<PAGE> 1
As filed with the Securities and Exchange Commission on October 26, 1998
Registration No. 333-64351
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
ASSET BACKED SECURITIES CORPORATION
(Exact name of Registrant as specified in its charter)
on behalf of itself and trusts with respect to which
it is the settlor or depositor
Delaware 13-3354848
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11 Madison Avenue
New York, New York 10010
(212) 325-2000
(Address, including zip code, and telephone number, including area code,
of Registrant's principal executive offices)
Gina Hubbell
Director and Vice President
Asset Backed Securities Corporation
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:
Reed D. Auerbach
Stroock & Stroock & Lavan LLP
180 Maiden Lane
New York, New York 10038
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. |_|
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If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. |_|
CALCULATION OF REGISTRATION FEE(1)
<TABLE>
<CAPTION>
Proposed Maximum Proposed Maximum
Title of Securities to Amount to be Aggregate Aggregate Amount of
be Registered(2) Registered(3) Price Per Unit (3) Offering Price (3) Registration Fee(4)
<S> <C> <C> <C> <C>
Notes and Certificates $4,000,000,000 100% $4,000,000,000 $1,112,017
</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, 33-17232 and 33-365 as previously filed by the
Registrant on Form S-3. Such registration statements were declared effective on
November 20, 1986, October 6, 1987 and February 27, 1998, respectively. The
Registration Statement to which this Form S-3 relates, which is a new
registration statement, also constitutes Post-Effective Amendment No. 6 to
registration statement No. 33- 10125 and Post-Effective Amendment No. 5 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 $1,081,510,000 that were
previously registered by registration statement Nos. 33-10125, 33-17232 and
333-365, 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) A fee of $295 has previously been paid.
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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EXPLANATORY NOTE
This Registration Statement contains four 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 fourth Prospectus (the
"Floorplan 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 dealer floorplan automobile
receivables and asset-backed securities consisting of certificates representing
undivided interests in, or notes or loans secured by, receivables arising in
certain designated portfolios of dealer floorplan automobile receivables.
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, (3) three forms of
Prospectus Supplement (Exhibits 99.12 through 99.14) which relate to the Credit
Card Prospectus and (1) 1 form of Prospectus Supplement (Exhibit 99.15) which
relates to the Floorplan Prospectus.
In addition, if and to the extent required by applicable law, each
Prospectus and the related Prospectus Supplement will also be used after the
completion of the related offering in connection with certain offers and sales
related to market-making transactions in the offered securities. In order to
register under Rule 415 those securities which may be offered and sold in
market-making transactions, the appropriate box on the cover page of the
Registration Statement has been checked and the undertakings required by Item
512(a) of Regulation S-X have been included in Item 17 of Part 17.
<PAGE> 4
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, boats, boat motors, motorcycles,
jet skis, waverunners, all-terrain-vehicles, snowmobiles, and 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.
Prospective Investors should consider the factors set forth under "Risk Factors"
on page __ of this Prospectus and in the related Prospectus Supplement.
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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 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 _________, 199_.
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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 each Class of such
Securities: (i) the interest rate and authorized denominations, as applicable,
of each Class of such Securities; (ii) certain information concerning the
Primary Assets and the related Seller and Servicer, as applicable; (iii) the
terms of any Credit or Cash Flow Enhancement applicable to any Class or Classes
of such Securities; (iv) information concerning any other assets in the related
Trust; (v) the expected date or dates on which the principal amount, if any, of
each Class of such Securities will be paid to holders of such Securities; (vi)
the extent to which any Class within such Series is subordinated to any other
Class of such Series; and (vii) additional information with respect to the plan
of distribution of such Securities.
REPORTS TO SECURITYHOLDERS
With respect to each Series of Securities, the Servicer (as defined in the
related Prospectus Supplement) of the related Primary Assets will prepare for
distribution to the related Securityholders certain monthly and annual reports
concerning such Securities and the related Trust. See "Certain Information
Regarding the Securities -- Statements to Securityholders."
AVAILABLE INFORMATION
The Company, as originator of the Trusts, has filed with the Securities and
Exchange Commission (the "Commission") a Registration Statement on Form S-3
(together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to the Securities being offered hereby. This Prospectus does not
contain all of the information set forth in the Registration Statement, certain
parts of which have been omitted in accordance with the rules and regulations of
the Commission. In addition, Company is subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith files reports and other information with the
Commission. Such Registration Statement, reports and other information are
available for inspection without charge at the public reference facilities of
the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549, and the regional offices of the Commission at Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511, and Seven World Trade
Center, Suite 1300, New York, New York 10048. Copies of such information can be
obtained from the Public Reference Section of the Commission at Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The
Commission maintains a Web site that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission. The address of such site is http://www.sec.gov.
Upon receipt of a request by an investor who has received an electronic
Prospectus Supplement and Prospectus from the Underwriter or a request by such
investor's representative within the period during which there is an obligation
to deliver a Prospectus Supplement and Prospectus, the Underwriter will promptly
deliver, or cause to be delivered, without charge, to such investor a paper copy
of the Prospectus Supplement and Prospectus.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents filed by the Company on behalf of the Trust referred to in
the accompanying Prospectus Supplement with the Commission pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus
and prior to the termination of the offering of the Securities offered by such
Trust shall be deemed to be incorporated by reference in this Prospectus and to
be a part hereof from the dates of filing of such documents. Any statement
contained herein or in a document incorporated or deemed to be 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
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deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
The 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, telephone, (212) 325-2000.
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<PAGE> 8
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. 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/or the
Seller or one of its affiliates 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, if
specified in the related Prospectus
Supplement, 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 subsidiary of Credit Suisse First
Boston, Inc. Neither Credit Suisse First
Boston, Inc. nor any of its 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 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
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Notes. Each Series of Securities issued by a
Grantor Trust will include one or more
classes of Certificates, but will not
include any Notes. Each class of Notes will
be issued pursuant to an indenture (each, an
"Indenture") between the related Owner Trust
and the Indenture Trustee specified in the
related Prospectus Supplement. Each class of
Certificates will be issued pursuant to the
related Trust Agreement (in the case of
Certificates issued by an Owner Trust) or
the related Pooling and Servicing Agreement
or Trust Agreement (in the case of
Certificates issued by a Grantor Trust). The
related Prospectus Supplement will specify
which class or classes of Notes and/or
Certificates of the related Series are being
offered thereby.
The Notes
As specified in the related Prospectus
Supplement, each class of Notes will have a
stated principal amount or no principal
amount and will bear interest at a specified
rate or rates (with respect to each class of
Notes, the "Interest Rate") or will not bear
interest. Each class of Notes may have a
different Interest Rate, which may be a
fixed, variable or adjustable Interest Rate
or any combination of the foregoing. The
related Prospectus Supplement will specify
the Interest Rate, or the method for
determining the Interest Rate, for each
class of Notes.
A Series of Securities issued by an Owner
Trust may include two or more classes of
Notes that differ as to timing and priority
of payments, seniority, allocations of
losses, Interest Rate or amount of payments
of principal or interest. Additionally,
payments of principal or interest in respect
of any such class or classes may or may not
be made upon the occurrence of specified
events or on the basis of collections from
designated portions of the Primary Assets.
If specified in the related Prospectus
Supplement, one or more classes of Notes
("Strip Notes") may be entitled to (i)
principal payments with disproportionate,
nominal or no interest payments or (ii)
interest payments with disproportionate,
nominal or no principal payments. See
"Description of the Notes -- Distributions
of Principal and Interest".
Notes will be available for purchase in
denominations of $1,000 or such other
minimum denominations as shall be specified
in the related Prospectus Supplement and
integral multiples thereof and will be
available in book-entry form, or such other
form as shall be specified in the related
Prospectus Supplement. If the related
Prospectus Supplement provides that the
Notes will be 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 "Certain Matters Regarding
the Servicer -- Termination", the
outstanding Notes will be redeemed as set
forth in the related Prospectus Supplement.
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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.
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 "Certain Matters Regarding the
Servicer -- Termination", the Certificates
will be prepaid as set forth in the related
Prospectus Supplement.
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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
either directly, or indirectly through a
special purpose entity, 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
Sale and Servicing 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, boats,
boat motors, motorcycles, jet skis,
waverunners, all-terrain-vehicles,
snowmobiles, and trailers), vans or light
duty trucks and the right to receive certain
payments made with respect to such
Receivables, security interests in the
vehicles financed thereby (the "Financed
Vehicles"), certain accounts and the
proceeds thereof, and any proceeds from
claims under certain related insurance
policies, in each case as described in the
related Prospectus Supplement.
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 (including motor
homes, van campers, boats, boat motors,
motorcycles, jet skis, waverunners,
all-terrain-vehicles, snowmobiles, and
trailers), 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 Primary
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Assets" 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
(including motor homes, van campers, boats,
boat motors, motorcycles, jet skis,
waverunners, all-terrain-vehicles,
snowmobiles, and trailers), 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 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
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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 Transfer and
Servicing Agreements -- Pre-Funding".
During any Pre-Funding Period, the Seller or
such other party specified in the related
Prospectus Supplement 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
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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 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, (iii) sell or transfer
the related Government Securities, if any,
and (iv) sell or transfer the related
Private Label Custody Receipt Securities, if
any, in any case to a Trust pursuant to a
Sale and Servicing Agreement or a Pooling
and Servicing Agreement, as applicable. 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 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
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<PAGE> 15
"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 does not exist as of the date
such Receivable is purchased by such Trust,
if such breach materially adversely affects
the interest of such Trust in such
Receivable and if such failure or breach is
not cured by the Seller by the grace period
specified in the related Prospectus
Supplement.
In connection with the sale of Receivables
to a Trust, security interests in the
Financed Vehicles securing such Receivables
will be assigned by the Seller to such
Trust. Due to administrative burden and
expense, however, the certificates of title
to such Financed Vehicles will not be
amended to reflect such assignment to the
Trust. In the absence of such an amendment,
the Trust may not have a perfected security
interest in the Financed Vehicles securing
the Receivables in some states. If a Trust
does not have a perfected security interest
in a Financed Vehicle, its ability to
realize on such Financed Vehicle in the
event of a default may be adversely
affected.
To the extent the security interest is
perfected, such Trust will have a prior
claim over subsequent purchasers of such
Financed Vehicle and holders of subsequently
perfected security interests. However, as
against liens for repairs of Financed
Vehicles or for taxes unpaid by the related
Obligor, or through fraud or negligence, a
Trust could lose its security interest, or
the priority of its security interest, in a
Financed Vehicle. Neither the Seller nor the
Servicer will be obligated to repurchase a
Receivable with respect to which a Trust
loses its security interest or the priority
of its security interest in the related
Financed Vehicle for any such cause after
the Closing Date.
Federal and state consumer protection laws
impose requirements on creditors in
connection with extensions of credit and
collections of retail installment loans, and
certain of these laws make an assignee of
such a loan liable to the obligor thereon
for any violation by the lender. 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".
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<PAGE> 16
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
or, if there is only one Certificateholder,
to treat itself as the owner of the assets
of the Trust and to treat such Trust as a
disregarded entity 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 "State and Local Tax
Considerations" for additional information
regarding the application of tax laws.
ERISA Considerations
Subject to the considerations discussed
under "ERISA Considerations" herein and in
the related Prospectus Supplement and if so
specified in the related Prospectus
Supplement (i) the Notes of any Series and
(ii) the Certificates of any Series 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 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
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<PAGE> 17
Investors whose investment authority is
subject to legal restrictions should consult
their own legal advisors to determine
whether and to what extent the Certificates
or Notes constitute legal investments for
them.
Ratings
It is a condition to the issuance of the
Securities to be offered hereunder that they
be rated in one of the four highest rating
categories by at least one nationally
recognized statistical rating organization.
A rating is not a recommendation to
purchase, hold or sell Securities inasmuch
as such rating does not comment as to market
price or suitability for a particular
investor. Ratings of Securities will address
the likelihood of the payment of principal
and interest thereon pursuant to their
terms. There can be no assurance that a
rating will remain for a given period of
time or that a rating will not be lowered or
withdrawn entirely by a rating agency if in
its judgment circumstances in the future so
warrant. For more detailed information
regarding the ratings assigned to any class
of a particular Series of Securities, see
"Summary of Terms -- Ratings of the Notes"
and "Risk Factors -- Ratings of the Notes"
in the related Prospectus Supplement.
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<PAGE> 18
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 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 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 does not exist as of the date such Receivable is
transferred to such Trust, if such breach materially adversely affects 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 and the Company intend that the
transfer of the Receivables by it under the applicable Transfer and Servicing
Agreement constitute a sale. Notwithstanding the foregoing, if such Seller is
not a bank and 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 or the
Trust, as applicable, should be treated as a pledge of such Receivables to
secure a borrowing by such Seller or the Company, as applicable. If the transfer
to the Company or the Trust were to be characterized as a secured loan, to the
extent that the Seller or the Company, as applicable, 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 or Company's insolvency, as
applicable, 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 or
the Company, as applicable. 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. The risks related to a Seller that is a bank will be
discussed in the related Prospectus Supplement.
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
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<PAGE> 19
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 and the Characterization of the Transfer of
Receivables" 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 the Reserve Account or other form of credit enhancement. The
Notes, if any, of any Series will represent obligations solely of, and the
Certificates of any such Series will represent interests solely in, the related
Trust, and neither the Notes nor the Certificates of any such Series will
represent obligations of or interests in, or be insured or guaranteed by, the
Company, related Seller, Servicer, Trustee or Indenture Trustee, or any other
entity. Consequently, holders of the Securities of any Series must rely for
repayment upon payments on the related Primary Assets and, if and to the extent
available, amounts payable under any available form of credit enhancement, as
specified in the related Prospectus Supplement.
Maturity and Prepayment Considerations -- Receivables. All of the
Receivables are prepayable at any time. When used herein with respect to any
Receivable, the term "prepayment" -- includes prepayments in full, partial
prepayments (including those related to rebates of extended warranty contract
costs and insurance premiums) and liquidation due to default, as well as
receipts of proceeds from physical damage, credit life and disability insurance
policies and Repurchase Amounts (as defined herein) with respect to certain
other Receivables repurchased for administrative reasons. The rate of
prepayments on the Receivables may be influenced by a variety of economic,
social and other factors, including the fact that an Obligor generally may not
sell or transfer the Financed Vehicle securing a Receivable without the consent
of the Seller. The rate of prepayment on the Receivables may also be influenced
by the 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 Primary Assets".
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 "Certain Matters Regarding the Servicer
- -- 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, if a Servicer satisfies certain requirements
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<PAGE> 20
for monthly or less frequent remittances and the Rating Agencies (as such term
is defined in the related Prospectus Supplement) affirm their initial rating of
the related Securities, then for so long as such Servicer is the Servicer and
provided that (i) no Servicer Default exists and (ii) each other condition to
making monthly or less frequent deposits as may be specified by the Rating
Agencies and described in the related Prospectus Supplement is satisfied, the
Servicer will not be required to deposit such amounts into the Collection
Account of such Trust until the business day preceding each Distribution Date.
The Servicer will deposit the aggregate Repurchase Amount for Receivables
purchased by the Servicer during the related Collection Period into the
applicable Collection Account on or before the business day preceding each
Distribution Date. Pending deposit into such Collection Account, collections may
be invested by the Servicer at its own risk and for its own benefit and will not
be segregated from funds of the Servicer. If the Servicer were unable to remit
such funds, the applicable Securityholders might incur a loss. To the extent set
forth in the related Prospectus Supplement, the Servicer may, in order to
satisfy the requirements described above, obtain a letter of credit or other
security for the benefit of the related Trust to secure timely remittances of
collections on the related Primary Assets or 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 Certificateholders
with respect to such Series may 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 "Certain Matters Regarding the Servicer
- -- 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 Sale and Servicing Agreement, 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 and/or the Seller or
one of its affiliates 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 or Closing Date, as specified in the related Prospectus Supplement,
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 to
the related Trust Agreement, Sale and Servicing 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,
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<PAGE> 21
as the case may be; (iv) any property that has secured a Receivable and that has
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 Vehicles in some states. See "Certain Legal Aspects of the Receivables"
and "Description of the Transfer and Servicing Agreements -- Sale and Assignment
of Primary Assets". 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 "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
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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 different
from the level payments) that, unless otherwise provided in the related
Prospectus Supplement, amortize the amount financed over the original term to
maturity of the related Motor Vehicle Installment Contract, (iv) is a
Precomputed Receivable or a Simple Interest Receivable and (v) satisfies the
other criteria, if any, set forth in the related Prospectus Supplement. No
selection procedures believed by the Seller to be adverse to Securityholders
were or will be used in selecting the Receivables.
"Precomputed Receivables" consist of either (i) monthly actuarial
receivables ("Actuarial Receivables") or (ii) receivables that provide for
allocation of payments according to the "sum of periodic balances" or "sum of
monthly payments" method, similar to the "Rule of 78s" ("Rule of 78s
Receivables"). An Actuarial Receivable provides for amortization of the loan
over a series of fixed level monthly installment payments. Each monthly
installment, including the monthly installment representing the final payment on
the Receivable, consists of (x) an amount of interest equal to 1/12 of the
stated contract interest rate under the related Motor Vehicle Installment
Contract multiplied by the unpaid principal balance of such loan, plus (y) an
amount allocable to principal equal to the remainder of the monthly payment. A
Rule of 78s Receivable provides for the payment by the obligor of a specified
total amount of payments, payable in equal monthly installments on each due
date, which total represents the principal amount financed plus add-on interest
in an amount calculated at the stated contract interest rate under 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
generally 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 the 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
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rebate on an Actuarial Receivable and generally will be less than the remaining
scheduled payments of interest that would have been due under a Simple Interest
Receivable for which all payments were made on schedule.
To the extent provided in the related Prospectus Supplement, each Trust
will account for the Rule of 78s Receivables as if such Receivables were
Actuarial Receivables. Amounts received 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 unless otherwise specified in the related Prospectus Supplement. 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, the National Auto
Research Division Black Book or such other industry guide as specified in the
related Prospectus Supplement, 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
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
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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
(i) 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 (ii) a
limited purpose corporation organized for the purpose of, among other things,
establishing trusts, acquiring and selling receivables to such trusts and
selling beneficial interests in such trusts, or (iii) one of such trusts. If so
specified in the related Prospectus Supplement, the Underlying Issuer may be the
Company and/or one or more affiliates of the Company. The obligations of the
Underlying Issuer will generally be limited to certain representations and
warranties with respect to the assets conveyed by it to the related trust. The
related Prospectus Supplement will (subject to certain exceptions which, if
applicable, will be described in the related Prospectus Supplement) provide that
the Underlying Issuer will not have guaranteed any of the assets conveyed to the
related trust or any of the Collateral Certificates issued under the Underlying
Trust Agreement.
Distributions of principal and interest will be made on the Collateral
Certificates on the dates specified in the related Prospectus Supplement. The
Collateral Certificates may be entitled to receive nominal or no principal
distribution or nominal or no interest distributions. Principal and interest
distributions will be made on the Collateral Certificates by the Underlying
Trustee or the Underlying Servicer. The Underlying Issuer or the Underlying
Servicer may have the right to repurchase assets underlying the Collateral
Certificates after a certain date or under other circumstances specified in the
related Prospectus Supplement.
ENHANCEMENT RELATING TO COLLATERAL CERTIFICATES
Enhancement in the form of reserve funds, subordination of other Securities
issued in connection with the Collateral Certificates, guarantees, letters of
credit, cash collateral accounts, insurance policies or other types of
enhancement may be provided with respect to the Receivables underlying the
Collateral Certificates or with respect to the Collateral Certificates
themselves. The type, characteristics and amount of enhancement will be a
function of certain characteristics of the Receivables and other factors and
will have been established for the Collateral Certificates on the basis of
requirements of rating agencies.
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.
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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 "Description of the
Transfer and Servicing Agreements -- 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 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) 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 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
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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.
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. If 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. If 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 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
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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
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supplements to its Information Statement which include certain unaudited
financial data and other information concerning the business and operations of
Freddie Mac. Unless otherwise specified in the applicable Prospectus Supplement,
these documents can be obtained from Freddie Mac by writing or calling Freddie
Mac's Investor Inquiry Department at 8200 Jones Branch Drive, McLean, Virginia,
22102; outside Washington, D.C. metropolitan area, telephone (800) 336-3672;
within Washington, D.C. metropolitan area, telephone (703) 759-8160. Freddie Mac
is not subject to the periodic reporting requirements of the Exchange Act.
The Student Loan Marketing Association
Sallie Mae is a stockholder-owned corporation established by the 1972
amendments to the Higher Education Act of 1965, as amended, to provide
liquidity, primarily through secondary market and warehousing activities, for
lenders participating in federally sponsored student loan programs, primarily
the Federal Family Education Loan ("FFEL") program and the Health Education
Assistance Loan Program. Under the Higher Education Act, Sallie Mae is
authorized to purchase, warehouse, sell and offer participations or pooled
interests in, or otherwise deal in, student loans, including, but not limited
to, loans insured under the FFEL program, and to make commitments for any of the
foregoing. Sallie Mae is also authorized to buy, sell, hold, underwrite and
otherwise deal in obligations of eligible lenders, if such obligations are
issued by such eligible lenders for the purpose of making or purchasing
federally guaranteed student loans under the Higher Education Act. As a
federally chartered corporation, Sallie Mae's structure and operational
authorities are subject to revision by amendments to the Higher Education Act or
other federal enactments.
Sallie Mae prepares an Information Statement annually which describes
Sallie Mae, its business and operations and contains Sallie Mae's audited
financial statements. From time to time Sallie Mae prepares supplements to its
Information Statement which include certain unaudited financial data and other
information concerning the business and operations of Sallie Mae. Unless
otherwise specified in the applicable Prospectus Supplement, these documents can
be obtained without charge upon written request to the Corporate and Investor
Relations Division of Sallie Mae at 1050 Thomas Jefferson Street, N.W.,
Washington, D.C. 20007, telephone (202) 298-3010. Sallie Mae is not subject to
the periodic reporting requirements of the Exchange Act.
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.
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
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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 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 "Description of the
Transfer and Servicing Agreements -- 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
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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 Federal Tax
Counsel 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. If 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. If 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 semiannual interest distribution (an "Interest Component"); and
(ii) the principal payment (the "Principal Component") (each component
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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 semiannual 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. If 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,
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 Primary Assets" and "Servicing Procedures".
See also "Certain Matters Regarding the Servicer -- 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.
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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 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 be 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
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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 are
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 are 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 are available in book-entry form only, all references herein
and in the related Prospectus Supplement to actions by Noteholders refer to
action taken by DTC upon instructions from it participating organizations, and
all references herein and in the related Prospectus Supplement to distributions,
notices, reports and statements to Noteholders refer to distributions, notices,
reports and statements to DTC or its nominee, as registered holder of the Notes,
for distribution to Noteholders in accordance with DTC's procedures with respect
thereto. See "Certain Information Regarding the Securities -- Book-Entry
Registration" and " -- Definitive Securities".
DISTRIBUTION OF PRINCIPAL AND INTEREST
The timing and priority of payment, seniority, allocations of losses,
Interest Rate and amount of or method of determining payments of principal and
interest on each class of Notes of a Series will be described in the related
Prospectus Supplement. The right of holders of any class of Notes to receive
payments of principal and interest may be senior or subordinate to the rights of
holders of one or more other class or classes of Notes of such Series, as
described in the related Prospectus Supplement. The related Prospectus
Supplement may provide that payments of interest on the Notes will be made prior
to payments of principal thereon. If so provided in the related Prospectus
Supplement, a Series of Notes may include one or more classes of Strip Notes
entitled to (i) principal payments with disproportionate, nominal or no interest
payments or (ii) interest payments with disproportionate, nominal or no
principal payments. Each class of Notes may have a different Interest Rate,
which may be a fixed, variable or adjustable Interest Rate (and which may be
zero for certain classes of Strip Notes), or any combination of the foregoing.
The related Prospectus Supplement will specify the Interest Rate for each class
of Notes of a Series or the method for determining such Interest Rate. One or
more classes of Notes of a Series may be redeemable in whole or in part under
the circumstances specified in the related Prospectus Supplement, including as a
result of the exercise by the Servicer of its option to purchase the related
Receivable Pool. See "Certain Matters Regarding the Servicer -- 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 --
Distributions" and " -- Credit and Cash Flow Enhancement".
In the case of a Series of Securities issued by an Owner Trust that
includes two or more classes of Notes, the sequential order and priority of
payment in respect of principal and interest, and any schedule or formula or
other provisions applicable to the determination thereof, of each such class
will be set forth in the related Prospectus Supplement. Payments in respect of
principal of and interest on any class of Notes will be made on a pro rata basis
among all the Noteholders of such class or by such other method as is specified
in the Prospectus Supplement.
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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 or performance of any material covenant or agreement
of the related Trust made in such Indenture and the continuation of any such
default for a period of 30 days (or for such longer period, not in excess of 90
days, as may be reasonably necessary to remedy such default; provided that such
default is capable of remedy within 90 days or less and Servicer on behalf of
the related Trustee delivers an Officer's Certificate to the related Indenture
Trustee to the effect that such Trustee has commenced, or will promptly commence
and diligently pursue, all reasonable efforts to remedy such default) 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
(or for such longer period, not in excess of 90 days, as may be reasonably
necessary to remedy such default; provided that such default is capable of
remedy within 90 days or less and Servicer on behalf of the related Trustee
delivers an Officer's Certificate to the related Indenture Trustee to the effect
that such Trustee has commenced, or will promptly commence and diligently
pursue, all reasonable efforts to remedy such default) 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 or a substantial part of
the property of such Trust and (vi) such other events as may be 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 that, if applicable, will be
specified in the related Prospectus Supplement, the Indenture Trustee will be
prohibited from selling the Primary Assets following an Event of Default, other
than a default in the payment of any principal of, or a default for five days or
more in the payment of any interest on, any Note of such Series, unless (i) the
holders of all such outstanding Notes consent to such sale, (ii) the proceeds of
such sale are sufficient to pay in full the principal of and the accrued
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
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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.
Except to the extent provided in the related Prospectus Supplement, no
holder of a Note will have the right to institute any proceeding with respect to
the related Indenture, unless: (i) such holder previously has given to the
applicable Indenture Trustee written notice of a continuing Event of Default;
(ii) the holders of not less than 25% of the outstanding principal amount of
such Notes have made written request to such Indenture Trustee to 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).
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; (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 as
is necessary to maintain the lien and security interest created by the Indenture
has been taken; and (vii) such Trust has delivered to the related Indenture
Trustee an Officer's Certificate and an opinion of counsel that the merger
complies with the requirements and conditions precedent of the Indenture.
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.
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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. Each 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. Except as otherwise provided in the
related Indenture, 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, change the provisions of the related Indenture relating to the
application of collections on, or the proceeds of the sale of, the property of
the related Trust to payment of principal or interest on the Notes of such
Series, 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; (iii) reduce the percentage of the aggregate amount of the
outstanding Notes of such Series, the consent of the holders of which is
required for any such supplemental indenture or for any waiver of compliance
with certain provisions of the related Indenture or of certain defaults
thereunder and their consequences as provided for in such Indenture; (iv) modify
or alter the provisions of the related Indenture regarding the voting of Notes
held by the applicable Owner Trust, any other obligor on such Notes, the Seller
or an affiliate of any of them; (v) reduce the percentage of the aggregate
outstanding amount of such Notes, the consent of the holders of which is
required to direct the related Indenture Trustee to sell or liquidate the
Primary Assets if the proceeds of such sale would be insufficient to pay the
principal amount and accrued and unpaid interest on the outstanding Notes of
such Series; (vi) decrease the percentage of the aggregate principal amount of
such Notes required to amend the sections of the related Indenture that specify
the percentage of the aggregate principal amount of the Notes of such Series
necessary to amend such Indenture or certain other related agreements; or (vii)
permit the creation of any lien ranking prior to or on a parity with the lien of
the related Indenture with respect to any of the collateral for such Notes or,
except as otherwise permitted or contemplated in such Indenture, terminate the
lien of such Indenture on any such collateral or deprive the holder of any such
Note of the security afforded by the lien of such Indenture.
An Owner Trust and the related Indenture Trustee may also enter into
supplemental indentures, without obtaining the consent of the Noteholders of the
related Series, (i) to cure any ambiguity; (ii) to correct or supplement any
provisions in the Indenture; or (iii) 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; provided that such action referred to in
clause (iii) above 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. If required by the Trust Indenture Act,
the Indenture Trustee for each Owner Trust will 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. Additionally, the Holders of a
majority of the outstanding amount of the Notes of a Series may remove the
related Indenture Trustee and appoint a successor Indenture Trustee. 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, if
certain insolvency events occur with respect to such Indenture Trustee or if
such Indenture Trustee otherwise becomes incapable of acting as Indenture
Trustee. 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 and payment of
all fees and expenses owed to the outgoing Indenture Trustee.
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 the Company, a Seller or any of
their respective affiliates, 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). If the Certificates are
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. If the Certificates are
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 the Company, a Seller or
any of their respective affiliates) will be entitled to receive a physical
certificate representing a Certificate. If the Certificates are available in
book-entry form only, all references herein and in the related Prospectus
Supplement to actions by Certificateholders refer to actions taken by DTC upon
instructions from the Participants, and all references herein and in the related
Prospectus Supplement to distributions, notices, reports and statements to
Certificateholders refer to distributions, notices, reports and statements to
DTC or its nominee, as the case may be, as the registered holder of the
Certificates, for distribution to Certificateholders in accordance with DTC's
procedures with respect thereto. See "Certain Information Regarding the
Securities -- Book-Entry Registration" and " -- Definitive Securities". Any
Certificate of a Series owned by the Company, a Seller or any of their
respective affiliates will be entitled to equal and proportionate benefits under
the applicable Trust Agreement or Pooling and Servicing Agreement, as
applicable, except that, unless otherwise provided in the related Trust
Agreement, 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.
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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 and to the extent described in the related Prospectus Supplement.
Distributions in respect of interest on and principal of any class of
Certificates will be made on a pro rata basis among all holders of Certificates
of such class.
CERTAIN INFORMATION REGARDING THE SECURITIES
BOOK-ENTRY REGISTRATION
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
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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 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, 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 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
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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 as
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 and any other loss, delinquency or other ratios
set forth in the related Prospectus Supplement for the related
Collection Period.
Items (i), (ii) and (iv) above with respect to the Notes or Certificates of a
Series will be expressed as a dollar amount per $1,000 of initial principal
balance of such Notes or the initial Certificate Balance of such Certificates,
as applicable.
In addition, within the prescribed period of time for tax reporting
purposes after the end of each calendar year during the term of each Trust, the
related Trustee or Indenture Trustee, as applicable, will mail to each person
who at any time during such calendar year shall have been a registered
Securityholder a statement containing certain information for the purposes of
such Securityholder's preparation of federal income tax returns. See "Material
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
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with other Noteholders with respect to their rights under the related Indenture
or under such Notes. Such Indenture Trustee may elect not to afford the
requesting Noteholders access to the list of Noteholders if it agrees to mail
the desired communication or proxy, on behalf of and at the expense of the
requesting Noteholders, to all Noteholders of such Series.
Three or more holders of the Certificates of any Series or one or more
holders of such Certificates evidencing not less than 25% of the Certificate
Balance of such Certificates may, by written request to the related Trustee,
obtain access to the list of all Certificateholders maintained by such Trustee
for the purpose of communicating with other Certificateholders with respect to
their rights under the related Trust Agreement or Pooling and Servicing
Agreement, as applicable, or under such Certificates.
DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS
The following summary describes the material provisions (in each such case,
to the extent anticipated to be common to any Series of Securities) of: (i) each
Receivables Purchase Agreement pursuant to which the Seller will transfer
Receivables to the Company, (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), (iii) each Sale and Servicing Agreement
pursuant to which the Company will transfer Receivables to a Trust and the
Servicer will service Receivables (in the case of an Owner Trust) or (iv) 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 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, 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.
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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 accrued and unpaid interest on such unpaid
principal balance at the applicable APR to the last day of the month of
repurchase (the "Repurchase Amount"). This repurchase obligation will constitute
the sole remedy available to the Securityholders, the related Trustee and any
related Indenture Trustee for any such uncured breach.
On the related Closing Date, the Company will transfer and assign to the
related Trust, pursuant to a Sale and Servicing 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 Sale and Servicing 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. 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 Sale and Servicing Agreement or Pooling and
Servicing Agreement, as applicable, with respect to such Primary Asset, if any,
and such breach materially and adversely affects the interests of the
Securityholders in any such Primary Asset. Neither the Seller nor the Company
will have any other obligation with respect to the Primary Assets or the
Securities.
TRUST ACCOUNTS
With respect to each Owner Trust, the Servicer will establish and maintain
with the related Indenture Trustee, or the Trustee will establish and maintain,
(a) one or more accounts, on behalf of the related Securityholders, into which
all payments made on or in respect of the related Primary Assets will be
deposited (the "Collection Account") and (b) an account, in the name of the
Indenture Trustee on behalf of the Noteholders, into which amounts released from
the Collection Account and any Reserve Account or other form of credit
enhancement for payment to such Noteholders will be deposited and from which all
distributions to such Noteholders will be made (the "Note Distribution
Account"). With respect to each Owner Trust and Grantor Trust, the Servicer or
the related Trustee will establish and maintain an account, in the name of such
Trustee on behalf of the Certificateholders, into which amounts released from
the Collection Account and any Reserve Account or other form of credit
enhancement for distribution to such Certificateholders will be deposited and
from which all distributions to such Certificateholders will be made (the
"Certificate Distribution Account"). With respect to any Grantor Trust, the
Servicer or the related Trustee will also establish and maintain the Collection
Account and any other Trust Account in the name of the related Trustee on behalf
of the related Certificateholders.
If so provided in the related Prospectus Supplement, the Servicer will
establish for each Series of Securities an additional account (the "Payahead
Account"), in the name of the related Indenture Trustee (in the case of an Owner
Trust) or Trustee (in the case of a Grantor Trust), into which, to the extent
required in the related Sale and Servicing Agreement or Pooling and Servicing
Agreement, as applicable, early payments made by or on behalf of Obligors on
Precomputed Receivables will be deposited until such time as such payments
become due. Until such time as payments are transferred from the Payahead
Account to the Collection Account, they 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.
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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.
Unless otherwise and 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
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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 category 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 rating 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 a 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 Seller or such other party specified in
the related Prospectus Supplement 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.
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, reduce the contract rate of, the amount of the
scheduled payments under, 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".
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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 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
If specified in the related Prospectus Supplement, to the extent the
collections of interest and principal on a Precomputed Receivable for a
Collection Period fall short of the related scheduled payment, the Servicer
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.
If specified in the related Prospectus Supplement, on or before the
business day prior to each Distribution Date, the Servicer will deposit into the
related Collection Account as a Simple Interest Advance an amount equal to the
amount of interest that would have been due on the related Simple Interest
Receivables at their respective APRs for the related Collection Period (assuming
that such Simple Interest Receivables are paid on their respective due dates)
minus the amount of interest actually received on such Simple Interest
Receivables during the applicable Collection Period. If such calculation results
in a negative number, an amount equal to such amount shall be paid to the
Servicer in reimbursement of outstanding Simple Interest Advances. In addition,
if specified in the related Prospectus Supplement, if 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. Unless otherwise provided in the
related Prospectus Supplement, 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.
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
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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 and to the
extent 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 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 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 Transfer and Servicing Agreement, the Company or the
Seller 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 or the Seller, as applicable, 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, the Seller 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.
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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 (or, 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 Corporate Trust Office 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 -- Statements 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 or if such
resignation is required by regulatory authorities. 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 judgment; provided, 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 gross
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
may be 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. If 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 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 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
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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
Unless otherwise provided in the related Prospectus Supplement, each of the
Transfer and Servicing Agreements may be amended by the parties thereto without
the consent of the related Noteholders or Certificateholders: (i) to cure any
ambiguity, (ii) to correct or supplement any provisions in such Transfer and
Servicing Agreement, or (iii) 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; provided, that any such action in this clause (iii)
will not, in the opinion of counsel satisfactory to the related Trustee or
Indenture Trustee, as applicable, adversely affect in any material respect the
interests of the Company or any such Noteholder.
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 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, (ii) 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 (iii) 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, if any Seller is a bank, 5%) or less of the Pool Balance as
of the related Cutoff Date, at a purchase price equal to the price specified in
the related Prospectus Supplement.
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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 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. However, security interests in boats may be perfected in
one of three ways: in certificate of title states, a security interest is
perfected as described above; in other states, a security interest may be
perfected by filing a UCC-1 financing statement, however, a purchase money lien
in consumer goods is perfected without any filing requirement and if a boat is
required to be documented under Federal law, a preferred mortgage may be
obtained under the Ship Mortgage Act by filing the mortgage with the Coast
Guard, which is the exclusive method for perfecting security interests in
documented boats. The applicable Seller will represent and warrant in the
Agreement that none of the Receivables are required to be documented under the
Ship Mortgage Act.
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 or file a UCC-1 Financing Statement. 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. 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
Primary Assets".
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
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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 Receivable from the Trust unless the breach is cured in a timely
manner. See "Description of the Transfer and Servicing Agreements -- Sale and
Assignment of Primary Assets" and "Risk Factors -- Certain Legal Aspects -- Lack
of Security Interests in Financed Vehicles".
Under the laws of most states in which a perfected security interest is
governed by a certificate of title statute, 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 these
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.
In states which the perfection of a security interest is governed by the
filing of a UCC-1 financing statement, or the Obligor moves from a title state
to a non-title state, the Servicer will file a UCC-1 financing statement in the
new state of the Obligor as soon as possible after receiving notice of the
Obligor's change of residence. UCC-1 financing statements expire after five
years. When the term of a loan exceeds five years, the filing must be continued
in order to maintain the Servicer's perfected security interest. The Servicer
takes steps to effect such continuation. In the event that an Obligor moves to a
state other than the state in which the UCC-1 financing statement is filed or in
certain states to a different county in such state, under the laws of most
states the perfection of the security interest in the boat would continue for
four months after such relocation, unless the perfection in the original
jurisdiction would have expired earlier. A new financing statement must be filed
in the state of relocation or, if such state is a title state, a notation on the
certificate of title must be made in order to continue the security interest.
The Servicer generally takes steps to effect such re-perfection upon
notification of an address change. Generally, in both title states and in
non-title states, the Servicer will not re-perfect a state law security interest
which has expired or where the Obligor has moved if the Receivable has a small
balance, a short remaining term and the Obligor has a good payment record.
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
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other liens that arise by operation of law) upon and security interests in such
Financed Vehicle. However, liens for repairs or taxes could arise, or the
confiscation of a Financed Vehicle could occur, at any time during the term of a
Receivable. No notice will be given to the related Trustee, the related
Indenture Trustee, if any, or related Securityholders in the event such a lien
arises or confiscation occurs. Any such lien or confiscation arising or
occurring after the Closing Date will not give rise to a repurchase obligation
of the Seller under the related Receivables Purchase Agreement.
REPOSSESSION
In the event of default by an Obligor, the holder of the related retail
installment sale contract has all the remedies of a secured party under the UCC,
except where specifically limited by other state laws. The UCC remedies of a
secured party include the right to repossession by self-help means, unless such
means would constitute a breach of the peace. Self-help repossession is the
method employed by the Servicer in most cases and is accomplished simply by
taking possession of the related motor vehicle. In cases where the Obligor
objects or raises a defense to repossession, or if otherwise required by
applicable state law, a court order must be obtained from the appropriate state
court, and the vehicle must then be recovered in accordance with that order. In
some jurisdictions, the secured party is required to notify an Obligor debtor of
the default and the intent to repossess the collateral and to give such Obligor
a period of time within which to cure the default prior to repossession.
Generally, such right to cure may only be exercised on a limited number of
occasions during the term of the related contract.
NOTICE OF SALE; REDEMPTION RIGHTS
The UCC and other state laws require the secured party to provide the
Obligor with reasonable notice of the date, time and place of any public sale
and/or the date after which any private sale of the collateral may be held. The
Obligor has the right to redeem the collateral prior to actual sale by paying
the secured party the unpaid principal balance of the obligation, accrued
interest thereon, plus reasonable expenses for repossessing, holding and
preparing the collateral for disposition and arranging for its sale, plus, in
some jurisdictions, reasonable attorneys' fees or, in some states, by payment of
delinquent installments or the unpaid principal balance of the related
obligation.
DEFICIENCY JUDGMENTS AND EXCESS PROCEEDS
The proceeds of the resale of any Financed Vehicle generally will be
applied first to the expenses of resale and repossession and then to the
satisfaction of the related indebtedness. While some states impose prohibitions
or limitations on deficiency judgments if the net proceeds from any such resale
do not cover the full amount of the indebtedness, a deficiency judgment can be
sought in certain other states that do not prohibit or limit such judgments.
However, the deficiency judgment would be a personal judgment against the
Obligor for the shortfall, and a defaulting Obligor can be expected to have very
little capital or sources of income available following repossession; in many
cases, therefore, it may not be useful to seek a deficiency judgment or, if one
is obtained, it may be settled at a significant discount or be uncollectible. In
addition to the notice requirement, the UCC requires that every aspect of the
sale or other disposition, including the method, manner, time, place and terms,
be "commercially reasonable". Generally, courts have held that when a sale is
not "commercially reasonable", the secured party loses its right to a deficiency
judgment. In addition, the UCC permits the debtor or other interested party to
recover for any loss caused by noncompliance with the provisions of the UCC.
Also, prior to a sale, the UCC permits the debtor or other interested person to
restrain the secured party from disposing of the collateral if it is established
that the secured party is not proceeding in accordance with the "default"
provisions under the UCC.
Occasionally, after the resale of a motor vehicle and payment of all
related expenses and indebtedness, there is a surplus of funds. In that case,
the UCC requires the creditor to remit the surplus to any holder of a
subordinate lien with respect to such vehicle or, if no such lienholder exists,
to the former owner of the vehicle.
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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 Primary Assets".
Courts have applied general equitable principles to secured parties
pursuing repossession and litigation involving deficiency balances. These
equitable principles may have the effect of relieving an obligor from some or
all of the legal consequences of a default.
In several cases, consumers have asserted that the self-help remedies of
secured parties under the UCC and related laws violate the due process
protections of the Fourteenth Amendment to the Constitution of the United
States. Courts have generally either upheld the notice provisions of the UCC and
related laws as reasonable or have found that the creditors' repossession and
resale do not involve sufficient state action to afford constitutional
protection to borrowers.
Under each Receivables Purchase Agreement the Seller will represent and
warrant that each Receivable complies in all material respects with all
applicable federal and state laws. Accordingly, if an Obligor has a claim
against a Trust for a violation of any law and such claim materially and
adversely affects the interests of such Trust in a Receivable, such violation
would constitute a breach of such representation and warranty and would create
an obligation of the Seller to repurchase such Receivable unless the breach is
cured. See "Description of the Transfer and Servicing Agreements -- Sale and
Assignment of Primary Assets".
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
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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.
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 tax counsel specified in the related Prospectus Supplement
("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.
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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 treated as a
publicly traded partnership that would be taxable as a corporation unless it met
certain qualifying income tests (and the resulting taxable corporation would not
be able to reduce its taxable income by deductions for interest expense on Notes
recharacterized as equity). 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 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 Treasury Regulations issued under Sections 1271-1275 of
the Code (the "OID Regulations") 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 " -- Original Issue Discount" or,
alternatively, must be taxed as contingent interest under (or under rules
similar to) the 1996 Contingent Debt Regulations, or in some other manner.
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 0.65, 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 less than or equal to 0.65, however, such
rate will generally constitute an objective rate, described more fully below.
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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 a
related party 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 inversely reflect 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
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 (or under rules similar to) the 1996 Contingent Debt Regulations, or in
some other manner.
Original Issue Discount. Notes may be issued with "original issue
discount". Rules governing original issue discount are set forth in Sections
1271-1275 of the Code and the OID Regulations. The discussion herein is based in
part on the OID Regulations. 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 (as specially defined for tax purposes). Because of the possibility of
prepayments, it is not clear how the de minimis rules will apply to the Notes.
It is likely 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, a Note Owner includes de
minimis original issue discount in income as principal payments are made. The
amount includable in income with respect to each principal payment equals a pro
rata portion of the entire amount of de minimis original issue discount with
respect to that Note. Any de minimis amount of original issue discount
includable in income by a Note Owner is generally treated as a capital gain if
the Note is a capital asset in the hands of the Note Owner.
The "stated redemption price at maturity" of a Note generally will be equal
to the sum of all payments, whether denominated as principal or interest, to be
made with respect thereto other than "qualified stated interest."
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In general, the "issue price" of a Note is the first price at which a
substantial amount of the Notes of such class are sold for money to the public
(excluding bond houses, brokers or similar persons or organizations acting in
the capacity of underwriters, placement agents or wholesalers).
If the Notes are determined to be issued with original issue discount, a
holder of a Note must generally include the original issue discount in ordinary
gross income for federal income tax purposes as it accrues in advance of the
receipt of any cash attributable to such income. The amount of original issue
discount, if any, required to be included in a Note Owner's ordinary gross
income for federal income tax purposes in any taxable year will be computed in
accordance with Section 1272(a) of the Code and the OID Regulations. Under such
section and the OID Regulations, original issue discount accrues on a daily
basis under a constant yield method that takes into account the compounding of
interest. The amount of original issue discount to be included in income by a
holder of a debt instrument, such as a Note, under which principal payments may
be subject to acceleration because of prepayments of other debt obligations
securing such an instrument, is computed by taking into account the Prepayment
Assumption.
The amount of original issue discount includable in income by a Note Owner
is the sum of the "daily portions" of the original issue discount for each day
during the taxable year on which the holder held the Note. The daily portions of
original issue discount are determined by allocating to each day in any "accrual
period" a pro rata portion of the excess, if any, of (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.
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 or qualified
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inverse floating rate, equals the value of such qualified floating rate or
qualified inverse floating rate as of the issue date of the Note, or, in the
case of an objective rate other than a qualified floating rate, at a fixed rate
that reflects the yield that is reasonably expected for the Note. A holder of
such a Note would then recognize original issue discount during each accrual
period which is calculated based upon such Note's assumed yield to maturity. If
the interest actually accrued or paid during an accrual period exceeds (or is
less than) the constant interest assumed to be accrued or paid during the
accrual period under the foregoing rules, qualified stated interest or original
issue discount allocable to an accrual period is increased (or decreased) under
rules set forth in the OID Regulations.
The OID Regulations either do not address or are subject to varying
interpretations with respect to several issues concerning the computation of
original issue discount on the Notes, including variable rate Notes. Additional
information regarding the manner of reporting original issue discount to the
Service and to holders of variable rate Notes will be set forth in the
Prospectus Supplement relating to the issuance of such Notes.
Market Discount. Notes, whether or not issued with original issue discount,
will be subject to the market discount rules of the Code. A purchaser of a Note
who purchases the Note at a price that is less than the Note's "stated
redemption price at maturity" or, in the case of a Note issued with original
issue discount, at a price that is less than the Note's "adjusted issue price"
(as such terms are described above under " -- Original Issue Discount") will be
required to recognize accrued market discount as ordinary income as payments of
principal are received on such Note or upon the sale or exchange of the Note. In
general, the holder of a Note may elect to treat market discount as accruing
either (i) under a constant yield method that is similar to the method for the
accrual of original issue discount or (ii) in proportion to accruals of original
issue discount (or, if there is no original issue discount, in proportion to
accruals of stated interest), in each case computed taking into account the
Prepayment Assumption. The amount of accrued market discount for purposes of
determining the amount of ordinary income to be recognized with respect to
subsequent payments on such a Note is to be reduced by the amount previously
treated as ordinary income.
The Code provides that the market discount in respect of a Note will be
considered to be zero if the amount allocable to the Note is less than a
specified de minimis amount of 0.25% of the Note's stated redemption price at
maturity multiplied its weighted average remaining life as computed for tax
purposes. 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 is made.
The Code grants authority to the Treasury Department to issue regulations
providing for the computation of accrued market discount on debt instruments
such as 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 under Code Section 171 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. Although there are Treasury
regulations dealing
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with amortizable bond premiums, they specifically do not apply to prepayable
debt instruments subject to Section 1272(a)(6), such as the Notes. However, by
analogy to such regulations, any premium in excess of interest income may be
deductible to the extent of prior accruals of interest. 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.
Election to Treat All Interest as Original Issue Discount. The OID
Regulations permit an election to accrue all interest, discount (including de
minimus 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. See "-Market Discount" above. Similarly, a Note
Owner that makes this election for a Note that is acquired as 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 at
the beginning of the first taxable year to which the election applies or
acquires thereafter. 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 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 or loss if the Note is held as a capital asset and as long-term
capital gain or loss if the Note Owner's holding period exceeded one year.
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 person other than a "United States Person."
A "United States Person" is an individual who is a citizen or resident of the
United States, a corporation, partnership or other entity treated as such
created or organized in or under the laws of the United States or any political
subdivision thereof, an estate the income of which is subject to United States
federal income taxation regardless of its source and any trust with respect to
which (i) a court within the United States is able to exercise primary
supervision over the administration of the trust and (ii) one or more United
States persons have the authority to control all substantial decisions of the
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, 1999, 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 by 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. The foregoing 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 certification" options for certain qualifying
withholding agents. Under one such option, a withholding agent will be allowed
to rely on an 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
restated forms and standardize the period of time for which withholding agents
can 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,
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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 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 such individual has a "tax home"
(as defined in Section 911(d)(3) of the Code) 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.
In addition, a 31% backup withholding tax will apply if such non-corporate
Note Owner (i) fails to furnish its Taxpayer Identification Number ("TIN")
(which, for an individual, would be his or her Social Security Number) to the
payor in the manner required, (ii) furnishes an incorrect TIN and the payor is
so notified by the IRS, (iii) is notified by the IRS that it has failed properly
to report payments of interest and dividends or (iv) in certain circumstances,
fails to certify, under penalties of perjury, that it has not been notified by
the IRS that it is subject to backup withholding for failure properly to report
interest and dividend payments. Backup withholding will not apply with respect
to payments made to certain exempt recipients, such as corporations (within the
meaning of Section 7701(a) of the Code) and tax-exempt organizations.
In the case of a Non-United States Holder, under Treasury Regulations,
backup withholding and information reporting will not apply to payments of
principal and interest made by the Trust or any paying agent thereof on a Note
with respect to which such holder has provided the required certification under
penalties of perjury that it is a Non-United States Holder or has otherwise
established an exemption, provided that (i) the Trust or paying agent, as the
case may be, does not have actual knowledge that the payee is a United States
person and (ii) certain other conditions are satisfied.
Subject to the discussion below, payments to or through the United States
office of a broker will be subject to backup withholding and information
reporting unless the holder certifies under penalties of perjury as to its
status as a Non-United States Holder and certain other qualifications (and no
agent of the broker who is responsible for
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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 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.
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.
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, if
there is more than one Certificate Owner, 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, and if there is one Certificate Owner, to treat
the Certificate Owner as the owner of the assets of the Trust and to treat the
Trust as a disregarded entity. 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. Under the
Check-the-Box
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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.
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. Losses will generally be allocated in the manner in
which they are borne.
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.
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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 (other than interest) 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 ($100,000
(or $50,000 in the case of a separate return by a married individual), adjusted
for changes in the cost of living subsequent to 1990) will be reduced by the
lesser of (i) 3% 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. For taxable
years beginning after December 31, 1997 in the case of a partnership that has
100 or more partners and elects to be treated as an "electing large
partnership;" 70% of such partnership's miscellaneous itemized deductions will
be disallowed, although the remaining deductions will generally be allowed at
the partnership level and will not be subject to the 2% floor that would
otherwise be applicable to individual partners.
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.
Any such gain or loss would be long-term capital gain or loss if the Certificate
Owner's holding period exceeded one year. 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 or losses allocated 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
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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 laws, regulations or
other IRS guidance.
Section 754 Election. In the event that a Certificate Owner sells its
Certificates at a profit (or loss), the purchasing Certificate Owner will have a
higher (or 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. 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 timely 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 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 certain disputes with the IRS. The Code provides
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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 the later of three years after the date
on which the partnership information return is filed or the last day for filing
such return for such year (determined without regard to extensions). 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 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 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 on the Trust's gross income (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, if any, 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.
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GRANTOR TRUSTS
Tax Characterization of the Grantor Trusts.
Characterization. In the case of a Grantor Trust, Federal Tax Counsel will
deliver its opinion that the Trust will not be classified as an association
taxable as a corporation and that such Trust will be classified as a grantor
trust under subpart E, Part I of subchapter J of the Code. In this case,
beneficial owners of Certificates (referred to herein as "Grantor Trust
Certificateholders") will be treated for federal income tax purposes as owners
of a portion of the Trust's assets as described below. The Certificates issued
by a Trust that is treated as a grantor trust are referred to herein as "Grantor
Trust Certificates."
Taxation of Grantor Trust Certificateholders -- General. Subject to the
discussion below under "Stripped Certificates" and "Subordinated Certificates,"
each Grantor Trust Certificateholder will be treated as the owner of a pro rata
undivided interest in the 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 ($100,000 (or $50,000 in the case of a separate return by a married
individual), adjusted for changes in the cost of living subsequent to 1990) will
be reduced by the lesser of (i) 3% 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. For taxable years beginning after
December 31, 1997, in the case of a partnership that has 100 or more partners
and elects to be treated as an "electing large partnership," 70% of such
partnership's miscellaneous itemized deductions will be disallowed, although the
remaining deductions will generally be allowed at the partnership level and will
not be subject to the 2% floor that would otherwise be applicable to individual
partners.
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.
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A purchaser of a Grantor Trust Certificate will be treated as purchasing an
interest in each Primary Asset in the Trust at a price determined by allocating
the purchase price paid for the Certificate among all Primary Assets in
proportion to their fair market values at the time of the purchase of the
Certificate. To the extent that the portion of the purchase price of a Grantor
Trust Certificate allocated to a Primary Asset is less than or greater than the
portion of the stated redemption price at maturity of the Primary Asset, the
interest in the Primary Asset 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.
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.
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 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
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compounding of interest and such accrual of income may be in advance of the
receipt of any cash attributable to such income. See "Owner Trust -- Tax
Consequences to Note Owners -- Original Issue Discount" above. For purposes of
applying the original issue discount provisions of the Code, the issue price of
a Stripped Certificate will be the purchase price paid by each holder thereof
and the stated redemption price at maturity may include the aggregate amount of
all payments to be made with respect to the Stripped Certificate whether or not
denominated as interest. The amount of original issue discount with respect to a
Stripped Certificate may be treated as zero under the original issue discount de
minimis rules described above.
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 Grantor Trust Certificateholders 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.
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.
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Under this analysis, (a) Subordinate Certificateholders would be required
to accrue as current income any interest income or original issue discount of
the Trust that was a component of the Shortfall Amount, even though such amount
was in fact paid to the Senior Certificateholders, (b) a loss would only be
allowed to the Subordinate Certificateholders when their right to receive
reimbursement of such Shortfall Amount became worthless (i.e., when it becomes
clear that amount will not be available from any source to reimburse such loss)
and (c) reimbursement of such Shortfall Amount prior to such a claim of
worthlessness would not be taxable income to Subordinate Certificateholders
because such amount was previously included in income. Those results should not
significantly affect the inclusion of income for Subordinate Certificateholders
on the accrual method of accounting, but could accelerate inclusion of income to
Subordinate Certificateholders on the cash method of accounting by, in effect,
placing them on the accrual method. Moreover, the character and timing of loss
deductions 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
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.
See " -- Market Discount" above. Similarly, a Grantor Trust Certificateholder
that makes this election for an interest in a Primary Asset that is acquired at
a premium will be deemed to have made an election to amortize bond premium with
respect to all debt instruments having amortizable bond premium that such
Grantor Trust Certificateholder owns at the beginning of the first taxable year
to which the election applies or acquires thereafter. 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 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 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.
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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 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 any 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. 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, 1999, 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.
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
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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 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 specific allocation and apportionment formula, if
any, used by such jurisdiction, it is possible that Security Owners in such case
may be subject to tax in such jurisdiction on their income from other sources.
Additionally, notwithstanding the flow-through treatment that generally applies
to partnerships, some states and localities impose an entity level tax on
partnerships and trusts doing business within their jurisdiction.
The foregoing discussion presents some of the state and local tax
consequences that might apply to Security Owners. However, because of the
variation in each state's and locality's tax laws based in whole or in part upon
income, it is impossible to predict the tax consequences to Note Owners and
Certificate Owners in 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 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.
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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 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 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 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).
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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 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.
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PROHIBITED TRANSACTION EXEMPTIONS FOR CERTIFICATES
Credit Suisse 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 "Credit Suisse 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 include (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; (ii) "guaranteed governmental mortgage
pool certificates" (as defined in the Final Regulation) and (iii) undivided
fractional interests in the above.
Plans acquiring Certificates may be eligible for protection under the
Underwriter's PTE if:
(a) assets of the type included as Primary 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, a division of The McGraw-Hill Companies, Inc.,
Moody's Investors Service, Inc., Duff & Phelps Credit Rating Co. or
Fitch IBCA, 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 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 Primary Assets;
(f) the Plan is an "accredited investor" (as defined in Rule
501(a)(1) of Regulation D under the Securities Act);
(g) 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
(h) 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 Primary Assets to the Trust represents not more than the fair
market value of such Primary Assets; and the sum of all payments made
to and retained by the Servicer and all subervicers represents not
more than reasonable compensation for the Servicer's services under
the Pooling and Servicing Agreement or Sale and Servicing Agreement
and reimbursement of the Servicer's reasonable expenses in connection
therewith.
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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 an Obligor with respect to more than 5% of
the fair market value of the obligations constituting the Primary Assets or an
affiliate of such person and will not apply, 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 Company, any Underwriter,
the Trustee, the Servicer, any subservicer, any credit enhancer or the
obligor under any other credit support mechanism, an Obligor with
respect to obligations constituting more than 5% of the aggregate
unamortized principal balance of the Primary Assets on the date of the
initial issuance of Certificates, or any of their affiliates (the
"Restricted Group").
On July 21, 1997, the DOL published in the Federal Register a final
amendment to the Underwriter's PTE which extends exemptive relief to certain
mortgage-backed and asset-backed securities transactions using pre-funding
accounts for trusts issuing pass-through certificates. With respect to the
Certificates, the amendment generally allows a portion of the receivables
("Loans") supporting payments to Certificateholders and having a principal
amount equal to no more than 25% of the total principal amount of the
Certificates to be transferred to the Trust within a 90-day or three-month
period following the Closing Date ("Pre-Funding Period"), instead of requiring
that all such Loans be either identified or transferred on or before the Closing
Date. The relief, is effective for transactions occurring on or after May 23,
1997, provided that the following conditions are met:
(1) the ratio of the amount allocated to the Pre-Funding Account
to the total principal amount of the Certificates being offered
("Pre-Funding Limit") must not exceed 25%;
(2) all Loans transferred after the Closing Date ("Additional
Loans") must meet the same terms and conditions for eligibility as the
original Loans used to create the Trust, which terms and conditions
have been approved by the Rating Agency;
(3) the transfer of such Additional Loans to the Trust during the
Pre-Funding Period must not result in the Certificates receiving a
lower credit rating from the Rating Agency upon termination of the
Pre-Funding Period than the rating that was obtained at the time of
the initial issuance of the Certificates by the Trust;
(4) solely as a result of the use of pre-funding, the weighted
average annual percentage interest rate (the "average interest rate")
for all of the Loans in the Trust at the end of the Pre-Funding Period
must not be more than 100 basis points lower than the average interest
rate for the Loans which were transferred to the Trust on the Closing
Date;
(5) in order to ensure that the characteristics of the Additional
Loans are substantially similar to the original obligations which were
transferred to the Trust, either: (i) the characteristics of the
Additional Loans must be monitored by an insurer or other credit
support provider which is independent of
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the Company or (ii) an independent accountant retained by the Company
must provide the Company with a letter (with copies provided to the
Rating Agency, the Underwriter and the Trustee) stating whether or not
the characteristics of the Additional Loans conform to the
characteristics described in the Prospectus, Prospectus Supplement,
Private Placement Memorandum ("Offering Documents") and/or Pooling and
Servicing Agreement or Sale and Servicing Agreement ("Pooling
Agreement"); in preparing such letter, the independent accountant must
use the same type of procedures as were applicable to the Loans which
were transferred as of the Closing Date;
(6) the Pre-Funding Period must end no later than three months or
90 days after the Closing Date or earlier, in certain circumstances,
if the amount on deposit in the Pre-Funding Account is reduced below
the minimum level specified in the Pooling Agreement or an event of
default occurs under the Pooling Agreement;
(7) amounts transferred to any Pre-Funding Account and/or
Capitalized Interest Account used in connection with the pre-funding
may be invested only in certain permitted investments;
(8) the Offering Documents must describe: (i) any Pre-Funding
Account and/or Capitalized Interest Account used in connection with a
Pre-Funding Account; (ii) the duration of the Pre-Funding Period;
(iii) the percentage and/or dollar amount of the Pre-Funding Limit for
the Trust; and (iv) that the amounts remaining in the Pre-Funding
Account at the end of the Pre-Funding Period will be remitted to
Certificateholders as repayments of principal; and
(9) the Pooling and Servicing Agreement or Sale and Servicing
Agreement must describe the permitted investments for the Pre-Funding
Account and Capitalized Interest Account and, if not disclosed in the
Offering Documents, the terms and conditions for eligibility of the
Additional Loans.
Whether the conditions in the Underwriter's PTE (in addition to, and
including those, relating to pre-funding) 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.
If for any reason the Underwriter's PTE does not provide an exemption
for a particular Plan's purchase of Certificates, some other individual or class
exemption may be applicable, including but not limited to: Prohibited
Transaction Class Exemption ("PTCE") 90-1, regarding investments by insurance
company pooled separate accounts; PTCE 91-38 regarding investments by bank
collective investment funds; PTCE 95-60, regarding investments by insurance
company general accounts; PTCE 96-23, regarding transactions affected by
in-house asset managers; and PTCE 84-14, regarding transactions effected by
"qualified professional asset managers" ("Investor Based Exemptions"). There can
be no assurance that any of these exemptions will apply with respect to any
Plan, or even if it were to apply, that the exemption would cover all
transactions involving the applicable Trust.
PURCHASE OF NOTES
Certain transactions involving the purchase of Securities which are
Notes might be deemed to constitute prohibited transactions under ERISA and the
Code if the Primary Assets were deemed to be assets of a Plan. Under the DOL
Regulation, the Trust treated as plan assets of a Plan for the purposes of ERISA
and the Code only if the Plan acquires an equity interest in the Trust fund and
none of the exceptions contained in the DOL Regulation is applicable. The
Prospectus Supplement will indicate whether the Notes will be treated as
indebtedness without substantial equity features for purposes of the DOL
Regulation.
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Without regard to whether the Notes are characterized as equity
interests, the acquisition, transfer or holding of Notes by or on behalf of a
Plan could be considered to give rise to a prohibited transaction if the Trust
Fund, the Trustee, the Indenture Trustee or any of their respective affiliates
is or becomes a party in interest or a disqualified person with respect to such
Plan or in the event that a Note is purchased in the secondary market and such
purchase constitutes a sale or exchange between a Plan and a party in interest
or disqualified person with respect to such Plan. However, one or more of the
Investor Based Exemptions may be applicable depending on the type and
circumstances of the plan fiduciary making the decision to acquire a Note.
GENERAL CONSIDERATIONS
Before a Plan Fiduciary decides to purchase Securities 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.
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 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.
Pursuant to the Receivables Purchase Agreement between the Seller (or its
affiliate) and the Company, the Seller will indemnify the Company and the
related underwriters against certain civil liabilities, including liabilities
under the Securities Act, or contribute to payments the Company and the several
underwriters may be required to make in respect thereof.
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Each Trust may, from time to time, invest the funds in its Trust Accounts
in Eligible Investments acquired from such underwriters.
Pursuant to each of the Underwriting Agreements with respect to a given
Series of Securities, the closing of the sale of any class of Securities will be
conditioned on the closing of the sale of all other such classes under such
Underwriting Agreement.
The place and time of delivery for the Notes and Certificates, as the case
may be, in respect of which this Prospectus is delivered will be set forth in
the related Prospectus Supplement.
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 the law firms specified in the related Prospectus Supplement.
Certain federal income tax and other matters will be passed upon for the Trust
and the Seller, by the law firms specified in the related Prospectus Supplement.
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INDEX OF TERMS
Page
1996 Contingent Debt Regulations 52
1997 Act.............................. 68
1997 Withholding Regulations.......... 57, 69
Actuarial Receivables................. 18
adjusted issue price.................. 55
Advance............................... 10
APR................................... 10
Cede.................................. 16
Certificate Balance................... 6
Certificate Distribution Account...... 39
Certificate Owners.................... 51
Certificate Pass-Through Rate......... 6
Certificate Pool Factor............... 29
Certificateholder..................... 12
Certificates.......................... 1
Check-the-Box Regulations............. 60
Closing Date.......................... 7
Code.................................. 51
Collection Account.................... 39
Collection Period..................... 16
Commission............................ 2
Company............................... 1
Cutoff Date........................... 7
Dealers............................... 7
Definitive Certificates............... 36
Definitive Notes...................... 36
Definitive Securities................. 36
Depository............................ 29
Distribution Date..................... 35
DOL................................... 71
DOL Regulation........................ 71
DTC................................... 16
Eligible Deposit Account.............. 40
Eligible Institution.................. 40
Eligible Investment................... 40
Eligible Investments.................. 40
ERISA................................. 70
Events of Default..................... 31
Exchange Act.......................... 2
Exemption............................. 73
Fannie Mae............................ 22
Farm Credit Act....................... 25
FCA................................... 25
FCBs.................................. 25
Federal Tax Counsel................... 51
FFCB.................................. 22
FFEL.................................. 24
FHLB.................................. 22, 24
FHLMC Act............................. 23
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Page
Final Scheduled Maturity Date........... 10
Financed Vehicles....................... 7
financial institution................... 58
FIRREA.................................. 24
Fiscal Agent............................ 22
Freddie Mac............................. 22
FTC Rule................................ 50
Funding Corporation..................... 26
Government Securities................... 8, 21
Grantor Trust........................... 4
Grantor Trust Certificateholders........ 64
Grantor Trust Certificates.............. 65
GSE Bonds............................... 8
GSE Issuer.............................. 22
GSEs.................................... 8, 21
GSEs Bonds.............................. 21
Indenture............................... 5
Indenture Trustee....................... 4
Indirect Participants................... 35
Interest Component...................... 27
Interest Rate........................... 5
Investment Earnings..................... 40
IRS..................................... 51
issue price............................. 54
MBS..................................... 23
Motor Vehicle Installment Contracts..... 7
Non-United States Holder................ 57
Non-United States Owner................. 64
Non-United States Person................ 57
Note Distribution Account............... 39
Note Owners............................. 51
Note Pool Factor........................ 29
Noteholder.............................. 12
Notes................................... 1
Obligor................................. 7
OID Regulations......................... 53
Owner Trust............................. 4
Participants............................ 35
Payahead Account........................ 39
Payaheads............................... 42
Plan.................................... 70
Plan Fiduciary.......................... 70
Pooling and Servicing Agreement......... 4
Pre-Funded Amount....................... 8, 40
Pre-Funding Account..................... 8, 40
Pre-Funding Period...................... 8, 40
Precomputed Advance..................... 10
Precomputed Receivables................. 18
prepayment.............................. 15
Prepayment Assumption................... 54
Principal Component..................... 27
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Page
Private Label Custody Receipt Securities.... 8, 26
Private Label Custody Strips................ 8, 26
Prospectus Supplement....................... 1
PTCE........................................ 74
Receivables................................. 1
REFCO....................................... 8, 26
REFCO Strip................................. 27
REFCO Strips................................ 8, 26
Registration Statement...................... 2
Related Documents........................... 32
Repurchase Amount........................... 39
Reserve Account............................. 44
Restricted Group............................ 73
RTC......................................... 24
Rule of 78s Receivables..................... 18
Rules....................................... 36
Sale and Servicing Agreement................ 10
Sallie Mae.................................. 22
Schedule of Receivables..................... 38
Securities.................................. 1
Securities Act.............................. 2
Security Owners............................. 35
Seller...................................... 7
Senior Certificates......................... 67, 72
Senior Class Percentage..................... 67
Series...................................... 1
Servicer.................................... 4
Servicer Default............................ 45
Servicing Fee............................... 43
Servicing Fee Rate.......................... 43
Short-Term Note............................. 57
Shortfall Amount............................ 67
Simple Interest Advance..................... 10
Simple Interest Receivables................. 18
stated redemption price at maturity......... 54
Strip Certificates.......................... 6
Strip Notes................................. 5
Stripped Certificates....................... 65
Subordinate Certificates.................... 65
Subordinate Class Percentage................ 67
System...................................... 25
Systemwide Debt Securities.................. 25
TEFRA....................................... 27
TIN......................................... 59
Transfer and Servicing Agreements........... 38
Treasury Bonds.............................. 8, 21
Treasury Strips............................. 8, 21
Trust....................................... 1, 4
Trust Accounts.............................. 40
Trust Agreement............................. 4
Trust Stripped Bond......................... 67
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Page
Trust Stripped Coupon........... 67
Trustee......................... 4
TVA............................. 22
TVA Act......................... 25
UCC............................. 35
Underlying Agreement............ 8
Underlying Issuer............... 20
Underlying Servicer............. 20
Underlying Trust Agreement...... 20
Underlying Trust Fund........... 8
Underlying Trustee.............. 20
Underwriting Agreements......... 75
United States person............ 59
United States Trust............. 57
ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered Securities
(the "Global Securities") will be available only in book-entry form. Unless
otherwise specified in the related Prospectus Supplement, investors in the
Global Securities may hold such Global Securities through any of The Depository
Trust Company ("DTC"), Cedel or Euroclear. Unless otherwise specified in the
related Prospectus Supplement, Global Securities will be tradeable as home
market instruments in both the European and U.S. domestic markets. Unless
otherwise specified in the related Prospectus Supplement, 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 Securities will be effected on a delivery-against-payment
basis through the respective Depositaries of Cedel and Euroclear (in such
capacity) and as DTC Participants.
Non-U.S. holders (as described below) of Global Securities will be subject
to U.S. withholding taxes unless such holders meet certain requirements and
deliver appropriate U.S. tax documents to the securities clearing organizations
or their participants.
INITIAL SETTLEMENT
All Global Securities will be held in book-entry form by DTC in the name of
Cede & Co. as nominee of DTC. Securityholders' interests in the Global
Securities will be represented through financial institutions acting on their
behalf as direct and indirect Participants in DTC. As a result, Cedel and
Euroclear will hold positions on behalf of their participants through their
respective Depositaries, which in turn will hold such positions in accounts as
DTC Participants.
Securityholders electing to hold their Global Securities through DTC will
follow the settlement practices applicable to U.S. corporate debt obligations.
Securityholder securities custody accounts will be credited with their holdings
against payment in same-day funds on the settlement date.
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Securityholders electing to hold their Global Securities through Cedel or
Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global security
and no "lock-up" or restricted period. Global Securities will be credited to the
securities custody accounts on the settlement date against payment in same-day
funds.
SECONDARY MARKET TRADING
Since the purchaser determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired value
date.
Trading between DTC Participants. Secondary market trading between DTC
Participants will be settled using the procedures applicable to U.S. corporate
debt obligations in same-day funds.
Trading between Cedel and/or Euroclear Participants. Secondary market
trading between Cedel Participants or Euroclear Participants will be settled
using the procedures applicable to conventional eurobonds in same-day funds.
Trading between DTC seller and Cedel or Euroclear purchaser. When Global
Securities are to be transferred from the account of a DTC Participant to the
account of a Cedel Participant or a Euroclear Participant, the purchaser will
send instructions to Cedel or Euroclear through a Cedel Participant or Euroclear
Participant at least one business day prior to settlement. Cedel or Euroclear
will instruct the respective Depositary, as the case may be, to receive the
Global Securities against payment. Payment will include interest accrued on the
Global Securities from and including the last coupon payment date to and
excluding the settlement date. Payment will then be made by the respective
Depositary 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 pre-position funds for
settlement, either from cash on hand or existing lines of credit, as they would
for any settlement occurring within Cedel or Euroclear. Under this approach,
they may take on credit exposure to Cedel or Euroclear until the Global
Securities are credited to their accounts one day later.
As an alternative, if Cedel or Euroclear has extended a line of credit to
them, Cedel Participants or Euroclear Participants can elect not to pre-position
funds and allow that credit line to be drawn upon the finance settlement. Under
this procedure, Cedel Participants or Euroclear Participants purchasing Global
Securities would incur overdraft charges for one day, assuming they cleared the
overdraft when the Global Securities were credited to their accounts. However,
interest on the Global Securities would accrue from the value date. Therefore,
in many cases the investment income on the Global Securities earned during that
one-day period may substantially reduce or offset the amount of such overdraft
charges, although this result will depend on each Cedel Participant's or
Euroclear Participant's particular cost of funds.
Since the settlement is taking place during New York business hours, DTC
Participants can employ their usual procedures for sending Global Securities to
the respective Depositary for the benefit of Cedel Participants or Euroclear
Participants. The sale proceeds will be available to the DTC seller on the
settlement date. Thus, to the DTC 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 Participants and Euroclear Participants
may employ their customary procedures for transactions in which
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Global Securities are to be transferred by the respective clearing system,
through the respective Depositary, to a DTC Participant. The seller will send
instructions to Cedel or Euroclear through a Cedel Participant or Euroclear
Participant at least one business day prior to settlement. In these cases, Cedel
or Euroclear will instruct the respective Depositary, as appropriate, to deliver
the bonds 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 Participant's or
Euroclear Participant's account would be back-valued to the value date (which
would be the preceding day, when settlement occurred in New York). Should the
Cedel Participant or Euroclear Participant have a line of credit with its
respective clearing system and elect to be in 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 Participant's or Euroclear Participant's account
would instead be valued as of the actual settlement date. Finally, day traders
that use Cedel or Euroclear and that purchase Global Securities from DTC
Participants for delivery to Cedel Participants or Euroclear Participants should
note that these trades would automatically fail on the sale side unless
affirmative action were taken. At least three techniques should be readily
available to eliminate this potential problem:
(a) borrowing through Cedel or Euroclear for one day (until the
purchase side of the day trade is reflected in their Cedel or Euroclear
accounts) in accordance with the clearing system's customary procedures;
(b) borrowing the Global Securities in the U.S. from a DTC Participant
no later than one day prior to settlement, which would give the Global
Securities sufficient time to be reflected in their Cedel or Euroclear
account in order to settle the sale side of the trade; or
(c) staggering the value dates for the buy and sell sides of the trade
so that the value date for the purchase from the DTC Participant is at
least one day prior to the value date for the sale to the Cedel Participant
or Euroclear Participant.
CERTAIN U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A beneficial owner of Global Securities holding securities through Cedel or
Euroclear (or through DTC if the holder has an address outside the U.S.) will be
subject to the 30% U.S. withholding tax that generally applies to payments of
interest (including original issue discount) on registered debt issued by U.S.
Persons, unless (i) each clearing system, bank or other financial institution
that holds customers' securities in the ordinary course of its trade or business
in the chain of intermediaries between such beneficial owner and the U.S. entity
required to withhold tax complies with applicable certification requirements and
(ii) such beneficial owner takes one of the following steps to obtain an
exemption or reduced tax rate:
Exemption for non-U.S. Persons (Form W-8). Beneficial owners of Securities
that are non-U.S. Persons can obtain a complete exemption from the withholding
tax by filing a signed Form W-8 (Certificate of Foreign Status). If the
information shown on Form W-8 changes, a new Form W-8 must be filed within 30
days of such change.
Exemption for non-U.S. Persons with effectively connected income (Form
4224). A non-U.S. Person, including a non-U.S. corporation or bank with a U.S.
branch, for which the interest income is effectively connected with its conduct
of a trade or business in the United States, can obtain an exemption from the
withholding tax by filing Form 4224 (Exemption from Withholding of Tax on Income
Effectively Connected with the Conduct of a Trade or Business in the United
States).
Exemption or reduced rate for non-U.S. Persons resident in treaty countries
(Form 1001). Non-U.S. Persons that are beneficial owners of Securities 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
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Reduced Rate Certificate). If the treaty provides only for a reduced rate,
withholding tax will be imposed at that rate unless the filer alternatively
files Form W-8. Form 1001 may be filed by the Securityholder or his agent.
Exemption for U.S. Persons (Form W-9). U.S. Persons can obtain complete
exemption from the withholding tax by filing Form W-9 (Payer's Request for
Taxpayer Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The beneficial owner of a
Global Security or in the case of a Form 1001 or a Form 4224 filer, his agent,
files by submitting the appropriate form to the person through whom it holds
(the clearing agency, in the case of persons holding directly on the books of
the clearing agency). Form W-8 and Form 1001 are effective for three calendar
years and Form 4224 is effective for one calendar year.
The term "U.S. Person" means (i) a citizen or resident of the United
States, (ii) a corporation or partnership organized in or under the laws of the
United States or any political subdivision thereof or (iii) an estate or trust
the income of which is includible in gross income for United States tax
purposes, regardless of its source. This summary does not deal with all aspects
of U.S. Federal income tax withholding that may be relevant to foreign holders
of the Global Securities. Securityholders are advised to consult their own tax
advisers for specific tax advice concerning their holding and disposing of the
Global Securities.
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<PAGE> 89
No dealer, salesman or other person has been authorized to give any
information or to make any representations other than those contained or
incorporated by reference in this Prospectus Supplement or the Prospectus and,
if given or made, such information or representations must not be relied upon as
having been authorized by Compass Bank or the Underwriters. Neither the delivery
of this Prospectus Supplement or the Prospectus nor any sale made hereunder
shall under any circumstance create an implication that there has been no change
in the affairs of Compass Bank or the Receivables since the date thereof. This
Prospectus Supplement and the Prospectus does not constitute an offer or
solicitation by anyone in any state in which such offer or solicitation is not
authorized or in which the person making such offer or solicitation is not
qualified to do so or to anyone to whom it is unlawful to make such offer or
solicitation.
TABLE OF CONTENTS
Page
PROSPECTUS SUPPLEMENT
Reports to Noteholders.....................................
Summary of Terms...........................................
Risk Factors...............................................
The Trust..................................................
The Receivables Pool.......................................
Weighted Average Life of the Notes ........................
The Sellers and the Servicer ..............................
Use of Proceeds............................................
Description of the Notes...................................
Description of the Certificates ...........................
Description of the Transfer and Servicing Agreements.......
Certain Legal Aspects of the Receivables ..................
Material Federal Income Tax Consequences ..................
Certain State Tax Consequences ............................
ERISA Considerations.......................................
Underwriting...............................................
Legal Opinions.............................................
Glossary of Terms..........................................
PROSPECTUS
Reports to Securityholders ................................
Available Information......................................
Incorporation of Certain Documents by Reference............
Summary of Terms...........................................
Risk Factors...............................................
The Trusts.................................................
The Trustee................................................
The Receivables Pools......................................
The Collateral Certificates ...............................
The Government Securities..................................
Weighted Average Life of the Securities ...................
Pool Factors and Trading Information ......................
The Seller and the Servicer ...............................
Use of Proceeds............................................
Description of the Notes...................................
Description of the Certificates ...........................
Certain Information Regarding the Securities ..............
Description of the Transfer and Servicing Agreements.......
Certain Matters Regarding the Servicer ....................
Certain Legal Aspects of the Receivables ..................
Material Federal Income Tax Consequences ..................
State and Local Tax Considerations ........................
ERISA Considerations.......................................
Plan of Distribution.......................................
Legal Matters..............................................
Index of Terms.............................................
Global Clearance, Settlement and Documentation.............
Procedures.................................. ............ A-1
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Until _____, __ (90 days after the date of this Prospectus Supplement) all
dealers effecting transactions in the Notes, whether or not participating in
this distribution, may be required to deliver a Prospectus Supplement and a
Prospectus. This delivery requirement is in addition to the obligation of
dealers to deliver a Prospectus Supplement and a Prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.
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<PAGE> 91
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 STATE.
<PAGE> 92
PROSPECTUS
ASSET BACKED SECURITIES CORPORATION
DEPOSITOR
ABS MORTGAGE AND MANUFACTURED HOUSING CONTRACT
ASSET-BACKED CERTIFICATES AND ASSET-BACKED NOTES (ISSUABLE IN SERIES)
------------------------------
Asset Backed Securities Corporation (the "Depositor") may offer from
time to time the ABS Mortgage and Manufactured Housing Contract Asset-Backed
Certificates (the "Certificates") and the ABS Mortgage and Manufactured Housing
Contract Asset-Backed Notes (the "Notes" and, together with the Certificates,
the "Securities") offered hereby and by the related Prospectus Supplements which
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 the related Prospectus Supplement. Each Series of Securities may
include one or more separate classes (each, a "Class") of Notes and/or
Certificates, which may be divided into one or more subclasses (each, a
"Subclass"). The Certificates will be issued by a trust (the "Trust") to be
formed by the Depositor with respect to such Series pursuant to either a Trust
Agreement (each, a "Trust Agreement") to be entered into between the Depositor
and the trustee specified in the related Prospectus Supplement (the "Trustee")
or a Pooling and Servicing Agreement (each, a "Pooling and Servicing Agreement")
among the Depositor, the Master Servicer and the Trustee. If a Series of
Securities includes Notes, such Notes will be issued and secured pursuant to an
Indenture (each, an "Indenture") to be entered into between any of (i) the Trust
or (ii) a partnership, corporation, limited liability company or other entity
formed by the Depositor solely for purpose of issuing Notes of a related Series
and matters incidental thereto, as issuer (the "Issuer"), and the indenture
trustee specified in the related Prospectus Supplement (the "Indenture
Trustee"). The related Trust Fund will be serviced by the Master Servicer
pursuant to a Sale and Servicing Agreement (the "Sale and Servicing Agreement")
among the Depositor, the Master Servicer and the Indenture Trustee. The
Certificates represent interests in specified percentages of principal and
interest (a "Percentage Interest") with respect to the related Mortgage Pool or
Contract Pool (each, as defined below), or 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, beneficial interest
or notional amount specified in the related Prospectus Supplement in one of a
number of Trusts, each to be created by the Depositor from time to time. If a
Series of Securities includes Notes, the Notes will represent indebtedness of
the related Trust Fund. The trust property of each Trust (the "Trust Fund") will
consist of a pool containing one- to four-family residential mortgage loans
(including revolving lines of credit), mortgage loans secured by multifamily
residential rental properties consisting of five or more dwelling units or
apartment buildings owned by cooperative housing corporations, loans made to
finance the purchase of certain rights relating to cooperatively owned
properties secured by a pledge of shares of a cooperative corporation and an
assignment of a proprietary lease or occupancy agreement on a cooperative
dwelling, mortgage participation certificates evidencing participation interests
in such loans that are acceptable to the nationally recognized statistical
rating agency or agencies rating the related Series of Securities (collectively,
the "Rating Agency") for a rating in one of the four highest rating categories
of such Rating Agency (such loans and participation certificates being referred
to collectively hereinafter as the "Mortgage Loans"), or certain conventional
mortgage pass-through certificates, collateralized mortgage bonds or other
indebtedness secured by mortgage loans or manufactured housing contracts (the
"Mortgage Certificates"), in each case together with certain and related
property (the "Mortgage Pool") or a pool of manufactured housing installment or
conditional sales contracts and installment loan agreements (the "Contracts") or
participation certificates representing participation interests in such
Contracts and related property (the "Contract Pool") conveyed to such Trust by
the Depositor. The Mortgage Loans may be conventional mortgage loans,
conventional cooperative loans, mortgage loans insured by the Federal Housing
Administration (the "FHA"), 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 Securities of one or
more Classes or Subclasses of Notes and/or Certificates 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 Securities of one or more
Classes or Subclasses of Notes and/or Certificates of such Series to the extent
described herein and in such Prospectus Supplement. As provided in the
applicable Prospectus Supplement, the timing of payments, whether of principal
or of interest, to any one or more of such Classes or Subclasses may be on a
sequential or a pro rata basis. The Prospectus Supplement with respect to each
Series will also set forth specific information relating to the Trust Fund with
respect to the Series in respect of which this Prospectus is being delivered,
together with specific information regarding the Securities of such Series.
The Securities do not represent an obligation of or interest in the
Depositor or any affiliate thereof. Neither the Securities, 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.
PROSPECTIVE INVESTORS SHOULD CONSIDER THE LIMITATIONS DISCUSSED UNDER
"ERISA CONSIDERATIONS" HEREIN AND IN THE ACCOMPANYING PROSPECTUS SUPPLEMENT.
SEE "RISK FACTORS" BEGINNING ON PAGE ___ HEREIN FOR A DISCUSSION OF
CERTAIN FACTORS THAT POTENTIAL INVESTORS SHOULD CONSIDER IN DETERMINING WHETHER
TO INVEST IN THE SECURITIES OF A SERIES IN RESPECT OF WHICH THIS PROSPECTUS IS
BEING DELIVERED.
There will have been no public market for the Securities 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 or certain assets of the Trust Fund with
respect to certain Series of Securities as one or more Real Estate Mortgage
Investment Conduits (each, a "REMIC"). See "Federal Income Tax Consequences."
If so specified in the Prospectus Supplement, one or more Classes of
Notes of a Series may be subject to optional redemption by the Issuer under the
circumstances described in the Prospectus Supplement. If so specified in the
Prospectus Supplement relating to a Series of Securities, the Certificates of
such Series may be subject to early termination and may receive Special
Distributions (as defined herein) in reduction of Stated Principal Balance (as
defined herein) under the circumstances described herein and in such Prospectus
Supplement.
This Prospectus may not be used to consummate sales of the Securities
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 , 1998.
<PAGE> 93
PROSPECTUS SUPPLEMENT
The Prospectus Supplement with respect to each Series of Securities
will, among other things, set forth with respect to such Series of Securities:
(i) the identity of each Class or Subclass of Securities within such Series;
(ii) the undivided interest, Percentage Interest, Stated Principal Balance,
principal balance or notional amount of each Class or Subclass of Securities;
(iii) the Interest Rate borne (or manner in which interest is paid, if any) by
each Class or Subclass of Securities within such Series; (iv) certain
information concerning the Mortgage Loans, the Mortgage Certificates, the
Contracts, if any, and the other assets comprising the Trust Fund for such
Series; (v) the final Distribution Date of each Class or Subclass of Securities
within such Series; (vi) the identity of each Class or Subclass of Compound
Interest Securities, if any, within such Series; (vii) the method used to
calculate the amount to be distributed with respect to each Class or Subclass of
Securities within such Series; (viii) the order of application of distributions
to each of the Classes or Subclasses of Securities 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 Securities offered hereby, if any, are offered;
(xi) information with respect to the method of credit support, if any, with
respect to such Series; and (xii) additional information with respect to the
plan of distribution of such Series of Certificates.
ADDITIONAL INFORMATION
This Prospectus contains, and the Prospectus Supplement for each Series
of Securities will contain, a summary of the material terms of the documents
referred to herein and therein, but neither contains nor will contain all of the
information set forth in the Registration Statement of which this Prospectus and
the related Prospectus Supplement is a part. For further information, reference
is made to such Registration Statement and the exhibits thereto which the
Depositor has filed with the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended. Statements contained
in this Prospectus and any Prospectus Supplement as to the contents of any
contract or other document referred to are summaries and in each instance
reference is made to the copy of the contract or other document filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference. Copies of the Registration Statement may be
obtained from the Commission, upon payment of the prescribed charges, or may be
examined free of charge at the Commission's offices. Reports and other
information filed with the Commission can be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Regional Offices of the Commission at
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 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 or of the Trust
Agreement, Indenture and Sale and Servicing Agreement pursuant to which a Series
of Securities is issued, as applicable, will be provided to each person to whom
a Prospectus and the related Prospectus Supplement are delivered, upon written
or oral request directed to: Treasurer, Asset Backed Securities Corporation,
Eleven Madison Avenue, New York, New York 10010, (212) 325-2000.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
There are incorporated herein by reference all documents and reports
filed or caused to be filed by the Depositor with respect to a Trust Fund
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act prior to the
termination of the offering of Securities 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
or Subclasses of Securities, 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 Securities,
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: Asset Backed Securities Corporation, Eleven Madison Avenue, New
York, New York 10010, (212) 325-2000.
IF AND TO THE EXTENT REQUIRED BY APPLICABLE LAW OR REGULATIONS, THIS
PROSPECTUS AND THE ATTACHED 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
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WHICH THE UNDERWRITER ACTS AS PRINCIPAL. SALES WILL BE MADE AT NEGOTIATED PRICES
DETERMINED AT THE TIME OF SALE.
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SUMMARY
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 of Securities 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.................. ABS Mortgage and Manufactured Housing
Contract Asset-Backed Certificates (the
"Certificates") and ABS Mortgage and
Manufactured Housing Contract Asset-Backed
Notes (the "Notes" and, together with the
Certificates, the "Securities") issuable
in series (each, a "Series"). The
Securities 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 one or
more other Classes or Subclasses 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 of such Classes or Subclasses of
Certificates of a Series (the "Residual
Certificates") may evidence a residual
interest in the related Trust Fund (as
defined below). If so specified in the
related Prospectus Supplement, one or more
Classes or Subclasses of Certificates
within a Series (the "Multi-Class
Securities") may be assigned a principal
balance (a "Stated Principal Balance" or a
"Certificate Principal Balance") based on
the cash flow from the Mortgage Loans (as
hereinafter defined), Mortgage
Certificates (as hereinafter defined), the
Contracts (as hereinafter defined) and/or
the other assets in the Trust Fund if
specified as such in the related
Prospectus Supplement and a stated annual
interest rate, determined in the manner
set forth in such Prospectus Supplement,
which may be fixed or variable (an
"Interest Rate"). If so specified in the
related Prospectus Supplement, one or more
Classes or Subclasses of Notes and/or
Certificates may receive unequal amounts
of the distributions of principal of and
interest on the Mortgage Loans, the
Contracts and the Mortgage Certificates
included in the related Trust Fund, as
specified in such Prospectus Supplement
(any such Class or Subclass receiving the
higher proportion of principal
distributions being referred to
hereinafter as a "Principal Weighted
Class" or "Principal Weighted Subclass,"
respectively, and any such Class or
Subclass receiving the higher proportion
of interest distributions being referred
to hereinafter as an "Interest Weighted
Class" or an "Interest Weighted Subclass,"
respectively). If so specified in the
related Prospectus Supplement, the
allocation of the principal and interest
distributions may involve as much as 100%
of each distribution of principal or
interest being allocated to one or more
Classes or Subclasses and 0% to another.
If so specified in the related Prospectus
Supplement, one or more Classes or
Subclasses may receive disproportionate
amounts of certain distributions of
principal, which proportions may change
over time subject to certain conditions.
Payments may be applied to any one or more
Classes or Subclasses on a
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sequential or pro rata basis, or
otherwise, as specified in the related
Prospectus Supplement. Each Certificate
will represent the undivided interest,
beneficial interest or percentage interest
specified in the related Prospectus
Supplement in one of a number of trusts
(each, a "Trust"), each to be created by
the Depositor from time to time pursuant
to either a Trust Agreement (each, a
"Trust Agreement") to be entered into
between the Depositor and the trustee
specified in the related Prospectus
Supplement (the "Trustee") or a Pooling
and Servicing Agreement (each, a "Pooling
and Servicing Agreement") among the
Depositor, the Master Servicer and the
Trustee. If a Series of Securities
includes Notes, such Notes will be issued
and secured pursuant to an Indenture
(each, an "Indenture") to be entered into
between any of (i) the Trust or (ii) a
partnership, corporation, limited
liability company or other entity formed
by the Depositor solely for purpose of
issuing Notes of a related Series and
matters incidental thereto, as issuer (the
"Issuer"), and the indenture trustee
specified in the related Prospectus
Supplement (the "Indenture Trustee"), and
such Notes will represent indebtedness of
the related Trust. 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)
closed-end loans (the "Closed-End Loans")
and/or revolving home equity loans or
certain balances thereof (the "Revolving
Credit Line Loans" and, together with the
Closed-End Loans, the "Home Equity Loans")
secured by mortgages or deeds of trust on
residential one- to four-family
properties, including townhouses and
individual units in condominiums and
planned unit developments, (iii) 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,
"Single Family Property"), (iv) mortgage
loans secured by multifamily residential
rental properties consisting of five or
more dwelling units or apartment buildings
owned by cooperative housing corporations
("Multifamily Property"), purchased by the
Depositor either directly or through one
or more affiliates from an affiliate or
from unaffiliated sellers, (v) 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 Securities of such
Series for a rating in one of the four
highest rating categories of such Rating
Agency (such loans and mortgage
participation certificates being referred
to collectively hereinafter as the
"Mortgage Loans"), or (vi) 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
installment or conditional sales contracts
and installment loan agreements (the
"Contracts") or participation certificates
representing participation interests in
such Contracts (such Contracts, together
with the Mortgage Loans and the Mortgage
Certificates, being referred to
collectively hereinafter as the "Trust
Assets") purchased by the Depositor either
directly or through one or more affiliates
or Unaffiliated Sellers, and related
property conveyed to such trust by the
Depositor. Unless otherwise
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<PAGE> 97
specified in the related Prospectus
Supplement, each Series of Securities will
be offered in fully registered form only,
in one or more Classes of Notes and/or
Certificates, which may be divided into
one or more Subclasses. If so specified in
the related Prospectus Supplement,
Multi-Class Securities of a Series may be
issued with the Stated Principal Balances
and the Interest Rates therein specified.
At the time of issuance, each Security
offered by means of this Prospectus and
the related Prospectus Supplements will be
rated in one of the four highest rating
categories by at least one Rating Agency.
The minimum undivided interest, percentage
interest or beneficial interest in a
Mortgage Pool or Contract Pool, the
minimum notional amount to be evidenced by
a Certificate of a Class or Subclass, or
the minimum denomination in which a
Certificate of a Class or Subclass is to
be issued will be set forth in the related
Prospectus Supplement.
Depositor........................... Asset Backed Securities Corporation, a
Delaware corporation.
Master Servicer..................... The entity, if any, named as Master
Servicer in the applicable Prospectus
Supplement, which may be an affiliate of
the Depositor. See "Description of the
Securities."
Interest............................ Interest will be distributed on the days
specified in the Prospectus Supplement
with respect to each Class or Subclass of
Securities of a Series, or if any such day
is not a business day, the next succeeding
business day (the "Distribution Date"), at
the rate, or pursuant to the method of
determining such rate, specified in the
related Prospectus Supplement for each
Class or Subclass of Securities within
such Series, commencing on the day
specified in such Prospectus Supplement,
in the manner specified in such Prospectus
Supplement. See "Maturity, Prepayment and
Yield Considerations" and "Description of
the Securities -- Payments on Mortgage
Loans" and " -- Payments on Contracts."
Principal (Including
Prepayments)...................... Unless otherwise specified in the related
Prospectus Supplement, principal on each
Trust Asset underlying a Series of
Securities will be distributed on each
Distribution Date, commencing on the date
and in the priority and manner specified
in the related Prospectus Supplement. If
so specified in the Prospectus Supplement
with respect to a Series that includes
Multi-Class Securities, distributions on
such Multi-Class Securities may be made in
reduction of the Stated Principal Balance,
in an amount equal to the Stated Principal
Distribution Amount. Unless otherwise
specified in the related Prospectus
Supplement, the Stated Principal
Distribution Amount will equal the amount
by which the Stated Principal Balance of
such Class of Multi-Class Securities
(before taking into account the amount of
interest accrued and added to the Stated
Principal Balance of any Class or of
Compound Interest Securities) exceeds the
Asset Value (as defined herein) of the
Trust Assets and other property in the
related Trust Fund as of the Business Day
prior to the related Distribution Date.
See "Maturity, Prepayment and Yield
Considerations" and "Description of the
Securities -- Payments on Mortgage Loans"
and " -- Payments on Contracts." If so
specified in the Prospectus Supplement
relating to a Series, the Multi-Class
Securities of such Series which have other
than monthly Distribution Dates may
receive special distributions in reduction
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<PAGE> 98
of Stated Principal Balance ("Special
Distributions") in any month, other than a
month in which a Distribution Date occurs,
if, as a result of principal prepayments
on the Trust Assets included in the
related Trust Fund and/or low reinvestment
yields, the Trustee determines, based on
assumptions specified in the related
Agreement (as defined herein), that the
amount of cash anticipated to be on
deposit in the Certificate Account for
such Series on the next Distribution Date
may be less than the sum of the interest
distributions and the amount of
distributions in reduction of Stated
Principal Balance to be made on such
Distribution Date. Unless otherwise
specified in the related Prospectus
Supplement, Special Distributions will be
made on such Certificates in the same
priority and manner as distributions in
reduction of Stated Principal Balance
would be made on the next Distribution
Date for such Certificates. See
"Description of the Securities -- Special
Distributions." In addition, if so
specified in the related Prospectus
Supplement, one or more Classes of Notes
may be subject to optional redemption on
the terms and conditions specified in the
related Prospectus supplement.
The Mortgage Pools.................. If so specified in the related Prospectus
Supplement, the Securities of a Series
will represent the interest specified in
such Prospectus Supplement in, or be
secured by, the Mortgage Pool or Pools
included in the Trust Fund for such
Series. Unless otherwise specified in the
applicable Prospectus Supplement, the
original principal amount of each Mortgage
Loan in a Mortgage Pool will not be more
than 95% (such ratio, the "Loan-to-Value
Ratio") of the value of the property
securing such Mortgage Loan (the
"Mortgaged Property"), based upon an
appraisal of the Mortgaged Property
considered acceptable to the originator of
such Mortgage Loan or the sales price,
whichever is less (the "Original Value").
Unless otherwise specified in the
applicable Prospectus Supplement, Mortgage
Loans secured by Single Family Property
having an original principal amount
exceeding 80% of the Original Value will
be covered by a policy of private mortgage
insurance until the outstanding principal
amount is reduced to the percentage of the
Original Value set forth in the related
Prospectus Supplement as a result of
principal payments by the borrower (the
"Mortgagor"). Unless otherwise specified
in the applicable Prospectus Supplement,
the principal balance at origination of
each Mortgage Loan that is secured by
Single Family Property will not exceed
$500,000. Mortgage Loans in a Mortgage
Pool will all have original maturities of
10 to 40 years, unless otherwise specified
in the applicable Prospectus Supplement.
Mortgage Loans in a Mortgage Pool may have
interest rates (the "Mortgage Rates") that
are either fixed or variable. Mortgage
Pools may be formed from time to time in
varying sizes.
Mortgage Certificates............... If so specified in the related Prospectus
Supplement, the Trust Fund for a Series of
Securities may include Mortgage
Certificates issued by one or more trusts
established by one or more private
entities, with the respective aggregate
principal balances and the characteristics
described in such Prospectus Supplement.
Each Mortgage Certificate included in a
Trust Fund will evidence an interest of
the type specified in the related
Prospectus Supplement in a pool of
mortgage loans of the type described in
such Prospectus Supplement, secured
principally by mortgages on one-to
four-family residences, mortgages on
multi-family residential rental properties
or apartment buildings owned by
cooperative housing
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<PAGE> 99
corporations or by pledges of shares of
cooperative corporations and assignments
of proprietary leases or occupancy
agreements on cooperative dwellings,
unless otherwise specified in such
Prospectus Supplement.
The Contract Pools................. If so specified in the related Prospectus
Supplement, the Securities of a Series
will represent the interest specified in
such Prospectus Supplement in, or be
secured by, the Contract Pool or Pools
included in the Trust Fund for such
Series. Unless otherwise specified in the
applicable Prospectus Supplement, the
Contracts will be fixed rate Contracts.
Such Contracts, as specified in the
related Prospectus Supplement, will
consist of manufactured housing
installment or conditional sales contracts
and installment loan agreements and will
be conventional Contracts or Contracts
insured by the FHA or partially guaranteed
by the VA. Each Contract may be secured by
a new or used unit of manufactured housing
(a "Manufactured Home"). The related
Prospectus Supplement will specify the
range of terms to maturity of the
Contracts at origination and, to the
extent specified in such Prospectus
Supplement, the maximum Loan-to-Value
Ratio at origination (the "Contract
Loan-to-Value Ratio"). Because
manufactured homes, unlike site-built
homes, generally depreciate in value, the
Loan-to-Value Ratios of some of the
Contracts may be higher at the Cut-off
Date than at origination and may increase
over time. Unless otherwise specified in
the related Prospectus Supplement,
Contracts that are conventional Contracts
will not be covered by primary mortgage
insurance policies or primary credit
insurance policies. Each Manufactured Home
which secures a Contract will be covered
by a standard hazard insurance policy
(which may be a blanket policy) to the
extent described herein or in the related
Prospectus Supplement insuring against
hazard losses due to various causes,
including fire, lightning and windstorm. A
Manufactured Home located in a federally
designated flood area will be required to
be covered by flood insurance. Contract
Pools may be formed from time to time in
varying sizes. None of the Contracts will
have been originated by the Depositor or
any of its affiliates.
Yield Considerations................ If so specified in the applicable
Prospectus Supplement, an assumed rate of
prepayment will be used to calculate the
expected yield to maturity on each Class
of the Securities of a Series. The yield
on any Class of Securities, the purchase
price of which is greater than the
aggregate amount of the Principal
Distributions to be made to such Class (a
"Premium Security"), is likely to be
adversely affected by a higher than
anticipated level of principal prepayments
on the Trust Assets included in the
related Trust Fund. This effect on yield
will intensify with any increase in the
amount by which the purchase price of such
Security 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 Securities
not only to have 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 Securities that are Premium
Securities) will likely result in a lower
than anticipated yield to Holders of
Securities of a Class the purchase price
of which is less
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<PAGE> 100
than the aggregate amount of the Principal
Distributions to be made to such Class (a
"Discount Security"). The Prospectus
Supplement for each Series of Securities
that includes an Interest Weighted or a
Principal Weighted Class will set forth
certain yield calculations on each such
Class based upon a range of specified
prepayment assumptions on the Trust Assets
included in the related Trust Fund. The
yield to Securityholders will also be
adversely affected because interest will
accrue on the Mortgage Loans, the
Contracts or the mortgage loans underlying
the Mortgage Certificates included in a
Trust Fund, from the first day of the
month preceding the month in which a
Distribution Date occurs, but the
distribution of such interest will be made
no earlier than the 25th day of the
succeeding month unless otherwise provided
in the applicable Prospectus Supplement.
The adverse effect on yield of this delay
will intensify with any increase in the
period of time by which the Distribution
Date for a Series of Certificates succeeds
the date on which distributions on the
Mortgage Loans, the Contracts or the
Mortgage Certificates are received by the
Master Servicer or the Trustee. See
"Maturity, Prepayment and Yield
Considerations."
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 Mortgage
Loans, Contracts or Mortgage Certificates
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,
Contracts or Mortgage Certificates, 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 Mortgage
Loans, Contracts or Mortgage Certificates
from time to time during such Pre-Funding
Period. Such additional Mortgage Loans,
Contracts or Mortgage Certificates 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, Contracts or Mortgage
Certificates 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 120 days from the
related Closing Date, (b) that the
additional Mortgage Loans, Contracts or
Mortgage Certificates to be acquired
during the Pre-Funding Period will be
subject to the same representations and
warranties as the Mortgage Loans,
Contracts or Mortgage Certificates
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.
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<PAGE> 101
Credit Support...................... Neither the Securities nor the Trust
Assets will be insured or guaranteed by
any governmental agency, except to the
extent of any FHA insurance or VA
guarantee. Credit support will be provided
on the Mortgage Pools or Contract Pools by
one or more irrevocable letters of credit
(the "Letter of Credit"), a policy of
mortgage pool insurance (the "Pool
Insurance Policy"), a bond or similar form
of insurance coverage against certain
losses in the event of the bankruptcy of a
Mortgagor (the "Mortgagor Bankruptcy
Bond") or any combination of the foregoing
as specified in the applicable Prospectus
Supplement. In lieu of or in addition to
the foregoing credit support arrangements
if so specified in the related Prospectus
Supplement, the Securities of a Series may
be issued in one or more Classes or
Subclasses. Payments on the Securities of
one or more Classes or Subclasses (the
"Senior Securities") may be supported by a
prior right to receive distributions
attributable or otherwise payable to one
or more other Classes or Subclasses (the
"Subordinated Securities") to the extent
specified in the related Prospectus
Supplement (the "Subordinated Amount"). In
addition, if so specified in the related
Prospectus Supplement, one or more Classes
or Subclasses of Subordinated Securities
may be subordinated to another Class or
Subclass of Subordinated Securities and
may be entitled to receive
disproportionate amounts of distributions
of principal. If so specified in the
related Prospectus Supplement, if a Series
of Securities includes Notes, all Classes
of Certificates will be subordinated to
the Classes of Notes and one more Classes
or Subclasses of Notes may be subordinated
to one or more other Classes or Subclasses
of Notes and may be entitled to receive
disproportionate amounts of distributions
of principal. If so specified in the
related Prospectus Supplement, a reserve
(the "Reserve Fund") and certain other
accounts or funds may be established to
support payments on one or more Classes of
Securities. A Prospectus Supplement with
respect to a Series may also provide for
additional or alternative forms of credit
support, including a guarantee or surety
bond, acceptable to the Rating Agency
("Alternative Credit Support").
A. Letter of Credit................. If so specified in the applicable
Prospectus Supplement, the issuer of one
or more Letters of Credit (the "L/C Bank")
will deliver to the Trustee the Letters of
Credit for the Mortgage Pool or Contract
Pool. Unless otherwise specified in the
related Prospectus Supplement, to the
extent described herein, the L/C Bank will
honor the Trustee's demands with respect
to such Letter of Credit, to the extent of
the amount available thereunder, to make
payments to the Certificate Account on
each Distribution Date in an amount equal
to the amount sufficient to repurchase
each Liquidating Loan that has not been
purchased by the related Servicer or the
Master Servicer pursuant to the terms of
the applicable Servicing Agreement,
Pooling and Servicing Agreement or Sale
and Servicing Agreement referred to
herein. Unless otherwise provided in the
related Prospectus Supplement, the term
"Liquidating Loan" means: (a) each
Mortgage Loan with respect to which
foreclosure proceedings have been
commenced (and the Mortgagor's right of
reinstatement has expired), (b) each
Mortgage Loan with respect to which the
Servicer or the Master Servicer has agreed
to accept a deed to the property in lieu
of foreclosure, (c) each Cooperative Loan
as to which the shares of the related
Cooperative and the related proprietary
lease or occupancy agreement have been
sold or offered for sale or (d) each
Contract with respect to which
repossession proceedings
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<PAGE> 102
have been commenced. The liability of the
L/C Bank under the Letter of Credit will
be reduced by the amount of unreimbursed
payments thereunder. In the event that at
any time there remains no amount available
under the Letter of Credit for a specific
Mortgage Pool or Contract Pool, and
coverage under another form of credit
support, if any, is exhausted, any losses
will be borne by the holder of Securities
of the Series, as specified in the related
Prospectus Supplement. Unless otherwise
specified in the related Prospectus
Supplement, the maximum liability of the
L/C Bank under the Letter of Credit for a
Mortgage Pool or Contract Pool will be an
amount equal to a percentage (not greater
than 10% of the initial aggregate
principal balance of the Mortgage Loans in
such Mortgage Pool or Contracts in such
Contract Pool) (the "L/C Percentage"), set
forth in the Prospectus Supplement,
relating to such Mortgage Pool or Contract
Pool. The maximum amount available at any
time to be paid under the Letter of Credit
will be determined in accordance with the
provisions of the applicable 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 Securities will be in compliance with
requirements established by the Rating
Agency rating such Series and will be set
forth in the related Prospectus
Supplement. If so specified in the related
Prospectus Supplement, the Letter of
Credit with respect to a Series of
Securities or one or more Classes of
Series of Securities may, in addition to
or in lieu of the foregoing, provide
coverage with respect to the unpaid
principal or notional amount of the
Securities of a Class or Classes within
such Series. See "Credit Support -- Letter
of Credit."
B. Pool Insurance................. If so specified in the applicable
Prospectus Supplement, the Master Servicer
will obtain a Pool Insurance Policy to
cover any loss (subject to the limitations
described below) by reason of default by
the Mortgagors on the related Mortgage
Loans to the extent not covered by any
policy of primary mortgage insurance (a
"Primary Mortgage Insurance Policy"). The
amount of coverage provided by the Pool
Insurance Policy for a Mortgage Pool will
be specified in the related Prospectus
Supplement. A Pool Insurance Policy for a
Mortgage Pool, however, will not be a
blanket policy against loss, because
claims thereunder may only be made for
particular defaulted Mortgage Loans and
only upon satisfaction of certain
conditions precedent. See "Description of
Insurance -- Pool Insurance Policies." The
Master Servicer, if any, or the Depositor
or the applicable Servicer will be
required to use its best reasonable
efforts to maintain the Pool Insurance
Policy for each related 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
Securityholders. See "Description of the
Securities -- Presentation of Claims."
C. Mortgagor Bankruptcy
Bond....................... If so specified in the related Prospectus
Supplement, the Master Servicer, if any,
the Depositor or the applicable Servicer
will obtain and use its best reasonable
efforts to maintain a Mortgagor Bankruptcy
Bond for one or more Classes of Securities
of 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
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<PAGE> 103
Supplement. See "Description of Insurance
-- Mortgagor Bankruptcy Bond."
D. Subordinated Securities........ If so specified in the related Prospectus
Supplement, the rights of holders of the
Securities of one or more Subordinated
Classes or Subclasses of a Series to
receive distributions with respect to the
Mortgage Loans in the Mortgage Pool or
Contracts in the Contract Pool for such
Series, or with respect to a Subordinated
Pool (as defined herein), will be
subordinated to the rights of the holders
of the Securities of one or more Classes
or Subclasses of such Series to receive
such distributions to the extent described
in the related Prospectus Supplement, and
may be limited to the Subordinated Amount
set forth in the related Prospectus
Supplement. This subordination will be
intended to enhance the likelihood of
regular receipt by holders of the Senior
Securities of the full amount of scheduled
payments of principal and interest due
them and to reduce the likelihood that the
holders of such Senior Securities will
experience losses. See "Credit Support --
Subordinated Securities."
E. Shifting Interest.............. If so specified in the applicable
Prospectus Supplement, the protection
afforded to holders of Senior Securities
of a Series by the subordination of
certain rights of holders of Subordinated
Securities of such Series to distributions
on the related Mortgage Loans or Contracts
may be effected by the preferential right
of the holders of the Senior Securities to
receive, prior to any distribution being
made in respect of the holders of the
related Subordinated Securities, current
distributions on the related Mortgage
Loans or Contracts of principal and
interest due them on each Distribution
Date out of funds available for
distribution on such date in the related
Certificate Account and by the
distribution to the holders of the Senior
Securities on each Distribution Date of a
greater than pro rata percentage of
certain principal prepayments or other
recoveries of principal specified in the
related Prospectus Supplement on a
Mortgage Loan or Contract that are
received in advance of their scheduled Due
Dates and are not accompanied by an amount
as to interest representing scheduled
interest due on any date or dates in any
month or months subsequent to the month of
prepayment (the "Principal Prepayments").
The allocation of a greater than pro rata
share of such amounts to the Senior
Securities will have the effect of
accelerating the amortization of the
Senior Securities while increasing the
respective interest in the Trust Fund
evidenced by the Subordinated Securities.
Increasing the respective interest of the
Subordinated Securities relative to that
of the Senior Securities is intended to
preserve the availability of the benefits
of the subordination provided by the
Subordinated Securities. See "Description
of the Securities -- Distributions of
Principal and Interest" and " --
Distributions on Securities" and "Credit
Support -- Shifting Interest."
F. Reserve Fund................... If so specified in the related Prospectus
Supplement, a Reserve Fund may be
established for a Series. Unless otherwise
specified in such Prospectus Supplement,
such Reserve Fund will not be included in
the corpus of the Trust Fund for such
Series. If so specified in the related
Prospectus Supplement, such Reserve Fund
may be created by the deposit, in escrow,
by the Depositor, of a separate pool of
mortgage loans, cooperative loans or
Contracts (the "Subordinated Pool"), with
the aggregate principal balance specified
in such Prospectus Supplement, or by the
deposit of cash
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<PAGE> 104
in the amount specified in such 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/or on the
mortgage loans, cooperative loans or
Contracts in the Subordinated Pool, until
the Reserve Fund (without taking into
account the amount of any Initial Deposit,
except as otherwise provided in the
related Prospectus Supplement), reaches an
amount (the "Required Reserve") set forth
in the related Prospectus Supplement.
Thereafter, specified distributions on the
Trust Assets of the related Mortgage Pool
or Contract Pool, and/or on the mortgage
loans, cooperative loans or Contracts in
the Subordinated Pool, will be retained to
the extent necessary to maintain such
Reserve Fund (without, except as otherwise
provided in the related Prospectus
Supplement, taking into account the amount
of any Initial Deposit) at the related
Required Reserve. Except as otherwise
provided in the related Prospectus
Supplement, 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 Securities
of the Subordinated Classes or Subclasses
of such Series specified in the related
Prospectus Supplement. If so specified in
the related Prospectus Supplement, the
Reserve Fund with respect to a Series may
be funded at a lesser amount or in another
manner acceptable to the Rating Agency
rating such Series. See "Credit Support --
Subordinated Securities" and " -- Reserve
Fund."
G. Other Funds.................... Assets consisting of cash, certificates of
deposit or letters of credit or any
combination thereof, in the aggregate
amount specified in the related Prospectus
Supplement, will be deposited by the
Depositor in one or more accounts to be
established with respect to a Series of
Securities 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 Securities of such
Series, are otherwise required as a
condition to the rating of such Securities
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 Securities 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 Agreement under the conditions and to
the extent specified in the related
Prospectus Supplement.
H. Swap Agreement................. If so specified in the Prospectus
Supplement relating to a Series of
Securities, the related Issuer will enter
into or obtain an assignment of a swap
agreement or similar agreement pursuant to
which such Issuer 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."
I. Security Guarantee
Insurance................... If so specified in the related Prospectus
Supplement, credit enhancement for a
Series may be provided by an insurance
policy (the "Security Guarantee
Insurance") issued by one or more
insurance companies. Such Security
Guarantee Insurance may guarantee timely
distributions of interest and full
distributions of principal on the basis of
a schedule of
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principal distributions set forth in or
determined in the manner specified in the
related Prospectus Supplement.
Hazard Issuance and Special Hazard
Insurance Policies................ Unless otherwise specified in the
applicable Prospectus Supplement, all of
the Mortgage Loans (except for the
Cooperative Loans) and the Contracts will
be covered by standard hazard insurance
policies insuring against losses due to
various causes, including fire, lightning
and windstorm. In addition, the Depositor
will, if so specified in the applicable
Prospectus Supplement, obtain an insurance
policy (the "Special Hazard Insurance
Policy") covering losses that result from
certain other physical risks that are not
otherwise insured against (including
earthquakes and mudflows). The Special
Hazard Insurance Policy will be limited in
scope and will cover losses in an amount
specified in the applicable Prospectus
Supplement. Any hazard losses not covered
by either standard hazard policies or the
Special Hazard Insurance Policy will not
be insured against and to the extent that
the amount available under any other
method of credit support available for
such Series is exhausted, will be borne by
Securityholders 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
Securities, within the period following
the date of issuance of such Securities
specified in such Prospectus Supplement,
the Depositor or one or more Servicers
will deliver to the Trustee with respect
to such Series Trust Assets in
substitution for any one or more of the
Trust Assets included in the Trust Fund
relating to such Series which do not
conform in one or more material respects
to the representations and warranties in
the related Agreement. See "Description of
the Securities -- Assignment of Mortgage
Loans," "-- Assignment of Contracts" and "
-- Assignment of Mortgage Certificates."
Advances............................ Except as otherwise provided in the
Prospectus Supplement with respect to a
Series, 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 of
and interest on the Mortgage Loans and
Contracts (the "Advances") under certain
circumstances. See "Description of the
Securities -- 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 such Prospectus Supplement
may purchase the Trust Assets in the
related Trust Fund and any property
acquired in respect thereof at the time,
in the manner and at the price specified
in such Prospectus Supplement. In the
event that the Depositor elects to treat
the related Trust Fund as a Real Estate
Mortgage Investment Conduit (a "REMIC")
under the Internal Revenue Code of 1986,
as amended (the "Code"), any such
repurchase will be effected only in
compliance with the requirements of
Section 860F(a)(4) of the Code, so
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as to constitute a "qualified liquidation"
thereunder. The exercise of the right of
repurchase will effect early retirement of
the Certificates of the related Series.
See "Maturity, Prepayment and Yield
Considerations" and "Description of the
Securities -- Termination."
ERISA Considerations................ A fiduciary of any employee benefit plan
or retirement arrangement 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 Securities could
give rise to a prohibited transaction
under ERISA or Section 4975 of the Code.
See "ERISA Considerations."
Tax Status.......................... See "Federal Income Tax Consequences."
Legal Investment.................... If so specified in the related Prospectus
Supplement relating to a Series of
Securities, a Class or Subclass of such
Securities will constitute a "mortgage
related security" under the Secondary
Mortgage Market Enhancement Act of 1984
("SMMEA") if and for so long as it is
rated in one of the two highest rating
categories by at least one nationally
recognized statistical rating
organization. Such Classes or Subclasses,
if any, will be legal investments for
certain types of institutional investors
to the extent provided in SMMEA, subject,
in any case, to any other regulations
which may govern investments by such
institutional investors. See "Legal
Investment."
Use of Proceeds..................... The Depositor will use the net proceeds
from the sale of each Series for one or
more of the following purposes: (i) to
purchase the related Trust Assets, (ii) to
repay indebtedness which has been incurred
to obtain funds to acquire such Trust
Assets, (iii) to establish any reserve
funds described in the related Prospectus
Supplement and (iv) to pay costs of
structuring, guaranteeing and issuing such
Securities. If so specified in the related
Prospectus Supplement, the purchase of the
Trust Assets for a Series may be effected
by an exchange of Securities by the
Depositor with the seller of such Trust
Assets. See "Use of Proceeds."
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RISK FACTORS
In addition to the other information contained in this Prospectus and
in the applicable Prospectus Supplement to be prepared and delivered in
connection with the offering of any Series of Securities, prospective investors
should carefully consider the following risk factors before investing in any
Class or Subclass of Securities of any such Series.
LIMITED LIQUIDITY
There can be no assurance that a secondary market for the Securities of
any Series will develop or, if it does develop, that it will provide
Securityholders with liquidity of investment or that it will continue for the
life of the related Securities. The Prospectus Supplement for a Series of
Securities may indicate that an underwriter specified therein intends to
establish a secondary market in such Securities; however, no underwriter will be
obligated to do so. The Securities 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 included in the
related Trust Fund will be the sole source of payments on the Securities of a
Series. The Securities 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 respective 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 Securities 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
respective 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 Securities, 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 Securities, 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 one or more
Classes or Subclasses of Securities of the same Series; a Reserve Fund; and any
combination thereof. See "Credit Support." 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 Securities 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."
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RISKS OF THE TRUST ASSETS
An investment in securities such as the Securities of any Series which
generally represent interests in, or are secured by, mortgage loans or
manufactured housing installment or conditional sales contracts and installment
loan agreements, as the case may be, may be affected by, among other things, a
decline in real estate values and changes in the mortgagors' or obligors'
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 Securities have remained or will remain at their levels on the
dates of origination of the related Mortgage Loans, mortgage loans, Mortgage
Certificates 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 of and
interest on the Mortgage Loans, Contracts or Mortgage Certificates, as the case
may be, and, accordingly, the actual rates of delinquencies, foreclosures and
losses with respect to any Trust Fund. See "Maturity, Prepayment and Yield
Considerations." To the extent that such losses are not covered by the
applicable credit support, holders of Securities of the Series evidencing
interests in, or secured by, 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 of and unpaid
interest on the defaulted Mortgage Loans or Contracts. In addition to the
foregoing, certain geographic regions in 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 Securities 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," "-- Mortgage Loan Program," "--
Underwriting Standards," "-- The Contract Pools" and " -- Underwriting
Policies."
PREPAYMENT AND YIELD CONSIDERATIONS
The rate and timing of principal payments on the Securities 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. As is the case with
mortgage-backed securities generally, each Series of Securities is 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.
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The yield to maturity on each Class of Securities 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, as applicable, and the allocation thereof to
reduce the Certificate Principal Balance of such Class. The yield to maturity on
each Class of Securities will also depend on the Mortgage Rates and the purchase
price for such Securities. The yield to investors on any Class of Securities
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 Securities 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 Securities 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 on and principal of one or more Classes or Subclasses
of Securities of a Series may be subordinated in priority of payment to interest
and principal due on one or more other Classes or Subclasses of Securities 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 Securities 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 such 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 Securities in fully
registered, certificated form ("Definitive Securities") for such Series are
issued, holders of such Securities will not be recognized by the applicable
Trustee as "Securityholders" (as such terms are used herein or in the related
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.
THE TRUST FUND
Ownership of the Mortgage or Contract Pool or Pools included in the
Trust Fund for a Series of Securities may be evidenced by one or more Classes of
Certificates, which may consist of one or more Subclasses, as specified in the
Prospectus Supplement for such Series. Each Certificate will evidence the
undivided interest, beneficial interest or notional amount specified in the
related Prospectus Supplement in one or more Mortgage Pools containing one or
more Mortgage Loans or Mortgage Certificates or Contract Pools containing
Contracts, having an aggregate principal balance of not less than approximately
$50,000,000 as of the first day of the month of its creation (the "Cut-off
Date"), unless otherwise specified in the applicable Prospectus Supplement. If
so specified in the related Prospectus Supplement, each Class or Subclass of the
Certificates of a Series will evidence the percentage interest specified in such
Prospectus Supplement in the payments of principal of and interest on the
Mortgage Loans or Mortgage Certificates in the related Mortgage Pool or Pools or
on the Contracts in the related Contract Pool or Pools (a "Percentage
Interest"). To the extent specified in the related Prospectus Supplement, each
Mortgage Pool or Contract
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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
Securities of a Series to the rights of the holders of the Senior Securities,
which, if so specified in the related Prospectus Supplement, may include
Securities of a Subordinated Class or Subclass and the establishment of a
Reserve Fund, by the right of one or more Classes or Subclasses of Securities to
receive a disproportionate amount of certain distributions of principal, by
Security Guarantee Insurance or another form or forms of Alternative Credit
Support acceptable to the Rating Agency rating the Securities of such Series or
by any combination of the foregoing. See "Description of Insurance" and "Credit
Support."
THE MORTGAGE POOLS
If so specified in the Prospectus Supplement with respect to a Series,
the Trust Fund for such Series may include (a) one or more Mortgage Pools
containing (i) conventional one-to four-family residential, first and/or second
mortgage loans, (ii) closed-end loans (the "Closed-End Loans") and/or revolving
home equity loans or certain balances thereof (the "Revolving Credit Line Loans"
and, together with the Closed-End Loans, the "Home Equity Loans") secured by
mortgages or deeds of trust on residential one-to-four family properties,
including townhouses and individual units in condominiums and planned unit
developments, (iii) 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, (iv) mortgage loans secured by Multifamily Property, (v)
mortgage participation securities evidencing participation interests in such
loans that are acceptable to the nationally recognized Rating Agency rating the
Securities of such Series for a rating in one of the four highest rating
categories of such Rating Agency or (vi) certain conventional Mortgage
Certificates issued by one or more trusts established by one or more private
entities or (b) one or more Contract Pools containing Contracts or participation
Securities representing participation interests in such Contracts purchased by
the Depositor either directly or through one or more affiliates or Unaffiliated
Sellers, and related property conveyed to such trust by the Depositor.
A Mortgage Pool may include Mortgage Loans insured by the FHA ("FHA
Loans") and/or Mortgage Loans partially guaranteed by the Veterans
Administration (the "VA", and such mortgage loans are referred to herein as "VA
Loans"). All Mortgage Loans will be evidenced by promissory notes or other
evidence of indebtedness (the "Mortgage Notes") secured by first mortgages or
first or second deeds of trust or other similar security instruments creating a
first lien or second lien, as applicable, on the Mortgaged Properties (as
defined below). Single Family Property and Multifamily Property will consist of
single family detached homes, attached homes (single family units having a
common wall), individual units located in condominiums, townhouses, planned unit
developments, multifamily residential rental properties, apartment buildings
owned by cooperative housing corporations and such other types of homes or units
as are set forth in the related Prospectus Supplement. Unless otherwise
specified in the applicable Prospectus Supplement, each such detached or
attached home or multifamily property will be constructed on land owned in fee
simple by the Mortgagor or on land leased by the Mortgagor for a term at least
two years greater than the term of the applicable Mortgage Loan. Attached homes
may consist of duplexes, triplexes and fourplexes (multifamily structures where
each Mortgagor owns the land upon which the unit is built with the remaining
adjacent land owned in common). Multifamily Property may include mixed
commercial and residential buildings. The Mortgaged Properties may include
investment properties and vacation and second homes. Mortgage Loans secured by
Multifamily Property may also be secured by an assignment of leases and rents
and operating or other cash flow guarantees relating to the Mortgaged Properties
to the extent specified in the related Prospectus Supplement.
Unless otherwise specified below or in the applicable Prospectus
Supplement, each Mortgage Loan in a Mortgage Pool will (i) have an individual
principal balance at origination of not less than $25,000 nor
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more than $500,000, (ii) have monthly payments due on the first day of each
month (the "Due Date"), (iii) be secured by Mortgaged Properties or relate to
Cooperative Loans located in any of the 50 states or the District of Columbia,
and (iv) consist of fully-amortizing Mortgage Loans, each with a 10 to 40 year
term at origination, a fixed or variable rate of interest and level or variable
monthly payments over the term of the Mortgage Loan. Unless otherwise specified
in the related Prospectus Supplement, the Loan-to-Value Ratio 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 of $150,001 through $200,000, 85% on any Mortgage Loan with an
original principal balance of $200,001 through $300,000 and 80% on any Mortgage
Loan with an original principal balance exceeding $300,000. If so specified in
the related Prospectus Supplement, a Mortgage Pool may also include fully
amortizing, adjustable rate Mortgage Loans ("ARM Loans") with (unless otherwise
specified in such Prospectus Supplement) 30-year terms at origination and
mortgage interest rates adjusted periodically (with corresponding adjustments in
the amount of monthly payments) to equal the sum (which may be rounded) of a
fixed margin and an index described in such Prospectus Supplement, subject to
any applicable restrictions on such adjustments. The Mortgage Pools may also
include other types of Mortgage Loans to the extent set forth in the applicable
Prospectus Supplement.
Unless otherwise specified in the applicable Prospectus Supplement, no
Mortgage Loan will have a Loan-to-Value Ratio at origination in excess of 95%,
regardless of its original principal balance. Except as otherwise provided in
the related Prospectus Supplement, the Loan-to-Value Ratio will be the ratio,
expressed as a percentage, of the principal amount of the Mortgage Loan at the
date of determination to the lesser of (a) the appraised value determined in an
appraisal obtained by the originator and (b) the sales price for such property
(the "Original Value"). Unless otherwise specified in the related Prospectus
Supplement, with respect to a Mortgage Loan secured by a mortgage on a vacation
or second home or an investment property (other than Multifamily Property), no
income derived from the property will be considered for underwriting purposes,
the Loan-to-Value Ratio (taking into account any secondary financing) may not
exceed 80% and the original principal balance may not exceed $250,000.
If so specified in the related Prospectus Supplement, a Mortgage Pool
may contain Mortgage Loans with fluctuating Mortgage Rates. Any such Mortgage
Loan may provide that on the day on which the Mortgage Rate adjusts, the amount
of the monthly payments on the Mortgage Loan will be adjusted to provide for the
payment of the remaining principal amount of the Mortgage Loan with level
monthly payments of principal and interest at the new Mortgage Rate to the
maturity date of the Mortgage Loan. Alternatively, the Mortgage Loan may provide
that the Mortgage Rate adjusts more frequently than the monthly payment. As a
result, a greater or lesser portion of the monthly payment will be applied to
the payment of principal of the Mortgage Loan, thus increasing or decreasing the
rate at which the Mortgage Loan is repaid. See "Maturity, Prepayment and Yield
Considerations." In the event that an adjustment to the Mortgage Rate causes the
amount of interest accrued in any month to exceed the amount of the monthly
payment on such Mortgage Loan, the excess (the "Deferred Interest") will be
added to the principal balance of the Mortgage Loan (unless otherwise paid by
the Mortgagor), and will bear interest at the Mortgage Rate in effect from time
to time. The amount by which the Mortgage Rate or monthly payment may increase
or decrease and the aggregate amount of Deferred Interest on any Mortgage Loan
may be subject to certain limitations, as described in the related Prospectus
Supplement.
If so specified in the Prospectus Supplement for the related Series,
the Mortgage Rate on certain ARM Loans will be convertible from an adjustable
rate to a fixed rate at the option of the Mortgagor under certain circumstances.
Unless otherwise specified in the related Prospectus Supplement, the Agreement
will provide that the Unaffiliated Seller from which such convertible ARM Loans
were acquired will be obligated to repurchase from the Trust Fund any such ARM
Loan as to which the conversion option has been exercised (a "Converted Mortgage
Loan"), at a purchase price set forth in the related Prospectus
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Supplement. The amount of such purchase price will be required to be deposited
in the Certificate Account and will be distributed to the Securityholders 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 such Prospectus Supplement, with
the Trustee. In lieu of a cash deposit, if so specified in the related
Prospectus Supplement, a letter of credit or guaranteed investment contract may
be delivered to the Trustee to fund the Buy-Down Fund. See "Description of the
Securities -- Payments on Mortgage Loans." Buy-Down Loans included in a Mortgage
Pool will provide for a reduction in monthly interest payments by the Mortgagor
for a period of up to the first four years of the term of such Mortgage Loans.
If provided for in the applicable Prospectus Supplement, a Mortgage
Pool may contain Mortgage Loans pursuant to which the monthly payments by the
Mortgagor during the early years of the related Mortgage Note are less than the
amount of interest that would otherwise be payable thereon, with the interest
not so paid added to the outstanding principal balance of such Mortgage Loan
("GPM Loans"). If so specified in the related Prospectus Supplement, the
resulting difference in payment shall be compensated for from an amount
contributed by the Depositor or another source and delivered to the Trustee (the
"GPM Fund"). In lieu of a 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.
If provided for in the applicable Prospectus Supplement, a Mortgage
Pool may contain Mortgage Loans which are Home Equity Loans pursuant to which
the full principal amount of such Mortgage Loan is advanced at origination of
the loan and generally is repayable in equal (or substantially equal)
installments of an amount sufficient to fully amortize such loan at its stated
maturity. Interest on each Home Equity Loan may be calculated on the basis of
the outstanding principal balance of such loan multiplied by the Mortgage Rate
thereon and further multiplied by a fraction, the numerator of which is the
number of days in the period elapsed since the preceding payment of interest was
made and the denominator is the number of days in the annual period for which
interest accrues on such loan. Under certain circumstances, under a Home Equity
Loan, a borrower may choose an interest only payment option and is obligated to
pay only the amount of interest which accrues on the loan during the billing
cycle. Generally, an interest only payment option may be available for a
specified period before the borrower must begin paying at least the minimum
monthly payment of a specified percentage of the average outstanding balance of
the loan.
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.
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VA Loans will be partially guaranteed by the VA under the Servicemen's
Readjustment Act of 1944, as amended (the "Servicemen's Readjustment Act"). The
Servicemen's Readjustment Act permits a veteran (or in certain instances the
spouse of a veteran) to obtain a mortgage loan guarantee by the VA covering
mortgage financing of the purchase of a one- to four-family dwelling unit at
interest rates permitted by the VA. The program has no mortgage loan limits,
requires no down payment from the purchasers and permits the guarantee of
mortgage loans of up to 30 years' duration. However, no VA Loan will have an
original principal amount greater than five times the partial VA guarantee for
such VA Loan. The maximum guarantee that may be issued by VA under this program
is 50% of the principal amount of the Mortgage Loan if the principal amount of
the Mortgage Loan is $45,000 or less, the lesser of $36,000 and 40% of the
principal amount of the Mortgage Loan if the principal amount of the Mortgage
Loan is greater than $45,000 but less than or equal to $144,000, and the lesser
of $46,000 and 25% of the principal amount of the Mortgage Loan if the principal
amount of the Mortgage Loan is greater than $144,000.
Unless otherwise specified in the related Prospectus Supplement,
interest on each Revolving Credit Line Loan, excluding introduction rates
offered from time to time during promotional periods, is computed and payable
monthly on the average daily outstanding principal balance of such Loan.
Principal amounts on a Revolving Credit Line Loan may be drawn down (up to a
maximum amount as set forth in the related Prospectus Supplement) or repaid
under each Revolving Credit Line Loan from time to time, but may be subject to a
minimum periodic payment. To the extent and accordingly under the terms provided
in the related Prospectus Supplement, the Trust Fund may include amounts
borrowed under a Revolving Credit Line Loan after the Cut-off Date. The full
amount of a Closed-End Loan is advanced at the inception of the Loan and
generally is repayable in equal (or substantially equal) installments of an
amount to fully amortize such Loan at its stated maturity. Except to the extent
provided in the related Prospectus Supplement, the original terms to stated
maturity of Closed-End Loans will not exceed 360 months. Under certain
circumstances, under either a Revolving Credit Line Loan or a Closed-End Loan, a
borrower may choose an interest only payment option and is obligated to pay only
the amount of interest which accrues on the Loan during the billing cycle. An
interest only payment option may be available for a specified period before the
borrower must begin paying at least the minimum monthly payment of a specified
percentage of the average outstanding balance of the Loan.
The Prospectus Supplement (or, if such information is not available in
advance of the date of such Prospectus Supplement, a Current Report on Form 8-K
to be filed with the Commission) for each Series of Securities the Trust Fund
with respect to which contains Mortgage Loans will contain information as to the
type of Mortgage Loans that will comprise the related Mortgage Pool or Pools and
information as to (i) the aggregate principal balance of the Mortgage Loans as
of the applicable Cut-off Date, (ii) the type of Mortgaged Properties securing
the Mortgage Loans, (iii) the original terms to maturity of the Mortgage Loans,
(iv) the largest in principal balance of the Mortgage Loans, (v) the earliest
origination date and latest maturity date of the Mortgage Loans, (vi) the
aggregate principal balance of Mortgage Loans having Loan-to-Value Ratios at
origination exceeding 80%, (vii) the interest rate or range of interest rates
borne by the Mortgage Loans, (viii) the average outstanding principal balance of
the Mortgage Loans, (ix) the geographical distribution of the Mortgage Loans,
(x) the number and aggregate principal balance of Buy-Down Loans or GPM Loans,
if applicable, (xi) with respect to ARM Loans, the adjustment dates, the
highest, lowest and weighted average margin, and the maximum Mortgage Rate
variation at the time of any periodic adjustment and over the life of such ARM
Loans, and (xii) with respect to Mortgage Loans secured by Multifamily Property
or such other Mortgage Loans as are specified in the Prospectus Supplement,
whether the Mortgage 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.
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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 Securities of the Series evidencing interests in, or
secured by, 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 involves 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 loans.
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") and, if a Series of Securities includes Notes, the
Depositor will cause the Mortgage Loans constituting the Mortgage Pool to be
pledged to the Indenture Trustee, for the benefit of the holders of the Notes of
such Series (the "Noteholders" and, together with the Certificateholders, the
"Securityholders"). The Master Servicer, if any, named in the related Prospectus
Supplement will service the Mortgage Loans, either by itself or through other
mortgage servicing institutions, if any (each, a "Servicer"), pursuant to a
Pooling and Servicing Agreement or a Sale and Servicing Agreement, as described
herein, and will receive a fee for such services. See " -- Mortgage Loan
Program" and "Description of the Securities." As used herein, "Agreement" means,
with respect to a Series that only includes Certificates, the Pooling and
Servicing Agreement, and with respect to a Series that includes Notes, the
Indenture, the Trust Agreement and the Sale and Servicing Agreement, as the
context requires. Unless otherwise specified in the applicable Prospectus
Supplement, 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 Pooling and Servicing Agreement, Sale and Servicing Agreement or
Seller's Warranty and Servicing Agreement between the Servicer and the Depositor
(each, a "Servicing Agreement"), as applicable, 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 applicable
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 Securities
- --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 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" and " --
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Representations by Unaffiliated Sellers; Repurchases" and "Description of the
Securities -- 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 Securities -- Advances." Unless otherwise specified in
the related Prospectus Supplement, such Advances with respect to delinquencies
will be limited to amounts that the Master Servicer believes ultimately would be
reimbursable under any applicable Letter of Credit, Pool Insurance Policy,
Special Hazard Insurance Policy, Mortgagor Bankruptcy Bond or other policy of
insurance, from amounts in the Reserve Fund, under any Alternative Credit
Support or out of the proceeds of liquidation of the Mortgage Loans, cash in the
Certificate Account or otherwise. See "Description of the Securities --
Advances," "Credit Support" and "Description of Insurance."
MORTGAGE LOAN PROGRAM
The Mortgage Loans will have been purchased by the Depositor either
directly or through affiliates or by the Trust formed by the Depositor, from one
or more affiliates or from sellers unaffiliated with the Depositor
("Unaffiliated Sellers"). Mortgage Loans acquired by the Depositor will have
been originated in accordance with the underwriting criteria specified below
under "Underwriting Standards" or as otherwise described in a related Prospectus
Supplement.
UNDERWRITING STANDARDS
Except in the case of certain Mortgage Loans originated by Unaffiliated
Sellers in accordance with their own underwriting criteria ("Closed Loans") or
such other standards as may be described in the applicable Prospectus
Supplement, all prospective Mortgage Loans will be subject to the underwriting
standards adopted by the Depositor. See " -- Closed Loan Program" below for a
description of underwriting standards applicable to Closed Loans. Unaffiliated
Sellers will represent and warrant that Mortgage Loans originated by them and
purchased by the Depositor have been originated in accordance with the
applicable underwriting standards established by the Depositor or such other
standards as may be described in the applicable Prospectus Supplement. The
following discussion describes the underwriting standards of the Depositor with
respect to any Mortgage Loan that it purchases.
The mortgage credit approval process for one- to four-family
residential loans follows a standard procedure that generally complies with
FHLMC and FNMA regulations and guidelines (except that certain Mortgage Loans
may have higher loan amount and qualifying ratios) and applicable federal and
state laws and regulations. The credit approval process for Cooperative Loans
follows a procedure that generally complies with applicable FNMA regulations and
guidelines (except for the loan amounts and qualifying ratios) and applicable
federal and state laws and regulations. The originator of a Mortgage Loan (the
"Originator") generally will review a detailed credit application by the
prospective mortgagor designed to provide pertinent credit information,
including a current balance sheet describing assets and liabilities and a
statement of income and expenses, as well as an authorization to apply for a
credit report that summarizes the prospective mortgagor's credit history with
local merchants and lenders and any record of bankruptcy. In addition, an
employment verification is obtained from the prospective mortgagor's employer
wherein the employer reports the length of employment with that organization,
the current salary, and gives an indication as to whether it is expected that
the prospective mortgagor will continue such employment in the future. If the
prospective mortgagor is self-employed, he or she is required to submit copies
of signed tax returns. The prospective mortgagor may also be required to
authorize verification of deposits at financial institutions. In certain
circumstances, other credit considerations may cause the Originator or Depositor
not to require some of the above documents, statements or proofs in connection
with the origination or purchase of certain Mortgage Loans.
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Unless otherwise specified in the applicable Prospectus Supplement, 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 Trust Funds may involve additional uncertainties not present
in traditional types of loans. For example, Buy-Down Loans and GPM Loans provide
for escalating or variable payments by the Mortgagor. These types of Mortgage
Loans are underwritten on the basis of a judgment that the Mortgagor will have
the ability to make larger monthly payments in subsequent years. In some
instances the Mortgagor's income may not be sufficient to enable it to continue
to make scheduled loan payments as such payments increase.
To the extent specified in the related Prospectus Supplement, the
Depositor may purchase or cause the Trust to purchase Mortgage Loans for
inclusion in a Trust Fund that are underwritten under standards and procedures
which vary from and are less stringent than those described herein. For
instance, Mortgage Loans may be underwritten under a "limited documentation"
program if so specified in the related Prospectus Supplement. With respect to
such Mortgage Loans, minimal investigation into the borrowers' credit history
and income profile is undertaken by the originator and such Mortgage Loans may
be underwritten primarily on the basis of an appraisal of the Mortgaged Property
or Cooperative Dwelling and the Loan-to-Value Ratio at origination. Thus, if the
Loan-to-Value Ratio is less than a percentage specified in the related
Prospectus Supplement, the originator may forego certain aspects of the review
relating to monthly income, and traditional ratios of monthly or total expenses
to gross income may not be considered.
The underwriting standards for Mortgage Loans secured by Multifamily
Property will be described in the related Prospectus Supplement.
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QUALIFICATIONS OF UNAFFILIATED SELLERS
Unless otherwise specified in the applicable Prospectus Supplement with
respect to an Unaffiliated Seller of Closed Loans secured by residential
properties, each Unaffiliated Seller must be an institution experienced in
originating conventional mortgage loans and/or FHA Loans or VA Loans in
accordance with accepted practices and prudent guidelines, and must maintain
satisfactory facilities to originate those loans. In addition, except as
otherwise specified, the Depositor requires adequate financial stability and
adequate servicing experience, where appropriate, as well as satisfaction of
certain other criteria.
REPRESENTATIONS BY UNAFFILIATED SELLERS; REPURCHASES
Unless otherwise specified in the related Prospectus Supplement, each
Unaffiliated Seller (or the Master Servicer, if the Unaffiliated Seller is also
the Master Servicer under the 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 (unless otherwise specified in the
related Prospectus Supplement). With respect to a Cooperative Loan, the
Unaffiliated Seller will represent and warrant that (a) the security interest
created by the cooperative security agreements constituted a valid first lien on
the collateral securing the Cooperative Loan (subject to the right of the
related Cooperative to cancel shares and terminate the proprietary lease for
unpaid assessments and to the lien of the related Cooperative for unpaid
assessments representing the Mortgagor's pro rata share of the Cooperative's
payments for its mortgage, current and future real property taxes, maintenance
charges and other assessments to which like collateral is commonly subject) and
(b) the related cooperative apartment was free from damage and was in good
repair.
All of the representations and warranties of an Unaffiliated Seller in
respect of a Mortgage Loan will have been made as of the date on which such
Unaffiliated Seller sold the Mortgage Loan to the Depositor or its affiliate. A
substantial period of time may have elapsed between such date and the date of
initial issuance of the Series of Securities evidencing an interest in, or
secured by, 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
Securities 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 Securities 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 Securities --
Assignment of Mortgage
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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 Securityholders 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 Securities as to which the Depositor has elected to treat the related Trust
Fund as a REMIC, at such other price as may be necessary to avoid a tax on a
prohibited transaction, as described in Section 860F(a) of the Code, in each
case together with accrued interest at the Mortgage Rate for the related
Mortgage Loan 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
Securityholders, following the practices it would employ in its good faith
business judgment were it the owner of such Mortgage Loan. Unless otherwise
specified in the applicable Prospectus Supplement, and subject to the ability of
the Depositor, the Unaffiliated Seller or the Servicer to substitute for certain
Mortgage Loans as described below, this repurchase obligation constitutes the
sole remedy available to the Securityholders of such Series for a breach of
representation or warranty by an Unaffiliated Seller.
The obligation of the Master Servicer to purchase a Mortgage Loan if an
Unaffiliated Seller or a Servicer defaults on its obligation to do so is subject
to limitations, and no assurance can be given that Unaffiliated Sellers will
carry out their respective repurchase obligations with respect to Mortgage
Loans. However, to the extent that a breach of the representations and
warranties of an Unaffiliated Seller may also constitute a breach of the
representations and warranties made by the Depositor or by the Master Servicer
with respect to the insurability of the Mortgage Loans, the Depositor may have a
repurchase obligation, and the Master Servicer may have the limited purchase
obligation, in each case as described below under "Description of the Securities
- -- Assignment of Mortgage Loans."
CLOSED LOAN PROGRAM
The Depositor may also acquire Closed Loans that have been originated
by Unaffiliated Sellers in accordance with underwriting standards acceptable to
the Depositor. Unless otherwise specified in the applicable Prospectus
Supplement, Closed Loans for which 11 or fewer monthly payments have been
received will be further subject to the Depositor's customary underwriting
standards. Unless otherwise specified in the applicable Prospectus Supplement,
Closed Loans for which 12 to 60 monthly payments have been received will be
subject to a review of payment history and will conform to the Depositor's
guidelines for the related mortgage program. In the event one or two payments
were over 30 days delinquent, a letter explaining the delinquencies will be
required of the Mortgagor. Unless otherwise specified in the applicable
Prospectus Supplement, the Depositor will not purchase for inclusion in a
Mortgage Pool a Closed Loan for which (i) more than two monthly payments were
over 30 days delinquent, (ii) one payment was over 60 days delinquent or (iii)
more than 60 monthly payments were received.
MORTGAGE CERTIFICATES
If so specified in the Prospectus Supplement with respect to a Series,
the Trust Fund for such Series may include certain conventional mortgage
pass-through certificates, collateralized mortgage bonds or other indebtedness
secured by mortgage loans or manufactured housing contracts (the "Mortgage
Certificates") issued by one or more trusts established by one or more private
entities and evidencing, unless otherwise
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specified in such Prospectus Supplement, the entire interest in a pool of
mortgage loans. A description of the mortgage loans and/or manufactured housing
contracts 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 Securities of such
Series) will also set forth information with respect to the entity or entities
forming the related mortgage pool, the issuer of any credit support with respect
to such Mortgage Certificates and 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 Securities is conditioned upon their characteristics
being in form and substance satisfactory to the Rating Agency rating the related
Series of Securities. Mortgage Certificates, together with the Mortgage Loans
and Contracts, are referred to herein as the "Trust Assets."
THE CONTRACT POOLS
If so specified in the Prospectus Supplement with respect to a Series,
the Trust Fund for such Series may include a Contract Pool evidencing interests
in manufactured housing installment or conditional sales contracts and
installment loan agreements originated by a manufactured housing dealer in the
ordinary course of business and purchased by the Depositor. The Contracts may be
conventional manufactured housing contracts or contracts insured by the FHA or
partially guaranteed by the VA. Each Contract will be secured by a Manufactured
Home, as defined below. Unless otherwise specified in the related Prospectus
Supplement, the Contracts will be fully amortizing and will bear interest at the
fixed annual percentage rates ("APRs") specified in such Prospectus Supplement.
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 and/or pledged to the related Trustee named in the related
Prospectus Supplement for the benefit of the related Securityholders. The Master
Servicer specified in the related Prospectus Supplement will service the
Contracts, either by itself or through other Servicers, pursuant to the
Agreement. See "Description of the Securities -- Servicing by Unaffiliated
Sellers." With respect to those Contracts serviced by the Master Servicer
through a Servicer, the Master Servicer will remain liable for its servicing
obligations under the Agreement as if the Master Servicer alone were servicing
such Contracts. The Contract documents, if so specified in the related
Prospectus Supplement, may be held for the benefit of the Trustee by a Custodian
(the "Custodian") appointed pursuant to the related Pooling and Servicing
Agreement or a Custodial Agreement (the "Custodial Agreement") among the
Depositor, the Trustee and the Custodian.
Unless otherwise specified in the related Prospectus Supplement, each
registered holder of a Security will be entitled to receive periodic
distributions, which will be monthly unless otherwise specified
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in the related Prospectus Supplement, of all or a portion of principal of the
underlying Contracts or interest on the principal balance of the Security at the
Interest Rate, or both. See "Description of the Securities -- Payments on
Contracts."
Except as otherwise specified in the related Prospectus Supplement, the
related Prospectus Supplement (or, if such information is not available in
advance of the date of such Prospectus Supplement, a Current Report on Form 8-K
to be filed with the Commission) will specify, for the Contracts contained in
the related Contract Pool, among other things: (a) the dates of origination of
the Contracts; (b) the weighted average APR on the Contracts; (c) the range of
outstanding principal balances as of the Cut-off Date; (d) the average
outstanding principal balance of the Contracts as of the Cut-off Date; (e) the
weighted average term to maturity as of the Cut-off Date; and (f) the range of
original maturities of the Contracts.
With respect to the Contracts included in the Contract Pool, the
Depositor, the Master Servicer or such other party, as specified in the related
Prospectus Supplement, will make or cause to be made representations and
warranties as to the types and geographical distribution of such Contracts and
as to the accuracy in all material respects of certain information furnished to
the Trustee in respect of each such Contract. In addition, the Master Servicer
or the Unaffiliated Seller of the Contracts will represent and warrant that, as
of the Cut-off Date, unless otherwise specified in the related Prospectus
Supplement, no Contract was more than 30 days delinquent as to payment of
principal and interest. Upon a breach of any representation that materially and
adversely affects the interest of the related Securityholders in a Contract, the
Master Servicer, the Unaffiliated Seller or such other party, as appropriate,
will be obligated either to cure the breach in all material respects or to
purchase the Contract or, if so specified in the related Prospectus Supplement,
to substitute another Contract as described below. This repurchase or
substitution obligation constitutes the sole remedy available to the
Securityholders or the Trustee for a breach of a representation by the Master
Servicer, the Unaffiliated Seller or such other party.
If so specified in the related Prospectus Supplement, in addition to
making certain representations and warranties regarding its authority to enter
into, and its ability to perform its obligations under, the Agreement, the
Master Servicer will make certain other 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
Securityholders in a Contract, the Master Servicer, the Unaffiliated Seller or
such other party, as appropriate, will be obligated either to cure such breach
in all material respects or, unless otherwise specified in the related
Prospectus Supplement, to purchase such Contract at a price equal to the
principal balance thereof as of the date of purchase plus accrued interest at
the related Pass-Through Rate to the first day of the month following the month
of purchase. The Master Servicer, if required by the Rating Agency rating the
Securities, will procure a surety bond, guaranty, letter of credit or other
instrument (the "Performance Bond") acceptable to such Rating Agency to support
this purchase obligation. See "Credit Support -- Performance Bond." The purchase
obligation will constitute the sole remedy available to the Securityholders or
the Trustee for a breach of the Master Servicer's or seller's insurability
representation.
If provided in the related Prospectus Supplement, if the Depositor
discovers or receives notice of any breach of its representations and warranties
relating to a Contract within two years or such other period as may be specified
in the related Prospectus Supplement of the date of the initial issuance of the
Securities, the Depositor may remove such Contract from the Trust Fund (each, a
"Deleted Contract"), rather than repurchase the Contract as provided above, and
substitute in its place another Contract (each, a "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
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outstanding principal balance of the Deleted Contract (the amount of any
shortfall to be distributed to Securityholders 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 remaining term to maturity not greater than
(and not more than one year less than) that of the Deleted Contract and (iv)
comply with all the representations and warranties set forth in the Agreement as
of the date of substitution. This repurchase or substitution obligation
constitutes the sole remedy available to the Securityholders or the Trustee for
any such breach.
UNDERWRITING POLICIES
Conventional Contracts will comply with the underwriting policies of
the Originator or Unaffiliated Seller of the Contracts described in the related
Prospectus Supplement. Except as described below or in the related Prospectus
Supplement, the Depositor believes that these policies were consistent with
those utilized by mortgage lenders or manufactured home lenders generally during
the period of origination. With respect to a Contract made in connection with
the Obligor's purchase of a Manufactured Home, the "appraised value" is the
amount determined by a professional appraiser. The appraiser must personally
inspect the Manufactured Home and prepare a report which includes market data
based on recent sales of comparable Manufactured Homes and, when deemed
applicable, a replacement cost analysis based on the current cost of a similar
Manufactured Home. Unless otherwise specified in the related Prospectus
Supplement, the Contract Loan-to-Value Ratio will be equal to the original
principal amount of the Contract divided by the lesser of the "appraised value"
or the sales price for the Manufactured Home.
THE DEPOSITOR
The Depositor was incorporated in the State of Delaware on December 31,
1985, and is a wholly owned subsidiary of Credit Suisse First Boston, Inc..
Credit Suisse First Boston Corporation, which may act as an underwriter in
offerings made hereby, as described in "Plan of Distribution" below, is also a
wholly owned subsidiary of Credit Suisse First Boston, Inc. The principal
executive offices of the Depositor are located at Eleven Madison Avenue, New
York, NY 10010. Its telephone number is (212) 325-2000.
The Depositor was organized, among other things, for the purposes of
establishing trusts, selling beneficial interests therein and acquiring and
selling mortgage assets to such trusts. Neither the Depositor, its parent nor
any of the Depositor's affiliates will ensure or guarantee distributions on the
Securities of any Series.
Trust Assets will be acquired by the Depositor directly or through one
or more affiliates.
USE OF PROCEEDS
Except as otherwise provided in the related Prospectus Supplement, the
Depositor will apply all or substantially all of the net proceeds from the sale
of each Series offered hereby and by the related Prospectus Supplement to
purchase the Trust Assets, to repay indebtedness which has been incurred to
obtain funds to acquire the Trust Assets, to establish the Reserve Funds or
Pre-Funding Accounts, if any, for the Series and to pay costs of structuring and
issuing the Securities. If so specified in the related Prospectus Supplement,
Securities may be exchanged by the Depositor for Trust Assets. Unless otherwise
specified in the related Prospectus Supplement, the Trust Assets for each Series
of Securities will be acquired by the Depositor either directly, or through one
or more affiliates which will have acquired such Trust Assets from time to time
either in the open market or in privately negotiated transactions.
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MATURITY, PREPAYMENT AND YIELD CONSIDERATIONS
Unless otherwise specified in the related Prospectus Supplement, the
scheduled maturities of all of the Mortgage Loans (or the mortgage loans
underlying the Mortgage Certificates) at origination will not be less than
approximately 10 years or exceed 40 years and all the Contracts will have
maturities at origination of not more than 20 years, but such Mortgage Loans (or
such underlying mortgage loans) or Contracts may be prepaid in full or in part
at any time. Unless otherwise specified in the applicable Prospectus Supplement,
no 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 related Mortgaged Property, Cooperative
Dwelling or Manufactured Home.
The FHA has compiled statistics relating to one- to four-family, level
payment mortgage loans insured by the FHA under the National Housing Act of
1934, as amended, at various interest rates, all of which permit assumption by
the new buyer if the home is sold. Such statistics indicate that while some of
such mortgage loans remain outstanding until their scheduled maturities, a
substantial number are paid prior to their respective stated maturities. The
Actuarial Division of HUD has prepared tables which, assuming full mortgage
prepayments at the rates experienced by FHA, set forth the percentages of the
original number of FHA Loans in pools of level payment mortgage loans of varying
maturities that will remain outstanding on each anniversary of the original date
of such mortgage loans (assuming they all have the same origination date) ("FHA
Experience"). Published information with respect to conventional residential
mortgage loans indicates that such mortgage loans have historically been prepaid
at higher rates than government-insured loans because, unlike government insured
mortgage loans, conventional mortgage loans may contain due-on-sale clauses that
allow the holder thereof to demand payment in full of the remaining principal
balance of such mortgage loans upon sales or certain transfers of the mortgaged
property. There are no similar statistics with respect to the prepayment rates
of cooperative loans or loans secured by multifamily properties.
It is customary in the residential mortgage industry in quoting yields
on a pool of (a) 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)
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 Securities, 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 prepayments, as applicable, will be set forth in
the Prospectus Supplement with respect to a Series of Securities. There is,
however, no assurance that prepayment of the Mortgage Loans underlying a Series
of Securities will conform to FHA Experience, mortgage industry custom, any
level of SPA, or any other rate specified in the related Prospectus Supplement.
A number of factors, including homeowner mobility, economic conditions,
enforceability of due-on-sale clauses, mortgage market interest rates, mortgage
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recording taxes and the availability of mortgage funds, may affect prepayment
experience on residential mortgage loans.
The terms of the 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 Securities --
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
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 factors, 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
Securities evidencing interests in, or secured by, 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 Securities of a
Series evidencing interests in, or secured by, 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 of and unpaid interest on 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, to the extent provided in the related Prospectus
Supplement, 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 Contracts.
FHA Mortgage Loans and Contracts and VA Mortgage Loans and Contracts are not
permitted to contain "due-on-sale" clauses, and are freely assumable.
Mortgage Loans made with respect to Multifamily Property 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 Loans. Prepayments of Mortgage Loans secured by Multifamily
Property may be affected by these and other factors, including changes in
interest rates and the relative tax benefits associated with ownership of
Multifamily Property.
If set forth in the applicable Prospectus Supplement, the Depositor or
other specified entity will have the option to repurchase the Trust Assets
included in the related Trust Fund under the conditions stated
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in such Prospectus Supplement. For any Series of Securities for which the
Depositor has elected to treat the Trust Fund or certain assets of the Trust
Fund as a REMIC pursuant to the provisions or the Code, any such repurchase will
be effected in compliance with the requirements of Section 860F(a)(4) of the
Code so as to constitute a "qualifying liquidation" thereunder. In addition, the
Depositor will be obligated, under certain circumstances, to repurchase certain
of the Trust Assets. The Master Servicer and Unaffiliated Sellers will also have
certain repurchase obligations, as more fully described herein and in the
related Prospectus Supplement. 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" and " --
Representations by Unaffiliated Sellers; Repurchases," "Description of the
Securities -- Assignment of Mortgage Loans," "-- Assignment of Mortgage
Certificates," "-- Assignment of Contracts" and " -- Termination."
If so specified in the related Prospectus Supplement, a Mortgage Pool
may contain Mortgage Loans with fluctuating Mortgage Rates that adjust more
frequently than the monthly payment with respect to such Mortgage Loans. As a
result, the portion of each monthly payment allocated to principal may vary from
month to month. Negative amortization with respect to a Mortgage Loan will occur
if an adjustment to the Mortgage Rate causes the amount of interest accrued in
any month, calculated at the new Mortgage Rate for such period, to exceed the
amount of the monthly payment or if the allowable increase in any monthly
payment is limited to an amount that is less than the amount of interest accrued
in any month. The amount of any resulting Deferred Interest will be added to the
principal balance of the Mortgage Loan and will bear interest at the Mortgage
Rate in effect from time to time. To the extent that, as a result of the
addition of any Deferred Interest, the Mortgage Loan negatively amortizes over
its term, the weighted average life of the Securities 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, unless otherwise provided in the applicable Prospectus
Supplement, the Master Servicer with respect to a Series will be required to
advance from its own funds the portion of any interest at the related Mortgage
Rate that is not so received. Partial prepayments generally are applied on the
first day of the month following receipt, with no resulting reduction in
interest payable for the period in which the partial prepayment is made. Unless
otherwise specified in the related Prospectus Supplement, full and partial
prepayments, together with interest on such full and partial prepayments at the
Mortgage Rate or APR for the related Mortgage Loan or Contract to the last day
of the month in which such prepayments occur, will be deposited in the
Certificate Account and will be available for distribution to Securityholders on
the next succeeding Distribution Date in the manner specified in the related
Prospectus Supplement.
Generally, the effective yield to holders of Securities having a
monthly Distribution Date will be lower than the yield otherwise produced
because, while interest will accrue on each Mortgage Loan or Contract, or
mortgage loan underlying a Mortgage Certificate, to the first day of the month,
the distribution of such interest to holders of such Securities will be made no
earlier than the 25th day of the month following the month of the accrual
(unless otherwise provided in the applicable Prospectus Supplement). The adverse
effect on yield will intensify with any increase in the period of time by which
the Distribution Date with respect to a Series of Securities succeeds such 25th
day. With respect to the Multi-Class Securities of a Series having other than
monthly Distribution Dates, the yield to holders of such Certificates
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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 Securities 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 Securityholders will be affected
by different rates of prepayments on the Mortgage Loans, on the Contracts or on
the mortgage loans underlying the Mortgage Certificates. In general, the yield
on Securities that are offered at a premium to their principal or notional
amount ("Premium Securities") 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 Securityholders of Premium
Securities 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 Securities that are Premium
Securities) will likely result in a lower than anticipated yield to holders of
Securities that are offered at a discount to their principal amount ("Discount
Securities"). If so specified in the applicable Prospectus Supplement, a
disproportionately large amount of Principal Prepayments may be distributed to
the holders of the Senior Securities at the times and under the circumstances
described therein.
In the event that the Securities of a Series include one or more
Classes or Subclasses of Multi-Class Securities, the Prospectus Supplement for
such Series will set forth information, measured relative to a prepayment
standard or model specified in such Prospectus Supplement, with respect to the
projected weighted average life of each such Class or Subclass and the
percentage of the initial Stated Principal Balance of each such Subclass that
would be outstanding on special Distribution Dates for such Series based on the
assumptions stated in such Prospectus Supplement, including assumptions that
prepayments on the Mortgage Loans or Contracts or on the mortgage loans
underlying the Mortgage Certificates in the related Trust Fund are made at rates
corresponding to the various percentages of such prepayment standard or model.
DESCRIPTION OF THE SECURITIES
Each Series of Securities will be issued pursuant to either (a) an
agreement consisting of either (i) a Pooling and Servicing Agreement or (ii) 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 herein as the
"Pooling and Servicing Agreement") among the Depositor, the Master Servicer, if
any, and the Trustee named in the applicable Prospectus Supplement or (b) if a
Series of Securities includes Notes, a deposit trust agreement or trust
agreement between the Depositor and the Trustee. Forms of the Pooling and
Servicing Agreement and the Trust Agreement have been filed as exhibits to the
Registration Statement of which this Prospectus is a part. If a Series of
Securities includes Notes, such Notes will be issued and secured pursuant to an
Indenture (each, an "Indenture") to be entered into between the related Issuer
and the indenture trustee specified in the related Prospectus Supplement (the
"Indenture Trustee"), and the related Trust Fund will be serviced by the Master
Servicer pursuant to a Sale and Servicing Agreement (the "Sale and Servicing
Agreement") among the Depositor, the Master Servicer or Servicer and the
Indenture Trustee. Forms of the Indenture and the Sale and Servicing Agreement
have
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been filed as exhibits to the Registration Statement of which this Prospectus is
a part. In addition, a Series of Securities may include a Warranty and Servicing
Agreement between the Master Servicer and the Servicer (the "Warranty and
Servicing Agreement"). As used herein, "Agreement" means, with respect to a
Series that only includes Certificates, the Pooling and Servicing Agreement and,
if applicable, the Warranty and Servicing Agreement, and with respect to a
Series that includes Notes, the Indenture, the Trust Agreement and the Sale and
Servicing Agreement and, if applicable, the Warranty and Servicing Agreement, as
the context requires.
The following summaries describe certain provisions common to each
Agreement. The summaries do not purport to be complete and are subject to, and
are qualified in their entirety by reference to, all of the provisions of the
Agreement for the applicable Series and the related Prospectus Supplement.
Wherever defined terms of the Agreement are referred to, such defined terms are
thereby incorporated herein by reference.
GENERAL
Unless otherwise specified in the Prospectus Supplement with respect to
a Series, each Security offered hereby and by means of the related Prospectus
Supplement will be issued in fully registered form. Securities will represent
the undivided interest or beneficial interest attributable to such Class or
Subclass in, and Notes will be secured by, the Trust Fund. The Trust Fund with
respect to a Series will consist of: (i) such Mortgage Loans, Contracts and
Mortgage Certificates and distributions thereon as from time to time are subject
to the applicable Agreement; (ii) such assets as from time to time are
identified as deposited in the Certificate Account referred to below; (iii)
property acquired by foreclosure of Mortgage Loans or deed in lieu of
foreclosure, or Manufactured Homes acquired by repossession; (iv) the Letter of
Credit, if any, with respect to such Series; (v) the Pool Insurance Policy, if
any, with respect to such Series (described below under "Description of
Insurance"); (vi) the Special Hazard Insurance Policy, if any, with respect to
such Series (described below under "Description of Insurance"); (vii) the
Mortgagor Bankruptcy Bond and proceeds thereof, if any, with respect to such
Series (as described below under "Description of Insurance"); (viii) the
Performance Bond and proceeds thereof, if any, with respect to such Series; (ix)
the Primary Mortgage Insurance Policies, if any, with respect to such Series (as
described below under "Description of Insurance"); (x) the Security Guarantee
Insurance, if any, with respect to such Series; (xi) the Depositor's rights
under the Servicing Agreement with respect to the Mortgage Loans or Contracts,
if any, with respect to such Series; and (xii) 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 Securities,
Certificates representing the minimum undivided interest or beneficial ownership
interest in the related Trust Fund or the minimum notional amount allocable to
each Class will evidence the undivided interest, beneficial ownership interest
or percentage ownership interest specified in the related Prospectus Supplement.
If so specified in the related Prospectus Supplement, one or more
Servicers or the Depositor may directly perform some or all of the duties of a
Master Servicer with respect to a Series.
If so specified in the Prospectus Supplement for a Series with respect
to which the Depositor has elected to treat the Trust Fund as a REMIC under the
Code, ownership of the Trust Fund for such Series may be evidenced by
Multi-Class Certificates and/or Notes and Residual Certificates. Distributions
of principal and interest with respect to Multi-Class Securities may be made on
a sequential or concurrent basis, as specified in the related Prospectus
Supplement. If so specified in the related Prospectus Supplement, one or more of
such Classes or Subclasses may be Compound Interest Securities.
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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 Securities of such Series will constitute "regular
interests" in the related REMIC. If so specified in the related Prospectus
Supplement, such Residual Certificates may be offered hereby and by means of
such Prospectus Supplement. See "Federal Income Tax Consequences."
If so specified in the Prospectus Supplement for a Series which
includes Multi-Class Securities, each Trust Asset in the related Trust Fund will
be assigned an initial "Asset Value." Unless otherwise specified in the related
Prospectus Supplement, the Asset Value of each Trust Asset in the related Trust
Fund will be the Stated Principal Balance of each Class or Classes of Securities
of such Series that, based upon certain assumptions, can be supported by
distributions on such Trust Assets allocable to such Class or Subclass, together
with reinvestment income thereon, to the extent specified in the related
Prospectus Supplement, and amounts available to be withdrawn from any Buy-Down,
GPM Fund or Reserve Fund for such Series. The method of determining the Asset
Value of the Trust Assets in the Trust Fund for such a Series that includes
Multi-Class Securities will be specified in the related Prospectus Supplement.
If so specified in the Prospectus Supplement with respect to a Series,
ownership of the Trust Fund for such Series may be evidenced by one or more
Classes or Subclasses of Certificates that are Senior Certificates and one or
more Classes or Subclasses of Certificates that are Subordinated Certificates,
each representing the undivided interests in the Trust Fund specified in such
Prospectus Supplement. If so specified in the related Prospectus Supplement, one
or more Classes or Subclasses or Subordinated Securities of a Series may be
subordinated to the right of the holders of Securities of one or more Classes or
Subclasses within such Series to receive distributions with respect to the
Mortgage Loans, Mortgage Certificates or Contracts in the related Trust Fund, in
the manner and to the extent specified in such Prospectus Supplement. If so
specified in the related Prospectus Supplement, the holders of each Subclass of
Senior Securities will be entitled to the Percentage Interests in the principal
and/or interest payments on the underlying Mortgage Loans or Contracts specified
in such Prospectus Supplement. If so specified in the related Prospectus
Supplement, the Subordinated Securities of a Series will evidence the right to
receive distributions with respect to a specific pool of Mortgage Loans,
Mortgage Certificates or Contracts, which right will be subordinated to the
right of the holders of the Senior Securities of such Series to receive
distributions with respect to such specific pool of Mortgage Loans, Mortgage
Certificates or Contracts, as more fully set forth in such Prospectus
Supplement. If so specified in the related Prospectus Supplement, the holders of
the Senior Securities may have the right to receive a greater than pro rata
percentage of Principal Prepayments in the manner and under the circumstances
described in the Prospectus Supplement. If so specified in the related
Prospectus Supplement, if a Series of Securities includes Notes, one more
Classes or Subclasses of Notes may be subordinated to another Class or
Subclasses of Notes in the manner and under the circumstances described in the
Prospectus Supplement.
If so specified in the related Prospectus Supplement, the Depositor may
sell certain Classes or Subclasses of the Securities 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 of 1933, as amended (the "Securities Act"). Such Securities will be
transferable only pursuant to an effective registration statement or an
applicable exemption under the Securities Act and pursuant to any applicable
state law. Alternatively, if so specified in the related Prospectus Supplement,
the Depositor may offer one or more Classes or Subclasses of the Subordinated or
Residual Certificates of a Series by means of this Prospectus and such
Prospectus Supplement.
The Securities of a Series offered hereby and by means of the related
Prospectus Supplements will be transferable and exchangeable at the office or
agency maintained by the Trustee for such purpose set
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forth in the related Prospectus Supplement, unless such Prospectus Supplement
provides otherwise. No service charge will be made for any transfer or exchange
of Securities, but the Trustee may require payment of a sum sufficient to cover
any tax or other governmental charge in connection with such transfer or
exchange.
DISTRIBUTIONS OF PRINCIPAL AND INTEREST
Beginning on the date specified in the related Prospectus Supplement,
distributions of principal of and interest on the Securities 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 Securities
are registered at the close of business on the day specified in such Prospectus
Supplement (the "Record Date"). Such distributions of interest will be made
periodically at the intervals, in the manner and at the per annum rate specified
in the related Prospectus Supplement, which rate may be fixed or variable.
Interest on the Securities will be calculated on the basis of a 360-day year
consisting of twelve 30-day months, unless otherwise specified in the related
Prospectus Supplement. Distributions of principal of the Securities will be made
in the priority and manner and in the amounts specified in the related
Prospectus Supplement.
If so specified in the Prospectus Supplement with respect to a Series
of Securities, 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 as set forth in
the Prospectus Supplement) on or with respect to the Mortgage Loans or Contracts
(including any Advances thereof) or the Mortgage Certificates included in the
Trust Fund with respect to such Series.
If so specified in the related Prospectus Supplement, distributions on
a Class or Subclass of Securities of a Series may be based on the Percentage
Interest evidenced by a Security of such Class or Subclass in the distributions
(including any Advances thereof) of principal (the "Principal Distribution") and
interest (adjusted as set forth in the Prospectus Supplement) (the "Interest
Distribution") on or with respect to the Mortgage Loans, the Contracts or the
Mortgage Certificates in the related Trust Fund. Unless otherwise specified in
the related Prospectus Supplement, on each Distribution Date, the Trustee will
distribute to each holder of a Security of such Class or Subclass an amount
equal to the product of the Percentage Interest evidenced by such Security and
the interest of such Class or Subclass in the Principal Distribution and the
Interest Distribution. A Security of such a Class or Subclass may represent a
right to receive a percentage of both the Principal Distribution and the
Interest Distribution or a percentage of either the Principal Distribution or
the Interest Distribution, as specified in the related Prospectus Supplement.
If so specified in the related Prospectus Supplement, the holders of
the Senior Securities 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.
Unless otherwise specified in the Prospectus Supplement relating to a
Series of Securities that includes Multi-Class Securities, distributions of
interest on each such Class or Subclass will be made on the Distribution Dates,
and at the Interest Rates, specified in such Prospectus Supplement. Unless
otherwise specified in the Prospectus Supplement relating to such a Series of
Securities, distributions of interest on each Class or Subclass of Compound
Interest Securities of such Series will be made on each Distribution Date after
the Stated Principal Balance of all Certificates and/or Notes of such Series
having a Final Scheduled Distribution Date prior to that of such Class or
Subclass of Compound Interest Securities has been reduced to zero. Prior to such
time, interest on such Class or Subclass of Compound Interest Securities will be
added to the Stated Principal Balance thereof on each Distribution Date for such
Series.
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Unless otherwise specified in the Prospectus Supplement relating to a
Series of Securities that includes Multi-Class Securities, distributions in
reduction of the Stated Principal Balance of such Securities will be made as
described herein. Distributions in reduction of the Stated Principal Balance of
such Securities will be made on each Distribution Date for such Series to the
holders of the Securities 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 Securities to zero. Allocation of distributions
in reduction of Stated Principal Balance will be made to each Class or Subclass
of such Securities in the order specified in the related Prospectus Supplement,
which, if so specified in such Prospectus Supplement, may be concurrently.
Unless otherwise specified in the related Prospectus Supplement, distributions
in reduction of the Stated Principal Balance of each Security of a Class or
Subclass then entitled to receive such distributions will be made pro rata among
the Securities of such Class or Subclass.
Unless otherwise specified in the Prospectus Supplement relating to a
Series of Securities that includes Multi-Class Securities, the maximum amount
which will be distributed in reduction of Stated Principal Balance to holders of
Securities of a Class or Subclass then entitled thereto on any Distribution Date
will equal, to the extent funds are available in the Certificate Account, the
sum of (i) the amount of the interest, if any, that has accrued but is not yet
payable on the Compound Interest Securities of such Series since the prior
Distribution Date (or since the date specified in the related Prospectus
Supplement in the case of the first Distribution Date) (the "Accrual
Distribution Amount"); (ii) the Stated Principal Distribution Amount; and (iii)
to the extent specified in the related Prospectus Supplement, the applicable
percentage of the Excess Cash Flow specified in such Prospectus Supplement.
Unless otherwise specified in the Prospectus Supplement relating to a
Series of Securities that includes Multi-Class Securities, 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 Securities of such
Series (before taking into account the amount of interest accrued on any Class
of Compound Interest Securities of such Series to be added to the Stated
Principal Balance thereof on such Distribution Date) exceeds the Asset Value of
the Trust Assets in the Trust Fund underlying such Series as of the end of a
period (a "Due Period") specified in the related Prospectus Supplement. For
purposes of determining the Stated Principal Distribution Amount with respect to
a Distribution Date, the Asset Value of the Trust Assets will be reduced to take
into account the interest evidenced by such Classes or Subclasses of Securities
in the principal distributions on or with respect of such Trust Assets received
by the Trustee during the preceding Due Period.
Unless otherwise specified in the Prospectus Supplement relating to a
Series of Securities that includes Multi-Class Securities, Excess Cash Flow
represents the excess of (i) the interest evidenced by such Multi-Class
Securities in the distributions received on the Mortgage Loans or Contracts
underlying such Series in the Due Period preceding a Distribution Date for such
Series (and, in the case of the first Due Period, the amount deposited in the
Certificate Account on the closing day for the sale of such Securities),
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 Securities since the preceding
Distribution Date (or since the date specified in the related Prospectus
Supplement in the case of the first Distribution Date), the Stated Principal
Distribution Amount for the then current Distribution Date and, if applicable,
any payments made on any Securities of such Class or Subclass pursuant to any
special distributions in reduction of Stated Principal Balance during such Due
Period.
The Stated Principal Balance of a Multi-Class Certificate of a Series
at any time represents the maximum specified dollar amount (exclusive of
interest at the related Interest Rate) to which the holder
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thereof is entitled from the cash flow on the Trust Assets in the Trust Fund for
such Series, and will decline to the extent distributions in reduction of Stated
Principal Balance are received by such holder. The Initial Stated Principal
Balance of each Class or Subclass within a Series that has been assigned a
Stated Principal Balance will be specified in the related Prospectus Supplement.
Distributions (other than the final distribution in retirement of the
Securities) will be made by check mailed to the address of the person entitled
thereto as it appears on the registers maintained for holders of Notes (the
"Note Register") or holders of Certificates (the "Certificate Register"), as
applicable, except that, with respect to any holder of a Security meeting the
requirements specified in the applicable Prospectus Supplement, except as
otherwise provided in the related 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 Securities will be made only upon presentation and surrender of
the Securities at the office or agency designated by the Master Servicer for
such purpose, as specified in the final distribution notice to Securityholders.
ASSIGNMENT OF MORTGAGE CERTIFICATES
Pursuant to the applicable Agreement for a Series of Securities 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 Agreement.
Such schedule will include information as to the principal balance of each
Mortgage Certificate as of the date of issuance of the Securities and its coupon
rate, maturity and original principal balance. In addition, such steps will be
taken by the Depositor as are necessary to cause the Trustee to become the
registered owner of each Mortgage Certificate which is included in a Trust Fund
and to provide for all distributions on each such Mortgage Certificate to be
made directly to the Trustee.
In connection with such assignment, the Depositor will make certain
representations and warranties in the Agreement as to, among other things, its
ownership of the Mortgage Certificates. In the event that these representations
and warranties are breached, and such breach or breaches adversely affect the
interests of the Securityholders in the Mortgage Certificates, the Depositor
will be required to repurchase the affected Mortgage Certificates at a price
equal to the principal balance thereof as of the date of purchase together with
accrued and unpaid interest thereon at the related pass-through rate to the
distribution date for such Mortgage Certificates or, in the case of a Series in
which an election has been made to treat the related Trust Fund as a REMIC, at
the lesser of the price set forth above, or the adjusted tax basis, as defined
in the Code, of such Mortgage Certificates. The Mortgage Certificates with
respect to a Series may also be subject to repurchase, in whole but not in part,
under the circumstances and in the manner described in the related Prospectus
Supplement. Any amounts received in respect of such repurchases will be
distributed to Securityholders on the immediately succeeding Distribution Date.
If so specified in the related Prospectus Supplement, within the
specified period following the date of issuance of a Series of Securities, the
Depositor may, in lieu of the repurchase obligation set forth above, and in
certain other circumstances, deliver to the Trustee Mortgage Certificates
("Substitute Mortgage Certificates") in substitution for any one or more of the
Mortgage Certificates ("Deleted Mortgage Certificates") initially included in
the Trust Fund. The required characteristics or any such Substitute Mortgage
Certificates and any additional restrictions relating to the substitution of
Mortgage Certificates will be set forth in the related Prospectus Supplement.
ASSIGNMENT OF MORTGAGE LOANS
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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, either deliver the Securities
to the Depositor in exchange for the Mortgage Loans or apply the proceeds from
the sale of such Securities to the purchase price for the Mortgage Loans. If a
Series of Securities includes Notes, the Trust Fund will be pledged by the
Issuer to the Indenture Trustee as security for the Notes. Each Mortgage Loan
will be identified in a schedule appearing as an exhibit to the related
Agreement. Such schedule will include information as to the adjusted principal
balance of each Mortgage Loan as of the Cut-off Date, as well as information
respecting the Mortgage Rate, the currently scheduled monthly payment of
principal and interest, the maturity of the Mortgage Note and the Loan-to-Value
Ratio at origination.
In addition, the Depositor will, as to each Mortgage Loan that is not a
Cooperative Loan, deliver or cause to be delivered to the Trustee (or to the
custodian hereinafter referred to) the Mortgage Note endorsed to the order of
the Trustee, the Mortgage with evidence of recording indicated thereon (except
for any Mortgage not returned from the public recording office, in which case
the Depositor will deliver a copy of such Mortgage together with its certificate
that the original of such Mortgage was delivered to such recording office) and,
unless otherwise specified in the related Prospectus Supplement, 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 Securityholders. Unless otherwise specified in the
applicable Prospectus Supplement, if any such document is found to be defective
in any material respect, the Trustee will promptly notify the Master Servicer
and the Depositor, and the Master Servicer will notify the related Servicer. If
the Servicer cannot cure the defect within 60 days after notice is given to the
Master Servicer, the Servicer will be obligated either to substitute for the
related Mortgage Loan a Replacement Mortgage Loan or Loans, or to purchase
within 90 days of such notice the related Mortgage Loan from the Trustee at a
price equal to the principal balance thereof as of the date of purchase or, in
the case of a Series as to which an election has been made to treat the related
Trust Fund as a REMIC, at such other price as may be necessary to avoid a tax on
a prohibited transaction, as described in Section 860F(a) of the Code, in each
case together with accrued interest at the applicable Mortgage 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" and " -- Representations by Unaffiliated
Sellers; Repurchases." Unless otherwise specified in the applicable Prospectus
Supplement, this purchase obligation constitutes the sole remedy available to
the Securityholders or the Trustee for a material defect in a constituent
document.
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Unless otherwise specified in the applicable Prospectus Supplement,
with respect to the Mortgage Loans in a Mortgage Pool, the Depositor will make
representations and warranties as to the types and geographical distribution of
such Mortgage Loans and as to the accuracy in all material respects of certain
information furnished to the Trustee in respect of each such Mortgage Loan. In
addition, unless otherwise specified in the related Prospectus Supplement, the
Depositor will represent and warrant that, as of the Cut-off Date for the
related Series of Securities, no Mortgage Loan is more than 30 days delinquent
as to payment of principal and interest. Upon a breach of any representation or
warranty by the Depositor that materially and adversely affects the interest of
the Securityholders, the Depositor will be obligated either to cure the breach
in all material respects or to purchase the Mortgage Loan at the purchase price
set forth above. Unless otherwise specified in the applicable Prospectus
Supplement and subject to the ability of the Depositor, if so specified in the
applicable Prospectus Supplement, to substitute for certain Mortgage Loans as
described below, this repurchase obligation constitutes the sole remedy
available to the Securityholders or the Trustee for a breach of a representation
or warranty by the Depositor.
Within the period specified in the related Prospectus Supplement,
following the date of issuance of a Series of Securities, the Depositor, the
Master Servicer or the related Servicer, as the case may be, may deliver to the
Trustee Mortgage Loans ("Substitute Mortgage Loans") in substitution for any one
or more of the Mortgage Loans ("Deleted Mortgage Loans") initially included in
the Trust Fund but which do not conform in one or more respects to the
description thereof contained in the related Prospectus Supplement, or as to
which a breach of a representation or warranty is discovered, which breach
materially and adversely affects the interests of the Securityholders. 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 Contract Pools" with respect to the
substitution of Contracts.
In addition to making certain representations and warranties regarding
its authority to enter into, and its ability to perform its obligations under
the Agreement relating to a Series of Securities, the Master Servicer may make
certain representations and warranties to the Trustee in such 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.
Unless otherwise specified in the applicable Prospectus Supplement, upon a
breach of any such representation or warranty that materially and adversely
affects the interests of the Securityholders of such Series in a Mortgage Loan,
the Master Servicer will be obligated either to cure the breach in all material
respects or to purchase such Mortgage Loan at the price calculated as set forth
above.
To the extent described in the related Prospectus Supplement, the
Master Servicer will procure a surety bond, corporate guaranty or another
similar form of insurance coverage acceptable to the Rating Agency rating the
related Series of Securities to support, among other things, this purchase
obligation. Unless otherwise stated in the applicable Prospectus Supplement, the
aforementioned purchase obligation constitutes the sole remedy available to the
Securityholders 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 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.
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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 Securities. If a Series of Securities includes
Notes, the Trust fund will be pledged by the Issuer to the Indenture Trustee as
security for the Notes. Each Contract will be identified in a schedule appearing
as an exhibit to the Agreement (the "Contract Schedule"). The Contract Schedule
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, as specified in the related Prospectus
Supplement, the Custodian, the original Contract and copies of documents and
instruments related to each Contract and the security interest in the
Manufactured Home securing each Contract. In order to give notice of the right,
title and interest of the Certificateholders to the Contracts, the Depositor
will cause a UCC-1 financing statement to be executed by the Depositor
identifying the Trustee as the secured party and identifying all Contracts as
collateral. Unless otherwise specified in the related Prospectus Supplement, the
Contracts will not be stamped or otherwise marked to reflect their assignment
from the Depositor to the Trust Fund. Therefore, if a subsequent purchaser were
able to take physical possession of the Contracts without notice of such
assignment, the interest of the Certificateholders in the Contracts could be
defeated. See "Certain Legal Aspects of Mortgage Loans and Contracts -- The
Contracts."
The Trustee (or the Custodian) will review and hold such documents in
trust for the benefit of the Securityholders. Unless otherwise provided in the
related Prospectus Supplement, if any such document is found to be defective in
any material respect, the Unaffiliated Seller must cure such defect within 60
days, or within such other period specified in the related Prospectus
Supplement, the Unaffiliated Seller, not later than 90 days or within such other
period specified in the related Prospectus Supplement, after the Trustee's
notice to the Unaffiliated Seller of the defect. If the defect is not cured, the
Unaffiliated Seller will repurchase the related Contract or any property
acquired in respect thereof from the Trustee at a price equal to the remaining
unpaid principal balance of such Contract (or, in the case of a repossessed
Manufactured Home, the unpaid principal balance of such Contract immediately
prior to the repossession) or, in the case of a Series as to which an election
has been made to treat the related Trust Fund as a REMIC, at such other price as
may be necessary to avoid a tax on a prohibited transaction, as described in
Section 860F(a) of the Code, in each case together with accrued but unpaid
interest to the first day of the month following repurchase at the related APR,
plus any unreimbursed Advances respecting such Contract. Unless otherwise
specified in the related Prospectus Supplement, the repurchase obligation will
constitute the sole remedy available to the Securityholders or the Trustee for a
material defect in a Contract document.
Unless otherwise specified in the related Prospectus Supplement, each
Unaffiliated Seller of Contracts will have represented, among other things, that
(i) immediately prior to the transfer and assignment of the Contracts, the
Unaffiliated Seller had good title to, and was the sole owner of each Contract
and there had been no other sale or assignment thereof, (ii) as of the date of
such transfer, the Contracts are subject to no offsets, defenses or
counterclaims, (iii) each Contract at the time it was made complied in all
material respects with applicable state and federal laws, including usury, equal
credit opportunity and disclosure laws, (iv) as of the date of such transfer,
each Contract is a valid first lien on the related Manufactured Home and such
Manufactured Home is free of material damage and is in good repair,
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(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 Agreement and that all premiums
now due on such insurance have been paid in full.
All of the representations and warranties of an Unaffiliated Seller in
respect of a Contract will have been made as of the date on which such
Unaffiliated 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 Securities. A substantial
period of time may have elapsed between the date as of which the representations
and warranties were made and the date of initial issuance of the related Series
of Securities. Since the representations and warranties referred to in the
preceding paragraph are the only representations and warranties that will be
made by an Unaffiliated Seller, the Unaffiliated Seller's repurchase obligation
described below will not arise if, during the period commencing on the date of
sale of a Contract by the Unaffiliated 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 Securities.
The only representations and warranties to be made for the benefit of
Securityholders 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 Securityholders in such Contract within 90 days (or
such other period specified in the related Prospectus Supplement) after notice
from the Master Servicer, such Unaffiliated Seller will be obligated to
repurchase such Contract at a price equal to, unless otherwise specified in the
related Prospectus Supplement, the principal balance thereof as of the date of
the repurchase or, in the case of a Series as to which an election has been made
to treat the related Trust Fund as a REMIC, at such other price as may be
necessary to avoid a tax on a prohibited transaction, as described in Section
860F(a) of the Code, in each case together with accrued and unpaid interest to
the first day of the month following repurchase at the related APR, plus the
amount of any unreimbursed Advances in respect of such Contract (the "Purchase
Price"). The Master Servicer will be required under the applicable Agreement to
enforce this obligation for the benefit of the Trustee and the Securityholders,
following the practices it would employ in its good faith business judgment were
it the owner of such Contract. Except as otherwise set forth in the related
Prospectus Supplement, this repurchase obligation will constitute the sole
remedy available to Securityholders 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."
PRE-FUNDING
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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
Mortgage Loans, Contracts or Mortgage Certificates 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, Contracts or Mortgage Certificates, such Pre-Funded Amount may
be invested in one or more Eligible Investments. Except as otherwise provided in
the applicable Agreement, an "Eligible Investment" will be 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 the rating of
which 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 the Rating Agency rating
the Securities, (iii) certificates of deposit having a rating in the highest
rating category from the 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 the 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 a credit rating in the
highest rating category from the Rating Agency; (d) Eurodollar time deposits
that are obligations of institutions the time deposits of which carry a credit
rating in the highest rating category from the 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 the Rating Agency; and (f) any other investment with respect to
which the Rating Agency 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 Mortgage Loans, Contracts and/or Mortgage Certificates 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 Securities will be specified in the related
Prospectus Supplement, it is anticipated that: (a) the Pre-Funding Period will
not exceed 120 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, Contracts and/or Mortgage
Certificates 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
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Supplement) and (c) that the Pre-Funded Amount will not exceed 25% of the
principal amount of Securities issued pursuant to a particular offering.
SERVICING BY UNAFFILIATED SELLERS
Each Unaffiliated Seller of a Mortgage Loan or a Contract may have the
option to act as the Servicer (or Master Servicer) for such Mortgage Loan or
Contract pursuant to a Servicing Agreement. A representative form of Servicing
Agreement has been filed as an exhibit to the Registration Statement of which
this Prospectus is a part. The following description does not purport to be
complete and is qualified in its entirety by reference to the form of Servicing
Agreement and by the discretion of the Master Servicer or Depositor to modify
the Servicing Agreement and to enter into different Servicing Agreements. The
Agreement provides that, if for any reason the Master Servicer for such Series
of Securities is no longer the Master Servicer of the related Mortgage Loans or
Contracts, the Trustee or any successor master servicer must recognize the
Servicer's rights and obligations under such Servicing Agreement.
A Servicer may delegate its servicing obligations to third-party
servicers, but continue to act as Servicer under the related Servicing
Agreement. The Servicer will be required to perform the customary functions of a
servicer, including collection of payments from Mortgagors and Obligors and
remittance of such collections to the Master Servicer, maintenance of primary
mortgage, hazard insurance, FHA insurance and VA guarantees and filing and
settlement of claims thereunder, subject in certain cases to (a) the right of
the Master Servicer to approve in advance any such settlement; (b) maintenance
of escrow accounts of Mortgagors and Obligors for payment of taxes, insurance
and other items required to be paid by the Mortgagor pursuant to the 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. Except as otherwise provided in the related
Prospectus Supplement, the 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 Notes 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
Agreement.
Each Servicer will be required to agree to indemnify the Master
Servicer for any liability or obligation sustained by the Master Servicer in
connection with any act or failure to act by the Servicer in its servicing
capacity.
Each Servicer will be required to service each Mortgage Loan or
Contract pursuant to the terms of the Servicing Agreement for the entire term of
such Mortgage Loan or Contract, unless the Servicing Agreement is earlier
terminated by the Master Servicer or unless servicing is released to the Master
Servicer. Unless otherwise set forth in the Prospectus Supplement, the Master
Servicer may terminate a Servicing Agreement upon 30 days' written notice to the
Servicer, without cause, upon payment of an amount equal to the fair market
value of the right to service the Mortgage Loans or Contracts serviced by any
such Servicer under such Servicing Agreement, or if such fair market value
cannot be determined, a
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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 Agreement. Upon termination of a Servicing Agreement,
the Master Servicer or Trustee may act as servicer of the related Mortgage Loans
or Contracts or the Master Servicer may enter into one or more new Servicing
Agreements. If the Master Servicer acts as servicer, it will not assume
liability for the representations and warranties of the Servicer that it
replaces. If the Master Servicer enters into a new Servicing Agreement, each new
Servicer must be an Unaffiliated Seller or meet the standards for becoming an
Unaffiliated Seller or have such servicing experience that is otherwise
satisfactory to the Master Servicer. The Master Servicer will make reasonable
efforts to have the new Servicer assume liability for the representations and
warranties of the terminated Servicer, but no assurance can be given that such
an assumption will occur. In the event of such an assumption, the Master
Servicer may, in the exercise of its business judgment, release the terminated
Servicer from liability in respect of such representations and warranties. Any
amendments to a Servicing Agreement or new Servicing Agreements may contain
provisions different from those described above that are in effect in the
original Servicing Agreements. However, the related Agreement will provide that
any such amendment or new agreement may not be inconsistent with or violate such
Agreement.
PAYMENTS ON MORTGAGE LOANS
The Master Servicer will, unless otherwise specified in the Prospectus
Supplement with respect to a Series of Securities, establish and maintain a
separate account or accounts in the name of the applicable Trustee (the
"Certificate Account"), which must be maintained with a depository institution
and in a manner acceptable to the Rating Agency rating the Securities of a
Series. If a Series of Securities includes Notes, the Master Servicer may
establish and maintain a separate account or accounts in the name of the
applicable Trustee (the "Collection Account") into which amounts received in
respect of the Trust Assets are required to be deposited and a separate account
or accounts in the name of the applicable Trustee from which distributions in
respect of the Notes (the "Note Distribution Account") and/or the Certificates
(the "Certificate Distribution Account") may be made. The Collection Account,
Note Distribution Account and Certificate Distribution Account must be
established with a depositary institution and in a manner acceptable to the
Rating Agencies rating the Securities of such Series. For ease of reference,
references in this Prospectus to the Certificate Account shall be deemed to
refer to the Collection Account, Note Distribution Account and Certificate
Distribution Account, as applicable.
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 Securityholders 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 Securities of the related Series, and that is otherwise acceptable to
the Master Servicer. Unless otherwise specified in the related Prospectus
Supplement, the Servicer will be required to deposit into the Servicing Account
on a
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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. Except as otherwise provided in the related Prospectus
Supplement, 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, unless otherwise specified in the related
Prospectus Supplement, such requirement shall only apply to the extent such
Servicer determines in good faith any such advance will be recoverable out of
Insurance Proceeds, proceeds of the liquidation of the related Mortgage Loans or
otherwise.
The Certificate Account may be maintained with a depository institution
that is an affiliate of the Master Servicer. Unless otherwise specified in the
related Prospectus Supplement, the Master Servicer will deposit in the
Certificate Account for each Series of Securities on a daily basis the following
payments and collections received or made by it subsequent to the Cut-off Date
(other than payments due on or before the Cut-off Date) in the manner set forth
in the related Prospectus Supplement:
(i) all payments on account of principal, including
principal prepayments, of 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 Securities and any title, hazard or other insurance policy
covering any of the Mortgage Loans included in the related Mortgage
Pool (to the extent such proceeds are not applied to the restoration of
the related property or released to the Mortgagor in accordance with
customary servicing procedures) (collectively, "Insurance Proceeds") or
any Alternative Credit Support established in lieu of any such
insurance and described in the applicable Prospectus Supplement; and
(B) all other cash amounts received and retained in connection with the
liquidation of defaulted Mortgage Loans, by foreclosure or otherwise,
other than Insurance Proceeds, payments under the Letter of Credit or
proceeds of any Alternative Credit Support, if any, with respect to
such Series ("Liquidation Proceeds"), net of expenses of liquidation,
unpaid servicing compensation with respect to such Mortgage Loans and
unreimbursed or unrecoverable Advances made by the Servicers of the
related Mortgage Loans;
(iv) all payments under the Letter of Credit, if any, with
respect to such Series;
(v) all amounts required to be deposited therein from the
Reserve Fund, if any, for such Series;
(vi) any Advances made by a Servicer or the Master
Servicer (as described herein under " --Advances");
(vii) any Buy-Down Funds (and, if applicable, investment
earnings thereon) required to be deposited in the Certificate Account,
as described below; and (viii) all proceeds of any Mortgage Loan
repurchased by the Master Servicer, the Depositor, any Servicer or any
Unaffiliated Seller (as described under "The Trust Fund -- Mortgage
Loan Program," "-- Representations by Unaffiliated Sellers;
Repurchases" or " -- Assignment of Mortgage Loans" above) or
repurchased by the Depositor (as described under " -- Termination"
below).
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With respect to each Buy-Down Loan, if so specified in the related
Prospectus Supplement, the Master Servicer or the related Servicer will deposit
the Buy-Down Funds with respect thereto in a custodial account complying with
the requirements set forth above for the Certificate Account, which, unless
otherwise specified in the related Prospectus Supplement, may be an
interest-bearing account. The amount of such required deposits, together with
investment earnings thereon at the rate specified in the applicable Prospectus
Supplement, will provide sufficient funds to support the full monthly payments
due on such Buy-Down Loan on a level debt service basis. Neither the Master
Servicer nor the Depositor will be obligated to add to the Buy-Down Fund should
investment earnings prove insufficient to maintain the scheduled level of
payments on the Buy-Down Loans. To the extent that any such insufficiency is not
recoverable from the Mortgagor under the terms of the related Mortgage Note,
distributions to Securityholders 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 Securities --Payments on Mortgage Loans" will be established
in the name of the Trustee.
Except as otherwise provided in the related Prospectus Supplement,
there will be deposited in the Certificate Account on a daily basis the
following payments and collections received or made by it on or after the
Cut-off Date:
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(i) all Obligor payments on account of principal,
including principal prepayments, of the Contracts;
(ii) all Obligor payments on account of interest on the
Contracts;
(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 related Agreement to be
deposited in the Certificate Account;
(vi) all amounts received from Credit Support provided
with respect to a Series of Securities;
(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.
COLLECTION OF PAYMENTS ON MORTGAGE CERTIFICATES
The Mortgage Certificates included in the Trust Fund with respect to a
Series of Securities will be registered in the name of the Trustee so that all
distributions thereon will be made directly to the Trustee. The related
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
Securityholders 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 Securityholders that it is not obligated to pursue any such available
remedies unless adequate indemnity for its legal fees and expenses is provided
by such Securityholders.
DISTRIBUTIONS ON SECURITIES
On each Distribution Date with respect to a Series of Securities 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 Securityholders of
record on the applicable Record Date. Such distributions shall occur in the
manner described herein under " --Description of the Securities -- Distributions
of Principal and Interest" and in the
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related Prospectus Supplement. If so specified in the applicable Prospectus
Supplement, the Master Servicer will withdraw from the applicable Certificate
Account funds on deposit therein and distribute them to the Trustee. Such funds
shall consist of the aggregate of all previously undistributed payments on
account of principal (including principal prepayments, if any) and interest
received after the Cut-off Date and on or prior to the 20th day (or if such day
is not a business day, the next preceding business day) of the month of such
distribution or such other day as may be specified in the related Prospectus
Supplement (in either case, the "Determination Date"), except:
(i) all payments that were due on or before the Cut-off
Date;
(ii) all principal prepayments received during the month
of distribution and all payments of interest representing interest for
the month of distribution or any portion thereof;
(iii) all payments which represent early receipt (other
than prepayments) of scheduled payments of principal and interest due
on a date or dates subsequent to the first day of the month of
distribution;
(iv) amounts received on particular Mortgage Loans or
Contracts as late payments of principal or interest and respecting
which the Master Servicer has made an unreimbursed Advance;
(v) amounts representing reimbursement for other Advances
which the Master Servicer has determined to be otherwise nonrecoverable
and amounts representing reimbursement for certain losses and expenses
incurred or Advances made by the Master Servicer and discussed below;
and
(vi) that portion of each collection of interest on a
particular Mortgage Loan in such Mortgage Pool or on a particular
Contract in such Contract Pool that represents (A) servicing
compensation to the Master Servicer, (B) amounts payable to the entity
or entities specified in the applicable Prospectus Supplement or
permitted withdrawals from the Certificate Account out of payments
under the Letter of Credit, if any, with respect to the Series, (C)
related Insurance Proceeds or Liquidation Proceeds, (D) amounts in the
Reserve Fund, if any, with respect to the Series or (E) proceeds of any
Alternative Credit Support, each deposited in the Certificate Account
to the extent described under "Description of the Securities --
Maintenance of Insurance Policies," "-- Presentation of Claims," "--
Enforcement of `Due-on-Sale' Clauses; Realization Upon Defaulted
Mortgage Loans" and " -- Enforcement of `Due-on-Sale' Clauses;
Realization Upon Defaulted Contracts" or in the applicable Prospectus
Supplement.
Except as otherwise specified in the related Prospectus Supplement, no
later than the Business Day immediately preceding the Distribution Date for a
Series of Securities, 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 of and interest on the Mortgage Loans
or Contracts, stated separately or the information enabling the Trustee to
determine the amount of distribution to be made on the Securities and a
statement setting forth certain information with respect to the Mortgage Loans
or Contracts.
If so specified in the applicable Prospectus Supplement, the Trustee
will establish and maintain the Certificate Account for the benefit of the
holders of the Securities of the related Series in which the Trustee shall
deposit, as soon as practicable after receipt, each distribution made to the
Trustee by the Master Servicer, as set forth above, with respect to the Mortgage
Loans or Contracts, any distribution received by the Trustee with respect to the
Mortgage Certificates, if any, included in the Trust Fund and deposits from any
Reserve Fund or GPM Fund. If so specified in the applicable Prospectus
Supplement, prior to making any distributions to Securityholders, any portion of
the distribution on the Mortgage Certificates that represents servicing
compensation, if any, payable to the Trustee shall be deducted and paid to the
Trustee.
Funds on deposit in the Certificate Account may be invested in Eligible
Investments maturing in general not later than the Business Day preceding the
next Distribution Date. Unless otherwise provided in the Prospectus Supplement,
all income and gain realized from any such investment will be for the benefit of
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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. Unless otherwise provided in the Prospectus Supplement, the
Certificate Account established pursuant to the 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 Securities having differing terms, whether
subordinated or not, to the extent not described herein, shall be set forth in
the related Prospectus Supplement.
SPECIAL DISTRIBUTIONS
To the extent specified in the Prospectus Supplement relating to a
Series of Securities, one or more Classes of Multi-Class Securities that do not
provide for monthly Distribution Dates may receive Special Distributions in
reduction of Stated Principal Balance ("Special Distributions") in any month,
other than a month in which a Distribution Date occurs, if, as a result of
principal prepayments on the Trust Assets in the related Trust Fund and/or low
reinvestment yields, the Trustee determines, based on assumptions specified in
the related 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 Securities of such Classes or
Subclasses may be less than the sum of (i) the interest scheduled to be
distributed to holders of the Securities of such Classes or Subclasses and (ii)
the amount to be distributed in reduction of Stated Principal Balance or such
Securities on such Distribution Date. Any such Special Distributions will be
made in the same priority and manner as distributions in reduction of Stated
Principal Balance would be made on the next Distribution Date.
REPORTS TO SECURITYHOLDERS
Unless otherwise specified or modified in the related Prospectus
Supplement for each Series, the Master Servicer or the Trustee will include with
each distribution to Securityholders 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 Security, as to (i)
through (iii) or (iv) through (vi) below, as applicable):
(i) to each holder of a Security, other than a
Multi-Class Certificate or Residual Certificate, the amount of such
distribution allocable to principal of the Trust Assets, separately
identifying the aggregate amount of any Principal Prepayments included
therein, and the portion, if any, advanced by a Servicer or the Master
Servicer;
(ii) to each holder of a Security, other than a
Multi-Class Certificate or Residual Certificate, the amount of such
distribution allocable to interest on the related Trust Assets and the
portion, if any, advanced by a Servicer or the Master Servicer;
(iii) to each holder of a Security, the amount of servicing
compensation with respect to the related Trust Assets and such other
customary information as the Master Servicer deems necessary or
desirable to enable Securityholders to prepare their tax returns;
(iv) to each holder of a Multi-Class Certificate on which
an interest distribution and a distribution in reduction of Stated
Principal Balance are then being made, the amount of such interest
distribution and distribution in reduction of Stated Principal Balance,
and the Stated Principal Balance of each Class after giving effect to
the distribution in reduction of Stated Principal Balance made on such
Distribution Date or on any Special Distribution Date occurring
subsequent to the last report;
(v) to each holder of a Multi-Class Certificate on which
a distribution of interest only is then being made, the aggregate
Stated Principal Balance of Securities outstanding of each Class or
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Subclass after giving effect to the distribution in reduction of Stated
Principal Balance made on such Distribution Date and on any Special
Distribution Date occurring subsequent to the last such report and
after including in the aggregate Stated Principal Balance the Stated
Principal Balance of the Compound Interest Securities, if any,
outstanding and the amount of any accrued interest added to the
Compound Value of such Compound Interest Securities on such
Distribution Date;
(vi) to each holder of a Compound Interest Security (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 Securities with respect to such
Distribution Date and added to the Compound Value of such
Compound Interest Security; and
(c) the Stated Principal Balance of such Class
or Subclass of Compound Interest Securities after giving
effect to the addition thereto of all interest accrued
thereon;
(vii) in the case of a series of Securities with a variable
Interest Rate, the Interest 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 to be distributed to
Securityholders on the Distribution Date;
(ix) in the case of a Series of Securities benefiting from
the Alternative Credit Support described in the related Prospectus
Supplement, the amount of coverage under such Alternative Credit
Support as of the close of business on the applicable Determination
Date, after giving effect to any amounts with respect thereto
distributed to Securityholders on the Distribution Date;
(x) the aggregate scheduled principal balance of the
Trust Assets as of a date not earlier than such Distribution Date after
giving effect to payments of principal distributed to Securityholders
on the Distribution Date;
(xi) the book value of any collateral acquired by the
Mortgage Pool or Contract Pool through foreclosure, repossession or
otherwise; and
(xii) the number and aggregate principal amount of Mortgage
Loans or Contracts one month and two months delinquent.
In addition, within a reasonable period of time after the end of each
calendar year, the Master Servicer, or the Trustee, if specified in the
applicable Prospectus Supplement, will cause to be furnished to each
Securityholder 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 Securityholder to prepare
its tax return, as applicable, for such calendar year or, in the event such
person was a Securityholder of record during a portion of such calendar year,
for the applicable portion of such year.
ADVANCES
Unless otherwise stated in the related Prospectus Supplement, each
Servicer and the Master Servicer (with respect to Mortgage Loans or Contracts
serviced by it and with respect to Advances required to be made by the Servicers
that were not so made) will be obligated to advance funds in an amount equal to
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the aggregate scheduled installments of payments of principal and interest 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
related Servicing Agreement, to be remitted no later than the close of business
on the business day immediately preceding the Distribution Date, subject to
(unless otherwise provided in the applicable Prospectus Supplement) their
respective determinations that such advances are reimbursable under any Letter
of Credit, Pool Insurance Policy, Primary Mortgage Insurance Policy, Mortgagor
Bankruptcy Bond, from the proceeds of Alternative Credit Support, from cash in
the Reserve Fund, the Servicing or Certificate Accounts or otherwise. In making
such Advances, the Servicers and Master Servicer will endeavor to maintain a
regular flow of scheduled interest and principal payments to the
Securityholders, rather than to guarantee or insure against losses. Any such
Advances are reimbursable to the Servicer or Master Servicer out of related
recoveries on the Mortgage Loans respecting which such amounts were advanced. In
addition, such Advances are reimbursable from cash in the Reserve Fund, the
Servicing or Certificate Accounts to the extent that the Servicer or the Master
Servicer, as the case may be, shall determine that any such Advances previously
made are not ultimately recoverable. The Servicers and the Master Servicer
generally will also be obligated to make advances in respect of certain taxes
and insurance premiums not paid by Mortgagors or Obligors on a timely basis and,
to the extent deemed recoverable, foreclosure costs, including reasonable
attorney's fees. Funds so advanced are reimbursable out of recoveries on the
related Mortgage Loans. This right of reimbursement for any Advance will be
prior to the rights of the Securityholders to receive any amounts recovered with
respect to such Mortgage Loans or Contracts. Unless otherwise provided in the
applicable Prospectus Supplement, the Servicers and the Master Servicer will
also be required to advance an amount necessary to provide a full month's
interest 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 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, if so provided in the related Prospectus Supplement, 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.
If specified in the related Prospectus Supplement, under the applicable
Servicing Agreement, the Master Servicer, either directly or through Servicers,
to the extent permitted by law, may establish and maintain an escrow account
(the "Escrow Account") in which Mortgages or Obligors will be required to
deposit amounts sufficient to pay taxes, assessments, mortgage and hazard
insurance premiums and other comparable items. This obligation may be satisfied
by the provision of insurance coverage against loss occasioned by the failure to
escrow insurance premiums rather than causing such escrows to be made.
Withdrawals from the Escrow Account may be made to effect timely payment of
taxes, assessments, mortgage and hazard insurance, to refund to Mortgagors or
Obligors amounts determined to be overages, to pay interest to Mortgagors or
Obligors on balances in the Escrow Account, if required, and to clear and
terminate such account. The Master Servicer will be responsible for the
administration of each Escrow
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Account and will be obliged to make advances to such accounts when a deficiency
exists therein. Alternatively, in lieu of establishing an Escrow Account, the
Servicer may procure a performance bond or other form of insurance coverage, in
an amount acceptable to the Rating Agency rating the related Series of
Securities, covering loss occasioned by the failure to escrow such amounts.
MAINTENANCE OF INSURANCE POLICIES
To the extent that the applicable Prospectus Supplement does not
expressly provide for a method of credit support described below under "Credit
Support" or for Alternative Credit Support in lieu of some or all of the
insurance coverage set forth below, the following paragraphs on insurance shall
apply.
STANDARD HAZARD INSURANCE
To the extent specified in a related Prospectus Supplement, the terms
of each Servicing Agreement will require the Servicer to cause to be maintained
for each Mortgage Loan or Contract that it services (and the Master Servicer
will be required to maintain for each Mortgage Loan or Contract serviced by it
directly) a policy of standard hazard insurance (a "Standard Hazard Insurance
Policy") covering the Mortgaged Property underlying such Mortgage Loan or
Manufactured Home underlying such Contract in an amount equal to the lesser of
the maximum insurable value of the improvements securing such Mortgage Loan or
Contract or the principal balance of such Mortgage Loan or Contract. Each
Servicer or the Master Servicer, as the case may be, shall also maintain on
property acquired upon foreclosure, or deed in lieu of foreclosure, of any
Mortgage Loan or Contract, a Standard Hazard Insurance Policy in an amount that
is at least equal to the maximum insurable value of the improvements that are a
part of the Mortgaged Property or Manufactured Home. Any amounts collected by
the Servicer or the Master Servicer under any such policies (other than amounts
to be applied to the restoration or repair of the Mortgaged Property or
Manufactured Home or released to the borrower in accordance with normal
servicing procedures) shall be deposited in the related Servicing Account for
deposit in the Certificate Account or, in the case of the Master Servicer, shall
be deposited directly into the Certificate Account. Any cost incurred in
maintaining any such insurance shall not, for the purpose of calculating monthly
distributions to Securityholders, 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 applicable
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
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.
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The applicable Servicing Agreement will require the Master Servicer to
perform the aforementioned obligations of the Servicer in the event the Servicer
fails to do so. In the event that the Master Servicer obtains and maintains a
blanket policy insuring against hazard losses on all of the related Mortgage
Loans or Contracts, it will conclusively be deemed to have satisfied its
obligations to cause to be maintained a Standard Hazard Insurance Policy for
each Mortgage Loan or Contract that it services. This blanket policy may contain
a deductible clause, in which case the Master Servicer will, in the event that
there has been a loss that would have been covered by such policy absent such
deductible, deposit in the Certificate Account the amount not otherwise payable
under the blanket policy because of the application of such deductible clause.
Since the amount of hazard insurance to be maintained on the
improvements securing the Mortgage Loans or Contracts may decline as the
principal balances owing thereon decrease, and since residential properties have
historically appreciated in value over time, in the event of partial loss,
hazard insurance proceeds may be insufficient to fully restore the damaged
Mortgaged Property or Manufactured Home. See "Description of Insurance --
Special Hazard Insurance Policies" for a description of the limited protection
afforded by a Special Hazard Insurance Policy against losses occasioned by
certain hazards that are otherwise uninsured against as well as against losses
caused by the application of the coinsurance provisions contained in the
Standard Hazard Insurance Policies.
SPECIAL HAZARD INSURANCE
If so specified in the related Prospectus Supplement, the Master
Servicer will be required to exercise its best reasonable efforts to maintain
the Special Hazard Insurance Policy, if any, with respect to a Series of
Securities in full force and effect, unless coverage thereunder has been
exhausted through payment of claims, and will pay the premium for the Special
Hazard Insurance Policy on a timely basis; provided, however, that the Master
Servicer shall be under no such obligation if coverage under the Pool Insurance
Policy with respect to such Series has been exhausted. In the event that the
Special Hazard Insurance Policy is cancelled or terminated for any reason (other
than the exhaustion of total policy coverage), the Master Servicer will exercise
its best reasonable efforts to obtain from another insurer a replacement policy
comparable to the Special Hazard Insurance Policy with a total coverage that is
equal to the then existing coverage of the Special Hazard Insurance Policy;
provided that if the cost of any such replacement policy is greater than the
cost of the terminated Special Hazard Insurance Policy, the amount of coverage
under the replacement Special Hazard Insurance Policy may be reduced to a level
such that the applicable premium will not exceed the cost of the Special Hazard
Insurance Policy that was replaced. Certain characteristics of the Special
Hazard Insurance Policy are described under "Description of Insurance -- Special
Hazard Insurance Policies."
POOL INSURANCE
To the extent specified in a related Prospectus Supplement, the Master
Servicer will exercise its best reasonable efforts to maintain a Pool Insurance
Policy with respect to a Series of Securities in effect throughout the term of
the applicable Agreement, unless coverage thereunder has been exhausted through
payment of claims, and will pay the premiums for such Pool Insurance Policy on a
timely basis. In the event that the Pool Insurer ceases to be a qualified
insurer because it is not qualified to transact a mortgage guaranty insurance
business under the laws of the state of its principal place of business or any
other state which has jurisdiction over the Pool Insurer in connection with the
Pool Insurance Policy, or if the Pool Insurance Policy is cancelled or
terminated for any reason (other than the exhaustion of total policy coverage),
the Master Servicer will exercise its best reasonable efforts to obtain a
replacement policy of pool insurance comparable to the Pool Insurance Policy and
may obtain, under the circumstances described
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above with respect to the Special Hazard Insurance Policy, a replacement policy
with reduced coverage. In the event the Pool Insurer ceases to be a qualified
insurer because it is not approved as an insurer by FHLMC, FNMA or any
successors thereto, the Master Servicer will agree to review, not less often
than monthly, the financial condition of the Pool Insurer with a view towards
determining whether recoveries under the Pool Insurance Policy are jeopardized
and, if so, will exercise its best reasonable efforts to obtain from another
qualified insurer a replacement insurance policy under the above-stated
limitations. Certain characteristics of the Pool Insurance Policy are described
under "Description of Insurance -- Pool Insurance Policies."
PRIMARY MORTGAGE INSURANCE
To the extent specified in the related Prospectus Supplement, the
Master Servicer will be required to keep in force and effect for each Mortgage
Loan secured by Single Family Property serviced by it directly, and each
Servicer of a Mortgage Loan secured by Single Family Property will be required
to keep in full force and effect with respect to each such Mortgage Loan
serviced by it, in each case to the extent required by the underwriting
standards of the Depositor, a Primary Mortgage Insurance Policy issued by a
qualified insurer (the "Primary Mortgage Insurer") with regard to each Mortgage
Loan for which such coverage is required pursuant to the applicable Servicing
Agreement and 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
Securities that is required to be kept in force under the applicable Agreement
or 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 Securities.
See "Description of Insurance -- Primary Mortgage Insurance Policies."
MORTGAGOR BANKRUPTCY BOND
If so specified in the related Prospectus Supplement, the Master
Servicer will exercise its best reasonable efforts to maintain a Mortgagor
Bankruptcy Bond for a Series of Securities in full force and effect throughout
the term of the applicable 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 Securities, 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
Securityholders, 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
Securityholders, will present claims to the applicable Primary Mortgage Insurer
and to the FHA and the VA,
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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 Securityholders on liquidation of the
Mortgage Loan or Contract after reimbursement of the expenses incurred by the
Servicer or the Master Servicer, as the case may be, and (ii) that such expenses
will be recoverable through proceeds of the sale of the Mortgaged Property or
proceeds of any related Pool Insurance Policy, any related Primary Mortgage
Insurance Policy or otherwise.
If recovery under a Pool Insurance Policy or any related Primary
Mortgage Insurance Policy is not available because the related Servicer or the
Master Servicer has been unable to make the above determinations or otherwise,
the Servicer or the Master Servicer is nevertheless obligated to follow such
normal practices and procedures as are deemed necessary or advisable to realize
upon the defaulted Mortgage Loan. If the proceeds of any liquidation of the
Mortgaged Property or Manufactured Home are less than the principal balance of
the defaulted Mortgage Loan or Contract, respectively, plus interest accrued
thereon at the Mortgage 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
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
Mortgage Rate or APR, as the case may be, 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 applicable Agreement with respect to
Securities representing interests in or secured by a Mortgage Pool will provide
that, when any Mortgaged Property has been conveyed by the borrower, such
Servicer or the Master Servicer, as the case may be, will, to the extent it has
knowledge of such conveyance, exercise its rights to accelerate the maturity of
such Mortgage Loan under any "due-on-sale" clause applicable thereto, if any,
unless it reasonably believes that such enforcement is not exercisable under
applicable law or regulations or if such exercise would result in loss of
insurance coverage with respect to such Mortgage Loan. In either case, where the
due-on-sale clause will not be exercised, the Servicer or the Master Servicer is
authorized to take or enter into an assumption and modification agreement from
or with the person to whom such Mortgaged Property has been or is about to be
conveyed, pursuant to which such person becomes liable under the Mortgage Note
and, unless prohibited by applicable state law, the Mortgagor remains liable
thereon, provided that the Mortgage Loan will continue to be covered by any Pool
Insurance Policy and any related Primary Mortgage Insurance Policy. In the case
of an FHA Loan, such an assumption can occur only with HUD approval of the
substitute Mortgagor. Each Servicer and the Master Servicer will also be
authorized, with the prior approval of the Insurer under any required insurance
policies, to enter into a substitution of liability agreement with such
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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 applicable 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
Securityholders after reimbursement to itself for such expenses and (ii) that
such expenses will be recoverable to it either through Liquidation Proceeds,
Insurance Proceeds, payments under the Letter of Credit, or amounts in the
Reserve Fund, if any, with respect to the related Series, or otherwise.
Any prospective purchaser of a Cooperative Dwelling will generally be
required to obtain the approval of the board of directors of the related
Cooperative before purchasing the shares and acquiring rights under the
proprietary lease or occupancy agreement securing the Cooperative Loan. See
"Certain Legal Aspects of the Mortgage Loans and Contracts -- The Mortgage Loans
- -- Foreclosure" herein. This approval is usually based on the purchaser's income
and net worth and numerous other factors. Although the Cooperative's approval is
unlikely to be unreasonably withheld or delayed, the necessity of acquiring such
approval could limit the number of potential purchasers for those shares and
otherwise limit the Trust Fund's ability to sell and realize the value of those
shares.
The market value of any Multifamily Property obtained in foreclosure or
by deed in lieu of foreclosure will be based substantially on the operating
income obtained from renting the dwelling units. Since a default on a Mortgage
Loan secured by Multifamily Property is likely to have occurred because
operating income, net of expenses, is insufficient to make debt service payments
on the related Mortgage Loan, it can be anticipated that the market value of
such property will be less than was anticipated when such Mortgage Loan was
originated. To the extent that the equity in the property does not absorb the
loss in market value and such loss is not covered by other credit support, a
loss may be experienced by the related Trust Fund. With respect to Multifamily
Property consisting of an apartment building owned by a Cooperative, the
Cooperative's ability to meet debt service obligations on the Mortgage Loan, as
well as all other operating expenses, will be dependent in large part on the
receipt of maintenance payments from the tenant-stockholders, as well as any
rental income from units or commercial areas the Cooperative might control.
Unanticipated expenditures may in some cases have to be paid by special
assessments of the tenant-stockholders. The Cooperative's ability to pay the
principal amount of the Mortgage Loan at maturity may depend on its ability to
refinance the Mortgage Loan. The Depositor, the Unaffiliated Seller and the
Master Servicer will have no obligation to provide refinancing for any such
Mortgage Loan.
ENFORCEMENT OF `DUE-ON-SALE' CLAUSES; REALIZATION UPON DEFAULTED CONTRACTS
Each applicable Agreement and Servicing Agreement with respect to
Securities representing interests in or secured by 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
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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 Securityholders, 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 applicable 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 applicable Agreement for a Series of Securities, the
Depositor or the person or entity specified in the related Prospectus Supplement
and any Master Servicer will be entitled to receive an amount described in such
Prospectus Supplement. As compensation for its servicing duties, a Servicer will
be entitled to receive a monthly servicing fee in the amount specified in the
related Servicing Agreement. Such servicing compensation shall be payable by
withdrawal from the related Servicing Account prior to deposit in the
Certificate Account. Each Servicer (with respect to the Mortgage Loans or
Contracts serviced by it) and the Master Servicer will be entitled to servicing
compensation out of Insurance Proceeds, Liquidation Proceeds, or Letter of
Credit payments. Additional servicing compensation in the form of prepayment
charges, assumption fees, late payment charges or otherwise shall be retained by
the Servicers and the Master Servicer to the extent not required to be deposited
in the Certificate Account.
The Servicers and the Master Servicer, unless otherwise specified in
the related Prospectus Supplement, will pay from their servicing compensation
certain expenses incurred in connection with the servicing of the Mortgage Loans
or Contracts, including, without limitation, payment of the Insurance Policy
premiums and, in the case of the Master Servicer, fees or other amounts payable
for any Alternative Credit Support, payment of the fees and disbursements of the
Trustee (and any custodian selected by the Trustee), the Note Register, 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 applicable Agreement. In addition, the Master Servicer will be
entitled to reimbursement of expenses incurred in enforcing the obligations of
Servicers and Unaffiliated Sellers under certain limited circumstances.
As set forth in the preceding section, the Servicers and the Master
Servicer will be entitled to reimbursement for certain expenses incurred by them
in connection with the liquidation of defaulted Mortgage Loans or Contracts. The
related Trust Fund will suffer no loss by reason of such expenses to the extent
claims are fully paid under the Letter of Credit, if any, the related insurance
policies, from amounts in
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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
Securityholders to receive any payments under the Letter of Credit, or from any
related Insurance Proceeds, Liquidation Proceeds, amounts in the Reserve Fund or
any proceeds of Alternative Credit Support.
Under the Trust Agreement, the Trustee will be entitled to deduct, from
distributions of interest with respect to the Mortgage Certificates, a specified
percentage of the unpaid principal balance of each Mortgage Certificate as
servicing compensation. The Trustee shall be required to pay all expenses,
except as expressly provided in the 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 applicable Agreement or 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 such Agreement or 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 such Agreement or 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 Contract, conducted in accordance
with generally accepted accounting principles in the mortgage banking industry,
the servicing of the Mortgage Loans or Contract was conducted in compliance with
the provisions of the Agreement and/or 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 AND
THE INDENTURE TRUSTEE
The Master Servicer under each 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 an 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 applicable 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 such Agreement.
The Trustee under each Pooling and Servicing Agreement or Trust
Agreement will be named in the applicable Prospectus Supplement. The commercial
bank or trust company serving as Trustee may have
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normal banking relationships with the Depositor and/or its affiliates and with
the Master Servicer and/or its affiliates.
The Trustee may resign from its obligations under the Pooling and
Servicing Agreement at any time, in which event a successor trustee will be
appointed. In addition, the Depositor may remove the Trustee if the Trustee
ceases to be eligible to act as Trustee under the Pooling and Servicing
Agreement or if the Trustee becomes insolvent, at which time the Depositor will
become obligated to appoint a successor Trustee. The Trustee may also be removed
at any time by the holders of Certificates evidencing voting rights aggregating
not less than 50% of the voting rights evidenced by the Certificates of such
Series. Any resignation and removal of the Trustee, and the appointment of a
successor trustee, will not become effective until acceptance of such
appointment by the successor Trustee.
The Trustee may resign at any time from its obligations and duties
under the 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 Trust
Agreement.
The Indenture Trustee under the Indenture will be named in the
applicable Prospectus Supplement. The commercial bank or trust company serving
as Indenture Trustee may have normal banking relationships with the Depositor
and/or its affiliates and with the Master Servicer and/or its affiliates.
The Indenture Trustee may resign from its obligations under the
Indenture at any time, in which event a successor trustee will be appointed. In
addition, the Depositor may remove the Indenture Trustee if the Indenture
Trustee ceases to be eligible to act as Indenture Trustee under the Indenture or
if the Indenture Trustee becomes insolvent, at which time the Depositor will
become obligated to appoint a successor Indenture Trustee. Unless otherwise
specified in the related Prospectus Supplement, the Indenture Trustee may also
be removed at any time by the holders of Notes evidencing voting rights
aggregating not less than 50% of the voting rights evidenced by the Notes 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.
Each Pooling and Servicing Agreement and Trust Agreement will also
provide that neither the Depositor nor any director, officer, employee or agent
of the Depositor or the Trustee, or any responsible officers of the Trustee will
be under any liability to the Certificateholders, for the taking of any action
or for refraining from the taking of any action in good faith pursuant to the
Pooling and Servicing Agreement, or for errors in judgment; provided, however,
that none of the Depositor or the Trustee nor any such person will be protected
against, in the case of the Depositor, any breach of representations or
warranties made by them, and in the case of 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 Trust Agreement will further provide that
the Depositor and the Trustee and any director, officer and employee or agent of
the Depositor or the Trustee shall be entitled to indemnification, by the Trust
Fund in the case of the Depositor and by the Master Servicer in the case of the
Trustee and will be held harmless against any loss, liability or expense
incurred in connection with any legal action relating to the applicable
Agreement or the Certificates and in the case of the Trustee, resulting from any
error in any tax or information return prepared by the Master Servicer or from
the exercise of any power of attorney granted pursuant to the Pooling and
Servicing Agreement, other than any loss, liability or expense related to any
specific Mortgage Loan, Contract or Mortgage Certificate (except any such loss,
liability or expense otherwise reimbursable pursuant to the applicable
Agreement) and any loss, liability or expense incurred by reason of willful
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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 Securityholders 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 Prospectus
Supplement, a deficiency event (a "Deficiency Event") with respect to the
Securities of each Series may be defined in the applicable Agreement as being
the inability of the Trustee to distribute to holders of one or more Classes of
Securities of such Series, in accordance with the terms thereof and the
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.
Except as otherwise provided in the related Prospectus Supplement, to
the extent a deficiency event is specified in such Prospectus Supplement, upon
the occurrence of a Deficiency Event, the Trustee is required to determine
whether or not the application on a monthly basis (regardless of the frequency
of regular Distribution Dates) of all future scheduled payments on the Mortgage
Loans, Contracts and Mortgage Certificates included in the related Trust Fund
and other amount receivable with respect to such Trust Fund towards payments on
such Securities in accordance with the priorities as to distributions of
principal and interest set forth in such Securities will be sufficient to make
distributions of interest at the applicable Interest Rates and to distribute in
full the principal balance of each such Security on or before the latest Final
Distribution Date of any outstanding Securities of such Series.
Except as otherwise provided in the related Prospectus Supplement, to
the extent a deficiency event is specified in such 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 Securities, which opinion or report will be conclusive evidence as to such
sufficiency. Pending the making of any such determination, distributions on the
Securities shall continue to be made in accordance with their terms.
Except as otherwise provided in the related Prospectus Supplement, to
the extent a deficiency event is specified in such 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 Securities of such Series in accordance with their terms, except that
such distributions shall be made on each Distribution Date or such other more
frequent dates specified in the related Prospectus Supplement and without regard
to the amount of principal that would otherwise be distributable on the related
Distribution Date. Under certain circumstances following such positive
determination, the Trustee may resume making distributions on such Securities
expressly in accordance with their terms.
Except as otherwise provided in the related Prospectus Supplement, to
the extent a deficiency event is specified in such Prospectus Supplement, if the
Trustee is unable to make the positive determination described above, the
applicable Trustee will apply all amounts received in respect of the related
Trust Fund
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(after payment of Trustee and accountants' fees and expenses) to monthly
distributions on Securities of such Series or on all Senior Securities of such
Series pro rata, without regard to the priorities as to distribution of
principal set forth in such Securities, and such Securities will, to the extent
permitted by applicable law and specified in the related Prospectus Statement,
accrue interest at the highest Interest Rate borne by any Security or Securities
with the same credit rating by the Rating Agencies 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 Securities of that Class. In such event, the
holders of a majority in outstanding principal balance of such Securities may
direct the Trustee to sell the related Trust Fund, any such direction being
irrevocable and binding upon the holders of all Securities 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
Except as otherwise provided in the related Prospectus Supplement,
Events of Default under the related Pooling and Servicing Agreement or Sale and
Servicing 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 applicable Agreement which failure
shall continue for the number of days specified in the related Prospectus
Supplement or any breach of any representation and warranty made by the Master
Servicer or the Servicer, if applicable, which continues unremedied for the
number of days specified in the related Prospectus Supplement after the giving
of written notice of such failure or breach; (iii) certain events of insolvency,
readjustment of debt, marshalling of assets and liabilities or similar
proceedings regarding the Master Servicer or a Servicer, as applicable; and (iv)
any lowering, withdrawal or notice of an intended or potential lowering, of the
outstanding rating of the Securities by the Rating Agency rating such Securities
because the existing or prospective financial condition or mortgage loan
servicing capability of the Master Servicer is insufficient to maintain such
rating.
Unless otherwise specified in the related Prospectus Supplement, Events
of Default under the Indenture for each Series of Notes include: (i) a default
of five days or more in the payment of any principal of or interest on any Note
of such Series; (ii) failure to perform any other covenant of the Depositor or
the Trust Fund in the Indenture which continues for a period of thirty days
after notice thereof is given in accordance with the procedures described in the
related Prospectus Supplement; (iii) any representation or warranty made by the
Depositor or the Trust Fund in the Indenture or in any certificate or other
writing delivered pursuant thereto or in connection therewith with respect to or
affecting such Series having been incorrect in a material respect as of the time
made, and such breach is not cured within thirty days after notice thereof is
given in accordance with the procedures described in the related Prospectus
Supplement; (iv) certain events of bankruptcy, insolvency, receivership or
liquidation of the Depositor or the Trust Fund; or (v) any other Event of
Default provided with respect to Notes of that Series.
RIGHTS UPON EVENT OF DEFAULT
If an Event of Default with respect to the Notes of any Series at the
time outstanding occurs and is continuing, either the Indenture Trustee or the
Noteholders of a majority of the then aggregate outstanding amount of the Notes
of such Series may declare the principal amount of all the Notes of such Series
to be due and payable immediately. Such declaration may, under certain
circumstances, be rescinded and annulled by the Noteholders of a majority in
aggregate outstanding amount of the Notes of such Series.
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If, following an Event of Default with respect to any Series of Notes,
the Notes of such Series have been declared to be due and payable, the Indenture
Trustee may, in its discretion, notwithstanding such acceleration, elect to
maintain possession of the collateral securing the Notes of such Series and to
continue to apply distributions on such collateral as if there had been no
declaration of acceleration if such collateral continues to provide sufficient
funds for the payment of principal of and interest on the Notes of such Series
as they would have become due if there had not been such a declaration. In
addition, the Indenture Trustee may not sell or otherwise liquidate the
collateral securing the Notes of a Series following an Event of Default other
than a default in the payment of any principal of or interest on any Note of
such Series for thirty days or more, unless (a) the Noteholders of 100% of the
then aggregate outstanding amount of the Notes of such Series consent to such
sale, (b) the proceeds of such sale or liquidation are sufficient to pay in full
the principal of and accrued interest due and unpaid on the outstanding Notes of
such Series at the date of such sale or (c) the Indenture Trustee determines
that such collateral would not be sufficient on an ongoing basis to make all
payments on such Notes as such payments would have become due if such Notes had
not been declared due and payable, and the Indenture Trustee obtains the consent
of the Holders of 66 2/3% of the then aggregate outstanding amount of the Notes
of such Series.
In the event that the Indenture Trustee liquidates the collateral in
connection with an Event of Default involving a default for thirty days or more
in the payment of principal of or interest on the Notes of a Series, the
Indenture provides that the Indenture Trustee will have a prior lien on the
proceeds of any such liquidation for unpaid fees and expenses. As a result, upon
the occurrence of such an Event of Default, the amount available for
distribution to the Noteholders may be less than would otherwise be the case.
However, the Indenture Trustee may not institute a proceeding for the
enforcement of its lien except in connection with a proceeding for the
enforcement of the lien of the Indenture for the benefit of the Noteholders
after the occurrence of such an Event of Default.
Unless otherwise specified in the related Prospectus Supplement, in the
event the principal of the Notes of a Series is declared due and payable, as
described above, the Noteholders of any such Notes issued at a discount from par
may be entitled to receive no more than an amount equal to the unpaid principal
amount thereof less the amount of such discount which is unamortized.
Except as otherwise provided in the related Prospectus Supplement, so
long as an Event of Default with respect to a Series of Securities remains
unremedied, the Depositor, the Trustee or the holders of Notes of such Series
(or, if no Notes are issued as part of such Series, Certificate) evidencing not
less than 25% of the principal amount of such Securities of such Series may
terminate all of the rights and obligations of the Master Servicer under the
applicable Agreement and/or 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 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 applicable Agreement.
AMENDMENT
Except as otherwise provided in the related Prospectus Supplement, the
Pooling and Servicing Agreement or Sale and Servicing Agreement, as applicable,
for each Series of Securities may be amended
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by the Depositor, the Master Servicer and the Trustee, without the consent of
the Securityholders, (i) to cure any ambiguity, (ii) to correct or supplement
any provision therein that may be inconsistent with any other provision therein
or (iii) to make any other provisions with respect to matters or questions
arising under such 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 Securityholder of the related Series. Except as
otherwise provided in the related Prospectus Supplement, the Pooling and
Servicing Agreement or Sale and Servicing Agreement, as applicable, for each
Series of Securities may also be amended by the Depositor, the Master Servicer
and the Trustee with the consent of holders of Securities evidencing not less
than 66 2/3% of the aggregate outstanding principal amount of the Securities of
such Series, for the purpose of adding any provisions to or changing in any
manner or eliminating any of the provisions of such Agreement or of modifying in
any manner the rights of the Securityholders; 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 Security
without the consent of the holder of such Security, (ii) adversely affect in any
material respect the interests of the holders of a Class or Subclass of the
Senior Securities, if any, of a Series in a manner other than that set forth in
(i) above without the consent of the holders of the Senior Securities of such
Subclass evidencing not less than 66 2/3% of such Class or Subclass, (iii)
adversely affect in any material respect the interests of the holders of the
Subordinated Securities of a Series in a manner other than that set forth in (i)
above without the consent of the holders of Subordinated Securities evidencing
not less than 66 2/3% of such Class or Subclass or (iv) reduce the aforesaid
percentage of the Securities, the holders of which are required to consent to
such amendment, without the consent of the holders of the Class affected
thereby.
The Trust Agreement for a Series may be amended by the Trustee and the
Depositor without Certificateholder consent, to cure any ambiguity, to correct
or supplement any provision therein that may be inconsistent with any other
provision therein, or to make any other provisions with respect to matters or
questions arising thereunder that are not inconsistent with any other provisions
thereof, provided that such action will not, as evidenced by an opinion of
counsel, adversely affect the interests of any Certificateholders of that Series
in any material respect. The Trust Agreement for each Series may also be amended
by the Trustee and the Depositor with the consent of the Holders of Securities
evidencing Percentage Interests aggregating not less than 66 2/3% of each Class
of the Securities 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 Securities the Holders of
which are required to consent to any such amendment, without the consent of the
Holders of all Securities of such Series then outstanding.
TERMINATION
Except as otherwise provided in the related Prospectus Supplement, the
obligations created by the Pooling and Servicing Agreement or Sale and Servicing
Agreement, as applicable, for a Series of Securities 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
Securityholders of all amounts held by the Master Servicer and required to be
paid to them pursuant to the applicable Agreement. The obligations created by
the 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 Trust
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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 Securities, the Master
Servicer will give written notice of termination of the applicable Agreement of
each Securityholder, and the final distribution will be made only upon surrender
and cancellation of the Securities at an office or agency specified in the
notice of termination.
If so provided in the related Prospectus Supplement, the Pooling and
Servicing Agreement or Sale and Servicing Agreement for each Series of
Securities will permit, but not require, the Depositor or such other person as
may be specified in the Prospectus Supplement to repurchase from the Trust Fund
for such Series all remaining Mortgage Loans or Contracts subject to the
applicable Agreement at a price specified in such Prospectus Supplement. In the
event that the Depositor elects to treat the related Trust Fund as a REMIC under
the Code, any such repurchase will be effected in compliance with the
requirements of Section 860F(a)(4) of the Code, in order to constitute a
"qualifying liquidation" thereunder. The exercise of any such right will effect
early retirement of the Securities of that Series, but the right so to
repurchase may be effected only on or after the aggregate principal balance of
the Mortgage Loans or Contracts for such Series at the time of repurchase is
less than a specified percentage of the aggregate principal balance at the
Cut-off Date for the Series, or on or after the date set forth in the related
Prospectus Supplement.
The Indenture will be discharged with respect to a Series of Notes
(except with respect to certain continuing rights specified in the Indenture)
upon the delivery to the Indenture Trustee for cancellation of all the Notes of
such Series or, with certain limitations, upon deposit with the Indenture
Trustee of funds sufficient for the payment in full of all the Notes of such
Series.
CREDIT SUPPORT
Credit support for a Series of Securities may be provided by one or
more Letters of Credit, the issuance of Subordinated Classes or Subclasses of
Securities (which may, if so specified in the related Prospectus Supplement, be
issued in notional amounts), the issuance of subordinated Classes or Subclasses
of Notes, 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
Securities.
LETTERS OF CREDIT
The Letters of Credit, if any, with respect to a Series of Securities
will be issued by the bank or financial institution specified in the related
Prospectus Supplement (the "L/C Bank"). The maximum obligation of the L/C Bank
under the Letter of Credit will be to honor requests for payment thereunder in
an aggregate fixed dollar amount, net of unreimbursed payments thereunder, equal
to the percentage of the aggregate principal balance on the related Cut-off Date
of the Mortgage Loans or Contracts evidenced by each Series (the "L/C
Percentage") specified in the Prospectus Supplement for such Series. The
duration of coverage and the amount and frequency of any reduction in coverage
provided by the Letter of Credit with respect to a Series of Securities 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 Securities. 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
Securities will expire a specified number of 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
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all Mortgage Loans or Contracts in the Mortgage Pool or Contract Pool in the
circumstances specified above. See "Description of the Securities --
Termination."
Unless otherwise specified in the applicable Prospectus Supplement,
under the applicable Agreement and/or Servicing Agreement, the Master Servicer
will be required not later than three business days prior to each Distribution
Date to determine whether a payment under the Letter of Credit will be necessary
on the Distribution Date and will, no later than the third business day prior to
such Distribution Date, advise the L/C Bank and the Trustee of its
determination, setting forth the amount of any required payment. On the
Distribution Date, the L/C Bank will be required to honor the Trustee's request
for payment thereunder in an amount equal to the lesser of (A) the remaining
amount available under the Letter of Credit and (B) the outstanding principal
balances of any Liquidating Loans to be assigned on such Distribution Date
(together with accrued and unpaid interest thereon at the related Mortgage Rate
or APR to the related Due Date). The proceeds of such payments under the Letter
of Credit will be deposited into the Certificate Account and will be distributed
to Securityholders, in the manner specified in the related Prospectus
Supplement, on such Distribution Date, except to the extent of any unreimbursed
Advances, servicing compensation due to the Servicers and the Master Servicer
and other amounts payable to the Depositor or the person or entity named in the
applicable Prospectus Supplement therefrom.
If at any time the L/C Bank makes a payment in the amount of the full
outstanding principal balance and accrued interest on a Liquidating Loan, it
will be entitled to receive an assignment by the Trustee of such Liquidating
Loan, and the L/C Bank will thereafter own such Liquidating Loan free of any
further obligation to the Trustee or the Securityholders 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 Securities of a Series with respect to which
credit support is provided by a Letter of Credit must look to the credit of the
L/C Bank, to the extent of its obligations under the Letter of Credit, in the
event of default by Mortgagors or Obligors. If the amount available under the
Letter of Credit is exhausted, or the L/C Bank becomes insolvent, and amounts in
the Reserve Fund, if any, with respect to such Series are insufficient to pay
the entire amount of the loss and still be maintained at the level specified in
the related Prospectus Supplement (the "Required Reserve"), the Securityholders
(in the priority specified in the related Prospectus Supplement) will thereafter
bear all risks of loss resulting from default by Mortgagors or Obligors
(including losses not covered by insurance or Alternative Credit Support), and
must look primarily to the value of the properties securing defaulted Mortgage
Loans or Contracts for recovery of the outstanding principal and unpaid
interest.
In the event that a Subordinated Class or Subclass of a Series of
Securities is issued with a notional amount, the coverage provided by the Letter
of Credit with respect to such Series, and the terms and conditions of such
coverage, will be set forth in the related Prospectus Supplement.
SUBORDINATED SECURITIES
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To the extent specified in the Prospectus Supplement with respect to a
Series of Securities, credit support may be provided by the subordination of the
rights of the holders of one or more Classes or Subclasses of Securities to
receive distributions with respect to the Mortgage Loans or Mortgage
Certificates in the Mortgage Pool or Contracts in the Contract Pool underlying
such Series, or with respect to a Subordinated Pool of mortgage loans or
contracts, to the rights of the Senior Securityholders or holders of one or more
Classes or Subclasses of Subordinated Securities of such Series to receive such
distributions, to the extent of the applicable Subordinated Amount or as
otherwise specified in the related Prospectus Supplement. In such a case, credit
support may also be provided by the establishment of a Reserve Fund, as
described below. Except as otherwise provided in the related Prospectus
Supplement, the Subordinated Amount, as described below, will be reduced by an
amount equal to Aggregate Losses. Aggregate Losses will be defined in the
related Agreement for any given period as the aggregate amount of delinquencies,
losses and other deficiencies in the amounts due to the holders of the
Securities 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 Securities of
such Series ("payment deficiencies"), but excluding any payments of interest on
any amounts originally due to the holders of the Securities of a Class or
Subclass to which the applicable Class or Subclass of Subordinated Securities
are subordinated on a previous Distribution Date, but not paid as due, whether
by way of withdrawal from the Reserve Fund (including, prior to the time that
the Subordinated Amount is reduced to zero, any such withdrawal of amounts
attributable to the Initial Deposit, if any), reduction in amounts otherwise
distributable to the Subordinated Securityholders on any Distribution Date or
otherwise, less the aggregate amount of previous payment deficiencies recovered
by the related Trust Fund during such period in respect of the Mortgage Loans or
Contracts giving rise to such previous payment deficiencies, including, without
limitation, such recoveries resulting from the receipt of delinquent principal
and/or interest payments, Liquidation Proceeds or Insurance Proceeds (net, in
each case, of servicing compensation, foreclosure costs and other servicing
costs, expenses and unreimbursed Advances relating to such Mortgage Loans or
Contracts). The Prospectus Supplement for each Series of Securities with respect
to which credit support will be provided by one or more Classes or Subclasses of
Subordinated Securities will set forth the Subordinated Amount for such Series
and/or the manner by which one or more Classes or Subclasses of Securities may
be subordinated to other Classes or Subclasses or Securities. If specified in
the related Prospectus Supplement, the Subordinated Amount will decline over
time in accordance with a schedule which will also be set forth in the related
Prospectus Supplement.
In addition, if so specified in the related Prospectus Supplement, if a
Series of Securities includes Notes, one more Classes or Subclasses of Notes may
be subordinated to another Class or Subclasses of Notes and may be entitled to
receive disproportionate amounts of distributions in respect of principal and
all the Certificates of such Series will be subordinated to all the Notes.
SHIFTING INTEREST
If specified in the Prospectus Supplement for a Series of Securities
for which credit enhancement is provided by shifting interest as described
herein, the rights of the holders of the Subordinated Securities of a Series to
receive distributions with respect to the Mortgage Loans, Mortgage Certificates
or Contracts in the related Trust Fund or Subsidiary Trust will be subordinated
to such right of the holders of the Senior Securities 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
Securities 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
Securities against losses due to mortgagor defaults.
The protection afforded to the holders of Senior Securities of a Series
by the shifting interest subordination feature will be effected by distributing
to the holders of the Senior Securities a disproportionately greater percentage
(the "Senior Prepayment Percentage") of Principal Prepayments. The
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initial Senior Prepayment Percentage will be the percentage specified in the
related Prospectus Supplement and will decrease in accordance with the schedule
and subject to the conditions set forth in the Prospectus Supplement. This
disproportionate distribution of Principal Prepayments will have the effect of
accelerating the amortization of the Senior Securities while increasing the
respective interest of the Subordinated Securities in the Mortgage Pool or
Contract Pool. Increasing the respective interest of the Subordinated Securities
relative to that of the Senior Securities is intended to preserve the
availability of the benefits of the subordination provided by the Subordinated
Securities.
SWAP AGREEMENT
If so specified in the Prospectus Supplement relating to a Series of
Securities, the related 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 Securities having the benefit of an interest rate or currency rate
swap, cap or floor 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 Securities also will set forth certain information relating to
the corporate status, ownership and credit quality of the counterparty or
counterparties to such swap agreement in accordance with applicable rules and
regulations of the Commission.
RESERVE FUND
If so specified in the related Prospectus Supplement, credit support
with respect to one or more Classes or Subclasses of Securities of a Series may
be provided by the establishment and maintenance with the Trustee for such
Series of Securities, in trust, of a Reserve Fund for such Series. Unless
otherwise specified in the applicable Prospectus Supplement, the Reserve Fund
for a Series will not be included in the Trust Fund for such Series. The Reserve
Fund for each Series will be created by the Depositor and shall be funded by the
retention by the Master Servicer of certain payments on the Mortgage Loans or
Contracts, by the deposit with the Trustee, in escrow, by the Depositor of a
Subordinated Pool of mortgage loans or Contracts with the aggregate principal
balance, as of the related Cut-off Date, set forth in the related Prospectus
Supplement, by any combination of the foregoing, or in another manner specified
in the related Prospectus Supplement. Except as otherwise provided in the
related Prospectus Supplement, following the initial issuance of the Securities
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 related Mortgage Loans or Contracts and/or on the Contracts in the
Subordinated Pool otherwise distributable to the holders of the applicable Class
or Subclasses of Subordinated Securities 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 Securities or on the Securities of such Series to which the applicable
Class or Subclass of Subordinated Securities are subordinated and the
reimbursement of unreimbursed Advances and liquidation expenses, to maintain the
Reserve Fund at the Required Reserve. Except as otherwise provided in the
related Prospectus Supplement, the balance in the Reserve Fund in excess of the
Required Reserve shall be paid to the applicable Class or Subclass of
Subordinated Securities, or to another specified person or entity, as set forth
in the related Prospectus Supplement, and shall be unavailable thereafter for
future distribution to Certificateholders of either Class. The Prospectus
Supplement for each Series will set forth the amount of the Required Reserve
applicable from time to time. The Required Reserve may decline over time in
accordance with a schedule which will also be set forth in the related
Prospectus Supplement.
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Except as otherwise provided in the related Prospectus Supplement,
amounts held in the Reserve Fund for a Series from time to time will continue to
be the property of the Subordinated Securityholders of the Classes or Subclasses
specified in the related Prospectus Supplement until withdrawn from the Reserve
Fund and transferred to the Certificate Account as described below. Except as
otherwise provided in the related Prospectus Supplement, if on any Distribution
Date the amount in the Certificate Account available to be applied to
distributions on the applicable Senior Securities 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 Securityholders (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 such Senior Securityholders (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 Securityholders on such Distribution Date to the
Required Distribution; provided, however, that unless specified in the related
Prospectus Supplement no 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 Securityholders. 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
applicable Subordinated Securityholders. Unless otherwise specified in the
related Prospectus Supplement, whenever the Reserve Fund is less than the
Required Reserve, holders of the Subordinated Securities of the applicable Class
or Subclass will not receive any distributions with respect to the Mortgage
Loans, Mortgage Certificates or Contracts other than amounts attributable to
interest on the Mortgage Loans, Mortgage Certificates or Contracts after the
initial Required Reserve has been attained and amounts attributable to any
income resulting from investment of the Reserve Fund as described below. Except
as otherwise provided in the related Prospectus Supplement, whether or not the
amount of the Reserve Fund exceeds the Required Reserve on any Distribution
Date, the holders of the Subordinated Securities of the applicable Class or
Subclass are entitled to receive from the Certificate Account their share of the
proceeds of any Mortgage Loan, Mortgage Certificates or Contract, or any
property acquired in respect thereof, repurchased by reason of defective
documentation or the breach of a representation or warranty pursuant to the
Pooling and Servicing Agreement. Except as otherwise provided in the related
Prospectus Supplement, 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 applicable
Senior Securities 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
Securities of such Series of the principal balance or purchase price,
as applicable, of Mortgage Loans or Contracts repurchased, liquidated
or foreclosed during the period ending on the day prior to the Due Date
to which such distribution relates and interest thereon at the related
Mortgage Rate or APR, as applicable, to the extent that sufficient
funds in the Certificate Account are not available therefor.
Except as otherwise provided in the related Prospectus Supplement,
amounts in the Reserve Fund in excess of the Required Reserve, including any
investment income on amounts therein, as set forth below,
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shall then be released to the holders of the Subordinated Securities, 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 Agreement and/or Indenture 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 Securities in accordance with
their respective interests in the Reserve Fund in the priority specified in the
related Prospectus Supplement. Unless otherwise specified in the related
Prospectus Supplement, investment income in the Reserve Fund is not available
for distribution to the holders of the Senior Securities of such Series or
otherwise subject to any claims or rights of the holders of the applicable Class
or Subclass of Senior Securities. Eligible investments for monies deposited in
the Reserve Fund will be specified in the applicable Agreement and/or Indenture
for a Series of Securities for which a Reserve Fund is established and in some
instances will be limited to investments acceptable to the Rating Agency rating
the Securities of such Series from time to time as being consistent with its
outstanding rating of such Securities. 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 applicable 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 Securities of such Series and the availability of amounts in the Reserve
Fund for distributions on such Securities will be affected by the delinquency,
foreclosure and prepayment experience of the Mortgage Loans or Contracts in the
related Trust Fund and/or in the Subordinated Pool and therefore cannot be
accurately predicted.
SECURITY GUARANTEE INSURANCE
If so specified in the related Prospectus Supplement, Security
Guarantee Insurance, if any, with respect to a Series of Securities may be
provided by one or more insurance companies. Such Security Guarantee Insurance
will guarantee, with respect to one or more Classes of Securities of the related
Series, timely distributions of interest and full distributions of principal on
the basis of a schedule of principal distributions set forth in or determined in
the manner specified in the related Prospectus Supplement. If so specified, in
the related Prospectus Supplement, the Security Guarantee Insurance will also
guarantee against any payment made to a Series of Securities which is
subsequently recovered as a "voidable preference" payment under the Bankruptcy
Code. A copy of the Security Guarantee Insurance for a Series, if any, will be
filed with the Commission as an exhibit to a Current Report on Form 8-K to be
filed with the Commission within 15 days of issuance of the Securities of the
related Series.
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PERFORMANCE BOND
If so specified in the related Prospectus Supplement, the Master
Servicer may be required to obtain a Performance Bond that would provide a
guarantee of the performance by the Master Servicer of one or more of its
obligations under the applicable Agreement and/or Servicing Agreement, including
its obligation to make Advances and its obligation to repurchase Mortgage Loans
or Contracts in the event of a breach by the Master Servicer of a representation
or warranty contained in the applicable 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 any Class or
Subclass of Securities 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 such
Securities or to deposit and maintain with the Trustee cash in the amount
specified in the applicable Prospectus Supplement.
DESCRIPTION OF INSURANCE
To the extent that the applicable Prospectus Supplement does not
expressly provide for a form of credit support specified above or for
Alternative Credit Support in lieu of some or all of the insurance mentioned
below, the following paragraphs on insurance shall apply with respect to the
Mortgage Loans included in the related Trust Fund. To the extent specified in
the related Prospectus Supplement, each Manufactured Home that secures a
Contract will be covered by a standard hazard insurance policy and other
insurance policies to the extent described in the related Prospectus Supplement.
Any material changes in such insurance from the description that follows or the
description of any Alternative Credit Support will be set forth in the
applicable Prospectus Supplement.
PRIMARY MORTGAGE INSURANCE POLICIES
To the extent specified in the related Prospectus Supplement, each
Servicing Agreement will require the Servicer to cause a Primary Mortgage
Insurance Policy to be maintained in full force and effect with respect to each
Mortgage Loan that is secured by a Single Family Property covered by the
Servicing Agreement requiring such insurance and to act on behalf of the Insured
with respect to all actions required to be taken by the Insured under each such
Primary Mortgage Insurance Policy. Any primary mortgage insurance or primary
credit insurance policies relating to the Contracts underlying a Series of
Securities will be described in the related Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, the
amount of a claim for benefits under a Primary Mortgage Insurance Policy
covering a Mortgage Loan in the related Mortgage Pool (herein referred to as the
"Loss") will consist of the insured portion of the unpaid principal amount of
the covered Mortgage Loan (as described herein) and accrued and unpaid interest
thereon and reimbursement of certain expenses, less (i) all rents or other
payments collected or received by the Insured (other than the proceeds of hazard
insurance) that are derived from or in any way related to such Mortgaged
Property, (ii) hazard insurance proceeds in excess of the amount required to
restore such Mortgaged Property and which have not been applied to the payment
of such Mortgage Loan, (iii) amounts expended but not approved by the Primary
Mortgage Insurer, (iv) claim payments previously made by the Primary Mortgage
Insurer, and (v) unpaid premiums.
Unless otherwise specified in the related Prospectus Supplement, as
conditions precedent to the filing of or payment of a claim under a Primary
Mortgage Insurance Policy covering a Mortgage Loan in the related Mortgage Pool,
the Insured will be required to, in the event of default by the Mortgagor: (i)
advance or discharge (A) all hazard insurance premiums and (B) as necessary and
approved in advance by the Primary Mortgage Insurer, (1) real estate property
taxes, (2) all expenses required to preserve, repair and
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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.
Unless otherwise specified in the related Prospectus Supplement, other
provisions and conditions of each Primary Mortgage Insurance Policy covering a
Mortgage Loan in the related Mortgage Pool generally will provide that: (a) no
change may be made in the terms of such Mortgage Loan without the consent of the
Primary Mortgage Insurer; (b) written notice must be given to the Primary
Mortgage Insurer within 10 days after the Insured becomes aware that a Mortgagor
is delinquent in the payment of a sum equal to the aggregate of two scheduled
monthly payments due under such Mortgage Loan or that any proceedings affecting
the Mortgagor's interest in the Mortgaged Property securing such Mortgage Loan
have commenced, and thereafter the Insured must report monthly to the Primary
Mortgage Insurer the status of any such Mortgage Loan until such Mortgage Loan
is brought current, such proceedings are terminated or a claim is filed; (c) the
Primary Mortgage Insurer will have the right to purchase such Mortgage Loan, at
any time subsequent to the 10 days' notice described in (b) above and prior to
the commencement of foreclosure proceedings, at a price equal to the unpaid
principal amount of the Mortgage Loan, plus accrued and unpaid interest thereon
and reimbursable amounts expended by the Insured for the real estate taxes and
fire and extended coverage insurance on the Mortgaged Property for a period not
exceeding 12 months, and less the sum of any claim previously paid under the
Primary Mortgage Insurance Policy and any due and unpaid premiums with respect
to such policy; (d) the Insured must commence proceedings at certain times
specified in the Primary Mortgage Insurance Policy and diligently proceed to
obtain good and merchantable title to and possession of the Mortgaged Property;
(e) the Insured must notify the Primary Mortgage Insurer of the price specified
in (c) above at least 15 days prior to the sale of the Mortgaged Property by
foreclosure, and bid such amount unless the Mortgage Insurer specifies a lower
or higher amount; and (f) the Insured may accept a conveyance of the Mortgaged
Property in lieu of foreclosure with written approval of the Mortgage Insurer
provided the ability of the Insured to assign specified rights to the Primary
Mortgage Insurer are not thereby impaired or the specified rights of the Primary
Mortgage Insurer are not thereby adversely affected.
Unless otherwise specified in the related Prospectus Supplement, the
Primary Mortgage Insurer will be required to pay to the Insured either: (1) the
insured percentage of the Loss; or (2) at its option under certain of the
Primary Mortgage Insurance Policies, the sum of the delinquent monthly payments
plus any advances made by the Insured, both to the date of the claim payment,
and thereafter, monthly payments in the amount that would have become due under
the Mortgage Loan if it had not been discharged plus any advances made by the
Insured until the earlier of (A) the date the Mortgage Loan would have been
discharged in full if the default had not occurred or (B) an approved sale. Any
rents or other payments collected or received by the Insured which are derived
from or are in any way related to the Mortgaged Property will be deducted from
any claim payment.
FHA INSURANCE AND VA GUARANTEES
The FHA is responsible for administering various federal programs,
including mortgage insurance, authorized under the National Housing Act, as
amended, and the United States Housing Act of 1937, as amended. Any FHA
Insurance or VA Guarantees relating to Contracts underlying a Series of
Securities will be described in the related Prospectus Supplement.
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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 upon its assignment to the VA.
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With respect to a defaulted VA Loan, the Servicer is, absent
exceptional circumstances, authorized to announce its intention to foreclose
only when the default has continued for three months. Generally, a claim for the
guarantee is submitted after liquidation of the Mortgaged Property.
The amount payable under the guarantee will be the percentage of the VA
Loan originally guaranteed applied to indebtedness outstanding as of the
applicable date of computation specified in the VA regulations. Payments under
the guarantee will be equal to the unpaid principal amount of the VA Loan,
interest accrued on the unpaid balance of the VA Loan to the appropriate date of
computation and limited expenses of the mortgagee, but in each case only to the
extent that such amounts have not been recovered through liquidation of the
Mortgaged Property. The amount payable under the guarantee may in no event
exceed the amount of the original guarantee.
STANDARD HAZARD INSURANCE POLICIES ON MORTGAGE LOANS
Unless otherwise specified in the related Prospectus Supplement, any
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 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.
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Any losses incurred with respect to Mortgage Loans due to uninsured
risks (including earthquakes, mudflows and, with respect to Mortgaged Properties
located other than in HUD designated flood areas, floods) or insufficient hazard
insurance proceeds and any hazard losses incurred with respect to Cooperative
Loans could affect distributions to the Certificateholders.
With respect to Mortgage Loans secured by Multifamily Property, certain
additional insurance policies may be required with respect to the Multifamily
Property; for example, general liability insurance for bodily injury and
property damage, steam boiler coverage where a steam boiler or other pressure
vessel is in operation, and rent loss insurance to cover income losses following
damage or destruction of the Mortgaged Property. The related Prospectus
Supplement will specify the required types and amounts of additional insurance
that may be required in connection with Mortgage Loans secured by Multifamily
Property and will describe the general terms of such insurance and conditions to
payment thereunder.
STANDARD HAZARD INSURANCE POLICIES ON THE MANUFACTURED HOMES
The applicable Pooling and Servicing Agreement or Sale and Servicing
Agreement for each Series 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 file
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 lesser of the maximum insurable value of such Manufactured Home or the
principal balance due from the Obligor on the related Contract; provided,
however, that the amount of coverage provided by each Standard Hazard Insurance
Policy shall be sufficient to avoid the application of any co-insurance clause
contained therein. When a Manufactured Home's location was, at the time of
origination of the related Contract, within a federally designated flood area,
the Master Servicer also shall cause such flood insurance to be maintained,
which coverage shall be at least equal to the minimum amount specified in the
preceding sentence or such lesser amount as may be available under the federal
flood insurance program. Each Standard Hazard Insurance Policy caused to be
maintained by the Master Servicer shall contain 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 use 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.
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POOL INSURANCE POLICIES
If so specified in the related Prospectus Supplement, the Master
Servicer will obtain a Pool Insurance Policy for a Mortgage Pool underlying
Securities 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 Securities will be described in the
related Prospectus Supplement. Each Pool Insurance Policy will cover any loss
(subject to the limitations described below) by reason of default to the extent
the related Mortgage Loan is not covered by any Primary Mortgage Insurance
Policy, FHA insurance or VA guarantee. The amount of the Pool Insurance Policy,
if any, with respect to a Series will be specified in the related Prospectus
Supplement. A Pool Insurance Policy, however, will not be a blanket policy
against loss, because claims thereunder may only be made for particular
defaulted Mortgage Loans and only upon satisfaction of certain conditions
precedent described below. The Prospectus Supplement will contain such financial
information regarding the Pool Insurer as may be required by the rules and
regulations of the Commission.
Unless otherwise specified in the related Prospectus Supplement, the
Pool Insurance Policy will provide that as a condition precedent to the payment
of any claim the Insured will be required (i) to advance hazard insurance
premiums on the Mortgaged Property securing the defaulted Mortgage Loan; (ii) to
advance, as necessary and approved in advance by the Pool Insurer, (a) real
estate property taxes, (b) all expenses required to preserve and repair the
Mortgaged Property, to protect the Mortgaged Property from waste, so that the
Mortgaged Property is in at least as good a condition as existed on the date
upon which coverage under the Pool Insurance Policy with respect to such
Mortgaged Property first became effective (ordinary wear and tear excepted), (c)
property sales expenses, (d) any outstanding liens on the Mortgaged Property and
(e) foreclosure costs including court costs and reasonable attorneys' fees; and
(iii) if there has been physical loss or damage to the Mortgaged Property, to
restore the Mortgaged Property to its condition (reasonable wear and tear
excepted) as of the issue date of the Pool Insurance Policy. It also will be a
condition precedent to the payment of any claim under the Pool Insurance Policy
that the Insured maintain a Primary Mortgage Insurance Policy that is acceptable
to the Pool Insurer on all Mortgage Loans that have Loan-to-Value Ratios at the
time of origination in excess of 80%. FHA insurance and VA guarantees will be
deemed to be an acceptable Primary Mortgage Insurance Policy under the Pool
Insurance Policy. Assuming satisfaction of these conditions, the Pool Insurer
will pay to the Insured the amount of loss, determined as follows: (i) the
amount of the unpaid principal balance of the Mortgage Loan immediately prior to
the Approved Sale (as described below) of the Mortgaged Property, (ii) the
amount of the accumulated unpaid interest on such Mortgage Loan to the date of
claim settlement at the applicable Mortgage Rate and (iii) advances as described
above, less (a) all rents or other payments (excluding proceeds of fire and
extended coverage insurance) collected or received by the Insured, which are
derived from or in any way related to the Mortgaged Property, (b) amounts paid
under applicable fire and extended coverage policies which are in excess of the
cost of restoring and repairing the Mortgaged Property and which have not been
applied to the payment of the Mortgage Loan, (c) any claims payments previously
made by the Pool Insurer on the Mortgage Loan, (d) due and unpaid premiums
payable with respect to the Pool Insurance Policy and (e) all claim payments
received by the Insured pursuant to any Primary Mortgage Insurance Policy. An
"Approved Sale" is (1) a sale of the Mortgaged Property acquired because of a
default by the Mortgagor to which the Pool Insurer has given prior approval, (2)
a foreclosure or trustee's sale of the Mortgaged Property at a price exceeding
the maximum amount specified by the Pool Insurer, (3) the acquisition of the
Mortgaged Property under the Primary Insurance Policy by the Primary Mortgage
Insurer or (4) the acquisition of the Mortgaged Property by the Pool Insurer.
The Pool Insurer must be provided with good and merchantable title to the
Mortgaged Property as a condition precedent to the payment of any Loss. If any
Mortgaged Property securing a defaulted Mortgage Loan is damaged and the
proceeds, if any, from the related Standard Hazard Insurance Policy or the
applicable Special Hazard Insurance Policy are insufficient to restore the
Mortgaged
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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 Securityholders 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 of clause (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 Securities -- Assignment of Mortgage Loans," 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
Securityholders 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
Securityholders 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" and " --
Representations by Unaffiliated Sellers; Repurchases" and "Description of the
Securities -- Assignment of Mortgage Loans."
The original amount of coverage under the Pool Insurance Policy will be
reduced over the life of the Securities 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 Securities 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 Securities --Advances."
SPECIAL HAZARD INSURANCE POLICIES
If so specified in the related Prospectus Supplement, the Master
Servicer shall obtain a Special Hazard Insurance Policy for the Mortgage Pool
underlying a Series of Securities. Any Special Hazard Insurance Policies for a
Contract Pool underlying a Series of Securities will be described in the related
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Prospectus Supplement. The Special Hazard Insurance Policy for the Mortgage Pool
underlying the Securities 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 Securities
- -- Maintenance of Insurance Policies" and " -- Standard Hazard Insurance." The
Special Hazard Insurance Policy will not cover losses occasioned by war, certain
governmental actions, nuclear reaction and certain other perils. Coverage under
a Special Hazard Insurance Policy will be at least equal to the amount set forth
in the related Prospectus Supplement.
Subject to the foregoing limitations, each Special Hazard Insurance
Policy will provide that, when there has been damage to the Mortgaged Property
securing a defaulted Mortgage Loan and to the extent such damage is not covered
by the Standard Hazard Insurance Policy, if any, maintained by the Mortgagor,
the Master Servicer or the Servicer, the Special Hazard Insurer will pay the
lesser of (i) the cost of repair or replacement of such Mortgaged Property or
(ii) upon transfer of such Mortgaged Property to the Special Hazard Insurer, the
unpaid balance of such Mortgage Loan at the time of acquisition of such
Mortgaged Property by foreclosure or deed in lieu of foreclosure, plus accrued
interest to the date of claim settlement (excluding late charges and penalty
interest) and certain expenses incurred in respect of such Mortgaged Property.
No claim may be validly presented under a Special Hazard Insurance Policy unless
(i) hazard insurance on the Mortgaged Property has been kept in force and other
reimbursable protection, preservation and foreclosure expenses have been paid
(all of which must be approved in advance as necessary by the insurer) and (ii)
the insured has acquired title to the Mortgaged Property as a result of default
by the Mortgagor. If the sum of the unpaid principal balance plus accrued
interest and certain expenses is paid by the Special Hazard Insurer, the amount
of further coverage under the related Special Hazard Insurance Policy will be
reduced by such amount less any net proceeds from the sale of the Mortgaged
Property. Any amount paid as the cost of repair of the Mortgaged Property will
further reduce coverage by such amount.
The terms of the applicable Agreement and/or Servicing Agreement will
require the Master Servicer to maintain the Special Hazard Insurance Policy in
full force and effect throughout the term of the Agreement. If a Pool Insurance
Policy is required to be maintained pursuant to the 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 Agreement
and/or Servicing Agreement will provide that, if the related Pool Insurance
Policy shall have terminated or been exhausted through payment of claims, the
Master Servicer will be under no further obligation to maintain such Special
Hazard Insurance Policy.
MORTGAGOR BANKRUPTCY BOND
In the event of a personal bankruptcy of a Mortgagor, a bankruptcy
court may establish the value of the related Mortgaged Property or Cooperative
Dwelling at an amount less than the then outstanding principal balance of the
related Mortgage Loan. The amount of the secured debt could be reduced to such
value, and the holder of such Mortgage Loan thus would become an unsecured
creditor to the extent the outstanding principal balance of such Mortgage Loan
exceeds the value so assigned to the Mortgaged Property or Cooperative Dwelling
by the bankruptcy court. In addition, certain other modifications of the terms
of a Mortgage Loan can result from a bankruptcy proceeding. If so specified in
the related Prospectus Supplement, losses resulting from a bankruptcy proceeding
affecting the Mortgage Loans in a Mortgage Pool with respect to a Series of
Securities will be covered under a Mortgagor Bankruptcy Bond (or any
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other instrument that will not result in a downgrading of the rating of the
Securities 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 Securities of the related Series, which will be set
forth in the related 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 Securities may be reduced as long as
any such reduction will not result in a reduction of the outstanding rating of
the Securities 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 installment or conditional sales
contracts and installment loan agreements which are general in nature. Because
such legal aspects are governed by applicable state law (which laws may differ
substantially), the summaries do not purport to be complete nor to reflect the
laws of any particular state, nor to encompass the laws of all states in which
the security for the Mortgage Loans or Contracts is situated. The summaries are
qualified in their entirety by reference to the applicable federal and state
laws governing the Mortgage Loans and Contracts.
THE MORTGAGE LOANS
GENERAL
The Mortgage Loans (other than the Cooperative Loans) comprising or
underlying the Trust Assets for a Series will be secured by either first
mortgages or deeds of trust, depending upon the prevailing practice in the state
in which the underlying property is located. The filing of a mortgage, deed of
trust or deed to secure debt creates a lien or title interest upon the real
property covered by such instrument and represents the security for the
repayment of an obligation that is customarily evidenced by a promissory note.
It is not prior to the lien for real estate taxes and assessments or other
charges imposed under governmental police powers. Priority with respect to such
instruments depends on their terms, the knowledge of the parties to the mortgage
and generally on the order of recording with the applicable state, county or
municipal office. There are two parties to a mortgage: the mortgagor, who is the
borrower and homeowner, and the mortgagee, who is the lender. In a mortgage
state, the mortgagor delivers to the mortgagee a note or bond evidencing the
loan and the mortgage. Although a deed of trust is similar to a mortgage, a deed
of trust has three parties: the borrower-homeowner called the trustor (similar
to a mortgagor) a lender called the beneficiary (similar to a mortgagee) and a
third-party grantee called the trustee. Under a deed of trust, the borrower
grants the property, irrevocably until the debt is paid, in trust, generally
with a power of sale, to the trustee to secure payment of the loan. The
trustee's authority under a deed of trust and the mortgagee's authority under a
mortgage are governed by the express provisions of the deed of trust or
mortgage, applicable law and, in some cases, with respect to the deed of trust,
the directions of the beneficiary.
FORECLOSURE
Foreclosure of a mortgage is generally accomplished by judicial action.
Generally, the action is initiated by the service of legal pleadings upon all
parties having an interest of record in the real property. Delays in completion
of the foreclosure occasionally may result from difficulties in locating
necessary parties defendant. When the mortgagee's right to foreclosure is
contested, the legal proceedings necessary to
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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
Securities, the Mortgage Loans may also contain Cooperative Loans evidenced by
promissory notes secured by security interests in shares issued by private
corporations which are entitled to be treated as housing cooperatives under the
Code and in the related proprietary leases or occupancy agreements granting
exclusive rights to occupy specific dwelling units in the corporations'
buildings. The security agreement will create a lien upon, or grant a title
interest in, the property that it covers, the priority of which will depend on
the terms of the particular security agreement as well as the order of
recordation of the agreement in the appropriate recording office. Such a lien or
title interest is not prior to the lien for real estate taxes and assessments
and other charges imposed under governmental police powers.
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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
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Section 216(a) of the Code to the corporation under Sections 163 and 164 of the
Code. In order for a corporation to qualify under Section 216(b)(1) of the Code
for its taxable year in which such items are allowable as a deduction to the
corporation, such section requires, among other things, that at least 80% of the
gross income of the corporation be derived from its tenant-stockholder. By
virtue of this requirement the status of a corporation for purposes of Section
216(b)(1) of the Code must be determined on a year-to-year basis. Consequently,
there can be no assurance that cooperatives relating to the Cooperative Loans
will qualify under such section for any particular year. In the event that such
a cooperative fails to qualify for one or more years, the value of the
collateral securing any related Cooperative Loans could be significantly
impaired because no deduction would be allowable to tenant-stockholders under
Section 216(a) of the Code with respect to those years. In view of the
significance of the tax benefits accorded tenant-stockholders of a corporation
that qualifies under Section 216(b)(1) of the Code, the likelihood that such a
failure would be permitted to continue over a period of years appears remote.
REALIZING UPON COOPERATIVE LOAN SECURITY
The cooperative shares and proprietary lease or occupancy agreement
owned by the tenant-stockholder and pledged to the lender are, in almost all
cases, subject to restrictions on transfer as set forth in the cooperative's
certificate of incorporation and by-laws, as well as in the proprietary lease or
occupancy agreement. The proprietary lease or occupancy agreement, even while
pledged, may be cancelled by the cooperative for failure by the
tenant-stockholder to pay rent or other obligations or charges owed by such
tenant-stockholder, including mechanics' liens against the cooperative apartment
building incurred by such tenant-stockholder. Commonly, rent and other
obligations and charges arising under a proprietary lease or occupancy agreement
which are owed to the cooperative are made liens upon the shares to which the
proprietary lease or occupancy agreement relates. In addition, the proprietary
lease or occupancy agreement generally permits the cooperative to terminate such
lease or agreement in the event the borrower defaults in the performance of
covenants thereunder. The lender and the cooperative will typically enter into a
recognition agreement which establishes the rights and obligations of both
parties in the event of a default by the tenant-stockholder on its obligations
under the proprietary lease or occupancy agreement. A default by the
tenant-stockholder under the proprietary lease or occupancy agreement will
usually constitute a default under the security agreement between the lender and
the tenant-stockholder.
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.
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The terms of the Cooperative Loans do not require either the Mortgagor
or the Cooperative to obtain title insurance of any type. Consequently, the
existence of any prior liens or other imperfections of title also may adversely
affect the marketability of the Cooperative Dwelling in the event of
foreclosure.
In New York, lenders generally realize upon the pledged shares and
proprietary lease or occupancy agreement given to secure a cooperative loan by
public sale in accordance with the provisions of Article 9 of the Uniform
Commercial Code (the "UCC") and the security agreement relating to those shares.
Article 9 of the UCC requires that a sale be conducted in a "commercially
reasonable" manner. Whether a sale has been conducted in a "commercially
reasonable" manner will depend on the facts in each case. In determining
commercial reasonableness, a court will look to the notice given the debtor and
the method, manner, time, place and terms of the sale. Generally, a sale
conducted according to the usual practice of banks selling similar collateral
will be considered reasonably conducted.
Article 9 of the UCC provides that the proceeds of the sale will be
applied first to pay the costs and expenses of the sale and then to satisfy the
indebtedness secured by the lender's security interest. The recognition
agreement, however, generally provides that the lender's right to reimbursement
is subject to the right of the cooperative corporation to receive sums due under
the proprietary lease or occupancy agreement. If there are proceeds remaining,
the lender must account to the tenant-stockholder for the surplus. Conversely,
if a portion of the indebtedness remains unpaid, the tenant-stockholder is
generally responsible for the deficiency. See " -- Anti-Deficiency Legislation
and Other Limitations on Lenders" below.
In the case of foreclosure on a Multifamily Property that was converted
from a rental building to a building owned by a cooperative housing corporation
under a non-eviction plan, some states require that a purchaser at a foreclosure
sale take the property subject to rent control and rent stabilization laws which
apply to certain tenants who elected to remain in the building but not to
purchase shares in the cooperative when the building was so converted. Any such
restrictions could adversely affect the number of potential purchasers for and
the value of such property.
RIGHTS OF REDEMPTION
In some states, after a sale pursuant to a deed of trust or foreclosure
of a mortgage, the borrower and certain foreclosed junior lienors are given a
statutory period in which to redeem the property from the foreclosure sale. In
certain other states, this right of redemption applies only to a sale following
judicial foreclosure, and not a sale pursuant to a non-judicial power of sale.
In most states where the right of redemption is available, statutory redemption
may occur upon payment of the foreclosure purchase price, accrued interest and
taxes. In some states, the right to redeem is an equitable right. The effect of
a statutory right of redemption is to diminish the ability of the lender to sell
the foreclosed property. The exercise of a right of redemption would defeat the
title of any purchaser from the lender subsequent to foreclosure or sale 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
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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
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loans and who fail to comply with the provisions of the law. In some cases, this
liability may affect assignees of the mortgage loans.
Unless otherwise specified in the related Prospectus Supplement, each
Mortgage Loan secured by Multifamily Property will be a non-recourse loan to the
Mortgagor. As a result, the Mortgagor's obligation to repay the Mortgage Loan
can be enforced only against the Mortgaged Property regardless of whether the
Mortgagor has other assets from which it could repay the loan.
Unless otherwise specified in the related Prospectus Supplement, the
mortgage securing each Mortgage Loan relating to Multifamily Property will
contain an assignment of rents and an assignment of leases, pursuant to which
the borrower assigns its right, title and interest as landlord under each lease
and the income derived therefrom to the Depositor, while retaining a license to
collect the rents so long as there is no default. In the event the borrower
defaults, the license terminates and the Trustee (as the assignee of such
assignment) is entitled to collect the rents. The Trustee may enforce its right
to such rents by seeking the appointment of a receiver to collect the rents
immediately after giving notice to the borrower of the default.
"DUE-ON-SALE" CLAUSES
The forms of note, mortgage and deed of trust relating to conventional
Mortgage Loans may contain a "due-on-sale" clause permitting acceleration of the
maturity of a loan if the borrower transfers its interest in the property. The
enforceability of these clauses has been subject of legislation or litigation in
many states, and in some cases the enforceability of these clauses was limited
or denied. However, the Garn-St Germain Depository Institutions Act of 1982 (the
"Garn-St Germain Act") preempts state constitutional, statutory and case law
that prohibits the enforcement of due-on-sale clauses and permits lenders to
enforce these clauses in accordance with their terms, subject to certain limited
exceptions. The Garn-St Germain Act does "encourage" lenders to permit
assumption of loans at the original rate of interest or at some other rate less
than the average of the original rate and the market rate.
The Garn-St Germain Act also sets forth nine specific instances in
which a mortgage lender covered by the Garn-St Germain Act may not exercise a
due-on-sale clause, notwithstanding the fact that a transfer of the property may
have occurred. These include intra-family transfers, certain transfers by
operation of law, leases of fewer than three years and the creation of a junior
encumbrance. Regulations promulgated under the Garn-St Germain Act also prohibit
the imposition of prepayment penalty upon the acceleration of a loan pursuant to
a due-on-sale clause.
The inability to enforce a due-on-sale clause may result in a mortgage
loan bearing an interest rate below the current market rate being assumed by a
new home buyer rather than being paid off, which may have an impact upon the
average life of the Mortgage Loans and the number of Mortgage Loans which may be
outstanding until maturity.
ENFORCEABILITY OF CERTAIN PROVISIONS
Standard forms of note, mortgage and deed of trust generally contain
provisions obligating the borrower to pay a late charge if payments are not
timely made and in some circumstances may provide for prepayment fees or
penalties if the obligation is paid prior to maturity. In certain states, there
are or may be specific limitations upon late charges which a lender may collect
from a borrower for delinquent payments. State and federal statutes or
regulations may also limit a lender's right to collect a prepayment penalty when
the prepayment is caused by the lender's acceleration of the loan pursuant to a
due-on-sale clause. Certain states also limit the amounts that a lender may
collect from a borrower as an additional charge if the loan is
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prepaid. Under the Servicing Agreements and the applicable 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, 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 remedial action ("Cleanup
Costs") if hazardous wastes or hazardous substances have been released or
disposed of on the property. Such Cleanup Costs may be substantial. It is
possible that such costs could become a liability of the Trust Fund and reduce
the amounts otherwise distributable to the Securityholders if a Mortgaged
Property securing a Mortgage Loan became the property of the Trust Fund in
certain circumstances and if such Cleanup Costs were incurred.
Except as otherwise specified in the related Prospectus Supplement,
each Unaffiliated Seller will represent, as of the date of delivery of the
related Series of Securities, 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
applicable Agreement and/or Servicing Agreement will further provide that the
Master Servicer, acting on behalf of the Trust Fund, may not acquire title to a
Mortgaged Property or take over its operation unless the Master Servicer has
received a report from a qualified independent person selected by the Master
Servicer setting forth whether such Mortgaged Property is subject to or presents
any toxic wastes or environmental hazards and an estimate of the cost of curing
or cleaning up such hazard.
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THE CONTRACTS
GENERAL
As a result of the Depositor's assignment of the Contract to the
Trustee, the Certificateholders will succeed collectively to all of the rights
(including the right to receive payment on the Contracts) and will assume
certain obligations of the Depositor. Each Contract evidences both (a) the
obligation of the Obligor to repay the loan evidenced thereby and (b) the grant
of a security interest in the Manufactured Home to secure repayment of such
loan. Certain aspects of both features of the Contracts are described more fully
below.
The Contracts generally are "chattel paper" as defined in the Uniform
Commercial Code in effect in the states in which the Manufactured Homes
initially were registered. Pursuant to the UCC, the sale of chattel paper is
treated in a manner similar to perfection of a security interest in chattel
paper. Under the applicable Agreement and/or Servicing Agreement, the Master
Servicer or the Depositor, as the case may be, will transfer physical possession
of the Contracts to the Trustee or Indenture Trustee, or their respective
custodian, as the case may be. 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 or the Indenture
Trustee's security interest in the Contracts, as the case may be. Unless
otherwise specified in the related Prospectus Supplement, the Contracts will not
be stamped or marked otherwise to reflect their assignment from the Depositor to
the Trustee or their pledge to the Indenture Trustee. Therefore, if a subsequent
purchaser were able to take physical possession of the Contracts without notice
of such assignment or pledge, the respective Trustees' interest in the Contracts
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 Securityholders 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
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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 Securities and as described in the related Prospectus
Supplement, the Master Servicer may be required to perfect a security interest
in the Manufactured Home under applicable real estate laws. If such real estate
filings are not required and if any of the foregoing events were to occur, the
only recourse of the Securityholders 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 and, if a Series of
Securities includes Notes, such security interest will be pledged to the
Indenture Trustee on behalf of the Noteholders. Unless otherwise specified in
the related Prospectus Supplement, neither the Depositor nor the Trustee or
Indenture Trustee will amend the certificates of title to identify the Trustee
or the Indenture Trustee, as applicable, 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 Securityholders 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
and pledged to the Noteholders, if any, 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 applicable Securityholders as the new
secured party on the certificate of title that, through fraud or negligence, the
security interest of the Securityholders 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 Indenture Trustee, or the
Master Servicer as custodian for the Trustee and/or Indenture 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 on the certificate of title, the applicable Trustee would
receive notice of surrender if the security interest in the Manufactured Home is
noted on the certificate of title. Accordingly, the Trustee and Indenture
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 installment or conditional sales contracts and installment loan
agreements,
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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 Contract sells a Manufactured Home, the
Trustee or the Indenture Trustee, or the Master Servicer as custodian for the
Trustee or Indenture 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
Contract before release of the lien. Under the applicable Agreement, the Master
Servicer, on behalf of the Depositor, will be obligated to take such steps, at
the Master Servicer's expense, as are necessary to maintain perfection of
security interests in the Manufactured Homes.
Under the laws of most states, liens for repairs performed on a
Manufactured Home take priority even over a perfected security interest. The
Depositor will represent in the applicable 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, Indenture Trustee or
Securityholders 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
applicable Agreement.
ENFORCEMENT OF SECURITY INTERESTS IN MANUFACTURED HOMES
The Master Servicer on behalf of the Trustee or the Indenture Trustee,
to the extent required by the related Agreement and/or Indenture, may take
action to enforce the applicable Trustee's security interest with respect to
Contracts in default by repossession and resale of the Manufactured Homes
securing such Defaulted Contracts. Except in Louisiana, so long as the
Manufactured Home has not become subject to the real estate law, a creditor can
repossess a Manufactured Home securing a Contract by voluntary surrender, by
"self-help" repossession that is "peaceful" (i.e., without breach of the peace)
or, in the absence of voluntary surrender and the ability to repossess without
breach of the peace, by judicial process. The holder of a Contract must give the
debtor a number of days notice, which varies from 10 to 30 days depending on the
state, prior to commencement of any repossession. The UCC and consumer
protection laws in most states place restrictions on repossession sales,
including requiring prior notice to the debtor and commercial reasonableness in
effecting such a sale. The law in most states also requires that the debtor be
given notice of any sale prior to resale of the unit so that the debtor may
redeem at or before such resale. In the event of such repossession and resale of
a Manufactured Home, the Trustee and/or Indenture 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
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amounts paid under a Contract; however, the Obligor also may be able to assert
the rule to set off remaining amounts due as a defense against a claim brought
against such Obligor. Numerous other federal and state consumer protection laws
impose requirements applicable to the origination and lending pursuant to the
Contracts, including the Truth in Lending Act, the Federal Trade Commission Act,
the Fair Credit Billing Act, the Fair Credit Reporting Act, the Equal Credit
Opportunity Act, the Fair Debt Collection Practices Act and the Uniform Consumer
Credit Code. In the case of some of these laws, the failure to comply with their
provisions may affect the enforceability of the related Contract.
TRANSFERS OF MANUFACTURED HOMES; ENFORCEABILITY OF "DUE-ON-SALE" CLAUSES
The Contracts, in general, prohibit the sale or transfer of the related
Manufactured Homes without the consent of the Depositor or the Master Servicer
and permit the acceleration of the maturity of the Contracts by the Depositor or
the Master Servicer upon any such sale or transfer that is not consented to.
Unless otherwise specified in the related Prospectus Supplement, the Depositor
or the Master Servicer expects that it will permit most transfers of
Manufactured Homes and not accelerate the maturity of the related Contracts. In
certain cases, the transfer may be made by a delinquent Obligor in order to
avoid a repossession proceeding with respect to a Manufactured Home.
In the case of a transfer of a Manufactured Home after which the
Depositor desires to accelerate the maturity of the related Contract, the
Depositor's ability to do so will depend on the enforceability under state law
of the "due-on-sale" clause. The Garn-St Germain Act preempts, subject to
certain exceptions and conditions, state laws prohibiting enforcement of
"due-on-sale" clauses applicable to the Manufactured Homes. In some states the
Depositor or the Master Servicer may be prohibited from enforcing a
"due-on-sale" clause in respect of certain Manufactured Homes.
APPLICABILITY OF USURY LAWS
Title V of the Depository Institutions Deregulation and Monetary
Control Act of 1980, as amended ("Title V"), provides that, subject to the
following conditions, state usury limitations shall not apply to any loan that
is secured by a first lien on certain kinds of manufactured housing. The
Contracts would be covered if they satisfy certain conditions, among other
things, governing the terms of any prepayments, late charges and deferral fees
and requiring a 30-day notice period prior to instituting any action leading to
repossession of or foreclosure with respect to the related unit.
Title V authorized any state to reimpose limitations on interest rates
and finance charges by adopting before April 1, 1983 a law or constitutional
provision that expressly rejects application of the federal law. Fifteen states
adopted such a law prior to the April 1, 1983 deadline. In addition, even where
Title V was not so rejected, any state is authorized by the law to adopt a
provision limiting discount points or other charges on loans covered by Title V.
In any state in which application of Title V was expressly rejected or a
provision limiting discount points or other charges has been adopted, no
Contract which imposes finance charges or provides for discount points or
charges in excess of permitted levels has been included in the Trust Assets or
Fund. The Depositor, or the party specified in the related Agreement will
represent that all of the Contracts comply with applicable usury laws.
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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
Securities. Where appropriate, additional consequences will be discussed in the
Prospectus Supplement relating to a particular Series. Stroock & Stroock & Lavan
LLP, New York, New York, Brown & Wood LLP, San Francisco, California, or other
counsel to the Depositor specified in the related Prospectus Supplement (each,
"Special Tax Counsel"), is delivering its opinion regarding certain federal
income tax matters discussed below. The opinion 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 Special Tax Counsel's advice with respect to material federal income
tax issues. As used hereinafter in "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 are based are subject to change or
differing interpretation, which change or differing interpretation could apply
retroactively. This discussion does not address the state or local tax
consequences of the purchase, ownership and disposition of such Securities. It
is recommended that investors 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 Securities offered hereunder.
The following discussion addresses securities of two general types: (i)
certificates and/or notes ("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 and/or
notes ("Trust Certificates") representing certain interests in a Trust Fund
which the Master Servicer does not elect to have treated as a REMIC. REMIC
Certificates and Trust Certificates will be referred to collectively as
"Certificates."
Under the REMIC Provisions, REMICs may issue one or more classes of
"regular" interests and must issue one and only one class of "residual"
interests. A REMIC Certificate representing a regular interest in a REMIC
Mortgage Pool will be referred to as a "REMIC Regular Certificate" and a REMIC
Certificate representing a residual interest in a REMIC Mortgage Pool will be
referred to as a "REMIC Residual Certificate."
A Trust Certificate representing an undivided equitable ownership
interest in the principal of the Mortgage Loans constituting the related Trust
Fund, together with interest thereon at a remittance rate (which may be less
than, greater than or equal to the related pass-through interest rate), will be
referred to as a "Trust Fractional Certificate" and a Trust Certificate
representing an equitable ownership of all or a portion of the interest paid on
each Mortgage Loan constituting the related 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 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").
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II. REMIC TRUST FUNDS
A. CLASSIFICATION OF REMIC TRUST FUNDS
With respect to each Series of REMIC Certificates relating to a REMIC
Mortgage Pool, Special Tax Counsel will deliver its 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 and applicable Treasury regulations
issued thereunder, such REMIC Mortgage Pool will qualify as a REMIC and the
classes of interests offered will be considered to be "regular interests" or
"residual interests" in that REMIC Mortgage Pool within the meaning of the REMIC
Provisions.
Holders of REMIC Certificates ("REMIC Certificateholders") should be
aware that, if an entity electing to be treated as a REMIC fails to comply with
one or more of the ongoing requirements of the Code for REMIC status during any
taxable year, the Code provides that the entity will not be treated as a REMIC
for such year and thereafter. In such event, an entity electing to be treated as
a REMIC may be taxable as a separate corporation under Treasury regulations, and
the REMIC Certificates issued by such entity may not be accorded the status
described below under " -- 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 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 of the
REMIC Mortgage Pool underlying such Certificates ("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 (ii) REMIC Certificates held by a real estate
investment trust ("REIT") will constitute "real estate assets" within the
meaning of Code Section 856(c)(4)(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, for both purposes, the
Assets 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)). See " -- Non-REMIC
Trust Funds --
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Characterization of Investments in Trust Certificates -- Buydown Mortgage
Loans." 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 Section 856(c)(4)(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 Code Section 860G(a)(3) or Section
860G(a)(4) 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 "real estate
asset" within the meaning of Code Section 856 and (ii) an asset described in
Code Section 7701(a)(19)(C). With respect to the Contracts included in a Trust
Fund that makes an election to be treated as a REMIC, each Unaffiliated Seller
will represent and warrant that each of the Manufactured Homes securing such
Contracts meets the definition of a "single family residence."
C. TIERED REMIC STRUCTURES
For certain Series of Certificates, two or more separate elections may
be made to treat designated portions of the related Trust Fund as REMICs
("Tiered REMICs") for federal income tax purposes. Upon the issuance of any such
series of Certificates, Special Tax Counsel will deliver its 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 "real estate assets" within the meaning of Code Section 856(c)(4)(A), and
assets described in Code Section 7701(a)(19)(C), and whether the income on such
Certificates is interest described in Code Section 856(c)(3)(B), 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
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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 (the "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 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 is first sold to
the public (excluding bond houses and brokers), and the stated redemption price
at maturity of a REMIC Regular Certificate will be its Stated Principal Balance.
If a REMIC Regular Certificate is sold with accrued interest that
relates to a period prior to the issue date of such REMIC Regular Certificate,
the amount paid for the accrued interest will be treated instead as increasing
the issue price of the REMIC Regular Certificate. In addition, that portion of
the first interest payment in excess of interest accrued from the date of
initial issuance of the REMIC Regular 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
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Date (except to the extent of any accrued market discount 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 greater than 0.65 but
not exceeding 1.35, increased or decreased by a fixed rate, or both. Certain
combinations of rates constitute a single qualified floating rate, including (i)
interest stated at a fixed rate for an initial period of less than one year
followed by a qualified floating rate if the value of the floating rate at the
Closing Date is intended to approximate the fixed rate, and (ii) two or more
qualified floating rates that can reasonably be expected to have approximately
the same values throughout the term of the Certificate. A combination of such
rates is conclusively presumed to be a single floating rate if the values of all
rates on the Closing Date are within 0.25 percentage points of each other. A
variable rate that is subject to an interest rate cap, floor, governor or
similar restriction on rate adjustment may be a qualified floating rate only if
such restriction is fixed throughout the term of the instrument, or is not
reasonably expected as of the Closing Date to cause the yield on the debt
instrument to differ significantly from the expected yield absent the
restriction. 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 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. For a REMIC Regular
Certificate with a Single Variable Rate the qualified stated interest allocable
to an accrual period is increased (or decreased) if the interest actually paid
during an accrual period exceeds (or is less than) the interest assumed to be
paid under the Single Variable Rate. 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."
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
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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 are 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 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 permit a Certificateholder to elect to accrue de minimis
original issue discount (together with stated interest, market discount and
original issue discount) into income currently based on a constant yield method.
See " -- 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 a 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
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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
qualified floating rate (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
Code Section 1272(a)(6) 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 Code Section 1272(a)(6) to such Certificates for the
purpose of preparing reports furnished to Certificateholders. The effect of the
application of such provisions generally will be to cause Certificateholders
holding Certificates bearing interest at a Single Variable Rate to take into
account for each period an amount corresponding approximately to the sum of (i)
the qualified stated interest accruing on the outstanding face amount of the
REMIC Regular Certificate as the stated interest rate for that Certificate
varies from time to time and (ii) the amount of original issue discount that
would have been attributable to that period on the basis of a constant yield to
maturity for a bond issued at the same time and issue price as the REMIC Regular
Certificate, having the same face amount and schedule of payments of principal
as such Certificate, subject to the same Prepayment Assumption, and bearing
interest at a fixed rate equal to the value of the applicable qualified floating
rate or qualified inverse floating rate in the case of a Certificate providing
for either such rate, or equal to the fixed rate that reflects the reasonably
expected yield on the Certificate in the case of a Certificate providing for an
objective rate other than an inverse floating rate, in each case as of the issue
date. Certificateholders holding REMIC Regular Certificates bearing interest at
a Multiple Variable Rate generally will take into account interest and original
issue discount under a similar methodology, except that the amounts of qualified
stated interest and original issue discount attributable to such a Certificate
first will be determined for an "equivalent" debt instrument bearing fixed
rates, the assumed fixed rates for which are (a) for each qualified floating
rate, the value of each such rate as of the Closing Date (with appropriate
adjustment for any differences in intervals between interest adjustment dates),
(b) for a qualified inverse floating rate, the value of the rate as of the
Closing Date and (c) for any other objective rate, the fixed rate that reflects
the yield that is reasonably expected for the Certificate. If the interest paid
or accrued with respect to a Multiple Variable Rate Certificate during an
accrual period differs from the assumed fixed interest rate, such difference
will be an adjustment (to interest or original issue discount, as applicable) to
the Certificateholder's taxable income for the taxable period or periods to
which such difference relates.
In the case of a Certificate that provides for stated interest at a
fixed rate in one or more accrual periods and either one or more qualified
floating rates or a qualified inverse floating rate in other accrual periods,
the fixed rate is first converted into an assumed variable rate. The assumed
variable rate will be a qualified floating rate or a qualified inverse floating
rate according to the type of actual variable rates provided by the Certificate,
and must be such that the fair market value of the REMIC Regular Certificate as
of issuance is approximately the same as the fair market value of an otherwise
identical debt instrument that
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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. Since the Treasury regulations, issued in
final form on June 11, 1996, applicable to instruments having contingent
payments (the "1996 Contingent Debt Regulations") are not applicable to
instruments that are subject to Code Section 1272(a)(6), 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 issue discount, the REMIC Regular
Certificate's adjusted issue price (as defined under " -- 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), reduced by any
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 is 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 at the
beginning of the first taxable year to which the election applies or acquires
thereafter. The election to accrue interest, discount and premium on a constant
yield method with respect to a Certificate is irrevocable, unless the IRS
consents to a revocation.
Under a statutory de minimis exception, market discount with respect to
a REMIC Regular Certificate will be considered to be zero for purposes of Code
Sections 1276 through 1278 if such market discount is less than 0.25% of the
stated redemption price at maturity of such REMIC Regular Certificate multiplied
by the number of complete years to maturity remaining after the date of its
purchase. In interpreting a similar de minimis rule with respect to original
issue discount on obligations payable in installments, the OID Regulations refer
to the weighted average maturity of obligations, and it is likely that the same
rule will be applied in determining whether market discount is de minimis. It
appears that de minimis market discount on a REMIC Regular Certificate would be
treated in a manner similar to original issue discount of a de minimis amount.
See "Taxation of Holders of REMIC Regular Certificates -- Original Issue
Discount." Such treatment would result in discount being included in income at a
slower rate than
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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 Tax Reform Act of 1986 (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 might 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.
Treasury regulations under Code Section 171 were issued on December 30,
1997 ("Bond Premium Amortization Regulations") which generally provide that
amortizable bond premium is amortized over the term of a note by offsetting the
qualified stated interest allocable to an accrual period with the amortizable
bond premium allocable to such period using a specified constant yield method.
To the extent that the amortizable bond premium allocated to an accrual period
exceeds the qualified stated interest allocable to
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such period, the excess is deductible under Code Section 171 to the extent such
excess does not exceed the difference between (i) prior interest inclusions over
(ii) prior amortizable bond premium deductions on the bond ("Bond Premium
Amortization Limit"), with the excess over the Bond Premium Amortization Limit
carried forward to the next accrual period and treated as amortizable bond
premium allocable to that period. The Bond Premium Amortization Regulations are
effective for notes acquired on or after March 2, 1998. However, if a holder
makes the election to amortize bond premium for the taxable year containing
March 2, 1998, or any subsequent taxable year, the Treasury regulations would
apply to debt instruments held on or after the first day for the taxable year in
which the election is made. The Bond Premium Amortization Regulations
specifically do not apply to debt instruments described in Code Section
1272(a)(b) such as the REMIC Regular Certificates. However, it is possible that
by analogy to these Regulations, any premium on a REMIC Regular Certificate in
excess of interest income may be deductible to the extent of prior accruals of
interests.
3. Treatment of Subordinated Securities
As described above under "Credit Support -- Subordinated Certificates,"
certain Series of Securities may contain one or more Classes or Subclasses of
Subordinated Securities. Holders of Subordinated Securities will be required to
report income with respect to such Securities on the accrual method without
giving effect to delays and reductions in distributions attributable to defaults
or delinquencies on any Mortgage Loans or Contracts, 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 Securityholder of a Subordinated Security in any period
could significantly exceed the amount of cash distributed to such Securityholder
in that period.
Although not entirely clear, it appears that a corporate holder or a
holder who holds a Regular Certificate in the course of a trade or business
generally should be allowed to deduct as an ordinary loss any loss sustained on
account of partial or complete worthlessness of a Subordinated Security.
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 Security. Special rules are applicable to banks
and thrift institutions, including rules regarding reserves for bad debts.
Holders of Subordinated Securities should consult their own tax advisers
regarding the appropriate timing, character and amount of any loss sustained
with respect to Subordinated Securities.
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 " -- 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
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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 fixed rate 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 above under " -- Taxation of Owners of REMIC Regular Certificates
- -- Market Discount and Premium") over its fair market value at the time of its
transfer to the REMIC Mortgage Pool generally will be included in income as it
accrues, based on a constant yield method and on the Prepayment Assumption. For
this purpose, the Master Servicer intends to treat the fair market value of the
Mortgage Loans as being equal to the aggregate issue prices of the REMIC Regular
Certificates and REMIC Residual Certificates; if one or more classes of REMIC
Regular Certificates or REMIC Residual Certificates are retained by the
Depositor, the Master Servicer will estimate the value of such retained
interests in order to determine the fair market value of the Mortgage Loans for
this purpose. Third, no item of income, gain, loss or deduction allocable to a
prohibited transaction (see " -- Prohibited Transactions and Other Possible
REMIC Taxes" below) will be taken into account. Fourth, the REMIC Mortgage Pool
generally may not deduct any item that would not be allowed in calculating the
taxable income of a partnership by virtue of Code Section 703(a)(2). Fifth, the
REMIC Regulations provide that the limitation on miscellaneous itemized
deductions imposed on individuals by Code Section 67 will not be applied at the
Mortgage Pool level to the servicing fees paid to the Master Servicer or
sub-servicers if any. See, however, "--Pass-Through of Servicing Fees" below.
Sixth, net income from foreclosure property is reduced by the amount of tax on
net income from foreclosure property. If the deductions allowed to the REMIC
Mortgage Pool exceed its gross income for a calendar quarter, such excess will
be the net loss for the REMIC Mortgage Pool for that calendar quarter.
3. Basis Rules and Distributions
Any distribution by a REMIC Mortgage Pool to a Residual Owner will not
be included in the gross income of such Residual Owner to the extent it does not
exceed the adjusted basis of such Residual Owner's interest in a REMIC Residual
Certificate. Such distribution will reduce the adjusted basis of such interest,
but not below zero. To the extent a distribution exceeds the adjusted basis of
the REMIC Residual
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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
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.
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% 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, an excess inclusion cannot be offset by
deductions, losses or loss carryovers from other activities. However, net
operating loss carryovers are determined without regard to excess inclusion
income. 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" below. The
Small Business Job Protection Act of 1996 ("SBJPA of 1996") has eliminated the
special rule permitting Section 593 institutions ("thrift institutions") to use
net operating losses and other allowable deductions to offset their excess
inclusion income from REMIC Residual Certificates that have "significant value"
within the meaning of the REMIC Regulations, effective for taxable years
beginning after December 31, 1995, except with respect to REMIC Residual
Certificates continuously held by thrift institutions since November 1, 1995.
In addition, the SBJPA of 1996 provides three rules for determining the
effect of excess inclusions on the alternative minimum taxable income of a
Residual Owner. First, alternative minimum taxable income
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for a Residual Owner is determined without regard to the special rule, discussed
above, that taxable income cannot be less than excess inclusions. Second, a
Residual Owner's alternative minimum taxable income for a 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.
In the case of any REMIC Residual Certificates held by a REIT, the
aggregate excess inclusions with respect to such REMIC Residual Certificates,
reduced (but not below zero) by the real estate investment trust taxable income
(within the meaning of Code Section 857(b)(2), excluding any net capital gain),
will be allocated among the shareholders of such trust in proportion to the
dividends received by such shareholders from such trust, and any amount so
allocated will be treated as an excess inclusion with respect to a REMIC
Residual Certificate as if held directly by such shareholder.
5. Noneconomic REMIC Residual Certificates
Under the REMIC Regulations, transfers of "noneconomic" REMIC Residual
Certificates will be disregarded for all federal income tax purposes if "a
significant purpose of the transfer was to enable the transferor to impede the
assessment or collection of tax." If such transfer is disregarded, the purported
transferor will continue to remain liable for any taxes due with respect to the
income on such "noneconomic" REMIC Residual Certificate. The REMIC Regulations
provide that a REMIC Residual Certificate is noneconomic unless, at the time of
its transfer and based on the Prepayment Assumption and any required or
permitted clean up calls or required liquidation provided for in the REMIC's
organizational documents, (i) 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 (ii) 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
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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" above.
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
"Technical and Miscellaneous Revenue Act of 1988" (the "1988 Act"). Under
provisions of the applicable Agreement, such organizations generally are
prohibited from owning Residual Certificates. See " --Sales of REMIC
Certificates" below.
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 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% rate.
8. Mark-to-Market Rules
Code Section 475 generally requires that securities dealers include
securities in inventory at their fair market value, recognizing gain or loss as
if the securities were sold at the end of each tax year. Treasury regulations
provide that, for purposes of this mark-to-market requirement, a REMIC Residual
Certificate acquired on or after January 4, 1995 is not treated as a security
and thus may not be marked to market.
9. Partnership Holders
Special rules for electing partnerships with at least 100 members were
adopted in the Taxpayer Relief Act of 1997 (the "1997 Act"). There are special
rules relating to such electing partnerships that hold REMIC Residual
Certificates. Large partnerships which have or are considering making this
election should consult with their tax advisors concerning the consequences of
holding a REMIC Residual Certificate.
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
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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.
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 REMIC Residual Certificate 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 (i) 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, (ii) any tax-exempt entity (other than a Code Section 521
cooperative) which is not subject to the tax on unrelated business income and
(iii) 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 applicable Agreement
requires, as a prerequisite to any transfer of a Residual Certificate, the
delivery to the Trustee of an affidavit of the transferee to the effect that it
is not a disqualified organization and contains other provisions designed to
render any attempted transfer of a Residual Certificate to a disqualified
organization void.
In addition, if a "pass-through entity" includes in income excess
inclusions with respect to a REMIC Residual Certificate, and a disqualified
organization is the record holder of an interest in such entity at any time
during any taxable year of such entity, then a tax will be imposed on such
entity equal to the product of (i) the amount of excess inclusions on the REMIC
Residual Certificate for such taxable year that are allocable to the interest in
the pass-through entity held by such disqualified organization and (ii) the
highest marginal federal income tax rate imposed on corporations. A pass-through
entity will not be subject to this tax for any period with respect to any
holder, however, if the record holder of the interest in such entity furnishes
to such entity (i) such holder's social security number and a statement under
penalty of perjury that such social security number is that of the record holder
or (ii) a statement under penalty of perjury that such record holder is not a
disqualified organization. For these purposes, a "pass-through entity" means any
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regulated investment company, REIT, trust, partnership or certain other entities
described in Code Section 860E(e)(6). 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.
The 1997 Act provides that for taxable years beginning after December
31, 1997, all partners of certain electing partnerships having 100 or more
partners ("electing large partnerships") will be treated as disqualified
organizations for purposes of the tax imposed on pass-through entities if such
electing large partnerships hold residual interests in a REMIC. However, the
electing large partnership would be entitled to exclude the excess inclusion
income from gross income for purposes of determining the taxable income of the
partners. When applicable, the provisions would also disallow 70% of an electing
large partnership's miscellaneous itemized deductions, including deductions for
servicing and guaranty fees and any expenses of the REMIC, although the
remaining deductions would generally be allowed at the partnership level and
would not be subject to the 2% floor applicable to individual partners. See "G.
Pass-Through of Servicing Fees" below.
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) will
be allocated to the holders of the REMIC Residual Certificates, and therefore
will 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
Residual 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% 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
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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% tax on the value of any contribution of assets to
the REMIC after the "startup day" (generally the day on which the regular and
residual interests are issued), other than pursuant to specified exceptions, and
subjects "net income from foreclosure property" to tax at the highest corporate
rate. It is not anticipated that a REMIC Mortgage Pool will engage in any such
transactions or receive any such income.
I. TERMINATION OF A REMIC TRUST FUND
In general, no special tax consequences will apply to a holder of a
REMIC Regular Certificate upon the termination of the REMIC Mortgage Pool by
virtue of the final payment or liquidation of the last Mortgage Loan remaining
in the REMIC Mortgage Pool. If a Residual Owner's adjusted basis in its REMIC
Residual Certificate at the time such termination occurs exceeds the amount of
cash distributed to such Residual Owner in liquidation of its interest, then,
although the matter is not entirely free from doubt, it appears that the
Residual Owner would be entitled to a loss (which could be a capital loss) equal
to the amount of such excess.
J. REPORTING AND OTHER ADMINISTRATIVE MATTERS OF REMICS
Reporting of interest income, including any original issue discount,
with respect to REMIC Regular Certificates is required annually, and may be
required more frequently under Treasury regulations. Certain holders of REMIC
Regular Certificates who are generally exempt from information reporting on debt
instruments, such as corporations, banks, registered securities or commodities
brokers, real estate investment trusts, registered investment companies, common
trust funds, charitable remainder annuity trusts and unitrusts, will be provided
interest and original issue discount income information and the information set
forth in the following paragraph upon request in accordance with the
requirements of the Treasury regulations. The information must be provided by
the later of 30 days after the end of the quarter for which the information was
requested, or two weeks after the receipt of the request. The REMIC Mortgage
Pool must also comply with rules requiring the face of a REMIC Certificate
issued at more than a de minimis discount to disclose the amount of original
issue discount and the issue date and requiring such information to be reported
to the Treasury Department.
The REMIC Regular Certificate information reports must include a
statement of the "adjusted issue price" of the REMIC Regular Certificate at the
beginning of each accrual period. In addition, the reports must include
information necessary to compute the accrual of any market discount that may
arise upon secondary trading of REMIC Regular Certificates. Because exact
computation of the accrual of market discount on a constant yield method would
require information relating to the holder's purchase price which the REMIC
Mortgage Pool may not have, it appears that this provision will only require
information pertaining to the appropriate proportionate method of accruing
market discount.
The responsibility for complying with the foregoing reporting rules
will be borne by the Master Servicer.
For purposes of the administrative provisions of the Code, REMIC Pools
will be treated as partnerships and the holders of Residual Certificates will be
treated as partners. The Master Servicer will file federal income tax
information returns on behalf of the related REMIC Pool, and will be designated
as agent for and will act on behalf of the "tax matters person" with respect to
the REMIC Pool in all respects.
As agent for the tax matters person, the Master Servicer will, subject
to certain notice requirements and various restrictions and limitations,
generally have the authority to act on behalf of the REMIC and the
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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 Code Section 3406 at a rate of 31% 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 (i) 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, (ii) the holder of such Certificate signs a
statement under penalty of perjury that certifies that such holder is a non-U.S.
Person and the beneficial owner, and provides the name and address of such
holder and (iii) 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%, subject to reduction under an
applicable tax treaty.
"U.S. Person" means a citizen or resident of the United States, a
corporation, partnership or other entity treated as a corporation or partnership
for United States federal income tax purposes, created or organized in or under
the laws of the United States or any political subdivision thereof (unless, in
the case of a partnership, future Treasury regulations provide otherwise), an
estate that is subject to U.S. federal income tax regardless of the source of
its income, or a trust other than a "foreign trust," as defined in Code Section
7701(a)(31).
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% or more of the REMIC
Residual Certificates.
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2. REMIC Residual Certificates
Amounts paid to a Residual Owner that is a non-U.S. Person generally
will be treated as interest for purposes of applying the withholding tax on
non-U.S. Persons with respect to income on its REMIC Residual Certificate.
However, it is unclear whether distributions on REMIC Residual Certificates will
be eligible for the general exemption from withholding tax that applies to REMIC
Regular Certificates as described above. Treasury regulations provide that, for
purposes of the portfolio interest exception, payments to the foreign owner of a
REMIC Residual Certificate are to be considered paid on the obligations held by
the REMIC, rather than on the Certificate itself. Such payments will thus only
qualify for the portfolio interest exception if the underlying obligations held
by the REMIC would so qualify. Such withholding tax generally is imposed at a
rate of 30% but is 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%,
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 continues
to remain liable for any taxes due with respect to the income on such REMIC
Residual Certificate as if held by the U.S. Person. A transfer of a REMIC
Residual Certificate has tax avoidance potential unless, at the time of the
transfer, the transferor reasonably expects (i) that the REMIC will distribute
to the transferee Residual Certificateholder amounts that will equal at least
30% of each excess inclusion and (ii) 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% of the accrued excess inclusions is not terminated
even though the REMIC Residual Certificate is no longer held by a non-U.S.
Person.
Recently issued Treasury regulations (the "Final Withholding
Regulations"), which are generally effective with respect to payments made after
December 31, 1999, consolidate and modify the current certification requirements
and means by which a holder may claim exemption from United States federal
income tax withholding and provide certain presumptions regarding the status of
holders when payments to the holders cannot be reliably associated with
appropriate documentation provided to the payor. All holders of REMIC Regular
Certificates and REMIC Residual Certificates should consult their tax advisers
regarding the application of the Final Withholding Regulations.
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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
The discussion that follows relates only to Non-REMIC Trust Funds that
have not issued Trust Certificates structured as debt for federal income tax
purposes and that are not intended to be treated as partnerships for federal
income tax purposes. For a discussion of Trust Certificates in a Non-REMIC Trust
Fund which have been structured as debt for federal income tax purposes, see
"IV. Characterization of the Trust Certificates as Indebtedness." For a
discussion of Trust Certificates and Notes in a Non-REMIC Trust Fund which is
intended to be treated as a partnership for federal income tax purposes, see "V.
Tax Characterization as a Partnership."
A. CLASSIFICATION OF TRUST FUNDS
With respect to each series of Trust Certificates, Special Tax Counsel
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 "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), (ii) Trust
Fractional Certificates held by a REIT will represent "real estate assets"
within the meaning of Code Section 856(c)(4)(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)(3)(B) and (iii) Trust Fractional Certificates acquired by a REMIC
in accordance with the requirements of Code Section 860G(a)(3)(A)(i) and (ii) or
Section 860G(a)(4)(B) will be treated as "qualified mortgages" within the
meaning of Code Section 860D(a)(4). In the case of a Trust Fractional
Certificate evidencing interests in Contracts, such Certificates will qualify
for the treatment described in (i) through (iii) 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.
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2. Trust Interest Certificates
With respect to each Series of Certificates, Special Tax Counsel 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 Code Section 860G(a)(3) or Section 860G(a)(4) will be treated as
owning a "Qualified Mortgage" within the meaning of Code Section 860(G)(a)(3).
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, (i) a Trust Interest Certificate owned by a "domestic
building and loan association" within the meaning of Code Section 7701(a)(19)
would be considered to represent "loans . . . secured by an interest in real
property" within the meaning of Code Section 7701(a)(19)(C)(v) or (ii) a REIT
which owns a Trust Interest Certificate would be considered to own "real estate
assets" within the meaning of Code Section 856(c)(4)(A), and interest income
thereon would 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) 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.
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)(4)(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 Trust Funds included in a
Mortgage Pool.
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Accordingly, each Trust Fractional Certificateholder must report on its federal
income tax return its allocable share of income from its interests, as described
below, at the same time and in the same manner as if it had held directly
interests in the Mortgage Loans and received directly its share of the payments
on such Mortgage Loans. Because those fractional interests having differing
undivided percentage interests in principal and interest 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
the amount includible in income on account of a Trust Fractional Certificate may
differ significantly from the amount payable thereon from payments of interest
on the Mortgage Loans. Each Trust Fractional Certificateholder may report and
deduct its allocable share of the servicing and related fees and expenses paid
to or retained by the Depositor 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 such holder's adjusted gross income. In addition, the amount of
itemized deductions otherwise allowable for the taxable year for an individual
whose adjusted gross income exceeds the "applicable amount" ($100,000 (or
$50,000 in the case of a separate return by a married individual) adjusted for
changes in the cost of living subsequent to 1990) will be reduced by the lesser
of (i) 3 percent of the excess of adjusted gross income over the applicable
amount, or (ii) 80 percent of the amount of itemized deductions allowable for
such taxable year. For taxable years beginning after December 31, 1997, in the
case of a partnership that has 100 or more partners and elects to be treated as
an "electing large partnership," 70 percent of such partnership's miscellaneous
itemized deductions will be disallowed, although the remaining deductions will
generally be allowed at the partnership level and will not be subject to the 2
percent flood that would otherwise be applicable to individual partners.
Moreover, a holder of a Trust Fractional Certificate that is not a corporation
cannot deduct such fees for purposes of the alternative minimum tax (if
applicable). Amounts received by Trust Fractional Certificateholders in lieu of
amounts due with respect to any Mortgage Loan but not received by the Depositor
from the Mortgagor will be treated for federal income tax purposes as having the
same character as the payments which they replace.
Purchasers of Trust Fractional Certificates identified in the
applicable Prospectus Supplement as representing interests in Stripped Mortgage
Loans should read the material under the headings " -- Application of Stripped
Bond Rules," "-- Market Discount and Premium" and " -- Allocation of Purchase
Price" for a discussion of particular rules applicable to their Certificates. A
"Stripped Mortgage Loan" means a Mortgage Loan having a Retained Yield (as that
term is defined below) or a Mortgage Loan 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.
Purchasers of Trust Fractional Certificates identified in the
applicable Prospectus Supplement as representing interests in Unstripped
Mortgage Loans should read the material under the headings " -- Treatment of
Unstripped Certificates," "-- Market Discount and Premium," and " -- Allocation
of Purchase Price" for a discussion of particular rules applicable to their
Certificates. However, the IRS has indicated that under some circumstances it
will view a portion of servicing and related fees and expenses paid to or
retained by the Master Servicer or sub-servicers as an interest in the Mortgage
Loans, ("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 compensation payable to the Master Servicer, as described under
"Description of the Securities -- Servicing Compensation and Payment of
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Expenses," 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 relating thereto, exclusive of the Depositor's Retained Yield, if any.
With respect to each Series of Certificates, Special Tax Counsel 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 (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 and some or all of the interest payable thereon.
As a consequence, each Stripped Mortgage Loan will become subject to the
"stripped bond" rules of the Code (the "Stripped Bond Rules"). The effect of
applying those rules will generally be to require each Trust Fractional
Certificateholder to accrue and report income attributable to its share of the
principal and interest on each of the Stripped Mortgage Loans as original issue
discount on the basis of the yield to maturity of such Stripped Mortgage Loans,
as determined in accordance with the provisions of the Code dealing with
original issue discount. For a description of the general method of calculating
original issue discount, see " -- REMIC Trust Funds -- Taxation of Owners of
REMIC Regular Certificates -- Original Issue Discount." The yield to maturity of
a Trust Fractional Certificateholder's interest in the Stripped Mortgage Loans
will be calculated taking account of the price at which the holder purchased the
Certificate and the holder's share of the payments of principal and interest to
be made thereon. Although the provisions of the Code and the OID Regulations do
not directly address the treatment of instruments similar to Trust Fractional
Certificates, in reporting to Trust Fractional Certificateholders the Trustee
intends to treat such Certificates as a single obligation with payments
corresponding to the aggregate of the payments allocable thereto from each of
the Mortgage Loans, and to determine the amount of original issue discount on
such Certificates accordingly. See " -- Aggregate Reporting."
Under Treasury regulations, original issue discount so determined with
respect to a particular Stripped Mortgage Loan may be considered to be zero
under the de minimis rule described above, in which case it is treated as market
discount. See " -- REMIC Trust Funds -- Taxation of Owners of REMIC Regular
Certificates -- Original Issue Discount." Those regulations also provide that
original issue discount so determined with respect to a particular Stripped
Mortgage Loan will be treated as market discount if the rate of interest on the
Stripped Mortgage Loan, including a reasonable Servicing Fee, is no more than
one percentage point less than the unstripped rate of interest. See " -- Market
Discount and Premium." The Trustee intends to apply the foregoing de minimis and
market discount rules on an aggregate poolwide basis, although it is possible
that investors may be required to apply them on a loan by loan basis. The loan
by loan information required for such application of those rules may not be
available. See " -- Aggregate Reporting." Unless the market discount rules
apply, subsequent purchasers of the Certificates may be required to include
"original issue discount" in an amount computed using the price at which such
subsequent purchaser purchased the Certificates.
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
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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 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 represented
by such Certificates according to their respective fair market values. Investors
should be aware that it may not be possible to reconstruct after the fact
sufficient mortgage by mortgage information should a computation on that basis
be required by the IRS.
Because the treatment of the Certificates under the OID Regulations is
both complicated and uncertain, Certificateholders should consult their tax
advisers to determine the proper method of reporting amounts received or accrued
on Certificates.
2. Treatment of Unstripped Certificates
Mortgage Loans in a 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 and which are not otherwise identified in
the Prospectus Supplement as being stripped mortgage loans ("Unstripped Mortgage
Loans") 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 share 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
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Unstripped Mortgage Loans as it accrues or is received by the Trustee, whichever
is earlier. Under the 1997 Act, gain or loss from the termination of a newly
originated mortgage will be treated as capital gain or loss.
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 in income 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 have original issue discount if the
points charged at origination (or other loan discount) exceed the greater of
approximately one-sixth of one percent times the number of full years to final
maturity or one-fourth of one percent times weighted average maturity. For a
description of the general method of calculating the amount of original issue
discount see " -- REMIC Trust Funds -- Taxation of Owners of REMIC Regular
Certificates -- Original Issue Discount" and " -- Application of Stripped Bond
Rules -- Variable Rate Certificates."
A subsequent purchaser of a Trust Fractional Certificate that purchases
such Certificate at a cost (not including payment for accrued qualified stated
interest) less than its allocable portion of the aggregate of the remaining
stated redemption prices at maturity of the Unstripped Mortgage Loans will also
be required to include in gross income, for each day on which it holds such
Trust Fractional Certificate, its allocable share of the daily portion of
original issue discount with respect to each Unstripped Mortgage Loan, but
reduced, if the cost of such subsequent purchaser's interest in such Unstripped
Mortgage Loan exceeds its "adjusted issue price," by an amount equal to the
product of (i) such daily portion and (ii) a constant fraction, whose numerator
is such excess and whose denominator is the sum of the daily portions of
original issue discount allocable to such subsequent purchaser's interest for
all days on or after the day of purchase. The adjusted issue price of an
Unstripped Mortgage Loan on any given day is equal to the sum of the adjusted
issue price (or, in the case of the first accrual period, the issue price) of
such Unstripped Mortgage Loan at the beginning of the accrual period during
which such day occurs and the daily portions of original issue discount for all
days during such accrual period prior to such day, reduced by the aggregate
amount of payments made during such accrual period prior to such day other than
payments of qualified stated interest.
3. Market Discount and Premium
In general, if the Stripped Bond Rules do not apply to a Trust
Fractional Certificate, a purchaser of a Trust Fractional Certificate will be
treated as acquiring market discount bonds to the extent that the share of such
purchaser's purchase price allocable to any Unstripped Mortgage Loan is less
than its allocable share of the "adjusted issue price" of such Mortgage Loan.
See " -- Treatment of Unstripped Certificates" and " -- Application of Stripped
Bond Rules." Thus, with respect to such Mortgage Loans, a holder will be
required, under Code Section 1276, to include as ordinary income the previously
unrecognized accrued market discount in an amount not exceeding each principal
payment on any such Mortgage Loans at the time each principal payment is
received or due, in accordance with the purchaser's method of accounting, or
upon a sale or other disposition of the Certificate. In general, the amount of
market discount that has accrued is determined on a ratable basis. A Trust
Fractional Certificateholder may, however, elect to determine the amount of
accrued market discount on a constant yield to maturity basis. This election is
made on a bond-by-bond basis and is irrevocable. In addition, the description of
the market discount rules in " -- REMIC Trust Funds -- 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
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exception from the market discount rules and (iv) the elections to include in
income either market discount or all interest, discount and premium as they
accrue, is also generally applicable to Trust Fractional Certificates. Treasury
regulations implementing the market discount rules, including the 1986 Act
amendments thereto, have not yet been issued and investors therefore should
consult their own tax advisers regarding the application of these rules.
If a Trust Fractional Certificate is purchased at a premium, under
existing law such premium must be allocated among each of the Mortgage Loans (on
the basis of their relative fair market values). 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 Bond Premium Amortization Regulations generally provide that
amortizable bond premium is amortized over the term of a note by offsetting the
qualified stated interest allocable to an accrual period with the amortizable
bond premium allocable to such period using a specified constant yield method.
To the extent that the amortizable bond premium allocated to an accrual period
exceeds the qualified stated interest allocable to such period, the excess is
deductible under Code Section 171 to the extent such excess does not exceed the
difference between (i) prior interest inclusions over (ii) the Bond Premium
Amortization Limit, with the excess over the Bond Premium Amortization Limit
carried forward to the next accrual period and treated as amortizable bond
premium allocable to that period. The Bond Premium Amortization Regulations are
effective for notes acquired on or after March 2, 1998. However, if a holder
makes the election to amortize bond premium for the taxable year containing
March 2, 1998, or any subsequent taxable year, the Treasury regulations would
apply to debt instruments held on or after the first day for the taxable year in
which the election is made. The Bond Premium Amortization Regulations
specifically do not apply to a pool of prepayable debt instruments subject to
Code Section 1272(a)(6). However, by analogy to these regulations, it may be
possible to deduct any premium in excess of interest income to the extent of
prior accrual of interest.
4. Allocation of Purchase Price
As noted above, a purchaser of a Trust Fractional Certificate relating
to Unstripped Mortgage Loans will be required to allocate the purchase price
thereof to the undivided interest it acquires in each of the Mortgage Loans, in
proportion to the respective fair market values of the portions of such Mortgage
Loans included in the Trust Fund at the time the Certificate is purchased. The
Depositor believes that it may be reasonable to make such allocation in
proportion to the respective principal balances of the Mortgage Loans, where the
interests in the Mortgage Loans represented by a Trust Fractional Certificate
have a common remittance rate and other common characteristics, and otherwise so
as to produce a common yield for each interest in a Mortgage Loan, provided the
Mortgage Loans are not so diverse as to evoke differing prepayment expectations.
However, if there is any significant variation in interest rates among the
Mortgage Loans, a disproportionate allocation of the purchase price taking
account of prepayment expectations may be required.
D. TAXATION OF OWNERS OF TRUST INTEREST CERTIFICATES
With respect to each Series of Certificates, Special Tax Counsel will
advise the Depositor that, in their opinion, each holder of a Trust Interest
Certificate (a "Trust Interest Certificateholder") will be treated as the owner
of an undivided interest in the interest portion ("Interest Coupon") of each of
the Mortgage Loans. Accordingly, and subject to the discussion under
"Application of Stripped Bond Rules," each Trust Interest Certificateholder is
treated as owning its allocable share of the entire Interest Coupon from the
Mortgage Loans, will report income as described below, and may deduct its
allocable share of the servicing and related fees and expenses paid to or
retained by the Depositor at the same time and in the same manner
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as such items would have been reported under the Trust Interest
Certificateholder's tax accounting method had it held directly an interest in
the Interest Coupon from the Mortgage Loans, received directly its share of the
amounts received with respect to the Mortgage Loans and paid directly its share
of the servicing and related fees and expenses. An individual, estate or trust
holder of a Trust Interest Certificate will be allowed a deduction for servicing
fees in determining its regular tax liability only to the extent that the
aggregate of such holder's miscellaneous itemized deductions exceeds two percent
of such holder's adjusted gross income. In addition, the amount of itemized
deductions otherwise allowable for the taxable year for an individual whose
adjusted gross income exceeds the "applicable amount" ($100,000 (or $50,000 in
the case of a separate return by a married individual), adjusted for changes in
the cost of living subsequent to 1990) will be reduced by the lesser of (i) 3
percent of the excess of adjusted gross income over the applicable amount, or
(ii) 80 percent of the amount of itemized deductions allowable for such taxable
year. For taxable years beginning after December 31, 1997, in the case of a
partnership that has 100 or more partners and elects to be treated as an
"electing large partnership," 70 percent of such partnership's miscellaneous
itemized deductions will be disallowed, although the remaining deductions will
generally be allowed at the partnership level and will not be subject to the 20
percent flood that would otherwise be applicable to individual partners.
Moreover, a holder of a Trust Fractional Certificate that is not a corporation
cannot deduct such fees for purposes of the alternative minimum tax (if
applicable). 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. With respect to each Series
of Certificates, Special Tax Counsel will advise the Depositor that, in their
opinion a Trust Interest Certificate will be treated for federal income tax
purposes as comprised of an ownership interest in a portion of the Interest
Coupon of each of the Mortgage Loans (a "Stripped Interest") separated by the
Depositor from the right to receive principal payments and the remainder, if
any, of each interest payment on the underlying Mortgage Loan. As a consequence,
the Trust Interest Certificates will become subject to the Stripped Bond Rules.
Each Trust Interest Certificateholder will be required to apply the Stripped
Bond Rules to its interest in the Interest Coupon under the method prescribed by
the Code, taking account of the price at which the holder purchased the Trust
Interest Certificate and the Trust Interest Certificateholder's share of the
scheduled payment 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 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 payment corresponding to the aggregate of the payments allocable
thereto from each of the Mortgage Loans. See "Aggregate Reporting."
Alternatively, Trust Interest Certificateholders may be required by the
IRS to treat 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
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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 under " -- REMIC Trust Funds -- Taxation of Owners of
REMIC Regular Certificates -- Original Issue Discount" apply. 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.
Aggregate Reporting. The Trustee intends in reporting information
relating to original issue discount to Certificateholders to provide such
information on an aggregate poolwide basis. Applicable law is unclear, however,
and it is possible that investors may be required to compute original issue
discount either on a Mortgage Loan by Mortgage Loan basis or on a payment by
payment basis taking account of an allocation of their basis in the Certificates
among the interests in the various Mortgage Loans represented by such
Certificates according to their respective fair market values. Investors should
be aware that it may not be possible to reconstruct after the fact sufficient
mortgage by mortgage information should a computation on that basis be required
by the IRS.
Because the treatment of the Trust Interest Certificates under current
law and the potential application of the 1996 Contingent Debt Regulations are
both complicated and uncertain, Trust Interest Certificateholders should consult
their tax advisers to determine the proper method of reporting amounts received
or accrued on Trust Interest Certificates.
E. PREPAYMENTS
The 1986 Act contains a provision requiring original issue discount on
certain obligations issued after December 31, 1986 to be calculated taking into
account a prepayment assumption and requiring such discount to be taken into
income on the basis of a constant yield to assumed maturity taking account of
actual prepayments. The 1997 Act provides that the prepayment rules of Code
Section 1272(a)(6), discussed above, will also apply to pools of debt
instruments the yield on which may be affected by reason of prepayments. Trust
Fractional Certificateholders and Trust Interest Certificateholders should
consult their tax advisers as to the proper reporting of income from Trust
Fractional Certificates and Trust Interest Certificates, as the case may be, in
the light of the possibility of prepayment and, as to the possible application
of the 1996 Contingent Debt Regulations.
F. SALES OF TRUST CERTIFICATES
If a Certificate is sold, gain or loss will be recognized by the holder
thereof in an amount equal to the difference between the amount realized on the
sale and the Certificateholder's adjusted tax basis in the Certificate. Such tax
basis will equal the Certificateholder's cost for the Certificate, increased by
any original issue or market discount with respect to the interest in the
Mortgage Loans represented by such Certificate previously included in income,
and decreased by any deduction previously allowed for premium and by the amount
of payments, other than payments of qualified stated interest, previously
received with respect to such Certificate. The portion of any such gain
attributable to accrued market discount not previously included in income will
be ordinary income, as will gain attributable to a Certificate which is part of
a "conversion transaction" or which the holder elects to treat as ordinary. See
" -- REMIC Trust Funds -- Sales of REMIC Certificates" above. Any remaining gain
or any loss will be capital gain or loss if the
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Certificate was held as a capital asset except to the extent that code Section
582(c) applies to such gain or loss. Any such gain or loss would be long-term
capital gain or loss if the Certificateholder's holding period exceeded one
year.
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 Interest Rate. In addition, the Master Servicer will
furnish, within a reasonable time after the end of each calendar year, to each
holder of a Trust Certificate who was such a holder at any time during such
year, information regarding the amount of servicing compensation received by the
Master Servicer and sub-servicer (if any) and such other customary factual
information as the Master Servicer deems necessary or desirable to enable
holders of Trust Certificates to prepare their tax returns.
H. BACK-UP WITHHOLDING
In general, the rules described in "REMIC Trust Funds -- Back-up
Withholding with respect to REMIC Certificates" will also apply to Trust
Certificates.
I. FOREIGN CERTIFICATEHOLDERS
Payments in respect of interest or original issue discount (including
amounts attributable to servicing fees) on the Mortgage Loans to 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 (unless, in the case of a partnership, future Treasury
regulations provide otherwise), or a 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% or more of, and
is not a controlled foreign corporation (within the meaning of Code Section 957)
related to, an issuer of Mortgage Loan 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 Mortgage Loans were
issued after July 18, 1984. 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. This withholding tax may be reduced or
eliminated by an applicable tax treaty.
Recently issued Treasury regulations (the "Final Withholding
Regulations"), which are generally effective with respect to payments made after
December 31, 1999, consolidate and modify the current certification requirements
and means by which a holder may claim exemption from United States federal
income tax withholding and provide certain presumptions regarding the status of
holders when payments to the holders cannot be reliably associated with
appropriate documentation provided to the payor. All holders of Trust Fractional
Certificates and Trust Interest Certificates should consult their tax advisers
regarding the application of the Final Withholding Regulations.
J. STATE AND LOCAL TAXATION
In addition to the federal income tax consequences described above,
potential investors should consider the state income tax consequences of the
acquisition, ownership, and disposition of the Securities. State income tax law
may differ substantially from the corresponding federal law, and this discussion
does
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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
Securities.
IV. CHARACTERIZATION OF THE TRUST CERTIFICATES AS INDEBTEDNESS
A. CHARACTERIZATION OF INVESTMENTS IN TRUST CERTIFICATES
With respect to each Series of Trust Certificates that have been
structured as debt for federal income tax purposes, Special Tax Counsel will
deliver their opinion to the effect that the Trust Certificates will be treated
as debt instruments for federal income tax purposes as of such date rather than
as ownership interests in the Trust Fund.
The Depositor, each Unaffiliated Seller and the Certificateholders will
express in the Agreement their intent that, for applicable tax purposes, the
Trust Certificates will be indebtedness secured by the Mortgage Loans. The
Depositor, each Unaffiliated Seller and each Certificateholder, by its
acceptance and acquisition of a beneficial interest in a Trust Certificate, will
have agreed to treat the Trust Certificates as indebtedness for federal income
tax purposes. However, because different criteria are used to determine the
non-tax accounting characterization of a securitization transaction, the
transaction may be treated as a sale of an interest in the Mortgage Loans for
financial accounting purposes.
In general, whether for federal income tax purposes a transaction
constitutes a sale of property or a loan, the repayment of which is secured by
property, is a question of fact, the resolution of which is based upon the
economic substance of the transaction rather than its form or the manner in
which it is labeled. While the IRS and the courts have set forth several factors
to be taken into account in determining whether the substance of a transaction
is a sale of property or a secured loan, the primary factor in making this
determination is whether the transferee has assumed the risk of loss or other
economic burdens relating to the property and has obtained the benefits of
ownership thereof. Special Tax Counsel has analyzed and relied on several
factors in reaching its opinion that the weight of the benefits and burdens of
ownership of the Mortgage Loans has been retained by the Depositor or an
Unaffiliated Seller and has not been transferred to the Certificateholders.
In some instances, 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. Special Tax Counsel has advised that
the rationale of those cases will not apply to this transaction, because the
form of the transaction as reflected in the operative provisions of the
documents either accords with the characterization of the Trust Certificates as
debt or otherwise makes the rationale of those cases inapplicable to this
situation.
B. TAXATION OF INTEREST INCOME OF CERTIFICATEHOLDERS
Assuming that the Certificateholders are holders of debt obligations
for federal income tax purposes, the Trust Certificates generally will be
taxable as debt. The stated interest thereon will be taxable to a
Certificateholder as ordinary interest income when received or accrued in
accordance with such Certificateholder's method of tax accounting. Under the OID
Regulations, a holder of a debt instrument issued with a de minimis amount of
original issue discount must include such original issue discount in income, on
a pro rata basis, as principal payments are made on the debt instrument. A
subsequent purchaser who buys a Trust Certificate for more or less than its
principal amount will generally be subject, respectively, to the premium
amortization or market discount rules of the Code.
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A holder of a Trust Certificate that has a fixed maturity date of not
more than one year from the issue date of such Trust Certificate (a "Short-Term
Certificate") may be subject to special rules. An accrual basis holder of a
Short-Term Certificate (and certain cash method holders, including regulated
investment companies, as set forth in Code Section 1281) generally would be
required to report interest income as interest accrues on a straight-line basis
over the term of each interest period, unless an election is made to accrue
interest income pursuant to a constant yield method, compared on a daily basis.
Other cash basis holders of a Short-Term Certificate would, in general, be
required to report interest income as interest is paid (or, if earlier, upon the
taxable disposition of the Short-Term Certificate). However, a cash basis holder
of a Short-Term Certificate reporting interest income as it is paid may be
required to defer a portion of any interest expense otherwise deductible on
indebtedness incurred to purchase or carry the Short-Term Certificate until the
taxable disposition of the Short-Term Certificate. A cash basis taxpayer may
elect under Code Section 1281 to accrue interest income on all nongovernment
debt obligations with a term of one year or less, in which case the taxpayer
would include interest on a Short-Term Certificate in income as it accrues, and
would not be subject to the interest expense deferral rule referred to in the
preceding sentence. Certain special rules apply if a Short-Term Certificate is
purchased for more or less than its principal amount.
While it is not anticipated that the Trust Certificates will be issued
at a greater than de minimis discount, it is possible that the Trust
Certificates could nevertheless be deemed to have been issued with original
issue discount if interest with respect to the Trust Certificates were not
treated as "unconditionally payable" under the OID Regulations. In such event,
all of the taxable income to be recognized with respect to the Trust
Certificates would be includible in income of Certificateholders as original
issue discount, but would not be includible again when the interest is actually
received.
C. POSSIBLE CLASSIFICATION AS A PARTNERSHIP OR ASSOCIATION TAXABLE AS A
CORPORATION
The opinion of Special Tax Counsel is not binding on the courts or the
IRS. It is possible that the IRS could assert that, for federal income tax
purposes, the transaction contemplated with respect to the Certificates
constitutes a sale of the Mortgage Loans (or an interest therein) to the
Certificateholders and that the proper classification of the legal relationship
between the Depositor, any Unaffiliated Seller and the Certificateholders
resulting from this transaction is that of a partnership, or a publicly traded
partnership taxable as a corporation. Since Special Tax Counsel has advised that
the Trust Certificates will be treated as indebtedness in the hands of the
Certificateholders for federal income tax purposes, neither the Depositor nor
any Unaffiliated Seller will attempt to comply with federal income tax reporting
requirements applicable to partnerships or corporations.
If it were determined that this transaction created an entity
classified as a corporation (i.e. a publicly traded partnership taxable as a
corporation), the Trust Fund would be subject to federal income tax at corporate
income tax rates on the income it derives from the Mortgage Loans, which would
reduce the amounts available for distribution to the Certificateholders. Cash
distributions to the Certificateholders generally would be treated as dividends
for federal income tax purposes to the extent of such corporation's earnings and
profits.
If the transaction were treated as creating a partnership, the
partnership itself would not be subject to federal income tax (unless it were to
be characterized as a publicly traded partnership taxable as a corporation);
rather, each partner (including each Certificateholder) would be taxed
individually on its respective distributive shares of the partnership's income,
gain, loss, deductions and credits. The amount and timing of items of income and
deductions of the Certificateholders could differ if the Certificates were held
to constitute partnership interests rather than indebtedness. Assuming that all
of the provisions of the
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Agreement, as in effect on the date of the issuance, are complied with, it is
the opinion of Special Tax Counsel that the Trust Fund will not be treated as a
corporation.
D. POSSIBLE CLASSIFICATION AS A TAXABLE MORTGAGE POOL
In relevant part, Section 7701(i) of the Code provides that any entity
(or a portion of an entity) that is a "taxable mortgage pool" will be classified
as a taxable corporation and will not be permitted to file a consolidated
federal income tax return with another corporation. Any entity (or a portion of
any entity) will be a taxable mortgage pool if (i) it is not a REMIC (or, after
September 1, 1997, a FASIT), (ii) substantially all of its assets consist of
debt instruments, more than 50% of which are real estate mortgages, (iii) the
entity is the obligor under debt obligations with two or more maturities, and
(iv) under the terms of the entity's debt obligations (or an underlying
arrangement), payments on such debt obligations bear a relationship to the debt
instruments held by the entity.
Assuming that all of the provisions of the Agreement, as in effect on
the date of issuance, are complied with, Special Tax Counsel is of the opinion
that the arrangement created by the Agreement will not be a taxable mortgage
pool under Section 7701(i) of the Code because only one class of indebtedness
secured by the Mortgage Loans is being issued.
The opinion of Special Tax Counsel is not binding on the courts or the
IRS. If the IRS were to contend successfully (or future regulations were to
provide) that the arrangement created by the Agreement is a taxable mortgage
pool, such arrangement would be subject to federal corporate income tax on its
taxable income generated by ownership of the Mortgage Loans. Such a tax might
reduce amounts available for distributions to Certificateholders. The amount of
such a tax would depend upon whether distributions to Certificateholders would
be deductible as interest expense in computing the taxable income of such an
arrangement as a taxable mortgage pool.
E. FOREIGN INVESTORS
In general, subject to certain exceptions, interest (including original
issue discount) paid on a Trust Certificate to a nonresident alien individual,
foreign corporation or other non-United States person is not subject to United
States federal income tax, provided that such interest is not effectively
connected with a trade or business of the recipient in the United States and the
Certificateholder provides the required certification of foreign status.
If the interests of the Certificateholders were deemed to be
partnership interests, the partnership would be required, on a quarterly basis,
to pay withholding tax equal to the product, for each foreign partner, of such
foreign partner's distributive share of "effectively connected" income of the
partnership multiplied by the highest United States rate of tax applicable to
that foreign partner. In addition, such foreign partner, if a corporation or
association taxable as a corporation, could be subject to branch profits tax.
Each non-foreign partner would be required to certify to the partnership that it
is not a foreign person. The tax withheld from each foreign partner would be
credited against such foreign partner's United States federal income tax
liability.
If the Trust Fund were taxable as a corporation, distributions to
foreign persons, to the extent treated as dividends, would generally be subject
to withholding at the rate of 30%, unless such rate were reduced by an
applicable tax treaty.
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F. BACKUP WITHHOLDING
Certain Certificateholders may be subject to backup withholding at the
rate of 31% with respect to interest paid on the Trust Certificates if the
Certificateholder, upon issuance, fails to supply the Trustee or his broker with
his taxpayer identification number, furnishes an incorrect taxpayer
identification number, fails to report interest, dividends, or other "reportable
payments" (as defined in the Code) properly, or, under certain circumstances,
fails to provide the Trustee or his broker with a statement, certified under
penalties of perjury, that he is not subject to backup withholding.
The Trustee will be required to report annually to the IRS, and to each
Certificateholder of record, the amount of interest paid (and original issue
discount accrued, if any) on the Trust Certificates (and the amount of interest
withheld for federal income taxes, if any) for each calendar year, except as to
exempt holders (generally, holders that are corporations, certain tax-exempt
organizations or nonresident aliens who provide certification as to their status
as nonresidents). As long as the only "Certificateholder" of record is Cede, as
nominee for DTC, Certificateholders and the IRS will receive tax and other
information including the amount of interest paid on the Trust Certificates from
other persons holding Trust Certificates directly or indirectly through DTC,
rather than from the Trustee. (The Trustee, however, will respond to requests
for necessary information to enable such other persons to complete their
reports.) Each non-exempt Certificateholder will be required to provide, under
penalties of perjury, a certificate on IRS Form W-9 containing his or her name,
address, correct federal taxpayer identification number and a statement that he
or she is not subject to backup withholding. Should a non-exempt
Certificateholder fail to provide the required certification, 31% of the
interest (and principal) otherwise payable to the Certificateholder will be
required to be withheld and remitted to the IRS as a credit against the
Certificateholder's federal income tax liability.
G. SALE OR OTHER DISPOSITION
If a Certificateholder sells a Trust Certificate, the holder will
recognize gain or loss in an amount equal to the difference between the amount
realized on the sale and the Certificateholder's adjusted tax basis in the Trust
Certificate. The adjusted tax basis of a Trust Certificate to a particular
Certificateholder will equal the holder's cost for the Trust Certificate,
increased by any market discount, acquisition discount, original issue discount
and gain previously included by such Certificateholder in income with respect to
the Trust Certificate and decreased by the amount of bond premium (if any)
previously amortized and by the amount of principal payments previously received
by such Certificateholder with respect to such Trust Certificate. Any such gain
or loss will generally be capital gain or loss if the Trust Certificate was held
as a capital asset, except for gain representing accrued interest and accrued
market discount not previously included in income. Any such capital gain or loss
would be long-term capital gain or loss if the Certificateholder's holding
period exceeded one year. Capital losses generally may be used only to offset
capital gains.
H. STATE AND LOCAL TAXATION
In addition to the federal income tax consequences described above,
potential investors should consider the state income tax consequences of the
acquisition. ownership, and disposition of the Trust 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 Trust
Certificates.
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V. TAX CHARACTERIZATION AS A PARTNERSHIP OR DIVISION
Special Tax Counsel will deliver its opinion for an Issuer which is
intended to be a partnership for federal income tax purposes, as specified in
the related Prospectus Supplement, generally to the effect that the Issuer will
not be an association (or publicly traded partnership) taxable as a corporation
for federal income tax purposes. This opinion will be based on the assumption
that the terms of the Trust Agreement and related documents will be complied
with, and on counsel's conclusion that the nature of the income of the Issuer
will exempt it from the rule that certain publicly traded partnerships are
taxable as corporations or such rule is otherwise inapplicable to the Issuer, so
that the Issuer will not be characterized as a publicly traded partnership
taxable as a corporation, and that no action will be taken that is inconsistent
with the treatment of the Issuer as a partnership (such as an election to treat
the Issuer as a corporation for federal income tax purposes). If, however, the
Issuer has a single owner for federal income tax purposes, it will be treated as
a division of its owner and as such will be disregarded as an entity separate
from its owner for federal income tax purposes, assuming no election will be
made to treat the Issuer as a corporation for federal income tax purposes.
Certain entities classified as "taxable mortgage pools" are subject to
corporate level tax on their net income. A "taxable mortgage pool" is generally
defined as an entity that meets the following requirements: (i) the entity is
not a REMIC (or, after September 1, 1997, a FASIT), (ii) substantially all of
the assets of the entity are debt obligations, and more than 50 percent of such
debt obligations consists of real estate mortgages (or interests therein), (iii)
the entity is the obligor under debt obligations with two or more maturities,
and (iv) payments on the debt obligations on which the entity is the obligor
bear a relationship to the payments on the debt obligations which the entity
holds as assets. With respect to requirement (iii), the Code authorizes the
Internal Revenue Service to provide by regulations that equity interests may be
treated as debt for purposes of determining whether there are two or more
maturities. If the Issuer were treated as a taxable mortgage pool, it would be
ineligible to file consolidated returns with any other corporation and could be
liable for corporate tax. Treasury regulations do not provide for the
recharacterization of equity as debt for purposes of determining whether an
entity has issued debt with two maturities, except in the case of transactions
structured to avoid the taxable mortgage pool rules. Special Tax Counsel will
deliver its opinion for an Issuer which is intended to be a partnership for
federal income tax purposes, as specified in the related Prospectus Supplement,
generally to the effect that the Issuer will not be a taxable mortgage pool.
This opinion will be based on the assumption that the terms of the Trust
Agreement and related documents will be complied with, and on counsel's
conclusion that either the number of classes of debt obligations issued by the
Issuer, or the nature of the assets held by the Issuer, will exempt the Issuer
from treatment as a taxable mortgage pool.
If the Issuer were taxable as a corporation for federal income tax
purposes, the Issuer would be subject to corporate income tax on its taxable
income. The Issuer's taxable income would include all its income, possibly
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 Certificateholders could be liable for
any such tax that is unpaid by the Issuer. In addition, distributions to the
Certificateholders generally would be taxable as dividends.
A. TAX CONSEQUENCES TO HOLDERS OF THE NOTES ISSUED BY A PARTNERSHIP OR DIVISION
1. Treatment of the Notes as Indebtedness
The Issuer will agree, and the Noteholders will agree by their purchase
of Notes, to treat the Notes as debt for federal income tax purposes. Except as
otherwise provided in the related Prospectus Supplement,
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Special Tax Counsel will advise the Depositor that in its opinion the Notes will
be classified as debt for federal income tax purposes.
2. Possible Alternative Treatments of the Notes
If, contrary to the opinion of 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 Issuer. If so
treated, the Issuer might be treated as a publicly traded partnership that would
not be taxable as a corporation because it would meet certain qualifying income
tests. Nonetheless, treatment of the Notes as equity interests in such a
publicly traded partnership could have adverse tax consequences to certain
holders. For example, income to foreign holders generally would be subject to
United States federal income tax and United States federal income tax return
filing and withholding requirements, and individual holders might be subject to
certain limitations on their ability to deduct their share of the Issuer's
expenses.
3. Interest Income on the Notes
The stated interest on the Notes will be taxable to a Noteholder as
ordinary income when received or accrued in accordance with such Noteholder's
method of tax accounting. It is not anticipated that the Notes will be issued
with original issue discount within the meaning of Section 1273 of the Code. A
subsequent holder who purchases a Note at a discount that exceeds a statutorily
defined de minimis amount will be subject to the "market discount" rules of the
Code, and a holder who purchases a Note at a premium will be subject to the
premium amortization rules of the Code.
4. Sale or Other Disposition
If a Noteholder sells a Note, the holder will recognize gain or loss in
an amount equal to the difference between the amount realized on the sale and
the holder's adjusted tax basis in the Note. The adjusted tax basis of a Note to
a particular Noteholder will equal the holder's cost for the Note, increased by
original issue discount (if any), and market discount previously included by
such Noteholder in income with respect to the Note and decreased by the amount
of bond premium (if any) previously amortized and by the amount of principal
payments previously received by such Noteholder with respect to such Note.
Subject to the rules of the Code concerning market discount on the Notes, any
such gain or loss generally will be capital gain or loss if the Note was held as
a capital asset. Any such gain or loss would be long-term capital gain or loss
if the Noteholder's holding period exceeded one year. Capital losses generally
may be deducted only to the extent the Noteholder has capital gains for the
taxable year, although under certain circumstances non-corporate Noteholders can
deduct losses in excess of available capital gains.
5. Foreign Holders
If interest paid (or accrued) to a Noteholder who is a nonresident
alien, foreign corporation or other non-United States person (a "foreign
person") is not effectively connected with the conduct of a trade or business
within the United States by the foreign person, the interest generally will be
considered "portfolio interest," and generally will not be subject to United
States Federal income tax and withholding tax, if the foreign person (i) is not
actually or constructively a "10 percent shareholder" of the Trust or the
Depositor (including a holder of 10% of the outstanding Certificates) or a
"controlled foreign corporation" with respect to which the Trust or the
Depositor is a "related person" within the meaning of the Code and (ii) provides
the person otherwise required to withhold United States tax with an appropriate
statement, signed under penalties of perjury, certifying that the beneficial
owner of the Note is a foreign person and providing the foreign person's name
and address. If the information provided in the statement changes, the foreign
person must so inform the person otherwise required to withhold United States
tax within 30 days of such
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change. The statement generally must be provided in the year a payment occurs
(prior to such payment) or in either of the two preceding years. If a Note is
held through a securities clearing organization or certain other financial
institutions, the organization or institution may provide a signed statement to
the withholding agent. However, in that case, the signed statement must be
accompanied by a Form W-8 or substitute form provided by the foreign person that
owns the Note. If such interest in not portfolio interest, then it will be
subject to United States federal income and withholding tax at a rate of 30%,
unless reduced or eliminated pursuant to an applicable tax treaty.
Any capital gain realized on the sale, redemption, retirement or other
taxable disposition of a Note by a foreign person will be exempt from United
States federal income and withholding tax, provided that (i) the gain is not
effectively connected with the conduct of a trade or business in the United
States by the foreign person and (ii) in the case of an individual foreign
person, the foreign individual is not present in the United States for 183 days
or more in the taxable year.
If the interest, gain or income on a Note held by a foreign person is
effectively connected with the conduct of a trade or business in the United
States by the foreign person (although exempt from the withholding tax
previously discussed if the holder provides an appropriate statement), the
holder generally will be subject to United States federal income tax on the
interest, gain or income at regular federal income tax rates. In addition, if
the foreign person is a corporation or association taxable as a corporation, it
may be subject to a branch profits tax equal to 30% of its "effectively
connected earnings and profits" within the meaning of the Code for the taxable
year, as adjusted for certain items, unless it qualifies for a lower rate under
an applicable tax treaty (as modified by the branch profits tax rules). The
Final Withholding Regulations, which are generally effective with respect to
payments made after December 31, 1999, consolidate and modify the current
certification requirements and means by which a holder may claim exemption from
United States federal income tax withholding and provide certain presumptions
regarding the status of holders when payments to the holders cannot be reliably
associated with appropriate documentation provided to the payor. All Noteholders
should consult their own tax advisers regarding the application of these
regulations.
6. Information Reporting and Backup Withholding
The Trust will be required to report annually to the IRS, and to each
Noteholder of record, the amount of interest paid on the Notes (and the amount
of interest withheld for federal income taxes, if any) for each calendar year,
except as to exempt holders (generally, holders that are corporations,
tax-exempt organizations, qualified pension and profit-sharing trusts,
individual retirement accounts, or nonresident aliens who provide certification
as to their status as nonresidents). Accordingly, each holder (other than exempt
holders who are not subject to the reporting requirements) will be required to
provide, under penalties of perjury, a certificate containing the holder's name,
address, correct federal taxpayer identification number and a statement that the
holder is not subject to backup withholding. Should a nonexempt Noteholder fail
to provide the required certification, the Trust will be required to withhold
31% of the amount otherwise payable to the holder, and remit the withheld amount
to the IRS, as a credit against the holder's federal income tax liability.
B. TAX CONSEQUENCES TO HOLDERS OF THE CERTIFICATES ISSUED BY A PARTNERSHIP OR
DIVISION
1. Treatment of the Issuer as a Partnership
In the case of an Issuer intended to qualify as a partnership for
federal income tax purposes, the Issuer and the Depositor will agree, and the
Certificateholders will agree by their purchase of Certificates, to
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treat the Issuer as a partnership for purposes of United States 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, or if there is a single
Certificateholder for federal income tax purposes, to disregard the Issuer as an
entity separate from the Certificateholder, being the assets held by the Issuer,
the partners of the partnership being the Certificateholders, and the Notes, if
any, being debt of the partnership. However, the proper characterization of the
arrangement involving the Certificates, the Notes, the Issuer and the Servicer
is not clear because there is no authority on transactions closely comparable to
that contemplated herein.
A variety of alternative characterizations are possible. For example,
because the Certificates have certain features characteristic of debt, the
Certificates might be considered debt of the Issuer. Generally, provided the
Certificates are issued at or close to face value, any such characterization
would not result in materially adverse tax consequences to Certificateholders as
compared to the consequences from treatment of the Certificates as equity in a
partnership, described below. The following discussion assumes that the
Certificates represent equity interests in a partnership.
2. Partnership Taxation
As a partnership, the Issuer will not be subject to federal income tax.
Rather, each Certificateholder will be required to separately take into account
such holder's allocated share of income, gains, losses, deductions and credits
of the Issuer. The Issuer's income will consist primarily of interest and
finance charges earned on the Mortgage Loans (including appropriate adjustments
for market discount, original issue discount and bond premium) and any gain upon
collection or disposition of Mortgage Loans. The Issuer's deductions will
consist primarily of interest and original issue discount accruing with respect
to the Notes, servicing and other fees, and losses or deductions upon collection
or disposition of Mortgage Loans.
The tax items of a partnership are allocable to the partners in
accordance with the Code, Treasury regulations and the partnership agreement
(here, the Trust Agreement and related documents). The Trust Agreement will
provide, in general, that the Certificateholders will be allocated taxable
income of the Issuer for each month equal to the sum of (i) the interest that
accrues on the Certificates in accordance with their terms for such month,
including interest accruing at the Interest Rate for such month and interest on
amounts previously due on the Certificates but not yet distributed; (ii) any
Issuer income attributable to discount on the Mortgage Loans that corresponds to
any excess of the principal amount of the Certificates over their initial issue
price; (iii) prepayment premium payable to the Certificateholders for such
month; and (iv) any other amounts of income payable to the Certificateholders
for such month. Such allocation will be reduced by any amortization by the
Issuer of premium on Mortgage Loans that corresponds to any excess of the issue
price of Certificates over their principal amount. All remaining taxable income
of the Issuer will be allocated to the Depositor. Based on the economic
arrangement of the parties, this approach for allocating Issuer 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 Certificateholders. Moreover, even under the foregoing method of allocation,
Certificateholders may be allocated income equal to the entire Interest Rate
plus the other items described above even though the Issuer might not have
sufficient cash to make current cash distributions of such amount. Thus, cash
basis holders will in effect be required to report income from the Certificates
on the accrual basis and Certificateholders may become liable for taxes on
Issuer income even if they have not received cash from the Issuer to pay such
taxes. In addition, because tax allocations and tax reporting will be done on a
uniform basis for all Certificateholders but Certificateholders may be
purchasing Certificates at different times and at different prices,
Certificateholders may be required to report on their tax returns taxable income
that is greater or less than the amount reported to them by the Issuer.
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If Notes are also issued, some or all of the taxable income allocated
to a Certificateholder 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 a
holder under the Code.
An individual taxpayer's share of expenses of the Issuer (including
fees to the Servicer but not interest expense) would be miscellaneous itemized
deductions. Such deductions might be disallowed to the individual in whole or in
part and might result in such holder being taxed on an amount of income that
exceeds the amount of cash actually distributed to such holder over the life of
the Issuer. Such deductions may also be subject to reduction under Section 68 of
the Code if the individual's adjusted gross income exceeds certain limits. See
"--Non-REMIC Trust Funds--Taxation of Owners of Trust Traction Certificates."
The Issuer intends to make all tax calculations relating to income and
allocations to Certificateholders on an aggregate basis. If the IRS were to
require that such calculations be made separately for each Mortgage Loan, the
Issuer might be required to incur additional expense but it is believed that
there would not be a material adverse effect on Certificateholders.
3. Discount and Premium
It is believed that the Mortgage Loans were not issued with original
issue discount and, therefore, the Trust should not have original issue discount
income. However, the purchase price paid by the Issuer for the Mortgage Loans
may be greater or less than the remaining principal balance of the Mortgage
Loans at the time of purchase. If so, the Mortgage Loan will have been acquired
at a premium or discount, as the case may be. (As indicated above, the Issuer
will make this calculation on an aggregate basis, but might be required to
recompute it on a Mortgage Loan by Mortgage Loan basis.)
If the Issuer acquires the Mortgage Loans at a market discount or
premium, the Issuer will elect to include any such discount in income currently
as it accrues over the life of the Mortgage Loans or to offset any such premium
against interest income on the Mortgage Loans. As indicated above, a portion of
such market discount income or premium deduction may be allocated to
Certificateholders.
4. Section 708 Termination
Under Section 708 of the Code, the Issuer will be deemed to terminate
for federal income tax purposes if 50% or more of the capital and profits
interests in the Issuer are sold or exchanged within a 12-month period. If such
a termination occurs, the partnership will be considered to have transferred its
assets and liabilities to a new partnership in exchange for interests in that
new partnership, which it would then be treated as transferring to its partners.
5. 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. Any such gain or loss would
be long-term capital gain or loss if the Certificateholder's holding period
exceeded one year. A Certificateholder's tax basis in a Certificate will
generally equal the holder's cost increased by the holder's share of Issuer
income (includible in income) 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 holder's
share of the Notes and other liabilities of the Issuer. A holder acquiring
Certificates at different prices may be required to maintain a single aggregate
adjusted tax basis in
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such Certificates, and, upon 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).
Any gain on the sale of a Certificate attributable to the holder's
share of unrecognized accrued market discount on the Mortgage Loans would
generally be treated as ordinary income to the holder and would give rise to
special tax reporting requirements. The Issuer does not expect to have any other
assets that would give rise to such special reporting requirements. Thus, to
avoid those special reporting requirements, the Issuer will elect to include
market discount in income as it accrues.
If a Certificateholder 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.
6. Allocations Between Depositors and Transferees
In general, the Issuer's taxable income and losses will be determined
monthly and the tax items for a particular calendar month will be apportioned
among the Certificateholders 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 holder purchasing Certificates may be allocated tax items (which will
affect its 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
regulations and federal tax counsel is unable to opine on the matter. 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 Issuer might be
reallocated among the Certificateholders. The Issuer's method of allocation
between transferors and transferees may be revised to conform to a method
permitted by future regulations.
7. Section 754 Election
In the event that a Certificateholder sells its Certificates at a
profit (or loss), the purchasing Certificateholder will have a higher (or lower)
basis in the Certificates than the selling Certificateholder had. The tax basis
of the Issuer's assets will not be adjusted to reflect that higher (or lower)
basis unless the Issuer 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 Issuer currently does not intend to make such
election. As a result, Certificateholders might be allocated a greater or lesser
amount of Issuer income than would be appropriate based on their own purchase
price for Certificates.
8. Administrative Matters
The Trustee is required to keep or have kept complete and accurate
books of the Issuer. Such books will be maintained for financial reporting and
tax purposes on an accrual basis and the fiscal year of the Issuer 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 Issuer and will report each
Certificateholder's allocable share of items of Issuer income and expense to
holders and the IRS on Schedule K-1. The Issuer will provide the Schedule K-1
information to nominees that fail to provide the Issuer with the information
statement described below and such nominees will be required to forward such
information to the beneficial owners of the Certificates.
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Generally, holders must file tax returns that are consistent with the
information return filed by the Issuer or be subject to penalties unless the
holder timely 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 Issuer
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 (x) the name, address and identification number of such person,
(y) 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 (z) 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 Issuer 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 Issuer. The information referred to above for any
calendar year must be furnished to the Issuer on or before the following January
31. Nominees, brokers and financial institutions that fail to provide the Issuer
with the information described above may be subject to penalties.
The Depositor will be designated as the tax matters partner in the
related Trust Agreement and, as such, will be responsible for representing the
Certificateholders in certain disputes 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 Issuer by the appropriate taxing authorities could
result in an adjustment of the returns of the Certificateholders, and, under
certain circumstances, a Certificateholder may be precluded from separately
litigating a proposed adjustment to the items of the Issuer. An adjustment could
also result in an audit of a Certificateholder's returns and adjustments of
items not related to the income and losses of the Issuer.
9. Tax Consequences to Foreign Certificateholders
It is not clear and federal tax counsel is unable to opine whether the
Issuer 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 persons 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 Issuer would be engaged in a trade or business in the United
States for such purposes, the Issuer will withhold as if it were so engaged in
order to protect the Issuer from possible adverse consequences of a failure to
withhold. The Issuer expects to withhold on the portion of its taxable income
that is allocable to foreign Certificateholders pursuant to Section 1446 of the
Code, as if such income were effectively connected to a United States trade or
business, at a rate of 35% for foreign holders that are taxable as corporations
and 39.6% for all other foreign holders. Subsequent adoption of Treasury
regulations or the issuance of other administrative pronouncements may require
the Issuer to change its withholding procedures.
If the trust is engaged in a United States trade or business, each
foreign holder might be required to file a United States individual or corporate
income tax return (including, in the case of a corporation, the branch profits
tax) on its share of the Issuer's income. A foreign holder generally would be
entitled to file with the IRS a claim for refund with respect to taxes withheld
by the Issuer taking the position that no taxes were due because the Issuer was
not engaged in a United States trade or business. However, interest payments
made (or accrued) to a Certificateholder who is a foreign person generally will
be considered guaranteed payments to the extent such payments are determined
without regard to the income of the Issuer,
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and for that reason or because of the nature of the assets of the Issuer
probably will not be considered "portfolio interest." As a result, even if the
Issuer was not considered to be engaged in a United States trade or business,
Certificateholders will be subject to United States federal income tax which
must be withheld at a rate of 30%, unless reduced or eliminated pursuant to an
applicable treaty. A foreign holder would be entitled to claim a refund for such
withheld tax, taking the position that the interest was portfolio interest and
therefore not subject to United States tax. However, the IRS may disagree and no
assurance can be given as to the appropriate amount of tax liability. As a
result, each potential foreign Certificateholder should consult its tax advisor
as to whether an interest in a Certificate is an unsuitable investment.
10. 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 Certificateholder fails to comply with certain identification
procedures, unless the holder is an exempt recipient under applicable provisions
of the Code.
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 Securities 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. Fiduciaries
should also consider ERISA's prohibition on improper delegation of control over,
or responsibility for, plan assets.
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 Securities 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 or any entity
whose underlying assets include plan assets by reason of a plan or account
investing in such entity, including an insurance company general account
(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 Securities of
the applicable Series, an investment in Securities 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 regulation
(the "Plan Assets 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 Plan Assets Regulation provides an
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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 Securityholder of the applicable Series.
The Plan Assets 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 Securityholders of the applicable Series at any time, there can be no
assurance that any Series or Class of Securities will qualify for this
exemption.
PROHIBITED TRANSACTION CLASS EXEMPTION APPLICABLE TO CERTIFICATES
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 eligible for prohibited transaction relief 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 a
Series qualifying for relief under PTCE 83-1 (1) will be exempt from the
prohibitions of Section 406(a) of ERISA (relating generally to Plan transactions
involving Parties in Interest who are not fiduciaries) if the Plan purchases the
Certificates at no more than fair market value, and (2) will be exempt from the
prohibitions of Sections 406(b) (1) and (2) of ERISA (relating generally to Plan
transactions with fiduciaries) if, in addition, (i) the purchase is approved by
an independent fiduciary, (ii) no sales commission is paid to the Depositor as
Mortgage Pool sponsor, (iii) the Plan does not purchase more than 25% of the
Certificates of that Series and (iv) at least 50% of the Certificates of that
Series is purchased by persons independent of the Depositor, the Trustee and the
Insurer, as applicable. PTCE 83-1 will not apply to a Series of Securities with
respect to which the Trust Assets include Nonexempt Assets.
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 Series intending to meet
the conditions of PTCE 83-1 for which such a method of Credit Support is
provided (see "Credit Support -- Subordinated Securities" and
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" -- 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 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 such 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 such Series.
If a 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 a 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.
UNDERWRITER'S PROHIBITED TRANSACTION EXEMPTION APPLICABLE TO CERTIFICATES
Credit Suisse 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 "Credit Suisse 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 include (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; (ii) "guaranteed governmental mortgage
pool certificates" (as defined in the Plan Assets Regulation) and (iii)
undivided fractional interests in the above.
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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, a division of The McGraw-Hill Companies, Inc.,
Moody's Investors Service, Inc., Duff & Phelps Credit Rating Co. or
Fitch IBCA, 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 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;
(f) the Plan is an "accredited investor" (as defined in Rule
501(a)(1) of Regulation D under the Securities Act);
(g) the acquisition of the Certificates by a Plan is on terms
(including the price for the Securities) that are at least as favorable
to the Plan as they would be in an arm's length transaction with an
unrelated party; and
(h) the sum of all payments made to and retained by the
Underwriter or members of any underwriting syndicate in connection with
the distribution of the Certificates represents not more than
reasonable compensation for underwriting the Certificates; the sum of
all payments made to and retained by the Seller pursuant to the sale of
the Trust Assets to the Trust represents not more than the fair market
value of such Trust Assets; and the sum of all payments made to and
retained by the Master Servicer and all Servicers represents not more
than reasonable compensation for such Servicers' services under the
Pooling and Servicing Agreement and reimbursement of such Servicers'
reasonable expenses in connection herewith.
In addition, the Underwriter's PTE will not apply to a Plan's
investment in Certificates if the Plan fiduciary responsible for the decision to
invest in a Class of Certificates is a Mortgagor or Obligor with respect to more
than 5% of the fair market value of the obligations constituting the Trust
Assets or an affiliate of such person and will not apply, 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").
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On July 21, 1997, the DOL published in the Federal Register a final
amendment to the Underwriter's PTE which extends exemptive relief to certain
mortgage-backed and asset-backed securities transactions using pre-funding
accounts for trusts issuing pass-through certificates. With respect to the
Certificates, the amendment generally allows a portion of the mortgages or
receivables ("Loans") supporting payments to Certificateholders and having a
principal amount equal to no more than 25% of the total principal amount of the
Certificates to be transferred to the Trust within a 90-day or three-month
period following the Closing Date ("Pre-Funding Period"), instead of requiring
that all such Loans be either identified or transferred on or before the Closing
Date. The relief, is effective for transactions occurring on or after May 23,
1997, provided that the following conditions are met:
(1) the ratio of the amount allocated to the Pre-Funding
Account to the total principal amount of the Certificates being offered
("Pre-Funding Limit") must not exceed 25%;
(2) all Loans transferred after the Closing Date ("Additional
Loans") must meet the same terms and conditions for eligibility as the
original Loans used to create the Trust, which terms and conditions
have been approved by the Rating Agency;
(3) the transfer of such Additional Loans to the Trust during
the Pre-Funding Period must not result in the Certificates receiving a
lower credit rating from the Rating Agency upon termination of the
Pre-Funding Period than the rating that was obtained at the time of the
initial issuance of the Certificates by the Trust;
(4) solely as a result of the use of pre-funding, the weighted
average annual percentage interest rate (the "average interest rate")
for all of the Loans in the Trust at the end of the Pre-Funding Period
must not be more than 100 basis points lower than the average interest
rate for the Loans which were transferred to the Trust on the Closing
Date;
(5) in order to ensure that the characteristics of the
Additional Loans are substantially similar to the original obligations
which were transferred to the Trust, either: (i) the characteristics of
the Additional Loans must be monitored by an insurer or other credit
support provider which is independent of the Depositor or (ii) an
independent accountant retained by the Depositor must provide the
Depositor with a letter (with copies provided to the Rating Agency, the
Underwriter and the Trustee) stating whether or not the characteristics
of the Additional Loans conform to the characteristics described in the
Prospectus, Prospectus Supplement, Private Placement Memorandum
("Offering Documents") and/or Pooling and Servicing Agreement ("Pooling
Agreement"); in preparing such letter, the independent accountant must
use the same type of procedures as were applicable to the Loans which
were transferred as of the Closing Date;
(6) the Pre-Funding Period must end no later than three months
or 90 days after the Closing Date or earlier, in certain circumstances,
if the amount on deposit in the Pre-Funding Account is reduced below
the minimum level specified in the Pooling Agreement or an event of
default occurs under the Pooling Agreement;
(7) amounts transferred to any Pre-Funding Account and/or
Capitalized Interest Account used in connection with the pre-funding
may be invested only in certain permitted investments;
(8) the Offering Documents must describe: (i) any Pre-Funding
Account and/or Capitalized Interest Account used in connection with a
Pre-Funding Account; (ii) the duration of the Pre-Funding Period; (iii)
the percentage and/or dollar amount of the Pre-Funding Limit for the
Trust; and (iv) that the amounts remaining in the Pre-Funding Account
at the end of the Pre-Funding Period will be remitted to
Certificateholders as repayments of principal; and
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(9) the Pooling and Servicing Agreement must describe the
permitted investments for the Pre-Funding Account and Capitalized
Interest Account and, if not disclosed in the Offering Documents, the
terms and conditions for eligibility of the Additional Loans.
Whether the conditions in the Underwriter's PTE (in addition to, and
including those, relating to pre-funding) 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 ERISA CONSIDERATIONS RELATING TO CERTIFICATES
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 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.
If for any reason neither PTCE 83-1 nor the Underwriter's PTE provides
an exemption for a particular Plan investor, one of five other prohibited
transaction class exemptions 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), PTCE 84-14 (Class Exemption for Plan Asset
Transactions Determined by Independent Qualified Professional Asset Managers),
PTCE 95-60 (Class Exemption for Certain Transactions Involving Insurance Company
General Accounts) or PTCE 96-23 (Class Exemption for Plan Asset Transactions
Performed by In-house Asset Managers) (collectively, the "Investor Based
Exemptions"). There can be no assurance that any of these Investor Based
Exemptions will apply with respect to any particular Plan investor or, even if
it were to apply, that such 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 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, the
Underwriter's PTE 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.
ERISA CONSIDERATIONS RELATING TO THE NOTES
Under the Plan Assets Regulation, the assets of the Trust would be
treated as plan assets of a Plan for the purposes of ERISA and the Code only if
the Plan acquires an "Equity Interest" in the Trust and none
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of the exceptions contained in the Plan Assets Regulation is applicable. An
equity interest is defined under the Plan Assets Regulation as an interest other
than an instrument which is treated as indebtedness under applicable local law
and which has no substantial equity features. Assuming that a Class of Notes is
treated as indebtedness without substantial equity features for purposes of the
Plan Assets Regulation, then such Class of Notes will be eligible for purchase
by Plans. However, without regard to whether a Class of Notes is treated as an
"equity interest" for such purposes, the acquisition or holding of Notes by or
on behalf of a Plan could be considered to give rise to a prohibited transaction
if the Trust or any of its affiliates is or becomes a party in interest or
disqualified person with respect to such Plan, or in the event that a Note is
purchased in the secondary market and such purchase constitutes a sale or
exchange between a Plan and a party in interest or disqualified person with
respect to such Plan. There can be no assurance that the Trust or any of its
affiliates will not be or become a party in interest or a disqualified person
with respect to a Plan that acquires Notes. However, one or more of the Investor
Based Exemptions described above may apply to any potential prohibited
transactions arising as a consequence of the acquisition, holding and transfer
of the Notes.
ANY PLAN INVESTOR WHO PROPOSES TO USE "PLAN ASSETS" OF ANY PLAN TO
PURCHASE SECURITIES 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 SECURITIES.
LEGAL INVESTMENT
The applicable Prospectus Supplement for a Series of Securities will
specify whether a Class or Subclass of such Securities, 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
Securities 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
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<PAGE> 230
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 Securities), except under limited
circumstances.
All depository institutions considering an investment in the Securities
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 Certificates" (including securities such as certain Series,
Classes or Subclasses of the Securities), 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 Securities,
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 Securities 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 Securities as "mortgage
related securities," no representation is made as to the proper characterization
of the Securities for legal investment purposes, financial institution
regulatory purposes, or other 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.
Investors should consult their own legal advisers in determining
whether and to what extent such Securities constitute legal investments for such
investors.
PLAN OF DISTRIBUTION
Each Series of Securities offered hereby and by means of the related
Prospectus Supplements may be sold directly by the Depositor or may be offered
through Credit Suisse First Boston Corporation, an affiliate of the Depositor,
or underwriting syndicates represented by Credit Suisse First Boston Corporation
(the "Underwriters"). The Prospectus Supplement with respect to each such Series
of Securities will set forth the terms of the offering of such Series or Class
of Securities 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 Securities will be
determined.
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<PAGE> 231
Unless otherwise specified in the Prospectus Supplement, the
Underwriters will be obligated to purchase all of the Securities of a Series
described in the Prospectus Supplement with respect to such Series if any such
Securities are purchased. The Securities 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 the Underwriters or other persons acting as the Depositor's agents to
solicit offers by certain institutions to purchase the Securities 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 Securities 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 Securities offered hereby and by means
of the related Prospectus Supplements from time to time in negotiated
transactions or otherwise, at prices determined at the time of sale. The
Depositor may effect such transactions by selling Securities 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
Securities for whom they may act as agents.
The place and time of delivery for each Series of Securities offered
hereby and by means of the related 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 attached Prospectus Supplement will also be used by the
Underwriters after the completion of the offering in connection with offers and
sales related to market-making transactions in the offered Securities in which
the Underwriters act as principal. Sales will be made at negotiated prices
determined at the time of sales.
LEGAL MATTERS
Certain legal matters in connection with the Securities offered hereby,
including material federal income tax consequences, will be passed upon for the
Depositor and for the Underwriters by Stroock & Stroock & Lavan LLP, New York,
New York, Brown & Wood LLP, San Francisco, California or such other counsel
specified in the related Prospectus Supplement.
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<PAGE> 232
INDEX OF TERMS
TERM PAGE
- ---- ----
Accrual Distribution Amount.................... 34
Advances....................................... 13
AFR............................................ 89
Agreement...................................... 21
Alternative Credit Support..................... 9
Approved Sale.................................. 67
APR............................................ 25
ARM Loans...................................... 18
Asset Value.................................... 32
Assets......................................... 81
Bond Premium Amortization Limit................ 87
Bond Premium Amortization Regulations.......... 87
Buy-Down Fund.................................. 12
Buy-Down Loans................................. 19
Cede........................................... 17
Certificate Account............................ 40
Certificate Principal Balance.................. 3
Certificateholders............................. 21
Class.......................................... 1
Cleanup Costs.................................. 76
Closed-End Loans............................... 4
Closed Loans................................... 22
Closing Date................................... 83
Code........................................... 14
Collection Account............................. 40
Contract Loan-to-Value Ratio................... 7
Contract Pool.................................. 1
Contract Schedule.............................. 36
Contracts...................................... 1
Converted Mortgage Loan........................ 19
Cooperative.................................... 4
Cooperative Dwelling........................... 5
Cooperative Loans.............................. 4
Credit Suisse First Boston Corporation's PTE...
Custodial Account.............................. 40
Custodial Agreement............................ 25
Custodian...................................... 25
Cut-off Date................................... 17
Deferred Interest.............................. 19
Definitive Securities.......................... 17
Deficiency Event............................... 54
Deleted Contract............................... 26
Deleted Mortgage Certificates.................. 35
Deleted Mortgage Loans......................... 36
Depositor...................................... 1
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<PAGE> 233
Determination Date............................. 43
Discount Security.............................. 8
Distribution Date.............................. 5
DOL............................................
DTC -- Depository Trust Company................ 17
Due Date....................................... 18
Due Period..................................... 34
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<PAGE> 234
TERM PAGE
- ---- ----
Escrow Account................................. 46
ERISA..........................................
ERISA Plans....................................
Exempt Series..................................
FHA............................................ 1
FHA Experience................................. 27
FHA Loans...................................... 18
First Boston...................................
Garn-St Germain Act............................ 75
GPM Fund....................................... 12
GPM Loans...................................... 19
Home Equity Loans.............................. 4
Indenture...................................... 31
Indenture Trustee.............................. 31
Initial Deposit................................ 11
Insurance Proceeds............................. 41
Insured........................................ 49
Insured Series.................................
Interest Coupon................................
Interest Distribution.......................... 33
Interest Rate.................................. 3
Interest Weighted Class........................ 3
Interest Weighted Subclass..................... 3
IRS............................................ 83
L/C Bank....................................... 9
L/C Percentage................................. 9
Letter of Credit............................... 8
Liquidating Loan............................... 9
Liquidation Proceeds........................... 41
Loan-to-Value Ratio............................ 18
Loss........................................... 63
Manufactured Home.............................. 7
Master Servicer................................ 1
Mortgage Certificates.......................... 1
Mortgage Loans................................. 5
Mortgage Notes................................. 18
Mortgage Pool.................................. 80
Mortgage Rates................................. 6
Mortgaged Property............................. 6
Mortgagor...................................... 6
Mortgagor Bankruptcy Bond...................... 8
Multi-Class Securities......................... 3
Multifamily Property........................... 5
Multiple Variable Rate......................... 85
1988 Act....................................... 91
1986 Act....................................... 87
1996 Contingent Debt Regulations............... 86
1996 Proposed Regulations...................... 97
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<PAGE> 235
Nonexempt Assets...............................
Nonexempt Series...............................
non-U.S. Person................................ 94
Notes.......................................... 1
Noteholders.................................... 21
Obligor........................................ 29
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<PAGE> 236
TERM PAGE
- ---- ----
OID Regulations................................ 80
Original Value................................. 6
Originator..................................... 22
Other Pools....................................
Parties in Interest............................
Percentage Interest............................ 1
Performance Bond............................... 26
Plan Assets Regulation.........................
Plans..........................................
Policy Statement...............................
Pool Insurance Policy.......................... 8
Pool Insurer................................... 10
Pooling and Servicing Agreement................ 30
Pre-Funded Amount.............................. 38
Pre-Funding Account............................ 38
Pre-Funding Period.............................
Premium Security............................... 7
Prepayment Assumption.......................... 83
Primary Insurer................................ 42
Primary Mortgage Insurance Policy.............. 10
Primary Mortgage Insurer....................... 49
Principal Distribution......................... 33
Principal Prepayments.......................... 11
Principal Weighted Class....................... 4
Principal Weighted Subclass.................... 4
Proposed Premium Regulations................... 88
PTCE 83-1......................................
Purchase Price................................. 38
Rating Agency.................................. 1
Record Date.................................... 33
Reference Agreement............................ 31
REIT........................................... 81
REMIC.......................................... 1
REMIC Certificateholders....................... 81
REMIC Certificates............................. 80
REMIC Mortgage Pool............................ 80
REMIC Provisions............................... 80
REMIC Regulations.............................. 80
REMIC Regular Certificate...................... 80
REMIC Residual Certificate..................... 80
Required Reserve............................... 12
Reserve Fund................................... 8
Residual Certificates.......................... 3
Residual Owner................................. 87
Restricted Group...............................
Retained Yield................................. 98
Revolving Credit Line Loans.................... 4
Sale and Servicing Agreement................... 1
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<PAGE> 237
Securities..................................... 3
Securities Act................................. 32
Security Guarantee Insurance................... 13
Securityholder................................. 17
Senior Securities..............................
TERM PAGE
- ---- ----
Senior Class................................... 3
Senior Prepayment Percentage................... 80
Senior Subclass................................ 3
Series......................................... 1
Servicemen's Readjustment Act.................. 20
Servicer....................................... 21
Servicing Account.............................. 40
Servicing Agreement............................ 21
Single-Class REMIC............................. 94
Single Family Property......................... 5
Single Variable Rate........................... 83
SMMEA..........................................
SBJPA -- of 1996............................... 89
SPA............................................ 28
Special Distributions.......................... 5
Special Hazard Insurance Policy................ 13
Special Tax Counsel............................ 79
Standard Hazard Insurance Policy............... 46
Standard Terms................................. 30
Stated Principal Balance....................... 3
Stated Principal Distribution Amount........... 34
Stripped Bond Rules............................
Stripped Interest..............................
Stripped Mortgage Loan......................... 99
Subclass....................................... 1
Subordinated Amount............................ 8
Subordinated Securities........................ 8
Subordinated Class............................. 3
Subordinated Pool.............................. 11
Subordinated Subclass.......................... 3
Substitute Contract............................ 26
Substitute Mortgage Certificates............... 35
Substitute Mortgage Loans...................... 36
Thrift Institutions............................ 89
Tiered REMICS.................................. 82
Title V........................................ 79
Trust.......................................... 1
Trust Assets................................... 5
Trust Agreement................................ 1
Trust Certificates............................. 80
Trustee........................................ 1
Trust Fractional Certificateholder............. 99
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<PAGE> 238
Trust Fractional Certificate................... 80
Trust Fund..................................... 4
Trust Interest Certificate..................... 80
Trust Interest Certificateholder...............
Unaffiliated Sellers........................... 22
Underwriters...................................
UCC............................................ 73
Unstripped Mortgage Loans......................
U. S. Person................................... 96
VA............................................. 1
VA Loans....................................... 18
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<PAGE> 239
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.
<PAGE> 240
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 _________, 199_
<PAGE> 241
(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.
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.
<PAGE> 242
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 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.
<PAGE> 243
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 Credit Suisse
First Boston, Inc. Neither Credit Suisse
First Boston, Inc. nor any of its 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").
8
<PAGE> 244
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 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 Supplement will specify
the Note Interest Rate, or the method for
determining the Note Interest Rate, for each
Class of Notes.
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<PAGE> 245
A Series of Securities may include two or
more Classes of Notes that differ as to
timing and priority of payments, seniority,
Note Interest Rates or amount of payments of
principal or interest.
Additionally, payments of principal or
interest in respect of any such Class or
Classes may or may not be made upon the
occurrence of specified events or on the
basis of collections from designated
portions of the Base Assets. If specified in
the related Prospectus Supplement, one or
more Classes of Notes ("Strip Notes") may be
entitled to (i) principal payments with
disproportionate, nominal or no interest
payments or (ii) interest payments with
disproportionate, nominal or no principal
payments. See "DESCRIPTION OF THE NOTES --
Payments of Interest and Principal".
Notes will be available for purchase in
denominations of $100,000, or such other
minimum denomination as shall be specified
in the related Prospectus Supplement, and
integral multiples of $1,000 in excess
thereof and will be available in book-entry
form, or if specified in the related
Prospectus Supplement, as Definitive Notes.
If the related Prospectus Supplement
provides that the Notes shall be available
in book-entry form only, Noteholders will be
able to receive Definitive Notes (as defined
herein under "RISK FACTORS --Book-Entry
Registration") only in the limited
circumstances described herein or in the
related Prospectus Supplement. See "CERTAIN
INFORMATION REGARDING THE SECURITIES--
Definitive Securities" .
If a Servicer, Seller or Depositor with an
option to purchase the Base Assets of a
Trust exercises such option (or if not and,
if and to the extent provided in the related
Prospectus Supplement, satisfactory bids for
the purchase of such Base Assets are
received), in the manner and on the
respective terms and conditions described
under "DESCRIPTION OF THE TRUST AGREEMENT OR
POOLING AND 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
10
<PAGE> 246
of principal or interest. Additionally,
distributions in respect of principal or
interest in respect of any such Class or
Classes may or may not be made upon the
occurrence of specified events or on the
basis of collections from designated
portions of the related Base Assets. If
specified in the related Prospectus
Supplement, one or more Classes of
Certificates ("Strip Certificates") may be
entitled to (i) principal distributions with
disproportionate, nominal or no interest
distributions or (ii) interest distributions
with disproportionate, nominal or no
principal distributions. See "DESCRIPTION OF
THE CERTIFICATES --Payments of Principal"
and "-- Payments of Interest". If a Series
of Securities includes Classes of Notes,
distributions in respect of the Certificates
may be subordinated in priority of payment
to payments on the Notes to the extent
specified in the related Prospectus
Supplement.
Certificates will be available for purchase
in a minimum denomination of $100,000 or
such other minimum denomination as shall be
specified in the related Prospectus
Supplement, and in integral multiples of
$1,000 in excess thereof and will be
available in book-entry form or, if
specified in the related Prospectus
Supplement, as Definitive Certificates. If
the related Prospectus Supplement specifies
that the Certificates will be available in
book-entry form only, Certificateholders
will be able to receive Definitive
Certificates (as defined under "RISK FACTORS
-- Book Entry Registration") only in the
limited circumstances described herein or in
the related Prospectus Supplement. See
"CERTAIN INFORMATION REGARDING THE
SECURITIES -- Definitive Securities".
If a Servicer, Seller or Depositor with an
option to purchase the Base Assets of a
Trust exercises such option (or if not and,
if and to the extent provided in the related
Prospectus Supplement, satisfactory bids for
the purchase of such Base Assets are
received), in the manner and on the
respective terms and conditions described
under "DESCRIPTION OF THE TRUST OR POOLING
AND SERVICING AGREEMENT -- Termination", the
Certificates will be prepaid as set forth in
the related Prospectus Supplement.
Receivables Pooling Certificates
A. Certificateholders'
Interest; Depositor's
Interest................. In the case of a Series of Receivables
Pooling Certificates, a portion of the
assets of the related Trust will be
allocated among the Certificateholders of
such Series (the "Investor
Certificateholders' Interest") and the
remainder will be allocated to the interest
of the Depositor therein (the "Depositor's
Interest") and as provided in the related
Prospectus Supplement. 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.
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<PAGE> 247
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
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
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<PAGE> 248
such Series will be determined as set forth
in the related Supplement and, with respect
to each such Series offered hereby, in the
related Prospectus Supplement. See
"DESCRIPTION OF THE CERTIFICATES --
Receivables Pooling Certificates".
Collections will be deposited in the related
Collection Account and invested in the
manner described under "SERVICING OF
RECEIVABLES--Deposits to the Collection
Account".
D. Interest................ Interest will accrue on the invested amount
of the Receivables Pooling Certificates of a
Series or Class (the "Invested Amount" of
such Series or Class) at the per annum rate
of interest either specified in or
determined in the manner specified in the
related Prospectus Supplement (the
"Certificate Interest Rate"). If the
Prospectus 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 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 described below under
"Rapid Accumulation Period" (each an
"Accumulation Period") or in installments
commencing on a date specified in the
related
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<PAGE> 249
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 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.
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<PAGE> 250
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.
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
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<PAGE> 251
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
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
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<PAGE> 252
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.
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:
(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").
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<PAGE> 253
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 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
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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.
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 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
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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.
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 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
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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 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
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<PAGE> 257
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.
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. VISA and
MasterCard are registered trademarks of VISA
USA, Inc. and MasterCard International
Incorporated, respectively.
(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 aggregate principal
amount and type of the CRB Securities; (ii)
certain
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<PAGE> 258
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 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
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<PAGE> 259
Indenture Trustee), or with the related
Servicer in the name of such Trustee (or
Indenture Trustee) or in such other manner
as shall be specified in the related
Prospectus Supplement.
To the extent provided in the related
Prospectus Supplement, the Trustee (or the
Indenture Trustee) shall be required to
apply a portion of the amount in the
Collection Account, together with
reinvestment earnings thereon at the rate or
rates specified in the related Prospectus
Supplement, to the payment, if and as
provided in the related Prospectus
Supplement, of certain amounts payable to
the Servicer under the related Agreement and
any other person specified in the related
Prospectus Supplement, and to deposit a
portion of the amount in the Collection
Account into one or more separate accounts
(each a "Payment Account" or "Funding
Account", as the case may be) to be
established for such Series, each in the
manner and at the times established in the
related Prospectus Supplement. Amounts
deposited in any such Payment Account will
be available, to the extent specified in the
related Prospectus Supplement, for (i)
application to the payment of principal of
and/or interest on certain Classes of the
Securities of such Series on the next
Payment Date, (ii) the making of adequate
provision for future payments on certain
Classes of Securities and/or (iii) any other
purpose specified in the related Prospectus
Supplement. After applying the funds in the
Collection Account as described above, any
funds remaining in the Collection Account
may be paid over to the Servicer, the
Depositor, any provider of Credit
Enhancement with respect to such Series (a
"Credit Enhancer") or any other person
entitled thereto in the manner and at the
times established in the related Prospectus
Supplement.
A Prospectus Supplement may also provide
that the assets of a Trust will include a
Pre-Funding Account (the "Pre-Funding
Account"). In such event, to the extent
provided in the related Prospectus
Supplement, the Depositor and/or the Seller
will be obligated (subject only to the
availability thereof) to deposit, and the
related Trust will be obligated to accept
(subject to the satisfaction of certain
conditions described in the applicable
Agreement), additional Base Assets (the
"Additional Base Assets") from time to time
during the Funding Period specified in the
related Prospectus Supplement having an
aggregate principal balance approximately
equal to the amount on deposit in the
Pre-Funding Account (the "Pre-Funded
Amount") on the related Closing Date. From
time to time, various additional accounts
may be created under the terms of the
documents related to a specific Series.
Series Enhancement........ If stated in the Prospectus Supplement
relating to a Series, enhancement may be
provided with respect to one or more Classes
of the Securities of such Series in the form
of one of more types of 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".
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<PAGE> 260
Credit Enhancement with respect to a Trust
or any Class or Classes of Securities may
include any one or more of the following:
the subordination of one or more Classes of
such Securities to other Classes of such
Securities, a letter of credit, the
establishment of a cash collateral guaranty
or account, a reserve fund, a surety bond or
insurance, a spread account or the use of
cross support features or another method of
Credit Enhancement described in the related
Prospectus Supplement. Ancillary
Arrangements may take the form of guaranteed
rate agreements, maturity liquidity
facilities, tax protection agreements,
interest rate caps, floor or collar
agreements, interest rate or currency swap
agreements or other similar arrangements
that are incidental or related to the Base
Assets included in a Trust. If so specified
in the related Prospectus Supplement, any
such Credit Enhancement or Ancillary
Arrangements may be provided by the
Depositor or an affiliate thereof.
Servicing................. For Series for which the Base Assets include
Receivables or Participations, the Servicer
designated in the related Prospectus
Supplement will be responsible for
servicing, managing and making collections
on such Receivables or Participations. The
Servicer may perform such functions alone,
through subservicers or in conjunction with
a master servicer, as described in such
Prospectus Supplement. In performing these
functions, the Servicer will be required to
exercise the same degree of skill and care
that it customarily exercises with respect
to similar receivables owned or serviced by
it. Under certain 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, Stroock &
Stroock & Lavan LLP or such other counsel
specified in the related Prospectus
Supplement ("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
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<PAGE> 261
distributions from any reserve fund), and
the Notes being debt of the 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, 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
qualifications 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
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<PAGE> 262
constitute permissible investments for such
employee benefit plans and whether the
purchase or holding of Certificates could
give rise to transactions prohibited under
ERISA or Section 4975 of the Code.
Legal Investment.......... Investors whose investment authority is
subject to legal restrictions should consult
their own legal advisors to determine
whether and to what extent the Certificates
or Notes constitute legal investments for
them.
Use of Proceeds........... The Depositor will use the net proceeds from
the sale of each Series of Securities for
one or more of the following purposes: (i)
to purchase the related Base Assets and/or
Series Enhancement, (ii) to repay
indebtedness which has been incurred to
obtain funds to acquire such Base Assets
and/or Series Enhancement, (iii) to fund the
purchase of such Base Assets and/or Series
Enhancement by the related Trust on the
Closing Date or to establish a Pre-Funding
Account for such Series, (iv) to establish
any Reserve Account or Cash Collateral
Accounts described in the related Prospectus
Supplement or (v) to pay costs of
structuring and issuing such Securities. If
so 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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<PAGE> 263
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 wholly 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 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.
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<PAGE> 264
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
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
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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 wholly or partly of Receivables or CRB Securities, if such laws result
in any Receivables being charged off as uncollectible when there are no funds
available from Series Enhancement or other sources.
Risk of Subordination of Trust's Interest in the Receivables due to
Certain Legal Aspects -- Transfers of Receivables. For Series of Receivables
Pooling Certificates which involve a transfer of Receivables to the related
Trust, the related Seller (and to a certain extent the Depositor) will warrant
in the related Pooling and Servicing Agreement and in the related Receivables
Purchase Agreement, respectively, that such transfer of the Receivables from the
Seller to the Depositor and from the Depositor to the Trust is and will be
either a valid transfer and assignment of all right, title and interest of the
Seller in the Receivables and all proceeds thereof to the Depositor, and a valid
transfer of all right, title and interest of the Depositor in the Receivables
and all proceeds thereof to the Trust or will be the grant to the Trust of a
security interest in such Receivables. The Seller (and to a certain extent the
Depositor) will take certain actions required to perfect the Trust's interest in
the Receivables and will warrant that if the transfer to the Trust is deemed to
be a grant to the Trust of a security interest in the Receivables, the Trustee
will have a first priority perfected security interest therein. If any such
transfer of the Receivables and the proceeds thereof to the Trust is deemed to
create a security interest therein, a tax or government lien on property of the
Seller (or of the Depositor) arising before such Receivables come into existence
(or are transferred to the Depositor) may have priority over the Trust's
interest in such Receivables. See "CERTAIN LEGAL ASPECTS OF RECEIVABLES --
Transfer of Receivables".
Risk of Delay in Payments on Securities or Early Termination due to
Certain Legal Aspects --Receivership of a Seller. With respect to Receivables
Pooling Certificates and CRB Backed Securities, if any Seller is a regulated
financial institution, to the extent that such Seller grants a security interest
in the
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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
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
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Massachusetts petitioned the United States Supreme Court to accept the case. On
January 11, 1993, the U.S. Supreme Court denied the petition of the Commonwealth
to review the decision of the First Circuit. The California Supreme Court in
March 1992 refused to review a lower court's determination that the practice by
Wells Fargo Bank of charging its cardholders over-the-limit and late payment
fees violated California laws that require banks to limit such charges to their
costs. On November 29, 1995, the Supreme Court of New Jersey ruled that a
national bank that issued credit cards in New Jersey but is located in another
state, and that is entitled under the National Bank Act to charge borrowers
interest at a rate allowed by the laws of the State where the bank is located,
was not entitled to charge New Jersey cardholders certain late payment fees,
notwithstanding the fact that the state in which the bank is located permits
such late payment fees, because late payment fees are not defined as interest
within the meaning of the National Bank Act and because New Jersey state law
forbade the charging of such late payment fees. On June 3, 1996, the U.S.
Supreme Court upheld regulations issued by the U.S. Comptroller of the Currency
that characterize late fees as interest and that therefore entitle a national
bank to charge late fees if the state in which such national bank is located
allows such late fees. Although the U.S. Supreme Court resolved certain
conflicts of interpretation among the states, such actions and similar actions
which may be brought in other states as a result of such actions, if resolved
adversely to card issuers, could have the effect of limiting certain charges,
other than periodic finance charges, that could be assessed on accounts of
residents of such states and could require card issuers to pay refunds and civil
penalties with respect to charges previously imposed on cardholders in such
states. 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
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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 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.
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
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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 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.
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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 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.
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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 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
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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, 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.
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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 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
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the CRB Securities, including (A) whether such Receivables are Credit Card
Receivables, Charge Card Receivables or other types of Receivables, (B) the fees
and charges associated with such Receivables and (C) the servicing fee or range
of servicing fees with respect to such Receivables; (iii) the expected and final
maturity of the CRB Securities; (iv) the interest rate of the CRB Securities;
(v) the CRB Issuer, the CRB Servicer (if other than the CRB Issuer) and the CRB
Trustee for such CRB Securities; (vi) certain characteristics of the credit
enhancement, if any, relating to the Receivables underlying the CRB Securities
or to such CRB Securities themselves; (vii) the terms on which the underlying
Receivables for such CRB Securities may be, or are required to be, purchased
prior to their stated maturity or the stated maturity of the CRB Securities; and
(viii) the terms on which Receivables may be substituted for those originally
underlying the CRB Securities.
If information of the nature described above representing the CRB
Securities is not known to the Depositor at the time the related Series of
Securities are initially offered, approximate or more general information of the
nature described above will be provided in the related Prospectus Supplement and
the additional information, to the extent available, will be set forth in a
Current Report on Form 8-K to be available to investors on the date of issuance
of the related Series of Securities and to be filed with the Commission within
15 days of the initial issuance of such Securities.
As a general rule, each CRB Issuer will be subject to the information
requirements of the Exchange Act and in accordance therewith, will file reports
and other information with the Commission. Such reports and other information
filed with the Commission can be inspected and copied at the public reference
facilities maintained by the Commission at Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the Commission's regional offices at
Citicorp Center, 500 West Madison Street, 14th Floor, Chicago, Illinois 60661
and Seven World Trade Center, Suite 1300, New York, New York 10048. Copies of
such material can be obtained from the Public Reference Section of the
Commission at Judiciary Plaza, Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. The Commission maintains a Web site that contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the Commission. The address of such site is
(http://www.sec.gov). In the event that any CRB Issuer is not subject to the
information requirements of the Exchange Act on the date of issuance of the
Certificates of the related Series or ceases to be subject to such requirements
after such date, the Depositor or the Trustee will provide, or cause to be
provided (or make available, or cause to be made available) to holders of the
Securities upon request, the information contained in all periodic trustee
reports (or similar reports) that are received by the Trustee with respect to
the related CRB Securities where such CRB Securities represent 20% or more of
the aggregate principal balance of the related Base Assets.
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
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
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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 nationally 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.
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
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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.
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.
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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
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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 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.
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
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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 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
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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 Stroock &
Stroock & Lavan LLP or such other counsel specified in the related Prospectus
Supplement 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.
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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 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 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
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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 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").
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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 "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
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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 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
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("Ancillary Arrangements"). Such Ancillary Arrangements may take the form of
guaranteed rate agreements, maturity liquidity facilities, tax protection
agreements, interest rate caps, floor or collar agreements, interest rate or
currency swap agreements or other similar arrangements. If so specified in the
related Prospectus Supplement, such Ancillary Arrangements may be entered into
with the Depositor or an affiliate thereof. The related Prospectus Supplement
will to the extent appropriate contain analogous disclosure with respect to any
such Ancillary Arrangements as is set forth herein or in such Prospectus
Supplement with respect to the Base Assets.
SERVICING OF RECEIVABLES
General
Customary servicing functions with respect to any Receivables included
in the Base Assets for a Series or underlying any Participations included
therein will be provided by the Servicer named in the related Prospectus
Supplement pursuant to the related Pooling and Servicing Agreement. In general,
comparable servicing functions will be performed by the CRB Servicer with
respect to the Receivables underlying any CRB Securities included in the Base
Assets.
Collection Procedures
The Servicer will make reasonable efforts to collect all payments
required to be made under the Accounts and will, consistent with the terms of
the related Pooling and Servicing Agreement for a Series and any applicable
Credit Enhancement, follow such collection procedures as it follows with respect
to comparable receivables held in its own portfolio.
Deposits To The Collection Account
The Servicer will deposit (subject to certain exceptions which, if
applicable, will be specified in the related Prospectus Supplement) any
collections on the Receivables in a Monthly Period (which period will be defined
for each Servicer in the related Prospectus Supplement) into the Collection
Account within two business days of the Date of Processing (or, in the case of
Interchange, on each Distribution Date) to the extent such collections are
allocable to the Investor Certificateholders' Interest of any Series and are
required to be deposited into an account for the benefit of, or distributed to,
the Investor Certificateholders of any Series or the issuer of any Series
Enhancement. In certain limited circumstances, the Servicer will not be required
to segregate, and will be permitted to use for its own benefit collections on
the Receivables received by it during each Monthly Period until the related
Distribution Date. The "Distribution Date" for each calendar month will be
specified in the Prospectus Supplement. To the extent and in the manner
specified in the related Prospectus 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
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debt obligations of which at the time of any deposit therein are rated as
described in the related Prospectus Supplement and as specified by the Rating
Agencies rating the Securities of such Series or (ii) in an account or accounts
the deposits in which are insured to the maximum extent available by the Federal
Deposit Insurance Corporation (the "FDIC") or which are secured in a manner
meeting requirements established by such Rating Agencies.
To the extent and in the manner specified in the related Prospectus
Supplement, the funds held in the Collection Account may be invested, pending
remittance to the Trustee (or the Indenture Trustee), in Eligible Investments.
If so specified in the related Prospectus Supplement, the Servicer will be
entitled to receive as additional compensation any interest or other income
earned on funds in the Collection Account. The related Prospectus Supplement
will describe the obligations of the Servicer (if different from those described
above), the Seller, the Trustee, the Indenture Trustee and/or the Depositor to
deposit certain payments and/or collections received by them in respect of the
Trust assets into the Collection Account. In addition, to the extent so provided
in the related Prospectus Supplement, if the Servicer deposits in the Collection
Account for a Series any amount not required to be deposited therein, it may, at
any time, withdraw such amount from such Collection Account.
Servicing Compensation and Payment of Expenses
The related Prospectus Supplement may provide that the Servicer will be
entitled to receive a servicing fee in an amount to be determined as specified
in the related Prospectus Supplement (the "Servicing Fee"). The Servicing Fee
may be fixed or variable, as specified in the related Prospectus Supplement.
As specified in the related Prospectus Supplement, the Servicer may be
required to pay certain expenses incurred in connection with the servicing of
the Receivables including, without limitation, the payment of the fees and
expenses of the Trustee (and Indenture Trustee) and independent accountants,
payment of the cost of any Series Enhancement and payment of expenses incurred
in preparation of reports to holders of Securities. To the extent specified in
the related Prospectus Supplement, the rights of the Servicer to receive funds
from the Collection Account for a Series, 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 AGREEMENTS 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 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
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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 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
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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 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
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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
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 66 2/3% of the aggregate outstanding principal amount
of such Notes.
Subject to the provisions of the applicable Indenture relating to the
duties of the related Indenture Trustee, if an Event of Default occurs and is
continuing with respect to a Series of Notes, such Indenture Trustee will be
under no obligation to exercise any of the rights or powers under the Indenture
at the request or direction of any of the holders of such Notes if it reasonably
believes it will not be adequately indemnified against the costs, expenses and
liabilities that might be incurred by it in complying with such request. Subject
to the provisions for indemnification and certain limitations contained in the
related Indenture, the holders of a majority of the aggregate outstanding
principal amount of the Notes of a Series will have the right to direct the
time, method and place of conducting any proceeding or exercising any remedy
available to the related Indenture Trustee; in addition, the holders of Notes
representing a majority of the aggregate outstanding principal amount of such
Notes may, in certain cases, waive any default with respect thereto, except a
default in the payment of principal of or interest on any Note or a default in
respect of a covenant or provision of such Indenture that cannot be modified or
amended without the waiver or consent of the holders of all the outstanding
Notes of such Series.
No holder of a Note will have the right to institute any proceeding
with respect to the related Indenture, unless certain conditions specified in
such Indenture have been satisfied, which conditions
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generally will include (i) such holder previously has given to the applicable
Indenture Trustee written notice of a continuing Event of Default; (ii) the
holders of not less than 25% of the outstanding principal amount of such Notes
have made written request to such Indenture Trustee to so institute such
proceeding in its own name as Indenture Trustee; (iii) such holder or holders
have offered such Indenture Trustee reasonable indemnity; (iv) such Indenture
Trustee has for 60 days failed to institute such proceeding; and (v) no
direction inconsistent with such written request has been given to such
Indenture Trustee during such 60-day period by the holders of a majority of the
outstanding principal amount of the Notes of such Series.
With respect to any Series of Securities that includes Notes, none of
the related Indenture Trustee in its individual capacity, the related Trustee in
its individual capacity, any holder of a Certificate representing an ownership
interest in such Trust or any other holder of an interest in such Trust, or any
of their respective beneficiaries, agents, officers, directors, employees,
affiliates, successors or assigns will, in the absence of an express agreement
to the contrary, be personally liable for the payment of the principal of or
interest on the related Notes or for the agreements of such Trust contained in
the related Indenture.
No Trust may engage in any activity other than as described herein or
in the related Prospectus Supplement. Except as and to the extent provided in
the related Prospectus Supplement, no Trust will incur, assume or guarantee any
indebtedness other than indebtedness incurred pursuant to the related Notes and
the related Indenture.
Certain Covenants. Each Indenture will provide that the related Trust
may not consolidate with or merge into any other entity, unless certain
conditions, which shall be specified in such Indenture shall be satisfied, which
conditions generally will include (i) the entity formed by or surviving such
consolidation or merger is organized under the laws of the United States, any
state of the United States or the District of Columbia; (ii) such entity
expressly assumes such Trust's obligation to make due and punctual payments upon
the Notes of the related Series and to perform or observe every agreement and
covenant of such Trust under the Indenture; (iii) no Event of Default shall have
occurred and be continuing immediately after such merger or consolidation; (iv)
such Trust has been advised by each Rating Agency that such merger or
consolidation will not result in the qualification, reduction or withdrawal of
its then-current rating of any Class of the Notes or Certificates of such
Series; and (v) such Trust has received an opinion of counsel to the effect that
such consolidation or merger would have no material adverse tax consequence to
the Trust or to any related Noteholder or Certificateholder; (vi) any action
that is necessary to maintain the lien and security interest created by this
Indenture will have been taken; and (vii) the Trust will have delivered to the
Indenture Trustee an officer's certificate and an opinion of counsel each
stating that such consolidation or merger and such supplemental indenture comply
with the covenants of the Indenture and that all conditions precedent provided
for in the Indenture relating to such transaction have been complied with.
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
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related Notes under such Indenture except as may be expressly permitted thereby;
(v) permit any lien, charge, excise, claim, security interest, mortgage, or
other encumbrance to be created on or extend to or otherwise arise upon or
burden the assets of such Trust or any part thereof, or any interest therein or
the proceeds thereof; or (vi) permit the lien of the related Indenture not to
constitute a valid first priority security interest (other than with respect to
a tax, mechanics' or similar lien) in the assets of such Trust.
Each Indenture Trustee and the related Noteholders, by accepting the
related Notes, will covenant that they will not at any time institute against
the applicable Trust any bankruptcy, reorganization or other proceeding under
any federal or state bankruptcy or similar law.
Modification of Indenture. The Trust and the related Indenture Trustee
may, with the consent of the holders of a majority of the aggregate outstanding
principal amount of the Notes of the related Series, execute a supplemental
indenture to add provisions to, change in any manner or eliminate any provisions
of, the related Indenture, or modify (except as provided below) in any manner
the rights of the related Noteholders, provided that (subject to certain
exceptions which, if applicable, will be specified in the related Prospectus
Supplement) without the consent of the holder of each outstanding Note affected
thereby, no supplemental indenture will: (i) change the due date of any
installment of principal of or interest on any such Note or reduce the principal
amount thereof, the interest rate specified thereon or the redemption price with
respect thereto or change any place of payment where or the coin or currency in
which any such Note or any interest thereon is payable; (ii) impair the right to
institute suit for the enforcement of certain provisions of the related
Indenture regarding payment; (iii) reduce the percentage of the aggregate amount
of the outstanding Notes of such Series, the consent of the holders of which is
required for any such supplemental indenture or for any waiver of compliance
with certain provisions of the related Indenture or of certain defaults
thereunder and their consequences as provided for in such Indenture; (iv) modify
or alter the provisions of the related Indenture regarding the voting of Notes
held by the applicable Trust, any other obligor on such Notes, the Seller or an
affiliate of any of them; (v) reduce the percentage of the aggregate outstanding
amount of such Notes, the consent of the holders of which is required to direct
the related Indenture Trustee to sell or liquidate the Base Assets in the Trust
if the proceeds of such sale would be insufficient to pay the principal amount
and accrued and unpaid interest on the outstanding Notes of such Series; (vi)
decrease the percentage of the aggregate principal amount of such Notes required
to amend the sections of the related Indenture that specify the percentage of
the aggregate principal amount of the Notes of such Series necessary to amend
such Indenture or certain other related agreements; or (vii) permit the creation
of any lien ranking prior to or on a parity with the lien of the related
Indenture with respect to any of the collateral for such Notes or, except as
otherwise permitted or contemplated in such Indenture, terminate the lien of
such Indenture on any such collateral or deprive the holder of any such Note of
the security afforded by the lien of such Indenture.
The Trust and the related Indenture Trustee may also enter into
supplemental indentures, without obtaining the consent of the Noteholders of the
related Series, for the purpose of, among other things, adding any provisions to
or changing in any manner or eliminating any of the provisions of the related
Indenture or of modifying in any manner the rights of such Noteholders; provided
that such action will not materially and adversely affect the interest of any
such Noteholder.
Annual Compliance Statement. Each Trust for a Series of Securities that
includes Notes will be required to file annually with the related Indenture
Trustee a written statement as to the fulfillment of its obligations under the
related Indenture.
Indenture Trustee's Annual Report. The Indenture Trustee for each Trust
for a Series of Securities that includes Notes will be required to mail each
year to all related Noteholders a brief report
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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 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
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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, 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
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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
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.
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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 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
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Depositor shall have given the Trustee, the Servicer, each Rating Agency and any
Series Enhancer entitled thereto pursuant to the relevant Supplement, written
notice of such New Issuance and the date upon which the New Issuance is to
occur; (b) the Depositor shall have delivered to the Trustee the related
Supplement, in form satisfactory to the Trustee, executed by each party to the
Pooling and Servicing Agreement other than the Trustee; (c) the Depositor shall
have delivered to the Trustee any related Series Enhancement agreement executed
by each of the parties to such agreement; (d) the Depositor shall have received
notice from each Rating Agency that the New Issuance shall not cause the Rating
Agency to reduce or withdraw the then current rating of the Certificates of any
outstanding Series or Class; (e) the Depositor shall have delivered to the
Trustee and certain providers of Series Enhancement a certificate of an
authorized representative, dated the date upon which the New Issuance is to
occur, to the effect that the Depositor reasonably believes that such issuance
will not, based on the facts known to such representative at the time of such
certification, cause a Pay Out Event; and (f) the Depositor shall have delivered
to the Trustee, each Rating Agency and certain providers of Series Enhancement
an opinion of counsel acceptable to the Trustee that for federal income tax
purposes (i) following such New Issuance the Trust will not be deemed to be an
association (or publicly traded partnership) taxable as a corporation, (ii) such
New Issuance will not adversely affect the tax characterization as debt of
Certificates of any outstanding Series or Class that were characterized as debt
at the time of their issuance, (iii) such New Issuance will not cause or
constitute an event in which gain or loss would be recognized by any
Certificateholders, and (iv) except as is otherwise provided in a Supplement
with respect to any Series, the Certificates of such Series will be properly
characterized as debt. Upon satisfaction of the above conditions, the Trustee
shall execute the Supplement and issue to the Depositor the Certificates of such
new Series for execution and redelivery to the Trustee for authentication.
Allocation Percentage. Pursuant to the Pooling and Servicing Agreement,
all amounts collected with respect to (i) Finance Charge Receivables and
Principal Receivables and the Defaulted Amount, (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
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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 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
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interest payments to Certificateholders of such Series on each Interest Payment
Date with respect thereto, provided that if a Rapid Amortization Period
commences with respect to such Series, thereafter interest will be distributed
to such Certificateholders monthly on each Special Payment Date. If the Interest
Payment Dates for a Series or Class occur less frequently than monthly,
collections or other amounts (or the portion thereof allocable to such Class)
will be deposited in one or more Interest Funding Accounts and used to make
interest payments to Certificateholders of such Series or Class on the following
Interest Payment Date with respect thereto. If a Series has more than one Class
of Receivables Pooling Certificates, each such Class may have a separate
Interest Funding Account.
Principal. The principal of any Receivables Pooling Certificates will
be scheduled to be paid either in full on the related Expected Final Payment
Date, in which case such Series will have an Accumulation Period as described
below under " -- Accumulation Period", or in installments commencing on the
related Principal Commencement Date, in which case such Certificates will have a
Controlled Amortization Period as described below under " -- Controlled
Amortization Period". If such a Series has more than one Class of Certificates,
a different method of paying principal, Expected Final Payment Date and/or
Principal Commencement Date may be assigned to each Class. The principal with
respect to the Certificates of such a Series or Class may be made or commence
earlier than the applicable Expected Final Payment Date or Principal
Commencement Date, as the case may be, and the final principal payment with
respect to the Certificates of such Series or Class may be made earlier or later
than the applicable Expected Final Payment Date or Principal Commencement Date,
if a Pay Out Event occurs with respect to such Series or Class or under certain
other circumstances described herein or in the related Prospectus Supplement.
Revolving Period. Receivables Pooling Certificates will have a
Revolving Period, which will commence on the date specified in the related
Prospectus Supplement as the Series Cut-Off Date and continue until the earliest
to occur of (a) the commencement of the Rapid Amortization Period with respect
to such Series and (b) the date specified in the related Prospectus Supplement
as the last day of the Revolving Period with respect to such Series. During the
Revolving Period with respect to such Series, collections of Principal
Receivables, collections of principal of the Government Securities, if any,
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
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in the Principal Funding Account on any such Distribution Date may, but will not
necessarily, be limited to the Controlled Deposit Amount equal to the Controlled
Accumulation Amount specified in the related Prospectus Supplement plus any
existing Deficit Controlled Accumulation Amount. If a Series of Receivables
Pooling Certificates has more than one Class, each Class may have a separate
Principal Funding Account and Controlled Accumulation Amount. In addition, the
related Prospectus Supplement may describe certain priorities among such Classes
with respect to deposits of principal into such Principal Funding Accounts. In
general, unless a Pay Out Event shall have occurred prior thereto, on the
Expected Final Payment Date for a particular Series or Class, all amounts
accumulated in the Principal Funding Account with respect to such Series or
Class during the Accumulation Period will be distributed as a single repayment
of principal with respect to such Series or Class.
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
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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.
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
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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 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
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Receivables. In the event that the Depositor shall fail for any reason to
deposit the aggregate purchase price for the Investor Certificateholders'
Interest of a Series, payments would continue to be made to the Investor
Certificateholders of such Series as described herein and in the related
Prospectus Supplement.
In any event, the last payment of principal and interest on the
Securities of a Series will be due and payable not later than the date (the
"Series Termination Date") specified in the related Prospectus Supplement. In
the event that the principal amount of the Securities of any such Series or the
Enhancement Invested Amount is greater than zero on the Series Termination Date,
the Trustee will sell or cause to be sold interests in the Receivables,
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 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,
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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 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").
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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 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
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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 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
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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 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
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Agreement are referred to herein, the actual provisions (including definitions
of terms) are incorporated herein by reference as part of such summaries.
Assignment of Base Assets to the Trust
Assignment of Receivables; Pre-Funding Account. For any Series of
Receivables Pooling Certificates, pursuant to the related Pooling and Servicing
Agreement and Receivables Purchase Agreement, the Seller will sell and assign to
the related Trust on the Closing Date specified in the related Prospectus
Supplement (the "Closing Date"), either directly or by assignment to the
Depositor and reassignment by the Depositor to the Trust, without recourse to
the Seller (or the Depositor), all Receivables in the Initial Accounts
outstanding as of the Series Cut-Off Date, and will similarly sell and assign to
the Trust all Receivables in the Additional Accounts as of the applicable
additional cut-off dates and all Receivables thereafter created under the
Initial Accounts or the Additional Accounts (other than the Removed Accounts)
any Participations added to the Trust and the proceeds of all of the foregoing.
To the extent specified in the related Prospectus Supplement, a portion of the
proceeds from the sale of the Securities of a Series may be applied by the
Depositor to the deposit of a Pre-Funded Amount into a Pre-Funding Account. If a
Pre-Funding Account is provided for, the related Prospectus Supplement will
specify the terms, conditions and manner under which additional Receivables will
be purchased by the Trust from time to time during the Funding Period provided
for therein.
In connection with any transfer of any such Receivables, the Seller
will annotate and indicate in its computer files that such Receivables have been
conveyed to the Trust. In addition, the Seller will provide to the Trustee a
computer file or a microfiche list containing a true and complete list showing
each Account, the Receivables of which have been designated for inclusion in the
Trust, identified by account number, collection status, the amount of
Receivables outstanding and the amount of Principal Receivables as of the
initial Series Cut-Off Date, or additional Cut-Off Date. The Seller will not
deliver to the Trustee any other records or agreements relating to such Accounts
or the Receivables. The records and agreements relating to such Accounts and the
Receivables maintained by the Seller or the Servicer will not be segregated by
the Seller or the Servicer from other documents and agreements relating to other
accounts and receivables and will not be stamped or marked to reflect the
transfer of the Receivables to the Trust. Each Seller will file the UCC
financing statements meeting the requirements of applicable state law with
respect to the Receivables. See "RISK FACTORS -- Certain Legal Aspects --
Transfer of Receivables" and "RISK FACTORS-- Risk of Commingling" and "CERTAIN
LEGAL ASPECTS OF THE RECEIVABLES".
Assignment of CRB Securities; Pre-Funding Account. All or a portion of
the net proceeds received from the sale of the Securities of a Series, the Base
Assets of which consist entirely or in part of CRB Securities, will be applied
to the purchase of the related CRB Securities from the Depositor or other Seller
on the Closing Date and, to the deposit of a Pre-Funded Amount into a
Pre-Funding Account, if and to the extent specified in the related Prospectus
Supplement. If a Pre-Funding Account is provided for, the related Prospectus
Supplement will specify the terms, conditions and manner under which additional
CRB Securities will be purchased by the Trust from time to time during the
Funding Period provided for therein. The Trustee will cause any CRB Securities
purchased by the Trust to be registered in the name of the Trustee (or its
nominee or correspondent) or, where applicable, the Indenture Trustee, and the
Trustee (or its agent or correspondent) or such Indenture Trustee will have
possession of any certificated CRB Securities. The Trustee will not be in
possession of or be assignee of record of any underlying assets for a CRB
Security. See "THE TRUST ASSETS -- CRB Securities".
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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.
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
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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 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
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which amounts released from the Collection Account and any Reserve Account or
other form of Series Enhancement for distribution to such Certificateholders
will be deposited and from which all distributions to such Certificateholders
will be made (the "Certificate Payment Account"). With respect to any Series
that does not include Notes, the Trustee will also establish and maintain the
Collection Account and any other account in the name of the related Trustee on
behalf of the related Certificateholders.
For each Series of Securities, funds in the Collection Account, Note
Payment Account and Certificate Payment Account and any Reserve Account or other
accounts identified as such in the related Prospectus Supplement (collectively,
the "Trust Accounts") will be invested as provided in the related Agreement or
Indenture in Eligible Investments. "Eligible Investments" will generally be
limited to investments acceptable to the Rating Agencies as being consistent
with the rating of the related Securities. Except as described hereafter or in
the related Prospectus Supplement, Eligible Investments will be limited to
obligations or securities that mature on or before the date of the next
scheduled distribution to Securityholders of such Series. However, to the extent
permitted by the Rating Agencies, funds in any Reserve Account may be invested
in securities that will not mature prior to the date of such next scheduled
distribution with respect to such Notes or Certificates and will not be sold
prior to maturity to meet any shortfalls. Thus, the amount of available funds on
deposit in a Reserve Account at any time may be less than the balance of such
Reserve Account. If the amount required to be withdrawn from a Reserve Account
to cover shortfalls in collections with respect to the related Base Assets (as
provided in the related Prospectus Supplement) exceeds the amount of available
funds on deposit in such Reserve Account, a temporary shortfall in the amounts
distributed to the related Noteholders or Certificateholders could result, which
could, in turn, increase the average life of the related Notes or Certificates.
The related Prospectus Supplement may provide that investment earnings on funds
deposited in the Trust Accounts, net of losses and investment expenses
(collectively, "Investment Earnings"), will be treated as collections of
interest on the related Base Assets.
The Trust Accounts will be maintained as Eligible Deposit Accounts.
"Eligible Deposit Account" means either (a) a segregated account with an
Eligible Institution or (b) a segregated trust account with the corporate trust
department of a depository institution organized under the laws of the United
States of America or any one of the states thereof or the District of Columbia
(or any domestic branch of a foreign bank), having corporate trust powers and
acting as trustee for funds deposited in such account, so long as any of the
securities of such depository institution have a credit rating from each Rating
Agency in one of its generic rating categories that signifies investment grade.
"Eligible Institution" means, with respect to a Trust, (a) the corporate trust
department of the related Indenture Trustee or Trustee, as applicable, or (b) a
depository institution organized under the laws of the United States of America
or any one of the states thereof or the District of Columbia (or any domestic
branch of a foreign bank) (i) that has either (A) a long-term unsecured debt
rating acceptable to the Rating Agencies or (B) a short-term unsecured debt
rating or certificate of deposit rating acceptable to the Rating Agencies and
(ii) whose deposits are insured by the FDIC.
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
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Certificates to prepare their tax returns. Information in the Distribution Date
reports and the annual reports provided to the holders will not have been
examined and reported upon by an independent public accountant. However, any
Servicer will provide to the Trustee an annual report by independent public
accountants with respect to the Servicer's servicing of the Receivables. See
"SERVICING OF RECEIVABLES -- Evidence as to Compliance".
Servicer Defaults
With respect to a Series of Receivables Pooling Certificates, "Servicer
Defaults" under the Pooling and Servicing Agreement for such Series generally
include (i) any failure by the Servicer to deposit amounts in the Collection
Account and any Payment Account to enable the Trustee to distribute to
Certificateholders of such Series any required payment, which failure continues
unremedied for five days after the giving of written notice of such failure to
the Servicer by the Trustee for such Series, or to the Servicer and the Trustee
by the holders of the required percentage of any Class of Securities of such
Series specified in the related Prospectus Supplement, (ii) any failure by the
Servicer duly to observe or perform in any material respect any other of its
covenants or agreements in the Pooling and Servicing Agreement which continues
unremedied for 30 days after the giving of written notice of such failure to the
Servicer by the Trustee, or to the Servicer and the Trustee by the holders of
the required percentage of any Class of Securities of such Series, (iii) certain
events of insolvency, readjustment of debt, marshalling of assets and
liabilities or similar proceedings and certain actions by the Servicer
indicating its insolvency, reorganization or inability to pay its obligations
and (iv) certain other events that shall be specified in the related Prospectus
Supplement.
Rights Upon Servicer Defaults
With respect to a Series of Receivables Pooling Certificates, so long
as a Servicer Default remains unremedied under the Pooling and Servicing
Agreement for a Series (and subject to any right of any Indenture Trustee), the
Trustee for such Series or holders of the required percentage of any Class of
Securities specified in the related Prospectus Supplement may terminate all of
the rights and obligations of the Servicer as servicer under the Pooling and
Servicing Agreement in and to the Receivables, whereupon the Trustee will
succeed to all the responsibilities, duties and liabilities of the Servicer
under the Pooling and Servicing Agreement and will be entitled to reasonable
servicing compensation not to exceed the applicable Servicing Fee, together with
other servicing compensation in the form of assumption fees, late payment
charges or as otherwise provided in the Pooling and Servicing Agreement.
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
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obligation to pursue any such remedy or to exercise any of such trusts or powers
unless such Certificateholders have offered the Trustee reasonable security or
indemnity against the costs, expenses and liabilities which may be incurred by
the Trustee therein or thereby. Also, the Trustee may decline to follow any such
direction if the Trustee determines that the action or proceeding so directed
may not lawfully be taken or would involve it in personal liability or be
unjustly prejudicial to the nonassenting Certificateholders.
No Certificateholder of a Series, solely by virtue of such holder's
status as a Certificateholder, will have any right under the Pooling and
Servicing Agreement for such Series to institute any proceeding with respect to
the Pooling and Servicing Agreement, unless such holder previously has given to
the Trustee for such Series written notice of default and unless the holders of
the required percentages of the outstanding Securities specified in the related
Prospectus Supplement have made written request upon the Trustee to institute
such proceeding in its own name as Trustee thereunder and have offered to the
Trustee reasonable indemnity, and the Trustee for 60 days has neglected or
refused to institute any such proceeding.
The Trustee
The identity of the commercial bank, savings and loan association or
trust company named as the Trustee for each Series of Certificates will be set
forth in the related Prospectus Supplement. The entity serving as Trustee may
have normal banking relationships with the Depositor, the Seller or the
Servicer. In addition, for the purpose of meeting the legal requirements of
certain local jurisdictions, the Trustee will have the power to appoint
co-trustees or separate trustees of all or any part of the Trust relating to a
Series of Securities. In the event of such appointment, all rights, powers,
duties and obligations conferred or imposed upon the Trustee by the Agreement
relating to such Series will be conferred or imposed upon the Trustee and each
such separate trustee or co-trustee jointly, or in any jurisdiction in which the
Trustee shall be incompetent or unqualified to perform certain acts, singly upon
such separate trustee or co-trustee who shall exercise and perform such rights,
powers, 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
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of any of its duties under an Agreement, or in the exercise of any of its rights
or powers, if it has reasonable grounds for believing that repayment of such
funds or adequate indemnity against such risk or liability is not reasonably
assured to it.
Replacement of the Trustee
The Trustee may, upon written notice to the Depositor, resign at any
time, in which event the Depositor will be obligated to use its best efforts to
appoint a successor Trustee. If no successor Trustee has been appointed and has
accepted the appointment within 30 days after giving such notice of resignation,
the resigning Trustee may petition any court of competent jurisdiction for
appointment of a successor Trustee. The Trustee may also be removed at any time
(i) by the Depositor, if the Trustee ceases to be eligible to continue as such
under the related Agreement, (ii) if the Trustee becomes insolvent or (iii) by
the holders of the required percentages of the outstanding Securities specified
in the related Prospectus Supplement upon 30 days' advance written notice to the
Trustee and to the Depositor. Any resignation or removal of the Trustee and
appointment of a successor Trustee will not become effective until acceptance of
the appointment by the successor Trustee.
Amendment of the Agreement
The Agreement for each Series of Securities may be amended by the
Depositor and the related Trustee, and where applicable the Seller and the
Servicer, without notice to or consent of the Securityholders (i) to cure any
ambiguity, (ii) to correct any defective provisions or to correct or supplement
any provision therein which may be inconsistent with any other provision
therein, (iii) to add to the duties of the Depositor, Seller or Servicer, (iv)
to add any other provisions with respect to matters or questions arising under
such Agreement or related Series Enhancement, (v) to add or amend any provisions
of such Agreement as required by a Rating Agency in order to maintain or improve
the rating of any Class of the Securities, (vi) to comply with any requirements
imposed by the Code or (vii) to make such other amendments as are specified in
the related Prospectus Supplement; provided that any such amendment pursuant to
clause (iv) or (vii) above will not adversely affect in any material respect the
interests of any Securityholders of such Series, as evidenced by an opinion of
counsel. Any such amendment except pursuant to clause (vi) of the preceding
sentence shall be deemed not to adversely affect in any material respect the
interests of any Securityholder if the Trustee receives written confirmation
from each Rating Agency rating such Securities that such amendment will not
cause such Rating Agency to reduce the then current rating thereof. The
Agreement for each Series may also be amended by the Depositor and the Trustee,
and where applicable the Seller and the Servicer, with the consent of the
holders of the required percentages of the outstanding Securities of each Series
affected thereby specified in the related Prospectus Supplement, for the purpose
of adding any provisions to or changing in any manner or eliminating any of the
provisions of such Agreement or modifying in any manner the rights of
Securityholders of such Series; provided, however, that no such amendment may
(a) reduce the amount or delay the timing of payments on any Security without
the consent of the holder of such Security; or (b) reduce the aforesaid
percentage of aggregate outstanding principal amount of Securities of each
Class, the holders of which are required to consent to any such amendment.
List of Certificateholders
Upon written request of three or more Certificateholders of record of a
Series for purposes of communicating with other Certificateholders with respect
to their rights under the Agreement or under the Certificates for such Series,
which request is accompanied by a copy of the communication which
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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".
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
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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 statements covering the Receivables will be filed with the
appropriate governmental authority to protect the interest of the Depositor in
the Trust.
There are certain limited circumstances under the UCC in which a prior
or subsequent transferee of Receivables coming into existence after the date on
which such Receivables are transferred to the Trust could have an interest in
such Receivables with priority over the Trust's interest. Under the Pooling and
Servicing Agreement, however, the Seller and/or the Depositor will warrant that
the Receivables have been transferred to the Trust free and clear of the lien of
any third party, except for certain tax and other governmental liens. In
addition, the Seller and the Depositor will each covenant that, except as
permitted by the Pooling and Servicing Agreement, it will not sell, pledge,
assign, transfer or grant any lien on any Receivables (or any interest therein)
other than to the Trust. A tax or other government lien on property of the
Seller or the Depositor arising prior to the time a Receivables comes into
existence may also have priority over the interest of the Trust in such
Receivables. In addition, if a Seller is a Bank, if the FDIC were appointed as
receiver of the Bank, certain administrative expenses of the receiver may also
have priority over the interest of the Trust in such Receivables.
A case recently decided by the United States Court of Appeals for the
Tenth Circuit contains language to the effect that accounts sold by an entity
which subsequently became bankrupt remained property of the debtor's bankruptcy
estate. If a Seller were to become a debtor under the federal bankruptcy code
and a court were to follow the reasoning of the Tenth Circuit, Securityholders
could experience a delay or reduction in distributions.
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Certain Matters Relating to Receivership
It is likely that the Sellers of Receivables to a Trust or the sellers
of Receivables to CRB Trusts will be banking institutions. FIRREA, which became
effective August 9, 1989, sets forth certain powers that the FDIC could exercise
if it were appointed as receiver of a Seller which is a national bank.
Subject to clarification by FDIC regulations or interpretations, it
would appear from the positions taken by the FDIC before the passage of FIRREA
that the FDIC in its capacity as receiver for a Seller would not interfere with
the timely transfer to the Trust or to a CRB Trust of payments collected on the
Receivables or interfere with the timely liquidation of Receivables as described
below. To the extent that a Seller granted a security interest in the
Receivables to the related Trust (or granted such a security interest to the
Depositor which was then assigned the related Trust) or to a CRB Trust, and that
interest was validly perfected before the Seller's insolvency and was not taken
or granted in contemplation of insolvency or with the intent to hinder, delay or
defraud the Seller or its creditors, that security interest should not be
subject to avoidance, and payments to the Trust or to a CRB Trust with respect
to Receivables should not be subject to recovery by the FDIC as receiver of the
Seller. If, however, the FDIC were to assert a contrary position, or were to
require the related Trustee or CRB Trustee to establish its right to those
payments by submitting to and completing the administrative claims procedure
established under FIRREA, delays in payments on the Securities of any Series
relating to such Seller (or delays in payments on CRB Securities relating to a
similarly insolvent seller) outstanding at such time and possible reductions in
the amount of those payments could occur.
Each Pooling and Servicing Agreement and Receivables Purchase Agreement
as to which a banking institution is the Seller will provide that, upon the
appointment of a receiver for the Seller, the Seller will promptly give notice
thereof to the Depositor, and a Pay Out Event will occur. Under the Pooling and
Servicing Agreement, no new Principal Receivables will be transferred to the
Trust and, unless otherwise instructed within a specified period by the holders
of the required percentages of outstanding Securities specified in the related
Prospectus Supplement or unless otherwise prohibited by law, the Trustee will
proceed to sell, dispose of or otherwise liquidate the Receivables in a
commercially reasonable manner and on commercially reasonable terms. The
proceeds from the sale of the Receivables would then be treated by the Trustee
as collections on the Receivables. This procedure could by delayed as described
above. The net proceeds of any such sale will first be treated by the Trustee as
collections on the Finance Charge Receivables, if any. Upon the occurrence of a
Pay Out Event, if a conservator or receiver is appointed for the Seller or the
Depositor and no Pay Out Event other than such conservatorship or receivership
or insolvency of the Seller or the Depositor exists, the conservator or receiver
may have the power to prevent the early sale, liquidation or disposition of the
Receivables and the commencement of a Rapid Amortization Period with respect to
any outstanding Series. In addition, a conservator or receiver for the Seller or
the Depositor may have the power to cause early payment of the Certificates.
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,
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Equal Credit Opportunity Act, Fair Credit Reporting Act, Electronic Funds
Transfer Act and, to the extent that the Seller is a national banking
association, the National Bank Act, as well as the banking statutes of the state
in which the bank is located, and comparable statutes in the states in which
cardholders reside. These statutes impose disclosure requirements when an
account is advertised, when it is opened, at the end of monthly billing cycles,
upon account renewal for accounts on which annual fees are assessed, and at year
end and, in addition, limit cardholder liability for unauthorized use, prohibit
certain discriminatory practices in extending credit, and impose certain
limitations on the type of account-related charges that may be assessed. Newly
adopted Federal legislation requires card issuers to disclose to consumers the
interest rates, annual cardholder fees, grace periods, and balance calculation
methods associated with their accounts. Cardholders are entitled under current
law to have payments and credits applied to the account promptly, to receive
prescribed notices and to have billing errors resolved promptly.
Various proposed laws and amendments to existing laws have been
introduced in Congress and certain state and local legislatures that, if
enacted, would further regulate the credit card industry. Certain such laws
would, among other things, impose a ceiling on the rate at which a financial
institution may assess finance charges on credit card accounts that would be
substantially below the rates of the finance charges currently assessed by most
Sellers on their accounts. A proposed bill of this nature was defeated in the
United States House of Representatives in 1987, and on November 14, 1991, the
United States Senate approved by a vote of 74 to 19 a measure which could have
established, if it were enacted as law, a ceiling on credit card interest rates
of 4% above the rate that the IRS charges on the underpayment of taxes. Such a
law would, in effect, reduce all interest rates on credit cards to 14% per annum
until the IRS calculates the new rate, which is currently done on a quarterly
basis. Although this proposed legislation was not passed by Congress, the issue
of federal regulation of interest rates on credit cards continues to be debated,
and there can be no assurance that such a bill will not become law in the
future. The potential effect of any legislation which limits the amount of
finance charges that may be charged on credit cards could be to reduce the Net
Portfolio Yield of each Series. If such Net Portfolio Yield of a Series is
reduced, a Pay Out Event for such Series may occur, and the Rapid Amortization
Period for such Series would commence.
Since October 1991, a number of lawsuits and administrative actions
have been filed in several states against out-of-state banks (both federally
insured state-chartered banks and federally insured national banks) which issue
cards. These actions challenge various fees and charges (such as late fees,
overlimit fees, returned payment check fees and annual membership fees) assessed
against 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
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charge New Jersey cardholders certain late payment fees, notwithstanding the
fact that the state in which the bank is located permits such late payment fees,
because late payment fees are not defined as interest within the meaning of the
National Bank Act and because New Jersey state law forbade the charging of such
late payment fees. On June 3, 1996, the U.S. Supreme Court upheld regulations
issued by the U.S. Comptroller of the Currency that characterize late fees as
interest and that therefore entitle a national bank to charge late fees if the
state in which such national bank is located allows such late fees. Although the
U.S. Supreme Court resolved certain conflicts of interpretation among the
states, such actions and similar actions which may be brought in other states as
a result of such actions, if resolved adversely to card issuers, could have the
effect of limiting certain charges, other than periodic finance charges, that
could be assessed on accounts of residents of such states and could require card
issuers to pay refunds and civil penalties with respect to charges previously
imposed on cardholders in such states.
The Trust may be liable for certain violations of consumer protection
laws that apply to the Receivables, either as assignee of the Seller with
respect to obligations arising before transfer of the Receivables to the Trust
or as a party directly responsible for obligations arising after the transfer.
In addition, a cardholder may be entitled to assert such violations by way of
set-off against his obligation to pay the amount of Receivables owing. Each
Seller will covenant in the Agreement to accept the retransfer of all
Receivables in an Account if any Receivable in such Account has not been created
in compliance with the requirements of such laws.
Application of Federal and state bankruptcy and debtor relief laws
would adversely affect the interests of the Certificateholders if such laws
result in any Receivables being written off as uncollectible.
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 Credit Suisse First Boston, Inc. Neither Credit
Suisse First Boston, Inc., nor any of its 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 related Trust on the Closing Date or to establish a
Pre-Funding Account for such Series, (iv) to establish any Reserve Account or
Cash Collateral Accounts described in the related Prospectus Supplement or (v)
to pay costs of structuring and issuing such Securities. If so specified in the
related Prospectus Supplement, the purchase of the Base Assets for a Series may
be effected in whole or in part by an exchange of Securities with the Seller of
such Base Assets.
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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. Stroock & Stroock & Lavan LLP, New York, New York or
such other counsel specified in the related Prospectus Supplement ("Federal Tax
Counsel"), will deliver 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 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 Federal Tax Counsel'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 Federal Tax Counsel regarding certain federal income tax
matters. An opinion of Federal Tax Counsel, however, is not binding on the IRS
or the courts. No ruling on any of the issues discussed below will be sought
from the IRS. For purposes of the following summary, references to the Trust,
the Notes, the Certificates and related terms, parties and documents shall be
deemed to refer, unless otherwise specified herein, to each Trust and the Notes,
Certificates and related terms, parties and documents applicable to such Trust.
OWNER TRUSTS
TAX CHARACTERIZATION OF THE OWNER TRUSTS
In the case of an Owner Trust, Federal Tax Counsel will deliver its
opinion that the Trust will not be an association (or publicly traded
partnership) taxable as a corporation for federal income tax purposes. The
opinion of Federal Tax Counsel will be based on the assumption that the terms of
the Trust Agreement and related documents will be complied with, and on such
counsel's conclusions that the nature of the income of the Trust, or the
restrictions (if any) on transfers of the Certificates, will exempt the Trust
from the rule that certain publicly traded partnerships are taxable as
corporations.
If an Owner Trust were taxable as a corporation for federal income tax
purposes, the Owner Trust would be subject to corporate income tax on its
taxable income. The Trust's taxable income would include all of its income on
the related Base Assets, which might be reduced by its interest expense on the
Notes. Any such corporate income tax could materially reduce cash available to
make payments on the Notes and distributions on the Certificates, and
Certificate Owners (and possibly Note Owners) could be liable for any such tax
that is unpaid by the Trust.
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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 treated as a
publicly traded partnership that would be taxable as a corporation unless it met
certain qualifying income tests (and the resulting taxable corporation would not
be able to reduce its taxable income by deductions for interest expense on Notes
recharacterized as equity). 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 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.
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 under Sections 1271-1275 of the Code (the "OID Regulations"),
interest is considered unconditionally payable only if late payment or
nonpayment is remote or reasonable remedies exist to compel payment. If stated
interest is payable at a variable rate other than in accordance with the
foregoing, the interest will not be treated as "qualified stated interest", and
it is unclear whether such payments must be treated as part of a Note's "stated
redemption price at maturity" (as described below) and governed by the rules
described below under "--Original Issue Discount" or, alternatively, must be
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taxed as contingent interest under (or under rules similar to) the 1996
Contingent Debt Regulations, or in some other manner.
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 0.65 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 less than or equal to 0.65, however, such
rate will generally constitute an objective rate, described more fully below.
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 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 inversely reflect 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 (or under rules similar
to) the 1996 Contingent Debt Regulations, or some other manner.
Original Issue Discount. Notes may be issued with "original issue
discount". Rules governing original issue discount are set forth in Sections
1271-1275 of the Code and the OID Regulations. The discussion herein is based in
part on the OID Regulations. 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 (as specially defined for tax purposes). Because of the possibility
of prepayments, it is not clear how the de minimis rules will apply to the
Notes. It is likely 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, a 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 "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
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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 or qualified
inverse floating rate, equals the value of such qualified floating rate as or
qualified inverse floating rate as of the issue date of the Note, or, in the
case of an objective rate other than a qualified floating rate, at a fixed rate
that reflects the yield that is reasonably expected for the Note. A holder of
such a Note would then recognize original issue discount during each accrual
period which is calculated based upon such Note's assumed yield to maturity. If
the interest actually accrued or paid during an accrual period exceeds (or is
less than) the constant interest assumed to be accrued or paid during the
accrual period under the foregoing rules, qualified stated interest or original
issue discount allocable to an accrual period is increased (or decreased) under
rules set forth in the OID Regulations.
The Depositor believes that the owner of a Note determined to be issued
with original issue discount will be required to include the original issue
discount in ordinary gross income for federal income tax purposes computed in
the manner described above. However, the OID Regulations either do not address
or are subject to varying interpretations with respect to several issues
concerning the computation of original issue discount for obligations such as
the Notes.
Market Discount. Notes, whether or not issued with original issue
discount, will be subject to the market discount rules of the Code. A purchaser
of a Note who purchases the Note at a price that is less than the Note's "stated
redemption price at maturity" or, in the case of a Note issued with original
issue discount, at a price that is less than the Note's "adjusted issue price"
(as such terms are described above under "--Original Issue Discount") will be
required to recognize accrued market discount as ordinary income as payments of
principal are received on such Note or upon the sale or exchange of the Note. In
general, the holder of a Note may elect to treat market discount as accruing
either (i) under a constant yield method that is similar to the method for the
accrual of original issue discount or (ii) in proportion to accruals of original
issue discount (or, if there is no original issue discount, in proportion to
accruals of stated interest), in each case computed taking into account the
Prepayment Assumption. The amount of accrued market discount for purposes of
determining the amount of ordinary income to be recognized
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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
its weighted average remaining life as computed for tax purposes. 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 is
made.
The Code grants authority to the Treasury Department to issue
regulations providing for the computation of accrued market discount on debt
instruments, such as 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 under Code Section 171 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. Although there are Treasury
regulations dealing with amortizable bond premiums, they specifically do not
apply to prepayable debt instruments subject to Section 1272(a)(6), such as the
Notes. However, by analogy to such regulations, any premium in excess of
interest income may be deductible to the extent of prior accruals of interest.
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.
Election to Treat All Interest as Original Issue 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. See "--Market Discount" above. 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 at
the beginning of the first taxable year to which the election applies or
acquires thereafter. See "-- Amortizable Premium", above. The election to accrue
interest, discount and premium on a constant yield method with respect to a Note
is irrevocable.
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Gain or Loss on Disposition. If a Note is sold, the selling Note Owner
will recognize gain or loss equal to the difference between the amount realized
from the sale and the selling Note Owner's adjusted basis in such Note. The
adjusted basis generally will equal the cost of such Note to the seller,
increased by any original issue discount and market discount on such Note
included in the seller's income, and reduced (but not below zero) by any
payments on the Note other than qualified stated interest and reduced further by
any amortizable premium. Except as discussed above with respect to market
discount, any gain or loss recognized upon a sale, exchange, retirement, or
other disposition of a Note will be capital gain or loss if the Note is held as
a capital asset and as long-term capital gain or loss if the Note Owner's
holding period exceeded one year. 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 Person other than a "United States Person" A
"United States Person" is an individual who is a citizen or resident of the
United States, a corporation, partnership or other entity treated as such
created or organized in or under the laws of the United States or any political
subdivision thereof, an estate the income of which is subject to United States
federal income taxation regardless of its source and any trust with respect to
which (i) a court within of the United States is able to exercise primary
supervision over the administration of the trust and (ii) one or more United
States persons have the authority to control all
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substantial decisions of the 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 Holders. The 1997 Withholding Regulations are generally effective for
payments after December 31, 1999, 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 by 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. 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 an 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 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)
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with restated forms and standardize the period of time for which withholding
agents can 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 such
individual has a "tax home" (as defined in Section 911(d)(3) of the Code) 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.
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
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recipients, such as corporations (within the meaning of Section 7701(a) of the
Code) and tax-exempt organizations.
In the case of a Non-United States Holder, under Treasury Regulations,
backup withholding and information reporting will not apply to payments of
principal and interest made by the Trust or any paying agent thereof on a Note
with respect to which such holder has provided the required certification under
penalties of perjury that it is a Non-United States Holder or has otherwise
established an exemption, provided that (i) the Trust or paying agent, as the
case may be, does not have actual knowledge that the payee is a United States
person and (ii) certain other conditions are satisfied.
Subject to the discussion below, payments to or through the United
States office of a broker will be subject to backup withholding and information
reporting unless the holder certifies under penalties of perjury as to its
status as a Non-United States Holder and certain other qualifications (and no
agent of the broker who is responsible for receiving or reviewing such statement
has actual knowledge that it is incorrect) and provides his or her name and
address or the holder otherwise establishes an exemption.
In general, if principal or interest payments on a Note are collected
outside the United States by a foreign office of a custodian, nominee or other
agent acting on behalf of a Note Owner, such custodian, nominee or other agent
will not be required to apply backup withholding to such payments made to such
owner and will not be subject to information reporting. However, if such
custodian, nominee or other agent is a United States Person for United States
federal income tax purposes, a controlled foreign corporation for United States
tax purposes, or a foreign person 50% or more of whose gross income is
effectively connected with its conduct of a United States trade or business for
a specified three-year period, such custodian, nominee or other agent may be
subject to certain information reporting (but not backup withholding)
requirements with respect to such payment unless such custodian, nominee or
other agent has in its records documentary evidence that the Note Owner is not a
United States person and certain conditions are met or the Note Owner otherwise
establishes an exemption.
Under 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.
The 1997 Withholding Regulations alter the forgoing rules in certain
respects. In particular, the 1997 Withholding Regulations will 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.
Note Owners should consult their tax advisors regarding the application
of information reporting and backup withholding to their particular situations,
the availability of an exemption therefrom, and the procedure for obtaining such
an exemption, if available.
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TAX CONSEQUENCES TO CERTIFICATE OWNERS
Treatment of the Trust as a Partnership. The Trust will agree, and the
related Certificate Owners will agree by their purchase of Certificates, to
treat the Trust as a partnership for purposes of federal and state income tax,
franchise tax and any other tax measured in whole or in part by income, with the
assets of the partnership being the assets held by the Trust, the partners of
the partnership being the Certificate Owners (including, to the extent relevant,
the Seller or the Depositor in its capacity as recipient of distributions from
any reserve fund), and the Notes being debt of the partnership. However, the
proper characterization of the arrangement involving the Trust, the
Certificates, the Notes, the Seller, the Depositor and the Servicer is not
certain because there is no authority on transactions closely comparable to that
contemplated herein. A variety of alternative characterizations are possible.
For example, to the extent the Certificates have certain features characteristic
of debt, the Certificates might be considered debt of the Seller, the Depositor
or the Trust. As long as such characterization did not result in the Trust being
subject to tax as a corporation, any such characterization is not expected to
result in materially adverse tax consequences to Certificate Owners as compared
to the consequences from treatment of the Certificates as equity in a
partnership, described below.
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. 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.
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The tax items of a partnership are allocable to the partners in
accordance with the Code, Treasury regulations and the partnership agreement
(i.e., the Trust Agreement and related documents). The Trust Agreement is
expected to provide, in general, that the Certificate Owners will be allocated
taxable income of the Trust for each month equal to the sum of: (i) the interest
or other income that accrues on the Certificates in accordance with their terms
for such month including, as applicable, interest accruing at the related
Certificate Interest Rate for such month and interest on amounts previously due
on the Certificates but not yet distributed; (ii) any Trust income attributable
to discount on the related Base Assets that corresponds to any excess of the
principal amount of the Certificates over their initial issue price; (iii) any
prepayment premium payable to the Certificate Owners for such month; and (iv)
any other amounts of income payable to the Certificate Owners for such month.
Such allocation will be reduced by any amortization by the Trust of premium on
Base Assets that corresponds to any excess of the issue price of Certificates
over their principal amount. Losses will generally be allocated in the manner in
which they are borne.
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 ($100,000 (or $50,000 in the
case of a separate return by a married individual), adjusted for changes in the
cost of living subsequent to 1990) will be reduced by the lesser of (i) 3% 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. For taxable years beginning after December
31, 1997 in the case of a partnership that has 100 or more partners and elects
to be treated as an "electing large partnership," 70% of such partnership
miscellaneous itemized deductions will be disallowed, although the remaining
deductions will generally be allowed at the partnership level and will not be
subject to the 2% floor that would otherwise be applicable to individual
partners.
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The Trust intends to make all tax calculations relating to income and
allocations to Certificate Owners on an aggregate basis. If the IRS were to
require that such calculations be made separately for each Base Asset, such
calculations may result in certain timing and character differences under
certain circumstances.
Discount and Premium. The purchase price paid by the Trust for the
related Base Assets may be greater or less than the remaining principal balance
of the Base Assets at the time of purchase. If so, the Base Assets will have
been acquired at a premium or market discount, as the case may be. See "Tax
Consequences to Note Owners--Market Discount" and "--Amortizable Premium" above.
(As indicated above, the Trust will make this calculation on an aggregate basis,
but it is possible that the IRS might require that it be recomputed on a Base
Asset-by-Base Asset basis.)
If the Trust acquires the Base Assets at a market discount or premium,
the Trust will elect to include any such discount in income currently as it
accrues over the life of the Base Assets or to offset any such premium against
interest income on the Base Assets. As indicated above, a portion of such market
discount income or premium deduction may be allocated to Certificate Owners.
Section 708 Termination. Under Section 708 of the Code, the Trust will
be deemed to terminate for federal income tax purposes if 50% or more of the
capital and profits interests in the Trust are sold or exchanged within a
12-month period. If such a termination occurs, the Trust will be considered to
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.
Any such gain or loss would be long-term capital gain or loss if the Certificate
Owner's holding period exceeded one year. 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 or losses allocated
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
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among the Certificate Owners based on the principal amount of Certificates owned
by them as of the close of the last day of such month. As a result, a
Certificate Owner purchasing Certificates may be allocated tax items (which will
affect the purchaser's tax liability and tax basis) attributable to periods
before the actual transaction.
The use of such a monthly convention may not be permitted by existing
Treasury Regulations. If a monthly convention is not allowed (or only applies to
transfers of less than all of the partner's interest), taxable income or losses
of the Trust might be reallocated among the Certificate Owners. The Seller will
be authorized to revise the Trust's method of allocation between transferors and
transferees.
Section 754 Election. In the event that a Certificate Owner sells its
Certificates at a profit (loss), the purchasing Certificate Owner will have a
higher (lower) basis in the Certificates than the selling Certificate Owner had.
The tax basis of the Trust's assets will not be adjusted to reflect that higher
(or lower) basis unless the Trust were to file an election under Section 754 of
the Code. In order to avoid the administrative complexities that would be
involved in keeping accurate accounting records, as well as potentially onerous
information reporting requirements, the Trust will not make such election. As a
result, Certificate Owners might be allocated a greater or lesser amount of
Trust income than would be appropriate based on their own purchase price for
Certificates.
Administrative Matters. The Trustee is required to keep complete and
accurate books of the Trust. Such books will be maintained for financial
reporting and tax purposes on an accrual basis, and the fiscal year of the Trust
will be the calendar year. The Trustee will file a partnership information
return (IRS Form 1065) with the IRS for each taxable year of the Trust and will
report each Certificate Owner's allocable share of items of Trust income and
expense to Certificate 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 timely file tax returns that
are consistent with the information return filed by the Trust or be subject to
penalties unless the holder timely 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 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.
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 certain disputes with the IRS. The Code provides for
administrative examination of a partnership as if the partnership were a
separate and distinct
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taxpayer. Generally, the statute of limitations for partnership items does not
expire before the later of three years after the date on which the partnership
information return is filed or the last day for filing such return for such year
(determined without regard to extension). 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 in order to assure
appropriate crediting of the taxes withheld. Assuming that the Trust is
determined not to be engaged in a U.S. trade or business, a Non-United States
Owner might be entitled to a refund with respect to all or a portion of taxes
withheld by the Trust if, in particular, such Owner's allocable share of
interest from the Trust constituted "portfolio interest" under the Code.
Such interest, however, may not constitute "portfolio interest" if,
among other reasons, the underlying obligation is not in registered form or if
the interest is determined without regard to the income of the Trust (in the
later case, such interest being properly characterized as a guaranteed payment
under Section 707(c) of the Code). If this were the case, Non-United States
Owners would be subject to a United States federal income and withholding tax at
a rate of 30 percent on the Trust's gross income (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
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would only be entitled to a refund for that portion of the taxes, if any, 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.
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 (other than interest) 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 ($100,000 (or $50,000 in the case of a separate return by a married
individual), adjusted for changes in the cost of living subsequent to 1990 will
be reduced by the lesser of (i) 3% 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. For taxable years beginning after
December 31, 1997, in the case of a
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partnership that has 100 or more partners and elects to be treated as an
"electing large partnership," 70% of such partnership miscellaneous itemized
deductions will be disallowed, although the remaining deductions will generally
be allowed at the partnership level and will not be subject to the 2% floor that
would otherwise be applicable to individual partners.
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 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.
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
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applicable to premium, see "Owner Trusts -- Tax Consequences to Note Owners --
Amortizable Premium" above.
Stripped Certificates. Certain classes of Certificates may be subject
to the stripped bond rules of Section 1286 of the Code and for purposes of this
discussion will be referred to as "Stripped Certificates". In general, a
Stripped Certificate will be subject to the stripped bond rules where there has
been a separation of ownership of the right to receive some or all of the
principal payments on a Base Asset from ownership of the right to receive some
or all of the related interest payments. In general, where such separation has
occurred, under the stripped bond rules of Section 1286 of the Code the holder
of a right to receive a principal or interest payment on the Base Asset is
required to accrue into income, on a constant yield basis under rules governing
original issue discount (see "Owner Trust--Tax Consequences to Note
Owners--Original Issue Discount"), the difference between the holder's initial
purchase price for such right and the principal or interest payment to be
received with respect to such right.
Certificates will constitute Stripped Certificates and will be subject
to these rules under various circumstances, including the following: (i) if any
servicing compensation is deemed to exceed a reasonable amount (see "--Taxation
of Grantor Trust Certificateholders--General", above); (ii) if the Company or
any other party retains a retained yield with respect to the Base Assets held by
the Trust; (iii) if two or more classes of Certificates are issued representing
the right to non-pro rata percentages of the interest or principal payments on
the Base Assets; or (iv) if Certificates are issued which represent the right to
interest-only payments or principal-only payments.
The tax treatment of the Stripped Certificates with respect to the
application of the original issue discount provisions of the Code is currently
unclear. However, the Trustee intends to treat each Stripped Certificate as a
single debt instrument issued on the day it is purchased for purposes of
calculating any original issue discount. Original issue discount with respect to
a Stripped Certificate must be included in ordinary gross income for federal
income tax purposes as it accrues in accordance with the constant yield method
that takes into account the compounding of interest and such accrual of income
may be in advance of the receipt of any cash attributable to such income. See
"Owner Trust--Tax Consequences to Note Owners--Original Issue Discount" above.
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.
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 Grantor Trust Certificateholders would deemed to have
acquired the following assets: (i) the principal portion of each Base Asset plus
a portion of the interest due on each Base Asset (the "Trust Stripped Bond"),
and (ii) a portion of the interest due on each Base Asset equal to the
difference between the Certificate Interest Rate on the Subordinate Certificates
and the Certificate Interest Rate on the Senior Certificates, if any, which
difference is then multiplied by the Subordinate Class Percentage (the "Trust
Stripped Coupon"). The "Subordinate Class Percentage" equals the initial
aggregate principal amount of the Subordinate Certificates divided by the sum of
the initial aggregate principal amount of the Subordinate Certificates and the
Senior Certificates. The "Senior Class Percentage" equals the initial aggregate
principal amount
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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 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
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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. See
"--Market Discount" above. 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 at the beginning of
the first taxable year to which the election applies or acquires thereafter. 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 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.
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
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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, any 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.
If interest or gain is effectively connected to the conduct of a trade or
business within the United States by such Owner, such owner will be subject to
United States federal income tax thereon at graduated rates and, in the case of
a corporation, to a possible branch profits tax, and will not be subject to
withholding tax provided that the owner meets applicable documentation
requirements. Potential investors who are not United States persons should
consult their own tax advisors regarding the specific tax consequences of owning
a Certificate.
On 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, 1999, 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
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a transaction, the Seller is expected to treat the Agreement for financial
accounting purposes as a transfer of an ownership interest in the Base Assets
and not as creating a debt obligation of the Depositor (or the Seller).
The economic substance of a transaction generally determines its
federal income tax consequences and the form of a transaction, while a relevant
factor, is generally not conclusive evidence of its economic substance. In
appropriate circumstances the courts have allowed taxpayers, as well as the IRS,
to treat a transaction in accordance with its economic substance,
notwithstanding that participants characterized the transaction differently for
nontax purposes. In some instances, however, courts have held that a taxpayer is
bound by the particular form it has chosen for a transaction, even if the
substance of the transaction does not accord with its form. Based on the advice
of Federal Tax Counsel, the Depositor and the Seller believe that the rationale
of those cases will not apply to this transaction.
The determination of whether the economic substance of a transfer of an
interest in property is a sale or a loan secured by the transferred property
depends on numerous factors that indicate whether the transferor has
relinquished (and the transferee has obtained) substantial incidents of
ownership in the property. Among the primary factors considered are whether the
transferee has obtained the opportunity for gain if the property increases in
value, has assumed the risk of loss if the property decreases in value and, in
the case of accounts receivable such as the Base Assets, whether the transferee,
at the time of transfer, has a fixed interest in the proceeds of the receivable
when collected. Federal Tax Counsel will consider such factors in rendering its
opinion that the Certificates 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". Interest is considered
unconditionally payable only if reasonable legal remedies exist to compel timely
payment or the debt instrument otherwise contains terms and conditions that make
the likelihood of late payment a remote contingency. See "Owner Trusts - Tax
Consequences to Note Owners - Original Issue Discount" above.
Market Discount and Premium. A Certificate Owner who purchases a
Certificate at a market discount may be subject to the "market discount" rules
of the Code. These rules provide, in part, for the treatment of gain
attributable to accrued market discount as ordinary income upon the receipt of
partial
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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 or as a
publicly traded partnership taxable as a corporation.
If the Certificates were treated as interests in a partnership, the
partnership would probably be treated as a "publicly traded partnership." A
publicly traded partnership is taxed in the same manner as a corporation unless
at least 90% of its gross income consists of specified types of "qualifying
income." Such qualifying income includes, among other things, "interest" that is
not "derived in the conduct of a financial or insurance business." If a deemed
partnership between the Depositor (or the Seller) and the Certificate Owners
were to qualify for the foregoing exception from taxation as a corporation, the
deemed partnership would not be subject to federal income tax but each item of
income, gain, loss, and deduction generated as a result of the ownership of the
Base Assets by the partnership would be passed through to the Depositor (or the
Seller) and the Certificate Owners as partners in such a partnership according
to their respective interests therein.
The income reportable by the Certificate Owners as partners could
differ from the income reportable by the Certificate Owners as holders of debt
obligations of the Depositor (or the Seller). For example, a cash basis
Certificate Owner might be required to report income when it accrued to the
partnership rather than when it is received by the Certificate Owner. Moreover,
an individual's share of expenses of the partnership would be miscellaneous
itemized deductions that, in the aggregate, are
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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 a "publicly traded partnership" taxable as a corporation, the
resulting entity would 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.
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
Taxation of Certain Foreign Note Owners. As used herein, the term "Non-
United States Person" means any Person other than a "United States Person." A
"United States Person" is an individual who is a citizen or resident of the
United States, a corporation, partnership or other entity treated as such
created or organized in or under the laws of the United States or any political
subdivision thereof, an estate of income of which is subject to United States
federal income taxation regardless of its source and any trust with respect to
which (i) a court within of de United States is able to exercise primary
supervision over the administration of the trust and (ii) one or more United
States persons have the authority to control all substantial decisions of the
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 Holders. The 1997 Withholding Regulations are generally proposed to be
effective for payments after December 31, 1999, 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
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controlled foreign corporation related, directly or indirectly, to the Depositor
(or the Seller) through equity ownership, (iii) such Investor is not a bank
receiving interest described in Section 881(c)(3)(A) of the Code and (iv) either
(A) the Foreign Investor certifies, under penalties of perjury, to the Depositor
(or the Seller) or paying agent, as the case may be, that such Investor is a
Foreign Investor and provides such Investor's name and address, or (B) a
securities clearing organization, bank or other financial institution that holds
customers' securities in the ordinary course of its trade or business (a
"financial institution") and holds the Certificate, certifies, under penalties
of perjury, to the Trust or paying agent, as the case may be, that such
Certificate has been received from the beneficial owner by it or by a financial
institution between it and the beneficial owner and furnishes the payor with a
copy thereof. A certificate described in this paragraph is effective only with
respect to payments of interest (including original issue discount) made to the
certifying Foreign Investor after the issuance of the certificate in the
calendar year of its issuance and the two immediately succeeding calendar years.
Under temporary Treasury Regulations, the forgoing certification may be provided
by the beneficial owner of a Note on IRS Form W-8.
The 1997 Withholding Regulations provide optional documentation
procedures designed to simplify compliance by withholding agents. The 1997
Withholding Regulations 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
restated forms and standardize the period of time for which withholding agents
can 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
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same manner as if it were a United States person (as defined below). In lieu of
the certificate described above, such Investor will be required to provide a
properly executed IRS Form 4224 annually in order to claim an exemption from
withholding tax. In addition, if such Investor is a foreign corporation, it may
be subject to a branch profits tax equal to 30% (or such lower rate as may be
specified by an applicable treaty) of its effectively connected earnings and
profits for the taxable year, subject to adjustments. For this purpose, interest
(including original issue discount) on a Certificate will be included in the
earnings and profits of such Investor if such interest (including original issue
discount) is effectively connected with the conduct by such Investor of a trade
or business in the United States.
Generally, any gain or income (other than that attributable to accrued
interest or original issue discount) realized upon the sale, exchange,
retirement or other disposition of a Certificate will not be subject to United
States federal income tax unless (i) such gain or income is effectively
connected with a trade or business in the United States of the Foreign Investor
or (ii) in the case of a Foreign Investor who is a nonresident alien individual,
the Foreign Investor is present in the United States for 183 days or more in the
taxable year of such sale, exchange, retirement or other disposition such
individual has a "tax home" (as defined in Section 911(d)(3) of the Code) 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 "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, a Certificate Owner that is a nonresident alien, foreign
corporation, foreign partnership or foreign estate or trust might be subject to
federal income tax on any gain from the sale of the Certificates.
BACKUP WITHHOLDING
Distributions made on the Certificates and proceeds from the sale of
such Certificates will be subject to a "backup" withholding tax of 31% if, in
general, the Certificate Owners fails to comply with certain identification
procedures, unless such Owner is an exempt recipient under applicable provisions
of the Code.
The 1997 Withholding Regulations alter the forgoing rules in certain
respects. In particular, the 1997 Withholding Regulations provide certain
presumptions under which Non-United 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
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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 exemptions from state and local income taxes.
If some or all of the Securities are treated as equity interests in a
partnership (not treated as a publicly traded partnership taxable as a
corporation) for federal income tax purposes, such Securities generally should
be treated as partnership interests for state and local income tax purposes. In
such case, the partnership should be viewed as a passive holder of investments
and, as a result, should not be subject to state or local taxation and the
Security Owners should not be subject to taxation on income received through the
partnership unless they are already subject to tax in such jurisdiction.
However, if the state or local jurisdiction viewed such partnership as doing
business in such jurisdiction, Security Owners would normally be subject to
taxation in such jurisdiction on their allocable share of the partnership's
income even though they otherwise had no contact with such jurisdiction.
Furthermore, depending on the allocation and apportionment formula, if any, used
by such jurisdiction, it is possible that Security Owners in such case may be
subject to tax in such jurisdiction on their income from other sources.
Additionally, notwithstanding the flow-through treatment that generally applies
to partnerships, some states and localities impose an entity level tax on
partnerships and trusts doing business within their jurisdiction.
The foregoing discussion presents some of the state and local tax
consequences that might apply to Security Owners. However, because of the
variation in each state's and locality's tax laws based in whole or in part upon
income, it is impossible to predict the tax consequences to Note Owners and
Certificate Owners in 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
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UNDER STATE, LOCAL AND FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF
CHANGES IN FEDERAL OR OTHER TAX LAWS.
ERISA CONSIDERATIONS
General
Set forth below are certain consequences under ERISA and the Code that
a fiduciary (a "Plan Fiduciary") of an "employee benefit plan" (as defined in
and subject to ERISA) or of a "plan" (as defined in Section 4975 of the Code)
who has investment discretion should consider before deciding to invest the
plan's assets in Securities. The following summary is intended to be a summary
of certain relevant ERISA issues and does not purport to address all ERISA
considerations that may be applicable to a particular plan.
In general, the terms "employee benefit plan" as defined in ERISA and
"plan" as defined in Section 4975 of the Code (a "Plan") refer to any plan or
account of various types which provide retirement benefits or welfare benefits
to an individual or to an employer's employees and their beneficiaries. Plans
include corporate pension and profit-sharing plans, "simplified employee pension
plans", Keogh plans for self-employed individuals (including partners in a
partnership), individual retirement accounts described in Section 408 of the
Code and medical benefit plans.
Each Plan Fiduciary must give appropriate consideration to the facts
and circumstances that are relevant to an investment in the Securities,
including the role that an investment in the Securities plays in the Plan's
investment portfolio. Each Plan Fiduciary, before deciding to invest in the
Securities, must be satisfied that investment in the Securities is a prudent
investment for the Plan, that the investments of the Plan, including the
investment in the Securities, are diversified so as to minimize the risks of
large losses and that an investment in the Securities complies with the Plan and
related trust documents.
Each Plan considering acquiring a Security should consult its own legal
and tax advisors before doing so.
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
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such advice will be based on the particular investment needs of the Plan. A
party that is described in clause (i) or (ii) of the preceding sentence is a
fiduciary under ERISA and the Code with respect to the Plan, and any such
purchase might result in a "prohibited transaction" under ERISA and the Code.
Plan Assets
It is possible that the purchase of a Security by a Plan will cause,
for purposes of Title I of ERISA and Section 4975 of the Code, the related Base
Assets to be treated as assets of that Plan. A regulation (the "DOL Regulation")
issued under ERISA by the United States Department of Labor (the "DOL") contains
rules for determining when an investment by a Plan in an entity will result in
the underlying assets of the entity being plan assets. Those rules provide that
the assets of an entity will not be "plan assets" of a Plan that purchases an
interest therein if such interest is not an "equity interest". The DOL
Regulation defines an equity interest as an interest other than an instrument
that is treated as indebtedness under applicable local law and that has no
substantial equity features. The DOL Regulation provides, with respect to the
purchase of an equity interest by a Plan, that the assets of an entity will not
be plan assets of a Plan that purchases an interest therein if certain
exceptions apply including the following: (i) the investment by all "benefit
plan investors" is not "significant"; or (ii) the security issued by the entity
is a "publicly offered security". The Prospectus Supplement will specify whether
any of the exceptions set forth in the regulation under ERISA may apply with
respect to a Series of Securities.
With respect to clause (i) of the preceding paragraph, the term
"benefit plan investors" includes all plans and accounts of the types described
above under "General" as employee benefit plans and accounts, whether or not
subject to ERISA, as well as entities that hold "plan assets" due to investments
made in such entities by any of such plans or accounts. Investments by benefit
plan 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.
The Prospectus Supplement will indicate if either of the exceptions set
forth in the DOL Regulation (discussed above) apply. If neither exception is
applicable, Securities which are Certificates will not be eligible to be
purchased directly or indirectly for, or on behalf of, or with the assets of a
Plan.
Certain transactions involving the purchase of Securities which are
Notes might be deemed to constitute prohibited transactions under ERISA and the
Code if the Base Assets were deemed to be assets of a Plan. Under the DOL
Regulation, the Base Assets would be treated as plan assets of a Plan for the
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purposes of ERISA and the Code only if the Plan acquires an equity interest in
the Trust fund and none of the exceptions contained in the DOL Regulation is
applicable. The Prospectus Supplement will indicate whether the Notes will be
treated as indebtedness without substantial equity features for purposes of the
DOL Regulation.
Without regard to whether the Notes are characterized as equity
interests, the acquisition, transfer or holding of Notes by or on behalf of a
Plan could be considered to give rise to a prohibited transaction if the Trust
Fund, the Trustee, the Indentive Trustee or any of their respective affiliates
is or becomes a party in interest or a disqualified person with respect to such
Plan or in the event that a Note is purchased in the secondary market and such
purchase constitutes a sale or exchange between a Plan and a party in interest
or disqualified person with respect to such Plan. Certain exemptions from the
prohibited transaction rules may be applicable depending on the type and
circumstances of the plan fiduciary making the decision to acquire a Note.
Included among these exemptions are: Prohibited Transaction Class Exemption
("PTCE") 90-1, regarding investments by insurance company pooled separate
accounts; PTCE 91-38 regarding investments by bank collective investment funds;
PTCE 95-60, regarding investments by insurance company general accounts; PTCE
96-23, regarding transactions affected by in-house asset managers; and PTCE
84-14, regarding transactions effected by "qualified professional asset
managers."
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 a plan asset exception or prohibited transaction class
exemption is applicable in the Plan's particular circumstances and whether the
exception or exemption covers all potential prohibited transactions.
Except as otherwise set forth, the foregoing statements regarding the
consequences under ERISA of an investment in Securities are based on the
provisions of the Code and ERISA as currently in effect, and the existing
administrative and judicial interpretations thereunder. No assurance can be
given that administrative, judicial or legislative changes will not occur that
would not make the foregoing statements incorrect or incomplete.
ACCEPTANCE OF SUBSCRIPTIONS ON BEHALF OF PLANS IS IN NO RESPECT A
REPRESENTATION BY THE DEPOSITOR THE ISSUER, THE TRUSTEE, THE SERVICER OR ANY
OTHER PARTY THAT THIS INVESTMENT MEETS ALL RELEVANT LEGAL REQUIREMENTS WITH
RESPECT TO INVESTMENTS BY ANY PARTICULAR PLAN OR THAT SUCH INVESTMENT IS
APPROPRIATE FOR ANY PARTICULAR PLAN. EACH PLAN FIDUCIARY SHOULD CONSULT WITH
ATTORNEYS AND FINANCIAL ADVISORS AS TO THE PROPRIETY OF SUCH AN INVESTMENT IN
LIGHT OF THE CIRCUMSTANCES OF THE PARTICULAR PLAN AND THE RESTRICTIONS OF ERISA
AND SECTION 4975 OF THE CODE.
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.
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In the Underwriting Agreements with respect to any given Series of
Securities, the several underwriters will agree, subject to the terms and
conditions set forth therein, to purchase all of the Notes and Certificates, as
the case may be, described therein that are offered hereby and by the related
Prospectus Supplement if any of such Notes and Certificates, as the case may be,
are purchased.
Each Prospectus Supplement will either (i) set forth the price at which
each Class of Notes and Certificates, as the case may be, being offered thereby
will be offered to the public and any concessions that may be offered to certain
dealers participating in the offering of such Notes and Certificates, as the
case may be, or (ii) specify that the related Notes and Certificates, as the
case may be, are to be resold by the underwriters in negotiated transactions at
varying prices to be determined at the time of such sale. After the initial
public offering of any such Notes and Certificates, as the case may be, such
public offering prices and such concessions may be changed.
Each Underwriting Agreement will provide that the related Seller will
indemnify the related underwriters against certain civil liabilities, including
liabilities under the Securities Act, or contribute to payments the several
underwriters may be required to make in respect thereof.
Each Trust may, from time to time, invest the funds in its Trust
Accounts in Eligible Investments acquired from such underwriters.
Pursuant to each of the Underwriting Agreements with respect to a given
Series of Securities, the closing of the sale of any Class of Securities will be
conditioned on the closing of the sale of all other such Classes under such
Underwriting Agreement.
The place and time of delivery for the Notes and Certificates, as the
case may be, in respect of which this Prospectus is delivered will be set forth
in the related Prospectus Supplement.
If and to the extent required by applicable law or regulation, this
Prospectus and the applicable Prospectus Supplements will also be used by the
Underwriter after the completion of the offering in connection with offers and
sales related to market-making transactions in the offered Securities in 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 Stroock & Stroock & Lavan LLP, New York, New York or such other
counsel set forth in the Prospectus Supplement. Certain federal income tax and
other matters will be passed upon for each Trust by Stroock & Stroock & Lavan
LLP, New York, New York or such other counsel set forth in the Prospectus
Supplement.
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---- INDEX OF DEFINED TERMS
Accounts.......................................................................
Accumulation Period............................................................
Additional Accounts............................................................
Additional Base Assets.........................................................
Agreement......................................................................
Ancillary Arrangements.........................................................
Base Assets....................................................................
Cash Collateral Account........................................................
Cash Collateral Guaranty.......................................................
Cede .......................................................................
CEDEL .......................................................................
CEDEL Participants.............................................................
Certificates...................................................................
Certificate Interest Rate......................................................
Certificateholders.............................................................
Certificates...................................................................
Class .......................................................................
Closing Date...................................................................
CODE .......................................................................
Collateral Indebtedness Interests..............................................
Collection Account.............................................................
Collection Period..............................................................
Commission.....................................................................
Controlled Accumulation Amount.................................................
Controlled Amortization Amount.................................................
Controlled Amortization Period.................................................
Controlled Deposit Amount......................................................
Controlled Distribution Amount.................................................
CRB Backed Certificate.........................................................
CRB Backed Notes...............................................................
CRB Backed Securities..........................................................
CRB Issuer.....................................................................
CRB Servicer...................................................................
CRB Trust......................................................................
CRB Trustee....................................................................
Credit Card Accounts...........................................................
Credit Card Receivables........................................................
Credit Enhancement.............................................................
Credit Enhancer................................................................
Date of Processing.............................................................
Defaulted Amount...............................................................
Deficit Controlled Accumulation Amount.........................................
Deficit Controlled Amortization Amount.........................................
Definitive Certificates........................................................
Definitive Notes...............................................................
Definitive Securities..........................................................
Depositaries...................................................................
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Depositor......................................................................
Depositor's Certificate........................................................
Depositor's Interest...........................................................
Distribution Date..............................................................
DTC ...........................................................................
Eligible Institution...........................................................
Eligible Investments...........................................................
Eligible Servicer..............................................................
Enhancement Invested Amount....................................................
ERISA .........................................................................
Euroclear......................................................................
Euroclear Operator.............................................................
Euroclear Participants.........................................................
Exchange Act...................................................................
Expected Final Payment Date....................................................
FDIC ..........................................................................
Federal Tax Counsel............................................................
Final Scheduled Payment Date...................................................
Finance Charge Receivables.....................................................
FIRREA ........................................................................
Floating Allocation Percentage.................................................
Foreign Investor...............................................................
Funding Account................................................................
GAO ...........................................................................
Government Securities..........................................................
Grantor Trust..................................................................
Holders .......................................................................
Indenture......................................................................
Indenture Trustee..............................................................
Indirect Participants..........................................................
Initial Accounts...............................................................
Insolvency Event...............................................................
Interchange....................................................................
Interest Funding Account.......................................................
Invested Amount................................................................
Investment Earnings............................................................
IRS ...........................................................................
Moody's .......................................................................
Net Portfolio Yield............................................................
Non-United States Holder.......................................................
Non-United States Owner........................................................
Note Interest Rate.............................................................
Noteholders....................................................................
Notes .........................................................................
OID Regulations................................................................
Owner Trust....................................................................
Paired Series..................................................................
Participations.................................................................
Pay Out Events.................................................................
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Paying Agent...................................................................
Payment Account................................................................
Payment Date...................................................................
Plan ..........................................................................
Pooling and Servicing Agreement................................................
Portfolio Yield................................................................
Prepayment Assumption..........................................................
Pre-Funded Amount..............................................................
Pre-Funding Account............................................................
Principal Allocation Percentage................................................
Principal Commencement Date....................................................
Principal Funding Account......................................................
Principal Receivables..........................................................
Prior Series...................................................................
Private Label Custody Receipt Security ........................................
Prospectus.....................................................................
Prospectus Supplement..........................................................
Rapid Amortization Period......................................................
Rating Agency..................................................................
Receivables....................................................................
Receivables Pooling Certificates...............................................
Registrar......................................................................
Related Documents..............................................................
Removed Accounts...............................................................
Repurchase Amount..............................................................
Reserve Account................................................................
Revolving Period...............................................................
S&P ...........................................................................
Securities.....................................................................
Securityholders................................................................
Seller.........................................................................
Series.........................................................................
Series Cut-Off Date............................................................
Series Enhancement.............................................................
Series Termination Date........................................................
Servicer.......................................................................
Servicer Default...............................................................
Servicing Fee..................................................................
Shortfall Amount...............................................................
Special Payment Date...........................................................
Spread Account.................................................................
Strip Certificates.............................................................
Subordinate Certificates.......................................................
Subordinate Class Percentage...................................................
Supplement.....................................................................
TIN ...........................................................................
Transfer Agent.................................................................
Trust Accounts.................................................................
Trust Agreement................................................................
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Trust Stripped Bond............................................................
Trust Stripped Coupon..........................................................
Trustee .......................................................................
UCC ...........................................................................
Underwriting Agreements........................................................
Yield Calculation..............................................................
Yield Factor...................................................................
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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.
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
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<PAGE> 357
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. 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.
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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
(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.
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Exemption for non-U.S. persons with effectively connected income
(Form4224). 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
FormW-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.
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.
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
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THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THEIR
RESPECTIVE DATES.
Table of Contents
Prospectus Supplement
PROSPECTUS
PAGE
Prospectus Supplement..........................................................
Reports to Securityholders.....................................................
Available Information..........................................................
Incorporation of Certain Documents by Reference................................
Summary of Terms...............................................................
Rick Factors...................................................................
The Trusts.....................................................................
The Receivables Pools..........................................................
The Collateral Certificates....................................................
The Government Securities......................................................
Private Table Custody Receipt Securities
Weighted Average Life of the Securities........................................
Pool Factors and Trading Information...........................................
The Seller and the Servicer....................................................
Use of Proceeds................................................................
Description of the Notes.......................................................
Description of the Certificates................................................
Certain Information Regarding the Securities...................................
Description of the Transfer and Servicing Agreements...........................
Certain Legal Aspects of the Receivables.......................................
Certain Federal Income Tax Consequences........................................
State and Local Tax Considerations.............................................
ERISA Considerations...........................................................
Plan of Distribution...........................................................
Legal Matters..................................................................
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.
$
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PROSPECTUS
CREDIT SUISSE FIRST BOSTON FLOORPLAN 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) wholesale automobile and light truck
receivables or Participations (each as defined herein), (ii) certain "wholesale
automobile and light truck receivables backed securities" ("WALTR 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
wholesale receivables generated from time to time in a portfolio of revolving
financing arrangements (collectively, "Accounts") with automobile dealers. Any
Participations included in the Base Assets for a Series will consist of
undivided interests in one or more pools of Receivables. Any WALTR 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
<PAGE> 362
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 _________, 199_
<PAGE> 363
(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.
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
<PAGE> 364
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 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.
<PAGE> 365
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 Credit Suisse First Boston, Inc. Neither
Credit Suisse First Boston, Inc. nor any of
its 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").
5
<PAGE> 366
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 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) WALTR 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 "WALTR Backed Certificates",
such Notes being sometimes referred to
herein as "WALTR Backed Notes" and such
WALTR Backed Certificates and WALTR Backed
Notes being referred to collectively as
"WALTR Backed Securities"). Each Class of
Notes will be issued pursuant to an
indenture (each, an "Indenture") between
the related Trust and the Indenture Trustee
specified in the related Prospectus
Supplement. The related Prospectus
Supplement will specify which Class or
Classes of Notes and/or Certificates of the
related Series are being offered thereby. A
Trust may issue one or more classes of
additional Certificates or Notes that are
not being offered by this Prospectus or any
related Prospectus Supplement.
The Notes................... As specified in the related Prospectus
Supplement, each Class of Notes will have a
stated principal amount, notional principal
amount or no principal amount and will bear
interest at a specified rate or rates (with
respect to each Class of Notes, the "Note
Interest Rate") or will not bear interest.
Each Class of Notes may have a different
Note Interest Rate, which may be a fixed,
variable or adjustable Note Interest Rate
or any combination of the foregoing. The
related Prospectus Supplement will specify
the Note Interest Rate, or the method for
determining the Note Interest Rate, for
each Class of Notes.
6
<PAGE> 367
A Series of Securities may include two or
more Classes of Notes that differ as to
timing and priority of payments, seniority,
Note Interest Rates or amount of payments of
principal or interest.
Additionally, payments of principal or
interest in respect of any such Class or
Classes may or may not be made upon the
occurrence of specified events or on the
basis of collections from designated
portions of the Base Assets. If specified in
the related Prospectus Supplement, one or
more Classes of Notes ("Strip Notes") may be
entitled to (i) principal payments with
disproportionate, nominal or no interest
payments or (ii) interest payments with
disproportionate, nominal or no principal
payments. See "DESCRIPTION OF THE NOTES --
Payments of Interest and Principal".
Notes will be available for purchase in
denominations of $100,000, or such other
minimum denomination as shall be specified
in the related Prospectus Supplement, and
integral multiples of $1,000 in excess
thereof and will be available in book-entry
form, or if specified in the related
Prospectus Supplement, as Definitive Notes.
If the related Prospectus Supplement
provides that the Notes shall be available
in book-entry form only, Noteholders will be
able to receive Definitive Notes (as defined
herein under "RISK FACTORS -- Book-Entry
Registration") only in the limited
circumstances described herein or in the
related Prospectus Supplement. See "CERTAIN
INFORMATION REGARDING THE SECURITIES--
Definitive Securities" .
If a Servicer, Seller or Depositor with an
option to purchase the Base Assets of a
Trust exercises such option (or if not and,
if and to the extent provided in the related
Prospectus Supplement, satisfactory bids for
the purchase of such Base Assets are
received), in the manner and on the
respective terms and conditions described
under "DESCRIPTION OF THE TRUST AGREEMENT OR
POOLING AND 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
7
<PAGE> 368
of losses, Certificate Interest Rate or
amount of distributions in respect of
principal or interest. Additionally,
distributions in respect of principal or
interest in respect of any such Class or
Classes may or may not be made upon the
occurrence of specified events or on the
basis of collections from designated
portions of the related Base Assets. If
specified in the related Prospectus
Supplement, one or more Classes of
Certificates ("Strip Certificates") may be
entitled to (i) principal distributions
with disproportionate, nominal or no
interest distributions or (ii) interest
distributions with disproportionate,
nominal or no principal distributions. See
"DESCRIPTION OF THE CERTIFICATES --Payments
of Principal" and "-- Payments of
Interest". If a Series of Securities
includes Classes of Notes, distributions in
respect of the Certificates may be
subordinated in priority of payment to
payments on the Notes to the extent
specified in the related Prospectus
Supplement.
Certificates will be available for purchase
in a minimum denomination of $100,000 or
such other minimum denomination as shall be
specified in the related Prospectus
Supplement, and in integral multiples of
$1,000 in excess thereof and will be
available in book-entry form or, if
specified in the related Prospectus
Supplement, as Definitive Certificates. If
the related Prospectus Supplement specifies
that the Certificates will be available in
book-entry form only, Certificateholders
will be able to receive Definitive
Certificates (as defined under "RISK FACTORS
-- Book Entry Registration") only in the
limited circumstances described herein or in
the related Prospectus Supplement. See
"CERTAIN INFORMATION REGARDING THE
SECURITIES -- Definitive Securities".
If a Servicer, Seller or Depositor with an
option to purchase the Base Assets of a
Trust exercises such option (or if not and,
if and to the extent provided in the related
Prospectus Supplement, satisfactory bids for
the purchase of such Base Assets are
received), in the manner and on the
respective terms and conditions described
under "DESCRIPTION OF THE TRUST OR POOLING
AND SERVICING AGREEMENT -- Termination", the
Certificates will be prepaid as set forth in
the related Prospectus Supplement.
Receivables Pooling Certificates
A. Certificateholders'
Interest; Depositor's
Interest................. In the case of a Series of Receivables
Pooling Certificates, a portion of the
assets of the related Trust will be
allocated among the Certificateholders of
such Series (the "Investor
Certificateholders' Interest") and the
remainder will be allocated to the interest
of the Depositor therein (the "Depositor's
Interest") and as provided in the related
Prospectus Supplement. 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.
8
<PAGE> 369
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 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
9
<PAGE> 370
Percentage and the Principal Allocation
Percentage with respect to each such Series
will be determined as set forth in the
related Supplement and, with respect to each
such Series offered hereby, in the related
Prospectus Supplement. See "DESCRIPTION OF
THE CERTIFICATES -- Receivables Pooling
Certificates". Collections will be deposited
in the related Collection Account and
invested in the manner described under
"SERVICING OF RECEIVABLES--Deposits to the
Collection Account".
D. Interest................ Interest will accrue on the invested amount
of the Receivables Pooling Certificates of
a Series or Class (the "Invested Amount" of
such Series or Class) at the per annum rate
of interest either specified in or
determined in the manner specified in the
related Prospectus Supplement (the
"Certificate Interest Rate"). If the
Prospectus 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 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 described below under "Rapid
Accumulation Period" (each an "Accumulation
10
<PAGE> 371
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 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.
11
<PAGE> 372
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.
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
12
<PAGE> 373
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 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
13
<PAGE> 374
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.
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:
(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").
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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 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
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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.
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 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 WALTR Backed
Certificates, the rate of payment (including
early amortization, prepayments and
repurchases) of the Receivables underlying
the WALTR Securities, the terms of such
WALTR Securities and the rate of payment and
terms of the
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<PAGE> 377
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 WALTR Securities) underlying such Class,
but may also occur later than the
applicable Final Scheduled Payment Date.
See "RISK FACTORS" and "DESCRIPTION OF THE
CERTIFICATES" herein for a more detailed
description of factors that may affect the
timing of principal payments on the
Certificates.
The Trust Property
General.................... On or prior to the date of issuance of a
Series of Securities specified in the
related Prospectus Supplement (the "Closing
Date"), the Depositor will transfer Base
Assets to the related Trust (after
acquiring such Base Assets, in certain
cases, from the seller or sellers specified
in the related Prospectus Supplement
(collectively, the "Seller")) having the
aggregate principal balance specified in
such Prospectus Supplement as of the date
specified therein (the "Series Cutoff
Date"). Alternatively, if so specified in
the related Prospectus Supplement, in
certain circumstances the Depositor may
transfer cash to the Trust and the Trust
will use such cash to acquire such Base
Assets.
The assets of the Trust may also include one
or more types of Series Enhancement (as
described below), certain Ancillary
Arrangements (as described below) and
certain trust accounts, including the
related Collection Account, Distribution
Account and Reserve Account and any other
account or asset identified in the
applicable Prospectus Supplement. See
"DESCRIPTION OF THE TRUST AGREEMENTS AND
POOLING AND SERVICING AGREEMENTS -- Trust
Accounts".
A. Base Assets............ The Base Assets for a Series may consist of
any combination of the following assets, to
the extent and as specified in the related
Prospectus Supplement: (1) Receivables and
Participations in Receivables, (2) WALTR
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 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
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<PAGE> 378
Participations
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 wholesale receivables generated
from time to time in a portfolio of
revolving financing arrangements
("Accounts") with automobile dealers (the
"Dealers"), 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. The Dealers use the
related advances to purchase new or used
automobiles, light duty trucks and certain
other vehicles (the "Vehicles).
Any designated Accounts will meet the
criteria provided in the applicable
Agreement applied as of the applicable
Series Cut-Off Date specified therein. The
Accounts will consist of certain initial
Accounts described in the related Prospectus
Supplement ("Initial Accounts") and any
Additional Accounts (as described below),
but will not include any Removed Accounts
(as described below). Pursuant to the
applicable Agreement: (a) the Seller of the
Initial Accounts may (subject to certain
limitations and conditions), and in some
circumstances will be obligated to,
designate additional Accounts ("Additional
Accounts"), the Receivables arising in which
will be added to the Trust or, in lieu
thereof or in addition thereto, transfer
eligible Participations to the Trust and (b)
such Seller will have the right (subject to
certain limitations and conditions), but not
the obligation, to remove the Receivables in
certain Accounts from the Trust ("Removed
Accounts").
All new Receivables arising during the term
of a Trust in any designated Accounts
(including in any Additional Accounts) will
be the property of the Trust. Accordingly,
the amount of Receivables in the Trust will
fluctuate as new Receivables are generated
and as existing Receivables are collected,
charged off as uncollectible or otherwise
adjusted. Receivables may be payable in U.S.
dollars or in any foreign currency.
"Participations" are undivided interests in
a pool of assets primarily consisting of
Receivables owned by a Seller or an
affiliate of the Seller, together with any
collections thereon.
(2) WALTR Securities........ Base Assets for a Series may consist, in
whole or in part, of asset backed
securities ("WALTR 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 - WALTR
Securities".
Payments on the WALTR Securities will be
distributed directly to the Trustee as
registered owner of such WALTR Securities
or, if applicable,
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<PAGE> 379
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
WALTR 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 aggregate principal amount and
type of the WALTR Securities; (ii) certain
characteristics of the Receivables which
comprise the underlying assets for the
WALTR Securities; (iii) the expected
maturity and the final maturity of the
WALTR Securities; (iv) the certificate rate
for the WALTR Securities; (v) the issuer or
issuers of the WALTR Securities
(collectively, the "WALTR Issuer"), the
servicer or servicers of the WALTR
Securities (collectively, the "WALTR
Servicer") and the trustee or trustees of
the Securities (collectively, the "WALTR
Trustee"); (vi) certain characteristics of
enhancement, if any, relating to the WALTR
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 WALTR Securities; (viii)
the terms on which the WALTR Securities or
the underlying Receivables may, or are
required to, be repurchased prior to the
stated maturity of such WALTR Securities;
and (ix) the terms on which substitute
Receivables may be delivered to replace
those initially deposited with the WALTR
Trustee. See "TRUST ASSETS - WALTR
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 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
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<PAGE> 380
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 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. From
time to time, various additional accounts
may be created under the terms of the
documents related to a specific Series.
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<PAGE> 381
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
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, Stroock &
Stroock & Lavan LLP or such other counsel
specified in the related Prospectus
Supplement ("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
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<PAGE> 382
Prospectus Supplement. The Owner Trust will
also agree, and the related beneficial
owners of the Certificates (each a
"Certificate Owner") will agree by their
purchase of Certificates, to treat the
Owner Trust as a partnership for purposes
of federal and state income tax, franchise
tax and any other tax measured in whole or
in part by income, with the assets of the
partnership being the assets held by the
Trust, the partners of the partnership
being the Certificate Owners (including, to
the extent relevant, the Seller or
Depositor in its capacity as recipient of
distributions from any reserve fund), and
the Notes being debt of the partnership.
See "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,
WALTR 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, 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
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Considerations............ Subject to the considerations and
qualifications discussed under "ERISA
CONSIDERATIONS" herein and the
considerations and qualifications set forth
in the related Prospectus Supplement, the
Notes of any Series issued by a Trust may
be eligible for purchase by employee
benefit plans. Persons investing assets of
employee benefit plans subject to the
Employee Retirement Income Security Act of
1974, as amended ("ERISA") or of plans as
defined in Section 4975 of the Code should
read "ERISA Considerations" herein and
consult their own legal advisors to
determine whether and to what extent the
Certificates constitute permissible
investments for such employee benefit plans
and whether the purchase or holding of
Certificates could give rise to
transactions prohibited under ERISA or
Section 4975 of the Code.
Legal Investment.......... Investors whose investment authority is
subject to legal restrictions should
consult their own legal advisors to
determine whether and to what extent the
Certificates or Notes constitute legal
investments for them.
Use of Proceeds........... The Depositor will use the net proceeds
from the sale of each Series of Securities
for one or more of the following purposes:
(i) to purchase the related Base Assets
and/or Series Enhancement, (ii) to repay
indebtedness which has been incurred to
obtain funds to acquire such Base Assets
and/or Series Enhancement, (iii) to fund
the purchase of such Base Assets and/or
Series Enhancement by the related Trust on
the Closing Date or to establish a
Pre-Funding Account for such Series, (iv)
to establish any Reserve Account or Cash
Collateral Accounts described in the
related Prospectus Supplement or (v) to pay
costs of structuring and issuing such
Securities. If so 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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<PAGE> 384
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.
Risk of Delayed Principal Payments due to Dependence on Dealer
Repayments; Maturity and Repayment Considerations. In the case of any Series of
Securities offered hereunder, the Base Assets of which consist wholly or partly
of Receivables or WALTR 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, or that Receivables
will be added to the related Trust or any underlying WALTR Trust (as defined
herein, under "TRUST ASSETS -- WALTR Securities"). 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 repayments, the timing of the receipt of repayments and the
rate of default. 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.
The rate of payment of principal of Securities of a Series for which
the Base Assets consist of WALTR 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 WALTR Securities and the
rate of payment of principal (including prepayments) thereof, which will in turn
depend in large part on the rate of repayment of the underlying Receivables and
the possible occurrence of any related Pay Out Events. The rate of payment of
principal of such Securities may also be affected by the repurchase of the
Receivables underlying the WALTR Securities, and the corresponding retirement of
such WALTR Securities. See "RISK FACTORS -- Maturity Assumptions" in the related
Prospectus Supplement.
Certain Legal Aspects--Lack of Security Interests in Vehicles. Security
interests in the Vehicles securing Receivables will be assigned to the related
Trust. The applicable Seller will represent and warrant that the Receivables are
at the time of creation secured by a first priority perfected security interest
in the related Vehicles. Generally, under applicable state laws, a security
interest in an automobile or light duty truck which secures wholesale financing
obligations may be perfected by the filing of UCC financing statements. The
Seller will take all actions necessary under applicable state laws to perfect
the Seller's security interest in the Vehicles. However, at the time a Vehicle
is sold, the Seller's security interest in the Vehicle will terminate.
Therefore, if a Dealer fails to remit to the Seller amounts owed with respect to
Vehicles that have been sold, the related Receivables will no longer be secured
by Vehicles.
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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 Vehicle securing
such Receivable does not exist as of the date such Receivable is transferred to
such Trust, if such breach materially adversely affects 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--Insolvency Considerations and the Characterization
of the Transfer of Receivables. Each Seller and the Depositor intend that the
transfer of the Receivables by it constitute a sale. Notwithstanding the
foregoing, if such Seller were to become a debtor in a bankruptcy case, a court
could take the position that the sale of Receivables to the Depositor or the
Trust, as applicable, should be treated as a pledge of such Receivables to
secure a borrowing by such Seller or the Depositor, as applicable. If the
transfer to the Depositor or the Trust were to be characterized as a secured
loan, to the extent that the Seller or the Depositor, as applicable, 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 or Depositor's
insolvency, as applicable, 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 or the Depositor, as applicable. 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.
If certain events relating to the bankruptcy of the Seller or the Depositor
were to occur, then a Pay Out Event or Rapid Amortization Event would occur with
respect to each Series and, pursuant to the terms of the Pooling and Servicing
Agreement, additional Receivables would not be transferred to the Trust.
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 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 and the Characterization of the Transfer of Receivables" above.
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 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. Receivables are generally prepaid upon the retail sale of the
underlying Vehicle. In such events, 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.
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Risk of Economic Factors. Payment of the Receivables is largely
dependent upon the retail sale of the related Vehicles. The level of retail
sales of cars and light duty trucks may change as the result of a variety of
social and economic factors. Economic factors include interest rates,
unemployment levels, the rate of inflation and consumer perception of economic
conditions generally. The use of incentive programs (e.g., manufacturers' rebate
programs) may affect retail sales. However, the Depositor is unable to determine
and has no basis to predict whether or to what extent economic or social factors
will affect the level of Vehicle sales.
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
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 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
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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 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 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.
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
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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 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 Pooling and Servicing Agreement and a form of Series
Supplement to the Pooling and Servicing Agreement 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
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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) WALTR 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 WALTR Securities, may be purchased by the Depositor in the open
market or in privately negotiated transactions (which may include transactions
with affiliates of the Depositor), and then, in each such case, will be
transferred by the Depositor to the Trust in exchange for Securities issued by
the Trust. Alternatively, the Trust may purchase some or all of the Base Assets
in the open market or in privately negotiated transactions with cash obtained by
the Trust in exchange for the issuance of Securities of the Trust to the
Depositor.
If so specified in the related Prospectus Supplement, the assets of the
Trust for a Series may include monies or government securities on deposit in a
Pre-Funding Account established with the Trustee (or the Indenture Trustee),
which monies or government securities are to be used for the purchase of
additional Base Assets during a Funding Period specified in such Prospectus
Supplement.
The following is a brief description of the Base Assets expected to be
included in Trusts. Specific information regarding the Base Assets with respect
to a Series of Securities will be provided in the related Prospectus Supplement
and, to the extent not contained in the related Prospectus Supplement, in a
report on Form 8-K to be filed with the Commission within 15 days after the
initial issuance of such Securities.
Receivables and Participations
General. The Base Assets for a Series may consist, in whole or in part,
of Receivables arising from time to time in the ordinary course of business in
wholesale receivables, generated from time to time in a portfolio of revolving
financing arrangements (collectively, the "Accounts") with automobile Dealers.
The Dealers use the related advances to purchase new or used automobiles, light
duty trucks and other vehicles (the "Vehicles). 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
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Pooling and Servicing Agreement. Pursuant to the related Pooling and Servicing
Agreement and Series Supplement, the Depositor will also have the right (subject
to certain limitations and conditions), but not the obligation, to remove the
Receivables in any Account that becomes a Removed Account. The amount of
Receivables in a Trust will fluctuate from day to day as new Receivables are
generated or added to the Trust and as existing Receivables are collected,
charged-off as uncollectible, removed or otherwise adjusted. If so specified in
the related Prospectus Supplement, a Seller will be able to include
Participations in the related Trust in lieu of or in addition to Receivables.
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.
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.
WALTR Securities
General. Base Assets for a Series may consist, in whole or in part, of
receivables backed securities ("WALTR 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. WALTR 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 "WALTR
Agreement"). The WALTR Securities represent an undivided interest in or
obligation of a trust formed pursuant to a WALTR Agreement (a "WALTR Trust").
The seller/servicer of the underlying Receivables will have entered into the
WALTR Agreement with the trustee under such WALTR Agreement (the "WALTR
Trustee"). Receivables underlying a WALTR Security will be serviced by a
servicer (the "WALTR Servicer") directly or by one or more sub-servicers who may
be subject to the supervision of the WALTR Servicer.
The issuer of the WALTR Securities (the "WALTR Issuer") will be a
financial institution, corporation or other entity engaged generally in the
business of the financing of wholesale automobile receivables, 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
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such trusts; or one of such trusts. If so specified in the related Prospectus
Supplement, the WALTR Issuer may be an affiliate of the Depositor. The
obligations of the WALTR Issuer will generally be limited to certain
representations and warranties with respect to the assets conveyed by it to the
related trust. The WALTR Issuer will not have guaranteed any of the assets
conveyed to the related trust or any of the WALTR Securities issued under the
WALTR Agreement.
Distributions of principal and interest will be made on the WALTR
Securities on the dates specified in the related Prospectus Supplement. The
WALTR 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 WALTR Securities by the WALTR Trustee or the
WALTR Servicer. The WALTR Issuer or the WALTR Servicer may have the right to
repurchase assets underlying the WALTR Securities after a certain date or under
other circumstances specified in the related Prospectus Supplement.
Underlying Receivables. The receivables underlying the WALTR Securities
will consist of Receivables.
Credit Enhancement Relating to WALTR Securities. Credit Enhancement in
the form of reserve funds, subordination of other WALTR 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 WALTR Securities or with respect to the WALTR 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 WALTR 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 WALTR 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 WALTR Securities
to be included in the Base Assets; (ii) certain characteristics of the
Receivables which comprise the underlying assets for the WALTR Securities,
including the servicing fee or range of servicing fees with respect to such
Receivables; (iii) the expected and final maturity of the WALTR Securities; (iv)
the interest rate of the WALTR Securities; (v) the WALTR Issuer, the WALTR
Servicer (if other than the WALTR Issuer) and the WALTR Trustee for such WALTR
Securities; (vi) certain characteristics of the credit enhancement, if any,
relating to the Receivables underlying the WALTR Securities or to such WALTR
Securities themselves; (vii) the terms on which the underlying Receivables for
such WALTR Securities may be, or are required to be, purchased prior to their
stated maturity or the stated maturity of the WALTR Securities; and (viii) the
terms on which Receivables may be substituted for those originally underlying
the WALTR Securities.
If information of the nature described above representing the WALTR
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 WALTR 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.
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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 WALTR 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 WALTR Securities where such WALTR 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
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
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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 nationally 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.
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.
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
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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.
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
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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, underwrite and otherwise deal in obligations
of eligible lenders, if such obligations are issued by such eligible lenders for
the purpose of making or purchasing federally guaranteed student loans under the
Higher Education Act. As a federally chartered corporation, Sallie Mae's
structure and operational authorities are subject to revision by amendments to
the Higher Education Act or other federal enactments.
Sallie Mae prepares an Information Statement annually which describes
Sallie Mae, its business and operations and contains Sallie Mae's audited
financial statements. From time to time Sallie Mae prepares supplements to its
Information Statement which include certain unaudited financial data and other
information concerning the business and operations of Sallie Mae. Unless
otherwise specified in the applicable Prospectus Supplement, these documents can
be obtained without charge upon written request to the Corporate and Investor
Relations Division of Sallie Mae at 1050 Thomas Jefferson Street,
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N.W., Washington, D.C. 20007; telephone (202) 298-3010. Sallie Mae is not
subject to the periodic reporting requirements of the Exchange Act.
The Resolution Funding Corporation. REFCO is a mixed-ownership
government corporation established by Title V of the Financial Institutions
Reform, Recovery, and Enforcement Act of 1989 ("FIRREA"). The sole purpose of
REFCO is to provide financing for the Resolution Trust Corporation (the "RTC").
REFCO is to be dissolved, as soon as practicable, after the maturity and full
payment of all obligations issued by it. REFCO is subject to the general
oversight and direction of the Oversight Board, which is comprised of the
Secretary of the Treasury, the Chairman of the Board of Governors of the Federal
Reserve System, the Secretary of Housing and Urban Development and two
independent members to be appointed by the President with the advice and consent
of the Senate. The day-to-day operations of REFCO are under the management of a
three-member Directorate comprised of the Director of the Office of Finance of
the FHLB and two members selected by the Oversight Board from among the
presidents of the twelve FHLB.
The RTC was established by FIRREA to manage and resolve cases involving
failed savings and loan institutions pursuant to policies established by the
Oversight Board. The RTC was granted authority to issue nonvoting capital
certificates to REFCO in exchange for the funds transferred from REFCO to the
RTC. Pursuant to FIRREA, the net proceeds of these obligations are used to
purchase nonvoting capital certificates issued by the RTC or to retire
previously issued REFCO obligations.
Information concerning REFCO may be obtained from the
Secretary/Treasurer, Resolution Funding Corporation, Suite 1000, 11921 Freedom
Drive, Reston, Virginia 22090; telephone (703) 487-9517. REFCO is not subject to
the periodic reporting requirements of the Exchange Act.
The Federal Home Loan Banks. The Federal Home Loan Banks constitute a
system of twelve federally chartered corporations (collectively, the "FHLB"),
each wholly owned by its member institutions. The mission of the FHLB is to
enhance the availability of residential mortgage credit by providing a readily
available, low-cost source of funds to their member institutions. A primary
source of funds for the FHLB is the proceeds from the sale to the public of debt
instruments issued as consolidated obligations, which are the joint and several
obligations of all the FHLB. The FHLB are supervised and regulated by the
Federal Housing Finance Board, which is an independent federal agency in the
executive branch of the United States government, but obligations of the FHLB
are not obligations of the United States government.
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
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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.
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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.
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 which includes Private Label Custody Securities
will be provided with an opinion of Stroock & Stroock & Lavan LLP or such other
counsel specified in the related Prospectus Supplement 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.
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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
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.
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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 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
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the related Prospectus Supplement, any form of Credit Enhancement may be
structured so as to be drawn upon by more than one Class of Securities of a
Series to the extent described therein.
Credit Enhancement will not provide protection against all risks of
loss and will not guarantee repayment of the entire principal balance of the
Securities and interest thereon. If losses occur which exceed the amount covered
by the Credit Enhancement or which are not covered by the Credit Enhancement,
holders of Securities will bear their allocable share of deficiencies.
If Credit Enhancement is provided with respect to a Series, the related
Prospectus Supplement will include a description of (a) the amount payable under
such Credit Enhancement, (b) any conditions to payment thereunder not described
herein, (c) the conditions (if any) under which the amount payable under such
Credit Enhancement may be reduced and under which such Credit Enhancement may be
terminated or replaced and (d) any material provisions of any agreement relating
to such Credit Enhancement. Additionally, the related Prospectus Supplement may
set forth certain information with respect to the issuer of any third-party
Credit Enhancement, including (i) a brief description of its principal business
activities, (ii) its principal place of business, place of incorporation and the
jurisdiction under which it is chartered or licensed to do business, (iii) if
applicable, the identity of regulatory agencies which exercise primary
jurisdiction over the conduct of its business and (iv) its total assets and its
stockholders' or policyholders' surplus, if applicable, as of the date specified
in the related Prospectus Supplement. If so specified in the related Prospectus
Supplement, the issuer of such third party Credit Enhancement may have a
subordinated interest in the Trust, the Receivables or certain cash flows in
respect of the Receivables to the extent described in such Prospectus Supplement
(the "Enhancement Invested Amount").
Subordination
If so specified in the related Prospectus Supplement, one or more
Series of Securities or one or more Classes of Securities of a Series or one or
more classes of other certificated or uncertificated interests in the assets of
the related Trust ("Collateral Indebtedness Interests") may be subordinated to
one or more other Series or one or more Classes of such Series. If so specified
in the related Prospectus Supplement, the rights of holders of the subordinate
Securities or Collateral Indebtedness Interests to receive distributions of
principal and/or interest on any Payment Date will be subordinated to such
rights of the holders of the Securities which are senior to such subordinate
Securities or Collateral Indebtedness Interests to the extent set forth in the
related Prospectus Supplement. The related Prospectus Supplement will also set
forth information concerning the 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
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If so specified in the related Prospectus Supplement, support for a
Series of Securities or one or more Classes of a Series may be provided by one
or more letters of credit. A letter of credit may provide limited protection
against certain losses in addition to or in lieu of another form of Credit
Enhancement. The issuer of the letter of credit named in the related Prospectus
Supplement (the "L/C Bank") will be obligated to honor demands with respect to
such letter of credit, to the extent of the amount available thereunder, to
provide funds under the circumstances and subject to such conditions as are
specified in the related Prospectus Supplement. The liability of the L/C Bank
under its letter of credit may be reduced by the amount of unreimbursed payments
thereunder.
The maximum liability of a L/C Bank under its letter of credit will
generally be an amount equal to a percentage specified in the related Prospectus
Supplement of the initial principal amount of a Series of Securities or a Class
of such Series. The maximum amount available at any time to be paid under a
letter of credit will be determined in the manner specified therein and in the
related Prospectus Supplement.
Cash Collateral Guaranty or Cash Collateral Account
If so specified in the related Prospectus Supplement, support for a
Series of Securities or one or more Classes of a Series may be provided by a
guaranty (a "Cash Collateral Guaranty") secured by the deposit of cash,
government securities or certain other permitted investments in an account (a
"Cash Collateral Account") reserved for the beneficiaries of the Cash Collateral
Guaranty, or by a Cash Collateral Account alone. Any such Cash Collateral
Account will generally take the form of a cash collateral trust formed pursuant
to a trust agreement involving a cash collateral depositor and a cash collateral
trustee. The Cash Collateral Guaranty will generally be an obligation of the
cash collateral trust and not of the cash collateral depositor, the cash
collateral trustee (except to the extent of amounts on deposit in the Cash
Collateral Account), or the related Trustee, Indenture Trustee, Seller, Servicer
or the Depositor. The amount available pursuant to a Cash Collateral Guaranty or
a Cash Collateral Account will be the lesser of the amount on deposit in the
Cash Collateral Account and an amount specified in the related Prospectus
Supplement. The related Prospectus Supplement will set forth the circumstances
under which payments will be made to beneficiaries of a Cash Collateral Guaranty
from the related Cash Collateral Account or from the Cash Collateral Account
directly.
Reserve Account
If so specified in the related Prospectus Supplement, the Depositor may
deposit cash, a letter or letters of credit, short-term investments, government
securities or other instruments acceptable to the applicable Rating Agency or
Rating Agencies in one or more reserve accounts (each, a "Reserve Account") to
be established in the name of the Trustee (or the Indenture Trustee). Any such
Reserve Account will be used, as specified in such Prospectus Supplement, by the
Trustee (or the Indenture Trustee) to make required payments of principal of or
interest on the Securities of the related Series or one or more Classes thereof,
to make adequate provision for future payments on one or more Classes of such
Securities or for any other purpose specified in the Agreement with respect to
such Series, to the extent that funds are not otherwise available for such
purpose. In the alternative or in addition to such deposit, a Reserve Account
for a Series may be funded through application of all or a portion of the excess
cash flow from the Base Assets for such Series, to the extent described in the
related Prospectus Supplement. If applicable, the initial amount of the Reserve
Account and the Reserve Account maintenance requirements for a Series will be
described in the related Prospectus Supplement. Amounts deposited in a Reserve
Account will be invested by the Trustee (or the Indenture Trustee) in Eligible
Investments meeting certain specified maturity criteria.
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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 the related Prospectus
Supplement pursuant to the related Pooling and Servicing Agreement. In general,
comparable servicing functions will be performed by the WALTR Servicer with
respect to the Receivables underlying any WALTR 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.
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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.
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.
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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.
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
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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, unless otherwise specified in
the related Prospectus Supplement, wholesale automobile receivables, (iii) is
legally qualified and has the capacity to service the Accounts, (iv) has
demonstrated the ability to professionally and completely service a portfolio of
similar accounts in accordance with standards of skill and care customary in the
industry and (v) is qualified to use the software that is then currently being
used to service the Accounts or obtains the right to use or has its own software
which is adequate to perform its duties under the Pooling and Servicing
Agreement.
Indemnification
Except to the extent otherwise provided therein, each Pooling and
Servicing Agreement will provide that the Servicer will indemnify the Trust, the
Trustee and the holders of all Securities of a Series from and against any loss,
liability, expense, damage or injury suffered or sustained by reason of any
acts, omissions or alleged acts or omissions arising out of activities of the
Servicer with respect to the Trust or the Trustee or any co-trustee pursuant to
the Pooling and Servicing Agreement, including those arising from acts or
omissions of the Servicer pursuant to the Pooling and Servicing Agreement,
including but not limited to any judgment, award, settlement, reasonable
attorneys' fees and other costs or expenses incurred in connection with the
defense of any actual or threatened action, proceeding or claim; provided,
however, that the Servicer shall not indemnify: (i) the Trust or the Trustee if
such acts, omissions or alleged acts or omissions constitute fraud, gross
negligence, breach of fiduciary duty or misconduct by the Trustee; (ii) the
Trust, the Trustee or the holders of such Securities for any liability, cost or
expense of the Trust with respect to any action taken by the Trust at the
request of such holders in accordance with the Pooling and Servicing Agreement
or with respect to any Federal, state or local income or franchise taxes (or any
interest or penalties with respect thereto) required to be paid by the Trust or
such holders to any taxing authority; or (iii) the Trust or such holders for any
losses incurred by any of them as a result of defaulted Receivables or
Receivables which are written off as uncollectible unless such write-off is
caused by a breach of the Pooling and Servicing Agreement by the Servicer.
Subject to certain exceptions in the Pooling and Servicing Agreement, any
indemnification pursuant to the Pooling and Servicing Agreement will be only
from the assets of the Servicer.
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
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related Notes and the Indenture. Where particular provisions or terms used in
such Notes or Indentures are referred to herein, the actual provisions
(including definitions of terms) are incorporated herein by reference as part of
such summaries.
The Notes included in any Series will be issued in one or more Classes.
The Notes will only be issued in fully registered form, without coupons, in the
authorized denominations for each Class specified in the related Prospectus
Supplement. Upon satisfaction of the conditions, if any, applicable to a Class
of Notes of a Series, as described in the related Prospectus Supplement, the
transfer of the Notes may be registered, and the instruments evidencing such
Notes may be exchanged, at the office of the registrar (which may be the
Indenture Trustee) appointed from time to time pursuant to the Indenture (the
"Registrar") without the payment of any service charge other than any tax or
governmental charge payable in connection with such registration of transfer or
exchange. If specified in the related Prospectus Supplement, one or more Classes
of Notes of a Series may be available in book-entry form only.
Payments of principal of and interest, if any, on the Notes of a Series
will be made on the dates specified in the related Prospectus Supplement (the
"Payment Dates") by check mailed to holders of such Notes, registered as such at
the close of business on the record date applicable to such Payment Dates at
their addresses appearing on the register of Notes for such Series or in such
other manner specified in the related Prospectus Supplement, except that (a)
payments may be made by wire transfer (at the expense of the Noteholder
requesting payment by wire transfer) in certain circumstances described in the
related Prospectus Supplement and (b) final payments of principal in retirement
of any Note will be made only upon presentation and surrender of such Note at
the office of the Indenture Trustee specified in the related Prospectus
Supplement. Notice of the final payment on a Note will be mailed to the holder
of such Note before the Payment Date on which the final principal payment on any
Note is expected to be made to the holder of such Note.
Payments of principal of and interest on the Notes will be made by the
Indenture Trustee, or a paying agent provided for under the Indenture, as
specified in the related Prospectus Supplement.
Payments of Interest and Principal
Each Class of Notes of a Series will have a stated principal amount,
notional amount or no principal amount and will bear interest at a specified
Note Interest Rate or will not bear interest. Each Class of Notes may have a
different Note Interest Rate, which may be fixed, variable or an adjustable Note
Interest Rate, or any combination of the foregoing. The Notes included in any
Series may 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
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the right to receive payments of principal on any given Payment Date in the
applicable amount set forth in such schedule with respect to such Notes. Notes
may also be subject to prepayment of principal to the extent set forth in the
related Prospectus Supplement.
With respect to a Series that includes two or more Classes of Notes,
each Class may differ as to the timing and priority of payments, seniority,
allocations of losses, Note Interest Rates or amount of payments of principal or
interest, and payments of principal or interest in respect of any such Class or
Classes may be subject to the occurrence of specified events or may be made on
the basis of collections from designated portions of the Base Assets. If
specified in the related Prospectus Supplement, one or more Classes of Notes
("Strip Notes") may be entitled to (i) principal payments with disproportionate,
nominal or no interest payments or (ii) interest payments with disproportionate,
nominal or no principal payments.
Certain Provisions of the Indenture
Events of Default; Rights upon Event of Default. "Events of Default" in
respect of a Series of Notes under the related Indenture will consist of certain
events specified in the Related Prospectus Supplement, which events will
include: (i) a default for five days or more in the payment of any interest on
any such Note; (ii) a default in the payment of the principal of, or any
installment of the principal of, any such Note when the same becomes due and
payable; (iii) a default by the related Trust in the observance or performance
in any material respect of any covenant or agreement made in such Indenture and
the continuation of any such default for a period of 30 days after notice
thereof is given to the related Trust by the applicable Indenture Trustee or to
such Trust and the related Indenture Trustee by the holders of 25% of the
aggregate outstanding principal amount of such Notes; (iv) any representation or
warranty made by such Trust in the related Indenture or in any certificate
delivered pursuant thereto or in connection therewith having been incorrect in
any material respect as of the time made, if such breach is not cured with 30
days after notice thereof is given to such Trust by the applicable Indenture
Trustee or to such Trust and such Indenture Trustee by the holders of 25% of the
aggregate outstanding principal amount of such Notes; (v) certain events of
bankruptcy, insolvency, receivership or liquidation with respect to such Trust;
or (vi) such other events as shall be specified in the related Prospectus
Supplement. The amount of principal required to be paid to Noteholders of each
Series under the related Indenture on any Payment Date generally will be limited
to amounts available to be deposited in the applicable Payment Account;
therefore, the failure to pay principal on a Class of Notes generally will not
result in the occurrence of an Event of Default until the applicable final
scheduled Payment Date for such Class of Notes.
If an Event of Default should occur and be continuing with respect to
the Notes of any Series, the related Indenture Trustee or holders of a majority
in principal amount of such Notes may declare the principal of such Notes to be
immediately due and payable. Such declaration may, under certain circumstances,
be rescinded by the holders of a majority in principal amount of such Notes then
outstanding. If the Notes of any Series are declared due and payable following
an Event of Default, the related Indenture Trustee may institute proceedings to
collect amounts due thereon, foreclose on the property of the Trust, exercise
remedies as a secured party, sell the related Base Assets or elect to have the
applicable Trust maintain possession of such Base Assets and continue to apply
collections on such Base Assets as if there had been no declaration of
acceleration. The Indenture Trustee, however, will be prohibited from selling
the Base Assets following an Event of Default, other than a default in the
payment of any principal of, or a default for five days or more in the payment
of any interest on, any Note of such Series, unless one of certain conditions
specified in the related Prospectus Supplement are met, which conditions
generally will include (i) the holders of all such outstanding Notes consent to
such
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sale, (ii) the proceeds of such sale are sufficient to pay in full the principal
of and the accrued and unpaid interest on such outstanding Notes at the date of
such sale or (iii) such Indenture Trustee determines that the proceeds of the
Base Assets would not be sufficient on an ongoing basis to make all payments on
such Notes as such payments would become due if such obligations had not been
declared due and payable, and such Indenture Trustee obtains the consent of the
holders of 66 2/3% of the aggregate outstanding principal amount of such Notes.
Subject to the provisions of the applicable Indenture relating to the
duties of the related Indenture Trustee, if an Event of Default occurs and is
continuing with respect to a Series of Notes, such Indenture Trustee will be
under no obligation to exercise any of the rights or powers under the Indenture
at the request or direction of any of the holders of such Notes if it reasonably
believes it will not be adequately indemnified against the costs, expenses and
liabilities that might be incurred by it in complying with such request. Subject
to the provisions for indemnification and certain limitations contained in the
related Indenture, the holders of a majority of the aggregate outstanding
principal amount of the Notes of a Series will have the right to direct the
time, method and place of conducting any proceeding or exercising any remedy
available to the related Indenture Trustee; in addition, the holders of Notes
representing a majority of the aggregate outstanding principal amount of such
Notes may, in certain cases, waive any default with respect thereto, except a
default in the payment of principal of or interest on any Note or a default in
respect of a covenant or provision of such Indenture that cannot be modified or
amended without the waiver or consent of the holders of all the outstanding
Notes of such Series.
No holder of a Note will have the right to institute any proceeding
with respect to the related Indenture, unless certain conditions specified in
such Indenture have been satisfied, which conditions generally will include (i)
such holder previously has given to the applicable Indenture Trustee written
notice of a continuing Event of Default; (ii) the holders of not less than 25%
of the outstanding principal amount of such Notes have made written request to
such Indenture Trustee to so institute such proceeding in its own name as
Indenture Trustee; (iii) such holder or holders have offered such Indenture
Trustee reasonable indemnity; (iv) such Indenture Trustee has for 60 days failed
to institute such proceeding; and (v) no direction inconsistent with such
written request has been given to such Indenture Trustee during such 60-day
period by the holders of a majority of the outstanding principal amount of the
Notes of such Series.
With respect to any Series of Securities that includes Notes, none of
the related Indenture Trustee in its individual capacity, the related Trustee in
its individual capacity, any holder of a Certificate representing an ownership
interest in such Trust or any other holder of an interest in such Trust, or any
of their respective beneficiaries, agents, officers, directors, employees,
affiliates, successors or assigns will, in the absence of an express agreement
to the contrary, be personally liable for the payment of the principal of or
interest on the related Notes or for the agreements of such Trust contained in
the related Indenture.
No Trust may engage in any activity other than as described herein or
in the related Prospectus Supplement. Except as and to the extent provided in
the related Prospectus Supplement, no Trust will incur, assume or guarantee any
indebtedness other than indebtedness incurred pursuant to the related Notes and
the related Indenture.
Certain Covenants. Each Indenture will provide that the related Trust
may not consolidate with or merge into any other entity, unless certain
conditions, which shall be specified in such Indenture shall be satisfied, which
conditions generally will include (i) the entity formed by or surviving such
consolidation or merger is organized under the laws of the United States, any
state of the United States or
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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.
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)
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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.
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
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The following summaries describe the material provisions in the
Agreements which generally are anticipated to be common to the Trust Agreements
and to the Pooling and Servicing Agreement. The summaries do not purport to be
complete and are subject to, and are qualified in their entirety by reference
to, the provisions of the Prospectus Supplement and Agreement relating to each
Series of Certificates. Where particular provisions or terms used in such
Certificates or Agreements are referred to herein, the actual provisions
(including definitions of terms) are incorporated herein by reference as part of
such summaries.
The related Prospectus Supplement will provide that each Class of
Certificates will have an original principal amount, no principal amount or
notional amount and will accrue interest on such original principal amount or
notional at a specified Certificate Interest Rate or will not bear interest.
Each Class of Certificates may have a different Certificate Interest Rate, which
may be a fixed, variable or adjustable Certificate Interest Rate, or any
combination of the foregoing. The related Prospectus Supplement will specify the
Certificate Interest Rate, or the method for determining the applicable
Certificate Interest Rate, for each Class of Certificates.
A Series of Securities may include two or more Classes of Certificates
that differ as to timing and priority of distributions, seniority, allocations
of losses, Certificate Interest Rate or amount of distributions in respect of
principal or interest. Additionally, distributions in respect of principal or
interest in respect of any such Class or Classes may or may not be made upon the
occurrence of specified events or on the basis of collections from designated
portions of the related Base Assets. If specified in the related Prospectus
Supplement, one or more Classes of Certificates may be Strip Certificates. If a
Series of Securities includes Classes of Notes, distributions in respect of the
Certificates may be subordinated in priority of payment to payments on the Notes
to the extent specified in the related Prospectus Supplement.
Certificates will be available for purchase in a minimum denomination
of $100,000 or such other minimum denominations as the Prospectus Supplement
shall provide and in integral multiples of $1,000 in excess thereof and will be
available in book-entry form or if provided in the related Prospectus
Supplement, as Definitive Certificates. If the Certificates will be available in
book-entry form only, the related Prospectus Supplement will provide that
Certificateholders will be able to receive Definitive Certificates only in the
limited circumstances described herein or in such related Prospectus Supplement.
The Certificates of each Series will be issued only in fully registered form,
without coupons, in the authorized denominations for each Class specified in the
related Prospectus Supplement. Upon satisfaction of the conditions, if any,
applicable to a Class of Certificates of a Series, as described in the related
Prospectus Supplement, the transfer of the Certificates may be registered and
the Certificates may be exchanged at the office of the Trustee specified in the
related Prospectus Supplement without the payment of any service charge other
than any tax or governmental charge payable in connection with such registration
of transfer or exchange.
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
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Certificate at the office of the Trustee specified in the related Prospectus
Supplement. Notice of the final payment on a Certificate will be mailed to the
holder of such Certificate before the Payment Date on which the final principal
payment on any Certificate is expected to be made to the holder of such
Certificate.
Payments of principal of and interest, if any, on the Certificates will
be made by the Trustee, or a paying agent on behalf of the Trustee, as specified
in the related Prospectus Supplement. All payments with respect to the Base
Assets for a Series, together with reinvestment income thereon, amounts
withdrawn from any Reserve Account and amounts available pursuant to any other
Series Enhancement generally will be deposited directly into the Collection
Account net (if and as provided in the related Prospectus Supplement) of certain
amounts payable to the Servicer under the related Agreement and specified in the
related Prospectus Supplement, and will thereafter be deposited into the
applicable Payment Accounts and be available to make payments on Certificates of
such Series on the next Payment Date, as the case may be. See "THE TRUST ASSETS
- --Collection and Payment Accounts" .
Payments of Interest
The Certificates of each Class which by their terms are entitled to
receive interest will bear interest (calculated on the basis of a 360-day year
of twelve 30-day months or such other basis as is specified in the related
Prospectus Supplement) from the date and at the rate per annum specified, or
calculated in the method described, in the related Prospectus Supplement.
Interest on such Certificates of a Series will be payable on the Payment Dates
specified in the related Prospectus Supplement. The rate of interest on one or
more Classes of Certificates of a Series may be fixed, floating, variable or
adjustable. A Class of Certificates may by its terms be "Principal Only
Certificates", which may not be entitled to receive any interest distributions
or may be entitled to receive only nominal interest distributions. A Class of
Certificate may by its terms be "Zero Coupon Certificates", the interest on
which is not paid on the related Payment Date, but will accrue and be added to
the principal thereof on such Payment Date.
Interest payable on the Certificates on a Payment Date will include all
interest accrued during the related period specified in the related Prospectus
Supplement. In the event interest accrues during the calendar month preceding a
Payment Date, the effective yield to Certificateholders will be reduced from the
yield that would otherwise be obtainable if interest payable on the Certificates
were to accrue through the day immediately preceding such Payment Date.
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
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of the outstanding principal amounts of such Certificates, it is likely that the
final principal payment with respect to a Class of Certificates will occur
earlier, and may occur substantially earlier than its Final Scheduled Payment
Date.
Receivables Pooling Certificates
Investor Certificateholders' Interest; Depositor's Interest. In the
case of a Series of Receivables Pooling Certificates, a portion of the assets of
the related Trust will be allocated among the Investor Certificateholders'
Interest and the remainder will be allocated to the Depositor's Interest and as
provided in the related Prospectus Supplement. The Depositor's Interest
represents the rights to the assets of the Trust not allocated to the Investor
Certificateholders' Interest of any Series or any interests in the Trust issued
as Series Enhancement. In the case of a Master Trust, the related Seller may
cause the issuance of additional Series of Certificates from time to time and
any such issuance will have the effect of decreasing the Depositor's Interest.
The Depositor's Interest may be evidenced by an exchangeable certificate that is
subject to certain transfer restrictions. The aggregate principal amount of the
Investor Certificateholders' Interest will, except as provided herein or in the
related Prospectus Supplement, remain fixed at the aggregate initial principal
amount of the Certificates of such Series and the principal amount of the
Depositor's Interest will fluctuate as the amount of the Principal Receivables,
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 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
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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 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)
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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 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
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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.
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
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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 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
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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.
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
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(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 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
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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 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
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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 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
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transactions in such securities settled during such processing will be reported
to the relevant Euroclear Participant or CEDEL Participant on such business day.
Cash received in CEDEL or Euroclear as a result of sales of securities by or
through a CEDEL Participant or a Euroclear Participant to a DTC Participant will
be received with value on the DTC settlement date but will be available in the
relevant CEDEL or Euroclear cash account only as of the business day following
settlement in DTC. For additional information regarding clearance and settlement
procedures for the Securities, see Annex I hereto and for information with
respect to tax documentation procedures relating to the Securities, see Annex I
hereto and "CERTAIN FEDERAL INCOME TAX CONSEQUENCES -- Foreign Investors" .
DTC is a limited-purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York UCC, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
was created to hold securities for its Participants and facilitate the clearance
and settlement of securities transactions between Participants through
electronic book-entry changes in accounts of its Participants, thereby
eliminating the need for physical movement of certificates. Participants include
securities brokers and dealers, banks, trust companies and clearing corporations
and may include certain other organizations (including the Underwriters).
Indirect access to the DTC System also is available to others such as banks,
brokers, dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly (the "Indirect
Participants").
Holders of Securities that are not Participants or Indirect
Participants but desire to purchase, sell or otherwise transfer ownership of, or
other interests in, Securities may do so only through Participants and Indirect
Participants. In addition, holders of Securities will receive all distributions
of principal of and interest on the Securities from the Trustee (or the
Indenture Trustee), as paying agent, or its successor in such capacity (the
"Paying Agent"), through the Participants who in turn will receive them from
DTC. Under a book-entry format, holders of Securities may experience some delay
in their receipt of payments, since such payments will be forwarded by the
Paying Agent to Cede, as nominee for DTC. DTC will forward such payments to its
Participants which thereafter will forward them to Indirect Participants or
holders of Securities. It is anticipated that the only "Certificateholder",
"Noteholder" and/or "Securityholder" for a Series will be Cede, as nominee of
DTC. Holders of Securities would not then be recognized by the Trustee as
"Certificateholders", "Noteholders" or "Securityholders", as such terms are used
in the Agreement, and holders of Securities would only be permitted to exercise
the rights of a "Certificateholder", "Noteholder" or "Securityholder" indirectly
through the Participant who in turn will exercise such rights through DTC.
Under the rules, regulations and procedures creating and affecting DTC
and its operations, DTC is required to make book-entry transfers among
Participants on whose behalf it acts with respect to the Securities and is
required to receive and transmit distributions of principal of and interest on
the Securities. Participants and Indirect Participants with which holders of
Securities have accounts with respect to the Securities similarly are required
to make book-entry transfers and receive and transmit such payments on behalf of
their respective holders of Securities. Accordingly, although holders of
Securities will not possess Securities, holders of Securities will receive
payments and will be able to transfer their interests.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants, the ability of a holder of Securities to pledge
Securities to persons or entities that do not participate in the DTC system, or
otherwise take actions in respect of such Securities, may be limited due to the
lack of a physical certificate or instrument for such Securities.
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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 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.
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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 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
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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.
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
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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 WALTR 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 WALTR Securities, will be
applied to the purchase of the related WALTR 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
WALTR Securities will be purchased by the Trust from time to time during the
Funding Period provided for therein. The Trustee will cause any WALTR 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 WALTR Securities. The Trustee will not be in
possession of or be assignee of record of any underlying assets for a WALTR
Security. See "THE TRUST ASSETS -- WALTR Securities".
Each WALTR Security to be transferred to the Trust will be identified
in a schedule appearing as an exhibit to the related Trust Agreement (the "WALTR
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 WALTR
Security. In the Trust Agreement, to the extent that any WALTR Securities are
purchased from the Depositor, the Depositor will represent and warrant to the
Trustee regarding the WALTR Securities: (i) that the information contained in
the WALTR Schedule is true and correct in all material respects; (ii) that,
immediately prior to the conveyance of the WALTR 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 WALTR Securities; and (iv) that there is no existing
lien, charge, security interest or other encumbrance on such WALTR 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
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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.
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 or such other entity may,
rather than repurchase a Base Asset as described above, remove such Base Asset
from the Trust (the "Removed
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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 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.
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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 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
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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.
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-
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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, 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
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such other amendments as are specified in the related Prospectus Supplement;
provided that any such amendment pursuant to clause (iv) or (vii) above will not
adversely affect in any material respect the interests of any Securityholders of
such Series, as evidenced by an opinion of counsel. Any such amendment except
pursuant to clause (vi) of the preceding sentence shall be deemed not to
adversely affect in any material respect the interests of any Securityholder if
the Trustee receives written confirmation from each Rating Agency rating such
Securities that such amendment will not cause such Rating Agency to reduce the
then current rating thereof. The Agreement for each Series may also be amended
by the Depositor and the Trustee, and where applicable the Seller and the
Servicer, with the consent of the holders of the required percentages of the
outstanding Securities of each Series affected thereby specified in the related
Prospectus Supplement, for the purpose of adding any provisions to or changing
in any manner or eliminating any of the provisions of such Agreement or
modifying in any manner the rights of Securityholders of such Series; provided,
however, that no such amendment may (a) reduce the amount or delay the timing of
payments on any Security without the consent of the holder of such Security; or
(b) reduce the aforesaid percentage of aggregate outstanding principal amount of
Securities of each Class, the holders of which are required to consent to any
such amendment.
List of Certificateholders
Upon written request of three or more Certificateholders of record of a
Series for purposes of communicating with other Certificateholders with respect
to their rights under the Agreement or under the Certificates for such Series,
which request is accompanied by a copy of the communication which such
Certificateholders propose to transmit, the Trustee will afford such
Certificateholders access during business hours to the most recent list of
Certificateholders of that Series held by the Trustee.
No Agreement will provide for the holding of any annual or other
meeting of Certificateholders.
Termination
The obligations created by the Agreement for a Series will terminate
upon the distribution to Certificateholders of all amounts distributable to them
pursuant to such Agreement after the earliest to occur of (i) the final payment
or other liquidation of the last Base Asset remaining in the Trust for such
Series or (ii) the repurchase, as described below, by the Servicer from the
Trustee for such Series of all Base Assets and other property at that time
subject to the Agreement. The Agreement for each Series will permit, but will
not require, the Servicer, the Seller and/or the Depositor to repurchase from
the Trust for such Series all remaining Base Assets at a price equal to 100% of
the aggregate principal amount of such Base Assets plus, with respect to any
property acquired in respect 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
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"DESCRIPTION OF THE CERTIFICATES-- Receivables Pooling Certificates -- Optional
Termination; Final Payment of Principal".
Payment in Full of the Notes
With respect to any Series of Securities that includes Notes, the Trust
Agreement will provide that upon the payment in full of all outstanding Notes of
a given Series and the satisfaction and discharge of the related Indenture, the
related Trustee will succeed to all the rights of the Indenture Trustee, and the
Certificateholders of such Series will succeed to all the rights of the
Noteholders of such Series under such Trust Agreement, to the extent and in the
matter provided therein.
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES
The following discussion contains summaries of certain legal aspects of
wholesale automobile 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 WALTR 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 WALTR 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 WALTR
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 "chattel paper" for
purposes of the UCC. Both the transfer of accounts and the transfer of accounts
as security for an obligation are treated under Article 9 of the UCC as creating
a security interest therein and are subject to its provisions, and the filing of
appropriate financing statements is required to perfect the security interest of
the Trust. Financing statements covering the Receivables will be filed with the
appropriate governmental authority to protect the interest of the Depositor and
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
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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.
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 Credit Suisse First Boston, Inc. Neither Credit
Suisse First Boston, Inc., nor any of its 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 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
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The following is a general discussion of the anticipated material
United States federal income tax consequences of the purchase, ownership and
disposition of Securities. Stroock & Stroock & Lavan LLP, New York, New York or
such other counsel specified in the related Prospectus Supplement ("Federal Tax
Counsel"), will deliver 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 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 Federal Tax Counsel'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 Federal Tax Counsel regarding certain federal income tax
matters. An opinion of Federal Tax Counsel, however, is not binding on the IRS
or the courts. No ruling on any of the issues discussed below will be sought
from the IRS. For purposes of the following summary, references to the Trust,
the Notes, the Certificates and related terms, parties and documents shall be
deemed to refer, unless otherwise specified herein, to each Trust and the Notes,
Certificates and related terms, parties and documents applicable to such Trust.
OWNER TRUSTS
TAX CHARACTERIZATION OF THE OWNER TRUSTS
In the case of an Owner Trust, Federal Tax Counsel will deliver its
opinion that the Trust will not be an association (or publicly traded
partnership) taxable as a corporation for federal income tax purposes. The
opinion of Federal Tax Counsel will be based on the assumption that the terms of
the Trust Agreement and related documents will be complied with, and on such
counsel's conclusions that the nature of the income of the Trust, or the
restrictions (if any) on transfers of the Certificates, will exempt the Trust
from the rule that certain publicly traded partnerships are taxable as
corporations.
If an Owner Trust were taxable as a corporation for federal income tax
purposes, the Owner Trust would be subject to corporate income tax on its
taxable income. The Trust's taxable income would include all of its income on
the related Base Assets, which might be reduced by its interest expense on the
Notes. Any such corporate income tax could materially reduce cash available to
make payments on the Notes and distributions on the Certificates, and
Certificate Owners (and possibly Note Owners) could be liable for any such tax
that is unpaid by the Trust.
TAX CONSEQUENCES TO NOTE OWNERS
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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 treated as a
publicly traded partnership that would be taxable as a corporation unless it met
certain qualifying income tests (and the resulting taxable corporation would not
be able to reduce its taxable income by deductions for interest expense on Notes
recharacterized as equity). 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 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.
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 under Sections 1271-1275 of the Code (the "OID Regulations"),
interest is considered unconditionally payable only if late payment or
nonpayment is remote or reasonable remedies exist to compel payment. If stated
interest is payable at a variable rate other than in accordance with the
foregoing, the interest will not be treated as "qualified stated interest", and
it is unclear whether such payments must be treated as part of a Note's "stated
redemption price at maturity" (as described below) and governed by the rules
described below under "--Original Issue Discount" or, alternatively, must be
taxed as contingent interest under (or under rules similar to) the 1996
Contingent Debt Regulations, or in some other manner.
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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 0.65 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 less than or equal to 0.65, however, such
rate will generally constitute an objective rate, described more fully below.
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 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 inversely reflect 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 (or under rules similar
to) the 1996 Contingent Debt Regulations, or some other manner.
Original Issue Discount. Notes may be issued with "original issue
discount". Rules governing original issue discount are set forth in Sections
1271-1275 of the Code and the OID Regulations. The discussion herein is based in
part on the OID Regulations. 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".
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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 (as specially defined for tax purposes). Because of the possibility
of prepayments, it is not clear how the de minimis rules will apply to the
Notes. It is likely 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, a 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 "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
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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 or qualified
inverse floating rate, equals the value of such qualified floating rate as or
qualified inverse floating rate as of the issue date of the Note, or, in the
case of an objective rate other than a qualified floating rate, at a fixed rate
that reflects the yield that is reasonably expected for the Note. A holder of
such a Note would then recognize original issue discount during each accrual
period which is calculated based upon such Note's assumed yield to maturity. If
the interest actually accrued or paid during an accrual period exceeds (or is
less than) the constant interest assumed to be accrued or paid during the
accrual period under the foregoing rules, qualified stated interest or original
issue discount allocable to an accrual period is increased (or decreased) under
rules set forth in the OID Regulations.
The Depositor believes that the owner of a Note determined to be issued
with original issue discount will be required to include the original issue
discount in ordinary gross income for federal income tax purposes computed in
the manner described above. However, the OID Regulations either do not address
or are subject to varying interpretations with respect to several issues
concerning the computation of original issue discount for obligations such as
the Notes.
Market Discount. Notes, whether or not issued with original issue
discount, will be subject to the market discount rules of the Code. A purchaser
of a Note who purchases the Note at a price that is less than the Note's "stated
redemption price at maturity" or, in the case of a Note issued with original
issue discount, at a price that is less than the Note's "adjusted issue price"
(as such terms are described above under "--Original Issue Discount") will be
required to recognize accrued market discount as ordinary income as payments of
principal are received on such Note or upon the sale or exchange of the Note. In
general, the holder of a Note may elect to treat market discount as accruing
either (i) under a constant yield method that is similar to the method for the
accrual of original issue discount or (ii) in proportion to accruals of original
issue discount (or, if there is no original issue discount, in proportion to
accruals of stated interest), in each case computed taking into account the
Prepayment Assumption. The amount of accrued market discount for purposes of
determining the amount of ordinary income to be recognized with respect to
subsequent payments on such a Note is to be reduced by the amount previously
treated as ordinary income under the market discount rule.
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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
its weighted average remaining life as computed for tax purposes. 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 is
made.
The Code grants authority to the Treasury Department to issue
regulations providing for the computation of accrued market discount on debt
instruments, such as 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 under Code Section 171 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. Although there are Treasury
regulations dealing with amortizable bond premiums, they specifically do not
apply to prepayable debt instruments subject to Section 1272(a)(6), such as the
Notes. However, by analogy to such regulations, any premium in excess of
interest income may be deductible to the extent of prior accruals of interest.
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.
Election to Treat All Interest as Original Issue 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. See "--Market Discount" above. 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 at
the beginning of the first taxable year to which the election applies or
acquires thereafter. 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
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basis in such Note. The adjusted basis generally will equal the cost of such
Note to the seller, increased by any original issue discount and market discount
on such Note included in the seller's income, and reduced (but not below zero)
by any payments on the Note other than qualified stated interest and reduced
further by any amortizable premium. Except as discussed above with respect to
market discount, any gain or loss recognized upon a sale, exchange, retirement,
or other disposition of a Note will be capital gain or loss if the Note is held
as a capital asset and as long-term capital gain or loss if the Note Owner's
holding period exceeded one year. 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 Person other than a "United States Person" A
"United States Person" is an individual who is a citizen or resident of the
United States, a corporation, partnership or other entity treated as such
created or organized in or under the laws of the United States or any political
subdivision thereof, an estate the income of which is subject to United States
federal income taxation regardless of its source and any trust with respect to
which (i) a court within of the United States is able to exercise primary
supervision over the administration of the trust and (ii) one or more United
States persons have the authority to control all substantial decisions of the
trust. A "Non-United States Holder" means a Non-United States Person that is a
Note Owner.
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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 Holders. The 1997 Withholding Regulations are generally effective for
payments after December 31, 1999, 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 by 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. 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 an 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 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 restated forms and standardize the period of time for
which withholding agents can rely on such certifications.
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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 such
individual has a "tax home" (as defined in Section 911(d)(3) of the Code) 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.
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.
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In the case of a Non-United States Holder, under Treasury Regulations,
backup withholding and information reporting will not apply to payments of
principal and interest made by the Trust or any paying agent thereof on a Note
with respect to which such holder has provided the required certification under
penalties of perjury that it is a Non-United States Holder or has otherwise
established an exemption, provided that (i) the Trust or paying agent, as the
case may be, does not have actual knowledge that the payee is a United States
person and (ii) certain other conditions are satisfied.
Subject to the discussion below, payments to or through the United
States office of a broker will be subject to backup withholding and information
reporting unless the holder certifies under penalties of perjury as to its
status as a Non-United States Holder and certain other qualifications (and no
agent of the broker who is responsible for receiving or reviewing such statement
has actual knowledge that it is incorrect) and provides his or her name and
address or the holder otherwise establishes an exemption.
In general, if principal or interest payments on a Note are collected
outside the United States by a foreign office of a custodian, nominee or other
agent acting on behalf of a Note Owner, such custodian, nominee or other agent
will not be required to apply backup withholding to such payments made to such
owner and will not be subject to information reporting. However, if such
custodian, nominee or other agent is a United States Person for United States
federal income tax purposes, a controlled foreign corporation for United States
tax purposes, or a foreign person 50% or more of whose gross income is
effectively connected with its conduct of a United States trade or business for
a specified three-year period, such custodian, nominee or other agent may be
subject to certain information reporting (but not backup withholding)
requirements with respect to such payment unless such custodian, nominee or
other agent has in its records documentary evidence that the Note Owner is not a
United States person and certain conditions are met or the Note Owner otherwise
establishes an exemption.
Under 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.
The 1997 Withholding Regulations alter the forgoing rules in certain
respects. In particular, the 1997 Withholding Regulations will 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.
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
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Treatment of the Trust as a Partnership. The Trust will agree, and the
related Certificate Owners will agree by their purchase of Certificates, to
treat the Trust as a partnership for purposes of federal and state income tax,
franchise tax and any other tax measured in whole or in part by income, with the
assets of the partnership being the assets held by the Trust, the partners of
the partnership being the Certificate Owners (including, to the extent relevant,
the Seller or the Depositor in its capacity as recipient of distributions from
any reserve fund), and the Notes being debt of the partnership. However, the
proper characterization of the arrangement involving the Trust, the
Certificates, the Notes, the Seller, the Depositor and the Servicer is not
certain because there is no authority on transactions closely comparable to that
contemplated herein. A variety of alternative characterizations are possible.
For example, to the extent the Certificates have certain features characteristic
of debt, the Certificates might be considered debt of the Seller, the Depositor
or the Trust. As long as such characterization did not result in the Trust being
subject to tax as a corporation, any such characterization is not expected to
result in materially adverse tax consequences to Certificate Owners as compared
to the consequences from treatment of the Certificates as equity in a
partnership, described below.
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. 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
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income of the Trust for each month equal to the sum of: (i) the interest or
other income that accrues on the Certificates in accordance with their terms for
such month including, as applicable, interest accruing at the related
Certificate Interest Rate for such month and interest on amounts previously due
on the Certificates but not yet distributed; (ii) any Trust income attributable
to discount on the related Base Assets that corresponds to any excess of the
principal amount of the Certificates over their initial issue price; (iii) any
prepayment premium payable to the Certificate Owners for such month; and (iv)
any other amounts of income payable to the Certificate Owners for such month.
Such allocation will be reduced by any amortization by the Trust of premium on
Base Assets that corresponds to any excess of the issue price of Certificates
over their principal amount. Losses will generally be allocated in the manner in
which they are borne.
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 ($100,000 (or $50,000 in the
case of a separate return by a married individual), adjusted for changes in the
cost of living subsequent to 1990) will be reduced by the lesser of (i) 3% 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. For taxable years beginning after December
31, 1997 in the case of a partnership that has 100 or more partners and elects
to be treated as an "electing large partnership," 70% of such partnership
miscellaneous itemized deductions will be disallowed, although the remaining
deductions will generally be allowed at the partnership level and will not be
subject to the 2% floor that would otherwise be applicable to individual
partners.
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.
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Discount and Premium. The purchase price paid by the Trust for the
related Base Assets may be greater or less than the remaining principal balance
of the Base Assets at the time of purchase. If so, the Base Assets will have
been acquired at a premium or market discount, as the case may be. See "Tax
Consequences to Note Owners--Market Discount" and "--Amortizable Premium" above.
(As indicated above, the Trust will make this calculation on an aggregate basis,
but it is possible that the IRS might require that it be recomputed on a Base
Asset-by-Base Asset basis.)
If the Trust acquires the Base Assets at a market discount or premium,
the Trust will elect to include any such discount in income currently as it
accrues over the life of the Base Assets or to offset any such premium against
interest income on the Base Assets. As indicated above, a portion of such market
discount income or premium deduction may be allocated to Certificate Owners.
Section 708 Termination. Under Section 708 of the Code, the Trust will
be deemed to terminate for federal income tax purposes if 50% or more of the
capital and profits interests in the Trust are sold or exchanged within a
12-month period. If such a termination occurs, the Trust will be considered to
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.
Any such gain or loss would be long-term capital gain or loss if the Certificate
Owner's holding period exceeded one year. 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 or losses allocated
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 timely file tax returns that
are consistent with the information return filed by the Trust or be subject to
penalties unless the holder timely 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 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.
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 certain disputes 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 the later of three years after the date
on which the partnership information return is filed or the last day for filing
such return for such year (determined without regard to extension). Any adverse
determination following an audit of the return of the Trust by the appropriate
taxing authorities could result in an adjustment of
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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 in order to assure
appropriate crediting of the taxes withheld. Assuming that the Trust is
determined not to be engaged in a U.S. trade or business, a Non-United States
Owner might be entitled to a refund with respect to all or a portion of taxes
withheld by the Trust if, in particular, such Owner's allocable share of
interest from the Trust constituted "portfolio interest" under the Code.
Such interest, however, may not constitute "portfolio interest" if,
among other reasons, the underlying obligation is not in registered form or if
the interest is determined without regard to the income of the Trust (in the
later case, such interest being properly characterized as a guaranteed payment
under Section 707(c) of the Code). If this were the case, Non-United States
Owners would be subject to a United States federal income and withholding tax at
a rate of 30 percent on the Trust's gross income (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, if any, 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
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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.
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 (other than interest) 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 ($100,000 (or $50,000 in the case of a separate return by a married
individual), adjusted for changes in the cost of living subsequent to 1990 will
be reduced by the lesser of (i) 3% 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. For taxable years beginning after
December 31, 1997, in the case of a partnership that has 100 or more partners
and elects to be treated as an "electing large partnership," 70% of such
partnership miscellaneous itemized deductions will be disallowed, although the
remaining deductions will generally be allowed at the partnership level and will
not be subject to the 2% floor that would otherwise be applicable to individual
partners.
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The servicing compensation to be received by the Servicer might be
questioned by the IRS with respect to certain Certificates or Base Assets as
exceeding a reasonable fee for the services being performed in exchange
therefor, and a portion of such servicing compensation could be recharacterized
as an ownership interest retained by the Servicer or other party in a portion of
the interest payments to be made pursuant to the Base Assets. In this event, a
Certificate might be treated as a Stripped Certificate subject to the stripped
bond rules of Section 1286 of the Code and therefore be subject to the original
issue discount rules. See the discussion below under "--Stripped Certificates".
Except as discussed below under "--Stripped Certificates" or "--Subordinated
Certificates", this discussion assumes that the servicing fees paid to the
Servicer do not exceed reasonable servicing compensation.
A purchaser of a Grantor Trust Certificate will be treated as
purchasing an interest in each Base 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 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.
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.
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
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been a separation of ownership of the right to receive some or all of the
principal payments on a Base Asset from ownership of the right to receive some
or all of the related interest payments. In general, where such separation has
occurred, under the stripped bond rules of Section 1286 of the Code the holder
of a right to receive a principal or interest payment on the Base Asset is
required to accrue into income, on a constant yield basis under rules governing
original issue discount (see "Owner Trust--Tax Consequences to Note
Owners--Original Issue Discount"), the difference between the holder's initial
purchase price for such right and the principal or interest payment to be
received with respect to such right.
Certificates will constitute Stripped Certificates and will be subject
to these rules under various circumstances, including the following: (i) if any
servicing compensation is deemed to exceed a reasonable amount (see "--Taxation
of Grantor Trust Certificateholders--General", above); (ii) if the Company or
any other party retains a retained yield with respect to the Base Assets held by
the Trust; (iii) if two or more classes of Certificates are issued representing
the right to non-pro rata percentages of the interest or principal payments on
the Base Assets; or (iv) if Certificates are issued which represent the right to
interest-only payments or principal-only payments.
The tax treatment of the Stripped Certificates with respect to the
application of the original issue discount provisions of the Code is currently
unclear. However, the Trustee intends to treat each Stripped Certificate as a
single debt instrument issued on the day it is purchased for purposes of
calculating any original issue discount. Original issue discount with respect to
a Stripped Certificate must be included in ordinary gross income for federal
income tax purposes as it accrues in accordance with the constant yield method
that takes into account the compounding of interest and such accrual of income
may be in advance of the receipt of any cash attributable to such income. See
"Owner Trust--Tax Consequences to Note Owners--Original Issue Discount" above.
For purposes of applying the original issue discount provisions of the Code, the
issue price of a Stripped Certificate will be the purchase price paid by each
holder thereof and the stated redemption price at maturity may include the
aggregate amount of all payments to be made with respect to the Stripped
Certificate whether or not denominated as interest. The amount of original issue
discount with respect to a Stripped Certificate may be treated as zero under the
original issue discount de minimis rules described above.
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 Grantor Trust Certificateholders would deemed to have
acquired the following assets: (i) the principal portion of each Base Asset plus
a portion of the interest due on each Base Asset (the "Trust Stripped Bond"),
and (ii) a portion of the interest due on each Base Asset equal to the
difference between the Certificate Interest Rate on the Subordinate Certificates
and the Certificate Interest Rate on the Senior Certificates, if any, which
difference is then multiplied by the Subordinate Class Percentage (the "Trust
Stripped Coupon"). The "Subordinate Class Percentage" equals the initial
aggregate principal amount of the Subordinate Certificates divided by the sum of
the initial aggregate principal amount of the Subordinate Certificates and the
Senior Certificates. The "Senior Class Percentage" equals the initial aggregate
principal amount of the Senior Certificates divided by the sum of the initial
aggregate principal amount of the Subordinate Certificates and the Senior
Certificates.
The Senior Certificateholders in the aggregate will own the Senior
Class Percentage of the Trust Stripped Bond and accordingly each Senior
Certificateholder will be treated as owning its pro rata share of such asset.
The Senior Certificateholders will not own any portion of the Trust Stripped
Coupon. The
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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 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
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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. See
"--Market Discount" above. 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 at the beginning of
the first taxable year to which the election applies or acquires thereafter. 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 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.
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,
any of the issuers of the Base
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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. If interest or gain is effectively connected
to the conduct of a trade or business within the United States by such Owner,
such owner will be subject to United States federal income tax thereon at
graduated rates and, in the case of a corporation, to a possible branch profits
tax, and will not be subject to withholding tax provided that the owner meets
applicable documentation requirements. Potential investors who are not United
States persons should consult their own tax advisors regarding the specific tax
consequences of owning a Certificate.
On 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, 1999, 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
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of its economic substance. In appropriate circumstances the courts have allowed
taxpayers, as well as the IRS, to treat a transaction in accordance with its
economic substance, notwithstanding that participants characterized the
transaction differently for nontax purposes. In some instances, however, courts
have held that a taxpayer is bound by the particular form it has chosen for a
transaction, even if the substance of the transaction does not accord with its
form. Based on the advice of Federal Tax Counsel, the Depositor and the Seller
believe that the rationale of those cases will not apply to this transaction.
The determination of whether the economic substance of a transfer of an
interest in property is a sale or a loan secured by the transferred property
depends on numerous factors that indicate whether the transferor has
relinquished (and the transferee has obtained) substantial incidents of
ownership in the property. Among the primary factors considered are whether the
transferee has obtained the opportunity for gain if the property increases in
value, has assumed the risk of loss if the property decreases in value and, in
the case of accounts receivable such as the Base Assets, whether the transferee,
at the time of transfer, has a fixed interest in the proceeds of the receivable
when collected. Federal Tax Counsel will consider such factors in rendering its
opinion that the Certificates 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". Interest is considered
unconditionally payable only if reasonable legal remedies exist to compel timely
payment or the debt instrument otherwise contains terms and conditions that make
the likelihood of late payment a remote contingency. See "Owner Trusts - Tax
Consequences to Note Owners - Original Issue Discount" above.
Market Discount and Premium. A Certificate Owner who purchases a
Certificate at a market discount may be subject to the "market discount" rules
of the Code. These rules provide, in part, for the treatment of gain
attributable to accrued market discount as ordinary income upon the receipt of
partial principal payments or on the sale or other disposition of the
Certificate, and for the deferral of interest deductions with respect to debt
incurred to acquire or carry the market discount Certificate. See "Owner
Trusts--Tax Consequences to Note Owners--Market Discount".
If a Certificate is purchased by a Certificate Owner at a premium, such
premium will be amortized as an offset to interest income (with a corresponding
reduction in the Certificate Owner's
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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 or as a
publicly traded partnership taxable as a corporation.
If the Certificates were treated as interests in a partnership, the
partnership would probably be treated as a "publicly traded partnership." A
publicly traded partnership is taxed in the same manner as a corporation unless
at least 90% of its gross income consists of specified types of "qualifying
income." Such qualifying income includes, among other things, "interest" that is
not "derived in the conduct of a financial or insurance business." If a deemed
partnership between the Depositor (or the Seller) and the Certificate Owners
were to qualify for the foregoing exception from taxation as a corporation, the
deemed partnership would not be subject to federal income tax but each item of
income, gain, loss, and deduction generated as a result of the ownership of the
Base Assets by the partnership would be passed through to the Depositor (or the
Seller) and the Certificate Owners as partners in such a partnership according
to their respective interests therein.
The income reportable by the Certificate Owners as partners could
differ from the income reportable by the Certificate Owners as holders of debt
obligations of the Depositor (or the Seller). For example, a cash basis
Certificate Owner might be required to report income when it accrued to the
partnership rather than when it is received by the Certificate Owner. Moreover,
an individual's share of expenses of the partnership would be miscellaneous
itemized deductions that, in the 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.
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If, alternatively, the arrangement created by the Agreement were
treated as a "publicly traded partnership" taxable as a corporation, the
resulting entity would 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.
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
Taxation of Certain Foreign Note Owners. As used herein, the term "Non-
United States Person" means any Person other than a "United States Person." A
"United States Person" is an individual who is a citizen or resident of the
United States, a corporation, partnership or other entity treated as such
created or organized in or under the laws of the United States or any political
subdivision thereof, an estate of income of which is subject to United States
federal income taxation regardless of its source and any trust with respect to
which (i) a court within of de United States is able to exercise primary
supervision over the administration of the trust and (ii) one or more United
States persons have the authority to control all substantial decisions of the
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 Holders. The 1997 Withholding Regulations are generally proposed to be
effective for payments after December 31, 1999, 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")
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and holds the Certificate, certifies, under penalties of perjury, to the Trust
or paying agent, as the case may be, that such Certificate has been received
from the beneficial owner by it or by a financial institution between it and the
beneficial owner and furnishes the payor with a copy thereof. A certificate
described in this paragraph is effective only with respect to payments of
interest (including original issue discount) made to the certifying Foreign
Investor after the issuance of the certificate in the calendar year of its
issuance and the two immediately succeeding calendar years. Under temporary
Treasury Regulations, the forgoing certification may be provided by the
beneficial owner of a Note on IRS Form W-8.
The 1997 Withholding Regulations provide optional documentation
procedures designed to simplify compliance by withholding agents. The 1997
Withholding Regulations 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
restated forms and standardize the period of time for which withholding agents
can 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 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
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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 such
individual has a "tax home" (as defined in Section 911(d)(3) of the Code) 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 "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, a Certificate Owner that is a nonresident alien, foreign
corporation, foreign partnership or foreign estate or trust might be subject to
federal income tax on any gain from the sale of the Certificates.
BACKUP WITHHOLDING
Distributions made on the Certificates and proceeds from the sale of
such Certificates will be subject to a "backup" withholding tax of 31% if, in
general, the Certificate Owners fails to comply with certain identification
procedures, unless such Owner is an exempt recipient under applicable provisions
of the Code.
The 1997 Withholding Regulations alter the forgoing rules in certain
respects. In particular, the 1997 Withholding Regulations provide certain
presumptions under which Non-United 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
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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 exemptions from state and local income taxes.
If some or all of the Securities are treated as equity interests in a
partnership (not treated as a publicly traded partnership taxable as a
corporation) for federal income tax purposes, such Securities generally should
be treated as partnership interests for state and local income tax purposes. In
such case, the partnership should be viewed as a passive holder of investments
and, as a result, should not be subject to state or local taxation and the
Security Owners should not be subject to taxation on income received through the
partnership unless they are already subject to tax in such jurisdiction.
However, if the state or local jurisdiction viewed such partnership as doing
business in such jurisdiction, Security Owners would normally be subject to
taxation in such jurisdiction on their allocable share of the partnership's
income even though they otherwise had no contact with such jurisdiction.
Furthermore, depending on the allocation and apportionment formula, if any, used
by such jurisdiction, it is possible that Security Owners in such case may be
subject to tax in such jurisdiction on their income from other sources.
Additionally, notwithstanding the flow-through treatment that generally applies
to partnerships, some states and localities impose an entity level tax on
partnerships and trusts doing business within their jurisdiction.
The foregoing discussion presents some of the state and local tax
consequences that might apply to Security Owners. However, because of the
variation in each state's and locality's tax laws based in whole or in part upon
income, it is impossible to predict the tax consequences to Note Owners and
Certificate Owners in 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
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Set forth below are certain consequences under ERISA and the Code that
a fiduciary (a "Plan Fiduciary") of an "employee benefit plan" (as defined in
and subject to ERISA) or of a "plan" (as defined in Section 4975 of the Code)
who has investment discretion should consider before deciding to invest the
plan's assets in Securities. The following summary is intended to be a summary
of certain relevant ERISA issues and does not purport to address all ERISA
considerations that may be applicable to a particular plan.
In general, the terms "employee benefit plan" as defined in ERISA and
"plan" as defined in Section 4975 of the Code (a "Plan") refer to any plan or
account of various types which provide retirement benefits or welfare benefits
to an individual or to an employer's employees and their beneficiaries. Plans
include corporate pension and profit-sharing plans, "simplified employee pension
plans", Keogh plans for self-employed individuals (including partners in a
partnership), individual retirement accounts described in Section 408 of the
Code and medical benefit plans.
Each Plan Fiduciary must give appropriate consideration to the facts
and circumstances that are relevant to an investment in the Securities,
including the role that an investment in the Securities plays in the Plan's
investment portfolio. Each Plan Fiduciary, before deciding to invest in the
Securities, must be satisfied that investment in the Securities is a prudent
investment for the Plan, that the investments of the Plan, including the
investment in the Securities, are diversified so as to minimize the risks of
large losses and that an investment in the Securities complies with the Plan and
related trust documents.
Each Plan considering acquiring a Security should consult its own legal
and tax advisors before doing so.
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
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It is possible that the purchase of a Security by a Plan will cause,
for purposes of Title I of ERISA and Section 4975 of the Code, the related Base
Assets to be treated as assets of that Plan. A regulation (the "DOL Regulation")
issued under ERISA by the United States Department of Labor (the "DOL") contains
rules for determining when an investment by a Plan in an entity will result in
the underlying assets of the entity being plan assets. Those rules provide that
the assets of an entity will not be "plan assets" of a Plan that purchases an
interest therein if such interest is not an "equity interest". The DOL
Regulation defines an equity interest as an interest other than an instrument
that is treated as indebtedness under applicable local law and that has no
substantial equity features. The DOL Regulation provides, with respect to the
purchase of an equity interest by a Plan, that the assets of an entity will not
be plan assets of a Plan that purchases an interest therein if certain
exceptions apply including the following: (i) the investment by all "benefit
plan investors" is not "significant"; or (ii) the security issued by the entity
is a "publicly offered security". The Prospectus Supplement will specify whether
any of the exceptions set forth in the regulation under ERISA may apply with
respect to a Series of Securities.
With respect to clause (i) of the preceding paragraph, the term
"benefit plan investors" includes all plans and accounts of the types described
above under "General" as employee benefit plans and accounts, whether or not
subject to ERISA, as well as entities that hold "plan assets" due to investments
made in such entities by any of such plans or accounts. Investments by benefit
plan 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.
The Prospectus Supplement will indicate if either of the exceptions set
forth in the DOL Regulation (discussed above) apply. If neither exception is
applicable, Securities which are Certificates will not be eligible to be
purchased directly or indirectly for, or on behalf of, or with the assets of a
Plan.
Certain transactions involving the purchase of Securities which are
Notes might be deemed to constitute prohibited transactions under ERISA and the
Code if the Base Assets were deemed to be assets of a Plan. Under the DOL
Regulation, the Base Assets would be treated as plan assets of a Plan for the
purposes of ERISA and the Code only if the Plan acquires an equity interest in
the Trust fund and none of the exceptions contained in the DOL Regulation is
applicable. The Prospectus Supplement will indicate whether the Notes will be
treated as indebtedness without substantial equity features for purposes of the
DOL Regulation.
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Without regard to whether the Notes are characterized as equity
interests, the acquisition, transfer or holding of Notes by or on behalf of a
Plan could be considered to give rise to a prohibited transaction if the Trust
Fund, the Trustee, the Indentive Trustee or any of their respective affiliates
is or becomes a party in interest or a disqualified person with respect to such
Plan or in the event that a Note is purchased in the secondary market and such
purchase constitutes a sale or exchange between a Plan and a party in interest
or disqualified person with respect to such Plan. Certain exemptions from the
prohibited transaction rules may be applicable depending on the type and
circumstances of the plan fiduciary making the decision to acquire a Note.
Included among these exemptions are: Prohibited Transaction Class Exemption
("PTCE") 90-1, regarding investments by insurance company pooled separate
accounts; PTCE 91-38 regarding investments by bank collective investment funds;
PTCE 95-60, regarding investments by insurance company general accounts; PTCE
96-23, regarding transactions affected by in-house asset managers; and PTCE
84-14, regarding transactions effected by "qualified professional asset
managers."
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 a plan asset exception or prohibited transaction class
exemption is applicable in the Plan's particular circumstances and whether the
exception or exemption covers all potential prohibited transactions.
Except as otherwise set forth, the foregoing statements regarding the
consequences under ERISA of an investment in Securities are based on the
provisions of the Code and ERISA as currently in effect, and the existing
administrative and judicial interpretations thereunder. No assurance can be
given that administrative, judicial or legislative changes will not occur that
would not make the foregoing statements incorrect or incomplete.
ACCEPTANCE OF SUBSCRIPTIONS ON BEHALF OF PLANS IS IN NO RESPECT A
REPRESENTATION BY THE DEPOSITOR THE ISSUER, THE TRUSTEE, THE SERVICER OR ANY
OTHER PARTY THAT THIS INVESTMENT MEETS ALL RELEVANT LEGAL REQUIREMENTS WITH
RESPECT TO INVESTMENTS BY ANY PARTICULAR PLAN OR THAT SUCH INVESTMENT IS
APPROPRIATE FOR ANY PARTICULAR PLAN. EACH PLAN FIDUCIARY SHOULD CONSULT WITH
ATTORNEYS AND FINANCIAL ADVISORS AS TO THE PROPRIETY OF SUCH AN INVESTMENT IN
LIGHT OF THE CIRCUMSTANCES OF THE PARTICULAR PLAN AND THE RESTRICTIONS OF ERISA
AND SECTION 4975 OF THE CODE.
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
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and Certificates, as the case may be, described therein that are offered hereby
and by the related Prospectus Supplement if any of such Notes and Certificates,
as the case may be, are purchased.
Each Prospectus Supplement will either (i) set forth the price at which
each Class of Notes and Certificates, as the case may be, being offered thereby
will be offered to the public and any concessions that may be offered to certain
dealers participating in the offering of such Notes and Certificates, as the
case may be, or (ii) specify that the related Notes and Certificates, as the
case may be, are to be resold by the underwriters in negotiated transactions at
varying prices to be determined at the time of such sale. After the initial
public offering of any such Notes and Certificates, as the case may be, such
public offering prices and such concessions may be changed.
Each Underwriting Agreement will provide that the related Seller will
indemnify the related underwriters against certain civil liabilities, including
liabilities under the Securities Act, or contribute to payments the several
underwriters may be required to make in respect thereof.
Each Trust may, from time to time, invest the funds in its Trust
Accounts in Eligible Investments acquired from such underwriters.
Pursuant to each of the Underwriting Agreements with respect to a given
Series of Securities, the closing of the sale of any Class of Securities will be
conditioned on the closing of the sale of all other such Classes under such
Underwriting Agreement.
The place and time of delivery for the Notes and Certificates, as the
case may be, in respect of which this Prospectus is delivered will be set forth
in the related Prospectus Supplement.
If and to the extent required by applicable law or regulation, this
Prospectus and the applicable Prospectus Supplements will also be used by the
Underwriter after the completion of the offering in connection with offers and
sales related to market-making transactions in the offered Securities in 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 Stroock & Stroock & Lavan LLP, New York, New York or such other
counsel set forth in the Prospectus Supplement. Certain federal income tax and
other matters will be passed upon for each Trust by Stroock & Stroock & Lavan
LLP, New York, New York or such other counsel set forth in the Prospectus
Supplement.
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INDEX OF DEFINED TERMS
Accounts..................................................................
Accumulation Period.......................................................
Additional Accounts.......................................................
Additional Base Assets....................................................
Agreement.................................................................
Ancillary Arrangements....................................................
Base Assets...............................................................
Cash Collateral Account...................................................
Cash Collateral Guaranty..................................................
Cede ..................................................................
CEDEL ..................................................................
CEDEL Participants........................................................
Certificates..............................................................
Certificate Interest Rate.................................................
Certificateholders........................................................
Certificates..............................................................
Class ..................................................................
Closing Date..............................................................
CODE ..................................................................
Collateral Indebtedness Interests.........................................
Collection Account........................................................
Collection Period.........................................................
Commission................................................................
Controlled Accumulation Amount............................................
Controlled Amortization Amount............................................
Controlled Amortization Period............................................
Controlled Deposit Amount.................................................
Controlled Distribution Amount............................................
Credit Enhancement........................................................
Credit Enhancer...........................................................
Date of Processing........................................................
Defaulted Amount..........................................................
Deficit Controlled Accumulation Amount....................................
Deficit Controlled Amortization Amount....................................
Definitive Certificates...................................................
Definitive Notes..........................................................
Definitive Securities.....................................................
Depositaries..............................................................
Depositor.................................................................
Depositor's Certificate...................................................
Depositor's Interest......................................................
Distribution Date.........................................................
DTC .................................................................
Eligible Institution......................................................
Eligible Investments......................................................
Eligible Servicer.........................................................
Enhancement Invested Amount...............................................
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ERISA ..................................................................
Euroclear.................................................................
Euroclear Operator........................................................
Euroclear Participants....................................................
Exchange Act..............................................................
Expected Final Payment Date...............................................
FDIC ..................................................................
Federal Tax Counsel.......................................................
Final Scheduled Payment Date..............................................
Finance Charge Receivables................................................
FIRREA ..................................................................
Floating Allocation Percentage............................................
Foreign Investor..........................................................
Funding Account...........................................................
GAO .................................................................
Government Securities.....................................................
Grantor Trust.............................................................
Holders ..................................................................
Indenture.................................................................
Indenture Trustee.........................................................
Indirect Participants.....................................................
Initial Accounts..........................................................
Insolvency Event..........................................................
Interchange...............................................................
Interest Funding Account..................................................
Invested Amount...........................................................
Investment Earnings.......................................................
IRS .................................................................
Moody's ..................................................................
Net Portfolio Yield.......................................................
Non-United States Holder..................................................
Non-United States Owner...................................................
Note Interest Rate........................................................
Noteholders...............................................................
Notes ..................................................................
OID Regulations...........................................................
Owner Trust...............................................................
Paired Series.............................................................
Participations............................................................
Pay Out Events............................................................
Paying Agent..............................................................
Payment Account...........................................................
Payment Date..............................................................
Plan ..................................................................
Pooling and Servicing Agreement...........................................
Portfolio Yield...........................................................
Prepayment Assumption.....................................................
Pre-Funded Amount.........................................................
Pre-Funding Account.......................................................
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Principal Allocation Percentage...........................................
Principal Commencement Date...............................................
Principal Funding Account.................................................
Principal Receivables.....................................................
Prior Series..............................................................
Private Label Custody Receipt Security ...................................
Prospectus................................................................
Prospectus Supplement.....................................................
Rapid Amortization Period.................................................
Rating Agency.............................................................
Receivables...............................................................
Receivables Pooling Certificates..........................................
Registrar.................................................................
Related Documents.........................................................
Removed Accounts..........................................................
Repurchase Amount.........................................................
Reserve Account...........................................................
Revolving Period..........................................................
S&P .................................................................
Securities................................................................
Securityholders...........................................................
Seller....................................................................
Series....................................................................
Series Cut-Off Date.......................................................
Series Enhancement........................................................
Series Termination Date...................................................
Servicer..................................................................
Servicer Default..........................................................
Servicing Fee.............................................................
Shortfall Amount..........................................................
Special Payment Date......................................................
Spread Account............................................................
Strip Certificates........................................................
Subordinate Certificates..................................................
Subordinate Class Percentage..............................................
Supplement................................................................
TIN .................................................................
Transfer Agent............................................................
Trust Accounts............................................................
Trust Agreement...........................................................
Trust Stripped Bond.......................................................
Trust Stripped Coupon.....................................................
Trustee ..................................................................
UCC .................................................................
Underwriting Agreements...................................................
WALTR Backed Certificate..................................................
WALTR Backed Notes........................................................
WALTR Backed Securities...................................................
WALTR Issuer..............................................................
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WALTR Servicer............................................................
WALTR Trust...............................................................
WALTR Trustee.............................................................
Yield Calculation.........................................................
Yield Factor..............................................................
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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.
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
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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. 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.
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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
(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.
113
<PAGE> 474
Exemption for non-U.S. persons with effectively connected income
(Form4224). 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
FormW-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.
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.
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
114
<PAGE> 475
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THEIR
RESPECTIVE DATES.
Table of Contents
Prospectus Supplement
PROSPECTUS
PAGE
Prospectus Supplement....................................................
Reports to Securityholders...............................................
Available Information....................................................
Incorporation of Certain Documents by Reference..........................
Summary of Terms.........................................................
Risk Factors.............................................................
The Trusts...............................................................
The Receivables Pools....................................................
The Collateral Certificates..............................................
The Government Securities................................................
Private Table Custody Receipt Securities
Weighted Average Life of the Securities..................................
Pool Factors and Trading Information.....................................
The Seller and the Servicer..............................................
Use of Proceeds..........................................................
Description of the Notes.................................................
Description of the Certificates..........................................
Certain Information Regarding the Securities.............................
Description of the Transfer and Servicing Agreements.....................
Certain Legal Aspects of the Receivables.................................
Certain Federal Income Tax Consequences..................................
State and Local Tax Considerations.......................................
ERISA Considerations.....................................................
Plan of Distribution.....................................................
Legal Matters............................................................
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.
115
<PAGE> 476
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 $1,112,017
Printing and Engraving Expenses 960,000
Trustee's Fees and Expenses 320,000
Legal Fees and Expenses 1,200,000
Accountant's Fees and Expenses 640,000
Rating Agency Fees 1,280,000
Miscellaneous 187,983
Total 5,700,000
</TABLE>
* A registration fee previously was paid in connection with the registration of
securities in the amount of $1,081,510,000 that were previously registered by
registration statement Nos. 33-10125, 33-17232 and 333-365. 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*
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.
<PAGE> 477
(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)*
4.2.7 Form of Master Pooling and Servicing Agreement (Dealer Floorplan)***
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)*
4.3.7 Form of Series Supplement to Pooling and Servicing Agreement
(Dealer Floorplan)***
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 Opinion of Stroock & Stroock & Lavan LLP as to securities offered***
<PAGE> 478
8.1 Opinion of Stroock & Stroock & Lavan LLP with respect to tax matters.
(included in Exhibit 5.1)***
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 Stroock & Stroock & Lavan LLP. (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)***
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)***
99.10 Form of Prospectus Supplement. (REMIC, Variable Rate Certificates,
Adjustable Rate Mortgage Loans)***
<PAGE> 479
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) ***
99.15 Form of Prospectus Supplement. (Dealer
Floorplan)***
* Incorporated by reference to Registration Statement No. 333-365.
** To be filed following the effectiveness of the Registration Statement.
*** Previously filed
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.
<PAGE> 480
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
20th day of October 1998.
Asset Backed Securities Corporation
By: /s/ Erik A. Falk
----------------------------
Name: Erik A. Falk
Title: Vice President
<PAGE> 481
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to the Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated
Signature Title Date
* Director October 20, 1998
- ----------------
Gina Hubbell
* Director October 20, 1998
- ----------------
Lee Olesky
* President, Chief Executive October 20, 1998
- ---------------- Officer and Director
Scott Ulm (Principal Executive Officer)
* Vice President and Controller October 20, 1998
- ------------------- (Principal Accounting Officer)
Thomas Zingalli
By: /s/ Erik A. Falk
----------------
Erik A. Falk
Attorney-in-Fact
<PAGE> 482
EXHIBIT INDEX
Page Number
Item 16. Exhibits
1.1 Form of Underwriting Agreement.*
3.1 Restated Certificate of Incorporation of Asset Backed Securities
Corporation*
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)*
4.2.7 Form of Master Pooling and Servicing Agreement. (Dealer Floorplan)***
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)*
<PAGE> 483
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)*
4.3.7 Form of Series Supplement to Pooling and Servicing Agreement. (Dealer
Floorplan)***
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 Opinion of Stroock & Stroock & Lavan LLP as to securities offered***
8.1 Opinion of Stroock & Stroock & Lavan LLP with respect to tax matters.
(included in Exhibit 5.1)***
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 Stroock & Stroock & Lavan LLP. (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)***
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)***
<PAGE> 484
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)***
99.15 Form of Prospectus Supplement. (Dealer Floorplan)***
* Incorporated by reference to Registration Statement No. 333-365.
** To be filed following the effectiveness of the Registration Statement.
*** Previously filed
