<PAGE>
As filed with the Securities and Exchange Commission on August 21, 1996
================================================================================
Registration No. 333-365
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________
AMENDMENT NO. 3
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
<TABLE>
<S> <C> <C>
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.)
</TABLE>
(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:
James D. Johnson
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. [_] ________
CALCULATION OF REGISTRATION FEE(1)
<TABLE>
<CAPTION>
Title of Securities Proposed Maximum Proposed Maximum
to be Registered(2) Amount to be Registered(3) Aggregate Aggregate Amount of Registration
Price Per Unit (3) Offering Price (3) Fee(4)
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<S> <C> <C> <C> <C>
Notes and Certificates $1,000,000 100% $1,000,000 $345
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</TABLE>
(1) Pursuant to Rule 429 under the Securities Act of 1933, the Prospectuses
included in this Amendment are combined prospectuses and relate to registration
statement Nos. 33-10125 and 33-17232 as previously filed by the Registrant on
Form S-3. Such registration statements were declared effective on November 20,
1986 and October 6, 1987, respectively. The Registration Statement to which
this Amendment No. 3 relates, which is a new registration statement, also
constitutes Post-Effective Amendment No. 3 to registration statement No. 33-
10125 and Post-Effective Amendment No. 2 to registration statement No. 33-17232
and such Post-Effective Amendments shall hereafter become effective
concurrently with the effectiveness of this Registration Statement. Securities
in the amount of $2,123,510,000 that were previously registered by registration
statement Nos. 33-10125 and 33-17232, and for which a registration fee of
$424,630 was previously paid, are being carried forward in connection with this
Registration Statement.
(2) The securities are also being registered for the purpose of market making.
(3) Estimated solely for the purpose of calculating the registration fee.
(4) Previously paid.
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.
<PAGE>
EXPLANATORY NOTE
This Registration Statement contains three base Prospectuses (each, a
"Prospectus") relating to the offering of one or more series of securities each
of which will include one or more classes of certificates and may include one
or more classes of notes. The first Prospectus (the "Automobile Prospectus")
contemplates the securitization of assets which may include (1) certain
automobile receivables or (2) asset backed certificates or notes, each
representing an interest in a trust fund consisting of a pool of such
automobile receivables. The second Prospectus (the "Mortgage Prospectus")
contemplates the securitization of assets which may include (1) one or more
mortgage pools, containing (A) mortgage loans secured by residential,
cooperative and multifamily properties and (B) certain conventional mortgage
pass-through certificates issued by one or more trusts established by one or
more private entities or (2) one or more contract pools containing manufactured
housing conditional sales contracts and installment loan agreements or
participation certificates representing participation interests in such
contracts. The third Prospectus (the "Credit Card Prospectus") contemplates the
securitization of assets that may include a pool of 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 and
asset-backed securities consisting of certificates representing undivided
interests in, or notes or loans secured by, receivables arising in certain
designated portfolios of credit card, charge card or certain other types of
accounts.
The exhibits to the Registration Statement include (1) four forms of
Prospectus Supplement (Exhibits 99.1 through 99.4) which relate to the
Automobile Prospectus, (2) seven forms of Prospectus Supplement (Exhibits 99.5
through 99.11) which relate to the Mortgage Prospectus and (3) three forms of
Prospectus Supplement (Exhibits 99.12 through 99.14) which relate to the Credit
Card Prospectus.
In addition, if and to the extent required by applicable law, each
Prospectus and the related Prospectus Supplement will also be used after the
completion of the related offering in connection with certain offers and sales
related to market-making transactions in the offered securities. In order to
register under Rule 415 those securities which may be offered and sold in
market-making transactions, the appropriate box on the cover page of the
Registration Statement has been checked and the undertakings required by Item
512(a) of Regulation S-X have been included in Item 17 of Part 17.
<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 AND 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, collectively 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 (A) (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), and (B) Government
Securities (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) a
de minimis amount of certain other property ancillary thereto, in each case as
more fully described herein and in the related Prospectus Supplement. The
Primary Assets either will be sold to a Trust by Asset Backed Securities
Corporation, a Delaware corporation (the "Company") or the Company will transfer
funds to a Trust in exchange for the Certificates. Such Trust will use such
funds to purchase the Primary Assets, in each case as described in the related
Prospectus Supplement.
To the extent 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.
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" ON PAGE 14 OF THIS PROSPECTUS AND IN THE RELATED PROSPECTUS SUPPLEMENT.
PROSPECTIVE INVESTORS SHOULD CONSIDER THE LIMITATIONS DISCUSSED UNDER
"ERISA CONSIDERATIONS" HEREIN AND IN THE 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, as applicable, 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, if any, 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.
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.
THE COMMISSION MAINTAINS A WEB SITE THAT CONTAINS REPORTS, PROXY AND
INFORMATION STATEMENTS AND OTHER INFORMATION REGARDING REGISTRANTS THAT
FILE ELECTRONICALLY WITH THE COMMISSION. THE ADDRESS OF SUCH SITE IS
(http://www.sec.gov).
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
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<PAGE>
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 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: Secretary,
Asset Backed Securities Corporation, Park Avenue Plaza, 55 East 52nd
Street, New York, New York 10055 (212) 909-2000.
-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 (each, a "Trust")
formed pursuant to either (i) either
(a) a pooling and servicing agreement
(a "Pooling and Servicing Agreement")
among the Company, the Servicer and
the Trustee for such Trust or (b) a
trust agreement (a "Trust Agreement")
between the Company and the Trustee
for such Trust (each such Trust being
referred to herein as a "Grantor
Trust") or (ii) 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").
Servicer ........................... With respect to each Owner Trust and
each Grantor Trust, the servicer, if
any, 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
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<PAGE>
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 or Trust
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.
The Notes .......................... As specified in the related
Prospectus Supplement, each class of
Notes will have a stated principal
amount or no principal amount and
will bear interest at a specified
rate or rates (with respect to each
class of Notes, the "Interest Rate")
or will not bear interest. 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,
nominal or no principal payments.
See "Description of the
Notes--Distributions of Principal
and Interest".
Notes will be available for purchase
in denominations of $1,000 or such
other minimum denominations as shall
be specified in the related
Prospectus Supplement and integral
multiples thereof and will be
available in book-entry form, or
such other form as shall be
specified in the related Prospectus
Supplement. If the related
Prospectus Supplement provides that
the Notes will be
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<PAGE>
available in book entry form only,
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 ................... As specified in the related
Prospectus Supplement, each class of
Certificates will have a stated
certificate balance (the "Certificate
Balance") or no stated principal
balance and will accrue interest on
such Certificate Balance at a
specified rate or will not bear
interest (with respect to each class
of Certificates, the "Certificate
Pass-Through Rate"). Each class of
Certificates may have a different
Certificate Pass-Through Rate, which
may be a fixed, variable or
adjustable Certificate Pass-Through
Rate, or any combination of the
foregoing. The related Prospectus
Supplement will specify the
Certificate 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, Certificate
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
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.
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<PAGE>
Certificates will be available for
purchase in a minimum denomination
of $10,000 or such other minimum
denomination as shall be specified
in the related Prospectus Supplement
and in integral multiples of $1,000
in excess thereof and will be
available in book-entry form or such
other form as shall be specified in
the related Prospectus Supplement.
If the related Prospectus
Supplement provides that the
Certificates will be available in
book entry form only,
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 or the Company
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.
Risk Factors ....................... For a discussion of risk factors that
should be considered with respect to
an investment in the Securities, see
"Risk Factors" herein and 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"), either (i) the
Company will own and will sell or
(ii) the seller or sellers specified
in the related Prospectus
Supplement, which seller or sellers
may also be the Servicer, (the
"Seller") will sell to the Company
and Company will sell, in each such
case, Primary Assets having the
aggregate principal balance
specified in such Prospectus
Supplement as of the date specified
therein (the "Cutoff Date") 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 (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
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
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<PAGE>
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 either the
Seller or Sellers specified in the
related Prospectus Supplement
(collectively, 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 Agreements--Sale and
Assignment of Receivables" and in the
related Prospectus Supplement under "The
Receivables Pool."
Collateral
Certificates .................... The Collateral Certificates, if any,
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 a de minimis amount of
certain other property ancillary
thereto. Holders of a Collateral
Certificate are entitled to receive
distributions of interest and
principal in respect thereof as
described herein. The Collateral
Certificates, if any, will be more
particularly described in the related
Prospectus Supplement.
Government Securities ............ The Government Securities, if any,
consist of any combination of (i)
receipts or other instruments
evidencing ownership of specific
interest and/or principal payments to
be made on certain United States
Treasury Bonds ("Treasury Bonds")
held by a custodian, which may
include interest and/or principal
strips of Treasury Bonds created
under the Department of the
Treasury's Separate Trading
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<PAGE>
of Registered Interest and
Principal of Securities, or STRIPS,
program ("Treasury Strips"), (ii)
receipts or other instruments
evidencing ownership of specific
interest and/or principal payments
to be made on certain Resolution
Funding Corporation ("REFCO") bonds
("REFCO Strips"), (iii) certain
Treasury Bonds or other debt
securities the payment of principal
and interest due thereon is
guaranteed by the full faith and
credit of the United States of
America ("FFC Bonds") and (iv)
certain other debt securities ("GSE
Bonds") of United States government
sponsored entities ("GSEs") or other
debt securities the payment of
principal and interest due thereon
is guaranteed by one or more GSEs
("GSE Guaranteed Bonds"; together
with Treasury Strips, REFCO Strips,
Treasury Bonds, FFC Bonds and GSE
Bonds, collectively, "Government
Securities"). The Government
Securities, if any, will be more
particularly described in the
related Prospectus Supplement.
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 Primary Assets either will be sold
to the Trust by the Company or the
Company will transfer funds to the Trust
which will purchase the related
Receivables, if any, Collateral
Certificates, if any, and Government
Securities, if any, with such funds. If
the Primary Assets are sold to the Trust
by the Company the Seller will sell the
related Receivables, if any, to the
Company pursuant to a Receivables
Purchase Agreement. The Company will (i)
sell or transfer such Receivables, if
any, and will assign certain rights and
benefits received under such Receivables
Purchase Agreement and/or (ii) sell or
transfer the related Collateral
Certificates, if
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any, to a Trust pursuant to a Trust
Agreement and/or (iii) sell or transfer
the related Government Securities, if
any, to a Trust pursuant to a Trust
Agreement or a Pooling and Servicing
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, if any of the related
Series.
A Servicer will agree with a Trust
pursuant to the related Pooling and
Servicing Agreement (in the case of a
Grantor Trust) or pursuant to a sale and
servicing agreement (a "Sale and
Servicing Agreement") (in the case of an
Owner Trust) to be responsible for
servicing, managing, maintaining custody
of and making collections on
Receivables.
To the extent 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 such
Receivable or from other Precomputed
Receivables in accordance with the terms
of the related Pooling and Servicing
Agreement or Sale and Servicing
Agreement, as applicable. In addition,
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.
To the extent 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.
To the extent specified 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
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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.
As 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.
Certain Legal Aspects
of Receivables;
Repurchase Obligations ............. To the extent 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
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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. To the extent specified 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".
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 will deliver an opinion
to the effect that, for federal
income tax purposes: (i) any Notes
of such Series, when issued, 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.
If a Prospectus Supplement specifies
that the related Trust will be a
Grantor Trust, 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 and
Local Tax Considerations 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 (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 may
be eligible for purchase by employee
benefit plans.
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<PAGE>
As 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 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.
Persons investing assets of employee
benefit plans subject to the Employee
Retirement Income Security Act of 1974,
as amended, or of plans as defined in
Section 4975 of the Code should read
"ERISA Considerations" herein and
consult their own legal advisors to
determine whether and to what extent the
Notes and Certificates that are not
subordinated to any other Certificates
constitute permissible investments for
such employee benefit plans and whether
the purchase or holding of Notes or
Certificates could give rise to
transactions prohibited under ERISA or
Section 4975 of the Code.
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 -- Lack of 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, such 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. Should the Trust 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, then neither the Seller nor the Servicer
will have any obligation to repurchase such Receivable. See "Certain
Legal Aspects of the Receivables -- Security Interests in Financed
Vehicles".
To the extent 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 and the
Characterization of the Transfer of Receivables. 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
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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
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 Legal Developments Regarding the Sale of Accounts
Receivables. 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 -- Insolvency Considerations above.
Subordination of Certain Classes of Securities; Limited Assets of a
Trust. 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
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<PAGE>
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 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
and Gorvernment Securities. 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 (i) the Collateral Certificates, if any,
and the rate of payment of principal (including prepayments) thereof and
(ii) the Government Securities, if any, 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. To the
extent any of the Government Securities are subject to prepayment, the
terms of such prepayment will be described in the related Prospectus
Supplement.
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 assets of which
consist of Receivables, 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
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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 payment of
the aggregate Repurchase Amount with respect to Receivables purchased by
the Servicer.
Removal of a Servicer After a Servicer Default. The related
Prospectus Supplement may provide that 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".
Limitation on Exercise of Rights due to Book-Entry Registration.
The related Prospectus Supplement may specify that one or more classes 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, Collateral Certificates or
Government Securities. 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
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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 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 Sale and Servicing
Agreement, as applicable, will service the Receivables 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 Sale and
Servicing Agreement -- Servicing Compensation" in the related Prospectus
Supplement. To facilitate the servicing of Receivables, 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". In the case of Primary Assets
consisting of Collateral Certificates and/or Government Securities, the
Trustee specified in the related Prospectus Supplement will manage such
Collateral Certificates and/or Government Securities.
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, and by or on behalf of obligors on Government
Securities, 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".
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The principal offices of each Trust and the related Trustee will be
specified in the applicable Prospectus Supplement.
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 Sale 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, which criteria include that (subject to certain limitations
which, if applicable, will be specified 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 fully 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
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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 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.
To the extent 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
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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.
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.
NEW AND USED FINANCED VEHICLES
The extension of credit to an Obligor on a Receivable is based on an
assessment of an applicant's ability to repay the amounts due on such
Receivable and the adequacy of the related Financed Vehicle. Such
assessment does not distinguish between new or used vehicles. Rather,
the amount advanced under a motor vehicle loan generally will not exceed
90% of the value of the collateral. For new motor vehicles, the value
equals the dealer invoice for the motor vehicle that serves as
collateral, plus sales tax, license fee, title fee, the cost of service
and warranty contracts, and any premium for credit life and disability
insurance obtained in connection with the loan. For used motor vehicles,
the value equals the wholesale price reported in the most recent edition
of the National Automotive Dealers Association Used Car Guide or the
National Auto Research Division Black Book, plus sales tax, license fee,
title fee, the cost of service and warranty contracts, and any premium
for credit life and disability insurance obtained in connection with the
loan. The maximum age of any used motor vehicle acceptable as collateral
generally is six model years. Additional information with respect to
delinquencies, repossessions and net losses with respect to Motor Vehicle
Installment Contracts secured by new or used Financed Vehicles will be
set forth in each Prospectus Supplement.
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
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vehicle installment loan agreements and motor vehicle retail installment
sale contracts. Such Collateral Certificates, 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 (which
offering, distribution and registration may have been undertaken, or may
be undertaken, by the Company and/or one or more affiliates of the
Company), in each case, subject to certain exceptions which, if
applicable, will be described in the related Prospectus Supplement.
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 the Company and/or one or more
affiliates 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. The related
Prospectus Supplement will (subject to certain exceptions which, if
applicable, will be described in the related Prospectus Supplement)
provide that 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.
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.
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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.
THE GOVERNMENT SECURITIES
GENERAL
Primary Assets for a Series may include any combination of (i)
receipts or other instruments evidencing ownership of specific interest
and/or principal payments to be made on certain United States Treasury
Bonds ("Treasury Bonds") held by a custodian, which may include interest
and/or principal strips of Treasury Bonds created under the Department of
the Treasury's Separate Trading of Registered Interest and Principal of
Securities, or STRIPS, program ("Treasury Strips"), (ii) receipts or
other instruments evidencing ownership of specific interest and/or
principal payments to be made on certain Resolution Funding Corporation
("REFCO") bonds ("REFCO Strips"), (iii) certain Treasury Bonds or other
debt securities the payment of principal and interest due thereon is
guaranteed by the full faith and credit of the United States of America
("FFC Bonds") and (iv) certain other debt securities ("GSE Bonds") of
United States government sponsored entities ("GSEs") or other debt
securities the payment of principal and interest due thereon is
guaranteed by one or more GSEs ("GSE Guaranteed Bonds"; together with
Treasury Strips, REFCO Strips, Treasury Bonds, FFC Bonds and GSE Bonds,
collectively, "Government Securities"). A description of the respective
general features of Treasury Strips, REFCO Strips, Treasury Bonds, FFC
Bonds, GSE Bonds and GSE Guaranteed Bonds is set forth below.
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 Securities
the Trust with respect to which contains
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Government Securities will contain information as to: (i) the title and
series of each such Government Security, the aggregate principal amount,
denomination and form thereof; (ii) whether each such Government Security
is senior or subordinated to any other obligations of the issuer thereof;
(iii) whether any of the obligations are secured or unsecured and the
nature of any collateral; (iv) the limit, if any, upon the aggregate
principal amount of such Government Security; (v) the dates on which, or
the range of dates within which, the principal of (and premium, if any,
on) such Government Security will be payable; (vi) the rate or rates, or
the method of determination thereof, at which such Government Security
will bear interest, if any, the date or dates from which such interest
will accrue, and the dates on which such interest will be payable; (vii)
the obligation, if any, of the issuer thereof to redeem such Government
Security pursuant to any sinking fund or analogous provisions, or at the
option of a holder thereof, and the periods within which or the dates on
which, the prices at which and the terms and conditions upon which, such
Government Security may be redeemed or repurchased, in whole or in part,
pursuant to such obligation; (viii) the periods within which or the dates
on which, the prices at which and terms and conditions upon which, such
Government Security may be redeemed, if any, in whole or in part, at the
option of the issuer thereof; (ix) whether such Government Security was
issued at a price lower than the principal amount thereof; (x) if other
than United States dollars, the foreign or composite currency in which
such Government Security is denominated, or in which payment of the
principal of (and premium, if any) or any interest on such Government
Security will be made, and the circumstances, if any, when such currency
of payment may be changed; (xi) material events of default or restrictive
covenants provided for with respect to such Government Security; (xii)
the rating thereof, if any; and (xiii) any other material terms of such
Government Security. With respect to a Trust which includes a pool of
Government Securities, the related Prospectus Supplement will, to the
extent applicable, describe the composition of the Government Securities'
pool, certain material events of default or restrictive covenants common
to the Government Securities, and, on an aggregate, percentage or
weighted average basis, as applicable, the characteristics of the pool
with respect to the terms set forth in (ii), (iii), (v), (vi), (vii),
(viii) and (ix) of the preceding sentence and any other material terms
regarding such pool.
The inclusion of Government Securities in a Trust with respect to a
Series of Securities is conditioned upon their characteristics being in
form and substance satisfactory to the Rating Agency rating the related
Series of Securities.
TREASURY STRIPS
In general, Treasury Strips are created by separating, or stripping,
the principal and interest components of Treasury Bonds that have an
original maturity of 10 or more years from the date of issue. A
particular Treasury Strip evidences ownership of the principal payment or
one of the periodic interest payments (generally semiannual) due on the
Treasury Bond to which such Treasury Strip relates.
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The first "stripping" of Treasury Bonds occurred in the 1970s when
government securities dealers physically separated coupons from
definitive certificates and offered them to investors as tax-deferred
investments. Investors were able to purchase the "strip" at a deep
discount and pay no federal income tax until resale or maturity. This tax
treatment was limited in 1982 by the Tax Equity and Fiscal Responsibility
Act ("TEFRA") which required holders of such strips to accrue a portion
of the discount toward par annually and report such accrual, even though
unrealized, as taxable income. TEFRA also required that all new Treasury
issues be made available only in book-entry form.
The shift to "book-entry only" Treasury Bonds created a shortage of
the physical certificates needed for stripping. In response, various
dealers created custodial receipt programs in which Treasury Bonds in
book-entry form were deposited with custodians who would thereupon issue
certificates evidencing rights in principal and interest payments. Some
of the better known programs first came to market in 1982 and 1983.
Although available eventually in denominations as small as $1,000, these
custodial receipts lacked the liquidity of the physical strips. While
physical strips had multiple market-makers, custodial receipts were
proprietary and, as such, the sole market-maker would usually be an
affiliate of the program's sponsor. As a result, the market that
developed for such receipts was segmented.
In early 1984, a group of dealers sought to enhance the liquidity of
custodial receipts by developing a generic, multiple market-maker
security known as a TR (Treasury Receipt). A large secondary market
quickly developed in these generic Treasury Strips, and in 1985 the
Department of the Treasury, based on indications that the demand for
Treasury Strips was resulting in lower interest rates, announced that all
new issues of Treasury Bonds with maturities of 10 years or more would be
transferable in their component pieces on the Federal Reserve wire
system. In so doing, the Treasury created a generic, book-entry Treasury
Strip named STRIPS (Separate Trading of Registered Interest and Principal
of Securities) which, unlike the private label Treasury Strips, can be
issued without the need for a custodial arrangement. The STRIPS program
has since eclipsed the private sector programs, and investment banks no
longer sponsor new issues of custodial receipts. TRs, physical strips
and the proprietary receipts trade at varying discounts from STRIPS which
reflect, among other things, lower levels of liquidity and the
structuring difference discussed above.
Treasury Strips may be either "serial" or "callable". A serial
Treasury Strip evidences ownership of one of the periodic interest
payments to be made on a Treasury Bond. No payments are made on such
Treasury Strip, nor is it redeemable, prior to its maturity, at which
time the holder becomes entitled to receive a single payment of the face
amount thereof. Callable Treasury Strips relate to payments scheduled to
be made after the related Treasury Bonds have become subject to
redemption. Such Treasury Strips evidence ownership of both principal of
the related Treasury Bonds and each of the related interest payments
commencing, typically, on the first interest payment date following the
first optional redemption date. If the underlying Treasury Bonds are
actually redeemed, holders
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of callable Treasury Strips generally receive a payment equal to the
principal portion of the total face amount of such Treasury Strips plus
the interest payment represented by the Treasury Strips maturing on the
redemption date. The face amount of any Treasury Strip is the aggregate
of all payments scheduled to be received thereon. Treasury Strips are
available in registered form and generally may be transferred and
exchanged by the holders thereof in accordance with procedures applicable
to the particular issue of such Treasury Strips.
A holder of a private label Treasury Strip (as opposed to a STRIP)
cannot enforce payment on such Treasury Strip against the Treasury;
instead, such holder must look to the custodian for payment. Such
custodian (and such holder of a Treasury Strip that obtains ownership of
the underlying Treasury Bond) can enforce payment of the underlying
Treasury Bond against the Treasury. In the event any private label
Treasury Strips are included in a Trust with respect to any Series of
Securities, the Prospectus Supplement for such Series will include the
identity and a brief description of each custodian that issued such
Treasury Strips. In the event the Company knows that the depositor of
the Treasury Bonds underlying such Treasury Strips is the Company or any
of its affiliates, the Company will disclose such fact in such Prospectus
Supplement.
REFCO STRIPS
A REFCO Bond may be divided into its separate components, consisting
of: (i) each future semi-annual interest distribution (an "Interest
Component"); and (ii) the principal payment (the "Principal Component")
(each component individually hereinafter referred to as a "REFCO Strip").
REFCO Strips are not created by REFCO; instead, third parties such as
investment banking firms create them. Each REFCO Strip has an
identifying designation and CUSIP number. REFCO Strips generally trade
in the market for Treasury Strips at yields of a few basis points over
Treasury Strips of similar maturities. REFCO Strips are viewed generally
by the market as liquid investments.
For a REFCO Bond to be separated into its components, the par amount
of the REFCO Bond must be in an amount which, based on the stated
interest rate of the REFCO Bond, will produce a semi-annual interest
payment of $1,000 or an integral multiple thereof. REFCO Bonds may be
separated into their components at any time from the issue date until
maturity. Once created, REFCO Strips are maintained and transferred in
integral multiples of $1,000.
A holder of a REFCO Strip cannot enforce payment on such REFCO Strip
against REFCO; instead, such holder must look to the custodian for
payment . Such custodian (and such holder of a REFCO Strip that obtains
ownership of the underlying REFCO Bond) can force payment of the
underlying REFCO Bond against REFCO. The identity and a brief
description of each custodian that has issued any REFCO Strip included in
the Trust will be set forth in the related Prospectus Supplement. In the
event the Company knows that the depositor of the REFCO Bonds underlying
the REFCO Strips included in the Trust is the
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Company or any of its affiliates, the Company will disclose such fact in
such Prospectus Supplement.
TREASURY BONDS; FFC BONDS
Treasury Bonds are issued by and are the obligations of The United
States of America. Interest is typically payable on the Bonds
semiannually. Treasury Bonds may be made subject to redemption, in whole
or in part, by the United States pursuant to the terms of the issue. No
Treasury Bonds issued since 1984, however, have been redeemable.
Treasury Bonds are issued in registered form in denominations of $1,000,
$5,000, $10,000, $100,000 and $1,000,000 and in book-entry form in
integral multiples thereof. The payment of principal and interest on
each FFC Bond will be guaranteed by the full faith and credit of the
United States of America.
GSE BONDS; GSE GUARANTEED BONDS
As specified in the applicable Prospectus Supplement, the
obligations of one or more of the following GSEs may be included in a
Trust: Federal National Mortgage Association ("Fannie Mae"), Federal
Home Loan Mortgage Association ("Freddie Mac"), Student Loan Marketing
Association ("Sallie Mae"), REFCO, Tennessee Valley Authority ("TVA"),
Federal Home Loan Banks ("FHLB") (to the extent such obligations
represent the joint and several obligations of the twelve Federal Home
Loan Banks), and Federal Farm Credit Banks ("FFCB"). GSE debt securities
are exempt from registration under the Securities Act pursuant to Section
3(a)(2) of the Securities Act (or are deemed by statute to be so exempt)
and are not required to be registered under the Exchange Act. The
securities of any GSE (including a GSE Guaranteed Bond) will be included
in a Trust only to the extent that (i) its obligations are supported by
the full faith and credit of the United States government or (ii) such
organization makes publicly available its annual report which shall
include financial statements or similar financial information with
respect to such organization (a "GSE Issuer"). Unless otherwise
specified in the related Prospectus Supplement, the GSE Bonds (and the
GSE Guaranteed Bonds) will not be guaranteed by the United States and do
not constitute a debt or obligation of the United States or of any agency
or instrumentality thereof other than the related GSE. The payment of
principal and interest on each GSE Bond (and the Guaranteed Bonds) will
be guaranteed by one or more GSEs.
Unless otherwise specified in the related Prospectus Supplement,
none of the GSE Bonds will have been issued pursuant to an indenture, and
no trustee is provided for with respect to any GSE Bonds. There will
generally be a fiscal agent ("Fiscal Agent") for an issuer of GSE Bonds
whose actions will be governed by a fiscal agency agreement. A Fiscal
Agent is not a trustee for the holders of the GSE Bonds and does not have
the same responsibilities or duties to act for the holders as would a
trustee.
GSE Bonds may be subject to certain contractual and statutory
restrictions which may provide some protection to securityholders against
the occurrence or effects of certain specified events. Unless otherwise
specified in the related Prospectus Supplement, each GSE
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is limited to such activities as will promote its statutory purposes as
set forth in the publicly available information with respect to such
issuer. A GSE's promotion of its statutory purposes, as well as its
statutory, structural and regulatory relationships with the federal
government, may cause or require such GSE to conduct its business in a
manner that differs from what an enterprise which is not a GSE might
employ.
The Federal National Mortgage Association
Fannie Mae is a federally chartered and stockholder owned
corporation organized and existing under the Federal National Mortgage
Association Charter Act. It is the largest investor in home mortgage
loans in the United States. Fannie Mae originally was established in 1938
as a corporation wholly owned by the United States government to provide
supplemental liquidity to the mortgage market and was transformed into a
stockholder owned and privately managed corporation by legislation
enacted in 1968 and 1970. Fannie Mae provides funds to the mortgage
market by purchasing mortgage loans from lenders, thereby replenishing
their funds for additional lending. Fannie Mae acquires funds to purchase
loans from many capital market investors that ordinarily may not invest
in mortgage loans, thereby expanding the total amount of funds available
for housing. Operating nationwide, Fannie Mae helps to redistribute
mortgage funds from capital-surplus to capital-short areas. Fannie Mae
also issues mortgage-backed securities ("MBS"). Fannie Mae receives
guaranty fees for its guaranty of timely payment of principal of and
interest on MBS. Fannie Mae issues MBS primarily in exchange for pools of
mortgage loans from lenders. The issuance of MBS enables Fannie Mae to
further its statutory purpose of increasing the liquidity of residential
mortgage loans.
Fannie Mae prepares an Information Statement annually which
describes Fannie Mae, its business and operations and contains Fannie
Mae's audited financial statements. From time to time Fannie Mae
prepares supplements to its Information Statement which include certain
unaudited financial data and other information concerning the business
and operations of Fannie Mae. Unless otherwise specified in the
applicable Prospectus Supplement, these documents can be obtained without
charge from the Office of Investor Relations, Fannie Mae, 3900 Wisconsin
Avenue, N.W., Washington, D.C. 20016; telephone (202)752-7115. Fannie
Mae is not subject to the periodic reporting requirements of the Exchange
Act.
The Federal Home Loan Mortgage Corporation
Freddie Mac is a publicly held government-sponsored enterprise
created on July 24, 1970 pursuant to the Federal Home Loan Mortgage
Corporation Act, Title III of the Emergency Home Finance Act of 1970, as
amended (the "FHLMC Act"). Freddie Mac's statutory mission is to provide
stability in the secondary market for home mortgages, to respond
appropriately to the private capital market and to provide ongoing
assistance to the secondary market for home mortgages (including
mortgages secured by housing for low- and moderate-income families
involving a reasonable economic return to Freddie Mac) by
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increasing the liquidity of mortgage investments and improving the
distribution of investment capital available for home mortgage financing.
The principal activity of Freddie Mac consists of the purchase of
conventional residential mortgages and participation interests in such
mortgages from mortgage lending institutions and the sale of guaranteed
mortgage securities backed by the mortgages so purchased. Freddie Mac
generally matches and finances its purchases of mortgages with sales of
guaranteed securities. Mortgages retained by Freddie Mac are financed
with short-and long-term debt, cash temporarily held pending disbursement
to security holders, and equity capital.
Freddie Mac prepares an Information Statement annually which
describes Freddie Mac, its business and operations and contains Freddie
Mac's audited financial statements. From time to time Freddie Mac
prepares supplements to its Information Statement which include certain
unaudited financial data and other information concerning the business
and operations of Freddie Mac. Unless otherwise specified in the
applicable Prospectus Supplement, these documents can be obtained from
Freddie Mac by writing or calling Freddie Mac's Investor Inquiry
Department at 8200 Jones Branch Drive, McLean, Virginia, 22102; outside
Washington, D.C. metropolitan area, telephone (800) 336-3672; within
Washington, D.C. metropolitan area, telephone (703)759-8160. Freddie Mac
is not subject to the periodic reporting requirements of the Exchange
Act.
The Student Loan Marketing Association
Sallie Mae is a stockholder-owned corporation established by the
1972 amendments to the Higher Education Act of 1965, as amended, to
provide liquidity, primarily through secondary market and warehousing
activities, for lenders participating in federally sponsored student loan
programs, primarily the Federal Family Education Loan ("FFEL") program
and the Health Education Assistance Loan Program. Under the Higher
Education Act, Sallie Mae is authorized to purchase, warehouse, sell and
offer participations or pooled interests in, or otherwise deal in,
student loans, including, but not limited to, loans insured under the
FFEL program, and to make commitments for any of the foregoing. Sallie
Mae is also authorized to buy, sell, hold, underwrite and otherwise deal
in obligations of eligible lenders, if such obligations are issued by
such eligible lenders for the purpose of making or purchasing federally
guaranteed student loans under the Higher Education Act. As a federally
chartered corporation, Sallie Mae's structure and operational authorities
are subject to revision by amendments to the Higher Education Act or
other federal enactments.
Sallie Mae prepares an Information Statement annually which
describes Sallie Mae, its business and operations and contains Sallie
Mae's audited financial statements. From time to time Sallie Mae
prepares supplements to its Information Statement which include certain
unaudited financial data and other information concerning the business
and operations of Sallie Mae. Unless otherwise specified in the
applicable Prospectus Supplement, these documents can be obtained without
charge upon written request to the Corporate and Investor Relations
Division of Sallie Mae at 1050 Thomas Jefferson Street,
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N.W., Washington, D.C. 20007; telephone (202) 298-3010. Sallie Mae is not
subject to the periodic reporting requirements of the Exchange Act.
The Resolution Funding Corporation
REFCO is a mixed-ownership government corporation established by
Title V of the Financial Institutions Reform, Recovery, and Enforcement
Act of 1989 ("FIRREA"). The sole purpose of REFCO is to provide
financing for the Resolution Trust Corporation (the "RTC"). REFCO is to
be dissolved, as soon as practicable, after the maturity and full payment
of all obligations issued by it. REFCO is subject to the general
oversight and direction of the Oversight Board, which is comprised of the
Secretary of the Treasury, the Chairman of the Board of Governors of the
Federal Reserve System, the Secretary of Housing and Urban Development
and two independent members to be appointed by the President with the
advice and consent of the Senate. The day-to-day operations of REFCO are
under the management of a three-member Directorate comprised of the
Director of the Office of Finance of the FHLB and two members selected by
the Oversight Board from among the presidents of the twelve FHLB.
The RTC was established by FIRREA to manage and resolve cases
involving failed savings and loan institutions pursuant to policies
established by the Oversight Board. The RTC was granted authority to
issue nonvoting capital certificates to REFCO in exchange for the funds
transferred from REFCO to the RTC. Pursuant to FIRREA, the net proceeds
of these obligations are used to purchase nonvoting capital certificates
issued by the RTC or to retire previously issued REFCO obligations.
Information concerning REFCO may be obtained from the
Secretary/Treasurer, Resolution Funding Corporation, Suite 1000, 11921
Freedom Drive, Reston, Virginia 22090; telephone (703) 487-9517. REFCO
is not subject to the periodic reporting requirements of the Exchange
Act.
The Federal Home Loan Banks
The Federal Home Loan Banks constitute a system of twelve federally
chartered corporations (collectively, the "FHLB"), each wholly owned by
its member institutions. The mission of the FHLB is to enhance the
availability of residential mortgage credit by providing a readily
available, low-cost source of funds to their member institutions. A
primary source of funds for the FHLB is the proceeds from the sale to the
public of debt instruments issued as consolidated obligations, which are
the joint and several obligations of all the FHLB. The FHLB are
supervised and regulated by the Federal Housing Finance Board, which is
an independent federal agency in the executive branch of the United
States government, but obligations of the FHLB are not obligations of the
United States government.
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The Federal Home Loan Bank System produces annual and quarterly
financial reports in connection with the original offering and issuance
by the Federal Housing Finance Board of consolidated bonds and
consolidated notes of the FHLB. Unless otherwise specified in the
applicable Prospectus Supplement, questions regarding such financial
reports should be directed to the Deputy Director, Financial Reporting
and Operations Division, Federal Housing Finance Board, 1777 F Street,
N.W., Washington, D.C. 20006; telephone (202) 408-2901. Unless otherwise
specified in the applicable Prospectus Supplement, copies of such reports
may be obtained by written request to Capital Markets Division, Office of
Finance, Federal Home Loan Banks, Suite 1000, 11921 Freedom Drive,
Reston, Virginia 22090, telephone (703) 487-9500. The FHLB are not
subject to the periodic reporting requirements of the Exchange Act.
Tennessee Valley Authority
TVA is a wholly owned corporate agency and instrumentality of the
United States of America established pursuant to the Tennessee Valley
Authority Act of 1933, as amended (the "TVA Act"). TVA's objective is to
develop the resources of the Tennessee Valley region in order to
strengthen the regional and national economy and the national defense.
The programs of TVA consist of power and nonpower programs. For the
fiscal year ending September 30, 1995, TVA received $139 million in
congressional appropriations from the federal government for the nonpower
programs. The power program is required to be self-supporting from
revenues it produces. The TVA Act authorizes TVA to issue evidences of
indebtedness that may be serviced only from proceeds of its power
program. TVA bonds are not obligations of or guaranteed by the United
States government.
TVA prepares an Information Statement annually which describes TVA,
its business and operations and contains TVA's audited financial
statements. From time to time TVA prepares supplements to its
Information Statement which include certain unaudited financial data and
other information concerning the business and operations of TVA. Unless
otherwise specified in the applicable Prospectus Supplement, these
documents can be obtained by writing or calling Tennessee Valley
Authority, 400 West Summit Hill Drive, Knoxville, Tennessee 37902-1499,
Attention: Vice President and Treasurer; telephone (423) 632-3366. TVA
is not subject to the periodic reporting requirements of the Exchange
Act.
Federal Farm Credit Banks
The Farm Credit System is a nationwide system of lending
institutions and affiliated service and other entities (the "System").
Through its Banks ("FCBs") and related associations, the System provides
credit and related services to farmers, ranchers, producers and
harvesters of aquatic products, rural homeowners, certain farm-related
businesses, agricultural and aquatic cooperatives and rural utilities.
System institutions are federally chartered under the Farm Credit Act of
1971, as amended (the "Farm Credit Act"), and are subject to regulation
by a Federal agency, the Farm Credit Administration (the "FCA"). The
FCBs and associations are not commonly owned or controlled. They are
cooperatively
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owned, directly or indirectly, by their respective borrowers. Unlike
commercial banks and other financial institutions that lend to the
agricultural sector in addition to other sectors of the economy, under
the Farm Credit Act the System institutions are restricted solely to
making loans to qualified borrowers in the agricultural sector, to
certain related businesses and to rural homeowners. Moreover, the System
is required to make credit and other services available in all areas of
the nation. In order to fulfill its broad statutory mandate, the System
maintains lending units in all 50 states and the Commonwealth of Puerto
Rico.
The System obtains funds for its lending operations primarily from
the sale of debt securities issued under Section 4.2(d) of the Farm
Credit Act ("Systemwide Debt Securities"). The FCBs are jointly and
severally liable on all Systemwide Debt Securities. Systemwide Debt
Securities are issued by the FCBs through the Federal Farm Credit Banks
Funding Corporation, as agent for the FCBs (the "Funding Corporation").
Information regarding the FCBs and the Farm Credit System, including
combined financial information, is contained in disclosure information
made available by the Funding Corporation. This information consists of
the most recent Farm Credit System Annual Information Statement and any
Quarterly Information Statements issued subsequent thereto and certain
press releases issued from time to time by the Funding Corporation.
Unless otherwise specified in the applicable Prospectus Supplement, such
information and the Farm Credit System Annual Report to Investors for the
current and two preceding fiscal years are available for inspection at
the Federal Farm Credit Banks Funding Corporation, Investment Banking
Services Department, 10 Exchange Place, Suite 1401, Jersey City, New
Jersey 07302; telephone (201) 200-8000. Upon request, the Funding
Corporation will furnish, without charge, copies of the above
information. The FCBs are not subject to the periodic reporting
requirements of the Exchange Act.
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 and/or Collateral Certificates repurchased by the Company or
a Seller or purchased by a Servicer for administrative reasons. With
respect to Securities backed by Government Securities, the term
"prepayments" includes prepayments in full, partial prepayments,
liquidations due to defaults, or the Repurchase Amount of Government
Securities repurchased by the Company or purchased by a Servicer for
administrative reasons. Substantially all of the Receivables and
receivables underlying Collateral Certificates are prepayable at any time
without penalty to the Obligor. Substantially all of the Government
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Securities may be prepayable at any time without penalty to the related
obligor. The terms of the prepayment of any Government Securities
included in any Trust will be described in the related Prospectus
Supplement. 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 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 Sale
and 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 or Trustee 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 or Trustee will compute prior to each distribution with respect
to such class of Certificates indicating the 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
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original denomination of such Certificateholder's Certificate and (b) the
applicable Certificate Pool Factor at the time of determination.
As 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
If so 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 or the Seller, as applicable. 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 describes the material provisions of each Indenture
which are anticipated to be common to any Notes included in a Series of
Securities. The following summary does not purport to be a complete
description of all terms of the related Notes or Indenture and therefore
is subject to, and is qualified in its entirely by reference to, the
provisions of the related Notes and Indenture.
If so 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 DTC (together with any successor
depository selected by the Trust, the "Depository"). The Notes will be
available for purchase in minimum denominations of $1,000 or such other
minimum denomination as shall be specified in the related Prospectus
Supplement and integral multiples thereof in book-entry form or such
other form as shall be specified in the related Prospectus Supplement.
If the Notes shall be available 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
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each class. If the Notes shall be available in book-entry form only,
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. If the Notes shall be available in book-entry form
only, 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. The related Prospectus Supplement may provide
that 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.
The related Prospectus Supplement may also provide that 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
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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.
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 or
by such other method as is specified in the Prospectus Supplement.
PROVISIONS OF THE INDENTURE
Events of Default; Rights upon Event of Default. "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; (v) certain events of bankruptcy, insolvency, receivership or
liquidation with respect to such Trust and (vi) such other events as are
specified in the Prospectus Supplement. 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, 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 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
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apply collections on such Primary Assets as if there had been no
declaration of acceleration. Subject to certain limitations which, if
applicable, will be specified in the related Prospectus Supplement, 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.
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 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.
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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 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. Without the consent of the holder of
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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.
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.
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.
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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 describes the
material provisions of the Trust Agreement and the Pooling and Servicing
Agreement, in each case, which are anticipated to be common to any
Certificates included in a Series of Securities. The following summary
does not purport to be a complete description of all terms of the related
Notes, Trust Agreement or Pooling and Servicing Agreement and therefore
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.
If so 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 affiliate of such Seller, each class of
Certificates will initially be represented by one or more certificates
registered in the name of the Depository. The Certificates will be
available for purchase in minimum denominations of $10,000 or such other
minimum denomination as shall be specified in the related Prospectus
Supplement and integral multiples of $1,000 in excess thereof in book-
entry form only (or such other form as shall be specified in the related
Prospectus Supplement). In the event that the Certificates shall be
available in book-entry form only, the Company has been informed by DTC
that DTC's nominee will be Cede. Accordingly, such nominee is expected
to be the holder of record of the Certificates of any Series. In the
event that the Certificates shall be available in book-entry form only,
unless and until Definitive Certificates are issued under the limited
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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. In the event that the
Certificates shall be available in book-entry form only, 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, Certificate 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
Certificate Pass-Through Rate, which may be a fixed, variable or
adjustable Certificate 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
Certificate Pass-Through Rate for each class of Certificates of a Series
or the method for determining such Certificate 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 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.
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CERTAIN INFORMATION REGARDING THE SECURITIES
BOOK-ENTRY REGISTRATION
If so 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, as
applicable, 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").
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 or
Indirect 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.
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
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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
If so 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
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
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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) if applicable, the amount of the Servicing Fee paid to
the related Servicer with respect to the related Collection Period;
(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.
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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
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.
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.
DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS
The following summary describes the material provisions (in each
such case, to the extent anticipated to be common to any Series of
Securities) 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, Government Securities may be sold or transferred to such Trust,
Certificates will be issued, and the Servicer will service Receivables
and the Trustee will manage Government Securities, if any (in the case
of a Grantor Trust), each Sale and Servicing Agreement pursuant to which
the Servicer will service Receivables (in the case of an Owner Trust)
or, in the case of Securities backed by Collateral Certificates, each
Trust Agreement pursuant to which a Trust will be created, Collateral
Certificates will be sold or transferred to such Trust, Government
Securities may be sold or transferred to such Trust and a Trustee will
manage Collateral Certificates and Government Securities, if any
(collectively the "Transfer and Servicing Agreements"). Forms
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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 a complete description of all of
the terms of the Transfer and Servicing Agreements and therefore is
subject to, and is qualified in its entirety by reference to, the
provisions of the related Transfer and Servicing Agreement.
SALE AND ASSIGNMENT OF RECEIVABLES, COLLATERAL CERTIFICATES AND
GOVERNMENT SECURITIES
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.
To the extent 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 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
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recourse, all of its right, title and interest in and to Primary Assets
in the outstanding principal amount specified in the related Prospectus
Supplement. Concurrently with the transfer and assignment of such Primary
Assets to the related Trust, the related Trustee or Indenture Trustee, as
applicable, will execute, authenticate and deliver the related
Securities.
Pursuant to the terms of the Trust Agreement or the Pooling and
Servicing Agreement, as applicable, the Company will assign to the
related Trust the representations and warranties made by the related
Seller under the related Receivables Purchase Agreement for the benefit
of the related Securityholders and will make certain limited
representations and warranties with respect to the Primary Assets. To the
extent that the related Seller does not repurchase a Primary Asset in the
event of a breach of its representations and warranties under the related
Receivables Purchase Agreement with respect to such Primary Asset, the
Company will not be required to repurchase such Primary Asset unless such
breach also constitutes a breach of one of the Company's representations
and warranties under the related Trust Agreement or Pooling and Servicing
Agreement, as applicable, with respect to such Primary Asset and such
breach materially and adversely affects the interests of the
Securityholders in any such Primary Asset. Neither the Seller nor the
Company will have any other obligation with respect to the Primary Assets
or the Securities.
TRUST ACCOUNTS
With respect to each Owner Trust, the Servicer will establish and
maintain with the related Indenture Trustee, or the Trustee will
establish and maintain (a) one or more accounts, 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 or the
related Trustee will establish and maintain an account, 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 or the related Trustee
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.
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 Sale and 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
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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, 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 Sale and 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. Eligible Investments will generally 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. To the extent provided 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 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.
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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
Sale and 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 Sale and 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 or the Trustee 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, such 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 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
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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 subject to certain
limitations which, if applicable, will be specified in the related
Prospectus Supplement), 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
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 generally 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
Servicer 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.
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
reimbursement of outstanding Simple Interest Advances. No advances of
principal will be made with respect to Simple Interest Receivables.
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NET DEPOSITS
For administrative convenience, unless the Servicer or the Trustee
is required to remit collections to the Collection Account on a daily
basis as described under "-- Collections" above, the Servicer or the
Trustee 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.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
To the extent provided 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
serviced by the Servicer, 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 related to such Primary Assets 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.
To the extent 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 Receivables, 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, accounting fees, outside auditor fees, date processing
cost and other costs incurred in connection with administering the
Primary Assets.
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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,
distributions in respect of principal of a class of Securities of a
Series may 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 may 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.
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. The credit
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enhancement for a class or Series of Securities will not (as a general
rule) 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 Trust Agreement, Sale and 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. 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 Sale and 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 Sale and
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 Sale and 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 Sale and 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 agree
to give each Indenture Trustee and/or Trustee, as applicable, notice of
certain Servicer Defaults under the related Sale and 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
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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 Sale and Servicing Agreement and Pooling and Servicing
Agreement will provide that the Servicer may not resign from its
obligations and duties as Servicer thereunder, except upon determination
that such Servicer's performance of such duties is no 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 Sale and Servicing Agreement or Pooling and Servicing Agreement,
as applicable.
Each Sale and 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 Sale and
Servicing Agreement or Pooling and Servicing Agreement, as applicable, 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 Sale and 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 Sale and 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 Sale and 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 assumes the obligations of the Servicer, will be
the successor to the Servicer under the related Sale and Servicing
Agreement or Pooling and Servicing Agreement, as applicable.
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SERVICER DEFAULTS
A "Servicer Default" under each Sale and 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
Sale and 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; (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 and (iv) such other events as are set
forth in the related Prospectus Supplement.
RIGHTS UPON SERVICER DEFAULT
Generally, in the case of an Owner Trust, as long as a Servicer
Default under the related Sale and 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 Sale and 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 Sale and Servicing Agreement
and will be entitled to similar compensation arrangements. Generally, in
the case of any Grantor Trust, 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
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 Servicer, such Indenture Trustee or Trustee,
as applicable, may appoint, or may petition a court of competent
jurisdiction
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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 Sale and Servicing Agreement or Pooling and
Servicing Agreement, as applicable.
WAIVER OF PAST DEFAULTS
To the extent 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 Certificateholders, waive any default by the Servicer in
the performance of its obligations under the related Sale and 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 Sale and 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
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 Agreement 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.
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 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 Agreement 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
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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 generally will succeed to the rights of
the Noteholders of such Series under the related Sale and Servicing
Agreement.
TERMINATION
The obligations of the related Servicer, the related Trustee and the
related Indenture Trustee, if any, with respect to a Trust pursuant to
the related Transfer and Servicing Agreement 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.
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 Pool Balance as of
the related Cutoff Date, 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.
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
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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 Sale and 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 Sale and 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 the related Trust
Agreement or Pooling and Servicing Agreement, as applicable, 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 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 related Receivables Purchase Agreement and the Seller will be
required to repurchase such
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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 Sale and 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. 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.
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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 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
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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 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.
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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.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of the anticipated material
United States 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.
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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 discussed below.
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. The opinion of Federal Tax Counsel specifically
addresses only those issues specifically identified below as being
covered by such opinion; however, such opinion also states that the
additional discussion set forth below accurately sets forth the advice of
Federal Tax Counsel with respect to material federal income tax issues.
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 the nature of the income of the Trust, or
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 include all of its
income on the related Primary 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 (subject to
certain exceptions which, if applicable, will be specified in the related
Prospectus Supplement) advise the Owner Trust that the Notes will be
classified as debt for federal income tax purposes, or classified in such
other manner as shall be provided in the related Prospectus Supplement.
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
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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 allocable 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 which are set
out in regulations issued in final form on June 11, 1996 (the "1996
Contingent Debt Regulations). Notwithstanding the foregoing, interest
that is payable on a Note with a fixed 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".
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". Under the Treasury Regulations issued under Sections 1271-1273
and 1275 of the Code in January, 1994, (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. Under the 1996 Contingent Debt Regulations effective for
instruments issued on or after August 13, 1996, interest is considered
unconditionally payable only if reasonable legal remedies exist to compel
timely payment or the debt instrument otherwise contains terms and
conditions that make the likelihood of late payment a remote contingency.
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 "--
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Original Issue Discount" or, alternatively, must be taxed as contingent
interest under the 1996 Contingent Debt Regulations.
Stated interest generally qualifies as being payable at 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, or greater than 0.65
for debt instruments issued on or after August 13, 1996, 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 or (in the case of a debt instrument issued
on or after August 13, 1996) less than or equal to 0.65, however, such
rate will generally constitute an objective rate, described more fully
below.
In the case of a debt instrument issued before August 13, 1996,
stated interest generally qualifies as payable at 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, (iii) 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. In the
case of a debt instrument issued on or after August 13, 1996, stated
interest qualifies as payable at an "objective rate" if the rate is
determined using a single fixed formula and is based on objective
financial information or economic information. However an objective rate
does not include a rate based on information that is within the control
of the issuer or that is unique to the circumstances of the issuer or a
related party. 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 or one or more governors limiting the amount of increase or
decrease in each case 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
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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 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 subject to taxation
under the 1996 Contingent Debt Regulations.
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 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".
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).
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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 (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
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" (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.
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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 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
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minimis under this rule, the de minimis market 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 the holder makes such an election, the
holder will be 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, 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. 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.
On June 27, 1996, the IRS published in the Federal Register proposed
regulations (the "Proposed Premium Regulations") on the amortization of
bond premium. The Proposed Premium Regulations describe the constant
yield method under which such premium is amortized and provide that the
resulting offset to interest income can be taken into account only as a
Note Owner takes the corresponding interest income into account under
such Note Owner's regular accounting method. In the case of instruments
that may be called or repaid prior to maturity, the Proposed Premium
Regulations provide that the premium is calculated by assuming that the
issuer will exercise or not exercise its redemption rights in the manner
that maximizes the Note Owner's yield and the Note Owner will exercise or
not exercise its option in a manner that maximizes the Note Owner's
yield. The Proposed Premium Regulations are proposed to be effective for
debt instruments acquired on or after the date 60 days after the date
final regulations are published in the Federal Register. However, if
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a Note Owner elects to amortize bond premium for the taxable
year containing such effective date, the Proposed Premium Regulations
would apply to all the Note Owner's debt instruments held on or after the
first day of that taxable year. It cannot be predicted at this time
whether the Proposed Premium Regulations will become effective or what,
if any, modifications will be made to them prior to their becoming
effective.
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 any amortizable premium. Except as discussed above 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. Special character rules apply to
debt instruments characterized as contingent debt instruments under the
1996 Contingent Debt Regulations. In general under those rules gain is
treated as ordinary, and loss is treated as ordinary to the extent of
prior ordinary income inclusion.
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
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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.
On April 15, 1996, proposed Treasury Regulations (the "1996 Proposed
Regulations") were issued which, if adopted in final form, could affect
the United States taxation of Non-United States Holders. The 1996
Proposed Regulations are generally proposed to be effective for payments
after December 31, 1997, regardless of the issue date of the Note with
respect to which such payments are made, subject to certain transition
rules. It cannot be predicted at this time whether the 1996 Proposed
Regulations will become effective as proposed, or what, if any,
modifications may be made to them. The discussion under this heading and
under "-- Backup Withholding and Information Reporting", below, is not
intended to include a complete discussion of the provisions of the 1996
Proposed Regulations, and prospective investors are urged to consult
their tax advisors with respect to the effect the 1996 Proposed
Regulations may have.
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 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 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 Non-United States Holder after the
issuance of the certificate in the calendar year of its issuance and the
two immediately succeeding calendar years. Under temporary Treasury
Regulations, the forgoing certification may be provided by the beneficial
owner of a Note on IRS Form W-8.
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The 1996 Proposed Regulations provide optional documentation
procedures designed to simplify compliance by withholding agents. The
1996 Proposed Regulations would not affect the documentation rules
described in the preceding paragraph, but would add "intermediary
certification" options for certain qualifying withholding agents. Under
one such option, a withholding agent would be allowed to rely on IRS Form
W-8 furnished by a financial institution or other intermediary on behalf
of one or more beneficial owners (or other intermediaries) without having
to obtain the beneficial owner certificate described in the preceding
paragraph, provided that the financial institution or intermediary has
entered into a withholding agreement with the IRS and is thus a
"qualified intermediary". Under another option, an authorized foreign
agent of a United States withholding agent would be permitted to act on
behalf of the United States withholding agent, provided certain
conditions are met.
The 1996 Proposed Regulations, if adopted, would also provide
certain presumptions with respect to withholding for holders not
providing the required certifications to qualify for the withholding
exemption described above. In addition, the 1996 Proposed Regulations
would replace a number of current tax certification forms (including IRS
Form W-8, IRS Form 1001 and IRS Form 4224, discussed below) with a
single, restated form and standardize the period of time for which
withholding agents could rely on such certifications. The 1996 Proposed
Regulations would also provide rules to determine whether, for purposes
of United States federal withholding tax, interest paid to a Non-United
States Holder that is an entity should be treated as paid to the entity
or those holding an interest in that entity.
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 distributions 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 the Trust believes 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 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 annually 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)
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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, market discount or original issue discount in certain
circumstances) 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 United States persons. "United States
person" means a citizen or resident of the United States, a corporation,
partnership or other entity treated as a corporation or partnership for
United States federal income tax purposes, created or organized 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 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.
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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 for United States federal income tax
purposes, 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 effected by 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.
The 1996 Proposed Regulations would, if adopted, alter the forgoing
rules in certain respects. In particular, the 1996 Proposed Regulations
would provide certain presumptions under which Non-United States Holders
may be subject to backup withholding in the absence of required
certifications.
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.
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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 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. As long as such characterization did not result in the Trust
being subject to tax as a corporation, 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 Stripped 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 allocable 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 Primary Assets (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.
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Any Collateral Certificates held by the Owner Trust will be subject
to the federal income tax treatment described herein depending on the
terms of the Collateral Certificates and their characterization (for
example, as indebtedness) for federal income tax purposes.
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 Certificate 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 Primary 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 Primary Assets that corresponds to any excess of the
issue price of Certificates over their principal amount.
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 Certificate 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. An individual taxpayer will be
allowed no deduction for his share of expenses of the Trust in
determining his liability for alternative minimum tax. 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 ($117,950 in 1996
in the case of a joint return) will be reduced by the lesser of (i) 3% of
the excess of adjusted gross
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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 to the extent
relevant. If the IRS were to require that such calculations be made
separately for each Primary Asset, such calculations may result in
certain timing and character differences under certain circumstances.
Discount and Premium. 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 it is
possible that the IRS might require that it be recomputed on a Primary
Asset-by-Primary Asset basis.)
If the Trust acquires the Primary 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 Primary Assets or to offset
any such premium against interest income on the Primary 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 purposes 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 with
these requirements due to lack of data. On May 10, 1996, proposed
Treasury Regulations were issued that would change the rules relating to
terminations. Those regulations are effective for terminations occurring
on or after the date those regulations are finalized.
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
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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 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.
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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 name, 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 not
a United States person, as defined under "Owner Trusts--Tax Consequences
to Note Owners--Backup Withholding and Information Reporting,"
above.
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
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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 on its share of the Trust's
income including, in the case of a corporation, a return in respect of
the branch profits tax. 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
all or a portion of taxes withheld by the Trust if, in particular, 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
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Certificateholder will be treated as the owner of a pro rata undivided
interest in the Primary 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 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 Primary Asset 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 other miscellaneous itemized deductions exceed two
percent of the Grantor Trust Certificateholder's adjusted gross income,
and will be allowed no deduction for such expenses in determining their
liabilities for alternative minimum tax. 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 ($117,950 in 1996 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.
The servicing compensation to be received by the Servicer may be
questioned by the IRS 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
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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 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"). For the rules governing original issue
discount, see "Owner Trusts -- Tax Consequences to Note Owners --
Original Issue Discount" above. However, in the case of Primary Assets
that constitute short-term Government Securities the rules set out above
dealing with short-term obligations (see "Owner Trusts -- Tax
Consequences to Note Owners -- Short-Term Notes" above) are applied with
reference to acquisition discount rather than original issue discount, if
such obligations constitute "short-term Government obligations" within
the meaning of Section 1271(a)(3)(B) of the Code.
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". For a discussion of the market discount rules under
the Code, see "Owner Trusts -- Tax Consequences to Note Owners -- Market
Discount" above; however, Grantor Trust Certificateholders generally are
not permitted to take into account the Prepayment Assumption in
calculating the accrual of market discount with respect to their Grantor
Trust certificates (except for Grantor Trust certificates representing
interests in Collateral Certificates that constitute indebtedness for
federal income tax purposes). See "Prepayments" below.
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. For a discussion of the rules
applicable to amortizable bond premium, see "Owner Trusts -- Tax
Consequences to Note Owners -- Amortizable Premium" above; however,
Grantor Trust Certificateholders generally are not permitted to take into
account the Prepayment Assumption in computing the amortizable bond
premium deduction with respect to their Grantor Trust Certificates
(except for Grantor Trust certificates representing interests in
Collateral Certificates that constitute indebtedness for federal income
tax purposes). See "Prepayments" below.
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
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"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 Primary 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 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 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; however,
Grantor Trust Certificateholders generally are not permitted to take into
account the Prepayment Assumption in computing original issue discount.
See "Prepayments" below. 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. The Trustee intends in reporting
information relating to original issue discount to Grantor Trust
Certificateholders to provide such information on an aggregate poolwide
basis.
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
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Code to the Stripped Certificates. For example, a holder of a Stripped
Certificate might be treated as the owner of (i) as many stripped coupons
as there are scheduled payments of interest on each Primary Asset, with
each such stripped coupon treated as a separate debt instrument 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 Certificate Pass
Through Rate) and the other is a senior class (with a relatively low
Certificate 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 Certificate
Pass Through Rate on the Subordinate Certificates and the Certificate
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 will be treated as qualified stated interest.
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Income of the holder of the Trust Stripped Coupon will be reported
by treating the Trust Stripped Coupon as a single 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.
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 are
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 Issue 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
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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.
Prepayments. The Tax Reform Act of 1986 (the "1986 Act") contains a
-----------
provision requiring original issue discount on certain obligations issued
after December 31, 1986 to be calculated taking into account the
Prepayment Assumption and requiring such discount to be taken into income
on the basis of a constant yield to assumed maturity taking into account
of actual prepayments. The legislative history to the 1986 Act states
that similar rules apply with respect to market discount and amortizable
bond premium on such obligations. The proper treatment of interests,
such as the Grantor Trust Certificates, in debt instruments that are
subject to prepayment is unclear. Legislation has been proposed but not
yet enacted that would extend the rules contained in the 1986 Act to any
pool of debt instruments the payments on which may be accelerated by
prepayments. Grantor Trust Certificateholders should consult their tax
advisors as to the proper reporting of income from such Certificates in
light of the possibility of prepayment and as to the possible application
of the rules contained in the 1996 Contingent Debt Regulations relating
to contingent principal debt instruments which might be viewed as
including interest only strips.
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 the Primary Assets represented by a 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 Primary 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).
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 Primary Assets will not be subject to the
normal 30% (or such lower rate provided for by an applicable tax treaty)
withholding tax
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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 each of the issuers of the Primary Assets 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. To the extent that the Primary Assets were
originated on or before July 18, 1984, Non-United States Owners of
Grantor Trust Certificates may be subject to withholding. 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 and, in the case of a corporation, to a possible branch profits
tax, and will not be subject to withholding tax provided that the owner
meets applicable documentation requirements. Potential investors who are
not United States persons should consult their own tax advisors regarding
the specific tax consequences of owning a Certificate.
On April 15, 1996, proposed Treasury Regulations (the "1996
Proposed Regulations") were issued which, if adopted in final form, could
affect the United States taxation of Non-United States Owners of Grantor
Trust Certificates. The 1996 Proposed Regulations are generally proposed
to be effective for payments after December 31, 1997, regardless of the
issue date of the Primary Assets with respect to which such payments are
made, subject to certain transition rules. For further discussion, see
"Owner Trusts - Tax Consequences to Note Owners -Taxation of Certain
Foreign Note Owners" above.
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. See "Owner Trusts -- Tax Consequences to Note
Owners -- Backup Withholding and Information Reporting" above.
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 Primary Assets under the laws of a jurisdiction.
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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, except
as described in the following paragraph, 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.
Interest income (including original issue discount) earned on
obligations of the United States Treasury Department and of certain
government sponsored entities is generally exempt from state and local
income taxation. Therefore, where a Grantor Trust holds Government
Securities as part of the Trust Property, interest income attributable to
Government Securities earned on the Certificates may be exempt from state
and local taxation, depending on the form of the Government Security.
However, certain states or localities may take a contrary position.
Investors should consult with their own tax advisors concerning the
exemptions from state and local income taxes.
If some or all of the Securities are treated as equity interest 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 of 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.
Furthermore, depending on the specific allocation and apportionment
formula, if any, use by such jurisdiction, it is possible that Security
Owners in such case may be subject to tax in such jurisdiction on their
income from other sources. 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. 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 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.
***
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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.
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 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 medical benefit 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
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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 Company, the Trustee, the Indenture
Trustee, the Trust, the Servicer or any of their respective affiliates.
Securities may not be purchased with the assets of a Plan if the Company,
the Trustee, the Indenture Trustee, the Trust, 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 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 in an entity 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 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 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
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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). Because the availability of this exception to any Trust
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 exception.
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 (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 issuer 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 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 provisions 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.
If the Trust assets are plan assets, 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 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
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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
transaction.
The Company, the Trustee, the Indenture Trustee, the Trust, 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.
PROHIBITED TRANSACTION EXEMPTION FOR SENIOR CERTIFICATES ISSUED BY
GRANTOR TRUSTS
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 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;
-92-
<PAGE>
(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 or placement of the Senior Certificates represents
not more than reasonable compensation for underwriting or placing 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
represents not more than 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 applicable to a
Plan whose Plan Fiduciary is an obligor with respect to more than five
percent of the fair market value of the Contracts, or an affiliate of
such person, 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 each class of Senior Certificates in
which Plans have invested are acquired by persons independent of the
Restricted Group (as defined below) and at least fifty percent of the
aggregate interest in the Trust is acquired by persons independent of the
Restricted Group (as defined below), (ii) the Plan's investment in any
class of Senior Certificates does not exceed twenty-five percent of that
class of Senior Certificates outstanding at the time of the acquisition
and (ii) immediately after the acquisition, no more than twenty-five
percent of the assets of the benefit Plan with respect to which the
investing fiduciary has discretionary authority or renders investment
advice 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").
-93-
<PAGE>
Whether the conditions in the Exemption 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 Fiduciary who proposes to acquire Certificates on
behalf of a Plan in reliance upon the Exemption should determine whether
the Plan satisfies all of the applicable conditions of the Exemption and
consult with its counsel regarding other factors that may affect the
applicability of the Exemption.
If for any reason the Exemption does not provide an exemption for a
particular Plan, one of three prohibited transaction class exemptions
("PTCE") issued by the DOL might apply, i.e., PTCE 91-38 (Class Exemption
for Certain Transactions Involving Bank Collective Investment Funds),
PTCE 90-1 (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 or, even if it were to
apply, that the exemption would apply to all transactions involving the
applicable Trust.
PURCHASE OF NOTES
If Notes are treated as indebtedness under applicable local law and
have no substantial equity features, the assets of the relevant Trust
will not be treated for purposes of ERISA or Section 4975 of the Code as
assets of any Plan. As a result, the prohibited transactions provisions
of ERISA and Section 4975 of the Code will not apply to transactions
involving the underlying assets of the Trust. However, as is the case
with Certificates, if the Trust is or becomes a "party in interest" or
"disqualified person" with respect to a Plan (for example, if such Trust
were owned at least 50% by a service provider to a Plan), the purchase or
holding of such Note could give rise to a prohibited transaction under
ERISA or Section 4975 of the Code.
GENERAL CONSIDERATIONS
Before a Plan Fiduciary decides to purchase Certificates on behalf
of a Plan, the Plan Fiduciary should determine whether the Exemption is
applicable, whether any other prohibited transaction exemption (if
required) is available under ERISA and Section 4975 of the Code or
whether an exemption from "plan asset" treatment is available to the
applicable Trust. The Plan Fiduciary should also consult the ERISA
discussion in the applicable Prospectus Supplement for further
information regarding the application of ERISA to any class of
Certificates.
Subordinated Certificates are not available for purchase by any
Plan.
ACCEPTANCE OF SUBSCRIPTIONS ON BEHALF OF PLANS IS IN NO RESPECT A
REPRESENTATION BY THE COMPANY, THE SERVICER, THE TRUSTEE OR ANY OTHER
PARTY THAT THIS INVESTMENT MEETS ALL RELEVANT LEGAL REQUIREMENTS WITH
RESPECT TO INVESTMENTS BY ANY PARTICULAR PLAN OR THAT SUCH INVESTMENT IS
APPROPRIATE FOR ANY PARTICULAR PLAN. EACH PLAN FIDUCIARY SHOULD CONSULT
WITH ITS ATTORNEYS AND FINANCIAL
-94-
<PAGE>
ADVISORS AS TO THE PROPRIETY OF SUCH AN INVESTMENT IN LIGHT OF THE
CIRCUMSTANCES OF THE PARTICULAR PLAN AND THE RESTRICTIONS OF ERISA AND
SECTION 4975 OF THE CODE.
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.
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.
-95-
<PAGE>
If and to the extent required by applicable law or regulation, this
Prospectus and the Prospectus Supplement will also be used by the
Underwriter after the completion of the offering in connection with
offers and sales related to market-making transactions in the offered
Securities in which the Underwriter acts as principal. The Underwriter
may also act as agent in such transactions. Sales will be made at
negotiated prices determined at the time of sale.
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 Sidley & Austin or counsel for the related Servicer.
-96-
<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 COMPANY
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
PROSPECTUS
Prospectus Supplement 2
Reports to Securityholders 2
Available Information 2
Incorporation of Certain Documents by Reference 2
Summary of Terms 4
Rick Factors 14
The Trusts 17
The Receivables Pools 19
The Collateral Certificates 21
The Government Securities 23
Weighted Average Life of the Securities 32
Pool Factors and Trading Information 33
The Seller and the Servicer 33
Use of Proceeds 33
Description of the Notes 34
Description of the Certificates 40
Certain Information Regarding the Securities 41
Description of the Transfer and Servicing Agreements 45
Certain Legal Aspects of the Receivables 57
Certain Federal Income Tax Consequences 62
State and Local Tax Considerations 86
ERISA Considerations 88
Plan of Distribution 94
Legal Matters 95
Until 90 days after the date of this Prospectus Supplement, all dealers
effecting transactions in the securities 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.
- --------------------------------------------------------------------------------
$[ ]
CS FIRST BOSTON
AUTO RECEIVABLES
AND RECEIVABLES
SECURITIES TRUSTS
$[ ] [ ]% [FLOATING RATE]
ASSET BACKED NOTES, CLASS [ ]
$[ ] [ ]% [FLOATING RATE]
ASSET BACKED NOTES, CLASS [ ]
$[ ] [ ]% [FLOATING RATE]
ASSET BACKED CERTIFICATES, CLASS [ ]
ASSET BACKED SECURITIES CORPORATION
(COMPANY)
_________________
PROSPECTUS
[ ], 199[ ]
___________________
[LOGO] 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
PRELIMINARY PROSPECTUS DATED ______ __, 1996
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) a pool (the "Mortgage
Pool") containing (i) conventional one- to four-family residential mortgage
loans, (ii) mortgage loans secured by multifamily residential rental properties
consisting of five or more dwelling units or apartment buildings owned by
cooperative housing corporations, (iii) loans made to finance the purchase of
certain rights relating to cooperatively owned
(Continued on next page)
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.
SEE "RISK FACTORS" BEGINNING ON PAGE 14 HEREIN FOR A DISCUSSION OF
CERTAIN FACTORS THAT POTENTIAL INVESTORS SHOULD CONSIDER IN DETERMINING WHETHER
TO INVEST IN THE CERTIFICATES OF A SERIES IN RESPECT OF WHICH THIS PROSPECTUS IS
BEING DELIVERED.
PROSPECTIVE INVESTORS SHOULD CONSIDER THE LIMITATIONS DISCUSSED UNDER
"ERISA CONSIDERATIONS" 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, as amended. 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, in whole or in part, 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 the 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 , 1996 .
<PAGE>
(Continued from prior page)
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, (iv) 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 (v) certain conventional mortgage pass-through certificates (the
"Mortgage Certificates") and related property or (b) a pool (the "Contract
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 conveyed to such
trust by the Depositor and (c) certain other assets, if any, described herein
under "The Trust Fund-Government Securities", "Credit Support" and "Description
of Insurance" and in the related Prospectus Supplement. 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, or a combination thereof. 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.
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, the Government Securities (as defined herein), 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; (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, together with the Prospectus Supplement for each Series of
Certificates, contains, 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 of
the material provisions of each such contract or other document 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
2
<PAGE>
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 Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549,
and at the Regional Offices of the Commission at Seven World Trade Center, Suite
1300, New York, New York 10048; and Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511. Copies of such material 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
Commission maintains a Web site that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission. The address of such site is (http://www.sec.gov). 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.
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 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.
3
<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 REMIC.
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),
the Government Securities (as hereinafter
defined) and/or the other assets in the
Trust Fund (as defined below) 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, the
Mortgage Certificates and the Government
Securities 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,
pro rata basis or other basis, 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
4
<PAGE>
(i) conventional one- to four-family
residential mortgage loans, (ii) loans
(the "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 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, each, a
"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 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
participation certificates referred to in
clauses (i) through (iii) 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") and
(c) certain other assets, if any,
described herein under "The Trust Fund-
Government Securities", "Credit Support"
and "Description of Insurance" and in the
related Prospectus Supplement, in each
case purchased by the Depositor either
directly or through one or more
affiliates from one or more affiliates or
from Unaffiliated Sellers.
Each Series of Certificates will be
offered in book-entry form (or, if
specified in the applicable Prospectus
Supplement, fully registered,
certificated form), 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 and Government
Securities, if any, at the Pass-Through
Rate for the related Mortgage Pool or
Contract Pool and Government Securities,
if any. If so specified in the 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
Trust Fund or portion thereof, 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.
5
<PAGE>
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 (each, a
"Distribution Date"), at the rate, or
pursuant to the method of determining
such rate, specified in the applicable
Prospectus Supplement for each Class 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",
"-Payments on Contracts" "-Collection of
Payments on Mortgage Certificates", "-
Collection of Payments on Government
Securities" and "-Distributions on
Certificates".
PRINCIPAL (INCLUDING
PREPAYMENTS) ....................... Principal on each Trust Asset and
Government Security, if any, underlying a
Series of Certificates will be
distributed on each Distribution Date (or
such other date or dates as may be
specified in the applicable Prospectus
Supplement), commencing on the date
specified in the applicable 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.
The Stated Principal Distribution Amount
will equal the amount by which the Stated
Principal Balance of such Multi-Class
Certificates (before taking into account
the amount of interest accrued and added
to the Stated Principal Balance of any
Class of Compound Interest Certificates)
exceeds the Asset Value (as defined
herein) of the Trust Assets and
Government Securities, if any, in the
related Trust Fund as of the Business Day
prior to the related Distribution Date
(or such other amount as may be
specified, or determined by such method
as may be specified, in the applicable
Prospectus Supplement). See "Maturity and
Prepayment Considerations" and
"Description of the Certificates-Payments
on Mortgage Loans", "-Payments on
Contracts" "-Collection of Payments on
Mortgage Certificates", "-Collection of
Payments on Government Securities" and "-
Distributions on Certificates". 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 and Government Securities, if any,
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. Special Distributions
will be made on such Certificates in the
same priority and manner as distributions
in reduction of the Stated Principal
Balance would be made on the next
Distribution Date for such Certificates
(or, if
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<PAGE>
so specified in the applicable Prospectus
Supplement, a different priority or
manner). See "Description of the
Certificates-Special Distributions".
THE MORTGAGE POOLS ................. If so specified in the applicable
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. 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 (the "Mortgaged Property")
securing such Mortgage Loan (or such
other Loan-to-Value Ratio as may be
specified in the applicable Prospectus
Supplement), based upon an appraisal of
the Mortgaged Property completed in
connection with the origination of such
Mortgage Loan and considered acceptable
to the originator of such Mortgage Loan
or the sales price of such Mortgaged
Property, whichever is less (the
"Original Value"). If specified in the
applicable Prospectus Supplement,
Mortgage Loans secured by Single Family
Property having an original principal
amount exceeding 80% of the Original
Value (or such other percentage as may be
specified in the applicable Prospectus
Supplement) will be covered by a policy
of private mortgage insurance until the
outstanding principal amount is reduced
to the percentage of the Original Value
set forth in the applicable Prospectus
Supplement as a result of principal
payments by the borrower (the
"Mortgagor").
The principal balance at origination of
each Mortgage Loan that is secured by
Single Family Property will not exceed
$500,000 (or such other amount as may be
specified in the applicable Prospectus
Supplement). The Mortgage Loans in a
Mortgage Pool will have original
maturities ranging from 10 to 40 years
(or such other original maturities as may
be specified in the applicable Prospectus
Supplement). Mortgage Pools may be formed
from time to time in varying sizes.
FIXED PASS-THROUGH RATE
MORTGAGE POOLS ..................... 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")
that will exceed by at least 3/8 of 1%
(or such other percentage as may be
specified in the applicable Prospectus
Supplement) the interest rate (the "Pass-
Through Rate") for such Series, (ii)
conform to the eligibility requirements
for such Series set forth in the
applicable 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 applicable
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. 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 applicable Prospectus Supplement or
in a Current Report on Form 8-K (or such
other variable rate as may be specified,
or determined by such method as may be
specified, in the applicable Prospectus
Supplement). 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
7
<PAGE>
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 applicable
Prospectus Supplement will be more fully
described in such Prospectus Supplement.
MORTGAGE CERTIFICATES .............. If so specified in the applicable
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 applicable 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, by pledges of
shares of cooperative corporations and
assignments of proprietary leases or
occupancy agreements on cooperative
dwellings or by such other similar
security as may be specified in such
Prospectus Supplement.
THE CONTRACT POOLS ................. If so specified in the applicable
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. The
Contracts will be fixed-rate Contracts
(or, if so specified in the applicable
Prospectus Supplement, the Contracts will
be variable rate Contracts). Such
Contracts, as specified in the applicable
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 applicable 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.
Generally, 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 applicable
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.
GOVERNMENT SECURITIES .............. If so specified in the applicable
Prospectus Supplement, the Trust Fund for
a Series may include any combination of
(i) receipts or other instruments
evidencing ownership of specific interest
and/or principal payments to be made on
certain United States Treasury Bonds
("Treasury Bonds") held by
8
<PAGE>
a custodian, which may include interest
and/or principal strips of Treasury Bonds
created under the Department of the
Treasury's Separate Trading of Registered
Interest and Principal of Securities, or
STRIPS, program ("Treasury Strips"), (ii)
receipts or other instruments evidencing
ownership of specific interest and/or
principal payments to be made on certain
Resolution Funding Corporation ("REFCO")
bonds ("REFCO Strips"), (iii) certain
Treasury Bonds or other debt securities
the payment of principal and interest due
thereon is guaranteed by the full faith
and credit of the United States of
America ("FFC Bonds") and (iv) certain
other debt securities ("GSE Bonds") of
United States government sponsored
entities ("GSEs") or other debt
securities the payment of principal and
interest due thereon is guaranteed by one
or more GSEs ("GSE Guaranteed Bonds";
together with Treasury Strips, REFCO
Strips, Treasury Bonds, FFC Bonds and GSE
Bonds, collectively, "Government
Securities"). The specific terms of the
Government Securities, if any, included
in a Trust Fund will be set forth in the
applicable Prospectus Supplement.
CERTAIN RISK FACTORS ............... For a discussion of certain risk factors
that should be considered in connection
with an investment in the Certificates,
including those relating to the limited
liquidity of an investment in the
Certificates, the limited obligations
evidenced by the Certificates, the
limited amount and nature of credit
support, if any, and the credit and other
risks with respect to the Trust Assets,
see "Risk Factors".
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 and
Government Securities, if any, 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 and Government Securities, if any,
included in the related Trust Fund.
The yield to Certificateholders will also
be adversely affected because interest
generally will accrue on the Mortgage
Loans, the Contracts, the mortgage loans
underlying the Mortgage Certificates or
the Government Securities, if any,
included in a Trust Fund, from the first
day of the month preceding the month
in
9
<PAGE>
which a Distribution Date occurs, but the
distribution of such interest will be
made no earlier than the 25th day of the
succeeding month, or such other day as is
specified 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, the Government Securities 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 (except to the limited extent
described in the applicable Prospectus
Supplement that certain Trust Assets may
be insured or guaranteed, in whole or in
part, by the FHA or VA). 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, in each
such case, to the extent specified in the
applicable Prospectus Supplement. In lieu
of or in addition to the foregoing credit
support arrangements if so specified in
the applicable 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 applicable
Prospectus Supplement (the "Subordinated
Amount"). In addition, if so specified in
the applicable 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 applicable 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. To the extent described
herein and in the applicable Prospectus
Supplement, 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. 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 Dwelling and
the related proprietary lease or
occupancy agreement have been sold or
offered for sale or (d) each
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<PAGE>
Contract with respect to which
repossession proceedings have been
commenced. Any other Mortgage Loan,
Cooperative Loan or Contract constituting
a Liquidating Loan will be described in
the applicable Prospectus Supplement. 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 holders of
Certificates of the Series evidencing
interests in such Mortgage Pool or
Contract Pool, as specified in the
applicable 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% (or such other percentage as may be
specified in the applicable Prospectus
Supplement) 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
applicable Prospectus Supplement. If so
specified in the applicable 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
applicable 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 applicable
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
11
<PAGE>
with the bankruptcy of a Mortgagor. The
level of coverage provided by such
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 applicable
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 or Mortgage
Certificates in the Mortgage Pool or
Contracts in the Contract Pool and the
Government Securities, if any, 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 applicable Prospectus
Supplement, and limited to the
Subordinated Amount set forth in the
applicable 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, Mortgage
Certificates, Contracts or Government
Securities, if any, 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, Mortgage Certificates, Contracts
or Government Securities, if any, 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
applicable Prospectus Supplement on a
Mortgage Loan, Mortgage Certificate,
Contract or Government Security 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 applicable
Prospectus Supplement, a Reserve Fund may
be established for such Series. If so
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 applicable
Prospectus Supplement, such Reserve Fund
may be
12
<PAGE>
created by the deposit, in escrow, by the
Depositor, of a separate pool of mortgage
loans, cooperative loans, manufactured
housing conditional sales contracts and
installment loan agreements or government
securities (the "Subordinated Pool") with
the aggregate principal balance specified
in the applicable Prospectus Supplement,
or by the deposit of cash in the amount
specified in the applicable Prospectus
Supplement (the "Initial Deposit"). The
Reserve Fund will be funded by the
retention of specified distributions on
the Trust Assets of the related Mortgage
Pool or Contract Pool and on the related
Government Securities, if any, and/or on
the mortgage loans, cooperative loans,
manufactured housing conditional sales
contracts and installment loan agreements
or government securities 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
applicable Prospectus Supplement.
Thereafter, specified distributions on
the Trust Assets of the related Mortgage
Pool or Contract Pool and on the related
Government Securities, if any, and/or on
the mortgage loans, cooperative loans,
manufactured housing conditional sales
contracts and installment loan agreements
or government securities, in the
Subordinated Pool, will be retained to
the extent necessary to maintain such
Reserve Fund (without taking into account
the amount of any Initial Deposit) 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 applicable
Prospectus Supplement. If so specified in
the applicable 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 applicable
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 applicable 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".
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HAZARD INSURANCE AND SPECIAL
HAZARD INSURANCE POLICIES .......... If so 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, if any,
will be limited 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
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 or Government
Securities in substitution for any one or
more of the Trust Assets or Government
Securities, as applicable, 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" "-
Assignment of Mortgage Certificates" and
"-Assignment of Government
Securities".
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 and the
Government Securities, if any, 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 (or any part
thereof) as one or more Real Estate
Mortgage Investment Conduits (each, 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".
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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 applicable
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
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 and any
other assets constituting the related
Trust Fund, (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 applicable Prospectus Supplement and
(iv) to pay costs of structuring and
issuing such Certificates. See "Use of
Proceeds".
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RISK FACTORS
In addition to the other information contained in this Prospectus and in the
applicable Prospectus Supplement to be prepared and delivered in connection with
the offering of any Series of Certificates, prospective investors should
carefully consider the following risk factors before investing in any Class or
Classes of Certificates of any such Series.
LIMITED LIQUIDITY
There can be no assurance that a secondary market for the Certificates of any
Series will develop or, if it does develop, that it will provide
Certificateholders with liquidity of investment or that it will continue for the
life of the Certificates of any Series. The Prospectus Supplement for any
Series of Certificates may indicate that an underwriter specified therein
intends to establish a secondary market in such Certificates; however, no
underwriter will be obligated to do so. The Certificates will not be listed on
any securities exchange.
LIMITED OBLIGATIONS
Except for any related insurance policies or credit support described in the
applicable Prospectus Supplement, the Trust Assets and Government Securities, if
any, included in the related Trust Fund will be the sole source of payments on
the Certificates of a Series. The Certificates of any Series will not represent
an interest in or obligation of the Depositor, the Master Servicer, any
Servicer, any Unaffiliated Seller, the Trustee or any of their affiliates,
except for the limited obligations of the Depositor, the Master Servicer or any
Unaffiliated Seller with respect to certain breaches of representations and
warranties and the Master Servicer's obligations as Master Servicer. Neither
the Certificates of any Series nor the related Trust Assets will be guaranteed
or insured by any governmental agency or instrumentality (except to the limited
extent described in the related Prospectus Supplement that certain Trust Assets
may be insured or guaranteed, in whole or in part, by the FHA or VA), the
Depositor, the Master Servicer, any Servicer, any Unaffiliated Seller, the
Trustee, any of their affiliates or any other person. Consequently, in the
event that payments on the Trust Assets are insufficient or otherwise
unavailable to make all payments required on the Certificates, there will be no
recourse to the Depositor, the Master Servicer, any Servicer, any Unaffiliated
Seller, the Trustee or, except as specified in the applicable Prospectus
Supplement, any other entity.
LIMITATIONS, REDUCTION AND SUBSTITUTION OF CREDIT SUPPORT
With respect to each Series of Certificates, credit support may be provided in
limited amounts to cover certain types of losses on the underlying Trust Assets.
Credit support may be provided in one or more of the forms referred to herein,
including, but not limited to: a Letter of Credit; a Pool Insurance Policy; a
Mortgagor Bankruptcy Bond; subordination of other Classes of Certificates of the
same Series; a Reserve Fund; and any combination thereof. See "Credit Support"
herein. Regardless of the form of credit support, if any, provided, the amount
of coverage will be limited in amount and in most cases will be subject to
periodic reduction in accordance with a schedule or formula. Furthermore, such
credit support may provide only very limited coverage as to certain types of
losses, and may provide no coverage as to certain other types of losses. All or
a portion of the credit support, if any, for any Series of Certificates will
generally be permitted to be reduced, terminated or substituted for, if each
applicable Rating Agency indicates that the then current rating thereof will not
be adversely affected. See "Credit Support".
RISKS OF THE TRUST ASSETS
An investment in securities such as the Certificates of any Series which
generally represent interests in mortgage loans or manufactured housing
conditional sales contracts and installment loan agreements ("contracts"), as
the case may be, may be affected by, among other things, a decline in real
estate values and changes in the mortgagor's or obligor's financial condition.
No assurance can be given that the values of the Mortgaged Properties securing
the Mortgage Loans, the values of the mortgaged properties securing the mortgage
loans underlying the Mortgage Certificates or the values of the Manufactured
Homes securing the Contracts, as the case may be, underlying any Series of
Certificates have remained or will remain at their levels on the dates of
origination of the related Mortgage Loans, mortgage loans or
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Contracts. If the residential real estate market should experience an overall
decline in property values such that the outstanding balances of the Mortgage
Loans and the mortgage loans underlying the Mortgage Certificates comprising a
particular Trust Fund, and any secondary financing on the related Mortgaged
Properties and mortgaged properties, become equal to or greater than the value
of the related Mortgaged Properties or mortgaged properties, as applicable, the
actual rates of delinquencies, foreclosures and losses could be higher than
those now generally experienced in the mortgage lending industry and those
experienced in the related Originator's portfolio. In addition, adverse economic
conditions generally, in particular geographic areas or industries, or affecting
particular segments of the borrowing community (such as Mortgagors or Obligors
relying on commission income and self-employed Mortgagors or Obligors) and other
factors, may affect the timely payment by Mortgagors, Obligors or mortgagors of
scheduled payments of principal and interest on the Mortgage Loans, Contracts or
Mortgage Certificates, as the case may be, and, accordingly, the actual rates of
delinquencies, foreclosures and losses with respect to any Trust Fund. See
"Yield Considerations" and "Maturity and Prepayment Considerations" herein. To
the extent that such losses are not covered by the applicable credit support,
holders of Certificates of the Series evidencing interests in the related Trust
Fund will bear all risk of loss resulting from default by Mortgagors. Obligors
or mortgagors and will have to look primarily to the value of the Mortgaged
Properties, mortgaged properties or Manufactured Homes for recovery of the
outstanding principal and unpaid interest on the defaulted Mortgage Loans or
Contracts. In addition to the foregoing, certain geographic regions on the
United States from time to time will experience weaker regional economic
conditions and housing markets and, consequently, will experience higher rates
of loss and delinquency on mortgage loans or contracts generally. The Mortgage
Loans, Contracts or mortgage loans underlying the Mortgage Certificates
underlying certain Series of Certificates may be concentrated in these regions,
and such concentration may present risk considerations in addition to those
generally present for similar mortgage-backed or contract-backed securities
without such concentration. See "The Trust Fund - The Mortgage Pools; -
Underwriting Standards; - The Contract Pools; and - Underwriting Policies".
PREPAYMENT AND YIELD CONSIDERATIONS
The rate and timing of principal payments on the Certificates of each Series
will depend, among other things, on the rate and timing of principal payments
(including prepayments, defaults and liquidations) on the related Mortgage
Loans, Mortgage Certificates or Contracts and Government Securities, if any. As
is the case with mortgage-backed securities generally, each Series of
Certificates are subject to substantial inherent cash-flow uncertainties because
the Mortgage Loans and Contracts may be prepaid at any time. Generally, when
prevailing interest rates increase, prepayment rates on mortgage loans tend to
decrease, resulting in a slower return of principal to investors at a time when
reinvestment at such higher prevailing rates would be desirable. Conversely,
when prevailing interest rates decline, prepayment rates on mortgage loans tend
to increase, resulting in a faster return of principal to investors at a time
when reinvestment at comparable yields may not be possible.
The yield to maturity on each Class of Certificates of each Series will
depend, among other things, on the rate and timing of principal payments
(including prepayments, defaults and liquidations) on the Mortgage Loans,
Mortgage Certificates or Contracts and Government Securities, if any, as
applicable, and the allocation thereof to reduce the Certificate Principal
Balance of such Class. The yield to maturity on each Class of Certificates will
also depend on the Pass-Through Rate and the purchase price for such
Certificates. The yield to investors on any Class of Certificates will be
adversely affected by any allocation thereto of interest shortfalls on the
Mortgage Loans or Contracts, as applicable, which are expected to result from
the distribution of interest only to the date of prepayment (rather than a full
month's interest) in connection with prepayments in full and in part (including
for this purpose Insurance Proceeds and Liquidation Proceeds) to the extent not
covered by amounts otherwise payable to the Master Servicer as servicing
compensation.
In general, if a Class of Certificates is purchased at a premium and principal
distributions thereon occur at a rate faster than anticipated at the time of
purchase, the investor's actual yield to maturity will be lower than that
assumed at the time of purchase. Conversely, if a Class of Certificates is
purchased at a discount and principal distributions thereon occur at a rate
slower than that assumed at the time of purchase, the investor's actual yield to
maturity will be lower than that assumed at the time of purchase.
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SUBORDINATION
To the extent specified in the applicable 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 one or
more other Classes of Certificates of such Series.
LIMITATION ON EXERCISE OF RIGHTS DUE TO BOOK-ENTRY REGISTRATION
If so specified in the applicable Prospectus Supplement, one or more Classes
of Certificates of a 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 applicable Prospectus
Supplement, and will not be registered in the names of the holders of the
Certificates of such Series or their nominees. Because of this, unless and
until Certificates in fully registered, certificated form ("Definitive
Certificates") for such Series are issued, holders of such Certificates will not
be recognized by the applicable Trustee as "Certificateholders" (as such terms
are used herein or in the related Pooling and Servicing Agreement or the related
Deposit Trust Agreement, as applicable). Hence, until Definitive Certificates
are issued, holders of such Certificates will be able to exercise the rights of
Certificateholders only indirectly through DTC and its participating
organizations.
THE TRUST FUND
Ownership of the Mortgage Pool or Pools or Contract Pool or Pools and
Government Securities, if any, 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
applicable Prospectus Supplement in one or more Mortgage Pools containing one or
more Mortgage Loans and/or Mortgage Certificates or Contract Pools containing
one or more Contracts and in the Government Securities, if any, included in the
related Trust Fund, with such Mortgage Pool or Pools or Contract Pool or Pools
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"), or such
other minimum aggregate principal balance as may be specified in the applicable
Prospectus Supplement. If so specified in the applicable 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 and/or Mortgage Certificates in the
related Mortgage Pool or Pools or on the Contracts in the related Contract Pool
or Pools and in the Government Securities, if any, included in the related Trust
Fund (a "Percentage Interest"). To the extent specified in the applicable
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 of such Series, which, if so
specified in the applicable 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 interest 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"Credit Support" and "Description of Insurance".
THE MORTGAGE POOLS
If so specified in the Prospectus Supplement with respect to a Series, the
Trust Fund for such Series may include one or more Mortgage Pools containing (i)
conventional one- to four-family residential, first and/or more junior 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
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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, in each case purchased by the Depositor either
directly or through one or more affiliates from one or more affiliates or from
Unaffiliated Sellers.
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 or more junior mortgages or first or more junior deeds of trust or other
similar security instruments creating a first or more junior lien, as
applicable, on, or installment sales contracts for the sale of, the Mortgaged
Properties(as defined below). Single Family Property and Multifamily Property
will consist of single family detached homes, townhouses, row houses, attached
homes (single family units having a common wall), individual units located in
condominiums, individual units located in apartment buildings owned by
cooperative housing corporations, individual units in planned unit developments,
leasehold interests in single family detached homes, multifamily residential
rental properties and apartment buildings owned by cooperative housing
corporations. 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 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 or, in each such case, such other Mortgage Loan
characteristics as are set forth in the applicable Prospectus Supplement. In
addition, to the extent so specified in the applicable 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 applicable Prospectus Supplement, a Mortgage Pool may also
include fully amortizing, adjustable rate Mortgage Loans ("ARM Loans") with a
30-year term (or other term specified in the applicable Prospectus Supplement)
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.
If so 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"). If so specified in the applicable 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 such
Mortgage Loan may not exceed $250,000.
If so specified in the applicable 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
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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
applicable 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. If
so specified in the applicable 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 applicable 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.
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 applicable Prospectus
Supplement, with the Trustee. In lieu of a cash deposit, if so specified in the
applicable 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 Loan 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 applicable 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
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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 the VA under this program currently 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 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 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 applicable
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
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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". 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".
Each Mortgage Pool included in the related Trust Fund will be composed of
Mortgage Loans evidencing interests in Mortgage Loans having Mortgage Rates
that will exceed by at least 3/8 of 1% (or such other percentage as may be
specified in the applicable Prospectus Supplement) the fixed or variable Pass-
Through Rate established for the Mortgage Pool. To the extent and in the manner
specified in the applicable 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 related 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 an
applicable 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.
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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 amounts 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.
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 applicable 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 applicable 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
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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 applicable 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 applicable Prospectus Supplement.
Qualifications of Unaffiliated Sellers
Each Unaffiliated Seller of Closed Loans secured by residential properties
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 each case, subject to certain limited exceptions). 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
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 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, in each such case, subject to certain exceptions which may be
specified in the applicable 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 material 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
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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 one or more REMICs, 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. 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 generally 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 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 a 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. Closed Loans for which 11 or fewer monthly payments have been
received generally will be further subject to the Depositor's customary
underwriting standards. Closed Loans for which 12 to 60 monthly payments have
been received generally 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. 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 (in each
such case, subject to certain exceptions which may be specified in the
applicable Prospectus Supplement).
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
(each, an "Underlying Issuer") established by one or more private entities
(which may include the Depositor and/or one or more affiliates thereof) and
evidencing, the entire interest (or such other percentage interest as may be
specified in such Prospectus Supplement) 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 (which may include the Depositor and/or one or more
affiliates thereof) 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
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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".
As a general rule each Underlying Issuer will be subject to the information
requirements of the Exchange Act and in accordance therewith will file reports
and other information with the Commission. Such reports and other information
filed with the Commission can be inspected and copied at the public reference
facilities maintained by the Commission at Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the Commission's regional offices at
Citicorp Center, 500 West Madison Street, 14th Floor, Chicago, Illinois 60661
and Seven World Trade Center, Suite 1300, New York, New York 10048. Copies of
such material 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 Commission maintains a Web site that contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the Commission. The address of such site is
(http://www.sec.gov). In the event that any Underlying Issuer is not subject to
the information requirements of the Exchange Act on the date of issuance of the
Certificates of the related Series or ceases to be subject to such requirements
after such date, the Depositor or the Trustee will provide, or cause to be
provided (or make available, or cause to be made available) to
Certificateholders upon request the information contained in all periodic
trustee reports (or similar reports) that are received by the Trustee with
respect to the related Mortgage Certificates where such Mortgage Certificates
represent 20% or more of the aggregate principal balance of the related Trust
Fund.
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. The Contracts will be fully amortizing (or, if so
specified in the applicable Prospectus Supplement, have balloon payments at
maturity) and will bear interest at a fixed annual percentage rate ("APR") (or,
if so specified in the applicable Prospectus Supplement, bear interest at a
variable rate).
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 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 applicable Prospectus Supplement for the
benefit of the related Certificateholders. The Master Servicer specified in the
applicable 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 applicable 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.
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Each Contract Pool will be composed of Contracts bearing interest at the APRs
specified in the Prospectus Supplement. Each registered holder of a Certificate
will be entitled to receive periodic distributions, which generally will be
monthly, 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. If
so specified in the applicable 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 applicable 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 applicable
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, no Contract was more than 30 days (or such other number of
days as may be specified in the Prospectus Supplement) delinquent as to payment
of principal and interest. Upon a breach of any representation that materially
and adversely affects the interest 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 to
repurchase the Contract or, if so specified in the applicable 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 applicable 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, generally will be obligated to cure the
breach in all material respects, to repurchase such Contract at a price equal to
the principal balance thereof as of the date of repurchase plus accrued interest
at the related Pass-Through-Rate to the first day of the month following the
month of repurchase or to take such other action as may be specified in the
applicable Prospectus Supplement. 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 repurchase obligation. See "Credit Support-Performance
Bond". This repurchase 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.
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 such Prospectus Supplement of the date of
the initial issuance of the Certificates, the Depositor generally 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
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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 applicable
Prospectus Supplement. Except as described below or in the applicable 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. 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 or such other amount as may be specified, or determined by
such method as may be specified, in the applicable Prospectus Supplement.
GOVERNMENT SECURITIES
If so specified in the applicable Prospectus Supplement, the Trust Fund for a
Series may include any combination of (i) receipts or other instruments
evidencing ownership of specific interest and/or principal payments to be made
on certain United States Treasury Bonds ("Treasury Bonds") held by a custodian,
which may include interest and/or principal strips of Treasury Bonds created
under the Department of the Treasury's Separate Trading of Registered Interest
and Principal of Securities, or STRIPS, program ("Treasury Strips"), (ii)
receipts or other instruments evidencing ownership of specific interest and/or
principal payments to be made on certain Resolution Funding Corporation
("REFCO") bonds ("REFCO Strips"), (iii) certain Treasury Bonds or other debt
securities the payment of principal and interest due thereon is guaranteed by
the full faith and credit of the United States of America ("FFC Bonds") and (iv)
certain other debt securities ("GSE Bonds") of United States government
sponsored entities ("GSEs") or other debt securities the payment of principal
and interest due thereon is guaranteed by one or more GSEs ("GSE Guaranteed
Bonds"; together with Treasury Strips, REFCO Strips, Treasury Bonds, FFC Bonds
and GSE Bonds, collectively, "Government Securities"). A description of the
respective general features of Treasury Strips, REFCO Strips, Treasury Bonds,
FFC Bonds, GSE Bonds and GSE Guaranteed Bonds is set forth below.
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 Government Securities will contain information as
to: (i) the title and series of each such Government Security, the aggregate
principal amount, denomination and form thereof; (ii) whether each such
Government Security is senior or subordinated to any other obligations of the
issuer thereof; (iii) whether any of the obligations are secured or unsecured
and the nature of any collateral; (iv) the limit, if any, upon the aggregate
principal amount of such Government Security; (v) the dates on which, or the
range of dates within which, the principal of (and premium, if any, on) such
Government Security will be payable; (vi) the rate or rates, or the method of
determination thereof, at which such Government Security will bear interest, if
any; the date or dates from which such interest will accrue; and the dates on
which such interest will be payable; (vii) the obligation, if any, of the issuer
thereof to redeem such Government Security pursuant to any sinking fund or
analogous provisions, or at the option of a holder thereof, and the periods
within which or the dates on which, the prices at which and the terms and
conditions upon which, such Government Security may be redeemed or repurchased,
in whole or in part, pursuant to such obligation; (viii) the periods within
which or the dates on which, the prices at which and terms and conditions upon
which, such Government Security may be redeemed, if any, in whole or in part, at
the option of the issuer thereof; (ix) whether such Government Security was
issued at a price lower than the principal amount thereof; (x) if other than
United States dollars, the foreign or composite currency
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in which such Government Security is denominated, or in which payment of the
principal of (and premium, if any) or any interest on such Government Security
will be made; and the circumstances, if any, when such currency of payment may
be changed; (xi) material events of default or restrictive covenants provided
for with respect to such Government Security; (xii) the rating thereof, if any;
and (xiii) any other material terms of such Government Security. With respect to
a Trust Fund which includes a pool of Government Securities, the related
Prospectus Supplement will, to the extent applicable, describe the composition
of the Government Securities' pool, certain material events of default or
restrictive covenants common to the Government Securities, and, on an aggregate,
percentage or weighted average basis, as applicable, the characteristics of the
pool with respect to the terms set forth in (ii), (iii), (v), (vi), (vii),
(viii) and (ix) of the preceding sentence and any other material terms regarding
such pool.
The inclusion of Government Securities 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.
Treasury Strips
In general, Treasury Strips are created by separating, or "stripping", the
principal and interest components of Treasury Bonds that have an original
maturity of 10 or more years from the date of issue. A particular Treasury
Strip evidences ownership of the principal payment or one of the periodic
interest payments (generally semiannual) due on the Treasury Bond to which such
Treasury Strip relates.
The first "stripping" of Treasury Bonds occurred in the 1970s when government
securities dealers physically separated coupons from definitive certificates and
offered them to investors as tax-deferred investments. Investors were able to
purchase the "strip" at a deep discount and pay no federal income tax until
resale or maturity. This tax treatment was limited in 1982 by the Tax Equity
and Fiscal Responsibility Act ("TEFRA") which required holders of such strips to
accrue a portion of the discount toward par annually and report such accrual,
even though unrealized, as taxable income. TEFRA also required that all new
Treasury issues be made available only in book-entry form.
The shift to "book-entry only" Treasury Bonds created a shortage of the
physical certificates needed for stripping. In response, various dealers
created custodial receipt programs in which Treasury Bonds in book-entry form
were deposited with custodians who would thereupon issue certificates evidencing
rights in principal and interest payments. Some of the better known programs
first came to market in 1982 and 1983. Although available eventually in
denominations as small as $1,000, these custodial receipts lacked the liquidity
of the physical strips. While physical strips had multiple market-makers,
custodial receipts were proprietary and, as such, the sole market-maker would
usually be an affiliate of the program's sponsor. As a result, the market that
developed for such receipts was segmented.
In early 1984, a group of dealers sought to enhance the liquidity of custodial
receipts by developing a generic, multiple market-maker security known as a TR
(Treasury Receipt). A large secondary market quickly developed in these generic
Treasury Strips, and in 1985 the Department of the Treasury, based on
indications that the demand for Treasury Strips was resulting in lower interest
rates, announced that all new issues of Treasury Bonds with maturities of 10
years or more would be transferable in their component pieces on the Federal
Reserve wire system. In so doing, the Treasury created a generic, book-entry
Treasury Strip named STRIPS (Separate Trading of Registered Interest and
Principal of Securities) which, unlike the private label Treasury Strips, can be
issued without the need for a custodial arrangement. The STRIPS program has
since eclipsed the private sector programs, and investment banks no longer
sponsor new issues of custodial receipts. TRs, physical strips and the
proprietary receipts trade at varying discounts from STRIPS which reflect, among
other things, lower levels of liquidity and the structuring difference discussed
above.
Treasury Strips may be either "serial" or "callable". A serial Treasury Strip
evidences ownership of one of the periodic interest payments to be made on a
Treasury Bond. No payments are made on such Treasury Strip, nor is it
redeemable, prior to its maturity, at which time the holder becomes entitled to
receive a single payment of
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the face amount thereof. Callable Treasury Strips relate to payments scheduled
to be made after the related Treasury Bonds have become subject to redemption.
Such Treasury Strips evidence ownership of both principal of the related
Treasury Bonds and each of the related interest payments commencing, typically,
on the first interest payment date following the first optional redemption date.
If the underlying Treasury Bonds are actually redeemed, holders of callable
Treasury Strips generally receive a payment equal to the principal portion of
the total face amount of such Treasury Strips plus the interest payment
represented by the Treasury Strips maturing on the redemption date. The face
amount of any Treasury Strip is the aggregate of all payments scheduled to be
received thereon. Treasury Strips are available in registered form and generally
may be transferred and exchanged by the holders thereof in accordance with
procedures applicable to the particular issue of such Treasury Strips.
A holder of a private label Treasury Strip (as opposed to a STRIP) cannot
enforce payment on such Treasury Strip against the Treasury; instead, such
holder must look to the custodian for payment. Such custodian (and such holder
of a Treasury Strip that obtains ownership of the underlying Treasury Bond) can
enforce payment of the underlying Treasury Bond against the Treasury. In the
event any private label Treasury Strips are included in a Trust Fund with
respect to any Series of Certificates, the Prospectus Supplement for such Series
will include the identity and a brief description of each custodian that issued
such Treasury Strips. In the event the Depositor knows that the depositor of
the Treasury Bonds underlying such Treasury Strips is the Depositor or any of
its affiliates, the Depositor will disclose such fact in such Prospectus
Supplement.
REFCO Strips
A REFCO Bond may be divided into its separate components, consisting of: (i)
each future semi-annual interest distribution (an "Interest Component"); and
(ii) the principal payment (the "Principal Component") (each component
individually hereinafter referred to as a "REFCO Strip"). REFCO Strips are not
created by REFCO; instead, third parties such as investment banking firms create
them. Each REFCO Strip has an identifying designation and CUSIP number. REFCO
Strips generally trade in the market for Treasury Strips at yields of a few
basis points over Treasury Strips of similar maturities. REFCO Strips are
viewed generally by the market as liquid investments.
For a REFCO Bond to be separated into its components, the par amount of the
REFCO Bond must be in an amount which, based on the stated interest rate of the
REFCO Bond, will produce a semi-annual interest payment of $1,000 or an integral
multiple thereof. REFCO Bonds may be separated into their components at any
time from the issue date until maturity. Once created, REFCO Strips are
maintained and transferred in integral multiples of $1,000.
A holder of a REFCO Strip cannot enforce payment on such REFCO Strip against
REFCO; instead, such holder must look to the custodian for payment . Such
custodian (and such holder of a REFCO Strip that obtains ownership of the
underlying REFCO Bond) can force payment of the underlying REFCO Bond against
REFCO. The identity and a brief description of each custodian that has issued
any REFCO Strip included in the Trust Fund will be set forth in the related
Prospectus Supplement. In the event the Depositor knows that the depositor of
the REFCO Bonds underlying the REFCO Strips included in the Trust Fund is the
Depositor or any of its affiliates, the Depositor will disclose such fact in
such Prospectus Supplement.
Treasury Bonds; FFC Bonds
Treasury Bonds are issued by and are the obligations of The United States of
America. Interest is typically payable on the Bonds semiannually. Treasury
Bonds may be made subject to redemption, in whole or in part, by the United
States pursuant to the terms of the issue. No Treasury Bonds issued since 1984,
however, have been redeemable. Treasury Bonds are issued in registered form in
denominations of $1,000, $5,000, $10,000, $100,000 and $1,000,000 and in book-
entry form in integral multiples thereof. The payment of principal and interest
on each FFC Bond will be guaranteed by the full faith and credit of the United
States of America.
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GSE Bonds; GSE Guaranteed Bonds
As specified in the applicable Prospectus Supplement, the obligations of one
or more of the following GSEs may be included in a Trust Fund: Federal National
Mortgage Association ("Fannie Mae"), Federal Home Loan Mortgage Association
("Freddie Mac"), Student Loan Marketing Association ("Sallie Mae"), REFCO,
Tennessee Valley Authority ("TVA"), Federal Home Loan Banks ("FHLB") (to the
extent such obligations represent the joint and several obligations of the
twelve Federal Home Loan Banks), and Federal Farm Credit Banks ("FFCB"). GSE
debt securities are exempt from registration under the Securities Act pursuant
to Section 3(a)(2) of the Securities Act (or are deemed by statute to be so
exempt) and are not required to be registered under the Exchange Act. The
securities of any GSE will be included in a Trust Fund only to the extent that
(i) its obligations are supported by the full faith and credit of the United
States government or (ii) such organization makes publicly available its annual
report which shall include financial statements or similar financial information
with respect to such organization (a "GSE Issuer"). Unless otherwise specified
in the related Prospectus Supplement, the GSE Bonds (and the GSE Guaranteed
Bonds) will not be guaranteed by the United States and do not constitute a debt
or obligation of the United States or of any agency or instrumentality thereof
other than the related GSE. The payment of principal and interest on each GSE
Guaranteed Bond will be guaranteed by one or more GSEs.
Unless otherwise specified in the related Prospectus Supplement, none of the
GSE Bonds will have been issued pursuant to an indenture, and no trustee is
provided for with respect to any GSE Bonds. There will generally be a fiscal
agent ("Fiscal Agent") for an issuer of GSE Bonds whose actions will be governed
by a fiscal agency agreement. A Fiscal Agent is not a trustee for the holders
of the GSE Bonds and does not have the same responsibilities or duties to act
for the holders as would a trustee.
GSE Bonds may be subject to certain contractual and statutory restrictions
which may provide some protection to securityholders against the occurrence or
effects of certain specified events. Unless otherwise specified in the related
Prospectus Supplement, each GSE is limited to such activities as will promote
its statutory purposes as set forth in the publicly available information with
respect to such issuer. A GSE's promotion of its statutory purposes, as well as
its statutory, structural and regulatory relationships with the federal
government, may cause or require such GSE to conduct its business in a manner
that differs from what an enterprise which is not a GSE might employ.
The Federal National Mortgage Association
Fannie Mae is a federally chartered and stockholder owned corporation
organized and existing under the Federal National Mortgage Association Charter
Act. It is the largest investor in home mortgage loans in the United States.
Fannie Mae originally was established in 1938 as a corporation wholly owned by
the United States government to provide supplemental liquidity to the mortgage
market and was transformed into a stockholder owned and privately managed
corporation by legislation enacted in 1968 and 1970. Fannie Mae provides funds
to the mortgage market by purchasing mortgage loans from lenders, thereby
replenishing their funds for additional lending. Fannie Mae acquires funds to
purchase loans from many capital market investors that ordinarily may not invest
in mortgage loans, thereby expanding the total amount of funds available for
housing. Operating nationwide, Fannie Mae helps to redistribute mortgage funds
from capital-surplus to capital-short areas. Fannie Mae also issues mortgage-
backed securities ("MBS"). Fannie Mae receives guaranty fees for its guaranty of
timely payment of principal of and interest on MBS. Fannie Mae issues MBS
primarily in exchange for pools of mortgage loans from lenders. The issuance of
MBS enables Fannie Mae to further its statutory purpose of increasing the
liquidity of residential mortgage loans.
Fannie Mae prepares an Information Statement annually which describes Fannie
Mae, its business and operations and contains Fannie Mae's audited financial
statements. From time to time Fannie Mae prepares supplements to its
Information Statement which include certain unaudited financial data and other
information concerning the business and operations of Fannie Mae. Unless
otherwise specified in the applicable Prospectus Supplement, these documents can
be obtained without charge from the Office of Investor Relations, Fannie Mae,
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3900 Wisconsin Avenue, N.W., Washington, D.C. 20016; telephone (202)752-7115.
Fannie Mae is not subject to the periodic reporting requirements of the Exchange
Act.
The Federal Home Loan Mortgage Corporation
Freddie Mac is a publicly held government-sponsored enterprise created on July
24, 1970 pursuant to the Federal Home Loan Mortgage Corporation Act, Title III
of the Emergency Home Finance Act of 1970, as amended (the "FHLMC Act").
Freddie Mac's statutory mission is to provide stability in the secondary market
for home mortgages, to respond appropriately to the private capital market and
to provide ongoing assistance to the secondary market for home mortgages
(including mortgages secured by housing for low- and moderate-income families
involving a reasonable economic return to Freddie Mac) by increasing the
liquidity of mortgage investments and improving the distribution of investment
capital available for home mortgage financing. The principal activity of
Freddie Mac consists of the purchase of conventional residential mortgages and
participation interests in such mortgages from mortgage lending institutions and
the sale of guaranteed mortgage securities backed by the mortgages so purchased.
Freddie Mac generally matches and finances its purchases of mortgages with sales
of guaranteed securities. Mortgages retained by Freddie Mac are financed with
short- and long-term debt, cash temporarily held pending disbursement to
security holders, and equity capital.
Freddie Mac prepares an Information Statement annually which describes Freddie
Mac, its business and operations and contains Freddie Mac's audited financial
statements. From time to time Freddie Mac prepares supplements to its
Information Statement which include certain unaudited financial data and other
information concerning the business and operations of Freddie Mac. Unless
otherwise specified in the applicable Prospectus Supplement, these documents can
be obtained from Freddie Mac by writing or calling Freddie Mac's Investor
Inquiry Department at 8200 Jones Branch Drive, McLean, Virginia, 22102; outside
Washington, D.C. metropolitan area, telephone (800) 336-3672; within Washington,
D.C. metropolitan area, telephone (703)759-8160. Freddie Mac is not subject to
the periodic reporting requirements of the Exchange Act.
The Student Loan Marketing Association
Sallie Mae is a stockholder-owned corporation established by the 1972
amendments to the Higher Education Act of 1965, as amended, to provide
liquidity, primarily through secondary market and warehousing activities, for
lenders participating in federally sponsored student loan programs, primarily
the Federal Family Education Loan ("FFEL") program and the Health Education
Assistance Loan Program. Under the Higher Education Act, Sallie Mae is
authorized to purchase, warehouse, sell and offer participations or pooled
interests in, or otherwise deal in, student loans, including, but not limited
to, loans insured under the FFEL program, and to make commitments for any of the
foregoing. Sallie Mae is also authorized to buy, sell, hold, underwrite and
otherwise deal in obligations of eligible lenders, if such obligations are
issued by such eligible lenders for the purpose of making or purchasing
federally guaranteed student loans under the Higher Education Act. As a
federally chartered corporation, Sallie Mae's structure and operational
authorities are subject to revision by amendments to the Higher Education Act or
other federal enactments.
Sallie Mae prepares an Information Statement annually which describes Sallie
Mae, its business and operations and contains Sallie Mae's audited financial
statements. From time to time Sallie Mae prepares supplements to its
Information Statement which include certain unaudited financial data and other
information concerning the business and operations of Sallie Mae. Unless
otherwise specified in the applicable Prospectus Supplement, these documents can
be obtained without charge upon written request to the Corporate and Investor
Relations Division of Sallie Mae at 1050 Thomas Jefferson Street, N.W.,
Washington, D.C. 20007; telephone (202) 298-3010. Sallie Mae is not subject to
the periodic reporting requirements of the Exchange Act.
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The Resolution Funding Corporation
REFCO is a mixed-ownership government corporation established by Title V of
the Financial Institutions Reform, Recovery, and Enforcement Act of 1989
("FIRREA"). The sole purpose of REFCO is to provide financing for the
Resolution Trust Corporation (the "RTC"). REFCO is to be dissolved, as soon as
practicable, after the maturity and full payment of all obligations issued by
it. REFCO is subject to the general oversight and direction of the Oversight
Board, which is comprised of the Secretary of the Treasury, the Chairman of the
Board of Governors of the Federal Reserve System, the Secretary of Housing and
Urban Development and two independent members to be appointed by the President
with the advice and consent of the Senate. The day-to-day operations of REFCO
are under the management of a three-member Directorate comprised of the Director
of the Office of Finance of the FHLB and two members selected by the Oversight
Board from among the presidents of the twelve FHLB.
The RTC was established by FIRREA to manage and resolve cases involving failed
savings and loan institutions pursuant to policies established by the Oversight
Board. The RTC was granted authority to issue nonvoting capital certificates to
REFCO in exchange for the funds transferred from REFCO to the RTC. Pursuant to
FIRREA, the net proceeds of these obligations are used to purchase nonvoting
capital certificates issued by the RTC or to retire previously issued REFCO
obligations.
Information concerning REFCO may be obtained from the Secretary/Treasurer,
Resolution Funding Corporation, Suite 1000, 11921 Freedom Drive, Reston,
Virginia 22090; telephone (703) 487-9517. REFCO is not subject to the periodic
reporting requirements of the Exchange Act.
The Federal Home Loan Banks
The Federal Home Loan Banks constitute a system of twelve federally chartered
corporations (collectively, the "FHLB"), each wholly owned by its member
institutions. The mission of the FHLB is to enhance the availability of
residential mortgage credit by providing a readily available, low-cost source of
funds to their member institutions. A primary source of funds for the FHLB is
the proceeds from the sale to the public of debt instruments issued as
consolidated obligations, which are the joint and several obligations of all the
FHLB. The FHLB are supervised and regulated by the Federal Housing Finance
Board, which is an independent federal agency in the executive branch of the
United States government, but obligations of the FHLB are not obligations of the
United States government.
The Federal Home Loan Bank System produces annual and quarterly financial
reports in connection with the original offering and issuance by the Federal
Housing Finance Board of consolidated bonds and consolidated notes of the FHLB.
Unless otherwise specified in the applicable Prospectus Supplement, questions
regarding such financial reports should be directed to the Deputy Director,
Financial Reporting and Operations Division, Federal Housing Finance Board, 1777
F Street, N.W., Washington, D.C. 20006; telephone (202) 408-2901. Unless
otherwise specified in the applicable Prospectus Supplement, copies of such
reports may be obtained by written request to Capital Markets Division, Office
of Finance, Federal Home Loan Banks, Suite 1000, 11921 Freedom Drive, Reston,
Virginia 22090, telephone (703) 487-9500. The FHLB are not subject to the
periodic reporting requirements of the Exchange Act.
Tennessee Valley Authority
TVA is a wholly owned corporate agency and instrumentality of the United
States of America established pursuant to the Tennessee Valley Authority Act of
1933, as amended (the "TVA Act"). TVA's objective is to develop the resources
of the Tennessee Valley region in order to strengthen the regional and national
economy and the national defense. The programs of TVA consist of power and
nonpower programs. For the fiscal year ending September 30, 1995, TVA received
$139 million in congressional appropriations from the federal government for the
nonpower programs. The power program is required to be self-supporting from
revenues it produces. The TVA
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Act authorizes TVA to issue evidences of indebtedness that may be serviced only
from proceeds of its power program. TVA bonds are not obligations of or
guaranteed by the United States government.
TVA prepares an Information Statement annually which describes TVA, its
business and operations and contains TVA's audited financial statements. From
time to time TVA prepares supplements to its Information Statement which include
certain unaudited financial data and other information concerning the business
and operations of TVA. Unless otherwise specified in the applicable Prospectus
Supplement, these documents can be obtained by writing or calling Tennessee
Valley Authority, 400 West Summit Hill Drive, Knoxville, Tennessee 37902-1499,
Attention: Vice President and Treasurer; telephone (423) 632-3366. TVA is not
subject to the periodic reporting requirements of the Exchange Act.
Federal Farm Credit Banks
The Farm Credit System is a nationwide system of lending institutions and
affiliated service and other entities (the "System"). Through its Banks
("FCBs") and related associations, the System provides credit and related
services to farmers, ranchers, producers and harvesters of aquatic products,
rural homeowners, certain farm-related businesses, agricultural and aquatic
cooperatives and rural utilities. System institutions are federally chartered
under the Farm Credit Act of 1971, as amended (the "Farm Credit Act"), and are
subject to regulation by a Federal agency, the Farm Credit Administration (the
"FCA"). The FCBs and associations are not commonly owned or controlled. They
are cooperatively owned, directly or indirectly, by their respective borrowers.
Unlike commercial banks and other financial institutions that lend to the
agricultural sector in addition to other sectors of the economy, under the Farm
Credit Act the System institutions are restricted solely to making loans to
qualified borrowers in the agricultural sector, to certain related businesses
and to rural homeowners. Moreover, the System is required to make credit and
other services available in all areas of the nation. In order to fulfill its
broad statutory mandate, the System maintains lending units in all 50 states and
the Commonwealth of Puerto Rico.
The System obtains funds for its lending operations primarily from the sale of
debt securities issued under Section 4.2(d) of the Farm Credit Act ("Systemwide
Debt Securities"). The FCBs are jointly and severally liable on all Systemwide
Debt Securities. Systemwide Debt Securities are issued by the FCBs through the
Federal Farm Credit Banks Funding Corporation, as agent for the FCBs (the
"Funding Corporation").
Information regarding the FCBs and the Farm Credit System, including combined
financial information, is contained in disclosure information made available by
the Funding Corporation. This information consists of the most recent Farm
Credit System Annual Information Statement and any Quarterly Information
Statements issued subsequent thereto and certain press releases issued from time
to time by the Funding Corporation. Unless otherwise specified in the
applicable Prospectus Supplement, such information and the Farm Credit System
Annual Report to Investors for the current and two preceding fiscal years are
available for inspection at the Federal Farm Credit Banks Funding Corporation,
Investment Banking Services Department, 10 Exchange Place, Suite 1401, Jersey
City, New Jersey 07302; telephone (201) 200-8000. Upon request, the Funding
Corporation will furnish, without charge, copies of the above information. The
FCBs are not subject to the periodic reporting requirements of the Exchange
Act.
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
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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 and Government Securities, if any, 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 applicable Prospectus Supplement
to purchase the Trust Assets and any other assets constituting the related Trust
Fund, 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 issuing the Certificates. If so specified in the
applicable Prospectus Supplement, the Trust Assets and Government Securities, if
any, for each Series of Certificates will be acquired by the Depositor either
directly, or through one or more affiliates which will have acquired such assets
from time to time either in the open market or in privately negotiated
transactions (in the case of Trust Assets other than Mortgage
Certificates).
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. The amount of such interest payment distributed monthly to
Certificateholders with respect to each Mortgage Loan generally 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 applicable 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. If so specified in the
applicable 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% (or such other
percentage as may be specified in the applicable 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 applicable 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, 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 applicable 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.
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If so specified in the applicable 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.
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, the Master Servicer with respect to a Series (subject to certain
limitations which, if applicable, herein or in the applicable Prospectus
Supplement) 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. 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 (subject to certain limitations which, if applicable,
herein or in the applicable Prospectus Supplement) 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
applicable 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 or Government Security because,
while interest will accrue on each Mortgage Loan, Contract, Mortgage Certificate
or Government Security to the first day of the month, the distribution of such
interest to holders of such Certificates, to the extent so specified in the
applicable Prospectus Supplement, will be made no earlier than the 25th day of
the month following the month of the accrual (or such other day as is set forth
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 (or such other
day as is set forth in the applicable Prospectus Supplement). 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 (and, if
applicable, on the related Government Securities, if any). 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
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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, Contracts, Government Securities 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.
MATURITY AND PREPAYMENT CONSIDERATIONS
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 (or, in each such case, such
other scheduled maturities as are set forth in the applicable Prospectus
Supplement), but such Mortgage Loans (or such underlying mortgage loans) or
Contracts may be prepaid in full or in part at any time. If so 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. In the event that
Government Securities are included in a Trust Fund, the applicable Prospectus
Supplement will specify whether, and the terms and conditions upon which, any of
such Government Securities may be prepaid or redeemed.
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
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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 applicable 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
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 Subordinated 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.
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If set forth in the applicable Prospectus Supplement, the Depositor or
other specified entity will have the option to repurchase the Trust Assets and
Government Securities, if any, 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 one or more REMICs
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 and Government Securities, if any. 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", "-
Assignment of Government Securities" 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 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 the material provisions common to each Pooling and Servicing
Agreement and Deposit Trust Agreement. The summaries 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 applicable 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
Each Certificate offered hereby and by means of the applicable Prospectus
Supplement will be issued in book-entry form (or, if specified in the applicable
Prospectus Supplement, fully registered, certificated 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, Mortgage Certificates and Government
Securities 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 applicable Prospectus
Supplement.
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If so specified in the applicable 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, in whole or in part, as
one or more REMICs 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 applicable
Prospectus Supplement. If so specified in the applicable 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 applicable
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 and Government Security, if any, in
the related Trust Fund will be assigned an initial "Asset Value". The Asset
Value of each Trust Asset and Government Security, if any, in the related Trust
Fund generally 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 Trust Assets and Government Securities
allocable to such Class or Subclass, together with reinvestment income thereon,
to the extent specified in the applicable 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 and
Government Securities in the Trust Fund for such a Series that includes Multi-
Class Certificates will be specified in the applicable 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
applicable 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, Mortgage
Certificates or Contracts and Government Securities, if any, in the related
Trust Fund, in the manner and to the extent specified in such Prospectus
Supplement. If so specified in the applicable 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 Mortgage Loans,
Mortgage Certificates or Contracts and Government Securities, if any, specified
in such Prospectus Supplement. If so specified in the applicable Prospectus
Supplement, the Subordinated Certificates of a Series will evidence the right to
receive distributions with respect to a specific pool of Mortgage Loans,
Mortgage Certificates or Contracts and Government Securities, if any, 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 Trust
Assets and Government Securities, if any, as more fully set forth in such
Prospectus Supplement. If so specified in the applicable 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 applicable 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
applicable 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.
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The Certificates of a Series offered hereby and by means of the applicable
Prospectus Supplements will be transferable and exchangeable at the office or
agency maintained by the Trustee for such purpose set forth in the applicable
Prospectus Supplement. 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 applicable 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 applicable 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 or on such other basis as may be specified in
the applicable Prospectus Supplement. Distributions of principal on the
Certificates will be made in the priority and manner and in the amounts
specified in the applicable 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, Contracts
(including any Advances thereof), the Mortgage Certificates and the Government
Securities, if any, included in the Trust Fund with respect to such Series.
If so specified in the applicable 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, the Mortgage Certificates and the
Government Securities, if any, in the related Trust Fund. 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 (in each case, subject to certain
limitations which, if applicable, will be described in the applicable Prospectus
Supplement). 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 applicable Prospectus
Supplement.
If so specified in the applicable 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 payments
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.
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 (subject to certain limitations in the case of a Series of
Certificates that includes Multi-Class Certificates, which limitations, if
applicable, will be specified in the applicable Prospectus Supplement).
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 (subject to certain limitations
in the case of a Series of Certificates that includes Multi-Class Certificates,
which limitations, if applicable, will be specified in the applicable Prospectus
Supplement). 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.
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If so 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 the Stated Principal Balance will be made to each
Class or Subclass of such Certificates in the order specified in the applicable
Prospectus Supplement, which, if so specified in such Prospectus Supplement, may
be concurrently. 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 (or on such other basis as is specified in the applicable Prospectus
Supplement).
The maximum amount which will be distributed in reduction of the Stated
Principal Balance to holders of Certificates of a Class or Subclass then
entitled thereto on any Distribution Date generally 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 applicable 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
applicable Prospectus Supplement, the applicable percentage of the Excess Cash
Flow specified in such Prospectus Supplement.
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 and the Government Securities,
if any, in the Trust Fund underlying such Series as of the end of a period (a
"Due Period") specified in the applicable Prospectus Supplement (or such other
amount as is specified in the applicable Prospectus Supplement relating to a
Series of Certificates that includes Multi-Class Certificates). For purposes of
determining the Stated Principal Distribution Amount with respect to a
Distribution Date, the Asset Value of the Trust Assets and the Government
Securities, if any, will be reduced to take into account the interest evidenced
by such Classes or Subclasses of Certificates in the principal distributions on
or with respect of such Trust Assets and Government Securities received by the
Trustee during the preceding Due Period.
"Excess Cash Flow" represents the excess of (i) the interest evidenced by
such Multi-Class Certificates in the distributions received on the Mortgage
Loans, Mortgage Certificates or Contracts and Government Securities, if any,
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 applicable 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 (or such other amount as is specified in the applicable Prospectus
Supplement relating to a Series of Certificates that includes Multi-Class
Certificates).
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 and Government Securities, if any, 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 applicable
Prospectus Supplement.
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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 Pooling and Servicing 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 Mortgage Certificate included in a
Trust Fund will be identified in a schedule appearing as an exhibit to the
applicable Pooling and Servicing 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 Pooling and Servicing 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 (or part thereof) as one or more REMICs, 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 applicable Prospectus
Supplement. Any amounts received in respect of such repurchases will be
distributed to Certificateholders on the immediately succeeding Distribution
Date.
If so specified in the applicable 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 applicable 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 with respect
to 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.
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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. 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 (or part thereof) as one or more REMICs, 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". This repurchase
obligation generally constitutes the sole remedy available to the
Certificateholders or the Trustee for a material defect in a constituent
document.
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 each such
Mortgage Loan. In addition, if so specified in the applicable 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 in a Mortgage Loan, the Depositor
will be obligated either to cure the breach in all material respects or to
repurchase such Mortgage Loan at the purchase price set forth above. 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 generally 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 applicable 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 applicable 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 in such
Mortgage Loans. 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.
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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 applicable 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. The
aforementioned purchase obligation generally 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"). The Contract
Schedule generally will specify, with respect to each Contract, among other
things: the original 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, if specified in the applicable 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. The Contracts generally 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. 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 applicable
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 (or
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part thereof) as one or more REMICs, 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 with respect to such Contract. This
repurchase obligation generally constitutes the sole remedy available to the
Certificateholders or the Trustee for a material defect in a Contract
document.
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 (in each case, subject to certain
exceptions which, if applicable, will be specified in the applicable Prospectus
Supplement).
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.
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 applicable Prospectus Supplement) after
notice from the Master Servicer, such Unaffiliated Seller will be obligated to
repurchase such Contract at a price equal to, the principal balance thereof (or
such other price as may be specified, or determined by such method as may be
specified, in the applicable Prospectus Supplement) as of the date of repurchase
or, in the case of a Series as to which an election has been made to treat the
related Trust Fund (or part thereof) as one or more REMICs, 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. This repurchase obligation generally 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
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Depositor or the Master Servicer may have a purchase obligation as described
above under "The Trust Fund-The Contract Pools".
ASSIGNMENT OF GOVERNMENT SECURITIES
Pursuant to the applicable Pooling and Servicing Agreement for a Series of
Certificates that includes Government Securities in the related Trust Fund, the
Depositor will cause such Government Securities to be transferred to the Trustee
together with all principal and interest distributed on such Government
Securities after the Cut-off Date. Each Government Security included in a Trust
Fund will be identified in a schedule appearing as an exhibit to the applicable
Pooling and Servicing Agreement. Such schedule will include information as to
the principal balance of each Government Security as of the date of issuance of
the Certificates and its interest 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 Government Security which is
included in a Trust Fund and to provide for all distributions on each such
Government Security to be made directly to the Trustee.
In connection with such assignment, the Depositor will make certain
representations and warranties in the Pooling and Servicing Agreement as to,
among other things, its ownership of the Government Securities. In the event
that these representations and warranties are breached, and such breach or
breaches adversely affect the interests of the Certificateholders in a
Government Security, the Depositor will be required to repurchase such
Government Security 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 interest rate to the distribution date for such Government Security. The
Government Securities 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 applicable Prospectus Supplement. Any amounts received in
respect of such repurchases will be distributed to Certificateholders on the
immediately succeeding Distribution Date.
If so specified in the applicable 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 Government Securities
("Substitute Government Securities") in substitution for any one or more of the
Government Securities ("Deleted Government Securities") initially included in
the Trust Fund. The required characteristics or any such Substitute Government
Securities and any additional restrictions relating to the substitution of
Government Securities will be set forth in the applicable Prospectus
Supplement.
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 summary describes the material
provisions common to each Servicing Agreement but 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
insurance, 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
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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 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.
The Master Servicer may (subject to certain limitations which, if applicable,
will be specified in the applicable Prospectus Supplement) 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 (subject to certain exceptions which, if
applicable, will be specified in the applicable Prospectus Supplement) 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
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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 interest that was not timely
received, less its servicing fee, provided that, 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 applicable 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)
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With respect to each Buy-Down Loan, if so specified in the applicable
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 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 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;
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(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 with respect to any Contract;
(vi) all amounts received from Credit Support provided with respect
to a Series of Certificates with respect to any Contract;
(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
(viii) all amounts, if any, required to be transferred to the
Certificate Account from the Reserve Fund with respect to any Contract.
COLLECTION OF PAYMENTS ON MORTGAGE CERTIFICATES
The Mortgage Certificates, if any, 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.
COLLECTION OF PAYMENTS ON GOVERNMENT SECURITIES
The Government Securities, if any, 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 Government Security by the second business day
after the date on which such distribution was due and payable pursuant to the
terms of such Government Security, to request the issuer or guarantor, if any,
of such Government Security 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.
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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 applicable 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 (relating to each Mortgage Loan or
Mortgage Certificate in the Mortgage Pool or each Contract in the Contract Pool
and each Government Security, if any) 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 applicable Prospectus Supplement (in either case the "Determination Date"),
except (other than with respect to a Series which includes Multi-Class
Certificates):
(i) all payments that were due on or before the Cut-off Date;
(ii) all principal prepayments and, if so specified in the applicable
Prospectus Supplement, Liquidation Proceeds and all payments in respect of
certain repurchased Mortgage Loans, Mortgage Certificates, Contracts or
Government Securities, if any, 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 with respect to 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 or Mortgage Certificate in such Mortgage Pool, on a Government
Security 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 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, (if so specified in the applicable
prospectus supplement, to the extent such amounts exceed the aggregate of
unpaid principal and interest on the related Contract) (D) amounts to be
deposited 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.
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,
Mortgage Certificates or Contracts and Government Securities, if any, stated
separately or the information enabling the Trustee to determine the amount of
distribution to be
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made on the Certificates and a statement setting forth certain information with
respect to the Mortgage Loans, Mortgage Certificates or Contracts and Government
Securities, if any.
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, or Government Securities, 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, if any, or Government Securities, if any, 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. If so 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 applicable 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 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 or Government Securities, if any,
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 the Stated Principal Balance
of such Certificates on such Distribution Date. Any such Special Distributions
will be made in the same priority and manner as distributions in reduction of
the Stated Principal Balance would be made on the next Distribution Date.
REPORTS TO CERTIFICATEHOLDERS
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 and Government Securities, if any,
separately identifying the aggregate amount of any Principal Prepayments
included therein, and the portion, if any, advanced by a Servicer or the
Master Servicer (such portion of Advances, may, if so specified in the
applicable Prospectus Supplement, be given as an aggregate amount of
principal and interest);
(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 Government Securities,
if any, and the
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portion, if any, advanced by a Servicer or the Master Servicer (such portion
of Advances, may, if so specified in the applicable Prospectus Supplement, be
given as an aggregate amount of principal and interest);
(iii) to each holder of a Certificate, the amount of servicing
compensation with respect to the related Trust Assets and Government
Securities, if any, 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 the Stated Principal Balance
are then being made, the amount of such interest distribution and
distribution in reduction of the Stated Principal Balance, and the Stated
Principal Balance of each Class after giving effect to the distribution in
reduction of the 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 the 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
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 applicable 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 and
Government Securities, if any, as of a date not earlier than such
Distribution Date after giving effect to payments of principal distributed to
Certificateholders on the Distribution Date;
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(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 or more 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
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 (subject to certain
limitations which, if applicable, will be specified herein or in the applicable
Prospectus Supplement) 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 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 or
Contracts, as applicable with respect to 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 or Contracts, as applicable. 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. The
Servicers and the Master Servicer will also be required (subject to certain
limitations which, if applicable, will be specified herein or in the applicable
Prospectus Supplement) 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.
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
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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 Mortgagors 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 obligated
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 the applicable 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 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
maintain or 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
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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 applicable 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, if any,
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".
POOL INSURANCE
To the extent specified in the applicable 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
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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 applicable 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 applicable 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
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
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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 applicable 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 Mortgagor, 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
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.
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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 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 applicable Prospectus
Supplement and any Master Servicer will be entitled to receive an amount
described
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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, subject to certain exceptions which, if
applicable, will be specified in the applicable 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.
To the extent set forth in the Deposit Trust Agreement or the Pooling and
Servicing Agreement, the Trustee will be entitled to deduct, from distributions
of interest with respect to the Mortgage Certificates and Government Securities,
if any, a specified percentage of the unpaid principal balance of each Mortgage
Certificate or Government Security, as applicable, 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.
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
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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 applicable 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 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 applicable
Agreement, other than any loss, liability or expense related to any specific
Mortgage Loan, Contract, Mortgage Certificate or Government Security
(except
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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 applicable 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 applicable 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, Mortgage Certificates and Government Security, if
any, 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 applicable 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 applicable 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.
To the extent a Deficiency Event is specified in the applicable 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
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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
the period set forth in the applicable Prospectus Supplement after the giving of
written notice of such failure or breach; (iii) a breach of any of certain
representations and warranties made by the Master Servicer in the Pooling and
Servicing Agreement that materially and adversely affects the interests of
Certificateholders, which continues unremedied for 30 days after the giving of
written notice of such breach; (iv) certain events of insolvency, readjustment
of debt, marshaling of assets and liabilities or similar proceedings regarding
the Master Servicer or a Servicer, as applicable; and (v) 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, (iii) if so specified
in the applicable Prospectus Supplement, to amend any provision thereof to the
extent necessary or desirable to maintain the rating or ratings assigned to any
Class of Certificate by any Rating Agency, or (iv) 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 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
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of such Certificate, (ii) adversely affect in any material respect
the interests of the holders of a Class or Subclass of Certificates of a Series
in a manner other than that set forth in (i) above without the consent of the
holders of such Class or Subclass evidencing not less than 66 2/3% of such Class
or Subclass, or (ii) 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. Further, the Depositor, the Master
Servicer and the Trustee, at any time and from time to time, without the consent
of the Certificateholders, may amend the Pooling and Servicing Agreement to
modify, eliminate or add to any of its provisions to such extent as shall be
necessary to maintain the qualification of the Trust (or any part thereof) as a
REMIC, or to prevent the imposition of any additional material state or local
taxes, at all times that any Certificates are outstanding; provided, however,
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that such action, as evidenced by an opinion of counsel (obtained at the expense
of the Trust Fund), is necessary or helpful to maintain such qualification or to
prevent the imposition of any such taxes, and would not adversely affect in any
material respect the interest of any Certificateholder.
The Deposit Trust Agreement for a Series may be amended by the Trustee and the
Depositor without Certificateholder consent, (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 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 66 2/3% 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. Further, the Depositor, the Master Servicer and the Trustee, at any
time and from time to time, without the consent of the Certificateholders, may
amend the Deposit Trust Agreement to modify, eliminate or add to any of its
provisions to such extent as shall be necessary to maintain the qualification of
the Trust (or any part thereof) as a REMIC, or to prevent the imposition of any
additional material state or local taxes, at all times that any Certificates are
outstanding; provided, however, that such action, as evidenced by an opinion of
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counsel (obtained at the expense of the Trust Fund), is necessary or helpful to
maintain such qualification or to prevent the imposition of any such taxes, and
would not adversely affect in any material respect the interest of any
Certificateholder.
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 applicable Prospectus Supplement, the 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, Mortgage Certificates,
Contracts or Government Securities subject to such Agreement at a price
specified in such Prospectus Supplement. In the event that the Depositor
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elects to treat the related Trust Fund (or any part thereof) as one or more
REMICs, 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, Mortgage Certificates, Contracts or Government Securities
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 applicable Prospectus Supplement.
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 applicable 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 applicable
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".
Under the Pooling and Servicing Agreement, the Master Servicer (subject to
certain exceptions which, if applicable, will be specified in the applicable
Prospectus Supplement) 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 applicable
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
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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 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 applicable Prospectus Supplement (the "Required Reserve"), the
Certificateholders (in the priority specified in the applicable 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 applicable 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 or Mortgage
Certificates in the Mortgage Pool, Contracts in the Contract Pool and the
Government Securities, if any, underlying such Series, or with respect to a
Subordinated Pool of mortgage loans, manufactured housing conditional sales
contracts and installment loan agreements or government securities, 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, if any
(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, Mortgage Certificates,
Contracts or Government Securities, if any, 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 assets). 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 applicable Prospectus Supplement, the
Subordinated Amount will decline over time in accordance with a schedule which
will also be set forth in the applicable Prospectus Supplement.
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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, Mortgage Certificates,
Contracts and Government Securities, if any, 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.
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 applicable
Prospectus Supplement and will decrease in accordance with the schedule and
subject to the conditions set forth in such 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 Loans,
Mortgage Certificates, Contract Pool and Government Securities, if any, in the
related Trust Fund or Subsidiary Trust. 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 applicable 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. If so 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, Mortgage Certificates, Contracts or Government
Securities, if any, by the deposit with the Trustee, in escrow, by the Depositor
of a Subordinated Pool of mortgage loans, manufactured housing conditional sales
contracts and installment loan agreements and government securities with the
aggregate principal balance, as of the related Cut-off Date, set forth in the
applicable Prospectus Supplement, by any combination of the foregoing, or in
another manner specified in the applicable 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, Mortgage
Certificates, Contracts or Government Securities, if any and/or on the mortgage
loans, manufactured housing conditional sales contracts and installment loan
agreements or government securities 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
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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 applicable Prospectus Supplement, and shall be unavailable
thereafter for future distribution to Certificateholders of any 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 applicable
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 applicable 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 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. Whenever the Reserve Fund is less than the Required Reserve
(subject to certain exceptions which, if applicable, will be specified in the
applicable Prospectus Supplement), holders of the Subordinated Certificates of
the applicable Class or Subclass will not receive any distributions with respect
to the Mortgage Loans, Mortgage Certificates, Contracts and Government
Securities, if any, other than amounts attributable to interest on the Mortgage
Loans, Mortgage Certificates, Contracts and Government Securities, if any, 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, Mortgage Certificate,
Contract or Government Security, 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,
Mortgage Certificates, Contracts and Government Securities 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.
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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 applicable 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 distributions on such Certificates will be affected by the delinquency,
foreclosure and prepayment experience of the Mortgage Loans, Mortgage
Certificates, Contracts and Government Securities, if any, in the related Trust
Fund and/or in the Subordinated Pool and therefore cannot be accurately
predicted.
PERFORMANCE BOND
If so specified in the applicable 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, Mortgage Certificates, Contracts and Government
Securities, if any, 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. 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 applicable 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 applicable 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
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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 applicable 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") generally 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.
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 generally 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
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.
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.
The Primary Mortgage Insurer generally 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
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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 applicable 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 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 Note
upon its assignment to the VA.
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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 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, if any, 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
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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 applicable 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 flood
insurance to be maintained (or maintain itself), 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 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 applicable 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
applicable 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 applicable 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 applicable Prospectus Supplement.
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The Pool Insurance Policy, if any, will provide that as a condition precedent
to the payment of any claim the Insured generally 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 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
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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".
SPECIAL HAZARD INSURANCE POLICIES
If so specified in the applicable 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 applicable
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 applicable Prospectus Supplement.
Subject to the foregoing limitations, each Special Hazard Insurance Policy, if
any, 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.
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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
applicable 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 applicable Prospectus Supplement. Subject to the terms of the
Mortgagor 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 or more junior
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.
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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 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
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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 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.
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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.
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.
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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 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
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Chapter 13 proceeding under the federal Bankruptcy Code, when a court determines
that the value of a home is less than the principal balance of the loan, the
court may prevent a lender from foreclosing on the home, and, as part of the
rehabilitation plan, reduce the amount of the secured indebtedness to the value
of the home as it exists at the time of the proceeding, leaving the lender as a
general unsecured creditor for the difference between that value and the amount
of outstanding indebtedness. A bankruptcy court may grant the debtor a
reasonable time to cure a payment default, and in the case of a mortgage loan
not secured by the debtor's principal residence, also may reduce the monthly
payments due under such mortgage loan, change the rate of interest and alter the
mortgage loan repayment schedule. Certain court decisions have applied such
relief to claims secured by the debtor's principal residence.
The Code provides priority to certain tax liens over the lien of the mortgage
or deed of trust. The laws of some states provide priority to certain tax liens
over the lien of the mortgage or deed of trust. Numerous federal and some state
consumer protection laws impose substantive requirements upon mortgage lenders
in connection with the origination, servicing and the enforcement of mortgage
loans. These laws include the federal Truth in Lending Act, Real Estate
Settlement Procedures Act, Equal Credit Opportunity Act, Fair Credit Billing
Act, Fair Credit Reporting Act, and related statutes and regulations. These
federal laws and state laws impose specific statutory liabilities upon lenders
who originate or service mortgage loans and who fail to comply with the
provisions of the law. In some cases, this liability may affect assignees of the
mortgage loans.
Each Mortgage Loan secured by Multifamily Property will be a non-recourse loan
to the Mortgagor (subject to certain exceptions which, if applicable, will be
specified in the applicable Prospectus Supplement). 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.
The mortgage securing each Mortgage Loan relating to Multifamily Property will
contain an assignment of rents and an assignment of leases or similar agreement
(subject to certain exceptions which, if applicable, will be specified in the
applicable Prospectus Supplement), 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.
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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 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 applicable 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.
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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 UCC in
effect in the states in which the Manufactured Homes initially were registered.
Pursuant to the UCC, the sale of chattel paper is treated in a manner similar to
perfection of a security interest in chattel paper. 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. 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 a
Contract without notice of such assignment, the Trustee's interest in such
Contract could be defeated.
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
applicable 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.
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The Depositor will assign its security interests in the Manufactured
Homes to the Trustee on behalf of the Certificateholders. 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.
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 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
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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.
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. 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.
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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
Trust 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. Sidley & Austin, New York, New York ("Sidley"), counsel to the
Depositor, is delivering its opinion regarding certain federal income tax
matters discussed below. The opinion of Sidley addresses only those issues
specifically identified below as being covered by such opinion; however, such
opinion also states that the additional discussion set forth below accurately
sets forth Sidley's advice with respect to material federal income tax issues.
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 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 is 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 Trust Fund which the Master Servicer does
not elect to have treated as a REMIC. No REMIC election will be made in the
case of a Trust Fund including Government Securities unless the amount of
Government Securities in the Trust Fund is sufficiently small that the de
minimis test in Treasury Regulation Section 1.860D-1(b)(3) is met. 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 (and Government Securities, if
applicable) constituting the related Trust Fund, 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 (and Government Security, if
applicable) constituting the related Trust Fund (net of normal servicing fees)
will be referred to as a "Trust Interest Certificate."
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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 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 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
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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 Code 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 to be treated as a REMIC, each Unaffiliated Seller
will represent and warrant that each of the Manufactured Homes securing such
Contracts meets the 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 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 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.
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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 yield 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.
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 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,
and not less
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than 0.65, 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. Final regulations issued on June 11, 1996 define an "objective
rate" as a rate determined using a single fixed formula and based on objective
financial information or economic information. However, an objective rate does
not include a rate based on information that is in the control of the issuer or
that is unique to the circumstances of the issuer or a related party. 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 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
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accrued during each accrual period, that is generally 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.
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 period, 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
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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 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 Treasury regulations, issued in final form on
June 11, 1996, applicable to instruments having contingent payments (the "1996
Contingent Debt Regulations"). 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.
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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 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. On June 27, 1996, the IRS
published in the Federal Register proposed regulations (the "Proposed Premium
Regulations") on the amortization of bond premium. The Proposed Premium
Regulations describe the constant yield method under which such premium is
amortized and provide that the resulting offset to interest income can be taken
into account only as a Certificateholder takes the
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corresponding interest income into account under such holder's regular
accounting method. In the case of instruments that may be called or repaid prior
to maturity, the Proposed Premium Regulations provide that the premium is
calculated by assuming that the issuer will exercise or not exercise its
redemption rights in the manner that maximizes the Certificateholder's yield and
the Certificateholder will exercise or not exercise its option in a manner that
maximizes the Certificateholder's Yield. The Proposed Premium Regulations are
proposed to be effective for debt instruments acquired on or after the date 60
days after the date final regulations are published in the Federal Register.
However, if a Certificateholder elects to amortize bond premium for the taxable
year containing such effective date, the Proposed Premium Regulations would
apply to all the Certificateholder's debt instruments held on or after the first
day of that taxable year. It cannot be predicted at this time whether the
Proposed Premium Regulations will become effective or what, if any,
modifications will be made to them prior to their becoming effective.
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.
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, 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.
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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 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
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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 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.
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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
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.
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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.
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
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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.
G. Pass-Through of Servicing Fees
The general rule is that Residual Owners 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 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. The Depositor intends (subject to certain exceptions which, if
applicable, will be stated in the applicable Prospectus Supplement) to treat
each 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.
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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 "startup 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.
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
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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 receives such statement from
such holder or a financial institution holding on its behalf and does not have
actual knowledge that such statement is false. 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 treated as a corporation or partnership
for United States federal income tax purposes, 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.
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 not a "U.S. Person" (as defined
above) (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
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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 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.
Holders of REMIC Regular Certificates and REMIC Residual Certificates
should be aware that proposed Treasury Regulations (the "1996 Proposed
Regulations") were issued on April 15, 1996 which, if adopted in final form,
could affect the United States taxation of foreign investors in REMIC
Certificates. The 1996 Proposed Regulations are generally proposed to be
effective for payments after December 31, 1997, regardless of the issue date of
the REMIC Certificate with respect to which such payments are made, subject to
certain transition rules. One of the effects of the 1996 Proposed Regulations
would be to provide certain presumptions with respect to withholding for holders
not providing the required certifications to qualify for the withholding
exemption described above. In addition, the 1996 Proposed Regulations would
replace a number of current tax certification forms with a single, restated form
and standardize the period of time for which withholding agents could rely on
such certifications. The 1996 Proposed Regulations would also provide rules to
determine whether, for purposes of United States federal withholding tax,
interest paid to a non-U.S. Person that is an entity should be treated as paid
to the entity or those holding an interest in that entity.
The discussion under this heading is not intended to be a complete
discussion of the provisions of the 1996 Proposed Regulations, and prospective
investors are urged to consult their tax advisors with respect to the effect the
1996 Proposed Regulations may have.
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. NON-REMIC TRUST FUNDS
A. Classification of Trust Funds
With respect to each series of Trust Certificates for which they are
identified as counsel to the Depositor in the applicable Prospectus Supplement,
Sidley will deliver their opinion to the effect that the arrangements pursuant
to which such Trust Fund 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 Trust Fund 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), except to the extent
that they represent interests in Government Securities; (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), except to the
extent that they represent interests in Government Securities; (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), except to the extent
that they represent interests in Government Securities; 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), unless the Trust Fractional Certificates represent interests in
Government Securities. 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 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 860G(a)(3) of the Code, unless the Trust Interest Certificate represents
the right to payments from Government Securities.
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
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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.
3. Buydown Mortgage Loans
It is contemplated that the assets of certain Trust Funds 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 Trust Funds
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 (and Government
Securities, if applicable) included in a Trust Fund. 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 Government Securities, if applicable) and received directly its share
of the payments on such Mortgage Loans (and Government Securities, if
applicable). Because those interests represent interests in "stripped bonds" or
"stripped coupons" within the meaning of Code Section 1286, such interests would
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 Government
Securities, if applicable) 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 (and Government
Securities, if applicable). 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
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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 (and
Stripped Government Securities, if applicable) 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. A "Stripped Mortgage Loan" and a "Stripped
Government Security" mean a Mortgage Loan having a Retained Yield (as that term
is defined below) or a Mortgage Loan or Government Security included in a Trust
Fund 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 or Stripped Government Securities.
Purchasers of Trust Fractional Certificates identified in the applicable
Prospectus Supplement as representing interests in Unstripped Mortgage Loans
(and Unstripped Government Securities, if applicable) 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 Trust Fund, such purchasers would be subject to the rules set forth
under "Application of Stripped Bond Rules" rather than those under "Treatment of
Unstripped Certificates". 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 Trust Fund will consist of an interest in each of the Mortgage Loans
(and Government Securities, if applicable) 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 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. The sale of the Trust Certificates
associated with any Trust Fund 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 (and Stripped
Government Securities, if applicable) (subject to certain exceptions which, if
applicable, will be stated in the applicable Prospectus Supplement) will be
treated for federal income tax purposes as having effected a separation in
ownership between the principal of each Mortgage Loan (or Government Security,
if applicable) and some or all of the interest payable thereon. As a
consequence, each Stripped Mortgage Loan or Stripped Government Security 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
(and Stripped Government Securities, if applicable) as original issue discount
on the basis of the yield to maturity of such Stripped Mortgage Loans (or
Stripped Government Securities, if applicable), 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 or Stripped Government Securities 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
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(and Government Securities, if applicable), 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 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 the 1996
Contingent Debt Regulations. 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 security by security, basis (or
on the basis of the rights to individual payments) taking account of an
allocation of their basis in the Certificates among the interests in the various
mortgage loans (and Government Securities, if applicable) 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 (or security by security) information should a computation
on that basis be required by the IRS.
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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.
Certificates representing an interest in REFCO Strips and Treasury Strips will
be treated in the same manner as Certificates representing an interest in
Stripped Government Securities.
2. Treatment of Unstripped Certificates.
Mortgage Loans (and Government Securities, if applicable) in a Trust Fund
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 or unstripped government securities ("Unstripped Mortgage Loans or
"Unstripped Government Securities") will be treated as wholly owned by the Trust
Fractional Certificateholders of a Trust Fund. Trust Fractional
Certificateholders using the cash method of accounting must take into account
their pro rata shares of original issue discount as it accrues and 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 (and Unstripped
Government Securities, if applicable) as it accrues or is received by the
Trustee, whichever is earlier.
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 (and
Unstripped Government Securities, if applicable) 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 (and Unstripped Government
Security, if applicable), but reduced, if the cost of such subsequent
purchaser's interest in such Unstripped Mortgage Loan (and Unstripped Government
Security, if applicable) 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 (or Unstripped Government Security, if applicable) 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
(or Unstripped Government Security, if applicable) 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.
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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 (and Unstripped
Government Security, if applicable) is less than its allocable share of the
"adjusted issue price" of such Mortgage Loan (or Government Security). See
"Treatment of Unstripped Certificates" and "Application of Stripped Bond Rules".
Thus, with respect to such Mortgage Loans (or Government Securities), 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 (or Government Securities) 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.
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
(and Stripped Government Securities, if applicable) 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.
On June 27, 1996, the IRS published in the Federal Register proposed
regulations (the "Proposed Premium Regulations") on the amortization of bond
premium. The Proposed Premium Regulations describe the constant yield method
under which such premium is amortized and provide that the resulting offset to
interest income can be taken into account only as a Certificateholder takes the
corresponding interest income into account under such holder's regular
accounting method. In the case of instruments that may be called or repaid
prior to maturity, the Proposed Premium Regulations provide that the premium is
calculated by assuming that the issuer will exercise or not exercise its
redemption rights in the manner that maximizes the Certificateholder's yield and
the Certificateholder will exercise or not exercise its option in a manner that
maximizes the Certificateholder's Yield. The Proposed Premium Regulations are
proposed to be effective for debt instruments acquired on or after the date 60
days after the date final regulations are published in the Federal Register.
However, if a Certificateholder elects
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to amortize bond premium for the taxable year containing such effective date,
the Proposed Premium Regulations would apply to all the Certificateholder's debt
instruments held on or after the first day of that taxable year. It cannot be
predicted at this time whether the Proposed Premium Regulations will become
effective or what, if any, modifications will be made to them prior to their
becoming effective.
4. Allocation of Purchase Price
As noted above, it is anticipated that a purchaser of a Trust Fractional
Certificate relating to Unstripped Mortgage Loans (or Unstripped Government
Securities, if applicable) will be required to allocate the purchase price
thereof to the undivided interest it acquires in each of the Mortgage Loans (or
Government Securities, if applicable), in proportion to the respective fair
market values of the portions of such Mortgage Loans (or Government Securities,
if applicable) included in the Trust Fund at the time the Certificate is
purchased. In the case of Mortgage Loans, 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 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 (and Government Securities, if applicable). 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 (and Government Securities, if
applicable), 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 (or
in the interest payments from the Government Securities, if applicable),
received directly its share of the amounts received with respect to the Mortgage
Loans (and Government Securities, if applicable) 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.
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 (and in the interest payments from
each Government Security, if applicable). With respect to each Series of
Certificates for which they are identified as counsel to the Depositor in the
applicable Prospectus Supplement, Sidley 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 (and in the interest payments from each
Government Security, if applicable) (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 (and the interest payments
from Government Securities, if applicable) under the method prescribed by the
Code, taking account of the
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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 (and Government Securities, if applicable). 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.
The tax treatment of the Trust Interest 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 Trust Interest 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 Trust Interest Certificate must be included in ordinary gross income for
federal income tax purposes as it accrues in accordance with a 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.
In general, the rules for accruing original issue discount set forth above in
"REMIC Trust Funds - Taxation of Owners of REMIC Regular Certificates - Original
Issue Discount" apply; however there is no authority permitting Trust Interest
Certificateholders to take into account the Prepayment Assumption in computing
original issue discount accruals. See "Prepayments" below. For purposes of
applying the original issue discount provisions of the Code, the issue price
used in reporting original issue discount with respect to a Trust Interest
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 Trust Interest Certificate whether or
not denominated as interest. The amount of original issue discount with respect
to a Trust Interest Certificate may be treated as zero under the original issue
discount de minimis rules described above.
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 (or security by security)
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 (and
Government Securities, if applicable) 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 may be 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 potential application of the 1996 Contingent Debt Regulations 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 is unclear. Legislation that has been proposed
but not yet enacted would extend the rules contained in the 1986 Act to any pool
of debt instruments the payments on which may be accelerated by reason of
prepayments. 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 1996
Contingent Debt Regulations.
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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 (and Government Securities, if applicable) 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 (and Government
Securities, if applicable) to a Certificateholder who is not a citizen or
resident of the United States, a corporation or other entity organized in or
under the laws of the United States or of any State thereof, or United States
estate or trust, will not generally be subject to 30% United States withholding
tax, provided that such Certificateholder (i) does not own, directly or
indirectly, 10% of more of, and is not a controlled foreign corporation (within
the meaning of Section 957 of the Code) related to, each of the issuers of the
Mortgages and (ii) provides required certification as to its non-United States
status under penalty of perjury and then will be free of such tax only to the
extent that the underlying Mortgages (and Government Securities, if applicable)
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 and, in the case of a corporation, to a possible branch
profits tax, but will ordinarily be exempt from United States withholding tax
provided that applicable documentation requirements are met.
Holders of Trust Certificates should be aware that proposed Treasury
Regulations were issued on April 15, 1996 which, if adopted in final form, could
affect the United States taxation of foreign investors in Trust Certificates.
For further discussion of those proposed regulations, see "II. REMIC TRUST
FUNDS- L. Foreign Investors in REMIC Certificates" above.
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
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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.
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"
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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, 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 the rights and interests
evidenced by such Certificates are not subordinated to the rights and interests
evidenced by other Certificates of the Trust, 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 indemnify 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.
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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) (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);
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<PAGE>
(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);
(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
therewith.
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). 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
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<PAGE>
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 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.
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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.
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 applicable
Prospectus Supplements may be sold directly by the Depositor or may be offered
through First Boston, an affiliate of the Depositor, or underwriting syndicates
represented by First Boston (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.
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<PAGE>
The Depositor may also sell the Certificates offered hereby and by means
of the applicable 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.
The place and time of delivery for each Series of Certificates offered
hereby and by means of the applicable Prospectus Supplement will be set forth in
the Prospectus Supplement with respect to such Series.
If and to the extent required by applicable law or regulation, this
Prospectus and the Prospectus Supplement will also be used by First Boston after
the completion of the offering in connection with offers and sales related to
market-making transactions in the Certificates offered hereby in which First
Boston acts as principal. First Boston may also act as agent in such
transactions. Sales will be made at negotiated prices determined at the time of
sale.
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.
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INDEX OF TERMS
Page on which
Term is defined
Term in the Prospectus
- ---- -----------------
Accrual Distribution Amount........... 32
Advances.............................. 12
AFR................................... 83
Agreement............................. 29
Alternative Credit Support............ 8
Approved Sale......................... 61
APR................................... 21
ARM Loans............................. 17
Asset Value........................... 29
Assets................................ 79
Cede.................................. 15
Certificate Account................... 39
Certificate Principal Balance......... 3
Certificateholders.................... 19
Certificates.......................... 1
Class................................. 1
Cleanup Costs......................... 69
Closed Loans.......................... 20
Closing Date.......................... 76
Code.................................. 12
Committee Report...................... 73
Contract Loan-to-Value Ratio.......... 7
Contract Pool......................... 1
Contract Schedule..................... 35
Contracts............................. 1
Converted Mortgage Loan............... 15
Cooperative........................... 3
Cooperative Dwelling.................. 36
Cooperative Loans..................... 4
Cut-off Date.......................... 16
Custodial Account..................... 38
Custodial Agreement................... 24
Custodian............................. 24
Deferred Interest..................... 16
Deficiency Event...................... 50
Definitive Certificates............... 15
Deleted Contract...................... 24
Deleted Government Securities......... 46
Deleted Mortgage Certificates......... 33
Deleted Mortgage Loans................ 34
Deposit Trust Agreement............... 28
Depositor............................. 1
Determination Date.................... 39
Discount Certificate.................. 7
disqualified organizations............ 98
Distribution Date..................... 4
120
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DOL................................... 98
DTC................................... 15
Due Date.............................. 16
Due Period............................ 31
ERISA................................. 12
ERISA Plans........................... 98
Escrow Account........................ 42
Excess Cash Flow...................... 41
Exempt Series......................... 99
Fannie Mae............................ 30
Farm Credit Act....................... 33
FCA................................... 33
FCBs.................................. 33
FFC Bonds............................. 9
FFCB.................................. 30
FFEL.................................. 30
FHA................................... 1
FHA Experience........................ 28
FHA Loans............................. 16
FHLB.................................. 32
FHLMC Act............................. 31
FIRREAt............................... 32
Final Regulation...................... 98
First Boston.......................... 100
Fiscal Agent.......................... 30
Freddie Mac........................... 30
Funding Corporation................... 33
Government Securities................. 9
GPM Fund.............................. 11
GPM Loans............................. 18
GSE Bonds............................. 9
GSE Guaranteed Bonds.................. 9
GSE Issuer............................ 9
GSEs.................................. 9
Initial Deposit....................... 10
Insurance Proceeds.................... 38
Insured Series........................ 99
Interest Component.................... 29
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.................. 38
Loan-to Value Ratio................... 5
Loss.................................. 57
Manufactured Home..................... 7
Master Servicer....................... 4
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MBS................................... 31
Mortgage Certificates................. 1
Mortgage Loans........................ 1
Mortgage Notes........................ 14
Mortgage Pool......................... 1
Mortgage Rates........................ 6
Mortgaged Property.................... 5
Mortgagor............................. 6
Mortgagor Bankruptcy Bond............. 8
Multi-Class Certificate............... 3
Multifamily Property.................. 4
Multiple Variable Rate................ 78
Nonexempt Assets...................... 99
Nonexempt Series...................... 99
non-U.S. Person....................... 89
Obligor............................... 26
OID Regulations....................... 74
Original Value........................ 5
Originator............................ 20
Other Pools........................... 100
Parties in Interest................... 98
Pass-Through Rate..................... 6
Percentage Interest................... 1
Performance Bond...................... 24
Plans................................. 98
Policy Statement...................... 103
Pool Insurance Policy................. 8
Pool Insurer.......................... 9
Pooling and Servicing Agreement....... 19
Premium Certificate................... 7
Prepayment Assumption................. 76
Primary Insurer....................... 38
Primary Mortgage Insurance Policy..... 9
Primary Mortgage Insurer.............. 45
Principal Component................... 29
Principal Distribution................ 31
Principal Prepayments................. 10
Principal Weighted Class.............. 3
Purchase Price........................ 36
Rating Agency......................... 1
Record Date........................... 31
Reference Agreement................... 29
REFCO................................. 8
REFCO Strips.......................... 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
122
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RTC................................... 32
Required Distribution................. 55
Required Reserve...................... 11
Reserve Fund.......................... 8
Residual Certificates................. 3
Residual Owner........................ 81
Restricted Group...................... 101
Retained Yield........................ 92
Sallie Mae............................ 30
Securities Act........................ 2
Senior Certificates................... 8
Senior Class.......................... 3
Senior Prepayment Percentage.......... 54
Senior Subclass....................... 3
Series................................ 1
Servicer.............................. 19
Servicing Account..................... 36
Servicing Agreement................... 19
Single Family Property................ 4
Single Variable Rate.................. 76
Single-Class REMIC.................... 86
SMMEA................................. 12
SPA................................... 28
Special Distributions................. 5
Special Hazard Insurance Policy....... 11
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................... 24
Substitute Government Securities...... 46
Substitute Mortgage Certificates...... 33
Substitute Mortgage Loans............. 34
System................................ 33
Systemwide Debt Securities............ 33
TEFRA................................. 28
Tiered REMICS......................... 75
Title V............................... 73
Treasury Bonds........................ 8
Treasury Strips....................... 8
Trust Assets.......................... 4
Trust Certificates.................... 73
Trust Fractional Certificate.......... 73
Trust Fractional Certificateholder.... 91
Trust Fund............................ 1
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Trust Interest Certificate............ 90
Trust Interest Certificateholder...... 93
TVA................................... 30
TVA Act............................... 33
UCC................................... 66
United States Person.................. 88
Unaffiliated Sellers.................. 20
Underlying Issuer..................... 66
Underwriters.......................... 103
Unstripped Mortgage Loans............. 94
VA.................................... 1
VA Loans.............................. 16
124
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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 August [ ], 1996
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 or master trust (a "Trust")
to be formed pursuant to one or more Trust Agreements or one Master Trust
Agreement (as supplemented from time to time from time to time by one or more
Trust Supplements) (a "Trust Agreement") or one or more Pooling and Servicing
Agreements, one Master Pooling and Servicing Agreement (as supplemented from
time to time by one or more Pooling and Servicing Supplements) or similar
agreement (a "Pooling and Servicing Agreement") (such Trust Agreements and
Pooling and Servicing Agreements, collectively, the "Agreements") 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 (a) certain Base Assets (as
defined herein), which may consist of (i) credit card, charge card or certain
other types of Receivables or Participations (each as defined herein), (ii)
certain "card receivables backed securities" ("CRB Securities", as defined
herein) and/or (iii) Government Securities (as defined herein) and (b) may also
include certain Series Enhancements (as defined herein) or other assets as
described herein or in the related Prospectus Supplement. Any Receivables
included in the Base Assets for a Series 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. Any CRB Securities included in the Base Assets for a Series will
consist of asset backed securities representing interests in, or notes or loans
secured by, one or more underlying pools of Receivables.
The property of a Trust, the Base Assets of which include Receivables
or Participations, will include the right to receive all monies due in respect
of such Receivables and/or Participations, net (to the extent provided in the
related Prospectus Supplement) of certain amounts payable to the servicer of
such Receivables specified in such Prospectus
(Continued on the following page)
-------------------
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.
PROSPECTIVE INVESTORS SHOULD CONSIDER LIMITATIONS DISCUSSED UNDER
"ERISA CONSIDERATIONS" HEREIN AND IN THE 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 [ ], 1996.
<PAGE>
(Continued from the previous page)
Supplement (the "Servicer"), which servicer may also be the Seller. The Base
Assets for a Series will be sold to the Trust by Asset Backed Securities
Corporation, a Delaware corporation (the "Depositor") or such other depositor or
transferor as shall be specified in the related Prospectus Supplement, 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).
To the extent 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.
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<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.
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 AND SERVICING 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.
The Commission maintains a Web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. The address of such site is
(http://www.sec.gov).
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
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<PAGE>
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 modified or superseded shall not be deemed, except as so
modified or superseded, 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.
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<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) one or more trust agreements
or one master trust agreement (as
supplemented from time to time by one or
more trust supplements) (each, a "Trust
Agreement") between the Depositor and
the Trustee of such Trust or (ii) one or
more a pooling and servicing agreements,
or one master pooling and servicing
agreement (as supplemented from time to
time by one or more pooling and
servicing supplements) or similar
agreement (a "Pooling and Servicing
Agreement") among the Depositor, the
Servicer and the Trustee of such Trust
(such Trust Agreements and Pooling and
Servicing Agreements being sometimes
referred to herein collectively, as the
"Agreements"). A Trust formed pursuant
to a Trust Agreement may be either an
owner trust (an "Owner Trust") or a
grantor trust (a "Grantor Trust") and a
Trust formed pursuant to a Pooling and
Servicing Agreement will be 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
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<PAGE>
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.
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").
Risk Factors................. For a discussion of risk factors that
should be considered with respect to an
investment in the Securities, see "RISK
FACTORS" herein and in the related
Prospectus Supplement.
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. Each Class of Certificates will
be issued pursuant to the related Trust
Agreement or Pooling and Servicing
Agreement. Any Series of Securities
issued pursuant to a Pooling and
Servicing Agreement will only include
Certificates and the Base Assets of such
Certificates will
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<PAGE>
consist primarily of (i) Receivables or
Participations and (ii) to the extent
set forth in the related Prospectus
Supplement, Government Securities (as
defined herein) (such Certificates being
sometimes referred to herein as
"Receivables Pooling Certificates"). Any
Series of Securities issued pursuant to
a Trust Agreement may include
Certificates and Notes, and the Base
Assets of such Certificates and such
Notes will consist primarily of (i) CRB
Securities and (ii) to the extent set
forth in the related Prospectus
Supplement, Government Securities (such
Certificates being sometimes referred to
herein as "CRB Backed Certificates",
such Notes being sometimes referred to
herein as "CRB Backed Notes" and such
CRB Backed Certificates and CRB Backed
Notes being referred to collectively as
"CRB Backed Securities"). 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. 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 or Notes that
are not being offered by this Prospectus
or any related Prospectus Supplement.
The Notes.................... As specified in the related Prospectus
Supplement, each Class of Notes will
have a stated principal amount, notional
principal amount or no principal amount
and will bear interest at a specified
rate or rates (with respect to each
Class of Notes, the "Note Interest
Rate") or will not bear interest. Each
Class of Notes may have a different Note
Interest Rate, which may be a fixed,
variable or adjustable Note Interest
Rate or any combination of the
foregoing. The related Prospectus
Supplement will specify the Note
Interest Rate, or the method for
determining the Note Interest Rate, for
each Class of Notes.
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<PAGE>
A Series of Securities may include two
or more Classes of Notes that differ as
to timing and priority of payments,
seniority, Note Interest Rates 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 -- Payments of Interest and
Principal".
Notes will be available for purchase in
denominations of $100,000, or such other
minimum denomination as shall be
specified in the related Prospectus
Supplement, and integral multiples of
$1,000 in excess thereof and will be
available in book-entry form, or if
specified in the related Prospectus
Supplement, as Definitive Notes. If the
related Prospectus Supplement provides
that the Notes shall be available in
book-entry form only, 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 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 AGREEMENT OR POOLING AND
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<PAGE>
SERVICING AGREEMENTS -- Termination",
the outstanding Notes will be redeemed
as set forth in the related Prospectus
Supplement.
The Certificates............. As specified in the related Prospectus
Supplement, each Class of Certificates
will have an original principal amount,
no principal amount or a notional
principal amount and will accrue
interest on such original principal or
notional principal amount at a specified
rate (with respect to each Class of
Certificates, the "Certificate Interest
Rate") or will not bear interest. Each
Class of Certificates may have a
different Certificate Interest Rate,
which may be a fixed, variable or
adjustable Certificate Interest Rate, or
any combination of the foregoing. The
related Prospectus Supplement will
specify the Certificate Interest Rate,
or the method for determining the
applicable Certificate Interest 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, Certificate Interest 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 ("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
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<PAGE>
the extent specified in the related
Prospectus Supplement.
Certificates will be available for
purchase in a minimum denomination of
$100,000 or such other minimum
denomination as shall be specified in
the related Prospectus Supplement, and
in integral multiples of $1,000 in
excess thereof and will be available in
book-entry form or, if specified in the
related Prospectus Supplement, as
Definitive Certificates. If the related
Prospectus Supplement specifies that the
Certificates will be available in book-
entry form only, 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 AND SERVICING
AGREEMENT -- Termination", the
Certificates will be prepaid as set
forth in the related Prospectus
Supplement.
Receivables Pooling Certificates
A. Certificateholders' Interest;
Depositor'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 "Investor
Certificateholders' Interest") and the
remainder will be allocated to the
interest of the Depositor therein (the
"Depositor's Interest") and as provided
in the related Prospectus Supplement.
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<PAGE>
The Depositor's Interest represents the
right to the assets of the Trust not
allocated to the Investor
Certificateholders' Interest of any
Series or any interests in the Trust
issued as Series Enhancement. In the
case of a Master Trust, the Depositor
may cause the issuance of additional
Series from time to time and any such
issuance will have the effect of
decreasing the Depositor's Interest. The
Depositor's Interest may be evidenced by
an exchangeable certificate that is
subject to certain transfer
restrictions. The aggregate principal
amount of the Investor
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
Depositor's Interest will fluctuate as
the amount of the Principal Receivables
and the principal balance of the
Government Securities, if any, 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 Investor
Certificateholders of more than one
Series.
B. Issuance of Additional
Series................... The related Prospectus Supplement may
provide, in the case of a Master Trust,
that the related Pooling and Servicing
Agreement will provide that pursuant to
one or more supplements to such Pooling
and Servicing Agreement (each, a
"Supplement"), the Depositor may cause
the related Trustee to issue one or more
new Series and accordingly cause a
reduction in the Depositor's Interest
represented by the Depositor's
Certificate. Under each such Pooling and
Servicing Agreement, the Depositor 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.
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<PAGE>
C. Collections.............. All collections of Receivables with
respect to a given Trust will be
allocated by the related Servicer or the
Trustee as amounts collected on
Principal Receivables or as amounts
collected on Finance Charge Receivables.
The Servicer or the Trustee will
allocate between the Investor
Certificateholders' Interest of each
Series (if more than one) of such Trust
and the Depositor's Interest all amounts
collected with respect to (i) Finance
Charge Receivables and Principal
Receivables and the Defaulted Amount (as
defined under "DESCRIPTION OF THE
CERTIFICATES -- Receivables Pooling
Certificates -- Collections") and (ii)
the Government Securities. Collections
of (i) Finance Charge Receivables and
the Defaulted Amount and (ii) interest
on the Government Securities, if any,
will be allocated to each such Series at
all times based upon its Floating
Allocation Percentage. Collections of
Principal Receivables and collections of
principal of the Government Securities,
if any, 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 --
Receivables Pooling Certificates".
Collections will be deposited in the
related Collection Account and invested
in the manner described under "SERVICING
OF RECEIVABLES--Deposits to the
Collection Account".
D. Interest................. Interest will accrue on the invested
amount of the Receivables Pooling
Certificates of a Series or Class (the
"Invested Amount" of such Series or
Class) at the per annum rate of interest
either specified in or determined in the
manner specified in the related
Prospectus Supplement (the "Certificate
Interest Rate"). If the Prospectus
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<PAGE>
Supplement for a Series of Receivables
Pooling Certificates so provides, the
Certificate Interest Rate and interest
payment dates applicable to each
Certificate of that Series may be
subject to adjustment from time to time.
Any such Certificate 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. Subject to certain
limitations which are specified herein
or which will be specified in the
related Prospectus Supplement,
collections of Finance Charge
Receivables and certain other amounts
allocable to the Investor
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 (in the case of the deposit of
such interest, 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 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
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<PAGE>
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, a different Expected
Final Payment Date and/or a different
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 earliest to occur
of (a) if a Pay Out Event occurs, the
commencement of a Rapid Amortization
Period with respect to such Series and
(b) the date specified in the related
Prospectus Supplement as the day on
which the Accumulation Period or
Controlled Amortization Period, as the
case may be, commences. During the
Revolving Period with respect to a
Series, collections of Principal
Receivables, collections of principal of
the Government Securities, if any, and
certain other amounts otherwise
allocable to the Investor
Certificateholders' Interest of such
Series may be distributed to or for the
benefit of the Certificateholders of
other Series (if so provided in the
related Prospectus Supplement) or the
holder of the Depositor's Certificate in
respect of the Seller's Interest, or
allocated and paid to the
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<PAGE>
Depositor to purchase additional
Receivables and additional Government
Securities.
G. Accumulation Period....... If so specified by the related
Prospectus Supplement, unless a Rapid
Amortization Period commences, a Series
of Receivables Pooling Certificates 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 to occur 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 Series
Termination Date with respect to such
Series.
During the Accumulation Period of a
Series of Receivables Pooling
Certificates, collections of Principal
Receivables, collections of principal of
the Government Securities, if any, and
certain other amounts allocable to the
Investor 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 Investor
Certificateholders of such Series (a
"Principal Funding Account") and used to
make principal distributions to such
Investor 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 of Receivables Pooling
Certificates has more than one Class,
each Class may have a separate Principal
Funding Account,
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<PAGE>
Controlled Accumulation Amount and
Deficit 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, 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 unless a Pay Out
Event shall have occurred prior to such
Expected Final Payment Date.
H. Controlled Amortization
Period................... If the related Prospectus Supplement so
specifies, unless a Rapid Amortization
Period commences with respect to such
Series, a Series of Receivables Pooling
Certificates will have an amortization
period during which collections of
Principal Receivables and collections of
principal of the Government Securities,
if any, 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 earliest to occur 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 Series
Termination Date with respect to such
Series. During the Controlled
Amortization Period of a Series,
collections of Principal Receivables,
collections of principal of the
Government Securities, if any, and
certain other amounts allocable to the
Investor Certificateholders' Interest in
such Series will be used on each
Distribution Date to make principal
distributions to Investor
Certificateholders of such
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Series or any Class of such Series then
scheduled to receive such distributions.
The amount to be distributed to Investor
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
earliest 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,
collections of principal of the
Government Securities, if any, and
certain other amounts allocable to the
Investor Certificateholders' Interest of
such Series will be distributed as
principal payments to the Investor
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 Investor Certificateholders
will not be subject to any Controlled
Deposit Amount or Controlled
Distribution Amount. In addition, upon
the
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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 Investor
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........... A "Pay Out Event" with respect to a
Series refers to any of certain events
specified as such in the related
Prospectus Supplement, which events may
include:
(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 becoming 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 be deemed to
have occurred without any notice or
other action on the part of the Trustee
or the Investor 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
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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
Receivables Pooling Certificates offered
hereby, will be described in the related
Prospectus Supplement.
Pursuant to the Pooling and Servicing
Agreement, in addition to the
consequences of a Pay Out Event
discussed above, if any Insolvency Event
occurs with respect to the Seller or the
Depositor, on the day of such Insolvency
Event, the Seller or the Depositor,
respectively, 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 and Servicing Agreement
applicable to such Series, within 15
days of such Insolvency Event 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 and Government
Securities, if any, 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 evidencing more than 50% of the
aggregate unpaid principal amount of
each such Series (or if a Series
includes more than one Class, the
holders of Certificates evidencing more
than 50% of each Class of such
Certificates of such Series) and certain
other interested parties specified in
the related Prospectus Supplement
instruct the Trustee not to dispose of
or liquidate the Receivables or the
Government Securities, if any, and to
continue transferring Principal
Receivables and Government Securities,
if any, as before such Insolvency Event.
The proceeds
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from any such sale, disposition or
liquidation of the Receivables and the
Government Securities, if any, will be
deposited in the Collection Account and
allocated as described in the applicable
Pooling and Servicing Agreement and the
related Prospectus Supplement. If the
sum of (a) the portion of such proceeds
allocated to the Investor
Certificateholders' Interest of any
Series and (b) the proceeds of any
collections of the Receivables in the
Collection Account allocated to the
Investor 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 issued (a "Paired
Series") that is paired with one or more
other Series or a portion of one or more
other Series previously issued by a
Trust (a "Prior Series"). A Paired
Series may be issued at or after the
commencement of a Controlled
Accumulation Period or Controlled
Amortization Period for a Prior Series.
As the Invested Amount of the Prior
Series having a Paired Series is
reduced, the Invested Amount of the
Paired Series will increase by an equal
amount. Upon payment in full of such
Prior Series, the Invested Amount of the
Paired Series will be equal to the
amount of the Invested Amount paid to
Certificateholders of such Prior Series.
If a Pay Out Event occurs (a) with
respect to the Prior Series having a
Paired Series or (b) with respect to the
Paired Series when such Prior Series is
in a Controlled Amortization Period or
Controlled Accumulation Period, the
percentage specified in the applicable
Prospectus Supplement for the allocation
of collections to such Prior Series and
the allocation percentage for the
allocation of collections to such Paired
Series will be reset as specified in the
related Prospectus Supplement and the
Controlled Amortization Period or Rapid
Amortization Period for such Prior
Series could be lengthened, which, in
turn, may result in the holders of the
Certificates of such
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Prior Series receiving the final payment
of principal on such Certificates after
the Expected Final Payment Date. It
shall be a condition to the issuance of
a Paired Series that such issuance shall
not result in the reduction by any
Rating Agency of the rating of the Prior
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 described in the related
Prospectus Supplement. The Final
Scheduled Payment Date of a Class may be
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 (i) in the case of
Receivables Pooling Certificates, the
rate of payment (including early
amortization, prepayments and
repurchases) of the Receivables and the
terms and rate of payment of the
Government Securities comprising the
Base Assets in the related Trust and
(ii) in the case of CRB Backed
Certificates, the rate of payment
(including early amortization,
prepayments and repurchases) of the
Receivables underlying the CRB
Securities, the terms of such CRB
Securities and the rate of payment and
terms of the Government Securities, if
any, comprising the Base Assets in the
related Trust. The actual final Payment
Date of Securities of a given Class may
occur earlier (and may occur
substantially earlier) than the Final
Scheduled Payment Date of such Class as
a result of the application of
prepayments of Receivables and
Government Securities, if any, to the
reduction of the principal balance of
such Certificates, or if any early
amortization period
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<PAGE>
occurs with respect to the Receivables
comprising or underlying the Base Assets
(comprised of Receivables or CRB
Securities) 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 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 AGREEMENTS AND
POOLING AND SERVICING AGREEMENTS --
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
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<PAGE>
Receivables, (2) CRB Securities and (3)
Government 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 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
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<PAGE>
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.
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) or such
other receivables or assets as the
Prospectus Supplement shall specify.
(b) Credit Card
Receivables.............. "Credit Card Receivables" are
Receivables due to issuers of credit
cards (such as VISA USA, Inc. ("VISA"1)
or MasterCard International Incorporated
("Mastercard International"1) 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
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<PAGE>
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 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.
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.
- --------------
1 VISA and MasterCard are registered trademarks of VISA USA, Inc. And
MasterCard International Incorporated, respectively.
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<PAGE>
(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 "TRUST ASSETS-
CRB Securities". Payments on the CRB
Securities will be distributed directly
to the Trustee as registered owner of
such CRB Securities or, if applicable,
to the Indenture Trustee as pledgee
thereof, or in such other manner as
shall be specified in the related
Prospectus Supplement.
The related Prospectus Supplement for a
Series which includes CRB Securities as
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
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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 pay out events or 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 "TRUST ASSETS - CRB
Securities".
(3) Government Securities.... If so specified in the applicable
Prospectus Supplement, the Base Assets
for a Series may include any combination
of (i) receipts or other instruments
evidencing ownership of specific
interest and/or principal payments to be
made on certain United States Treasury
Bonds ("Treasury Bonds") held by a
custodian, which may include interest
and/or principal strips of Treasury
Bonds created under the Department of
the Treasury's Separate Trading of
Registered Interest and Principal of
Securities, or STRIPS, program
("Treasury Strips"), (ii) receipts or
other instruments evidencing ownership
of specific interest and/or principal
payments to be made on certain
Resolution Funding Corporation ("REFCO")
bonds ("REFCO Strips"), (iii) certain
Treasury Bonds or other debt securities
the payment of principal and interest
due thereon is
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<PAGE>
guaranteed by the full faith and credit
of the United States of America ("FFC
Bonds") and (iv) certain other debt
securities ("GSE Bonds") of United
States government sponsored entities
("GSEs") or other debt securities the
payment of principal and interest due
thereon is guaranteed by one or more
GSEs ("GSE Guaranteed Bonds"; together
with Treasury Strips, REFCO Strips,
Treasury Bonds, FFC Bonds and GSE Bonds,
collectively, "Government Securities").
The specific terms of the Government
Securities, if any, included in a Trust
Fund will be set forth in the applicable
Prospectus Supplement. See "TRUST ASSETS
Government Securities".
B. Collection, Distribution, Pre-
Funding and other Trust
Accounts............... All payments on or with respect to the
Base Assets for a Series will be
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) or
in such other manner as shall be
specified in the related Prospectus
Supplement.
To the extent 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. Amounts
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<PAGE>
deposited in any such Payment Account
will be available, to the extent
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.
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
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Credit Enhancement (as described below)
or Ancillary Arrangements (as described
below), or both ("Series Enhancement").
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 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 caps, 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
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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.
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 advise the Owner Trust
that the Notes will be classified as
debt for federal income tax purposes, or
that the Notes will be classified in
such other manner as shall be specified
in the related Prospectus Supplement.
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.
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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
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 will
be properly treated as the owner of the
Base Assets 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 Base Assets. 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 Trust" herein for
additional information
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concerning the application of federal
income tax laws to a Master Trust and
the related Certificates.
Certain ERISA Considerations. Subject to the considerations and
qualificaitons discussed under "ERISA
CONSIDERATIONS" herein and the
considerations and qualifications set
forth in the related Prospectus
Supplement, the Notes of any Series
issued by a Trust may be 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
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 and whether the
purchase or holding of Certificates
could give rise to transactions
prohibited under ERISA or Section 4975
of the Code.
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
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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
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.
Risk of Delayed Principal Payments due to Dependence on Cardholder
Repayments; Maturity and Repayment Considerations. In the case of any Series of
Securities offered hereunder, the Base Assets of which consist wholely or partly
of Receivables or CRB Securities, the Receivables comprising or underlying such
Base Assets 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 Amortization 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 depend 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 "RISK FACTORS -- Maturity Assumptions" in the related
Prospectus Supplement.
Risk of Prepayment due to Dependence on 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 to
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 and Servicing Agreement
for such a Series will provide that if the Depositor's Interest is not
maintained at a minimum level equal to an amount specified in the Pooling and
Servicing Agreement and the related Prospectus Supplement (the "Required
Depositor's Interest"), then the Depositor will be required to transfer
Additional Accounts to the Trust. In addition, subject to certain exceptions
(which if applicable, will be set forth in the related Prospectus Supplement) if
the Depositor fails to transfer such Additional Accounts to the Trust pursuant
to the Pooling and Servicing Agreement, a Pay Out Event will occur.
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.
Limitations on Exercise of Rights due to Book-Entry Registration. The
related Prospectus Supplement may provide that 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
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<PAGE>
be issued in fully registered, certified form to the holders of the
Securities of such Series or their 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" .
Risk of Pay Out Event Occurring due to 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 Holders of Securities, the Base Assets of which consist
wholely or partly of Receivables or CRB Securities, if such laws result in any
Receivables being charged off as uncollectible when there are no funds available
from Series Enhancement or other sources.
Risk of Subordination of Trust's Interest in the Receivables due to
Certain Legal Aspects -- Transfers of Receivables. For Series of Receivables
Pooling Certificates which involve a transfer of Receivables to the related
Trust, the related Seller (and to a certain extent the Depositor) will warrant
in the related Pooling and Servicing Agreement and in the related Receivables
Purchase Agreement, respectively, that such transfer of the Receivables from the
Seller to the Depositor and from the Depositor 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 Depositor, and a valid
transfer of all right, title and interest of the Depositor in the Receivables
and all proceeds thereof to the Trust or will be 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".
Risk of Delay in Payments on Securities or Early Termination due to
Certain Legal Aspects -- Receivership of a Seller. With respect to Receivables
Pooling Certificates and CRB Backed Securites, 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 and Government Securities, if
any, allocable to each related Series in accordance with the Pooling and
Servicing Agreement (unless the Securityholders holding the required percentage
of the
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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 conservator or receiver may have the power to prevent the early
sale, liquidation or disposition of the Receivables and the Government
Securities, if any, 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".
Risk of Nontransferability of Servicer Duties in the Event of Servicer
Default due to Certain Legal Aspects -- Receivership of a Servicer. In the event
of a Servicer Default with respect to a Series of Receivables Pooling
Certificates, 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.
Risk of Reduced Portfolio Yield due to 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 such 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
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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. On June 3, 1996, the U.S. Supreme Court
upheld regulations issued by the U.S. Comptroller of the Currency that
characterize late fees as interest and that therefore entitle a national bank to
charge late fees if the state in which such national bank is located allows such
late fees. Although the U.S. Supreme Court resolved certain conflicts of
interpretation among the states, 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 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.
Risk of Reduced Finance Charges due to 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.
Risk of Delayed Payment of Principal of and Interest on Securities due to
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
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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.
Risk of Reduced Portfolio Yield, a Pay Out Event and Commencement of Rapid
Amortization Period due to Seller's Ability to Change Terms of the Receivables.
With respect to any Series, the Base Assets of which consist of Receivables or
CRB Securities, the Seller or other originator of any Receivables comprising or
underlying such Base Assets 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 more
Series and commencement of the Rapid Amortization Period for such Series. Under
the applicable Pooling and Servicing 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 in the applicable Receivables Purchase Agreement and Pooling
and Servicing Agreement 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, a Pooling and Servicing 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.
Risk of Delayed Payment of Principal and Interest on Securities due to
Subordination and 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 to
interest and principal due on 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
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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 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.
Limited Rights of Certificateholders in the Event of Servicer Default.
With respect to a Series of Securities that includes Notes, upon the occurrence
of a Servicer Default the related Indenture Trustee or Noteholders (subject to
certain limitations, which if applicable, will be specified in the related
Prospectus Supplement) 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.
Effect of the Issuance of New Series. In the case of a Trust that is a
master trust, such Trust may issue new 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 new Series, will not be subject to the prior
review 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
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Series to other Series or subordinating other Series (if the Supplement relating
to such Series so permits) to such Series, and any other amendment or supplement
to the Pooling and Servicing 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) such issuance will not result in any
Rating Agency reducing or withdrawing its then existing rating of the
Certificates of any outstanding Series or Class and (b) the Depositor shall have
delivered to the Trustee a certificate of an authorized officer to the effect
that, in the reasonable belief of the Depositor, such issuance will not (i)
result in the occurrence of a Pay Out Event or (ii) materially adversely affect
the timing or amount of payments to Certificateholders of any Series or Class.
There can be no assurance, however, that the issuance 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.
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 and Servicing Agreement, a
form of Series Supplement to the Pooling and Servicing Agreement and a form of
Indenture have each been filed as an exhibit to the Registration Statement of
which this Prospectus forms a part. If applicable, the Trust Agreement, the
Pooling and Servicing Agreement, the Series Supplement and the Indenture,
relating to a particular Series of Securities will be 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.
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The Base Assets for a Series will consist of one or more of the following
types of assets: (a) Receivables and/or Participations in Receivables, (b) CRB
Securities and (c) Government 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 or government securities on deposit in a
Pre-Funding Account established with the Trustee (or the Indenture Trustee),
which monies or government securities 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.
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 and Servicing
Agreement. In addition, pursuant to the related Pooling and Servicing Agreement,
a Seller in some circumstances will be obligated to designate Additional
Accounts, which together with the Receivables arising in such Additional
Accounts, 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
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of Receivables arising in Additional Accounts or Participations will be subject
to certain conditions set forth in the applicable Pooling and Servicing
Agreement. Pursuant to the related Pooling and Servicing Agreement and Series
Supplement, the Depositor 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.
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.
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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.
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
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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 CRB 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. 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.
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
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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, to the extent 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.
As a general rule, each CRB Issuer will be subject to the information
requirements of the Exchange Act and in accordance therewith, will file reports
and other information with the Commission. Such reports and other information
filed with the Commission can be inspected and copied at the public reference
facilities maintained by the Commission at Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the Commission's regional offices at
Citicorp Center, 500 West Madison Street, 14th Floor, Chicago, Illinois 60661
and Seven World Trade Center, Suite 1300, New York, New York 10048. Copies of
such material can be obtained from the Public Reference Section of the
Commission at Judiciary Plaza, Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. The Commission maintains a Web site that contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the Commission. The address of such site is
(http://www.sec.gov). In the event that any CRB Issuer is not subject to the
information requirements of the Exchange Act on the date of issuance of the
Certificates of the related Series or ceases to be subject to such requirements
after such date, the Depositor or the Trustee will provide, or cause to be
provided (or make available, or cause to be made available) to holders of the
Securities upon request, the information contained in all periodic trustee
reports (or similar reports) that are received by the Trustee with respect to
the related CRB Securities where such CRB Securities represent 20% or more of
the aggregate principal balance of the related Base Assets.
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GOVERNMENT SECURITIES
If so specified in the applicable Prospectus Supplement, the Base Assets
for a Series may include any combination of (i) receipts or other instruments
evidencing ownership of specific interest and/or principal payments to be made
on certain United States Treasury Bonds ("Treasury Bonds") held by a custodian,
which may include interest and/or principal strips of Treasury Bonds created
under the Department of the Treasury's Separate Trading of Registered Interest
and Principal of Securities, or STRIPS, program ("Treasury Strips"), (ii)
receipts or other instruments evidencing ownership of specific interest and/or
principal payments to be made on certain Resolution Funding Corporation
("REFCO") bonds ("REFCO Strips"), (iii) certain Treasury Bonds or other debt
securities the payment of principal and interest due thereon is guaranteed by
the full faith and credit of the United States of America ("FFC Bonds") and (iv)
certain other debt securities ("GSE Bonds") of United States government
sponsored entities ("GSEs") or other debt securities the payment of principal
and interest due thereon is guaranteed by one or more GSEs ("GSE Guaranteed
Bonds"; together with Treasury Strips, REFCO Strips, Treasury Bonds, FFC Bonds
and GSE Bonds, collectively, "Government Securities"). A description of the
respective general features of Treasury Strips, REFCO Strips, Treasury Bonds,
FFC Bonds, GSE Bonds and GSE Guaranteed Bonds is set forth below. The specific
terms of the Government Securities, if any, included in a Base Assets will be
set forth in the applicable Prospectus Supplement.
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 Securities, the Base Assets
of which include Government Securities will contain information as to: (i) the
title and series of each such Government Security, the aggregate principal
amount, denomination and form thereof; (ii) whether each such Government
Security is senior or subordinated to any other obligations of the issuer
thereof, (iii) whether any of the obligations are secured or unsecured and the
nature of any collateral; (iv) the limit, if any, upon the aggregate principal
amount of such Government Security; (v) the dates on which, or the range of
dates within which, the principal of (and premium, if any, on) such Government
Security will be payable; (vi) the rate or rates, or the method of determination
thereof, at which such Government Security will be payable; (vi) the date or
dates from which such interest will accrue, and the dates on which such interest
will be payable; (vii) the obligation, if any, of the issuer thereof to redeem
such Government Security pursuant to any sinking fund or analogous provisions,
or at the option of a holder thereof, and the periods within which or the dates
on which, the prices at which and the terms and conditions upon which, such
Government Security may be redeemed or repurchased, in whole or in part,
pursuant to such obligation; (viii) the periods within which or the dates on
which, the prices at which and terms and conditions upon which, such Government
Security may be redeemed, if any, in whole or in part, at the option of the
issuer thereof; (ix) whether such Government Security was issued at a price
lower than the principal amount thereof; (x) if other than United States
dollars, the foreign or composite currency in which such Government Security is
denominated, or in which payment of the principal of (and premium,
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if any) or any interest on such Government Security will be made, and the
circumstances, if any, when such currency or payment may be changed; (xi)
material events of default or restrictive covenants provided for with respect to
such Government Security; (xii) the rating thereof, if any; and (xiii) any other
material terms of such Government Security. With respect to Base Assets which
include a pool of Government Securities, the related Prospectus Supplement will,
to the extent applicable, describe the composition of the Government Securities'
pool, certain material events of default or restrictive covenants common to the
Government Securities, and, on an aggregate, percentage or weighted average
basis, as applicable, the characteristics of the pool with respect to the terms
set forth in (ii), (iii), (v), (vi), (vii), (viii) and (ix) of the preceding
sentence and any other material terms regarding such pool.
The inclusion of Government Securities in the Base Assets of a Series of
Securities is conditioned upon their characteristics being in form and substance
satisfactory to the Rating Agency rating the related series of Securities.
TREASURY STRIPS
In general, Treasury Strips are created by separating, or "stripping", the
principal and interest components of Treasury Bonds that have an original
maturity of 10 or more years from the date of issue. A particular Treasury Strip
evidences ownership of the principal payment or one of the periodic interest
payments (generally semiannual) due on the Treasury Bond to which such Treasury
Strip relates.
The first "stripping" of Treasury Bonds occurred in the 1970s when
government securities dealers physically separated coupons from definitive
certificates and offered them to investors as tax-deferred investments.
Investors were able to purchase the "strip" at a deep discount and pay no
federal income tax until resale or maturity. This tax treatment was limited in
1982 by the Tax Equity and Fiscal Responsibility Act ("TEFRA") which required
holders of such strips to accrue a portion of the discount toward par annually
and report such accrual, even though unrealized, as taxable income. TEFRA also
required that all new Treasury issues be made available only in book-entry form.
The shift to "book-entry only" Treasury Bonds created a shortage of the
physical certificates needed for stripping. In response, various dealers created
custodial receipt programs in which Treasury Bonds in book-entry form were
deposited with custodians who would thereupon issue certificates evidencing
rights in principal and interest payments. Some of the better known programs
first came to market in 1982 and 1983. Although available eventually in
denominations as small as $1,000, these custodial receipts lacked the liquidity
of the physical strips. While physical strips had multiple market-makers,
custodial receipts were proprietary and, as such, the sole market-maker would
usually be an affiliate of the program's sponsor. As a result, the market that
developed for such receipts was segmented.
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In early 1984, a group of dealers sought to enhance the liquidity of
custodial receipts by developing a generic, multiple market-maker security known
as a TR (Treasury Receipt). A large secondary market quickly developed in these
generic Treasury Strips, and in 1985 the Department of the Treasury, based on
indications that the demand for Treasury Strips was resulting in lower interest
rates, announced that all new issues of Treasury Bonds with maturities of 10
years or more would be transferable in their component pieces on the Federal
Reserve wire system. In so doing, the Treasury created a generic, book-entry
Treasury Strip named STRIPS (Separate Trading of Registered Interest and
Principal of Securities) which, unlike the private label Treasury Strips, can be
issued without the need for a custodial arrangement. The STRIPS program has
since eclipsed the private sector programs, and investment banks no longer
sponsor new issues of custodial receipts. TRs, physical strips and the
proprietary receipts trade at varying discounts from STRIPS which reflect, among
other things, lower levels of liquidity and the structuring difference discussed
above.
Treasury Strips may be either "serial" or "callable". A serial Treasury
Strip evidences ownership of one of the periodic interest payments to be made on
a Treasury Bond. No payments are made on such Treasury Strip, nor is it
redeemable, prior to its maturity, at which time the holder becomes entitled to
receive a single payment of the face amount thereof. Callable Treasury Strips
relate to payments scheduled to be made after the related Treasury Bonds have
become subject to redemption. Such Treasury Strips evidence ownership of both
principal of the related Treasury Bonds and each of the related interest
payments commencing, typically, on the first interest payment date following the
first optional redemption date. If the underlying Treasury Bonds are actually
redeemed, holders of callable Treasury Strips generally receive a payment equal
to the principal portion of the total face amount of such Treasury Strips plus
the interest payment represented by the Treasury Strips maturing on the
redemption date. The face amount of any Treasury Strip is the aggregate of all
payments scheduled to be received thereon. Treasury Strips are available in
registered form and generally may be transferred and exchanged by the holders
thereof in accordance with procedures applicable to the particular issue of such
Treasury Strips.
A holder of a private label Treasury Strip (as opposed to a STRIP) cannot
enforce payment on such Treasury Strip against the Treasury; instead, such
holder must look to the custodian for payment. Such custodian (and such holder
of a Treasury Strip that obtains ownership of the underlying Treasury Bond) can
enforce payment of the underlying Treasury Bond against the Treasury. In the
event any private label Treasury Strips are included in a Base Assets with
respect to any Series of Certificates, the Prospectus Supplement for such Series
will include the identity and a brief description of each custodian that issued
such Treasury Strips. In the event the Depositor knows that the depositor of the
Treasury Bonds underlying such Treasury Strips is the Depositor or any of its
affiliates, the Depositor will disclose such fact in such Prospectus Supplement.
REFCO STRIPS
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A REFCO Bond may be divided into its separate components, consisting of:
(i) each future semi-annual interest distribution (an "Interest Component"); and
(ii) the principal payment (the "Principal Component") (each component
individually hereinafter referred to as a "REFCO Strip"). REFCO Strips are not
created by REFCO; instead, third parties such as investment banking firms create
them. Each REFCO Strip has an identifying designation and CUSIP number. REFCO
Strips generally trade in the market for Treasury Strips at yields of a few
basis points over Treasury Strips of similar maturities. REFCO Strips are viewed
generally by the market as liquid investments.
For a REFCO Bond to be separated into its components, the par amount of
the REFCO Bond must be in an amount which, based on the stated interest rate of
the REFCO Bond, will produce a semi-annual interest payment of $1,000 or an
integral multiple thereof. REFCO Bonds may be separated into their components at
any time from the issue date until maturity. Once created, REFCO Strips are
maintained and transferred in integral multiples of $1,000.
A holder of a REFCO Strip cannot enforce payment on such REFCO Strip
against REFCO; instead, such holder must look to the custodian for payment .
Such custodian (and such holder of a REFCO Strip that obtains ownership of the
underlying REFCO Bond) can force payment of the underlying REFCO Bond against
REFCO. The identity and a brief description of each custodian that has issued
any REFCO Strip included in the Base Assets will be set forth in the related
Prospectus Supplement. In the event the Depositor knows that the depositor of
the REFCO Bonds underlying the REFCO Strips included in the Base Assets is the
Depositor or any of its affiliates, the Depositor will disclose such fact in
such Prospectus Supplement.
TREASURY BONDS; FFC BONDS
Treasury Bonds are issued by and are the obligations of The United States
of America. Interest is typically payable on the Bonds semiannually. Treasury
Bonds may be made subject to redemption, in whole or in part, by the United
States pursuant to the terms of the issue. No Treasury Bonds issued since 1984,
however, have been redeemable. Treasury Bonds are issued in registered form in
denominations of $1,000, $5,000, $10,000, $100,000 and $1,000,000 and in
book-entry form in integral multiples thereof. The payment of principal and
interest on each FFC Bond will be guaranteed by the full faith and credit of the
United States of America.
GSE BONDS; GSE GUARANTEED BONDS
As specified in the applicable Prospectus Supplement, the obligations of
one or more of the following GSEs may be included in a Base Assets: The Federal
National Mortgage Association ("Fannie Mae"), The Federal Home Loan Mortgage
Association ("Freddie Mac"), The Student Loan Marketing Association ("Sallie
Mae"), REFCO, Tennessee Valley Authority ("TVA"), The Federal Home Loan Banks
("FHLB") (to the extent such obligations represent the joint and several
obligations of the twelve Federal Home Loan Banks), and The Federal
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Farm Credit Banks ("FFCB"). GSE debt securities are exempt from registration
under the Securities Act pursuant to Section 3(a)(2) of the Securities Act (or
are deemed by statute to be so exempt) and are not required to be registered
under the Exchange Act. The securities of any GSE will be included in a Base
Assets only to the extent that (i) its obligations are supported by the full
faith and credit of the United States government or (ii) such organization makes
publicly available its annual report which shall include financial statements or
similar financial information with respect to such organization (a "GSE
Issuer"). Unless otherwise specified in the related Prospectus Supplement, the
GSE Bonds (and the GSE Guaranteed Bonds) will not be guaranteed by the United
States and do not constitute a debt or obligation of the United States or of any
agency or instrumentality thereof other than the related GSE. The payment of
principal and interest on each GSE Guaranteed Bond will be guaranteed by one or
more GSEs.
Unless otherwise specified in the related Prospectus Supplement, none of
the GSE Bonds will have been issued pursuant to an indenture, and no trustee is
provided for with respect to any GSE Bonds. There will generally be a fiscal
agent ("Fiscal Agent") for an issuer of GSE Bonds whose actions will be governed
by a fiscal agency agreement. A Fiscal Agent is not a trustee for the holders of
the GSE Bonds and does not have the same responsibilities or duties to act for
the holders as would a trustee.
GSE Bonds may be subject to certain contractual and statutory restrictions
which may provide some protection to securityholders against the occurrence or
effects of certain specified events. Unless otherwise specified in the related
Prospectus Supplement, each GSE is limited to such activities as will promote
its statutory purposes as set forth in the publicly available information with
respect to such issuer. A GSE's promotion of its statutory purposes, as well as
its statutory, structural and regulatory relationships with the federal
government, may cause or require such GSE to conduct its business in a manner
that differs from what an enterprise which is not a GSE might employ.
THE FEDERAL NATIONAL MORTGAGE ASSOCIATION
Fannie Mae is a federally chartered and stockholder owned corporation
organized and existing under the Federal National Mortgage Association Charter
Act. It is the largest investor in home mortgage loans in the United States.
Fannie Mae originally was established in 1938 as a corporation wholly owned by
the United States government to provide supplemental liquidity to the mortgage
market and was transformed into a stockholder owned and privately managed
corporation by legislation enacted in 1968 and 1970. Fannie Mae provides funds
to the mortgage market by purchasing mortgage loans from lenders, thereby
replenishing their funds for additional lending. Fannie Mae acquires funds to
purchase loans from many capital market investors that ordinarily may not invest
in mortgage loans, thereby expanding the total amount of funds available for
housing. Operating nationwide, Fannie Mae helps to redistribute mortgage funds
from capital-surplus to capital-short areas. Fannie Mae also issues
mortgage-backed securities ("MBS"). Fannie Mae receives guaranty fees for its
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guaranty of timely payment of principal of and interest on MBS. Fannie Mae
issues MBS primarily in exchange for pools of mortgage loans from lenders. The
issuance of MBS enables Fannie Mae to further its statutory purpose of
increasing the liquidity of residential mortgage loans.
Fannie Mae prepares an Information Statement annually which describes
Fannie Mae, its business and operations and contains Fannie Mae's audited
financial statements. From time to time Fannie Mae prepares supplements to its
Information Statement which include certain unaudited financial data and other
information concerning the business and operations of Fannie Mae. Unless
otherwise specified in the applicable Prospectus Supplement, these documents can
be obtained without charge from the Office of Investor Relations, Fannie Mae,
3900 Wisconsin Avenue, N.W., Washington, D.C. 20016; telephone (202)752-7115.
Fannie Mae is not subject to the periodic reporting requirements of the Exchange
Act.
THE FEDERAL HOME LOAN MORTGAGE CORPORATION
Freddie Mac is a publicly held government-sponsored enterprise created on
July 24, 1970 pursuant to the Federal Home Loan Mortgage Corporation Act, Title
III of the Emergency Home Finance Act of 1970, as amended (the "FHLMC Act").
Freddie Mac's statutory mission is to provide stability in the secondary market
for home mortgages, to respond appropriately to the private capital market and
to provide ongoing assistance to the secondary market for home mortgages
(including mortgages secured by housing for low- and moderate-income families
involving a reasonable economic return to Freddie Mac) by increasing the
liquidity of mortgage investments and improving the distribution of investment
capital available for home mortgage financing. The principal activity of Freddie
Mac consists of the purchase of conventional residential mortgages and
participation interests in such mortgages from mortgage lending institutions and
the sale of guaranteed mortgage securities backed by the mortgages so purchased.
Freddie Mac generally matches and finances its purchases of mortgages with sales
of guaranteed securities. Mortgages retained by Freddie Mac are financed with
short- and long-term debt, cash temporarily held pending disbursement to
security holders, and equity capital.
Freddie Mac prepares an Information Statement annually which describes
Freddie Mac, its business and operations and contains Freddie Mac's audited
financial statements. From time to time Freddie Mac prepares supplements to its
Information Statement which include certain unaudited financial data and other
information concerning the business and operations of Freddie Mac. Unless
otherwise specified in the applicable Prospectus Supplement, these documents can
be obtained from Freddie Mac by writing or calling Freddie Mac's Investor
Inquiry Department at 8200 Jones Branch Drive, McLean, Virginia, 22102; outside
Washington, D.C. metropolitan area, telephone (800) 336- 3672; within
Washington, D.C. metropolitan area, telephone (703)759-8160. Freddie Mac is not
subject to the periodic reporting requirements of the Exchange Act.
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THE STUDENT LOAN MARKETING ASSOCIATION
Sallie Mae is a stockholder-owned corporation established by the 1972
amendments to the Higher Education Act of 1965, as amended, to provide
liquidity, primarily through secondary market and warehousing activities, for
lenders participating in federally sponsored student loan programs, primarily
the Federal Family Education Loan ("FFEL") program and the Health Education
Assistance Loan Program. Under the Higher Education Act, Sallie Mae is
authorized to purchase, warehouse, sell and offer participations or pooled
interests in, or otherwise deal in, student loans, including, but not limited
to, loans insured under the FFEL program, and to make commitments for any of the
foregoing. Sallie Mae is also authorized to buy, sell, hold, underwrite and
otherwise deal in obligations of eligible lenders, if such obligations are
issued by such eligible lenders for the purpose of making or purchasing
federally guaranteed student loans under the Higher Education Act. As a
federally chartered corporation, Sallie Mae's structure and operational
authorities are subject to revision by amendments to the Higher Education Act or
other federal enactments.
Sallie Mae prepares an Information Statement annually which describes
Sallie Mae, its business and operations and contains Sallie Mae's audited
financial statements. From time to time Sallie Mae prepares supplements to its
Information Statement which include certain unaudited financial data and other
information concerning the business and operations of Sallie Mae. Unless
otherwise specified in the applicable Prospectus Supplement, these documents can
be obtained without charge upon written request to the Corporate and Investor
Relations Division of Sallie Mae at 1050 Thomas Jefferson Street, N.W.,
Washington, D.C. 20007; telephone (202) 298-3010. Sallie Mae is not subject to
the periodic reporting requirements of the Exchange Act.
THE RESOLUTION FUNDING CORPORATION
REFCO is a mixed-ownership government corporation established by Title V
of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989
("FIRREA"). The sole purpose of REFCO is to provide financing for the Resolution
Trust Corporation (the "RTC"). REFCO is to be dissolved, as soon as practicable,
after the maturity and full payment of all obligations issued by it. REFCO is
subject to the general oversight and direction of the Oversight Board, which is
comprised of the Secretary of the Treasury, the Chairman of the Board of
Governors of the Federal Reserve System, the Secretary of Housing and Urban
Development and two independent members to be appointed by the President with
the advice and consent of the Senate. The day-to-day operations of REFCO are
under the management of a three-member Directorate comprised of the Director of
the Office of Finance of the FHLB and two members selected by the Oversight
Board from among the presidents of the twelve FHLB.
The RTC was established by FIRREA to manage and resolve cases involving
failed savings and loan institutions pursuant to policies established by the
Oversight Board. The RTC was
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granted authority to issue nonvoting capital certificates to REFCO in exchange
for the funds transferred from REFCO to the RTC. Pursuant to FIRREA, the net
proceeds of these obligations are used to purchase nonvoting capital
certificates issued by the RTC or to retire previously issued REFCO obligations.
Information concerning REFCO may be obtained from the Secretary/Treasurer,
Resolution Funding Corporation, Suite 1000, 11921 Freedom Drive, Reston,
Virginia 22090; telephone (703) 487-9517. REFCO is not subject to the periodic
reporting requirements of the Exchange Act.
THE FEDERAL HOME LOAN BANKS
The Federal Home Loan Banks constitute a system of twelve federally
chartered corporations (collectively, the "FHLB"), each wholly owned by its
member institutions. The mission of the FHLB is to enhance the availability of
residential mortgage credit by providing a readily available, low-cost source of
funds to their member institutions. A primary source of funds for the FHLB is
the proceeds from the sale to the public of debt instruments issued as
consolidated obligations, which are the joint and several obligations of all the
FHLB. The FHLB are supervised and regulated by the Federal Housing Finance
Board, which is an independent federal agency in the executive branch of the
United States government, but obligations of the FHLB are not obligations of the
United States government.
The Federal Home Loan Bank System produces annual and quarterly financial
reports in connection with the original offering and issuance by the Federal
Housing Finance Board of consolidated bonds and consolidated notes of the FHLB.
Unless otherwise specified in the applicable Prospectus Supplement, questions
regarding such financial reports should be directed to the Deputy Director,
Financial Reporting and Operations Division, Federal Housing Finance Board, 1777
F Street, N.W., Washington, D.C. 20006; telephone (202) 408-2901. Unless
otherwise specified in the applicable Prospectus Supplement, copies of such
reports may be obtained by written request to Capital Markets Division, Office
of Finance, Federal Home Loan Banks, Suite 1000, 11921 Freedom Drive, Reston,
Virginia 22090, telephone (703) 487-9500. The FHLB are not subject to the
periodic reporting requirements of the Exchange Act.
TENNESSEE VALLEY AUTHORITY
TVA is a wholly owned corporate agency and instrumentality of the United
States of America established pursuant to the Tennessee Valley Authority Act of
1933, as amended (the "TVA Act"). TVA's objective is to develop the resources of
the Tennessee Valley region in order to strengthen the regional and national
economy and the national defense. The programs of TVA consist of power and
nonpower programs. For the fiscal year ending September 30, 1995, TVA received
$139 million in congressional appropriations from the federal government for the
nonpower programs. The power program is required to be self-
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supporting from revenues it produces. The TVA Act authorizes TVA to issue
evidences of indebtedness that may be serviced only from proceeds of its power
program. TVA bonds are not obligations of or guaranteed by the United States
government.
TVA prepares an Information Statement annually which describes TVA, its
business and operations and contains TVA's audited financial statements. From
time to time TVA prepares supplements to its Information Statement which include
certain unaudited financial data and other information concerning the business
and operations of TVA. Unless otherwise specified in the applicable Prospectus
Supplement, these documents can be obtained by writing or calling Tennessee
Valley Authority, 400 West Summit Hill Drive, Knoxville, Tennessee 37902-1499,
Attention: Vice President and Treasurer; telephone (423) 632-3366. TVA is not
subject to the periodic reporting requirements of the Exchange Act.
FEDERAL FARM CREDIT BANKS
The Farm Credit System is a nationwide system of lending institutions and
affiliated service and other entities (the "System"). Through its Banks ("FCBs")
and related associations, the System provides credit and related services to
farmers, ranchers, producers and harvesters of aquatic products, rural
homeowners, certain farm-related businesses, agricultural and aquatic
cooperatives and rural utilities. System institutions are federally chartered
under the Farm Credit Act of 1971, as amended (the "Farm Credit Act"), and are
subject to regulation by a Federal agency, the Farm Credit Administration (the
"FCA"). The FCBs and associations are not commonly owned or controlled. They are
cooperatively owned, directly or indirectly, by their respective borrowers.
Unlike commercial banks and other financial institutions that lend to the
agricultural sector in addition to other sectors of the economy, under the Farm
Credit Act the System institutions are restricted solely to making loans to
qualified borrowers in the agricultural sector, to certain related businesses
and to rural homeowners. Moreover, the System is required to make credit and
other services available in all areas of the nation. In order to fulfill its
broad statutory mandate, the System maintains lending units in all 50 states and
the Commonwealth of Puerto Rico.
The System obtains funds for its lending operations primarily from the
sale of debt securities issued under Section 4.2(d) of the Farm Credit Act
("Systemwide Debt Securities"). The FCBs are jointly and severally liable on all
Systemwide Debt Securities. Systemwide Debt Securities are issued by the FCBs
through the Federal Farm Credit Banks Funding Corporation, as agent for the FCBs
(the "Funding Corporation").
Information regarding the FCBs and the Farm Credit System, including
combined financial information, is contained in disclosure information made
available by the Funding Corporation. This information consists of the most
recent Farm Credit System Annual Information Statement and any Quarterly
Information Statements issued subsequent thereto and certain press releases
issued from time to time by the Funding Corporation. Unless otherwise specified
in the applicable Prospectus Supplement, such information and the Farm
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Credit System Annual Report to Investors for the current and two preceding
fiscal years are available for inspection at the Federal Farm Credit Banks
Funding Corporation, Investment Banking Services Department, 10 Exchange Place,
Suite 1401, Jersey City, New Jersey 07302; telephone (201) 200-8000. Upon
request, the Funding Corporation will furnish, without charge, copies of the
above information. The FCBs are not subject to the periodic reporting
requirements of the Exchange Act.
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, to
the extent specified in the related Prospectus Supplement, any income earned
thereon. Certain 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.
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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.
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.
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 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 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 subordinate
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 subordinate
Securities or Collateral Indebtedness Interests to the extent set forth in the
related Prospectus Supplement. The related Prospectus Supplement will also set
forth information concerning the
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amount of subordination of a Series or Class of subordinate 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 subordinate Securities
or Collateral Indebtedness Interests will be distributed to holders of
Securities which are senior to such subordinate Securities or Collateral
Indebtedness Interests. The amount of subordination will decrease whenever
amounts otherwise payable to the holders of subordinate 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.
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 CASH COLLATERAL 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, government
securities or certain other 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
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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, government
securities 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 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.
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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 caps, 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.
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 Pooling and Servicing 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
Pooling and Servicing 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
The Servicer will deposit (subject to certain exceptions which, if
applicable, will be specified in the related Prospectus Supplement) 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 Investor Certificateholders' Interest of any Series and are
required to be deposited into an account for the benefit of, or distributed to,
the Investor 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. To the extent and in the manner
specified in the related Prospectus
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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 holder of the Depositor Certificate 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).
To the extent and in the manner 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). To
the extent and in the manner indicated in the related Prospectus Supplement, the
Collection Account will be an account maintained (i) at a depository
institution, the long-term 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 Federal Deposit Insurance Corporation (the "FDIC") or
which are secured in a manner meeting requirements established by such Rating
Agencies.
To the extent and in the manner 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
The related Prospectus Supplement may provide that 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,
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whether as the Servicing Fee or other compensation, or for the reimbursement of
expenses or otherwise, may be subordinated to the rights of holders of the
Securities of such Series.
EVIDENCE AS TO COMPLIANCE
The Pooling and Servicing 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 and Servicing 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 and Servicing
Agreement for a Series will provide for delivery to the Trustee for such Series
of an annual statement signed by an officer of the Servicer to the effect that
the Servicer has fulfilled its obligations under the Pooling and Servicing
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 or of each Class of Securities as set forth in the
related Prospectus Supplement) may terminate the Servicer, in which case the
Trustee will appoint a successor Servicer. 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 AGREEMENT S OR POOLING AND SERVICING
AGREEMENTS -- Servicer Defaults" and "--Rights upon Servicer Defaults" or will
be as described in the related Prospectus Supplement.
The Servicer generally may not resign from its obligations and duties
under the Agreement, except (a) upon determination that (i) the performance of
its duties under the Pooling and Servicing 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
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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 and Servicing 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
and Servicing Agreement.
"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 and Servicing Agreement.
INDEMNIFICATION
Except to the extent otherwise provided therein, each Pooling and
Servicing 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 and Servicing Agreement, including those arising from acts or
omissions of the Servicer pursuant to the Pooling and Servicing 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 and Servicing 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 and Servicing Agreement by the Servicer.
Subject to certain exceptions in the Pooling and Servicing Agreement, any
indemnification pursuant to the Pooling and Servicing Agreement will be only
from the assets of the Servicer.
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DESCRIPTION OF THE NOTES
GENERAL
The following summaries describe the material provisions of 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 and the Indenture. 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.
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.
Payments of principal of and interest, if any, 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 or in such
other manner specified in the related Prospectus Supplement, 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
Each Class of Notes of a Series will have a stated principal amount,
notional amount or no principal amount and will bear interest at a specified
Note Interest Rate or will not bear interest. Each Class of Notes may have a
different Note Interest Rate, which may be fixed, variable or an adjustable Note
Interest Rate, or any combination of the foregoing. The Notes included in any
Series may
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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 Note Interest Rate for each Class of Notes or the
method for determining such Note 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. The
Prospectus Supplement may specify that payments of interest, if any, on Notes
will be made prior to payments of principal thereon or in such other order or
priority as shall be specified in such Prospectus Supplement.
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, Note 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. 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.
CERTAIN PROVISIONS OF THE INDENTURE
Events of Default; Rights upon Event of Default. "Events of Default" in
respect of a Series of Notes under the related Indenture will consist of certain
events specified in the Related Prospectus Supplement, which events will
include: (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
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holders of 25% of the aggregate outstanding principal amount of such Notes; (v)
certain events of bankruptcy, insolvency, receivership or liquidation with
respect to such Trust; or (vi) such other events as shall be specified in the
related Prospectus Supplement. 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, 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.
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 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. The Indenture Trustee, however, 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 one of certain conditions
specified in the related Prospectus Supplement are met, which conditions
generally will include (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 662/3% 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.
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No holder of a Note will have the right to institute any proceeding with
respect to the related Indenture, unless certain conditions specified in such
Indenture have been satisfied, which conditions generally will include (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.
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 and to the extent 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. Each Indenture will provide that the related Trust may
not consolidate with or merge into any other entity, unless certain conditions,
which shall be specified in such Indenture shall be satisfied, which conditions
generally will include (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, (vi) any action that is necessary to maintain
the lien and security interest created by this Indenture will have been taken;
and (vii) the Trust will have delivered to the Indenture Trustee an officer's
certificate and an opinion of counsel each stating that such consolidation or
merger and such supplemental indenture comply with the covenants of the
Indenture and that all conditions precedent provided for in the Indenture
relating to such transaction have been complied with.
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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 and Servicing 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.
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 (subject to certain
exceptions which, if applicable, will be 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
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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.
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.
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.
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DESCRIPTION OF THE CERTIFICATES
GENERAL
The following summaries describe the material provisions in the Agreements
which generally are anticipated to be common to the Trust Agreements and to the
Pooling and Servicing Agreement. 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.
The related Prospectus Supplement will provide that each Class of
Certificates will have an original principal amount, no principal amount or
notional amount and will accrue interest on such original principal amount or
notional at a specified Certificate Interest Rate or will not bear interest.
Each Class of Certificates may have a different Certificate Interest Rate, which
may be a fixed, variable or adjustable Certificate Interest Rate, or any
combination of the foregoing. The related Prospectus Supplement will specify the
Certificate Interest Rate, or the method for determining the applicable
Certificate Interest 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, Certificate Interest 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.
Certificates will be available for purchase in a minimum denomination of
$100,000 or such other minimum denominations as the Prospectus Supplement shall
provide and in integral multiples of $1,000 in excess thereof and will be
available in book-entry form or if provided in the related Prospectus
Supplement, as Definitive Certificates. If the Certificates will be available in
book-entry form only, the related Prospectus Supplement will provide that
Certificateholders will be able to receive Definitive Certificates only in the
limited circumstances described herein or in such 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.
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Payments of principal of and interest, if any, 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 or in such other manner as shall be specified in the related
Prospectus Supplement, 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, if any, 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. All payments with respect to the Base Assets
for a Series, together with reinvestment income thereon, amounts withdrawn from
any Reserve Account and amounts available pursuant to any other Series
Enhancement generally 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 on the basis of a 360-day year
of twelve 30-day months or such other basis as is specified in the related
Prospectus Supplement) 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 fixed, floating, variable or
adjustable. 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.
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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 and Servicing 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 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
Investor Certificateholders' Interest; Depositor'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 Investor Certificateholders' Interest
and the remainder will be allocated to the Depositor's Interest and as provided
in the related Prospectus Supplement. The Depositor's Interest represents the
rights to the assets of the Trust not allocated to the Investor
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 Depositor's Interest.
The Depositor's Interest may be evidenced by an exchangeable certificate that is
subject to certain transfer restrictions. The aggregate principal amount of the
Investor 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
Depositor's Interest will fluctuate as the amount of the Principal Receivables
and Government Securities, if any, 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 Investor Certificateholders of more than one Series.
Effect of Issuance of Additional Series. In the case of a Master Trust,
the Pooling and Servicing Agreement may provide that, pursuant to any one or
more supplements to such Pooling and Servicing Agreement (each, a "Supplement"),
the Depositor may direct the Trustee to authenticate from time to time new
Series subject to the conditions described below (each such issuance, a "New
Issuance"). Each New Issuance will have the effect of decreasing the Depositor's
Interest to the extent of the Initial Invested Amount of such new Series. Under
the Pooling and Servicing Agreement, the
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Depositor may designate, with respect to any newly issued Series: (a) its name
or designation; (b) its initial principal amount (or method for calculating such
amount) and its invested amount in the Trust which is generally based on the
aggregate amount of Principal Receivables and Government Securities, if any, in
the Trust allocated to such Series, and its Series Invested Amount; (c) its
certificate rate (or formula for the determination thereof); (d) the interest
payment date or dates and the dates from which interest shall accrue; (e) the
method for allocating collections to Certificateholders of such Series; (f) any
bank accounts to be used by such Series and the terms governing the operation of
any such bank accounts; (g) the percentage used to calculate the Monthly
Servicing Fee; (h) the provider and terms of any form of Series Enhancement with
respect thereto; (i) the terms on which the Certificates of such Series may be
repurchased or remarketed to other investors; (j) the Series Termination Date;
(k) the number of Classes of Certificates of such Series, and if such Series
consists of more than one Class, the rights and priorities of each such Class;
(l) the extent to which the Certificates of such Series will be issuable in
temporary or permanent global form (and, in such case, the depositary for such
global certificate or certificates, the terms and conditions, if any, upon which
such global certificate or certificates may be exchanged, in whole or in part,
for definitive certificates, and the manner in which any interest payable on
such global certificate or certificates will be paid); (m) whether the
Certificates of such Series may be issued in bearer form and any limitations
imposed thereon; (n) the priority of such Series with respect to any other
Series; and (o) any other relevant terms (all such terms, the "Principal Terms"
of such Series). None of the Depositor, the Servicer, the Trustee or the Trust
is required or intends to obtain the consent of any Certificateholder of any
outstanding Series to issue any additional Series.
The Pooling and Servicing Agreement may provide that the Depositor may
designate Principal Terms such that each Series has a Controlled Accumulation
Period or a Controlled Amortization Period that may have a different length and
begin on a different date than such periods for any other Series. Further, one
or more Series may be in their Controlled Accumulation Period or Controlled
Amortization Period while other Series are not. Moreover, each Series may have
the benefits of Series Enhancement issued by enhancement providers different
from the providers of Series Enhancement with respect to any other Series. Under
the Pooling and Servicing Agreement, the Trustee shall hold any such Series
Enhancement only on behalf of the Certificateholders of the Series to which such
Series Enhancement relates. With respect to each such Series Enhancement, the
Depositor also has the option under the Pooling and Servicing Agreement to vary
among Series the terms upon which a Series may be repurchased by the Depositor
or remarketed to other investors. There is no limit to the number of New
Issuances the Depositor may cause under the Pooling and Servicing Agreement. The
Trust will terminate only as provided in the Pooling and Servicing Agreement.
There can be no assurance that the terms of any Series might not have an impact
on the timing and amount of payments received by a Certificateholder of another
Series.
Under the Pooling and Servicing Agreement and pursuant to a Supplement, a
New Issuance may only occur upon the satisfaction of certain conditions provided
in the Pooling and Servicing Agreement. The obligation of the Trustee to
authenticate the Certificates of such new Series and to execute and deliver the
related Series Supplement is subject to the satisfaction of the following
conditions: (a) on or before the fifth day immediately preceding the date upon
which the New
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Issuance is to occur, the Depositor shall have given the Trustee, the Servicer,
each Rating Agency and any Series Enhancer entitled thereto pursuant to the
relevant Supplement, written notice of such New Issuance and the date upon which
the New Issuance is to occur; (b) the Depositor shall have delivered to the
Trustee the related Supplement, in form satisfactory to the Trustee, executed by
each party to the Pooling and Servicing Agreement other than the Trustee; (c)
the Depositor shall have delivered to the Trustee any related Series Enhancement
agreement executed by each of the parties to such agreement; (d) the Depositor
shall have received notice from each Rating Agency that the New Issuance shall
not cause the Rating Agency to reduce or withdraw the then current rating of the
Certificates of any outstanding Series or Class; (e) the Depositor shall have
delivered to the Trustee and certain providers of Series Enhancement a
certificate of an authorized representative, dated the date upon which the New
Issuance is to occur, to the effect that the Depositor reasonably believes that
such issuance will not, based on the facts known to such representative at the
time of such certification, cause a Pay Out Event; and (f) the Depositor shall
have delivered to the Trustee, each Rating Agency and certain providers of
Series Enhancement an opinion of counsel acceptable to the Trustee that for
federal income tax purposes (i) following such New Issuance the Trust will not
be deemed to be an association (or publicly traded partnership) taxable as a
corporation, (ii) such New Issuance will not adversely affect the tax
characterization as debt of Certificates of any outstanding Series or Class that
were characterized as debt at the time of their issuance, (iii) such New
Issuance will not cause or constitute an event in which gain or loss would be
recognized by any Certificateholders, and (iv) except as is otherwise provided
in a Supplement with respect to any Series, the Certificates of such Series will
be properly characterized as debt. Upon satisfaction of the above conditions,
the Trustee shall execute the Supplement and issue to the Depositor the
Certificates of such new Series for execution and redelivery to the Trustee for
authentication.
Allocation Percentage. Pursuant to the Pooling and Servicing Agreement,
all amounts collected with respect to (i) Finance Charge Receivables and
Principal Receivables and the Defaulted Amount and (ii) the Government
Securities, if any, with respect to any Monthly Period will be allocated among
the Investor Certificateholders' Interest of each Series, the Depositor's
Interest and in certain circumstances to the provider of Series Enhancement, 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 Investor Certificateholders' Interest of each Series, as
follows:
(a) collections of (i) Finance Charge Receivables and the Defaulted
Amount (ii) interest on the Government Securities, if any, will at
all times be allocated to the Investor Certificateholders' Interest
of a Series based on the Floating Allocation Percentage of such
Series;
(b) collections of (i) Principal Receivables (ii) principal of the
Government Securities, if any, will at all times be allocated to the
Investor 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
Investor Certificateholder's Interest of each Series based on their
respective Invested Amounts.
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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 Investor Certificateholders'
Interest of any Series as described above will be allocated to the Depositor's
Interest.
Collections. All collections in respect of Receivables and Participations
with respect to a given Trust will be allocated by the related Servicer or
Trustee as amounts collected on Principal Receivables and on Finance Charge
Receivables. The Servicer will allocate between the Investor Certificateholders'
Interest of each Series (if more than one) of such Trust and the Depositor's
Interest all amounts collected with respect to (i) Finance Charge Receivables
and Principal Receivables and the Defaulted Amount and (ii) the Government
Securities, if any. 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 Depositor 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 Depositor,
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 (i) Finance
Charge Receivables and the Defaulted Amount and (ii) interest on the Government
Securities, if any, will be allocated to each such Series at all times based
upon its Floating Allocation Percentage. Collections of (i) Principal
Receivables and (ii) principal of the Government Securities, if any, 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".
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, 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. To the extent
provided herein or in the related Prospectus Supplement, collections of Finance
Charge Receivables and certain other amounts allocable to the Investor
Certificateholders' Interest of a Series offered hereby will be
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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. Receivables Pooling 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 earliest to occur
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, collections of principal of the Government Securities, if any, and
certain other amounts otherwise allocable to the Investor 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 Depositor's
Interest.
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 will continue until the earliest to occur 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 Series
Termination Date with respect to such Series.
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During the Accumulation Period with respect to a Series of Receivables
Pooling Certificates, collections of Principal Receivables, principal of the
Government Securities, if any, and certain other amounts allocable to the
Investor Certificateholders' Interest of such Series will be deposited on each
Distribution Date in a Principal Funding Account established for the benefit of
the Investor 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 earliest to occur 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, principal of the Government Securities, if any, and
certain other amounts allocable to the Investor 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 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
Investor Certificateholders' Interest of such Series will be distributed as
principal payments to the Investor 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 Investor Certificateholders will not be
subject to any Controlled Deposit Amount or Controlled
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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 commence on the Series Cut-Off
Date and continue until the commencement of the Accumulation Period or the
Controlled Amortization Period, unless a Pay Out Event occurs with respect to
such Series prior to any of such dates. A "Pay Out Event" with respect to such
Series refers to any of certain events specified as such in the related
Prospectus Supplement, which events may include:
(a) the occurrence of an "Insolvency Event" (which shall mean the
appointment of the FDIC as receiver of the Depositor or the Seller
or another person specified in related Prospectus Supplement) or
certain other events relating to the bankruptcy, insolvency or
receivership of the Depositor or the Seller (or such other person
specified in the related Prospectus Supplement); or
(b) the Trust becoming 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 Investor 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 Investor
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 Investor
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 Depositor or the Seller, pursuant to
the Pooling and Servicing Agreement and the Receivables Purchase Agreement, on
the day of such Insolvency Event, the Depositor or 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 and Servicing Agreement and the Receivables Purchase Agreement
applicable to such Series, within 15
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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 and Government Securities, if any, 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 Government Securities, if any, and to continue transferring Principal
Receivables as before such Insolvency Event. The proceeds from any such sale,
disposition or liquidation of the Receivables and Government Securities, if any,
will be deposited in the Collection Account and allocated as described in the
applicable Pooling and Servicing Agreement and the related Prospectus
Supplement. If the sum of (a) the portion of such proceeds allocated to the
Investor Certificateholders' Interest of any Series and (b) the proceeds of any
collections of the Receivables and Government Securities, if any, in the
Collection Account allocated to the Investor 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 Investor Certificateholders will incur a loss.
Paired Series. If so provided in the related Prospectus Supplement, a
Prior Series may be paired with a Paired Series issued by the Trust. As the
Invested Amount of the Prior Series is reduced, the Invested Amount in the Trust
of the Paired Series will increase by an equal amount. Upon payment in full of
the Prior Series, the Invested Amount of such Paired Series will be equal to the
Invested Amount paid to Certificateholders of such Prior Series. If a Pay Out
Event occurs with respect to the Prior Series or with respect to the Paired
Series when the Prior Series is in a Controlled Amortization Period or
Controlled Accumulation Period, the Series Allocation Percentage and the
Principal Allocation Percentage for the Prior Series and the Series Allocation
Percentage and the Principal Allocation Percentage for the Paired Series will be
reset as provided in the related Prospectus Supplement and the Early
Amortization Period or Early Accumulation Period for such Series could be
lengthened. It shall be a condition to the issuance of a Paired Series that such
issuance shall not result in the reduction by any Rating Agency of the rating of
the Prior Series.
Optional Termination; Final Payment of Principal. If specified in the
Prospectus Supplement, 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
Depositor will have the option to repurchase the Investor Certificateholders'
Interest of such Series. The purchase price will be equal to the sum of the
principal amount of such Series (less the amount, if any, on deposit in any
Principal Funding Account with respect 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 Interests, if any) and (if applicable) on the
Enhancement Invested Amount (and accrued and unpaid interest with respect to
interest amounts that
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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 Interest Rate. Following any such repurchase and
the deposit of the aggregate purchase price into the Collection Account, the
Investor Certificateholders of such Series will have no further rights with
respect to the Receivables. In the event that the Depositor shall fail for any
reason to deposit the aggregate purchase price for the Investor
Certificateholders' Interest of a Series, payments would continue to be made to
the Investor 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 Receivables and
Government Securities, if any, of the related Trust, as specified in the Pooling
and Servicing 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 Certificateholders of such Series or the holder of the
Enhancement Invested Amount after such Certificateholders are paid in full, as
provided in the Pooling and Servicing 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 such Prospectus
Supplement may, at its option, cause an early termination of a Trust by
repurchasing all of the Receivables and Government Securities, if any, 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 Receivables and Government Securities, if any, 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.
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
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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 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
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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.
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
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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 under no obligation to perform or continue to perform
such procedures and such procedures may be discontinued at any time.
DEFINITIVE SECURITIES
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If the Securities of any Series will be available in book entry form, such
Securities will be issued as Definitive Securities, rather than to DTC or its
nominee, only under circumstances specified in the related Prospectus
Supplement, which circumstances may include that, (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.
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DESCRIPTION OF THE TRUST AGREEMENTS OR POOLING AND SERVICING
AGREEMENTS
The following summaries describe the material provisions of the Trust
Agreements and Pooling and Servicing 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 Pooling and Servicing
Agreement and Receivables Purchase 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. If 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-- Risk of Commingling" and "CERTAIN
LEGAL ASPECTS OF THE RECEIVABLES".
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Assignment of CRB Securities; Pre-Funding Account. All or a portion of the
net proceeds received from the sale of the Securities of a Series, the Base
Assets of which consist entirely or in part of CRB Securities, will be applied
to the purchase of the related CRB Securities from the Depositor or other Seller
on the Closing Date and, to the deposit of a Pre-Funded Amount into a
Pre-Funding Account, if and to the extent specified in the related Prospectus
Supplement. If 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. 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 Trust 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
Certificate Interest Rate or interest rate and maturity date for each such CRB
Security. In the Trust 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.
Assignment of Government Securities; Pre-Funding Account. A portion of the
net proceeds received from the sale of the Securities of a Series, the Base
Assets of which consist entirely or in part of Government Securities, will be
applied to the purchase of the related Government Securities from the Depositor
or other Seller on the Closing Date and, to the deposit of a Pre-Funded Amount
into a Pre-Funding Account, if and to the extent specified in the related
Prospectus Supplement. If a Pre- Funding Account is provided for, the related
Prospectus Supplement will specify the terms, conditions and manner under which
additional Government Securities will be purchased by the Trust from time to
time during the Funding Period provided for therein. The Trustee will cause any
Government 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 Government Securities. The
Trustee will not be in possession of or be assignee of record of any underlying
assets for a Government Security. See "THE TRUST ASSETS -- Government
Securities".
Each Government Security to be transferred to the Trust will be identified
in a schedule appearing as an exhibit to the related Trust Agreement (the
"Government Security Schedule"),
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which will specify the original principal amount, outstanding principal balance
as of the Cut-off Date (or subsequent cut-off date), annual interest rate and
maturity date for each such Government Security. In the Trust Agreement, to the
extent that any Government Securities are purchased from the Depositor, the
Depositor will represent and warrant to the Trustee regarding the Government
Securities: (i) that the information contained in the Government Schedule is
true and correct in all material respects; (ii) that, immediately prior to the
conveyance of the Government 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 Government Securities; and (iv) that there is no existing lien, charge,
security interest or other encumbrance on such Government 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, then 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"). The above-described
cure, repurchase or substitution obligations (subject to certain exceptions
which, if applicable, will be specified in the related Prospectus Supplement)
shall 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 purchased by a Depositor from a
Seller and reconveyed to the Trustee, the Depositor's only source of funds to
effect any cure, repurchase or substitution generally 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 Owner
Trustee 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 Trustee will establish
and maintain
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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 Trustee
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 with respect to the related Base Assets (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.
The related Prospectus Supplement may provide that investment earnings on funds
deposited in the Trust Accounts, net of losses and investment expenses
(collectively, "Investment Earnings"), will be treated as collections of
interest on the related Base Assets.
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.
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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 will be required
to 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
With respect to a Series of Receivables Pooling Certificates, "Servicer
Defaults" under the Pooling and Servicing Agreement for such Series generally
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
Certificateholders 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 Pooling and Servicing 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, (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
and (iv) certain other events that shall be specified in the related Prospectus
Supplement.
RIGHTS UPON SERVICER DEFAULTS
With respect to a Series of Receivables Pooling Certificates, so long as a
Servicer Default remains unremedied under the Pooling and Servicing 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 Pooling and Servicing
Agreement in and to the Receivables, whereupon the Trustee will succeed to all
the responsibilities, duties and liabilities of the Servicer under the Pooling
and Servicing 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 Pooling and Servicing Agreement.
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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 Pooling
and Servicing 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 Pooling
and Servicing Agreement.
During the continuance of any Servicer Default under the Pooling and
Servicing 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 Certificateholders of such Series, and
holders of the required percentages of the Certificates 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. The Trustee, however, will not be under any
obligation to pursue any such remedy or to exercise any of such trusts or powers
unless such Certificateholders 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 Certificateholders.
No Certificateholder of a Series, solely by virtue of such holder's status
as a Certificateholder, will have any right under the Pooling and Servicing
Agreement for such Series to institute any proceeding with respect to the
Pooling and Servicing 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 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,
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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 Pooling and
Servicing Agreement, if applicable) 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.
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
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
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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, (vi) to comply
with any requirements imposed by the Code or (vii) to make such other amendments
as are specified in the related Prospectus Supplement; provided that any such
amendment pursuant to clause (iv) or (vii) 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.
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 earliest to occur 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
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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-- Receivables Pooling
Certificates -- Optional Termination; Final Payment of Principal".
PAYMENT IN FULL OF THE NOTES
With respect to any Series of Securities that includes Notes, the Trust
Agreement will provide that 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 such Trust Agreement, to the extent and in the
matter 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. As a
consequence, investors should consider the issues raised by the following
discussion as relevant in connection with both the Receivables and the
Receivables underlying the CRB Securities. 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 purport to reflect the laws of any
particular state, nor purport to encompass the laws of all states in which
Receivables (or the Receivables underlying the CRB Securities) originate. The
summaries are qualified in their entirety by reference to the applicable federal
and state laws governing the Receivables (and the Receivables underlying the CRB
Securities).
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/or the Depositor) in and to the
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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 Depositor'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 that 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 upon 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 interest. Under the Pooling and
Servicing 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 Pooling and Servicing Agreement, it will not sell, pledge,
assign, transfer or grant any lien on any Receivables (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 Receivables comes into
existence may also have priority over the interest of the Trust in such
Receivables. 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.
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CERTAIN MATTERS RELATING TO RECEIVERSHIP
It is likely that the Sellers of Receivables to a Trust or the sellers of
Receivables to CRB Trusts 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 or to a CRB 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) or to a CRB 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 or to a CRB Trust with respect
to 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 or CRB 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 (or delays in payments on CRB Securities relating to a
similarly insolvent seller) outstanding at such time and possible reductions in
the amount of those payments could occur.
Each Pooling and Servicing Agreement and Receivables Purchase 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 Depositor, and a Pay Out Event will occur. Under the Pooling and
Servicing Agreement, no new Principal Receivables will be transferred to the
Trust and, unless otherwise instructed within a specified period by the 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.
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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 national banking association, the National Bank Act, 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 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
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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. On June 3, 1996, the U.S. Supreme Court upheld regulations issued by the
U.S. Comptroller of the Currency that characterize late fees as interest and
that therefore entitle a national bank to charge late fees if the state in which
such national bank is located allows such late fees. Although the U.S. Supreme
Court resolved certain conflicts of interpretation among the states, 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.
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.
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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.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of the anticipated material United
States federal income tax consequences of the purchase, ownership and
disposition of Securities. Sidley & Austin, New York, New York ("Sidley"),
counsel to the Depositor, is delivering its opinion regarding certain federal
income tax matters discussed below. The opinion of Sidley specifically addresses
only those issues specifically identified below as being covered by such
opinion; however, such opinion also states that the additional discussion set
forth below accurately sets forth Sidley's advice with respect to material
federal income tax issues. 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.
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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 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 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 advise the Owner Trust that the
Notes will be classified as debt for federal income tax purposes, or classified
in such other manner as shall be provided in the related Prospectus Supplement.
As
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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 allocable 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 which are set out in regulations issued in
final form on June 11, 1996 (the "1996 Contingent Debt Regulations").
Notwithstanding the foregoing, interest that is payable on a Note with a fixed
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".
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. Under the 1996 Contingent Debt Regulations
effective for instruments issued on or after August 13, 1996, interest is
considered unconditionally payable only if reasonable legal
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remedies exist to compel timely payment or the debt instrument otherwise
contains terms and conditions that make the likelihood of late payment a remote
contingency. 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 under the 1996 Contingent
Debt Regulations.
Stated interest generally qualifies as being payable at 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, or greater than 0.65 for debt instruments issued on or after August
13, 1996, 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 or (in the case of a debt instrument issued
on or after August 13, 1996) less than or equal to 0.65, however, such rate will
generally constitute an objective rate, described more fully below.
In the case of a debt instrument issued before August 13, 1996, stated
interest generally qualifies as payable at 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, (iii) 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. In the case of a debt instrument issued on or after August 13, 1996,
stated interest qualifies as payable at an "objective rate" if the rate is
determined using a single fixed formula and is based on objective financial
information or economic information. However, an objective rate does not include
a rate based on information that is within the control of the issuer or that is
unique to the circumstances of the issuer or a related party. 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 or one or
more governors limiting the amount of increase or decrease in each case 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
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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 subject to taxation under the 1996 Contingent Debt
Regulations.
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 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).
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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 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 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
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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 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 de
minimis market 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.
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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 the holder makes such an election, the holder will be 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, 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. 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.
On June 27, 1996, the IRS published in the Federal Register proposed
regulations (the "Proposed Premium Regulations") on the amortization of bond
premium. The Proposed Premium Regulations describe the constant yield method
under which such premium is amortized and provide that the resulting offset to
interest income can be taken into account only as a Note Owner takes the
corresponding interest income into account under such holder's regular
accounting method. In the case of instruments that may be called or repaid prior
to maturity, the Proposed Premium Regulations provide that the premium is
calculated by assuming that the issuer will exercise or not exercise its
redemption rights in the manner that maximizes the Note Owner's yield and the
Note Owner will exercise or not exercise its option in a manner that maximizes
the Note Owner's Yield. The Proposed Premium Regulations are proposed to be
effective for debt instruments acquired on or after the date 60 days after the
date final regulations are published in the Federal Register. However, if a Note
Owner elects to amortize bond premium for the taxable year containing such
effective date, the Proposed Premium Regulations would apply to all the Note
Owner's debt instruments held on or after the first day of that taxable year. It
cannot be predicted at this time whether the
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Proposed Premium Regulations will become effective or what, if any modifications
will be made prior to their becoming effective.
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. Except as discussed above 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. Special character rules apply to debt instruments characterized
as contingent debt instruments under the 1996 Contingent Debt Regulations. In
general, under those rules gain is treated as ordinary, and loss is treated as
ordinary to the extent of prior ordinary income inclusions.
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
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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 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 Person" means a person 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. A
"Non-United States Holder" means a Non-United States Person that is a Note
Owner.
On April 15, 1996, proposed Treasury Regulations (the "1996 Proposed
Regulations") were issued which, if adopted in final form, could affect the
United States taxation of Non-United States Holders. The 1996 Proposed
Regulations are generally proposed to be effective for payments after December
31, 1997, regardless of the issue date of the Note with respect to which such
payments are made, subject to certain transition rules. It cannot be predicted
at this time whether the 1996 Proposed Regulations will become effective as
proposed, or what, if any, modifications may be made to them. The discussion
under this heading and under "-- Backup Withholding and Information Reporting",
below, is not intended to include a complete discussion of the provisions of the
1996 Proposed Regulations, and prospective investors are urged to consult their
tax advisors with respect to the effect the 1996 Proposed Regulations may have.
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 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
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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 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 Non-United States Holder after the issuance of
the certificate in the calendar year of its issuance and the two immediately
succeeding calendar years. Under temporary Treasury Regulations, the forgoing
certification may be provided by the beneficial owner of a Note on IRS Form W-8.
The 1996 Proposed Regulations provide optional documentation procedures
designed to simplify compliance by withholding agents. The 1996 Proposed
Regulations would not affect the documentation rules described in the preceding
paragraph, but would add "intermediary certification" options for certain
qualifying withholding agents. Under one such option, a withholding agent would
be allowed to rely on IRS Form W-8 furnished by a financial institution or other
intermediary on behalf of one or more beneficial owners (or other
intermediaries) without having to obtain the beneficial owner certificate
described in the preceding paragraph, provided that the financial institution or
intermediary has entered into a withholding agreement with the IRS and is thus a
"qualified intermediary". Under another option, an authorized foreign agent of a
United States withholding agent would be permitted to act on behalf of the
United States withholding agent, provided certain conditions are met.
The 1996 Proposed Regulations, if adopted, would also provide certain
presumptions with respect to withholding for holders not providing the required
certifications to qualify for the withholding exemption described above. In
addition, the 1996 Proposed Regulations would replace a number of current tax
certification forms (including IRS Form W-8 IRS, Form 1001, and IRS Form 4224,
discussed below) with a single, restated form and standardize the period of time
for which withholding agents could rely on such certifications. The 1996
Proposed Regulations would also provide rules to determine whether, for purposes
of United States federal withholding tax, interest paid to a Non-United States
Holder that is an entity should be treated as paid to the entity or those
holding an interest in that entity.
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
distributions 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 the Trust
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believes 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
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 annually 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, market discount or original issue discount in certain circumstances)
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 treated as a corporation or
partnership for United States federal income tax purposes, 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
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
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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 for United States
federal income tax purposes, 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 effected by 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
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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.
The 1996 Proposed Regulations would, if adopted, alter the forgoing rules
in certain respects. In particular, the 1996 Proposed Regulations would provide
certain presumptions under which NonUnited States Holders may be subject to
backup withholding in the absence of required certifications.
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. As long as such characterization did not result in the Trust being
subject to tax as a corporation, 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 Stripped
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 allocable
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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
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 properly
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 Base Assets.
Any Collateral Certificates held by the Owner Trustee will be subject to
the federal income tax treatment described herein depending on the terms of the
Collateral Certificates and their characterization (for example, as
indebtedness) for federal income tax purposes.
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
Certificate Interest 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.
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 Certificate Interest 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.
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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. A non-corporate Certificate
Owner will be allowed no deduction for its share of the expenses of the Trust in
determining its liability for alternative minimum tax. 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 in the Code ($117,950 in 1996 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 Asset, such
calculations may result in certain timing and character differences under
certain circumstances.
Discount and Premium. The purchase price paid by the Trust for the related
Base Assets may be greater or less than the remaining principal balance of the
Base Assets at the time of purchase. If so, the Base 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 it is possible that the IRS might require that it be recomputed on a Base
Asset-by-Base Asset 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 purposes 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 with those requirements due to lack of data. On May 10, 1996, proposed
Treasury Regulations were issued that would change the rules relating to
terminations. Those regulations are effective for terminations occurring on or
after the date those regulations are finalized.
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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 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
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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 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 not a United States
Person, as defined under "Owner Trusts -- Tax Consequences to Note Owners --
Backup Withholding and Information Reporting", above.
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
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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 on its share of the Trust's income, including, in
the case of a corporation, a return in respect of the branch profits tax. 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 all or a portion of taxes
withheld by the Trust if, in particular, 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 Base 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 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. A non-corporate
Grantor Trust Certificateholder will be allowed no deduction for its share of
the expenses of the Trust in determining its liability for alternative minimum
tax. 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 ($117,950
in 1996 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.
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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 Asset will depend on whether
the discount represents original issue discount or market discount. It is not
expected that any Base Assets will have original issue discount (except as
discussed below under "--Stripped Certificates" or "--Subordinated
Certificates"). For the rules governing original issue discount, see "Owner
Trusts -- Tax Consequences to Note Owners -- Short-Term Notes" above. However,
in the case of Base Assets that constitute short-term Government Securities the
rules set out above dealing with short-term obligations (see "Owner Trusts --Tax
Consequences to Note Owners -- Short-Term Notes" above) are applied with
reference to acquisition discount rather than original issue discount, if such
obligations constitute "short-term Government obligations" within the meaning of
Section 1271(a)(3)(B) of the Code.
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 Base Asset 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
Base Asset is considered to have been purchased at a "market discount". For a
discussion of the market discount rules under the Code, see "Owner Trust -- Tax
Consequences to Note Owners -- Market Discount" above; however, Grantor Trust
Certificateholders generally are not permitted to take into account the
Prepayment Assumption in calculating the accrual of market discount with respect
to their Grantor Trust Certificates. See "Prepayments" below.
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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. For a
discussion of the rules applicable to premium, see "Owner Trusts -- Tax
Consequences to Note Owners -- Amortizable Premium" above; however, Grantor
Trust Certificateholders generally are not permitted to take into account the
Prepayment Assumption in computing the amortizable bond premium deduction with
respect to their Grantor Trust Certificates. See "Prepayments" below.
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 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;
however Grantor Trust Certificateholders generally are not permitted to take
into account the Prepayment Assumption in computing original issue discount. See
"Prepayments" below. 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
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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. The Trustee intends
in reporting information relating to original issue discount to Grantor Trust
Certificateholders to provide such information on an aggregate poolwide basis.
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 coupons as there are scheduled payments of interest on each
Base Asset, with each such stripped coupon treated as a separate debt instrument
or (ii) a separate installment obligation for each 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
subordinated class (with a relatively higher Certificate Interest Rate) and the
other is a senior class (with a relatively lower Certificate Interest 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 Base Asset plus a portion of the interest due on
each Base Asset (the "Trust Stripped Bond"), and (ii) a portion of the interest
due on each Base Asset equal to the difference between the Certificate Interest
Rate on the Subordinate Certificates and the Certificate Interest 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
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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 Certificate Interest Rate and
the portion of the Servicing Fee that does not constitute excess servicing may
be treated as qualified stated interest.
Income of the holder of the Trust Stripped Coupon will be reported by
treating the Trust Stripped Coupon as a single 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 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 Subordinate 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 Base Assets 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 Base Assets 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 the 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 are unclear. Subordinate Certificateholders are strongly urged to
consult
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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 Issue 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 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.
Prepayments. The Tax Reform Act of 1986 (the "1986 Act") contains a
provision requiring original issue discount on certain obligations issued after
December 31, 1986 to be calculated taking into account the Prepayment Assumption
and requiring such discount to be taken into income on the basis of a constant
yield to maturity taking into account of actual prepayments. The legislative
history of the 1986 Act states that similar rules apply with respect to market
discount and amortizable bond premium on such obligations. The proper treatment
of interests, such as the Grantor Trust Certificates, in debt instruments that
are subject to prepayment is unclear. Legislation has been proposed but not yet
enacted that could extend the rules contained in the 1986 Act to any pool of
debt instruments the payments on which may be accelerated by reason of
prepayments. Grantor Trust Certificateholders should consult their tax advisors
as to the proper reporting of income from such Certificates in light of the
possibility of prepayment and as to the possible application of the rules
contained in the 1996 Contingent Debt Regulations relating to contingent
principal debt instruments which might be viewed as including interest only
strips.
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
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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 Depositor'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 Persons (as defined above under "Owner Trusts--Tax
Consequences to Certificate Owners--Taxation of Certain Foreign Certificate
Owners) who are owners of Grantor Trust Certificates ("Non-United States
Owners") 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 (i)
does not own, directly or indirectly, 10% or more of, and is not a controlled
foreign corporation (within the meaning of Section 957 of the Code) related to,
each of the issuers of the Base Assets and (ii) 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. Non-United States
Owners of Grantor Trust Certificates may be subject to withholding to the extent
that the Base Assets were originated on or before July 18, 1984. If 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 and, in the case of a corporation, to a
possible branch profits tax, and will not be subject to withholding tax provided
that the owner meets applicable documentation requirements. Potential investors
who are not United States persons should consult their own tax advisors
regarding the specific tax consequences of owning a Certificate.
On April 15, 1996, proposed Treasury Regulations (the "1996 Proposed
Regulations") were issued which, if adopted in final form, could affect the
United States taxation of Non-United States Owners of Grantor Trust
Certificates. The 1996 Proposed Regulations are generally proposed to be
effective for payments after December 31, 1997, regardless of the issue date of
the Base Assets with respect to which such payments are made, subject to certain
transition rules. For further discussion, see "Owner Trusts - Tax Consequences
to Note Owners - Taxation of Certain Foreign Note Owners" above.
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. See "Owner Trusts -- Tax
Consequences to Note Owners -- Backup Withholding and Information Reporting,"
above.
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MASTER TRUST
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) will be properly treated as the owner of the Base
Assets for federal income tax purposes and, accordingly, the Certificates, when
issued, will be properly characterized for federal income tax purposes as
indebtedness of the Depositor (or the Seller) that is secured by the Base
Assets.
The Depositor (or 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 Depositor (or the Seller)
secured by the Base Assets. The Depositor (or 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 Depositor (or the Seller) secured by the Base
Assets 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 Base Assets
and not as creating a debt obligation of the Depositor (or 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 and the Seller believe 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 Base Assets, 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 Certificates
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will be properly characterized for federal income tax purposes as indebtedness
of the Depositor (or the Seller) secured by the Base Assets. 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 Depositor (or 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 Trusts--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" may be treated either as part of
a Certificate's stated redemption price at maturity" (as described above under
"Owner Trusts - Tax Consequences to Note Owners - Original Issue Discount")
resulting in original issue discount, or be treated as contingent interest under
the 1996 Contingent Debt Regulations.
One requirement for treatment as "qualified stated interest" is that the
interest be "unconditionally payable". Under the OID Regulations, with respect
to instruments issued before August 13, 1996, 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 OID
Regulations. Under the 1996 Contingent Debt Regulations effective for
instruments issued on or after August 13, 1996, interest is considered
unconditionally payable only if reasonable legal remedies exist to compel timely
payment or the debt instrument otherwise contains terms and conditions that make
the likelihood of late payment a remote contingency. See "Owner Trusts - Tax
Consequences to Note Owners - Original Issue Discount" above.
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
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of the Code is made or is previously in effect. See "Owner Trusts--Tax
Consequences to Note Owners--Amortizable 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.
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 Depositor (or
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 Base
Assets.
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 Depositor (or 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
Base Assets by the partnership would be passed through to the Depositor (or 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 Depositor (or 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
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aggregate, are allowed as deductions only to the extent they, together with
other miscellaneous itemized deductions, 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 Base
Assets. 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.
On May 9, 1996, proposed Treasury Regulations (the "Check-the-Box
Regulations") were issued which generally permit non-corporate entitities to
elect whether to be taxed as corporations or as partnerships. The Check-the-Box
Regulations are proposed to apply generally for tax years beginning on or after
the date the regulations are finalized. 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 a partnership (including a
publicly traded partnership), but, under the Check-the-Box Regulations, would
not be classified as an association taxable as a corporation. However, the
Check- the-Box Regulations would have no effect on the possibility of
classification of a partnership as a publicly traded partnership taxable as a
corporation.
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
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.
On April 15, 1996, proposed Treasury Regulations (the "1996 Proposed
Regulations") were issued which, if adopted in final form, could affect the
United States taxation of Non-United States Holders. The 1996 Proposed
Regulations are generally proposed to be effective for payments after December
31, 1997, regardless of the issue date of the Note with respect to which such
payments are
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made, subject to certain transition rules. It cannot be predicted at this time
whether the 1996 Proposed Regulations will become effective as proposed, or
what, if any, modifications may be made to them. The discussion under this
heading and under "-- Backup Withholding and Information Reporting", below, is
not intended to be a complete discussion of the provisions of the 1996 Proposed
Regulations, and prospective investors are urged to consult their tax advisors
with respect to the effect the 1996 Proposed Regulations may have.
Subject to the discussion of backup withholding below, and assuming the
Certificates represent debt obligations of the Depositor (or 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 Depositor (or the Seller),
(ii) such Investor is not for federal income tax purposes a controlled foreign
corporation related, directly or indirectly, to the Depositor (or the Seller)
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 Depositor (or the Seller)
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. Under temporary
Treasury Regulations, the forgoing certification may be provided by the
beneficial owner of a Note on IRS Form W-8.
The 1996 Proposed Regulations provide optional documentation procedures
designed to simplify compliance by withholding agents. The 1996 Proposed
Regulations would not affect the documentation rules described in the preceding
paragraph, but would add "intermediary certification" options for certain
qualifying withholding agents. Under one such option, a withholding agent would
be allowed to rely on IRS Form W-8 furnished by a financial institution or other
intermediary on behalf of one or more beneficial owners (or other
intermediaries) without having to obtain the beneficial owner certificate
described in the preceding paragraph, provided that the financial institution or
intermediary has entered into a withholding agreement with the IRS and is thus a
"qualified intermediary". Under another option, an authorized foreign agent of a
United States withholding agent would be permitted to act on behalf of the
United States withholding agent, provided certain conditions are met.
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The 1996 Proposed Regulations, if adopted, would also provide certain
presumptions with respect to withholding for holders not providing the required
certifications to qualify for the withholding exemption described above. In
addition, the 1996 Proposed Regulations would replace a number of current tax
certification forms (including IRS Form W-8, IRS Form 1001 and IRS Form 4224,
discussed below) with a single, restated form and standardize the period of time
for which withholding agents could rely on such certifications. The 1996
Proposed Regulations would also provide rules to determine whether, for purposes
of United States federal withholding tax, interest paid to a Non-United States
Holder that is an entity should be treated as paid to the entity or those
holding an interest in that entity.
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 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 annually 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
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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), unless dividends are effectively connected
with the holder's United States trade or business (in which case such dividends
would be taxed at graduated rates applicable to U.S. persons). 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.
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.
The 1996 Proposed Regulations would, if adopted, alter the forgoing rules
in certain respects. In particular, the 1996 Proposed Regulations would provide
certain presumptions under which NonUnited States Holders may be subject to
backup withholding in the absence of required certifications.
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
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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, except as
described in the following paragraph, 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.
Interest income (including original issue discount) earned on obligations
of the United States Treasury Department and of certain government sponsored
entities is generally exempt from state and local income taxation. Therefore,
where a Grantor Trust holds Government Securities as part of the Trust Property,
interest income attributable to Government Securities earned on Certificates may
be exempt from state and local taxation, depending on the form of the Government
Security. However, certain states or localities may take a contrary position.
Investors should consult their own tax advisors concerning the exemptions from
state and local income taxes.
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.
Furthermore, depending on the allocation and apportionment formula, if any, used
by such jurisdiction, it is possible that Security Owners in such case may be
subject to tax in such jurisdiction on their income from other sources.
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. 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 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.
***
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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 medical benefit 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 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.
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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 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
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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). Because the availability of this exception to
any Trust 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 exception.
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 (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
issuer 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.
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
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(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 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 several exemptions from 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 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;
(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.
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Certain other 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. There can be no assurance that any of these class
exemptions or PTCE 75-1 will apply with respect to any particular Plan or, even
if it were to apply, that the exemption would apply to all transactions
involving the applicable Trust.
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 PTCE 75-1, PTCE 84-14,
PTCE 90-1, PTCE 91-38, 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
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 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 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 THE RESTRICTIONS OF ERISA
AND SECTION 4975 OF THE CODE.
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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.
If and to the extent required by applicable law or regulation, this
Prospectus and the applicable Prospectus Supplements will also be used by the
Underwriter after the completion of the offering in connection with offers and
sales related to market-making transactions in the offered Securities in
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which the Underwriter acts as principal. Sales will be made at negotiated prices
determined at the time of sale.
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 Sidley
& Austin.
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INDEX OF DEFINED TERMS
Accounts ...............................................1
Accumulation Period....................................14
Additional Accounts....................................22
Additional Base Assets.................................28
Agreement...............................................1
Ancillary Arrangements.................................49
Base Assets............................................21
Cash Collateral Account................................48
Cash Collateral Guaranty...............................48
Cede ..............................................34
CEDEL ..............................................73
CEDEL Participants.....................................73
Certificates............................................1
Certificate Interest Rate.............................8-9
Certificateholders.....................................35
Certificates............................................1
Class ...............................................1
Closing Date...........................................21
CODE ..............................................88
Collateral Indebtedness Interests......................47
Collection Account.....................................26
Collection Period......................................39
Commission..............................................3
Controlled Accumulation Amount.........................15
Controlled Amortization Amount.........................16
Controlled Amortization Period.........................16
Controlled Deposit Amount..............................15
Controlled Distribution Amount.........................16
CRB Backed Certificate..................................7
CRB Backed Notes........................................7
CRB Backed Securities...................................7
CRB Issuer.............................................26
CRB Servicer...........................................26
CRB Trust..............................................44
CRB Trustee............................................26
Credit Card Accounts...................................42
Credit Card Receivables................................23
Credit Enhancement.....................................47
Credit Enhancer........................................27
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TERM PAGE
Date of Processing.....................................50
Defaulted Amount.......................................65
Deficit Controlled Accumulation Amount.................15
Deficit Controlled Amortization Amount.................16
Definitive Certificates................................34
Definitive Notes.......................................34
Definitive Securities..................................34
Depositaries...........................................71
Depositor...............................................1
Depositor's Certificate................................11
Depositor's Interest...................................10
Distribution Date......................................50
DTC ..............................................34
Eligible Institution...................................78
Eligible Investments...................................78
Eligible Servicer......................................53
Enhancement Invested Amount............................47
ERISA ..............................................31
Euroclear..............................................73
Euroclear Operator.....................................73
Euroclear Participants.................................73
Exchange Act............................................3
Expected Final Payment Date............................13
FDIC ..............................................51
Federal Tax Counsel....................................29
Final Scheduled Payment Date...........................62
Finance Charge Receivables.............................23
FIRREA ..............................................36
Floating Allocation Percentage.........................65
Foreign Investor......................................116
Funding Account........................................27
GAO ..............................................35
Government Securities..................................27
Grantor Trust...........................................5
Holders ..............................................75
Indenture...............................................7
Indenture Trustee.......................................6
Indirect Participants..................................72
Initial Accounts.......................................22
Insolvency Event.......................................68
Interchange............................................24
Interest Funding Account...............................13
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TERM PAGE
Invested Amount........................................12
Investment Earnings....................................78
IRS ..............................................88
Moody's ..............................................34
Net Portfolio Yield....................................38
Non-United States Holder...............................96
Non-United States Owner...............................105
Note Interest Rate......................................7
Noteholders............................................35
Notes ...............................................1
OID Regulations........................................90
Owner Trust.............................................5
Paired Series..........................................19
Participations.........................................23
Pay Out Events.........................................17
Paying Agent...........................................72
Payment Account........................................27
Payment Date...........................................54
Plan .............................................121
Pooling and Servicing Agreement.........................1
Portfolio Yield........................................38
Prepayment Assumption..................................92
Pre-Funded Amount......................................28
Pre-Funding Account....................................27
Principal Allocation Percentage........................65
Principal Commencement Date............................13
Principal Funding Account..............................15
Principal Receivables..................................23
Prior Series...........................................19
Prospectus..............................................1
Prospectus Supplement...................................1
Rapid Amortization Period..............................17
Rating Agency..........................................34
Receivables............................................22
Receivables Pooling Certificates........................6
Registrar..............................................54
Related Documents......................................58
Removed Accounts.......................................23
Repurchase Amount......................................40
Reserve Account........................................49
Revolving Period.......................................14
S&P ..............................................34
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TERM PAGE
Securities..............................................1
Securityholders........................................35
Seller..................................................2
Series..................................................1
Series Cut-Off Date....................................21
Series Enhancement.....................................28
Series Termination Date................................70
Servicer ...............................................6
Servicer Default.......................................52
Servicing Fee..........................................51
Shortfall Amount......................................110
Special Payment Date...................................18
Spread Account.........................................49
Strip Certificates......................................9
Subordinate Certificates..............................109
Subordinate Class Percentage..........................109
Supplement.............................................11
TIN ..............................................99
Transfer Agent.........................................75
Trust Accounts.........................................78
Trust Agreement.........................................1
Trust Stripped Bond...................................109
Trust Stripped Coupon.................................109
Trustee ...............................................6
UCC ..............................................84
Underwriting Agreements...............................125
Yield Calculation......................................45
Yield Factor...........................................43
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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.
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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.
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.
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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;
(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
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(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) in the calendar year in
which the payment is made or collected or in either of the preceding two
calendar years.
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) annually.
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) every three years. 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 should file a Form
W-9 (Request for Taxpayer Identification Number and Certification) in order to
avoid backup withholding (see "Certain Federal Income Tax Consequences -- Owner
Trusts -- Tax Consequences to Note Owners -- Backup Withholding and Information
Reporting", above).
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 taxable year.
AI-4
<PAGE>
On April 15, 1996, proposed Treasury Regulations (the "1996 Proposed
Regulations") were issued which, if adopted in final form, could affect the
documentation required from non-U.S. persons holding Global Securities. The 1996
Proposed Regulations are generally proposed to be effective for payments after
December 31, 1997, regardless of the issue date of the Global Security with
respect to which such payments are made, subject to certain transition rules.
The 1996 Proposed Regulations would, if adopted, replace a number of current tax
certification forms (including IRS Form W-8, IRS Form 1001 and IRS Form 4224,
discussed above) with a single, restated form and standardize the period of time
for which withholding agents could rely on such certifications. It cannot be
predicted at this time whether the 1996 Proposed Regulations will become
effective as proposed, or what, if any, modifications may be made to them.
Prospective investors are urged to consult their tax advisors with respect to
the effect the 1996 Proposed Regulations may have.
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>
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.............................................. $ 345
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......................................................... *
============
- -------------
* To be completed by amendment.
Item 16. Exhibits
1.1 Form of Underwriting Agreement.
3.1 Restated Certificate of Incorporation of Asset Backed Securities
Corporation. (Incorporated by reference to Registration Statement No.
33-10125).
4.1.1 Form of Indenture. (Owner Trust, Fixed Rate Notes, Auto Receivables)*
4.1.2 Form of Indenture. (Owner Trust, Fixed Rate Notes, Auto Securities)*
4.1.3 Form of Indenture. (Owner Trust, Fixed/Floating Rate Notes, Credit Card
Securities)*
4.2.1 Form of Pooling and Servicing Agreement. (Grantor Trust, Fixed Rate
Certificates, Auto Receivables)*
4.2.2 Form of Master Pooling and Servicing Agreement. (Master Trust, Credit
Card Receivables)*
4.2.3 Form of Standard Terms and Conditions of Pooling and Servicing.
(Grantor Trust/REMIC, Fixed/Floating Rate Certificates, Manufactured
Housing Contracts)*
4.2.4 Form of Standard Terms and Conditions of Pooling and Servicing. (REMIC,
Fixed/Floating Rate Certificates, Mortgage Loans)*
4.2.5 Form of Standard Terms and Conditions of Pooling and Servicing and
Reference Agreement. (REMIC, Fixed/Floating Rate Certificates, Mortgage
Loans)*
4.2.6 Form of Pooling and Servicing Agreement. (REMIC, Fixed/Floating Rate
Certificates, Mortgage Loans)*
II-1
<PAGE>
4.3.1 Form of Series Supplement to Pooling and Servicing Agreement. (Master
Trust, Credit Card Receivables)*
4.3.2 Form of Reference Agreement. (Grantor Trust, Fixed Rate Certificates,
Manufactured Housing Contracts)*
4.3.3 Form of Reference Agreement. (Grantor Trust/REMIC, Fixed Rate/Interest
Only Certificates, Manufactured Housing Contracts)*
4.3.4 Form of Reference Agreement. (Grantor Trust, Fixed Rate Certificates,
Mortgage Loans)*
4.3.5 Form of Reference Agreement. (Grantor Trust/REMIC, Fixed Rate
Certificates, Mortgage Loans)*
4.3.6 Form of Reference Agreement. (REMIC, Fixed/Floating Rate Certificates,
Mortgage Loans)*
4.4.1 Form of Trust Agreement. (Owner Trust, Auto Receivables)*
4.4.2 Form of Trust Agreement. (Owner Trust, Auto Securities)*
4.4.3 Form of Trust Agreement. (Grantor Trust, Auto Securities)*
4.4.4 Form of Trust Agreement. (Owner Trust, Credit Card Securities)*
4.4.5 Form of Trust Agreement. (Grantor Trust, Credit Card Securities)*
4.4.6 Form of Deposit Trust Agreement. (Grantor Trust, Fixed Rate/Interest
Only Certificates, Mortgage Certificates)*
5.1.1 Opinion of Sidley & Austin. (Auto Loans)*
5.1.2 Opinion of Sidley & Austin. (Mortgage Loans)*
5.1.3 Opinion of Sidley & Austin. (Credit Cards)*
8.1.1 Opinion of Sidley & Austin with respect to tax matters. (Auto Loans)*
8.1.2 Opinion of Sidley & Austin with respect to tax matters. (Mortgage
Loans)*
8.1.3 Opinion of Sidley & Austin with respect to tax matters. (Credit Cards)*
10.1.1 Form of Receivables Purchase Agreement. (Auto Loan Receivables)*
10.1.2 Form of Receivables Purchase Agreement. (Credit Card Receivables)*
10.1.3 Form of Master Seller's Warranty and Servicing Agreement. (Mortgage
Loans)*
10.2.1 Form of Sale and Servicing Agreement. (Owner Trust, Auto Loan
Receivables)*
23.1 Consent of Sidley & Austin. (included in 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 to this Registration
Statement filed with the Commission on January 22, 1996)*
25.1 Statement of Eligibility and Qualification of Indenture Trustee**
99.1 Form of Prospectus Supplement. (Owner Trust, Fixed Rate Notes and
Certificates, Auto Receivables)*
II-2
<PAGE>
99.2 Form of Prospectus Supplement. (Grantor Trust, Fixed Rate Certificates,
Auto Receivables)*
99.3 Form of Prospectus Supplement. (Grantor Trust, Fixed Rate Certificates,
Auto Securities)
99.4 Form of Prospectus Supplement. (Owner Trust, Fixed Rate Notes and
Certificates, Auto Securities)
99.5 Form of Prospectus Supplement. (Grantor Trust/REMIC, Mortgage
Loans)*
99.6 Form of Prospectus Supplement. (REMIC, Fixed Rate Certificates,
Mortgage Loans)*
99.7 Form of Prospectus Supplement. (REMIC, Fixed/Floating Rate
Certificates, Mortgage Loans)*
99.8 Form of Prospectus Supplement. (Grantor Trust, Principal Only/Interest
Only Certificates, Mortgage Loans)*
99.9 Form of Prospectus Supplement. (Grantor Trust/REMIC, Fixed Rate
Certificates, Manufactured Housing Contracts)*
99.10 Form of Prospectus Supplement. (REMIC, Variable Rate Certificates,
Adjustable Rate Mortgage Loans)*
99.11 Form of Prospectus Supplement. (Grantor Trust/REMIC, Floating Rate
Certificates, Mortgage Certificates)
99.12 Form of Prospectus Supplement. (Master Trust, Fixed/Floating Rate
Certificates, Credit Card Receivables)*
99.13 Form of Prospectus Supplement. (Owner Trust, Fixed/Floating Rate Notes
and Certificates, Credit Card Securities)
99.14 Form of Prospectus Supplement. (Grantor Trust, Fixed/Floating Rate
Certificates, Credit Card Securities)
- ------------------
* Previously filed.
** To be filed by Form 8-K.
II-3
<PAGE>
Item 17. Undertakings
(a) As to the Qualification of Trust Indentures under the Trust
Indenture Act of 1939:
The undersigned registrant hereby undertakes to file
an application for the purpose of determining the eligibility
of the trustee to act under subsection (a) of Section 310 of
the Trust Indenture Act in accordance with the rules and
regulations prescribed by the Commission under Section
305(b)(2) of the Act.
II-4
<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 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
21st day of August, 1996.
Asset Backed Securities Corporation
By: /s/ Gina Hubbell
---------------------------------
Name: Gina Hubbell
Title: Director and Vice President
II-5
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated:
Signature Title Date
* Director and Chairman of the August 21, 1996
- ------------------- Board
Andrew Stone
* President and Director (Principal August 21, 1996
- ------------------- Executive Officer)
Scott Ulm
/s/ Gina Hubbell Director and Vice President August 21, 1996
- -------------------
Gina Hubbell
* Director August 21, 1996
- -------------------
William Pitofsky
* Vice President August 21, 1996
- -------------------
Richard Eimbinder
* Vice President and Controller August 21, 1996
- ------------------- (Principal Accounting Officer)
Thomas Zingalli
* Treasurer (Principal Financial August 21, 1996
- ------------------- Officer)
Linda Hanauer
* /s/ Gina Hubbell
- -------------------
By: Gina Hubbell
Attorney-in-fact
II-6
<PAGE>
As filed with the Securities and Exchange Commission on August 21, 1996
==============================================================================
MARKED
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
EXHIBITS
TO
AMENDMENT NO. 3
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
For
Asset Backed Securities Corporation
VOLUME I
<PAGE>
EXHIBIT INDEX
Page Number
Item 16. Exhibits
1.1 Form of Underwriting Agreement.
3.1 Restated Certificate of Incorporation of Asset Backed Securities
Corporation. (Incorporated by reference to Registration Statement No.
33-10125).
4.1.1 Form of Indenture. (Owner Trust, Fixed Rate Notes, Auto Receivables)*
4.1.2 Form of Indenture. (Owner Trust, Fixed Rate Notes, Auto Securities)*
4.1.3 Form of Indenture. (Owner Trust, Fixed/Floating Rate Notes, Credit Card
Securities)*
4.2.1 Form of Pooling and Servicing Agreement. (Grantor Trust, Fixed Rate
Certificates, Auto Receivables)*
4.2.2 Form of Master Pooling and Servicing Agreement. (Master Trust, Credit
Card Receivables)*
4.2.3 Form of Standard Terms and Conditions of Pooling and Servicing.
(Grantor Trust/REMIC, Fixed/Floating Rate Certificates, Manufactured
Housing Contracts)*
4.2.4 Form of Standard Terms and Conditions of Pooling and Servicing. (REMIC,
Fixed/Floating Rate Certificates, Mortgage Loans)*
4.2.5 Form of Standard Terms and Conditions of Pooling and Servicing and
Reference Agreement. (REMIC, Fixed/Floating Rate Certificates, Mortgage
Loans)*
4.2.6 Form of Pooling and Servicing Agreement. (REMIC, Fixed/Floating Rate
Certificates, Mortgage Loans)*
4.3.1 Form of Series Supplement to Pooling and Servicing Agreement. (Master
Trust, Credit Card Receivables)*
4.3.2 Form of Reference Agreement. (Grantor Trust, Fixed Rate Certificates,
Manufactured Housing Contracts)*
4.3.3 Form of Reference Agreement. (Grantor Trust/REMIC, Fixed Rate/Interest
Only Certificates, Manufactured Housing Contracts)*
4.3.4 Form of Reference Agreement. (Grantor Trust, Fixed Rate Certificates,
Mortgage Loans)*
4.3.5 Form of Reference Agreement. (Grantor Trust/REMIC, Fixed Rate
Certificates, Mortgage Loans)*
4.3.6 Form of Reference Agreement. (REMIC, Fixed/Floating Rate Certificates,
Mortgage Loans)*
4.4.1 Form of Trust Agreement. (Owner Trust, Auto Receivables)*
4.4.2 Form of Trust Agreement. (Owner Trust, Auto Securities)*
4.4.3 Form of Trust Agreement. (Grantor Trust, Auto Securities)*
II-7
<PAGE>
4.4.4 Form of Trust Agreement. (Owner Trust, Credit Card Securities) *
4.4.5 Form of Trust Agreement. (Grantor Trust, Credit Card Securities)*
4.4.6 Form of Deposit Trust Agreement. (Grantor Trust, Fixed Rate/Interest
Only Certificates, Mortgage Certificates)*
5.1.1 Opinion of Sidley & Austin. (Auto Loans)*
5.1.2 Opinion of Sidley & Austin. (Mortgage Loans)*
5.1.3 Opinion of Sidley & Austin. (Credit Cards)*
8.1.1 Opinion of Sidley & Austin with respect to tax matters. (Auto
Loans)*
8.1.2 Opinion of Sidley & Austin with respect to tax matters. (Mortgage
Loans)*
8.1.3 Opinion of Sidley & Austin with respect to tax matters. (Credit
Cards)*
10.1.1 Form of Receivables Purchase Agreement. (Auto Loan Receivables)*
10.1.2 Form of Receivables Purchase Agreement. (Credit Card Receivables)*
10.1.3 Form of Master Seller's Warranty and Servicing Agreement. (Mortgage
Loans)*
10.2.1 Form of Sale and Servicing Agreement. (Owner Trust, Auto Loan
Receivables)*
23.1 Consent of Sidley & Austin. (included in 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 to this Registration
Statement filed with the Commission on January 22, 1996)
25.1 Statement of Eligibility and Qualification of Indenture Trustee**
99.1 Form of Prospectus Supplement. (Owner Trust, Fixed Rate Notes and
Certificates, Auto Receivables)*
99.2 Form of Prospectus Supplement. (Grantor Trust, Fixed Rate Certificates,
Auto Receivables)*
99.3 Form of Prospectus Supplement. (Grantor Trust, Fixed Rate Certificates,
Auto Securities)
99.4 Form of Prospectus Supplement. (Owner Trust, Fixed Rate Notes and
Certificates, Auto Securities)
99.5 Form of Prospectus Supplement. (Grantor Trust/REMIC, Mortgage
Loans)*
99.6 Form of Prospectus Supplement. (REMIC, Fixed Rate Certificates,
Mortgage Loans)*
99.7 Form of Prospectus Supplement. (REMIC, Fixed/Floating Rate
Certificates, Mortgage Loans)*
99.8 Form of Prospectus Supplement. (Grantor Trust, Principal Only/Interest
Only Certificates, Mortgage Loans)*
99.9 Form of Prospectus Supplement. (Grantor Trust/REMIC, Fixed Rate
Certificates, Manufactured Housing Contracts)*
II-8
<PAGE>
99.10 Form of Prospectus Supplement. (REMIC, Variable Rate Certificates,
Adjustable Rate Mortgage Loans)*
99.11 Form of Prospectus Supplement. (Grantor Trust/REMIC, Floating Rate
Certificates, Mortgage Certificates)
99.12 Form of Prospectus Supplement. (Master Trust, Fixed/Floating Rate
Certificates, Credit Card Receivables)*
99.13 Form of Prospectus Supplement. (Owner Trust, Fixed/Floating Rate Notes
and Certificates, Credit Card Securities)
99.14 Form of Prospectus Supplement. (Grantor Trust, Fixed/Floating Rate
Certificates, Credit Card Securities)
- ------------------
* Previously filed.
** To be filed by Form 8-K.
II-9
<PAGE>
EXHIBIT 1.1
ASSET BACKED SECURITIES CORPORATION
Settlor and Depositor
[Name of ABS]
Series _____ - _____
[Class ______ Notes]
[Class ______ Notes]
[Class _______ Certificates]
[Class _______ Certificates]
_______ ___, ____
CS First Boston Corporation
[As Representative of the
Several Underwriters]
Park Avenue Plaza
55 East 52nd Street
New York, New York 10055
Ladies and Gentlemen:
Asset Backed Securities Corporation, a Delaware corporation (the
"Company"), proposes to cause [Name of Trust] (the "Trust") to issue and sell of
$________ in aggregate stated amount of [Name of ABS] Notes [, Class ____ and
Class ____] ([collectively,] the "Notes") and of $________ in aggregate stated
amount of [Name of ABS] Certificates [, Class ___ and Class ___]
([collectively,] [except for a de minimus portion of the Class ___
Certificates,] the "[Certificates] [Securities]") pursuant to [a] [the] [Trust
Agreement] [[Master] Pooling and Servicing Agreement] [Standard Terms and
Conditions of Pooling and Servicing] [, as supplemented by a [Series Supplement]
[Reference Agreement]] ([as so supplemented,] the "[Trust] [Pooling and
Servicing] Agreement") [each] dated as of [date] [each] [between] [among] the
Company [, __________________, as servicer (the "Servicer")] and ___________, as
trustee (the "Trustee") and will evidence beneficial interests in the Trust.
[The Notes will be issued pursuant to an Indenture dated as of [date] between
the Trust and _____________, as trustee (the "Indenture Trustee") and will
represent obligations of the Trust. The assets of the Trust consist primarily
of a pool of [previously issued securities backed by] [motor vehicle loan
agreements and motor vehicle retail installment sale contracts, in each case
secured by new and used automobiles, vans and light duty trucks, security
interests in the vehicles financed thereby] [[consumer] [corporate] [revolving]
[credit card] [charge card] [debit card] receivables generated or to be
generated from time to time in a portfolio of [consumer] [corporate] [revolving]
[credit card]
<PAGE>
[charge card] [debit card] accounts]] [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] [manufactured housing conditional
sales contracts and installment loan agreements] [insured by the FHA] [partially
guaranteed by the VA] and certain monies due thereunder (the "Trust Assets").
The Notes and the Certificates are herein collectively referred to as the
"Securities".
The Company proposes to sell the Securities to you [and to each of the
other several underwriters participating in an underwriting syndicate managed by
you]. Underwritten offerings of Securities may be made by you or by an
underwriting syndicate managed by you (as used in this Agreement, references to
"you" shall mean the firm or firms acting as sole underwriter(s) or as
representative(s) of a group of underwriters of such offering).
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-3 (No. 33-76276) for the
registration of the Securities under the Securities Act of 1933 (the "1933
Act"), including a related form of prospectus and related form of prospectus
supplement. Such registration statement was declared effective on
_____________. Such registration statement, as from time to time amended,
including all exhibits thereto, is hereinafter referred to as the "Registration
Statement". The form of prospectus that appears in the Registration Statement,
as such prospectus is amended from time to time, is hereinafter referred to as
the "Basic Prospectus". The Basic Prospectus as supplemented by the prospectus
supplement relating to the Securities, in the form in which, as so supplemented,
it shall be filed with the Commission pursuant to Rule 424 under the 1933 Act,
is hereinafter referred to as the "Final Prospectus".
The Company, hereby agrees with you [and the several Underwriters named in
Schedule A hereto (collectively,] [(] the "Underwriter[s]") as follows:
SECTION 1. Representations and Warranties. The Company represents and
------------------------------
warrants to you as of the date hereof, and to each Underwriter named on Schedule
A hereto, as follows:
(a) The Registration Statement, at the time it became effective, complied
in all material respects with the requirements of the 1933 Act and the rules and
regulations of the Commission thereunder (the "1933 Act Regulations") and does
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading, and no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceeding for that purpose has
been initiated or threatened by the Commission. The Final Prospectus at the
time it is transmitted to the Commission for filing pursuant to Rule 424 under
the 1933 Act and at the Closing Time referred
2
<PAGE>
to in Section 2 will not contain an untrue statement of a material fact or omit
to state a material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading.
There are no material contracts or documents of the Company which are required
to be filed as exhibits to the Registration Statement by the 1933 Act or the
1933 Act Regulations which have not been so filed.
(b) Since the respective dates as of which information is given in the
Registration Statement and the Final Prospectus, and other than as herein or
therein contemplated, (i) the Company has not, and at no time through the
Closing Time will it have, entered into any material transaction or incurred any
material liability or obligation, contingent or otherwise, other than as may
relate to additional series of securities similar to the Securities, (ii) there
has not been, and at no time through the Closing Time will there have been, any
material change in the capital stock or debt of the Company, or any material
adverse change in the business of the Company, and no material legal or
governmental proceeding, domestic or foreign, affecting the Company or the
transactions contemplated by this Agreement has been or at any time through the
Closing Time will have been instituted or threatened, and (iii) no event has or
at any time through the Closing Time will have occurred that constitutes or
would constitute a default under the provisions of the [Trust] [Pooling and
Servicing] Agreement [or the Indenture].
(c) The Company has been duly incorporated and is validly existing in good
standing under the laws of the State of Delaware with corporate power and
authority to conduct its business as described in the Registration Statement.
The Company is duly qualified to do business as a foreign corporation and is in
good standing under the laws of each jurisdiction which requires such
qualification and where the failure to so qualify would have a material adverse
effect on the Company.
(d) The shares of issued and outstanding capital stock of the Company have
been duly authorized and validly issued and are fully paid and non-assessable.
(e) The Company is not in violation of its Certificate of Incorporation or
Bylaws. The Company is not in default in the performance or observance of any
obligation, agreement, covenant or condition contained in any contract,
indenture, mortgage, loan agreement, note, lease or other instrument to which it
is a party or by which it or its properties may be bound, which violations or
defaults separately or in the aggregate would have a material adverse effect on
the Company.
(f) The Company owns or possesses or has obtained all material governmental
licenses, permits, consents, orders, approvals and other authorizations
necessary to conduct its business as described in the Registration Statement or,
if later, the applicable Final Prospectus; and the Company has conducted and is
conducting its business so as to comply in all material respects with all
applicable laws, administrative regulations and administrative and court
decrees.
3
<PAGE>
(g) There is no action, suit or proceeding before or by any court or
governmental agency or body, domestic or foreign, now pending against the
Company (except as set forth in the Registration Statement or, if later, the
applicable Final Prospectus) which could reasonably be expected to result in any
material adverse change in the condition, financial or otherwise, earnings,
business affairs or business prospects of the Company or which could reasonably
be expected to interfere with or materially and adversely affect the
consummation of the transactions contemplated herein.
(h) The execution and delivery of this Agreement[,][and [the [Trust]
[Pooling and Servicing] Agreement [and the Indenture], the incurrence of the
obligations herein and therein set forth and the consummation of the
transactions contemplated herein and therein are within the corporate power and
authority of the Company and have been duly authorized by the Company by all
necessary corporate action; this Agreement has been duly executed and delivered
by the Company, and each such instrument constitutes and will constitute a
legal, valid and binding obligation of the Company enforceable against the
Company in accordance with such instrument's terms. Neither the execution and
delivery of this Agreement, the incurrence of the obligations herein set forth,
nor the consummation of the transactions contemplated herein will conflict with
or constitute a breach of, or default under, or result in the creation or
imposition of any lien, mortgage, pledge, charge, security interest or
encumbrance (collectively, "Lien") upon any property or assets of the Company,
pursuant to any contract, indenture, mortgage, loan agreement, note, lease or
other instrument to which the Company is a party or by which the Company may be
bound, or to which any of the property or assets of the Company is subject,
which separately or in the aggregate are material, nor will any such action
result in any violation of the provisions of the Certificate of Incorporation or
Bylaws of the Company or of any law, administrative regulation, or, to the best
of such entity's knowledge, any administrative or court decree.
(i) The issuance of the Certificates has been duly authorized by the
Company and, when such Certificates are executed and delivered in accordance
with the [Trust] [Pooling and Servicing] Agreement and sold to the Underwriters
pursuant to this Agreement, such Certificates will be legally issued and will
duly evidence all the beneficial ownership interest in the related trust created
by the [Trust] [Pooling and Servicing] Agreement.
[(j) The issuance of the Notes has been duly authorized by the Trust and,
when such Notes are executed and delivered in accordance with the Indenture and
sold to the Underwriters pursuant to this Agreement, such Notes will be legally
issued and will duly evidence all the interest in the related trust created by
the Indenture.]
([j][k]) The Securities[,] [and] the [Trust] [Pooling and Servicing]
Agreement and the Indenture will conform in all material respects to the
respective descriptions thereof contained in the applicable Final Prospectus.
4
<PAGE>
([k][l]) The [Trust] [Pooling and Servicing] Agreement will be effective
prior to the Closing Time to establish the Trust under and pursuant to the laws
of the jurisdiction specified in such [Trust] [Pooling and Servicing] Agreement,
and the acquisition of the Trust Assets by the Trustee will be effective to vest
with the holders of the Certificates the entire beneficial ownership in the
Trust Assets intended to be vested thereby.
[([l][m]) The Trust's assignment of the Trust Assets to the Indenture
Trustee pursuant to the Indenture will vest in the Indenture Trustee a first
priority perfected security interest therein, subject to no prior lien,
mortgage, security interest, pledge, adverse claim, charge or other
encumbrance.]
([ ]) Each of the Company and the Trust is not, and will not as a result
of the offer and sale of the Securities as contemplated in this Agreement
become, an "investment company" or under the "control" of an "investment
company" (as such terms are defined in the Investment Company Act of 1940, as
amended (the "Investment Company Act")), which would be required to register
under the Investment Company Act.
(__) The representations and warranties made by the Company in the [Trust]
[Pooling and Servicing] Agreement and in any Officers' Certificate of the
Company delivered pursuant to such [Trust] [Pooling and Servicing] Agreement
will be true and correct at the time made and at the Closing Time.
(__) Any certificate signed by an officer of the Company and delivered to
you or to counsel for the Underwriters shall be deemed a representation and
warranty by the Company to each Underwriter as to the matters covered thereby.
(__) All approvals, authorizations, consents, orders or other actions of
any person, corporation or other organization, or of any governmental body,
quasi-governmental body or official (except with respect to the state securities
or Blue Sky laws of various jurisdictions), required in connection with (i) the
valid and proper deposit of the Trust Assets pursuant to the [Trust] [Pooling
and Servicing] Agreement and (ii) the valid and proper authorization, issuance
and sale of the Certificates pursuant to such [Trust] [Pooling and Servicing]
Agreement [and of the Notes pursuant to the Indenture] and this Agreement, have
been or will be taken or obtained on or prior to the Closing Time.
(__) At or prior to the Closing Time, the Certificates shall be rated
__________ by ___________. At or prior to the Closing Time, the Notes shall be
rated the highest bond rating by ____________.
(__) Any taxes, fees and other governmental charges in connection with the
execution and delivery of this Agreement, [,][and] the [Trust] [Pooling and
Servicing] Agreement [the Indenture] and in connection with the acquisition of
the Trust Assets and the issuance of the Securities have been paid or will be
paid at or prior to the related Closing Time.
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<PAGE>
(__) [At the Closing Time, the Trustee under the [Trust] [Pooling and
Servicing] Agreement will have acquired all right, title and interest in and to
the Trust Assets] [Immediately prior to the Closing Time, the Company (or one of
its affiliates) will own the Trust Assets free and clear of any Lien; the
Company (or such affiliate) will have the corporate power and authority to
assign, deliver and deposit the Trust Assets owned by it to and with the Trustee
under the [Trust] [Pooling and Servicing] Agreement, and will have duly
authorized the assignment, delivery and deposit of such Trust Assets to and with
such Trustee by all necessary corporate action. At the Closing Time, the
Company (or one of its affiliates) will have assigned and delivered to and
transferred to the applicable Trustee under the applicable [Trust] [Pooling and
Servicing] Agreement all its right, title and interest in and to the Trust
Assets applicable to such Certificates as of the Closing Time.]
SECTION 2. Sale and Delivery to the Underwriter[s]; Closing. The
------------------------------------------------
[commitment of the Underwriter] [several commitments of the Underwriters] to
purchase Certificates shall be deemed to have been made on the basis of the
representations and warranties herein contained. Subject to the terms and
conditions herein set forth, the Company agrees to sell, or to cause one of its
affiliates to sell, to [the] [each] Underwriter, [severally and not jointly,]
and [the] [each] Underwriter, [severally and not jointly,] agrees to purchase
from the Company, at a purchase price equal to [(i)] ___% of the original stated
amount of the [Class ___] Certificates [[,][and] (ii) ______% of the original
stated amount of the [Class ____] Certificates] [[,][and] (iii) _____% of the
original stated amount of the [Class ___] Notes] [and (iv) _____% of the
original stated amount of the [Class ___] Notes] the respective original stated
amount of [the] [each class of such] Securities set forth on Schedule A hereto
opposite the name of such Underwriter[, plus any additional original stated
amount of Securities which such Underwriter may be obligated to purchase
pursuant to Section 10 hereof].
Delivery of, and payment of the purchase price for, the Securities shall be
made at the office of Sidley & Austin, 875 Third Avenue, New York, New York
10022, or at such other place as shall be agreed upon by you and the Company, at
10:00 A.M. on _______, or such other time as shall be agreed upon by you and the
Company (such time and date being referred to as the "Closing Time"). Payment
shall be made in immediately available funds, payable to or upon the order of
the Company. Such Certificates shall be in such denominations and registered in
such names as you may request in writing at least two business days prior to the
Closing Time. The Certificates will be made available for examination and
packaging by you in New York, New York not later than 10:00 A.M. on the business
day next preceding the Closing Time. The Certificates to be so delivered will
initially be represented by one or more Certificates registered in the name of
Cede & Co., the nominee of DTC. The interests of beneficial owners of the
Certificates will be represented by book entries on the records of DTC and
participating members thereof.
SECTION 3. Covenants of the Company. The Company covenants with you[, and
------------------------
with each Underwriter participating in the offering of the Certificates,] as
follows:
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(a) Immediately following the execution of this Agreement, the Company will
prepare a Final Prospectus setting forth the stated amount of Securities covered
thereby and the terms not otherwise specified in the [Trust] [Pooling and
Servicing] Agreement [and the Indenture] [, the names of the Underwriters
participating in the offering and the principal amount of Securities which each
severally has agreed to purchase, the names of any Underwriters acting as co-
managers with you in connection with the offering,] the price at which the
Securities are to be purchased by the Underwriter[s] from the Company, the
initial public offering price, the selling concession and reallowance, if any,
and such other information as you and the Company deem appropriate in connection
with the offering of the Securities. The Company will promptly transmit copies
of the Final Prospectus to the Commission for filing pursuant to Rule 424 of the
1933 Act Regulations and will furnish to the Underwriters named therein as many
copies of the Final Prospectus as you shall reasonably request.
(b) The Company will notify you immediately, and in writing confirm the
notice, of (i) the receipt of any comments from the Commission concerning the
Registration Statement, (ii) any request by the Commission for any amendment to
the Registration Statement or any amendment or supplement to the Final
Prospectus or for any additional information, (iii) the issuance by the
Commission of any stop order suspending the effectiveness of the Registration
Statement or the initiation of any proceedings for that purpose, (iv) the
receipt by the Company of any notification with respect to the suspension of the
qualification of the Securities for sale in any jurisdiction or the initiation
or threat of any proceeding for that purpose, and (v) the happening of any event
which makes untrue any statement of a material fact made in the Registration
Statement or in any Final Prospectus then required to be distributed or which
requires the making of a change in the Registration Statement or any such Final
Prospectus in order to make any material statement therein, in light of the
circumstances under which it was made, not misleading. The Company will make
every reasonable effort to prevent the issuance of any stop order and, if any
stop order is issued, to obtain the lifting thereof at the earliest possible
moment.
(c) The Company will give you notice of its intention to file any amendment
to the Registration Statement or any amendment or supplement to the Final
Prospectus, and will not file any such amendment or supplement without
furnishing a copy thereof to you and your counsel and obtaining your consent to
such filing, which consent shall not be unreasonably withheld.
(d) The Company will deliver to you, as soon as practicable, as many signed
copies of the Registration Statement as originally filed and of each amendment
thereto, with signed consents and exhibits filed therewith, and will also
deliver to you such number of conformed copies of the Registration Statement as
originally filed and of each amendment thereto (including consents and
exhibits), as you may reasonably request.
(e) The Company will furnish to [each] [the] Underwriter, from time to time
during the period when the Final Prospectus is required to be delivered under
the 1933 Act, such number of copies of the Final Prospectus (as amended or
supplemented) as such
7
<PAGE>
Underwriter may reasonably request for the purposes contemplated by the 1933 Act
or the Securities Exchange Act of 1934 (the "1934 Act").
(f) If at any time when a prospectus relating to the Securities is required
to be delivered under the 1933 Act any event occurs as a result of which the
applicable Final Prospectus as then amended or supplemented would include an
untrue statement of a material fact, or omit to state any material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, or if it is necessary at any time to amend
such Final Prospectus to comply with the 1933 Act, the Company, subject to
subsection (c) above, promptly will prepare and file with the Commission an
amendment or supplement which will correct such statement or omission or an
amendment which will effect such compliance.
(g) The Company will endeavor, in cooperation with you and your counsel, to
qualify the Securities for offering and sale under the applicable securities and
Blue Sky laws of such jurisdictions as you may reasonably designate, and will
maintain such qualification in effect for a period of not less than two years
after the date hereof, and will cooperate with you and your counsel to determine
the eligibility of the Securities for the investment by institutional investors
in such jurisdictions. The Company will, at your request or the request of your
counsel, file such statements and reports as may be required by the laws of each
jurisdiction in which the Securities have been qualified as above provided.
Notwithstanding the foregoing, no such qualification shall be required in any
jurisdiction where, as a result thereof, the Company would be subject to general
service of process, other than by reason of the offer and sale of the
Securities, to qualification as a foreign corporation or to taxation as a
foreign corporation doing business in such jurisdiction.
(h) The Company will make generally available to its security holders and
will deliver to you as soon as practicable an earnings statement, conforming to
the requirements of Section 11(a) of the 1933 Act, covering a period of at least
twelve months beginning after the effective date of the Registration Statement.
Compliance with Rule 158 of the 1933 Act Regulations shall satisfy the
requirements of this paragraph.
(i) So long as any Securities are outstanding, the Company will furnish to
you as soon as practicable copies of any reports and financial statements
furnished to or filed with the Commission or any national securities exchange by
the Company and to the extent that such information has been maintained in the
ordinary course by the Company, such other information as may reasonably be
requested by you which in your judgment is necessary or appropriate to the
maintenance of a secondary market in the Securities.
SECTION 4. Payment of Expenses. The Company will pay or cause to be paid
-------------------
all expenses incident to the performance of the Company's obligations under this
Agreement[,] [and] the [Trust] [Pooling and Servicing] Agreement [and the
Indenture] including without limitation those related to: (i) the filing of the
Registration Statement with respect to the Securities
8
<PAGE>
and all amendments thereto, including Commission filing fees, (ii) the printing
or photocopying and delivery to the Underwriter[s], in such quantities as you
may reasonably request, of copies of this Agreement, (iii) the preparation,
registration, issuance and delivery of the Securities to the Underwriter[s],
(iv) the fees and disbursements of the Company's counsel and accountants, and of
any such counsel rendering a closing opinion with respect to matters of local
law, (v) the qualification of the Securities under securities and Blue Sky laws
and the determination of the eligibility of the Securities for investment in
accordance with the provisions of Section 3(g), including filing fees and the
reasonable fees and disbursements of counsel for the Underwriter[s] in
connection therewith and in connection with the preparation of any Blue Sky
Survey and Legal Investment Survey, (vi) the printing and delivery to the
Underwriter[s], in such quantities as you may reasonably request, of copies of
the Registration Statement with respect to the Securities and all amendments
thereto, of any preliminary prospectus and preliminary prospectus supplement and
of the Final Prospectus and all amendments and supplements thereto, and of any
Blue Sky Survey and Legal Investment Survey, (vii) the printing or photocopying
and delivery to the Underwriter[s], in such quantities as you may reasonably
request, of copies of the [Trust] [Pooling and Servicing] Agreement [and the
Indenture], (viii) the fees charged by investment rating agencies for rating the
Certificates, (ix) the fees and expenses, if any, incurred in connection with
the listing of Certificates on any national securities exchange and (x) the fees
and expenses of the Trustee [and the Indenture Trustee] and [its] [their
respective] counsel.
SECTION 5. Conditions of Underwriters' Obligations. The obligations of
---------------------------------------
the Underwriter[s] to purchase and pay for the Certificates pursuant to this
Agreement are subject to the accuracy in all material respects, on and as of the
date hereof, and the applicable Closing Time, of the representations and
warranties of the Company herein contained, to the performance by the Company of
its obligations hereunder, and to the following further conditions:
(a) Subsequent to the execution of this Agreement, there shall not have
occurred or exist any of the following: (i) any change, or any development
involving a prospective change, in or affecting particularly the business or
properties of the Company which, in your judgment, materially impairs the
investment quality of the Securities; (ii) the imposition of additional material
governmental restrictions, not in force and effect on the date of this
Agreement, upon trading in securities generally, or the establishment generally
of minimum or maximum prices on the New York Stock Exchange or the suspension of
trading in securities generally on such exchange, or the establishment of a
general banking moratorium by federal or New York authorities; (iii) any event
which makes untrue or incorrect in any material respect any statement or
information contained in the Registration Statement or the Final Prospectus, or
which is not reflected in the Registration Statement or the Final Prospectus but
should be reflected therein in order to make the statements or information
contained therein not misleading in any material respect; or (iv) an outbreak of
major hostilities or other national or international calamity or any substantial
change or acceleration in market, financial or economic conditions as, in your
judgment, affects adversely the marketability of the Securities.
9
<PAGE>
(b) At the applicable Closing Time you shall have received the opinion or
opinions, addressed to the Underwriter[s] and dated the Closing Time, of Sidley
& Austin, special counsel to the Company, or other counsel reasonably
satisfactory to you [and counsel for the Underwriters], which opinion or
opinions shall be in form and substance reasonably satisfactory to you [and
counsel for the Underwriters]. In rendering its opinion, Sidley & Austin and
such other counsel may rely, as to matters of fact, on certificates of
responsible officers of the Company, the Trustee [,the Indenture Trustee] and
public officials and upon such opinions of such other counsel as may be
acceptable to you.
(c) At the Closing Time there shall not have been, since the date hereof or
since the respective dates as of which information is given in the Registration
Statement and the Final Prospectus, any material adverse change in the
condition, financial or otherwise, earnings, business affairs, regulatory
situation or business prospects of the Company whether or not arising in the
ordinary course of business, and you shall have received, at the Closing Time, a
certificate of the Chairman of the Board, the President or any Vice President of
the Company to the effect that there has been no such material adverse change
and to the effect that the other representations and warranties of the Company
contained in Section 1 are true and correct with the same force and effect as
though made at and as of the Closing Time.
(d) At the Closing Time, you and the Company shall have received the
favorable opinion of counsel for the Trustee, addressed to the Underwriter[s]
and the Company and dated the Closing Time, which opinion or opinions shall be
in form and substance reasonably satisfactory to you and counsel for the
Underwriter[s] and the Company.
[( ) At the Closing Time, you and the Company shall have received the
favorable opinion of counsel for the Indenture Trustee, addressed to the
Underwriter[s] and the Company and dated the Closing Time, which opinion or
opinions shall be in form and substance reasonably satisfactory to you and
counsel for the Underwriter[s] and the Company.]
(e) At the Closing Time, (i) counsel for the Underwriter[s] shall have been
furnished with such documents and opinions (which opinions shall be limited to
those specified in Sections 5(b) and 5(d)) as they may reasonably require for
the purpose of enabling them to pass upon the Registration Statement, the Final
Prospectus, the issuance and sale of the Securities and related proceedings, or
in order to evidence the accuracy of any of the representations and warranties,
or the fulfillment of any of the conditions, herein contained[,] [and] (ii)
[each Underwriter that is not an affiliate of the Company shall have received
the opinion or opinions, addressed to such Underwriter and dated the Closing
Time, of special counsel to such Underwriter, which opinion or opinions shall be
in the form specified in the applicable Terms Agreement or, if not so specified,
in form and substance reasonably satisfactory to such Underwriter, and (iii)]
all proceedings taken by the Company in connection with the issuance and sale of
the Securities as contemplated in the [Trust] [Pooling and Servicing] Agreement
[and the Indenture] shall be reasonably satisfactory in form and substance to
you and counsel for the Underwriter[s].
10
<PAGE>
(f) At the Closing Time you shall have received or be entitled to rely upon
any opinions of counsel to the Company supplied to the rating agency or rating
agencies rating the Securities relating to certain matters with respect to the
Securities. Any such opinions shall specify that the Underwriter[s are] [is]
entitled to rely upon any such opinions as if such opinions were addressed to
them.
(g) You shall have received evidence satisfactory to you that, on or before
the Closing Time, UCC-1 financing statements have been or are being filed in the
appropriate filing offices reflecting the transfer of the interests of the
Company in the Trust Assets and the proceeds thereof to the Trust [and the grant
of the security interest therein by the Trust to the Indenture Trustee].
(h) The Certificates shall be rated _____ by ________________, and no
rating agency shall have placed the Certificates under surveillance or review
with possible negative implications. The Notes shall be rated ________ by
__________, and no rating agency shall have placed the Notes under surveillance
or review with possible negative implications.
[(i) At the Closing Time, you and the Company shall have received the
favorable opinion of counsel for the Servicer, addressed to the Underwriter[s]
and the Company and dated the Closing Time, which opinion or opinions shall be
in form and substance reasonably satisfactory to you and counsel for the
Underwriter[s] and the Company.]
If any condition in this Section shall not have been fulfilled when and as
required to be fulfilled, this Agreement may be terminated by you by notice to
the Company at any time at or prior to the Closing Time, and such termination
shall be without liability of any party to any other party except as provided in
Section 4.
SECTION 6. Indemnification. (a) The Company agrees to indemnify and hold
---------------
harmless [each] [the] Underwriter and each person, if any, who controls [any]
[the] Underwriter within the meaning of Section 15 of the 1933 Act as follows:
(i) against any and all loss, liability, claim, damage and expense
whatsoever arising out of any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement (or any amendment
thereto), or the omission or alleged omission therefrom of a material fact
required to be stated therein or necessary to make the statements therein not
misleading or arising out of any untrue statement or alleged untrue statement of
a material fact contained in any preliminary prospectus, preliminary prospectus
supplement or the Final Prospectus (or any amendment or supplement thereto) or
the omission or alleged omission therefrom of a material fact necessary in order
to make the statements therein in the light of the circumstances under which
they were made not misleading, unless such untrue statement or omission or such
alleged untrue statement or omission was made in reliance upon and in conformity
with written information furnished to the Company by [any Underwriter through]
you expressly for use in the Registration
11
<PAGE>
Statement (or any amendment thereto) or in any preliminary prospectus,
preliminary prospectus supplement or the Final Prospectus (or any amendment or
supplement thereto);
(ii) against any and all loss, liability, claim, damage and expense
whatsoever to the extent of the aggregate amount paid in settlement of any
litigation, investigation or proceeding by any governmental agency or body,
commenced or threatened, or of any claim whatsoever based, in each case, upon
any untrue statement or omission described in (i) above, if such settlement is
effected with the written consent of the Company; and
(iii) against any and all expense whatsoever (including the reasonable fees
and disbursements of counsel chosen by you) reasonably incurred in
investigating, preparing or defending against any litigation, or investigation
or proceeding by any governmental agency or body, commenced or threatened or any
claim whatsoever based upon any untrue statement or omission, or any alleged
untrue statement or omission described in (i) above, to the extent that any such
expense is not paid under (i) or (ii) above.
(b) [Each] [The] Underwriter [severally] agrees to indemnify and hold
harmless the Company, its directors, each of its officers who signed the
Registration Statement or any amendment thereto, and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act against
any and all loss, liability, claim, damage and expense described in the
indemnity contained in subsection (a) of this Section 6, but only with respect
to untrue statements or omissions, or alleged untrue statements or omissions,
made in the Registration Statement (or any amendment thereto) or any preliminary
prospectus, preliminary prospectus supplement or the Final Prospectus (or any
amendment or supplement thereto) in reliance upon and in conformity with written
information furnished to the Company by such Underwriter expressly for use in
the Registration Statement (or any amendment thereto) or in any preliminary
prospectus, preliminary prospectus supplement or the Final Prospectus (or any
amendment or supplement thereto).
(c) Promptly after receipt by an indemnified party under this Section of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under
subsection (a) or (b) above, notify the indemnifying party of the commencement
thereof; but the omission so to notify the indemnifying party will not relieve
it from any liability which it may have to any indemnified party otherwise than
under subsection (a) or (b) above. In case any such action is brought against
any indemnified party and it notifies the indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate therein and, to
the extent that it may wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with counsel satisfactory to such
indemnified party (who shall not, except with the consent of the indemnified
party, be counsel to the indemnifying party), and after notice from the
indemnifying party to such indemnified party of its election so to assume the
defense thereof, the indemnifying party will not be liable to such indemnified
party under this Section for any legal or other expenses subsequently incurred
by such indemnified party in connection with the defense thereof other than
reasonable
12
<PAGE>
costs of investigation. No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement of any pending or
threatened action in respect of which any indemnified party is or could have
been a party and indemnity could have been sought hereunder by such indemnified
party unless such settlement includes an unconditional release of such
indemnified party from all liability on any claims that are the subject matter
of such action.
SECTION 7. Contribution. In order to provide for just and equitable
------------
contribution in circumstances in which an indemnity provided for in subsections
(a) or (b) of Section 6 is for any reason held to be unenforceable by the
indemnified parties although applicable in accordance with its terms, the
Company, on the one hand, and the Underwriter[s], on the other, shall contribute
to the aggregate losses, liabilities, claims, damages and expense of the nature
contemplated by such subsection incurred by the Company and [one or more of] the
Underwriter[s], (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company on the one hand and the Underwriter[s] on the
other from the offering of the Certificates or (ii) if the allocation provided
by clause (i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above and also the relative fault of the Company on the one hand and the
Underwriter[s] on the other in connection with the statements or omissions that
resulted in such losses, liabilities, claims, damages or expenses, as well as
any other relevant equitable considerations. The relative benefits received by
the Company on the one hand and the Underwriter[s] on the other shall be deemed
to be in the same proportion as the total proceeds from the offering of the
Certificates (before deducting expenses) received by the Company bear to the
total compensation and profit (before deducting expenses) received or realized
by the Underwriter[s] from the purchase and resale, or underwriting, of the
Certificates. The relative fault shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by the Company or the Underwriter[s] and the parties'
relative intent, knowledge, access to information, and opportunity to correct or
prevent such untrue or alleged untrue statement or omission or alleged omission.
The Company and the Underwriter[s] agree that it would not be just and equitable
if the contributions pursuant to this Section 7 were to be determined by pro
rata allocation [(even if the Underwriters were treated as one entity for such
purpose)] or by any other method of allocation that does not take account of the
equitable considerations referred to in the first sentence of this Section 7.
The amount paid by an indemnified party as a result of the losses, liabilities,
claims, damages, or expenses referred to in the first sentence of this Section 7
shall be deemed to include any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending against any
action or claim which is the subject of this Section 7. Notwithstanding any
other provision of this Section 7, [no] [the] Underwriter shall [not] be
obligated to make contributions hereunder that in the aggregate exceed the total
public offering price of the Certificates purchased by such Underwriter, less
the aggregate amount of any damages that such Underwriter has been required to
pay in respect of the same or substantially similar claim, and no person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933
Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation. [The Underwriters' obligations in this
Section 7 to contribute shall
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be several in proportion to their respective underwriting obligations and not
joint.] For purposes of this Section, each person, if any, who controls an
Underwriter within the meaning of Section 15 of the 1933 Act shall have the same
rights to contribution as such Underwriter, and each director of the Company,
each officer of the Company who signed the Registration Statement or any
amendment thereto, and each person, if any, who controls the Company within the
meaning of Section 15 of the 1933 Act shall have the same rights to contribution
as the Company.
SECTION 8. Representations, Warranties, and Agreements to Survive
------------------------------------------------------
Delivery. All representations, warranties and agreements contained in this
Agreement, or contained in certificates of officers of the Company submitted
pursuant hereto or as contemplated hereby, shall remain operative and in full
force and effect, regardless of any investigation made by or on behalf of [any]
[the] Underwriter or controlling person thereof, and shall survive delivery of
any Certificates to the Underwriters.
SECTION 9. Termination of Agreement. (a) You may terminate this Agreement
------------------------
by notice to the Company, at any time at or prior to the Closing Time, (i) if
there has been, since the respective dates as of which information is given in
the Registration Statement or Final Prospectus, any material adverse change in
the condition, financial or otherwise, earnings, business affairs, regulatory
situation or business prospects of the Company, whether or not arising in the
ordinary course of business, (ii) if there has occurred any outbreak of major
hostilities or other national or international calamity or any substantial
change or acceleration in market, financial or economic conditions, the effect
of which is such as to make it, in your reasonable judgment, impracticable to
market the Securities or enforce contracts for the sale of the Securities or
(iii) if trading generally on either the New York Stock Exchange or the American
Stock Exchange has been suspended, or minimum or maximum prices for trading have
been fixed, or maximum ranges for prices for securities have been required, by
either of said exchanges or by order of the Commission or any other governmental
authority, or if a banking moratorium has been declared by either federal or
state authorities.
(b) This Agreement may be terminated by you in accordance with Section 5
hereof.
(c) In the event of any such termination, (i) the covenants set forth in
Section 3 with respect to any offering of Securities shall remain in effect so
long as [any] [the] Underwriter owns any Securities and (ii) the covenant set
forth in Section 3(h), the provisions of Section 4, the indemnity agreement set
forth in Section 6, and the provisions of Sections 7 and 13 shall remain in
effect forever.
SECTION 10. [Default by One or More of the Underwriters. If one or more
-------------------------------------------
of the Underwriters shall fail at the Closing Time to purchase the Securities
which it or they are obligated to purchase hereunder (the "Defaulted
Securities"), you shall have the right, within 24 hours thereafter, to make
arrangements for one or more of the non-defaulting Underwriters, or any
Underwriters, to purchase all, but not less than all, of the Defaulted
Securities in such
14
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amounts as may be agreed upon and upon the terms herein set forth. If, however,
you have not completed such arrangements within such 24-hour period, then:
(a) if the aggregate original stated amount of Defaulted Securities does
not exceed 10% of the aggregate original stated amount of the Securities to be
purchased pursuant to this Agreement, the nondefaulting Underwriters named
herein shall be obligated to purchase the full amount thereof in the proportions
that their respective underwriting obligations thereunder bear to the
underwriting obligations of all nondefaulting Underwriters; and
(b) if the aggregate original stated amount of the Defaulted Securities
exceeds 10% of the aggregate original stated amount of the Securities to be
pursuant to this Agreement, this Agreement shall terminate without any liability
on the part of any non-defaulting Underwriter.
No action taken pursuant to this Section 10 including, without limitation,
the termination of this Agreement, and nothing in this Agreement shall relieve
any defaulting Underwriter from liability in respect of its default.
In the event of any such default which does not result in a termination of
this Agreement, either you or the Company shall have the right to postpone the
Closing Time for a period of time not exceeding seven days in order to effect
any required changes in the Registration Statement or in any other documents or
arrangements.]
[RESERVED]
SECTION 11. Notices. All notices and other communications hereunder shall
-------
be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of written telecommunication. Notices to the
Company shall be directed to it at Asset Backed Securities Corporation, Park
Avenue Plaza, 55 East 52nd Street, New York, New York, Attn: _______, and
notices to you shall be directed to CS First Boston Corporation, Park Avenue
Plaza, 55 East 52nd Street, New York, New York 10055, Attn: ____________.
SECTION 12. Parties. This Agreement shall inure to the benefit of and be
-------
binding upon the Underwriter[s] named herein and the Company and their
respective successors. Nothing expressed or mentioned in this Agreement is
intended or shall be construed to give any person, firm or corporation, other
than the parties hereto, and their respective successors and the controlling
persons and officers and directors referred to in Sections 6 and 7 and their
heirs and legal representatives, any legal or equitable right, remedy or claim
under or in respect of this Agreement or any provisions herein contained. This
Agreement and all conditions and provisions hereof are intended to be for the
sole and exclusive benefit of the parties hereto and thereto and their
respective successors, and said controlling persons and officers and directors
and their heirs and legal representatives, and for the benefit of no other
person, firm or corporation. No
15
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purchaser of Securities from [any] [the] Underwriter shall be deemed to be a
successor by reason merely of such purchase.
SECTION 13. GOVERNING LAW AND TIME. THIS AGREEMENT AND EACH TERMS
----------------------
AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS. SPECIFIED
TIMES OF DAY REFER TO NEW YORK CITY TIME.
16
<PAGE>
If the foregoing is in accordance with your understanding hereof, please execute
this Agreement in the appropriate space below and return to the undersigned,
whereupon this instrument along with any counterpart will become a binding
agreement among the Company and you in accordance with its terms.
Very truly yours,
ASSET BACKED SECURITIES CORPORATION
By:_________________________
Name:
Title:
CONFIRMED AND ACCEPTED,
as of the date first above written:
CS FIRST BOSTON CORPORATION
[Acting on behalf of themselves
and as Representative of the
several Underwriters]
By:____________________________
Name:
Title:
17
<PAGE>
SCHEDULE A
Principal Amount of
Underwriter [Class ___] Certificates
----------- ------------------------
CS First Boston Corporation................ $
___________________________
Total...................................... $
Principal Amount of
Underwriter [Class ___] Certificates
----------- ------------------------
CS First Boston Corporation................ $
___________________________
Total...................................... $
Principal Amount of
Underwriter [Class ___] Certificates
----------- ------------------------
CS First Boston Corporation................ $
___________________________
Total...................................... $
Principal Amount of
Underwriter [Class ___] Certificates
----------- ------------------------
CS First Boston Corporation................ $
___________________________
Total...................................... $
A-1
<PAGE>
EXHIBIT 99.3
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 trust agreement (the "Trust Agreement"), dated as
of __________, 199_ (the "Cutoff Date"), between Asset Backed Securities
Corporation (the "Company") as depositor, 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, collectively 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 TRUSTEE, ANY SELLER, OR ANY OF THEIR RESPECTIVE AFFILIATES.
NONE OF THE CLASS A CERTIFICATES, THE COLLATERAL CERTIFICATES (AS DEFINED
HEREIN)[, THE GOVERNMENT SECURITIES (AS DEFINED HEREIN)] OR THE RECEIVABLES (AS
DEFINED HEREIN) ARE INSURED OR GUARANTEED BY CS FIRST BOSTON CORPORATION, THE
COMPANY, THE TRUSTEE, ANY SELLER, ANY OF THEIR RESPECTIVE AFFILIATES OR [, OTHER
THAN IN THE CASE OF THE GOVERNMENT SECURITIES] 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-8 OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 10 OF THE
ACCOMPANYING PROSPECTUS.
________________
PROSPECTIVE INVESTORS SHOULD CONSIDER THE LIMITATIONS DISCUSSED UNDER
"ERISA CONSIDERATIONS" HEREIN AND IN 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)] 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") [and (b) the Government Securities (as defined
below)]. 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 the
vehicles financed thereby, and a de minimus amount of certain other
property ancillary thereto, in each case as more fully described herein.
[Describe Government Securities (the "Government Securities").] The
Collateral Certificates [and the Government Securities] [will be
transferred 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 [Trust] [Company] will purchase the
Collateral Certificates [and the Government Securities] from a certain
Seller or 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 [AND GOVERNMENT SECURITY] 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.
THERE CURRENTLY IS NO SECONDARY MARKET FOR THE CERTIFICATES, AND
THERE CAN BE NO ASSURANCE THAT ONE WILL DEVELOP. THE UNDERWRITER EXPECTS,
BUT IS NOT OBLIGATED, TO MAKE A MARKET IN THE CERTIFICATES. THERE IS NO
ASSURANCE THAT ANY SUCH MARKET WILL DEVELOP OR CONTINUE.
[IF AND TO THE EXTENT REQUIRED by APPLICABLE LAW OR REGULATION,
THIS PROSPECTUS SUPPLEMENT AND THE ATTACHED PROSPECTUS WILL ALSO BE USED by
THE UNDERWRITER AFTER THE COMPLETION OF THE OFFERING IN CONNECTION WITH
OFFERS AND SALES RELATED TO MARKET-MAKING TRANSACTIONS IN THE OFFERED
CERTIFICATES IN WHICH THE UNDERWRITER ACTS AS PRINCIPAL. SALES WILL BE
MADE AT NEGOTIATED PRICES DETERMINED AT THE TIME OF SALE.]
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 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.
________________
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 Trustee 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.
The Commission maintains a Web site that contains reports, proxy
and information statements and other information regarding registrants that
file electronically with the Commission. The address of such site is
(http://www.sec.gov).
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 Trustee 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" or the "Issuer") to be
formed pursuant to a trust agreement
(the "Trust Agreement") dated as of
___________, 199_ (the "Cutoff
Date"), between the Company 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.
Trustee............................... _______, as trustee under the Trust
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, collectively 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 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
S-4
<PAGE>
of a Collateral Certificate are
entitled to receive distributions of
interest and principal in respect
thereof as described herein.
[The Government Securities............ Describe Government Securities, if
any (the "Government Securities").]
Trust Property........................ The assets of the Trust (the "Trust
Property") include (i) the Collateral
Certificates, [(ii) the Government
Securities, (iii)] [(ii)] all monies
(including accrued interest) received on
or with respect to the Collateral
Certificates [and the Government
Securities] on or after the Cutoff Date,
[(iii)(iv)] all amounts and property
from time to time held in or credited to
the Collection Account, [(iv)(v)] 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)(vi)]
any and all proceeds of the foregoing.
The Reserve Account will not be property
of the Trust. See "The Certificates--
Distributions," "--Subordination of the
Class B Certificates; Reserve Account"
and "The Trust".
Risk Factors.......................... For a discussion of risk factors that
should be considered with respect to
an investment in the Certificates,
see "Risk Factors" herein and in the
related Prospectus.
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" or, with the Class A
Pass-Through Rate, each a
"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
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.
S-5
<PAGE>
On each Distribution Date 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 Trust Agreement --
Distributions -- Calculation of Amounts
to be Distributed" herein.
E. Optional
Prepayment..................... If the Company exercises its option to
purchase the Collateral Certificates
[and the Government Securities], which
it may do after the aggregate principal
balance of the Collateral Certificates
[and the Government Securities] (the
"Pool Balance") declines to 10% or less
of the Pool Balance as of the Cutoff
Date, 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 Trustee will be required to remit
collections received with respect to the
Collateral Certificates [and the
Government Securities] within two
Business Days of receipt thereof to one
or more accounts in the name of the
Trustee (the "Collection Account").
Pursuant to the Trust 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 Class A Interest Distributable
Amount to the Class A
Certificateholders, (ii) the Class A
Principal Distributable Amount to the
Class A Certificateholders, (iii) the
Class B Interest Distributable Amount to
the Class B Certificateholders, (iv) the
Class B Principal Distributable Amount
to the Class B Certificateholders and
(v) the remaining balance, if any, to
the Reserve Account. See "The Trust
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 [and the
Government Securities] are subordinated
to the rights of the Class A
Certificateholders, as described more
fully herein. See "The Trust 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
TotalDistribution 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
S-6
<PAGE>
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.
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
Collateral Certificates 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 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 Trust 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 the Government
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.
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 "_____" or its
equivalent 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
S-7
<PAGE>
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 of Certificates. 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 of Trust. 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 the Government Securities] and access to funds in
the Reserve Account. Certificateholders must rely on payments on the Collateral
Certificates [and the Government Securities] 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 [and
the Government Securities] 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 Collateral Certificates 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 [and
the Government Securities], the subordination of the Class B Certificates and
the availability of funds in the Reserve Account.
Trust's Limited Relationship to the Company. The Company is generally not
obligated to make any payments in respect of the Certificates [,] [or] the
Collateral Certificates [or the Government Securities].
Risk Factors 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 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.
Risk Factors Regarding Government Securities. Prospective investors in the
Certificates should consider carefully the factors set forth under the caption
"______________" in the disclosure documentation relating to the Government
Securities attached hereto as Appendix A for certain additional considerations
relating to the Government Securities.
S-9
<PAGE>
Available Information Regarding the Collateral Certificates. This Prospectus
Supplement relates only to the Certificates offered hereby and does not relate
to the Collateral Certificates [or the Government Securities]. [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.] [[An affiliate of the Company] [The Underwriter]
participated in the preparation of the prospectuses relating to the Collateral
Certificates and the offering of the Collateral Certificates.] 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.
As a general rule, the originator of each 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 with respect to the related
Underlying Trust Fund, including monthly servicer reports ("Servicer Reports")
regarding the Collateral Certificates may be inspected and copies at certain
offices of the Commission at the addresses listed under "Available Information"
herein.
There can be no assurance that an originator of an Underlying Trust Fund will
not elect to suspend its reporting under the Exchange Act after the date hereof
if such originator of an Underlying Trust Fund no longer has a class of security
listed on a national securities exchange or held by 300 or more holders of
record. In such event, information (including financial information) then
available to the Company and the Trustee with respect to such orginator may not
be as extensive, timely or readily available as that previously made available
under the Exchange Act. Accordingly, in such event, the information with respect
to any such Underlying Trust Fund that the Company and the Trustee can include
in the Exchange Act reports of the Trust Fund will be similarly limited.
[Available Information Regarding the Government Securities. Neither the
Company nor the Underwriter participated in the preparation of the disclosure
documentation relating to the Government Securities or the offering of the
Government Securities, 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
documentation, the information provided therein 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 disclosure
documentation relating to the Government Securities speaks only as of the date
of such documentation; 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.]
[Geographic Concentration of Assets. Discuss impact on Certificateholders of
material concentration of trust assets in one or a few states, if applicable.]
[Limited number of Loan Originators. Discuss impact on Certificateholders of
material concentration of loans originated by one or a few dealers, if
applicable.]
[Concentration of Credit Risk. Discuss impact on Certificateholders of
material concentration of credit risk, if applicable.]
[Interest Only Certificates. Discuss risks associated with interest only
Certificates, including any disproportionate prepayment or credit risks, if
applicable.]
[Principal Only Certificates. Discuss risks associated with principal only
Certificates, including any disproportionate prepayment or credit risks, if
applicable.]
S-10
<PAGE>
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
Trustee will maintain such assets pursuant to the Trust Agreement and will
be compensated for acting as the Trustee. 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 [and
the Government Securities] 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) the Government Securities,
(iii)] [(ii)] all monies (including accrued interest) received on or with
respect to the Collateral Certificates on or after the Cutoff Date, [(iii)
][(iv)] all amounts and property from time to time held in or credited to
the Collection Account, [(iv)] [(v)] 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)] [(vi)] 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 Trust Agreement. __________ is a
__________ banking corporation, and its principal offices are located at
__________. The Company or any of its affiliates may maintain normal
commercial banking relations with the Trustee and its affiliates.
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 [and the
Government Securities], 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.
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 Certificates. The following
summary describes the material terms of the Certificates and the Trust
Agreement. The summary does not purport to be a complete description of
all the terms of the Certificates and the Trust Agreement and therefore is
subject to, and is qualified in its entirety by reference to, all the
provisions of the Certificates and the Trust Agreement. The following
summary supplements the description of the general terms and provisions of
the Certificates of any given Series and the related Trust 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
S-11
<PAGE>
previously distributed to Class B Certificateholders allocable to
principal. 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 Trustee will provide 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 Trustee will cause the
Total Distribution Amount to be deposited into the Collection Account. The
"Total Distribution Amount" for any Distribution Date will equal the
aggregate amount of collections on the Collateral Certificates.
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 with respect to the preceding 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 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 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 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
S-12
<PAGE>
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. The Class A Interest Carryover Shortfall for the
initial Distribution Date is zero.
DESCRIPTION OF THE COLLATERAL CERTIFICATES
GENERAL
This Prospectus Supplement sets forth the material terms of the
Collateral Certificates. It does not purport to provide complete
information with respect to all terms of such securities, the issuer
thereof or the Receivables relating thereto. Schedule I to this Prospectus
Supplement contains a summary of the terms of the Collateral Certificates.
Prospective investors are urged to read such Schedule, which is expressly
made a part hereof. This Prospectus Supplement relates only to the
Certificates offered hereby and does not relate to the Collateral
Certificates.
Appendix A to the Prospectus Supplement contains certain excerpts
from the prospectuses pursuant to which Collateral Certificates were
offered and sold. See "Risk Factors-- Available Information Regarding
Collateral Certificates". Although the Company has no reason to believe
the information provided by an originator of an Underlying Trust Fund or in
any prospectus relating to the Collateral Certificates is not reliable, the
Company has not verified either its accuracy or its completeness. 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 would affect
either the accuracy or the completeness of the information contained
therein. See "Risk Factors-- Available Information Regarding Collateral
Certificates" and "--Certain Updated Information with Respect to the
Collateral Certificates".
CERTAIN UPDATED INFORMATION WITH RESPECT TO THE COLLATERAL CERTIFICATES
As a general rule, the originator of each Underlying Trust Fund
is subject to the information requirements of the Exchange Act.
Accordingly, such originator files annual and periodic reports and other
information with respect to the related Underlying Trust Fund, including
Servicer Reports regarding the Collateral Certificates, 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.
[In the event that the originator of an Underlying Trust Fund is
not subject to the information requirements of the Exchange Act on the date
of issuance of the Certificates or ceases to be subject to such
requirements after such date, the Company or the Trustee will provide, or
cause to be provided (or make available, or cause to make available), upon
request of a Certificateholder, the Servicer Reports relating to such
Underlying Trust Fund where the related Collateral Certificates represent
20% or more of the aggregate principal balance of the Trust Fund as of the
Cutoff Date.]
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.
S-13
<PAGE>
[UNDERWRITING STANDARDS
If applicable, describe the underwriting standards used to
originate the assets backing the Collateral Certificates.]
[DESCRIPTION OF THE GOVERNMENT SECURITIES
This Prospectus Supplement sets forth the material terms of the
Government Securities. It does not purport to provide complete information
with respect to all terms of such securities or the issuer thereof. Certain
information relating to the issuer of the Government Securities is provided
in the Prospectus under the caption "The Government Securities." Schedule
I to this Prospectus Supplement contains a summary of the terms of the
Government Securities. Prospective investors are urged to read such
Schedule, which is expressly made a part hereof. This Prospectus
Supplement relates only to the Certificates offered hereby and does not
relate to the Government Securities.
Appendix A to this Prospectus Supplement contains certain
excerpts from the disclosure documentation pursuant to which Government
Securities were offered and sold. See "Risk Factors--Available Information
Regarding Government Securities". Although the Company nor the Underwriter
has any reason to believe the information provided by an originator of a
Government Securities or in any disclosure documentation relating to the
Government Securities is not reliable, neither the Company nor the
Underwriter has verified either its accuracy or its completeness. In
particular, information set forth in any disclosure documentation relating
to the Government Securities speaks only as of the date of such
documentation; there can be no assurance that events have not occurred,
which would affect either the accuracy or the completeness of the
information contained therein. See "Risk Factors--Available Information
Regarding Government Securities".]
THE TRUST AGREEMENT
SALE AND ASSIGNMENT OF COLLATERAL CERTIFICATES [AND GOVERNMENT SECURITIES]
Certain information with respect to the conveyance of the
Collateral Certificates [and the Government Securities] by the
[Seller][Company] to the Trust on the Closing Date pursuant to the Trust
Agreement is set forth under "Description of the Transfer and Servicing
Agreements -- Sale and Assignment of Receivables" in the Prospectus.
OPTIONAL PREPAYMENT
If the Company exercises its option to purchase the Collateral
Certificates [and the Government Securities], which it may do when the
aggregate outstanding principal amount of the Collateral Certificates [and
the Government Securities] declines to 10% or less of the Pool Balance as
of the Cutoff Date, 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
Collateral Certificates [and the Government Securities] generally will be
subordinated to the rights of the Class A Certificateholders in the event
of defaults or delinquencies on the Collateral Certificates [and
S-14
<PAGE>
the Government Securities] as provided in the Trust 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 [and the Government Securities].
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
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 Trust 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 Collateral Certificates 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.
[CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Discuss additional Federal income tax consequences, if any.]
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.
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.
S-15
<PAGE>
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.
[If and to the extent required by applicable law or regulation,
this Prospectus Supplement and the attached Prospectus will also be used by
the Underwriter after the completion of the offering in connection with
offers and sales related to market-making transactions in the offered
Certificates in which the Underwriter acts as principal. Sales will be
made at negotiated prices determined at the time of sale.]
LEGAL MATTERS
Certain legal matters relating to the Certificates will be passed
upon by Sidley & Austin, New York, New York.
S-16
<PAGE>
INDEX OF TERMS
<TABLE>
<S> <C>
Business Day.............................. S-5
Certificates..............................Cover
Certificateholders........................ S-5
Class A Certificate Balance............... S-11
Class A Certificateholders................ S-5
Class A Certificates......................Cover
Class A Distributable Amount.............. S-11
Class A Interest Carryover Shortfall...... S-12
Class A Interest Distributable Amount..... S-11
Class A Pass-Through Rate................. S-5
Class A Percentage........................ S-4
Class A Principal Distributable Amount.... S-11
Class B Certificate Balance............... S-11
Class B Certificateholders................ S-6
Class B Certificates......................Cover
Class B Distributable Amount.............. S-12
Class B Interest Distributable Amount..... S-12
Class B Pass-Through Rate................. S-5
Class B Percentage........................ S-4
Class B Principal Distributable Amount.... S-12
Closing Date.............................. S-4
Code...................................... S-14
Collateral Certificates................... S-2
Collection Account........................ S-6
Collection Period......................... S-5
Commission................................ S-3
Company...................................Cover
Cutoff Date...............................Cover
Distribution Date......................... S-5
ERISA..................................... S-14
Federal Tax Counsel....................... S-7
Final Scheduled Distribution Date......... S-6
Government Securities..................... S-2
Interest Distribution Amount.............. S-11
Issuer.................................... S-4
Pass Through Rate......................... S-5
Plan...................................... S-14
Pool Balance.............................. S-6
Principal Distribution Amount............. S-11
Prospectus................................ S-3
Rating Agencies........................... S-9
Receivables............................... S-2
Record Date............................... S-5
Reserve Account........................... S-6
Reserve Account Initial Deposit........... S-6
Servicer Reports.......................... S-9
Seller.................................... S-2
Specified Reserve Account Balance......... S-7
Total Distribution Amount................. S-11
Trust..................................... S-1
</TABLE>
S-17
<PAGE>
<TABLE>
<S> <C>
Trust Accounts............................ S-14
Trust Agreement...........................Cover
Trust Property............................ S-5
Trustee...................................Cover
Underlying Agreement...................... S-2
Underlying Trust Fund..................... S-2
Underwriter...............................Cover
Underwriting Agreement.................... S-4
</TABLE>
S-18
<PAGE>
SCHEDULE I
----------
Class __
CUSIP #___________ Rating: ______________
[Monthly][Quarterly]
[Semi-Annual] Aggregate
Payment Dates Interest Payment Interest Payment
- ------------- ---------------- ---------------- Interest Rate
-------------
_____________ $________________ $________________ ___________%
Aggregate Face
Amount Minimum
of Principal Authorized
Component Denomination
$____________ $____________
I-1
<PAGE>
APPENDIX A
Prospectuses relating to Collateral Certificates
[Disclosure Documentation relating to Government Securities]
[To be Supplied]
A-1
<PAGE>
APPENDIX B
Servicer Reports relating to Collateral Certificates
[To be Supplied]
B-1
<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 COMPANY
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
<TABLE>
<S> <C>
Summary................................................................... S-4
Risk Factors.............................................................. S-9
The Trust................................................................. S-11
Weighted Average Life of the Certificates................................. S-11
The Certificates.......................................................... S-11
Description of the Collateral Certificates................................ S-13
[Description of the Government Securities.................................S-14]
The Trust Agreement....................................................... S-14
[Certain Federal Income Tax Consequences..................................S-14]
ERISA Considerations...................................................... S-15
Underwriting.............................................................. S-15
Legal Matters............................................................. S-16
Index of Terms............................................................ S-17
PROSPECTUS
Prospectus Supplement..................................................... 2
Reports to Securityholders................................................ 2
Available Information..................................................... 2
Incorporation of Certain Documents by Reference........................... 2
Summary of Terms.......................................................... 4
Rick 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...................................... 24
The Seller and the Servicer............................................... 25
Use of Proceeds........................................................... 25
Description of the Notes.................................................. 25
Description of the Certificates........................................... 31
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
State and Local Tax Considerations........................................ 77
ERISA Considerations...................................................... 79
Plan of Distribution...................................................... 85
Legal Matters............................................................. 86
</TABLE>
Until 90 days after the date of this Prospectus Supplement, all dealers
effecting transactions in the securities 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.
================================================================================
================================================================================
$[ ]
CS FIRST BOSTON
AUTO RECEIVABLES
AND RECEIVABLES
SECURITIES TRUSTS
$[ ] [ ]% [Floating Rate]
Asset Backed Certificates, Class A
Asset Backed Securities Corporation
(Company)
_________________
PROSPECTUS SUPPLEMENT
[ ], 199[ ]
___________________
[LOGO] CS First Boston
================================================================================
<PAGE>
EXHIBIT 99.4
<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 "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, collectively 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" and, collectively
with the Notes, the "Securities").
________________
(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 OWNER TRUSTEE, THE
INDENTURE TRUSTEE, ANY SELLER, OR ANY OF THEIR RESPECTIVE AFFILIATES. NONE OF
THE NOTES, THE CERTIFICATES, THE COLLATERAL CERTIFICATES (AS DEFINED HEREIN),
[THE GOVERNMENT SECURITIES (AS DEFINED HEREIN)] OR THE RECEIVABLES (AS DEFINED
HEREIN) ARE INSURED OR GUARANTEED BY CS FIRST BOSTON CORPORATION, THE COMPANY,
ANY SELLER, ANY OF THEIR RESPECTIVE AFFILIATES OR [, OTHER THAN IN THE CASE OF
THE GOVERNMENT SECURITIES,] 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.
________________
PROSPECTIVE INVESTORS SHOULD CONSIDER THE LIMITATIONS DISCUSSED UNDER
ERISA CONSIDERATIONS HEREIN AND IN THE ACCOMPANYING PROSPECTUS.
Price to the Underwriting Proceeds to the
Public(1) Discount Company(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 [(a)] 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") [and (b) the Government Securities (as defined
below). 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 a de minimus amount of certain other
property ancillary thereto, in each case as more fully described herein.
[Describe Government Securities (the "Government Securities").] The
Collateral Certificates [and the Government Securities] [will be
transferred 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 Securities]. [The [Trust] [Company] will
purchase the Collateral Certificates [and the Government Securities] 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 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 rate
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.
INFORMATION WITH RESPECT TO EACH COLLATERAL CERTIFICATE [AND GOVERNMENT
SECURITY] 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.
THERE CURRENTLY IS NO SECONDARY MARKET FOR THE SECURITIES, AND THERE
CAN BE NO ASSURANCE THAT ONE WILL DEVELOP. THE UNDERWRITER EXPECTS, BUT
IS NOT OBLIGATED, TO MAKE A MARKET IN THE SECURITIES. THERE IS NO
ASSURANCE THAT ANY SUCH MARKET WILL DEVELOP OR CONTINUE.
[IF AND TO THE EXTENT REQUIRED BY APPLICABLE LAW OR REGULATION, THIS
PROSPECTUS SUPPLEMENT AND THE ATTACHED PROSPECTUS WILL ALSO BE USED BY THE
UNDERWRITER AFTER THE COMPLETION OF THE OFFERING IN CONNECTION WITH OFFERS
AND SALES RELATED TO MARKET-MAKING TRANSACTIONS IN THE OFFERED SECURITIES
IN WHICH THE UNDERWRITER ACTS AS PRINCIPAL. SALES WILL BE MADE AT
NEGOTIATED PRICES DETERMINED AT THE TIME OF SALE.]
_____________________
UNTIL _____________________, _______ ALL DEALERS EFFECTING
TRANSACTIONS IN THE SECURITIES, 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.
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 Trustee 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.
The Commission maintains a Web site that contains reports, proxy
and information statements and other information regarding registrants
that file electronically with the Commission. The address of such site is
(http://www.sec.gov).
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 Trustee 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
Securities Trust 199_-___, a trust
(the "Trust" or the "Issuer") 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.
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, collectively
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.
The Collateral Certificate.... 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
S-4
<PAGE>
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.
[The Government Securities Describe Government Securities, if
any (the "Government Securities").]
Trust Property................ The assets of the Trust (the "Trust
Property") include (i) the Collateral
Certificates, [(ii) the Government
Securities, (iii)] [(ii)] all monies
(including accrued interest) received
on or with respect to the Collateral
Certificates [and the Government
Securities] on or after the Cutoff
Date, [(iii)(iv)] all amounts and
property from time to time held in or
credited to the Collection Account,
[(iv)(v)] 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)(vi)] 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".
Risk Factors.................. For a discussion of risk factors that
should be considered with respect to
an investment in the Securities, see
"Risk Factors" herein and in the
related Prospectus.
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) and 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
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
S-5
<PAGE>
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 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
Company exercises its option to
purchase the Collateral Certificates
[and the Government Securities].
Under the terms of the Trust
Agreement, the Company may purchase
the Collateral Certificates [and the
Government Securities] when the
aggregate principal balance of the
Collateral Certificates [and the
Government Securities] (the "Pool
Balance") has been reduced to 10% or
less of the Pool Balance as of the
Cutoff Date. 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,
collectively 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 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 Distribution
Date").
S-6
<PAGE>
See "The Certificates -- Distributions
of Principal" and "Description of the
Trust Agreement -- Distributions"
herein.
E. Optional Prepayment.... If the Company exercises its option
to purchase the Collateral Certificates
[and the Government Securities], which
it may do when the Pool Balance is 10%
or less of the Pool Balance as of the
Cutoff Date, 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 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 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
Collateral Certificates 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 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 Trust
Agreement --Reserve Account" herein.
Collection Account............ Except under certain conditions
described in the Prospectus under
"Description of the Trust Agreement--
Collections," the Owner Trustee will be
required to remit collections received
with respect to the Collateral
Certificates [and the Government
Securities] within two Business Days of
receipt thereof to one or more accounts
in the name of the Owner Trustee (the
"Collection Account"). Pursuant to the
Trust Agreement, the Owner Trustee will
withdraw funds on deposit in the
Collection
S-7
<PAGE>
Account and apply such funds
on each Distribution Date to the
following (in the priority indicated):
(i) the Noteholders' Interest
Distributable Amount to the Note
Distribution Account, (ii) the
Noteholders' Principal Distributable
Amount to the Note Distribution Account,
(iii) the Certificateholders' Interest
Distributable Amount to the Certificate
Distribution Account, (iv) after the
Class A-2 Notes have been paid in full,
the Certificateholders' Principal
Distributable Amount to the Certificate
Principal Distributable Account and (v)
the remaining balance, if any, to the
Reserve Account. See "The Trust
Agreement --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. Federal Tax Counsel
has also advised the Trust that the
Notes will be classified as debt 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. 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 Company 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
"______" or its equivalent, the Class
A-2 Notes be rated at least "_______"
or its equivalent 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.
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
Securities.
Limited Liquidity of Securities. 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.
Subordination of Certificates; Limited Assets of Trust.
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 Trust Agreement --
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 the Government Securities] and access to funds in the
Reserve Account. Securityholders must rely on payments on the Collateral
Certificates [and the Government Securities] 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 [and the Government
Securities] to make distributions on the Notes and the Certificates. See
"The Trust" and "The Trust Agreement -- 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 "___________" or its equivalent, the Class A-2
Notes be rated "________" or its equivalent 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 [and the
Government Securities], 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 Government Securities] and the availability of funds in the
Reserve Account.
Trust's Limited Relationship to the Company. The Company is
generally not obligated to make any payments in respect of the
Certificates [,] [or] the Collateral Certificates [or the Government
Securities].
Risk Factors Regarding Collateral Certificates. Prospective
investors in the Securities should consider carefully the factors set
forth under the caption "Risk Factors" or "Special Considerations" in the
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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.
Risk Factors Regarding Government Securities. Prospective
investors in the Securities should consider carefully the factors set
forth under the caption "______________" in the disclosure documentation
relating to the Government Securities attached hereto as Appendix A for
certain additional considerations relating to the Government
Securities.
Available Information Regarding the Collateral Certificates.
This Prospectus Supplement relates only to the Securities offered hereby
and does not relate to the Collateral Certificates [or the Government
Securities]. [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.] [[An
affiliate of the Company] [The Underwriter] participated in the
preparation of the prospectuses relating to the Collateral Certificates
and the offering of the Collateral Certificates.] 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.
As a general rule, the originator of each 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 with respect to the related Underlying Trust Fund, including
monthly servicer reports ("Servicer Reports") regarding the Collateral
Certificates may be inspected and copies at certain offices of the
Commission at the addresses listed under "Available Information"
herein.
There can be no assurance that an originator of an Underlying
Trust Fund will not elect to suspend its reporting under the Exchange Act
after the date hereof if such originator of an Underlying Trust Fund no
longer has a class of security listed on a national securities exchange or
held by 300 or more holders of record. In such event, information
(including financial information) then available to the Company and the
Trustee with respect to such originator may not be as extensive, timely or
readily available as that previously made available under the Exchange
Act. Accordingly, in such event, the information with respect to any such
Underlying Trust Fund that the Company and the Trustee can include in the
Exchange Act reports of the Trust Fund will be similarly limited.
[Available Information Regarding the Government Securities.
Neither the Company nor the Underwriter participated in the preparation of
the disclosure documentation relating to the Government Securities or the
offering of the Government Securities, 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 documentation, the information
provided therein 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 disclosure
documentation relating to the Government Securities speaks only as of the
date of such documentation; 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.]
[Geographic Concentration of Assets. Discuss impact on
Securityholders of material concentration of trust assets in one or a few
states, if applicable.]
[Limited number of Loan Originators. Discuss impact on
Securityholders of material concentration of loans originated by one or a
few dealers, if applicable.]
[Concentration of Credit Risk. Discuss impact on
Securityholders of material concentration of credit risk, if applicable.]
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[Interest Only Securities. Discuss risks associated with
interest only securities, including any disproportionate prepayment or
credit risks, if applicable.]
[Principal Only Securities. Discuss risks associated with
principal only securities, including any disproportionate prepayment or
credit risks, if applicable.]
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 [, the Government 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.
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 [and the
Government Securities] from the Company pursuant to the Trust Agreement.
The Trustee will manage the Collateral Certificates [and the Government
Securities] pursuant to the Trust Agreement.
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
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. Each Seller, the Company and
their respective affiliates may maintain normal commercial banking release
with the Owner Trustee and its affiliates.
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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 [and the Government Securities], 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
the material terms of the Notes and the Indenture. The summary does not
purport to be a complete description of all term of the Notes and the
Indenture and therefore 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 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 and from the Reserve Account. See "The Trust
Agreement -- 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 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 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 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
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principal will be paid on the Class A-2 Notes until the Class A-1 Notes
have been paid in full. See "The Trust Agreement -- 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 significantly 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 Company exercises its option to
purchase the Collateral Certificates [and the Government Securities],
which the Company may do after the aggregate outstanding principal amount
of the Collateral Certificates [and the Government Securities] is reduced
to 10% or less of the Pool Balance as of the Cutoff Date. 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 the material terms of the Certificates and the Trust
Agreement. This summary does not purport to be a complete description of
all of the terms of the Trust Agreement and therefore 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
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 Certificate 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 Certificate 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 Noteholders' Distributable
Amount. See "The Trust Agreements -- Distribution" 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 Noteholders' Distributable Amount (on the
Distribution Date on which the outstanding principal amount of the Class
A-2 Notes is
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reduced to zero) and the Certificateholders' Interest Distributable Amount
and (ii) the outstanding Certificate Balance. See "The Trust Agreement --
Distributions" and "-- Reserve Account" herein.
OPTIONAL PREPAYMENT
If the Company exercises its option to purchase the Collateral
Certificates [and the Government Securities], which it may do when the
aggregate outstanding principal amount of the Collateral Certificates [and
the Government Securities] is reduced to 10% or less of the Pool Balance
as of the Cutoff Date, the Certificateholders will receive an amount in
respect of the Certificates equal to the outstanding Certificate Balance,
together with accrued interest thereon at the Certificate 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 the material terms of the
Collateral Certificates. It does not purport to provide complete
information with respect to all terms of such securities, the issuer
thereof or the Receivables relating thereto. Schedule I to this
Prospectus Supplement contains a summary of the terms of the Collateral
Certificates. Prospective investors are urged to read such Schedule, which
is expressly made a part hereof. This Prospectus Supplement relates only
to the Securities offered hereby and does not relate to the Collateral
Certificates.
Appendix A to this Prospectus Supplement contains certain
excerpts from the prospectuses pursuant to which Collateral Certificates
were offered and sold. See "Risk Factors--Available Information Regarding
Collateral Certificates". Although the Company nor the Underwriter has
any reason to believe the information provided by an originator of an
Underlying Trust Fund or in any prospectus relating to the Collateral
Certificates is not reliable, neither the Company nor the Underwriter has
verified either its accuracy or its completeness. 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 would affect either the
accuracy or the completeness of the information contained therein. See
"Risk Factors--Available Information Regarding Collateral Certificates"
and "--Certain Updated Information with Respect to the Collateral
Certificates".
CERTAIN UPDATED INFORMATION WITH RESPECT TO THE COLLATERAL CERTIFICATES
As a general rule, the originator of each Underlying Trust Fund
is subject to the information requirements of the Exchange Act.
Accordingly, such originator files annual and periodic reports and other
information with respect to the related Underlying Trust Fund, including
monthly Servicer Reports regarding the Collateral Certificates, 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.
[In the event that the originator of an Underlying Trust Fund is
not subject to the information requirements of the Exchange Act on the
date of issuance of the Securities or ceases to be subject to such
requirements after such date, the Company or the Trustee will provide, or
cause to be provided (or make available, or cause to make available), upon
request of a Securityholder, the Servicer Reports relating to such
Underlying Trust Fund where the related Collateral Certificates represent
20% or more of the aggregate principal balance of the Trust Fund as of the
Cutoff Date.]
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
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<PAGE>
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.
[UNDERWRITING STANDARDS
If applicable, describe the underwriting standard used to
originate the assets backing the Collateral Certificates.]
[DESCRIPTION OF THE GOVERNMENT SECURITIES
This Prospectus Supplement sets forth the material terms of the
Government Securities. It does not purport to provide complete
information with respect to all terms of such securities or the issuer
thereof. Certain information relating to the issuer of the Government
Securities is provided in the Prospectus under the caption "The Government
Securities." Schedule I to this Prospectus Supplement contains a summary
of the terms of the Government Securities. Prospective investors are
urged to read such Schedule, which is expressly made a part hereof. This
Prospectus Supplement relates only to the Securities offered hereby and
does not relate to the Government Securities.
Appendix A to this Prospectus Supplement contains certain
excerpts from the disclosure documentation pursuant to which Government
Securities were offered and sold. See "Risk Factors--Available
Information Regarding Government Securities". Although the Company nor
the Underwriter has any reason to believe the information provided by an
originator of a Government Securities or in any disclosure documentation
relating to the Government Securities is not reliable, neither the Company
nor the Underwriter has verified either its accuracy or its completeness.
In particular, information set forth in any disclosure documentation
relating to the Government Securities speaks only as of the date of such
documentation; there can be no assurance that events have not occurred,
which would affect either the accuracy or the completeness of the
information contained therein. See "Risk Factors--Available Information
Regarding Government Securities".]
THE TRUST AGREEMENT
The following summary describes the material terms of the Trust
Agreement. A form of the Trust Agreement 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. This
summary does not purport to be a complete description of all terms of the
Trust Agreement and therefore is subject to, and is qualified in its
entirety by reference to, all the provisions of the Trust Agreement. The
following summary supplements 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
Owner Trustee will also establish and maintain the Reserve Account on
behalf of the Noteholders and the Certificateholders.
DISTRIBUTIONS
Deposits to Collection Account. On or about the _____ Business
Day of each month, the Owner Trustee 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 [and the Government Securities], as well as the Total
Distribution Amount, the Interest Distribution Amount and the Principal
Distribution Amount.
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On or before each Distribution Date, the Owner Trustee 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 [and the Government Securities].
The "Interest Distribution Amount" for a Distribution Date will
equal the sum of the portion of all collections on the Collateral
Certificates [and the Government Securities] 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 [and the Government Securities] allocable to
principal, with respect to the related collection period.
Deposits to the Distribution Accounts. On each Distribution
Date, the Owner Trustee will make the following deposits and
distributions, to the extent of the Total Distribution Amount, in the
following order of priority:
(i) to the Note Distribution Account, from the Total
Distribution Amount, the Noteholders' Interest Distributable Amount;
(ii) to the Note Distribution Account, from the Total
Distribution Amount remaining after the application of clause (i), the
Noteholders' Principal Distributable Amount;
(iii) to the Certificate Distribution Account, from the Total
Distribution Amount remaining after the application of clauses (i) and
(ii), the Certificateholders' Interest Distributable Amount;
(iv) to the Certificate Distribution Account, from the Total
Distribution Amount remaining after the application of clauses (i) through
(iii), the Certificateholders' Principal Distributable Amount; and
(v) to the Reserve Account, the Total Distribution Amount
remaining after the application of clauses (i) through (iv).
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. The Noteholders' Interest Carryover Shortfall
for the initial Distribution Date is zero.
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"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
Certificate 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 Certificate Pass-Through Rate from such preceding
Distribution Date to but excluding such current Distribution Date. The
Certificateholders' Interest Carryover Shortfall for the initial
Distribution Date is zero.
"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;
(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.
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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 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 Owner Trustee will 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 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 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.
[CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Discuss additional Federal income tax consequences, if any.]
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.
THE CERTIFICATES
S-18
<PAGE>
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.
[If and to the extent required by applicable law or regulation,
this Prospectus Supplement and the attached Prospectus will also be used
by the Underwriter after the completion of the offering in connection with
offers and sales related to market-making transactions in the offered
Securities in which the Underwriter acts as principal. Sales will be made
at negotiated prices determined at the time of sale.]
LEGAL MATTERS
Certain legal matters relating to the Securities will be passed
upon by Sidley & Austin, New York, New York.
S-19
<PAGE>
<TABLE>
<CAPTION>
INDEX OF TERMS
<S> <C>
Business Day...................................................... S-5
Certificate Balance............................................... S-16
Certificate Pass-Through-Rate..................................... S-6
Certificateholders................................................ S-6
Certificateholders' Distributable Amount.......................... S-15
Certificateholders' Interest Carryover Shortfall.................. S-15
Certificateholders' Interest Distributable Amount................. S-15
Certificateholders' Monthly Interest Distributable Amount......... S-15
Certificateholders' Principal Distributable Amount................ S-16
Certificates...................................................... S-12
Class A-1 Final Scheduled Payment Date............................ S-6
Class A-1 Notes................................................... Cover
Class A-1 Rate.................................................... S-5
Class A-2 Final Scheduled Payment Date............................ S-6
Class A-2 Notes................................................... Cover
Class A-2 Rate.................................................... S-5
Closing Date...................................................... S-4
Code.............................................................. S-17
Collateral Certificates........................................... S-13
Collection Account................................................ S-7
Commission........................................................ S-3
Cutoff Date....................................................... Cover
Distribution Date................................................. S-2
ERISA............................................................. S-8
Federal Tax Counsel............................................... S-8
Final Scheduled Distribution Date................................. S-6
Government Securities............................................. S-2
Indenture......................................................... Cover
Indenture Trustee................................................. Cover
Interest Distribution Amount...................................... S-14
Interest Rates.................................................... S-5
Noteholders....................................................... S-5
Noteholders' Distributable Amount................................. S-15
Noteholders' Interest Carryover Shortfall......................... S-15
Noteholders' Interest Distributable Amount........................ S-15
Noteholders' Monthly Interest Distributable Amount................ S-15
Noteholders' Principal Distributable Amount....................... S-15
Notes............................................................. S-11
Owner Trustee..................................................... Cover
Plan.............................................................. S-17
Pool Balance...................................................... S-6
Principal Distribution Amount..................................... S-14
Prospectus........................................................ S-3
Rating Agencies................................................... S-9
Receivables....................................................... S-2
Record Date....................................................... S-5
Reserve Account................................................... S-7
Reserve Account Initial Deposit................................... S-7
Securities........................................................ Cover
Securityholders................................................... S-6
</TABLE>
S-20
<PAGE>
<TABLE>
<S> <C>
Seller............................................................ S-2
Servicer Reports.................................................. S-10
Specified Reserve Account Balance................................. S-7
Total Distribution Amount......................................... S-5
Trust............................................................. Cover
Trust Agreement................................................... Cover
Trust Property.................................................... S-5
Underlying Agreement.............................................. S-2
Underlying Trust Fund............................................. S-5
Underwriting...................................................... Cover
Underwriting Agreements........................................... S-17
</TABLE>
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
Prospectuses relating to Collateral Certificates
[Disclosure Documentation relating to Government Securities]
[To be Supplied]
A-1
<PAGE>
APPENDIX B
Servicer Reports relating to Collateral Certificates
[To be Supplied]
B-1
<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 COMPANY
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>
<CAPTION>
TABLE OF CONTENTS
PAGE
----
PROSPECTUS SUPPLEMENT
<S> <C>
Summary.......................................................... S-4
Risk Factors..................................................... S-9
The Trust........................................................ S-11
Weighted Average Life of the Securities.......................... S-12
The Notes........................................................ S-12
The Certificates................................................. S-13
Description of the Collateral Certificates....................... S-14
[Description of the Government Securities........................ S-15]
The Trust Agreement.............................................. S-15
[Certain Federal Income Tax Consequences......................... S-18]
ERISA Considerations............................................. S-18
Underwriting..................................................... S-19
Legal Matters.................................................... S-19
Index of Terms................................................... S-20
PROSPECTUS
Prospectus Supplement............................................ 2
Reports to Securityholders....................................... 2
Available Information............................................ 2
Incorporation of Certain Documents by Reference.................. 2
Summary of Terms................................................. 4
Risk Factors..................................................... 14
The Trusts....................................................... 17
The Receivables Pools............................................ 19
The Collateral Certificates...................................... 21
The Government Securities........................................ 23
Weighted Average Life of the Securities.......................... 32
Pool Factors and Trading Information............................. 33
The Seller and the Servicer...................................... 33
Use of Proceeds.................................................. 33
Description of the Notes......................................... 34
Description of the Certificates.................................. 40
Certain Information Regarding the Securities..................... 41
Description of the Transfer and Servicing Agreements............. 45
Certain Legal Aspects of the Receivables......................... 57
Certain Federal Income Tax Consequences.......................... 62
State and Local Tax Considerations............................... 86
ERISA Considerations............................................. 88
Plan of Distribution............................................. 94
Legal Matters.................................................... 95
</TABLE>
Until 90 days after the date of this Prospectus Supplement, all dealers
effecting transactions in the securities 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.
$[ ]
CS FIRST BOSTON
AUTO RECEIVABLES
AND RECEIVABLES
SECURITIES TRUSTS
$[ ] [ ]% [Floating Rate]
Asset Backed Notes, Class [ ]
$[ ] [ ]% [Floating Rate]
Asset Backed Notes, Class [ ]
$[ ] [ ]% [Floating Rate]
Asset Backed Certificates, Class [ ]
Asset Backed Securities Corporation
(Company)
_________________
PROSPECTUS SUPPLEMENT
[ ], 199[ ]
___________________
[LOGO] CS FIRST BOSTON
===============================================================================
<PAGE>
EXHIBIT 99.11
<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, DATED _____, 1996
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) describe
Government Securities, if any, (the "Government Securities")] [(c) a
Reserve Fund] [and] [(d) 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".
SEE "RISK FACTORS" BEGINNING ON P. S-13 HEREIN AND ON P.14 OF
THE PROSPECTUS FOR A DISCUSSION OF CERTAIN FACTORS THAT POTENTIAL
INVESTORS SHOULD CONSIDER IN DETERMINING WHETHER TO INVEST IN THE
CERTIFICATES.
PROSPECTIVE INVESTORS SHOULD CONSIDER THE LIMITATIONS DISCUSSED
UNDER "ERISA CONSIDERATIONS" HEREIN AND IN THE ACCOMPANYING PROSPECTUS.
(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 REPRE-
SENTATION 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 ,19 .
[LOGO] CS FIRST BOSTON
- --------------------------------------------------------------------------------
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS , 19
<PAGE>
(Continued from prior page)
Prospective investors should consider:
[. The yield on the Class A-1 Certificates will be sensitive to,
among other things, the rate and timing of principal payments on the
Mortgage Certificates (which likely will be different for different
Mortgage Certificates) [and the Government Securities] 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"). [Describe disclosure
documents, if any, relating to Government Securities.] 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.]
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.
_______________________
S-2
<PAGE>
[IF AND TO THE EXTENT REQUIRED BY APPLICABLE LAW OR REGULATION, THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS WILL ALSO BE USED BY FIRST BOSTON
AFTER THE COMPLETION OF THE OFFERING IN CONNECTION WITH OFFERS AND SALES
RELATED TO MARKET-MAKING TRANSACTIONS IN THE CERTIFICATES OFFERED HEREBY IN
WHICH FIRST BOSTON ACTS AS PRINCIPAL. FIRST BOSTON MAY ALSO ACT AS AGENT
IN SUCH TRANSACTIONS. SALES WILL BE MADE AT NEGOTIATED PRICES DETERMINED
AT THE TIME OF SALE.]
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 Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C., and at the Commission's regional offices
at Seven World Trade Center, Suite 1300, New York, New York 10048; and
Citicorp Center, 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 Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549. The Commission maintains a
Web site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the
Commission. The address of such site is (http://www.sec.gov).
REPORTS TO CERTIFICATEHOLDERS
Monthly and annual unaudited reports containing information concerning
the Mortgage Certificates [and the Government Securities] will be prepared
by the Master Servicer and sent on behalf of the Trust to each registered
holder of the Certificates. See "Description of the Certificates - Reports
to Certificateholders" in the Prospectus.
S-3
<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. An "Index of Terms" is included at the end of this
Prospectus Supplement. 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].
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,
a Delaware corporation (the
"Depositor").
CERTIFICATE ADMINISTRATOR.............Certain administrative functions with
respect to the Certificates will be
performed by .
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) describe Government Securities,
if any (the "Government
Securities"),] [(c) a Reserve Fund]
[and] [(d) a Yield Support Agreement
provided by .] [See
"-- Government Securities ", "--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
. See "Description of the Class A-1
Certificates--General" herein.
S-4
<PAGE>
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) one-twelfth 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 [second] 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-1
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].
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
S-5
<PAGE>
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 [and
the Government Securities] during
the Collection Period ending on such
Distribution Date. [The rate of
distribution of principal of the
Certificates [(other than the Class
IO and Class R Certificates)] will
depend on the rate of payment of
principal of the mortgage loans
underlying the Mortgage Certificates
which, in turn, will depend on the
characteristics of such underlying
mortgage loans, the level of
prevailing interest rates and other
economic, geographic and social
factors. No assurance can be given
as to the actual payment experience
of the Mortgage Loans.] [Describe
principal and interest payments on
Government Securities (including,
without limitation, their allocation
to principal payments on the
Certificates).]
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)
one-twelfth 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. [Describe principal and
interest payments on Government
Securities (including, without
limitation, their allocation to
interest payments on the
Certificates).]
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 [/Government Security]
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
[/Government Security] 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 [and Government
Securities] 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 [/Government Security]
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".
CERTAIN RISK FACTORS..................For a discussion of certain risk factors
that should be considered in
S-6
<PAGE>
connection with an investment in the
Certificates, including those relating
to [describe risk factors specific to
transaction], see "Risk Factors" herein.
[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, 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".]
S-7
<PAGE>
[OPTIONAL REPURCHASE OF THE MORTGAGE
CERTIFICATES [AND GOVERNMENT
SECURITIES].........................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 [and Government
Securities]" herein. [Describe
repurchase right, if any, as it relates
to Government Securities.]
RATINGS...............................It is a condition of the issuance of
the Certificates that the Class A-1
Certificates be rated not lower than
" " by
[ and] " " by
(" " and, collectively with
, the "Rating Agencies").
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 [and Government
Securities] 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".
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
organization. A security rating
does not address the frequency of
prepayments or the possibility that
Certificateholders might suffer a
lower than anticipated yield. A
security rating also does not
represent any assessment of the
yield to maturity that investors may
experience. See "Risk Factors"
herein and in the Prospectus,
"Ratings" herein and "Yield
Considerations" in the Prospectus.
MORTGAGE CERTIFICATES [; GOVERNMENT
SECURITIES]...........................[The assets of the REMIC will consist
primarily of [(i)] ___ classes (or a
portion of such classes) of senior
mortgage pass-through certificates
(the "Mortgage Certificates") [and
(ii) ___ classes (or a portion of
such classes of [describe Government
Securities] (the "Government
Securities")], 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.
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<PAGE>
-------------------------------------------------
UNDERLYING SERIES
CLASS OF MORTGAGE
SERIES DESIGNATION CERTIFICATES;
-------------------- ---------------------------
GOVERNMENT SECURITIES
---------------------------
-------------------------------------------------
[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 [and Government
Securities] will be made on the 25th day
[and __th day, respectively,] of each month
(or if such day is not a business day, the
succeeding business day) (each, an "Underlying
Series Distribution Date") [, in the case of a
Mortgage Certificates,] 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 [and Government
Securities] had approximately the
characteristics set forth under "The Mortgage
Certificates" [and "The Government Securities"].]
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
S-9
<PAGE>
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
aggregatescheduled 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 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
S-10
<PAGE>
MORTGAGE CERTIFICATES IS LESS THAN
THE INTEREST ACCRUAL AMOUNT OF THE
CLASS A-1 CERTIFICATES.]
[Describe prepayment and yield considerations
relating to Government Securities.]
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
[and the Government Securities]. 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.
TRUSTEE .................... (the "Trustee"). See "Description
of the Certificates -Trustee" herein.
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.]
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.
S-11
<PAGE>
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. ]
[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. The Certificates other
than the Class R Certificates (the "Regular
Certificates") will be treated as regular
interests in the REMIC and generally will
be treated as debt instruments issued by
the REMIC for federal income tax purposes.
Certain Classes of the Regular Certificates
may be issued with original issue discount.
The prepayment assumption that will be used
in determining the rate of accrual of any
original issue discount on the Regular
Certificates for federal income tax
purposes (and whether such original issue
discount is de minimis), and that may be
used by a holder of a Regular Certificate
to amortize premium, will be [ ]% of the
Prepayment Assumption. No representation is
made that the Mortgage Loans will prepay at
such rate or at any other rate. The holders
of the Residual Certificates will be
subject to special federal income tax rules
that may significantly reduce the after-tax
yield of such Certificates. Further,
significant restrictions apply to the
transfer of the Residual Certificates. See
"Certain Federal Income Tax Consequences"[
herein and] in the Prospectus.*]
________________
* Depending on the terms of the Class 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-12
<PAGE>
RISK FACTORS
Prospective investors should consider the following factors in
connection with a purchase of the Class A-1 Certificates.
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.
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 [AND GOVERNMENT SECURITIES] IS LESS
THAN THE INTEREST ACCRUAL AMOUNT OF THE CLASS A-1 CERTIFICATES.] [DESCRIBE
BASIS RISK AS IT RELATES TO GOVERNMENT SECURITIES.]
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]. [DESCRIBE PREPAYMENT AND YIELD
CONSIDERATIONS RELATING TO GOVERNMENT SECURITIES.]
GEOGRAPHIC CONCENTRATION
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. The
Depositor did not prepare or assist in the preparation of the Underlying
Disclosure Documents and, therefore, cannot confirm the accuracy or
completeness of such information.
AVAILABLE INFORMATION REGARDING THE UNDERLYING ISSUERS
This Prospectus Supplement relates only to the Class A-1 Certificates
offered hereby and does not relate to the Mortgage Certificates [or the
Government Securities]. All disclosures contained in this Prospectus
Supplement regarding the Mortgage Certificates [and Government Securities]
are derived from publicly available documents. Neither the Depositor, the
Trustee nor any of the underwriters of the Class A-1 Certificates has
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<PAGE>
participated in the preparation of such documents, or made any due diligence
inquiry with respect to the information provided therein. There can be no
assurance that all events occurring prior to the date hereof (including
events that would affect the accuracy or completeness of the publicly
available documents described above) that would affect the Mortgage
Certificates [or Government Securities] or the Underlying Issuers have been
publicly disclosed.
In addition, [in the case of Underlying Issuers other than Government
Issuers] there can be no assurance that [an] [any such] Underlying Issuer
will not elect to suspend its Exchange Act reporting after the date hereof if
such Underlying Issuer no longer has a class of security listed on a national
securities exchange or held of record by 300 or more holders. In such event,
information (including financial information) then available to the Depositor
and the Trustee with respect to such Underlying Issuer will not be as
extensive, timely or readily available as that previously made available
under the Exchange Act. Accordingly, in such event, the information with
respect to any such Underlying Issuer that the Depositor or the Trustee can
include in the Trust Fund's Exchange Act reports will be similarly limited.
GEOGRAPHIC CONCENTRATION
(GREATER THAN % OF PRINCIPAL BALANCE)
PERCENTAGE PERCENTAGE
AS OF AS OF
UNDERLYING UNDERLYING
SERIES SERIES
CUT-OFF SERIES CUT-OFF
SERIES DESIGNATION STATE DATE DESIGNATION STATE DATE
- ------------------ ----- ---------- ----------- ----- -----------
[Additional risk factors will be added, as appropriate, including,
without limitation, (i) if an Interest Weighted Class of Certificates or a
Principal Weighted Class of Certificates is being offered, a discussion of
the risks associated with such Class, including any disproportionate share of
credit or prepayment risks that such Class will bear, (ii) a discussion of
the concentration of credit risk, if any, with respect to the mortgage loans
underlying the Mortgage Certificates due to, among other things (w) a
concentration of Mortgage Loans originated by one or a few dealers, (x) a
single mortgagor or lessee or cross-default, cross-collateralization or
similar provisions, (y) a concentration of properties with brief or
financially troubled operating histories or (z) a concentration of properties
within a state (or region of a state) and (iii) a discussion of the basis
risk associated with a Class of Certificates.]
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) describe
Government Securities, if any (the "Government Securities")] [(c) a Reserve
Fund] [and] [(d) a Yield Support Agreement provided by .]
[See ["--Government Securities",] "--The Reserve Fund" and "--The Yield
Support Agreement" below.] The Trust
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<PAGE>
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, 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)]. [Describe allocation,
if any, of interest and principal
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<PAGE>
payments on Government Securities to Interest Available Funds.] 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 [/Government
Security] 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 [/Government Security] Pass-
Through Rate") over (Y) the Class A-1 Pass-Through Rate for such Interest
Accrual Period. The "Weighted Average Mortgage Certificate [/Government
Security] 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 [and Government Securities] 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
Certificate [/Government Security] 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 [and "The Government Securities-Distributions on the
Government Securities".] 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). [Describe effect of Government Securities on
definition of "Principal Balance".] 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]
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<PAGE>
Historical [specify index]. Listed below are historical values of [specify
index] since :
[SPECIFY INDEX]
MONTHLY AVERAGES
YEAR
------------------------------------------
MONTH(1) 199 199 199 199 199
- -------- ---- ---- ---- ---- ----
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. [Describe allocation, if any, of principal and interest
payments on Government Securities to principal payments on Certificates.]
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").
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].
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<PAGE>
"Rate Scenario I" [describe assumptions].
"Rate Scenario II" [describe assumptions].
"Rate Scenario III" [describe assumptions].
PROJECTED BALANCE AVAILABLE AT
PERCENT OF CPR
---------------------------------------
% % %
------------ ------------ -------------
Rate Scenario I........
Rate Scenario II.......
Rate Scenario III......
[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
(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;
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<PAGE>
(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
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 [AND GOVERNMENT SECURITIES]
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 [Describe
repurchase right, if any, as it relates to Government Securities].]
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<PAGE>
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 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
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<PAGE>
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 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 [and
Government Securities] 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[, --
Payments on the Government Securities"] and "--Collection of Payments on
Mortgage Certificates" [and "--Collection of Payments on Government
Securities"] 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 [AND GOVERNMENT SECURITIES]
If at any time the Trustee, as the Mortgage Certificateholder [or
Government Securityholder, as applicable], 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
[or if an event of default occurs under a Government Security], the Pooling
Agreement provides that the Trustee, in its capacity as
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<PAGE>
certificateholder [or securityholder, as applicable], 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]
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").
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<PAGE>
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.]
Each of the Mortgage Certificates has been assigned the ratings set forth
in the following table by the rating agencies identified therein:
[table to be added]
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
Percentage Certificate
Interest of Pass-
Class Current Through
Represented by Current Mortgage Rate
Original Mortgage Underlying Current Certificate as of the
Class Certificate in Mortgage Class Balance in Predominant Cut-off
Underlying Series Class Balance Trust Fund Pool Balance Balance Trust Fund Index Date
- ----------------- ----- --------- -------------- ------------ ------- ----------- ----------- -----------
<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.
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<PAGE>
[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]
GENERAL
[to follow]
INTEREST DISTRIBUTIONS
[to follow]
PRINCIPAL DISTRIBUTIONS
[to follow]
CREDIT SUPPORT
[to follow]
OPTIONAL TERMINATION
[to follow]
ASSIGNMENT OF REPRESENTATIONS AND WARRANTIES
[to follow]
PAYMENTS ON MORTGAGE LOANS
[to follow]
COLLECTION AND OTHER SERVICING PROCEDURES
[to follow]
ADVANCES
[to follow]
MORTGAGE LOAN TRUSTEE AND COLLATERAL AGENT
[to follow]
S-24
<PAGE>
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, including underwriting standards used to originate
the mortgage loans underlying the Mortgage Certificates that comprise a
material portion of the Trust Fund.] The mortgage loans in each Underlying
Mortgage Pool are adjustable rate, conventional, one-to-four family
residential first mortgage loans having approximately the characteristics set
forth in the table below. The related Mortgaged Properties include owner-
occupied, vacation and investor-owned properties, condominiums, cooperatives,
and units in Planned Unit Developments. With respect to some of the Mortgage
Loans, the type of the related Mortgaged Property was unknown as of the date
of issuance of the related Mortgage Certificates. Investors are urged to
review the information concerning the Mortgage Loans set forth in each of the
Underlying Disclosure Documents. Such information may not have been accurate
when prepared. The information regarding the Mortgage Loans set forth herein
(including in the tables below) is based on information contained in the
Underlying disclosure Documents and on other information made available in
connection with the issuance of each of the Mortgage Certificates. In
addition, the information contained in the assumed Mortgage Certificate
Characteristics table is derived from information made available in
connection with the issuance of each of the Mortgage Certificates. IT SHOULD
BE NOTED THAT THERE MAY HAVE BEEN MATERIAL CHANGES IN FACTS AND CIRCUMSTANCES
SINCE THE DATE SUCH DOCUMENTS AND INFORMATION WERE PREPARED, INCLUDING, BUT
NOT LIMITED TO, PREVAILING INTEREST RATES AND OTHER ECONOMIC FACTORS, WHICH
MAY LIMIT THE USEFULNESS OF, AND EVEN BE DIRECTLY CONTRARY TO THE ASSUMPTIONS
USED IN PREPARING SUCH INFORMATION AND DOCUMENTS. In addition, the Underlying
Disclosure Documents do not provide information sufficient to determine the
percentage distribution of Mortgage Loans exhibiting many of the
characteristics described herein. The Depositor did not prepare or assist in
the preparation of the Underlying Disclosure Documents and, therefore, cannot
confirm the accuracy or completeness of such information.
MORTGAGE LOAN DELINQUENCY STATUS
The following table summarizes the monthly delinquency, foreclosure and
REO information for the Mortgage Loans contained in each of the Underlying
Mortgage Pools for [ ] 19[ ]. The information in the following table has been
prepared by the Depositor solely on the basis of the remittance reports
provided by the Mortgage Loan Trustees, and the Depositor makes no
representations as to its accuracy. Investors should consider the risk that
any of the delinquent Mortgage Loans may become defaulted loans and
subsequently liquidated loans, and that realized losses on such Mortgage
Loans may be allocated to the Mortgage Certificates. Defaults by mortgagors
on the Mortgage Loans may result in the failure of Mortgage Certificates on a
given Underlying Series Distribution Date to receive full payments in respect
of interest or principal.
S-25
<PAGE>
DELINQUENCY STATUS
(BASED ON [ ] 19[ ] REMITTANCE REPORT)
DELINQUENCIES AS PERCENT OF POOL BALANCE
-----------------------------------------------
[ ] 19[ ] 30 DAYS 60 DAYS 90+ DAYS FORECLOSURE REO(2)
----------------- ------- ------- -------- ----------- ------
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
- ----------
(1) Reflects the delinquencies as a percent of the Pool Balance of Mortgage
Loans in the related Mortgage Pool and mortgage loans in two other mortgage
pools in the same Underlying Trust Fund.
(2) NA = Not Available.
[GOVERNMENT SECURITIES]
[DESCRIBE TERMS AND CONDITIONS OF GOVERNMENT SECURITIES.]
[DESCRIBE DISTRIBUTIONS ON GOVERNMENT SECURITIES.]
[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).
[Describe prepayment and yield considerations relating to Government
Securities.]
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
S-26
<PAGE>
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 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.
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.
S-27
<PAGE>
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.
[DESCRIBE PREPAYMENT ASSUMPTIONS FOR GOVERNMENT SECURITIES.]
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
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.] [DESCRIBE MODELING
ASSUMPTIONS FOR GOVERNMENT SECURITIES.]
S-28
<PAGE>
ASSUMED MORTGAGE LOAN CHARACTERISTICS
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE MORTGAGE MONTHS
MORTGAGE CERTIFICATE UNTIL
INTEREST SERVICING PERIODIC PASS-THROUGH REMAINING GROSS NET NEXT RATE
MORTGAGE CERTIFICATES INDEX RATE FEE CAP NET CAP SEASONING RATE TERM MARGIN MARGIN ADJUSTMENT
- --------------------- ----- -------- --------- -------- ------- --------- ------------ --------- ------ ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
[ASSUMED GOVERNMENT SECURITY CHARACTERISTICS]
</TABLE>
S-29
<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
CLASS A-1
CPR PREPAYMENT ASSUMPTION
-------------------------
DISTRIBUTION DATE
- ----------------- ----- ----- ----- ----- ----- ----- -----
Weighted Average Life (1)
Termination Scenario I
Termination 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-30
<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
PERCENT OF
CPR
-------------
% % %
--- --- ---
Yield to Maturity................... % % %
Outstanding Principal Balance as of. $ $ $
PROJECTED YIELD TO MATURITY AND
OUTSTANDING PRINCIPAL BALANCE UNDER RATE SCENARIO II
PERCENT OF
CPR
-------------
% % %
--- --- ---
Yield to Maturity................... % % %
Outstanding Principal Balance as of. $ $ $
PROJECTED YIELD TO MATURITY AND
OUTSTANDING PRINCIPAL BALANCE UNDER RATE SCENARIO III
PERCENT OF
CPR
-------------
% % %
--- --- ---
Yield to Maturity................... % % %
Outstanding Principal Balance as of. $ $ $
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 be 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-31
<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 Government Securities]
and the characteristics assumed therefor in preparing the tables contained
herein. To the extent that the Mortgage Certificates and Mortgage Loans [or the
Government Securities] 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 [or the
Government Securities] will prepay at any constant rate or at the same rate, or
that [specify index] [or the Government Securities] 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-32
<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.]
[ALTERNATIVE TAX DISCLOSURE TO BE INCLUDED IF THERE ARE ANY GOVERNMENT
SECURITIES]
[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
S-33
<PAGE>
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.]
[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 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.]
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.
[If and to the extent required by applicable law or regulation, this
Prospectus Supplement and the Prospectus will also be used by First Boston after
the completion of the offering in connection with offers and sales related to
market-making transactions in the Certificates offered hereby in which First
Boston acts as principal. First Boston may also act as agent in such
transactions. Sales will be made at negotiated prices determined at the time of
sale.]
LEGAL MATTERS
Certain legal matters will be passed upon for the Depositor and First
Boston by Sidley & Austin, New York, New York.
S-34
<PAGE>
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 [and Government Securities] 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 .
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.
[Disclose if a material portion of the Mortgage Certificates are derived
from the Depositor's (or an affiliate's) unsold allotment or from the
Depositor's (or an affiliate's) previous offering(s).]
S-35
<PAGE>
INDEX OF TERMS
--------------
<TABLE>
<CAPTION>
Page on which
Term is defined in the
Term Prospectus Supplement
- ---- ----------------------
<S> <C>
ARM's.............................................................S-16
Beneficial Owner..................................................S-28
Book-Entry Certificates...........................................S-22
Breakage Fee......................................................S-27
CEDE..............................................................S-28
Certificate Account...............................................S-29
Certificates.......................................................S-1
[Class A-1 Certificates....................................prospectus]
Class A-1 Pass Through Rate........................................S-6
[Class IO Certificates.....................................prospectus]
Class IO Pass-Through Rate.........................................S-7
[Class R Certificates......................................prospectus]
[Closing Date..............................................prospectus]
Code..............................................................S-12
Collection Period..................................................S-7
Commission.........................................................S-3
CPR...............................................................S-18
[Deferred Interest.........................................prospectus]
Definitive Certificate............................................S-28
Depositor..........................................................S-1
Distribution Date..................................................S-5
DTC Participants..................................................S-28
[Due Date..................................................prospectus]
ERISA.............................................................S-12
Exchange Act.......................................................S-3
Exemption.........................................................S-32
Indices...........................................................S-11
Indirect DTC Participants.........................................S-28
Interest Accrual Amount............................................S-5
Interest Accrual Period...........................................S-20
Interest Available Funds..........................................S-23
Interest Shortfall Amount..........................................S-6
[Interest Weighted Class of Certificates...................prospectus]
Modeling Assumptions..............................................S-18
Mortgage Certificates..............................................S-1
Mortgage Certificate Balance......................................S-24
Mortgage Certificate Pass-Through Rate.............................S-7
[Mortgage Certificate Principal Balance....................prospectus]
Mortgage Interest Rate.....................................prospectus]
Mortgage Loans....................................................S-15
Mortgage Loan Servicer............................................S-14
Mortgage Loan Trustee.............................................S-14
Percentage Interest...............................................S-23
Plan..............................................................S-12
</TABLE>
S-36
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Pooling Agreement..................................................S-5
[Prepayment Interest Shortfalls............................prospectus]
Principal Balance.................................................S-24
Quarterly Mortgage Certificate Pass-Through Rate..................S-24
Record Date........................................................S-5
Regular Certificates..............................................S-12
Reinvestment Rate.................................................S-20
Related Subordinated Certificates.................................S-15
REMIC..............................................................S-2
Reserve Fund......................................................S-25
Reset Date.........................................................S-6
Rules.............................................................S-28
Similar Law.......................................................S-12
SMMEA.............................................................S-11
Special Termination...............................................S-10
Strike Rate........................................................S-7
Termination Scenarios.............................................S-20
Trust Fund.........................................................S-5
Trustee...........................................................S-11
Underlying Disclosure Documents....................................S-2
Underlying Mortgage Pool...........................................S-9
Underlying Pooling Agreements......................................S-2
Underlying Series..................................................S-9
Underlying Series Cut-off Date S-14
Underlying Series Distribution Date................................S-7
Underlying Trust Fund.............................................S-15
Weighted Average Mortgage Certificate Pass-Through Rate............S-7
Yield Support Counterparty.........................................S-7
Yield Support Agreement............................................S-7
</TABLE>
S-37
<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.
--------------------------------
PROSPECTUS SUPPLEMENT
<TABLE>
<S> <C>
Available Information................................ S-3
Reports to Certificateholders........................ S-3
Summary of Terms..................................... S-4
Risk Factors.........................................S-13
Geographic Concentration.............................S-14
Description of the Certificates......................S-14
The Mortgage Certificates............................S-21
Summary Description of the Mortgage Certificates.....S-22
Description of the Mortgage Loans....................S-23
Delinquency Status...................................S-25
Yield and Prepayment Considerations..................S-25
The Mortgage Loan Servicers..........................S-32
[Government Securities...............................S-26]
Certain Federal Income Tax Consequences..............S-32
Legal Investment Considerations......................S-33
ERISA Considerations.................................S-33
Method of Distribution...............................S-34
Legal Matters........................................S-34
Ratings..............................................S-34
Use of Proceeds......................................S-35
Index of Terms.......................................S-36
</TABLE>
PROSPECTUS
<TABLE>
<CAPTION>
<S> <C>
Prospectus Supplement................................ 2
Additional Information............................... 2
Incorporation of Certain Information by Reference.... 2
Summary of Terms..................................... 3
Risk Factors.........................................14
The Trust Fund.......................................16
The Depositor........................................25
Use of Proceeds......................................25
Yield Considerations.................................26
Maturity and Prepayment Considerations...............27
Description of the Certificates......................29
Credit Support.......................................54
Description of Insurance.............................58
Certain Legal Aspects of the Mortgage
Loans and Contracts..................................64
Certain Federal Income Tax Consequences..............74
ERISA Considerations.................................97
Legal Investment....................................101
Plan of Distribution................................102
Legal Matters.......................................103
Index of Terms......................................104
</TABLE>
Asset Backed
Securities Corporation
Depositor
$
_________ Conduit Mortgage
Pass-Through Certificates,
Series 199 - __
PROSPECTUS
CS FIRST BOSTON
<PAGE>
EXHIBIT 99.13
<PAGE>
Subject to Completion, Dated [ ], 199[ ]
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED [ ], 199[ ]
CARD ACCOUNT TRUST, SERIES 199[ ]-[ ]
<TABLE>
<S> <C>
$[ ] [ %] [Floating Rate] [Adjustable Rate] [Variable Rate] Asset Backed Notes, [Class A]
$[ ] [ %] [Floating Rate] [Adjustable Rate] [Variable Rate] Asset Backed Notes, [Class B]
$[ ] [ %] [Floating Rate] [Adjustable Rate] [Variable Rate] Asset Backed Certificates, [Class C]
</TABLE>
ASSET BACKED SECURITIES CORPORATION, DEPOSITOR
The Card Account Trust, Series 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 A] [ %]
[Floating Rate] [Adjustable Rate] [Variable Rate] Asset Backed Notes (the
"[Class A] Notes") [and $[ ] aggregate principal amount of [Class B] [% ]
[Floating Rate ] [Adjustable Rate] [Variable Rate] Asset Back Notes (the "[Class
B] Notes" and, together with the Class [A] 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
(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 [OTHER THAN
THE GOVERNMENT SECURITIES] ARE INSURED OR GUARANTEED BY ANY GOVERNMENTAL
AGENCY.
PROSPECTIVE INVESTORS SHOULD CONSIDER THE FACTORS SET FORTH UNDER
UNDER "RISK FACTORS" BEGINNING ON PAGE S-15 OF THIS PROSPECTUS SUPPLEMENT AND
PAGE 33 OF THE PROSPECTUS.
PROSPECTIVE INVESTORS SHOULD CONSIDER LIMITATIONS DISCUSSED UNDER
"ERISA CONSIDERATIONS" IN THIS PROSPECTUS SUPPLEMENT AND IN THE PROSPECTUS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION 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 Underwriting Proceeds to
Public Discount the Depositor(1)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per [Class A] Note
- --------------------------------------------------------------------------------
[Per Class B Note]
- --------------------------------------------------------------------------------
[Per Class C Certificate]
- --------------------------------------------------------------------------------
Total
================================================================================
</TABLE>
(1) Before deduction of expenses payable by the Depositor, 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>
(Continued from the previous page)
Trustee"). [The Trust will also issue $[ ] aggregate principal amount of
Class [C] [% ] [Floating Rate] [Adjustable Rate] [Variable Rate] Asset Backed
Certificates (the "[Class C] 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 assets of the Trust will consist primarily of [(a)] 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 "[CRB] Agreements")
[and (b) [describe Government Securities if any] (the "Government Securities")
each issued pursuant to [describe agreements] (collectively, the "Government
Agreements", and the Government Agreements, together with the CRB Agreements,
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 related properties, as more fully described herein. The CRB Securities
[and the Government 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 Trust 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 per annum rate of interest on the [Class A] 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 B] Notes for each [monthly] [quarterly] [semi-annually]
Interest Accrual Period 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 A] 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 A] Notes. [Principal of
the [Class B] 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 B] 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.]
The description[s] of the CRB Securities [and Government Securities]
contained in this Prospectus Supplement is [are] qualified in its [their]
entirety by reference to the actual terms and provisions of the Prospectuses and
Prospectus Supplements related to each of the CRB Securities (collectively, the
"[CRB Securities] [Underlying] Disclosure Documents") [, the terms of the
Prospectuses, Prospectus Supplements and other offering documents related to
each of the Government Securities (collectively, the "Government Securities
Disclosure Documents"' and the Government Securities Disclosure Documents,
together with the CRB Securities Disclosure Documents, the "Underlying
Disclosure Documents") and the Agreements. Copies of the Underlying Disclosure
Documents and the 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 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].
THERE IS CURRENTLY NO SECONDARY MARKET FOR THE SECURITIES AND THERE
CAN BE NO ASSURANCE THAT SUCH A MARKET WILL DEVELOP. THE UNDERWRITERS EXPECT,
BUT ARE NOT OBLIGATED, TO MAKE A MARKET IN THE SECURITIES. THERE CAN BE NO
ASSURANCE THAT ANY SUCH MARKET WILL DEVELOP OR IF IT DOES DEVELOP THAT IT WILL
CONTINUE. POTENTIAL INVESTORS SHOULD CONSIDER, AMONG OTHER THINGS, THE
INFORMATION SET FORTH IN "RISK FACTORS" HEREIN AND IN THE PROSPECTUS.
UNTIL _____, _____, 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.
S-2
<PAGE>
[IF AND TO THE EXTENT REQUIRED BY APPLICABLE LAW OR REGULATION, THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS WILL ALSO BE USED BY THE UNDERWRITER
AFTER THE COMPLETION OF THE OFFERING IN CONNECTION WITH OFFERS AND SALES RELATED
TO MARKET-MAKING TRANSACTIONS IN THE OFFERED SECURITIES IN WHICH THE UNDERWRITER
ACTS AS PRINCIPAL. SALES WILL BE MADE AT NEGOTIATED PRICES DETERMINED AT THE
TIME OF SALE.]
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.
The Commission maintains a Web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. The address of such site is
(http://www.sec.gov).
S-3
<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 [and the [describe
Government Securities disclosure document, if any] for the Government
Securities]. Certain capitalized terms used herein are defined elsewhere in this
Prospectus Supplement or in the Prospectus.
<TABLE>
<CAPTION>
<S> <C>
Securities Offered.................... (i) [ %] [Floating Rate] [Adjustable
Rate] [Variable Rate] Asset Backed
Notes, [Class A] (the "[Class A]
Notes");
[(ii) [ %] [Floating Rate]
[Adjustable Rate] Variable Rate]
Asset Backed Notes, [Class B] (the
"[Class B] Notes" and, together with
the [Class A] Notes, the "Notes");
and]
[(iii) [ %] [Floating Rate]
[Adjustable Rate] [Variable Rate]
Asset Backed Certificates, [Class C]
(the "[Class C] 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 [Indenture Trustee name], in its
capacity as indenture trustee (the
"Indenture Trustee"). The [Indenture]
[Owner] Trustee will allocate
distributions of principal and
interest received in respect of the
CRB Securities [and Government
Securities] to holders of the Notes
(the "Noteholders") in accordance
with the terms of the Indenture.
</TABLE>
S-4
<PAGE>
<TABLE>
<S> <C>
Trust Agreement....................... Pursuant to a trust agreement dated
as of [ ], 199[ ] (the "Trust
Agreement"), among the Depositor and
[ Owner Trustee name] in its capacity
as owner trustee (the "Owner
Trustee"), the Trust will issue the
[Class C] Certificates in an initial
aggregate amount of $[ ]. The
[Class C] 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 securities, as
more fully described herein, each
issued pursuant to a pooling and
servicing agreement, master pooling
and servicing agreement or similar
agreement (collectively, the
"Agreements").
Government Securities................. [Describe Government Securities (the
"Government Securities")]
Risk Factors.......................... For a discussion of risk factors that
should be considered in respect of an
investment in the Securities, see
"Risk Factors" herein and in the
Prospectus.
Description of Notes.................. [Each Class of] [The] Notes will be
secured by a specified group of] the
assets of the Trust pursuant to the
Indenture.
A. Interest Rates
Payable on Notes............ [Class A] [ %] [insert interest rate
index, margin above index and cap, if
any] (the "[Class A] Note Interest
Rate").
[[Class B] [ %] [insert interest
rate index, margin above index and
cap, if any] (the "[Class B] Note
Interest Rate").]
</TABLE>
S-5
<PAGE>
<TABLE>
<S> <C>
B. Interest Payments............ Interest will accrue on the unpaid
principal amount of the Notes at the
[respective] per annum interest
rate[s] 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 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] the 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 Arrangements described
below,] [interest on the [Class A]
Notes will be payable only from
interest received on the [Group A]
CRB Securities [and [Group A]
Government Securities] and interest
on the [Class B] Notes will be
payable only from interest received
on the [Group B] CRB Securities [and
[Group B] Government Securities] .]
C. Principal Payments........... No principal will be payable to the
Noteholders until the [ ], 199[ ]
Payment Date with respect to the [Class
A] Notes [and the [ ], 199[ ] Payment
Date with respect to the [Class B]
Notes,] or, upon the occurrence of a CRB
Securities Amortization Event, the first
Payment Date thereafter, as described
herein. Principal payable on the [Class
A]Notes on a Payment Date will generally
be equal to [ ] [[%] (the "Class A] Note
Percentage") of the principal received
on the [Group A] CRB Securities
</TABLE>
S-6
<PAGE>
<TABLE>
<S> <C>
[and [Group A] Government
Securities] only on such Payment
Date, as calculated by the Indenture
Trustee, and will be paid pro rata to
the holders of the [Class B] Notes. ]
[Principal payable on the [Class B]
Notes on a Payment Date will
generally be equal to [ ] [[%] (the
"[Class B] Note Percentage") of the
principal received on the [Group B]
CRB Securities [and [Group B]
Government Securities] only on such
Payment Date, as calculated by the
Indenture Trustee, and will be paid
pro rata to the holders of the [Class
B] 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 A] Notes
will be due on the [ ], 199[ ] Payment
Date [and the principal balance of the
[Class B] Notes will be due on the [ ],
199[ ] Payment Date.] Failure to pay the
full principal balance of [each Class
of] the Notes on or before the
applicable final scheduled
</TABLE>
S-7
<PAGE>
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 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
S-8
<PAGE>
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--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/or 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 C]
Certificates................ The [Class C] Certificates represent
$[ ] aggregate principal amount.
Interest thereon will accrue at a
rate per annum equal to [ %]
[insert [Class C] interest formula]
[the
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<TABLE>
<S> <C>
product of [insert [Group A]
interest formula] and the ratio that
the [sum of the] principal amount[s]
of the [Group A] CRB Securities [and
[Group A] Government Securities]
bears to the aggregate principal
amount of the CRB Securities [and
Government Securities], [such amount
being subject to a maximum rate of
[insert [Group A] interest cap, if
any]]; plus the product of [insert
[Group B] interest formula] and the
ratio that the [sum of the] principal
amount[s] of the [Group B] CRB
Securities [and [Group B] Government
Securities] bears to the aggregate
principal amount of the CRB
Securities [and Government
Securities], [such amount being
subject to a maximum rate of [insert
[Group B] interest cap, if any]],
payable [monthly] [quarterly]
[semi-annually] on each Payment
Date[, provided that the rate of
interest on the [Class C]
Certificates shall not exceed [insert
[Class C] Certificate interest cap,
if any] per annum] (the "[Class C]
Certificate Interest Rate").
B. Interest Distributions
on the [Class C]
Certificates................. Interest will accrue on the unpaid
principal amount of the [Class C]
Certificates at the per annum rate
specified herein. Except as otherwise
provided herein, interest will be
distributed to [Class C]
Certificateholders on each Payment Date.
Interest in respect of a Payment Date
will accrue on the [Class C]
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].
</TABLE>
S-10
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<TABLE>
<S> <C>
C. Principal Distributions
on the [Class C]
Certificates ................ No principal will be distributable to
[Class C] Certificateholders until the [
], 199[ ] Payment Date or, upon the
occurrence of a CRB Securities
Amortization Event, the first Payment
Date thereafter, as described herein.
Principal distributable on the [Class C]
Certificates will generally equal [the
sum of] [insert [Group A] Certificate
Percentage]% (the "[Group A] Certificate
Percentage") of the principal received
on the [Group A] CRB Securities [and
[Group A] Government Securities] and
[insert [Group B] Certificate
Percentage]% (the "[Group B] Certificate
Percentage") of the principal received
on the [Group B] CRB Securities [and
[Group B] Government 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 (a "Record Date").
E. Subordination................ Distributions of interest on the
Certificates with respect to the [Group
A] CRB Securities [and [Group A]
Government Securities] and the [Group B]
CRB Securities will be subordinated in
priority of payment to the payment of
interest due on the [Class A] Notes [and
[Class B] Notes, respectively].
Distributions of principal on the
Certificates with respect to the [Group
A] CRB Securities [and [Group A]
Government Securities] and the [Group B]
CRB Securities [and [Group B] Government
Securities] will be
</TABLE>
S-11
<PAGE>
<TABLE>
<S> <C>
subordinated in priority of payment to
the payment of principal due on the
[Class A] Notes [and [Class B] Notes,
respectively]. Consequently,
Certificateholders will not receive
distributions of interest with respect
to the [Group A] CRB Securities [or
[Group A] Government Securities] or the
[Group B] CRB Securities [or [Group B]
Government 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 A]
CRB Securities [or [Group A] Government
Securities] or the [Group B] CRB
Securities [or [Group A] Government
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 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
</TABLE>
S-12
<PAGE>
indirectly through CEDEL or Euroclear,
on the other, will be effected in DTC
through Citibank or 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 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 $1,000 in excess
thereof and will not be eligible to be
resold or subdivided into units smaller
than the minimum denomination
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<TABLE>
<S> <C>
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 C]
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 [the following][certain]
ancillary arrangements (such
agreements, the "Ancillary
Arrangements"). [Insert description
of Ancillary Arrangements.]
[Calculation of LIBOR................. LIBOR applicable to the calculation
of the [Class A] Note Interest 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 A] CRB
Securities [and the [Group A]
Government Securities] immediately
prior to such date) applicable to the
distributions of interest on the
[Group A] CRB Securities [and the
[Group A] Government Securities]
distributable on such date.]
[LIBOR applicable to the calculation of
the [Class B] Note Interest Rate in
respect of a
</TABLE>
S-14
<PAGE>
<TABLE>
<S> <C>
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 B] CRB Securities [and the [Group
B] Government Securities] immediately
prior to such date) applicable to the
distributions of interest on the [Group
B] CRB Securities [and the [Group B]
Government Securities] distributable on
such date.]
[LIBOR applicable to the calculation of
the interest rate on the [Class C]
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 [and the Government
Securities] immediately prior to such
date) applicable to the distributions of
interest on the CRB Securities [and the
Government Securities] distributable on
such date.]
[The LIBOR applicable to the (i) CRB
Securities is described under
"Description of the CRB Securities--
Interest Distributions" herein and (ii)
the Government Securities is described
under "Description of the Government
Securities--Interest Distributions",
herein.]
Tax Considerations................ 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
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
</TABLE>
S-15
<PAGE>
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.]
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 C]
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
S-16
<PAGE>
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-17
<PAGE>
RISK FACTORS
In addition to the other information contained in this Prospectus
Supplement and in the Prospectus, 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 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.
No Obligation of Depositor to Make Payments in respect of Securities. The
Depositor is not obligated to make any payments in respect of the Securities,
[or] the CRB Securities [or the Government Securities].
Maturity Assumptions and Risk of Prepayment or Early Amortization. The rate
of payment of principal of [each Class of] the Securities, the aggregate amount
of each distribution on, and the yield to maturity of, [each Class of] the
Securities will depend on the rate of payment of principal of the CRB Securities
[and the Government 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. [Describe basis risk,
and prepayment and yield consideration relating to Government Securities.
The rate of payment of principal of the Securities may also be affected by
the repurchase by any 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.
Limited 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.
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<PAGE>
Risks Attendant to Investments in the Certificates. Distributions of
interest on the Certificates [with respect to the [Group A] CRB Securities[, the
[Group A] Government Securities,] [and] [the [Group B] CRB Securities] [and the
[Group B] Government Securities]] will be subordinated in priority of payment to
the interest due on the [Class A] Notes [and [Class B] Notes, respectively].
Distributions of principal on the Certificates [with respect to the [Group A]
CRB Securities, [the [Group A] Government Securities] [and] [the [Group B] CRB
Securities] [and the [Group B] Government Securities]] will be subordinated in
priority of payment to the payment of principal due on the [Class A] Notes and
[Class B] 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
Payment Date has been paid in full and will not receive any distributions of
principal with respect to the [Group A] CRB Securities, [the [Group A]
Government Securities [or] [the [Group B] CRB Securities [or the [Group B]
Government Securities]] until the full amount of principal due on the
[respective Class of] Notes on such Payment Date is paid in full.
Risks Attendant to Investments in Interest-only or Principal-only
Securities. [If the Securities are interest-only or principal-only securities,
discuss risks attendant thereto.]
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
Government 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 the material terms of the Notes and the
Indenture. The summaries do not purport to be complete descriptions of all of
the terms of the Notes and the Indenture and therefore are subject to, and
qualified in their entirety by reference to, all the provisions of the Notes and
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.
S-19
<PAGE>
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] the 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 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 [each Class 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 A] Notes will be funded from the
collections of interest on the [Group A] CRB Securities and [Group A] Government
Securities on such date, and interest payments on the [Class B] Notes will be
funded from the collections of interest on the [Group B] CRB Securities and
[Group B] Government 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"). [Interest on the Government
Securities is payable on [describe Government Securities interest payment
schedule].] [If interest collections on the [Group A] CRB Securities and [Group
A] Government Securities [or the [Group B] CRB Securities and [Group B]
Government Securities ] [plus amounts received with respect to the respective
Ancillary Arrangements] are not sufficient to pay the interest due on the
[respective Class of] the 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.
S-20
<PAGE>
[Calculation of LIBOR. LIBOR applicable to the calculation of the interest
rates on the [Class A] 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 A] CRB Securities [and [Group A] Government Securities] immediately
prior to such CRB Securities Distribution Date [or Government Securities
Distribution Date, as applicable]) applicable to the distributions of interest
on the [Group A] CRB Securities [and [Group A] Government Securities]
distributable on such CRB Securities Distribution Date [or Government Securities
Distribution Date, as applicable]. [LIBOR applicable to the calculation of the
interest rates on the [Class B] 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 B] CRB Securities [and [Group B] Government Securities]
immediately prior to such CRB Securities Distribution Date [or Government
Securities Distribution Date, as applicable]) applicable to the distributions of
interest on the [Group B] CRB Securities [and [Group B] Government Securities]
distributable on such CRB Securities Distribution Date [or Government Securities
Distribution Date, as applicable]. The LIBOR applicable to the (i) CRB
Securities is described under "DESCRIPTION OF THE CRB SECURITIES--Interest
Distributions" herein and (ii) the Govern Securities is described under
"DESCRIPTION OF THE GOVERNMENT 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 A]. The [Class A] Notes will bear interest at an annual rate equal
to [insert [Class A] interest rate formula, interest rate index and margin above
index, if any] on the aggregate principal amount of the [Class A] 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 A] Note Interest Rate").
[[Class B]. The [Class B] Notes will bear interest at an annual rate equal
to [insert [Class A] interest rate formula, interest rate index and margin above
index, if any] on the aggregate principal amount of the [Class B] 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 B] Note Interest Rate").]
PAYMENTS OF PRINCIPAL
Principal payments to the Noteholders are expected to commence on the [
], 199[ ] Payment Date with respect to the [Class A] Notes [and the [ ], 199[
] Payment Date with respect to the [Class B] Notes]. If, however, a 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 A] CRB Securities and [Group A] Government Securities], principal
payments will be made on the [Class A] Notes in an amount generally equal to
[insert [Class A] Note Percentage] (the "[Class A] Note
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<PAGE>
Percentage") of the principal distributed on the [Group A] CRB Securities [and
[Group A] Government Securities] only.] Such principal will be applied pro rata
in accordance with the outstanding principal balances of the [Class A] Notes.
The principal balance of the [Class A] Notes, to the extent not previously paid,
will be due on the [ ], 199[ ] Payment Date (the "[Class A] Final Schedule
Payment Date").
[On each Payment Date in respect of which principal is distributed on the
[Group B] CRB Securities and [Group B] Government Securities , principal
payments will be made on the [Class B] Notes in an amount generally equal to
[insert [Class B] Note Percentage] (the "[Class B] Note Percentage") of such
principal distributed on the [Group B] CRB Securities and [Group B] Government
Securities only. Such principal will be applied pro rata in accordance with the
outstanding principal balances of the [Class B] Notes. The principal balance on
the [Class B] Notes, to the extent not previously paid, will be due on the [
], 199[ ] Payment Date (the "[Class B] Final Schedule Payment Date").]
Principal on the [Class A] Notes will be payable solely from principal on
the [Group A] CRB Securities and [Group A] Government Securities [and principal
on the [Class B] Notes will be payable solely from principal on the [Group B]
CRB Securities and [Group B] Government Securities].
[ANCILLARY ARRANGEMENTS]
[On the Closing Date the Trust will enter into ancillary arrangements (such
arrangements, the "Ancillary Arrangements").] [Insert description of the
Ancillary Arrangements.]
DISTRIBUTIONS ON THE CRB SECURITIES AND GOVERNMENT SECURITIES; COLLECTION
ACCOUNT
All distributions on the CRB Securities and Government 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.
[Describe Government Securities Distribution Date.]
[ASSIGNMENT OF CRB SECURITIES and Government 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 DTC, to be delivered to the
[Indenture] [Owner] Trustee's participant account at DTC.]
[The Depositor will acquire the Government Securities for deposit into the
Trust [describe method of acquisition of Government Securities].]
TERMINATION
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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[ ], between 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 the material terms of the Certificates and
the Trust Agreement. The summaries do not purport to be complete descriptions
of all of the terms of the Certificates and the Trust Agreement and therefore
are subject to, and qualified in their entirety by reference to, all the
provisions of the Certificates and the Trust Agreement. Wherever particular
defined terms of the Certificates and 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. 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
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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 C] 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, 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].
[Calculation of LIBOR: LIBOR applicable to the calculation of the interest
rates on the [Class C] 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 C]. The [Class C] Certificates will bear interest on the aggregate
principal amount of such Certificates at an annual rate equal to [insert [Class
C] interest rate] [(x) [insert [Class C] index] [plus (i) [insert [Group A]
interest rate formula] multiplied by the ratio that the principal amount of the
[Group A] CRB Securities [and the [Group A] Government Securities] bears to the
aggregate principal amount of the CRB Securities [and the [Group A] Government
Securities] [,such amount being subject to a maximum rate of [insert interest
rate cap, if any]]; [plus (ii) [insert [Group B] interest rate formula]
multiplied by the ratio that the principal amount of the [Group B] CRB
Securities [and the [Group B] Government 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, a 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, [and the Government Securities] principal distributions will,
subject to the prior rights of the holders of the Notes described under
"Subordination" below, be made on the [Class C] Certificates in an amount
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generally equal to, [insert amount] [[insert [Group A] Certificate percentage]%
(the "[Group A] Certificate Percentage) of the principal amount on the [Group A]
CRB Securities [and the [Group A] Government Securities] and [insert [Group B]
Certificate Percentage]% (the "[Group B] Certificate Percentage") of the
principal distributed on the [Group B] CRB Securities [and the [Group B]
Government Securities].] Such principal will be applied pro rata in accordance
with the outstanding principal balances of the [Class C] Certificates. [The
principal balance of the [Class C] Certificates at any time will be equal to the
outstanding principal balance of the CRB Securities [and Government Securities]
at such time multiplied by the [Class C] Certificate Percentage at such time.]
As more fully described herein, the outstanding principal balances 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 C] Certificates with respect to the
[Group A] CRB Securities [and the [Group A] Government Securities] [and the
[Group B] CRB Securities [and the [Group B] Government Securities]] will be
subordinated in priority of payment to the payment of interest due on the [Class
A] Notes [and [Class B] Notes, respectively]]. Distributions of principal on
the Certificates with respect to the] [Group A] CRB Securities [and the [Group
A] Government Securities] [and the [Group B] CRB Securities [and the [Group B]
Government Securities]] will be subordinated in priority of payment of principal
due on the [Class A] Notes [and [Class B] Notes, respectively]. Consequently,
the Certificateholders will not receive any distributions of interest with
respect to the [Group A] CRB Securities [and the [Group A] Government
Securities] or the [Group B] CRB Securities [or the [Group B] Government
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 A] CRB
Securities [or the [Group A] Government Securities] [or the [Group B] CRB
Securities [or the [Group B] Government 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 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........................
CRB Security Distribution Date..........
Commencement of Controlled Amortization
Period.................................
Minimum [Seller's] [Transferor's]
[Depositor'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 directly to the CRB Securities.
Although neither the Depositor nor the Underwriter has any reason to
believe the information provided by the originator of a CRB Securities or the
prospectus relating to the CRB Securities is not reliable, neither the Depositor
nor the Underwriter has verified either its accuracy or its completeness.
Neither the Depositor nor the Underwriter warrants that events have not occurred
which would affect either the accuracy or completeness of the information
contained therein.
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 [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 thereof 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.
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[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.
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 original seller, transferor or depositor 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 [or a transferee of such Seller holds such interest].
Such Seller [or transferee of 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 A] CRB SECURITIES
The [Group A] CRB Securities [the "[Group A] CRB Securities") will consist
of the CRB Securities issued by the following CRB Securities Issuers: [insert
description of [Group A] card issuers].
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THE [GROUP B] CRB SECURITIES
The [Group B] CRB Securities (the "[Group B] CRB Securities") will consist
of the CRB Securities issued by the following CRB Securities Issuers: [insert
description of [Group B] 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.
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 bear interest at a rate per annum of [insert
descriptions 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] [to occur] 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")] [[ ] CRB
Securities Distribution Date (the "CRB Securities Expected Final Payment
Date"),], but may be distributed earlier or later than such date. However, if a
Rapid Amortization Event, Early Amortization Event, Pay Out Event, Liquidation
Event, Economic Pay Out Event or similar 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 [CRB Securities Expected Final Payment Date]. If, however, the amount of
principal distributed on the [scheduled final CRB Securities Distribution Date]
[CRB Securities Expected Final Payment 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] [CRB
Securities Expected Final Payment Date].
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<PAGE>
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:
(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,
[(e) during the CRB Securities Accumulation Period, collections of
Principal Receivables will be deposited for the benefit of the holders of
CRB Securities based on the investor percentage in a principal Funding
Account].
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.
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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,
(e) failure to maintain a certain minimum level of Receivables or Accounts,
or if the Seller is unable to transfer Receivables or Accounts to a CRB
Securities Issuer,
(f) certain events of bankruptcy or insolvency relating to the Seller,
(g) a 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 [
%] 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.
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<PAGE>
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.
[DESCRIPTION OF THE GOVERNMENT SECURITIES]
[The table below set forth certain characteristics of the Government
Securities. The table does not purport to be complete and is subject to, and
qualified in its entirety by reference to [describe disclosure document, if any,
relating to the Government Securities].]
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DESCRIPTION OF THE GOVERNMENT SECURITIES
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<PAGE>
GENERAL
[To be added.]
GOVERNMENT SECURITIES; RECENT DEVELOPMENTS
[To be added.]
INTEREST DISTRIBUTIONS
[To be added.]
PRINCIPAL DISTRIBUTIONS
[To be added.]
[SERVICING] [TRUSTEE] COMPENSATION; ALLOCATION OF EXPENSES
[To be added.]
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.
THE INDENTURE
The following summary describes the material 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.
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<PAGE>
COLLECTION OF DISTRIBUTIONS ON CRB SECURITIES [AND GOVERNMENT SECURITIES]
The CRB Securities [and the Government Securities] will be assets of the
Trust. All distributions on the CRB Securities [and the Government 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 the Government 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 [or the Government Securities] by the [ ] Business Day after the
date on which such distribution was due and payable pursuant to the terms of
such CRB Securities [or the Government Securities], the Indenture will require
it to take such actions as are permissible pursuant to the related CRB
Securities Agreement [or the [describe any rights under Government Securities],
respectively] to ensure that the distribution will 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 [each Class of] the Notes,
(ii) the outstanding principal balance of [each Class of] the Notes and (iii)
the outstanding balances of the [Group A] CRB Securities [[Group A] Government
Securities] [or the [Group B] CRB Securities [or [Group B] Government
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.
EVENTS OF DEFAULT; RIGHTS UPON EVENT OF DEFAULT
With respect to the Notes, an "Event 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
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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, 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] the 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 [and Government Securities] or elect to have the Trust
maintain possession of the CRB Securities [and Government Securities] and
continue to apply collections on the CRB Securities [and Government Securities]
as if there had been no declaration or acceleration. The Indenture Trustee is
prohibited from selling the CRB Securities [and Government 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 [and Government
Securities] would not be sufficient on an ongoing basis to make all payments on
the Notes as such payments 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
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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 any Rating Agency as a result of such merger or consolidation and
(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 Internal Revenue Code of 1986 as amended (the "Code") or
applicable state law) or assert any claim against any present or former holder
of Notes because of the payment
S-37
<PAGE>
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 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
S-38
<PAGE>
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
[or Government 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.
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 [or the Government 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
S-39
<PAGE>
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 the material 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 [AND THE GOVERNMENT SECURITIES]
The CRB Securities [and Government Securities] will be assets of the Trust.
All distributions thereon will be made directly to the Owner 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 Owner Trustee will take all actions to collect any distributions due
on the CRB Securities [and Government 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 [and
Government 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) [and Government Securities Distribution Date Statement (as defined in
the Trust Agreement) received by the Owner Trustee as of the date of such
request.
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
S-40
<PAGE>
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 [and
Government 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 [and Government 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 [and Government Securities] will be treated as collections
on the CRB Securities [and Government Securities] and deposited in the
Collection Account. If the proceeds from the liquidation of the [Group A] CRB
Securities [or] the [Group B] CRB Securities [or the [Group B] Government
Securities]] and any respective amounts on deposit in the Collection Account are
not sufficient to pay the [Class A] Notes [or [Class B] 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.
S-41
<PAGE>
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 [or the Government 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.
S-42
<PAGE>
[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 [and Government 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
Government Securities] and the payment of expenses related to such purchase.]
[CERTAIN FEDERAL INCOME TAX CONSIDERATIONS]
[Additional tax disclosure to be added, if necessary.]
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.
S-43
<PAGE>
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.
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 A] Note, [[ %] per [Class B] Note] [and [ %] per Certificate]; and, the
Underwriter and such dealers may allow a discount of [ %] per [Class A] Note,]
[ %] per [Class B] 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 Depositor 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.
If and to the extent required by applicable law or regulation, this
Prospectus Supplement and the Prospectus will also be used by the Underwriter
after the completion of the offering in connection with offers and sales related
to market-making transactions in the offered Securities in which the Underwriter
acts as principal. Sales will be made at negotiated prices determined at the
time of sale.
S-44
<PAGE>
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 [and
the Government Securities]. The rating takes into consideration the
characteristics of the CRB Securities [and the Government Securities] and the
structural, legal and tax aspects associated with the 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.
S-45
<PAGE>
INDEX OF DEFINED TERMS
Accounts S-2
Administration Agreement....................... S-22
Administrator.................................. S-22
Agreements..................................... S-2
Ancillary Arrangements......................... S-13
Book-Entry Certificates........................ S-11
Book-Entry Notes............................... S-8
Business Day................................... S-7
Cede........................................... S-8
CEDEL.......................................... S-8
Certificates................................... S-1
Citibank....................................... S-8
[Class A] Note Interest Rate................... S-5
[Class A] Note Percentage...................... S-6
[Class A] Notes................................ S-1
[Class B] Note Interest Rate................... S-5
[Class B] Note Percentage...................... S-7
[Class B] Notes................................ S-1
[Class C] Certificate Interest Rate............ S-10
[Class C] Certificates......................... S-2
Closing Date................................... S-6
Code........................................... S-34
Collection Account............................. S-21
CRB Securities................................. S-2
CRB Securities Amortization Event.............. S-28
CRB Securities Certificate Rate................ S-28
CRB Securities Controlled Amortization Period.. S-28
CRB Securities Distribution Date............... S-19
CRB Securities Expected Final Payment Date..... S-28
CRB Securities Servicer........................ S-30
CRB Securities Servicing Fee................... S-30
Definitive Certificates........................ S-12
Definitive Notes............................... S-8
Depositor...................................... S-1
DTC............................................ S-8
Euroclear...................................... S-8
European Depositaries.......................... S-8
Event of Default............................... S-32
Federal Tax Counsel............................ S-15
Finance Charge Receivables..................... S-29
[Group A] Certificate Percentage............... S-10
[Group A] CRB Securities....................... S-27
S-46
<PAGE>
[Group B] Certificate Percentage............... S-10
[Group B] CRB Securities....................... S-27
Indenture...................................... S-1
Indenture Trustee.............................. S-1
Insolvency Event............................... S-37
Interest Accrual Period........................ S-6
Issuer......................................... S-4
Moody's........................................ S-17
Morgan......................................... S-8
Noteholders.................................... S-4
Notes.......................................... S-1
Owner Trustee.................................. S-1
Payment Date................................... S-2
Principal Receivables.......................... S-29
Prospectus..................................... S-1
Rating Agency.................................. S-17
Receivables.................................... S-2
Record Date.................................... S-11
Reuters LIBOR.................................. S-28
S&P............................................ S-17
Securities..................................... S-1
Seller......................................... S-27
Seller's Interest.............................. S-27
Seller's Percentage............................ S-27
Telerate LIBOR................................. S-28
Trust.......................................... S-1
Trust Agreement................................ S-1
Underwriter.................................... S-1
Voting Interests............................... S-38
S-47
<PAGE>
APPENDIX A
TABLE OF CONTENTS
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-48
<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
<TABLE>
<CAPTION>
PAGE
----
PROSPECTUS SUPPLEMENT
<S> <C>
Summary..................................... S-4
Risk Factors................................ S-18
The Trust................................... S-19
Description of the Notes.................... S-19
Description of the Certificates............. S-23
Description of the CRB Securities........... S-25
[Description of the Government Securities... S-32]
The Depositor............................... S-33
The Indenture............................... S-33
The Trust Agreement......................... S-40
[Administration Agreement].................. S-43
The Indenture Trustee....................... S-43
The Owner Trustee........................... S-43
Use of Proceeds............................. S-43
[Certain Federal Income Tax Considerations.. S-43]
ERISA Considerations........................ S-43
Legal Investment Considerations............. S-43
Underwriting................................ S-44
Legal Matters............................... S-45
Rating...................................... S-45
Index of Defined Terms...................... S-46
</TABLE>
PROSPECTUS
<TABLE>
<S> <C>
Prospectus Supplement....................... 3
Reports to Securityholders.................. 3
Available Information....................... 3
Incorporation of Certain Documents by
Reference.................................. 3
Summary of Terms............................ 5
Rick Factors................................ 33
The Trusts.................................. 41
Trust Assets................................ 41
Series Enhancement.......................... 46
Servicing of Receivables.................... 50
Description of the Notes.................... 54
Description of the Certificates............. 60
Certain Information Regarding the Securities 70
Description of the Trust Agreements or
Pooling and Servicing Agreements........... 75
Certain Legal Aspects of the Receivables.... 83
The Depositor............................... 87
Use of Proceeds............................. 88
Certain Federal Income Tax Consequences..... 88
Certain State and Local Tax Considerations.. 119
ERISA Considerations........................ 121
Plan of Distribution........................ 125
Legal Matters............................... 126
Index of Defined Terms...................... 127
Annex I..................................... AI-1
</TABLE>
Until [ ] days after the date of this Prospectus Supplement, all dealers
effecting transactions in the Securities 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]
[Adjustable Rate] [Variable Rate]
Asset Backed Notes, [Class A]
$[ ] [ %] [Floating Rate]
[Adjustable Rate] [Variable Rate]
Asset Backed Notes, [Class B]
$[ ] [ %] [Floating Rate]
[Adjustable Rate] [Variable Rate]
Asset Backed Certificates, [Class C]
Asset Backed Securities Corporation
(Depositor)
_________________
PROSPECTUS SUPPLEMENT
[ ], 199[ ]
___________________
CS First Boston
<PAGE>
EXHIBIT 99.14
<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[ ]
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 Card Account Trust, Series 199[ ]-[ ] (the "Trust") will be formed
pursuant to a trust agreement dated as of [ ], 199[ ] (the "Trust
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] [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").
(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 [OTHER THAN THE GOVERNMENT SECURITIES] ARE INSURED OR GUARANTEED BY
ANY GOVERNMENTAL AGENCY.
PROSPECTIVE INVESTORS SHOULD CONSIDER THE FACTORS SET FORTH UNDER UNDER
"RISK FACTORS" BEGINNING ON PAGE S-11 OF THIS PROSPECTUS SUPPLEMENT AND PAGE 33
OF THE PROSPECTUS.
PROSPECTIVE INVESTORS SHOULD CONSIDER LIMITATIONS DISCUSSED UNDER "ERISA
CONSIDERATIONS" IN THIS PROSPECTUS SUPPLEMENT AND IN THE PROSPECTUS
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 Depositor (1)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per [Class A] Certificate
- --------------------------------------------------------------------------------------------------
[Per Class B Certificate]
- --------------------------------------------------------------------------------------------------
Total
==================================================================================================
</TABLE>
(1) Before deduction of expenses payable by the Depositor, 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>
(Continued from the previous page)
The assets of the Trust will consist primarily of [(a)] 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 "[CRB] Agreements") [and (b)
[describe Government Securities if any] (the "Government Securities") each
issued pursuant to [describe agreements] (collectively, the "Government
Agreements", and the Government Agreements, together with the CRB Agreements,
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 related properties, as more fully described herein. The
CRB Securities [and the Government 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 Trust 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).]
The description[s] of the CRB Securities [and Government Securities]
contained in this Prospectus Supplement is [are] qualified in its [their]
entirety by reference to the actual terms and provisions of the Prospectuses and
Prospectus Supplements related to each of the CRB Securities (collectively, the
"[CRB Securities] [Underlying] Disclosure Documents") [, the terms of the
Prospectuses, Prospectus Supplements and other offering documents related to
each of the Government Securities (collectively, the "Government Securities
Disclosure Documents"' and the Government Securities Disclosure Documents,
together with the CRB Securities Disclosure Documents, the "Underlying
Disclosure Documents") and the Agreements. Copies of the Underlying Disclosure
Documents and the 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 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. [NON-U.S. INVESTORS ARE ALSO URGED
TO READ THE GLOBAL PROSPECTUS SUPPLEMENT.] SALES OF THE CERTIFICATES 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].
THERE IS CURRENTLY NO MARKET FOR THE CERTIFICATES AND THERE CAN BE NO
ASSURANCE THAT SUCH A MARKET WILL DEVELOP. THE UNDERWRITERS EXPECT, BUT ARE NOT
OBLIGATED, TO MAKE A MARKET IN THE CERTIFICATES. THERE CAN BE NO ASSURANCE THAT
ANY SUCH MARKET WILL DEVELOP OR IF IT DOES DEVELOP THAT IT WILL CONTINUE.
POTENTIAL INVESTORS SHOULD CONSIDER, AMONG OTHER THINGS, THE INFORMATION SET
FORTH IN "RISK FACTORS" HEREIN AND IN THE PROSPECTUS.
UNTIL _____, _____ ALL DEALERS EFFECTING TRANSACTIONS IN THE CERTIFICATES,
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
S-2
<PAGE>
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.
[IF AND TO THE EXTENT REQUIRED BY APPLICABLE LAW OR REGULATION, THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS WILL ALSO BE USED BY THE UNDERWRITER
AFTER THE COMPLETION OF THE OFFERING IN CONNECTION WITH OFFERS AND SALES RELATED
TO MARKET-MAKING TRANSACTIONS IN THE OFFERED CERTIFICATES IN WHICH THE
UNDERWRITER ACTS AS PRINCIPAL. SALES WILL BE MADE AT NEGOTIATED PRICES
DETERMINED AT THE TIME OF SALE.]
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.
The Commission maintains a Web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. The address of such site is
(http://www.sec.gov).
S-3
<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
[and prospectus supplement] for each of the CRB Securities [and the [describe
Government Securities disclosure documents, if any] for the Government
Securities]. Certain capitalized terms used herein are defined elsewhere in
this Prospectus Supplement or in the Prospectus.
<TABLE>
<S> <C>
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, Series 199[ ]-[
] (the "Trust" or the "Issuer"), a
trust established pursuant to the
Trust 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.
</TABLE>
S-4
<PAGE>
<TABLE>
<S> <C>
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 Agreement....................... Pursuant to a trust agreement dated
as of [ ], 199[ ] (the "Trust
Agreement"), [between] [among] the
Depositor and [insert Trustee name] in
its capacity as trustee (the "Trustee")
[and the Seller], 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").
[Government Securities................ [Describe Government Securities] (the
"Government Securities")]
Risk Factors.......................... For a discussion of risk factors that
should be considered in respect of an
investment in the Certificates, see
"Risk Factors" herein and in the
Prospectus.
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.
</TABLE>
S-5
<PAGE>
<TABLE>
<S> <C>
Interest Distributions 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 Interest Rate"). 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
(the "[Class B] Certificate Interest
Rate").]
Interest will be distributed to
Certificateholders 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 [and the
Government Securities].
</TABLE>
S-6
<PAGE>
<TABLE>
<S> <C>
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.
[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 [and the
Government Securities], which it may do
after the aggregate principal balance of
the CRB Securities [and the Government
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.]
</TABLE>
S-7
<PAGE>
<TABLE>
<S> <C>
[Credit Enhancement................... Subordination. The rights of the [Class
B] Certificateholders to receive
distributions to which they would
otherwise be entitled with respect to
the CRB Securities [and the Government
Securities] 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 government securities or other
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
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.]
</TABLE>
S-8
<PAGE>
[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 holders of Certificates (each
a "Certificateholder") 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
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 (a
"Definitive Certificate"), 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.]
S-9
<PAGE>
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 [Calculation of LIBOR enter into
ancillary arrangements (such
arrangements, the "Ancillary
Arrangements").]
[Calculation of LIBOR................ LIBOR applicable to the calculation Tax
Considerations 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
date) applicable to the distribution of
interest on the CRB Securities
distributable on such date.]
Tax Consideration.................... 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
Government 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 [and the discussion under
"CERTAIN FEDERAL INCOME TAX
CONSIDERATIONS" herein] 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
S-10
<PAGE>
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 Internal Revenue Code of 1986 as
amended (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 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-11
<PAGE>
RISK FACTORS
In addition to the other information contained in this Prospectus Supplement
and in the Prospectus, 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 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.
No Obligation of Depositor to Make Payments in Respect of Securities. The
Depositor is not obligated to make any payments in respect of the Certificates[,
or] the CRB Securities [or the Government Securities].
Maturity Assumptions and Risk of Prepayment or Early Amortization. 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 [and the Government
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. [Describe basis risk, and prepayment and yield
considerations relating to the Government 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.
Limited 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
S-12
<PAGE>
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 Interest-only or Principal-only
Certificates. [If Certificates are Interest-only or Principal-only
certificates, discuss risks attendant thereto.]]
THE TRUST
GENERAL
The Issuer, Card Account Trust, Series 199[ ]-[ ], is a trust formed
pursuant to the Trust 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 Government 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 Trust 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 Trust Agreement to prospective investors without charge upon request.
The following summaries describe the material terms of the Certificates and
the Trust Agreement. The summaries do not purport to be complete descriptions
of all of the terms of the Certificates and the Trust Agreement and therefore
are subject to, and qualified in their entirety by reference to, all the
provisions of the Certificates and 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.
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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 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 Trust 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.]
DISTRIBUTIONS 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
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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 Interest 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 Interest Rate").]
Interest accrued on the Certificates will be distributable [monthly]
[quarterly] [semi-annually] [on each Distribution [and] Date] [to the extent of
funds available therefor from] [(i)] [the Interest Distribution Amount] [and]
[(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 [and Government Securities] immediately prior to such Distribution
Date) applicable to the distribution of interest on the CRB Securities [and
Government Securities] distributable on the CRB Securities Distribution Date (as
defined herein) [and Government Securities Distribution Date, as applicable]
occurring on such Distribution Date. The LIBOR applicable to the CRB Securities
is described under "DESCRIPTION OF THE CRB SECURITIES -- Interest
Distributions" and "DESCRIPTION OF THE GOVERNMENT 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.
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DISTRIBUTIONS OF PRINCIPAL
No principal will be distributable to [Class A] Certificateholders until the
[ ] 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 [ ] Distribution Date. [Principal distributions to the [Class B]
Certificateholders are expected to commence on the [ ] 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.
With respect to each CRB Securities Distribution Date in respect of which
principal is distributed on the CRB Securities, [and each Government Securities
Distribution Date in respect of which principal is distributed on the Government
Securities,] principal distributions will be made on the Certificates on the
Distribution Date [occurring immediately after such dates] [occurring on such
date] in an amount equal to the principal distributed on the CRB Securities [and
the Government 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 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]
Certificates (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 [ ] (the "Final Scheduled Distribution
Date").]
The aggregate principal balance of the Certificates at any time will be
equal to the [sum of the] outstanding principal balance[s] of the CRB Securities
[and the Government 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.
S-16
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[ANCILLARY ARRANGEMENTS]
[On the Closing Date the Trust will enter into ancillary arrangements (such
arrangements, the "Ancillary Arrangements")].
[Insert description of Ancillary Arrangements.]
[RESERVE ACCOUNT]
[A reserve account (the "Reserve Account") will be created with an initial
deposit by the Depositor on the Closing Date of cash government securities or
other 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 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 Required
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 [AND GOVERNMENT SECURITIES]; COLLECTION
ACCOUNT
All distributions on the CRB Securities [and Government Securities] will be
remitted directly to an account (the "Collection Account") to be established
with the Trustee under the Trust 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.] [Describe "Government
Securities Distribution Date".]
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<PAGE>
[[ASSIGNMENT] [PURCHASE] OF CRB SECURITIES [AND GOVERNMENT 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.]
The Depositor will acquire the Government Securities for deposit into the
Trust [describe method of acquisition of Government Securities.]
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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<PAGE>
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.....................................................
CRB Securities 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)................................................
S-19
<PAGE>
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.
Although neither the Depositor nor the Underwriter has any reason to believe
the information provided by the originator of a CRB Securities or the prospectus
relating to the CRB Securities is not reliable, neither the Depositor nor the
Underwriter has verified either its accuracy or its completeness. Neither the
Depositor nor the Underwriter warrants that events have not occurred which would
affect either the accuracy or completeness of the information contained therein.
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 [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
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<PAGE>
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 CERTIFICATES 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 Interest 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, transferor or depositor 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 or a transferee of 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 Interest
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 [ %] [describe CRB Securities
Certificate Interest Rates] [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"),] [the CRB Securities Expected
Final Payment Date] but may be distributed earlier or later than such date.
However, if a Rapid Amortization Event, Early Amortization Event, Payout Event,
Liquidation Event, Economic Pay Out Event or other similar 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.
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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 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
Securities 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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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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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.
[DESCRIPTION OF THE GOVERNMENT SECURITIES]
[The table below sets forth certain characteristics of the Government
Securities. The table does not purport to be complete and is subject to, and
qualified in its entirety by reference to [describe disclosure document, if any,
relating to the Government Securities].]
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DESCRIPTION OF THE GOVERNMENT SECURITIES
----------------------------------------
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GENERAL
[To be added.]
GOVERNMENT SECURITIES; RECENT DEVELOPMENTS
[To be added.]
INTEREST DISTRIBUTIONS
[To be added.]
PRINCIPAL DISTRIBUTIONS
[To be added.]
[SERVICING] [TRUSTEE] COMPENSATION; ALLOCATION OF EXPENSES
[To be added.]
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 TRUST AGREEMENT
The following summary describes the material terms of the Trust
Agreement. The summary does not purport to be a complete description of all
of the terms of the Trust Agreement and therefore is subject to, and
qualified in its entirety by reference to, all the provisions of the Trust
Agreement. Whenever particular sections or defined terms of the Trust
Agreement are referred to,
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<PAGE>
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 Trust Agreement.
COLLECTION OF DISTRIBUTIONS ON CRB SECURITIES [AND GOVERNMENT SECURITIES]
The CRB Securities [and Government Securities] will be assets of the
Trust. All distributions on the CRB Securities [and Government 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 Government Securities] [and] [payments actually received
by the Trust pursuant to the Ancillary Arrangements] [and] [amounts
available in the Reserve Account].
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 [and Government Securities].
The Trustee shall forward by mail to each Certificateholder the most
current CRB Securities [and Government Securities] Distribution Date
Statement (as defined in the Trust Agreement) received by the Trustee as the
date of such request.
AMENDMENT
The Trust 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 Trust Agreement, to add to the duties of the
Depositor, or to add or amend any provisions of the Trust 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
Trust Agreement which shall not be inconsistent with the provisions of the
Trust 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 Trust
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 Trust 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 [and the Government
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.
S-28
<PAGE>
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 [and the Government
Securities] in the Trust and (iii) the Distribution Date in [ ]. In no
event, however, will the Trust created by the Trust Agreement continue after
the death of certain individuals named in the Trust Agreement. Written
notice of termination of the Trust 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.
ACTION IN RESPECT OF THE CRB SECURITIES [AND GOVERNMENT SECURITIES]
If at any time the Trustee, as the holder of the CRB Securities [or the
Government 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 Trust Agreement
provides that the Trustee, in its capacity as certificateholder of the CRB
Securities [and Government 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 Trust
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 Trust 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 Trust
Agreement.
The Trustee may have normal banking relationships with the Depositor
and/or its affiliates.
S-29
<PAGE>
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 Trust 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 Trust
Agreement to institute any proceeding with respect to the Trust 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 [ ] 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 Trust
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
[Trustee Name] is Trustee under the Trust Agreement. [Trustee Name] 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 [and the Government 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 Government Securities] and the payment of expenses
related to such purchase.]
[CERTAIN FEDERAL INCOME TAX CONSIDERATIONS]
[Additional tax disclosure to be added, if necessary.]
ERISA CONSIDERATIONS
S-30
<PAGE>
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 Trust Agreement. See "ERISA CONSIDERATIONS" in the
Prospectus.
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.
S-31
<PAGE>
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.
If and to the extent required by applicable law or regulation, this
Prospectus Supplement and the Prospectus will also be used by the
Underwriter after the completion of the offering in connection with offers
and sales related to market-making transactions in the offered Certificates
in which the Underwriter acts as principal. Sales will be made at
negotiated prices determined at the time of sale.
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 and the Government
Securities. The rating takes into consideration the characteristics of the
CRB Securities and the Government 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-32
<PAGE>
<TABLE>
<CAPTION>
INDEX OF DEFINED TERMS
<S> <C>
Accounts........................................................ S-2
Agreements...................................................... S-2
Ancillary Arrangements.......................................... S-9
Beneficial Owner................................................S-14
Book-Entry Certificates......................................... S-9
Business Day.................................................... S-8
Card Receivables Backed Securities.............................. S-2
Cede........................................................... S-9
Certificateholder............................................... S-9
Certificates.................................................... S-1
[Class A] Certificate........................................... S-1
[Class A] Certificate Interest Rate............................. S-6
[Class A] Percentage............................................ S-5
[Class B] Certificate........................................... S-1
[Class B] Certificate Interest Rate............................. S-6
[Class B] Percentage............................................ S-5
Closing Date................................................... S-6
Code............................................................S-10
Collection Account..............................................S-17
Collection Period............................................... S-6
CRB Issuer......................................................S-12
CRB Securities.................................................. S-2
CRB Securities Amortization Event...............................S-21
CRB Securities Certificate Interest Rate........................S-20
CRB Securities Controlled Amortization Period...................S-21
CRB Securities Disclosure.......................................S-19
CRB Securities Distribution Date................................S-17
CRB Securities Servicing Fee....................................S-23
CRB Servicer....................................................S-23
Definitive Certificate.......................................... S-9
Depositor....................................................... S-1
Depository......................................................S-13
Distribution Date............................................... S-2
DTC............................................................. S-9
ERISA...........................................................S-10
Federal Tax Counsel.............................................S-10
Final Scheduled Distribution Date............................... S-7
Finance Charge Receivables......................................S-22
Issuer......................................................... S-4
LIBOR...........................................................S-21
Moody's.........................................................S-12
</TABLE>
S-33
<PAGE>
<TABLE>
<S> <C>
Percentage Interest.............................................S-26
Pool Balance.................................................... S-7
Principal Receivables..........................................S-22
Prospectus...................................................... S-1
Rating Agency...................................................S-12
Receivables..................................................... S-2
Record Date.....................................................S-14
Required Reserve Account Balance................................ S-8
Reserve Account.................................................S-16
Reserve Account Initial Deposit.................................S-16
Reuters LIBOR...................................................S-21
S&P.............................................................S-12
Seller..........................................................S-20
Seller's Interest...............................................S-20
Seller's Percentage.............................................S-20
Telerate LIBOR..................................................S-21
Trust........................................................... S-1
Trustee......................................................... S-1
Underwriter..................................................... S-1
Voting Rights...................................................S-26
</TABLE>
S-34
<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-35
<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
PROSPECTUS SUPPLEMENT
PAGE
----
Summary of Terms...............................S-4
Risk Factors...................................S-12
The Trust......................................S-13
Description of the Certificates................S-13
Description of the CRB Securities..............S-18
[Description of the Government Securities......S-25]
The Depositor..................................S-27
The Trust Agreement............................S-27
The Trustee....................................S-30
Use of Proceeds................................S-30
ERISA Considerations...........................S-30
[Certain Federal Income Tax Considerations.....S-30]
Legal Investment Considerations................S-31
Underwriting...................................S-31
Legal Matters..................................S-32
Rating.........................................S-32
Index of Defined Terms.........................S-33
PROSPECTUS
Prospectus Supplement......................... 3
Reports to Securityholders.................... 3
Available Information......................... 3
Incorporation of Certain Documents by Reference 3
Summary of Terms.............................. 5
Rick Factors.................................. 33
The Trusts.................................... 41
Trust Assets.................................. 41
Series Enhancement............................ 46
Servicing of Receivables...................... 50
Description of the Notes...................... 54
Description of the Certificates............... 60
Certain Information Regarding the Securities.. 70
Description of the Trust Agreements or Pooling
and Servicing Agreements..................... 75
Certain Legal Aspects of the Receivables...... 83
The Depositor................................. 87
Use of Proceeds............................... 88
Certain Federal Income Tax Consequences....... 88
Certain State and Local Tax Considerations.... 119
ERISA Considerations.......................... 121
Plan of Distribution.......................... 125
Legal Matters................................. 126
Index of Defined Terms........................ 127
Annex I.......................................AI-1
Until [ ] days after the date of this Prospectus Supplement, all dealers
effecting transactions in the 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]
[ADJUSTABLE RATE] [VARIABLE RATE]
ASSET BACKED CERTIFICATES, [CLASS A]
$[ ] [ %] [FLOATING RATE]
[ADJUSTABLE RATE] [VARIABLE RATE]
ASSET BACKED CERTIFICATES, [CLASS B]
ASSET BACKED SECURITIES CORPORATION
(DEPOSITOR)
_________________
PROSPECTUS SUPPLEMENT
[ ], 199[ ]
___________________
CS FIRST BOSTON
