to be transferred from the account of a DTC participant to
the account of a CEDEL Participant or a Euroclear Participant, the purchaser
will send instructions to CEDEL or Euroclear through a participant at least one
business day prior to settlement. CEDEL or Euroclear will instruct Citibank or
Morgan, respectively, as the case may be, to receive the Global Securities
against payment. Payment will include interest accrued on the Global Securities
from and including the last coupon payment date to and excluding the settlement
date. Payment will then be made by Citibank or Morgan to the DTC participant's
account against delivery of the Global Securities. After settlement has been
completed, the Global Securities will be credited to the respective clearing
system and by the clearing system, in accordance with its usual procedures, to
the CEDEL Participant's or Euroclear Participant's account. The Global
Securities credit will appear the next day (European time) and the cash debit
will be back-valued to, and the interest on the Global Securities will accrue
from, the value date (which would be the preceding day when settlement occurred
in New York). If settlement is not completed on the intended value date (i.e.,
the trade fails), the CEDEL or Euroclear cash debit will be valued instead as of
the actual settlement date.
CEDEL Participants and Euroclear participants will need to make
available to the respective clearing systems the funds necessary to process
same-day funds settlement. The most direct means of doing so is to preposition
funds for settlement, either from cash on hand or existing lines of credit, as
they would for any settlement occurring within CEDEL or Euroclear. Under this
approach, they may take on credit exposure to CEDEL or Euroclear until the
Global Securities are credited to their accounts one day later.
AI-2
<PAGE>
As an alternative, if CEDEL or Euroclear has extended a line of credit
to them, participants can elect not to preposition funds and allow that credit
line to be drawn upon to finance settlement. Under this procedure, CEDEL
Participants or Euroclear Participants purchasing Global Securities would incur
overdraft charges for one day, assuming they cleared the overdraft when the
Global Securities were credited to their accounts. However, interest on the
Global Securities would accrue from the value date. Therefore, in many cases,
the investment income on the Global Securities earned during that one-day period
may substantially reduce or offset the amount of such overdraft charges,
although this result will depend on each participant's particular cost of funds.
Since the settlement is taking place during New York business hours,
DTC participants can employ their usual procedures for sending Global Securities
to Citibank or Morgan for the benefit of CEDEL Participants or Euroclear
Participants. The sale proceeds will be available to the DTC seller on the
settlement date. Thus, to the DTC participant a cross-market transaction will
settle no differently than a trade between two DTC participants.
Trading between CEDEL or Euroclear seller and DTC purchaser. Due to
time zone differences in their favor, CEDEL and Euroclear Participants may
employ their customary procedures for transactions in which Global Securities
are to be transferred by the respective clearing system, through Citibank or
Morgan, to a DTC participant. The seller will send instructions to CEDEL or
Euroclear through a participant at least one business day prior to settlement.
In these cases, CEDEL or Euroclear will instruct Citibank or Morgan, as
appropriate, to deliver the Global Securities to the DTC participant's account
against payment. Payment will include interest accrued on the Global Securities
from and including the last coupon payment date to and excluding the settlement
date. The payment will then be reflected in the account of the CEDEL
Participant or Euroclear Participant the following day, and receipt of the cash
proceeds in the CEDEL or Euroclear Participant's account would be back-valued to
the value date (which would be the preceding day, when settlement occurred in
New York). Should the CEDEL or Euroclear Participant have a line of credit with
its respective clearing system and elect to be in debit in anticipation of
receipt of the sale proceeds in its account, the back-valuation will extinguish
any overdraft charges incurred over that one-day period. If settlement is not
completed on the intended value date (i.e., the trade fails), receipt of the
cash proceeds in the CEDEL or Euroclear Participant's account would instead be
valued as of the actual settlement date.
Finally, day traders that use CEDEL or Euroclear and that purchase
Global Securities from DTC participants for delivery to CEDEL Participants or
Euroclear Participants should note that these trades would automatically fail on
the sale side unless affirmative action were taken. At least three techniques
should be readily available to eliminate this potential problem:
(1) borrowing through CEDEL or Euroclear for one day (until the
purchase side of the day trade is reflected in their CEDEL or Euroclear
accounts) in accordance with the clearing system's customary procedures;
AI-3
<PAGE>
(2) borrowing the Global Securities in the U.S. from a DTC participant
no later than one day prior to settlement, which would give the Global
Securities sufficient time to be reflected in their CEDEL or Euroclear
account in order to settle the sale side of the trade; or
(3) staggering the value dates for the buy and sell sides of the trade
so that the value date for the purchase from the DTC participant is at least
one day prior to the value date for the sale to the CEDEL Participant or
Euroclear Participant.
CERTAIN U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A beneficial owner of Global Securities holding securities through
CEDEL or Euroclear (or through DTC if the holder has an address outside the
U.S.) will be subject to the 30% U.S. withholding tax that generally applies to
payments of interest (including original issue discount) on registered debt
issued by U.S. persons, unless such holder takes one of the following steps to
obtain an exemption or reduced tax rate:
Exemption for non-U.S. persons (Form W-8). Non U.S. persons that are
beneficial owners can obtain a complete exemption from the withholding tax by
filing a signed Form W-8 (Certificate of Foreign Status).
Exemption for non-U.S. persons with effectively connected income (Form
4224). A non-U.S. person, including a non-U.S. corporation or bank with a U.S.
branch, for which the interest income is effectively connected with its conduct
of a trade or business in the United States, can obtain an exemption from the
withholding tax by filing Form 4224 (Exemption from Withholding of Tax on Income
Effectively Connected with the Conduct of a Trade or Business in the United
States).
Exemption or reduced rate for non-U.S. persons resident in treaty
countries (Form 1001). Non-U.S. persons that are beneficial owners residing in a
country that has a tax treaty with the United States can obtain an exemption or
reduced tax rate (depending on the treaty terms) by filing Form 1001 (Ownership,
Exemption or Reduced Rate Certificate). If the treaty provides only for a
reduced rate, withholding tax will be imposed at that rate unless the filer
alternatively files Form W-8. Form 1001 may be filed by the beneficial owner or
his agent.
Exemption for U.S. persons (Form W-9). U.S. persons can obtain a
complete exemption from the withholding tax by filing Form W-9 (Request for
Taxpayer Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The Global Security
holder, or in the case of a Form 1001 or a Form 4224 filer, his agent, files by
submitting the appropriate form to the person through whom he holds (the
clearing agency, in the case of persons holding directly on the books of the
clearing agency). Form W-8 and Form 1001 are effective for three calendar years
and Form 4224 is effective for one calendar year.
AI-4
<PAGE>
This summary does not deal with all aspects of foreign income tax
withholding that may be relevant to foreign holders of these Global Securities.
Investors are advised to consult their own tax advisors for specific tax advice
concerning their holding and disposing of these Global Securities.
AI-5
<PAGE>
================================================================================
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS
SUPPLEMENT OR THE PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
DEPOSITOR OR CS FIRST BOSTON. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO
NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH THEY RELATE
OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY
JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE
DELIVERY OF THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THEIR
RESPECTIVE DATES.
---------------
TABLE OF CONTENTS
PAGE
----
PROSPECTUS SUPPLEMENT
Summary..................................................................
Special Considerations...................................................
The Trust................................................................
Description of the Notes.................................................
Description of the Certificates..........................................
Description of the CRB...................................................
The Depositor............................................................
The Indenture............................................................
The Trust Agreement......................................................
Administration Agreement.................................................
The Indenture Trustee....................................................
The Owner Trustee........................................................
Use of Proceeds..........................................................
Certain Federal Income Tax Consequences..................................
State Tax Consequences...................................................
ERISA Considerations.....................................................
Legal Investment Considerations..........................................
Underwriting.............................................................
Legal Matters............................................................
Rating...................................................................
Index of Defined Terms...................................................
PROSPECTUS
Prospectus Supplement....................................................
Reports to Securityholders...............................................
Available Information....................................................
Incorporation of Certain Documents by Reference..........................
Summary of Terms.........................................................
Rick Factors.............................................................
The Trusts...............................................................
Trust Assets.............................................................
Series Enhancement.......................................................
Servicing of Receivables.................................................
Description of the Notes.................................................
Description of the Certificates..........................................
Certain Information Regarding the Securities.............................
Description of the Trust or Pooling Agreements...........................
Certain Legal Aspects of the Receivables.................................
The Depositor............................................................
Use of Proceeds..........................................................
Certain Federal Income Tax Consequences..................................
Certain State and Local Tax Considerations...............................
ERISA Considerations.....................................................
Plan of Distribution.....................................................
Legal Matters............................................................
Experts..................................................................
Index of Defined Terms...................................................
Annex I..................................................................
Until [ ] days after the date of this Prospectus Supplement, all dealers
effecting transactions in the Class A Certificates described in this Prospectus
Supplement, whether or not participating in this distribution, may be required
to deliver this Prospectus Supplement and the Prospectus. This is in addition
to the obligation of dealers to deliver this Prospectus Supplement and the
Prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
================================================================================
================================================================================
$[ ]
CSFB CARD
RECEIVABLES TRUSTS
$[ ] Floating Rate
Asset Backed Notes, Class [ ]
$[ ] Floating Rate
Asset Backed Notes, Class [ ]
$[ ] Floating Rate
Asset Backed Certificates, Class [ ]
Asset Backed Securities Corporation
(Depositor)
_________________
PROSPECTUS SUPPLEMENT
[ ], 199[ ]
___________________
CS First Boston
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
-------------------------------------------
The following is an itemized list of the estimated expenses to be
incurred in connection with the offering of the securities being offered
hereunder other than underwriting discounts and commissions:
Registration Fee................. $ 400,000/1/
Printing and Engraving Expenses..
Trustee's Fees and Expenses......
Legal Fees and Expenses..........
Blue Sky Fees and Expenses.......
Accountant's Fees and Expenses...
Rating Agency Fees...............
Miscellaneous....................
------------
Total
============
_____________
/1/Previously paid.
Item 16. Exhibits
--------
1.1 Form of Underwriting Agreement.**
3.1 Restated Certificate of Incorporation of Asset Backed
Securities Corporation.*
4.1 Form of Indenture.**
4.2 Form of Pooling and Servicing Agreement.**
4.3 Form of Standard Terms and Provisions of Pooling and
Servicing.**
4.4 Form of Reference Agreement.**
4.5 Form of Trust Agreement.**
5.1 Opinion of Sidley & Austin.**
8.1 Opinion of Sidley & Austin with respect to tax matters.**
10.1 Form of Receivables Purchase Agreement.**
10.2 Form of Master Servicing Agreement.**
10.3 Form of Servicing Agreement.**
23.1 Consent of Sidley & Austin (included in the opinions filed as
Exhibits 5.1 and 8.1).
24.1 Powers of Attorney of directors and officers of Asset Backed
Securities Corporation. (Included in the signature pages
hereto.)
__________________
* Previously filed.
** To be filed by amendment.
II-1
<PAGE>
Item 17. Undertakings
------------
(a) As to Rule 415:
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made of the securities registered hereby, a post-effective amendment to this
registration statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after
the effective date of this registration statement (or the most recent post-
effective amendment hereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in this
registration statement; and
(iii) to include any material information with respect to
the plan of distribution not previously disclosed in this registration
statement or any material change to such information in this registration
statement;
provided, however, that the undertakings set forth in clauses (i) and (ii) above
do not apply if the information required to be included in a post-effective
amendment by those clauses is contained in periodic reports filed by the
registrant pursuant to Section 13 or Section 15(d) of the Securities Exchange
Act of 1934 that are incorporated by reference in this registration statement;
(2) that, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof; and
(3) to remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(b) As to documents subsequently filed that are incorporated by
reference:
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of
the registrant's annual report pursuant to Section 13(a) or Section 15(d) of
the Securities Exchange Act of 1934 that is incorporated by reference in this
registration statement shall be deemed to be a new registration statement
relating to the securities offered herein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(c) As to indemnification:
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the provisions described
under Item 15 of this Registration Statement or otherwise, the registrant has
been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act of 1933, and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933, and will be governed by the final adjudication of
such issue.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets
all the requirements for filing on Form S-3 and has duly caused this Post-
Effective Amendment to the Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of New York, State
of New York, on this 6th day of December, 1995.
Asset Backed Securities Corporation
By: /s/ Gina Hubbell
--------------------------------------
Name: Gina Hubbell
Title: Director and Vice President
POWERS OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Gina Hubbell his true and lawful attorney-in-fact
and agent, with full power of substitution and resubstitution, for him and in
his name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Registration Statement,
and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agent, full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or her substitutes, may lawfully do our cause to be done by virtue
hereof.
II-3
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment to the Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Andrew Stone Director and Chairman of the December 6, 1995
- ------------------------ Board
Andrew Stone
/s/ Scott Ulm President and Director December 6, 1995
- ------------------------ (Principal
Scott Ulm Executive Officer)
/s/ Gina Hubbell Director and Vice President December 6, 1995
- ------------------------
Gina Hubbell
/s/ William Pitofsky Director December 6, 1995
- ------------------------
William Pitofsky
/s/ Richard Eimbinder Vice President December 6, 1995
- ------------------------
Richard Eimbinder
/s/ Thomas Zingalli Vice President and Controller December 6, 1995
- ------------------------ (Principal Accounting Officer)
Thomas Zingalli
/s/ Linda Hanauer Treasurer (Principal Financial December 6, 1995
- ------------------------ Officer)
Linda Hanauer
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
Page Number
-----------
1.1 Form of Underwriting Agreement.**
3.1 Restated Certificate of Incorporation of Asset Backed
Securities Corporation.*
4.1 Form of Indenture.**
4.2 Form of Pooling and Servicing Agreement.**
4.3 Form of Standard Terms and Provisions of Pooling and
Servicing.**
4.4 Form of Reference Agreement.**
4.5 Form of Trust Agreement.**
5.1 Opinion of Sidley & Austin.**
8.1 Opinion of Sidley & Austin with respect to tax matters.**
10.1 Form of Receivables Purchase Agreement.**
10.2 Form of Master Servicing Agreement.**
10.3 Form of Servicing Agreement.**
23.1 Consent of Sidley & Austin (included in the opinions
filed as Exhibits 5.1 and 8.1).
24.1 Powers of Attorney of directors and officers of
Asset Backed Securities Corporation. (Included
in the signature pages hereto.)
__________________
* Previously filed.
** To be filed by amendment.
