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As filed with the Securities and Exchange Commission on Feburary 25, 1998
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Registration No. 333-365
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________
AMENDMENT NO. 5
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 11 Madison Avenue 13-3354848
(State or other jurisdiction of New York, New York 10010 (I.R.S. Employer
incorporation or organization) (212) 325-2000 Identification No.)
</TABLE>
(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
11 Madison Avenue
New York, New York 10010
(212) 325-2000
(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)
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<CAPTION>
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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. 5 relates, which is a new registration statement, also
constitutes Post-Effective Amendment No. 5 to registration statement No. 33-
10125 and Post-Effective Amendment No. 4 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.
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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.
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PROSPECTUS
Credit Suisse 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, recreational
vehicles (including motor homes, van campers and travel trailers) vans and light
duty trucks (the "Receivables"), and security interests in the vehicles financed
thereby or (ii) Collateral Certificates (as defined herein), (B) Government
Securities (as defined herein), and (C) Private Label Custody Receipt 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, [_] CREDIT SUISSE 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.
_________________
CREDIT SUISSE FIRST BOSTON
This date of this Prospectus is February 25, 1998.
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PROSPECTUS SUPPLEMENT
The Prospectus Supplement relating to a Series of Securities to be offered
hereunder will, among other things, set forth with respect to 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
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
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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,
11 Madison Avenue, New York, New York 10010 (212) 325-2000.
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SUMMARY OF TERMS
This Summary is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus and 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 Credit Suisse First Boston USA, Inc.,
which is a wholly owned subsidiary of Credit Suisse
First Boston, Inc. Neither Credit Suisse First
Boston USA, Inc. nor Credit Suisse 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 11 Madison Avenue, New York, New York 10010, and
its telephone number is (212) 325-2000.
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
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Owner Trust and includes one or more classes of
Notes, the indenture trustee specified in the
related Prospectus Supplement (the "Indenture
Trustee").
Securities Offered......... Each Series of Securities issued by an Owner Trust
will include one or more classes of Certificates
and may also include one or more classes of Notes.
Each Series of Securities issued by a Grantor Trust
will include one or more classes of Certificates,
but will not include any Notes. Each class of Notes
will be issued pursuant to an indenture (each, an
"Indenture") between the related Owner Trust and
the Indenture Trustee specified in the related
Prospectus Supplement. Each class of Certificates
will be issued pursuant to the related Trust
Agreement (in the case of Certificates issued by an
Owner Trust) or the related Pooling and Servicing
Agreement 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
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related Prospectus Supplement provides that the
Notes will be 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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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,
recreational vehicles (including motor homes, van
campers, and travel trailers), vans or light duty
trucks
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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, recreational
vehicles, 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, recreational vehicles 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
created under the Department of the Treasury's
Separate Trading of Registered Interest and
Principal of Securities, or STRIPS, program
("Treasury Strips"), which interest and/or
principal strips evidence ownership of specific
interest and/or principal payments to be made on
certain United States Treasury
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Bonds ("Treasury Bonds"), (ii) Treasury Bonds and
(iii) certain other debt securities ("GSE Bonds")
of United States government sponsored
enterprises ("GSEs") ("GSE Bonds"; and together
with Treasury Strips and Treasury Bonds,
collectively, "Government Securities"). The
specific terms of the Government Securities, if
any, included in a Trust will be more particularly
described in the related Prospectus Supplement.
Private Label Custody
Receipt Securities.... The Private Label Custody Receipt Securities, if
any, consist of any combination of (i) receipts or
other instruments (other than Treasury Strips)
evidencing ownership of specific interest and/or
principal payments to be made on certain Treasury
Bonds held by a custodian ("Private Label Custody
Strips") and (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"; and, together with Private Label
Custody Strips, "Private Label Custody Receipt
Securities"). The specific terms of the Private
Label Custody Receipt Securities, if any, included
in a Trust will be set forth in the applicable
Prospectus Supplement.
Pre-Funding............ If so specified in the related Prospectus
Supplement, a portion of the issuance proceeds of
the Securities of a particular Series (such amount,
the "Pre-Funded Amount") will be deposited in an
account (the "Pre-Funding Account") to be
established with the Trustee, which will be used to
acquire additional Receivables from time to time
during the period specified in the related
Prospectus Supplement (the "Pre-Funding Period").
Prior to the investment of the Pre-Funded Amount in
additional Receivables, such Pre-Funded Amount may
be invested in one or more Eligible Investments.
Any Eligible Investment must mature no later than
the Business Day prior to the next Distribution
Date. See "Description of the Securities--Pre-
Funding."
During any Pre-Funding Period, the Depositor will
be obligated (subject only to the availability
thereof) to transfer to the related Trust Fund
additional Receivables from time to time during
such Pre-Funding Period. Such additional
Receivables will be required to satisfy certain
eligibility criteria more fully set forth in the
related Prospectus Supplement, which eligibility
criteria will be consistent with the eligibility
criteria of the Receivables included in the Trust
Fund as of the Closing Date, subject to such
exceptions as are expressly stated in such
Prospectus Supplement.
Although the specific parameters of the Pre-Funding
Account with respect to any issuance of Securities
will be specified in the related Prospectus
Supplement, it is anticipated that: (a) the Pre-
Funding Period will not exceed 90 days from the
related Closing Date, (b) the additional
Receivables to be acquired during the Pre-Funding
Period will be subject to the same representations
and warranties as the Receivables included in the
related Trust Fund on the Closing Date (although
additional criteria may also be required to be
satisfied, as described in the related Prospectus
Supplement) and (c) that the Pre-Funded Amount will
not exceed 25% of the principal amount of the
Securities issued pursuant to a particular
offering.
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, Government Securities, if any, and
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Private Label Custody Receipt 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,[_] (ii) sell or transfer the related
Collateral Certificates, if any, to a Trust
pursuant to a Trust Agreement[_] (iii) sell or
transfer the related Government Securities, if any,
to a Trust pursuant to a Trust Agreement or a
Pooling and Servicing Agreement and (iv) sell or
transfer the related Private Label Custody Receipt
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 may 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 may
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
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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 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
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Financed Vehicle in the event of a default may be
adversely affected.
To the extent the security interest is perfected,
such Trust will have a prior claim over subsequent
purchasers of such Financed Vehicle and holders of
subsequently perfected security interests. However,
as against liens for repairs of Financed Vehicles
or for taxes unpaid by the related Obligor, or
through fraud or negligence, a Trust could lose its
security interest, or the priority of its security
interest, in a Financed Vehicle. Neither the Seller
nor the Servicer will be obligated to repurchase a
Receivable with respect to which a Trust loses its
security interest or the priority of its security
interest in the related Financed Vehicle for any
such cause after the Closing Date.
Federal and state consumer protection laws impose
requirements on creditors in connection with
extensions of credit and collections of retail
installment loans, and certain of these laws make
an assignee of such a loan liable to the obligor
thereon for any violation by the lender. 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 Consequences........... 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 "Material Federal Income Tax Consequences" and
"Certain State and Local Tax Considerations with
respect to Owner
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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.
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
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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.
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 unless otherwise specified in the
Prospectus Supplement. 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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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
Government Securities and Private Label Custody Receipt 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
(ii) the Government Securities, if any, and the rate of payment of principal
thereof and (iii) the Private Label Custody Receipt Securities, if any, and the
rate of payment of principal thereof. Each of the Collateral Certificates is
subject to prepayment, which may result from the occurrence of the events
described herein and in the prospectus used in connection with the offering of
such Collateral Certificates.
The rate of payment of principal of the Securities may also be affected by
the repurchase of the underlying receivables, and the corresponding retirement
of the Collateral Certificates. In such event, the amount paid in respect of
the Collateral Certificates held by the Trust would be treated as prepayment of
principal and accrued interest of the Collateral Certificates and thus would be
passed through to the Securityholders.
Risk of Commingling. With respect to each Trust the 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, Government Securities and Private Label Custody
Receipt 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
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to the related Trust Agreement or Pooling and Servicing Agreement, as
applicable, and the proceeds of such accounts, as described herein and in the
related Prospectus Supplement; (ii) security interests in Financed Vehicles and
any other interest of a Seller in such Financed Vehicles; (iii) the rights to
proceed from claims on certain physical damage, credit life and disability
insurance policies covering Financed Vehicles or the 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, Government Securities and/or Private Label Custody Receipt
Securities, the Trustee specified in the related Prospectus Supplement will
manage such Collateral Certificates, Government Securities and/or Private
Label Custody Receipt 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 by or on behalf of Obligors on Receivables
or on the Collateral Certificates, the Government Securities, and the Private
Label Custody Receipt 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
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"Description of the Transfer and Servicing Agreements -- Credit and Cash Flow
Enhancement" and "Certain Legal Aspects of the Receivables".
The principal offices of each Trust and the related Trustee will be
specified in the applicable Prospectus Supplement.
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
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of fixed level monthly installment payments. Each monthly installment, including
the monthly installment representing the final payment on the Receivable,
consists of (x) an amount of interest equal to 1/12 of the stated contract
interest rate under the related Motor Vehicle Installment Contract multiplied by
the unpaid principal balance of such loan, plus (y) an amount allocable to
principal equal to the remainder of the monthly payment. A Rule of 78s
Receivable provides for the payment by the obligor of a specified total amount
of payments, payable in equal monthly installments on each due date, which total
represents the principal amount financed plus add-on interest in an amount
calculated at the stated contract interest rate under 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.
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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 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 generally does
not distinguish between new or used vehicles. Rather, the amount advanced under
a motor vehicle loan generally will not exceed 100% 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 ten 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
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Primary Assets for a Series may consist, in whole or in part, of Collateral
Certificates which include certificates evidencing an undivided interest in, or
notes or loans secured by, motor vehicle installment loan agreements and motor
vehicle retail installment sale contracts. Such 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
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Receivables and other factors and will have been established for the Collateral
Certificates on the basis of requirements of rating agencies.
ADDITIONAL INFORMATION
The related Prospectus Supplement for a Series for which the Primary Assets
include Collateral Certificates will specify, to the extent relevant and to the
extent such information is reasonably available to the Company and the Company
reasonably believes such information to be reliable: (i) the aggregate
approximate principal amount and type of the Collateral Certificates to be
included in the Primary Assets; (ii) certain characteristics of the receivables
which comprise the underlying assets for the Collateral Certificates; (iii) the
expected and final maturity of the Collateral Certificates; (iv) the interest
rate of the Collateral Certificates; (v) the Underlying Issuer, the Underlying
Servicer (if other than the Underlying Issuer) and the Underlying Trustee for
such Collateral Certificates; (vi) certain characteristics of the enhancement,
if any, such as reserve funds, insurance funds, insurance policies, letters of
credit or guarantees relating to the receivables underlying the Collateral
Certificates or to such Collateral Certificates themselves; (vii) the terms on
which the underlying receivables for such Collateral Certificates may, or are
required to, be purchased prior to their stated maturity or the stated maturity
of the Collateral Certificates; and (viii) the terms on which receivables may be
substituted for those originally underlying the Collateral Certificates.
THE GOVERNMENT SECURITIES
GENERAL
Primary Assets for a Series may include any combination of (i) receipts or
other instruments created under the Department of the Treasury's Separate
Trading of Registered Interest and Principal of Securities, or STRIPS, program
("Treasury Strips"), which interest and/or principal strips evidence
ownership of specific interest and/or principal payments to be made on certain
United States Treasury Bonds ("Treasury Bonds"), (ii) Treasury Bonds and (iii)
certain other debt securities ("GSEs Bonds") of United States government
sponsored enterprises ("GSEs"; and together with Treasury Strips and
Treasury Bonds, collectively, "Government Securities"). The Government
Securities, if any, included in a Trust are intended to assure investors that
funds are available to make certain specified payments of principal and/or
interest due on the related Securities. As such, the Government Securities, if
any, included in a Trust are intended both to (i) support the ratings assigned
to such Securities, and (ii) perform a function similar to that described herein
under "Credit and Cash Flow Enhancement". A description of the respective
general features of Treasury Bonds, Treasury Strips and GSE Bonds is set
forth below.
The Prospectus Supplement for each Series of Securities the Trust with
respect to which contains Government Securities will contain information as to:
(i) the title and series of
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each such Government Security, the aggregate principal amount, denomination and
form thereof; (ii) the limit, if any, upon the aggregate principal amount of
such Government Security; (iii) 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; (iv) 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 (v) whether such Government Security was issued at a price lower than
the principal amount thereof; (vi) material events of default or restrictive
covenants provided for with respect to such Government Security; (vii) the
rating thereof, if any; (viii) the issuer of each Government Security; (ix)
the material risks, if any, posed by any such Government Securities and issuers
thereof (which risks, if appropriate, will be described in the "Risk Factors"
section of the related Prospectus Supplement); and (x) 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 (iii), (iv), (v) of the preceding sentence and any other material terms
regarding such pool. The Government Securities included in a Trust will be
senior, unsecured, nonredeemable obligations of the issuer thereof, will be
denominated in United States dollars and, if rated, will be rated at least
investment grade by at least one nationally recognized rating agency. In
addition, 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 BONDS
Treasury Bonds are issued by and are the obligations of the United States
of America. As such, the payment of principal and interest on each Treasury
Bond will be guaranteed by the full faith and credit of the United States of
America. Interest is typically payable on the Bonds semiannually. 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.
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.
In 1985 the Department of the Treasury announced that all new
issues of Treasury Bonds with maturities of 10 years or more would be
transferable in their component pieces on the
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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 private label Treasury Strips, can be
issued without the need for a custodial arrangement. The STRIPS program has
eclipsed the private sector programs (which are described below under -
"Private Label Custody Receipt Securities"), and investment banks no longer
sponsor new issues of custodial receipts.
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. No callable Treasury Strip will be included in a Trust. 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.
GSE 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
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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 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.
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
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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.
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,
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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 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.
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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 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.
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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.
PRIVATE LABEL CUSTODY RECEIPT SECURITIES
General
If so specified in the applicable Prospectus Supplement, the Trust for a
Series may include any combination of (i) receipts or other instruments (other
than Treasury Strips) evidencing ownership of specific interest and/or principal
payments to be made on certain Treasury Bonds held by a custodian ("Private
Label Custody Strips") and (ii) receipts or other instruments evidencing
ownership of specific interest and/or principal payments to be made
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on certain Resolution Funding Corporation ("REFCO") bonds ("REFCO Strips"; and
together with Private Label Custody Strips, "Private Label Custody Receipt
Securities"). The Private Label Custody Receipt Securities, if any, included in
a Trust are intended to assure investors that funds are available to make
certain specified payments of principal and/or interest due on the related
Securities. As such, the Private Label Custody Receipt Securities, if any,
included in a Trust are intended both to (i) support the ratings assigned to
such Securities, and (ii) perform a function similar to that described herein
under "Credit and Cash Flow Enhancement". A description of the respective
general features of Private Label Custody Strips and REFCO Strips is set forth
below.
The Prospectus Supplement for each Series of Securities the Trust with
respect to which contains Private Label Custody Receipt Securities will contain
information as to: (i) the title and series of each such Private Label Custody
Receipt Security, the aggregate principal amount, denomination and form thereof;
(ii) the limit, if any, upon the aggregate principal amount of such Private
Label Custody Receipt Security; (iii) the dates on which, or the range of dates
within which, the principal of (and premium, if any, on) such Private Label
Custody Receipt Security will be payable; (iv) the rate or rates, or the method
of determination thereof, at which such Private Label Custody Receipt 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; (v) whether such
Private Label Custody Receipt Security was issued at a price lower than the
principal amount thereof, (vi) material events of default or restrictive
covenants provided for with respect to such Private Label Custody Receipt
Security; (vii) the rating thereof, if any: (viii) the issuer of such Private
Label Custody Receipt Security; (ix) the material risks, if any, posed by such
Private Label Custody Receipt Security and the issuer thereof (which risks, if
appropriate, will be described in the "Risk Factors" section of the related
Prospectus Supplement); and (x) any other material terms of such Private Label
Custody Receipt Security. With respect to a Trust which includes a pool of
Private Label Custody Receipt Securities, the related Prospectus Supplement
will, to the extent applicable, describe the composition of the Private Label
Custody Receipt Securities' pool, certain material events of default or
restrictive covenants common to the Private Label Custody Receipt 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 (iii), (iv)
and (v) of the preceding sentence and any other material terms regarding such
pool.
The Private Label Custody Receipt Securities included in a Trust will be
senior, unsecured, nonredeemable obligations of the issuers thereof, will be
denominated in United States dollars and, if rated, will be rated at least
investment grade by at least one nationally recognized rating agency. In
addition, the inclusion of Private Label Custody Receipt 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. Each Trust will be provided with an opinion of Sidley &
Austin to the effect that the Private Label Custody Receipt Securities included
in such Trust are exempt from the registration requirements of the Securities
Act. A copy of such opinion will be filed with the SEC in a Current Report on
Form 8-K or in a post-effective amendment to the Registration Statement.
Private Label Custody Strips
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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.
Treasury Receipts, 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.
A holder of a Private Label Custody 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 Private Label Custody 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 Custody 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 Private Label Custody Strips. In the event the Company knows that
the depositor of the Treasury Bonds underlying such Private Label Custody 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
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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 enforce 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 a 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 Company or any of
its affiliates, the Company will disclose such fact in such Prospectus
Supplement.
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 and/or Private Label Custody Receipt
Securities, as applicable, the term "prepayments" means the Repurchase Amount of
such Government Securities and/or Private Label Custody Receipt 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. 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,
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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 ADescription 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 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
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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 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
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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 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,
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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
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
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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 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.
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.
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).
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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 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
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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.
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.
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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 Credit Suisse
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
circumstances described herein or in the related Prospectus Supplement, no
Certificateholder (other than an affiliate of Credit Suisse 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
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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 Credit Suisse 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 Credit Suisse 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 s 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 ANDSERVICING 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: (i) each
Receivables Purchase Agreement pursuant to which a Trust will purchase
Receivables from a Seller, (ii) each Trust Agreement or Pooling and Servicing
Agreement pursuant to which a Trust will be created, Collateral Certificates,
Government Securities and/or Private Label Custody Receipt Securities, as
applicable, 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 and Private Label Custody Receipt 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 and Private
Label Custody Receipt Securities may be sold or
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transferred to such Trust and a Trustee will manage Collateral Certificates [_],
Government Securities, if any, and Private Label Custody Receipt Securities if
any (collectively the "Transfer and Servicing Agreements"). Forms of the
Transfer and Servicing Agreements have been filed as exhibits to the
Registration Statement of which this Prospectus forms a part. The following
summary does not purport to be 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 PRIMARY ASSETS
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.
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On the related Closing Date, the Company will transfer and assign to the
related Trust, pursuant to a Trust Agreement or Pooling and Servicing Agreement,
as applicable, without recourse, all of its right, title and interest in and to
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
other Primary Assets included in the Trust, if any. To the extent that the
related Seller does not repurchase a Primary Asset in the event of a breach of
its representations and warranties [_] 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
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Precomputed Receivables will be deposited until such time as such payments
become due. Until such time as payments are transferred from the Payahead
Account to the Collection Account, they will not constitute collected interest
or collected principal and will not be available for distribution to Noteholders
or Certificateholders. Any other accounts to be established with respect to a
Trust will be described in the related Prospectus Supplement.
For each Series of Securities, funds in the Collection Account, Note
Distribution Account, 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.
PRE-FUNDING
If so specified in the related Prospectus Supplement, a portion of the
issuance proceeds of the Securities of a particular Series (such amount, the
"Pre-Funded Amount") will be deposited in an account (the "Pre-Funding Account")
to be established with the Trustee, which will be used to acquire additional
Receivables from time to time during the time period specified in the related
Prospectus Supplement (the "Pre-Funding Period"). Prior to the investment of the
Pre-Funded Amount in additional Receivables, such Pre-Funded Amount may be
invested in one or more Eligible Investments. Except as otherwise provided in
the applicable Agreement, an "Eligible Investment" is any of the following, in
each case as determined at the time of the investment or contractual commitment
to invest therein (to the extent such investments would not require registration
of the Trust Fund as an investment company pursuant to the Investment Company
Act of 1940): (a) negotiable instruments or securities represented by
instruments in bearer or registered or book-entry form which evidence: (i)
obligations which have the benefit of the full faith and credit of the United
States of America, including depository receipts issued by a bank as custodian
with respect to any such instrument or security held by the custodian for the
benefit of the holder of such depository receipt, (ii) demand deposits or time
deposits in, or bankers' acceptances issued by, any depositary institution or
trust company incorporated under the laws of the United States of America or any
state thereof and subject to supervision and examination by Federal or state
banking or depositary institution authorities; provided that at the time of the
Trustee's investment or contractual commitment to invest therein, the
certificates of deposit or short-term deposits (if any) or long-term unsecured
debt obligations (other than such obligations whose rating is based on
collateral or on the credit of a Person other than such institution or trust
company) of such depositary institution or trust company has a credit rating in
the highest rating category from each Rating Agency, (iii) certificates of
deposit having a rating in the highest rating from each Rating Agency or (iv)
investments in money market funds which are (or which are composed of
instruments or other investments which are) rated in the highest category from
each Rating Agency; (b) demand deposits in the name of the Trustee in any
depositary institution or trust company referred to in clause (a)(ii) above; (c)
commercial paper (having original or remaining maturities of no more than 270
days) having credit rating in the highest rating category from each Rating
Agency; (d) Eurodollar time deposits that are obligations of institutions whose
time deposits carry a credit rating in the highest rating category from each
Rating Agency; (e) repurchase agreements involving any Eligible Investment
described in any of clauses (a)(i), (a)(iii) or (d) above, so long as the other
party to the repurchase agreement has its long-term unsecured debt obligations
rated in the highest rating category from each Rating Agency; and (f) any other
investment with respect to which each Rating Agency rating such Securities
indicates will not result in the reduction or withdrawal of its then existing
rating of the Securities. Except as otherwise provided in the applicable
Agreement, any Eligible Investment must mature no later than the Business Day
prior to the next Distribution Date.
During any Pre-Funding Period, the Depositor will be obligated (subject
only to the availability thereof) to transfer to the related Trust Fund
additional Receivables from time to time during such Pre-Funding Period. Such
additional Receivables will be required to satisfy certain eligibility criteria
more fully set forth in the related Prospectus Supplement which eligibility
criteria will be consistent with the eligibility criteria of the Receivables
included in the Trust Fund as of the Closing Date subject to such exceptions as
are expressly stated in such Prospectus Supplement.
Although the specific parameters of the Pre-Funding Account with respect to
any issuance of Securities will be specified in the related Prospectus
Supplement, it is anticipated that: (a) the Pre-Funding Period will not exceed
90 days from the related Closing Date; (b) that the additional loans to be
acquired during the Pre-Funding Period will be subject to the same
representations and warranties as the Receivables included in the related Trust
Fund on the Closing Date (although additional criteria may also be required to
be satisfied, as described in the related Prospectus Supplement) and (c) the
Pre-Funded Amount will not exceed 25% of the principal amount of the Securities
issued pursuant to a particular offering.
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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[-] preceding 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,[_] marshaling 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, recreational vehicles, 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, recreational vehicles, 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, recreational
vehicles, 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--and Assignment of
Receivables " and "Risk Factors--Legal Aspects--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.
MATERIAL 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, a copy of which will be filed with
the SEC in a Current Report on Form 8-K or in a post-effective amendment to the
Registration Statement. 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 might 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
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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.
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 a Note
Owner elects to amortize bond premium for the taxable
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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 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.
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Taxation of Certain Foreign Note Owners. As used herein, the term "Non-
---------------------------------------
United States Person" means any corporation, individual, fiduciary or
partnership that, as to the United States, 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 to the extent one or more of its members 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 who is a Note Owner.
On October 6, 1997, Treasury Regulations (the "1997 Withholding
Regulations") were issued which affect the United States taxation of Non-United
States Holders. The 1997 Withholding Regulations are generally effective for
payments after December 31, 1998, regardless of the issue date of the Note with
respect to which such payments are made, subject to certain transition rules.
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 1997 Withholding Regulations, and prospective investors
are urged to consult their tax advisors with respect to the effect of the 1997
Withholding Regulation.
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.
The 1997 Withholding Regulations provide optional documentation procedures
designed to simplify compliance by withholding agents. The 1997 Withholding
Regulations add "intermediary
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certification" options for certain qualifying withholding agents. Under one such
option, a withholding agent will 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 will
be permitted to act on behalf of the United States withholding agent, provided
certain conditions are met.
The 1997 Withholding Regulations 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 1997
Withholding Regulations 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.
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) 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
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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.
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
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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 1997 Withholding Regulations alter the forgoing rules in certain
respects. In particular, the 1997 Withholding 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.
On December 17, 1996, final Treasury Regulations (the "Check-the-Box
Regulations") were issued which generally permit non-corporate entities, such as
the Trust, to elect whether to be taxed as corporations or partnerships. The
Check-the-Box Regulations are effective as of January 1, 1997. Under the
Check-the-Box Regulations, the Trust will be classified as a partnership unless
it elects to be classified as an association taxable as a corporation. Except as
expressly provided in the applicable Prospectus Supplement, the Trust will not
elect to be classified as an association taxable as a corporation. However, the
Check-the-Box Regulations would have no effect on whether a partnership should
be classified as a publicly traded partnership taxable as a corporation.
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 ($121,200 in 1997 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
contribute its assets to a new Trust, which would be treated as a new
partnership, in exchange for Certificates in the new Trust. The original Trust
will then be deemed to distribute the Certificates in the new Trust to each of
the Owners of Certificates in the original Trust in liquidation of the original
Trust. 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.
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.
The Taxpayer Relief Act of 1997 created a special audit system for
qualifying large partnerships that have elected to apply a simplified
flow-through reporting system under new sections 771 through 777. unless
otherwise specified in the applicable Prospectus Supplement, a Trust will not
elect to apply the simplified flow-through reporting system.
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 ($121,200 in 1997 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 required 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.
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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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<PAGE>
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 Taxpayer Relief Act of 1997 (the "1997 Act") contains a
-----------
provision requiring original issue discount on any pool of debt instruments the
yield on which may be affected by reason of prepayments 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 debt instruments.
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 October 6, 1997, final Treasury Regulations (the "1997 Withholding
Regulations") were issued which affect the United States taxation of Non-United
States Owners of Grantor Trust Certificates. The 1997 Withholding Regulations
are generally effective for payments after December 31, 1998, 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
[_] enterprises generally is 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;
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(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").
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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
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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.
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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.
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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.
Credit Suisse First Boston
The date of this Prospectus is February 25, 1998.
<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", "The Trust Fund -Private Label
Custody Receipt 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, the Private Label Custody Receipt 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 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
2
<PAGE>
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, 11 Madison Avenue, New York, New York
10010, (212) 325-2000.
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, 11 Madison Avenue, New York, New York
10010, telephone number (212) 325-2000.
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), the
Private Label Custody Receipt 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, the Government
Securities and the Private Label Custody
Receipt 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
(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
4
<PAGE>
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", "The
Trust Fund-Private Label Custody Receipt
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, Government
Securities, if any, and Private Label
Custody Receipt Securities, if any, at the
Pass-Through Rate for the related Mortgage
Pool or Contract Pool, Government
Securities, if any and Private Label Custody
Receipt 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.
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", "-Collection of
Payments on Private Label Custody Receipt
Securities" and "-Distributions on
Certificates".
5
<PAGE>
PRINCIPAL (INCLUDING
PREPAYMENTS)....................... Principal on each Trust Asset, Government
Security, if any, and Private Label
Custody Receipt 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, Government
Securities, if any, and Private Label
Custody Receipt 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", "- Collection of Payments on
Private Label Custody Receipt 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, Government
Securities, if any, and Private Label
Custody Receipt 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 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
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<PAGE>
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 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
7
<PAGE>
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 created
under the Department of the Treasury's
Separate Trading of Registered Interest
and Principal of Securities, or STRIPS,
program ("Treasury Strips"), which
interest and/or principal strips evidence
ownership of specific interest and/or
principal payments to be made on certain
United States Treasury Bonds ("Treasury
Bonds"), (ii) Treasury Bonds and (iii)
certain other debt securities ("GSE
Bonds") of United States government
sponsored enterprises ("GSEs") (GSE Bonds,
together with Treasury Strips and Treasury
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.
PRIVATE LABEL CUSTODY
RECEIPT 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 (other than
Treasury Strips) evidencing ownership of
specific interest and/or principal
payments to be made on certain Treasury
Bonds held by a custodian ("Private Label
Custody Strips") and (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"; and together with Private
Label Custody Strips, "Private Label
Custody Receipt Securities"). The specific
terms of the Private Label Custody Receipt
Securities, if any, included in a Trust
Fund will be set forth in the applicable
Prospectus Supplement.
PRE-FUNDING........................ If so specified in the related Prospectus
Supplement, a portion of the issuance
proceeds of the Certificates of a
particular Series (such amount, the "Pre-
Funded Amount") will be deposited in an
account (the "Pre-Funding Account") to be
established with the Trustee, which will
be used to acquire additional Mortgage
Loans or Contracts from time to time
during the period specified in the related
Prospectus Supplement (the "Pre-Funding
Period"). Prior to the investment of the
Pre-Funded Amount in additional Mortgage
Loans or Contracts, such Pre-Funded Amount
may be invested in one or more Eligible
Investments. Any Eligible Investment must
mature no later than the Business Day
prior to the next Distribution Date. See
"Description of the Certificates--Pre-
Funding."
During any Pre-Funding Period, the
Depositor will be obligated (subject only
to the availability thereof) to transfer
to the related Trust Fund additional
Mortgage Loans or Contracts from time to
time during such Pre-Funding Period. Such
additional Mortgage Loans or Contracts
will be required to satisfy certain
eligibility criteria more fully set forth
in the related Prospectus Supplement,
which eligibility criteria will be
consistent with the eligibility criteria
of the Mortgage Loans or Contracts
included in the Trust Fund as of the
Closing Date, subject to such exceptions
as are expressly stated in such Prospectus
Supplement.
Although the specific parameters of the
Pre-Funding Account with respect to any
issuance of Certificates will be specified
in the related Prospectus Supplement, it
is anticipated that: (a) the Pre-Funding
Period will not exceed 90 days from the
related Closing Date, (b) the additional
Mortgage Loans or Contracts to be acquired
during the Pre-Funding Period will be
subject to the same representations and
warranties as the Mortgage Loans or
Contracts included in the related Trust
Fund on the Closing Date (although
additional criteria may also be required
to be satisfied, as described in the
related Prospectus Supplement) and (c)
that the Pre-Funded Amount will not exceed
25% of the principal amount of the
Certificates issued pursuant to a
particular offering.
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,
8
<PAGE>
Government Securities, if any, and Private
Label Custody Receipt 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, Government Securities, if any, and
Private Label Custody Receipt 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, the
Government Securities, if any, or the
Private Label Custody Receipt Securities,
if any, included in a Trust Fund, from the
first day of the month preceding the month
in which a Distribution Date occurs, but
the distribution of such interest will be
made no earlier than the 25th day of the
succeeding month, 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, the
Private Label Custody Receipt 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
9
<PAGE>
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 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".
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<PAGE>
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 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, the Government Securities,
if any, and Private Label Custody Receipt
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, Government
Securities, if any, or Private Label
Custody Receipt 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, Government Securities, if any,
or Private Label Custody Receipt
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, Government Security or Private
Label Custody Receipt 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 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, government securities or
private label custody
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receipt 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 Private Label Custody Receipt
Securities, if any, and/or on the
mortgage loans, cooperative loans,
manufactured housing conditional sales
contracts and installment loan
agreements, government securities or
private label custody receipt 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
Private Label Custody Receipt Securities,
if any, and/or on the mortgage loans,
cooperative loans, manufactured housing
conditional sales contracts and
installment loan agreements, government
securities or private label custody
receipt 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".
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
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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, Government
Securities or Private Label Custody
Receipt Securities in substitution for
any one or more of the Trust Assets,
Government Securities or Private Label
Custody Receipt 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", "-Assignment of
Government Securities" and "-Assignment
of Private Label Custody Receipt
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, the Government
Securities, if any, and the Private Label
Custody Receipt 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".
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 CONSEQUENCES.....................If a Prospectus Supplement specifies that
the Depositor intends to make an election
to treat the Trust as a Real Estate
Mortgage Investment Conduit ("REMIC"),
pursuant to the Internal Revenue Code of
1986, as amended, at least one class of
Certificates issued by the REMIC will be
treated as regular interests in the REMIC
("Regular Certificates") and generally
will be treated as debt interests issued
by the REMIC for federal income tax
purposes. 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 Regular
Certificates for federal income tax
purposes (and whether such original issue
discount is de minimis), and the rate
that may be used by the holder of a
Regular Certificate will be specified in
the applicable Prospectus Supplement. No
representation will be made that the
Mortgage Loans will prepay at such a
specified rate or at any other rate. The
holder 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 may
apply to the transfer of Residual
Certificates. See "Material Federal
Income Tax Consequences" for additional
information regarding the tax
consequences of purchasing Regular
Certificates or Residual Certificates.
If a Prospectus Supplement specifies that
the Depositor does not intend to make an
election to treat the Trust as a REMIC,
counsel to the Depositor will deliver its
opinion to the effect that the
arrangement pursuant to which such Trust
Fund will be administered and the Trust
Certificates issued 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, and will not be
classified as an association taxable as a
corporation for federal income tax
purposes (a "Non-REMIC Trust Fund"). The
Trust Certificates issued by a Non-REMIC
Trust Fund will be classified as either
Trust Fractional Certificates of Trust
Interest Certificates. See "Material
Federal Income Tax Consequences" for
additional information regarding the tax
consequences of purchasing Trust
Fractional Certificates or Trust Interest
Certificates.
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
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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 and any
other assets constituting the related
Trust Fund, (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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<PAGE>
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, Government
Securities, if any, and Private Label Custody Receipt 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 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
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<PAGE>
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, Government Securities, if
any and Private Label Custody Receipt 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, Government Securities, if any and Private
Label Custody Receipt 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.
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.
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THE TRUST FUND
Ownership of the Mortgage Pool or Pools or Contract Pool or Pools,
Government Securities, if any, and Private Label Custody Receipt 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, and Private Label Custody Receipt 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, and Private Label Custody Receipt 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 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
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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 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
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to the Trustee (the "GPM Fund"). In lieu of cash deposit, the Depositor may
deliver to the Trustee a letter of credit, guaranteed investment contract or
another instrument acceptable to the Rating Agency rating the related Series to
fund the GPM Fund.
FHA Loans will be insured by the Federal Housing Administration (the
"FHA")as authorized under the National Housing Act, as amended, and the United
States Housing Act of 1937, as amended. Such FHA loans will be insured under
various FHA programs including the standard FHA 203-b programs to finance the
acquisition of one- to four-family housing units, the FHA 245 graduated payment
mortgage program and the FHA 221 and 223 programs to finance certain multifamily
residential rental properties. FHA Loans generally require a minimum down
payment of approximately 5% of the original principal amount of the FHA Loan. No
FHA Loan may have an interest rate or original principal amount exceeding the
applicable FHA limits at the time of origination of such FHA Loan.
VA Loans will be partially guaranteed by the VA under the Servicemen's
Readjustment Act of 1944, as amended (the "Servicemen's Readjustment Act"). The
Servicemen's Readjustment Act permits a veteran (or in certain instances the
spouse of a veteran) to obtain a mortgage loan guarantee by the VA covering
mortgage financing of the purchase of a one-to four-family dwelling unit at
interest rates permitted by the VA. The program has no mortgage loan limits,
requires no down payment from the purchasers and permits the guarantee of
mortgage loans of up to 30 years' duration. However, no VA Loan will have an
original principal amount greater than five times the partial VA guarantee for
such VA Loan. The maximum guarantee that may be issued by 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.
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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 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.
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
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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
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
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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 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
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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 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).
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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.
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.
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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 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.
PRE-FUNDING
If so specified in the related Prospectus Supplement, a portion of the
issuance proceeds of the Certificates of a particular Series (such amount, the
"Pre-Funded Amount") will be deposited in an account (the "Pre-Funding Account")
to be established with the Trustee, which will be used to acquire additional
Mortgage Loans or Contracts from time to time during the time period specified
in the related Prospectus Supplement (the "Pre-Funding Period"). Prior to the
investment of the Pre-Funded Amount in additional Mortgage Loans or Contracts,
such Pre-Funded Amount may be invested in one or more Eligible Investments.
Except as otherwise provided in the applicable Agreement, and "Eligible
Investments" is any of the following, in each case as determined at the time of
the investment or contractual commitment to invest therein (to the extent such
investments would not require registration of the Trust Fund as an investment
company pursuant to the Investment Company Act of 1940): (a) negotiable
instruments or securities represented by instruments in bearer or registered or
book-entry form which evidence: (i) obligations which have the benefit of full
faith and credit of the United States of America, including depositary receipts
issued by a bank as custodian with respect to any such instrument or security
held by the custodian for the benefit of the holder of such depositary receipt,
(ii) demand deposits or time deposits in, or bankers' acceptances issued by,
any depositary institution or trust company incorporated under the laws of the
United States of America or any state thereof and subject to supervision and
examination by Federal or state banking or depositary institution authorities;
provided that at the time of the Trustee's investment or contractual commitment
to invest therein, the certificates of deposit or short-term deposits (if any)
or long-term unsecured debt obligations (other than such obligations whose
rating is based on collateral or on the Credit of a Person other than such
institution or trust company) of such depositary institution or trust company
has a credit rating in the highest rating category from each Rating Agency,
(iii) certificates of deposit having a rating in the highest rating from each
Rating Agency or (iv) investments in money market funds which are (or which are
composed of instruments or other investments which are) rated in the highest
category form each Rating Agency;(b) demand deposits in the name of the Trustee
in any depositary institution or trust company referred to in clause (a)(ii)
above; (c) commercial paper (having original or remaining maturities of no more
than 270 days) having credit rating in the highest rating category from each
Rating Agency; (d) Eurodollar time deposits that are obligations of institutions
whose time deposits carry a credit rating in the highest rating category from
each Rating Agency; (e) repurchase agreements involving any Eligible Investment
described in any of clauses (a)(i), (a)(iii) or (d) above, so long as the other
party to the repurchase agreement has its long-term unsecured debt obligations
rated in the highest rating category from each Rating Agency; and (f) any other
investment with respect to which each Rating Agency rating such Certificates
indicates will not result in the reduction or withdrawal of its then existing
rating of the certificates. Except as otherwise provided in the applicable
Agreement, any Eligible Investment must mature no later than the Business Day
prior to the next Distribution Date.
During any Pre-Funding Period, the Depositor will be obligated (subject
only to the availability thereof) to transfer to the related Trust Fund
additional Mortgage Loans or Contracts from time to time during such Pre-Funding
Period. Such additional Mortgage Loans or Contracts will be required to satisfy
certain eligibility criteria more fully set forth in the related Prospectus
Supplement which eligibility criteria will be consistent with the eligibility
criteria of the Mortgage Loans or Contracts included in the Trust Fund as of the
Closing Date subject to such exceptions as are expressly stated in such
Prospectus Supplement.
Although the specific parameters of the Pre-Funding Account with respect to
any issuance of Certificates will be specified in the related Prospectus
Supplement, it is anticipated that: (a) the Pre-Funding Period will not exceed
90 days from the related Closing Date, (b) that the additional loans to be
acquired during the Pre-Funding Period will be subject to the same
representations and warranties as the Mortgage Loans or Contracts included in
the related Trust Fund on the Closing Date (although additional criteria may
also be required to be satisfied, as described in the related Prospectus
Supplement) and (c) the Pre-Funded Amount will not exceed 25% of the principal
amount of the Certificates issued pursuant to a particular offering.
GOVERNMENT SECURITIES
General
If so specified in the applicable Prospectus Supplement, the Trust
Fund for a Series may include any combination of (i) receipts or other
instruments created under the Department of the Treasury's Separate Trading of
Registered Interest and Principal of Securities, or STRIPS, program ("Treasury
Strips"), which interest and/or principal strips evidence ownership of specific
interest and/or principal payments to be made on certain United States Treasury
Bonds ("Treasury Bonds"), (ii) Treasury Bonds and (iii) certain other debt
securities ("GSE Bonds") of United States government sponsored entities ("GSEs")
(GSE Bonds, together with Treasury Strips, and Treasury Bonds, collectively,
"Government Securities"). The Government Securities, if any, included in a
Trust Fund are intended to assure investors that funds will be available to make
certain specified payments of principal and/or interest due on the related
Certificates. As such, the Government Securities, if any, included in a Trust
Fund are intended to both (i) support the ratings assigned to the related
Certificates and (ii) perform a function similar to that described herein under
"Credit Support". A description of the respective general features of Treasury
Bonds, Treasury Strips and GSE Bonds is set forth below.
The Prospectus Supplement 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) the limit,
if any, upon the aggregate principal amount of such Government Security; (iii)
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; (iv) 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; (v) whether such
Government Security was issued at a price lower than the principal amount
thereof; (vi) material events of default or restrictive covenants provided for
with respect to such Government Security; (vii) the rating thereof, if any;
(viii) the issuer of each Government Security; (ix) the material risks, if any,
posed by any such Government Securities and the issuers thereof (which risks,
if appropriate, will be described in the "Risk Factors"section of the related
Prospectus Supplement; and (x) 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
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weighted average basis, as applicable, the characteristics of the pool with
respect to the terms set forth in(iii), (iv), (v) of the preceding sentence and
any other material terms regarding such pool.
The Government Securities included in a Trust Fund will be senior,
unsecured, nonredeemable obligations of the issuer thereof, will be denominated
in United States dollars and, if rated, will be rated at least investment grade
by at least one nationally recognized rating agency. In addition, 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 Bonds
Treasury Bonds are issued by and are the obligations of The United
States of America. As such, the payment of principal and interest on each
Treasury Bond will be guaranteed by the full faith and credit of the United
States of America. Interest is typically payable on the Bonds semiannually.
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.
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.
In 1985 the Department of the Treasury 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
private label Treasury Strips, can be issued without the need for a custodial
arrangement. The STRIPS program has eclipsed the private sector programs (which
are described below under "-Private Label Custody Receipt Securities"), and
investment banks no longer sponsor new issues of custodial receipts.
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. No callable Treasury Strip will be included in a Trust Fund.
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.
GSE 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 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.
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
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("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,
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 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.
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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 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.
PRIVATE LABEL CUSTODY RECEIPT SECURITIES
General
If so specified in the applicable Prospectus Supplement, the Trust
Fund for a Series may include any combination of (i) receipts or other
instruments (other than Treasury Strips) evidencing ownership of specific
interest and/or principal payments to be made on certain Treasury Bonds held by
a custodian ("Private Label Custody Strips") and (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"; and together with Private Label Custody Strips, "Private Label Custody
Receipt Securities"). The Private Label Custody Receipt Securities, if any,
included in a Trust Fund are intended to assure investors that funds are
available to make certain specified payments of principal and/or interest due on
the related Certificates. As such the Private Label Custody Receipt Securities,
if any, included in a Trust Fund are intended to both (i) support the ratings
assigned to such Certificates and (ii) perform a function similar to that
described herein under "Credit
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Support". A description of the respective general features of Private Label
Custody Receipt Securities is set forth below.
The Prospectus Supplement for each Series of Certificates the Trust
Fund with respect to which contains Private Label Custody Receipt Securities
will contain information as to: (i) the title and series of each such Private
Label Custody Receipt Security, the aggregate principal amount, denomination and
form thereof; (ii) the limit, if any, upon the aggregate principal amount of
such Private Label Custody Receipt Security; (iii) the dates on which, or the
range of dates within which, the principal of (and premium, if any, on) such
Private Label Custody Receipt Security will be payable; (iv) the rate or rates,
or the method of determination thereof, at which such Private Label Custody
Receipt 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; (v)
whether such Private Label Custody Receipt Security was issued at a price lower
than the principal amount thereof, (vi) material events of default or
restrictive covenants provided for with respect to such Private Label Custody
Receipt Security; (vii) the rating thereof, if any; (viii) the issuer of such
Private Label Custody Receipt Security; (ix) the material risks, if any, posed
by any such Private Label Custody Receipt Security and the issuer thereof (which
risks, if appropriate, will be described in the "Risk Factors" section of the
Prospectus Supplement; and (x) any other material terms of such Private Label
Custody Receipt Security. With respect to a Trust Fund which includes a pool of
Private Label Custody Receipt Securities, the related Prospectus Supplement
will, to the extent applicable, describe the composition of the Private Label
Custody Receipt Securities' pool, certain material events of default or
restrictive covenants common to the Private Label Custody Receipt 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 (iii), (iv)
and (v) of the preceding sentence and any other material terms regarding such
pool.
The Private Label Custody Receipt Securities included in a Trust Fund
will be senior, unsecured, nonredeemable obligations of the issuers thereof,
will be denominated in United States dollars and, if rated, will be rated at
least investment grade by at least one nationally recognized rating agency. In
addition, the inclusion of Private Label Custody Receipt 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. Each Trust will be provided with an
opinion of Sidley & Austin to the effect that the Private Label Custody Receipt
Securities included in the related Trust Fund are exempt from the registration
requirements of the Securities Act. A copy of such opinion will be filed with
the SEC in a Current Report on Form 8-K or in a post-effective amendment to the
Registraton Statement.
Private Label Custody Strips
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
Treasury Receipts, 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.
A holder of a Private Label Custody 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 Private Label Custody 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 Custody 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 Private Label Custody
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Strips. In the event the Depositor knows that the depositor of the Treasury
Bonds underlying such Private Label Custody 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 enforce 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.
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 Credit Suisse First Boston Securities Corporation,
which is a wholly owned subsidiary of Credit Suisse First Boston, Inc. Neither
Credit Suisse First Boston Securities Corporation, nor Credit Suisse 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 11 Madison Avenue, New
York, New York 10010, and its telephone number is (212) 325-2000.
Trust Assets, Government Securities, if any, and Private Label Custody
Receipt 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, Government
Securities, if any, and Private Label Custody Receipt 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 and any other assets constituting the related Trust
Fund other than Mortgage Certificates).
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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.
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".
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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, Government Security or Private
Label Custody Receipt Security because, while interest will accrue on each
Mortgage Loan, Contract, Mortgage Certificate, Government Security or Private
Label Custody Receipt 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 and Private Label
Custody Receipt 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 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, Private
Label Custody Receipt 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.
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
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mortgage loans have historically been prepaid at higher rates than government
insured loans because, unlike government insured mortgage loans, conventional
mortgage loans may contain due-on-sale clauses that allow the holder thereof to
demand payment in full of the remaining principal balance of such mortgage loans
upon sales or certain transfers of the mortgaged property. There are no similar
statistics with respect to the prepayment rates of cooperative loans or loans
secured by multifamily properties.
It is customary in the residential mortgage industry in quoting yields
(a) on a pool of 30-year fixed-rate, level payment mortgages, to compute the
yield as if the pool were a single loan that is amortized according to a 30-year
schedule and is then prepaid in full at the end of the twelfth year and (b) on a
pool of 15-year fixed-rate, level payment mortgages, to compute the yield as if
the pool were a single loan that is amortized according to a 15-year schedule
and then is prepaid in full at the end of the seventh year.
Prepayments on residential mortgage loans are also commonly measured
relative to a prepayment standard or model. If so specified in the Prospectus
Supplement relating to a Series of Certificates, the model used in a Prospectus
Supplement will be the Standard Prepayment Assumption ("SPA"). SPA represents an
assumed rate of prepayment relative to the then outstanding principal balance of
a pool of mortgages. A prepayment assumption of 100% of SPA assumes prepayment
rates of 0.2% per annum of the then outstanding principal balance of such
mortgages in the first month of the life of the mortgages and an additional 0.2%
per annum in each month thereafter until the thirtieth month and in each month
thereafter during the life of the mortgages, 100% of SPA assumes a constant
prepayment rate of 6% per annum each month.
Information regarding FHA Experience, other published information, SPA
or any other rate of assumed prepayment, as applicable, will be set forth in the
Prospectus Supplement with respect to a Series of Certificates. There is,
however, no assurance that prepayment of the Mortgage Loans underlying a Series
of Certificates will conform to FHA Experience, mortgage industry custom, any
level of SPA, or any other rate specified in the 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.
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Mortgage Loans made with respect to Multifamily Properties may have
provisions that prevent prepayment for a number of years and may provide for
payments of interest only during a certain period followed by amortization of
principal on the basis of a schedule extending beyond the maturity of the
related Mortgage Loan. Prepayments of Mortgage Loans secured by Multifamily
Property may be affected by these and other factors, including changes in
interest rates and the relative tax benefits associated with ownership of
Multifamily Property.
If set forth in the applicable Prospectus Supplement, the Depositor or
other specified entity will have the option to repurchase the Trust Assets,
Government Securities, if any, and Private Label Custody Receipt 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, Government
Securities, if any and Private Label Custody Receipt 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", "-Assignment of Private Label Custody Receipt 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,
Government Securities, Private Label Custody Receipt 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.
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.
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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, Government Security, if
any, and Private Label Custody Receipt Security, if any, in the related Trust
Fund will be assigned an initial "Asset Value". The Asset Value of each Trust
Asset, Government Security, if any, and Private Label Custody Receipt 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, Government
Securities and Private Label Custody Receipt 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, Government Securities and
Private Label Custody Receipt 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, Government Securities, if any, and Private Label
Custody Receipt 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, Government Securities, if any, and Private Label Custody Receipt
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, Government Securities, if
any, and Private Label Custody Receipt 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, Government
Securities, if any, and Private Label Custody Receipt 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.
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.
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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 the Government
Securities, if any, and Private Label Custody Receipt Security, 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, the Government
Securities, if any, and Private Label Custody Receipt 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.
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
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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, the Government
Securities, if any, and Private Label Custody Receipt 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, the Government
Securities, if any, and Private Label Custody Receipt 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, Government Securities and Private Label Custody Receipt
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, Government Securities, if any, and
Private Label Custody Receipt 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, Government Securities, if any, and
Private Label Custody Receipt 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.
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
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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.
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
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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.
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".
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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 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 Depositor or the Master Servicer may have a purchase obligation as
described above under "The Trust Fund-The Contract Pools".
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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.
ASSIGNMENT OF PRIVATE LABEL CUSTODY RECEIPT SECURITIES
Pursuant to the applicable Pooling and Servicing Agreement for a
Series of Certificates that includes Private Label Custody Receipt Securities in
the related Trust Fund, the Depositor will cause such Private Label Custody
Receipt Securities to be transferred to the Trustee together with all principal
and interest distributed on such Private Label Custody Receipt Securities after
the Cut-off Date. Each Private Label Custody Receipt 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 Private Label Custody Receipt
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 Private Label Custody Receipt Security which is included in a
Trust Fund and to provide for all distributions on each such Private Label
Custody Receipt 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 Private Label Custody Receipt
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 Private Label Custody Receipt Security, the Depositor
will be required to repurchase such Private Label Custody Receipt 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 Private Label Custody Receipt Security. The Private
Label Custody Receipt 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 Private Label Custody
Receipt Securities ("Substitute Private Label Custody Receipt Securities") in
substitution for any one or more of the Private Label Custody Receipt Securities
("Deleted Private Label Custody Receipt Securities") initially included in the
Trust Fund. The required characteristics or any such Substitute Private Label
Custody Receipt Securities and any additional restrictions
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relating to the substitution of Private Label Custody Receipt 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 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
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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 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
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(viii) all proceeds of any Mortgage Loan repurchased by the Master
Servicer, the Depositor, any Servicer or any Unaffiliated Seller (as
described under "The Trust Fund-Mortgage Loan Program-Representations by
Unaffiliated Sellers; Repurchases" or "-Assignment of Mortgage Loans" above
or repurchased by the Depositor as described under "-Termination" below)
With respect to each Buy-Down Loan, if so specified in the 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;
(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;
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(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.
COLLECTION OF PAYMENTS ON PRIVATE LABEL CUSTODY RECEIPT SECURITIES
The Private Label Custody Receipt 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 Private Label Custody Receipt
Security by the second business day after the date on which such distribution
was due and payable pursuant to the terms of such Private Label Custody Receipt
Security, to request the issuer or guarantor, if any, of such Private Label
Custody Receipt 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 and Private Label Custody Receipt 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,
Government Securities, if any, or Private Label Custody Receipt 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 a Private Label Custody Receipt 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, Government Securities, if any, and Private
Label Custody Receipt Securities, if any, stated separately or the information
enabling the Trustee to determine the amount of distribution to be made on the
Certificates and a statement setting forth certain information with respect to
the Mortgage Loans, Mortgage Certificates or Contracts, Government Securities,
if any and Private Label Custody Receipt 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, Government Securities, if any, or Private Label Custody
Receipt Securities, if any, included in the Trust Fund and
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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, Government
Securities, if any, or Private Label Custody Receipt 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, Government Securities, if any, or
Private Label Custody Receipt 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, Government Securities, if any, and Private
Label Custody Receipt 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, Government Securities, if any, and
Private Label Custody Receipt Securities, if any, 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);
(iii) to each holder of a Certificate, the amount of servicing
compensation with respect to the related Trust Assets, Government Securities,
if any, and Private Label Custody Receipt 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
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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,
Government Securities, if any, and Private Label Custody Receipt 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;
(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
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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 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,
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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 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
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qualified insurer because it is not qualified to transact a mortgage guaranty
insurance business under the laws of the state of its principal place of
business or any other state which has jurisdiction over the Pool Insurer in
connection with the Pool Insurance Policy, or if the Pool Insurance Policy is
cancelled or terminated for any reason (other than the exhaustion of total
policy coverage), the Master Servicer will exercise its best reasonable efforts
to obtain a replacement policy of pool insurance comparable to the Pool
Insurance Policy and may obtain, under the circumstances described above with
respect to the Special Hazard Insurance Policy, a replacement policy with
reduced coverage. In the event the Pool Insurer ceases to be a qualified insurer
because it is not approved as an insurer by FHLMC, FNMA or any successors
thereto, the Master Servicer will agree to review, not less often than monthly,
the financial condition of the Pool Insurer with a view towards determining
whether recoveries under the Pool Insurance Policy are jeopardized and, if so,
will exercise its best reasonable efforts to obtain from another qualified
insurer a replacement insurance policy under the above-stated limitations.
Certain characteristics of the Pool Insurance Policy are described under
"Description of Insurance-Pool Insurance Policies".
PRIMARY MORTGAGE INSURANCE
To the extent specified in the 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 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)
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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.
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
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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 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
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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, Government Securities, if
any, and Private Label Custody Receipt Securities, if any, a specified
percentage of the unpaid principal balance of each Mortgage Certificate,
Government Security or Private Label Custody Receipt 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 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
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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, Government Security or Private
Label Custody Receipt Security (except any such loss, liability or expense
otherwise reimbursable pursuant to the applicable Agreement) and any loss,
liability or expense incurred by reason of willful misfeasance, bad faith or
negligence in the performance of their duties thereunder or by reason of
reckless disregard of their obligations and duties thereunder. In addition, each
Agreement will provide that neither the Depositor nor the Master Servicer, as
the case may be, will be under any obligation to appear in, prosecute or defend
any legal action that is not incidental to its duties under the Agreement and
that in its opinion may involve it in any expense or liability. The Depositor or
the Master Servicer may, however, in their discretion, undertake any such action
deemed by them necessary or desirable with respect to the applicable Agreement
and the rights and duties of the parties thereto and the interests of the
Certificateholders thereunder. In such event, the legal expenses and costs of
such action and any liability resulting therefrom will be expenses, costs and
liabilities of the Trust Fund, and the Master Servicer or the Depositor, as the
case may be, will be entitled to be reimbursed therefor out of the Certificate
Account.
DEFICIENCY EVENT
To the extent a Deficiency Event is specified in the 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, Government Security, if
any, and Private Label Custody Receipt 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.
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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 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
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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 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, that such
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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 or Private Label Custody
Receipt Securities subject to such Agreement at a 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
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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, Government Securities or
Private Label Custody Receipt 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 such a Liquidating Loan will be reimbursed to
the L/C Bank only from the proceeds (net of liquidation costs) of such
Liquidating Loan. The amount available under the Letter of Credit will be
increased to the extent it is reimbursed for such payments.
To the extent the proceeds of liquidation of a Liquidating Loan acquired by
the L/C Bank in the manner described in the preceding paragraph exceed the
amount of payments made with respect thereto, the L/C Bank will be entitled to
retain such proceeds as additional compensation for issuance of the Letter of
Credit.
Prospective purchasers of Certificates of a Series with respect to which
credit support is provided by a Letter of Credit must look to the credit of the
L/C Bank, to the extent of its obligations under the Letter of Credit, in the
event of default
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by Mortgagors or Obligors. If the amount available under the Letter of Credit is
exhausted, or the L/C Bank becomes insolvent, and amounts in the Reserve Fund,
if any, with respect to such Series are insufficient to pay the entire amount of
the loss and still be maintained at the level specified in the 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, the
Government Securities, if any, and the Private Label Custody Receipt 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, government securities or private label custody receipt
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, Government Securities, if any, or Private Label Custody Receipt
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.
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, Government Securities, if any, and Private Label Custody Receipt
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, Government Securities, if any,
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and Private Label Custody Receipt 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, Government
Securities, if any, or Private Label Custody Receipt 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, government securities and private label custody receipt
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, Government Securities, if any or
Private Label Custody Receipt Securities, if any, and/or on the mortgage loans,
manufactured housing conditional sales contracts and installment loan
agreements, government securities or private label custody receipt 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 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, and Private Label Custody Receipt
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Securities, if any, other than amounts attributable to interest on the Mortgage
Loans, Mortgage Certificates, Contracts, Government Securities, if any, and
Private Label Custody Receipt 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, Government Security or
Private Label Custody Receipt 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, Government Securities and Private Label
Custody Receipt 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.
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, Government Securities, if any, and Private Label
Custody Receipt 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, and Private Label Custody Receipt 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.
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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
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.
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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 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.
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.
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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 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
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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.
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
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Policy. An "Approved Sale" is (1) a sale of the Mortgaged Property acquired
because of a default by the Mortgagor to which the Pool Insurer has given prior
approval, (2) a foreclosure or trustee's sale of the Mortgaged Property at a
price exceeding the maximum amount specified by the Pool Insurer, (3) the
acquisition of the Mortgaged Property under the Primary Insurance Policy by the
Primary Mortgage Insurer or (4) the acquisition of the Mortgaged Property by the
Pool Insurer. The Pool Insurer must be provided with good and merchantable title
to the Mortgaged Property as a condition precedent to the payment of any Loss.
If any Mortgaged Property securing a defaulted Mortgage Loan is damaged and the
proceeds, if any, from the related Standard Hazard Insurance Policy or the
applicable Special Hazard Insurance Policy are insufficient to restore the
Mortgaged Property to a condition sufficient to permit recovery under the Pool
Insurance Policy, the Master Servicer or the Servicer of the related Mortgage
Loan will not be required to expend its own funds to restore the damaged
Mortgaged Property unless it is determined (A) that such restoration will
increase the proceeds to the Certificateholders of the related Series on
liquidation of the Mortgage Loan, after reimbursement of the expenses of the
Master Servicer or the Servicer, as the case may be, and (B) that such expenses
will be recoverable by it through payments under the Letter of Credit, if any,
with respect to such Series, Liquidation Proceeds, Insurance Proceeds, amounts
in the Reserve Fund, if any, or payments under any Alternative Credit Support,
if any, with respect to such Series.
No Pool Insurance Policy will insure (and many Primary Mortgage Insurance
Policies may not insure) against loss sustained by reason of a default arising
from, among other things, (i) fraud or negligence in the origination or
servicing of a Mortgage Loan, including misrepresentation by the Mortgagor, the
Unaffiliated Seller, the Originator or other persons involved in the origination
thereof, (ii) the exercise by the Insured of its right to call the Mortgage
Loan, or the term of the Mortgage Loan is shorter than the amortization period
and the defaulted payment is for an amount more than twice the regular periodic
payments of principal and interest for such Mortgage Loan, or (iii) the exercise
by the Insured of a "due-on-sale" clause or other similar provision in the
Mortgage Loan; provided, in either case (ii) or (iii), such exclusion shall not
apply if the Insured offers a renewal or extension of the Mortgage Loan or a new
Mortgage Loan at the market rate in an amount not less than the then outstanding
principal balance with no decrease in the amortization period. A failure of
coverage attributable to one of the foregoing events might result in a breach of
the Master Servicer's insurability representation described under "Description
of the Certificates-Assignment of Mortgage Loans" above, and in such event,
subject to the limitations described therein, might give rise to an obligation
on the part of the Master Servicer to purchase the defaulted Mortgage Loan if
the breach materially and adversely affects the interests of the
Certificateholders of the related Series and cannot be cured by the Master
Servicer. Depending upon the nature of the event, a breach of representation
made by the Depositor or an Unaffiliated Seller may also have occurred. Such a
breach, if it materially and adversely affects the interests of the
Certificateholders of such Series and cannot be cured, would give rise to a
repurchase obligation on the part of the Unaffiliated Seller as more fully
described under "The Trust Fund-Mortgage Loan Program-Representations by
Unaffiliated Sellers; Repurchases" and "Description of the Certificates-
Assignment of Mortgage Loans".
The original amount of coverage under the Pool Insurance Policy will be
reduced over the life of the Certificates of the related Series by the aggregate
dollar amount of claims paid less the aggregate of the net amounts realized by
the Pool Insurer upon disposition of all foreclosed Mortgaged Properties covered
thereby. The amount of claims paid will include certain expenses incurred by the
Master Servicer or by the Servicer of the defaulted Mortgage Loan as well as
accrued interest on delinquent Mortgage Loans to the date of payment of the
claim. Accordingly, if aggregate net claims paid under a Pool Insurance Policy
reach the original policy limit, coverage under the Pool Insurance Policy will
lapse and any further losses will be borne by the holders of the Certificates of
such Series. In addition, unless the Master Servicer or the related Servicer
could determine that an Advance in respect of a delinquent Mortgage Loan would
be recoverable to it from the proceeds of the liquidation of such Mortgage Loan
or otherwise, neither such Servicer nor the Master Servicer would be obligated
to make an Advance respecting any such delinquency, since the Advance would not
be ultimately recoverable to it from either the Pool Insurance Policy or from
any other related source. See "Description of the Certificates-Advances".
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.
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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.
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
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upon the real property covered by such instrument and represents the security
for the repayment of an obligation that is customarily evidenced by a promissory
note. It is not prior to the lien for real estate taxes and assessments or other
charges imposed under governmental police powers. Priority with respect to such
instruments depends on their terms, the knowledge of the parties to the mortgage
and generally on the order of recording with the applicable state, county or
municipal office. There are two parties to a mortgage: the mortgagor, who is the
borrower and homeowner, and the mortgagee, who is the lender. In a mortgage
state, the mortgagor delivers to the mortgagee a note or bond evidencing the
loan and the mortgage. Although a deed of trust is similar to a mortgage, a deed
of trust has three parties: the borrower-homeowner called the trustor (similar
to a mortgagor) a lender called the beneficiary (similar to a mortgagee) and a
third-party grantee called the trustee. Under a deed of trust, the borrower
grants the property, irrevocably until the debt is paid, in trust, generally
with a power of sale, to the trustee to secure payment of the loan. The
trustee's authority under a deed of trust and the mortgagee's authority under a
mortgage are governed by the express provisions of the deed of trust or
mortgage, applicable law and, in some cases, with respect to the deed of trust,
the directions of the beneficiary.
Foreclosure
Foreclosure of a mortgage is generally accomplished by judicial action.
Generally, the action is initiated by the service of legal pleadings upon all
parties having an interest of record in the real property. Delays in completion
of the foreclosure occasionally may result from difficulties in locating
necessary parties defendant. When the mortgagee's right to foreclosure is
contested, the legal proceedings necessary to resolve the issue can be time-
consuming. After the completion of a judicial foreclosure proceeding, the court
may issue a judgment of foreclosure and appoint a receiver or other officer to
conduct the sale of the property. In some states, mortgages may also be
foreclosed by advertisement, pursuant to a power of sale provided in the
mortgage. Foreclosure of a mortgage by advertisement is essentially similar to
foreclosure of a deed of trust by non-judicial power of sale.
Though a deed of trust may also be foreclosed by judicial action,
foreclosure of a deed of trust is generally accomplished by a non-judicial
trustee's sale under a specific provision in the deed of trust that authorizes
the trustee to sell the property upon a default by the borrower under the terms
of the note or deed of trust. In some states, the trustee must record a notice
of default and send a copy to the borrower-trustor and to any person who has
recorded a request for a copy of a notice of default and notice of sale. In
addition, the trustee must provide notice in some states to any other individual
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.
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Such a lien or title interest is not prior to the lien for real estate taxes and
assessments and other charges imposed under governmental police powers.
A corporation that is entitled to be treated as a housing cooperative under
the Code owns all the real property or some interest therein sufficient to
permit it to own the building and all separate dwelling units therein. The
cooperative is directly responsible for property management and, in most cases,
payment of real estate taxes and hazard and liability insurance. If there is a
blanket mortgage or mortgages on the cooperative apartment building and/or
underlying land, as is generally the case, or an underlying lease of the land,
as is the case in some instances, the cooperative, as property mortgagor, is
also responsible for meeting these mortgage or rental obligations. The interest
of the occupancy under proprietary leases or occupancy agreements as to which
that cooperative is the landlord are generally subordinate to the interest of
the holder of a blanket mortgage and to the interest of the holder of a land
lease. If the cooperative is unable to meet the payment obligations (i) arising
under a blanket mortgage, the mortgagee holding a blanket mortgage could
foreclose on that mortgage and terminate all subordinate proprietary leases and
occupancy agreements or (ii) arising under its land lease, the holder of the
land lease could terminate it and all subordinate proprietary leases and
occupancy agreements. Also, a blanket mortgage on a cooperative may provide
financing in the form of a mortgage that does not fully amortize, with a
significant portion of principal being due in one final payment at maturity. The
inability of the cooperative to refinance a mortgage and its consequent
inability to make such final payment could lead to foreclosure by the mortgagee.
Similarly, a land lease has an expiration date and the inability of the
cooperative to extend its term or, in the alternative, to purchase the land
could lead to termination of the cooperative's interest in the property and
termination of all proprietary leases and occupancy agreements. A foreclosure by
the holder of a blanket mortgage could eliminate or significantly diminish the
value of any collateral held by the lender who financed an individual tenant-
stockholder of cooperative shares including, in the case of the Cooperative
Loans, the collateral securing the Cooperative Loans. Similarly, the termination
of the land lease by its holder could eliminate or significantly diminish the
value of any collateral held by the lender who financed an individual tenant-
stockholder of the cooperative shares or, in the case of the Cooperative Loans,
the collateral securing the Cooperative Loans.
Each cooperative is owned by tenant-stockholders who, through ownership of
stock or shares in the corporation, receive proprietary leases or occupancy
agreements which confer exclusive rights to occupy specific units. Generally, a
tenant-stockholder of a cooperative must make a monthly payment to the
cooperative representing such tenant-stockholder's pro rata share of the
cooperative's payments for its blanket mortgage, real property taxes,
maintenance expenses and other capital or ordinary expenses. An ownership
interest in a cooperative and accompanying occupancy rights are financed through
a cooperative share loan evidenced by a promissory note and secured by a
security interest in the occupancy agreement or proprietary lease and in the
related cooperative shares. The lender takes possession of the share certificate
and a counterpart of the proprietary lease or occupancy agreement, and a
financing statement covering the proprietary lease or occupancy agreement and
the cooperative shares is filed in the appropriate state and local offices to
perfect the lender's interest in its collateral. Subject to the limitations
discussed below, upon default of the tenant-stockholder, the lender may sue for
judgment on the promissory note, dispose of the collateral at a public or
private sale or otherwise proceed against the collateral or tenant-stockholder
as an individual as provided in the security agreement covering the assignment
of the proprietary lease or occupancy agreement and the pledge of cooperative
shares. See "-Realizing upon Cooperative Loan Security" below.
Tax Aspects of Cooperative Loans
In general, a "tenant-stockholder" (as defined in Section 216(b)(2) of the
Code) of a corporation that qualifies as a "cooperative housing corporation"
within the meaning of Section 216(b)(1) of the Code is allowed a deduction for
amounts paid or accrued within his taxable year to the corporation representing
his proportionate share of certain interest expenses and certain real estate
taxes allowable as a deduction under Section 216(a) of the Code to the
corporation under Sections 163 and 164 of the Code. In order for a corporation
to qualify under Section 216(b)(1) of the Code for its taxable year in which
such items are allowable as a deduction to the corporation, such section
requires, among other things, that at least 80% of the gross income of the
corporation be derived from its tenant-stockholder. By virtue of this
requirement the status of a corporation for purposes of Section 216(b)(1) of the
Code must be determined on a year-to-year basis. Consequently, there can be no
assurance that cooperatives relating to the Cooperative Loans will qualify under
such section for any particular year. In the event that such a cooperative fails
to qualify for one or more years, the value of the collateral securing any
related Cooperative Loans could be significantly impaired because no deduction
would be allowable to tenant-stockholders under Section 216(a) of the Code with
respect to those years. In view of the significance of the tax benefits accorded
tenant-stockholders of a corporation that qualifies under Section 216(b)(1) of
the Code, the likelihood that such a failure would be permitted to continue over
a period of years appears remote.
Realizing upon Cooperative Loan Security
The cooperative shares and proprietary lease or occupancy agreement owned
by the tenant- stockholder and pledged to the lender are, in almost all cases,
subject to restrictions on transfer as set forth in the cooperative's
certificate of
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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.
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.
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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 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.
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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.
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
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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.
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
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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.
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 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
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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.
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.
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MATERAL 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, a copy of which will be filed with the SEC in a Current
Report on Form 8-K or in a post-effective amendment to the Registration
Statement . 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 or Private Label Custody
Receipt Securities unless the amount of Government Securities or Private Label
Custody Receipt 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 or Private
Label Custody Receipt 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 or Private Label Custody Receipt Security, if applicable)
constituting the related Trust Fund (net of normal servicing fees) will be
referred to as a "Trust Interest Certificate."
The following discussion is based in part upon the rules governing original
issue discount that are set forth in Code Sections 1271 through 1273 and 1275
and in Treasury regulations issued under the original issue discount provisions
of the Code (the "OID Regulations"), and the Treasury regulations issued under
the provisions of the Code relating to REMICs (the "REMIC Regulations"). The OID
Regulations generally are effective with respect to debt instruments issued on
or after April 4, 1994.
II. REMIC TRUST FUNDS
A. Classification of REMIC Trust Funds
With respect to each series of REMIC Certificates relating to a REMIC
Mortgage Pool, Sidley 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.
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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 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".
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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.
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
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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 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
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original issue discount (together with stated interest, market discount and
original issue discount) into income currently based on a constant yield method.
See "Taxation of Owners of REMIC Regular Certificates-Market Discount and
Premium".
Each holder of a REMIC Regular Certificate must include in gross income the
sum of the "daily portions" of original issue discount on its REMIC Regular
Certificate for each day during its taxable year on which it held such REMIC
Regular Certificate. For this purpose, in the case of an original holder of a
REMIC Regular Certificate, the daily portions of original issue discount will be
determined as follows. A calculation will first be made of the portion of the
original issue discount that accrued during each accrual period, that is
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 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
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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. 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
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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 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.
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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.
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
Subordinated Lenders-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.
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3. Basis Rules and Distributions
Any distribution by a REMIC Mortgage Pool to a Residual Owner will not be
included in the gross income of such Residual Owner to the extent it does not
exceed the adjusted basis of such Residual Owner's interest in a REMIC Residual
Certificate. Such distribution will reduce the adjusted basis of such interest,
but not below zero. To the extent a distribution exceeds the adjusted basis of
the REMIC Residual Certificate, it will be treated as gain from the sale of the
REMIC Residual Certificate. (See "Sales of REMIC Certificates", below.) The
adjusted basis of a REMIC Residual Certificate is equal to the amount paid for
such REMIC Residual Certificate, increased by amounts included in the income of
the Residual Owner (see "Taxation of Owners of REMIC Residual Certificates-Daily
Portions" above), and decreased by distributions and by net losses taken into
account with respect to such interest.
A Residual Owner is not allowed to take into account any net loss for any
calendar quarter to the extent such net loss exceeds such Residual Owner's
adjusted basis in its REMIC Residual Certificate as of the close of such
calendar quarter (determined without regard to such net loss). Any loss
disallowed by reason of this limitation may be carried forward indefinitely to
future calendar quarters and, subject to the same limitation, may be used only
to offset income from the REMIC Residual Certificate.
The effect of these basis and distribution rules is that a Residual Owner
may not amortize its basis in a REMIC Residual Certificate, but may only recover
its basis through distributions, through the deduction of any net losses of the
REMIC Mortgage Pool or upon the sale of its REMIC Residual Certificate. See
"Sales of REMIC Certificates", below. The Residual Owner does, however, receive
reduced taxable income over the life of the REMIC because the REMIC's basis in
the underlying REMIC Mortgage Pool includes the fair market value of the REMIC
Regular Certificates and REMIC Residual Certificates.
4. Excess Inclusions
Any "excess inclusions" with respect to a REMIC Residual Certificate are
subject to certain special tax rules. With respect to a Residual Owner, the
excess inclusion for any calendar quarter is defined as the excess (if any) of
the daily portions of taxable income over the sum of the "daily accruals" for
each day during such quarter that such REMIC Residual Certificate was held by
such Residual Owner. The daily accruals are determined by allocating to each day
during a calendar quarter its ratable portion of the product of the "adjusted
issue price" of the REMIC Residual Certificate at the beginning of the calendar
quarter and 120 percent of the long-term "applicable federal rate" (generally,
an average of current yields on Treasury securities of comparable maturity, and
hereafter the "AFR") in effect at the time of issuance of the REMIC Residual
Certificate. For this purpose, the adjusted issue price of a REMIC Residual
Certificate as of the beginning of any calendar quarter is the issue price of
the REMIC Residual Certificate, increased by the amount of daily accruals for
all prior quarters and decreased by any distributions made with respect to such
REMIC Residual Certificate before the beginning of such quarter. The issue price
of a REMIC Residual Certificate is the initial offering price to the public
(excluding bond houses and brokers) at which a substantial amount of the REMIC
Residual Certificates were sold.
For Residual Owners, other than thrift institutions described in Code
Section 593, an excess inclusion cannot be offset by deductions, losses or loss
carryovers from other activities. For Residual Owners that are subject to tax on
unrelated business taxable income (as defined in Code Section 511), an excess
inclusion is treated as unrelated business taxable income. For Residual Owners
that are nonresident alien individuals or foreign corporations generally subject
to United States 30% withholding tax, even if interest paid to such Residual
Owners is generally eligible for exemptions from such tax, an excess inclusion
will be subject to such tax and no tax treaty rate reduction or exemption may be
claimed with respect thereto. See "Foreign Investors in REMIC Certificates."
Provisions enacted by the "Technical and Miscellaneous Revenue Act of 1988"
(the "1988 Act") cause the above-described exception for thrift institutions
generally to apply only to those residual interests held and deductions, losses
and loss carryovers incurred directly by such institutions (and not by other
members of an affiliated group of corporations filing 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,
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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.
The Small Business Job Protection Act 1996 provides three technical
amendments to clarify the interaction of the foregoing rules and the alternative
minimum tax. First, "taxable income" as determined for purposes of computing
alternative minimum taxable income for a Residual Owner is determined without
regard to the special rule that taxable income cannot be less than excess
inclusions. Second, the Residual Owner's alternative minimum taxable income for
the taxable year cannot be less than the excess inclusions for the year. Third,
the amount of any alternative minimum tax net operating loss deduction must be
computed without regard to any excess inclusions. These rules are effective for
taxable years beginning after December 31, 1986, unless a Residual Owner elects
to have such rules apply only to taxable years beginning after August 20, 1996.
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 December 23, 1996,
the Internal Revenue Service issued final 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.
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 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
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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.
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.
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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 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.
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"U.S. Person" means a citizen or resident of the United States (as
determined for United States federal income tax purposes), 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
described in section 7701(a)(30) of the Code.
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
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 final Treasury Regulations (the "1997 Withholding
Regulations") were issued on October 6, 1997 which affect the United States
taxation of foreign investors in REMIC Certificates. The 1997 Withholding
Regulations are generally effective for payments after December 31, 1998,
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 1997 Withholding Regulations will 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 1997
Withholding Regulations will 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.
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The discussion under this heading is not intended to be a complete
discussion of the provisions of the 1997 Withholding Regulations, and
prospective investors are urged to consult their tax advisors with respect to
the effect the 1997 Withholding 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 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 or Private Label Custody
Receipt 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 or Private Label Custody Receipt 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 or Private Label Custody
Receipt 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 or Private Label
Custody Receipt 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 or Private Label Custody
Receipt Securities.
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Although there appears to be no policy reason not to accord to Trust
Interest Certificates the treatment described above for Trust Fractional
Certificates, there is no authority addressing such characterization for
instruments similar to Trust Interest Certificates. Consequently, it is unclear
to what extent, if any, (1) a Trust Interest Certificate owned by a "domestic
building and loan association" within the meaning of Code Section 7701 (a)(19)
will be considered to represent "loans . . . secured by an interest in real
property" within the meaning of Code Section 7701(a)(19)(C)(v); (2) a Trust
Interest Certificate owned by a financial institution described in Code Section
593(a) will be considered to represent "qualifying real property loans" within
the meaning of Code Section 593(d); or (3) a real estate investment trust which
owns a Trust Interest Certificate will be considered to own "real estate assets"
within the meaning of Code Section 856(c)(5)(A), and interest income thereon
will be considered "interest on obligations secured by mortgages on real
property" within the meaning of Code Section 856(c)(3)(B). Prospective
purchasers to which such characterization of an investment in Trust Interest
Certificates is material should consult their own tax advisers regarding whether
the Trust Interest Certificates, and the income therefrom, will be so
characterized.
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 or Private Label Custody Receipt 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 or
Private Label Custody Receipt Securities, if applicable) and received directly
its share of the payments on such Mortgage Loans (and Government Securities or
Private Label Custody Receipt 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 or Private Label
Custody Receipt 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 or Private Label Custody Receipt 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 of amounts due with respect to any
Mortgage
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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 or Stripped Private Label Custody Receipt
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", a "Stripped Government
Security" and a "Stripped Private Label Custody Receipt Security" mean a
Mortgage Loan having a Retained Yield (as that term is defined below) or a
Mortgage Loan, Government Security or Private Label Custody Receipt 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, Stripped Government
Securities or Stripped Private Label Custody Receipt Securities.
Purchasers of Trust Fractional Certificates identified in the applicable
Prospectus Supplement as representing interests in Unstripped Mortgage Loans
(and Unstripped Government Securities or Unstripped Private Label Custody
Receipt 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 Subordinated Lenders-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 or Private Label Custody Receipt 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 or Stripped
Private Label Custody Receipt 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 or Private Label Custody Receipt Security, if applicable)
and some or all of the interest payable thereon. As a consequence, each Stripped
Mortgage Loan, Stripped Government Security or Stripped Private Label Custody
Receipt 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 or Stripped Private
Label Custody Receipt Securities, if applicable) as original issue discount on
the basis of the yield to maturity of such Stripped Mortgage Loans (or Stripped
Government Securities or Stripped Private Label Custody Receipt 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,
Stripped Government Securities or Stripped Private Label Custody Receipt
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 (and Government Securities or
Private Label Custody Receipt Securities, if applicable), and to determine the
amount of original issue discount on such certificates accordingly. See
"Aggregate Reporting".
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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 or Private Label Custody Receipt 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.
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 or Private Label Custody Receipt
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,
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unstripped government securities or unstripped private label custody receipt
securities ("Unstripped Mortgage Loans, "Unstripped Government Securities" or
"Unstripped Private Label Custody Receipt 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 or Unstripped Private Label Custody
Receipt 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 or Unstripped Private Label Custody Receipt
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 or Unstripped
Private Label Custody Receipt Security, if applicable), but reduced, if the cost
of such subsequent purchaser's interest in such Unstripped Mortgage Loan (and
Unstripped Government Security or Unstripped Private Label Custody Receipt
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 or Unstripped Private Label Custody Receipt
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.
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 or Unstripped Private Label Custody Receipt Security, if
applicable) is less than its allocable share of the "adjusted issue price" of
such Mortgage Loan (or Government Security or Unstripped Private Label Custody
Receipt Security). See "Treatment of Unstripped Certificates" and "Application
of Stripped Bond Rules". Thus, with respect to such Mortgage Loans (or
Government Securities or Private Label Custody Receipt 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 or
Private Label Custody Receipt 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
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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 or Stripped Private Label Custody Receipt
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 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 or Unstripped Private Label Custody Receipt 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 or Unstripped Private Label Custody Receipt Securities, if
applicable), in proportion to the respective fair market values of the portions
of such Mortgage Loans (or Government Securities or Unstripped Private Label
Custody Receipt 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 or Private Label Custody Receipt
Securities, if applicable). Accordingly, and subject to the discussion under
"Application of Stripped Bond Rules" below, each Trust
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Interest Certificateholder is treated as owning its allocable share of the
entire Interest Coupon from the Mortgage Loans (and Government Securities or
Private Label Custody Receipt 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 or Private Label Custody Receipt Securities, if
applicable), received directly its share of the amounts received with respect to
the Mortgage Loans (and Government Securities or Private Label Custody Receipt
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 or Private Label Custody Receipt 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 or Private
Label Custody Receipt 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 or Private Label Custody Receipt Securities,
if applicable) under the method prescribed by the Code, taking account of the
price at which the holder purchased the Trust Interest Certificate and the Trust
Interest Certificateholder's share of the scheduled payments to be made thereon.
The Stripped Bond Rules generally require a holder of Stripped Coupons to accrue
and report income from such Stripped Coupons daily on the basis of the yield to
maturity of such stripped bonds or coupons, as determined in accordance with the
provisions of the Code dealing with original issue discount. For a discussion of
the general method of calculating the amount of original issue discount, see
"REMIC Trust Funds-Taxation of Owners of REMIC Regular Certificates-Original
Issue Discount". The provisions of the Code and the OID Regulations do not
directly address the treatment of instruments similar to Trust Interest
Certificates. In reporting to Trust Interest Certificateholders such
Certificates will be treated as a single obligation with payments corresponding
to the aggregate of the payments allocable thereto from each of the Mortgage
Loans (and Government Securities or Private Label Custody Receipt 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. 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 or Private Label Custody
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Receipt 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 Taxpayer Relief Act of 1997 (the "Act") contains a provision
requiring original issue discount on any pool of debt instruments the yield on
which may be affected by reason of prepayments 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.
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 or Private Label Custody Receipt
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 Subordinated Lenders-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 or Private Label Custody Receipt 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 or Private Label Custody Receipt
Securities, if applicable) were issued after July 18, 1984. This withholding tax
may be reduced or eliminated by
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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 final Treasury
Regulations were issued on October 6, 1997 which 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 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.
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PROHIBITED TRANSACTION CLASS EXEMPTIONS
Prohibited Transaction Class Exemption 83-1 (Class Exemption for Certain
Transactions Involving Mortgage Pool Investment Trusts) ("PTCE 83-1") permits,
subject to certain conditions, certain transactions involving the creation,
maintenance and termination of certain residential mortgage pools and the
acquisition and holding of certain residential mortgage pool pass-through
certificates by Plans, regardless of whether (a) the mortgage pool is exempt
from "plan asset" treatment or (b) the transactions would otherwise be
prohibited under ERISA or Section 4975 of the Code. A Series of Certificates
will be an "Exempt Series" if the general conditions (described below) of PTCE
83-1 are satisfied, and if the applicable Series of Certificates evidences
ownership interests in Trust Assets which do not include Mortgage Certificates,
Cooperative Loans, Mortgage Loans secured by cooperative buildings, Mortgage
Loans secured by Multifamily Property, 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.
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.
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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);
(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
101
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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 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
102
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The applicable Prospectus Supplement for a Series of Certificates will specify
whether a Class or Subclass of such Certificates, as long as it is rated in one
of the two highest rating categories by one or more nationally recognized
statistical rating organizations, will constitute a "mortgage related security"
for purposes of the Secondary Mortgage Market Enhancement Act of 1984 ("SMMEA").
Such Class or Subclass, if any, constituting a "mortgage related security" will
be a legal investment for persons, trusts, corporations, partnerships,
associations, business trusts and business entities (including depository
institutions, insurance companies, trustees and state government employee
retirement systems) created pursuant to or existing under the laws of the United
States or of any state (including the District of Columbia and Puerto Rico)
whose authorized investments are subject to state regulation to the same extent
that, under applicable law, obligations issued by or guaranteed as to principal
and interest by the United States or any agency or instrumentality thereof
constitute legal investments for such entities.
Pursuant to SMMEA, a number of states enacted legislation, on or prior to the
October 3, 1991 cutoff for such enactments, limiting to varying extents the
ability of certain entities (in particular, insurance companies) to invest in
"mortgage related securities", in most cases by requiring the affected investors
to rely solely upon existing state law, and not SMMEA. Accordingly, the
investors affected by such legislation will be authorized to invest in
Certificates qualifying as "mortgage related securities" only to the extent
provided in such legislation.
SMMEA also amended the legal investment authority of federally-chartered
depository institutions as follows: federal savings and loan associations and
federal savings banks may invest in, sell or otherwise deal in mortgage related
securities without limitation as to the percentage of their assets represented
thereby, federal credit unions may invest in such securities, and national banks
may purchase such securities for their own account without regard to the
limitations generally applicable to investment securities set forth in 12 U.S.C.
24 (Seventh), subject in each case to such regulations as the applicable federal
regulatory authority may prescribe. In this connection, federal credit unions
should review NCUA Letter to Credit Unions No. 96, as modified by Letter to
Credit Unions No. 108, which includes guidelines to assist federal credit unions
in making investment decisions for mortgage related securities. The NCUA has
adopted rules, codified as 12 C.F.R. Section 703.5(f)-(k), which prohibit
federal credit unions from investing in certain mortgage related securities
(including securities such as certain Series, Classes or Subclasses of
Certificates), except under limited circumstances.
All depository institutions considering an investment in the Certificates
should review the "Supervisory Policy Statement on Securities Activities" dated
January 28, 1992, as revised April 15, 1994 (the "Policy Statement") of the
Federal Financial Institutions Examination Council.
The Policy Statement which has been adopted by the Board of Governors of the
Federal Reserve System, the Office of the Comptroller of the Currency, the FDIC
and the Office of Thrift Supervision and by the NCUA (with certain
modifications), prohibits depository institutions from investing in certain
"high-risk mortgage securities" (including securities such as certain Series,
Classes or Subclasses of the Certificates), except under limited circumstances,
and sets forth certain investment practices deemed to be unsuitable for
regulated institutions.
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.
103
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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.
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.......................... 38
Advances............................................. 13
AFR.................................................. 85
Agreement............................................ 33
Alternative Credit Support........................... 9
Approved Sale........................................ 67
APR.................................................. 21
ARM Loans............................................ 18
Asset Value.......................................... 29
Assets............................................... 78
Cede................................................. 16
Certificate Account.................................. 44
Certificate Principal Balance........................ 3
Certificateholders................................... 16
Certificates......................................... 1
Class................................................ 1
Cleanup Costs........................................ 73
Closed Loans......................................... 20
Closing Date......................................... 76
Code................................................. 13
Committee Report..................................... 77
Contract Loan-to-Value Ratio......................... 7
Contract Pool........................................ 1
Contract Schedule.................................... 70
Contracts............................................ 2
Converted Mortgage Loan.............................. 8
Cooperative.......................................... 4
Cooperative Dwelling................................. 4
Cooperative Loans.................................... 4
Cut-off Date......................................... 17
Custodial Account.................................... 44
Custodial Agreement.................................. 24
Custodian............................................ 24
Deferred Interest.................................... 16
Deficiency Event..................................... 56
Definitive Certificates.............................. 16
Deleted Contract..................................... 25
Deleted Government Securities........................ 42
Deleted Mortgage Certificates........................ 39
Deleted Mortgage Loans............................... 40
Deposit Trust Agreement.............................. 35
Depositor............................................ 1
Determination Date................................... 47
Discount Certificate................................. 9
disqualified organizations........................... 86
Distribution Date.................................... 5
DOL.................................................. 99
DTC.................................................. 16
Due Date............................................. 17
Due Period........................................... 38
ERISA................................................ 13
ERISA Plans.......................................... 99
Escrow Account....................................... 50
Excess Cash Flow..................................... 38
Exempt Series........................................ 100
Fannie Mae........................................... 26
105
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Farm Credit Act...................................... 29
FCA.................................................. 29
FCBs................................................. 29
FFC Bonds............................................ 9
FFCB................................................. 30
FFEL................................................. 28
FHA.................................................. 2
FHA Experience....................................... 28
FHA Loans............................................ 16
FHLB................................................. 28
FHLMC Act............................................ 31
FIRREA............................................... 28
Final Regulation..................................... 98
First Boston......................................... 101
Fiscal Agent......................................... 27
Freddie Mac.......................................... 30
Funding Corporation.................................. 29
Government Securities................................ 8
GPM Fund............................................. 12
GPM Loans............................................ 18
GSE Bonds............................................ 8
GSE Guaranteed Bonds................................. 9
GSE Issuer........................................... 9
GSEs................................................. 8
Initial Deposit...................................... 12
Insurance Proceeds................................... 38
Insured Series....................................... 99
Interest Component................................... 31
Interest Coupon...................................... 96
Interest Distribution................................ 30
Interest Rate........................................ 3
Interest Weighted Class.............................. 3
Interest Weighted Subclass........................... 3
IRS.................................................. 76
L/C Bank............................................. 9
L/C Percentage....................................... 10
Letter of Credit..................................... 9
Liquidating Loan..................................... 10
Liquidation Proceeds................................. 38
Loan-to Value Ratio.................................. 5
Loss................................................. 57
Manufactured Home.................................... 7
Master Servicer...................................... 4
MBS.................................................. 27
Mortgage Certificates................................ 2
Mortgage Loans....................................... 2
Mortgage Notes....................................... 17
Mortgage Pool........................................ 1
Mortgage Rates....................................... 6
Mortgaged Property................................... 5
Mortgagor............................................ 6
Mortgagor Bankruptcy Bond............................ 9
Multi-Class Certificate.............................. 3
Multifamily Property................................. 5
Multiple Variable Rate............................... 78
Nonexempt Assets..................................... 99
Nonexempt Series..................................... 99
non-U.S. Person...................................... 89
Obligor.............................................. 26
OID Regulations...................................... 77
Original Value....................................... 6
Originator........................................... 20
106
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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................................ 9
Pool Insurer......................................... 10
Pooling and Servicing Agreement...................... 19
Premium Certificate.................................. 8
Prepayment Assumption................................ 76
Primary Insurer...................................... 38
Primary Mortgage Insurance Policy.................... 10
Primary Mortgage Insurer............................. 45
Principal Component.................................. 31
Principal Distribution............................... 37
Principal Prepayments................................ 11
Principal Weighted Class............................. 3
Purchase Price....................................... 36
Rating Agency........................................ 2
Record Date.......................................... 37
Reference Agreement.................................. 35
REFCO................................................ 8
REFCO Strips......................................... 8
REIT................................................. 4
REMIC................................................ 1
REMIC Certificateholders............................. 78
REMIC Certificates................................... 77
REMIC Mortgage Pool.................................. 77
REMIC Provisions..................................... 77
REMIC Regular Certificate............................ 77
REMIC Regulations.................................... 77
REMIC Residual Certificate........................... 73
RTC.................................................. 28
Required Distribution................................ 61
Required Reserve..................................... 12
Reserve Fund......................................... 9
Residual Certificates................................ 3
Residual Owner....................................... 81
Restricted Group..................................... 102
Retained Yield....................................... 92
Sallie Mae........................................... 30
Securities Act....................................... 2
Senior Certificates.................................. 8
Senior Class......................................... 3
Senior Prepayment Percentage......................... 60
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................................................ 13
SPA.................................................. 34
Special Distributions................................ 5
Special Hazard Insurance Policy...................... 12
Standard Terms....................................... 28
Stated Principal Balance............................. 3
Stated Principal Distribution Amount................. 38
107
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Stripped Bond Rules.................................. 92
Stripped Interest.................................... 96
Stripped Mortgage Loan............................... 92
Subclass............................................. 1
Subordinated Amount.................................. 9
Subordinated Certificates............................ 9
Subordinated Class................................... 3
Subordinated Pool.................................... 12
Subordinated Subclass................................ 3
Substitute Contract.................................. 24
Substitute Government Securities..................... 46
Substitute Mortgage Certificates..................... 39
Substitute Mortgage Loans............................ 40
System............................................... 29
Systemwide Debt Securities........................... 29
TEFRA................................................ 30
Tiered REMICS........................................ 79
Title V.............................................. 73
Treasury Bonds....................................... 8
Treasury Strips...................................... 8
Trust Assets......................................... 5
Trust Certificates................................... 77
Trust Fractional Certificate......................... 77
Trust Fractional Certificateholder................... 91
Trust Fund1
Trust Interest Certificate........................... 77
Trust Interest Certificateholder..................... 96
TVA.................................................. 30
TVA Act............................................. 29
UCC.................................................. 71
United States Person................................. 90
Unaffiliated Sellers................................ 20
Underlying Issuer.................................... 66
Underwriters........................................ 104
Unstripped Mortgage Loans............................ 95
VA................................................... 2
VA Loans............................................. 17
108
<PAGE>
PROSPECTUS
CREDIT SUISSE 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), (iii) Government Securities (as defined herein) (iv) and/or Private
Label Custody Receipt 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, CREDIT SUISSE FIRST BOSTON CORPORATION,
THE DEPOSITOR, ANY OF THEIR RESPECTIVE AFFILIATES, OR ANY
UNITED STATES GOVERNMENTAL AGENCY.
PROSPECTIVE INVESTORS SHOULD CONSIDER, AMONG OTHER THINGS, THE
INFORMATION 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
CREDIT SUISSE FIRST BOSTON
This date of this Prospectus is February 25, 1998
<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.
-2-
<PAGE>
PROSPECTUS SUPPLEMENT
The Prospectus Supplement relating to a Series of Securities to be
offered hereunder will, among other things, set forth with respect to such
Series of Securities: (i) the aggregate principal amount, interest rate and
authorized denominations of each Class of such Securities; (ii) certain
information concerning the Base Assets and the related Seller and Servicer, as
applicable; (iii) the terms of any Series Enhancement applicable to any Class or
Classes of such Securities; (iv) information concerning any other assets in the
related Trust; (v) the expected date or dates on which the principal amount of
each Class of such Securities will be paid to holders of such Securities; (vi)
the Distribution Date for each Class of such Securities; (vii) the extent to
which any Class within such Series is subordinated to any other Class of such
Series; (viii) the identity of each Class of such Securities; and (ix)
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 Supplement) or in any subsequently filed
document that also is or is deemed to be incorporated by reference herein
modifies
-3-
<PAGE>
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, 11 Madison Avenue, New York, New York 10010. Telephone requests may
be directed to the Secretary of Asset Backed Securities Corporation at (212)
325-2000.
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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 an owner
trust (an "Owner Trust"), a master trust (a "Master
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 Credit Suisse First Boston
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<PAGE>
Securities Corporation, which is a wholly owned
subsidiary of Credit Suisse 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 11 Madison Avenue, New York, New York
10010, and its telephone number is (212) 325-
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 may
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
consist primarily of (i) Receivables or
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<PAGE>
Participations and (ii) to the extent set forth in
the related Prospectus Supplement, Government
Securities (as defined herein) and/or Private Label
Custody Receipt 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 and/or Private
Label Custody Receipt Securities (as defined herein)
(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
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<PAGE>
Supplement will specify the Note Interest Rate, or
the method for determining the Note Interest Rate,
for each Class of Notes.
A Series of Securities may include two or more
Classes of Notes that differ as to timing and
priority of payments, seniority, 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
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<PAGE>
received), in the manner and on the respective terms
and conditions described under "DESCRIPTION OF THE
TRUST AGREEMENT OR POOLING 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 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
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<PAGE>
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 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
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<PAGE>
will be allocated to the interest of the Depositor
therein (the "Depositor's Interest") and as provided
in the related Prospectus Supplement. 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, and the Private Label
Custody Receipt Securities (as defined herein), 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
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<PAGE>
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.
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 and/or Private Label Custody Receipt
Securities. Collections of (i) Finance Charge
Receivables and the Defaulted Amount and (ii)
interest on the Government Securities, if any, and
the Private Label Custody Receipt 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,
and the Private Label Custody Receipt 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
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<PAGE>
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
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,
collections of interest on the Government
Securities, if any, collections of interest on the
Private Label Custody Receipt Securities, if any,
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, collections of interest on the
Government Securities, if any, collections of
interest on the Private Label Custody Receipt
Securities, if any, 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
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<PAGE>
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 a
Controlled Accumulation Period as described below
under "Controlled Accumulation Period", or under
certain limited circumstances, a Rapid Accumulation
Period as decribed below under "Rapid Accumulation
Period" (each an "Accumulation Period") or in
installments commencing on a date specified in the
related Prospectus Supplement (the "Principal
Commencement Date"), in which case such Certificates
will have a Controlled Amortization Period as
described below under "Controlled Amortization
Period". If such a Series has more than one Class of
Certificates, a different method of paying
principal, 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 Closing Date and
continue until the earliest to occur of (a) if a
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<PAGE>
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, collections of
principal of the Private Label Custody Receipt
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
Depositor to purchase additional Receivables,
additional Government Securities and additional
Private Label Custody Receipt Securities.
G. Controlled Accumulation
Period..... If so specified by the related Prospectus
Supplement, unless a Rapid Amortization Period
commences or, it so specified in the related
Prospectus Supplement, a Rapid Accumulation Period
commences, a Series of Receivables Pooling
Certificates will have a controlled accumulation
period (the "Controlled Accumulation Period"). The
Controlled 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 Controlled Accumulation Period of a
Series of Receivables Pooling Certificates,
collections of Principal Receivables, collections of
principal of the Government Securities, if any,
collections of principal of the Private Label
Custody Receipt Securities, if any, and certain
other amounts allocable to the Investor
Certificateholders'
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<PAGE>
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, 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
Controlled 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. Rapid Accumulation
Period...................If so specified and under the conditions set forth
in the Prospectus Supplement relating to a Series
having a Controlled Accumulation Period, during the
period from the day on which a Pay Out Event has
occurred until the earliest of (a) the commencement
of the Rapid Amortization Period, (b) payment in
full of the Investor Interest of the Certificates of
such Series and, if so specified in the related
Prospectus Supplement, of the Collateral Interest,
if any, with respect to such Series and (c) the
related Series Termination Date (the "Rapid
Accumulation Period"), collections of Principal
Receivables allocable to the Investor Interest of
such Series (and certain other amounts if so
specified in the related Prospectus Supplement) will
be deposited on each Transfer Date in the Principal
Funding Account and used to make distributions of
principal to the Certificateholders of such Series
or Class on the Scheduled Payment Date. The amount
to be deposited in the Principal Funding Account
during the Rapid Accumulation Period will not be
limited to the Controlled Deposit Amount. The term
"Pay Out Event" with respect to a Series of
Certificates means any of the events identified as
such in the related Prospectus Supplement and any of
the following: (a) certain events of insolvency or
receivership relating to the Seller, (b) the Seller
is unable for any reason to transfer Receivables to
the Trust in accordance with the provisions of the
Agreement or (c) the Trust becomes an "investment
company" within the meaning of the Investment
Company Act of 1940, as amended. See "Description of
the Certificates -- Accumulation Period" and "--Pay
Out Events" for a discussion of the events which
might lead to the commencement of a Rapid
Accumulation Period.
During the Rapid Accumulation Period, funds on
deposit in any Principal Funding Account may be
invested in permitted investments or subject to a
guaranteed rate or investment contract or other
arrangement intended to assure a minimum return on
the investment of such funds. Investment earnings on
such funds may be applied to pay interest on the
related Series of Certificates or make other
payments as specified in the related Prospectus
Supplement. In order to enhance the likelihood of
payment in full of principal at the end of the Rapid
Accumulation Period with respect to a Series of
Certificate, such Series may be subject to a
principal guaranty or other similar agreement.
I. 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, collections of principal of the
Government Securities, if any, and
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<PAGE>
collections of principal of the Private Label
Custody Receipt 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,
collections of principal of the Private Label
Custody Receipt 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
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.
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<PAGE>
J. 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 or, it so specified in the Prospectus
Supplement relating to a Series with a Controlled
Accumulation Period, from such time specified in the
related Prospectus Supplement after a Pay Out Event
has occurred and the Rapid Accumulation Period has
commenced, 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,
collections of principal of the Private Label
Custody Receipt 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 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.
K. 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:
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<PAGE>
(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 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
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<PAGE>
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, Government Securities, if any, and
Private Label Custody Receipt 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, the
Government Securities, if any, or the Private Label
Custody Receipt Securities, if any, and to continue
transferring Principal Receivables, Government
Securities, if any, and Private Label Custody Receipt
Securities, if any, as before such Insolvency Event.
The proceeds from any such sale, disposition or
liquidation of the Receivables, the Government
Securities, if any, and the Private Label Custody
Receipt 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.
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L. 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. 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 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
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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 and/or
Private Label Custody Receipt 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, and the Private Label Custody
Receipt 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,
Government Securities, if any, and Private Label
Custody Receipt Securities, if any, to the reduction
of the principal balance of such Certificates, or if
any early amortization period 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.
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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
Receivables, (2) CRB Securities, (3) Government
Securities and (4) Private Label Custody Receipt
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
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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 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
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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 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.
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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.
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/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.Base Assets for a Series may include Government
Securities which will consist of any combination of
(i) receipts or other instruments created under the
Department of the Treasury's Separate Trading of
Registered Interest and Principal of Securities, or
STRIPS, program ("Treasury Strips"), which interest
and/or principal Strips evidence ownership of specific
interest and/or principal payments to be made on
certain United States Treasury Bonds ("Treasury
Bonds"), (ii) Treasury Bonds and (iii) certain other
debt securities ("GSE Bonds") of United States
government sponsored enterprises ("GSEs") ("GSE
Bonds"; and, together with Treasury Strips, and
Treasury Bonds, collectively, "Government
Securities"). The specific terms of the Government
Securities, if any, included in a Trust Fund will be
set forth in
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the applicable Prospectus Supplement. See "TRUST
ASSETS -- Government Securities".
Private Label Custody
Receipt Securities. . . . Base Assets for a Series may include Private Label
Custody Receipt Securities which will consist of any
combination of (i) receipts or other instruments
(other than Treasury Strips) evidencing ownership of
specific interest and/or principal payments to be made
on certain Treasury Bonds held by a custodian
("Private Label Custody Strips") and (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"; and, together with Private Label
Custody Strips, "Private Label Custody Receipt
Securities"). The specific terms of the Private Label
Custody Receipt Securities, if any, included in a
Trust will be set forth in the applicable Prospectus
Supplement.
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
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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 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.
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From time to time, various additional accounts may be
created under the terms of the documents related to a
specific Series.
Series Enhancement........If stated in the Prospectus Supplement relating to a
Series, enhancement may be provided with respect to
one or more Classes of the Securities of such Series
in the form of one of more types of Credit Enhancement
(as described below) or Ancillary Arrangements (as
described below), or both ("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
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Participations. The Servicer may perform such
functions alone, through subservicers or in
conjunction with a master servicer, as described in
such Prospectus Supplement. In performing these
functions, the Servicer will be required to exercise
the same degree of skill and care that it customarily
exercises with respect to similar receivables owned or
serviced by it. Under certain limited circumstances,
the Servicer may resign or be removed, in which event
either the Trustee or a third party Servicer will act
as Servicer. The Servicer will receive a periodic fee
as servicing compensation and may, as specified herein
and in the related Prospectus Supplement, receive
certain additional compensation. See "SERVICING OF
RECEIVABLES".
Tax Consequences..........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
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partnership. See "MATERIAL FEDERAL INCOME TAX
CONSEQUENCES -- Owner Trusts" herein for additional
information concerning the application of federal
income tax laws to each Owner Trust and the related
Securities.
In the case of a Grantor Trust, Federal Tax Counsel
will deliver its opinion that the Grantor Trust will
be classified as a grantor trust for federal income
tax purposes and will not be classified as an
association taxable as a corporation. In general, each
owner of a beneficial interest in the Certificates
must include in income its pro rata share of interest
and other income from the Receivables, Participations,
CRB Securities, Government Securities, Private Label
Custody Receipt 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 "MATERIAL
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,
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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 "MATERIAL FEDERAL INCOME TAX
CONSEQUENCES -- Master Trust" herein for additional
information 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
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such Base Assets and/or Series Enhancement by the
related Trust on the Closing Date or to establish a
Pre-Funding Account for such Series, (iv) to establish
any Reserve Account or Cash Collateral Accounts
described in the related Prospectus Supplement or (v)
to pay costs of structuring and issuing such
Securities. If so specified in the related Prospectus
Supplement, the purchase of the Base Assets for a
Series may be effected in whole or in part by an
exchange of Certificates with the Seller of such Base
Assets. See "USE OF PROCEEDS" .
Ratings...................It will be a requirement for the issuance of any Class
of Securities of a Series offered by this Prospectus
and the related Prospectus Supplement that such
Securities be rated by at least one Rating Agency in
one of its four highest applicable rating categories.
The rating or ratings applicable to such Securities
will be as set forth in the related Prospectus
Supplement. For more detailed information regarding
the ratings assigned to any Class of a particular
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.
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
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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 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
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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.
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.
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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, Government Securities, if
any, and Private Label Custody Receipt 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 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
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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, the Government Securities,
if any, and the Private Label Custody Receipt 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 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
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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 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
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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
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.
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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
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
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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.
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, (c) Government Securities and (d) Private Label Custody Receipt
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
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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 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
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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.
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,
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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 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
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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 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
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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.
GOVERNMENT SECURITIES
General
If so specified in the applicable Prospectus Supplement, the Base Assets
for a Series may include any combination of (i) receipts or other instruments
created under the Department of the Treasury's Separate Trading of Registered
Interest and Principal of Securities, or STRIPS, program ("Treasury Strips"),
which interest and/or principal strips evidence ownership of specific
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interest and/or principal payments to be made on certain United States Treasury
Bonds ("Treasury Bonds"), (ii) Treasury Bonds and (iii) certain other debt
securities ("GSE Bonds") of United States government sponsored enterprises
("GSEs"; together with Treasury Strips and Treasury Bonds, collectively,
"Government Securities"). The Government Securities, if any, included in a Trust
Fund are intended to assure investors that funds will be available to make
certain suggested payments of principal and/or interest due on the related
Securities. As such, the Government Securities, if any, included in a Trust are
intended both to (i) support the ratings assigned to the related Securities and
(ii) perform a function similar to that described herein under "Series
Enhancement". A description of the respective general features of Treasury
Bonds, Treasury Strips and GSE Bonds is set forth below. The specific terms of
the Government Securities, if any, and the Private Label Custody Receipt
Securities, if any, included in a Base Assets will be set forth in the
applicable Prospectus Supplement.
The Prospectus Supplement 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) the limit, if any, upon the
aggregate principal amount of such Government Security; (iii) 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; (iv) the rate or rates, or
the method of determination thereof, at which such Government Security will be
payable; the date or dates from which such interest will accrue, and the dates
on which such interest will be payable; (v) whether such Government Security was
issued at a price lower than the principal amount thereof; (vi) material events
of default or restrictive covenants provided for with respect to such Government
Security; (vii) the rating thereof, if any; and (viii) the issuer of each
Government Security; (ix) the material risks, if any, posed by any such
Government Securities and the issuers thereof (which risks, if appropriate, will
be described in the "Risk Factors" section of the related Prospectus
Supplements; and (x) 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 (iii), (iv),
and (v) of the preceding sentence and any other material terms regarding such
pool.
The Government Securities included in a Trust will be senior unsecured,
nonredeemable obligations of the issuer thereof, will be denominated in United
States dollars and, if rated, will be rated at least investment grade by at
least one natioanlly recognized rating agency. In addition, 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.
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TREASURY BONDS
Treasury Bonds are issued by and are the obligations of The United States
of America. As such, the payment of principal and interest on each Treasury Bond
will be guaranteed by the full faith and credit of the United States of America.
Interest is typically payable on the Bonds semiannually. 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.
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.
In 1985 the Department of the Treasury, 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
private label Treasury Strips, can be issued without the need for a custodial
arrangement. The STRIPS program has eclipsed the private sector programs (which
are described below under - "Private Label Custody Receipt Securities"), and
investment banks no longer sponsor new issues of custodial receipts.
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. No callable Treasury Strips will be included in a Trust. 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.
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GSE 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 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 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.
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.
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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 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-
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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.
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
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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 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.
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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.
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PRIVATE LABEL CUSTODY RECEIPT SECURITIES
General
If so specified in the applicable Prospectus Supplement, the Trust for a
Series may include any combination of (i) receipts or other instruments (other
than Treasury Strips) evidencing ownership of specific interest and/or principal
payments to be made on certain Treasury Bonds held by a custodian ("Private
Label Custody Strips") and (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"; and, together
with Private Label Custody Strips, "Private Label Custody Receipt Securities").
The Private Label Custody Receipt Securities, if any, included in a Trust Fund
are intended to assure investors that funds are available to make certain
specified payments of principal and/or interest due on the related Securities.
As such, the Private Label Custody Receipt Securities, if any, included in a
Trust are intended both to (i) support the ratings assigned to such Securities,
and (ii) perform a function similar to that described herein under "Series
Enhancement". A description of the respective general features of Private Label
Custody Strips and REFCO Strips is set forth below.
The Prospectus Supplement for each Series of Securities the Trust Fund with
respect to which contains Private Label Custody Receipt Securities will contain
information as to: (i) the title and series of each such Private Label Custody
Receipt Security, the aggregate principal amount, denomination and form thereof;
(ii) the limit, if any, upon the aggregate principal amount of such Private
Label Custody Receipt Security; (iii) the dates on which, or the range of dates
within which, the principal of (and premium, if any, on) such Private Label
Custody Receipt Security will be payable; (iv) the rate or rates, or the method
of determination thereof, at which such Private Label Custody Receipt 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; (v) whether such
Private Label Custody Receipt Security was issued at a price lower than the
principal amount thereof, (vi) material events of default or restrictive
covenants provided for with respect to such Private Label Custody Receipt
Security; (vii) the rating thereof, if any: (viii) the issuer of such Private
Label Custody Receipt Security; (ix) the material risks, if any, posed by such
Private Label Custody Receipt Security and the issuer thereof (which risks, if
appropriate, will be described in the "Risk Factors" section of the related
Prospectus Supplement); and (x) any other material terms of such Private Label
Custody Receipt Security. With respect to a Trust which includes a pool of
Private Label Custody Receipt Securities, the related Prospectus Supplement
will, to the extent applicable, describe the composition of the Private Label
Custody Receipt Securities' pool, certain material events of default or
restrictive covenants common to the Private Label Custody Receipt 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 (iii), (iv)
and (v) of the preceding sentence and any other material terms regarding such
pool.
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The Private Label Custody Receipt Securities included in a Trust will be
senior, unsecured, nonredeemable obligations of the issuers thereof, will be
denominated in United States dollars and, if rated, will be rated at least
investment grade by at least one nationally recognized rating agency. In
addition, the inclusion of Private Label Custody Receipt 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. Each Trust will be provided with an opinion of Sidley &
Austin to the effect that the Private Label Custody Receipt Securities included
in such Trust are exempt from the registration requirements of the Securities
Act. A copy of such opinion will be filed with the SEC in a Current Report on
Form 8-K or in a post-effective amendment to the Registration Statement.
Private Label Custody Strips
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.
Treasury Receipts, 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.
A holder of a Private Label Custody 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 Private Label Custody 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 Custody Strips are
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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 Private Label Custody Strips. In the event the
Company knows that the depositor of the Treasury Bonds underlying such Private
Label Custody 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 enforce 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 a 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 Company or any of its
affiliates, the Company will disclose such fact in such Prospectus
Supplement.
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
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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.
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
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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 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
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"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 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
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Reserve Account maintenance requirements for a Series will be
described in the related Prospectus Supplement. Amounts deposited in a Reserve
Account will be invested by the Trustee (or the Indenture Trustee) in Eligible
Investments meeting certain specified maturity criteria.
SURETY BOND OR INSURANCE POLICY
If so specified in the related Prospectus Supplement, Credit Enhancement
for a Series or one or more Classes of Securities of a Series may be provided by
the issuance of insurance by one or more insurance companies. Such insurance
will guarantee distributions of interest or principal on the affected Securities
in the manner and amount specified in the related Prospectus Supplement.
If so specified in the related Prospectus Supplement, Credit Enhancement
for a Series or one or more Classes of Securities of a Series may take the form
of a surety bond purchased for the benefit of the holders of such Securities to
assure distributions of interest or principal with respect to such Securities in
the manner and amount specified in the related Prospectus Supplement.
SPREAD ACCOUNT
If so specified in the related Prospectus Supplement, support for a Series
or one or more Classes of Securities of a Series may be provided by the periodic
deposit of certain available excess cash flow from the Trust assets into an
account (the "Spread Account") intended to assure the subsequent distribution of
interest and principal on such Securities in the manner specified in the related
Prospectus Supplement.
ANCILLARY ARRANGEMENTS
If so specified in the related Prospectus Supplement, the Trust may enter
into one or more derivative arrangements that are related to or incidental to
one or more of the Base Assets for a Series ("Ancillary Arrangements"). Such
Ancillary Arrangements may take the form of guaranteed rate agreements, maturity
liquidity facilities, tax protection agreements, interest rate 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
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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 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.
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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, 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.
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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 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
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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.
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
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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 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
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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 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
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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.
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
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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.
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.
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Each Indenture Trustee and the related Noteholders, by accepting the
related Notes, will covenant that they will not at any time institute against
the applicable Trust any bankruptcy, reorganization or other proceeding under
any federal or state bankruptcy or similar law.
Modification of Indenture. The Trust and the related Indenture Trustee may,
with the consent of the holders of a majority of the aggregate outstanding
principal amount of the Notes of the related Series, execute a supplemental
indenture to add provisions to, change in any manner or eliminate any provisions
of, the related Indenture, or modify (except as provided below) in any manner
the rights of the related Noteholders, provided that (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 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.
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Indenture Trustee's Annual Report. The Indenture Trustee for each Trust for
a Series of Securities that includes Notes will be required to mail each year to
all related Noteholders a brief report relating to its eligibility and
qualification to continue as Indenture Trustee under the related Indenture, any
amounts advanced by it under the Indenture, the amount, interest rate and
maturity date of certain indebtedness owing by such Trust to the applicable
Indenture Trustee in its individual capacity, the property and funds physically
held by such Indenture Trustee as such and any action taken by it that
materially affects the related Notes that has not been previously reported.
Satisfaction and Discharge of Indenture. Each Indenture will be discharged
with respect to the collateral securing the related Notes upon the delivery to
the related Indenture Trustee for cancellation of all such Notes or, with
certain limitations, upon deposit with such Indenture Trustee of funds
sufficient for the payment in full of all such Notes.
THE INDENTURE TRUSTEE
The Indenture Trustee for a Series of Notes will be specified in the
related Prospectus Supplement. The Indenture Trustee for any Series may resign
at any time, in which event the related Trust will be obligated to appoint a
successor indenture trustee for such Series. The Trust may also remove the
related Indenture Trustee if such Indenture Trustee ceases to be eligible to
continue as such under the related Indenture or if such Indenture Trustee
becomes insolvent. In such circumstances, such Trust will be obligated to
appoint a successor indenture trustee for the applicable Series of Notes. No
resignation or removal of the Indenture Trustee and appointment of a successor
indenture trustee for a Series of Notes will become effective until the
acceptance of the appointment by the successor indenture trustee for such
Series.
DESCRIPTION OF THE CERTIFICATES
GENERAL
The following summaries describe 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
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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.
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,
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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.
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
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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,
Government Securities, if any, and Private Label Custody Receipt 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 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, Government Securities, if any, and Private Label Custody Receipt
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
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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 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
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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, (ii) the Government Securities, if any,
and (iii) the Private label Custody Receipt 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, and (iii) interest
on the Private Label Custody Receipt 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, and (iii) principal of the Private
Label Custody Receipt 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.
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
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the Defaulted Amount, (ii) the Government Securities, if any and (iii) Private
Label Custody Receipt 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, (ii)
interest on the Government Securities, if any, and (iii) interest on the Private
Label Custody Receipt Securities, if any, will be allocated to each such Series
at all times based upon its Floating Allocation Percentage. Collections of (i)
Principal Receivables, (ii) principal of the Government Securities, if any, and
(iii) principal of the Private Label Custody Receipt 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 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.
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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,
collections of principal of the Private Label Custody Receipt 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.
Controlled 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 a Controlled Accumulation
Period. The Controlled 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.
During the Controlled Accumulation Period with respect to a Series of
Receivables Pooling Certificates, collections of Principal Receivables,
principal of the Government Securities, if any, principal of the Private Label
Custody Receipt 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
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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.
Rapid Accumulation Period. If so specified and under the conditions set
forth in the Prospectus Supplement relating to a Series having a Controlled
Accumulation Period, during the period from the day on which a Pay Out Event has
occurred until the earliest of (a) the commencement of the Rapid Amortization
Period, (b) payment in full of the Investor Interest of the Certificates of such
Series and, if so specified in the related Prospectus Supplement, of the
Collateral Interest, if any, with respect to such Series and (c) the related
Series Termination Date, the Rapid Accumulation Period, collections of Principal
Receivables allocable to the Investor Interest of such Series (and certain other
amounts if so specified in the related Prospectus Supplement) will be deposited
on each Transfer Date in the Principal Funding Account and used to make
distributions of principal to the Certificateholders of such Series or Class on
the Scheduled Payment Date. The amount to be deposited in the Principal Funding
Account during the Rapid Accumulation Period will not be limited to the
Controlled Deposit Amount.
During the Rapid Accumulation Period, funds on deposit in any Principal
Funding Account may be invested in permitted investments or subject to a
guaranteed rate or investment contract or other arrangement intended to assure a
minimum return on the investment of such funds. Investment earnings on such
funds may be applied to pay interest on the related Series of Certificates or
make other payments as specified in the related Prospectus Supplement. In order
to enhance the likelihood of payment in full of principal at the end of the
Rapid Accumulation Period with respect to a Series of Certificate, such Series
may be subject to a principal guaranty or other similar agreement.
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, principal
of the Private Label Custody Receipt 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 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.
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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 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, Government Securities, if
any, and Private Label Custody Receipt 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
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the Trustee not to dispose of or liquidate the Receivables, Government
Securities, if any, and Private Label Custody Receipt 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,
Government Securities, if any, and Private Label Custody Receipt 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, Government Securities, if any, and Private Label
Custody Receipt 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 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
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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,
Government Securities, if any, and Private Label Custody Receipt 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, Government Securities, if any, and Private
Label Custody Receipt 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,
Government Securities, if any, and Private Label Custody Receipt 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.
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
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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 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
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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 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
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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 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
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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
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
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Servicer Default, holders of Securities of the related Series evidencing not
less than 50% of the aggregate unpaid principal amount of such Securities advise
the Trustee and DTC through Participants in writing that the continuation of a
book-entry system through DTC (or a successor thereto) is no longer in the best
interests of the holders of such Securities.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, DTC is required to notify all Participants of the
availability through DTC of Definitive Securities. Upon surrender by DTC of the
physical certificates or notes held by Cede that represent the Securities, and
instructions for registration, the Trustee (or the Indenture Trustee) will issue
such Securities in the form of Definitive Securities, and thereafter the Trustee
(or the Indenture Trustee) will recognize the holders of such Definitive
Securities as holders of Securities, under the applicable Agreement or Indenture
and the related Prospectus Supplement ("Holders").
If Definitive Securities are issued, distribution of principal and interest
on the Definitive Securities will be made by the Paying Agent or the Trustee (or
the Indenture Trustee) directly to the Holders in whose names the Definitive
Securities were registered on the related Record Date in accordance with the
procedures set forth herein and in the related Agreement, Indenture and
Prospectus Supplement. Distributions will be made by check mailed to the address
of each Holder as it appears on the register maintained by the Trustee (or the
Indenture Trustee), except that the final payment on any Definitive Security
will be made only upon presentation and surrender of such Definitive Security on
the date for such final payment at such office or agency as is specified in the
notice of final distribution to Holders. The Trustee (or the Indenture Trustee)
will provide such notice to Holders not later than the date specified in the
related Prospectus Supplement.
Definitive Securities will be transferable and exchangeable at the offices
of the Transfer agent specified pursuant to the applicable Agreement or
Indenture (the "Transfer Agent") and the Registrar. No service charge will be
imposed for any registration of transfer or exchange, but the Transfer Agent and
Registrar may require payment of a sum sufficient to cover any tax or other
governmental charge imposed in connection therewith.
DESCRIPTION OF THE TRUST 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.
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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".
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
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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 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"), 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.
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Assignment of Private Label Custody Receipt 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 in part of Private Label Custody
Receipt Securities, will be applied to the purchase of the related Private Label
Custody Receipt 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 Private Label
Custody Receipt Securities will be purchased by the Trust from time to time
during the Funding Period provided for therein. The Trustee will cause any
Private Label Custody Receipt 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 Private Label Custody Receipt Securities. The Trustee will not be
in possession of or be assignee of record of any underlying assets for a Private
Label Custody Receipt Security. See "THE TRUST ASSETS -- Government Securities".
Each Private Label Custody Receipt Security to be transferred to the Trust
will be identified in a schedule appearing as an exhibit to the related Trust
Agreement (the "Private Label Custody Receipt Security Schedule"), 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 Private Label Custody Receipt Security. In the Trust
Agreement, to the extent that any Private Label Custody Receipt Securities are
purchased from the Depositor, the Depositor will represent and warrant to the
Trustee regarding the Private Label Custody Receipt Securities: (i) that the
information contained in the Private Label Custody Receipt Schedule is true and
correct in all material respects; (ii) that, immediately prior to the conveyance
of the Private Label Custody Receipt 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 Private Label Custody Receipt Securities; and (iv) that there is
no existing lien, charge, security interest or other encumbrance on such Private
Label Custody Receipt 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
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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 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
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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.
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
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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.
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.
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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, 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,
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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 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.
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LIST OF CERTIFICATEHOLDERS
Upon written request of three or more Certificateholders of record of a
Series for purposes of communicating with other Certificateholders with respect
to their rights under the Agreement or under the Certificates for such Series,
which request is accompanied by a copy of the communication which such
Certificateholders propose to transmit, the Trustee will afford such
Certificateholders access during business hours to the most recent list of
Certificateholders of that Series held by the Trustee.
No Agreement will provide for the holding of any annual or other meeting of
Certificateholders.
TERMINATION
The obligations created by the Agreement for a Series will terminate upon
the distribution to Certificateholders of all amounts distributable to them
pursuant to such Agreement after the 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 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".
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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
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
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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.
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
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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.
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.
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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
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
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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.
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 Credit Suisse First Boston Securities Corporation,
which is a wholly owned subsidiary of Credit Suisse First Boston, Inc. Neither
Credit Suisse First Boston Securities Corporation, nor Credit Suisse 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 11 Madison Avenue, New
York, New York 10010, and its telephone number is (212) 325-2000.
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
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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.
MATERIAL 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, a copy of which will be filed with the SEC
in a Current Report on Form 8-K or in a post-effective amendment to the
Registration Statement. 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. 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.
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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 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
with 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 might 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.
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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 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.
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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 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.
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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).
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
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"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 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.
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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.
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
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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 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
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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 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 any corporation, individual, fiduciary or
partnership that, as to the United States, 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 to the extent one or more of its members 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 October 6, 1997, final Treasury Regulations (the "1997 Withholding
Regulations") were issued which affect the United States taxation of Non-United
States
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Holders. The 1997 Withholding Regulations are generally effective for payments
after December 31, 1998, regardless of the issue date of the Note with respect
to which such payments are made, subject to certain transition rules. 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 1997 Withholding Regulations, and prospective investors are
urged to consult their tax advisors with respect to the effect of the 1997
Withholding Regulations.
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 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 1997 Withholding Regulations provide optional documentation procedures
designed to simplify compliance by withholding agents. The 1997 Withholding
Regulations will add "intermediary certification" options for certain qualifying
withholding agents. Under one such option, a withholding agent will 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 will be permitted to act on behalf of the United
States withholding agent, provided certain conditions are met.
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The 1997 Withholding Regulations will 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 1997 Withholding Regulations will 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.
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) 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)
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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 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
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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 1997 Withholding Regulations alter the forgoing rules in certain
respects. In particular, the 1997 Withholding Regulations will 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
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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.
On December 17, 1996, final Treasury Regulations (the "Check-the-Box
Regulations") were issued which generally permit non-corporate entities, such as
the Trust, to elect whether to be taxed as corporations or partnerships. The
Check-the-Box Regulations are effective as of January 1, 1997. Under the Check-
the-Box Regulations, the Trust will be classified as a partnership unless it
elects to be classified as an association taxable as a corporation. Except as
expressly provided in the applicable Prospectus Supplement, the Trust will not
elect to be classified as an association taxable as a corporation. However, the
Check-the-Box-Regulations would have no effect on whether a partnership should
be classified as a publicly traded partnership taxable as a corporation.
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 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
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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.
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 ($121,200 in 1997 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.)
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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
contribute its assets to a new Trust, which will be treated as a new partnership
for tax purposes, in exchange for Certificates in the new Trust. The original
Trust will then be deemed to distribute the Certificates in the new Trust to
each of the Owners of Certificates in the original Trust in liquidation of the
original Trust. 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.
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.
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The use of such a monthly convention may not be permitted by existing
Treasury Regulations. If a monthly convention is not allowed (or only applies to
transfers of less than all of the partner's interest), taxable income or losses
of the Trust might be reallocated among the Certificate Owners. The Seller will
be authorized to revise the Trust's method of allocation between transferors and
transferees.
Section 754 Election. In the event that a Certificate Owner sells its
Certificates at a profit (loss), the purchasing Certificate Owner will have a
higher (lower) basis in the Certificates than the selling Certificate Owner had.
The tax basis of the Trust's assets will not be adjusted to reflect that higher
(or lower) basis unless the Trust were to file an election under Section 754 of
the Code. In order to avoid the administrative complexities that would be
involved in keeping accurate accounting records, as well as potentially onerous
information reporting requirements, the Trust will not make such election. As a
result, Certificate Owners might be allocated a greater or lesser amount of
Trust income than would be appropriate based on their own purchase price for
Certificates.
Administrative Matters. The Trustee is required to keep complete and
accurate books of the Trust. Such books will be maintained for financial
reporting and tax purposes on an accrual basis, and the fiscal year of the Trust
will be the calendar year. The Trustee will file a partnership information
return (IRS Form 1065) with the IRS for each taxable year of the Trust and will
report each Certificate Owner's allocable share of items of Trust income and
expense to Certificate 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.
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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.
The Taxpayer Relief Act of 1997 created a special audit system for
qualifying large partnerships that have elected to apply a simplified flow-
through reporting system under new sections 771 through 777. Unless otherwise
specified in the applicable Prospectus Supplement, a Trust will not elect to
apply the simplified flow-through reporting system.
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 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
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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.
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.
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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 ($121,200
in 1997 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 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 Asset 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 or
short-term Private Label Custody Receipt 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
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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.
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
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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 required 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.
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
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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 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
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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 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 Taxpayer Relief Act of 1997 (the "1997 Act") contains a
provision requiring original issue discount on any pool of debt instruments. The
yield on which may be affected by reason of prepayments 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
debt instruments.
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Sale or Exchange of a Grantor Trust Certificate. Sale or exchange of a
Grantor Trust Certificate prior to its maturity will be treated as a sale or
exchange of the Grantor Trust Certificateholder's interest in the assets of the
Grantor Trust and will result in gain or loss equal to the difference, if any,
between the amount realized (exclusive of amounts attributable to accrued and
unpaid interest, which will be treated as ordinary income) and the owner's
adjusted basis in those assets. Such adjusted basis generally will equal the
Seller's cost for the Grantor Trust Certificate, increased by the original issue
discount and any market discount included in the seller's gross income with
respect to the Grantor Trust Certificate, and reduced (but not below zero) by
any premium amortized by the Seller and by principal payments on the Grantor
Trust Certificate previously received by the seller. Such gain or loss will be
capital gain or loss to an owner for which the interests in the assets of the
Grantor Trust represented by the Grantor Trust Certificate are "capital
assets" within the meaning of Section 1221, except that gain will be treated in
whole or in part as ordinary interest income to the extent of the 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.
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On October 6, 1997, final Treasury Regulations (the "1997 Withholding
Regulations") were issued which affect the United States taxation of Non-United
States Owners of Grantor Trust Certificates. The 1997 Withholding Regulations
are generally effective for payments after December 31, 1998, 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.
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
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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 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
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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 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
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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 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 December 17, 1996, final 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 effective as of January 1, 1997. 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.
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Since the Seller will treat the Certificates as indebtedness for federal
income tax purposes, the Seller will not comply with the tax reporting
requirements that would apply under these alternative characterizations of the
Certificates.
FOREIGN INVESTORS
As used herein, the term "Foreign Person" means any corporation,
individual, fiduciary or partnership 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 to the extent one or more of its members 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
"Foreign Investor" means a Foreign Person that is a Certificate Owner.
On October 6, 1997, final Treasury Regulations (the "1997 Withholding
Regulations") were issued which affect the United States taxation of Non-United
States Holders. The 1997 Withholding Regulations are generally proposed to be
effective for payments after December 31, 1998, regardless of the issue date of
the Note with respect to which such payments are made, subject to certain
transition rules. 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 1997 Withholding Regulations, and
prospective investors are urged to consult their tax advisors with respect to
the effect of the 1997 Withholding Regulations.
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
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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 1997 Withholding Regulations provide optional documentation procedures
designed to simplify compliance by withholding agents. The 1997 Withholding
Regulations will add "intermediary certification" options for certain qualifying
withholding agents. Under one such option, a withholding agent will 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 will be permitted to act on behalf of the United
States withholding agent, provided certain conditions are met.
The 1997 Withholding Regulations 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 1997
Withholding Regulations will 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.
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
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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 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.
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The 1997 Withholding Regulations alter the forgoing rules in certain
respects. In particular, the 1997 Withholding Regulations 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 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
enterprises is generally exempt from state and local income taxation. Therefore,
where a Grantor Trust holds Government Securities or Private Label Custody
Receipt Securities as part of the Trust Property, interest income attributable
to Government Security or Private Label Custody Receipt Security 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
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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.
***
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.
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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.
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
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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 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.
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Prohibited Transactions
If the Base Assets are plan assets, Section 406 of ERISA will prohibit
the Trustee, among others, from causing the assets of the Issuer to be involved,
directly or indirectly, in certain types of transactions with "parties in
interest" to investing Plans unless a statutory or administrative exemption
applies. If the prohibited transaction restrictions of Section 406 of ERISA are
violated, ERISA generally provides for criminal and civil penalties upon the
Plan Fiduciary and possibly other persons. Section 4975(c) of the Code generally
imposes an excise tax on "disqualified persons" who engage, directly or
indirectly, in similar types of transactions with the assets of Plans subject to
such Section (except that an IRA that engages in a prohibited transaction may
instead forfeit its tax-exempt status) and also requires recision of such
transaction.
The types of transactions subject to the prohibited transaction
restrictions of ERISA and Section 4975(c) of the Code include: (i) sales,
exchanges or leases of property (such as the Securities), (ii) loans or other
extensions of credit and (iii) the furnishing of goods and services. As
described in Section 406(b)(1) or Section 4975(c)(1)(E) of the Code, the use of
plan assets by or for the benefit of parties in interest or disqualified persons
may also constitute a prohibited 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;
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(ii) the transaction is at least as favorable to the Plan as an
arm's-length transaction with an unrelated party and, at the time of the
transaction, was not a prohibited transaction within the meaning of Section
503(b) of the Code;
(iii) the broker dealer is not a fiduciary with respect to the Plan
and is a party in interest with respect to the Plan solely because it or an
affiliate provides services to the Plan; and
(iv) for a period of six years from the date of the transaction, the
Plan maintains or causes to be maintained such records as are necessary to
determine whether the foregoing conditions have been met, and such records
are unconditionally available for examination during normal business hours
by the DOL and certain other persons.
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.
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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.
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.
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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 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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<TABLE>
<CAPTION>
TERM PAGE
- ---- ----
INDEX OF DEFINED TERMS
<S> <C>
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
</TABLE>
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<TABLE>
<CAPTION>
TERM PAGE
- ---- ----
<S> <C>
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
</TABLE>
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<TABLE>
<CAPTION>
TERM PAGE
- ---- ----
<S> <C>
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
Private Label Custody Receipt Security .......................................................
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
</TABLE>
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<TABLE>
<CAPTION>
TERM PAGE
- ---- ----
<S> <C>
S&P ....................................................................................34
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
</TABLE>
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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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<PAGE>
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
AI-3
<PAGE>
(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 "Material 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 October 6, 1997, final Treasury Regulations (the "1997 Withholding
Regulations") were issued which affect the documentation required from non-U.S.
persons holding Global Securities. The 1997 Withholding Regulations are
generally proposed to be effective for payments after December 31, 1998,
regardless of the issue date of the Global Security with respect to which such
payments are made, subject to certain transition rules. The 1997 Withholding
Regulations will 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. Prospective investors are urged to consult
their tax advisors with respect to the effect of the 1997 Withholding
Regulations.
This summary does not deal with all aspects of foreign income tax
withholding that may be relevant to foreign holders of these Global Securities.
Investors are advised to consult their own tax advisors for specific tax advice
concerning their holding and disposing of these Global Securities.
AI-5
<PAGE>
================================================================================
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS
SUPPLEMENT OR THE PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR [_] CREDIT SUISSE 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
PROSPECTUS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
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
Private Table Custody Receipt Securities
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 to their unsold
allotments of subscriptions.
$[_]
[_] CREDIT SUISSE
FIRST BOSTON AUTO
RECEIVABLES AND
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_
__________________
[INSERT CSFB LOGO HERE]
================================================================================
<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:
<TABLE>
<S> <C>
Registration Fee $ 345*
Printing and Engraving Expenses 350,000
Trustee's Fees and Expenses 300,000
Legal Fees and Expenses 900,000
Accountant's Fees and Expenses 150,000
Rating Agency Fees 850,000
Miscellaneous 200,000
---------
Total 2,750,345
=========
</TABLE>
_____________
* A registration fee of $424,630 previously was paid in connection with the
registration of securities in the amount of $2,123,510,000 that were previously
registered by registration statement Nos. 33-10125 and 33-17232. Such Securities
are being carried forward in connection with this Registration Statement.
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
25th day of February 1998.
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:
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
* Director February 25, 1998
- ---------------------------
Scott Ulm
/s/ Gina Hubbell Director February 25, 1998
- ---------------------------
Gina Hubbell
/s/ William Pitofsky Director, President and February 25, 1998
- --------------------------- Chief Executive Officer
William Pitofsky
* Vice President and Controller February 25, 1998
- --------------------------- (Principal Accounting Officer)
Thomas Zingalli
* Director February 25, 1998
- ---------------------------
Lawrence A. Shelley
/s/ Diane Manno - Sottile Treasurer (Principal Financial
- --------------------------- Officer)
Diane Manno
* /s/ Gina Hubbell
----------------------------------
By: Gina Hubbell
Attorney-in-fact
</TABLE>
II-6
<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>
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_
1 Credit Suisse First Boston Auto Receivables Securities Trust 199_
$ ______________ % Asset Backed Certificates, Class A
________________
ASSET BACKED SECURITIES CORPORATION
Company
________________
2 Credit Suisse 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)
________________
3 TRUST ONLY AND DO NOT REPRESENT OBLIGATIONS OF OR INTERESTS IN CREDIT SUISSE
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)] [, THE PRIVATE LABEL CUSTODY RECEIPT SECURITIES (AS DEFINED HEREIN)] OR
THE RECEIVABLES (AS DEFINED HEREIN) ARE INSURED OR GUARANTEED BY CREDIT SUISSE
FIRST BOSTON CORPORATION, THE COMPANY, THE TRUSTEE, ANY SELLER, ANY OF THEIR
RESPECTIVE AFFILIATES OR [, OTHER THAN IN THE CASE OF THE GOVERNMENT SECURITIES]
[, OTHER THAN IN THE CASE OF THE PRIVATE LABEL CUSTODY RECEIPT 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.
6_______________
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.
7________________
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 8 Credit Suisse 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_.
[CSFB LOGO]
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)][and (c) the Private Label
Custody Receipt 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").]
[Describe Private Label Custody Receipt Securities (the "Private Label Custody
Receipt Securities").] The Collateral Certificates [and the Government
Securities] [and the Private Label Custody Receipt 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] [and the Private Label Custody
Receipt 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] [AND PRIVATE LABEL CUSTODY
RECEIPT 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............................. 10 Credit Suisse 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 11 Credit Suisse
First Boston Securities Corporation,
which is a wholly owned subsidiary of 12
Credit Suisse First Boston, Inc. Neither
13 Credit Suisse First Boston Securities
Corporation nor 14 Credit Suisse 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
S-4
<PAGE>
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").]
15[The Private Label Custody
Receipt Securities Describe Private Label Custody Receipt
Securities, if any (the "Private Label
Custody Receipt Securities").]
Trust Property..................... The assets of the Trust (the "Trust
Property") include (i) the Collateral
Certificates, [(ii) the Government
Securities,16 [(iii) the Private Label
Custody Receipt Securities,(iv)] all
monies (including accrued interest)
received on or with respect to the
Collateral Certificates [and the
Government Securities] [and the Private
Label Custody Receipt Securities] on or
after the Cutoff Date, [17(v)] all
amounts and property from time to time
held in or credited to the Collection
Account, [18(vi)] 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 [19(vii)] 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 20
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.
S-5
<PAGE>
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.
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
Prepaymment................ If the Company exercises its option to
purchase the Collateral Certificates
[and the Government Securities] [and the
Private Label Custody Receipt
Securities], which it may do after the
aggregate principal balance of the
Collateral Certificates [and the
Government Securities] [and the Private
Label Custody Receipt 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 Credit
Enhancement 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] [and the Private
Label Custody Receipt 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
S-6
<PAGE>
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 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-7
<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. Credit Suisse 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 the Private Label
Custody Receipt Securities] and access to funds in the Reserve Account.
Certificateholders must rely on payments on the Collateral Certificates [and the
Government Securities] [and the Private Label Custody Receipt 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] [and the Private
Label Custody Receipt 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], [and the Private Label Custody Receipt 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][or the Private Label
Custody Receipt 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
S-8
<PAGE>
to the Government Securities attached hereto as Appendix [ ] for certain
additional considerations relating to the Government Securities.
Risk Factors Regarding Private Label Custody Receipt Securities.
Prospective investors in the Certificates should consider carefully the factors
set forth under the caption "______________" in the disclosure documentation
relating to the Private Label Custody Receipt Securities attached hereto as
Appendix [ ] for certain additional considerations relating to the Private
Label Custody Receipt Securities.
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][or the
Private Label Custody Receipt 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.]
[Available Information Regarding the Private Label Custody Receipt
Securities. Neither the Company nor the Underwriter participated in the
preparation of the disclosure documentation relating to the Private Label
Custody Receipt Securities or the offering of the Private Label Custody Receipt
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
S-9
<PAGE>
documentation relating to the Private Label Custody Receipt 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.]
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] [and the Private Label Custody Receipt 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) the Private
Label Custody Receipt Securities,] [(iv)] all monies (including accrued
interest) received on or with respect to the Collateral Certificates on or after
the Cutoff Date,[(v)] all amounts and property from time to time held in or
credited to the Collection Account, [(vi)] 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 [(vii)] 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.
S-10
<PAGE>
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][and the Private Label
Custody Receipt 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
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.
S-11
<PAGE>
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
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,
S-12
<PAGE>
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.
[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 [_] 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 [_] 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
S-13
<PAGE>
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".]
[DESCRIPTION OF THE PRIVATE LABEL CUSTODY RECEIPT SECURITIES
This Prospectus Supplement sets forth the material terms of the
Private Label Custody Receipt Securities. It does not purport to provide
complete information with respect to all terms of such securities or the issuers
thereof. Certain information relating to the issuers of the Private Label
Custody Receipt Securities is provided in the Prospectus under the caption "The
Private Label Custody Receipt Securities". Schedule [ ] to this Prospectus
Supplement contains a summary of the terms of the Private Label Custody Receipt
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 Private Label Custody
Receipt Securities.
Appendix [_] to this Prospectus Supplement contains certain excerpts
from the disclosure documentation pursuant to which Private Label Custody
Receipt Securities were offered and sold. See "Risk Factors--Available
Information Regarding Private Label Custody Receipt Securities". Although
nether the Company nor the Underwriter has any reason to believe the information
provided by any originator of the Private Label Custody Receipt Securities or in
any disclosure documentation relating to the Private Label Custody Receipt
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 Private Label Custody Receipt
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 Private Label Custody Receipt Securities".]
THE TRUST AGREEMENT
SALE AND ASSIGNMENT OF COLLATERAL CERTIFICATES [AND GOVERNMENT SECURITIES] [AND
PRIVATE LABEL CUSTODY RECEIPT SECURITIES ]
Certain information with respect to the conveyance of the Collateral
Certificates [and the Government Securities] [and the Private Label Custody
Receipt 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] [and the Private Label Custody
Receipt Securities], which it may do when the aggregate outstanding principal
amount of the Collateral Certificates [and the Government Securities] [and the
Private Label Custody Receipt 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
S-14
<PAGE>
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] [and the Private Label Custody
Receipt 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 the Government Securities] [and the Private Label Custody
Receipt 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][and the Private Label Custody Receipt
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.
[MATERIAL 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.
S-15
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in an Underwriting
Agreement relating to the Class A Certificates (the "Underwriting Agreement"),
the Company has agreed to cause the Trust to sell to the Underwriter, and the
Underwriter has agreed to purchase, the entire principal amount of the Class A
Certificates.
The Underwriter proposes to offer the Class A Certificates to the
public initially at the public offering price set forth on the cover page of
this Prospectus Supplement, and to certain dealers at such price less a
concession of _____% per Class A Certificates; the Underwriter and such dealers
may allow a discount of _____% per Class A Certificates on sales to certain
other dealers; and after the initial public offering of the Class A
Certificates, the public offering price and the concessions and discounts to
dealers may be changed by the Underwriter.
The Underwriting Agreement provides that the Seller will indemnify the
Underwriter against certain liabilities under applicable securities laws, or
contribute to payments the Underwriter may be required to make in respect
thereof.
The Trust may, from time to time, invest the funds in the Trust
Accounts in Eligible Investments acquired from the Underwriter.
Upon receipt of a request by an investor who has received an
electronic Prospectus Supplement and Prospectus from the Underwriter within the
period during which there is an obligation to deliver a Prospectus Supplement
and Prospectus, the Company or the Underwriter will promptly deliver, or cause
to be delivered, without charge, a paper copy of the Prospectus Supplement and
Prospectus.
[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-5]
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
[Private Label Custody Receipt Securities.............................. S-5]
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
</TABLE>
S-17
<PAGE>
<TABLE>
<S> <C>
Total Distribution Amount.............................................. S-11
Trust.................................................................. S-1
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
[To be Supplied]
A-1
<PAGE>
APPENDIX B
Servicer Reports relating to Collateral Certificates
[To be Supplied]
B-1
<PAGE>
[APPENDIX [_]]
[Disclosure Documentation relating to Government Securities]
[To be Supplied]
[[_]-1]
<PAGE>
[APPENDIX [_]]
[Disclosure Documentation relating to Private Label Custody Receipt Securities]
[To be Supplied]
[[_]-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 CREDIT SUISSE 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
<S> <C>
PROSPECTUS SUPPLEMENT
Summary....................................................... S-4
Risk Factors.................................................. S-9
The Trust..................................................... S-11
Weighted Average Life of the Certificate ..................... S-11
The Certificates.............................................. S-11
Description of the Collateral Certificates.................... S-13
[Description of the Government Securities..................... S-14]
[Description of the Private Label Custody Receipt 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...................... 38
Certain Federal Income Tax Consequences....................... 55
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.
$[ ]
CREDIT SUISSE FIRST
BOSTON AUTO
RECEIVABLES AND
RECEIVABLES
SECURITIES TRUSTS
$[ ] [ ]% [FLOATING RATE]
ASSET BACKED CERTIFICATES, CLASS A
ASSEST BACKED SECURITIES CORPORATION
(COMPANY)
_____________________
PROSPECTUS SUPPLEMENT
[ ],199[]
_____________________
================================================================================
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus supplement and the accompanying prospectus shall not
constitute an offer to sell or the solicitation of an offer to buy, nor shall
there be any sale of these securities in any State in which such offer,
solicitation or sale would be unlawful prior to registration or qualification
under the securities laws of any such State.
Subject to Completion
Prospectus Supplement to Prospectus Dated _________________, 199
2$
CREDIT SUISSE 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
________________
3 Credit Suisse 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, 4 CREDIT SUISSE 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)] [THE PRIVATE
LABEL CUSTODY RECEIPT SECURITIES (AS DEFINED HEREIN)] OR THE RECEIVABLES (AS
DEFINED HEREIN) (AS DEFINED HEREIN) ARE INSURED OR GUARANTEED BY 5 CREDIT SUISSE
FIRST BOSTON CORPORATION, THE COMPANY, ANY SELLER, ANY OF THEIR RESPECTIVE
AFFILIATES OR [, OTHER THAN IN THE CASE OF THE GOVERNMENT SECURITIES,] [, OTHER
THAN IN THE CASE OF THE PRIVATE LABEL CUSTODY RECEIPT 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.
<TABLE>
<CAPTION>
Price to the Underwriting Proceeds to the
Public(1) Discount Company(1)(2)
-------------------- ------------ ---------------
<S> <C> <C> <C>
Per Class A-1 Note.. % % %
Per Class A-2 Note.. % % %
Per Certificate..... % % %
Total $ $ $
</TABLE>
(1) Plus accrued interest, if any, from ______________, 199_.
(2) Before deducting expenses, estimated to be $____________.
________________
The Notes and the Certificates are offered subject to prior sale and subject
to the right of 6 Credit Suisse 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_.
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)][and (c) the Private Label
Custody Receipt 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").]
[Describe Private Label Custody Receipt Securities (the "Private Label Custody
Receipt Securities").] The Collateral Certificates [and the Government
Securities] [and the Private Label Custody Receipt 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] [and the Private Label Custody
Receipt 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.
________________
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] [AND PRIVATE LABEL CUSTODY
RECEIPT 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 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").
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<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..................... 8 Credit Suisse 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 9 Credit
Suisse First Boston Securities Corporation, which
is a wholly owned subsidiary of 10 Credit Suisse
First Boston, Inc. Neither 11 Credit Suisse First
Boston Securities Corporation nor 12 Credit Suisse
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 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
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<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").]
[The Private Label Custody
Receipt Securities........ Describe Private Label Custody Receipt Securities,
if any (the Private Label Custody Receipt
Securities).]
Trust Property............. The assets of the Trust (the "Trust Property")
include (i) the Collateral Certificates, [(ii) the
Government Securities, 13[(iii) the Private Label
Custody Receipt Securities, (iv)] all monies
(including accrued interest) received on or with
respect to the Collateral Certificates [and the
Government Securities][and the Private Label
Custody Receipt Securities] on or after the
Cutoff Date, [14(v)] all amounts and property from
time to time held in or credited to the Collection
Account, [15(vi)] 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 [16(vii)] 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,
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<PAGE>
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 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] [and the Private Label Custody Receipt
Securities]. Under the terms of the Trust
Agreement, the Company may purchase the Collateral
Certificates [and the Government Securities] [and
the Private Label Custody Receipt Securities] when
the aggregate principal balance of the Collateral
Certificates [and the Government Securities][and
the Private Label Custody Receipt 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 Distributions 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.
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<PAGE>
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 Noterholders' Dustributable 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").
See "The Certificates--Distributions of Principal"
and "Description of the Trust Agreement--
Distrbutions" herein.
E. Optional Prepayment. If the Company exercises its option to purchase the
Collateral Certificates [and the Government
Securities], [and the Private Label Custody Receipt
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.
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<PAGE>
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] [and the Private Label
Custody Receipt 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 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 Consequences........... 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 "Material
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
S-8
<PAGE>
by a rating agency if circumstances so warrant. See
"Risk Factors -- Ratings of the Securities" herein.
S-9
<PAGE>
RISK FACTORS
In addition to the other information contained in this Prospectus
Supplement and the Prospectus, prospective investors should carefully consider
the following risk factors before investing in the Securities.
Limited Liquidity of Securities. There is currently no secondary
market for the Securities. 17 Credit Suisse 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 the Private Label Custody Receipt
Securities] and access to funds in the Reserve Account. Securityholders must
rely on payments on the Collateral Certificates [and the Government Securities]
[and the Private Label Custody Receipt 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][and the Private
Label Custody Receipt 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], [and the Private Label Custody Receipt 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
Private Label Custody Receipt Securities] and the availability of funds in the
Reserve Account.
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<PAGE>
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][or the Private Label
Custody Receipt 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 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. Pospective 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 18[_] for certain additional
considerations relating to the Government Securities.]
[Risk Factors Regarding Private Label Custody Receipt Securities.
Prospective investors in the Securities should consider carefully the factors
set forth under the caption "______________" in the disclosure documentation
relating to the Private Label Custody Receipt Securities attached hereto as
Appendix [_] for certain additional considerations relating to the Private Label
Custody Receipt 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][or the
Private Label Custody Receipt 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 19 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
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<PAGE>
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.]
[Available Information Regarding the Private Label Custody Receipt
Securities Neither the Company nor the Underwriter participated in the
preparation of the disclosure documentation relating to the Private Label
Custody Receipt Securities or the offering of the Private Label Custody Receipt
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 Private Label Custody Receipt 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.]
[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, 20 Credit Suisse 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] [, the Private Label Custody Receipt
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] [and the Private Label
Custody Receipt Securities] from the Company pursuant to the Trust Agreement.
The Trustee will manage the Collateral Certificates [and the Government
Securities] [and the Private Label Custody Receipt 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.
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CAPITALIZATION OF THE TRUST
The following table illustrates the capitalization of the Trust as of
the Cutoff Date, as if the issuance and sale of the Notes and the Notes and the
Certificates had taken place on such date:
<TABLE>
<S> <C>
Class A-1 Notes..................... $
Class A-2 Notes.....................
Certificates........................ ------------------------
Total..................... $
</TABLE> ------------------------
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.
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] [and the Private
Label Custody Receipt 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.
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<PAGE>
PAYMENTS OF INTEREST
Interest on the principal balance of the Class A-1 Notes and the Class
A-2 Notes will accrue at the Class A-1 Rate and Class A-2 Rate, respectively,
and will be payable to the holders of the Class A-1 Notes and the Class A-2
Notes monthly on each Distribution Date. Interest with respect to any
Distribution Date will accrue from and including the most recent Distribution
Date on which interest was distributed to Noteholders (or, with respect to the
first Distribution Date, from and including the Closing Date) to but excluding
such Distribution Date. Interest on each class of Notes will be calculated on
the basis of a 360-day year of twelve 30-day months. Interest accrued but not
paid on any Distribution Date will be due on the next Distribution Date,
together with interest on such amount at the applicable Interest Rate (to the
extent lawful). Interest payments on the Notes will generally be derived from
the Total Distribution Amount 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 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] [and the Private Label
Custody Receipt Securities], which the Company may do after the aggregate
outstanding principal amount of the Collateral Certificates [and the Government
Securities] [and the Private Label Custody Receipt 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
S-14
<PAGE>
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 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] [and the Private Label Custody
Receipt Securities], which it may do when the aggregate outstanding principal
amount of the Collateral Certificates [and the Government Securities] [and the
Private Label Custody Receipt 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
S-15
<PAGE>
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
Factor--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 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 21 [ ]
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 22 [ ] 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". 23 Neither the Company nor the Underwriter
has any reason to believe the information provided by 24 any originator of 25
the 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".]
S-16
<PAGE>
[DESCRIPTION OF THE PRIVATE LABEL CUSTODY RECEIPT SECURITIES
This Prospectus Supplement sets forth the material terms of the
Private Label Custody Receipt Securities. It does not purport to provide
complete information with respect to all terms of such securities or the
issuer(s) thereof. Certain information relating to the issuer(s) of the Private
Label Custody Receipt Securities is provided in the Prospectus under the caption
"The Private Label Custody Receipt Securities". Schedule [ ] to this
Prospectus Supplement contains a summary of the terms of the Private Label
Custody Receipt 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 Private
Label Custody Receipt Securities.
Appendix [ ] to this Prospectus Supplement contains certain excerpts
from the disclosure documentation pursuant to which the Private Label Custody
Receipt Securities were offered and sold. See "RISK Factors--Available
Information Regarding Private Label Custody Receipt Securities. Neither the
Company nor the Underwriter has any reason to believe the information provided
by any originator of the Private Label Custody Receipt Securities or in any
disclosure documentation relating to the Private Label Custody Receipt
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 Private Label Custody Receipt
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 Private Label Custody Receipt
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] [and the Private Label Custody Receipt Securities], as
well as the Total Distribution Amount, the Interest Distribution Amount and the
Principal Distribution Amount.
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] [and the Private Label Custody Receipt 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] [and the Private Label Custody Receipt
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<PAGE>
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] [and
the Private Label Custody Receipt 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.
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
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<PAGE>
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.
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
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<PAGE>
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.
[MATERIAL 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
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
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<PAGE>
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
Credit Suisse 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.
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<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 Amout.................... S-15
Noteholders' Monthly Interest Distributable Amount........... S-15
Noteholders' Principal Distributable Amount.................. S-15
Note......................................................... S-11
Owner Trustee................................................ Cover
Plan......................................................... S-17
Pool Balance................................................. S-6
Principal Distribution Amount................................ S-14
[Private Label Custody Receipt Securities.................... S-2]
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
</TABLE>
S-22
<PAGE>
<TABLE>
<S> <C>
Securityholders.............................................. S-6
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-23
<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
Servicer Reports relating to Collateral Certificates
Disclosure Documentation relating to Collateral Certificates
To be Supplied
A-1
<PAGE>
[APPENDIX [ ]]
[Prospectuses relating to Government Securities]
[Servicer Reports relating to Government Securities]
[Disclosure Documentation relating to Government Securities]
[To be Supplied]
[ -1]
<PAGE>
27[APPENDIX [_]]
[Prospectuses relating to Private Label Custody Receipt Securities]
[Servicer Reports relating to Collateral Certificates]
[Disclosure Documentation relating to Private Label Custody Receipt
Securities]
[To be Supplied]
[ -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 28 CREDIT SUISSE 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-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]
[DESCRIPTION OF THE PRIVATE LABEL CUSTODY RECEIPT SECURITIES..... S-15]
The Trust Agreement.............................................. S-15
[Certain Federal Income Tax Considerations....................... 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
Rick Factors.................................................... 14
The Trusts...................................................... 17
The Receivables Pools........................................... 19
The Collateral Certificates..................................... 21
The Government Securities....................................... 23]
[THE PRIVATE LABEL CUSTODY RECEIPT SECURITIES................... 23]
Weighted Average Life of the Securities......................... 33
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.
================================================================================
================================================================================
$[ ]
29 CREDIT SUISSE
FIRST BOSTON AUTO
RECEIVABLES AND
RECEIVABLES
SECURITIES TRUSTS
$[ ] [ ]% [Floating Rate]
Asset Backed Notes, Class [ ]
$[ ] [ ]% [Floating Rate]
Asset Backed Notes, Class [ ]
$[ ] [ ]% [Floating Rate]
Asset Backed Notes, Class [ ]
Asset Backed Securities Corporation
(Company)
_________________
PROSPECTUS SUPPLEMENT
[ ], 199[ ]
___________________
[INSERT CSFB LOGO HERE]
================================================================================
<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
SECURITITES 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.
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) describe Private
Label Custody Receipt Securities , if any (the "Private Label Custody Receipt
Securities"),] [(d) a Reserve Fund] [and] [[_](e) 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 [_] Credit Suisse 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 .
[_] CREDIT SUISSE 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
Private Label Custody Receipt 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.] [Describe disclosure documents, if any, relating to
Private Label Custody Receipt 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] [and the Private Label
Custody Receipt 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; [The Class A-1 Certificates will be issued as
DENOMINATIONS............. 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) describe Private Label Custody Receipt
Securities, if any (the "Private Label Custody
Receipt Securities"),][(d) a Reserve Fund] [and]
[_](e) 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
- --------------------------------------------------------------------------------
S-4
<PAGE>
- --------------------------------------------------------------------------------
"Pooling Agreement"), dated as of .
See "Description of the Class A-1 Certificates--
General" herein.
DISTRIBUTION DATE.......... Distributions on the Certificates will be made on
the th day of each
, beginning in , or, if any such day
is not a business day, the following business day.
Each such day on which distributions are made, a
"Distribution Date".
RECORD DATE................ The "Record Date" for each Distribution Date will
be the close of business on the last day of the
calendar month preceding the month in which such
Distribution Date occurs or, if such last day is
not a business day, the preceding business day.
DISTRIBUTIONS ON
CERTIFICATES.............. Interest Distributions on the Class A-1
Certificates. The amount of interest payable on
the Class A-1 Certificates on each Distribution
Date will be equal to the sum of (x) the lesser of
the Interest Accrual Amount (as defined below) of
the Class A-1 Certificates for such Distribution
Date and Interest Available Funds (as defined
herein under "Description of the
Certificates--Distributions--Interest
Distributions") for such Distribution Date and (y)
the lesser of the Interest Shortfall Amount (as
defined below) of the Class A-1 Certificates and
the excess, if any, of the Interest Available
Funds for such Distribution Date over the Interest
Accrual Amount of the Class A-1 Certificates for
such Distribution Date. The "Interest Accrual
Amount" for the Class A-1 Certificates on each
Distribution Date will equal the product of (i)
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".
- --------------------------------------------------------------------------------
S-5
<PAGE>
- --------------------------------------------------------------------------------
[DUE TO THE FACTORS DISCUSSED UNDER "RISK
FACTORS--BASIS RISK", INTEREST AVAILABLE FUNDS MAY
NOT ALWAYS BE SUFFICIENT TO PAY THE FULL INTEREST
ACCRUAL AMOUNT WITH RESPECT TO THE CLASS A-1
CERTIFICATES ON EACH DISTRIBUTION DATE.]
Principal Distributions on the Class A-1
Certificates. Distributions in respect of
principal on the Class A-1 Certificates will be
made on each Distribution Date in an amount equal
to the sum of all amounts distributed in respect
of principal on the Mortgage Certificates [and the
Government Securities] [and the Private Label
Custody Receipt 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).][Describe principal and interest
payments on Private Label Custody Receipt
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).]
[Describe principal and interest payments on
Private Label Custody Receipt 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] [/Private Label Custody Receipt
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] [/Private Label
Custody Receipt 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] [and Private Label
Custody Receipt 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
- --------------------------------------------------------------------------------
S-6
<PAGE>
- --------------------------------------------------------------------------------
Weighted Average Mortgage Certificate [/Government
Security] [/Private Label Custody Receipt 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 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 On the Closing Date, the Trustee will enter into a
AGREEMENT................. 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
- --------------------------------------------------------------------------------
S-7
<PAGE>
- --------------------------------------------------------------------------------
SUCH DISTRIBUTION DATE, BE SUFFICIENT TO ALLOW
FULL DISTRIBUTIONS IN RESPECT OF INTEREST ON THE
CLASS A-1 CERTIFICATES ON SUCH DISTRIBUTION DATE
OR ON ANY FUTURE DISTRIBUTION DATES.
The Yield Support Agreement will terminate upon
the reduction of the Principal Balance of the
Class A-1 Certificates to zero. The Yield Support
Agreement may also be terminated by the Trustee
under the circumstances described herein under
"Description of the Certificates--The Yield
Support Agreement--Termination".]
[OPTIONAL REPURCHASE OF
THE MORTGAGE CERTIFICATES The beneficial owner of the Class IO Certificates
[AND GOVERNMENT will have the option to purchase the Mortgage
SECURITIES] [AND Certificates from the Trust Fund on any
PRIVATE LABEL CUSTODY Distribution Date on which the Mortgage
RECEIPT SECURITIES ]...... 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][and Private Label
Custody Receipt Securities]" herein. [Describe
repurchase right, if any, as it relates to
Government Securities.][Describe repurchase right,
if any, as it relates to Private Label Custody
Receipt 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] [and Private Label Custody
Receipt 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
- --------------------------------------------------------------------------------
S-8
<PAGE>
- --------------------------------------------------------------------------------
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 [; [The assets of the REMIC will consist primarily of
GOVERNMENT SECURITIES] [(i) [_] __ classes (or a portion of such classes)
[; PRIVATE LABEL CUSTODY of senior mortgage pass-through certificates (the
RECEIPT SECURITIES]........ "Mortgage Certificates")] [and (ii) ___ classes
(or a portion of such classes) of [describe
Government Securities] (the "Government
Securities")] [_] [and (iii) classes (or a portion
of such classes) of [describe Private Label
Custody Receipt Securities] (the "Private Label
Custody Receipt 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.
<TABLE>
<CAPTION>
-----------------------------------------------------------
UNDERLYING SERIES
SERIES DESIGNATION CLASS OF MORTGAGE CERTIFICATES;
------------------ -------------------------------
GOVERNMENT SECURITIES
---------------------
PRIVATE LABEL CUSTODY RECEIPT
SECURITIES
<S> <C>
-----------------------------------------------------------
</TABLE>
[_]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] [and Private Label
Custody Receipt 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][and Private Label Custody
Receipt Securities] had approximately the
characteristics set forth under "The Mortgage
Certificates" [and "The Government
Securities"].][and "The Private Label Custody
Receipt 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
- --------------------------------------------------------------------------------
S-9
<PAGE>
- --------------------------------------------------------------------------------
Data" under "Description of the Mortgage Loans".
The interest rate on each Mortgage Loan is subject
to adjustment periodically (as specified in the
related mortgage note) to a rate equal to the sum
(subject to rounding) of (i) a specified index and
(ii) an individual gross margin, subject to
certain limitations.
The Mortgage Loans are subject to overall maximum
interest rates. Some of the Mortgage Loans are
also subject to a minimum interest rate. Some of
the Mortgage Loans are subject to negative
amortization.
Some of the Mortgage Loans have mortgage interest
rates that may be converted to fixed interest
rates at the option of the Mortgagor. Upon
conversion to a fixed rate, such Mortgage Loans
generally are required to be purchased by the
Servicer of the related Underlying Mortgage Pool.
See "Description of the Mortgage Loans" and "Yield
and Prepayment Considerations".]
[Optional Repurchase of Mortgage Loans. The
Underlying Mortgage Pool with respect to each
Mortgage Certificate is subject to special
termination (a "Special Termination") at such time
as the aggregate outstanding principal balance of
all the Mortgage Loans underlying all the Mortgage
Certificates of the related Underlying Series is
equal to or less than % of the initial aggregate
principal balance of such mortgage loans. See "The
Mortgage Certificates--Special Termination"
herein. In addition, the Mortgage Loan Servicer
with respect to each Underlying Series has the
option to repurchase the Mortgage Loans from the
related Underlying Mortgage Pool at such time as
the aggregate scheduled principal balance thereof
is reduced to less than % of the original
aggregate principal balance thereof. See "The
Mortgage Certificates--Optional Termination"
herein. Any such repurchase may accelerate the
rate at which principal payments are made on the
Class A-1 Certificates.]
CERTAIN PREPAYMENT AND
YIELD CONSIDERATIONS..... NO INVESTMENT SHOULD BE MADE IN THE CLASS A-1
CERTIFICATES UNLESS AN INVESTOR HAS CONSIDERED
CAREFULLY THE ASSOCIATED RISKS OF INVESTING IN
SUCH CLASS A-1 CERTIFICATES AS DISCUSSED BELOW AND
UNDER "RISK FACTORS" AND "YIELD AND PREPAYMENT
CONSIDERATIONS" HEREIN.
Prepayments. The rate of principal payments on
the Class A-1 Certificates will be affected by the
rate of principal payments on the Mortgage Loans
(including, for this purpose, prepayments, which
may include amounts received by virtue of
condemnation, insurance or foreclosure). If a
Class A-1 Certificate is purchased at a discount
from its initial principal balance by a purchaser
that calculates its anticipated yield to maturity
based on an assumed rate of payment of principal
that is faster than that actually experienced on
the Mortgage Loans, the actual yield to maturity
will be lower than that so calculated.
- --------------------------------------------------------------------------------
S-10
<PAGE>
- --------------------------------------------------------------------------------
Timing of Payments. The timing and amount of
payments, including prepayments, on the Mortgage
Loans may significantly affect an investor's
yield. In general, the earlier a prepayment of
principal on the Mortgage Loans, the greater will
be the effect on an investor's yield to maturity.
As a result, the effect on an investor's yield of
principal prepayments occurring at a rate higher
(or lower) than the rate anticipated by the
investor during the period immediately following
the issuance of the Class A-1 Certificates will
not be offset by a subsequent like reduction (or
increase) in the rate of principal prepayments.
[Basis Risk; [specify index]. The interest rate
payable to the Holders of the Class A-1
Certificates is based on [specify index].
However, the Mortgage Certificates bear interest
at adjustable rates based on COFI, CMT and CBE
(the "Indices"). [Specify index] and such Indices
may respond to different economic and market
factors, and there is no necessary correspondence
between them. NO ASSURANCE CAN BE GIVEN THAT
AMOUNTS ON DEPOSIT IN THE RESERVE FUND FROM TIME
TO TIME OR PAYMENTS UNDER THE YIELD SUPPORT
AGREEMENT WILL BE SUFFICIENT TO MAKE UP ANY
AMOUNT BY WHICH THE INTEREST COLLECTED ON THE
MORTGAGE CERTIFICATES IS LESS THAN THE INTEREST
ACCRUAL AMOUNT OF THE CLASS A-1 CERTIFICATES.]
[Describe prepayment and yield considerations
relating to Government Securities.]
[Describe prepayment and yield considerations
relating to Private Label Custody Receipt
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][and the Private
Label Custody Receipt 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
- --------------------------------------------------------------------------------
S-11
<PAGE>
- --------------------------------------------------------------------------------
("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.
FEDERAL INCOME TAX
CONSEQUENCES............. [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
- --------------------------------------------------------------------------------
S-12
<PAGE>
- --------------------------------------------------------------------------------
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-13
<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] [AND PRIVATE LABEL CUSTODY RECEIPT SECURITIES] IS LESS
THAN THE INTEREST ACCRUAL AMOUNT OF THE CLASS A-1 CERTIFICATES. [_][DESCRIBE
BASIS RISK AS IT RELATES TO GOVERNMENT SECURITIES.][_][DESCRIBE BASIS RISK AS IT
RELATES TO PRIVATE LABEL CUSTODY RECEIPT 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 [_]YIELD CONSIDERATIONS RELATING TO
GOVERNMENT SECURITIES.][DESCRIBE YIELD CONSIDERATIONS RELATING TO PRIVATE LABEL
CUSTODY RECEIPT 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.
S-14
<PAGE>
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][or the Private Label Custody Receipt Securities]. All
disclosures contained in this Prospectus Supplement regarding the Mortgage
Certificates [and Government Securities] [and Private Label Custody Receipt
Securities] are derived from publicly available documents. Neither the
Depositor, the Trustee nor any of the underwriters of the Class A-1 Certificates
has 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 Private Label Custody Receipt 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)
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE
AS OF AS OF
UNDERLYING UNDERLYING
SERIES SERIES
CUT-OFF SERIES CUT-OFF
SERIES DESIGNATION STATE DATE DESIGNATION STATE DATE
- ---------------------- -------- ---------- -------------- --------- ------------
<S> <C> <C> <C> <C> <C>
</TABLE>
[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.
S-15
<PAGE>
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) describe Private Label Custody Receipt
Securities, if any (the "Private Label Custody Receipt Securities")] [(d) a
Reserve Fund] [and][[_](e) a Yield Support Agreement provided by .] [See
["--Government Securities",] ["--Private Label Custody Receipt 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 among the Depositor, the
Certificate Administrator and the Trustee.
[The Class A-] 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
S-16
<PAGE>
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 payments on Government Securities to Interest Available
Funds.][Describe allocation, if any, of interest and principal payments on
Private Label Custody Receipt 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][/Private Label Custody Receipt 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] [/Private Label Custody Receipt
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][/Private Label Custody Receipt 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][and Private Label Custody Receipt 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][/Private Label Custody Receipt 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".] [and "The
Private Label Custody Receipt Securities-Distributions on the Private Label
Custody Receipt 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
S-17
<PAGE>
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".]
[Describe effect of Private Label Custody Receipt 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]
Historical [specify index]. Listed below are historical values of [specify
index] since :
[SPECIFY INDEX]
MONTHLY AVERAGES
<TABLE>
<CAPTION>
YEAR
----------------------------------------------------
MONTH(1) 199 199 199 199 199
- -------- --- --- --- --- ---
<S> <C> <C> <C> <C> <C>
</TABLE>
Principal Distributions. Distributions in respect of principal on the Class
A-1 Certificates will be made on each Distribution Date in an amount equal to
the sum of all amounts distributed in respect of principal on the Mortgage
Certificates during the Collection Period ending on such Distribution Date.
[Describe allocation, if any, of principal and interest payments on Government
Securities to principal payments on Certificates.] [Describe allocation, if any,
of principal and interest payments on Private Label Custody Receipt 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.
S-18
<PAGE>
NO ASSURANCE CAN BE GIVEN THAT AMOUNTS ON DEPOSIT IN THE RESERVE FUND FROM
TIME TO TIME WILL, TOGETHER WITH THE BALANCE OF INTEREST AVAILABLE FUNDS ON ANY
DISTRIBUTION DATE, BE SUFFICIENT TO ALLOW THE DISTRIBUTION OF THE FULL INTEREST
ACCRUAL AMOUNT WITH RESPECT TO THE CLASS A-1 CERTIFICATES ON ANY SUCH
DISTRIBUTION DATE.
Due to the factors described under "Special Considerations--Basis Risk" and
"Yield and Prepayment Considerations--Basis Risk; [specify index]," changes in
the levels of COFI, CMT and CBE may not necessarily correlate with changes in
[specify index]. Accordingly, the Class IO Certificates (payments on which,
together with payments under the Yield Support Agreement, are the sole source of
payments into the Reserve Fund after the Closing Date) will not be entitled to
any payments under certain interest rate scenarios. See "--Distributions" above.
In addition, the Yield Support Counterparty will not be obligated to make any
payments under the Yield Support Agreement unless [specify index] exceeds the
Strike Rate. See "--The Yield Support Agreement" below. The following table,
which was prepared on the basis of the Modeling Assumptions, illustrates the
balances that would be available in the Reserve Fund on the date indicated under
the interest rate scenarios (the "Rate Scenarios") described in the following
paragraph and at the various percentages of CPR indicated. Each of the Rate
Scenarios set forth below assumes [describe assumptions] .
"Rate Scenario I" [describe assumptions].
"Rate Scenario II" [describe assumptions].
"Rate Scenario III" [describe assumptions].
PROJECTED BALANCE AVAILABLE AT
<TABLE>
<CAPTION>
PERCENT OF CPR
------------------------------------------------------
% % %
--------------- --------------- --------------
<S> <C> <C> <C>
Rate Scenario I........
Rate Scenario II.......
Rate Scenario III......
</TABLE>
[THE YIELD SUPPORT AGREEMENT
The following is a summary of certain features of the Yield Support
Agreement (as defined below).
General. On the Closing Date, the Trustee, acting on behalf of the holders
of the Class A-1 Certificates, will enter into a yield support agreement (the
"Yield Support Agreement") with , a
(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
S-19
<PAGE>
DISTRIBUTION DATES. THE OBLIGATIONS OF THE YIELD SUPPORT COUNTERPARTY WITH
RESPECT TO THE SECURITIES OFFERED HEREBY ARE LIMITED TO THOSE SPECIFICALLY SET
FORTH IN THE YIELD SUPPORT AGREEMENT AND ARE SUBJECT TO CERTAIN CONDITIONS AS
DESCRIBED IN THE YIELD SUPPORT AGREEMENT.
Termination. Unless earlier terminated as described below, the Yield
Support Agreement will terminate upon the reduction of the Principal Balance of
the Class A-1 Certificates to zero.
Pursuant to the Yield Support Agreement, certain events may occur in
respect of the Yield Support Counterparty that will give the Trustee the right
to terminate the Yield Support Agreement subject to the terms and provisions
thereof. The Trustee will have the right to terminate the Yield Support
Agreement if any of the following events occur:
(i) the Yield Support Counterparty fails to make any payment due
under the Yield Support Agreement and such nonpayment continues for three
business days after notice from the Trustee;
(ii) the Yield Support Counterparty fails to perform or observe its
obligations under such Yield Support Agreement (other than its obligation
to make any payment due under such Yield Support Agreement) and such
failure continues for a period of 30 days after notice from the Trustee;
(iii) any representation made by the Yield Support Counterparty under
such Yield Support Agreement proves to have been incorrect or misleading in
any material respect as of the time it was made;
(iv) certain events of bankruptcy or insolvency occur with respect to
the Yield Support Counterparty;
(v) the Yield Support Counterparty undertakes certain mergers,
consolidations or transfers of its assets or is dissolved;
(vi) a withholding tax is imposed on payments by the Yield Support
Counterparty under such Yield Support Agreement; or
(vii) a change in law occurs after the Closing Date which makes it
unlawful for the Yield Support Counterparty to perform its obligations in
respect of the Yield Support Agreement.
Breakage Fee. If the Yield Support Agreement is terminated by the Trustee,
the market value of the Yield Support Agreement will be established by the
Trustee on the basis of market quotations of the cost to the Trust Fund of
entering into a replacement yield support agreement, in accordance with the
procedures set forth in the Yield Support Agreement (such amount, the "Breakage
Fee"). The Yield Support Counterparty will be required to pay the Trustee, for
the benefit of the holders of the Class A-1 Certificates the amount of any
Breakage Fee. Upon any such termination of the Yield Support 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 .
S-20
<PAGE>
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]
[AND PRIVATE LABEL CUSTODY RECEIPT 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]. [Describe repurchase right, if any, as it
relates to Private Label Custody Receipt Securities].]
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
S-21
<PAGE>
forward such distributions to its DTC Participants, which thereafter will
forward them to Indirect DTC Participants or Beneficial Owners. Beneficial
Owners will not be recognized by the Trustee, the Certificate Administrator or
any paying agent as Certificateholders, as such term is used in the Pooling and
Servicing Agreement, and Beneficial Owners will be permitted to exercise the
rights of Certificateholders only indirectly through DTC and its DTC
Participants.
Because DTC can only act on behalf of DTC Participants, who in turn act on
behalf of Indirect DTC Participants and certain banks, the ability of a
Beneficial Owner to pledge Class A-1 Certificates to persons or entities that do
not participate in the DTC system, or to otherwise act with respect to such
Class A-1 Certificates, may be limited due to the lack of a physical certificate
for such Class A-1 Certificates. In addition, under a Class A-1 format,
Beneficial Owners may experience delays in their receipt of payments, since
distributions will be made by the Certificate Administrator, or a paying agent
on behalf of the Certificate Administrator, to Cede, as nominee for DTC.
DTC has advised the Depositor that it will take any action permitted to be
taken by a Certificateholder under the Pooling Agreement only at the direction
of one or more DTC Participants to whose accounts with DTC the Class A-1
Certificates are credited. Additionally, DTC has advised the Depositor that it
will take such actions with respect to specified voting interests only at the
direction of and on behalf of DTC Participants whose holdings of Class A-1
Certificates evidence such specified voting interests. DTC may take conflicting
actions with respect to voting interests to the extent that DTC Participants
whose holdings of Class A-1 Certificates evidence such voting interests
authorize divergent action.
Neither the Depositor, the Certificate Administrator nor the Trustee will
have any responsibility for any aspect of the records relating to or payments
made on account of beneficial ownership interests of the Class A-1 Certificates
held by Cede, as nominee for DTC, or for maintaining, supervising or reviewing
any records relating to such beneficial ownership interests. In the event of the
insolvency of DTC, a DTC Participant or an indirect DTC Participant in whose
name Class A-1 Certificates are registered, the ability of the Beneficial Owners
of such Class A-1 Certificates to obtain timely payment and, if the limits of
applicable insurance coverage by the Securities Investor Protection Corporation
are exceeded or if such coverage is otherwise unavailable, ultimate payment, of
amounts distributable with respect to such Class A-1 Certificates may be
impaired.
The Class A-1 Certificates will be converted to Definitive Certificates and
re-issued to Beneficial Owners or their nominees, rather than to DTC or its
nominee, only if (i) the Certificate Administrator is advised that DTC is no
longer willing or able to discharge properly its responsibilities as depository
with respect to the Class A-1 Certificates and the Certificate Administrator is
unable to locate a qualified successor, (ii) the Certificate Administrator, at
its option, elects to terminate the book-entry system through DTC or (iii) after
the occurrence of a dismissal or resignation of the Certificate Administrator
under the Pooling Agreement, Beneficial Owners representing not less than 51% of
the voting interests of the outstanding Class A-1 Certificates advise the
Trustee through DTC, in writing, that the continuation of a book-entry system
through DTC (or a successor thereto) is no longer in the Beneficial Owners' best
interest.
Upon the occurrence of any event described in the immediately preceding
paragraph, the Certificate Administrator (or, if the Certificate Administrator
has been dismissed, the Trustee) will be required to notify all Beneficial
Owners through 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] [and Private Label Custody Receipt 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)
S-22
<PAGE>
PAGE>
and in a manner acceptable to each Rating Agency. See "Description of the
Certificates --Payments on the Mortgage Loans[, --Payments on the Government
Securities"][, --Payments on the Private Label Custody Receipt Securities"] and
"--Collection of Payments on Mortgage Certificates" [and "--Collection of
Payments on Government Securities"] [and "--Collection of Payments on Private
Label Custody Receipt 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][AND
PRIVATE LABEL CUSTODY RECEIPT 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[_] Private Label Custody Receipt Security], the
Pooling Agreement provides that the Trustee, in its capacity as
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 A-I
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.
S-23
<PAGE>
The assets of the REMIC will consist primarily of classes (or portions of
classes) of senior mortgage pass-through certificates (the "Mortgage
Certificates"), each of which is a part of one of separate series of mortgage
pass-through certificates (each an "Underlying Series").
[Each of the Mortgage Certificates was issued pursuant to a separate
Underlying Pooling Agreement, generally dated as of the first day of the month
of initial issuance of the related Underlying Series (as to each, the
"Underlying Series Cut-off Date"), generally among , the servicer or master
servicer of the related Mortgage Loans (each, a "Mortgage Loan Servicer") and
the trustee of the related Mortgage Certificates (each, a "Mortgage Loan
Trustee").]
Certain characteristics of the Mortgage Certificates are described below.
Certain of the information with respect to the Mortgage Certificates has been
derived from the original offering documents relating to such Mortgage
Certificates and from publicly available data and other data available to the
Depositor with respect thereto. IT SHOULD BE NOTED THAT THERE MAY HAVE BEEN
MATERIAL CHANGES IN FACTS AND CIRCUMSTANCES SINCE THE DATES SUCH DOCUMENTS WERE
PREPARED, INCLUDING, BUT NOT LIMITED TO, CHANGES IN PREPAYMENT SPEEDS AND
PREVAILING INTEREST RATES AND OTHER ECONOMIC FACTORS, WHICH MAY LIMIT THE
USEFULNESS OF, AND BE DIRECTLY CONTRARY TO THE ASSUMPTIONS USED IN PREPARING,
THE INFORMATION SET FORTH IN SUCH DOCUMENTS.
The Mortgage Certificates were each issued on the dates set forth in the
following table for each such Mortgage Certificate, each in an offering
registered by under the Securities Act of 1933, as amended (the "Securities
Act").
MORTGAGE CERTIFICATES DATE OF ISSUANCE
--------------------- ----------------
[Each Underlying Series consists of multiple classes of mortgage pass-
through certificates representing interests in separate trusts (each, an
"Underlying Trust Fund"), previously formed by , each such Underlying Trust
Fund consisting, in part, of [a] [multiple] mortgage pools. Each of the Mortgage
Certificates evidences a senior interest in a separate mortgage pool (each, an
"Underlying Mortgage Pool"), which is part of one of the Underlying Trust Funds,
consisting primarily of adjustable interest rate, conventional, one- to four-
family, residential first mortgage loans (the "Mortgage Loans"), sold by to
the related Mortgage Loan Trustee for the benefit of holders of the certificates
of the related Underlying Series. Except as set forth in the following sentence,
the Underlying Series relating to each class of Mortgage Certificates includes
at least one class of certificates (as to each Underlying Series, the "Related
Subordinated Certificates") which represents an interest in the same Underlying
Mortgage Pool as such class of Mortgage Certificates and which is subordinated
to such class of Mortgage Certificates.]
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
S-24
<PAGE>
SUMMARY DESCRIPTION OF THE MORTGAGE CERTIFICATES
<TABLE>
<CAPTION>
(BASED ON THE REMITTANCE REPORTS)
Percentage Mortgage
Interest of Certificate
Class Current Pass-
Represented Current Mortgage Through
Original by Mortgage Underlying Current Certificate Rate
Class Certificate Mortgage Class Balance in Predominant as of the
Underlying Series Class Balance in Trust Fund Pool Balance Balance Trust Fund Index Cut-off
----------------- ----- -------- ------------- ------------ ------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ % $ $ $ %
</TABLE>
On the Closing Date, the Principal Balance of the Class A-1 Certificates
will equal the aggregate principal balance of the Mortgage Certificates. In the
event that any of the actual characteristics as of the Cut-off Date of the
Mortgage Certificates varies materially from those described herein, revised
information regarding the Mortgage Certificates will be made available to
purchasers of the Class A-1 Certificates on or before the Closing Date.
[DISTRIBUTIONS ON THE MORTGAGE CERTIFICATES
The following is a discussion of the characteristics of the Mortgage
Certificates in general. The precise characteristics of specific Mortgage
Certificates may vary from the general descriptions set forth below. There are
substantial variations among the Underlying Pooling Agreements for the various
Underlying Series. The following discussion does not purport to describe with
specificity the terms of any specific Underlying Pooling Agreement, but is
instead a general description of the major economic terms of the Mortgage
Certificates, with certain major variations from the general descriptions with
respect to certain Mortgage Certificates or groups of Mortgage Certificates
noted. Investors are urged to obtain the Underlying Pooling Agreements and the
Underlying Disclosure Documents from First Boston and read such agreements in
conjunction with this Prospectus Supplement.
[Describe distributions on Mortgage Certificates]
GENERAL
[to follow]
INTEREST DISTRIBUTIONS
[to follow]
PRINCIPAL DISTRIBUTIONS
[to follow]
CREDIT SUPPORT
[to follow]
S-25
<PAGE>
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]
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.
S-26
<PAGE>
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.
<TABLE>
<CAPTION>
DELINQUENCY STATUS
(BASED ON [_] 19[_] REMITTANCE REPORT)
DELINQUENCIES AS PERCENT OF POOL BALANCE
----------------------------------------
[_] 19[_] 30 DAYS 60 DAYS 90+ DAYS FORECLOSURE REO(2)
---------- ------- ------- -------- ----------- ------
<S> <C> <C> <C> <C> <C> <C>
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
</TABLE>
_____________________
(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.
S-27
<PAGE>
[GOVERNMENT SECURITIES]
[DESCRIBE TERMS AND CONDITIONS OF GOVERNMENT SECURITIES.]
[DESCRIBE DISTRIBUTIONS ON GOVERNMENT SECURITIES.]
[PRIVATE LABEL CUSTODY RECEIPT SECURITIES]
[DESCRIBE TERMS AND CONDITIONS OF PRIVATE LABEL CUSTODY RECEIPT
SECURITIES.]
[DESCRIBE DISTRIBUTIONS ON PRIVATE LABEL CUSTODY RECEIPT
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
[_] yield considerations relating to Government Securities.] [Describe yield
considerations relating to Private Label Custody Receipt 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
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
S-28
<PAGE>
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.
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.
[_]
S-29
<PAGE>
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.]
[DESCRIBE MODELING ASSUMPTIONS FOR PRIVATE LABEL CUSTODY RECEIPT
SECURITIES.]
S-30
<PAGE>
ASSUMED MORTGAGE LOAN CHARACTERISTICS
<TABLE>
<CAPTION>
WEIGHTED MORTGAGE
AVERAGE CERTIFICATE MONTHS MONTHS
MORTGAGE PASS- UNTIL NEXT UNTIL NEXT
MORTGAGE INTEREST SERVICING PERIODIC NET THROUGH REMAINING GROSS NET RATE PAYMENT
CERTIFICATES INDEX RATE FEE CAP CAP SEASONING RATE TERM MARGIN MARGIN ADJUSTMENT ADJUSTMENT
- ------------- ----- -------- --------- -------- --- --------- ----------- --------- ------ ------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
[[_] ASSUMED GOVERNMENT SECURITY CHARACTERISTICS]
[ASSUMED PRIVATE LABEL CUSTODY RECEIPT SECURITY CHARACTERISTICS]
S-31
<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-32
<PAGE>
The following tables set forth, based upon the Modeling Assumptions, and
assuming the constant rate of CPR indicated in the heading for each table, the
projected yield to maturity, on a corporate bond equivalent basis, and the
projected Principal Balance of the Class A-1 Certificates as of .
PROJECTED YIELD TO MATURITY AND
OUTSTANDING PRINCIPAL BALANCE UNDER RATE SCENARIO I
<TABLE>
<CAPTION>
PERCENT OF CPR
-------------------------------------------------------------
% % %
-------------------------------------------------------------
<S> <C> <C> <C>
Yield to Maturity.................... % % %
Outstanding Principal Balance as of
.................... $ $ $
</TABLE>
PROJECTED YIELD TO MATURITY AND
OUTSTANDING PRINCIPAL BALANCE UNDER RATE SCENARIO II
<TABLE>
<CAPTION>
PERCENT OF CPR
-------------------------------------------------------------
% % %
-------------------------------------------------------------
<S> <C> <C> <C>
Yield to Maturity.................... % % %
Outstanding Principal Balance as of
.................... $ $ $
</TABLE>
PROJECTED YIELD TO MATURITY AND
OUTSTANDING PRINCIPAL BALANCE UNDER RATE SCENARIO III
<TABLE>
<CAPTION>
PERCENT OF CPR
-------------------------------------------------------------
% % %
-------------------------------------------------------------
<S> <C> <C> <C>
Yield to Maturity.................... % % %
Outstanding Principal Balance as of
.................... $ $ $
</TABLE>
Each of the Rate Scenarios assumes that the levels of [specify index], COFI
and CMT rise significantly above current levels. The actual yield to an investor
will 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-33
<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 Private Label Custody Receipt 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] [or
the Private Label Custody Receipt 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] [or the Private Label Custody
Receipt Securities] will prepay at any constant rate or at the same rate, or
that [specify index] [or the Government Securities] [or the Private Label
Custody Receipt 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.
[MATERIAL 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-34
<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 "Material Federal Income Tax Consequences--General" and "--REMIC Trust
Funds" in the Prospectus.]
[ALTERNATIVE TAX DISCLOSURE TO BE INCLUDED IF THERE ARE ANY GOVERNMENT
SECURITIES]
[ALTERNATIVE TAX DISCLOSURE TO BE INCLUDED IF THERE ARE ANY PRIVATE LABEL
CUSTODY RECEIPT 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
S-35
<PAGE>
guidelines (in certain cases irrespective of SMMEA). It should also be noted
that certain states have enacted legislation limiting to varying extent the
ability of certain entities (in particular insurance companies) to invest in
"mortgage related securities." The appropriate characterization of the Class A-1
Certificates under various legal investment restrictions, and thus the ability
of investors subject to these restrictions to purchase Class A-1 Certificates,
may be subject to significant interpretive uncertainties. Investors should
consult with their own legal advisors in determining whether and to what extent
the Class A-1 Certificates constitute legal investments for such investors. See
"Legal Investment" in the Prospectus.]
[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.]
S-36
<PAGE>
LEGAL MATTERS
Certain legal matters will be passed upon for the Depositor and First
Boston by Sidley & Austin, New York, New York.
RATINGS
It is a condition to the issuance of the Class A-1 Certificates that such
Certificates be rated " " by and " " by .
The ratings of and on mortgage pass-through certificates
address the likelihood of the receipt by holders hereof of all distributions of
principal and interest to which such holders are entitled. THE RATING AGENCIES
NOTE THAT THE ENTITLEMENT OF THE CLASS A-1 CERTIFICATES TO INTEREST AT A RATE IN
EXCESS OF THE MORTGAGE CERTIFICATE PASS-THROUGH RATE IS SUBJECT TO THE
AVAILABILITY OF INTEREST AVAILABLE FUNDS. There is no assurance that such
ratings will continue for any period of time or that they will not be revised or
withdrawn entirely by such rating agency if, in its judgment, circumstances so
warrant. A revision or withdrawal of such ratings may have an adverse effect on
the market price of the Class A-1 Certificates. A security rating is not a
recommendation to buy, sell or hold securities.
and rating opinions address the structural, legal and issuer aspects
associated with the certificates, including the nature of the underlying
mortgage assets and the credit quality of the credit support provider, if any.
and ratings on pass-through certificates do not represent any
assessment of the likelihood that principal prepayments may differ from those
originally anticipated and consequently the timing of such prepayments may
adversely affect an investor's anticipated yield.
The Depositor has not requested a rating on the Certificates from any other
rating agency, although data with respect to the Mortgage Loans[,] [or] the
Mortgage Certificates [and Government Securities] [and Private Label Custody
Receipt 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-37
<PAGE>
[LEFT INTENTIONALLY BLANK]
S-38
<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
[Government Securities.................................................... S-1]
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-39
<PAGE>
<TABLE>
<S> <C>
Pooling Agreement......................................................... S-5
[Prepayment Interest Shortfalls.................................... prospectus]
Principal Balance......................................................... S-24
[Private Label Custody Receipt Securities................................. S-1]
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-40
<PAGE>
________________________________________________________________________________
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO Asset Backed MAKE ANY REPRESENTATION NOT CONTAINED IN THIS
PROSPECTUS SUPPLEMENT OR THE Securities Corporation PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE Depositor 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-[_] 28]
[Private Label Custody Receipt Securities..................S-28]
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>
<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
</TABLE>
_____________________________________
ASSET BACKED
SECURITIES CORPORATION
DEPOSITOR
$
_________ Conduit Mortgage
Pass-Through Certificates,
Series 199 -__
PROSPECTUS
[_] CREDIT SUISSE FIRST BOSTON
_____________________________________
<PAGE>
<TABLE>
<S> <C>
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>
______________________________________
<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.
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED [_], 199[_]
CARD ACCOUNT TRUST, SERIES 199[_]-[_]
$[_] [%] [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
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] [OTHER THAN THE PRIVATE LABEL CUSTODY RECEIPT
SECURITIES] ARE INSURED OR GUARANTEED BY ANY GOVERNMENTAL AGENCY.
PROSPECTIVE INVESTORS SHOULD CONSIDER THE FACTORS SET FORTH 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 Public Underwriting Discount Proceeds to 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 Credit Suisse 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
[INSERT CSFB LOGO HERE]
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")] 4 [and (c) [describe Private Label Custody Receipt Securities, if
any] (the "Private Label Custody Receipt Securities") each issued pursuant to
[describe agreements] (collectively, the "Private Label Custody Receipt
Agreements")]. The CRB Agreements [and the Government Agreements] [and the
Private Label Custody Receipt Agreements] are 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]
[and the Private Label Custody Receipt 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]
[and Private Label Custody Receipt 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] Disclosure
Documents") [and] [, 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 terms
of the Prospectuses, Prospectus Supplements and other offering documents related
to each of the Private Label Custody Receipt Securities (collectively, the
"Private Label Custody Receipt Securities Disclosure Documents" and the Private
Label Custody Receipt Securities Disclosure Documents,] together with the CRB
Securities Disclosure Documents, [and the Government 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
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 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 8 Disclosure
Document, if any] for the Government Securities]. [and the [describe
Private Label Custody Receipt Securities Disclosure Document, if any] for
the Private Label Custody Receipt Securities]. Certain capitalized terms
used herein are defined elsewhere in this Prospectus Supplement or in the
Prospectus.
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]
[and Private
- --------------------------------------------------------------------------------
S-4
<PAGE>
- --------------------------------------------------------------------------------
Label Custody Receipt Securities] to
holders of the Notes (the "Noteholders")
in accordance with the terms of the
Indenture.
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")].
Private Label Custody Receipt Describe Private Label Custody
Securities....................... Receipt Securities (the "Private
Label Custody Receipt 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
- --------------------------------------------------------------------------------
S-5
<PAGE>
- --------------------------------------------------------------------------------
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").]
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 [Group A] Private Label
Custody Receipt 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] [and [Group B]
Private Label Custody Receipt
Securities].]
No principal will be payable to the
- --------------------------------------------------------------------------------
S-6
<PAGE>
- --------------------------------------------------------------------------------
C. Principal Payments..... Noteholders until the [_], 199[_] D.
Payment Date 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 [and
[Group A] Government Securities] [and
[Group A] Private Label Custody Receipt
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] [and
[Group B] Private Label Custody Receipt
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
- --------------------------------------------------------------------------------
S-7
<PAGE>
- --------------------------------------------------------------------------------
registered at the close of business on
the last day of the month prior to the
[month] [quarter] [semi-annual period]
in which such payment occurs.
F. Final Schedule
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 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
- --------------------------------------------------------------------------------
S-8
<PAGE>
- --------------------------------------------------------------------------------
directly or indirectly through CEDEL or
Euroclear, on the other, will be I.
Denominations effected in DTC through
Citibank N.A. ("Citibank") or Morgan
Guaranty Trust Company of New York
("Morgan"), the relevant depositaries of
CEDEL and Euroclear, respectively, and
each a participating member of DTC. The
Notes will initially be registered in
the name of Cede. The interests of such
Noteholders will be represented by book
entries on the records of DTC and
participating members thereof. No
Noteholder will be entitled to receive a
definitive note representing such
person's interest, except in the event
that Notes in fully registered,
certificated form ("Definitive Notes")
are issued under the limited
circumstances described in "CERTAIN
INFORMATION REGARDING THE SECURITIES--
Definitive Securities" in the
Prospectus. All references in this
Prospectus Supplement to Notes reflect
the rights of Noteholders only as such
rights may be exercised through DTC and
its participating organizations for so
long as such Notes are held by DTC. See
"RISK FACTORS--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
- --------------------------------------------------------------------------------
S-9
<PAGE>
- --------------------------------------------------------------------------------
respective nominees, will be deemed
theregistered 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 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] [and [Group A] Private Label
Custody Receipt Securities] bears to the
aggregate principal amount of the CRB
Securities [and Government Securities],
[and Private Label Custody Receipt
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] [and [Group B] Private Label
Custody Receipt Securities] bears to the
aggregate principal amount of the CRB
Securities [and Government Securities],
[and Private Label Custody Receipt
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]
- --------------------------------------------------------------------------------
S-10
<PAGE>
- --------------------------------------------------------------------------------
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].
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 [Group A]
Private Label Custody Receipt
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][and [Group B]
Private Label Custody Receipt
Securities ] .
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S-11
<PAGE>
- --------------------------------------------------------------------------------
D. Record Date............. Distribution on the Certificates will be
made to Certificateholders in whose name
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 [Group A]
Private Label Custody Receipt 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 [Group A] Private Label
Custody Receipt Securities ] and the
[Group B] CRB Securities [and [Group B]
Government Securities] [and [Group B]
Private Label Custody Receipt
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, Certificateholders will
not receive distributions of interest
with respect to the [Group A] CRB
Securities [or [Group A] Government
Securities] [or [Group A] Private Label
Custody Receipt Securities] or the
[Group B] CRB Securities [or [Group B]
Government Securities][or [Group B]
Private Label Custody Receipt
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]
- --------------------------------------------------------------------------------
S-12
<PAGE>
- --------------------------------------------------------------------------------
Government Securities] [or [Group A]
Private Label Custody Receipt
Securities] or the [Group B] CRB
Securities [or [Group A] Government
Securities] [or [Group A] Private Label
Custody Receipt 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 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
- --------------------------------------------------------------------------------
S-13
<PAGE>
- --------------------------------------------------------------------------------
definitive certificate representing such
person's interest, except in the event
that Certificates in fully registered,
G. Denominations 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 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
- --------------------------------------------------------------------------------
S-14
<PAGE>
- --------------------------------------------------------------------------------
restrictions will be null and void and
suchtransfer 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] [and the
[Group A] Private Label Custody
Receipt Securities] immediately prior
to such date) applicable to the
distributions of interest on the
[Group A] CRB Securities [and the
[Group A] Government Securities] [and
the [Group A] Private Label Custody
Receipt Securities] distributable on
such date.]
[LIBOR applicable to the calculation
of the [Class B] 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 B] CRB
Securities [and the [Group B]
Government Securities] [and the
[Group B] Private Label Custody
Receipt Securities] immediately prior
to such date) applicable to
- --------------------------------------------------------------------------------
S-15
<PAGE>
- --------------------------------------------------------------------------------
the distributions of interest on the
[Group B] CRB Securities [and the [Group
B] Government Securities] [and the
[Group B] Private Label Custody Receipt
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][and the Private Label
Custody Receipt Securities] immediately
prior to such date) applicable to the
distributions of interest on the CRB
Securities [and the Government
Securities] [and the Private Label
Custody Receipt 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)
9 Government Securities is described
under "Description of the Government
Securities--Interest Distributions",
herein10] [and (iii) Private Label
Custody Receipt Securities is described
under "Description of the Private Label
Custody Receipt Securities--Interest
Distributions", herein].
Tax Consequences................. 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
- --------------------------------------------------------------------------------
S-16
<PAGE>
- --------------------------------------------------------------------------------
tax purposes. Federal Tax Counsel has
advised the Trust that the Notes will
beclassified 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
"MATERIAL 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
- --------------------------------------------------------------------------------
S-17
<PAGE>
- --------------------------------------------------------------------------------
rating categories] by a Rating Agency.
There is no assurance that such rating
will continue for any period of time or
that it will not be revised or withdrawn
entirely by such rating agency, if, in
its judgment, circumstances so warrant.
A revision or withdrawal of such rating
may have an adverse effect on the market
price of the Securities. A security
rating is not a recommendation to buy,
sell or hold securities.
- --------------------------------------------------------------------------------
S-18
<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. 11 Credit Suisse 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] [or the
Private Label Custody Receipt 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] [and the Private Label Custody
Receipt 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 yield
considerations relating to Government Securities. [[Describe basis risk 12 and
yield considerations relating to Private Label Custody Receipt 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
S-19
<PAGE>
given period of time or that a rating will not be lowered or withdrawn entirely
by a Rating Agency if in its judgment circumstances in the future so warrant.
Risks Attendant to Investments in the Certificates. Distributions of
interest on the Certificates [with respect to the [Group A] CRB Securities[, the
[Group A] 13 Government Securities] [and] [the [Group A] Private Label Custody
Receipt Securities][and] [the [Group B] CRB Securities] [and][the [Group B]
Government Securities]] [and] [the [Group B] Private Label Custody Receipt
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 14
[,the [Group A] Government Securities] [and][the [Group A] Private Label
Custody Receipt Securities] [and] [the [Group B] CRB Securities] [and][the
[Group B] Government Securities] [and][the [Group B] Private Label Custody
Receipt 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 [or] [the [Group A] Government Securities] [or] [the
[Group A] Private Label Custody Receipt Securities] [or] [the [Group B] CRB
Securities] [or][ the [Group B] Government Securities] [or] [the [Group B] 15
Private Label Custody Receipt 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 Private Label Custody Receipt
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.
S-20
<PAGE>
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.
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,
[Group B] Government Securities and [Group B] Private Label Custody Receipt
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
S-21
<PAGE>
Day (each a "CRB Securities Distribution Date"). [Interest on the Government
Securities is payable on [describe Government Securities interest payment
schedule].] [Interest on the Private Label Custody Receipt Securities is payable
on [describe Private Label Custody Receipt Securities interest payment
schedule].] [If interest collections on the [Group A] CRB Securities, [Group A]
Government Securities and [Group A] Private Label Custody Receipt Securities [or
the [Group B] CRB Securities 18, [Group B] Government Securities and [Group B]
Private Label Custody Receipt 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.]
[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]
[and [Group A] Private Label Custody Receipt Securities] immediately prior to
such CRB Securities Distribution Date [or Government Securities Distribution
Date, as applicable]19[or Private Label Custody Receipt Securities Distribution
Date, as applicable] applicable to the distributions of interest on the [Group
A] CRB Securities [and [Group A] Government Securities] [and [Group A] Private
Label Custody Receipt Securities] distributable on such CRB Securities
Distribution Date [or Government Securities Distribution Date, as applicable].
[or Private Label Custody Receipt 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] [and [Group B] Private Label
Custody Receipt Securities] immediately prior to such CRB Securities
Distribution Date [or Government Securities Distribution Date, as applicable]
[or Private Label Custody Receipt Securities Distribution Date, as applicable])
applicable to the distributions of interest on the [Group B] CRB Securities [and
[Group B] Government Securities][and [Group B] Private Label Custody Receipt
Securities ] distributable on such CRB Securities Distribution Date [or
Government Securities Distribution Date, as applicable][or Private Label Custody
Receipt Securities Distribution Date, as applicable]. The LIBOR applicable to
the (i) CRB Securities is described under "DESCRIPTION OF THE CRB SECURITIES--
Interest Distributions" herein 20, (ii) the Government Securities is described
under "DESCRIPTION OF THE GOVERNMENT SECURITIES--Interest Distributions", herein
and (iii) "DESCRIPTION OF THE PRIVATE LABEL CUSTODY RECEIPT 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").
S-22
<PAGE>
[[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 22, [Group A] Government Securities] and [Group A]
Private Label Custody Receipt 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 Percentage") of the principal distributed on
the [Group A] CRB Securities [and [Group A] Government Securities] [and [Group
A] Private Label Custody Receipt 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, [Group B] Government Securities 23, and [Group B]
Private Label Custody Receipt 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 24, [Group B] Government Securities and [Group B]
Private Label Custody Receipt 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 25, [Group A] Government Securities and [Group
A] Private Label Custody Receipt Securities [and principal on the [Class B]
Notes will be payable solely from principal on the [Group B] CRB Securities 26,
[Group B] Government Securities] and [Group B] Private Label Custody Receipt
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.]
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<PAGE>
[DISTRIBUTIONS ON THE CRB SECURITIES 27, GOVERNMENT SECURITIES AND PRIVATE LABEL
CUSTODY RECEIPT SECURITIES; COLLECTION ACCOUNT
All distributions on the CRB Securities 28, Government Securities and
Private Label Custody Receipt 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.][Describe Private Label Custody Receipt Securities Distribution
Date.]
[ASSIGNMENT OF CRB SECURITIES 29, GOVERNMENT SECURITIES AND PRIVATE LABEL
CUSTODY RECEIPT 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].]
[The Depositor will acquire the Private Label Custody Receipt
Securities for deposit into the Trust [describe method of acquisition of Private
Label Custody Receipt Securities].]
TERMINATION
All obligations of the Depositor and the Indenture Trustee created by
the Indenture will terminate upon the payment to Noteholders of all amounts
required to be paid to them pursuant to the Indenture. In addition, the
occurrence of certain CRB Securities Amortization Events (as defined herein) may
lead to an early termination of the obligations of the Depositor and the
Indenture Trustee created by the Indenture.
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Certificates will be issued pursuant to the Trust Agreement dated
as of [____], 199[_], 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
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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 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
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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]
[and the [Group A] Private Label Custody Receipt Securities] bears to the
aggregate principal amount of the CRB Securities [and the [Group A] Government
Securities] [and the [Group A] Private Label Custody Receipt 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] [and the [Group B] Private Label Custody Receipt
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] [and the Private Label
Custody Receipt 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 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 the [Group A] Private Label Custody
Receipt 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].] [and the [Group B]
Private Label Custody Receipt 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] [and Private Label Custody Receipt 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.
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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 A] Private Label Custody Receipt Securities ][and the [Group B] CRB
Securities [and the [Group B] Government Securities]][and the [Group B] Private
Label Custody Receipt 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 A] Private Label Custody Receipt Securities ][and the [Group B] CRB
Securities [and the [Group B] Government Securities]] [and the [Group B] Private
Label Custody Receipt 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] [and the [Group A] Private Label Custody Receipt
Securities ] or the [Group B] CRB Securities [or the [Group B] Government
Securities] [or the [Group B] Private Label Custody Receipt 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 A] Private
Label Custody Receipt Securities [or the [Group B] CRB Securities [or the [Group
B] Government Securities]] [or the [Group B] Private Label Custody Receipt
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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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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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 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 Government Securities
Disclosure Documents, if any].]
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[DESCRIPTION OF THE GOVERNMENT SECURITIES]
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.]
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[LEFT INTENTIONALLY BLANK]
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[DESCRIPTION OF THE PRIVATE LABEL CUSTODY RECEIPT SECURITIES]
[The table below sets forth certain characteristics of the Private
Label Custody Receipt Securities. The table does not purport to be complete and
is subject to, and qualified in its entirety by reference to [describe Private
Label Custody Receipt Securities Disclosure Documents, if any].
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[LEFT INTENTIONALLY BLANK]
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[DESCRIPTION OF THE PRIVATE LABEL CUSTODY RECEIPT SECURITIES]
S-39
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GENERAL
[To be added.]
PRIVATE LABEL CUSTODY RECEIPT 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 Credit Suisse First Boston Securities Corporation,
which is a wholly owned subsidiary of Credit Suisse First Boston, Inc. Neither
Credit Suisse First Boston Securities Corporation nor Credit Suisse 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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COLLECTION OF DISTRIBUTIONS ON CRB SECURITIES [AND GOVERNMENT SECURITIES] [AND
PRIVATE LABEL CUSTODY RECEIPT SECURITIES]
The CRB Securities [and the Government Securities] [and the Private
Label Custody Receipt Securities ] will be assets of the Trust. All
distributions on the CRB Securities [and the Government Securities][and the
Private Label Custody Receipt 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 the Private Label Custody Receipt 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] [or the Private Label
Custody Receipt 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], [or the Private Label Custody Receipt
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] [or the [describe any rights under
Private Label Custody Receipt 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] [[Group A Private Label Custody Receipt Securities ] [or
the [Group B] CRB Securities [or [Group B] Government Securities][or [Group B]
Private Label Custody Receipt Securities]]
The Indenture Trustee shall forward by mail to each Noteholder the
most current CRB Securities Distribution Date Statement (as defined in the
Indenture) received by the Indenture Trustee as of the date of such request.
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EVENTS OF DEFAULT; RIGHTS UPON EVENT OF DEFAULT
With respect to the Notes, 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 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
Private Label Custody Receipt Securities] and continue to apply collections on
the CRB Securities [and Government Securities] [and Private Label Custody
Receipt Securities] as if there had been no declaration or acceleration. The
Indenture Trustee is prohibited from selling the CRB Securities [and Government
Securities] [and Private Label Custody Receipt 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] [and Private Label Custody Receipt
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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 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
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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 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
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or eliminate any provisions of, the Indenture, or modify (except as provided
below) in any manner rights of the Noteholders.
Without the consent of the holder of each outstanding Note affected
thereby, however, no supplemental indenture will: (i) change the due date of any
installment of principal of or interest on any Note or reduce the principal
amount thereof, the interest rate specified thereon, or the redemption price
with respect thereto, or change any place of payment where or the coin or
currency in which any Note or interest thereon is payable; (ii) impair the right
to institute suit for the enforcement of certain provisions of the Indenture
regarding payment; (iii) reduce the percentage of the aggregate amount of the
outstanding Notes, the consent of the holders of which is required for any
waiver of compliance with certain provisions of the Indenture or of certain
defaults thereunder and their consequences as provided for in the Indenture;
(iv) modify or alter the provisions of the Indenture regarding the voting of
Notes held by the Trust, the Depositor or an affiliate of any of them; (v)
reduce the percentage of the aggregate outstanding amount of Notes, the consent
of the holders of which is required to direct the Indenture Trustee to sell or
liquidate the CRB Securities [or Government Securities][or Private Label Custody
Receipt 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
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<PAGE>
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][or the Private
Label Custody Receipt Securities] other than any loss, liability or expense
incurred by reason of willful malfeasance, bad faith or gross negligence in the
performance of its duties under such Indenture or by reason of reckless
disregard of its obligations and duties under the Indenture. Any such
indemnification by the Trust will reduce the amount distributable to the
Noteholders.
All persons into which the Indenture Trustee may be merged or with
which it may be consolidated or any person resulting from such merger or
consolidation shall be the successor of the Indenture Trustee under each
Indenture.
THE TRUST AGREEMENT
The following summary describes 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]
[AND THE PRIVATE LABEL CUSTODY RECEIPT SECURITIES]
The CRB Securities [and Government Securities] [and Private Label
Custody Receipt 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] [and Private Label
Custody Receipt 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
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(i) the amounts of principaland interest, respectively, distributed on each
$1,000 in face amount of Certificates and (ii) the outstanding balances of the
CRB Securities [and Government Securities][and Private Label Custody Receipt
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)] [and Private Label Custody Receipt 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 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] [and Private Label Custody Receipt 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] [and Private Label Custody Receipt
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] [and Private Label Custody Receipt Securities]
will be treated as collections on the CRB Securities [and
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Government Securities] [and Private Label Custody Receipt 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] [or the [Group B] Private Label Custody Receipt
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.
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.
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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] [or the Private
Label Custody Receipt 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.
[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] [and Private Label Custody
Receipt 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
Private Label Custody Receipt Securities] and the payment of expenses related to
such purchase.]
[MATERIAL FEDERAL INCOME TAX CONSIDERATIONS]
[Additional tax disclosure to be added, if necessary.]
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ERISA CONSIDERATIONS
[State whether the Notes may be classified as indebtedness without
substantial equity features for ERISA purposes.]
LEGAL INVESTMENT CONSIDERATIONS
The appropriate characterization of the Securities under various legal
investment restrictions, and thus the ability of investors subject to these
restrictions to purchase Securities, may be subject to significant interpretive
uncertainties. All investors whose investment authority is subject to legal
restrictions should consult their own legal advisors to determine whether, and
to what extent, the Securities will constitute legal investments for them.
The Depositor makes no representation as to the proper
characterization of the Securities for legal investment or financial institution
regulatory purposes, or as to the ability of particular investors to purchase
Securities under applicable legal investment restrictions. The uncertainties
described above (and any unfavorable future determinations concerning legal
investment or financial institution regulatory characteristics of the
Securities) may adversely affect the liquidity of the Securities.
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 Credit Suisse 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.
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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.
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][and the Private Label Custody Receipt Securities].
The rating takes into consideration the characteristics of the CRB Securities
[and the Government Securities] [and the Private Label Custody Receipt
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.
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INDEX OF DEFINED TERMS
<TABLE>
<S> <C>
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
GOVERNMENT SECURITIES.................................................................... S-2
[Group A] Certificate Percentage......................................................... S-10
</TABLE>
S-52
<PAGE>
<TABLE>
<S> <C>
[Group A] CRB Securities................................................................. S-27
[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-10
Owner Trustee............................................................................ S-1
Payment Date............................................................................. S-2
Principal Receivables.................................................................... S-29
PRIVATE LABEL CUSTODY RECEIPt SECURIITES................................................. S-2
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
</TABLE>
S-53
<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-54
<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 40 CREDIT SUISSE 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]
[DESCRIPTION OF THE PRIVATE LABEL CUSTODY RECEIPT SECURITIES............ S-32]
The Depositor........................................................... S-33
The Indenture........................................................... S-33
The Trust Agreement..................................................... S-40
[Agreement Agreement]................................................... S-43
The Indenture Trustee................................................... S-43
The Owner Trustee....................................................... S-43
Use of Proceeds......................................................... S-43
ERISA Considerations.................................................... S-43
[Certain Federal Income Tax Considerations.............................. S-43]
Legal Investment Considerations......................................... S-43
Underwriting............................................................ S-44
Legal Matters........................................................... S-45
Rating.................................................................. S-45
Index of Defined Terms.................................................. S-46
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
</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[ ]
___________________
CREDIT SUISSE 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.
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] [OTHER THAN THE PRIVATE LABEL
CUSTODY RECEIPT SECURITIES] ARE INSURED OR GUARANTEED BY ANY GOVERNMENTAL
AGENCY.
PROSPECTIVE INVESTORS SHOULD CONSIDER THE FACTORS SET FORTH UNDER 2
"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 3 CREDIT SUISSE 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
[INSERT CSFB LOGO HERE]
The date of this Prospectus Supplement is [ ], 199[ ].
S-1
<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 (C) [DESCRIBE PRIVATE LABEL CUSTODY RECEIPT SECURITIES , IF
ANY (THE "PRIVATE LABEL CUSTODY RECEIPT SECURITIES"), each issued pursuant to
[describe agreements] (collectively, the 4 "PRIVATE LABEL CUSTODY RECEIPT
AGREEMENTS")]. THE CRB AGREEMENTS [and the Government Agreements 5] [AND THE
PRIVATE LABEL CUSTODY RECEIPT Agreements 6] ARE the "Agreements" 7. 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] [AND THE PRIVATE LABEL CUSTODY RECEIPT 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] [AND
PRIVATE LABEL CUSTODY RECEIPT 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" 8] AND [THE
TERMS OF THE PROSPECTUSES, PROSPECTUS SUPPLEMENTS AND OTHER OFFERING DOCUMENTS
RELATED TO EACH OF THE PRIVATE LABEL CUSTODY RECEIPT SECURITIES (COLLECTIVELY,
THE "PRIVATE LABEL CUSTODY RECEIPT SECURITIES DISCLOSURE DOCUMENTS")] ; [and the
Government Securities Disclosure Documents 9] [AND THE PRIVATE LABEL CUSTODY
RECEIPT 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.
S-2
<PAGE>
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
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] [AND THE [DESCRIBE PRIVATE LABEL CUSTODY RECEIPT SECURITIES
DISCLOSURE DOCUMENTS, IF ANY] FOR THE PRIVATE LABEL CUSTODY RECEIPT 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 10
CREDIT SUISSE First Boston Securities
Corporation, which is a wholly owned
subsidiary of 11 CREDIT SUISSE First
Boston, Inc. Neither 12 CREDIT SUISSE
First Boston Securities Corporation nor
13 CREDIT SUISSE 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 CRB
Securities 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 Securities
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
Risk Factors "Government Securities")].
[PRIVATE LABEL CUSTODY RECEIPT [DESCRIBE PRIVATE LABEL CUSTODY RECEIPT
SECURITIES]............................ (THE "PRIVATE LABEL CUSTODY RECEIPT
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
</TABLE>
- --------------------------------------------------------------------------------
S-5
<PAGE>
<TABLE>
<S> <C>
subordinated to the Class A Certificates
to the extent described herein.] See
"THE CERTIFICATES" herein.
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.
</TABLE>
- --------------------------------------------------------------------------------
S-6
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Principal distributable on the
Certificates will equal the principal
received on the CRB Securities [and the
Government Securities] [AND THE PRIVATE
LABEL CUSTODY RECEIPT SECURITIES ].
Principal of the [Class A] Certificates
will be payable on each Distribution
Date, pro rata to the [Class A]
Certificateholders, in a maximum amount
equal to the [Class A] Principal
Distributable Amount for the related
Collection Period. The [Class A]
Principal Distributable Amount with
respect to any Distribution Date will
equal the [Class A] Percentage of the
Principal Distribution Amount for the
related Collection Period.
[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], [AND THE PRIVATE
LABEL CUSTODY RECEIPT SECURITIES], which
it may do after the aggregate principal
balance of the CRB Securities [and the
Government Securities] [AND THE PRIVATE
LABEL CUSTODY RECEIPT SECURITIES] (the
"Pool Balance") declines to [ %] or less
of the initial Pool Balance, the [Class
A] Certificateholders will receive an
</TABLE>
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amount equal to the[Class A] Certificate
Balance together with accrued interest
at the [Class A] Certificate Rate, [and
the [Class B] Certificateholders will
receive an amount equal to the Class B
Certificate Balance together with
accrued interest at the Class B
Certificate Rate], and the Certificates
will be retired.]
[Credit Enhancement.................... Subordination. The rights of the [Class
B] Certificateholders to receive
distributions to which they would
otherwise be entitled with respect to
the CRB Securities [and the Government
Securities] [AND THE PRIVATE LABEL
CUSTODY RECEIPT 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].
</TABLE>
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Certain amounts in the Reserve
Distribution Date Account on any
Distribution Date (after giving effect
to all distributions to be made on such
Distribution Date) in excess of the
Specified Reserve Account Balance for
such Distribution Date will be released
to the Depositor and will no longer be
available to the Certificateholders.]
[The Reserve Account will be maintained
with the Trustee as a segregated trust
account, but will not be part of the
Trust.]
Distribution Date...................... The [ ] day of each [month] Record Date
[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 Form
and Registration 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
</TABLE>
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S-9
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<S> <C>
reflect the rights of Certificateholders
only as such rights may be exercised
through DTC and its participating
organizations for so long as such
Certificates are held by DTC. See "RISK
FACTORS--Book-Entry Registration" and
"CERTAIN INFORMATION REGARDING THE
SECURITIES--Book-Entry Registration" in
the Prospectus and Annex I thereto.]
Denominations.......................... The Certificates will be issued in
minimum denominations of $[ ] and
integral multiples of $1,000 in excess
thereof.
[Ancillary Arrangements................ On the Closing Date the Trust will enter
into ancillary arrangements (such
arrangements, the "Ancillary
Arrangements").]
[Calculation of LIBOR.................. LIBOR applicable to the calculation of
the interest rate on the Certificates in
respect of a Distribution Date shall be
equal to the weighted average of the
LIBOR Interest rates (weighted on the
basis of the outstanding principal
balances of the CRB Securities
immediately prior to such date)
applicable to the distribution of
interest on the CRB Securities
distributable on such date.]
Tax Consequences....................... 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 "MATERIAL 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 PRIVATE LABEL CUSTODY RECEIPT
SECURITIES] and, subject to certain
limitations, may deduct its pro rata
share of fees and other deductible
expenses paid by the Trust. See
"MATERIAL FEDERAL INCOME TAX
CONSEQUENCES" in the Prospectus [and the
discussion under "MATERIAL FEDERAL
INCOME TAX CONSIDERATIONS" herein] for
additional information concerning the
application of federal income tax laws
to the Trust and the Certificates.
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Legal Investment....................... Institutions whose investment activities
are subject to legal investment laws and
regulations or to review by certain
regulatory authorities may be subject to
restrictions on investment in the
Certificates. See "LEGAL INVESTMENT
CONSIDERATIONS" herein.
ERISA.................................. Except as otherwise described herein,
the Certificates may not be acquired by
an employee benefit plan subject to the
Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), by any
individual retirement account or by any
other "plan" as defined in Section 4975
of the 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.
</TABLE>
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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. 14 CREDIT SUISSE 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] [OR THE PRIVATE LABEL
CUSTODY RECEIPT 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] [AND THE PRIVATE LABEL CUSTODY RECEIPT 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 15 and yield considerations relating to the
Government Securities.] [DESCRIBE BASIS RISK AND YIELD CONSIDERATIONS RELATING
TO THE PRIVATE LABEL CUSTODY RECEIPT 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
S-12
<PAGE>
due on the Certificates pursuant to their terms. However, a Rating Agency does
not evaluate, and the ratings of the Certificates do not address, the
possibility that investors may receive a lower yield than anticipated. There can
be no assurance that a rating will remain for any given period of time or that a
rating will not be lowered or withdrawn entirely by a Rating Agency if in its
judgment circumstances in the future so warrant.
[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 PRIVATE LABEL CUSTODY RECEIPT SECURITIES]
[and the Private Label Custody Receipt 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.
S-13
<PAGE>
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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<PAGE>
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][AND PRIVATE LABEL CUSTODY RECEIPT
SECURITIES] immediately prior to such Distribution Date) applicable to the
distribution of interest on the CRB Securities [and Government Securities] [AND
PRIVATE LABEL CUSTODY RECEIPT SECURITIES] distributable on the CRB Securities
Distribution Date (as defined herein) [and Government Securities Distribution
Date, as applicable] [AND PRIVATE LABEL CUSTODY RECEIPT 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.] [AND "DESCRIPTION OF THE PRIVATE LABEL CUSTODY
RECEIPT SECURITIES -- Interest Distributions" herein.]
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<PAGE>
On each Distribution Date, interest distributions on the CRB Securities in
excess of the amount required to be distributed as interest to
Certificateholders on any Distribution Date shall be available to pay the
expenses of the Trust (including the fees and expenses of the Trustee), and any
remaining amounts shall be distributed to the Depositor.
DISTRIBUTIONS OF PRINCIPAL
No principal will be distributable to [Class A] Certificateholders until
the [ ] 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,] [AND EACH PRIVATE LABEL CUSTODY RECEIPT SECURITIES DISTRIBUTION
DATE IN RESPECT OF WHICH PRINCIPAL IS DISTRIBUTED ON THE PRIVATE LABEL CUSTODY
RECEIPT 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][AND THE PRIVATE LABEL CUSTODY RECEIPT
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").]
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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] [AND THE PRIVATE LABEL CUSTODY RECEIPT
SECURITIES] at such time. As more fully described herein, the outstanding
principal balance of the CRB Securities will be reduced as a result of principal
payments on the Receivables that are distributed in respect of the CRB
Securities.
[ANCILLARY ARRANGEMENTS]
[On the Closing Date the Trust will enter into ancillary arrangements (such
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.]
S-17
<PAGE>
DISTRIBUTIONS ON THE CRB SECURITIES [AND GOVERNMENT SECURITIES] [AND PRIVATE
LABEL CUSTODY RECEIPT SECURITIES]; COLLECTION ACCOUNT
All distributions on the CRB Securities [and Government Securities] [AND
PRIVATE LABEL CUSTODY RECEIPT 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".][DESCRIBE "PRIVATE LABEL CUSTODY RECEIPT SECURITIES DISTRIBUTION DATE".]
[[ASSIGNMENT] [PURCHASE] OF CRB SECURITIES [AND GOVERNMENT SECURITIES] [AND
PRIVATE LABEL CUSTODY RECEIPT 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.]]
[THE DEPOSITOR WILL ACQUIRE THE PRIVATE LABEL CUSTODY RECEIPT SECURITIES
FOR DEPOSIT INTO THE TRUST [DESCRIBE METHOD OF ACQUISITION OF PRIVATE LABEL
CUSTODY RECEIPT 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.
S-18
<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
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GENERAL
This Prospectus Supplement sets forth certain relevant terms with respect
to the CRB Securities, but does not provide detailed information with respect to
the CRB Securities. Appendix A to this Prospectus Supplement contains excerpts
from each prospectus pursuant to which the CRB Securities were offered and sold.
This Prospectus Supplement relates only to the Certificates offered hereby and
does not relate to the CRB Securities.
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
S-20
<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.
S-21
<PAGE>
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.
S-22
<PAGE>
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.
S-23
<PAGE>
CRB SECURITIES AMORTIZATION EVENTS
The following is a summary of the typical CRB Securities Amortization
Events for each series of CRB Securities. Certain additional CRB Securities
Amortization Events unique to particular series of CRB Securities are described
following this summary:
(a) failure to make payments to holders of CRB Securities within the
time periods given in the Agreements,
(b) material breaches of certain representations, warranties or
covenants or failure to observe or perform in a material respect
any covenant or agreement under an Agreement,
(c) occurrence of a material default by a servicer of the Receivables
underlying a series of CRB Securities (a "CRB Servicer"),
(d) failure to maintain the Seller's Interest in an amount at least
equal to the minimum Seller's Percentage of Principal Receivables
in the CRB Issuer as of such date,
(e) failure to maintain a certain minimum level of Receivables or
Accounts, or inability of the Seller to transfer Receivables or
Accounts to a CRB Issuer,
(f) certain events of bankruptcy or insolvency relating to the
Seller,
(g) Issuer becomes an "investment company" within the meaning of the
Investment Company Act of 1940, as amended,
(h) any reduction of the portfolio yield or excess spread (averaged
over any three consecutive months) to a rate below a certain rate
provided in the Agreement for such period,
(i) the available amount of the Cash Collateral Guaranty is less than
3% of the amount of the investor interest for the underlying
series of CRB Securities.
[Insert additional Amortization Events for particular CRB Securities.]
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
Generally, the CRB Servicer's compensation for its servicing activities and
reimbursement for its expenses for any monthly period will be a servicing fee (a
"CRB Securities Servicing Fee") payable monthly. The CRB Securities Servicing
Fee will be allocated among the Seller's Interest and the investor interests of
all series issued by the CRB Issuer.
S-24
<PAGE>
Generally, the CRB Servicer will pay from its servicing compensation,
certain expenses incurred in connection with servicing the Receivables
including, without limitation, payment of the fees and disbursements of the CRB
Trustee and independent accountants and other fees which are not expressly
stated in the related Agreement to be payable by the CRB Issuer or the holders
of CRB Securities.
[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 16 GOVERNMENT SECURITIES
DISCLOSURE DOCUMENT, IF ANY].]
S-25
<PAGE>
DESCRIPTION OF THE GOVERNMENT SECURITIES
S-26
<PAGE>
[DESCRIPTION OF THE PRIVATE LABEL CUSTODY RECEIPT SECURITIES]
[THE TABLE BELOW SETS FORTH CERTAIN CHARACTERISTICS OF THE PRIVATE LABEL
CUSTODY RECEIPT SECURITY. THE TABLE DOES NOT PURPORT TO BE COMPLETE AND IS
SUBJECT TO, AND QUALIFIED IN ITS ENTIRETY BY REFERENCE TO [DESCRIBE PRIVATE
LABEL CUSTODY RECEIPT SECURITIES DISCLOSURE DOCUMENT, IF ANY].]
S-27
<PAGE>
DESCRIPTION OF THE 17 PRIVATE LABEL CUSTODY RECEIPT SECURITIES
S-28
<PAGE>
GENERAL
[To be added.]
GOVERNMENT SECURITIES; RECENT DEVELOPMENTS
[TO BE ADDED.]
PRIVATE LABEL CUSTODY RECEIPT 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.]
S-29
<PAGE>
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 18 CREDIT SUISSE First Boston Securities Corporation,
which is a wholly owned subsidiary of 19 CREDIT SUISSE First Boston, Inc.
Neither 20 CREDIT SUISSE First Boston Securities Corporation nor 21 CREDIT
SUISSE 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, 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][AND
PRIVATE LABEL CUSTODY RECEIPT SECURITIES]
The CRB Securities [and Government Securities][AND PRIVATE LABEL CUSTODY
RECEIPT SECURITIES] will be assets of the Trust. All distributions on the CRB
Securities [and Government Securities] [AND PRIVATE LABEL CUSTODY RECEIPT
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 PRIVATE LABEL CUSTODY RECEIPT
SECURITIES][and] [payments actually received by the Trust pursuant to the
Ancillary Arrangements] [and] [amounts available in the Reserve Account].
S-30
<PAGE>
REPORTS TO CERTIFICATEHOLDERS
The Trustee will mail to each Certificateholder, at such
Certificateholder's request, at its address listed on the Certificate Register
maintained with the Trustee a report stating (i) the amounts of principal and
interest, respectively, distributed on each $1,000 in face amount of
Certificates and (ii) the outstanding balances of the CRB Securities [and
Government Securities] [AND PRIVATE LABEL CUSTODY RECEIPT SECURITIES].
The Trustee shall forward by mail to each Certificateholder the most
current CRB Securities [and Government Securities][AND PRIVATE LABEL CUSTODY
RECEIPT 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][AND THE PRIVATE LABEL CUSTODY RECEIPT SECURITIES] or distributions
that are required to be made for the benefit of such Certificateholders or (ii)
reduce the aforesaid percentage of the Voting Rights of Certificates which are
required to consent to any such amendment.
TERMINATION; RETIREMENT OF THE CERTIFICATES
The Trust will terminate on the Distribution Date following the earliest of
(i) the Distribution Date on which the aggregate principal balance of the
Certificates has been reduced to zero, (ii) the final payment or other
liquidation of the last CRB Securities [and the Government Securities][AND THE
PRIVATE LABEL CUSTODY RECEIPT 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
S-31
<PAGE>
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][AND PRIVATE
LABEL CUSTODY RECEIPT SECURITIES ]
If at any time the Trustee, as the holder of the CRB Securities [or the
Government Securities] [OR THE PRIVATE LABEL RECEIPT 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] [AND PRIVATE
LABEL CUSTODY RECEIPT 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.
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.
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<PAGE>
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], [AND THE PRIVATE LABEL CUSTODY RECEIPT
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 PRIVATE LABEL CUSTODY RECEIPT SECURITIES] and the payment of expenses
related to such purchase.]
[MATERIAL FEDERAL INCOME TAX CONSIDERATIONS]
[Additional tax disclosure to be added, if necessary.]
ERISA CONSIDERATIONS
Under current law the purchase and holding of the Certificates by or on
behalf of any Plan may result in a "prohibited transaction" within the meaning
of ERISA and the Code. Consequently, Certificates may not be transferred to a
proposed transferee that is a Plan subject to ERISA or that is described in
Section 4975(e)(1) of the Code, or a person acting on behalf of any such Plan or
using the assets of such plan unless the Trustee and the Depositor receive an
opinion of counsel reasonably
S-33
<PAGE>
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 22 CREDIT
SUISSE First Boston Corporation (the "Underwriter"), and the Underwriter has
agreed to purchase, the entire principal amount of the Certificates.
The Underwriter proposes to offer the Certificates to the public initially
at the public offering price set forth on the cover page of this Prospectus
Supplement, and to certain dealers at such price less a concession of [ %] per
Certificates; the Underwriter and such dealers may allow a discount of [ %] per
Certificates on sales to certain other dealers; and after the initial public
offering of the Certificates, the public offering price and the concessions and
discounts to dealers may be changed by the Underwriter.
The Underwriting Agreement provides that the Seller will indemnify the
Underwriter against certain liabilities under applicable securities laws, or
contribute to payments the Underwriter may be required to make in respect
thereof.
The Trust may, from time to time, invest the funds in the Trust Accounts in
Eligible Investments acquired from the Underwriter.
S-34
<PAGE>
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 23, the Government
SECURITIES AND THE PRIVATE LABEL CUSTODY RECEIPT Securities. The rating takes
into consideration the characteristics of the CRB Securities 24, the Government
SECURITIES AND THE PRIVATE LABEL CUSTODY RECEIPT 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-35
<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<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
GOVERNMENT SECURITIES............................................................... S-2
Issuer.............................................................................. S-4
LIBOR............................................................................... S-21
</TABLE>
S-36
<PAGE>
<TABLE>
<S> <C>
Moody's............................................................................ S-12
Percentage Interest................................................................ S-26
Pool Balance....................................................................... S-7
Principal Receivables.............................................................. S-22
PRIVATE LABEL CUSTODY RECEIPT SECURITIES........................................... S-2
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-37
<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.
[NEED APP FOR EACH OF GS AND PLCRS -- NEED CLARIFICATION]
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<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 26 CREDIT SUISSE 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
----
<S> <C>
PROSPECTUS SUPPLEMENT
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]
[DESCRIPTION OF THE PRIVATE LABEL CUSTODY RECEIPT 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
Risk 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 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[ ]
___________________
27 Credit Suisse First Boston
================================================================================
