<PAGE>
<PAGE>
GLOBAL PROSPECTUS SUPPLEMENT
(To Prospectus Supplement dated December 29, 1995
and Prospectus dated December 29, 1995)
$1,600,000,000
SHORT-TERM CARD ACCOUNT TRUST 1995-1
$1,552,000,000 FLOATING RATE ASSET BACKED NOTES, CLASS A1
$48,000,000 FLOATING RATE ASSET BACKED CERTIFICATES, CLASS A2
The Short-Term Card Account Trust 1995-1 (the 'Trust') will be formed
pursuant to a trust agreement to be dated as of December 1, 1995 (the 'Trust
Agreement') and entered into between Lehman ABS Corporation (the 'Depositor')
and Wilmington Trust Company, as owner trustee (the 'Owner Trustee'). The Trust
will issue $1,552,000,000 aggregate principal amount of Floating Rate Asset
Backed Notes, Class A1 (the 'Class A1 Notes' or the 'Notes') and $48,000,000
aggregate principal amount of Floating Rate Asset Backed Certificates, Class A2
(the 'Class A2 Certificates' or the 'Certificates' and, together with the Class
A1 Notes, the 'Securities'). The Class A1 Notes will be issued pursuant to an
indenture to be dated as of December 1, 1995 (the 'Indenture'), between the
Trust and The Bank of New York as indenture trustee (the 'Indenture Trustee').
Terms used and not otherwise defined herein shall have the respective meanings
ascribed to such terms in the Prospectus Supplement dated December 29, 1995
attached hereto (the 'Prospectus Supplement') and in the Prospectus dated
December 29, 1995 attached hereto (the 'Prospectus').
The Trust will consist of certain asset backed certificates or notes
(collectively, the 'CABS') each issued pursuant to a pooling and servicing
agreement, master pooling and servicing agreement or indenture (collectively,
the 'Agreements') and certain other property. Each of the CABS evidences an
interest in or obligation of a trust fund created by one of the
Agreements, the property of which includes either (a) a portfolio of revolving
credit card receivables (collectively, the 'Receivables') generated or to be
generated from time to time in the ordinary course of business in a portfolio of
revolving credit card accounts (collectively, the 'Accounts') or (b) a pool of
asset backed certificates which evidence an interest in a trust fund of credit
card receivables (the 'Underlying Certificates'); all monies due in payment of
the Receivables or Underlying Certificates and certain other properties, as more
fully described herein. In addition, the Trust will enter into the Swap
Agreement described in the Prospectus Supplement with Deutsche Bank AG, New York
Branch (the 'Swap Counterparty'), pursuant to which the Trust will agree to
exchange the proceeds received with respect to the CABS for payments from the
Swap Counterparty in order to pay amounts due on the Class A1 Notes and the
Class A2 Certificates.
------------------------
THIS GLOBAL PROSPECTUS SUPPLEMENT CONTAINS CERTAIN LIMITED INFORMATION ABOUT
THE OFFERING OF THE NOTES WHICH IS RELEVANT TO NON-U.S. PERSONS. DETAILED
INFORMATION CONCERNING THE OFFERING IS CONTAINED IN THE PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS, AND PURCHASERS ARE URGED TO READ THIS
GLOBAL PROSPECTUS SUPPLEMENT, THE PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS IN FULL.
------------------------
The Securities offered hereby will be purchased by Lehman Brothers Inc.
(the 'Underwriter') from the Depositor and will, in each case, be offered by the
Underwriter from time to time to the public in negotiated transactions or
otherwise at varying prices to be determined at the time of sale. The aggregate
proceeds to the Depositor from the sale of the Class A1 Notes are expected to be
$1,549,672,000 and from the sale of the Class A2 Certificates are expected to be
$47,928,000 before deducting expenses payable by the Depositor of $1,200,000.
It is expected that the Securities will be delivered in book-entry form and
will be represented by one or more permanent global notes in fully registered
form without coupons deposited with a custodian for and registered in the name
of a nominee of The Depository Trust Company ('DTC') on or about January 11,
1996. Beneficial interests in such global notes will be shown on, and transfers
thereof, will be effected only through, records maintained by DTC and its direct
or indirect participants, including Cedel Bank, societe anonyme and the
Euroclear System. The Securities will be offered in Europe and the United States
of America.
------------------------
LEHMAN BROTHERS
DECEMBER 29, 1995.
<PAGE>
<PAGE>
The distribution of this Global Prospectus Supplement, the Prospectus
Supplement and the Prospectus and the offering of the Securities in certain
jurisdictions may be restricted by law. Persons into whose possession this
Global Prospectus Supplement, the Prospectus Supplement and the Prospectus come
are required by the Underwriter to inform themselves about and to observe any
such restrictions.
This Global Prospectus Supplement, the Prospectus Supplement and the
Prospectus do not constitute an offer to sell or the solicitation of an offer to
buy the Securities in any jurisdiction in which such offer or solicitation is
unlawful.
As used in this Global Prospectus Supplement, the Prospectus Supplement and
the Prospectus, all references to 'dollars' and '$' are to United States
dollars.
The Depositor has taken all reasonable care to ensure that the information
contained in this Global Prospectus Supplement, the Prospectus Supplement and
the Prospectus in relation to the Depositor and the Securities is true and
accurate in all material respects and that in relation to the Depositor and the
Securities there are no material facts the omission of which would make
misleading any statement herein or therein, whether fact or opinion. The
Depositor accepts responsibility for the information contained in this Global
Prospectus Supplement, the Prospectus Supplement and the Prospectus.
DESCRIPTION OF SECURITIES
Reference should be made to the accompanying Prospectus Supplement and
Prospectus for a detailed summary of the provisions of the Securities. Certain
terms used in this Global Prospectus Supplement are defined in the Prospectus
Supplement and the Prospectus.
PAYMENTS ON THE SECURITIES
Interest will be computed as set forth in the Prospectus Supplement on the
basis of the actual number of days in the Interest Accrual Period and a 360-day
year. See 'Description of the Class A1 Notes -- Payments of Interest' (page
S-13) and 'Description of the Class A2 Certificates -- Distributions of
Interest' (page S-15) in the Prospectus Supplement. Holders of the Securities
('Securityholders') will receive all payments of principal of and interest on
the Securities in the manner described under 'Description of the
Certificates -- Book-Entry Registration' and ' -- Definitive Certificates' in
the Prospectus (pages 18 and 20, respectively). In the event any payment date
falls on a day which is not a Business Day, any payment due on such date shall
be paid on the next succeeding Business Day with the same effect as if paid on
the payment date. A 'Business Day' is any day other than a Saturday or Sunday or
another day on which banking institutions in New York, New York or London,
England are authorized or obligated by law or executive order to be closed.
No additional amounts will be payable to Securityholders in the event any
deduction or withholding for or on account of any present or future tax,
assessment or other governmental charge is imposed upon any payment to such
Securityholders by the United States or any political subdivision or taxing
authority therein or thereof.
STATUS OF THE SECURITIES
The Class A1 Notes will be secured by the assets of the Trust. The Class A2
Certificates will represent fractional undivided interests in the Trust.
Distributions of interest on and principal of the Class A2 Certificates will be
subordinated to payments of interest on and principal of the Class A1 Notes.
LIABILITY OF DEPOSITOR
The Indenture and the Trust Agreement provide that none of the Depositor,
the Indenture Trustee, the Owner Trustee or any of their directors, officers,
employees or agents will be under any liability to the Trust or the
Securityholders for any action taken, or for refraining from taking any action,
in good faith pursuant to the Indenture or the Trust Agreement. However, none of
the Depositor, the Indenture Trustee, the Owner Trustee or any of their
directors, officers, employees or agents will be protected
GS-2
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<PAGE>
against any liability which would otherwise be imposed by reason of willful
misfeasance, bad faith or gross negligence of any such person in the performance
of their duties or by reason of reckless disregard of their obligations and
duties thereunder.
THE DEPOSITOR
Lehman ABS Corporation (the 'Depositor') was incorporated in the State of
Delaware on January 29, 1988. The Depositor is a wholly owned, special purpose
subsidiary of Lehman Commercial Paper Inc. ('LCPI'), which is itself a wholly
owned subsidiary of Lehman Brothers Inc. ('Lehman Brothers'), which is a wholly
owned subsidiary of Lehman Brothers Holdings Inc. ('Holdings'). None of Lehman
Brothers, LCPI, Holdings or the Depositor, nor any affiliate of the foregoing,
has guaranteed or is otherwise obligated with respect to the Securities.
The principal executive offices of the Depositor are located at 200 Vesey
Street, Three World Financial Center, New York, New York 10285 (Telephone: (212)
526-7000). See 'The Depositor' in the Prospectus Supplement and the Prospectus.
GENERAL INFORMATION
The transactions contemplated in the Prospectus Supplement and Prospectus
were authorized by resolutions adopted by the Depositor on January 10, 1996.
The Class A1 Notes and the Indenture are governed by the laws of the State
of New York. The Class A2 Certificates and the Trust Agreement are governed by
the laws of the State of Delaware.
The Securities have been accepted for clearance through Euroclear and Cedel
under the following common codes: 630 4478 for the Class A1 Notes and 630 4575
for the Class A2 Certificates. The CUSIP numbers for the issue are 82524W AA2
for the Class A1 Notes and 82524W AB0 for the Class A2 Certificates. The ISIN
numbers are US82524W AA27 for the Class A1 Notes and US82524W AB00 for the Class
A2 Certificates.
GS-3
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[THIS PAGE INTENTIONALLY LEFT BLANK]
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PROSPECTUS SUPPLEMENT
(To Prospectus dated December 29, 1995)
$1,600,000,000
SHORT-TERM CARD ACCOUNT TRUST 1995-1
$1,552,000,000 FLOATING RATE ASSET BACKED NOTES, CLASS A1
$48,000,000 FLOATING RATE ASSET BACKED CERTIFICATES, CLASS A2
The Short-Term Card Account Trust 1995-1 (the 'Trust') will be formed
pursuant to a trust agreement to be dated as of December 1, 1995 (the 'Trust
Agreement') and entered into by Lehman ABS Corporation (the 'Depositor') and
Wilmington Trust Company, as owner trustee (the 'Owner Trustee'). The Trust will
issue $1,552,000,000 aggregate principal amount of Floating Rate Asset Backed
Notes, Class A1 (the 'Class A1 Notes' or the 'Notes'). The Notes will be issued
pursuant to an indenture to be dated as of December 1, 1995 (the 'Indenture'),
between the Trust and The Bank of New York as indenture trustee (the 'Indenture
Trustee'). The Trust will also issue $48,000,000 aggregate principal amount of
Floating Rate Asset Backed Certificates, Class A2 (the 'Class A2 Certificates'
or the 'Certificates' and, together with the Notes, the 'Securities'). Terms
used and not otherwise defined herein shall have the respective meanings
ascribed to such terms in the Prospectus dated December 29, 1995 attached hereto
(the 'Prospectus').
The Trust will consist of certain asset backed certificates or notes
(collectively, the 'CABS') each issued pursuant to a pooling and servicing
agreement, master pooling and servicing agreement or indenture (collectively,
the 'Agreements') and certain other property. Each of the CABS evidences an
interest in or obligation of a trust fund created by one of the Agreements, the
property of which includes either (a) a portfolio of revolving credit card
receivables (collectively, the 'Receivables') generated or to be generated from
time to time in the ordinary course of business in a portfolio of revolving
credit card accounts (collectively, the 'Accounts'), or (b) a pool of
asset-backed certificates which evidence an interest in a trust fund of credit
card receivables (the 'Underlying Certificates'), all monies due in payment of
the Receivables or Underlying Certificates and certain other properties, as more
fully described herein. In addition, the Trust will enter into the Swap
Agreement (as defined herein) with Deutsche Bank AG, New York Branch (the 'Swap
Counterparty'), pursuant to which the Trust will agree to exchange the proceeds
received with respect to the CABS for payments from the Swap Counterparty in
order to pay amounts due on the Class A1 Notes and the Class A2 Certificates.
The per annum rate of interest on the Class A1 Notes for each monthly
Interest Accrual Period (as defined herein) will equal one month LIBOR
(calculated as described herein) plus 0.01%. Interest on the Class A1 Notes will
be payable on the 15th day of each month or, if any such day is not a Business
Day, on the next succeeding Business Day (each, a 'Payment Date') commencing
January 16, 1996. Principal of the Class A1 Notes will be payable on the January
1997 Payment Date (or earlier under certain circumstances), to the extent
described herein, pro rata to the holders of the Class A1 Notes.
The Class A2 Certificates will represent fractional undivided interests in
the Trust. Interest at a rate equal to one month LIBOR plus 0.10% will be
distributed to the Class A2 Certificateholders on each Payment Date. Principal,
to the extent described herein, will be distributed to the Class A2
Certificateholders on the January 1997 Payment Date (or earlier under certain
circumstances), to the extent described herein, pro rata to the holders of the
Class A2 Certificates. Distributions of principal and interest on the Class A2
Certificates will be subordinated in priority to payments due on the Class A1
Notes, as described herein.
There is currently no market for the Securities offered hereby and there can
be no assurance that such a market will develop or if it does develop that it
will continue. See 'RISK FACTORS' herein.
Until ninety days after the date of this Prospectus Supplement, all dealers
effecting transactions in the Securities, whether or not participating in this
distribution, may be required to deliver a Prospectus Supplement and Prospectus
to investors. This is in addition to the obligation of dealers acting as
underwriters to deliver a Prospectus Supplement and Prospectus with respect to
their unsold allotments or subscriptions.
------------------------
THE SECURITIES OFFERED HEREBY CONSTITUTE PART OF A SEPARATE SERIES OF ASSET
BACKED SECURITIES BEING OFFERED BY LEHMAN ABS CORPORATION FROM TIME TO TIME
PURSUANT TO ITS PROSPECTUS DATED DECEMBER 29, 1995. THIS PROSPECTUS SUPPLEMENT
DOES NOT CONTAIN COMPLETE INFORMATION ABOUT THE OFFERING OF THE SECURITIES.
ADDITIONAL INFORMATION IS CONTAINED IN THE PROSPECTUS AND INVESTORS ARE URGED TO
READ BOTH THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS IN FULL AS WELL AS ANY
PROSPECTUS RELATING TO THE CABS. SALES OF THE SECURITIES MAY NOT BE CONSUMMATED
UNLESS THE PURCHASER HAS RECEIVED BOTH THIS PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS.
------------------------
FOR A DISCUSSION OF CERTAIN FACTORS WHICH SHOULD BE CONSIDERED BY
PROSPECTIVE PURCHASERS OF THE SECURITIES, SEE 'RISK FACTORS' ON PAGE S-11 HEREIN
AND ON PAGE 12 IN THE ACCOMPANYING PROSPECTUS.
------------------------
THE SECURITIES REPRESENT INTERESTS IN OR OBLIGATIONS OF THE TRUST ONLY AND DO
NOT REPRESENT INTERESTS IN OR OBLIGATIONS OF THE DEPOSITOR, OWNER TRUSTEE,
INDENTURE TRUSTEE OR ANY AFFILIATE THEREOF, EXCEPT TO THE EXTENT
PROVIDED HEREIN. NEITHER THE SECURITIES NOR THE CABS ARE
INSURED OR GUARANTEED BY ANY GOVERNMENTAL
AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS SUPPLEMENT. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
------------------------
The Securities offered hereby will be purchased by Lehman Brothers Inc. (the
'Underwriter') from the Depositor and will, in each case, be offered by the
Underwriter from time to time to the public in negotiated transactions or
otherwise at varying prices to be determined at the time of sale. The aggregate
proceeds to the Depositor from the sale of the Class A1 Notes are expected to be
$1,549,672,000 and from the sale of the Class A2 Certificates are expected to be
$47,928,000 before deducting expenses payable by the Depositor of $1,200,000.
The Securities are offered subject to prior sale and subject to the
Underwriter's right to reject orders in whole or in part. It is expected that
the Securities will be delivered in book-entry form and will be represented by
one or more permanent global notes in fully registered form without coupons
deposited with a custodian for and registered in the name of a nominee of The
Depository Trust Company ('DTC') on or about January 11, 1996. Beneficial
interests in such global notes will be shown on, and transfers thereof, will be
effected only through, records maintained by DTC and its direct or indirect
participants, including Cedel Bank, societe anonyme and the Euroclear System.
The Securities will be offered in Europe and the United States of America.
------------------------
LEHMAN BROTHERS
DECEMBER 29, 1995.
<PAGE>
<PAGE>
SUMMARY
The following summary of certain pertinent information is qualified in its
entirety by reference to the detailed information appearing elsewhere in this
Prospectus Supplement and in the accompanying Prospectus and in the prospectus
and prospectus supplement for each CABS. Certain capitalized terms used herein
are defined elsewhere in this Prospectus Supplement or in the Prospectus.
<TABLE>
<S> <C>
SECURITIES OFFERED........................... (i) Floating Rate Asset Backed Notes, Class A1 (the 'Class A1
Notes' or the 'Notes') and (ii) Floating Rate Asset Backed
Certificates, Class A2 (the 'Class A2 Certificates' or the
'Certificates' and, together with the Class A1 Notes, the
'Securities').
TRUST........................................ Short-Term Card Account Trust 1995-1 (the 'Trust' or the
'Issuer'), a Delaware business trust established pursuant to the
Trust Agreement (as defined herein). The Trust will consist of
certain asset backed certificates or notes (collectively, the
'CABS') as described herein, with an aggregate principal balance
of $1,600,000,000 as of January 11, 1996 (the 'Closing Date').
In addition, the Trust will enter into the Swap Agreement (as
defined herein) with Deutsche Bank AG, New York Branch (the
'Swap Counterparty'), pursuant to which the Trust will agree to
exchange the proceeds received with respect to the CABS for
payments from the Swap Counterparty in order to pay amounts due
on the Class A1 Notes and the Class A2 Certificates.
DEPOSITOR.................................... Lehman ABS Corporation.
INDENTURE.................................... The Class A1 Notes will be issued pursuant to an indenture dated
as of December 1, 1995 (the 'Indenture') between the Trust and
The Bank of New York in its capacity as indenture trustee (the
'Indenture Trustee') in an initial aggregate principal amount of
$1,552,000,000. The Indenture Trustee will allocate
distributions of principal and interest received in respect of
the CABS to holders of the Class A1 Notes (the 'Class A1
Noteholders') in accordance with the Indenture.
TRUST AGREEMENT.............................. Pursuant to a trust agreement dated as of December 1, 1995 (the
'Trust Agreement'), between the Depositor and Wilmington Trust
Company in its capacity as owner trustee (the 'Owner Trustee'),
the Trust will issue the Class A2 Certificates in an initial
aggregate principal amount of $48,000,000 The Class A2
Certificates will represent fractional undivided interests in
the Trust.
CABS......................................... The CABS are described herein and in Appendix A attached to this
Prospectus Supplement. The CABS will consist of certain eligible
asset backed certificates or notes, as more fully described
herein, each issued pursuant to a pooling and servicing
agreement, master pooling and servicing agreement or indenture
(collectively, the 'Agreements').
DESCRIPTION OF CLASS A1 NOTES................ The Class A1 Notes will be secured by the assets of the Trust
pursuant to the Indenture.
A. INTEREST RATE PAYABLE ON CLASS A1
NOTES................................. The Class A1 Notes represent $1,552,000,000 aggregate principal
amount. Interest will accrue on the unpaid principal amount of
the Class A1 Notes at a rate per annum equal to one month LIBOR
plus 0.01%, calculated on the basis of the actual number of days
in each
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Interest Accrual Period (as defined below) divided by 360 (the
'Class A1 Accrual Rate').
B. INTEREST PAYMENTS ON THE CLASS A1
NOTES................................. Interest will be payable to Class A1 Noteholders on each Payment
Date. Interest in respect of a Payment Date will accrue on the
Class A1 Notes from and including the preceding Payment Date (in
the case of the first Payment Date, from and including the
Closing Date) to but excluding such current Payment Date (each,
an 'Interest Accrual Period'). A failure to pay interest on the
Class A1 Notes on any Payment Date, which failure continues for
five Business Days, constitutes an Event of Default under the
Indenture. A 'Business Day' is any day other than a Saturday or
Sunday or another day on which banking institutions in New York,
New York or London, England are authorized or obligated by law,
regulations or executive order to be closed.
C. PRINCIPAL PAYMENTS ON THE CLASS A1
NOTES................................. No principal is scheduled to be payable to the Class A1
Noteholders until the January 1997 Payment Date. However: (i) if
a CABS Amortization Event occurs a payment of principal will
occur on the first Payment Date subsequent to such CABS
Amortization Event, to the extent principal on the CABS is
received by the Trust, (ii) if an Event of Default occurs under
the Indenture (other than an Event Default due to a Swap Early
Termination, as hereinafter defined) the Indenture Trustee or
the Holders of a majority of the Securities may declare the
Class A1 Notes due and payable or (iii) if an Event of Default
occurs under the Indenture due to a Swap Early Termination, the
Indenture Trustee shall declare the Class A1 Notes due and
payable.
At any time principal is payable on the Class A1 Notes the Class
A1 Noteholders will generally receive an amount equal to 97%
(the 'Class A1 Note Percentage') of the Distributable Amount (as
defined below).
Upon the occurrence of a CABS Amortization Event, the
'Distributable Amount' shall equal the principal received on the
CABS on such Payment Date by the Trust. Upon any acceleration
after an Event of Default the 'Distributable Amount' shall equal
the sum of (i) the principal received on the CABS on such
Payment Date by the Trust, (ii) the proceeds from the sale of
the CABS, net of certain amounts due and payable to the Swap
Counterparty and (iii) the amount due from the Swap
Counterparty, if any, pursuant to the Swap Agreement with
respect to principal, each as calculated by the Calculation
Agent. Such payments of principal will be paid pro rata to the
Class A1 Noteholders. The holders of the Class A2 Certificates
(the 'Class A2 Certificateholders') will not receive any
distributions of principal until the Class A1 Noteholders have
received all payments of principal due to the Class A1
Noteholders on such Payment Date. The Class A1 Noteholders and
the Class A2 Certificateholders shall be referred to collective-
ly herein as the 'Securityholders.'
D. PAYMENT DATE......................... The 15th day of each month or, if such day is not a Business Day,
the next succeeding Business Day, commencing January 16, 1996
or, in the event of a Swap Early Termination, the Payment Date
shall be the Termination Date (as defined herein).
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E. RECORD DATE.......................... Payments on the Class A1 Notes will be made to the Class A1
Noteholders in whose name the Class A1 Notes were registered at
the close of business on the last Business Day of the month
prior to the month in which such payment occurs, or, with
respect to the first Payment Date, the Closing Date (the 'Record
Date').
F. FINAL SCHEDULED PAYMENT DATE......... To the extent not previously paid, the principal balance of the
Class A1 Notes will be due on the January 1997 Payment Date (the
'Final Scheduled Payment Date').
Failure to pay the full principal balance of the Class A1 Notes on
the Final Scheduled Payment Date constitutes an Event of Default
under the Indenture.
G. FINAL LEGAL MATURITY................. January 15, 1997 (the 'Maturity Date').
H. FORM AND REGISTRATION................ The Class A1 Notes will initially be delivered in book-entry form
('Book-Entry Notes') and will be represented by one or more
permanent global notes in fully registered form without coupons
deposited with a custodian for and registered in the name of a
nominee of The Depository Trust Company ('DTC'). Beneficial
interests in such global notes will be shown on, and transfers
thereof will be effected only through, records maintained by DTC
and its direct or indirect participants, including Cedel Bank,
societe anonyme ('Cedel') or the Euroclear System ('Euroclear').
Transfers within DTC will be in accordance with its usual rules
and operating procedures. So long as the Class A1 Notes are
Book-Entry Notes, such Class A1 Notes will be evidenced by one
or more securities registered in the name of Cede & Co.
('Cede'), as the nominee of DTC. The Class A1 Notes will
initially be registered in the name of Cede. The interests of
such Class A1 Noteholders will be represented by book entries on
the records of DTC and participating members thereof. No Class
A1 Noteholder will be entitled to receive a definitive note
representing such person's interest, except in the event that
Class A1 Notes in fully registered, certificated form
('Definitive Notes') are issued under the limited circumstances
described in 'Description of the Certificates -- Definitive
Certificates' in the Prospectus. All references in this
Prospectus Supplement to Class A1 Notes reflect the rights of
Class A1 Noteholders only as such rights may be exercised
through DTC and its participating organizations for so long as
such Class A1 Notes are held by DTC. See 'Risk
Factors -- Book-Entry Certificates' and 'Description of the
Certificates -- Book-Entry Registration' in the Prospectus and
'Annex I' thereto.
I. DENOMINATIONS........................ The Class A1 Notes will be issued in minimum denominations of
$1,000,000 and integral multiples of $1,000 in excess thereof.
J. TITLE................................ DTC, or its nominee, will be deemed the registered holder of
Book-Entry Notes. Title to each Definitive Note will be held by
the Class A1 Noteholder (or its nominee) in whose name such
Class A1 Note has been registered.
K. EVENTS OF DEFAULT.................... Events of default (each, an 'Event of Default') under the
Indenture include, among others: (i) the failure of the Trust to
pay interest or principal on any Class A1 Note when such amount
becomes due and payable and, with respect to interest, such
failure continues for more than five Business Days and (ii) a
Swap Early Termination (as defined herein).
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If the Event of Default described in clause (ii) above occurs, the
Indenture Trustee shall direct the Market Agent to liquidate the
CABS.
The liquidation proceeds from the sale of the CABS and any amount
received pursuant to the Swap Agreement shall be applied to make
payments in the following priority:
(i) the amount, if any, owed by the Trust to the Swap
Counterparty;
(ii) the amount of interest accrued and unpaid on the Class
A1 Notes;
(iii) the amount of interest accrued and unpaid on the Class
A2 Certificates;
(iv) the outstanding principal balance of the Class A1 Notes;
and
(v) the outstanding principal balance of the Class A2
Certificates.
DESCRIPTION OF CLASS A2 CERTIFICATES......... Each Class A2 Certificate will represent an undivided interest in
the Trust as described herein.
A. INTEREST RATE PAYABLE ON CLASS A2
CERTIFICATES.......................... The Class A2 Certificates represent $48,000,000 aggregate
principal amount. Interest will accrue on the unpaid principal
amount of the Class A2 Certificates at a rate per annum equal to
one month LIBOR plus 0.10%, calculated on the basis of the
actual number of days in each Interest Accrual Period divided by
360 (the 'Class A2 Accrual Rate').
B. INTEREST DISTRIBUTIONS ON THE CLASS
A2 CERTIFICATES....................... Except as otherwise provided herein, interest will be distributed
to the Class A2 Certificateholders on each Payment Date.
Interest in respect of a Payment Date will accrue on the Class
A2 Certificates during the preceding Interest Accrual Period.
C. PRINCIPAL DISTRIBUTIONS ON THE CLASS
A2 CERTIFICATES....................... No principal is scheduled to be payable to the Class A2
Certificateholders until the January 1997 Payment Date. However:
(i) if a CABS Amortization Event occurs a payment of principal
will occur on the first Payment Date subsequent to such CABS
Amortization Event, to the extent principal on the CABS is
received by the Trust, (ii) if an Event of Default occurs under
the Indenture (other than an Event of Default due to a Swap
Early Termination) the Indenture Trustee or the Holders of a
majority of the Securities may declare the Class A2 Certificates
due and payable or (iii) if an Event of Default occurs under the
Indenture due to a Swap Early Termination, the Indenture Trustee
shall declare the Class A2 Certificates due and payable.
At any time principal is payable on the Class A2 Certificates the
Class A2 Certificateholders will generally receive an amount
equal to 3% (the 'Class A2 Certificate Percentage') of the
Distributable Amount. Such distributions of principal will be
made pro rata to the holders of the Class A2 Certificates. The
Class A2 Certificateholders will not receive any distributions
of principal until the Class A1 Noteholders have received all
payments of principal due to the Class A1 Noteholders on such
Payment Date.
</TABLE>
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D. RECORD DATE.......................... Distributions on the Class A2 Certificates will be made to Class
A2 Certificateholders in whose name the Class A2 Certificates
were registered on the Record Date.
E. SUBORDINATION........................ Distributions of interest on the Class A2 Certificates will be
subordinated in priority of payment to the payment of interest
due on the Class A1 Notes. Distributions of principal on the
Class A2 Certificates will be subordinated in priority of
payment to the payment of principal due on the Class A1 Notes.
Consequently, Class A2 Certificateholders will not receive
distributions of interest on a Payment Date until the full
amount of interest due on the Class A1 Notes on such Payment
Date is paid in full and will not receive any distributions of
principal on a Payment Date until the full amount of principal
due on the Class A1 Notes on such Payment Date is paid in full.
F. FORM AND REGISTRATION................ The Class A2 Certificates will initially be delivered in book-
entry form ('Book-Entry Certificates') and will be represented
by one or more permanent global notes in fully registered form
without coupons deposited with a custodian for and registered in
the name of a nominee of DTC. Beneficial interests in such
global notes will be shown on, and transfers thereof will be
effected only through, records maintained by DTC and its direct
or indirect participants, including Cedel or Euroclear.
Transfers within DTC will be in accordance with its usual rules
and operating procedures. So long as the Class A2 Certificates
are Book-Entry Certificates, such Class A2 Certificates will be
evidenced by one or more securities registered in the name of
Cede, as the nominee of DTC. The Class A2 Certificates will
initially be registered in the name of Cede. The interests of
such Class A2 Certificateholders will be represented by book
entries on the records of DTC and participating members thereof.
No Class A2 Certificateholder will be entitled to receive a
definitive certificate representing such person's interest,
except in the event that Class A2 Certificates are issued as
Definitive Certificates under the limited circumstances
described in 'Description of the Certificates -- Definitive
Certificates' in the Prospectus. All references in this
Prospectus Supplement to Class A2 Certificates reflect the
rights of Class A2 Certificateholders only as such rights may be
exercised through DTC and its participating organizations for so
long as such Class A2 Certificates are held by DTC. See 'Risk
Factors -- Book-Entry Certificates' and 'Description of the
Certificates -- Book-Entry Registration' in the Prospectus and
'Annex I' thereto.
G. DENOMINATIONS........................ The Class A2 Certificates will be issued in minimum denominations
of $1,000,000 and integral multiples of $1000 in excess thereof
and will not be eligible to be resold or subdivided into units
smaller than the minimum denomination for issuance.
H. TITLE................................ DTC, or its nominee, will be deemed the registered holder of
Book-Entry Certificates. Title to each Definitive Certificate
will be held by the Class A2 Certificateholder (or its nominee)
in whose name such Class A2 Certificate has been registered.
MARKET AGENT................................. Lehman Brothers Inc. will serve as market agent (the 'Market
Agent') for the Trust. In such capacity, Lehman Brothers Inc.
will act on behalf of the Trust in connection
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with the sale and purchase of CABS and perform various other
duties. See 'The Market Agent Agreement' herein.
CALCULATION AGENT............................ Lehman Brothers Special Financing Inc. will serve as calculation
agent (the 'Calculation Agent') for the Trust in connection with
the Swap Agreement. See 'The Swap Agreement -- The Calculation
Agent' herein.
LIQUIDATION OF CABS.......................... On the 15th Business Day prior to the Maturity Date or, in the
event of a Swap Early Termination, on a date to be specified by
the Market Agent (such date, the 'Solicitation Date') the
Indenture Trustee will direct the Market Agent to sell the CABS
in compliance with the Sale Procedures. The settlement of the
sale will occur no earlier than the second Business Day prior to
the Termination Date (such date, the 'Final Liquidation Date')
and the proceeds from such sale will be deposited into an
account established with the Indenture Trustee under the
Indenture on the Closing Date (the 'Collection Account'). The
Indenture Trustee will then notify the Swap Counterparty of the
difference, if any, between the Final Payment Amount and the
Final Liquidation Proceeds (both as defined herein). If the
Final Liquidation Proceeds plus the amount of any principal
received on the CABS and not yet distributed are less than the
amounts due to the Class A1 Noteholders and the Class A2
Certificateholders, the difference will be payable by the Swap
Counterparty under the Swap Agreement.
'Sale Procedures' means that the Market Agent on behalf of the
Trust will sell one or more CABS to the highest bidder of not
less than two solicited bidders for such CABS (which bidders may
include Lehman Brothers Inc. or the Swap Counterparty or
affiliates thereof, provided however, that neither Lehman
Brothers Inc. nor the Swap Counterparty, nor any of their
affiliates are obligated to bid, and which bidders need not be
limited to recognized broker dealers). In the sole judgment of
the Market Agent, bids may be evaluated on the basis of bids for
a single CABS, a portion of the CABS or all of the CABS being
sold or on any other basis selected in good faith by the Market
Agent. No assurance can be given as to whether the Market Agent
will be successful in soliciting bids to purchase the CABS.
SWAP AGREEMENT............................... On the Closing Date the Trust will enter into the Swap Agreement
with the Swap Counterparty. Pursuant to the Swap Agreement, the
amounts due to the Trust will be computed to match the amounts
payable to the holders of the Class A1 Notes and Class A2
Certificates under the Indenture and Trust Agreement,
respectively. The amounts due to the Swap Counterparty will be
computed to match the interest amounts received under the CABS
and the proceeds from the sale of the CABS. Payment obligations
between the Trust and the Swap Counterparty will be settled on a
net basis.
On each Payment Date prior to the Termination Date the Swap
Counterparty will be required to pay to the Trust the Securities
Floating Amount. The 'Securities Floating Amount' with respect
to any Payment Date will be equal to the sum of (i) the product
of (x) the Securities Amount on such Payment Date, (y) the Class
A1 Accrual Rate, and (z) the Class A1 Note Percentage and (ii)
the product of (x) the Securities Amount, (y) the Class A2
Accrual
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Rate, and (z) the Class A2 Certificate Percentage. The
'Securities Amount' with respect to any Payment Date shall equal
the sum of (i) the unpaid principal amount of the Class A1 Notes
and (ii) the unpaid principal amount of the Class A2
Certificates, in each case as of the immediately preceding
Payment Date (or as of the Closing Date in the case of the first
Payment Date) after giving effect to all payments of principal,
if any, made on the Securities on any such preceding Payment
Date.
On the Termination Date the Swap Counterparty will be required to
pay to the Trust an amount equal to the outstanding Securities
Amount less the amount of any payments of principal received on
the CABS and due to be paid to the Securityholders plus the
Securities Floating Amount for such date (the 'Final Payment
Amount').
On each Payment Date prior to the Termination Date the Trust will
be required to pay to the Swap Counterparty an amount equal to
all interest received on the CABS.
On the Termination Date the Trust will be required to pay to the
Swap Counterparty an amount equal to the sum of all interest
received on the CABS and the proceeds received from the sale of
the CABS (the 'Final Liquidation Proceeds').
The 'Termination Date' will be the Maturity Date, except in the
event of a Swap Early Termination (as defined below), the
Termination Date will be designated pursuant to the Market Agent
Agreement.
The Swap Agreement will terminate upon the designation of an Early
Termination Date as defined in the Swap Agreement (a 'Swap Early
Termination'). A Swap Early Termination will occur upon the
acceleration of the Class A1 Notes due to an Event of Default
under the Indenture. A Swap Early Termination may also occur
upon the occurrence of a Swap Early Termination Event. A 'Swap
Early Termination Event' under the Swap Agreement is any of the
following: certain events of default and termination events with
respect to the Trust or Swap Counterparty under the Swap
Agreement, including among others, failure to pay required
amounts, breach of agreements or obligations,
misrepresentations, bankruptcy, certain events of merger, events
of illegality and tax events. A Swap Early Termination is an
Event of Default under the Indenture and in such event the CABS
will be liquidated and a net payment will be made by the Swap
Counterparty equal to the amount, if any, by which the Final
Payment Amount exceeds the Final Liquidation Proceeds. See
'Description of Class A1 Notes -- K. Events of Default' herein.
SWAP COUNTERPARTY............................ The Swap Counterparty will be Deutsche Bank AG, New York Branch
(the 'New York Branch') which is a branch of Deutsche Bank AG
(the 'Bank'). Its registered office is at Taunusanlage 12, 60325
Frankfurt am Main, Federal Republic of Germany.
CALCULATION OF LIBOR......................... LIBOR applicable to the calculation of the interest rate on the
Class A1 Notes and the Class A2 Certificates in respect of a
Payment Date shall be equal to the rate of one month deposits in
United States dollars which appears on Telerate Page 3750 as of
11:00 a.m., London time, on the related LIBOR Determination
Date. On January 9, 1996, the Indenture Trustee will determine
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LIBOR for the period from the Closing Date to January 15, 1996.
Thereafter, the Indenture Trustee will determine LIBOR on the
second Business Day prior to the Payment Date on which such
Interest Accrual Period commences (each, a 'LIBOR Determination
Date').
The LIBOR applicable to the CABS is described under 'Description
of the CABS -- Interest Distributions' herein.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES...... In the opinion of Special Tax Counsel (as defined herein), for
federal income tax purposes, the Trust will not be an
association or publicly traded partnership taxable as a
corporation and the Class A1 Notes should be treated as debt of
the Swap Counterparty. However, the proper classification of the
Trust for federal income tax purposes is not clear. The Trust
could be treated as a mere security arrangement, in which case,
the Trust would be ignored and the Class A1 Noteholders and
Class A2 Certificateholders would be treated as holding senior
and subordinated debt of the Swap Counterparty. Alternatively,
the Trust could be treated as a grantor trust, in which case (i)
the Class A1 Noteholders and Class A2 Certificateholders would
be considered to hold senior and subordinated interests in debt
of the Swap Counterparty, respectively or (ii) the Class A1
Notes could be treated as debt of the Trust secured by the Swap
Counterparty debt and the Class A2 Certificates would be treated
as equity owners of Swap Counterparty debt. Alternatively, it is
possible that the Class A1 Noteholders and Class A2 Certificate-
holders would be treated as owners of undivided interests in the
CABS and the Swap Agreement. Each Class A1 Noteholder and Class
A2 Certificateholder, by the acceptance of a Class A1 Note or
Class A2 Certificate, will agree to treat the Class A1 Notes as
indebtedness and the Trust as a security arrangement for
federal, state and local income and franchise tax purposes. See
'Certain Federal Income Tax Consequences' and 'State Tax
Consequences' herein and 'Certain Federal Income Tax
Considerations' and 'State Tax Considerations' in the Prospectus
concerning the application of federal, state and local tax laws.
LEGAL INVESTMENT............................. Institutions whose investment activities are subject to legal
investment laws and regulations or to review by certain
regulatory authorities may be subject to restrictions on
investment in the Securities. See 'Legal Investment
Considerations' herein.
ERISA........................................ Generally, plans that are subject to the requirements of ERISA and
the Code are permitted to purchase instruments like the Class A1
Notes that are debt under applicable state law and have no
'substantial equity features' without reference to the
prohibited transaction requirements of ERISA and the Code. In
the opinion of ERISA Counsel (as defined herein), the Class A1
Notes will be classified as indebtedness without substantial
equity features for ERISA purposes. However, if the Class A1
Notes are deemed to be equity interests and no statutory,
regulatory or administrative exemption applies, the Trust will
hold plan assets by reason of a Plan's investment in the Class
A1 Notes. Accordingly, any Plan fiduciary considering whether to
purchase the Class A1 Notes on behalf of a Plan should consult
with its counsel
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regarding the applicability of the provisions of ERISA and the
Code and the availability of any exemptions.
Under current law the purchase and holding of the Class A2
Certificates by or on behalf of any employee benefit plan (a
'Plan') subject to the fiduciary responsibility provisions of
the Employee Retirement Income Security Act of 1974, as amended
('ERISA'), may result in a 'prohibited transaction' within the
meaning of ERISA and the Code. Consequently, Class A2
Certificates may not be transferred to a proposed transferee
that is a Plan subject to ERISA or that is described in Section
4975(e)(1) of the Code, or a person acting on behalf of any such
Plan or using the assets of such plan unless the Owner Trustee
and the Depositor receive the opinion of counsel reasonably
satisfactory to the Owner Trustee and the Depositor to the
effect that the purchase and holding of such Class A2
Certificate will not result in the assets of the Trust being
deemed to be 'plan assets' for ERISA purposes and will not be a
prohibited transaction under ERISA or Section 4975 of the Code.
See 'ERISA Considerations' herein and in the Prospectus.
RATING....................................... It is a condition to the issuance of the Class A1 Notes and the
Class A2 Certificates that they be each rated 'P-1' by Moody's
Investors Service, Inc. ('Moody's') and 'A-1+' by Standard &
Poor's Ratings Services, a division of The McGraw-Hill
Companies, Inc. ('S&P'). The rating of the Securities by Moody's
addresses the likelihood of the ultimate payment of principal
and interest on the Securities. The rating of the Securities by
S&P addresses the likelihood of timely receipt of interest and
ultimate receipt of principal on the Securities on or before the
Maturity Date. There is no assurance that such rating will
continue for any period of time or that it will not be revised
or withdrawn entirely by such rating agency if, in its judgment,
circumstances (including, without limitation, the rating of the
Swap Counterparty) so warrant. A revision or withdrawal of such
rating may have an adverse effect on the market price of the
Securities. A security rating is not a recommendation to buy,
sell or hold securities.
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RISK FACTORS
Limited Liquidity. There is currently no secondary market for the
Securities. Lehman Brothers currently intends to make a market in the Securities
but is under no obligation to do so. There can be no assurance that a secondary
market will develop in the Securities or, if a secondary market does develop,
that it will provide holders of the Securities with liquidity of investment or
will continue for the life of the Securities.
Trust's Relationship to the Depositor. The Depositor is not obligated to
make any payments in respect of the Securities or the CABS.
The Swap Agreement. The purchase of Securities involves risks associated
with the Swap Agreement and the Swap Counterparty. Investors in the Securities
will be relying on the Swap Counterparty as a source of payments on the
Securities.
The Swap Counterparty will pay to the Trust, for distribution to the
Securityholders on the Termination Date the amount, if any, by which the Final
Payment Amount exceeds the Final Liquidation Proceeds. Any amounts by which the
Final Liquidation Proceeds exceed the Final Payment Amount shall be paid to the
Swap Counterparty.
On the Solicitation Date, the Indenture Trustee will direct the Market
Agent to sell the CABS to the highest bidder of not less than two solicited
bidders for such CABS. Such bidders may include Lehman Brothers Inc. or the Swap
Counterparty, or affiliates thereof; provided, however, that the Swap
Counterparty, Lehman Brothers Inc. and their affiliates are not obligated to
bid. Bidders need not be limited to recognized broker dealers.
In the event of the bankruptcy of the Swap Counterparty, the Swap Agreement
will be terminated in accordance with its terms. The termination of the Swap
Agreement will be an Event of Default under the Indenture and will result in the
liquidation of the CABS and an acceleration of amounts due on the Securities. In
the event of the bankruptcy of the Swap Counterparty, the CABS will be sold by
the Market Agent which may result in final payments of the Class A1 Notes or
distributions of the Class A2 Certificates in amounts less than would have been
obtained pursuant to the Swap Agreement. In the event of the bankruptcy of the
Market Agent, the Trust's ability to promptly liquidate the CABS for
distribution to Securityholders could be adversely impacted. See 'The Swap
Agreement.'
Maturity Assumptions. Each series of CABS is subject to early amortization
or default upon the occurrence of any of the amortization events or events of
default applicable to such CABS as described herein and in the prospectus used
in connection with the offering of such CABS.
The rate of payment of principal of the Securities may also be affected by
the repurchase by each CABS Issuer (other than Lehman Card Account Trust 1994-1
(the 'LCAT Trust')) of the CABS issued by such CABS Issuer at a purchase price
equal to a percentage of the principal balance thereof plus accrued and unpaid
interest, which right is exercisable only after the aggregate principal balance
of the CABS is less than 5% of their original principal balance. In such event
the repurchase price paid by the CABS Issuer would be passed through to the
Class A1 Noteholders and Class A2 Certificateholders as a payment of principal.
Rating of the Class A1 Notes and Class A2 Certificates. It is a condition
to the issuance and sale of the Class A1 Notes and the Class A2 Certificates
that they each be rated 'P-1' by Moody's and 'A-1+' by S&P (each of S&P and
Moody's being hereinafter referred to as a 'Rating Agency'). A rating is not a
recommendation to purchase, hold or sell securities, inasmuch as such rating
does not comment as to market price or suitability for a particular investor.
The rating of the Securities by Moody's addresses the likelihood of the ultimate
payment of principal and interest on the Securities. The rating of the
Securities by S&P addresses the likelihood of timely receipt of interest and
ultimate receipt of principal on the Securities on or before the Maturity Date.
However, a Rating Agency does not evaluate, and the ratings of the Securities do
not address, the possibility that investors may receive a lower yield than
anticipated. There can be no assurance that a rating will remain for any given
period of time or that a rating will not be lowered or withdrawn entirely by a
Rating Agency if, in its judgment, circumstances (including, without limitation,
the rating of the Swap Counterparty) in the future so warrant.
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Risks Attendant to Investments in the Class A2 Certificates. Distributions
of interest on the Class A2 Certificates will be subordinated in priority of
payment to interest due on the Class A1 Notes. Distributions of principal on the
Class A2 Certificates will be subordinated in priority of payment to the payment
of principal due on the Class A1 Notes. Consequently, the Class A2
Certificateholders will not receive any distributions of interest with respect
to an Interest Accrual Period until the full amount of interest on the Class A1
Notes on the related Payment Date has been paid in full and will not receive any
distributions of principal until the full amount of principal due on the Class
A1 Notes on such Payment Date is paid in full.
THE TRUST
GENERAL
The Issuer, Short-Term Card Account Trust 1995-1, is a business trust
formed under the laws of the State of Delaware pursuant to the Trust Agreement
for the transactions described in this Prospectus Supplement. The Trust
Agreement constitutes the 'governing instrument' under the laws of the State of
Delaware relating to business trusts. After its formation, the Issuer will not
engage in any activity other than (i) acquiring, holding and managing the CABS
and the other assets of the Trust and proceeds therefrom, (ii) issuing the Class
A1 Notes and the Class A2 Certificates, (iii) making payments on the Class A1
Notes and the Class A2 Certificates and (iv) engaging in other activities that
are necessary, suitable or convenient to accomplish the foregoing or are
incidental thereto or connected therewith.
The Trust's principal offices are in Wilmington, Delaware, in care of
Wilmington Trust Company, as Owner Trustee, at the address listed below under
'The Owner Trustee.'
DESCRIPTION OF THE CLASS A1 NOTES
GENERAL
The Class A1 Notes will be issued pursuant to the Indenture dated as of
December 1, 1995, between the Trust and The Bank of New York, as Indenture
Trustee. The Depositor will provide a copy of the Indenture to prospective
investors without charge upon request.
The following summaries describe certain terms of the Class A1 Notes and
the Indenture. The summaries do not purport to be complete and are subject to,
and qualified in their entirety by reference to, the provisions of the
Indenture. Wherever particular defined terms of the Indenture are referred to,
such defined terms are thereby incorporated herein by reference. See 'The
Indenture' herein for a summary of additional terms of the Indenture.
The Class A1 Notes will be issued in fully registered form only. The Class
A1 Notes will be freely transferable and exchangeable at the corporate trust
office of the Indenture Trustee. The Class A1 Notes will be issued in minimum
denominations of $1,000,000 and integral multiples of $1,000 in excess thereof;
provided that one Class A1 Note may be issued in such denomination as may be
necessary to represent the remainder of the aggregate amount of Class A1 Notes.
PAYMENTS ON CLASS A1 NOTES
Payments on the Class A1 Notes, as described below, will be made by the
Indenture Trustee on each Payment Date to persons in whose names the Class A1
Notes are registered on the Record Date. Payments to each Class A1 Noteholder
will be made through the facilities of DTC (in the United States) or Cedel or
Euroclear (in Europe) to an account specified in writing by such holder as of
the preceding Record Date or in such other manner as may be agreed to by the
Indenture Trustee and such holder. The final payment in retirement of a Class A1
Note will be made only upon surrender of the Class A1 Note to the Indenture
Trustee at the office thereof specified in the notice to Class A1 Noteholders of
such final payment. Notice will be mailed prior to the Payment Date on which the
final payment of principal and interest on a Class A1 Note is expected to be
made to the holder thereof.
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PAYMENTS OF INTEREST
Interest on the principal balances of the Class A1 Notes will accrue at a
rate per annum equal to the Class A1 Accrual Rate and will be payable monthly on
each Payment Date. The Indenture Trustee will determine LIBOR on each LIBOR
Determination Date based on the rate of one month deposits in United States
dollars appearing on Telerate Page 3750 as of 11:00 a.m. London time.
Interest in respect of a Payment Date will accrue on the outstanding
principal of the Class A1 Notes during the preceding Interest Accrual Period.
Except for payments made pursuant to the Swap Agreement described below,
interest payments on the Class A1 Notes will be funded from the collections of
interest on the CABS on such date. Interest on all of the CABS is payable on (i)
the 15th day of each month or, if such day is not a Business Day, the next
succeeding Business Day or (ii) as to any CABS, any other date specified in the
related Agreement, which may occur quarterly (each, a 'CABS Distribution Date').
If interest collections on the CABS plus amounts received with respect to the
Swap Agreement are not sufficient to pay the interest due on the Class A1 Notes
for any Payment Date and such default continues for five Business Days, an Event
of Default will occur in respect of the Class A1 Notes.
PAYMENTS OF PRINCIPAL
No principal is scheduled to be payable to the Class A1 Noteholders until
the January 1997 Payment Date. However: (i) if a CABS Amortization Event occurs
a payment of principal will occur on the first Payment Date subsequent to such
CABS Amortization Event, to the extent principal on the CABS is received by the
Trust, (ii) if an Event of Default occurs under the Indenture (other than an
Event of Default due to a Swap Early Termination) the Indenture Trustee or the
Holders of a majority of the Securities may declare the Class A1 Notes due and
payable or (iii) if an Event of Default occurs under the Indenture due to a Swap
Early Termination, the Indenture Trustee shall declare the Class A1 Notes due
and payable.
At any time principal is payable on the Class A1 Notes the Class A1
Noteholders will generally receive an amount equal to the Class A1 Note
Percentage of the Distributable Amount. Such payments of principal will be paid
pro rata to the Class A1 Noteholders. The Class A2 Certificateholders will not
receive any distributions of principal until the Class A1 Noteholders have
received all payments of principal due to the Class A1 Noteholders on such
Payment Date.
DISTRIBUTIONS ON THE CABS; COLLECTION ACCOUNT
All distributions on the CABS will be remitted directly to the Collection
Account. The Indenture Trustee will hold such moneys for the benefit of holders
of the Securities. The CABS Distribution Date in each month is the Payment Date
for such month.
ASSIGNMENT OF CABS
At the time of issuance of the Securities, the Depositor will cause the
beneficial interest in the CABS, which will be held in book-entry form through
the facilities of The Depository Trust Company, to be delivered to the Indenture
Trustee's participant account at The Depository Trust Company.
TERMINATION
All obligations of the Depositor and the Indenture Trustee created by the
Indenture will terminate upon the payment to Noteholders, Certificateholders and
the Swap Counterparty of all amounts required to be paid to them pursuant to the
Indenture.
DESCRIPTION OF THE CLASS A2 CERTIFICATES
GENERAL
The Class A2 Certificates will be issued pursuant to the Trust Agreement to
be dated as of December 1, 1995, between the Depositor and Wilmington Trust
Company as Owner Trustee. The
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Depositor will provide a copy of the Trust Agreement to prospective investors
without charge upon request.
The following summaries describe certain terms of the Class A2 Certificates
and the Trust Agreement. The summaries do not purport to be complete and are
subject to, and qualified in their entirety by reference to, the provisions of
the Trust Agreement. Wherever particular defined terms of the Trust Agreement
are referred to, such defined terms are thereby incorporated herein by
reference. See 'The Trust Agreement' herein for a summary of additional terms of
the Trust Agreement.
The Class A2 Certificates will be issued in fully registered form only and
will represent undivided interests in the Trust. The Class A2 Certificates will
be freely transferable and exchangeable at the corporate trust office of the
Owner Trustee. The Class A2 Certificates will be issued in minimum denominations
of $1,000,000 and integral multiples of $1,000 in excess thereof and will not be
eligible to be resold or subdivided in units smaller than the minimum
denomination for issuance; provided that one Class A2 Certificate may be issued
in such denomination as may be necessary to represent the remainder of the
aggregate amount of Class A2 Certificates.
DISTRIBUTIONS ON CLASS A2 CERTIFICATES
Pursuant to an administration agreement entered into between the Trust, the
Indenture Trustee, The Bank of New York as administrator (the 'Administrator')
and the Owner Trustee (the 'Administration Agreement'), distributions on the
Class A2 Certificates, as described below, will be made on behalf of the Owner
Trustee by the Administrator on the Payment Date to persons in whose names the
Class A2 Certificates are registered on the Record Date. Distributions to each
Class A2 Certificateholder will be made by the Administrator through the
facilities of DTC (in the United States) or Cedel or Euroclear (in Europe) to an
account specified in writing by such holder as of the preceding Record Date or
in such other manner as may be agreed to by the Owner Trustee and such holder.
The final distribution in retirement of a Class A2 Certificate will be made only
upon surrender of the Class A2 Certificate to the Owner Trustee at the office
thereof specified in the notice to Class A2 Certificateholders of such final
distribution. Notice will be mailed prior to the Payment Date on which the final
distribution of principal and interest on a Class A2 Certificate is expected to
be made to the holder thereof.
DISTRIBUTIONS OF INTEREST
Interest on the principal balance of the Class A2 Certificates will accrue
at a rate per annum equal to the Class A2 Accrual Rate and will be distributable
monthly on each Payment Date. The Indenture Trustee will determine LIBOR on each
LIBOR Determination Date based on the rate of one month deposits in United
States dollars appearing on Telerate Page 3750 as of 11:00 a.m. London time.
Interest in respect of a Payment Date will accrue on the outstanding
principal of the Class A2 Certificates during the preceding Interest Accrual
Period.
Except for payments made pursuant to the Swap Agreement described below,
interest payments on the Class A2 Certificates will be funded from collections
of interest on the CABS on such date.
DISTRIBUTIONS OF PRINCIPAL
No principal is scheduled to be payable to the Class A2 Certificateholders
until the January 1997 Payment Date. However; (i) if a CABS Amortization Event
occurs a payment of principal will occur on the first Payment Date subsequent to
such CABS Amortization Event, to the extent principal on the CABS is received by
the Trust, (ii) if an Event of Default occurs under the Indenture (other than an
Event of Default due to a Swap Early Termination) the Indenture Trustee or the
Holders of a majority of the Securities may declare the Class A2 Certificates
due and payable or (iii) if an Event of Default occurs under the Indenture due
to a Swap Early Termination, the Indenture Trustee shall declare the Class A2
Certificates due and payable.
At any time principal is payable on the Class A2 Certificates the Class A2
Certificateholders will generally receive an amount equal to the Class A2
Certificate Percentage of the Distributable Amount. Such payments of principal
will be paid pro rata to the Class A2 Certificateholders. The Class A2
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Certificateholders will not receive any distributions of principal until the
Class A1 Noteholders have received all payments of principal due to the Class A1
Noteholders on such Payment Date.
SUBORDINATION
Distributions of interest on the Class A2 Certificates will be subordinated
in priority of payment to the payment of interest due on the Class A1 Notes.
Distributions of principal on the Class A2 Certificates will be subordinated in
priority of payment to the payment of principal due on the Class A1 Notes.
Consequently, the Class A2 Certificateholders will not receive any distributions
of interest with respect to a Payment Date until the full amount of interest due
on the Class A1 Notes on such Payment Date is paid in full and will not receive
any distributions of principal until the full amount of principal due on the
Class A1 Notes on such Payment Date is paid in full.
TERMINATION
All obligations of the Depositor and the Owner Trustee created by the Trust
Agreement will terminate upon the distribution to Class A2 Certificateholders of
all amounts required to be distributed to them pursuant to the Trust Agreement
and distribution to the Swap Counterparty of all amounts required to be
distributed to it pursuant to the Swap Agreement. In addition, the occurrence of
certain CABS Amortization Events will lead to an early termination of the
obligations of the Depositor and the Owner Trustee created by the Trust
Agreement.
DESCRIPTION OF THE CABS
The table below sets forth certain of the characteristics of the CABS. The
table does not purport to be complete and is subject to, and qualified in its
entirety by reference to, the prospectuses pursuant to which the CABS were
offered and sold.
S-15
<PAGE>
<PAGE>
DESCRIPTION OF THE CABS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
ADVANTA CHASE MANHATTAN CHEMICAL MASTER
CREDIT CARD CREDIT CARD CREDIT CARD
ISSUER: MASTER TRUST II MASTER TRUST TRUST I
- ------------------------------------------------------- --------------------- --------------------- ---------------------
<S> <C> <C> <C>
Principal Amount Purchased by Depositor................ $187,925,000 $112,000,000 $80,065,000
Percentage of Total CABS Purchased by the Depositor.... 11.75% 7.00% 5.00%
Servicer............................................... Colonial National Chase Manhattan Bank Chemical Bank
Bank (USA) (USA)
Trustee................................................ Bankers Trust Company Yasuda Bank and Trust Bank of New York
Company (U.S.A.)
Designation............................................ Class A Floating Rate Class A Floating Rate Class A Floating Rate
Asset Backed Asset Backed Asset Backed
Certificates, Series Certificates, Series Certificates, Series
1995-A 1995-2 1995-1
Initial Certificate Amount............................. $598,500,000 $1,282,500,000 $750,000,000
Series Termination Date(1)............................. January 1, 2003 August 15, 2001 June 15, 2001
Certificate Rate....................................... LIBOR(2) +0.18% LIBOR(3) +0.13% LIBOR(3) +0.12%
Uncapped Uncapped Uncapped
Payment Date(4)........................................ 15th Business Day 15th Business Day 15th Business Day
(Monthly) (Monthly) (Monthly)
Commencement of Principal Payment Period(5)............ January 15, 2000 January 15, 1998 October 15, 2001
Guaranty Amount(6)..................................... $7,000,000 N/A N/A
Subordinated Amount(7)................................. $101,500,000 $217,500,000 $142,857,143
Optional Repurchase Percentage......................... 5% 5% 5%
Ratings (Moody's/S&P)(8)............................... Aaa/AAA Aaa/AAA Aaa/AAA
<CAPTION>
- -------------------------------------------------------
CHOICE
CREDIT CARD FIRST CHICAGO
ISSUER: MASTER TRUST I MASTER TRUST II
- ------------------------------------------------------- --------------------- ---------------------
<S> <C> <C>
Principal Amount Purchased by Depositor................ $41,930,000 $102,000,000
Percentage of Total CABS Purchased by the Depositor.... 2.62% 6.38%
Servicer............................................... Citibank (South FCC National Bank
Dakota), N.A.
Trustee................................................ Norwest Bank Norwest Bank
Minnesota, National Minnesota, National
Association Association
Designation............................................ Floating Rate Class A Floating Rate Credit
Credit Card Card Certificates
Participation Series 1995-P
Certificates, Series
1992-2
Initial Certificate Amount............................. $1,000,000,000 $500,000,000
Series Termination Date(1)............................. April 15, 1999 February 15, 2002
Certificate Rate....................................... Three-Month LIBOR(3) LIBOR(3) +0.18%
+0.30% Uncapped
Uncapped
Payment Date(4)........................................ 15th Business Day 15th Business Day
(Quarterly) (Monthly)
Commencement of Principal Payment Period(5)............ January 15, 1998 January 15, 2000
Guaranty Amount(6)..................................... $38,570,000 $5,714,286
Subordinated Amount(7)................................. $102,000,000 $71,428,572
Optional Repurchase Percentage......................... 5% 5%
Ratings (Moody's/S&P)(8)............................... Aaa/AAA Aaa/AAA
</TABLE>
- ------------
(1) Includes defined terms: Series Termination Date, Stated Series Termination
Date and Final Legal Maturity.
(2) Reuters LIBOR
(3) Telerate LIBOR
(4) Includes defined terms: Payment Date and Distribution Date.
(5) Includes defined terms: Controlled Amortization Period, Scheduled Payment
Date and Expected Final Payment Date.
(6) Includes Cash Collateral Account and L/C (Letter of Credit).
(7) Includes Class B Certificates, Class A3 Certificates (with respect to Lehman
Card Account Trust 1994-1), Collateral Invested Amounts and Collateral
Interests.
(8) As of December 29, 1995.
S-16
<PAGE>
<PAGE>
DESCRIPTION OF THE CABS (CONTINUED)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
FIRST USA FIRST USA LEHMAN CARD MBNA MASTER
CREDIT CARD CREDIT CARD ACCOUNT TRUST CREDIT CARD
ISSUER: MASTER TRUST MASTER TRUST 1994-1 TRUST II
- ------------------------------------ --------------------- --------------------- --------------------- ---------------------
<S> <C> <C> <C> <C>
Principal Amount Purchased by
Depositor......................... $162,000,000 $189,000,000 $410,000,000 $243,450,000
Percentage of Total CABS Purchased
by the Depositor.................. 10.13% 11.81% 25.63% 15.22%
Servicer............................ First USA Bank First USA Bank Colonial National MBNA America Bank,
Bank USA, First USA National Association
Bank, MBNA America
Bank, National
Association
Trustee............................. Bank of New York(1) Bank of New York(2) The Bank of New York Bank of New York
Designation......................... Class A Floating Rate Class A Floating Rate Floating Rate Asset Class A Floating Rate
Asset Backed Asset Backed Backed Notes, Class Asset Backed
Certificates, Series Certificates, Series A1 Certificates, Series
1994-7 1995-4 1994-C
Initial Certificate Amount.......... $750,000,000 $750,000,000 $650,000,000 $870,000,000
Series Termination Date(3).......... June 15, 2002 April 15, 2001 December 31, 2000 March 15, 2004
Certificate Rate.................... LIBOR(4) +0.18% LIBOR(4) +0.12% LIBOR(5) +0.25% LIBOR(6) +0.25%
Uncapped Uncapped Uncapped Uncapped
Payment Date(7)..................... 15th Business Day 15th Business Day 15th Business Day 15th Business Day
(Monthly) (Monthly) (Monthly) (Monthly)
Commencement of Principal Payment
Period(8)......................... November 15, 1999 September 15, 1998 May 15, 1998 October 15, 2001
Guaranty Amount(9).................. N/A N/A N/A N/A
Subordinated Amount(10)............. $153,615,000 $153,615,000 $32,485,000 130,000,000
Optional Repurchase Percentage...... 5% 5% N/A 5%
Ratings (Moody's/S&P)(11)........... Aaa/AAA Aaa/AAA Aaa/AAA Aaa/AAA
<CAPTION>
- ------------------------------------
PEOPLE'S BANK STANDARD
CREDIT CARD CREDIT CARD
ISSUER: MASTER TRUST MASTER TRUST I
- ------------------------------------ --------------------- ---------------------
<S> <C> <C>
Principal Amount Purchased by
Depositor......................... $40,000,000 $31,630,000
Percentage of Total CABS Purchased
by the Depositor.................. 2.50% 1.98%
Servicer............................ People's Bank Citibank (South
Dakota), N.A.
Trustee............................. Bankers Trust Company Yasuda Bank and Trust
Company (U.S.A.)
Designation......................... Floating Rate Class A Floating Rate Class A
Asset Backed Credit Card
Certificates, Series Participation
1995-1 Certificates, Series
1992-3
Initial Certificate Amount.......... $380,000,000 $1,250,000,000
Series Termination Date(3).......... August 15, 2003 October 15, 1998
Certificate Rate.................... LIBOR(4) +0.20% Three-Month LIBOR(4)
Uncapped +0.30% Uncapped
Payment Date(7)..................... 15th Business Day 15th Business Day
(Monthly) (Quarterly)
Commencement of Principal Payment
Period(8)......................... September 15, 1999 September 15, 1997
Guaranty Amount(9).................. $36,000,000 $66,500,000
Subordinated Amount(10)............. $20,000,000 $80,000,000
Optional Repurchase Percentage...... 5% 5%
Ratings (Moody's/S&P)(11)........... Aaa/AAA Aaa/AAA
</TABLE>
- ------------
(1) As of the closing date for such issuance, NationsBank of Virginia, N.A. was
the Trustee.
(2) As of the closing date for such issuance, NationsBank, N.A. was the Trustee.
(3) Includes defined terms: Series Termination Date, Stated Series Termination
Date and Final Legal Maturity.
(4) Telerate LIBOR
(5) Weighted Average of LIBOR on Underlying CABS.
(6) Reuters LIBOR
(7) Includes defined terms: Payment Date and Distribution Date.
(8) Includes defined terms: Controlled Amortization Period, Scheduled Payment
Date and Expected Final Payment Date.
(9) Includes Cash Collateral Account and L/C (Letter of Credit).
(10) Includes Class B Certificates, Class A3 Certificates (with respect to
Lehman Card Account Trust 1994-1), Collateral Invested Amounts and
Collateral Interests.
(11) As of December 29, 1995
S-17
<PAGE>
<PAGE>
GENERAL
This Prospectus Supplement sets forth certain relevant terms with respect
to the CABS, but does not provide detailed information with respect to the CABS.
Appendix A to this Prospectus Supplement contains excerpts from each prospectus
pursuant to which the CABS were offered and sold. This Prospectus Supplement
relates only to the Securities offered hereby and does not relate to the CABS.
Each CABS Issuer is subject to the information requirements of the Exchange
Act. Accordingly, each CABS Issuer is required to file reports, and other
information with respect to the CABS Issuer, including (except for the LCAT
Trust) monthly servicer reports ('CABS Servicer Reports') regarding the
Receivables, with the Commission. Copies of such reports and other information
may be inspected and copies are available at certain offices of the Commission
at the address listed under 'Available Information' in the Prospectus.
Neither the Depositor nor the Underwriter participated in the preparation
of the CABS Servicer Reports. Such reports and information will have been
prepared by the respective CABS Issuer and will not be independently verified by
the Depositor or the Underwriter. There can be no assurance that events have not
occurred which would affect the accuracy or completeness of any statements
included in the CABS Servicer Reports or in the publicly available documents
filed by or on behalf of the CABS Issuers.
Although the Depositor has no reason to believe the information concerning
the CABS, the CABS Issuers, or each prospectus or prospectus supplement relating
to the CABS is not reliable, the Depositor has not verified either its accuracy
or its completeness. Such information is as of the date of each related
prospectus and comparable information if given as of the date hereof may be
different.
Set forth below is certain information excerpted and summarized from each
prospectus relating to the CABS.
The CABS have been issued pursuant to Agreements entered into between
various sellers and various trustees. See 'Appendix A' for further description
of the various CABS Issuers. The following summary describes certain general
terms of such Agreements, but investors should refer to the Agreements
themselves for all the terms governing the CABS.
Each CABS represents an undivided interest in one of the CABS Issuers,
including the right to a percentage of cardholder payments on the Receivables
underlying such issue of CABS. The assets of each CABS Issuer include either (a)
a pool of Receivables arising under Accounts, funds collected or to be collected
from cardholders in respect of the Receivables and services in the Accounts,
monies on deposit in certain accounts of the CABS Issuers, the right to draw
upon various enhancements and may also include the right to receive certain
interchange fees attributed to cardholder charges for merchandise, or (b) in the
case of the CABS issued by the LCAT Trust (the 'LCAT Notes'), a pool of
Underlying Certificates. Each CABS represents the right to receive payments of
interest for the related interest period at the applicable CABS Certificate Rate
(as defined herein) for such interest period from collections of Receivables
and, in certain circumstances, from draws on applicable enhancement, and
payments of principal during the CABS Amortization Period (as defined herein)
funded from collections of Receivables. The LCAT Notes are payable from amounts
received on the Underlying Certificates owned by the LCAT Trust.
Except in the case of the LCAT Notes, each seller of CABS (each, a
'Seller') holds the interest in the Receivables of a CABS Issuer not represented
by the CABS and any other series of securities issued by the CABS Issuer. Such
Seller holds an undivided interest in the CABS Issuer (the 'Seller's Interest'),
including the right to a percentage (the 'Seller's Percentage') of all
cardholder payments on the Receivables.
Because the structure of the LCAT Notes differs from that of the other
CABS, distinctions must be drawn between the LCAT Notes and the other CABS from
time to time.
THE CABS
The CABS will consist of the CABS issued by the following CABS Issuers:
ADVANTA Credit Card Master Trust, Chase Manhattan Credit Card Master Trust,
Chemical Master Credit Card Trust I,
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<PAGE>
<PAGE>
CHOICE Credit Card Master Trust I, First Chicago Master Trust II, First USA
Credit Card Master Trust, Lehman Card Account Trust 1994-1, MBNA Master Credit
Card Trust II, People's Bank Credit Card Master Trust, and Standard Credit Card
Master Trust I.
INTEREST DISTRIBUTIONS
Interest accrues on the CABS at the certificate rate for each class and
series of CABS (a 'CABS Certificate Rate'), from the date of the initial
issuance of the CABS. Interest at the applicable rate will be distributed to the
holders of the CABS other than those issued by Choice Credit Card Master Trust I
(the 'Choice Certificates') and Standard Credit Card Master Trust I (the
'Standard Certificates'), monthly and to the holders of the Choice Certificates
and the Standard Certificates, quarterly on each CABS Distribution Date.
Interest on the CABS is calculated on the basis of the actual number of
days in the related interest period and a 360-day year.
The CABS all bear interest at a rate per annum above the arithmetic mean of
London interbank offered quotations for either one-month or three-month
Eurodollar deposits ('LIBOR'). In the case of the CABS other than those issued
by ADVANTA Credit Card Master Trust (the 'ADVANTA Certificates') and the LCAT
Notes, LIBOR is determined according to the Telerate Page 3750 or Telerate Page
3875 of the Dow Jones Telerate Service (or such other page as may replace
Telerate Page 3750 or Telerate Page 3875 on that service for the purpose of
displaying London interbank offered rates of major banks) ('Telerate LIBOR'). In
the case of the ADVANTA Certificates, LIBOR is determined according to the
Reuters Screen LIBO Page (as defined in the International Swap Dealers
Association, Inc. Code of Standard Wording, Assumption and Provisions for SWAPS,
1986 edition) ('Reuters LIBOR'). In the case of the LCAT Notes, LIBOR is
calculated as the weighted average of LIBOR on the Underlying Certificates;
calculations of interest on the Underlying Certificates are based on either
Telerate LIBOR or Reuters LIBOR.
PRINCIPAL DISTRIBUTIONS
Generally, principal distributions due to the holders of the CABS are
scheduled to commence on the first CABS Distribution Date with respect to a
period of controlled amortization or scheduled payment of principal for a series
of CABS (a 'CABS Controlled Amortization Period'), but may, except in the case
of the LCAT Notes, be distributed earlier or later than such date under certain
circumstances. However, if a Pay Out Event, Trust Pay Out Event, Series Pay Out
Event or Liquidation Event (as such terms are defined in the Agreements) (each
such event, a 'CABS Amortization Event') occurs with respect to CABS other than
the LCAT Notes, monthly distributions of principal to the holders of the CABS
will begin on the first CABS Distribution Date following the occurrence of such
CABS Amortization Event. See 'CABS Amortization Events' below.
If a CABS Amortization Event does not occur, principal will be distributed
to the holders of the CABS on the first CABS Distribution Date during the
applicable CABS Controlled Amortization Period. If, however, the amount of
principal distributed on the scheduled final CABS Distribution Date is not
sufficient to pay the holders of the CABS in full, then monthly distributions of
principal to the holders of CABS will occur on each CABS Distribution Date after
the scheduled final CABS Distribution Date until such holders of CABS have been
paid in full.
INVESTOR PERCENTAGE AND SELLER'S PERCENTAGE
Pursuant to the Agreements (other than those relating to the LCAT Notes),
all amounts collected on Receivables will be allocated between the investor
interest of the holders of the CABS, the investor interest of any other series,
and the Seller's Interest by reference to the investor percentage of the holders
of the CABS, the investor percentage of any other Series, and the Seller's
Percentage.
The Seller's Percentage in all cases means the excess of 100% over the
aggregate investor percentages of all Series then outstanding.
S-19
<PAGE>
<PAGE>
ALLOCATION OF COLLECTIONS
With respect to CABS other than the LCAT Notes, the CABS Servicer will
deposit any payments collected by the CABS Servicer with respect to the
Receivables and will generally allocate such amounts as follows:
(a) an amount equal to the applicable Seller's Percentage of the
aggregate amount of deposits in respect of Principal Receivables
and Finance Charge Receivables, respectively, will be paid to the
holder of the Seller's Interest,
(b) an amount equal to the applicable investor percentage of the
aggregate amount of such deposits in respect of Finance Charge
Receivables will be deposited into an account for the benefit of
the holders of the CABS,
(c) during the revolving period, an amount generally equal to the
applicable investor percentage of the aggregate amount of such
collections in respect of Principal Receivables will be paid to
the holder of the Seller's Certificate, provided, however, that
such amount may not exceed the amount equal to the Seller's
Interest,
(d) during the CABS Controlled Amortization Period or after the
occurrence of a CABS Amortization Event, collections of Principal
Receivables will be allocated to the holders of CABS based on the
investor percentage.
The term 'Seller's Interest' also encompasses the terms Transferor Interest,
First Chicago Interest, Bank's Interest, Seller Interest and Banks' Interest.
'Principal Receivables' generally consist of amounts charged by cardholders for
merchandise and services, amounts advanced as cash advances and the interest
portion of any participation interests. 'Finance Charge Receivables' generally
consist of monthly periodic charges, annual fees, cash advance fees, late
charges, over-limit fees and all other fees billed to cardholders, including
administrative fees.
Payments of principal and interest the LCAT Notes will be paid to the
Noteholders as amounts are collected on the Underlying Certificates.
CABS AMORTIZATION EVENTS
CABS other than the LCAT Notes. The following is a summary of the typical
CABS Amortization Events for each series of CABS other than the LCAT Notes.
(a) failure to make payments to holders of CABS within the time
periods given in the Agreements,
(b) material breaches of certain representations, warranties or
covenants or failure to observe or perform in a material respect
any covenant or agreement under an Agreement,
(c) occurrence of a material default by a servicer of the Receivables
underlying a series of CABS (a 'CABS Servicer'),
(d) failure to maintain the Seller's Interest in an amount at least
equal to minimum Seller's Percentage of Principal Receivables in
the CABS Issuer as of such date,
(e) failure to maintain a certain minimum level of Receivables or
Accounts, or if the Seller is unable to make required payments or
to transfer Receivables or Accounts to a CABS Issuer,
(f) certain events of bankruptcy, conservatorship, insolvency or
receivership relating to the Seller,
(g) CABS Issuer becomes an 'investment company' within the meaning of
the Investment Company Act of 1940, as amended,
(h) any reduction of the portfolio yield or excess spread (averaged
over any three consecutive months) to a rate below a certain rate
provided in the Agreement for such period,
(i) the available amount of the Cash Collateral Guaranty is less than
3% of the amount of the investor interest for the underlying
series of CABS.
S-20
<PAGE>
<PAGE>
The LCAT Notes. The following is a summary of the events of default
relating to the LCAT Notes:
(a) a default for five days or more in the payment of any interest on
any LCAT Note,
(b) a default in the payment of the principal of or any installment of
the principal of any LCAT Note when the same becomes due and
payable,
(c) a default in the observance or performance of any covenant or
agreement of the CABS Issuer made in the Agreement and the
continuation of any such default for a period of 30 days after
notice thereof is given to the CABS Issuer by the CABS Trustee or
to the CABS Issuer and the CABS Trustee by the holders of at least
25% in principal amount of the LCAT Notes then outstanding,
(d) any representation or warranty made by the CABS Issuer in the
Indenture was materially incorrect in a material respect when
made, and such breach is not cured within 30 days after notice
thereof is given to the CABS Issuer by the CABS Trustee or to the
Trust and the CABS Trustee by the holders of at least 25% in
principal amount of LCAT Notes then outstanding,
(e) certain events of bankruptcy, insolvency, receivership or
liquidation of the CABS Issuer.
The amount of principal required to be paid to holders of LCAT Notes under the
related agreement will generally be limited to amounts available to be deposited
in the related collection account. Therefore, the failure to pay principal on
the LCAT Notes generally will not result in the occurrence of an event of
default until the final scheduled payment date for the LCAT Notes.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
In general, with respect to the CABS other than the LCAT Notes, the CABS
Servicer's compensation for its servicing activities and reimbursement for its
expenses for any monthly period will be a servicing fee (a 'CABS Servicing Fee')
payable monthly. The CABS Servicing Fee will be allocated among the Seller's
Interest and the investor interests of all series issued by the CABS Issuer.
Generally, the CABS Servicer will pay from its servicing compensation
certain expenses incurred in connection with servicing the Receivables
including, without limitation, payment of the fees and disbursements of the CABS
Trustee and independent accountants and other fees which are not expressly
stated in the related Agreement to be payable by the CABS Issuer or the holders
of CABS.
The LCAT Notes had no CABS Servicer, and, accordingly no CABS Servicing Fee
is payable with respect to the LCAT Notes.
TAX CONSIDERATIONS RELATING TO THE CABS
Each CABS evidences an interest in or an obligation of a trust fund created
by one of the Agreements. Prospective investors should be aware that each CABS
involves certain United States federal income tax consequences not described
herein and as to which Brown & Wood, special tax counsel to the Depositor
('Special Tax Counsel') has not provided any opinions. In particular, with
respect to each CABS, an opinion was rendered by the respective tax counsel to
the underlying transaction that the CABS would be treated as debt instruments
for federal income tax purposes and, in the discussion set forth herein, and for
purposes of its opinion described below Special Tax Counsel has relied upon the
descriptions of such opinions in the related prospectuses. Prospective investors
are urged to consider the discussion of United States federal income tax
consequences in each prospectus relating to the CABS for a discussion of the
United States federal income tax consequences of the purchase, ownership and
disposition of the CABS and of the trust funds in which the CABS represent an
undivided interest or of which the CABS represent an obligation.
THE DEPOSITOR
Lehman ABS Corporation (the 'Depositor') was incorporated in the State of
Delaware on January 29, 1988. The Depositor is a wholly owned, special purpose
subsidiary of Lehman Commercial Paper Inc. ('LCPI'), which is itself a wholly
owned subsidiary of Lehman Brothers Inc. ('Lehman
S-21
<PAGE>
<PAGE>
Brothers'), which is a wholly owned subsidiary of Lehman Brothers Holdings Inc.
('Holdings'). None of Lehman Brothers, LCPI, Holdings or the Depositor, nor any
affiliate of the foregoing, has guaranteed or is otherwise obligated with
respect to the Securities.
The principal executive offices of the Depositor are located at 200 Vesey
Street, Three World Financial Center, New York, New York 10285 (Telephone: (212)
526-7000). See 'The Depositor' in the Prospectus.
THE INDENTURE
The following summary describes certain terms of the Indenture. The summary
does not purport to be complete and is subject to, and qualified in its entirety
by reference to, the provisions of the Indenture. Whenever particular sections
or defined terms of the Indenture are referred to, such sections or defined
terms are thereby incorporated herein by reference. See 'Description of the
Class A1 Notes' herein for a summary of certain additional terms of the
Indenture.
COLLECTION OF DISTRIBUTIONS ON CABS
The CABS will be assets of the Trust. All distributions on the CABS will be
made directly to the Indenture Trustee. The obligation of the Indenture Trustee
in making payments on the Class A1 Notes is limited to distributions on the
underlying CABS and payments received pursuant to the Swap Agreement which were
actually received by it. However, if the Indenture Trustee has not received a
distribution with respect to a CABS by the fifth Business Day after the date on
which such distribution was due and payable pursuant to the terms of such CABS,
the Indenture will require it to take such actions as are permissible pursuant
to the related CABS Agreement to ensure that the distribution be made as
promptly as possible and legally permitted and to take such legal action as the
Indenture Trustee deems appropriate under the circumstances, including the
prosecution of any claims in connection therewith. The reasonable legal fees and
expenses incurred by the Indenture Trustee in connection with the prosecution of
any legal action will be reimbursable to the Indenture Trustee solely out of the
proceeds of any such action and will be retained by the Indenture Trustee prior
to the deposit of any remaining proceeds in the Collection Account pending
distribution thereof to Class A1 Noteholders. In the event that the Indenture
Trustee has reason to believe that the proceeds of any such legal action may not
be sufficient to reimburse it for its projected legal fees and expenses, the
Indenture Trustee will notify the Class A1 Noteholders that it is not obligated
to pursue any such available remedies unless adequate indemnity for its legal
fees and expenses is provided by the Class A1 Noteholders.
REPORTS TO CLASS A1 NOTEHOLDERS
The Indenture Trustee will mail to each Class A1 Noteholder, at such Class
A1 Noteholder's request, at its address listed on the Note Register maintained
with the Indenture Trustee a report stating (i) the amounts of principal and
interest, respectively, paid on each $1,000 in face amount of Class A1 Notes,
(ii) the outstanding principal balance of the Class A1 Notes and (iii) the
outstanding balances of the CABS.
The Indenture Trustee shall forward by mail to each Class A1 Noteholder the
most current CABS Distribution Date Statement (as defined in the Indenture)
received by the Indenture Trustee as of the date of such request.
EVENTS OF DEFAULT; RIGHTS UPON EVENT OF DEFAULT
With respect to the Class A1 Notes, 'Events of Default' under the Indenture
will consist of: (i) a default for five Business Days or more in the payment of
any interest on any Class A1 Note; (ii) a default in the payment of the
principal of or any installment of the principal of any Class A1 Note when the
same becomes due and payable; (iii) a default in the observance or performance
of any covenant or agreement of the Trust made in the Indenture and the
continuation of any such default for a period of 30 days after notice thereof is
given to the Trust by the Indenture Trustee or to the Trust and the
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<PAGE>
Indenture Trustee by the holders of at least 25% in principal amount of the
Class A1 Notes then outstanding; (iv) any representation or warranty made by the
Trust in the Indenture or in any certificate delivered pursuant thereto or in
connection therewith having been incorrect in a material respect as of the time
made, and such breach not having been cured within 30 days after notice thereof
is given to the Trust by the Indenture Trustee or to the Trust and the Indenture
Trustee by the holders of at least 25% in principal amount of Class A1 Notes
then outstanding; (v) certain events of bankruptcy, insolvency, receivership or
liquidation of the Trust or (vi) the occurrence of a Swap Early Termination. The
amount of principal required to be paid to Class A1 Noteholders under the
Indenture will generally be limited to amounts available to be deposited in the
Collection Account. Therefore, the failure to pay principal on the Class A1
Notes generally will not result in the occurrence of an Event of Default until
the Maturity Date for the Class A1 Notes.
If there is an Event of Default with respect to a Class A1 Note due to late
payment or nonpayment of interest due on a Class A1 Note, additional interest
will accrue on such unpaid interest at the interest rate on the Class A1 Note
(to the extent lawful) until such interest is paid. Such additional interest on
unpaid interest shall be due at the time such interest is paid. If there is an
Event of Default due to late payment or nonpayment of principal on a Class A1
Note, interest will continue to accrue on such principal at the interest rate on
the Class A1 Note until such principal is paid.
If an Event of Default (other than a Swap Early Termination) should occur
and be continuing with respect to the Class A1 Notes, the Indenture Trustee or
holders of a majority in principal amount of the Securities then outstanding may
declare the principal of the Class A1 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 the Securities then outstanding.
If the Class A1 Notes are due and payable following an Event of Default
other than a Swap Early Termination, with respect thereto, the Indenture Trustee
may institute proceedings to collect amounts due or foreclose on Trust property,
exercise remedies as a secured party, sell the CABS or elect to have the Trust
maintain possession of the CABS and continue to apply collections on the CABS as
if there had been no declaration or acceleration. If an Event of Default due to
a Swap Early Termination occurs, the Indenture Trustee shall direct the Market
Agent to liquidate the CABS in compliance with the Sale Procedures.
If an Event of Default occurs and is continuing with respect to the Class
A1 Notes, the Indenture Trustee will be under no obligation to exercise any of
the rights or powers under the Indenture at the request or direction of any of
the holders of the Class A1 Notes, if the Indenture Trustee reasonably believes
it will not be adequately indemnified against the costs, expenses and
liabilities which might be incurred by it in complying with such request.
Subject to certain limitations contained in the Indenture, the holders of a
majority in principal amount of the outstanding Class A1 Notes will have the
right to direct the time, method and place of conducting any proceeding or any
remedy available to the Indenture Trustee, and the holders of a majority in
principal amount of the Class A1 Notes then outstanding may, in certain cases,
waive any default with respect thereto, except a default in the payment of
principal or interest or a default in respect of a covenant or provision of the
Indenture that cannot be modified without the waiver or consent of all the
holders of the outstanding Class A1 Notes.
No holder of a Class A1 Note will have the right to institute any
proceeding with respect to the Indenture, unless (i) such holder previously has
given the Indenture Trustee written notice of a continuing Event of Default,
(ii) the holders of not less than 25% in principal amount of the outstanding
Class A1 Notes have made written request to the Indenture Trustee to institute
such proceeding in its own name as Indenture Trustee, (iii) such holder or
holders have offered the Indenture Trustee reasonable indemnity, (iv) the
Indenture Trustee has for 60 days failed to institute such proceeding and (v) no
direction inconsistent with such written request has been given to the Indenture
Trustee during the 60-day period by the holders of a majority in principal
amount of the Class A1 Notes.
In addition, the Indenture Trustee and the Class A1 Noteholders, by
accepting the Class A1 Notes, will covenant that they will not at any time
institute against the Trust any bankruptcy, reorganization or other proceeding
under any federal or state bankruptcy or similar law.
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With respect to the Trust, neither the Indenture Trustee nor the Owner
Trustee in their capacities as trustees, nor any holder of a Class A2
Certificate representing an ownership interest in the Trust nor any of their
respective owners, beneficiaries, agents, officers, directors, employees,
affiliates, successors or assigns will, in the absence of an express agreement
to the contrary, be personally liable for the payment of the principal of or
interest on the Class A1 Notes or for the agreements of the Trust contained in
the Indenture.
CERTAIN COVENANTS
The Indenture will provide that the Trust may not consolidate with or merge
into any other entity, unless (i) the entity formed by or surviving such
consolidation or merger is organized under the laws of the United States, any
state or the District of Columbia, (ii) such entity expressly assumes the
Trust's obligation to make due and punctual payments upon the Class A1 Notes and
the performance or observance of any agreement and covenant of the Trust under
the Indenture, (iii) no Event of Default shall have occurred and be continuing
immediately after such merger or consolidation, (iv) the Trust has been advised
that the ratings of the Securities then in effect would not be reduced or
withdrawn by any Rating Agency as a result of such merger or consolidation and
(v) the Trust has received an opinion of counsel to the effect that such
consolidation or merger would have no material adverse tax consequence to the
Trust or to any Class A1 Noteholder or Class A2 Certificateholder.
The Trust will not, among other things, (i) except as expressly permitted
by the Indenture, sell, transfer, exchange or otherwise dispose of any of the
assets of the Trust, (ii) claim any credit on or make any deduction from the
principal and interest payable in respect of the Class A1 Notes (other than
amounts withheld under the Code or applicable state law) or assert any claim
against any present or former holder of Class A1 Notes because of the payment of
taxes levied or assessed upon the Trust, (iii) except as contemplated pursuant
to the Indenture, dissolve or liquidate in whole or in part, (iv) permit the
validity or effectiveness of the Indenture to be impaired or permit any person
to be released from any covenants or obligations with respect to the Class A1
Notes under the Indenture except as may be expressly permitted thereby or (v)
permit any lien, charge, excise, claim, security interest, mortgage or other
encumbrance to be created on or extent to or otherwise arise upon or burden the
assets of the Trust or any part thereof, or any interest therein or the proceeds
thereof, except as permitted by the Trust Agreement or the Indenture.
The Trust may not engage in any activity other than as specified under 'The
Trust' herein. The Trust will not incur, assume or guarantee any indebtedness
other than indebtedness incurred pursuant to the Trust Agreement and the
Indenture.
ANNUAL COMPLIANCE STATEMENT
The Trust will be required to file annually with the Indenture Trustee a
written statement as to the fulfillment of its obligations under the Indenture.
INDENTURE TRUSTEE'S ANNUAL REPORT
The Indenture Trustee will be required to mail each year to all Class A1
Noteholders a report relating to any change in its eligibility and qualification
to continue as Indenture Trustee under the Indenture, any amounts advanced by it
under the Indenture, the amount, interest rate and maturity date of any
indebtedness owing by the Trust to the Indenture Trustee in its individual
capacity, any change in the property and funds physically held by the Indenture
Trustee as such and any action taken by it that materially affects the Class A1
Notes and that has not been previously reported, but if no such changes have
occurred, then no report shall be required.
SATISFACTION AND DISCHARGE OF INDENTURE
The Indenture will be discharged with respect to the collateral securing
the Class A1 Notes upon the delivery to the Indenture Trustee for cancellation
of all the Class A1 Notes or, with certain
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limitations, upon deposit with the Indenture Trustee of funds sufficient for the
payment in full of the Class A1 Notes, the Class A2 Certificates and any amounts
due to the Swap Counterparty.
MODIFICATION OF INDENTURE
With the consent of the holders of a majority of the outstanding Class A1
Notes and the consent of the Swap Counterparty, the Trust and the Indenture
Trustee may execute a supplemental indenture to add provisions to, change in any
manner or eliminate any provisions of, the Indenture, or modify (except as
provided below) in any manner the rights of the Class A1 Noteholders.
Without the consent of the holder of each outstanding Class A1 Note
affected thereby and the consent of the Swap Counterparty, however, no
supplemental indenture will: (i) change the due date of any installment of
principal of or interest on any Class A1 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 Class A1 Note or any interest thereon is payable; (ii) impair the
right to institute suit for the enforcement of certain provisions of the
Indenture regarding payment; (iii) reduce the percentage of the aggregate amount
of the outstanding Class A1 Notes, the consent of the holders of which is
required for any supplemental indenture or the consent of the holders of which
is required for any waiver of compliance with certain provisions of the
Indenture or of certain defaults thereunder and their consequences as provided
for in the Indenture; (iv) modify or alter the provisions of the Indenture
regarding the voting of Class A1 Notes held by the Trust, the Depositor or an
affiliate of the Depositor; (v) reduce the percentage of the aggregate
outstanding amount of Class A1 Notes, the consent of the holders of which is
required to direct the Indenture Trustee to sell or liquidate the CABS if the
proceeds of such sale would be insufficient to pay the principal amount and
accrued but unpaid interest on the outstanding Class A1 Notes; (vi) decrease the
percentage of the aggregate principal amount of Class A1 Notes required to amend
the sections of the Indenture which specify the applicable percentage of
aggregate principal amount of the Class A1 Notes necessary to amend the
Indenture or certain other related agreements; or (vii) permit the creation of
any lien ranking prior to or on a parity with the lien of the Indenture with
respect to any of the collateral for the Class A1 Notes or, except as otherwise
permitted or contemplated in the Indenture, terminate the lien of the Indenture
on any such collateral or deprive the holder of any Class A1 Note of the
security afforded by the lien of the Indenture.
The Trust and the Indenture Trustee may also enter into supplemental
indentures, without obtaining the consent of the Class A1 Noteholders or the
Swap Counterparty, for the purpose of, among other things, adding any provisions
to or changing in any manner or eliminating any of the provisions of the
Indenture or of modifying in any manner the rights of the Class A1 Noteholders;
provided that such action will not materially and adversely affect the interest
of any Class A1 Noteholder or the Swap Counterparty.
VOTING RIGHTS
At all times, the voting rights of Class A1 Noteholders under the Indenture
will be allocated among the Class A1 Notes pro rata in accordance with their
outstanding principal balances.
CERTAIN MATTERS REGARDING THE INDENTURE TRUSTEE AND THE DEPOSITOR
Neither the Depositor, the Indenture Trustee nor any director, officer or
employee of the Depositor or the Indenture Trustee will be under any liability
to the Trust or the Class A1 Noteholders for any action taken or for refraining
from the taking of any action in good faith pursuant to the Indenture or for
errors in judgment; provided, however, that none of the Indenture Trustee, the
Depositor and any director, officer or employee thereof will be protected
against any liability which would otherwise be imposed by reason of willful
malfeasance, bad faith or negligence in the performance of duties or by reason
of reckless disregard of obligations and duties under the Indenture.
All persons into which the Indenture Trustee may be merged or with which it
may be consolidated or any person resulting from such merger or consolidation
shall be the successor of the Indenture Trustee under the Indenture.
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THE TRUST AGREEMENT
The following summary describes certain terms of the Trust Agreement. The
summary does not purport to be complete and is subject to, and qualified in its
entirety by reference to, the provisions of the Trust Agreement. Whenever
particular sections or defined terms of the Trust Agreement are referred to,
such sections or defined terms are thereby incorporated herein by reference. See
'Description of the Class A2 Certificates' herein for a summary of certain
additional terms of the Trust Agreement.
COLLECTION OF DISTRIBUTIONS ON CABS
The CABS will be assets of the Trust. All distributions thereon will be
made directly to the Indenture Trustee. Pursuant to the Administration
Agreement, distributions on the Class A2 Certificates will be made to Class A2
Certificateholders by the Administrator acting on behalf of the Owner Trustee.
EXERCISE OF REMEDIES
The Trust Agreement provides that until all the Class A1 Notes have been
paid in full, the Indenture Trustee will take all actions to collect any
distributions due on the CABS or to exercise remedies pursuant to the Indenture.
REPORTS TO CERTIFICATEHOLDERS
The Owner Trustee will mail to each Class A2 Certificateholder, at such
Class A2 Certificateholder's request, at its address listed on the Class A2
Certificate Register maintained with the Owner Trustee a report stating (i) the
amounts of principal and interest, respectively, distributed on each $1,000 in
face amount of Class A2 Certificates and (ii) the outstanding balances of the
CABS.
The Owner Trustee shall forward by mail to each Class A2 Certificateholder
the most current CABS Distribution Date Statement (as defined in the Trust
Agreement) received by the Owner Trustee as of the date of such request.
AMENDMENT
The Trust Agreement may be amended by the Depositor and the Owner Trustee,
without consent of the Class A1 Noteholders or Class A2 Certificateholders or
the Swap Counterparty, to cure any ambiguity, to correct or supplement any
provision or for the purpose of adding any provisions to or changing in any
manner or eliminating any of the provisions thereof or of modifying in any
manner the rights of such Class A1 Noteholders or Class A2 Certificateholders;
provided, however, that such action will not, as evidenced by an opinion of
counsel satisfactory to the Owner Trustee, adversely affect in any material
respect the interests of any Class A1 Noteholders or Class A2 Certificateholders
or the Swap Counterparty. The Trust Agreement may also be amended by the
Depositor and the Owner Trustee with the consent of the holders of Class A1
Notes evidencing at least a majority in principal amount of then outstanding
Class A1 Notes and Class A2 Certificateholders owning Voting Interests (as
herein defined) aggregating not less than a majority of the aggregate Voting
Interests and with the consent of the Swap Counterparty for the purpose of
adding any provisions to or changing in any manner or eliminating any of the
provisions of the Trust Agreement or modifying in any manner the rights of the
Class A1 Noteholders or Class A2 Certificateholders or the Swap Counterparty;
provided, however, that no such amendment may (i) increase or reduce in any
manner the amount of, or delay the timing of, collections of payments on the
CABS or distributions that are required to be made for the benefit of such Class
A1 Noteholders or Class A2 Certificateholders or (ii) reduce the aforesaid
percentage of the Class A1 Notes or the Voting Interests of Class A2
Certificates which are required to consent to any such amendment, without the
consent of all the outstanding Class A1 Notes or Class A2 Certificates, as the
case may be.
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VOTING INTERESTS
As of any date, the aggregate principal balance of all Class A2
Certificates outstanding will constitute the voting interest of the Issuer (the
'Voting Interests'), except that, for purposes of determining Voting Interests,
Class A2 Certificates owned by the Issuer or its affiliates and the Depositor
will be disregarded and deemed not to be outstanding, and except that, in
determining whether the Owner Trustee is protected in relying upon any such
request, demand, authorization, direction, notice, consent or waiver, only Class
A2 Certificates that the Owner Trustee knows to be so owned will be so
disregarded. Class A2 Certificates so owned that have been pledged in good faith
may be regarded as outstanding if the pledgee establishes to the satisfaction of
the Owner Trustee the pledgor's right so to act with respect to such Class A2
Certificates and that the pledgee is not the Issuer or its affiliates.
CERTAIN MATTERS REGARDING THE OWNER TRUSTEE AND THE DEPOSITOR
Neither the Depositor, the Owner Trustee nor any director, officer or
employee of the Depositor or the Owner Trustee will be under any liability to
the Trust or the Class A2 Certificateholders for any action taken or for
refraining from the taking of any action in good faith pursuant to the Trust
Agreement or for errors in judgment; provided, however, that none of the Owner
Trustee, the Depositor and any director, officer or employee thereof will be
protected against any liability which would otherwise be imposed by reason of
willful malfeasance, bad faith or gross negligence in the performance of duties
or by reason of reckless disregard of obligations and duties under the Trust
Agreement.
All persons into which the Owner Trustee may be merged or with which it may
be consolidated or any person resulting from such merger or consolidation shall
be the successor of the Owner Trustee under the Trust Agreement.
THE SWAP AGREEMENT
On the Closing Date the Trust will enter into a 1992 International Swaps
and Derivative Association, Inc. ('ISDA') Master Agreement
(Multi-Currency -- Cross Border) (such agreement, the 'Swap Agreement') with the
Swap Counterparty modified to reflect the terms of the Class A1 Notes and the
Class A2 Certificates, the Indenture, the Trust Agreement and the swap
transactions described herein.
Under the Swap Agreement, the amount due to the Trust will be computed to
match the amounts payable to the Class A1 Notes and Class A2 Certificates under
the Indenture and Trust Agreement. The amount due to the Swap Counterparty will
be computed to match the interest amounts received under the CABS and the
proceeds from the sale of the CABS.
On each Payment Date prior to the Termination Date the Swap Counterparty
will be required to pay to the Trust the Securities Floating Amount.
On the Termination Date the Swap Counterparty will be required to pay to
the Trust the Final Payment Amount.
On each Payment Date prior to the Termination Date the Trust will be
required to pay to the Swap Counterparty an amount equal to all interest
received on the CABS. On the Termination Date the Trust will be required to pay
to the Swap Counterparty the Final Liquidation Proceeds. Payment obligations
between the Trust and the Swap Counterparty will be settled on a net basis.
The Termination Date will be the Maturity Date, except in the event of a
Swap Early Termination, the Termination Date will be designated pursuant to the
Market Agent Agreement.
A Swap Early Termination will occur upon the acceleration of the Class A1
Notes due to an Event of Default under the Indenture. A Swap Early Termination
may also occur upon the occurrence of a Swap Early Termination Event. A Swap
Early Termination is an Event of Default under the Indenture and in such event
the CABS will be liquidated and a net payment will be made by the Swap
Counterparty equal to the amount, if any, by which the Final Payment Amount
exceeds the Final
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Liquidation Proceeds. The effect of the foregoing is to provide that upon a Swap
Early Termination, Securityholders will be entitled to receive par plus accrued
and unpaid interest on their Securities.
Payments received by the Indenture Trustee pursuant to the Swap Agreement
will be deposited in the Collection Account.
THE SWAP COUNTERPARTY
The Swap Counterparty will be Deutsche Bank AG, New York Branch (the 'New
York Branch'), a branch of Deutsche Bank AG (the 'Bank'). The Bank was
originally established in 1870. In 1957, the Bank was reestablished under the
laws of the Federal Republic of Germany in its present form. The Bank is the
largest banking institution in the Federal Republic of Germany. The Deutsche
Bank Group (the 'Group') consists of the Bank and over 300 consolidated
companies. The Group operates over 2,400 branches and offices in Germany and
more than 750 branches and subsidiaries in other countries around the world.
The Bank operates the New York Branch pursuant to a license issued by the
Superintendent of Banks of the State of New York on July 14, 1978. The New York
Branch conducts an extensive banking business serving U.S. customers and the
Bank's German clients and their U.S. subsidiaries. The principal office of the
New York Branch is at 31 West 52nd Street, New York, New York 10019.
The Bank will provide without charge to each person to whom a copy of this
Prospectus Supplement is delivered, upon the written request of such person, a
copy of the most recent Annual Report of the Bank, containing its consolidated
financial statements. Written request should be addressed to Deutsche Bank AG,
New York Branch, 31 West 52nd Street, New York, New York 10019, Attention:
Corporate Communications.
In the event of a reduction or withdrawal of the credit rating by any
Rating Agency of the short-term debt of the Swap Counterparty, the Swap
Counterparty may, but is not required to, obtain a substitute swap counterparty
or enter into a substitute arrangement that is satisfactory to such Rating
Agency, in order to avoid a reduction or withdrawal of the rating of the
Securities.
The foregoing information with respect to the Bank has been furnished by
the Bank, and neither the Depositor nor the Underwriter have made any
independent investigation of such information.
THE CALCULATION AGENT
The Calculation Agent will be Lehman Brothers Special Financing Inc.
('LBSF'), a wholly-owned subsidiary of Lehman Brothers Inc. incorporated in the
state of Delaware. Three Business Days prior to each Payment Date, the
Calculation Agent will determine the amount scheduled to be received pursuant to
the CABS, the amount due to the Class A1 Noteholders and the Class A2
Certificateholders with respect to such Payment Date and the amount of any
Termination Payment.
THE MARKET AGENT AGREEMENT
MARKET AGENT
Pursuant to the Market Agent Agreement, dated as of the Closing Date
between Lehman Brothers Inc., the Trust and the Indenture Trustee (the 'Market
Agent Agreement'), the Market Agent shall: (a) act on behalf of the Trust in
connection with the sale and purchase of CABS as provided in the Indenture and
(b) perform its duties and comply with the provisions set forth in the Market
Agent Agreement and Indenture.
The Market Agent Agreement provides that the Market Agent has no liability
for any act or omission except as results from the Market Agent's negligence or
willful misconduct. The Market Agent may assign any and all of its duties,
obligations and rights as Market Agent to any organization controlled by or
under common control with Lehman Brothers Inc. The Market Agent may at any time
resign and be discharged of the duties and obligations created by the Market
Agent Agreement by giving at least 30 days' notice to the Indenture Trustee.
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On the Solicitation Date, the Indenture Trustee will direct the Market
Agent to sell the CABS in compliance with the Sale Procedures. The settlement of
the sale will occur no earlier than the second Business Day prior to the
Termination Date and the Final Liquidation Proceeds will be deposited in an
account established with the Indenture Trustee. 'Sale Procedures' means that the
Market Agent on behalf of the Trust will sell one or more CABS to the highest
bidder of not less than two solicited bidders for such CABS (which bidders may
include Lehman Brothers Inc. or the Swap Counterparty or affiliates thereof,
provided however, that neither Lehman Brothers Inc. nor the Swap Counterparty,
nor any of their affiliates are obligated to bid, and which bidders need not be
limited to recognized broker dealers). In the sole judgment of the Market Agent,
bids may be evaluated on the basis of bids for a single CABS, a portion of the
CABS or all of the CABS being sold or on any other basis selected in good faith
by the Market Agent. No assurance can be given as to whether the Market Agent
will be successful in soliciting bids to purchase the CABS.
THE ADMINISTRATION AGREEMENT
The Indenture Trustee, in its capacity as Administrator, will enter into
the Administration Agreement with the Trust and the Owner Trustee pursuant to
which the Administrator will agree, to the extent provided in such
Administration Agreement, to enforce the Swap Agreement at the direction of the
Owner Trustee, provide notices and perform other administrative obligations
required by the Indenture and the Trust Agreement.
THE INDENTURE TRUSTEE
The Bank of New York is the Indenture Trustee under the Indenture. The
mailing address of the Indenture Trustee is The Bank of New York, 101 Barclay
Street, New York NY 10286, Attention: Corporate Trust Department.
THE OWNER TRUSTEE
Wilmington Trust Company is the Owner Trustee under the Trust Agreement.
The mailing address of the Owner Trustee is Wilmington Trust Company, Rodney
Square North, Wilmington, DE 19890, Attention: Corporate Trust Administration.
USE OF PROCEEDS
The net proceeds from the sale of the Class A1 Notes and the Class A2
Certificates will be applied by the Depositor on the Closing Date towards the
purchase price of the CABS, the payment of expenses related to such sale and the
purchase of the CABS and other corporate purposes.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
GENERAL
Set forth below is a discussion of the anticipated material United States
federal income tax consequences of the purchase, ownership and disposition of
the Class A1 Notes and Class A2 Certificates offered hereunder. This discussion
is based upon current provisions of the Internal Revenue Code of 1986, as
amended (the 'Code'), existing and proposed Treasury Regulations thereunder,
current administrative rulings, judicial decisions and other applicable
authorities. There are no cases or Internal Revenue Service ('IRS') rulings on
similar transactions involving both notes and certificates issued by a trust
with terms similar to those of the Class A1 Notes and the Class A2 Certificates.
As a result, there can be no assurance that the IRS will not challenge the
conclusions reached herein, and no ruling from the IRS has been or will be
sought on any of the issues discussed below. Furthermore, legislative, judicial
or administrative changes may occur, perhaps with retroactive effect, which
could affect the accuracy of the statements and conclusions set forth herein as
well as the tax consequences to Class A1 Noteholders and Class A2
Certificateholders.
This discussion does not purport to deal with all aspects of federal income
taxation that may be relevant to the Class A1 Noteholders and Class A2
Certificateholders in light of their personal
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investment circumstances nor, except for certain limited discussions of
particular topics, to certain types of holders subject to special treatment
under the federal income tax laws (e.g., financial institutions, broker-dealers,
life insurance companies, foreign investors and tax-exempt organizations). This
information is directed to prospective purchasers who purchase Class A1 Notes or
Class A2 Certificates in the initial distribution thereof, who are citizens or
residents of the United States, including domestic corporations and
partnerships, and who hold the Class A1 Notes or Class A2 Certificates as
'capital assets' within the meaning of Section 1221 of the Code. Taxpayers and
preparers of tax returns (including those filed by any partnership or other
issuer) should be aware that under applicable Treasury regulations a provider of
advice on specific issues of law is not considered an income tax return preparer
unless the advice (i) is given with respect to events that have occurred at the
time the advice is rendered and is not given with respect to the consequences of
contemplated actions and (ii) is directly relevant to the determination of an
entry on a tax return. Accordingly, taxpayers should consult their own tax
advisors and tax return preparers regarding the preparation of any item on a tax
return, even where the anticipated tax treatment has been discussed herein.
PROSPECTIVE INVESTORS SHOULD CONSULT WITH THEIR OWN TAX ADVISORS AS TO THE
FEDERAL, STATE, LOCAL, FOREIGN AND ANY OTHER TAX CONSEQUENCES TO THEM OF THE
PURCHASE, OWNERSHIP AND DISPOSITION OF CLASS A1 NOTES OR CLASS A2 CERTIFICATES.
For purposes of this discussion, references to a 'Class A2
Certificateholder' or a 'Class A1 Noteholder' are to the beneficial owner of a
Class A2 Certificate or Class A1 Note, respectively.
CLASSIFICATION OF THE TRUST
In the opinion of Special Tax Counsel, for federal income tax purposes, the
Trust will not be an association or publicly traded partnership taxable as a
corporation. The proper classification of the Trust for federal income tax
purposes is not clear. The Trust should be treated as a mere security
arrangement, in which case, the Trust would be ignored and the Class A1
Noteholders and Class A2 Certificateholders would be treated as holding senior
and subordinated debt of the Swap Counterparty. Alternatively, the Trust could
be treated as a grantor trust, in which case (i) the Class A1 Noteholders and
Class A2 Certificateholders would be considered to hold senior and subordinated
grantor trust interests in debt of the Swap Counterparty, or (ii) the Class A1
Notes could be treated as debt of the Trust secured by Swap Counterparty debt
and the Class A2 Certificates would constitute the equity owners of Swap
Counterparty debt. Alternatively, it is possible that the Class A1 Noteholders
and Class A2 Certificateholders would be treated as owners of undivided
interests in the CABS and the Swap Agreement. Each Class A1 Noteholder and Class
A2 Certificateholder by acceptance of a Class A1 Note or Class A2 Certificate,
will agree to treat the Class A1 Notes as indebtedness and the Trust as a
security arrangement for federal, state and local income and franchise tax
purposes.
If the Trust is classified as a grantor trust under subpart E, Part I of
subchapter J of the Code, owners of Class A2 Certificates (and owners of Class
A1 Notes if treated as grantor trust interests) will be treated for U.S. federal
income tax purposes as owners of a pro rata undivided interest in the Trust
assets which may be deemed to consist of (i) debt obligations of the Swap
Counterparty (see discussion below -- 'Tax Treatment of the CABS and the Swap
Agreement') or (ii) the CABS and the Swap Agreement. Each U.S. Investor will be
required to report on its U.S. federal income tax return its pro rata share of
the entire income of the Trust's assets in accordance with such U.S. Investor's
method of accounting. Under Code Section 162 or 212, each U.S. Investor will be
only entitled to deduct its pro rata share of expenses incurred by the Trust. A
U.S. Investor using the cash method of accounting must take into account its pro
rata share of deductions as and when paid by the Trust.
As used in this section, the term 'U.S. Investor' means a beneficial owner
of a Class A1 Note or Class A2 Certificate that is for U.S. federal income tax
purposes (i) a citizen or resident of the United States, (ii) a corporation,
partnership or other entity created or organized in or under the laws of the
United States or a political subdivision thereof, (iii) an estate or trust, the
income of which is subject to U.S. federal income taxation regardless of its
source, or (iv) any foreign corporation, partnership or
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other entity which holds a Class A1 Note or Class A2 Certificate in connection
with a U.S. trade or business.
TAX TREATMENT OF THE CABS AND THE SWAP AGREEMENT
Although the matter is not entirely clear, in the opinion of Special Tax
Counsel, the arrangement created by the Trust Agreement, the Indenture, and all
documents executed in connection therewith (the 'Arrangement'), should
constitute indebtedness of the Swap Counterparty ('SC Debt') with a principal
balance equal to the Securities Amount. In general, the substance of a
transaction determines its characterization for U.S. federal income tax
purposes, and the treatment of the Arrangement as debt of the Swap Counterparty
is consistent with the substance of the transaction. The most significant factor
in this determination is whether the Swap Counterparty bears the benefits and
burdens of ownership of the CABS. Pursuant to the terms of the Swap Agreement
with the Swap Counterparty, the Swap Counterparty is required to pay the
principal of and interest on the Class A1 Notes and Class A2 Certificates even
if (i) the CABS are in default or (ii) the CABS are liquidated for an amount
less than the then principal balance of the Class A1 Notes and Class A2
Certificates. In addition, if the CABS are liquidated for an amount in excess of
the then principal balance of the Class A1 Notes and Class A2 Certificates, this
excess will be payable to the Swap Counterparty and not to the holders of the
Class A1 Notes or Class A2 Certificates. Accordingly, the Swap Counterparty, and
not the holders of the Class A1 Notes or Class A2 Certificates, bears the
burdens and benefits associated with ownership of the CABS. If, contrary to the
aforementioned conclusion, the substance of the transaction is disregarded and
the Trust is treated as owning the CABS and the Swap Agreement, the holders of
the Class A1 Notes or Class A2 Certificates may be treated as owners of a pro
rata undivided interest in such assets, and each U.S. Investor would be required
to report on its federal income tax return (i) its pro rata share of the entire
income of the Trust with respect to the CABS and the Swap Agreement and (ii) its
pro rata share of the expenses incurred by the Trust. However, the Trustee
intends to treat the Arrangement as SC Debt for purposes of IRS information
reporting, if required.
TAX TREATMENT OF THE CLASS A1 NOTES
Characterization as Debt. The Depositor, the Owner Trustee, the Indenture
Trustee, the Class A2 Certificateholders by their purchase of the Class A2
Certificates, and the Class A1 Noteholders by their purchase of the Class A1
Notes will agree to treat the Class A1 Notes as debt of the Swap Counterparty
for purposes of any federal, state and local income and franchise taxes based on
or measured by income or capital. Special Tax Counsel is of the opinion that,
although no specific authority exists with respect to the characterization for
federal income tax purposes of securities having the same terms as the Class A1
Notes, based on the terms of the Class A1 Notes, the Class A1 Notes should be
treated as debt of the Swap Counterparty for federal income tax purposes. See
'Tax Treatment of the Class A1 Notes -- Possible Alternative Characterization of
the Class A1 Notes' for a discussion of the potential federal income tax
consequences if the IRS were successful in treating the Trust as a grantor trust
for a discussion of potential alternative characterizations of the Class A1
Notes for federal income tax purposes.
Treatment of Stated Interest. Based on the foregoing opinion, subject to
the discussion in the Prospectus regarding original issue discount ('OID') the
stated interest on the Class A1 Notes will be taxable to a Class A1 Noteholder
as ordinary income when received or accrued in accordance with such Class A1
Noteholder's method of tax accounting. The following discussion is based in part
upon the rules governing OID in final Treasury regulations issued under the OID
provisions of the Code and certain proposed OID regulations concerning
'contingent' payments. Under those regulations, a holder of a Class A1 Note
issued with a de minimis amount of OID must include such OID in income, on a pro
rata basis, as principal payments are made on the Class A1 Note. The Trust
intends to treat the Class A1 Notes as issued with no OID (other than any de
minimis OID).
Market Discount. If a Class A1 Noteholder purchases a Class A1 Note for an
amount that is less than its issue price (or, in the case of a subsequent
purchaser, its stated redemption price at maturity), the amount of the
difference will be treated as 'market discount', unless such difference is less
than a specified de minimis amount.
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Under the market discount rules, a Class A1 Noteholder will be required to
treat any partial principal payment on, or any gain realized on the sale,
exchange, retirement or other disposition of a Class A1 Note as ordinary income
to the extent of the lesser of (i) the amount of such payment or realized gain
and (ii) the accrued market discount on such Class A1 Note at the time of such
payment or disposition. Market discount will be considered to accrue ratably
during the period from the date of acquisition to the maturity date of the Class
A1 Note, unless the Class A1 Noteholder elects to accrue market discount on a
yield to maturity basis.
A Class A1 Noteholder may be required to defer the deduction of all or a
portion of the interest paid or accrued on any indebtedness incurred or
maintained to purchase or carry a Class A1 Note with market discount until the
maturity of the Class A1 Note or its earlier disposition in a taxable
transaction. A Class A1 Noteholder may elect to include market discount in
income currently as it accrues (on either a ratable or yield to maturity basis),
in which case the rules described above will not apply. Generally, a current
inclusion of market discount is treated as ordinary interest income for United
States federal income tax purposes.
Premium. If a Class A1 Noteholder purchases a Class A1 Note for an amount
that is greater than its stated redemption price at maturity, such Class A1
Noteholder will be considered to have purchased the Class A1 Note with
'amortizable bond premium' equal in amount to such excess. A Class A1 Noteholder
may elect to amortize such premium using a constant yield method over the
remaining term of the Class A1 Note. Premium amortizations may offset only
interest otherwise required to be included in respect of the Class A1 Note and
are not treated as a separate deduction.
Sale or Other Disposition. If a Class A1 Noteholder sells a Class A1 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 Class A1 Note. The adjusted tax basis of a Class A1 Note to a particular
Class A1 Noteholder will equal the holder's cost for the Class A1 Note,
increased by any OID, market discount, acquisition discount, and gain previously
included by such Class A1 Noteholder in income with respect to the Class A1 Note
and decreased by the amount of bond premium (if any) previously amortized and by
the amount of principal payments previously received by such Class A1 Noteholder
with respect to such Class A1 Note. Any such gain or loss will be capital gain
or loss if the Class A1 Note was held as a capital asset, except for gain
representing accrued interest and accrued market discount not previously
included in income. Capital losses generally may be used only to offset capital
gains.
Tax Consequences to Foreign Holders of Debt. If interest paid (or accrued)
to a holder of debt 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 a United States federal income tax and
withholding tax, as long as the foreign person (i) is not actually or
constructively a '10 percent shareholder' of the issuer of the debt, the Swap
Counterparty or the issuer of the CABS or a 'controlled foreign corporation'
with respect to which the issuer of the debt, the Swap Counterparty or the
issuer of the CABS is a 'related person' within the meaning of the Code, and
(ii) provides an appropriate statement, signed under penalties of perjury,
certifying that the beneficial owner of the debt is a foreign person and
providing that foreign person's name and address. If the information provided in
this statement changes, the foreign person must so inform the Trust within 30
days of such change. The statement generally must be provided in the year a
payment occurs or in either of the two preceding years. If such interest were
not portfolio interest, then it would be subject to United States federal income
and withholding tax at a rate of 30 percent unless reduced or eliminated
pursuant to an applicable tax treaty. Unless the Trustee receives the
appropriate statement from a foreign investor, the Trustee will withhold for
U.S. withholding taxes.
Any capital gain realized on the sale, redemption, retirement or other
taxable disposition of a Class A1 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 person is not present in the United States for 183 days or
more in the taxable year of such sale, redemption, retirement or other taxable
disposition of the Class A1 Notes.
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If the interest, gain or income on a Class A1 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, the holder (although exempt from the withholding
tax previously discussed if an appropriate statement is furnished) 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 foreign corporation, it may be subject to a branch profits tax equal to 30
percent 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.
Information Reporting and Backup Withholding. Backup withholding of United
States federal income tax at a rate of 31% may apply to payments made in respect
of the Class A1 Notes to registered owners who are not 'exempt recipients' and
who fail to provide certain identifying information (such as the registered
owner's taxpayer identification number) in the required manner. Generally,
individuals are not exempt recipients, whereas corporations and certain other
entities generally are exempt recipients. Payments made in respect of the Class
A1 Notes to a Class A1 Noteholder must be reported to the IRS, unless the Class
A1 Noteholder is an exempt recipient or establishes an exemption.
In addition, upon the sale of a Class A1 Note to (or through) a broker, the
broker must withhold 31% of the entire purchase price, unless either (i) the
broker determines that the seller is a corporation or other exempt recipient or
(ii) the seller provides, in the required manner, certain identifying
information and, in the case of a Class A1 Noteholder which is a foreign person,
certifies that such seller is a foreign person (and certain other conditions are
met). Such a sale must also be reported by the broker to the IRS, unless either
(i) the broker determines that the seller is an exempt recipient or (ii) the
seller certifies its non-U.S. status (and certain other conditions are met).
Certification of the registered owner's non-U.S. status would be made normally
on an IRS Form W-8 under penalties of perjury, although in certain cases it may
be possible to submit other documentary evidence.
Any amounts withheld under the backup withholding rules from a payment to a
beneficial owner would be allowed as a refund or a credit against such
beneficial owner's United States federal income tax liability provided the
required information is furnished to the IRS.
Possible Alternative Characterizations of the Class A1 Notes. Despite
Special Tax Counsel's opinion that the Class A1 Notes should be treated as debt
of the Swap Counterparty for federal income tax purposes, there can be no
assurance that the IRS will not challenge this conclusion and that such
challenge would not be successful. However, Special Tax Counsel is of the
opinion that, if the IRS successfully challenged treatment of some or all of the
Class A1 Notes as debt of the Swap Counterparty for federal income tax purposes,
such Class A1 Notes would properly be treated as interests in an entity which
would not be treated as an association taxable as a corporation for federal
income tax purposes.
If the IRS successfully challenged the treatment of some or all of the
Class A1 Notes as debt of the Swap Counterparty for federal income tax purposes,
such Class A1 Notes may be treated as interests in a grantor trust or trusts. If
such Class A1 Notes were treated as interests in a grantor trust or trusts, a
Class A1 Noteholder would generally be subject to the same rules which will
apply to the Certificateholders assuming that the Trust is properly classified
as a grantor trust. See 'Tax Consequences to Holders of the Class A2
Certificates -- Treatment of the Trust as a Grantor Trust' and ' -- Tax
Consequences to Foreign Class A2 Certificateholders.'
TAX CONSEQUENCES TO HOLDERS OF THE CLASS A2 CERTIFICATES
Treatment of the Trust as a Security Arrangement or a Grantor Trust. The
Depositor and the Class A2 Certificateholders will agree to treat the Trust as a
security arrangement for federal and state tax purposes, with the Class A1 Notes
being treated as debt of the Swap Counterparty.
As stated above, although the proper classification of the Trust and the
Class A2 Certificates is not entirely clear, the Trust should be treated as a
mere security arrangement, in which case the Trust would be ignored and the
Class A2 Certificateholders would be treated as owning subordinated debt of the
Swap Counterparty. In such case, the Class A2 Certificates would be treated as
debt instruments for federal income tax purposes and would generally be treated
as the Class A1 Notes described above.
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In the opinion of Special Tax Counsel, if the IRS successfully challenges
the treatment of the Trust as a security arrangement, while not free from doubt,
the Trust should be classified for federal income tax purposes as a grantor
trust under Subpart E, Part 1 of Subchapter J of the Code, but, in the opinion
of Special Tax Counsel, the Trust will not be classified as an association or
publicly traded partnership taxable as a corporation. However, the proper
characterization of the arrangement involving the Trust, the Class A2
Certificates and the Depositor is not clear because there is no authority on
transactions closely comparable to that contemplated herein. The following
discussion assumes that the Trust will be classified as a grantor trust.
As a holder of an interest in a grantor trust, each Class A2
Certificateholder must report on its federal income tax return its pro rata
share of the gross income and deductions of the Trust. Accordingly, a Class A2
Certificateholder will be required to report its pro rata share of the gross
income derived from the assets of the Trust. Assuming that the sole asset of the
Trust is debt of the Swap Counterparty, a Class A2 Certificateholder will be
required to report its pro rata share of the gross income derived therefrom. If
the Class A1 Notes are treated as debt of a grantor trust and the Class A1 Notes
are sold at a premium, a Class A2 Certificateholder will be required to treat
its pro rata share of such premium as gross income under section 61 of the Code
and applicable regulations. A Class A2 Certificateholder will, however, be
entitled to deduct its pro rata share of the interest paid on the Class A1
Notes.
Alternatively, the assets of the Trust may be deemed to consist of the CABS
and the Swap Agreement. In such case, each Class A2 Certificateholder will be
required to report on its federal income tax return its pro rata share of the
entire income of the CABS and Swap Agreement in accordance with its method of
tax accounting. Characterizing the Class A2 Certificateholders as Owners of the
CABS and Swap Agreement could significantly alter the timing and character of
income and deduction attributable to an investment in the Class A2 Certificates.
CLASS A2 CERTIFICATEHOLDERS SHOULD CONSULT WITH THEIR TAX COUNSEL TO
DETERMINE HOW TO ACCOUNT FOR THEIR INTEREST IN THE CLASS A2 CERTIFICATES FOR TAX
PURPOSES.
All or a portion of the taxable income allocated to a Class A2
Certificateholder that is a pension, profit sharing or employee benefit plan or
other tax-exempt entity (including an individual retirement account) may
constitute 'unrelated business taxable income' generally taxable to such holder
under the Code.
For additional rules with respect to the tax treament of grantor trusts,
see 'Certain Federal Income Tax Considerations -- Tax Status as a Grantor Trust'
in the Prospectus.
Backup Withholding. Distributions made on the Class A2 Certificates and
proceeds from the sale of the Class A2 Certificates will be subject to a
'backup' withholding tax of 31% if, in general, the Class A2 Certificateholder
fails to comply with certain identification procedures, unless the holder is an
exempt recipient under applicable provisions of the Code.
OTHER POSSIBLE ALTERNATIVE CHARACTERIZATIONS OF THE TRUST
Despite Special Tax Counsel's opinion that the Class A1 Notes should be
treated as debt of the Swap Counterparty for federal income tax purposes and
that the Trust should be treated as a security arrangement and will not be
treated as an association or publicly traded partnership for federal income tax
purposes, there can be no assurance that the IRS will not challenge these
conclusions and that such challenge would not be successful. If the Trust were
treated as an association taxable as a corporation for federal income tax
purposes, the Trust would be subject to corporate income tax. Any such corporate
income tax could materially reduce or eliminate cash that would otherwise be
distributable with respect to the Class A2 Certificates (and, possibly the Class
A1 Notes, and Class A2 Certificateholders could be liable for any such tax that
is unpaid by the Trust. However, Special Tax Counsel is of the opinion that the
Trust will not be classified as an association taxable as a corporation because
it will not have certain characteristics necessary for a trust to be an
association taxable as a corporation.
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STATE TAX CONSEQUENCES
In addition to the federal income tax consequences described in 'Certain
Federal Income Tax Consequences' herein, potential investors should consider the
state income tax consequences of the acquisition, ownership, and disposition of
the Securities offered hereunder. State income tax law may differ substantially
from the corresponding federal tax 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 advisors with respect to the various tax
consequences of investments in the Securities offered hereunder.
ERISA CONSIDERATIONS
GENERAL
The Employee Retirement Income Security Act of 1974, as amended ('ERISA'),
imposes certain restrictions on employee benefit plans subject to ERISA
('Plans') and on persons who are parties in interest or disqualified persons
('parties in interest') with respect to such Plans. Certain employee benefit
plans, such as governmental plans and church plans (if no election has been made
under section 410(d) of the Code), are not subject to the restrictions of ERISA,
and assets of such plans may be invested in the Securities without regard to the
ERISA considerations described below, subject to other applicable federal and
state law. However, any such governmental or church plan which is qualified
under section 401(a) of the Code and exempt from taxation under section 501(a)
of the Code is subject to the prohibited transaction rules set forth in section
503 of the Code. Any Plan fiduciary which proposes to cause a Plan to acquire
any of the Securities should consult with its counsel with respect to the
potential consequences under ERISA, and the Code, of the Plan's acquisition and
ownership of the Securities. See 'ERISA Considerations' in the Prospectus.
Investments by Plans are also subject to ERISA's general fiduciary
requirements, including the requirement of investment prudence and
diversification and the requirement that a Plan's investments be made in
accordance with the documents governing the Plan.
As discussed under 'Certain Federal Income Tax Consequences' a Plan would
likely realize unrelated business taxable income if it purchases Certificates
since the underlying assets of the Trust are debt financed assets. Thus, the
Certificates are not being offered to Plans. In view of this restriction, the
discussion below is limited to the ERISA considerations resulting from the
purchase and ownership of Notes.
PROHIBITED TRANSACTIONS
GENERAL
Section 406 of ERISA prohibits parties in interest with respect to a Plan
from engaging in certain transactions (including loans) involving a Plan and its
assets unless a statutory or administrative exemption applies to the
transaction. Section 4975 of the Code imposes certain excise taxes (or, in some
cases, a civil penalty may be assessed pursuant to section 502(i) of ERISA) on
parties in interest which engage in non-exempt prohibited transactions.
PLAN ASSETS REGULATION
The United States Department of Labor ('DOL') has issued final regulations
concerning the definition of what constitutes the assets of a Plan for purposes
of ERISA and the prohibited transaction provisions of the Code (the 'Plan Assets
Regulation'). The Plan Assets Regulation describes the circumstances under which
the assets of an entity in which a Plan invests will be considered to be 'plan
assets' such that any person who exercises control over such assets would be
subject to ERISA's fiduciary standards. Under the Plan Assets Regulation,
generally when a Plan invests in another entity, the Plan's assets do not
include, solely by reason of such investment, any of the underlying assets of
the entity. However, the Plan Assets Regulation provides that, if a Plan
acquires an 'equity interest' in an entity that is neither a 'publicly-offered
security' (as defined therein) nor a security issued by an investment company
registered under the Investment Company Act of 1940, the assets of the entity
will be treated as assets of the Plan investor unless certain exceptions apply.
If the Class A1 Notes were
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deemed to be equity interests and no statutory, regulatory or administrative
exemption applies, the Trust could be considered to hold plan assets by reason
of a Plan's investment in the Class A1 Notes. Such plan assets would include an
undivided interest in any assets held by the Trust. In such an event, the
Trustee and other persons, in providing services with respect to the Trust's
assets, may be parties in interest with respect to such Plans, subject to the
fiduciary responsibility provisions of Title I of ERISA, including the
prohibited transaction provisions of Section 406 of ERISA, and Section 4975 of
the Code with respect to transactions involving the Trust's assets.
Under the Plan Assets Regulation, the term 'equity interest' is defined as
any interest in an entity other than an instrument that is treated as
indebtedness under 'applicable local law' and which has no 'substantial equity
features.' Although the Plan Assets Regulation is silent with respect to the
question of which law constitutes 'applicable local law' for this purpose, DOL
has stated that these determinations should be made under the state law
governing interpretation of the instrument in question. In the preamble to the
Plan Assets Regulation, DOL declined to provide a precise definition of what
features are equity features or the circumstances under which such features
would be considered 'substantial,' noting that the question of whether a plan's
interest has substantial equity features is an inherently factual one, but that
in making a determination it would be appropriate to take into account whether
the equity features are such that a Plan's investment would be a practical
vehicle for the indirect provision of investment management services.
Brown & Wood ('ERISA Counsel') has rendered its opinion that the Class A1
Notes will be classified as indebtedness without substantial equity features for
ERISA purposes. ERISA Counsel's opinion is based upon the terms of the Class A1
Notes, the opinion of Tax Counsel that the Class A1 Notes should be classified
as debt instruments for federal income tax purposes and the ratings which have
been assigned to the Class A1 Notes. However, if contrary to ERISA Counsel's
opinion the Class A1 Notes are deemed to be equity interests in the Trust and no
statutory, regulatory or administrative exemption applies, the Trust could be
considered to hold plan assets by reason of a Plan's investment in the Class A1
Notes.
REVIEW BY PLAN FIDUCIARIES
Any Plan fiduciary considering whether to purchase any Class A1 Notes on
behalf of a Plan should consult with its counsel regarding the applicability of
the fiduciary responsibility and prohibited transaction provisions of ERISA and
the Code to such investment. Among other things, before purchasing any Notes, a
fiduciary of a Plan should make its own determination as to whether the Trust,
as obligor on the Notes, is, or may become, a party in interest with respect to
the Plan, the availability of the exemptive relief provided in the Plan Assets
Regulations and the availability of any other prohibited transaction exemptions.
In addition, prior to purchasing any Class A1 Notes, a fiduciary of a Plan
should make its own determination as to whether the Swap Counterparty, by virtue
of being characterized as the issuer of the Class A1 Notes for federal income
tax purposes, is, or may become, a party in interest (either directly or through
certain of its affiliates, including, but not limited to, Morgan Grenfell
Capital Management Incorporated (New York) and Morgan Grenfell Asset Management
Limited (London)) with respect to the Plan. Such other exemptions may include
DOL Prohibited Transaction Exemption 84-14 (Class Exemption for Plan Asset
Transactions Determined by Independent Qualified Professional Asset Managers),
80-51 and 91-38 (Class Exemption for Certain Transactions Involving Bank
Collective Investment Funds) and 90-1 (Class Exemption for Certain Transactions
Involving Insurance Company Pooled Separate Accounts. There is no assurance that
these or other exemptions, even if all of the conditions specified therein are
satisfied, will apply to all of the transactions involving the Trust's assets.
Any purchaser that is an insurance company should consider the effects of
the 1993 United States Supreme Court decision in John Hancock Mutual Life
Insurance Co. v. Harris Trust and Savings Bank, 114 S. Ct. 517 (1993), on its
purchase of Class A1 Notes or Class A2 Certificates for its general account. In
John Hancock, the Supreme Court ruled that assets held in an insurance company's
general account may be deemed to be 'plan assets' for ERISA purposes under
certain circumstances. In response to that decision, the DOL has issued
Prohibited Transaction Exemption 95-60 (Class Exemption for Certain Transactions
Involving Insurance Company Pooled General Accounts) which, subject to certain
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conditions, provides relief from the prohibited transaction rules that under
John Hancock might otherwise be applicable to assets held in an insurance
company's general account. Any such prospective purchaser should consult with
its counsel as to the applicability of this decision and exemption to its
purchase of the Class A1 Notes or Class A2 Certificates.
LEGAL INVESTMENT CONSIDERATIONS
The appropriate characterization of the Securities under various legal
investment restrictions, and thus the ability of investors subject to these
restrictions to purchase Securities, may be subject to significant interpretive
uncertainties. All investors whose investment authority is subject to legal
restrictions should consult their own legal advisors to determine whether, and
to what extent, the Securities will constitute legal investments for them.
The Depositor makes no representation as to the proper characterization of
the Securities for legal investment or financial institution regulatory
purposes, or as to the ability of particular investors to purchase Securities
under applicable legal investment restrictions. The uncertainties described
above (and any unfavorable future determinations concerning legal investment or
financial institution regulatory characteristics of the Securities) may
adversely affect the liquidity of the Securities.
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting
Agreement, the Depositor has agreed to sell to Lehman Brothers Inc. (the
'Underwriter'), and the Underwriter has agreed to purchase from the Depositor,
the Securities.
The Underwriter is obligated to purchase all the Securities offered hereby
if any are purchased.
The Depositor has been advised by the Underwriter that it presently intends
to make a market in the Securities offered hereby; however, it is not obligated
to do so, any market-making may be discontinued at any time, and there can be no
assurance that an active public market for the Securities will develop.
Distribution of the Securities will be made by the Underwriter from time to
time in negotiated transactions or otherwise at varying prices to be determined
at the time of sale. Proceeds to the Depositor are expected to be $1,549,672,000
from the sale of the Class A1 Notes and $47,928,000 from the sale of the Class
A2 Certificates, before deducting expenses payable by the Depositor of
$1,200,000. In connection with the purchase and sale of the Securities, the
Underwriter may be deemed to have received compensation from the Depositor in
the form of underwriting discounts, concessions or commissions. In addition, an
affiliate of the Underwriter has entered into a swap transaction with the Swap
Counterparty.
The Underwriter has represented and agreed that (a) it has complied and
will comply with all applicable provisions of the Financial Services Act 1986
with respect to anything done by it in relation to the Securities in, from or
otherwise involving the United Kingdom; (b) it has not issued or passed on and
will not issue or pass on to any person in the United Kingdom any document
received by it in connection with the issue of the Securities, other than any
document which consists of or any part of listing particulars, supplementary
listing particulars or any other document required or permitted to be published
by the listing rules under Part IV of the Financial Services Act 1986, unless
such person is of a kind described in Article 11(3) of the Financial Services
Act 1986 (Investment Advertisements) (Exemptions) Order 1995 and Financial
Services (Promotion of Unregulated Schemes) Regulations 1991 or is a person to
whom the documents may otherwise lawfully be issued or passed on; and (c) it
will not offer or sell in the United Kingdom, by means of any document, any
Securities prior to application for listing of the Securities being made in
accordance with Part IV of the Financial Services Act 1986, other than to
Persons whose ordinary business it is to buy or sell shares or debentures,
whether as principal or agent, or in circumstances which do not constitute an
offer to the public within the meaning of the U.K. Public Offers of Securities
Regulations 1995.
The Underwriting Agreement provides that the Depositor will indemnify the
Underwriter against certain liabilities, including liabilities under the
Securities Act of 1933, or contribute payments the Underwriter may be required
to make in respect thereof.
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The Underwriter is an affiliate of the Depositor, and the participation by
the Underwriter in the offering of the Securities complies with Schedule E of
the by-laws of the National Association of Securities Dealers, Inc. regarding
underwriting securities of an affiliate.
LEGAL MATTERS
Certain legal matters with respect to the Securities will be passed upon
for the Depositor by Brown & Wood, New York, New York and for the Underwriter by
Brown & Wood, New York, New York.
RATING
It is a condition to issuance that the Class A1 Notes and the Class A2
Certificates be rated 'P-1' by Moody's and 'A-1+' by S&P.
The rating of the Securities by Moody's addresses the likelihood of the
ultimate payment of principal and interest on the Securities. The rating of the
Securities by S&P addresses the likelihood of timely receipt of interest and
ultimate receipt of principal on the Securities on or before the Maturity Date.
The rating takes into consideration the characteristics of the CABS and the
structural, legal and tax aspects associated with the Class A1 Notes and Class
A2 Certificates (including, without limitation, the rating of the Swap
Counterparty). The ratings on the Securities do not, however, constitute
statements regarding the possibility that Class A1 Noteholders or Class A2
Certificateholders might realize a lower than anticipated yield.
A securities rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning rating
organization. Each securities rating should be evaluated independently of
similar ratings on different securities.
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INDEX OF DEFINED TERMS
<TABLE>
<S> <C>
Accounts................................................................................................. Cover
Administration Agreement................................................................................. S-14
ADVANTA Certificates..................................................................................... S-19
Administrator............................................................................................ S-14
Agreements............................................................................................... Cover
Bank..................................................................................................... S-8
Book-Entry Certificates.................................................................................. S-6
Book-Entry Notes......................................................................................... S-4
Business Day............................................................................................. S-3
CABS..................................................................................................... Cover
CABS Amortization Event.................................................................................. S-19
CABS Certificate Rate.................................................................................... S-19
CABS Controlled Amortization Period...................................................................... S-19
CABS Distribution Date................................................................................... S-13
CABS Servicer............................................................................................ S-20
CABS Servicer Reports.................................................................................... S-18
CABS Servicing Fee....................................................................................... S-21
Calculation Agent........................................................................................ S-7
Cede..................................................................................................... S-4
Cedel.................................................................................................... S-4
Certificates............................................................................................. Cover
Choice Certificates...................................................................................... S-19
Class A-1 Accrual Rate................................................................................... S-3
Class A1 Note Percentage................................................................................. S-3
Class A1 Notes........................................................................................... Cover
Class A-1 Noteholders.................................................................................... S-2
Class A-2 Accrual Rate................................................................................... S-5
Class A2 Certificates.................................................................................... Cover
Class A2 Certificateholders.............................................................................. S-3
Class A2 Certificate Percentage.......................................................................... S-5
Closing Date............................................................................................. S-2
Code..................................................................................................... S-29
Collection Account....................................................................................... S-7
Definitive Notes......................................................................................... S-4
Depositor................................................................................................ Cover
Distributable Amount..................................................................................... S-3
DTC...................................................................................................... S-4
DOL...................................................................................................... S-35
ERISA.................................................................................................... S-10
ERISA Counsel............................................................................................ S-36
Euroclear................................................................................................ S-4
Event of Default......................................................................................... S-4
Events of Default........................................................................................ S-22
Final Payment Amount..................................................................................... S-8
Final Liquidation Date................................................................................... S-7
Final Liquidation Proceeds............................................................................... S-8
Final Scheduled Payment Date............................................................................. S-4
Finance Charge Receivables............................................................................... S-20
foreign person........................................................................................... S-32
Group.................................................................................................... S-28
Holdings................................................................................................. S-22
Indenture................................................................................................ Cover
Indenture Trustee........................................................................................ Cover
Interest Accrual Period.................................................................................. S-3
IRS...................................................................................................... S-29
</TABLE>
S-39
<PAGE>
<PAGE>
<TABLE>
<S> <C>
ISDA..................................................................................................... S-27
Issuer................................................................................................... S-2
LBSF..................................................................................................... S-28
LCAT Notes............................................................................................... S-18
LCAT Trust............................................................................................... S-11
LCPI..................................................................................................... S-21
Lehman Brothers.......................................................................................... S-21
LIBOR.................................................................................................... S-19
LIBOR Determination Date................................................................................. S-9
Market Agent............................................................................................. S-6
Market Agent Agreement................................................................................... S-28
Maturity Date............................................................................................ S-4
Moody's.................................................................................................. S-10
New York Branch.......................................................................................... S-8
Notes.................................................................................................... Cover
OID...................................................................................................... S-31
Owner Trustee............................................................................................ Cover
parties in interest...................................................................................... S-35
Payment Date............................................................................................. Cover
Plan..................................................................................................... S-10
Plan Assets Regulation................................................................................... S-35
Plans.................................................................................................... S-35
Principal Receivables.................................................................................... S-20
Prospectus............................................................................................... Cover
Rating Agency............................................................................................ S-11
Receivables.............................................................................................. Cover
Record Date.............................................................................................. S-4
Reuters LIBOR............................................................................................ S-19
Sale Procedures.......................................................................................... S-7
SC Debt.................................................................................................. S-31
Securities............................................................................................... Cover
Securities Amount........................................................................................ S-8
Securities Floating Amount............................................................................... S-7
Securityholders.......................................................................................... S-3
Seller................................................................................................... S-18
Seller's Interest........................................................................................ S-18
Solicitation Date........................................................................................ S-7
Special Seller's Percentage.............................................................................. S-18
Standard Certificates.................................................................................... S-19
Swap Agreement........................................................................................... S-27
Swap Counterparty........................................................................................ S-2
Swap Early Termination................................................................................... S-8
S&P...................................................................................................... S-10
Special Tax Counsel...................................................................................... S-21
Telerate LIBOR........................................................................................... S-19
Termination Date......................................................................................... S-8
Trust.................................................................................................... Cover
Trust Agreement.......................................................................................... Cover
Underlying Certificates.................................................................................. Cover
Underwriter.............................................................................................. Cover
U.S. Investor............................................................................................ S-30
Voting Interests......................................................................................... S-27
</TABLE>
S-40
<PAGE>
<PAGE>
APPENDIX A
TABLE OF CONTENTS
<TABLE>
<CAPTION>
APPENDIX A PAGE
- --------------------------------------------------------------------------------------------------------- -----
<S> <C>
ADVANTA Credit Card Master Trust II, Floating Rate Asset Backed Certificates,
Series 1995-A.......................................................................................... A-1
Chase Manhattan Credit Card Master Trust, Floating Rate Asset Backed Certificates,
Series 1995-2.......................................................................................... A-11
Chemical Master Credit Card Trust I, Floating Rate Asset Backed Certificates,
Series 1995-1.......................................................................................... A-23
CHOICE Credit Card Master Trust I, Floating Rate Credit Card Participation Certificates, Series 1992-2... A-33
First Chicago Master Trust II, Floating Rate Credit Card Certificates, Series 1995-P..................... A-43
First USA Credit Card Master Trust, Floating Rate Asset Backed Certificates,
Series 1994-7.......................................................................................... A-55
First USA Credit Card Master Trust, Floating Rate Asset Backed Certificates,
Series 1995-4.......................................................................................... A-65
Lehman Card Account Trust 1994-1, Floating Rate Asset Backed Notes....................................... A-75
MBNA Master Credit Card Trust II, Floating Rate Asset Backed Certificates,
Series 1994-C.......................................................................................... A-83
People's Bank Credit Card Master Trust, Floating Rate Class A Asset Backed Certificates, Series 1995-1... A-93
Standard Credit Card Master Trust I, Floating Rate Credit Card Participation Certificates, Series
1992-3................................................................................................. A-107
</TABLE>
This Appendix A contains excerpts from each prospectus pursuant to which
the CABS were offered and sold.
Capitalized terms used in the excerpts included in this Appendix A have the
meanings defined either within the text of such excerpt or within the related
prospectus. Such terms are not applicable to any other section of this
Prospectus Supplement or Prospectus unless such terms are defined as such in the
Prospectus Supplement or the Prospectus. Complete copies of the prospectus
relating to a particular series of CABS may be obtained upon request from the
Depositor.
<PAGE>
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
<PAGE>
Excerpt from Prospectus Supplement dated January 10, 1995 to Prospectus dated
January 9, 1995
ADVANTA Credit Card Master Trust II
Floating Rate Asset Backed Certificates,
Series 1995-A
THE BANK'S CREDIT CARD ACTIVITIES
Billing and Payment
Nearly all of the accounts in the Bank Portfolio are subject to finance
charges at variable rates ranging from 1.65% to 11.45% (or 11.55% for cash
advances) above the prime rate, as published in The Wall Street Journal, with
minimum rates generally ranging from 7.90% to 19.95% for purchases and cash
advances. For more information, see 'The Bank's Credit Card Activities--Billing
and Payments' in the Prospectus.
Delinquencies and Loss Experience
The following tables set forth the delinquency and loss experience for each
of the periods shown for the Bank Portfolio. As of September 30, 1994, the Bank
Portfolio includes receivables from accounts the receivables of which were
transferred to trusts similar to the Trust in an aggregate amount equal to $3.3
billion ('Prior Securitizations'). As of September 30, 1994, the Bank Portfolio
also includes approximately $1,463 million of receivables from accounts the
receivables of which were transferred by the Bank to the Trust. Additional
Accounts were added to the Trust on May 16, 1994, July 1, 1994, August 17, 1994,
September 23, 1994, November 18, 1994 and January 6, 1995 (the 'Master Trust II
Sales') . The Accounts in the Trust Portfolio have been selected from accounts
in the Bank Portfolio based on certain eligibility criteria specified in the
Pooling and Servicing Agreement. See 'The Receivables.' There can be no
assurance that the delinquency and loss experience for the Receivables will be
similar to the historical experience set forth below.
Delinquency Experience
Bank Portfolio
(dollars in thousands)
<TABLE>
<CAPTION>
As of December 31,
As of September 30, -----------------------------------
1994(1) 1993(1) 1992(2) 1991(2)
------------------- ------- ------- -------
<S> <C> <C> <C> <C>
Receivables Outstanding(3) ................ $5,102,497 $3,922,086 $2,671,493 $2,022,638
Receivables Contractually Delinquent as a
Percentage of Receivables Outstanding:
30-59 days ............................... 0.95% 0.96% 1.44% 1.91%
60-89 days ............................... 0.45 0.54 0.82 1.10
90 or more days .......................... 0.71 0.89 1.46 1.78
---- ---- ---- ----
Total .................................. 2.11% 2.39% 3.72% 4.79%
==== ==== ==== ====
</TABLE>
- -------------
(1) Includes the receivables transferred in connection with the Prior
Securitizations and Master Trust II Sales.
(2) Includes the receivables transferred in connection with the Prior
Securitizations.
(3) Receivables Outstanding consists of all amounts due from cardholders as
posted to the accounts.
A-1
<PAGE>
<PAGE>
Loss Experience
Bank Portfolio
(dollars in thousands)
<TABLE>
<CAPTION>
Nine Months Year Ended December 31,
Ended September 30, -----------------------------------
1994(1) 1993(1) 1992(2) 1991(2)
------------------- ------- ------- -------
<S> <C> <C> <C> <C>
Average Receivables Outstanding(3) .. $4,316,265 $3,012,060 $2,258,910 $1,594,248
Gross Losses(4) ..................... 93,075 115,835 109,188 76,139
Recoveries .......................... 8,576 9,869 8,723 6,351
Net Losses .......................... 84,499 105,966 100,465 69,788
Net Losses as a Percentage of Average
Receivables Outstanding ............ 2.61%(5) 3.52% 4.45% 4.38%
</TABLE>
- ---------------
(1) Includes the receivables transferred in connection with the Prior
Securitizations and Master Trust II Sales.
(2) Includes the receivables transferred in connection with the Prior
Securitizations.
(3) Average Receivables Outstanding is the sum of receivables outstanding at the
beginning and end of each month during the period indicated, divided by
twice the number of months in the period indicated.
(4) Total Gross Losses are presented net of adjustments made pursuant to the
Bank's normal servicing procedures, including removal of incorrect or
disputed finance charges and reversal of annual cardholder fees on
cardholder accounts which have been closed. Losses do not include accrued
finance charges that have been written off or fraud losses.
(5) Annualized.
Interchange
In respect of Interchange attributed to the cardholder charges for
merchandise and services in the Accounts, the Bank will be required, pursuant to
the terms of the Pooling and Servicing Agreement, to transfer to the Trust on
the Business Day immediately preceding the Distribution Date an amount equal to
one-twelfth of 1.25% of the outstanding balance of the Principal Receivables
allocable to the Series 1995-A at the end of the last day of the preceding
Monthly Period.
THE RECEIVABLES
Certain Receivables were conveyed to the Trust on December 9, 1993 (the
'Initial Closing Date') which arose in Accounts selected from the Bank Portfolio
satisfying criteria set forth in the Pooling and Servicing Agreement (the
'Criteria') as applied on October 31, 1993 (the 'Initial Cut Off Date').
Additional Receivables were conveyed to the Trust on May 16, 1994, July 1, 1994,
August 17, 1994, September 23, 1994, November 18, 1994 and January 6, 1995. Such
Receivables arose in Additional Accounts selected from the Bank Portfolio
satisfying the Criteria as applied on the relevant cut off date (the 'Relevant
Cut Off Date'). All such Accounts and any additional Receivables which have
arisen from those Accounts conveyed to the Trust are hereinafter referred to as
the 'Trust Portfolio.' In order to meet the Criteria, each Account must, on the
Relevant Cut Off Date, among other things, have been in existence and maintained
by the Bank, have a cardholder with a billing address in the United States, its
territories or possessions or a military address, and, except under certain
circumstances, not be an account the credit card or cards with respect to which
have been reported to the Bank as having been lost or stolen. See 'Description
of the Certificates--Representations, Warranties and Covenants' in the
Prospectus. Cardholders whose accounts are included in the Bank Portfolio have
billing addresses in all 50 states, the District of Columbia, Puerto Rico, Guam,
the Virgin Islands and certain foreign countries. Pursuant to the Pooling and
Servicing Agreement, the Seller may be obligated (subject to certain limitations
and conditions) to designate Additional Accounts to be included as Accounts and
to convey to the Trust all Receivables of such Additional Accounts, or may elect
to automatically add
A-2
<PAGE>
<PAGE>
Additional Accounts whether such Receivables are then existing or thereafter
created. See 'Description of the Certificates--Addition of Accounts' in the
Prospectus. These accounts must meet the criteria set forth above as of the
Relevant Cut Off Date the Bank designates such accounts as Additional Accounts.
Throughout the term of the Trust, the Accounts from which the Receivables arise
will be the same MasterCard and VISA accounts designated by the Seller on the
Relevant Cut Off Date (plus any Additional Accounts subsequently designated as
described above). In addition, as of the Relevant Cut Off Date and on the date
any new Receivables are created, the Bank will represent and warrant to the
Trust that the Receivables meet the eligibility requirements specified in the
Pooling and Servicing Agreement. See 'Description of the
Certificates--Representations, Warranties and Covenants' in the Prospectus.
In connection with the conveyance of Receivables in Additional Accounts on
January 6, 1995, the Bank has caused $6,000,000 to be deposited into an Eligible
Deposit Account (the 'Yield Supplement Account') held by the Trustee for the
benefit of certificateholders of all Series. Funds on deposit in the Yield
Supplement Account will be invested in certain Eligible Investments. Amounts on
deposit in the Yield Supplement Account (together with certain investment
earnings thereon) will be released and deposited into the Collection Account in
six monthly installments commencing at the end of the January 1995 Monthly
Period. Each such deposit into the Collection Account will be treated as
collections of Finance Charge Receivables allocable to the investor certificates
of the Trust.
The Receivables (including receivables in the Additional Accounts the
receivables of which were not conveyed to the Trust until January 6, 1995), as
of November 30, 1994, totalled $2,454,188,534, consisting of $2,438,926,317 of
Principal Receivables and $15,262,217 of Finance Charge Receivables in 1,396,239
Accounts. The Accounts had an average Principal Receivable balance of $1,747 and
an average credit limit of $5,138. The percentage of the aggregate total
Receivable balance to the aggregate total credit limit was 34.2%. The average
age of the Accounts was approximately 7.6 months.
The following tables summarize the Trust Portfolio (including receivables in
the Additional Accounts the receivables of which were not conveyed to the Trust
until January 6, 1995) by various criteria as of the close of business on
November 30, 1994. Because the future composition of the Trust Portfolio may
change over time, these tables are not necessarily indicative of future results.
Composition by Account Balance
Trust Portfolio
Percentage
Number of Total Percentage
of Number of of Total
Account Balance Accounts Accounts Receivables Receivables
--------------- -------- -------- ----------- -----------
Credit balance ............. 12,466 0.9% $ (978,923) 0.0%
$0.00 ...................... 388,980 27.9 0 0.0
$0.01 to $1,000.00 ......... 313,977 22.5 118,679,289 4.8
$1,000.01 to $2,500.00 ..... 238,082 17.1 411,621,677 16.8
$2,500.01 to $5,000.00 ..... 321,834 23.1 1,213,575,906 49.4
$5,000.01 to $7,500.00 ..... 117,308 8.2 679,609,249 27.7
Over $7,500.00 ............. 3,592 0.3 31,681,336 1.3
--------- ----- -------------- -----
Total ...................... 1,396,239 100.0% $2,454,188,534 100.0%
========= ===== ============== =====
Composition by Credit Limit
Trust Portfolio
Percentage
Number of Total Percentage
of Number of of Total
Credit Limit Balance Accounts Accounts Receivables Receivables
-------------------- -------- -------- ----------- -----------
$0.00 to $1,000.00 ......... 47,496 3.4% $ 5,005,258 0.2%
$1,000.01 to $2,500.00 ..... 143,694 10.2 95,270,958 3.9
$2,500.01 to $5,000.00 ..... 527,304 37.8 807,376,720 32.9
$5,000.01 to $7,500.00 ..... 623,935 44.7 1,422,746,300 58.0
Over $7,500.00 ............. 53,810 3.9 123,789,298 5.0
--------- ----- -------------- -----
Total ...................... 1,396,239 100.0% $2,454,188,534 100.0%
========= ===== ============== =====
A-3
<PAGE>
<PAGE>
Composition by Period of Delinquency
Trust Portfolio
<TABLE>
<CAPTION>
Percentage
Period of Delinquency Number of Total Percentage
(Days Contractually of Number of of Total
Delinquent) Accounts Accounts Receivables Receivables
--------------------- -------- -------- ----------- -----------
<S> <C> <C> <C> <C>
Not Delinquent .......... 1,359,697 97.4% $2,349,678,124 95.7%
1 to 29 days ............ 30,551 2.3 86,442,660 3.5
30 to 59 days ........... 3,472 0.2 9,717,409 0.4
60 to 89 days ........... 1,237 0.1 3,815,915 0.2
90 to 119 days .......... 690 0.0 2,343,898 0.1
120 to 149 days ......... 367 0.0 1,243,178 0.1
150 to 179 days ......... 194 0.0 813,687 0.0
180 or more ............. 31 0.0 133,662 0.0
--------- ----- -------------- -----
Total ................... 1,396,239 100.0% $2,454,188,534 100.0%
========= ===== ============== =====
</TABLE>
Composition by Account Age
Trust Portfolio
<TABLE>
<CAPTION>
Percentage
Number of Total Percentage
Age of Number of of Total
(in Months) Accounts Accounts Receivables Receivables
---------- -------- -------- ----------- -----------
<S> <C> <C> <C> <C>
0 to 6 months ............... 871,511 62.5% $1,614,983,696 65.8%
over 6 to 12 months ......... 345,243 24.7 582,524,628 23.7
over 12 to 24 months ........ 137,003 9.8 210,035,648 8.6
over 24 to 36 months ........ 7,448 0.5 6,169,642 0.3
over 36 to 48 months ........ 2,486 0.2 2,302,358 0.1
Over 48 months .............. 32,548 2.3% 38,172,563 1.5%
--------- ----- -------------- -----
Total ....................... 1,396,239 100.0% $2,454,188,534 100.0%
========= ===== ============== =====
</TABLE>
Geographic Distribution of Accounts and Receivables
Trust Portfolio*
<TABLE>
<CAPTION>
Percentage
Number of Total Percentage
of Number of of Total
State Accounts Accounts Receivables Receivables
----- -------- -------- ----------- -----------
<S> <C> <C> <C> <C>
Alabama ....................... 16,481 1.2% $ 25,725,778 1.0%
Alaska ........................ 2,796 0.2% 5,814,323 0.2%
Arizona ....................... 19,025 1.4% 36,751,731 1.5%
Arkansas ...................... 12,330 0.9% 20,996,095 0.9%
California .................... 224,095 16.0% 440,799,866 18.0%
Colorado ...................... 24,115 1.7% 43,328,705 1.8%
Connecticut ................... 17,365 1.2% 32,885,298 1.3%
Delaware ...................... 4,791 0.3% 8,918,722 0.4%
District of Columbia .......... 2,599 0.2% 4,296,728 0.2%
Florida ....................... 83,378 6.0% 139,052,983 5.7%
Georgia ....................... 29,318 2.1% 48,142,914 2.0%
Hawaii ........................ 5,534 0.4% 9,289,118 0.4%
Idaho ......................... 6,277 0.4% 10,572,080 0.4%
Illinois ...................... 57,723 4.1% 99,808,056 4.1%
Indiana ....................... 30,394 2.2% 50,699,540 2.1%
Iowa .......................... 17,122 1.2% 27,613,108 1.1%
Kansas ........................ 14,303 1.0% 26,435,619 1.1%
Kentucky ...................... 13,738 1.0% 21,836,751 0.9%
Louisiana ..................... 18,865 1.4% 31,663,305 1.3%
Maine ......................... 144 0.0% 258,660 0.0%
Maryland ...................... 29,198 2.1% 48,834,739 2.0%
Massachusetts ................. 37,060 2.7% 65,772,939 2.7%
Michigan ...................... 50,874 3.6% 94,335,196 3.8%
</TABLE>
A-4
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Percentage
Number of Total Percentage
of Number of of Total
State Accounts Accounts Receivables Receivables
----- -------- -------- ----------- -----------
<S> <C> <C> <C> <C>
Minnesota ............... 29,249 2.1% 46,042,282 1.9%
Mississippi ............. 9,106 0.7% 14,035,727 0.6%
Missouri ................ 25,703 1.8% 42,115,049 1.7%
Montana ................. 4,263 0.3% 6,669,781 0.3%
Nebraska ................ 8,146 0.6% 13,442,857 0.5%
Nevada .................. 10,107 0.7% 19,908,070 0.8%
New Hampshire ........... 5,798 0.4% 11,140,992 0.5%
New Jersey .............. 51,743 3.7% 93,792,673 3.8%
New Mexico .............. 6,892 0.5% 12,272,160 0.5%
New York ................ 101,015 7.2% 179,967,702 7.3%
North Carolina .......... 28,734 2.1% 44,130,004 1.8%
North Dakota ............ 3,097 0.2% 4,739,788 0.2%
Ohio .................... 53,039 3.8% 85,908,194 3.5%
Oklahoma ................ 14,355 1.0% 24,950,696 1.0%
Oregon .................. 17,080 1.2% 28,650,297 1.2%
Pennsylvania ............ 59,385 4.3% 94,853,025 3.9%
Puerto Rico ............. 80 0.0% 144,146 0.0%
Rhode Island ............ 6,214 0.4% 11,206,755 0.5%
South Carolina .......... 14,191 1.0% 22,610,982 0.9%
South Dakota ............ 3,046 0.2% 4,728,409 0.2%
Tennessee ............... 25,065 1.8% 39,654,448 1.6%
Texas ................... 83,373 6.0% 157,540,685 6.4%
Utah .................... 8,164 0.6% 13,873,428 0.6%
Vermont ................. 2,930 0.2% 5,229,624 0.2%
Virginia ................ 32,425 2.3% 53,344,593 2.2%
Washington .............. 30,377 2.2% 54,946,600 2.2%
West Virginia ........... 6,498 0.5% 10,087,617 0.4%
Wisconsin ............... 35,144 2.5% 58,054,477 2.4%
Wyoming ................. 2,601 0.2% 4,796,254 0.2%
Other ................... 894 0.1% 1,518,964 0.1%
--------- ----- -------------- -----
Total ................... 1,396,239 100.0% $2,454,188,534 100.0%
========= ===== ============== =====
</TABLE>
- ---------------
Based on billing addresses as of November 30, 1994.
RECEIVABLE YIELD CONSIDERATIONS
The yield on the Bank Portfolio for the nine months ended September 30, 1994
and for each of the three years in the period ended December 31, 1993 is set
forth in the following table. The historical yield figures in the table are
calculated on an accrual basis. Collections on the Receivables will be on a cash
basis and may not reflect the historical yield experience in the table. For
example, during periods of increasing delinquencies, accrual yields may exceed
cash yields as amounts collected on credit card receivables lag behind amounts
accrued and billed to cardholders. Conversely, as delinquencies decrease, cash
yields may exceed accrual yields as amounts collected in a current period may
include amounts accrued during prior periods. However, the Bank believes that
during the periods given below, yields on an accrual basis closely approximated
yields on a cash basis. Yield on both an accrual and a cash basis will be
affected by numerous factors, including the finance charges on the Receivables,
the amount of the annual cardholder fee and other fees and charges, changes in
the delinquency rate on the Receivables and the percentage of cardholders who
pay their balances in full each month and do not incur finance charges. There
can be no assurance that the revenue from finance charges and fees for the
Receivables will be similar to the historical experience set forth below. See
'Special Considerations' in the Prospectus.
A-5
<PAGE>
<PAGE>
Revenue From Finance Charges and Fees
Bank Portfolio(l)
<TABLE>
<CAPTION>
Nine Months
Ended Year ended December 31,
September 30, ---------------------------
1994(2) 1993(2) 1992(3) 1991(3)
------------- ------- ------- -------
<S> <C> <C> <C> <C>
Average Monthly Accrued Fees and Charges(4)(5) $22.72 $21.62 $21.31 $20.04
Average Account Balance(6) ................... 2,005 1,761 1,568 1,394
Yield From Fees and Charges(4)(5) ............ 13.60% 14.73% 16.31% 17.25%
</TABLE>
- --------------
(1) The figures shown do not include revenue attributable to Interchange.
(2) Includes the receivables transferred in connection with the Prior
Securitizations and Master Trust II Sales.
(3) Includes the receivables transferred in connection with the Prior
Securitizations.
(4) Fees and Charges are comprised of finance charges, annual cardholder fees
and certain other service charges.
(5) Average Monthly Accrued Fees and Charges and Yield from Fees and Charges are
presented net of adjustments made pursuant to the Bank's normal servicing
procedures, including removal of incorrect or disputed finance charges and
reversal of finance charges accrued on charged off accounts.
(6) Average Account Balance includes purchases, cash advances and billed and
unpaid finance and other charges, and is calculated based on the average of
the opening monthly account balances for accounts with balances during the
periods shown.
The yield for the Bank Portfolio shown in the above table is comprised of
three components: finance charges, annual cardholder fees and other service
charges, such as late charges. The yield related to annual cardholder fees (on
those accounts which assess such fees) and other service charges varies with the
type and volume of activity in, and the balance of each account. The Bank
currently assesses annual cardholder fees of $12 to $50 for certain of its
credit card accounts. Most accounts originated since March 1987 do not carry an
annual cardholder fee. See 'The Bank's Credit Card Activities' herein and in the
Prospectus. As account balances increase, an annual cardholder fee, which
remains constant, represents a smaller percentage of the aggregate account
balance.
The decline in portfolio yield demonstrated in the above table is the result
of the Bank's focus on the direct solicitation of low rate, prime rate based, no
annual fee credit card accounts and the decline in the prime rate during the
period shown. Certain of the most recently originated credit card accounts have
a lower introductory rate which might have the effect of lowering finance charge
income on such accounts below the level indicated in the above table. The Trust
Portfolio contains a greater proportion of receivables arising under such
Accounts than does the Bank Portfolio.
A-6
<PAGE>
<PAGE>
THE BANK'S CREDIT CARD ACTIVITIES
General
The Receivables which the Bank has conveyed or will convey to the Trust
pursuant to the Pooling and Servicing Agreement have been or will be, except as
otherwise described in the Prospectus Supplement, generated from transactions
made by holders of selected MasterCard and VISA credit card accounts, including
regular and premium accounts, from the Bank Portfolio. Both premium and regular
accounts undergo the same credit analysis, but premium accounts have higher
initial credit limits because of the higher incomes of the cardholders. In
addition, premium accounts generally offer a wider variety of services to the
cardholders and those that charge annual cardholder fees generally have higher
annual cardholder fees than regular accounts that have annual cardholder fees.
Servicing of the Bank Portfolio is performed primarily by the Bank; however,
certain data processing and administrative functions associated with the
servicing of the Bank Portfolio are currently performed on behalf of the Bank by
First Data Resources, Inc. ('FDR'). See 'Description of FDR.' If FDR were to
fail or become insolvent, delays in processing and recovery of Information with
respect to charges incurred by cardholders could occur, and the replacement of
the services that FDR currently provides to the Bank could be time-consuming. As
a result, delays in payments to Certificateholders of any Series outstanding at
such time could occur.
Set forth below is certain information relating to the activities of the
Bank. The Prospectus Supplement may amend, modify or supplement such
information.
To the extent the Trust assets include any Participation Interests or
Receivables other than those of the type described herein, the Prospectus
Supplement will describe the nature and characteristics of such Participation
Interests or Receivables.
Acquisition and Use of Credit Cards
Substantially all of the Bank's new accounts are generated through direct
mail and telemarketing solicitation of potential cardholders. Beginning in 1983
and continuing through 1987, the Bank acquired lists of potential cardholders
from various sources. The lists were delivered to a third-party processor, which
after deleting existing cardholders, sorted the names based on addresses and
delivered the names to a credit bureau. Credit bureaus were selected based on
the Bank's evaluation of their relative strength in a geographic area. The
credit bureau identified those individuals who met the Bank's predetermined
credit criteria. Selected demographic criteria were then applied to determine
the individuals to be solicited. Beginning in 1987, the Bank began employing a
more direct method of identifying potential cardholders. The Bank engages the
credit bureau to identify those individuals in the credit bureau's own files who
meet the Bank's credit and demographic criteria. Prior to 1987, individuals
solicited were offered the Bank's credit cards, subject to the Bank's
verification of information regarding employment and income, which occurred only
under certain circumstances. Since March 1987, the Bank has obtained a second
credit bureau report on each individual who responds positively to a
solicitation and offered a credit card to that person only if the second report
confirms the individual's eligibility.
Since July 1985, the criteria applied to evaluate potential cardholders have
included credit scoring using a model developed by the Fair, Isaacs Companies,
an independent firm experienced in developing credit scoring models. Credit
scoring evaluates a potential cardholder's credit profile to arrive at an
estimate of the associated credit risk. Credit scoring models are developed by
statistically evaluating common characteristics and their correlation with
credit risk.
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Potential cardholders must meet minimum credit and income level standards
established by the Bank to receive a specific credit limit. Cardholders not
meeting the minimum standards for the initial product offer are offered a
reduced credit limit for which they qualify. Generally, initial credit lines of
up to $6,000 and $3,500 are offered for premium and regular cards, respectively.
Beginning in May 1993 credit line offers of $7,500 and $10,000 have been tested
on a limited basis, with most credit line offers remaining at the $6,000 or less
level. Cardholders may request to have their credit line increased upon
completion of a full application. After a review of the full application and
credit bureau report, the Bank decides whether to extend additional credit.
Also, the Bank may initiate credit line increases for cardholders meeting
minimum standards for usage and payment history established by the Bank.
Accounts are opened with an initial term of one year. At the anniversary
date, accounts which meet certain criteria for usage and payment history are
reissued for two year terms.
Each cardholder is subject to an agreement with the Bank governing the terms
and conditions of the related MasterCard or VISA account. Pursuant to each such
agreement, the Bank reserves the right, upon advance notice to the cardholder,
to change or terminate any terms, conditions, services or features of its
MasterCard and VISA accounts at any time, including increasing or decreasing
finance charges, other fees and charges or minimum payment terms. The agreement
with each cardholder provides that the Bank may apply such changes, when
applicable, to current outstanding balances as well as to future transactions.
However, the laws of the state in which particular cardholders reside may limit
the ability of the Bank to apply changes. For example, under applicable state
law, certain fees and charges are prohibited altogether. See 'Special
Considerations--Certain Legal Aspects' and 'Certain Legal Aspects of the
Receivables--Consumer Protection Laws.'
A cardholder may use the credit card for either purchases or cash advances.
Cardholders make purchases when using the credit card to buy goods or services.
A cash advance is made when a credit card is used to obtain cash from a
financial institution or an automated teller machine or when the cardholder uses
special drafts issued by the Bank to draw against the cardholder's credit line.
Beginning in 1987, the Bank has generally limited the amount of credit available
for cash advances on new accounts to 50% of the total credit line. The majority
of the accounts, the receivables of which are expected to be included in the
Trust, are subject to the 50% limitation.
When a cardholder uses the credit card issued by a bank under contract with
MasterCard International, Inc. or VISA USA, Inc. (a 'member bank'), the seller
of goods or services or the provider of cash advances generally sells the
resulting receivable to a merchant bank, which in turn sells the receivable
(usually indirectly, through a clearing corporation and its agent bank) to the
member bank for its face amount less interchange and other fees. The member bank
is usually required by its contracts with MasterCard International, Inc. and
VISA USA, Inc. to purchase and pay for daily all receivables generated by use of
credit cards issued by the member bank. If the member bank were to fail to
perform such obligations, MasterCard International, Inc. or VISA USA, Inc. would
have the right to cancel the credit cards issued by the member bank.
Billing and Payments
The Bank, using FDR as its service bureau, generates and mails to cardholders
monthly statements summarizing account activity. For the majority of accounts,
cardholders receive a 25-day grace period on purchases. Currently, cardholders
must make a monthly minimum payment equal to finance and other charges, plus
1/60th of the principal balance for premium cards and 1/48th of the principal
balance for regular cards. However, if such amount is less than a stated minimum
monthly payment (generally $20), the stated minimum monthly payment is due.
All fees, charges and credit insurance premiums assessed by the Bank are
automatically charged to an account and are included in the account balance at
the end of each billing cycle. The finance charges assessed by the Bank are
calculated by multiplying the average adjusted daily balances of cash advances
and previously billed unpaid purchases in an account by the applicable monthly
periodic rate. Finance charges are not assessed in most circumstances on
purchases if all balances shown in the billing statement are paid by the Due
Date.
The Bank primarily offers cards to customers without an annual fee. The Bank
also assesses miscellaneous transaction fees, including cash advance and draft
fees, late and overlimit charges, and returned check, returned draft, and draft
stop payment charges. Such miscellaneous fees are not expected to constitute a
material portion of Finance Charge Receivables.
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Description of FDR
Certain data processing and administrative functions associated with the
servicing of the Bank Portfolio are currently being performed on behalf of the
Bank by FDR. FDR was established in 1968 as the data processing unit of
Midamerica Bankcard Association and was acquired by American Express Company in
1980. In April 1992, American Express sold a minority share of FDR through an
initial public offering of stock in FDR's parent company, First Data
Corporation. In March 1993, American Express sold a portion of its remaining
share, and now retains only 21.5% of First Data Corporation. FDR is the leading
third-party processor of MasterCard and VISA card transactions in the United
States and, following the purchase of Signet Limited, the United Kingdom. During
1992, FDR processed approximately 2.3 billion credit card transactions for more
than 700 financial institution clients and over 61 million accounts. FDR serves
over 40% of all bank credit card accounts serviced by third-party processors in
the United States.
FDR's home office in the United States is located in Omaha, Nebraska, with
regional offices located in Atlanta, Georgia, Boston, Massachusetts and San
Mateo, California. FDR currently has approximately 5,000 full and part time
employees.
Delinquencies
Each account is billed monthly on or about the same day of the month. An
account is 'contractually delinquent' if the minimum payment indicated on the
cardholder's statement is not received by the Due Date. For purposes of
determining the delinquency of an account, the period from one monthly billing
statement to the next is considered a period of 30 days, regardless of the
actual number of days elapsed. Efforts to collect contractually delinquent
credit card receivables currently are made by the Bank's service center
personnel or the Bank's designees. Collection activities include statement
messages, formal collection letters and telephone calls. Collection personnel
initiate telephone contact with cardholders as early as 1 day contractually
delinquent. The intensity at which collection activity is pursued depends on the
risk the account presents to the Bank which is determined by behavioral scoring
and adaptive control techniques. In the event that initial telephone contact
fails to resolve the delinquency, the Bank continues to contact the cardholder
by telephone and by mail. Although such arrangements are made infrequently, the
Bank may also enter into arrangements with cardholders to extend or otherwise
change payment schedules. Delinquency levels are monitored by management of both
the Collections and Asset Quality departments of the Bank and information is
reported daily to senior management. Accounts are charged off when they become
186 days contractually delinquent, at which time non-bankrupt accounts are
generally referred to outside collection agencies. In 1991 the Bank began
charging-off accounts within 30 days after receipt of any notice that the
customer has died or filed for bankruptcy, and within 90 days after receipt of
any notice of fraudulent charges within such account. The credit evaluation,
servicing and charge-off policies and collection practices of the Bank may
change from time to time in accordance with the Bank's business judgment and
applicable laws and regulations.
Information with respect to the delinquency and loss experience of the Bank
Portfolio, including charts relating to such information, is contained in the
Prospectus Supplement.
Interchange
Creditors participating in the VISA and MasterCard International associations
receive certain fees ('Interchange') 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. Interchange approximates 1.3% of the transaction
amount. VISA and MasterCard Intemational may from time to time change the amount
of Interchange reimbursed to banks issuing their credit cards. In respect of
Interchange attributed to the cardholder charges for merchandise and services in
the Accounts, collections of Finance Charge Receivables with respect to any
Monthly Period will be deemed to include Interchange as calculated pursuant to
the related Series Supplement for any Series.
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Competition
The bank credit 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 issuers seek to expand or to enter the market. The Bank issues MasterCard
and VISA credit cards to customers nationwide competing with certain money
center banks and other large nationwide issuers, as well as with regional and
local banks, savings and loan associations, and other depository institutions,
many of whom have sizeable branch systems through which credit cards are
marketed to the institutions' customer bases. Many of these competitors have
greater capital resources and a larger depositor base than the Bank. Certain
major credit card issuers assess finance charges for selected portions of their
portfolios at rates significantly lower than the rates currently being assessed
on the Accounts. Since March 1987, the Bank has primarily responded to the
increased competition by marketing cards to customers without an annual fee.
The Trust will be dependent upon the Bank's continued ability to generate new
Receivables. The Bank's ability to compete in the credit card industry will
directly affect its ability to generate new Receivables. If the rate at which
new Receivables are generated declines significantly, a Trust Pay Out Event or
Series Pay Out Event with respect to a Series could occur and the Rapid
Amortization Period with respect to such Series could commence.
USE OF PROCEEDS
The net proceeds from the sale of each Series offered hereby and by the
related Prospectus Supplement will be paid to the Seller. The Seller will use
such proceeds to provide liquidity for anticipated future asset growth and will
use the balance for general corporate purposes.
THE BANK AND ADVANTA CORP.
The Bank, an indirect wholly owned subsidiary of Advanta Corp. ('Advanta' ),
was chartered as a national bank in December 1962. From 1926 to 1962, the Bank
was a Delaware trust company. The Bank was acquired by Advanta in 1982. Prior to
the enactment of the Competitive Equality Bank Act of 1987 ('CEBA'), the Bank
was a 'non-bank' bank which did not, and currently does not, make commercial
loans.
The Bank operates under the National Banking Act and is subject to
examination, supervision and regulation by the Office of the Comptroller of the
Currency. The Bank's deposits are insured by the FDIC, and the Bank is a member
of the Federal Reserve Bank of Philadelphia and a member of the Federal Home
Loan Bank of Pittsburgh.
Under certain grandfathering provisions of CEBA, Advanta is not required to
register as a bank holding company, because the Bank was a 'non-bank' bank prior
to the enactment of CEBA and complies with certain restrictions set forth in
CEBA. Consequently, ADVANTA is not subject to Federal Reserve Board examination.
ADVANTA's principal subsidiaries in addition to the Bank are Advanta Mortgage
Corp. USA ('AMC' ), Advanta Life Insurance Company ( 'ALIC' ) and Advanta
Leasing Corp. ('ALC' ). AMC originates and services non-conforming mortgages
nationwide. ALIC, an Arizona insurance company, reinsures credit life,
disability and unemployment insurance offered by the Bank to its credit card
customers. ALC, an equipment leasing company, engages primarily in full payout
equipment leasing, mostly to small businesses, nationwide.
The principal executive office of the Bank is located at Brandywine Corporate
Center, 650 Naamans Road, Claymont, Delaware 19703 (telephone: (302) 791-4400).
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Excerpt from Prospectus Supplement dated June 13, 1995
to Prospectus dated June 13, 1995
Chase Manhattan Credit Card Master Trust
Floating Rate Asset Backed Certificates,
Series 1995-2
THE CREDIT CARD BUSINESS OF CHASE USA
General
The Receivables arising under Accounts currently in the Trust Portfolio have
been or will be generated from transactions made by holders of certain Classic
VISA and VISA Gold credit card accounts and certain standard MasterCard and Gold
MasterCard credit card accounts as well as fees billed to the Accounts. Such
Accounts were generated under the VISA USA Inc. ('VISA') or MasterCard
International, Inc. ('MasterCard') associations of which Chase USA is a member.
The Accounts and the Receivables are serviced by Chase USA and its affiliates.
The Bank Portfolio, of which the Trust Portfolio is a part, includes premium
accounts (ie., VISA Gold and Gold MasterCard) and standard accounts (ie.,
Classic VISA and standard MasterCard). Premium accounts tend to have higher
credit limits because such accounts are generated pursuant to stricter
underwriting criteria, including higher minimum income requirements. Premium
accounts generally have lower finance charges on purchases and usually offer
additional services to the cardholders. Standard and premium accounts in the
Bank Portfolio may or may not have an annual membership fee. For accounts with
an annual membership fee, the annual membership fee for premium accounts is
generally higher than that for standard accounts. Recent standard and premium
account solicitations generally have offered no annual membership fee accounts
to prospective cardholders.
The VISA and MasterCard credit card accounts may be used for four types of
transactions: credit card purchases, cash advances, convenience checks and in
certain cases, for purposes of consolidating outstanding balances of other
credit card accounts. Purchases occur when cardholders use credit cards to buy
goods and/or services. A cash advance is made when a credit card is used to
obtain cash from a financial institution or an automated teller machine.
Cardholders may also use special 'convenience checks' issued by Chase USA to
draw against their VISA and MasterCard credit card accounts at any time. These
convenience checks are treated as cash advances. Under a balance consolidation
offering, cardholders and potential cardholders meeting qualification criteria
may transfer the outstanding balance on their credit card accounts to their
Chase USA VISA or MasterCard credit card account. Amounts due with respect to
purchases, cash advances, convenience checks and balance consolidations will be
included in the Receivables.
Each cardholder is subject to an agreement with Chase USA governing the terms
and conditions of the related VISA or MasterCard credit card account. Pursuant
to each such agreement, escept as described herein, Chase USA reserves the
right, subject to such notice to the cardholder as may be required by law, to
add to or change the terms of its VISA or MasterCard credit card accounts at any
time, including increasing or decreasing the periodic finance charges, other
charges or the minimum monthly payment requirements.
The credit evaluation, collection and charge-off policies and servicing
practices of Chase USA, as well as the terrns and conditions governing
cardholder agreements in effect as of the date hereof, are under continuous
review and may change at any time in accordance with its business judgment,
applicable law and guidelines established by regulatory authorities.
Transactions creating the Receivables through the use of the credit cards are
processed through the VISA and MasterCard systems. Should either system
materially curtail its activities, or should Chase USA cease to be a member of
VISA or MasterCard, for any reason, a Pay Out Event could occur, and delays in
payments on the Receivables and possible reductions in the amounts thereof could
also occur.
Account Origination
The VISA and MasterCard credit card accounts owned by Chase USA were
principally generated through: (i) direct mail solicitations of individuals who
have been prescreened at credit bureaus on the basis of criteria furnished by
Chase USA; (ii) direct mail solicitations on a non-prescreened basis; (iii)
applications mailed to customers of Chase USA and its affiliates; (iv) purchases
of accounts from other credit card issuers
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and origination of accounts through affinity marketing (including co-branded
accounts that provide a special benefit to accountholders with respect to the
goods or services sold by the merchant that allows its mark or logo to appear on
the card, such as the British Airways/Chase USA card launched in 1993 and the
NYNEX MobilePerks/Chase USA card launched in 1994) and agent bank programs; (v)
applications made available to prospective cardholders at the facilities of The
Chase Manhattan Bank, N.A., an affiliate of Chase USA, or at other locations;
and (vi) individual-initiated requests. During 1989, Chase USA purchased five
credit card portfolios comprising approximately 2.1 million accounts and
approximately $1.9 billion of outstanding receivables as of their respective
acquisition dates (such accounts, 'Purchased Accounts'). In addition, in
December 1991, Chase USA acquired substantially all of the credit card assets of
an affiliate, The Chase Lincoln First Bank, N.A. Purchased Accounts, Affinity
Program Accounts and Agent Bank Accounts and accounts acquired from The Chase
Lincoln First Bank, N.A. ('Chase Lincoln Accounts') were not included in the
Trust Portfolio as of the Initial Closing Date. Additional Accounts may include
Purchased Accounts, Chase Lincoln Accounts, Afflnity Program Accounts, Agent
Bank Accounts and co-brand accounts. See 'Description of the
Certificates--Addition of Accounts.'
Underwriting Procedures
In the case of prescreened direct mail solicitations, underwriting criteria
established by Chase USA are used by credit bureaus to generate or screen lists
of qualifying individuals, and credit scores are obtained using credit scoring
models. The information requested in the response forms mailed to prescreened
prospects is less extensive than the information requested in the applications
mailed to individuals who have not been prescreened. Credit limits are assigned
to prescreened prospective cardholders based on a credit profile that includes
past payment patterns on other consumer loans and certain other criteria.
Individuals responding to prescreened direct mail solicitations are subsequently
mailed a credit card after their response forms have been satisfactorily
reviewed by Chase USA.
Non-prescreened applications for credit card accounts are reviewed for
accuracy and creditworthiness based on credit underwriting criteria established
by Chase USA. Chase USA uses credit reports obtained from credit bureaus to
review applications that have not been prescreened, and applies credit scoring
models to obtain credit scores on applicants. As credit card account
applications are approved, an initial credit limit is set. This limit is based
primarily upon applicants' credit scores and incomes.
Chase USA generally uses credit scoring models to evaluate the ability and
willingness of credit card applicants to repay credit obligations. The credit
scoring models currently in use have been developed by an internal credit policy
department of an affiliate of Chase USA that specializes in developing credit
scoring models, or by an independent firm, or developed jointly by such credit
policy department and an independent firm. Through credit scoring, Chase USA
evaluates credit profiles in order to statistically quantify credit risk. The
models use statistics to correlate common characteristics with credit risk. The
credit scoring models used by Chase USA are periodically reviewed, and if
necessary, are updated to reflect current statistical data.
Billing and Payments
For purposes of administrative convenience, the VISA and MasterCard credit
card accounts of Chase USA are currently grouped into ten billing cyclcs ending
on various days throughout each month (a 'Billing Cycle'). Each Billing Cycle
has its own monthly billing date, at which time the activity in the related
accounts during the month ending on such billing date is processed and billed to
cardholders. See 'The Receivables.' The Accounts include VISA and MasterCard
credit card accounts in Billing Cycles ending at the close of business on
various days throughout each month. Additionally, all monthly calculations with
respect to each Account prior to the Conversion Date will be computed based on
the activity during the applicable Billing Cycle for that Account. On and after
the Conversion Date, monthly calculations with respect to each Account will
generally be computed based on the activity during the applicable Monthly
Period. See 'The Receivables.'
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Monthly billing statements are sent by an affiliate of Chase USA to
accountholders with either a debit or credit balance of at least one dollar at
the end of the Billing Cycle or when a finance charge has been imposed.
Generally, each month, accountholders must make at least a minimum payment equal
to the sum of (i) a specified portion (as described below) of the purchases new
balance, (ii) a specified portion (as described below) of the cash advances new
balance, (iii) any past due amount, and (iv) at the option of Chase USA, the
excess of the unpaid balance for an account over the assigned credit limit.
Generally, the portion of the purchases new balance included in the minimum
monthly payment is equal to the greater of (i) 1/50 of the purchases new
balance; and (ii) $10, or, if less, the entire purchases new balance. Generally,
the portion of the cash advances new balance included in the minimum monthly
payment is equal to the greater of (i) 1/50 of the cash advances new balance and
(ii) $10, or, if less, the entire cash advances new balance. Outstanding
balances of less than $10 are due in full.
Certain accounts provide the accountholders the option to skip their minimum
monthly payment for one billing cycle, no more than two times in any twelve
month period, provided that two months of minimum payments have been made by the
accountholder between each accountholder's exercise of this option. In addition,
the Seller may, in unusual circumstances, at its option, allow individual
accountholders or groups of accountholders to skip their minimum monthly
payments for one or more months. Monthly periodic finance charges in connection
with such skipped payments continue to accrue, and the amount of the next
minimum monthly payment is determined as described above, based on the account
balance at the end of the next Billing Cycle. The effect of skipped payments is
to increase the amount of Finance Charge Receivables and to decrease the rate
of payments of Principal Receivables during the Billing Cycles for which the
offer applies.
The monthly periodic finance charges assessed on cash advances are calculated
by multiplying the average daily cash advance balance by the applicable monthly
periodic rate. Monthly periodic finance charges are calculated on cash advances
(including unpaid finance charges with respect to cash advances) from the date
of the transaction or the first day of the Billing Cycle in which the
transaction is posted to the account (whichever is later). The monthly periodic
finance charges assessed on purchases are calculated by multiplying the average
daily purchase balance by the applicable monthly periodic rate. Monthly periodic
finance charges are calculated on purchases (including certain fees and unpaid
finance charges with respect to purchases) from the date of the purchase or the
first day of the Billing Cycle in which the purchase is posted to the account
(whichever is later). Monthly periodic finance charges are not assessed in most
circumstances on purchases if the purchases new balance shown in the billing
statement is paid by the next statement closing date, or if the purchases
previous balance is zero. The next statement closing date is on average 30 days
after the billing date. The annual percentage rates for purchases and cash
advances can be either fixed or variable rates. The annual percentage rate for
purchases is generally a variable rate calculated by adding (or subtracting) a
certain number of percentage points to (or from) the prime rate as published in
The Wall Street Journal. The annual percentage rate for cash advances is
generally a fixed rate, typically 19.8%.
Standard and premium accounts that have been established more recently by
Chase USA from more recent solicitations generally carry no annual membership
fee. However, for those accounts with an annual membership fee (from past
solicitations or otherwise), generally the annual membership fee is $20 for
standard accounts and either $45 or $50 for premium accounts. The annual
membership fee in most cases is non-refundable, except that such fee need not be
paid if the customer closes the account within 30 days of the mailing of the
billing statement on which such customer is billed for such fee. Chase USA may
waive the annual membership fee, or a portion thereof. Some of the accounts may
be subjeet to certain additional fees, including: (i) a late fee, generally in
the amount of $10 or $15 (depending on the number of past due payments on an
account and the mailing address of the accountholders), with respect to any
monthly payment if the required minimum monthly payment is not received by the
payment due date shown on the monthly billing statement; (ii) a cash advance fee
of 2% of the amount of the advance subject to a minimum fee of $2 per
transaction and a maximum of $20 per transaction; and (iii) a returned check
charge, generally in the amount
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of $10. Subject to the requirements of applicable laws, Chase USA may change
certain of these fees and rates at any time by written notice to cardholders.
Chase USA may also, subject to the requirements of applicable laws, change
cardholders' standard or premium accounts to accounts with enhanced benefits
(including but not limited to co-brand accounts). Such a change may result in
different fees and rates being assessed with respect to existing and new account
balances. Any change which would result in an increase in the rate of finance
charges, or other fees, or impose a fee not set forth in the cardholder
agreement, generally becomes effective upon obtaining the cardholder's consent
or deemed consent.
Payments on Chase USA's accounts are generally applied, in order, to: the
annual membership fee (if any), the minimum monthly periodic payment for cash
advances previously billed (which includes finance charges with respect to cash
advances), the entire balance of purchases previously billed (which includes
finance charges with respect to purchases previously billed), the remaining
balance of cash advances previously billed, new cash advances and new purchases.
There can be no assurance that periodic finance charges, fees, and other charges
imposed by Chase USA will remain at current levels in the future or that the
order of application of payments made on Chase USA's accounts will remain as
described above.
Collection of Delinquent Accounts
An account is initially considered delinquent if the minimum monthly payment
indicated on the accountholder's statement is not received within 30 days after
the billing date relating to such minimum payment. Collection efforts begin when
an account is considered delinquent and include statement messages, collection
letters and telephoning, each requesting payment of the amount past due or
overlimit, and denial of authorization for new purchases and cash advances.
Collectors may use credit bureau reports and other methods to locate delinquent
accountholders in the event they move without notifying Chase USA. Throughout
the collection process, delinquent accountholders are sent automated computer
generated correspondence regarding the status of their accounts. Transmissions
occur at selected intervals advising of the age, the amount due, and the
collection phase of the account. The current policy of Chase USA is to
reclassify a delinquent account as current if the accountholder pays three
consecutive minimum monthly payments (two consecutive minimum monthly payments
if the account is between sixty and eighty-nine days delinquent).
Accountholders who become subject to bankruptcy proceedings are not called or
sent letters. Such accountholders will, however, receive monthly statements
until Chase USA receives confirmation of the case number. In accordance with
current policies, accounts of bankrupt obligors are written-off within 90 days
of notice of bankruptcy or after having been delinquent for 180 days, whichever
comes first.
The current policy of Chase USA is to charge off, as a loan loss, the
principal portion of the receivables balance for both purchases and cash
advances after the 180th day of delinquency. Charge offs may occur earlier in
some circumstances, as in the case of bankrupt accountholders. Although some
recovery efforts are pursued on an in-house basis, most charged off accounts are
placed with, and in some cases, may be sold to, outside collection agencies.
Interchange
Creditors participating in the VISA and MasterCard associations receive
certain fees ('Interchange') 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 systems, a portion of this
Interchange in connection with cardholder charges for merchandise and services
is passed from the banks which clear the transactions for merchants to credit
card issuing banks. Interchange percentages are set by the VISA and MasterCard
associations and may be changed by either of them respectively from time to
time. Chase USA will be required, pursuant to the terms of the Pooling and
Servicing Agreement, to transfer to the Trust, Interchange attributed to
cardholder charges for merchandise and services in the Accounts. Interchange
received by Chase USA will be allocated to the Trust on the basis of the
percentage equivalent of a fraction, the numerator of which is the amount of
cardholder charges for merchandise and services in the Accounts and the
denominator of which is the total amount of cardholder charges for merchandise
and services in all of the VISA and MasterCard credit card accounts owned by
Chase USA. Interchange allocated to the Trust will be treated as collections of
Finance Charge Receivables.
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THE BANK PORTFOLIO
General
Set forth below is certain information with respect to the Bank Portfolio.
See 'The Credit Card Business of Chase USA' in the Prospectus. There can be no
assurance that the yield, loss and delinquency experience with respect to the
Receivables will be comparable to that set forth below with respect to the
entire Bank Portfolio.
Loss and Delinquency Experience
The following tables set forth the delinquency and loss experience for each
of the periods shown for the Bank Portfolio. The delinquency and loss experience
shown in the tables below is comprised of segments which may, when taken
individually, have delinquency and loss characteristics different from those of
the overall Bank Portfolio. Because the Accounts were selected on a basis which
excluded certain accounts in the Bank Portfolio as described in the Prospectus
and because of changes in the Bank Portfolio since the Selection Date, actual
delinquency and loss experience with respect to the Accounts may be different
from that set forth below for the Bank Portfolio. The Servicer files with the
Commission monthly reports with respect to the Trust, including information with
respect to revenues, losses and Portfolio Yield with respect to the Accounts. If
certain criteria set forth in the Pooling and Servicing Agreement are satisfied,
Additional Accounts may be selected from the Bank Portfolio or, in the
alternative, Accounts may be removed from the Trust Portfolio. See 'The
Receivables'. There can be no assurance that the delinquency and loss experience
for the Receivables in the future will be similar to the historical experience
of the Bank Portfolio included in the tables set forth below.
Loss Experience
Bank Portfolio
(Dollars in Thousands)
<TABLE>
<CAPTION>
Three Months Year Ended December 31,
Ended ------------------------------
March 31, 1995 1994 1993 1992
-------------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Average Receivables Outstanding(1) ....... $10,374,535 $9,766,339 $9,590,435 $9,827,923
Gross Charge Offs(2)(3) .................. $ 109,919 $ 456,622 $ 501,301 $ 568,607
Recoveries................................ $ 11,265 $ 41,060 $ 44,168 $ 542,824
Net Charge Offs(3)........................ $ 98,654 $ 415,562 $ 457,133 $ 525,783
Net Charge Offs as Percent of Average
Receivables Outstanding(3)............. 3.86%(4) 4.26% 4.77% 5.35%
</TABLE>
- --------
(1) Average Receivables Outstanding is the average of the daily receivable
balance during the period indicated.
(2) Gross Charge Offs are calculated before recoveries and do not include the
amount of any reductions in Average Receivables Outstanding due to fraud,
returned goods or customer disputes.
(3) The charge off amounts shown include only the principal portion of charged
off receivables.
(4) Annualized.
A-15
<PAGE>
<PAGE>
Delinquency Experience
Bank Portfolio
(Dollars in Thousands)
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------------------------
March 31, 1995 1994 1993 1992
----------------------- ---------------------- ------------------------ -------------------------
Number of Days
Delinquent(1) Amount Percentage(2) Amount Percentage(2) Amount Percentage(2) Amount Percentage(2)
- -------------- --------- ------------- -------- ------------- -------- ----------- ------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
30 to 59 Days........ $160,147 1.52% $176,616 1.70% $173,686 1.71% $180,354 1.79%
60 to 89 Days......... 106,677 1.01 114,950 1.10 110,962 1.09 108,281 1.08
90 Days or
Greater............. 203,060 1.93 209,606 2.01 237,557 2.34 225,326 2.24
-------- ---- -------- ---- -------- ---- -------- ----
Total ............. $469,884 4.46% $501,172 4.81% $522,205 5.14% $513,961 5.11%
======== ==== ======== ==== ======== ==== ======== ====
</TABLE>
- ----------
(1) Number of days delinquent means the number of days after the first
billing date following the original billing date. For example, 30
days delinquent means that no payment was received within 60 days after the
original billing date.
(2) Delinquencies are calculated as a percentage of outstanding receivables as
of their respective cycle date rather than as a percentage of the average
monthly outstanding receivables. Delinquencies are calculated before
the reversal of finance charges and include bankruptcies that have not
been charged-off.
Revenue Experience
The gross revenues from finance charges and fees relating to accounts in the
Bank Portfolio for each of the three years contained in the period ended
December 31, 1994 and the three months ended March 31, 1995, are set forth in
the following table. The historical yield figures in the table are calculated on
an accrual basis. Collections of Receivables included in the Trust will be on a
cash basis. The yield on both an accrual and a cash basis will be affected by
numerous factors, including the monthly periodic finance charges on the
Receivables, the amount of the annual membership fees, cash advance fees and
other fees, Interchange, changes in the delinquency rate on the Receivables and
the percentage of cardholders who pay their balances in full each month and do
not incur monthly periodic finance charges. Due to such factors and the factors
discussed under '--Loss and Delinquency Experience' above, there can be no
assurance that the revenue experience for the Receivables in the future will be
similar to the historical experience of the Bank Portfolio included in the table
set forth below.
Revenue Experience
Bank Portfolio
(Dollars in Thousands)
<TABLE>
<CAPTION>
Three Months Year Ended December 31,
Ended ---------------------------------------------
March 31, 1995 1994 1993 1992
-------------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Finance Charges and Fees(1) ........................ $ 437,092 $ 1,738,062 $1,840,989 $1,962,928
Average Receivables Outstanding(2) ................. $10,374,535 $ 9,766,339 $9,590,435 $9,827,923
Yield From Finance Charges and Fees(3) ............. 17.09%(4) 17.80% 19.20% 19.97%
</TABLE>
- ----------
(1) Finance Charges and Fees include periodic finance charges, annual membership
fees, cash advance transaction fees and Interchange.
(2) Average Receivables Outstanding is the average of the daily receivable
balance on each day during the period indicated.
(3) Yield from Finance Charges and Fees represents Finance Charges and Fees as a
percentage of Average Receivables Outstanding.
(4) Annualized.
A-16
<PAGE>
<PAGE>
Interchange
Creditors participating in the VISA and MasterCard associations receive
certain fees ('Interchange') 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 systems, a portion of this
Interchange in connection with cardholder charges for merchandise and services
is passed from the banks which clear the transactions for merchants to credit
card issuing banks. Interchange percentages are set by the VISA and MasterCard
associations and may be changed by either of them respectively from time to
time. Chase USA will be required, pursuant to the terms of the Pooling and
Servicing Agreement, to transfer to the Trust, Interchange attributed to
cardholder charges for merchandise and services in the Accounts. Interchange
received by Chase USA will be allocated to the Trust on the basis of the
percentage equivalent of a fraction, the numerator of which is the amount of
cardholder charges for merchandise and services in the Accounts and the
denominator of which is the total amount of cardholder charges for merchandise
and services in all of the VISA and MasterCard credit card accounts owned by
Chase USA. Interchange allocated to the Trust will be treated as collections of
Finance Charge Receivables.
Payment Rates
The following table sets forth the highest and lowest cardholder monthly
payment rates for the Bank Portfolio during any month in the period shown and
the average cardholder monthly payment rates for the Bank Portfolio for all
months during the periods shown, in each case calculated as a percentage of the
prior month's ending outstanding receivables balance during the periods shown.
Payment rates shown in the table are based on amounts which would be deemed
payments of Principal Receivables and Finance Charge Receivables with respect to
the Accounts.
Cardholder Monthly Payment Rates
Bank Portfolio
<TABLE>
<CAPTION>
Three Months Year Ended December 31,
Ended -----------------------------
March 31,1995 1994 1993 1992
------------- ------- ------- -------
<S> <C> <C> <C> <C>
Lowest(1) ...................... 10.91% 10.70% 10.53% 10.73%
Highest(l) ..................... 12.82% 12.98% 12.40% 12.55%
Average(2) ..................... 11.99% 11.71% 11.43% ll.56%
</TABLE>
- ---------
(1) Monthly Payment Rates represent total payments collected during a given
month expressed as a percentage of the prior month's ending outstanding
receivables.
(2) The Average Monthly Payment Rates shown are expressed as an arithmetic
average of the payment rate during each month of the period indicated.
The amount of collections of Receivables may vary from month to month due to
seasonal variations, general economic conditions and payment habits of
individual cardholders. There can be no assurance that (i) collections of
Principal Receivables with respect to the Trust Portfolio (which differs from
the Bank Portfolio as discussed above in '--Loss and Delinquency Experience'),
and thus the rate at which Certificateholders could expect to receive payments
of principal on the Certificates during either the Controlled Amortization
Period or the Rapid Amortization Period, will be similar to the historical
experience set forth above or (ii) the terms of any subsequently issued Series
will not adversely impact the amount or timing of any payments to the Series
1995-2 Certificateholders. In particular, the occurrence of a pay out event
with respect to an Excluded Series during an Amortization Period could cause
the Amortization Period to be longer than if such Excluded Series had not been
issued. In addition, if a Pay Out Event occurs, the average life and maturity of
the Certificates could be significantly reduced or lengthened.
A-17
<PAGE>
<PAGE>
Because there may be a slowdown in the payment rate below the payment
rate used to determine the Controlled Amortization Amount, or because a Pay Out
Event may occur which would initiate the Rapid Amortization Period, there can be
no assurance that the Class A Certificates will be paid in full by the Class A
Expected Final Payment Date or that the Class B Certificates will be paid in
full by the Class B Expected Final Payment Date.
THE RECEIVABLES
The Receivables conveyed to the Trust arise in Accounts which were selected
from the Initial Portfolio of VISA and MasterCard credit card accounts and in
Additional Accounts added to the Trust on May 1, 1995 and June 1, 1995, in each
case, on the basis of criteria set forth in the Pooling and Servicing Agreement
(the 'Trust Portfolio'). Prior to the Conversion Date, balances with respect to
the Receivables will be determined by reference to the aggregate of such
balances as of the end of each Billing Cycle ending in the related Monthly
Period, and monthly calculations with respect to each Account will be computed
based on the activity during the applicable Billing Cycle for that Account.
Thus, in the case of the September 1995 Distribution Date, for example, monthly
collections would be based on the August 1995 Monthly Period and would reflect
collection activity for all Billing Cycles commencing at the opening of business
on any day during July 1995, and ending at the close of business on the day
preceding the corresponding day of August 1995, with respect to Accounts in
each of the Billing Cycles. Distributions on each Distribution Date will be
funded from the Finance Charge Receivables or Principal Receivables, as
appropriate, collected during the Billing Cycles which ended during the
preceding Monthly Period which were allocated to the Investor Interest.
Pursuant to the Pooling and Servicing Agreement, the Seller has the right
(subject to certain limitations and conditions) to designate from time to time
Additional Accounts to be added to the Trust Portfolio. See 'Description of the
Certificates--Addition of Accounts' in the Prospectus. The Seller added Accounts
to the Trust Portfolio on May 1, 1995 and June 1, 1995, and has and will
transfer to the Trust all Receivables of such Additional Accounts, whether such
Receivables are then existing or thereafter created. The aggregate outstanding
amount of Principal Receivables arising under those Additional Accounts was
approximately $5.7 billion as of the respective addition dates. In addition,
the Seller is required to designate Eligible Additional Accounts as Additional
Accounts under the circumstances described under 'Description of the
Certificates--Addition of Accounts' in the Prospectus.
The Servicer may deliver a notice to the Trustee and the Rating Agency that
it has changed the software that it uses to service the Accounts and that,
effective as of a date specified in such notice, it will be able to calculate
the aggregate amount of Receivables, Principal Receivables and Finance Charge
Receivables effective as of any date of determination, and is not limited to
calculating such amounts by reference to the amount thereof as of the end of the
Billing Cycles which ended during a specified period. The 'Conversion Date'
shall be the later of the first day of the Monthly Period specified in such
notice and the first day of the Monthly Period following the amendment of the
Pooling and Servicing Agreement so as to facilitate the conversion to a system
based on balances as of any date of determination.
On each date of determination that occurs on or after the Conversion Date,
the Aggregate Principal Receivables will equal the aggregate amount thereof as
of the last day of the preceding Monthly Period. During the Monthly Period in
which the Conversion Date occurs, and in each Monthly Period thereafter, monthly
calculations with respect to each Account will generally be based on the
activity during such Monthly Period for such Account. As a result, references
herein to collections received during the Billing Cycles which end in a
particular month shall, if such month begins on or after the Conversion Date,
instead be deemed to refer to collections received during such month. Thus, in
the case of the September 1995 Distribution Date, for example, assuming the
Conversion Date occurred on or before August 1, 1995, distributions would be
based on the collections received during the August 1995 Monthly Period.
A-18
<PAGE>
<PAGE>
The Receivables in the Trust Portfolio, as of June 2, 1995, included
$9,745,353,597 of Principal Receivables and $247,135,961 of Finance Charge
Receivables. The Accounts had, as of June 2, 1995, an average outstanding
balance of $1,271 and an average credit limit of $5,409. The percentage of the
aggregate total Receivable balance to the aggregate total credit limit was
23.50%, and the weighted average age of the Accounts was approximately 82
months. As of June 2, 1995, all but a negligible number of cardholders whose
Accounts are included in the Trust Portfolio have billing addresses in one of
the 50 States or the District of Columbia. As of June 2, 1995, 27.78% of the
Accounts were premium accounts and 72.22% were standard accounts, and the
aggregate Principal Receivables balances of premium accounts and standard
accounts, as a percentage of the total Aggregate Principal Receivables, were
35.93% and 64.07%, respectively.
The following tables summarize the Trust Portfolio's balance and account
characteristics as of June 2, 1995. Because the future composition of the Trust
Portfolio may change over time, these tables may not necessarily be indicative
of the composition of the Trust Portfolio after June 2, 1995.
Composition by Account Balance
Trust Portfolio
<TABLE>
<CAPTION>
Percentage
of Total Percentage
Account Number of Number of of Total
Balance Range Accounts Accounts Receivables Receivables
------------- ----------- --------- -------------- -----------
<S> <C> <C> <C> <C>
Credit Balance ........................... 140,633 1.79% $ (7,091,519) (0.07)%
No Balance ............................... 2,797,272 35.59 0 0
$0.01-$500.00 ............................ 1,474,503 18.76 273,222,991 2.73
$500.01-$1,000.00 ........................ 729,788 9.28 549,468,934 5.50
$1,000.01-$3,000.00 ...................... 1,490,869 18.97 2,787,612,417 27.90
$3,000.01-$5,000.00 ...................... 723,434 9.20 2,868,690,945 28.71
$5,000.01-$10,000.00 ..................... 470,787 5.99 3,127,754,313 31.30
Over $10,000.00 .......................... 32,849 0.42 392,831,477 3.93
---------- ------ -------------- ------
TOTAL .................................... 7,860,135 100.00% $9,992,489,558 100.00%
========== ====== ============== ======
</TABLE>
Composition by Credit Limit
Trust Portfolio
<TABLE>
<CAPTION>
Percentage
of Total Percentage
Number of Number of of Total
Credit Limit Range Accounts Accounts Receivables Receivables
------------------ ----------- --------- -------------- -----------
<S> <C> <C> <C> <C>
$0.01-$1,000.00 .......................... 892,669 11.35% $ 300,469,951 3.01%
$1,000.01-$2,000.00....................... 986,301 12.55 714,009,049 7.15
$2,000.01-$3,000.00....................... 769,314 9.79 851,741,169 8.52
$3,000.01-$4,000.00....................... 533,491 6.79 763,929,991 7.65
$4,000.01-$5,000.00....................... 1,164,652 14.82 1,683,952,164 16.85
$5,000.01-$10,000.00...................... 2,680,650 34.10 4,543,979,826 45.47
Over $10,000.00 .......................... 833,058 10.60 1,134,407,408 11.35
---------- ------ -------------- ------
TOTAL..................................... 7,860,135 100.00% $9,992,489,558 100.00%
========== ====== ============== ======
</TABLE>
A-19
<PAGE>
<PAGE>
Composition by Period of Delinquency
Trust Portfolio
<TABLE>
<CAPTION>
Period of Percentage
Delinquency of Total Percentage
(Days Contractually Number of Number of of Total
Delinquent) Accounts Accounts Receivables Receivables
- ------------------- --------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Current(1) ............................... 7,258,400 92.34% $9,485,733,576 94.93%
30 to 59 Days............................. 96,591 1.23 230,611,690 2.31
60 or More Days .......................... 505,144 6.43 276,144,292 2.76
--------- ------ -------------- ------
TOTAL.................................. 7,860,135 100.00% $9,992,489,558 100.00%
========= ====== ============== ======
</TABLE>
- ----------
(1) Includes Accounts on which the minimum payment has not been received
within 59 days following the original billing date.
Composition by Account Age
Trust Portfolio
<TABLE>
<CAPTION>
Percentage
of Total Percentage
Number of Number of of Total
Account Age Accounts Accounts Receivables Receivables
----------- --------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Equal to or less than 6 Months .......... 408,947 5.20% $ 717,455,115 7.18%
Over 6 Months to 12 Months .............. 473,375 6.02 684,021,859 6.84
Over 12 Months to 24 Months ............. 960,674 12.22 1,029,428,043 10.30
Over 24 Months to 48 Months ............. 494,673 6.30 569,155,592 5.70
Over 48 Months .......................... 5,522,466 70.26 6,992,428,949 69.98
--------- ------ -------------- ------
TOTAL................................. 7,860,135 100.00% $9,992,489,558 100.00%
========= ====== ============== ======
</TABLE>
Geographic Distribution of Accounts
Trust Portfolio
<TABLE>
<CAPTION>
Percentage
of Total Percentage
Number of Number of of Total
State Accounts Accounts Receivables Receivables
----- --------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
New York ................................ 1,183,392 15.05% $1,501,695,177 15.03%
California .............................. 969,362 12.33 1,342,176,497 13.43
New Jersey .............................. 523,301 6.66 676,844,064 6.77
Texas ................................... 523,979 6.67 645,361,639 6.46
Florida ................................. 473,581 6.03 574,073,753 5.75
Michigan................................. 390,065 4.96 562,832,862 5.63
Pennsylvania ............................ 360,393 4.59 440,422,991 4.41
Massachusetts ........................... 284,940 3.62 340,529,068 3.41
Illinois................................. 271,276 3.45 333,825,801 3.34
Ohio .................................... 224,774 2.86 266,983,206 2.67
All Others(1) ........................... 2,655,072 33.78 3,307,744,500 33.10
--------- ------ -------------- ------
TOTAL................................. 7,860,135 100.00% $9,992,489,558 100.00%
========= ====== ============== ======
</TABLE>
- ----------
(1) No other state contains Accounts representing more than 2% of total
Receivables outstanding.
A-20
<PAGE>
<PAGE>
USE OF PROCEEDS
The net proceeds from the sale of the Certificates, $1,361,887,500 before
deduction of expenses, will be paid to the Seller. The Seller will use such
proceeds for its general corporate purposes.
CHASE USA AND THE CHASE MANHATTAN CORPORATION
Chase USA, a wholly-owned banking subsidiary of The Chase Manhattan
Corporation (the 'Corporation'), was formed in 1982 and is headquartered in
Wilmington, Delaware. Chase USA is incorporated under the laws of Delaware and,
as a state chartered non-member bank, is regulated by the Office of the Delaware
State Bank Commissioner and by the Federal Deposit Insurance Corporation. At
March 31, 1995, Chase USA's total assets were approximately $9.6 billion, total
liabilities were approximately $8.2 billion and total stockholder's equity was
approximately $1.4 billion. At December 31, 1994, Chase USA's total assets were
approximately $10.3 billion, total liabilities were approximately $9.0 billion,
and total stockholder's equity was approximately $1.3 billion. Chase USA's
activities are primarily related to credit card lending and other forms of
unsecured consumer lending. Chase USA also takes deposits and offers associated
financial services for consumers.
The Corporation is a bank holding company which was incorporated in 1969 and
whose principal subsidiary is The Chase Manhattan Bank (National Association)
(the 'Bank'). At March 31, 1995 the Corporation's consolidated assets were
approximately $120.7 billion, consolidated liabilities were approximately $112.2
billion and total stockholders' equity was approximately $8.5 billion. At
December 31, 1994, the Corporation's consolidated assets were approximately
$114.0 billion, consolidated liabilities were approximately $105.7 billion and
total stockholders' equity was approximately $8.3 billion. At March 31, 1995 the
Bank's consolidated assets were approximately $99.0 billion, the Bank's
consolidated liabilities were approximately $92.0 billion and stockholder's
equity was approximately $7.0 billion. At December 31, 1994 the Bank's
consolidated assets were approximately $94.0 billion, consolidated liabilities
were approximately $87.0 billion and stockholder's equity was approximately
$7.0 billion. In addition to the Bank, the Corporation holds investments in
other subsidiaries which provide a variety of financial services, including
commercial and consumer financing, investment banking, securities trading and
investment advisory services.
A-21
<PAGE>
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
A-22
<PAGE>
<PAGE>
Excerpt from Prospectus Supplement dated October 11, 1995 to Prospectus dated
October 11, 1995
Chemical Master Credit Card Trust I
Floating Rate Asset Backed Certificates,
Series 1995-1
CHEMICAL'S CREDIT CARD ACTIVITIES
General
The Receivables which the Bank will convey to each Trust pursuant to the
related Agreement have been and will be generated from transactions made by
holders of certain VISA and MasterCard credit card accounts including cobranded
accounts, which are regular accounts, and certain Gold VISA and MasterCard and
GrandElite Gold VISA and MasterCard credit card accounts, which are premium
accounts. Premium cards are targeted at individuals with higher levels of
income. The Bank services these accounts at its facilities located in
Hicksville, New York and Matteson, Illinois. Certain data processing and
administrative functions associated with the servicing of the Bank Portfolio are
performed on behalf of the Bank through a credit card processor. First Data
Resources, Inc. ('FDR'), located in Omaha, Nebraska. See '--Description of FDR.'
Acquisition and Use of Credit Card Accounts
The accounts were generated under the VISA U.S.A., Inc. ('VISA') or
MasterCard International Inc. ('MasterCard International') programs and were
originated or purchased by the Bank. The Bank is a member of VISA and of
MasterCard International. MasterCard International and VISA license their
respective marks permitting financial institutions to issue credit cards to
their customers. In addition, MasterCard International and VISA provide clearing
services facilitating exchange of payments among member institutions and
networks linking members' credit authorization systems.
The VISA and MasterCard credit cards are issued as part of the worldwide VISA
and MasterCard International systems, and transactions creating the receivables
through the use of the credit cards are processed through the VISA and
MasterCard International authorization and settlement systems.
The VISA and MasterCard credit cards from which the Accounts were established
may be used to purchase goods and services, to obtain cash advances and to
consolidate and transfer account balances from other credit cards. Cardholders
make purchases when using a credit card to buy goods or services. A cash advance
is made when a credit card is used to obtain cash from a financial institution,
from an automated teller machine, by a check drawn on an Account or through the
use of overdraft protection. Amounts due with respect to purchases, cash
advances and transfers of account balances will be included in the Receivables.
The VISA and MasterCard credit card accounts owned by the Bank were
principally generated through: (a) direct mail and telemarketing solicitation
for accounts on a preapproved credit basis, (b) applications mailed directly to
prospective cardholders, (c) applications made available to prospective
cardholders at the Bank's branch banking facilities located throughout New York
State and point of sale outlets, (d) applications generated by advertising on
television, radio and in magazines and (e) purchases of accounts from other
credit card issuers.
In each case where an account is generated through an application, the Bank
reviews the application for completeness and creditworthiness. Applications
provide information to the Bank on the applicant's employment history, income,
residence status and credit references. In addition to reviewing the
application, the Bank obtains a credit report issued by an independent credit
reporting agency with respect to the applicant. In the event there are
discrepancies between the application and the credit report, the Bank may
resolve the inconsistency regarding the applicant by contacting employers or
credit references. The Bank generally evaluates the ability of an applicant for
a VISA or MasterCard credit card account to repay credit card balances by
applying a credit scoring system using models developed by independent
consulting firms and proprietary models and data. Credit scoring is intended to
provide a general indication, based on the information available, including data
provided from applications and credit bureaus, of the applicant's likelihood to
repay his or her obligations. Credit scoring assigns values to the information
provided in each applicant's application and credit bureau report and then
estimates the associated credit risk. The score at which an applicant will be
approved correlates to the Bank's credit risk tolerance at the time of approval.
The Bank personnel and outside consultants regularly review the predictive
accuracy of the scoring models.
A-23
<PAGE>
<PAGE>
Once an application to open an account is approved an initial credit limit is
established for the account based on the applicant's credit score and the
applicant's level of income. At least once a year a systematic evaluation of
cardholder payment and behavioral information is used to determine eligibility
for automatic credit line increases. Credit limits may be also adjusted at the
request of the applicant, subject to the Bank's independent evaluation of the
applicant's payment and usage history.
The Bank also generates new accounts through direct mail and telemarketing
solicitation campaigns directed at individuals who have been preapproved by the
Bank. A list of prospects from a variety of sources are screened at one or more
credit bureaus in accordance with the Bank's credit criteria, including previous
payment patterns and longevity of account relationships. Individuals qualifying
for preapproved direct mail or telemarketing solicitation are offered the Bank's
credit card without having to complete a detailed application. In the case of
preapproved solicitations and conditional offers, various credit limits are
offered to members of the group being solicited, which are based upon the
prospective cardholder's credit profile and the level of existing and potential
indebtedness relative to inferred income based on geographic and demographic
characteristics.
Each cardholder is subject to an agreement governing the terms and conditions
of the accounts. Pursuant to such agreement, the Bank reserves the right to
change or terminate any terms, conditions, services or features of the accounts
(including increasing or decreasing daily periodic finance charges, other
charges or minimum payments) and to sell or transfer the accounts and any
amounts owed on such accounts to another creditor
The Bank has added, and may continue to add, accounts to its portfolio by
purchasing credit card accounts from other financial institutions. Credit card
accounts that have been purchased by the Bank were originally opened using
criteria established by the institution from which the accounts were purchased
or by the institution from which the selling institution originally purchased
the accounts and may not have been subject to the same level of credit review as
accounts established by the Bank. Following acquisition, purchased accounts are
evaluated against the same criteria utilized by the Bank to maintain
Bank-originated accounts to determine whether any of the purchased accounts
should be closed immediately. Any of the purchased accounts failing the criteria
are closed and no further purchases or cash advances are authorized. All other
such accounts remain open, subject to the same criteria the Bank uses to
evaluate Bank-originated accounts. The credit limits on such accounts are based
initially on the limits established or maintained by the selling institution.
Following acquisition, credit limits on purchased accounts will be adjusted
based on the criteria applied to Bank-originated accounts.
The Corporation has entered into a merger agreement with Chase. See 'Chemical
Bank.' The Bank has no present intention of including in the Trusts accounts
originated by Chase or its subsidiaries. The addition of such accounts would in
any event be subject to the conditions described in 'Description of the
Certificates--Addition of Trust Assets.'
Billing and Payments
The Accounts have various billing and payment structures, including varying
minimum payment levels and fees. Monthly billing statements are sent by the
Bank, using FDR as its service bureau, to cardholders. The following information
reflects the current billing and payment characteristics of the Accounts. When
an account is established, it is randomly assigned to a billing cycle.
Currently, there are 20 billing cycles Each billing cycle has a separate monthly
billing date at which time the activity in the related accounts during the month
ending on such billing date are processed and billed to cardholders
For more than 90% of the number of Accounts in the Bank Portfolio as of May
31, 1995 and for all accounts generated thereafter, each month the combined new
balance for purchases and advances, less any disputed amounts, is multiplied by
2.083% (1/48 expressed as a percentage rounded to the nearest thousandth). For
less than 10% of the number of Accounts in the Bank Portfolio as of such date,
the combined new balance for purchases and advances, less any disputed amounts,
is multiplied by 1.666% (1/60 expressed as a percentage rounded to the nearest
thousandth). If the amount so calculated is less than $10.00 it is increased to
$10.00. The sum of such amount and any past due amounts equals the minimum
payment amount. The minimum payment however, is never more than the new balance.
A-24
<PAGE>
<PAGE>
A daily periodic finance charge is assessed on certain Principal Receivables
for each billing cycle. Daily periodic finance charges for a billing cycle are
not assessed on Principal Receivables which arise from new purchases made during
such billing cycle if either on the first day of such billing cycle there was no
purchase balance outstanding or if the purchase balance outstanding on the first
day of such billing cycle (including any minimum payment due with respect to
cash advances) is paid in full during such billing cycle or if on the last day
of such billing cycle there is no purchase balances outstanding. The daily
periodic finance charge assessed on cash advances and applicable purchase
balances is calculated by multiplying (i) the average daily cash advance and
applicable purchase balance during the billing cycle by (ii) the applicable
daily periodic finance charge by (iii) the number of days in the billing cycle.
Cash advances are included in the average daily cash advance balance and
purchases are included in the average daily purchase balance from the date such
advance or purchase occurs or, in certain circumstances, on the first day of the
billing cycle following the billing cycle in which such advance or purchase
occurs. The annual percentage rate for fixed rate accounts ranges from 14.5% per
annum for employees of Chemical to 18.8% per annum. The current annual
percentage rate for variable rate accounts is based on the Wall Street Journal
prime rate plus a spread ranging from 9% to 11.4%. To the extent that the amount
of any finance charge applicable to an account balance is less than $0.50, the
Bank increases such amount to $0.50.
The Bank may change the periodic finance charge rate at any time. In
addition. cardholders have the option of electing to switch the applicable rate
from fixed to variable and vice versa, effective for transactions on or after
the date the election is processed.
The Bank generally assesses an annual membership fee of $20.00 for regular
accounts, $40.00 for premium fixed rate accounts and $45.00 for premium variable
rate accounts. During the first six months after an account is opened a
cardholder may, upon closing the account, request a refund on the unused portion
of the annual fee if the account is not delinquent and the account balance does
not exceed the credit limit. The Bank may waive the annual membership fees, or a
portion thereof, in connection with solicitations of new accounts (and has done
so for portions of recent solicitations) or when the Bank determines a waiver to
be necessary to operate its credit card business on a competitive basis. In
addition to the annual membership fee, the Bank may charge accounts certain
other fees including: (i) a late fee of $18.00 with respect to any unpaid
monthly payment if the Bank does not receive the required minimum monthly
payment by the payment due date set forth on the monthly billing statement and
the amount of the past due payment is $2.00 or more provided that no late fee is
assessed if the minimum payment is paid prior to the first day of the following
billing cycle, including any minimum payment due with respect to cash advances;
(ii) a cash advance fee of 2% of the amount of each cash advance, but such cash
advance fee shall not be less than $1.00 nor greater than $10.00; (iii) a fee of
$15.00 for each check written on an account (a cash advance) which is returned
to the Bank as a result of the account being delinquent or overdrawn; (iv) a fee
of $15.00 with respect to each check submitted by a cardholder in payment of an
account which is dishonored and (v) an overlimit charge of $15.00 if, at the end
of the billing cycle, the total amount owed for principal in respect of
purchases and cash advances exceeds the cardholder's credit line.
Payments by cardholders to the Bank on the Accounts are processed and applied
first to any billed fees and other amounts not subject to finance charges, next
to billed and unpaid finance charges and then to billed and unpaid transactions
in the order determined by the Bank. Any excess is applied to unbilled
transactions in the order determined by the Bank and then to unbilled finance
charges. There can be no assurance that daily periodic finance charges, fees and
other charges will remain at current levels in the future. See 'Description of
the Certificates--Collection and Other Servicing Procedures.'
Collection of Delinquent Accounts
The Bank considers an account delinquent if a payment due thereunder is not
received by the Bank by the date of the statement following the statement on
which the amount is first stated to be due. The Bank classifies an account as
'over limit' if its posted balance exceeds its credit limit.
A-25
<PAGE>
<PAGE>
Efforts to collect delinquent credit card receivables are made by the Bank's
personnel and collection agencies and attorneys retained by the Bank. Collection
procedures are determined by an adaptive control system that uses statistical
models and basic account financial information to determine the steps to be
followed at various stages of delinquency. Generally, the Bank includes a
request for payment of overdue amounts on billing statements issued after the
account becomes delinquent. In addition, after a period determined by the
control system, the Bank mails a separate notice to the cardholder notifying him
or her of the delinquency and possible revocation of the credit card and
requesting payment of the delinquent amount. Collection personnel generally
initiate telephone contact with cardholders whose credit card accounts have
become 30 days or more delinquent. In the event that initial telephone contact
fails to resolve the delinquency, the Bank continues to contact the cardholder
by telephone and by mail. The Bank restricts additional extensions of credit
related as early as fifty days delinquent based upon the control system.
Eighty-five days after an account becomes delinquent the credit card is
automatically canceled. Based on the Bank's analysis of a cardholder's behavior
through the control system, the Bank may take any or all of the above actions at
an earlier point in time. In some cases, depending on the financial profile of
the cardholder and the stated reason for and magnitude of a delinquency, the
Bank may enter into arrangements with a delinquent cardholder to extend or
otherwise change the payment schedule.
The Bank's current policy is to charge off an account during the billing
cycle immediately following the cycle in which such account became one hundred
eighty (180) days delinquent. If the Bank receives notice that a cardholder is
the subject of a bankruptcy proceeding, the Bank charges off such account upon
the earlier of seventy-five (75) days after receipt of such notice and the time
period set forth in the previous sentence.
Under the terms of an Agreement, Recoveries may be included in the assets of
the Trust to the extent, if any, specified in the applicable Supplement for any
Series.
Description of FDR
FDR is located in Omaha, Nebraska and provides computer data processing
services primarily to the bankcard industry. FDR is a subsidiary of First Data
Corp. and is the world's largest third-party processor of debit and credit card
transactions. FDR processes annually over one billion transactions for 70
million cardholder accounts and over one million merchant accounts. More than
720 financial institutions rely on FDR for a complete package of credit card
processing and related services.
Interchange
Creditors participating in the VISA and MasterCard associations receive
certain fees ('Interchange') 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 systems, a portion of Interchange
in connection with cardholder charges for goods and services is passed from
banks which clear the transactions for merchants to credit card issuing banks.
Interchange fees are set annually by MasterCard and VISA and are based on the
number of credit card transactions and the amount charged per transaction.
MasterCard and VISA may from time to time change the amount of Interchange
reimbursed to banks issuing their credit cards. The Transferor will be required,
pursuant to the terms of the Agreement, to transfer to the Trust a percentage
of. Interchange. Interchange will be allocated to the Trust on the basis of the
percentage equivalent of the ratio which the amount of the aggregate principal
amount of Principal Receivables (prior to giving effect to any reduction thereof
for Finance Charge Receivables which are Discount Option Receivables) bears to
the aggregate principal balance of the Bank Portfolio. Interchange allocated to
the Trust will be treated as collections of Finance Charge Receivables.
Recoveries
The Transferor will be required, pursuant to the terms of the Agreement, to
transfer to the Trust a percentage of the Recoveries. Recoveries will be
allocated to the Trust on the basis of the percentage equivalent of the ratio
which the amount of the aggregate principal amount of Principal Receivables
(prior to giving effect to any reduction thereof for Finance Charge Receivables
which are Discount Option Receivables) bears to the aggregate principal balance
of the Bank Portfolio. Recoveries allocated to the Trust will be treated as
collections of Finance Charge Receivables.
A-26
<PAGE>
<PAGE>
CHEMICAL BANK
The Bank (together with its subsidiaries) is engaged in a general
commercial banking and trust business and provides a wide variety of fiduciary,
investment management, investment banking, advisory, corporate agency, corporate
trust and personal trust and estate services both domestically and abroad. The
Bank is a banking corporation organized under the laws of the State of New York.
The Bank is a wholly owned subsidiary of Chemical Banking Corporation, a
Delaware corporation. As of March 31, 1995, the Bank's total assets were
approximately $145.9 billion, total deposits were approximately $77.6 billion
and total loans were approximately $63.5 billion.
Chemical Banking Corporation has entered into an Agreement and Plan of
Merger with The Chase Manhattan Corporation, a Delaware corporation ('Chase'),
whereby Chase will be merged with and into Chemical Banking Corporation with
Chemical Banking Corporation as the surviving entity. It is also expected that
The Chase Manhattan Bank, N.A., a wholly owned subsidiary of Chase, will be
merged with and into Chemical with Chemical as the surviving entity. The merger
is subject to approval by the shareholders of both Chase and Chemical Banking
Corporation as well as federal and state regulatory authorities. The merger is
expected to be completed in the first quarter of 1996. The resulting
institution, which will adopt the Chase name, is expected to be the largest bank
in the United States.
The principal executive office of the Bank is located at 270 Park Avenue,
New York, New York 10017 (telephone 212-270-6000).
CHEMICAL BANK'S CREDIT CARD PORTFOLIO
General
The Receivables to be conveyed to the Trust by the Bank pursuant to the
Agreement have been or will be generated from transactions made by holders of
MasterCard and VISA credit card accounts selected by the Bank, including premium
accounts and standard accounts, from the Bank Portfolio.
Delinquency and Loss Experience
The Bank considers an account delinquent if a payment due thereunder is not
received by the Bank by the date of the statement following the statement on
which the amount is first stated to be due.
Efforts to collect delinquent credit card receivables are made by the
Bank's account management department, collection agencies and attorneys retained
by the Bank. For a description of the Bank's collection practices and policies,
see 'Chemical's Credit Card Activities--Collection of Delinquent Accounts' in
the Prospectus.
The Bank's current policy is to charge-off an account during the billing
cycle immediately following the cycle in which such account became one hundred
eighty (180) days delinquent. If the Bank receives notice that a cardholder is
the subject of a bankruptcy proceeding, the Bank charges-off such account upon
the earlier of seventy-five (75) days after receipt of such notice and the time
period set forth in the previous sentence.
The following tables set forth the delinquency and loss experience for each
of the periods shown for the Bank Portfolio of credit card accounts. As of the
beginning of the day on September 28, 1995, the Receivables in the Trust
Portfolio represented approximately 49.19% of the Bank Portfolio. Because the
Trust Portfolio is only a portion of the Bank Portfolio, actual delinquency and
loss experience with respect to the Receivables may be different from that set
forth below for the Bank Portfolio. While the Bank believes that the delinquency
and loss experience for the Accounts in the Trust Portfolio are representative
of the accounts in the Bank Portfolio generally, there can be no assurance that
the delinquency and loss experience for the Receivables in the future will be
similar to the historical experience of the Bank Portfolio set forth below.
A-27
<PAGE>
<PAGE>
Delinquency Experience
Bank Portfolio
(Dollars in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
Eight Months Ended ---------------------------------------------------------------------------
August 31, 1995 1994 1993 1992
------------------ ------------------------- ------------------------- ----------------------
Percentage Percentage Percentage Percentage
Delinquent of Total Delinquent of Total Delinquent of Total Delinquent of Total
Amount(1) Receivables(2) Amount(1) Receivables(2) Amount(1) Receivables(2) Amount(1) Receivables(2)
--------- -------------- --------- -------------- --------- -------------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Receivables Delinquent (3):
30 to 59 Days............ $130,718 1.38% $109,597 1.44% $102,083 1.67% $110,120 1.92%
60 to 89 Days............ 84,645 0.89 69,132 0.91 65,412 1.07 72,157 1.26
90 Days or More.......... 196,468 2.07 160,604 2.11 153,066 2.51 172,538 3.01
--------- ---- --------- ---- --------- ----- --------- ----
TOTAL.............. $411,830 4.33% $339,333 4.47% $320,561 5.25% $354,815 6.20%
========= ===- ========= ==== ======== ===== ========= ====
</TABLE>
- -------------
(1) Delinquent Amount is the arithmetic average of the amount of delinquent
receivables as of the last day of each month during the period indicated.
(2) Percentage of Total Receivables is calculated using the Delinquent Amount
and the arithmetic average of the amount of total receivables as of the last
day of each month during the period indicated.
(3) Number of days delinquent means the number of days after the first billing
date following the original billing date.
Loss Experience
Bank Portfolio
(Dollars in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
Eight Months Ended --------------------------------------
August 31, 1995 1994 1993 1992
------------------ ---------- ---------- ----------
<S> <C> <C> <C> <C>
Average Receivables Outstanding (1)............... $9,445,458 $7,540,565 $6,075,287 $5,722,629
Gross Losses (2).................................. 291,519 366,104 349,522 379,675
Recoveries........................................ 24,272 44,479 35,525 33,827
Net Losses........................................ 267,247 321,625 313,997 345,849
Net Losses as Percent of Average Receivables
Outstanding (3)................................. 4.24% 4.27% 5.17% 6.04%
</TABLE>
- -------------
(1) Average Receivables Outstanding is the average of the daily receivable
balance during the period indicated.
(2) Gross Losses shown include only the principal portion of charged-off
receivables.
(3) The percentage reflected for the eight months ended August 31, 1995 is an
annualized figure based upon charge-off cycle days.
Interchange
The Transferor will be required, pursuant to the terms of the Agreement, to
transfer to the Trust a Percentage of Interchange (as defined in the
Prospectus). Interchange will be allocated to the Certificates on basis of
the percentage equivalent of the ratio which the amount of the aggregate
principal amount of Principal Receivables (prior to giving effect to any
reduction thereof for Finance Charge Receivables which are Discount Option
Receivables) bears to the aggregate principal balance of the Bank Portfolio.
Interchange allocated to the Trust will be treated as collections of Finance
Charge Receivables. MasterCard and VISA may from time to time change the amount
of Interchange reimbursed to banks issuing their credit cards. Under the
circumstances described herein, Interchange will be used to pay a portion of the
Investor Servicing Fee required to be paid on each Transfer Date. See
'Description of the Certificates--Servicing Compensation and Payment of
Expenses' herein and 'Chemical's Credit Card Activities--Interchange' in the
Prospectus. Amounts attributable to Interchange represented 1.30%, 1.54%, 1.26%
and 1.19% of average receivables outstanding in the Bank Portfolio for the eight
months ended August 31, 1995 and for each of the years ended December 31, 1994,
1993 and 1992, respectively.
A-28
<PAGE>
<PAGE>
Recoveries
The Transferor will be required, pursuant to the terms of the Agreement, to
transfer to the Trust a percentage of the recoveries on charged-off accounts in
the Bank Portfolio ('Recoveries'). Recoveries will be allocated to the
Certificates on the basis of the percentage equivalent of the ratio which the
amount of the aggregate principal amount of Principal Receivables (prior to
giving effect to any reduction thereof for Finance Charge Receivables which are
Discount Option Receivables) bears to the aggregate principal balance of the
Bank Portfolio. Recoveries allocated to the Trust will be treated as collections
of Finance Charge Receivables. See 'Chemical Bank's Credit Card
Portfolio--Delinquency and Loss Experience' herein and 'Chemical's Credit Card
Activities--Collection of Delinquent Accounts' in the Prospectus.
THE RECEIVABLES
The Receivables conveyed to the Trust arise in Accounts selected by the
Bank from the Bank Portfolio on the basis of criteria set forth in the
Agreement as applied on the Cut-Off Date and, with respect to Additional
Accounts, as of the related date of their designation (the 'Trust
Portfolio'). Pursuant to the Agreement, the Transferor has the right subject to
certain limitations and conditions set forth therein, to designate from time to
time Additional Accounts and to transfer to the Trust all Receivables of such
Additional Accounts, whether such Receivables are then existing or thereafter
created. Any Additional Accounts designated pursuant to the Agreement must be
Eligible Accounts as of the date the Transferor designates such accounts as
Additional Accounts. The Transferor will be required to designate Additional
Accounts, to the extent available, (a) to maintain the Transferor Interest so
that during any period of 30 consecutive days, the Transferor Interest averaged
over that period equals or exceeds the Minimum Transferor Interest for the same
period and (b) to maintain, for so long as certificates of any Series (including
the Certificates) remain outstanding, the sum of (i) the aggregate amount of
Principal Receivables and (ii) the principal amount on deposit in the Excess
Funding Account equal to or greater than the Minimum Aggregate Principal
Receivables. 'Minimum Transferor Interest' for any period means 7% of the sum
of (i) the average Principal Receivables for such period and (ii) the average
principal amount on deposit in the Excess Funding Account, the Principal Funding
Account and any other account specified from time to time pursuant to the
Agreement or any Series Supplement for such period; provided, however, that the
Transferor may reduce the Minimum Transferor Interest to not less than 2% of
the sum of the amounts specified in clauses (i) and (ii) above upon satisfaction
of the Rating Agency Condition and certain other conditions to be set forth in
the Agreement. 'Minimum Aggregate Principal Receivables' means an amount equal
to the sum of the numerators used to calculate the Investor Percentages with
respect to the allocation of Collections of Principal Receivables for each
Series then outstanding minus the amount on deposit in the Excess Funding
Account as of the date of determination; provided, that the Minimum Aggregate
Principal Receivables may be reduced to a lesser amount at any time if the
Rating Agency Condition is satisfied. The Transferor will convey the Receivables
then existing or thereafter created under such Additional Accounts to the Trust.
Further, pursuant to the Agreement, the Transferor will have the right (subject
to certain limitations and conditions) to designate certain Removed Accounts and
to require the Trustee to reconvey all Receivables in such Removed Accounts to
the Transferor, whether such Receivables are then existing or thereafter
created. Throughout the term of the Trust, the Accounts from which the
Receivables arise will be the Accounts designated by the Transferor on the
Cut-Off Date plus any Additional Accounts minus any Removed Accounts. As of the
Cut-Off Date and, with respect to Receivables in Additional Accounts, as of the
related date of their conveyance to the Trust, and on the date any new
Receivables are created, the Transferor will represent and warrant to the Trust
that the Receivables meet the eligibility requirements specified in the
Agreement. See 'Description of the Certificates--Representations and
Warranties' in the Prospectus.
The Receivables in the Trust Portfolio, as of the beginning of the day on
September 28, 1995, included $5,016,343,299.38 of Principal Receivables and
$101,780,836.64 of Finance Charge Receivables. The Accounts had an average
Principal Receivable balance of $1,623.11 and an average credit limit of
$5,854.35. The percentage of the aggregate total Receivable balance to the
aggregate total credit limit was 28.3%. The average age of the Accounts was
approximately 61.5 months. As of the beginning of the day on September 28, 1995,
cardholders whose Accounts are included in the Trust Portfolio had billing
addresses in all 50 States and the District of Columbia. As of the beginning of
the day on September 28, 1995, 83.12% of the Accounts were standard accounts and
16.88% were premium accounts, and the aggregate Principal Receivable balances
of standard accounts and premium accounts, as a percentage of the total
aggregate Principal Receivables, were 72.43% and 27.57%, respectively.
The following tables summarize the Trust Portfolio by various criteria as
of the beginning of the day on September 28, 1995. Because the future
composition of the Trust Portfolio may change over time, these tables are not
necessarily indicative of the composition of the Trust Portfolio at any
subsequent time.
A-29
<PAGE>
<PAGE>
Composition by Account Balance
Trust Portfolio
<TABLE>
<CAPTION>
Percentage
of Total Percentage of
Number of Number Receivables Total
Account Balance Accounts of Accounts Outstanding Receivables
- ------------------------------------------------- --------- ------------ ----------------- -------------
<S> <C> <C> <C> <C>
Credit Balance................................... 28,774 0.93% $ (2,760,873.00) (0.05)%
No Balance....................................... 799,154 25.86 0.00 0.00
$0.01 to $1,500.00............................... 1,187,137 38.41 585,689,428.29 11.44
$1,500.01 to $5,000.00........................... 748,324 24.21 2,176,347,929.64 42.52
$5,000.01 to $10,000.00.......................... 298,797 9.67 2,026,576,520.57 39.60
$10,000.01 to $20,000.00......................... 28,151 0.91 325,746,423.96 6.36
Over $20,000.00.................................. 242 0.01 6,524,706,56 0.13
--------- ------------ ----------------- -------------
TOTAL....................................... 3,090,579 100.00% $5,118,124,136.02 100.00%
========= ============ ================= ============
</TABLE>
Composition by Credit Limit
Trust Portfolio
<TABLE>
<CAPTION>
Percentage
of Total Percentage of
Number of Number Receivables Total
Credit Limit Accounts of Accounts Outstanding Receivables
- ------------------------------------------------- --------- ------------ ----------------- -------------
<S> <C> <C> <C> <C>
$0.00............................................ 3,429 0.11% $ 158,787.43 0.00%
$0.01 to $1,500.00............................... 338,617 10.96 216,397,092.61 4.23
$1,500.01 to $5,000.00........................... 1,113,066 36.01 1,468,382,689.91 28.69
$5,000.01 to $10,000.00.......................... 1,394,350 45.12 2,590,073,624.45 50.61
Over $10,000.00.................................. 241,117 7.80 843,111,941.62 16.47
--------- ------------ ----------------- -------------
TOTAL....................................... 3,090,579 100.00% $5,118,124,136.02 100.00%
========= ============ ================= =============
</TABLE>
Composition by Period of Delinquency
Trust Portfolio
<TABLE>
<CAPTION>
Percentage
of Total Percentage of
Number of Number Receivables Total
Payment Status Accounts of Accounts Outstanding Receivables
- ------------------------------------------------- --------- ------------ ----------------- -------------
<S> <C> <C> <C> <C>
Current to 29 Days............................... 3,021,765 97.77% $4,897,204,806.87 95.68%
30 to 59 Days.................................... 26,683 0.86 78,952,330.21 1.54
60 to 89 Days.................................... 14,733 0.48 46,742,145.65 0.91
90 Days or More.................................. 27,398 0.89 95,224,853.29 1.87
--------- ------------ ----------------- -------------
TOTAL....................................... 3,090,579 100.00% $5,118,124,136.02 100.00%
========= ============ ================= =============
</TABLE>
Composition by Account Age
Trust Portfolio
<TABLE>
<CAPTION>
Percentage
of Total Percentage of
Number of Number Receivables Total
Account Age Accounts of Accounts Outstanding Receivables
- ------------------------------------------------- --------- ------------ ----------------- -------------
<S> <C> <C> <C> <C>
Not More than 6 Months........................... 443,222 14.34% $ 554,760,968.38 10.84%
Over 6 Months to 12 Months....................... 244,766 7.92 337,530,737.30 6.59
Over 12 Months to 24 Months...................... 928,605 30.05 1,241,031,726.83 24.25
Over 24 Months to 36 Months...................... 212,035 6.86 420,102,505.77 8.21
Over 36 Months to 48 Months...................... 69,013 2.23 129,931,896.97 2.54
Over 48 Months to 60 Months...................... 108,911 3.52 280,719,980.55 5.48
Over 60 Months to 120 Months..................... 529,908 17.15 1,158,251,402.47 22.63
Over 120 Months.................................. 544,119 17.93 995,794.917.75 19.46
--------- ------------ ----------------- -------------
TOTAL....................................... 3,090,579 100.00% $5,118,124,136.02 100.00%
========= ============ ================= =============
</TABLE>
A-30
<PAGE>
<PAGE>
Geographic Distribution of Accounts
Trust Portfolio
<TABLE>
<CAPTION>
Percentage
Number of of Total Number Receivables Percentage of
State Accounts of Accounts Outstanding Receivables
- ---------------------------------------------- --------- --------------- ----------------- -------------
<S> <C> <C> <C> <C>
New York...................................... 518,476 16.78% $ 920,563,012.40 17.99%
California.................................... 432,865 14.01 754,300,230.00 14.74
New Jersey.................................... 225,975 7.31 367,253,495.93 7.18
Illinois...................................... 214,951 6.96 334,912,601.92 6.54
Texas......................................... 203,430 6.58 333,190,491.18 6.51
Florida....................................... 210,963 6.83 312,711,822.88 6.11
Ohio.......................................... 120,797 3.91 182,929,976.62 3.57
Pennsylvania.................................. 83,143 2.69 139,439,019.28 2.72
Michigan...................................... 84,564 2.74 137,138,315.26 2.68
Indiana....................................... 73,266 2.37 111,956,150.33 2.19
Massachusetts................................. 68,633 2.22 111,758,139.23 2.18
Virginia...................................... 67,484 2.18 110,772,172.71 2.16
Maryland...................................... 64,570 2.09 99,398,361.48 1.94
Georgia....................................... 43,519 1.41 74,441,048.63 1.45
North Carolina................................ 47,339 1.53 72,790,700.48 1.42
Minnesota..................................... 40,987 1.33 70,844,387.63 1.38
Connecticut................................... 40,821 1.32 70,481,799.36 1.38
Tennessee..................................... 37,145 1.20 60,155,776.41 1.18
Washington.................................... 34,261 1.11 59,123,853.91 1.16
Missouri...................................... 36,465 1.18 58,674,942.60 1.15
Louisiana..................................... 40,963 1.33 52,964,319.09 1.03
Colorado...................................... 26,493 0.86 51,190,531.98 1.00
Arizona....................................... 25,640 0.83 49,542,582.07 0.97
Alabama....................................... 32,951 1.07 48,449,206.66 0.95
Wisconsin..................................... 27,864 0.90 46,311,353.60 0.90
Kentucky...................................... 28,832 0.93 40,247,821.75 0.79
Oregon........................................ 20,710 0.67 36,998,519.65 0.72
South Carolina................................ 20,476 0.66 33,373,267.97 0.65
Nevada........................................ 15,668 0.51 32,441,984.15 0.63
Oklahoma...................................... 16,291 0.53 29,981,688.89 0.59
Kansas........................................ 13,246 0.43 26,422,951.84 0.52
Rhode Island.................................. 16,093 0.52 24,508,634.67 0.48
Mississippi................................... 17,188 0.56 23,108,894.18 0.45
Arkansas...................................... 15,103 0.49 22,612,938.95 0.44
Iowa.......................................... 13,431 0.43 21,204,931.95 0.41
Hawaii........................................ 12,801 0.41 20,134,724.21 0.39
New Mexico.................................... 11,950 0.39 18,992,041.94 0.37
New Hampshire................................. 10,571 0.34 18,792,553.50 0.37
Utah.......................................... 7,899 0.26 14,939,603.29 0.29
Nebraska...................................... 7,615 0.25 14,889,853.50 0.29
Maine......................................... 7,396 0.24 14,177,881.59 0.28
Delaware...................................... 7,746 0.25 13,911,108.47 0.27
West Virginia................................. 7,621 0.25 12,775,558.96 0.25
Idaho......................................... 5,970 0.19 11,501,869.69 0.22
District of Columbia.......................... 5,466 0.18 9,885,324.85 0.19
Alaska........................................ 4,202 0.14 8,940,599.64 0.17
Montana....................................... 4,445 0.14 8,045,021.18 0.16
Vermont....................................... 4,313 0.14 7,153,537.73 0.14
Wyoming....................................... 3,030 0.10 5,864,669.00 0.11
South Dakota.................................. 2,893 0.09 4,904,579.12 0.10
North Dakota.................................. 2,828 0.09 4,864,868.91 0.10
Other......................................... 3,230 0.09 6,154,414.78 0.11
--------- ------- ----------------- -------------
TOTAL....................................... 3,090,579 100.00% $5,118,124,136.02 100.00%
========= ======== ================= =============
</TABLE>
A-31
<PAGE>
<PAGE>
[THlS PAGE INTENTIONALLY LEFT BLANK]
A-32
<PAGE>
<PAGE>
Excerpt from Prospectus dated December 9, 1992
CHOICE Credit Card Master Trust I
Floating Rate Credit Card Participation Certificates,
Series 1992-2
THE CREDIT CARD BUSINESS OF CITIBANK (MARYLAND)
GENERAL
The Receivables which the Bank conveys to the Trust from time to time
pursuant to the Pooling Agreement have been and will be generated from
transactions made by holders of certain credit card accounts. Citibank (South
Dakota) services these accounts at its facilities located in Sioux Falls, South
Dakota, and through affiliated credit card processors pursuant to service
contracts. The Receivables conveyed to the Trust to date were generated under
the VISA U.S.A., Inc. ('VISA' or MasterCard International Incorporated
('MasterCard International') programs and were either originated by the Bank or
purchased by the Bank from affiliates.
Subject to certain conditions, the Bank may convey to the Trust receivables
arising in credit card accounts of a type not currently included in the
Accounts. Affiliates of the Bank also currently conduct credit card businesses.
For example, Citibank (South Dakota) owns and services a portfolio of VISA'r'
and MasterCard'r'* credit card accounts and Citicorp Retail Services, Inc. also
manages private label credit card programs for several retailers. Receivables
arising in such accounts may be participated to the Bank and sold to the Trust.
In addition, the Bank may purchase portfolios of credit card accounts from other
credit card issuers which may be included in the Trust. Such accounts may not be
originated, used or collected in the same manner as the VISA and MasterCard
accounts described below and may differ with respect to loss and delinquency and
revenue experience and historical payment rates. Such accounts may also have
different terms than the accounts described below, including lower periodic
finance charges. Consequently, the addition of the receivables arising in such
accounts to the Trust could have the effect of reducing the Portfolio Yield. The
Bank intends to file with the Commission on behalf of the Trust a Report on Form
8-K with respect to any addition of accounts which would have a material effect
on the composition of the Accounts. See 'Master Trust Provisions--Addition of
Trust Assets'.
The following discussion describes certain terms and characteristics of the
accounts in the Portfolio from which the Accounts were selected. The Eligible
Accounts from which the Accounts were selected represent substantially all of
the Portfolio. In addition, Additional Accounts may consist of Eligible Accounts
which are not currently in existence and which are selected using different
eligibility criteria from those used in selecting the Accounts already included
in the Trust. See 'Master Trust Provisions--Addition of Trust Assets' and 'The
Pooling Agreement Generally--Representations and Warranties'. Consequently,
actual loss and delinquency, revenue and monthly payment rate experience with
respect to the Eligible Accounts and the Additional Accounts may be different
from such experience for the Portfolio described hereunder.
The Bank and Citibank (South Dakota) are members of VISA and MasterCard
International. The VISA and MasterCard credit cards are issued as part of the
worldwide VISA and MasterCard International systems, and transactions creating
the receivables through the use of the credit cards are processed through the
VISA and MasterCard International authorization and settlement systems. Should
either system materially curtail its activities, or should either the Bank or
Citibank (South Dakota) cease to be a member of VISA or MasterCard
International, for any reason, an Early Amortization Event could occur and
delays in payments on the Receivables and possible reductions in the amounts
thereof could also occur. The VISA and MasterCard accounts the receivables in
which have been conveyed to the Trust include various fixed
- ----------
*VISA and MasterCard are registered trademarks of VISA U.S.A., Inc. and
MasterCard International Incorporated, respectively.
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<PAGE>
<PAGE>
rate, variable rate and tiered rate VISA and MasterCard Accounts originated
under the Bank's CHOICE program. Such accounts differ with respect to certain
characteristics such as annual fees, periodic finance charges and late fees on
amounts charged for goods and services, as more fully described below. Under the
terms of a tiered rate account, the cardholder pays one periodic finance charge
on charges for goods and services up to a certain average balance limit and a
lower periodic finance charge on charges above such limit. See 'The Accounts'.
As of September 30, 1992, the average receivables balance of tiered rate and
non-tiered rate accounts, as a percentage of the total receivables balance of
the entire Portfolio, was approximately 83% and 17%, respectively. Accounts
originated under the Bank's CHOICE program prior to the Repricing were available
at (a) a fixed rate of 15.9%, (b) a fixed rate of 17.9%, (c) a fixed rate of
18.9%, (d) a tiered rate of 16.8% on the average daily balance up to $1,300 and
13.8% on the average daily balance in excess thereof, (e) a tiered rate of 16.9%
on the average daily balance up to $1,300 and 14.9% on the average daily
balance in excess thereof and (f) a variable rate of 9.4% above the Prime Rate,
subject to a cap of 19.8%. As of November 1, 1992, the Bank converted the
periodic finance charge on approximately 58% of the Portfolio (determined by
receivable balance) to a variable rate of either (a) 9.4% above the Prime Rate,
subject to a cap of 19.8%, and with no annual fee (approximately 335% of the
Portfolio), or (b) 7.4% above the Prime Rate, subject to a cap of 19.8%, and
with a $20 annual fee (approximately 25% of the Portfolio). With respect to both
options (a) and (b), the periodic finance charge will be increased to 19.8% in
the event the cardholder is delinquent for two consecutive months unless and
until the cardholder makes six consecutive on-time payments, at which time the
periodic finance charge will be decreased to the original rate on such credit
card. See 'The Accounts'. It is expected that approximately 30% of the Portfolio
will be similarly repriced in early 1993.
The VISA and MasterCard credit cards of the type pursuant to which the
Accounts were established may be used to purchase merchandise and services and
to obtain cash advances. A cash advance is made when a credit card account is
used to obtain cash from a financial institution or automated teller machine,
which may be located at a financial institution, supermarket or elsewhere or
when a check drawn on the credit card account is used to purchase goods and
services. Amounts due with respect to both purchases and cash advances will be
included in the Receivables.
The VISA and MasterCard credit card accounts owned by Citibank (Maryland)
were principally generated through: (i) applications mailed directly to
prospective cardholders; (ii) applications made available to prospective
cardholders at retail outlets and on college campuses; (iii) applications
generated by advertising on radio, in newspapers and in magazines; (iv) direct
mail and telemarketing solicitation for accounts on a preapproved credit basis;
and (v) purchases of accounts from affiliates.
ACQUISITION AND USE OF CREDIT CARDS
Citibank (Maryland) primarily generates new VISA and MasterCard accounts
through direct mail and telemarketing solicitation campaigns directed at
individuals who have been preapproved by Citibank (Maryland). Citibank
(Maryland) identifies potential cardholders for preapproved direct mail
solicitation campaigns by supplying a list of credit criteria to a credit
bureau which generates a list of individuals who meet such criteria and forwards
such a list to a processing vendor. The processing vendor screens the list in
accordance with additional credit and demographic criteria supplied by Citibank
(Maryland) to determine the eligibility of the individuals on the list for a
preapproved solicitation. Individuals qualifying for preapproved direct mail
solicitation are offered a credit card without having to complete a detailed
application. In some instances a direct mail solicitation is followed by a
telemarketing solicitation. Upon receipt of a preapproved acceptance certificate
with respect to such a solicitation, Citibank (Maryland) obtains a credit report
on the respondent issued by an independent credit reporting agency. Applying
information contained in that report and the amount of income reported by the
respondent on the preapproved acceptance certificate, Citibank (Maryland)
assigns a credit limit to the respondent's account. Under the Fair Credit
Reporting Act, Citibank (Maryland) must provide a minimum credit line to all
prospective cardholders who have been preapproved by Citibank (Maryland);
provided, however, in certain instances, when the credit report reveals that the
respondent has filed for bankruptcy or has had a debt written off by a creditor
for nonpayment since the date the credit bureau generated the initial list of
individuals meeting Citibank (Maryland)'s credit criteria, Citibank (Maryland)
will withdraw the offer of credit.
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<PAGE>
<PAGE>
Citibank (Maryland) also generates VISA and MasterCard Accounts through the
solicitation of individual applications to open an account. Citibank
(Maryland) reviews each application for completeness and creditworthiness and
obtains a credit report issued by an independent credit reporting agency with
respect to the applicant. In the event there are discrepancies between the
application and the credit report and in certain other circumstances, Citibank
(Maryland) may verify certain of the information regarding the applicant.
Citibank (Maryland) then generally evaluates the ability of an applicant for a
VISA or MasterCard credit card account to repay credit card balances by
applying credit bureau criteria and/or a credit scoring system using models
developed jointly by an independent firm with extensive experience in develop-
ing credit scoring models and by an internal credit policy department. Credit
evaluation is intended to provide a general indication, based on the information
available, of the applicant's willingness and ability to repay his or her
obligations. Credit criteria and scores evaluate a potential cardholder's credit
profile to arrive at an estimate of the associated credit risk. They are
developed by using statistics to evaluate common characteristics and their
correlation with credit risk. Credit criteria and scores used to evaluate a
particular applicant are based on a variety of factors, including the manner in
which the application was made or the manner in which the account was acquired
as well as the payment and indebtedness history of the applicant or cardholder.
From time to time the credit criteria and scores used by Citibank (Maryland) are
reviewed and, if necessary, updated to reflect more current statistical
information. Once an application to open an account is approved an initial
credit limit is established for the account based on, among other things, the
applicant's credit score and income and the source from which the account was
acquired.
The credit evaluation policies of Citibank (Maryland) may change over time
in accordance with the business judgment of Citibank (Maryland), applicable law
and guidelines established by applicable regulatory authorities.
Credit card accounts that have been purchased by Citibank (Maryland) were
originally opened using criteria established by the institution from which the
accounts were purchased or by the institution from which the selling institution
originally purchased the accounts. The credit limits assigned to such accounts
by Citibank (Maryland) are based initially on the limits established or
maintained by the selling institution. The Accounts include accounts originated
by Citicorp Financial, Inc., under its CHOICE credit card program and acquired
by Citibank (Maryland) in August 1988. Other portfolios of credit card accounts
purchased by Citibank (Maryland) from other credit card issuers may be added to
the Trust from time to time. See 'Master Trust Provisions--Addition of Trust
Assets'.
Each cardholder is subject to an agreement governing the terms and
conditions of the accounts. Pursuant to such agreement, Citibank (Maryland)
reserves the right to change or terminate any terms, conditions, services or
features of the accounts (including increasing or decreasing periodic finance
charges, other charges or minimum payments). Credit limits may be adjusted
periodically based upon an evaluation of the cardholder's performance or a
review of a credit report of the cardholder issued by an independent credit
reporting agency.
COLLECTION OF DELINQUENT ACCOUNTS
With respect to the CHOICE portfolio, the Servicer generally considers a
VISA or MasterCard account delinquent if a minimum payment due thereunder is not
received within 5 days of the due date indicated on the cardholder's statement.
Efforts to collect delinquent credit card receivables are made by the personnel
of the Servicer, supplemented by an affiliate of the Servicer, collection
agencies and attorneys retained by the Servicer. Under current practice, the
Servicer includes a request for payment of overdue amounts on all billing
statements issued after the account becomes delinquent. While collection
personnel initiate telephone contact with certain cardholders whose credit
card accounts have become five days delinquent, generally such contact is
initiated when an account is 35 days delinquent. In the event that initial
telephone contact fails to resolve the delinquency, the Servicer continues to
contact the cardholder by telephone and by mail. Generally, fifteen days after
an account becomes delinquent or whenever a cardholder exceeds such cardholder's
credit limit by more than 5% no additional extensions of credit through such
account are authorized, and no more than 95 days after an account becomes
delinquent it is closed. The Servicer may also, at its discretion, enter into
arrangements with delinquent cardholders to extend or otherwise change
A-35
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<PAGE>
payment schedules. The current policy of the Servicer is to charge off the
receivables in an account when that account becomes 185 days delinquent or, in
general, if the Servicer receives notice that a cardholder has filed for
bankruptcy or has had a bankruptcy petition filed against it, the Servicer will
charge-off the receivables in such account not later than 60 days after the
Servicer receives such notice. However, the receivables in the accounts of
certain bankrupt cardholders are not charged off until such accounts become 185
days delinquent. It is expected that in the near future this policy will be
changed to conform all charge off policies with respect to bankruptcy to the not
later than 60 day policy. At the time of such change there will be a one-time
acceleration of charged-off receivables in accounts relating to these
bankruptcies. These receivables would otherwise generally have been charged
off over the succeeding four months. The Servicer does not believe that this
one-time acceleration will cause an Early Amortization Event to occur or will
otherwise have a material adverse effect on the Investor Certificateholders.
LOSS AND DELINQUENCY EXPERIENCE
The following tables set forth the loss and delinquency experience with
respect to payments by cardholders for each of the periods shown for the
entire portfolio of consumer revolving credit loans arising in the VISA and
MasterCard accounts currently owned by the Bank (the 'Portfolio'). The Bank
believes that the historical performance of the Eligible Accounts existing in
the Portfolio as of September 30, 1992 was no worse than that of the Portfolio
as a whole. There can be no assurance, however, that the loss and delinquency
experience for the Receivables in the future will be similar to the historical
experience set forth below with respect to the Portfolio.
The amount of delinquent receivables and the amount of charged-off
receivables for the Portfolio increased in 1991 and in the first nine months of
1992 due to underlying economic conditions. The amount of delinquent receivables
and the amount of charged-off receivables for the Portfolio may continue to
increase in the future if such economic conditions worsen and may continue to
increase for several months even after such conditions begin to improve.
Although no assurance can be given, the Bank does not expect the Repricing to
have a material adverse effect on the amount of delinquent and charged-off
receivables for the Portfolio in the future. See 'The Credit Card Business of
Citibank (Maryland--General'.
LOSS EXPERIENCE FOR THE PORTFOLIO(1)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Nine Months Year Ended December 31,
Ended --------------------------------------
September 30, 1992 1991 1990 1989
------------------ ---------- ---------- ----------
<S> <C> <C> <C> <C>
Average Receivables Outstanding(2)................. $3,203,592 $3,022,278 $2,173,618 $1,325,648
Net Losses(3)...................................... $ 159,189 $ 191,380 $ 103,747 $ 52,656
Net Losses as a Percentage of Average
Receivables Outstanding(4)....................... 6.63% 6.33% 4.77% 3.97%
</TABLE>
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(1) Losses include write-offs of Principal and Finance Charge Receivables.
(2) Average Receivables Outstanding is the average of receivables outstanding
during the periods indicated.
(3) Net losses as a percentage of gross charge-offs for the nine months ended
September 30, 1992 and for each of the years ended December 31, 1991, 1990
and 1989 were 90%, 90%, 89%, 84%, respectively. Gross charge-offs are
charge-offs before recoveries and do not include the amount of any
reductions in Average Receivables Outstanding due to fraud, returned goods,
customer disputes or certain other miscellaneous write-offs.
(4) The percentage for the nine months ended September 30, 1992 is an annualized
figure.
DELINQUENCIES AS A PERCENTAGE OF THE PORTFOLIO(1)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Year Ended December 31,
Nine ----------------------------------------------------------------------
Months Ended
September 30, 1992 1991 1990 1989
---------------------- ---------------------- ---------------------- ----------------------
Number of Days Delinquent Delinquent Delinquent Delinquent
Delinquent Amount Percentage Amount Percentage Amount Percentage Amount Percentage
- -------------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
35-64 days.......... $ 98,363 3.07% $ 98,048 3.24% $ 67,912 3.12% $41,349 3.11%
65-94 days.......... 47,080 1.47 44,058 1.46 30,216 1.39 17.306 1.31
95 days or more..... 87,752 2.74 81,056 2.68 52,331 2.41 29,643 2.24
---------- ---- ---------- ---- ---------- ---- -------- ----
Total........... $233,195 7.28% $223,162 7.38% $150,459 6.92% $ 8,298 6.66%
========== ==== ========== ==== ========== ==== ======== ====
</TABLE>
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(1) The percentages are the result of dividing Delinquent Amount by Average
Receivables Outstanding for the periods indicated.
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REVENUE EXPERIENCE
The revenues for the Portfolio from finance charges and fees billed to
cardholders for the nine months ended September 30,1992 and for each year of the
three-year period ended December 31,1991, are set forth in the following table.
The revenue experience in the following table is presented on an accrual
basis before deduction for charge-offs. Cash collections on receivables may not
reflect the historical experience in the table. During periods of increasing
delinquencies, billings of periodic finance charges and fees may exceed cash
collections as amounts collected on credit card receivables lag behind amounts
billed to cardholders. Conversely, as delinquencies decrease, cash collections
may exceed billings of periodic finance charges and fees as amounts collected in
a current period may include amounts billed during prior periods. However, the
Bank believes that during the three years ended December 31, 1991 and the nine
months ended September 30, 1992 revenues as presented closely approximated
revenues on a cash basis. Revenues from finance charges and fees on both a
billed and a cash basis will be affected by numerous factors, including the
periodic finance charge on the receivables, the amount of the annual membership
fee, other fees paid by cardholders, the percentage of cardholders who pay off
their balances in full each month and do not incur periodic finance charges on
purchases and changes in the level of delinquencies on the receivables. See
'Special Considerations'.
REVENUE EXPERIENCE FOR THE PORTFOLIO
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Nine Months Year Ended December 31,
Ended ---------------------------------
September 30, 1992 1991 1990 1989
------------------ --------- --------- ---------
<S> <C> <C> <C> <C>
Finance Charges and Fees Billed(1)....................... $422,055 $540,744 $384,746 $236,431
Average Revenue Yield(2)(3).............................. 17.60% 17.89% 17.70% 17.84%
</TABLE>
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(1) Certain amounts included in Finance Charges and Fees Billed will be treated
for purposes of the Pooling Agreement as Principal Receivables rather than
Finance Charge Receivables. These amounts were less than 5% of Finance
Charges and Fees Billed for each of the periods shown in the table. Finance
Charges and Fees Billed do not include revenue attributable to lnterchange.
See 'Interchange' below.
(2) Average Revenue Yield is the result of dividing Finance Charges and Fees
Billed by Average Receivables Outstanding during the periods indicated.
(3) The percentage for the nine months ended September 30, 1992 is an annualized
figure.
The revenues for the Portfolio shown in the table above are attributable to
periodic finance charges and annual and other fees billed to cardholders but do
not include revenue attributable to Interchange. The periodic finance charge
assessed on most of the fixed rate accounts for purchases of merchandise and
services in the Portfolio is higher than the periodic finance charge assessed on
most of the tiered rate accounts for such purchases, although the annual
membership fee on the tiered rate accounts is higher. The revenues related to
periodic finance charges and fees (other than annual fees) depend in part upon
the collective preference of cardholders to use their credit cards as revolving
debt instruments for purchases and cash advances and to pay off account balances
over several months as opposed to convenience use (where the cardholders prefer
instead to pay off their entire balance each month, thereby avoiding periodic
finance charges on purchases) and upon other services of which the cardholder
chooses to avail himself and which are paid for by the use of the card. Fees for
these other services will be treated for purposes of the Pooling Agreement and
the Series Supplement as Principal Receivables rather than Finance Charge
Receivables; however, pursuant to the Pooling Agreement, the Bank will be
permitted to specify that any such fees will be treated as Finance Charge
Receivables. Revenues related to periodic finance charges and fees also depend
on the types of charges and fees assessed on the Accounts and on whether such
Accounts are tiered rate and non-tiered rate Accounts. Accordingly, revenues
will be affected by future changes in the types of charges and fees assessed on
the Accounts, on the respective percentages of the Receivable balances of tiered
rate and non-tiered rate Accounts and the types of Additional Accounts the
receivables in which are added to the Trust from time to time. See 'Master Trust
Provisions--Addition of Trust Assets'. Revenues could be adversely affected by
future changes in fees and charges assessed by the Bank and other factors. See
'Certain Legal Aspects of the Receivables Consumer Protection Laws'. If the
Repricing had been in effect for the year ended December 31, 1991, the Bank
believes that the Average Revenue Yield (as defined in the table above) would
have been approximately 16%. However, because cardholder behavior is difficult
to predict and is influenced by numerous variables and the Bank cannot predict
what percentage of the Portfolio will be subject to any particular pricing
option at any point in the future, the Bank is unable to predict what effect the
Repricing will have on Average Revenue Yield in the future and as a result the
Average Revenue Yield for future periods may be lower than the yield referred to
in the preceding sentence. See 'The Accounts--Billing and Payments'.
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CARDHOLDER MONTHLY PAYMENT RATES FOR THE PORTFOLIO
Monthly payment rates on the Receivables may vary because, among other
things, cardholders may fail to make a required payment, may only make payments
as low as the minimum required payment or may make payments as high as the
entire outstanding balance. Monthly payment rates on the Receivables may also
vary due to seasonal purchasing and payment habits of cardholders and the age of
the Receivables. The following table sets forth the highest and lowest
cardholder monthly payment rates for the Portfolio during any month in the
periods shown and the average of the cardholder monthly payment rates for all
months during the periods shown, in each case calculated as a percentage of the
total beginning account balances for such month. Monthly payment rates reflected
in the table include amounts which would be deemed payments of Principal
Receivables and Finance Charge Receivables with respect to the Accounts as well
as certain noncash adjustments which would not generally be deemed payments of
Principal Receivables or Finance Charge Receivables but do not include amounts
received as recoveries of Receivables or Interchange which would be deemed
payments of Finance Charge Receivables. In addition, the amount of outstanding
Receivables and the rates of payments, delinquencies, charge-offs and new
borrowings on the Accounts depend on a variety of factors including seasonal
variations, the availability of other sources of credit, general economic
conditions, tax laws, consumer spending and borrowing patterns and the terms of
the Accounts (which are subject to change by the Bank).
CARDHOLDER MONTHLY PAYMENT RATES FOR THE PORTFOLIO
<TABLE>
<CAPTION>
Nine Months Year Ended December 31,
Ended September 30, ------------------------
1992 1991 1990 1989
------------------- ------ ------ ------
<S> <C> <C> <C> <C>
Lowest Month......................................... 8.04% 7.06% 7.32% 7.79%
Highest Month........................................ 9.74% 9.20% 9.47% 9.84%
Average of the Months in the Period.................. 8.92% 8.13% 8.49% 8.75%
</TABLE>
Although no assurance can be given, the Bank does not expect the Repricing
to have a material adverse effect on cardholder monthly payment rates for the
Portfolio in the future. See 'The Credit Card Business of Citibank
(Maryland)--General'.
INTERCHANGE
Creditors participating in the VISA and MasterCard International
associations receive certain fees ('Interchange') 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 this 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. Interchange
ranges from approximately 1% to 1.85% of the transaction amount. Citibank
(Maryland) is required, pursuant to the terms of the Pooling Agreement, to
transfer to the Trust Interchange attributed to cardholder charges for
merchandise and services in the Accounts. Interchange is allocated to the Trust
on the basis of the percentage equivalent of the ratio which the amount of
cardholder charges for merchandise and services in the Accounts bears to the
total amount of cardholder charges for merchandise and services in the
Portfolio. VISA and MasterCard International may from time to time change the
amount of Interchange reimbursed to banks issuing their credit cards. On each
Distribution Date, Servicer Interchange with respect to the related Due Period
that is on deposit in the Collection Account will be withdrawn from the
Collection Account and paid to the Servicer as described under 'Series
Provisions--Servicer Compensation and Payment of Expenses'.
THE ACCOUNTS
GENERAL
The Receivables arise in the Accounts. The Accounts have been selected from
substantially all of the Eligible Accounts. See 'The Pooling Agreement
Generally--Representations and Warranties'.
The Bank believes that the Accounts are representative of the Eligible
Accounts in the Portfolio and that the inclusion of the Accounts, as a whole,
does not represent an adverse selection from among the Eligible Accounts. The
information in the tables above entitled 'Loss Experience for the Portfolio',
"Delinquencies as a Percentage of the Portfolio', 'Revenue Experience for the
Portfolio' and 'Cardholder Monthly Payment Rates for the Portfolio' relates to
the historical Portfolio.
The Accounts include receivables which have been charged-off as
uncollectible prior to their addition to the Trust in accordance with normal
servicing policies. However, for purposes of calculation of the amount of
Principal Receivables and Finance Charge Receivables in the Trust for any date,
the balance of such charged-off Receivables is zero and the Trust owns only the
right to receive recoveries with respect to such Receivables.
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As of the Trust Cut-Off Date and the Series Cut-Off Date (and on the date
any new Receivables are generated), the Bank has represented and warranted, or
will represent and warrant, to the Trust that the Receivables (and such new
Receivables) meet the eligibility requirements set forth in the Pooling Agree-
ment. See 'The Pooling Agreement Generally--Representations and Warranties'.
There can be no assurance that all of the Accounts will continue to meet
applicable eligibility requirements throughout the life of the Trust.
The Accounts consist of Eligible Accounts, which consist of VISA and
MasterCard credit card accounts. The Bank expects (subject to certain
limitations and conditions), and, in certain circumstances, will be obligated,
to designate from time to time Additional Accounts and to convey to the Trust
all Receivables arising in such Additional Accounts, whether such Receivables
are then existing or thereafter created. Additional Accounts will be subject to
different eligibility criteria from those used in selecting the Initial
Accounts. Therefore there can be no assurance that such Additional Accounts will
be of the same credit quality as the Initial Accounts. Moreover, Additional
Accounts may contain Receivables which consist of fees, charges and amounts
which are different from the fees, charges and amounts described below. Such
Additional Accounts may also be subject to different credit limits, balances and
ages. Consequently, there can be no assurance that the Accounts will continue to
have the characteristics described below as Additional Accounts are added. In
addition, the inclusion in the Trust of Additional Accounts with lower periodic
finance charges may have the effect of reducing the Portfolio Yield. The Bank
intends to file with the Commission, on behalf of the Trust, a Report on Form
8-K with respect to any addition of accounts which would have a material effect
on the composition of the Accounts. See 'Master Trust Provisions--Addition of
Trust Assets'.
The Receivables in the Accounts as of November 7, 1992 included $37,822,342
of Finance Charge Receivables and $3,060,360,368 of Principal Receivables (which
amounts include overdue Finance Charge Receivables and overdue Principal
Receivables). As of November 7, 1992, there were 2,554,454 Accounts. The
Accounts had an average Principal Receivable balance of $1,198 and an average
credit limit of $3,370. The average total Receivable balance in the Accounts as
a percentage of the average credit limit with respect to the Accounts was
approximately 36%. Approximately 62% of the Accounts were opened prior to
November 1990. Approximately 10.81%, 8.10%, 7.47%, 5.99% and 5.07% of the
Accounts relate to cardholders having billing addresses in California,
Florida, Maryland, New York and Texas, respectively. Not more than 5% of the
Accounts related to cardholders having billing addresses in any other state. The
CHOICE credit card is marketed on a national basis. To the extent that there is
a significant concentration of cardholders in any one state, as described in the
second preceding sentence, no such state has enacted consumer protection laws
that are unusual or peculiar such that specific disclosure in this Prospectus
would be warranted. See generally 'Certain Legal Aspects of the
Receivables--Consumer Protection Laws'.
The following tables summarize the Accounts by various criteria as of
November 7,1992. References to 'Receivables Outstanding' in the following tables
include both Finance Charge Receivables and Principal Receivables. Because the
composition of the Accounts will change in the future, these tables are not
necessarily indicative of the future composition of the Accounts.
COMPOSITION OF ACCOUNTS BY ACCOUNT BALANCE
<TABLE>
<CAPTION>
Percentage Percentage
of Total of Total
Number of Number of Receivables Receivables
Account Balance Accounts Accounts Outstanding Outstanding
- -------------------------------------------------------- --------- --------- -------------- -----------
<S> <C> <C> <C> <C>
Credit Balance(1)....................................... 18,216 0.71% $ (1,214,413) -0.04%
No Balance(2)........................................... 655,303 25.66% $ 0 0.00%
Less than or equal to $500.00........................... 479,179 18.76% $ 92,120,910 2.97%
$500.01 to $1,000.00.................................... 275,942 10.80% $ 211,971,157 6.84%
$1,000.01 to $2,000.00.................................. 522,444 20.46% $ 782,054,571 25.24%
$2,000.01 to $3,000.00.................................. 308,518 12.08% $ 761,346,322 24.57%
$3,000.01 to $5,000.00.................................. 233,853 9.15% $ 880,519,673 28.43%
$5,000.01 to $10,000.00................................. 60,908 2.38% $ 370,278,562 11.95%
Over $10,000.00......................................... 91 0.00% $ 1,105,928 0.04%
--------- --------- -------------- -----------
Total.............................................. 2,554,454 100.00% $3,098,182,710 100.00%
--------- --------- -------------- -----------
--------- --------- -------------- -----------
</TABLE>
(1) Credit balances are a result of cardholder payments and credit adjustments
applied in excess of an Account's unpaid balance. Accounts which currently
have a credit balance are included because Receivables may be generated with
respect thereto in the future.
(2) Accounts which currently have no balance are included because Receivables
may be generated with respect thereto in the future.
A-39
<PAGE>
<PAGE>
COMPOSITION OF ACCOUNTS BY CREDIT LIMIT
<TABLE>
<CAPTION>
Percentage Percentage
of Total of Total
Number of Number of Receivables Receivables
Credit Limit Accounts Accounts Outstanding Outstanding
- -------------------------------------------------------- --------- --------- -------------- -----------
<S> <C> <C> <C> <C>
Less than or equal to $500.00........................... 116,624 4.57% $ 13,427,992 0.43%
$500.01 to $1,000.00.................................... 109,088 4.27% $ 74,796,044 2.41%
$1,000.01 to $2,000.00.................................. 484,740 18.98% $ 495,953,172 16.01%
$2,000.01 to $3,000.00.................................. 568,837 22.26% $ 640,182,918 20.66%
$3,000.01 to $4,000.00.................................. 506,941 19.85% $ 622,342,926 20.09%
$4,000.01 to $5,000.00.................................. 378,666 14.82% $ 502,777,537 16.23%
Over $5,000.00.......................................... 389,558 15.25% $ 748,702,121 24.17%
--------- --------- -------------- -----------
Total.............................................. 2,554,454 100.00% $3,098,182,710 100.00%
========= ========= ============== ===========
</TABLE>
COMPOSITION OF ACCOUNTS BY PAYMENT STATUS(1)
<TABLE>
<CAPTION>
Percentage Percentage
of Total of Total
Number of Number of Receivables Receivables
Payment Status Accounts Accounts Outstanding Outstanding
- -------------------------------------------------------- --------- --------- -------------- -----------
<S> <C> <C> <C> <C>
Current(2).............................................. 2,355,875 92.23% $2,709,617,640 87.45%
Up to 34 days delinquent................................ 118,591 4.64% $ 215,204,237 6.95%
35 to 64 days delinquent................................ 33,930 1.33% $ 65,474,461 2.11%
65 to 94 days delinquent................................ 17,801 0.70% $ 39,654,364 1.28%
95 to 124 days delinquent............................... 11,845 0.46% $ 27,738,108 0.90%
125 to 154 days delinquent.............................. 8,990 0.35% $ 22,057,080 0.71%
155 to 184 days delinquent.............................. 7,422 0.29% $ 18,436,820 0.60%
--------- --------- -------------- -----------
Total.............................................. 2,554,454 100.00% $3,098,182.710 100.00%
========= ========= ============== ===========
</TABLE>
- ------------
(1) Payment Status is determined as of November 7, 1992.
(2) Includes Accounts on which the minimum payment has not yet been received
prior to the second billing date following the issuance of the related bill.
COMPOSITION OF ACCOUNTS BY AGE
<TABLE>
<CAPTION>
Percentage Percentage
of Total of Total
Number of Number of Receivables Receivables
Age Accounts Accounts Outstanding Outstanding
- -------------------------------------------------------- --------- --------- -------------- -----------
<S> <C> <C> <C> <C>
Not more than 6 months.................................. 224,044 8.77% $ 46,643,061 1.51%
Over 6 months to 12 months.............................. 194,568 7.61% $ 118,164,747 3.81%
Over 12 months to 24 months............................. 556,767 21.80% $ 481,235,176 15.53%
Over 24 months to 36 months............................. 633,329 24.79% $ 848,424,177 27.38%
Over 36 months to 48 months............................. 331,205 12.97% $ 478,833,843 15.46%
Over 48 months.......................................... 614,541 24.06% $1,124,881,706 36.31%
--------- --------- -------------- -----------
Total.............................................. 2,554,454 100.00% $3,098,182,710 100.00%
========= ========= ============== ===========
</TABLE>
BILLING AND PAYMENTS
The Accounts have various billing and payment structures, including varying
periodic finance charges and fees. The following is information on the current
billing and payment characteristics of the Accounts.
Monthly billing statements are sent by Citibank (Maryland) to cardholders
with balances at the end of the billing period. Each month a CHOICE VISA or
MasterCard cardholder must make a minimum payment equal to the sum of (i) the
greater of $10 (or, if the then-current balance for purchases is less than $10,
such balance) and 3.03% of the then-current balance as of the closing date of
the related billing period, rounded to the nearest dollar, (ii) any amount which
is past due and (iii) any amount which is in excess of the credit limit. A
periodic finance charge is assessed on the Accounts. No periodic finance charge
is assessed if the balance is paid in full on or before the payment due date,
except that periodic finance charges are assessed on cash advances from the date
the cardholder takes a cash advance until the date of the next monthly statement
by multiplying (i) the daily applicable periodic finance charge by (ii) the
average daily balance for cash advances taken during that billing cycle by (iii)
the number of days in the billing cycle. Thereafter, the cash advance is added
to the balance for purchases and periodic finance charges on the balance are
calculated by multiplying the average daily balance (on purchases plus cash
advances) by the applicable monthly periodic finance charge. Purchases are
included in the average daily balance generally from the date of purchase.
A-40
<PAGE>
<PAGE>
The CHOICE credit card currently is offered primarily in three pricing
configurations: (1) a variable rate of 9.4% above the Prime Rate, subject to a
cap of 19.8%, and with no annual membership fee (which currently applies to
approximately 33% of the receivables in the Portfolio); (2) a variable rate of
7.4% above the Prime Rate, subject to a cap of 19.8%, and with a $20 annual
membership (which currently applies to approximately 25% of the receivable in
the Portfolio); and (3) various tiered rates and fixed rate accounts, the
majority of which have a tiered rate of 16.8% per annum on that portion of the
average daily balance up to $1,300 and 13.8% per annum on that part of the
average daily balance which exceeds $1,300 with a $20 annual membership fee
(which currently applies to 37% of the receivables in the Portfolio). With
respect to options (1) and (2), the periodic finance charge will be increased to
19.8% in the event the related cardholder fails to make a payment for two
consecutive months until the cardholder makes six consecutive on-time payments,
at which time the periodic finance charge will be decreased to the original rate
on such credit card. Citibank (Maryland) expects to reprice 30% of the
Portfolio in early 1993 by giving cardholders the opportunity to choose pricing
options (1) or (2) described above. While there are other pricing configurations
with respect to CHOICE credit card accounts, no such pricing configuration
applies to more than 4% of the receivables in the Portfolio and, in the
aggregate, such other pricing configurations do not apply to more than 55% of
the receivables in the Portfolio.
Citibank (Maryland) generally assesses various fees on the CHOICE credit
card accounts including (i) a late fee of $15 if Citibank (Maryland) does not
receive at least its minimum payment within 15 days after the payment due date
shown on the monthly billing statement and another $15 each month thereafter
until the account is less than 15 days past due; (ii) a cash advance fee of 2%
of the amount of the cash advance (subject to a minimum of $2 or a maximum of
$10) whether the cash advance is made at a financial institution, automatic
teller machine or through a CHOICE check drawn on the credit card account; (iii)
a return payment fee of $10 or $15 depending on the account; and (iv) a return
CHOICE check fee of $10 (or, in some cases, $15) if Citibank (Maryland) can not
process a CHOICE check. In recent months, a number of law suits have been
commenced against Citibank (South Dakota) challenging the assessment of similar
fees and charges. See 'Special Considerations--Master Trust
Considerations--Certain Legal Aspects' and 'Certain Legal Aspects of the
Receivables--Consumer Protection Laws'.
Subject to the restrictions described under 'Special Considerations--Master
Trust Considerations--The Ability of Citibank (Maryland) to Change Terms of the
Accounts', Citibank (Maryland) may change the periodic finance charge or the
fees described above at any time provided it complies with applicable Maryland
and federal law. If the change results in a decrease of the periodic finance
charge or fees, Citibank (Maryland) must provide 15 days advance written notice.
If the change would result in an increase of the periodic finance charge or
fees, Citibank (Maryland) must comply with one of the following two procedures
set forth in Section 12-912 of Maryland's Commercial Law:
(i) provide written notice of the change of terms twice, the second of
which must be included in the periodic billing statement immediately
following the first written notice and must be sent at least 25 days
before the effective date. The cardholder then has 25 days from the
date of the mailing of the second notice to refuse to accept the change
in terms, in which instance the cardholder may use the credit card
account under the unamended terms for the greater of three months or
the period for which an annual fee was paid, after which the cardholder
may no longer use the account but may pay off the balance under the
unamended terms. If the cardholder does not send in a written notice of
rejection within the 25 day period, the new terms become effective on
the date set forth in the notice; or
(ii) provide written notice of the change of terms at least 25 days
prior to the effective date that the proposed change of terms will be
effective and such proposed change will become effective once the
cardholder uses the account any time after the effective date or sends
in written notice expressly agreeing to the change in terms.
Subsequent to the Proposed Merger, the Bank will be required to comply with
South Dakota law as opposed to Maryland law. South Dakota law requires notice of
an increase in periodic finance charges or fees at least 25 days prior to the
effective date of such increase. The cardholder then has 25 days from the
effective date to notify the Bank of his or her refusal to accept the charged
terms, in which case the cardholder may no longer use the credit card to incur
new charges but may pay off the existing balance under the unamended terms. If
the cardholder does not send written notice of his or her objection to the
change in terms, the new terms will become effective on the date set forth in
the notice. See 'Special Considerations--Certain Legal Aspects' and 'Certain
Legal Aspects of the Receivables--Consumer Protection Laws'
A-41
<PAGE>
<PAGE>
Payments by cardholders to Citibank (Maryland) on the Accounts are
processed and applied to all minimum amounts due, from the oldest to the most
current, with respect to the following items in the following order: (i)
periodic finance charges on cash advances; (ii) periodic finance charges on
purchases; (iii) cash advance amounts and (iv) purchase amounts. When all
minimum amounts due are paid, payments are generally allocated first to cash
advance balances and then to purchase balances. There can be no assurance that
periodic finance charges, fees and other charges will remain at current levels
in the future. See 'The Pooling Agreement Generally--Collection and Other
Servicing Procedures'.
THE BANK AND THE SERVICER
Citibank (Maryland), a national banking association and wholly-owned
subsidiary of Citicorp located in Towson, Maryland, was formed in 1984 as a
limited service bank. Since that time Citibank (Maryland) has grown to a full
service bank, conducting nationwide consumer lending programs primarily
comprised of credit card-related activities. It also (i) conducts an eleven
branch retail banking operation in Maryland; (ii) issues a check access
revolving credit product called Ready Credit; and (iii) issues credit cards to
consumers in Puerto Rico, Mexico and Argentina (none of which are included in
the Portfolio or the Trust). As of September 30, 1992, total assets were
approximately $3.8 billion, total liabilities were approximately $3.6 billion
and equity was approximately $200 million. The principal executive office of
Citibank (Maryland) is located at 7720 York Road, Towson, Maryland 21204
(telephone (410) 337-2600).
Management of Citibank (Maryland) is presently contemplating two
transactions of material significance. The first is the sale of the eleven
branch retail banking operation to Citibank, F.S.B., an affiliated federally
chartered savings bank, and wholly-owned subsidiary of Citicorp, with
headquarters in San Francisco, California. The second is the Proposed Merger
of Citibank (Maryland) into Citibank (South Dakota), an affiliated national
banking association and wholly-owned subsidiary of Citicorp, with headquarters
in Sioux Falls, South Dakota. Upon completion of the Proposed Merger, subject to
certain conditions described under 'The Pooling Agreement Generally--Merger or
Consolidation of the Bank', Citibank (South Dakota) will assume all of the
rights and obligations of Citibank (Maryland) as originator of the Trust.
Citibank (South Dakota) was formed in 1981 and conducts nationwide consumer
lending programs primarily comprised of credit card-related activities. Citibank
(South Dakota) is the nation's largest bank credit card issuer. As of September
30, 1992, total assets of Citibank (South Dakota) were approximately $6.9
billion, total liabilities were approximately $5.6 billion and equity was
approximately $1.3 billion. The principal executive office of Citibank (South
Dakota) is located at 701 East 60th Street, North, Sioux Falls, South Dakota
57117 (telephone (605) 331-2626). Although no assurance can be given, Citibank
(Maryland) does not expect that the Proposed Merger will adversely affect in any
material respect the interests of the Investor Certificateholders.
A-42
<PAGE>
<PAGE>
Excerpt from Prospectus dated June 6, 1995
First Chicago Master Trust II
Floating Rate Credit Card Certificates,
Series 1995-P
THE BANK'S CREDIT CARD BUSINESS
General
The interests in Receivables which the Seller has conveyed or will convey to
the Trust pursuant to the Agreement are generated from transactions made by
holders of certain Classic VISA and VISA Gold credit card accounts and certain
Standard MasterCard and Gold MasterCard credit card accounts. These accounts
were generated under the VISA USA, Incorporated ('VISA') or MasterCard
International Incorporated ('MasterCard International') programs and were either
originated by the Bank or FNBC, or purchased by the Bank or FNBC from other
credit card issuers. Effective as of July 1, 1987, FNBC transferred its credit
card operation and all its credit card accounts to the Bank, although FNBC
retained ownership of all receivables comprising the existing balances in such
accounts. Subsequently, such receivables also were transferred to the Bank. The
Bank is a member of MasterCard International, and First Chicago and the Bank are
members of VISA. The Bank currently offers other VISA and MasterCard credit card
accounts with various program features, charges and rate structures. The Bank
services these accounts at its headquarters located in Wilmington, Delaware and
its operations center located in Elgin, Illinois and retains an affiliated
credit card servicing company, First Card Services, Inc. ('FCSI''), located in
Uniondale, New York, to perform collection and customer service activities.
The VISA and MasterCard credit cards are issued as part of the worldwide
VISA and MasterCard International systems and transactions creating the
receivables through the use of the credit cards are processed through the VISA
and MasterCard International systems. Should either system materially curtail
its activities, or should the Bank cease to be a member of MasterCard
International or First Chicago and the Bank cease to be members of VISA, for any
reason, a Liquidation Event could occur, and delays in payments on the
Receivables and possible reductions in the amounts thereof could also occur.
The VISA and MasterCard credit cards of the type pursuant to which the
Accounts were established may be used for two types of transactions: purchases
and cash advances (including balance transfers). Cardholders make purchases when
using a credit card to buy goods or services. A cash advance is made when a
credit card is used to obtain cash from a financial institution, from an
automated teller machine or by writing a check on an account; a balance transfer
occurs when a cardholder transfers a credit card balance with another credit
card issuer to an account with the Seller. Amounts due with respect to each type
of transaction will be included in the Receivables.
The VISA and MasterCard credit card accounts owned by the Bank were
principally generated through: (i) direct mail solicitations for accounts on a
preapproved credit basis; (ii) applications made available to prospective
cardholders at FNBC, the Bank and their affiliates, at retail outlets, at other
financial institutions with which arrangements have been made, on college
campuses and in magazines; (iii) affinity marketing; and (iv) purchases of
accounts from other credit card issuers.
If an account is opened in response to a direct mail preapproved
solicitation, the prospective cardholder's name has previously been screened
through a credit bureau to ensure that the person meets certain standards of
creditworthiness and fiscal responsibility. In the case of preapproved
solicitations, the credit limit is based upon the prospective cardholder's
creditworthiness as measured by the Seller's risk evaluation process, length and
depth of credit experience and usage of credit. In the case of pre-approved
solicitations where an offer is made for a credit card with a credit line 'up
to' a predetermined amount, credit line assignment is based on similar criteria
at the time of the response.
Before an account is opened in response to an application, the prospective
cardholder's application is reviewed for completeness and creditworthiness. A
credit report issued by an independent credit reporting agency is generally
obtained and information on such report regarding the applicant may be
verified. The ability of the applicant to repay credit card balances is
generally evaluated by applying a credit score card, which is intended to
provide a general indication, based on the information available, of the
applicant's
A-43
<PAGE>
<PAGE>
willingness and ability to repay his obligations. If an application is approved,
an initial credit limit is established for the account based on the applicant's
credit score.
Affinity marketing involves the solicitation of prospective cardholders
from identifiable groups with a common interest and/or common cause. Affinity
marketing is conducted through two approaches: the first relies on the
solicitation of organized membership groups with the written endorsement of the
group's leadership and the second utilizes solicitation of prospective
cardholders through the use of purchased lists. Solicitation activities used in
connection with affinity marketing also include: solicitation in appropriate
magazines, telemarketing and applications made available to prospective
cardholders in appropriate locations. In certain cases, preapproved
solicitations will be used in the same manner as described in the preceding
paragraph.
Credit card accounts that have been purchased by FNBC and the Bank were
originally opened using criteria established by the institution from which the
accounts were purchased or by the institution from which the selling institution
originally purchased the accounts. Purchased accounts are screened against
criteria which are set at the time of acquisition to determine whether any of
the purchased accounts should be closed immediately. Any accounts failing the
criteria are closed. All other such accounts remain open. The credit limits on
such accounts are based initially on the limits established or maintained by the
selling institution.
Each cardholder is subject to an agreement governing the terms and
conditions of the accounts. Pursuant to such cardholder agreement, the Bank
reserves the right to change or terminate any terms, conditions, services or
features of the accounts (including increasing or decreasing monthly periodic
charges, other charges or minimum payments). Credit limits may be adjusted
periodically based upon the Bank's continuing evaluation of the cardholder's
payment behavior.
Collection Efforts
Efforts to collect delinquent credit card receivables are made by the Bank
and FCSI personnel and collection agencies and attorneys retained by the Bank.
Under current practice, the Bank includes a request for payment of overdue
amounts on all billing statements subsequent to a delinquency. Collection
personnel generally initiate telephone contact with cardholders whose credit
card accounts have become 30 days or more delinquent. Certain cardholders whom
the Bank considers higher risk may be contacted when their accounts first become
delinquent. In the event that initial telephone contact fails to resolve the
delinquency, the Bank continues to contact the cardholder by telephone and by
mail. The Bank may also enter into arrangements with cardholders to extend or
otherwise change payment schedules. The current policy of the Bank is to
recognize losses no later than the 180th day of delinquency (ie., 210 days after
the date of the billing statement), although charge-offs may be made earlier in
some circumstances. The credit evaluation, servicing and charge-off policies and
collection practices of the Bank may change over time in accordance with the
Bank's business judgment and applicable law. Under the terms of the Agreement,
any recoveries (including insurance proceeds) received on charged-off Accounts
are retained by the Bank and are not included in the assets of the Trust.
Loss and Delinquency Experience
The following tables set forth the loss and delinquency experience with
respect to payments by cardholders for each of the periods shown for
substantially all VISA and MasterCard consumer revolving credit card accounts
owned at the dates indicated by the Bank (excluding certain affinity accounts
and certain accounts not originated by the Bank or FNBC) (the 'Bank's
Portfolio') during the periods shown. As of the end of the April 1995 Due
Period, the Receivables in the Accounts represented substantially all
Receivables in the Bank's Portfolio. There can be no assurance, however, that
the loss and delinquency experience for the Receivables in the future will be
similar to the historical experience set forth below for the Bank's Portfolio.
A-44
<PAGE>
<PAGE>
Loss Experience for the Bank's Portfolio
<TABLE>
<CAPTION>
Three Months Ended
March 31, Year Ended December 31,
-------------------------- --------------------------------------
1995 1994 1994 1993 1992
---------- ---------- ---------- ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Average Receivables
Outstanding(1)...................... $9,137,715 $7,762,634 $8,125,341 $6,701,079 $5,448,901
Gross Charge-offs(2)................. 131,949 100,219 433,743 348,699 309,060
Gross Charge-offs as a
Percentage of Average
Receivables Outstanding............ 5.78%(3) 5.16%(3) 5.34% 5.20% 5.67%
</TABLE>
- -------------------
(1) Average Receivables Outstanding is the arithmetic average of receivables
outstanding during the period indicated.
(2) Gross Charge-offs are charge-offs before recoveries and do not include the
amount of any reductions in Average Receivables Outstanding due to fraud,
returned goods or customer disputes.
(3) On an annualized basis.
Charge-offs for the Bank's Portfolio measured as a percentage of average
receivables outstanding decreased in 1993 due, to a large extent, to improving
underlying economic conditions. During 1994 and 1995, charge-offs for the Bank's
Portfolio measured as a percentage of average receivables outstanding increased
due, in part, to certain strategies employed by the Bank to increase the
cardholder base which the Bank believes, in turn, will result in the increase of
overall revenues for the Bank's Portfolio in the future. In addition, the Bank
believes that the current level of unemployment and personal bankruptcy filings
make reductions in the loss rates unlikely in the immediate future. Losses are
also affected by other factors including competitive behavior and social
conditions. The loss rates for the Bank's Portfolio could increase in the future
if economic conditions were to worsen and could continue to increase for several
months even after such conditions begin to improve. The loss rates set forth
above do not reflect the reversal of unpaid fees and finance charges at the time
a charge-off occurs.
The Bank has policies to allow delinquent accounts whose cardholders are
making good faith efforts to repay overdue amounts to be deemed current
('reaged') provided certain conditions are satisfied. If an account is 90 days
delinquent or greater, it qualifies for reaging treatment if the sum of the
payments received during the preceding five months (or in certain circumstances
the lesser of (a) five months or (b) the number of months since the account was
last current) is at least equal to the sum of the three oldest minimum payments.
The reaging process permits only one reaging of an account from 90 days
delinquent or greater categories in a 12-month period. With respect to accounts
that are 30 to 90 days delinquent, reaging treatment occurs pursuant to a
process which uses criteria that are more liberal than the criteria described
above. An account 30 to 90 days delinquent can be reaged so long as these
criteria are met. The entire process is system controlled. In addition to
automatic reaging, account closure and usage restrictions are system controlled.
When an account is 30 days delinquent, charge privileges are suspended. Account
closure occurs automatically when an account is 60 days delinquent.
Reinstatement of closed accounts requires a full credit review; only a minimal
number of closed accounts qualify for reinstatement. The Bank may terminate,
alter or modify its reaging process at any time. The delinquency information in
the following tables reflects the application of the Bank's reaging process.
Average Delinquencies for the Bank's PortfoIio
<TABLE>
<CAPTION>
Average of
Three Months Ended
--------------------------
March 31, 1995
--------------------------
Delinquent
Payment Status Amount Percentage(1)
- ---------------------------------------- ---------- -------------
(Dollars in thousands)
<S> <C> <C>
30-59 days delinquent................... $147,576 1.62%
60-89 days delinquent................... 61,886 .68
90 days delinquent or more.............. 118,984 1.30
--------- ----
Total................................ $328,446 3.59%
========= ===
<CAPTION>
Average of Twelve Months Ended December 31,
--------------------------------------------------------------------------------------
1994 1993 1992
-------------------------- -------------------------- ----------------------------
Delinquent Delinquent Delinquent
Payment Status Amount Percentage(1) Amount Percentage(1) Amount Percentage(1)
- ---------------------------------------- ---------- ------------- ---------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
30-59 days delinquent................... $132,025 1.62% $107,551 1.60% $ 91,768 1.68%
60-89 days delinquent................... 55,188 0.68 44,609 0.67 38,144 0.70
90 days delinquent or more.............. 98,283 1.21 76,972 1.15 66,826 1.23
-------- ---- -------- ---- -------- ----
Total................................ $285,496 3.51% $229,132 3.42% $196,738 3.61%
======== ==== ======== ==== ======== ====
</TABLE>
- -------------
(1) The percentages are the result of dividing Delinquent Amount by Average
Receivables Outstanding for the applicable period.
A-45
<PAGE>
<PAGE>
Delinquencies as a percentage of average receivables outstanding reflect a
pattern similar to loss rates as a result of the same factors discussed with
respect to the table set forth above for Loss Experience for the Bank's
Portfolio.
Revenue Experience
The gross revenues from monthly periodic charges and fees billed to
cardholders on the Bank's Portfolio for each of the three years in the period
ended December 31, 1994, and the three months ended March 31, 1995 and 1994,
respectively, are set forth in the following table.
The historic gross revenue figures in the table are calculated on an
as-billed basis and represent amounts billed to cardholders in each billing
cycle before deduction of charge-offs, reductions due to fraud, returned goods
and customer disputes or other expenses. Cash collections on receivables may not
reflect the historical experience in the table. During periods of increasing
delinquencies, billings of monthly periodic charges and fees may exceed cash as
amounts collected on credit card receivables lag behind amounts billed to
cardholders. Conversely, as delinquencies decrease, cash may exceed billings of
monthly periodic charges and fees as amounts collected in a current period may
include amounts billed during prior periods. However, the Bank believes that,
during the periods shown, revenues on a billed basis closely approximated
revenues on a cash basis. Revenues from monthly periodic charges and fees on
both a billed and a cash basis will be affected by numerous factors, including
the monthly periodic charges on principal receivables, the amount of the annual
membership fees, the amount of other fees paid by cardholders, the percentage of
cardholders who pay off their balances in full each month and do not incur
monthly periodic charges on purchases, fees and finance charges and changes in
the delinquency rate on the Receivables. See 'Special Considerations.'
Revenue Experience for the Bank's Portfolio
<TABLE>
<CAPTION>
Three Months Ended
March 31, Year Ended December 31,
-------------------------- -----------------------------------------
1995 1994 1994 1993 1992
---------- ---------- ---------- ---------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Average Receivables Outstanding(1)................. $9,137,715 $7,762,634 $8,125,341 $6,701,079 $5,448,901
Finance Charges and Fees Billed.................... 404,907 334,983 1,405,786 1,182,391 1,003,533
Average Finance Charges and Fees Billed(2)......... 17.72%(3) 17.26%(3) 17.30% 17.64% 18.42%
</TABLE>
(1) Average Receivables Outstanding is the arithmetic average of receivables
outstanding during the period indicated.
(2) Average Finance Charges and Fees Billed is the result of dividing Finance
Charges and Fees Billed by Average Receivables Outstanding and does not
include revenue attributable to Interchange.
(3) On an annualized basis.
The revenues for the Bank's Portfolio shown in the Revenue Experience table
are related to monthly periodic charges and other fees billed to cardholders but
do not include revenue attributable to Interchange. The revenues related to
monthly periodic charges and fees depend in part upon the collective preference
of cardholders to use their credit cards as revolving debt instruments for
purchases and cash advances and paying off account balances over several months
as opposed to convenience use, where the cardholders prefer instead to pay off
their entire balance each month, thereby avoiding monthly periodic charges on
purchases, fees and finance charges. Revenues related to monthly periodic
charges and fees also depend on the types of charges and fees assessed by the
Bank on the accounts. The Bank introduced a variable rate card in 1987 and has
offered cardholders the option of utilizing either a fixed or variable rate
monthly periodic charge. From 1989 through 1994, the Bank emphasized the
origination of variable rate accounts and substantially all new accounts
originated during that time were variable rate accounts. During 1994, the Bank
began offering new accounts, for purchase transactions, a fixed rate monthly
periodic charge for an initial period (ranging from 6 to 15 months) which then
converts into a variable rate. The initial fixed rate offered on such accounts
is either 6.9% or 9.9% per annum, a rate which is substantially lower than that
currently assessed on the variable rate accounts or the standard fixed rate
accounts. The total yield on such accounts during the initial fixed rate period
is therefore lower than that of a variable rate account or standard fixed rate
account. As of
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<PAGE>
<PAGE>
the end of the April 1995 Due Period, Receivables assessed a variable monthly
periodic charge constituted approximately 79.77% of the total Receivables
balance of Accounts in the Trust. Depending upon fluctuations in interest rates,
the variable rate monthly periodic charge (which is based on the prime rate)
assessed on variable rate accounts may change from month to month and could be
less than the fixed charge applicable to most standard fixed rate accounts. A
further shift by cardholders from fixed rate accounts to variable rate accounts,
and/or the continued use of the initial fixed/variable rate pricing for certain
new accounts, may affect future revenue experience. Throughout the periods shown
above, the Bank made certain changes in the charges and fees assessed on the
accounts. In 1993, the Bank waived fees (including annual fees) and removed a
minimum rate floor of 19.8% or offered a lower rate on some cash advances for
certain cardholders. In 1994 and 1995, the Bank continued and continues to offer
a lower rate on some cash advances and/or purchases for certain cardholders for
limited periods of time. As noted above, during 1994 and 1995, the Bank has been
originating accounts with an initial fixed monthly periodic charge on purchases
which converts to a variable rate charge after an initial period and which is
lower than the monthly periodic rate assessed on most variable rate accounts or
standard fixed rate accounts. In addition, the Bank is currently waiving annual
fees and offering a lower variable interest rate on certain selected accounts.
The Bank has no basis to predict how these changes and any future changes in the
terms of accounts may affect the revenue for the Bank's Portfolio. See 'The
Accounts--Billing and Payments.'
Interchange
Members participating in the VISA and MasterCard International associations
receive certain fees ('Interchange') as partial compensation for taking credit
risk, absorbing fraud losses, funding full payer receivables and servicing
cardholders for a limited period prior to initial billing. Under the VISA and
MasterCard International systems, a portion of this 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. Interchange
ranges from approximately 1% to 2% of the transaction amount, although VISA and
MasterCard International may from time to time change the amount of Interchange
reimbursed to banks issuing their credit cards. Interchange will be allocated to
the Trust on the basis of the percentage equivalent of the ratio which the
amount of cardholder sales charges in the Accounts bears to the total amount of
cardholder sales charges for all accounts in the Seller's entire portfolio. This
percentage is an estimate of the actual Interchange and may be greater or less
than the actual amount of the Interchange relating to the Accounts from time to
time. The Seller will be required, pursuant to the terms of the Series 1995-P
Supplement, to transfer to the Trust the Floating Allocation Percentage of
Interchange attributable to cardholder charges for merchandise and services in
the Accounts. Interchange allocable to Series 1995-P in an amount equal to l/12
of the product of 1.25% per annum and the Invested Amount with respect to each
Due Period will be used exclusively to pay the Servicer part of its Monthly
Servicing Fee. See 'Description of the Class A Certificates and the
Agreement--Servicing Compensation and Payment of Expenses.' Interchange in
excess of the portion thereof required to be used exclusively to pay the
Servicer part of such Monthly Servicing Fee will be included in Finance Charge
Receivables pursuant to the Series 1995-P Supplement for purposes of determining
the amount of Finance Charge Receivables and allocating collections and payments
to the Certificateholders. Interchange (including the portion used exclusively
to pay the Servicer) will be included in Finance Charge Receivables for purposes
of calculating the Portfolio Yield.
THE ACCOUNTS
General
The Accounts currently consist of substantially all of the VISA'r' and
MasterCard'r' consumer revolving credit card accounts existing in all of the
Seller's ten billing cycles (billing cycles 0, 1, 2, 3, 4, 5, 6, 7, 8 and 9),
excluding certain affinity accounts and certain accounts not originated by
either the Seller or FNBC. Additional accounts added to each of the foregoing
billing cycles (excluding certain affinity accounts) in the normal operation of
the Seller's credit card business will generally be added on a daily basis as a
category of
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<PAGE>
<PAGE>
Additional Accounts See 'Description of the Class A Certificates and the
Agreement--Addition of Accounts.'
The Seller's VISA and MasterCard accounts are grouped into billing cycles
for the purpose of administrative convenience Each billing cycle has a separate
monthly billing date at which time the activity in the related accounts during
the month ending on such billing date are processed and billed to cardholders.
The Accounts include VISA and MasterCard accounts in billing cycles ending at
the close of business on ten separate days in each month. The Seller transferred
to the Trust all Receivables existing in the Accounts on the billing date for
such Account in either May 1990, September 1990, May 1991, July 1991 or May 1992
(each, a 'Cut Off Date') and all Receivables generated in each such Account
after the applicable Cut Off Date. All monthly calculations with respect to each
Account are computed based on the activity during the applicable billing cycle
for that Account (the monthly billing cycle periods for the Accounts ending in
the same month during the term of the Trust being collectively referred to
herein as a 'Due Period'). Thus, in the case of the August 1995 Distribution
Date, for example, monthly collections would be based on the July 1995 Due
Period and would reflect collection activity for billing cycles commencing at
the opening of business on the 2nd, 4th, 7th, 10th, 13th, 16th, 19th, 22nd, 25th
and 28th days of June 1995, and ending at the close of business of the 1st, 3rd,
6th, 9th, 12th, 15th, 18th, 21st, 24th and 27th days of July 1995, respectively,
with respect to the Accounts in each of such billing cycles.
Accounts were previously assigned to billing cycles based on the month in
which they were opened. More recently, new accounts have been assigned to
billing cycles in a manner which is intended, for purposes of administrative
convenience, to equalize the number of accounts in the billing cycles. Because
the Accounts include substantially all the accounts existing in the Seller's ten
billing cycles (except for certain affinity accounts and accounts not originated
by either the Seller or FNBC), and because the Receivables include all amounts
payable by cardholders under the Accounts, the Receivables of some of the
Accounts include delinquent or reaged Receivables and may include obligations of
cardholders who are or are about to become bankrupt or insolvent. The level of
the Required Enhancement Amount was determined after taking into account, among
other considerations, the nature of the Accounts and the Receivables.
Pursuant to the Agreement, the Seller has the right (subject to certain
limitations and conditions described below) to designate from time to time
additional qualifying VISA and MasterCard consumer revolving credit card
accounts of the Bank to be included as Accounts and to convey to the Trust all
Receivables in such Additional Accounts, whether such Receivables are then
existing or thereafter created. The Seller currently adds all new accounts
opened in the ordinary course of business in the ten billing cycles (excluding
certain affinity accounts) as Automatic Additional Accounts on a daily basis and
currently intends to continue the addition of such new accounts. In addition,
the Seller is required to designate Additional Accounts (x) to maintain the
amount of the interest of the Seller (the 'First Chicago Amount') equal to
Aggregate Principal Receivables minus the sum of the invested amounts for all
Series, so that the First Chicago Amount for the related Due Period equals or
exceeds 7% of the Aggregate Principal Receivables for the same Due Period, or
such lower percentage as is acceptable to the Rating Agencies, subject to
certain conditions (the 'Minimum First Chicago Interest Percentage') and (y) to
maintain, for so long as the Certificates remain outstanding, Aggregate
Principal Receivables in an amount equal to or greater than the sum of (i) the
initial invested amounts (or other amounts, if applicable) of other outstanding
Series and (ii) the Initial Invested Amount (the 'Minimum Aggregate Principal
Receivables'). The Minimum Aggregate Principal Receivables required to be
maintained through the designation by the Seller of Additional Accounts may be
increased by a Supplement pursuant to which additional Series may be issued. The
Seller will convey the Receivables then existing or thereafter created under any
such Additional Accounts to the Trust. Further, pursuant to the Agreement, the
Seller has the right (subject to certain limitations and conditions discussed
herein) to accept the removal of certain Accounts designated by the Seller from
the Trust and to require the Trustee to convey all Receivables in such Removed
Accounts to the Seller, whether such Receivables are then existing or thereafter
created. Throughout the term of the Trust, the Accounts from which the
Receivables arise will be the same Accounts designated by the Seller on the
applicable Cut Off Dates plus
A-48
<PAGE>
<PAGE>
any Additional Accounts and minus any Removed Accounts. See 'Description of the
Class A Certificates and the Agreement--Conveyance of Receivables.'
The Receivables arising from the Accounts as of the end of the April 1995
Due Period totaled $9,351,383,855 and included $9,146,185,112 of Principal
Receivables. The Accounts had an average Principal Receivables balance of $838
and an average credit limit of $6,746. The aggregate total Receivables balance
as a percentage of the aggregate total credit limit was 12.70%.
The following tables summarize the Accounts by various criteria as of the
end of the April 1995 Due Period. Approximately 314,629 cardholder accounts
included in the Accounts as of the end of the April 1995 Due Period are Classic
VISA accounts with respect to which the cardholder has been upgraded to a VISA
Gold account. The upgraded accounts generally have certain additional features,
including a higher credit limit, which are not generally included in the Classic
VISA accounts. For some period of time (not exceeding three years), both
accounts are active for a particular cardholder although the Classic VISA
account is eventually closed. Upon a cardholder upgrade, the receivables balance
in the Classic VISA account is transferred to the VISA Gold account (which
account is considered to have the same account opening date as the Classic VISA
account) and any new receivables created on the Classic VISA account are
immediately transferred to the VISA Gold account. In addition, pursuant to the
ordinary operating procedures of the Bank, accounts which expire and have no
outstanding balance are not removed immediately from the Bank's Portfolio, but
rather are removed periodically from the Bank's Portfolio and therefore may
still be included as an Account for some period of time after expiration. As of
the end of the April 1995 Due Period, approximately 380,514 expired accounts
with a credit balance or no balance were included in the Accounts. Because the
composition of the Accounts may change in the future, these tables are not
necessarily indicative of the characteristics of the Trust at any time after the
end of the April 1995 Due Period.
Composition of the Accounts by Account Balance
<TABLE>
<CAPTION>
Percentage Percentage
of Total of Total
Number of Number of Receivables Receivables
Account Balance Accounts Accounts Outstanding Outstanding
--------------- --------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Credit Balance(1)......................... 111,376 1.02% $ (10,206,029) (0.11)%
No Balance(2)............................. 5,112,765 46.83 0 0.00
$0.01 to $1,499.99 ....................... 3,572,927 32.72 1,441,566,005 15.41
$1,500.00 to $2,999.99 ................... 981,157 8.99 2,183,288,618 23.35
$3,000.00 to $4,499.99 ................... 500,590 4.58 1,852,359,742 19.81
$4,500.00 to $9,999.99 ................... 634,844 5.81 3,828,146,324 40.94
$10,000 or more .......................... 5,115 0.05 56,229,195 0.60
---------- ------ -------------- ------
Total................................... 10,918,774 100.00% $9,351,383,855 100.00%
========== ====== ============== ======
</TABLE>
- ----------
(1) Credit Balances are a result of cardholder payments and credit adjustments
applied in excess of an Account's unpaid balance. Accounts currently with a
credit balance are included, as Receivables may be generated with respect
thereto in the future.
(2) Accounts currently with no balance are included, as Receivables may be
generated with respect thereto in the future.
Composition of Accounts by Credit Limit
<TABLE>
<CAPTION>
Percentage Percentage
of Total of Total
Number of Number of Receivables Receivables
Credit Limit Accounts Accounts Outstanding Outstanding
------------ --------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
$0.01 to $1,499.99 ...................... 168,875 1.55% $ 68,128,001 0.73%
$1,500.00 to $2,999.99 .................. 731,435 6.70 793,877,577 8.49
$3,000.00 to $4,499.99 .................. 1,142,615 10.46 1,091,823,123 11.68
$4,500.00 to $9,999.99 .................. 7,176,115 65.72 6,188,253,498 66.17
$10,000.00 or more(1).................... 1,699,734 15.57 1,209,301,656 12.93
---------- ------ -------------- ------
Total.................................. 10,918,774 100.00% $9,351,383,855 100.00%
========== ====== ============== ======
</TABLE>
- ----------
(1) Maximum current credit limit on an Account is $65,000.
A-49
<PAGE>
<PAGE>
Composition of the Accounts by Payment Status
<TABLE>
<CAPTION>
Percentage Percentage
of Total of Total
Number of Number of Receivables Receivables
Credit Limit Accounts Accounts Outstanding Outstanding
------------ --------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Current(1)............................... 10,770,698 98.64% $8,904,305,540 95.22%
30-59 days delinquent ................... 90,626 0.83 250,642,753 2.68
60-89 days delinquent ................... 21,807 0.20 70,687,976 0.76
90 days delinquent or more .............. 35,643 0.33 125,747,586 1.34
---------- ------ -------------- ------
Total.................................. 10,918,774 100.00% $9,351,383,855 100.00%
========== ====== ============== ======
</TABLE>
- ----------
(1) Includes Accounts on which the minimum payment has not yet been received
prior to the second billing date following the issuance of the related
bill.
Composition of the Accounts by Age
<TABLE>
<CAPTION>
Percentage Percentage
of Total of Total
Number of Number of Receivables Receivables
Age Accounts Accounts Outstanding Outstanding
--- --------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Not more than 6 months ................... 1,183,315 10.84% $ 746,581,884 7.98%
Over 6 months to 12 months ............... 1,064,941 9.75 728,453,796 7.79
Over 12 months to 24 months .............. 2,246,952 20.58 1,746,858,560 18.68
Over 24 months to 48 months .............. 3,157,505 28.92 2,671,493,587 28.57
Over 48 months ........................... 3,266,061 29.91 3,457,996,028 36.98
---------- ------ -------------- ------
Total................................... 10,918,774 100.00% $9,351,383,855 100.00%
========== ====== ============== ======
</TABLE>
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<PAGE>
<PAGE>
Geographic Composition of the Accounts
<TABLE>
<CAPTION>
Percentage Percentage
of Total of Total
Number of Receivables
State Accounts Outstanding
----- -------- -----------
<S> <C> <C>
California ............................................. 11.49% 11.99%
New York ............................................... 8.05 8.14
Illinois ............................................... 7.70 8.12
Florida ................................................ 7.11 7.21
Texas .................................................. 5.83 6.57
New Jersey.............................................. 4.10 4.16
Ohio.................................................... 4.04 3.85
Michigan ............................................... 3.52 3.46
Pennsylvania............................................ 4.35 3.28
Indiana................................................. 2.48 2.55
Missouri................................................ 2.32 2.38
Minnesota .............................................. 2.67 2.14
Tennessee .............................................. 1.97 2.10
Colorado ............................................... 1.90 2.00
North Carolina ......................................... 1.85 1.92
Georgia ................................................ 1.72 1.91
Arizona ................................................ 1.57 1.87
Virginia ............................................... 1.86 1.77
Massachusetts .......................................... 2.14 1.74
Maryland................................................ 1.87 1.72
Washington.............................................. 1.60 1.50
Alabama ................................................ 1.15 1.27
Oregon.................................................. 1.23 1.26
Kentucky ............................................... 1.25 1.21
Louisiana............................................... 1.17 1.18
Connecticut ............................................ 1.26 1.16
Oklahoma ............................................... 1.18 1.12
Iowa.................................................... 1.38 1.06
South Carolina.......................................... 0.96 1.02
All Other(1) ........................................... 10.28 10.34
------ ------
Total................................................. 100.00% 100.00%
====== ======
</TABLE>
- ----------
(1) States and foreign countries with less than 1.00% of Total Receivables
Outstanding.
Billing and Payments
The credit card accounts owned by the Bank include accounts originated or
purchased by the Bank or FNBC. These accounts have various billing and payment
structures, including varying annual fees and monthly periodic charges. The
following is information on the current billing and payment characteristics of
the Accounts.
Monthly billing statements are sent by the Bank to cardholders. Each month,
a cardholder must make a minimum payment equal to the sum of: (i) 1/48 of the
new balance (excluding any amount that is past due and any fees charged on the
Account by the Bank), but not less than the greater of $10 or the amount of the
finance charges (due to periodic rate) billed to the Account for the billing
period, plus (ii) any amount that is past due (unless its inclusion in the
minimum payment is waived in accordance with the Servicer's guidelines) plus
(iii) the amount of any fees charged to the Account. Balances under $10 must be
paid in full. In addition, if the new balance in the Account less the minimum
payment amount computed as described above exceeds
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<PAGE>
<PAGE>
the assigned credit limit, the difference between such amounts may be added to
the required minimum payment shown on the monthly billing statement
A monthly periodic charge is assessed on the Accounts. The monthly periodic
charge is calculated by multiplying the finance charge balance in an Account by
the applicable monthly periodic rate. The finance charge balance is the average
daily balance owing on the Account during the billing period including in its
calculation any fees charged to the Account by the Bank and any billed but
unpaid finance charge Monthly periodic charges are not assessed on purchases,
fees or finance charges if all balances shown on the billing statement are paid
in full by the cardholder's payment due date shown on the cardholder's billing
statement each month. As of the end of the April 1995 Due Period, the
Receivables assessed a fixed monthly periodic rate and a variable monthly
periodic rate as a percentage of the total Receivables balance of the Accounts
was approximately 20.23% and 79.77%, respectively. The current periodic rate
assessed on Receivables arising in most standard fixed rate Accounts is 1.65%
monthly (19.8% per annum) although certain fixed rate Accounts are assessed at
lower rates. With respect to Receivables arising in the variable rate Accounts,
the periodic rate assessed is equal on a per annum basis to the interest rate
index plus a spread. The interest rate index is determined on each billing date
based on the prime rate listed in the money rate section of The Wall Street
Journal on the 15th day of the month (or if the 15th is a Saturday, Sunday or
holiday, the next business day) immediately preceding the month in which the
billing date occurs. The spread on variable rate Accounts ranges generally from
6.9% to 9.9% per annum. During 1994, the Bank began offering certain new
Accounts a fixed rate monthly periodic charge on purchases for an initial period
(ranging from 6 to 15 months) which then converts into a variable rate. The
initial fixed rate offered on such Accounts is generally either 6.9% or 9.9% per
annum. Upon conversion to a variable rate, the monthly periodic charge is
computed as described above for variable rate Accounts.
By the terms of the most recent cardholder agreements governing the
Accounts, the Bank may change the periodic rate at any time upon written notice
to the cardholder. In addition, the cardholder agreements governing most
standard fixed rate Accounts give cardholders the option of electing a variable
periodic rate to be effective for transactions on or after the election is
processed, equal on a per annum basis to the interest rate index plus 9.9% (with
a minimum per annum rate of 19.8% for cash advances). Finally, the Bank, under
limited circumstances, has offered to existing cardholders a variable periodic
rate equal on a per annum basis to the interest rate index plus 4.9%.
Since 1988, substantially all preapproved Accounts have not been assessed
an annual membership fee; in addition, over the last few years, the Bank
generally has not assessed or has waived the annual fee for most other new
Accounts and also has waived the annual fee for certain other selected Accounts.
The annual membership fee which is assessed on Accounts ranges from $12 to $36.
Annual fees, to the extent assessed on the Accounts, will be included in the
Receivables transferred to the Trust. The Bank may expand or discontinue the fee
waiver program or institute other similar programs in the future.
The Bank generally charges Accounts miscellaneous additional fees,
including: (i) a late fee not to exceed $15, if the Bank does not receive the
required minimum monthly payment within 10 days following the payment due date
shown on the monthly billing statement; (ii) a returned payment check fee not to
exceed $15, for each cardholder check received by the Bank and not paid by the
cardholder's bank; (iii) an over-limit fee not to exceed $15, if the new balance
of an Account (less monthly periodic charges and fees imposed on the current
billing date) exceeds the cardholder's stated credit limit by a specified amount
on the billing date; (iv) a returned convenience check fee equal to $15, if a
convenience check is returned unpaid because it exceeds a cardholder's available
credit at the time it is presented to the Bank for payment or if the
cardholder's account is delinquent at the time the convenience check is
presented to the Bank for payment; and (v) a cash advance fee equal to 2% of the
cash advance transaction amount for cash advances obtained from a financial
institution or an automatic teller machine or for cash advances obtained by
writing a check on an Account. From time to time, the Bank has waived, and may
continue to waive, the cash advance fee for certain cash advance transactions
including certain balance transfers. Any of the fees described herein may be
waived or modified at any time. Currently, the above-described fees may not be
charged on certain
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<PAGE>
<PAGE>
Accounts or may be charged at lower rates under certain circumstances. Certain
of these fees assessed by various credit card issuers have been challenged in
lawsuits See 'Special Considerations--Certain Legal Aspects.'
The Bank has the right to determine the monthly periodic charges applicable
to the Accounts, including the right to alter or defer minimum monthly payments
required under the Accounts or to change various other terms with respect to the
Accounts, subject to certain limitations contained in the Agreement. See
'Description of the Class A Certificates and the Agreement--Collection and Other
Servicing Procedures.' Commencing in 1993, the Bank waived fees and removed the
minimum rate floor of 19.8% or offered a lower rate on some cash advances for
certain cardholders. In 1994 and 1995, the Bank offered and may continue to
offer a reduced rate for purchases and cash advances to certain accounts for a
limited period of time. Also in 1994, the Bank introduced an initial fixed
rate/variable rate Account described above. The Bank may expand or discontinue
any of these programs or institute other similar programs in the future.
Payments by cardholders to the Bank on the Accounts are processed and
applied first to any fees billed to the Accounts, next to billed and unpaid
monthly periodic charges and then to billed and unpaid transactions in the order
determined by the Bank. Any excess is applied to unbilled monthly periodic
charges. There can be no assurance that monthly periodic rates, fees and other
charges will remain at current levels in the future. See 'Description of the
Class A Certificates and the Agreement--Collection and Other Servicing
Procedures.'
THE SELLER
The primary business of the Seller, a wholly-owned subsidiary of First
Chicago, is the processing and issuance of VISA and MasterCard credit cards. The
Seller, which was acquired by First Chicago as of July 1, 1987, from Beneficial
Corporation, was named Beneficial National Bank USA prior to its acquisition by
First Chicago. As of March 31, 1995, and based on the Consolidated Reports of
Condition and Income (the 'Call Report') of the Seller at such date, the Seller
had total deposits of approximately $1.49 billion, total assets of approximately
$6.67 billion, net income for the first quarter of 1995 of approximately $78
million and total equity capital of approximately $824 million. The Call Report
is required to be prepared in accordance with regulatory accounting principles,
which differ in some respects from generally accepted accounting principles.
The principal executive offices of the Seller are located at One Gateway
Center, 300 King Street, Wilmington, Delaware 19801 (telephone 302-594-8606).
The principal executive offices of First Chicago are located at One First
National Plaza, Chicago, Illinois 60670 (telephone 312-732-4000).
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A-54
<PAGE>
<PAGE>
Excerpt from Prospectus Supplement dated November 1, 1994 to Prospectus dated
October 27, 1994
First USA Credit Card Master Trust
Floating Rate Asset Backed Certificates,
Series 1994-7
THE BANK'S CREDIT CARD ACTIVITIES
General
The Receivables which the Bank has conveyed and will convey to the Trust
pursuant to the Pooling and Servicing Agreement have been and will be generated
from transactions made by holders of selected VlSA and MasterCard credit card
accounts. The Bank currently services the credit card accounts. Certain data
processing and administrative functions associated with such servicing are
performed on behalf of the Bank by First Data Resources, Inc. ('FDR'). See
'--Description of FDR.'
The following discussion describes certain terms and characteristics of the
accounts in the Bank Portfolio from which the Accounts were selected. The
Eligible Accounts from which the Accounts were selected represent only a portion
of the Bank Portfolio. In addition, Additional Accounts may consist of Eligible
Accounts which are not currently in existence and which are selected using
different criteria from those used in selecting the Accounts already included in
the Trust. See 'Description of the Certificates--Addition of Accounts.'
Consequently, actual loss and delinquency, revenue and monthly payment rate
experience with respect to the Eligible Accounts and the Additional Accounts may
be different from such experience for the Bank Portfolio described in the
Prospectus Supplement.
A-55
<PAGE>
<PAGE>
Competition
The bank credit card industry is highly competitive, and is characterized by
increased use of advertising, target marketing and pricing competition as both
traditional and new credit card issuers seek to expand or enter the market. The
Trust will be dependent upon the Bank's continued ability to generate new
Receivables. The Bank's ability to compete in the credit card industry will
directly affect its ability to generate such Receivables. If the rate at which
new Receivables are generated declines significantly, a Pay Out Event could
occur with respect to each Series in which case the Rapid Amortization Period
with respect to such Series would commence.
Origination and Acquisition of Credit Card Accounts
Origination. The Bank originates credit card accounts in four ways: (i)
direct solicitation of First USA brand products, (ii) affinity group marketing
programs, (iii) agent bank marketing programs and (iv) the acquisition of credit
card portfolios from other financial institutions. These programs (excluding
portfolio acquisitions) principally consist of direct mail, telemarketing, and
application displays. Affinity marketing is conducted through solicitation of
organized membership groups with a common interest and/or a common cause with
the written endorsement of the group's leadership. See 'The Receivables.'
Generally, the credit risk of each applicant is evaluated by application of a
credit scoring system, which is intended to provide a general indication, based
on the information available, of the applicant's willingness and ability to
repay his or her obligations. Most applications are scored based on the
information received on the application as well as data obtained from an
independent credit reporting agency. In select cases, based on certain criteria,
including likelihood of fraud, and in accordance with criteria established by
Bank management, employment and earnings are verified by telephone. Credit
limits are determined based on income and score or, in the case of applications
that have not been scored, based on income and certain information obtained from
the application and the independent credit reporting agency. Cardholder requests
for increased credit limits are evaluated based on a current credit bureau
report, updated application data, and prior account performance. In addition,
credit limit increases are effected periodically by the Bank for all cardholders
meeting specific criteria. Most accounts are opened with an initial term of two
years. Prior to the implementation of the credit scoring system during 1988,
each application was generally reviewed by a credit analyst employed by the Bank
using judgmental criteria.
For preapproved solicitations, the Bank generally purchases prospect names
that meet established credit criteria from credit bureaus. These lists are
further edited and matched against internal and external sources to insure
optimal quality and accuracy. The Bank then mails preapproved solicitation
packages requiring only the signature and a brief amount of information from the
prospect. Preapproved solicitations are targeted to the highest quality
prospects and consistently exhibit the same or, in most cases, superior credit
quality results as compared to non-preapproved solicitations.
For non-preapproved solicitations, the Bank purchases prospect names from a
variety of sources and then edits the list utilizing internal and external
sources to insure quality and accuracy. The prospective customers on the final
list are mailed solicitations which include full applications. Respondents are
approved or declined based on both the demographic characteristics drawn from
the application and a credit bureau check.
Portfolio Acquisitions. Portfolio acquisitions have represented an important
source of growth in the past; however, the Bank does not rely on such portfolio
acquisitions to achieve its growth. See 'The Bank and First USA, Inc.' Prior to
acquiring a portfolio, the Bank reviews the historical performance and seasoning
of the portfolio and the policies and practices of the selling institution, but
individual accounts are not requalified by the Bank. There can be no assurance
that Accounts so acquired were originated in a manner consistent with the Bank's
policies as described under '--Origination' above or that the underwriting and
qualification of such Accounts conformed to any given standards. The Accounts
include accounts previously acquired by the Bank. Such accounts and any accounts
acquired in the future may become Additional Accounts provided that, at such
time, they constitute Eligible Accounts. See 'The Receivables,' 'Description of
the Certificates--Transfer and Assignment of Receivables' and '--Representations
and Warranties.'
A-56
<PAGE>
<PAGE>
Description of FDR
With respect to the Accounts, certain data processing and administrative
functions associated with servicing the Receivables will initially be performed
by FDR. If FDR were to fail or become insolvent, delays in processing and
recovery of information with respect to charges incurred by the respective
cardholders could occur, and the replacement of the services FDR currently
provides to the Bank could be time-consuming. As a result, delays in payments to
Certificateholders could occur.
FDR was established in 1968 as the data processing unit of MidAmerica
Bankcard Association and was acquired by American Express Company in 1980,
although according to publicly filed documents American Express Company's
interest has since been significantly reduced.
The Bank utilizes a variety of the services provided by FDR in originating
and servicing the Bank's VISA and MasterCard accounts, including provision of
network interface to other card processors through VISA USA, Inc. and MasterCard
International. This network provides cardholder authorizations in addition to a
conduit for funds transfer and settlement.
Billing and Payments
Cardholder Agreement. Each cardholder is subject to an agreement with the
Bank governing the terms and conditions of the related VISA or MasterCard
account. Pursuant to each such agreement, the Bank reserves the right, upon
advance notice to the cardholder, to add or to change any terms, conditions,
services or features of its VISA or MasterCard accounts at any time, including
increasing or decreasing periodic finance charges, other charges or minimum
payment terms. The agreement with each cardholder provides that, subject to the
requirements of applicable law, after notice to a cardholder of any such new or
changed terms, such new or changed terms will become effective at the time
stated in such notice and will apply to all outstanding unpaid indebtedness as
well as new transactions.
A cardholder may use the credit card to purchase or lease goods or services
wherever the card is honored ('Purchases') or to obtain cash loans ('Cash
Advances') from any financial institution that accepts the card.
Cash Advances may also be obtained through the use of 'Credit Line Checks'
issued by the Bank which may be completed and signed by the cardholder in the
same way as a regular personal check.
Billing, Payments and Fees. A billing statement is sent to each cardholder at
the end of each monthly billing cycle in which the account has a debit or credit
balance of more than one dollar or if a finance charge has been imposed. The
Bank may assess a late payment fee if it does not receive the minimum payment by
the payment due date shown on the monthly billing statement, but generally does
not assess such fee if the minimum payment is received by the next billing date.
The Bank may assess a return check fee for each payment check that is dishonored
or that is unsigned or otherwise irregular, an overlimit fee for Purchases or
Cash Advances that cause the credit line to be exceeded and administrative fees
for certain functions performed at the request of the cardholder. Unless
otherwise arranged between the Bank and the cardholder, any late payment fee,
return check fee or administrative fee is added to the account and treated as a
Purchase. In some cases, the Bank charges a nonrefundable Annual Membership Fee.
Monthly Periodic Finance Charges are not assessed in most circumstances on
purchases if all balances shown in the billing statement are paid by the payment
due date. Periodic Finance Charges accrue on new Purchases from the day that
they are posted to the account. Finance charges accrue on Cash Advances from the
later of the day that they are made and the first day of the billing cycle
during which they were posted to the account; or, if a Credit Line Check is
used, the day that the check is presented for payment to the Bank. Aggregate
monthly finance charges for each account consist of the sum of the Cash Advance
finance charge (not applicable for certain accounts), for each new Cash Advance
posted to the account other than Cash Advances obtained through Credit Line
Checks plus the Periodic Finance Charge equal to the product of the monthly
periodic rate (the 'Monthly Periodic Rate') multiplied by the average daily
balance. The Bank issues accounts with fixed Monthly Periodic Rates and accounts
with floating Monthly Periodic Rates that adjust periodically according to an
index.
The foregoing provisions apply with respect to cardholders that have entered
into one of the Bank's standard agreements by, in the case of a new account,
signing an application or, in the case of an account acquired by the Bank from
another institution, accepting the terms of the Bank's agreement in writing or
by using the credit card after disclosure that the account will be governed by
such terms. If the cardholder of an account acquired by the Bank from another
institution has not entered into one of the Bank's standard agreements, the
terms of the account may continue to be governed by the agreement between the
cardholder and the seller of the account, which may differ in material respects
from the provisions described above.
A-57
<PAGE>
<PAGE>
Delinquencies
An account is contractually delinquent if the Minimum Payment is not received
by the Payment Due Date. An account is not treated as delinquent by the Bank if
the Minimum Payment is received by the next billing date, but the period of
delinquency on any account is measured from the Payment Due Date. Efforts to
collect delinquent credit card receivables currently are made by the Bank's
Collection Department personnel or the Bank's designees, including regional
collection units located in Baton Rouge, Louisiana and Dallas, Texas. Collection
activities include statement messages, telephone calls and formal collection
letters. Collectors generally initiate telephone contact with cardholders whose
accounts have become 5 days or more delinquent. In the event that initial
telephone contact fails to resolve the delinquency, the Bank continues to
contact the cardholder by telephone and by mail. The Bank may also enter into
arrangements with cardholders to extend or otherwise change payment schedules as
approved by one of the Bank's Collection Managers. Delinquency levels are
monitored daily by the respective collectors and aggregate delinquency
information is reported daily to senior management. Accounts currently are
charged off immediately prior to the end of the seventh billing cycle after
having become contractually past due unless a payment has been received in an
amount sufficient to bring the account into a different delinquency category or
to bring the account current. At the time of charge off an evaluation is made on
a case by case basis whether to pursue further remedies. In most cases outside
collection agencies and, in some cases, outside attorneys, are engaged.
The credit evaluation, servicing and charge off policies and collection
practices of the Bank may change from time to time in accordance with the Bank's
business judgment and applicable law.
The Bank has a policy of restoring or 'reaging' a delinquent account to
current status when the cardholder has made three consecutive payments and, in
the collector's judgment, has the ability to keep the account current. A
collector may recommend that an account be reaged in other circumstances. All
reaging must be approved by a supervisor and an account may be reaged no more
than once per year.
Interchange
Creditors participating in the VISA and MasterCard associations receive
certain fees ('Interchange') 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 systems a portion of this
Interchange in connection with cardholder Purchases is collected by banks that
issue credit cards by applying a discount to the amount paid by such banks to
the banks that clear the related transactions for merchants. Interchange will be
allocated to the Trust by treating 1.3% (subject to adjustment at the option of
the Transferor upon the satisfaction of certain conditions as described herein
in 'Description of the Certificates--Discount Receivables' which adjusted
percentage, if applicable, will be specified in the applicable Prospectus
Supplement) of collections on the Receivables (whether arising from Purchases or
Cash Advances), other than collections with respect to Periodic Finance Charges,
Annual Membership Fees and Other Charges, as collections of Discount
Receivables.
THE BANK AND FIRST USA, INC.
First USA Bank. The Bank is a wholly-owned subsidiary of First USA Financial,
Inc. ('First USA Financial'), which is a wholly-owned subsidiary of First USA,
Inc. ('FUSA').
The Bank is among the nation's largest issuers of Visa and MasterCard credit
cards in the United States. The Bank's revenues derive primarily from interest
income and fees on its credit card accounts and interchange income. Its primary
cash expenses include the cost of funding credit card loans, credit losses,
salaries and employee benefits, marketing expenses, processing expenses and
income taxes.
The Bank offers Visa and MasterCard credit cards, including premium and
standard cards, and obtains new credit card accounts through direct
solicitations, affinity programs, its agent bank program and portfolio
acquisitions. This diversified marketing strategy is designed to achieve
balanced growth and penetration of target markets in a manner which is not
dependent on the success of any one approach.
First USA, Inc. Incorporated in 1989, FUSA is a Delaware corporation, which,
through its subsidiaries, is one of the nation's largest credit card companies
both as an issuer of Visa and MasterCard credit cards and as a processor of
credit card transactions on behalf of merchants which accept credit cards as
payment for goods or services. FUSA's predecessors were founded by its current
Chairman and President in 1985, and its management team has been assembled over
the past nine years. Growth has been maintained in the FUSA's credit card and
merchant portfolios and in operating revenues since its inception, despite
regional and national economic downturns during that time.
A-58
<PAGE>
<PAGE>
FUSA conducts its credit card business through its wholly-owned
subsidiary, First USA Financial, which is the parent company of the two primary
operating subsidiaries, the Bank and First USA Merchant Services, Inc. ('First
USA Merchant Services'). FUSA's other business units, conducted through other
subsidiaries of First USA Financial, provide ancillary services that complement
the Bank's and First USA Merchant Services' credit card operations. In 1989,
FUSA acquired, through a management-led leveraged acquisition, First USA
Financial's predecessor. In June 1992, FUSA sold shares of its common stock
through an initial public offering and in February and August 1993, FUSA sold
additional shares of its common stock through public offerings. In March 1994,
FUSA sold shares of its convertible preferred stock through a public offering.
THE BANK'S CREDIT CARD PORTFOLIO
General
The Receivables which the Bank has conveyed and will convey to the Trust
pursuant to the Pooling and Servicing Agreement have been and will be generated
from transactions made by holders of selected VISA and MasterCard credit card
accounts, including premium accounts and standard accounts. As of September 30,
1994, approximately 55% of the accounts in the Bank Portfolio were premium
accounts and approximately 45% were standard accounts. See 'The Bank's Credit
Card Activities' in the Prospectus.
Assessment of Fees and Finance and Other Charges
A billing statement is sent to each cardholder at the end of each monthly
billing cycle in which the account has a debit or credit balance of more than
one dollar or if a finance charge has been imposed. With minor exceptions, the
minimum payment due each month on each account is equal to the greater of $10 or
2% of the new balance shown on the statement, plus any amount past due and any
amount over the cardholder's credit line. The Bank may assess a late payment
fee, generally ranging from $10 to $18 for most accounts, if it does not receive
the minimum payment by the payment due date shown on the monthly billing
statement, but generally does not assess such fee if the minimum payment is
received by the next billing date. The Bank may assess a return check fee,
generally ranging from $10 to $18, for each payment check that is dishonored or
that is unsigned or otherwise irregular, an overlimit fee, generally ranging
from $10 to $18, for Purchases or Cash Advances that cause the credit line to be
exceeded and administrative fees for certain functions performed at the request
of the cardholder. Unless otherwise arranged between the Bank and the
cardholder, any late payment fee, return check fee or administrative fee is
added to the account and treated as a Purchase. In some cases, the Bank charges
a non-refundable Annual Membership Fee.
Monthly Periodic Finance Charges are not assessed in most circumstances on
Purchases and credit line checks if all balances shown in the billing statement
are paid by the payment due date, which is approximately 23-25 days from the
previous cycle billing date. Monthly Periodic Finance Charges are assessed on
new Purchases and credit line checks from the day that they are posted to the
account if all balances shown in the prior billing statement were not paid in
full by the payment due date. Monthly Periodic Finance charges are assessed on
Cash Advances from the later of the day that they are made or the first day of
the billing cycle during which they were posted to the account. Aggregate
monthly finance charges for each account consist of Periodic Finance Charges
equal to either (i) the product of the monthly periodic rate (the 'Monthly
Periodic Rate') multiplied by the average daily balance or (ii) the product of
the daily balance and the daily periodic rate totaled for each day during the
monthly billing cycle plus an additional Cash Advance finance charge (not
applicable for certain accounts), generally equal to a one-time charge of 2% of
the Cash Advance (with a minimum ranging from $2 to $5 and a maximum ranging
from $10 to unlimited), for each new Cash Advance posted to the account other
than Cash Advances obtained through credit line checks. The Monthly Periodic
Rates, exclusive of introductory rates, of the accounts in the Bank Portfolio
generally range between .825% and 1.75% corresponding to annual percentage rates
of between 9.9% and 21%. The introductory rates on the accounts in the Bank
Portfolio approximate annual percentage rates of 6.9%. The Bank issues accounts
with floating Monthly Periodic Rates that adjust periodically according to an
index and accounts with fixed Monthly Periodic Rates.
Delinquency and Loss Experience
The following tables set forth the delinquency and loss experience for each
of the periods shown for the portfolio of VISA and Mastercard credit card
accounts serviced by the Bank (the 'Bank Portfolio'). Because the Trust
Portfolio is only a portion of the Bank Portfolio, and because the Transferor
will have the right, and, in some circumstances, the obligation, to designate
Additional Accounts (and to convey to the Trust all Receivables in such
Additional Accounts), which Additional Accounts may not be included in the Bank
Portfolio, actual delinquency and loss experience with respect to the
Receivables may be different from that set forth below for the Bank Portfolio.
There can be no assurance that the delinquency and loss experience for the
Receivables in the future will be similar to the historical experience of the
Bank Portfolio set forth below.
A-59
<PAGE>
<PAGE>
Delinquency Experience
Bank Portfolio
(dollars in thousands)
<TABLE>
<CAPTION>
As of June 30,
------------------------------------------------------------------------
As of September 30, 1994 1994 1993 1992
------------------------- ------------------------ --------------------- ------------------------
Percentage Percentage Percentage Percentage
of Total of Total of Total of Total
Receivables Receivables Receivables Receivables Receivables Receivables Receivables Receivables
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Receivables
Outstanding(]) .... $8,872,022 100.00% $7,520,458 100.00% $3,720,634 100.00% $2,307,708 100.00%
========== ====== ========== ====== ========== ====== ========== ======
Receivables
Delinquent:
35-64 days ....... $ 79,948 0.90% $ 60,024 0.80% $ 34,604 0.93% $ 27,055 1.17%
65-94 days ....... 40,989 0.46 32,255 0.43 20,651 0.56 16,364 0.71
95 or more days .. 88,509 1.00 74,458 0.99 49,207 1.32 46,071 2.00
---------- ---- ---------- ---- ---------- ---- ---------- ----
Total............ $ 209,446 2.36% $ 166,737 2.22% $ 104,462 2.81% $ 89,490 3.88%
========== ====== ========== ====== ========== ====== ========== ======
</TABLE>
- ----------
(1) The receivables outstanding on the accounts consist of all amounts due from
cardholders as posted to the accounts.
Loss Experience
Bank Portfolio
(dollars in thousands)
<TABLE>
<CAPTION>
Three Months
Ended Fiscal Year Ended June 30,
September 30, ------------------------------------------------
1994 1994 1993 1992
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Average Receivables Outstanding(l) ........................ $8,159,544 $5,339,689 $2,795,350 $2,128,558
Gross Charge Offs(2) ...................................... 43,629 132,279 100,308 93,932
Gross Charge Offs as a percentage of Average
Receivables Outstanding(4) ............................... 2.14% 2.48% 3.59% 4.41%
Recoveries(3) ............................................. 2,830 13,889 9,507 8,113
Net Losses(3) ............................................. 40,799 118,390 90,801 85,819
Net Losses as a percentage of Average Receivables
Outstanding(4) ........................................... 2.00% 2.22% 3.25% 4.03%
</TABLE>
- ----------
(1) Average Receivables Outstanding is the average daily receivables during the
periods indicated.
(2) Gross Charge Offs are principal charge-offs and are before recoveries and
do not include the amount of any reductions in average receivables
outstanding due to fraud, returned goods or customer disputes.
(3) Recoveries are not included in the Trust.
(4) Annualized.
Receivables delinquent as a percentage of total receivables outstanding
decreased significantly from 3.88% at June 30, 1992, to 2.81% at June 30, 1993,
to 2.22% at June 30, 1994 and increased to 2.36% at September 30, 1994. Gross
charge offs as a percentage of average receivables outstanding over the same
period have decreased from 4.41% for fiscal 1992, to 3.59% for fiscal 1993, to
2.48% for fiscal 1994 and to 2.14% for the three months ended September 30,
1994. The Bank believes these trends to be primarily a function of improved
portfolio credit quality during fiscal 1993 and 1994 and for the three months
ended September 30, 1994.
The growth of Average Receivables Outstanding in the Bank Portfolio from
approximately $2.1 billion for the fiscal year ended June 30, 1992, to
approximately $8.2 billion for the three months ended September 30, 1994, and
the growth of the Bank Portfolio from approximately $2.3 billion as of June 30,
1992, to approximately $8.9 billion as of September 30, 1994, has contributed to
lowering the loss and delinquency percentages for the Bank Portfolio. However,
if the proportion of new accounts to seasoned accounts in the Bank Portfolio
were to become smaller, this effect could be lessened. To the extent that
Average Receivables Outstanding and the Bank Portfolio do not continue to grow
at the same rate as they did from June 1992 to September 1994, there can be no
assurance that the loss and delinquency percentages will remain at current
levels.
A-60
<PAGE>
<PAGE>
The Bank believes that the historical performance of the Accounts as of
September 30, 1994 has been no worse than that of the Bank Portfolio as a whole.
As of October 15, 1994, the Receivables in the Trust Portfolio and the
Receivables in the Additional Accounts to be conveyed to the Trust on the
Closing Date represented approximately 86.0% of the Bank Portfolio. There can be
no assurance that the delinquency and loss experience for the Trust Portfolio
will be similar to the historical experience set forth above because, among
other things, economic and financial conditions affecting the ability of
cardholders to pay may be different from those that have prevailed during the
periods reflected above.
Interchange
Creditors participating in the VISA and MasterCard associations receive
certain fees ('Interchange') 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 systems a portion of this
Interchange in connection with cardholder Purchases is collected by banks that
issue credit cards by applying a discount to the amount paid by such banks to
the banks that clear the related transactions for merchants. Interchange
currently ranges from approximately 1.0% to 2.0% of the transaction amount.
Interchange will be allocated to the Trust by treating 1.3% (subject to
adjustment at the option of the Transferor upon the satisfaction of certain
conditions as described in the Prospectus under 'Description of the
Certificates--Discount Receivables') of collections on the Receivables (whether
arising from Purchases or Cash Advances), other than collections with respect to
Periodic Finance Charges, Annual Membership Fees and Other Charges, as
collections of Discount Receivables.
THE RECEIVABLES
The Receivables in the Trust Portfolio, as of the beginning of the day on
October 15, 1994, including the Additional Accounts to be added to the Trust on
the Closing Date, consisted of $7,685,634,636 of Principal Receivables and
$191,744,005 of Finance Charge Receivables. On October 15, 1994, the Transferor
designated Additional Accounts, which included approximately $905,870,056 of
Principal Receivables, and will transfer the Receivables arising therein to the
Trust on the Closing Date. The Additional Accounts to be added to the Trust on
the Closing Date were, as of the Relevant Cut-Off Date, Eligible Accounts (a)
which were originated at least 60 days prior to the Relevant Cut-Off Date, and
(b) which had not been delinquent for greater than 2 billing cycles since
January 1, 1992. The Accounts had an average Principal Receivable balance of
$1,607 (including accounts with a zero balance) and an average credit limit of
$4,830. The percentage of the aggregate total Receivable balance to the
aggregate total credit limit was 34.1%.
As of October 15, 1994, cardholders whose Accounts are included in the Trust
Portfolio, including such Additional Accounts, had billing addresses in 50
states, the District of Columbia and other United States territories and
possessions. As of October 15, 1994, 56% of the Accounts, including such
Additional Accounts, were premium accounts and 44% were standard accounts, and
the aggregate Principal Receivable balances of premium accounts and standard
accounts, as a percentage of the total aggregate Principal Receivables, were 68%
and 32%, respectively.
The Minimum Transferor Percentage applicable to the Certificates is 7%. The
Minimum Aggregate Principal Receivables applicable to the Certificates is an
amount equal to (i) the sum of the initial invested amounts of all Series then
outstanding other than any Series of variable funding certificates, (ii) with
respect to any Series of variable funding certificates in its revolving period,
the then current invested amount of such Series and (iii) with respect to any
Series of variable funding certificates in an amortization period, the invested
amount of such Series at the end of the last day of the Revolving Period for
such Series.
The following tables summarize the Trust Portfolio by various criteria as of
the beginning of the day on October 15, 1994. Because the future composition of
the Trust Portfolio may change over time, these tables are not necessarily
indicative of the composition of the Trust Portfolio at any subsequent time.
A-61
<PAGE>
<PAGE>
Composition by Account Balance
Trust Portfolio
<TABLE>
<CAPTION>
Percentage
of Total Percentage of
Account Number of Number of Amount of Total Amount of
Balance Range Accounts Accounts Receivables Receivables
------------- --------- ---------- ----------- ---------------
<S> <C> <C> <C> <C>
Credit Balance ....................... 48,507 1.0% $ (6,061,890) (0.1)%
No Balance ........................... 1,344,930 28.1 -- --
$0.01 to $1,500.00 ................... 1,621,370 33.9 897,908,705 11.4
$1,500.01 to $5,000.00 ............... 1,353,318 28.3 4,304,233,989 54.6
$5,000.01 to $10,000.00 .............. 405,166 8.5 2,578,477,764 32.7
$10,000.01 or More ................... 8,152 0.2 102,820,073 1.4
--------- ----- --------------- -----
TOTAL ........................... 4,781,443 100.0% $ 7,877,378,641 100.0%
========= ===== =============== =====
</TABLE>
Composition by Credit Limit
Trust Portfolio
<TABLE>
<CAPTION>
Percentage
of Total Percentage of
Credit Number of Number of Amount of Total Amount of
Limit Range Accounts Accounts Receivables Receivables
------------ --------- ---------- -------------- ---------------
<S> <C> <C> <C> <C>
$0.00 to $1,500.00 ......... 555,866 11.6% $ 270,788,379 3.4%
$1,500.01 to $5,000.00 ..... 2,656,582 55.6 3,469,897,900 44.1
$5,000.01 to $10,000.00 .... 1,528,271 32.0 3,959,502,534 50.3
$10,000.01 or More ......... 40,724 0.8 177,189,828 2.2
--------- ----- -------------- -----
TOTAL ................. 4,781,443 100.0% $7,877,378,641 100.0%
========= ===== ============== =====
</TABLE>
Composition by Period of Delinquency
Trust Portfolio
<TABLE>
<CAPTION>
Percentage
Period of Delinquency of Total Percentage of
(Days Contractually Number of Number of Amount of Total Amount of
Delinquent) Accounts Accounts Receivables Receivables
------------------- --------- ---------- ---------------- ---------------
<S> <C> <C> <C> <C>
Not Delinquent ................. 4,555,220 95.3% $7,187,424,770 91.2%
Up to 34 Days .................. 168,433 3.5 504,965,567 6.4
35 to 64 Days .................. 24,590 0.5 75,438,532 1.0
65 to 94 Days .................. 11,280 0.2 36,441,200 0.5
95 or More Days ................ 21,920 0.5 73,108,572 0.9
--------- ----- -------------- -----
TOTAL ..................... 4,781,443 100.0% $7,877,378,641 100.0%
========= ===== ============== =====
</TABLE>
A-62
<PAGE>
<PAGE>
Composition by Geographic Distribution
Trust Portfolio
<TABLE>
<CAPTION>
Percentage
of Total Percentage of
Number of Number of Amount of Total Amount of
State Accounts Accounts Receivables Receivables
----- --------- --------- ----------- ------------
<S> <C> <C> <C> <C>
Alabama................................. 30,837 0.6% $ 56,961,334 0.7%
Alaska ................................. 8,618 0.2 18,716,497 0.2
Arizona ................................ 87,505 1.8 156,620,297 2.0
Arkansas ............................... 52,212 1.1 80,870,210 1.0
California.............................. 462,425 9.7 746,407,848 9.5
Colorado ............................... 16,087 0.3 27,343,273 0.3
Connecticut ............................ 71,863 1.5 133,457,293 1.7
Delaware ............................... 3,937 0.l 5,403,839 0.1
District of Columbia.................... 10,299 0.2 17,446,715 0.2
Florida ................................ 305,417 6.4 516,170,232 6.6
Georgia ................................ 113,412 2.4 201,285,693 2.6
Hawaii ................................. 19,022 0.4 32,645,813 0.4
Idaho .................................. 11,116 0.2 20,137,048 0.3
Illinois ............................... 284,517 6.0 435,348,308 5.5
Indiana................................. 15,791 0.3 24,334,632 0.3
Iowa.................................... 4,659 0.1 6,884,010 0.1
Kansas.................................. 29,693 0.6 54,750,841 0.7
Kentucky................................ 44,832 0.9 71,751,592 0.9
Louisiana............................... 194,312 4.1 276,786,530 3.5
Maine .................................. 2,657 0.1 4,180,848 0.1
Maryland ............................... 119,836 2.5 200,320,410 2.5
Massachusetts........................... 141,789 3.0 253,852,136 3.2
Michigan ............................... 166,992 3.5 296,262,315 3.8
Minnesota .............................. 28,554 0.6 33,187,264 0.4
Mississippi ............................ 30,387 0.6 51,611,603 0.7
Missouri................................ 64,740 1.4 103,444,291 1.3
Montana................................. 12,762 0.3 20,619,074 0.3
Nebraska ............................... 32,278 0.7 44,233,052 0.6
Nevada.................................. 42,242 0.9 79,504,040 1.0
New Hampshire .......................... 26,286 0.5 47,303,841 0.6
New Jersey.............................. 255,497 5.3 405,512,900 5.1
New Mexico ............................. 35,455 0.7 50,943,407 0.6
New York ............................... 359,225 7.5 648,388,874 8.2
North Carolina ......................... 50,373 1.1 77,414,249 1.0
North Dakota ........................... 10,250 0.2 12,400,341 0.1
Ohio ................................... 195,117 4.1 326,733,243 4.1
Oklahoma ............................... 68,869 1.4 102,418,033 1.3
Oregon.................................. 60,130 1.3 103,578,291 1.3
Pennsylvania............................ 214,441 4.5 323,681,654 4.1
Rhode Island ........................... 17,317 0.4 33,291,737 0.4
South Carolina ......................... 34,111 0.7 57,137,800 0.7
South Dakota ........................... 9,004 0.2 12,743,867 0.2
Tennessee .............................. 28,372 0.6 48,655,175 0.6
Texas .................................. 724,123 15.1 1,172,647,865 14.9
Utah.................................... 28,168 0.6 43,481,521 0.6
Vermont................................. 7,665 0.2 12,777,323 0.2
Virginia ............................... 107,132 2.2 185,214,338 2.4
Washington ............................. 101,090 2.1 180,627,271 2.3
West Virginia........................... 14,222 0.3 24,366,500 0.3
Wisconsin .............................. 9,073 0.2 12,965,109 0.2
Wyoming ................................ 4,672 0.1 7,845,521 0.1
Other U.S. territories and possessions.. 12,060 0.2 16,712,743 0.2
--------- ----- -------------- -----
TOTAL ............................. 4,781,443 100.0% $7,877,378,641 100.0%
========= ===== ============== =====
</TABLE>
Composition of Accounts by Age
Trust Portfolio
<TABLE>
<CAPTION>
Percentage
of Total Percentage of
Number of Number of Amount of Total Amount of
Age Accounts Accounts Receivables Receivables
--- --------- ---------- ------------ ---------------
<S> <C> <C> <C> <C>
Less than or equal to 6 Months .. 759,439 15.9% $1,432,688,903 18.2%
Over 6 Months to 12 Months....... 1,000,242 20.9 1,970,947,539 25.0
Over 12 Months to 24 Months...... 1,325,347 27.7 2,035,837,190 25.9
Over 24 Months to 36 Months ..... 530,004 11.1 624,260,668 7.9
Over 36 Months to 48 Months...... 326,448 6.8 348,055,928 4.4
Over 48 Months to 60 Months...... 204,350 4.3 368,276,203 4.7
Over 60 Months................... 635,613 13.3 1,097,312,210 13.9
--------- ----- -------------- -----
TOTAL ...................... 4,781,443 100.0% $7,877,378,641 100.0%
========= ===== ============== =====
</TABLE>
A-63
<PAGE>
<PAGE>
Excerpt from Prospectus Supplement dated September 6, 1995 to Prospectus dated
September 6, 1995
First USA Credit Card Master Trust
Floating Rate Asset Backed Certificates,
Series 1995-4
THE BANK'S CREDIT CARD ACTIVITIES
General
The Receivables which the Bank has conveyed and will convey to the Trust
pursuant to the Pooling and Servicing Agreement have been and will be generated
from transactions made by holders of selected VISA and MasterCard credit card
accounts. The Bank currently services the credit card accounts. Certain data
processing and administrative functions associated with such servicing are
performed on behalf of the Bank. by First Data Resources, Inc. ('FDR'). See
'--Description of FDR.'
The following discussion describes certain terms and characteristics of the
accounts in the Bank Portfolio from which the Accounts were selected. The
Eligible Accounts, from which the Accounts were selected represent only a
portion of the Bank Portfolio. In addition, Additional Accounts may consist of
Eligible Accounts which are not currently in existence and which are selected
using different criteria from those used in selecting the Accounts already
included in the Trust. See 'Description Or the Certificates--Addition of
Accounts.' Consequently, actual loss and delinquency, revenue and monthly
payment rate experience with respect to the Eligible Accounts and the Additional
Accounts may be different from such experience for the Bank Portfolio described
in the Prospectus Supplement.
Competition
The bank credit card industry is highly competitive, and is characterized by
increased use of advertising, target marketing and pricing competition as both
traditional and new credit card issuers seek to expand or enter the market. The
Trust will be dependent upon the Bank's continued ability to generate new
Receivables. The Bank's ability to compete in the credit card industry will
directly affect its ability to generate such Receivables. If the rate at which
new Receivables are generated declines significantly, a Pay Out Event could
occur with respect to each Series in which case the Rapid Amortization Period
with respect to such Series would commence.
Origination and Acquisition of Credit Card Accounts
Origination. The Bank originates credit card accounts in four ways: (i)
direct solicitation of First USA brand products, (ii) affinity group marketing
programs, (iii) agent bank marketing programs and (iv) the acquisition of credit
card portfolios from other financial institutions. These programs (excluding
portfolio acquisitions) principally consist of direct mail, telemarketing, and
application displays. Affinity marketing is conducted through solicitation of
organized membership groups with a common interest and/or a common cause with
the written endorsement of the group's leadership. See 'The Receivables.'
Generally, the credit risk of each applicant is evaluated by application of a
credit scoring system, which is intended to provide a general indication, based
on the information available, of the applicant's willingness and ability to
repay his or her obligations. Most applications are scored based on the
information received on the application as well as data obtained from an
independent credit reporting agency. In select cases, based on certain criteria,
including likelihood of fraud, and in accordance with criteria established by
Bank management, employment and earnings are verified by telephone. Credit
limits are determined based on income and score or, in the case of applications
that have not been scored, based on income and certain information obtained from
the application and the independent credit reporting agency. Cardholder requests
for increased credit limits are evaluated based on a current credit bureau
report, updated application data, and prior account performance. In addition,
credit limit increases are effected periodically by the Bank for all cardholders
meeting specific criteria. Most accounts are opened with an initial term of two
years. Prior to the implementation of the credit scoring system during 1988,
each application was generally reviewed by a credit analyst employed by the Bank
using judgmental criteria.
A-64
<PAGE>
<PAGE>
For preapproved solicitations, the Bank generally purchases prospect names
that meet established credit criteria from credit bureaus. These lists are
further edited and matched against internal and external sources to insure
optimal quality and accuracy. The Bank then mails preapproved solicitation
packages requiring only the signature and a brief amount of information from the
prospect. Preapproved solicitations are targeted to the highest quality
prospects and consistently exhibit the same or, in most cases, superior credit
quality results as compared to non-preapproved solicitations.
For non-preapproved solicitations, the Bank purchases prospect names from a
variety of sources and then edits the list utilizing internal and external
sources to insure quality and accuracy. The prospective customers on the final
list are mailed solicitations which include full applications. Respondents are
approved or declined based on both the demographic characteristics drawn from
the application and a credit bureau check
Portfolio Acquisitions. Portfolio acquisitions have represented an important
source of growth in the past; however, the Bank does not rely on such portfolio
acquisitions to achieve its growth. See 'The Bank and First USA, Inc.' Prior to
acquiring a portfolio, the Bank reviews the historical performance and seasoning
of the portfolio and the policies and practices of the selling institution, but
individual accounts are not requalified by the Bank. There can be no assurance
that Accounts so acquired were originated in a manner consistent with the Bank's
policies as described under '--Origination' above or that the underwriting and
qualification of such Accounts conformed to any given standards. The Accounts
include accounts previously acquired by the Bank. Such accounts and any accounts
acquired in the future may become Additional Accounts provided that, at such
time, they constitute Eligible Accounts. See 'The Receivables,' 'Description of
the Certificates--Transfer and Assignment of Receivables' and '--Representations
and Warranties.'
Description of FDR
With respect to the Accounts, certain data processing and administrative
functions associated with servicing the Receivables will initially be performed
by FDR. If FDR were to fail or become insolvent, delays in processing and
recovery of information with respect to charges incurred by the respective
cardholders could occur, and the replacement of the services FDR currently
provides to the Bank could be time-consuming. As a result, delays in payments to
Certificateholders could occur.
FDR was established in 1968 as the data processing unit of MidAmerica
Bankcard Association and was acquired by American Express Company in 1980,
although according to publicly filed documents American Express Company's
interest has since been significantly reduced.
The Bank utilizes a variety of the services provided by FDR in originating
and servicing the Bank's VISA and MasterCard accounts, including provision of
network interface to other card processors through VISA USA, Inc. and MasterCard
International. This network provides cardholder authorizations in addition to a
conduit for funds transfer and settlement.
Billing and Payments
Cardholder Agreement. Each cardholder is subject to an agreement with the
Bank governing the terms and conditions of the related VISA or MasterCard
account. Pursuant to each such agreement, the Bank reserves the right, upon
advance notice to the cardholder, to add or to change any terms, conditions,
services or features of its VISA or MasterCard accounts at any time, including
increasing or decreasing periodic finance charges, other charges or minimum
payment terms. The agreement with each cardholder provides that, subject to the
requirements of applicable law, after notice to a cardholder of any such new or
changed terms, such new or changed terms will become effective at the time
stated in such notice and will apply to all outstanding unpaid indebtedness as
well as new transactions.
A cardholder may use the credit card to purchase or lease goods or services
wherever the card is honored ('Purchases') or to obtain cash loans ('Cash
Advances') from any financial institution that accepts the card.
A-65
<PAGE>
<PAGE>
Cash Advances may also be obtained through the use of Credit Line Checks' issued
by the Bank which may be completed and signed by the cardholder in the same way
as a regular personal check.
Billing, Payments and Fees. A billing statement is sent to each cardholder
at the end of each monthly billing cycle in which the account has a debit or
credit balance of more than one dollar or if a finance charge has been imposed.
The Bank may assess a late payment fee if it does not receive the minimum
payment by the payment due date shown on the monthly billing statement, but
generally does not assess such fee if the minimum payment is received by the
next billing date. The Bank may assess a return check fee for each payment check
that is dishonored or that is unsigned or otherwise irregular, an overlimit fee
for Purchases or Cash Advances that cause the credit line to be exceeded and
administrative fees for certain functions performed at the request of the
cardholder. Unless otherwise arranged between the Bank and the cardholder, any
late payment fee, return check fee or administrative fee is added to the account
and treated as a Purchase. In some cases, the Bank charges a nonrefundable
Annual Membership Fee
Monthly Periodic Finance Charges are not assessed in most circumstances on
purchases if all balances shown in the billing statement are paid by the payment
due date. Periodic Finance Charges accrue on new Purchases from the day that
they are posted to the account. Finance charges accrue on Cash Advances from the
later of the day that they are made and the first day of the billing cycle
during which they were posted to the account; or, if a Credit Line Check is
used, the day that the check is presented for payment to the Bank. Aggregate
monthly finance charges for each account consist of the sum of the Cash Advance
finance charge (not applicable for certain accounts), for each new Cash Advance
posted to the account other than Cash Advances obtained through Credit Line
Checks plus the Periodic Finance Charge equal to the product of the monthly
periodic rate (the 'Monthly Periodic Rate') multiplied by the average daily
balance. The Bank issues accounts with fixed Monthly Periodic Rates and accounts
with floating Monthly Periodic Rates that adjust periodically according to an
index.
The foregoing provisions apply with respect to cardholders that have entered
into one of the Bank's standard agreements by, in the case of a new account,
signing an application or, in the case of an account acquired by the Bank from
another institution, accepting the terms of the Bank's agreement in writing or
by using the credit card after disclosure that the account will be governed by
such terms. If the cardholder of an account acquired by the Bank from another
institution has not entered into one of the Bank's standard agreements, the
terms of the account may continue to be governed by the agreement between the
cardholder and the seller of the account, which may differ in material respects
from the provisions described above.
Delinquencies
An account is contractually delinquent if the Minimum Payment is not received
by the Payment Due Date. An account is not treated as delinquent by the Bank if
the Minimum Payment is received by the next billing date, but the period of
delinquency on any account is measured from the Payment Due Date. Efforts to
collect delinquent credit card receivables currently are made by the Bank's
Collection Department personnel or the Bank's designees, including regional
collection units located in Baton Rouge, Louisiana and Dallas, Texas. Collection
activities include statement messages, telephone calls and formal collection
letters. Collectors generally initiate telephone contact with cardholders whose
accounts have become 5 days or more delinquent. In the event that initial
telephone contact fails to resolve the delinquency, the Bank continues to
contact the cardholder by telephone and by mail. The Bank may also enter into
arrangements with cardholders to extend or otherwise change payment schedules as
approved by one of the Bank's Collection Managers. Delinquency levels are
monitored daily by the respective collectors and aggregate delinquency
information is reported daily to senior management. Accounts currently are
charged off immediately prior to the end of the seventh billing cycle after
having become contractually past due unless a payment has been received in an
amount sufficient to bring the account into a different delinquency category or
to bring the account current. At the time of charge off an evaluation is made on
a case by case basis whether to pursue further remedies. In most cases outside
collection agencies and, in some cases, outside attorneys, are engaged.
A-66
<PAGE>
<PAGE>
The credit evaluation, servicing and charge off policies all collection
practices of the Bank may change from time to time in accordance with the Bank's
business judgment and applicable law.
The Bank has a policy of restoring or 'reaging' a delinquent account to
current status when the cardholder has made three consecutive payments and, in
the collector's judgment, has the ability to keep the account current. A
collector may recommend that an account be reaged in other circumstances. All
reaging must be approved by a supervisor and an account may be reaged no more
than once per year.
Interchange
Creditors participating in the VISA and MasterCard associations receive
certain fees ('Interchange') 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 systems a portion of this
Interchange in connection with cardholder Purchases is collected by banks that
issue credit cards by applying a discount to the amount paid by such banks to
the banks that clear the related transactions for merchants. Interchange will be
allocated to the Trust by treating 1.3% (subject to adjustment at the option of
the Transferor upon the satisfaction of certain conditions as described herein
in 'Description of the Certificates--Discount Receivables' which adjusted
percentage, if applicable, will be specified in the applicable Prospectus
Supplement) of collections on the Receivables (whether arising from Purchases or
Cash Advances), other than collections with respect to Periodic Finance Charges,
Annual Membership Fees and Other Charges, as collections of Discount
Receivables.
THE BANK AND FIRST USA, INC.
First USA Bank. The Bank is a wholly-owned subsidiary of First USA
Financial, Inc. ('First USA Financial'), which is a wholly-owned subsidiary of
First USA, Inc ('FUSA').
The Bank is among the nation's largest issuers of Visa and MasterCard credit
cards in the United States. The Bank's revenues derive primarily from interest
income and fees on its credit card accounts and interchange income. Its primary
cash expenses include the cost of funding credit card loans, credit losses,
salaries and employee benefits, marketing expenses, processing expenses and
income taxes.
The Bank offers Visa and MasterCard credit cards, including premium and
standard cards, and obtains new credit card accounts through direct
solicitations, affinity programs, its agent bank program and portfolio
acquisitions. This diversified marketing strategy is designed to achieve
balanced growth and penetration of target markets in a manner which is not
dependent on the success of any one approach.
First USA, Inc. Incorporated in 1989, FUSA is a Delaware corporation, which,
through its subsidiaries, is one of the nation's largest credit card companies
both as an issuer of Visa and MasterCard credit cards and as a processor of
credit card transactions on behalf of merchants which accept credit cards as
payment for goods or services. FUSA's predecessors were founded by its current
Chairman and President in 1985, and its management team has been assembled over
the past nine years. Growth has been maintained in the FUSA's credit card and
merchant portfolios and in operating revenues since its inception, despite
regional and national economic downturns during that time.
FUSA conducts its credit card business through its wholly-owned subsidiary,
First USA Financial, which is the parent company of the two primary operating
subsidiaries, the Bank and First USA Merchant Services, Inc. ('First USA
Merchant Services'). FUSA's other business units, conducted through other
subsidiaries of First USA Financial, provide ancillary services that complement
the Bank's and First USA Merchant Services' credit card operations. In 1989,
FUSA acquired, through a management-led leveraged acquisition, First USA
Financial's predecessor. In June 1992, FUSA sold shares of its common stock
through an initial public offering and in February and August 1993, FUSA sold
additional shares of its common stock through public offerings. In March 1994,
FUSA sold shares of its convertible preferred stock through a public offering.
A-67
<PAGE>
<PAGE>
THE BANK'S CREDIT CARD PORTFOLIO
General
The Receivables which the Bank has conveyed and will convey to the Trust
pursuant to the Pooling and Servicing Agreement have been and will be generated
from transactions made by holders of selected VISA and MasterCard credit card
accounts, including premium accounts and standard accounts. As of June 30, 1995,
approximately 62% of the accounts in the Bank Portfolio were premium accounts
and approximately 38% were standard accounts. See 'The Bank's Credit Card
Activities' in the Prospectus.
Assessment of Fees and Finance and Other Charges
A billing statement is sent to each cardholder at the end of each monthly
billing cycle in which the account has a debit or credit balance of more than
one dollar or if a finance charge has been imposed. With minor exceptions, the
minimum payment due each month on each account is equal to the greater of $10 or
2% of the new balance shown on the statement, plus any amount past due and any
amount over the cardholder's credit line. The Bank may assess a late payment
fee, generally ranging from $10 to $18 for most accounts, if it does not receive
the minimum payment by the payment due date shown on the monthly billing
statement, but generally does not assess such fee if the minimum payment is
received by the next billing date. The Bank may assess a return check fee,
generally ranging from $10 to $18, for each payment check that is dishonored or
that is unsigned or otherwise irregular, an overlimit fee, generally ranging
from $10 to $18, for Purchases or Cash Advances that cause the credit line to be
exceeded and administrative fees for certain functions performed at the request
of the cardholder. Unless otherwise arranged between the Bank and the
cardholder, any late payment fee, return check fee or administrative fee is
added to the account and treated as a Purchase. Existing card products generally
have annual fees ranging from no fee to $35.
Monthly Periodic Finance Charges are not assessed in most circumstances on
Purchases and credit line checks if all balances shown in the billing statement
are paid by the payment due date, which is approximately 23-25 days from the
previous cycle billing date. Monthly Periodic Finance Charges are assessed on
new Purchases and credit line checks from the day that they are posted to the
account if all balances shown in the prior billing statement were not paid in
full by the payment due date. Monthly Periodic Finance Charges are assessed on
Cash Advances from the later of the day that they are made or the first day of
the billing cycle during which they were posted to the account. Aggregate
monthly finance charges for each account consist of Periodic Finance Charges
equal to either (i) the product of the monthly periodic rate (the 'Monthly
Periodic Rate') multiplied by the average daily balance or (ii) the product of
the daily balance and the daily periodic rate totaled for each day during the
monthly billing cycle plus an additional Cash Advance finance charge (not
applicable for certain accounts), generally equal to a one-time charge of 2% of
the Cash Advance (with a minimum ranging from $2 to $5 and a maximum ranging
from $10 to unlimited), for each new Cash Advance posted to the account other
than Cash Advances obtained through credit line checks. The Monthly Periodic
Rates, exclusive of introductory rates, of the accounts in the Bank Portfolio
generally range between .825% and 1.75% corresponding to annual percentage rates
of between 9.9% and 21%. The introductory rates on the accounts in the Bank
Portfolio are either fixed or variable annual percentage rates. The Bank issues
accounts with floating Monthly Periodic Rates that adjust periodically according
to an index and accounts with fixed Monthly Periodic Rates.
Delinquency and Loss Experience
The following tables set forth the delinquency and loss experience for each
of the periods shown for the portfolio of VISA and MasterCard credit card
accounts serviced by the Bank (the 'Bank Portfolio'). The Bank believes that
the historical performance of the Accounts as of June 30, 1995 has been no worse
than that of the Bank Portfolio as a whole. As of August 23, 1995, the
Receivables in the Trust Portfolio and the Receivables in the Additional
Accounts to be conveyed to the Trust on the Closing Date represented
approximately 92.4% of the Bank Portfolio. There can be no assurance that the
delinquency and loss experience for the Trust Portfolio will be similar to the
historical experience set forth below because, among other things, economic and
financial conditions affecting the ability of cardholders to make payments may
be different from those that have prevailed during the periods reflected below.
A-68
<PAGE>
<PAGE>
Delinquency Experience
Bank Portfolio
(dollars in thousands)
<TABLE>
<CAPTION>
As of June 30,
-------------------------- ------------------------ --------------------------
1995 1994 1993
-------------------------- ------------------------ --------------------------
Percentage Percentage Percentage
of Total of Total of Total
Receivables Receivables Receivables Receivables Receivables Receivables
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Receivables Outstanding(l) .. $13,287,452 100.00 $7,520,458 100.00% $ 3,720,634 100.00%
=========== ====== ========== ====== =========== ======
Receivables Delinquent:
35-64 days ................. $ 141,181 1.06% $ 60,024 0.80% $ 34,604 0.93%
65-94 days ................. 76,416 0.57 32,255 0.43 20,651 0.56
95 or more days ............ 176,250 1.33 74,458 0.99 49,207 1.32
----------- ------ ---------- ------ ----------- ------
Total ..................... $ 393,847 2.96% $ 166,737 2.22% $ 104,462 2.81%
=========== ====== ========== ====== =========== ======
</TABLE>
- --------------
(1) The receivables outstanding on the accounts consist of all amounts due from
cardholders as posted to the accounts.
Loss Experience
Bank Portfolio
(dollars in thousands)
<TABLE>
<CAPTION>
Fiscal Year Ended June 30,
-------------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Average Receivables Outstanding(l) ........................................ $10,446,438 $ 5,339,689 $ 2,795,350
Gross Charge Offs(2) ...................................................... 245,572 132,279 100,308
Gross Charge Offs as a percentage of Average Receivables
Outstanding .............................................................. 2.35% 2.48% 3.59%
Recoveries(3) ............................................................. 15,099 13,889 9,507
Net Losses(3) ............................................................. 230,473 118,390 90,801
Net Losses as a percentage of Average Receivables Outstanding ............. 2.21% 2.22% 3.25%
- --------------
(1) Average Receivables Outstanding is the average daily receivables during the
periods indicated.
(2) Gross Charge Offs are principal charge offs and are before recoveries and do
not include the amount of any reductions in average receivables outstanding
due to fraud, returned goods or customer disputes.
(3) Recoveries are not included in the Trust.
As in past years, the Bank's credit quality during fiscal 1995 exceeded the
industry averages. Receivables delinquent as a percentage of total receivables
outstanding increased from 2.22% at June 30, 1994 to 2.96% at June 30, 1995.
Gross charge offs as a percentage of average receivables outstanding have
decreased from 3.59% for fiscal 1993, to 2.48% for fiscal 1994 and to 2.35% for
fiscal 1995. Newly booked accounts generally exhibit rising delinquency and
losses which reach a steady state within approximately two to three years.
During fiscal 1995, as new loan growth became a smaller percentage of managed
credit card loans, the managed delinquency and net credit loss rates began to
increase. The Bank's focus continues to be to optimize the profitability of each
account within the context of acceptable risk characteristics. As the Bank
increases market penetration, it will continue to focus on the highly profitable
segment of the credit market, and the Bank believes its excellent credit quality
will trend closer to but remain superior to industry averages.
Interchange
Creditors participating in the VISA and MasterCard associations receive
certain fees ('Interchange') 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 systems a portion of this
Interchange in connection
A-69
<PAGE>
<PAGE>
with cardholder Purchases is collected by banks that issue credit cards by
applying a discount to the amount paid by such banks to the banks that clear the
related transactions for merchants. Interchange currently ranges from
approximately 1.0% to 2.0% of the transaction amount. Interchange will be
allocated to the Trust by treating 1.3% (subject to adjustment at the option of
the Transferor upon the satisfaction of certain conditions as described in the
Prospectus under 'Description of the Certificates--Discount Receivables') of
collections on the Receivables (whether arising from Purchases or Cash
Advances), other than collections with respect to Periodic Finance Charges,
Annual Membership Fees and Other Charges. as collections of Discount
Receivables.
THE RECEIVABLES
The Receivables in the Trust Portfolio, as of the beginning of the day on
August 23, 1995, including the Additional Accounts to be added to the Trust on
the Closing Date, consisted of $12,846,914,870 of Principal Receivables and
$332,564,493 of Finance Charge Receivables. On August 23, 1995, the Transferor
designated Additional Accounts, which included approximately $2,421,271,952 of
Principal Receivables, and will transfer the Receivables arising therein to the
Trust on the Closing Date. The Additional Accounts to be added to the Trust on
the Closing Date were, as of the Relevant Cut Off Date, Eligible Accounts. The
Accounts had an average Principal Receivable balance of $1,771 (including
accounts with a zero balance) and an average credit limit of $5,473. The
percentage of the aggregate total Receivable balance to the aggregate total
credit limit was 33.2%.
As of August 23, 1995, cardholders whose Accounts are included in the Trust
Portfolio, including such Additional Accounts, had billing addresses in 50
states, the District of Columbia and other United States territories and
possessions. As of August 23, 1995, 62% of the Accounts, including such
Additional Accounts, were premium accounts and 38% were standard accounts, and
the aggregate Principal Receivable balances of premium accounts and standard
accounts, as a percentage of the total aggregate Principal Receivables, were 73%
and 27%, respectively.
The percentage used to determine the Minimum Transferor Interest applicable
to the Certificates is 7%. The Minimum Aggregate Principal Receivables
applicable to the Certificates is an amount equal to (i) the sum of the initial
invested amounts of all Series then outstanding other than any Series of
variable funding certificates, (ii) with respect to any Series of variable
funding certificates in its revolving period, the then current invested amount
of such Series and (iii) with respect to any Series of variable funding
certificates in an amortization period, the invested amount of such Series at
the end of the last day of the Revolving Period for such Series.
The following tables summarize the Trust Portfolio by various criteria as of
the beginning of the day on August 23, 1995. Because the future composition of
the Trust Portfolio may change over time, these tables are not necessarily
indicative of the composition of the Trust Portfolio at any subsequent time.
Composition by Account Balance
Trust Portfolio
</TABLE>
<TABLE>
<CAPTION>
Percentage
of Total Percentage
Account Number of Number of Amount of Total Amount of
Balance Range Accounts Accounts Receivables Receivables
------------- --------- --------- ----------- ---------------
<S> <C> <C> <C> <C>
Credit Balance ........ 84,186 1.2% $ (10,737,479) (0.1)%
No Balance ............ 2,224,122 30.7 -- --
$0.01 to $1,500.00 .... 2,178,381 30.0 1,193,963,633 9.1
$1,500.01 to $5,000.00 1,936,893 26.7 6,261,647,141 47.5
$5,000.01 to $10,000.00 794,261 10.9 5,255,105,359 39.9
$10,000.01 or More .... 36,732 0.5 479,500,709 3.6
--------- ----- --------------- -----
TOTAL ............ 7,254,575 100.0% $13,179,479,363 100.0%
========= ===== =============== =====
</TABLE>
A-70
<PAGE>
<PAGE>
Composition by Credit Limit
Trust Portfolio
<TABLE>
<CAPTION>
Percentage
of Total Percentage of
Credit Number of Number of Amount of Total Amount of
Limit Range Accounts Accounts Receivables Receivables
----------- --------- ---------- ----------- ---------------
<C> <C> <C> <C> <C>
$0.00 to $1,500.00 .... 597,337 8.2% $ 300,631,467 2.3%
$1,500.01 to $5,000.00 3,376,006 46.5 4,785,283,028 36.3
$5,000.01 to $10,000.00 3,164,969 43.6 7,370,254,168 55.9
$10,000.01 or More .... 112,263 1.7 723,310,700 5.5
--------- ----- --------------- -----
TOTAL ............ 7,254,575 100.0% $13,179,479,363 100.0%
========= ===== =============== =====
</TABLE>
Composition by Period of Delinquency
Trust Portfolio
<TABLE>
<CAPTION>
Percentage
Period of Delinquency of Total Percentage of
(Days Contractually Number of Number of Amount of Total Amount of
Delinquent) Accounts Accounts Receivables Receivables
--------------------- ---------- --------- ----------- ---------------
<S> <C> <C> <C> <C>
Not Delinquent ............ 6,878,144 94.8% $11,857,432,821 90.0%
Up to 34 Days ............. 269,350 3.7 914,967,384 6.9
35 to 64 Days ............. 41,039 0.6 148,107,426 1.1
65 to 94 Days ............. 20,055 0.3 77,559,836 0.6
95 or More Days ........... 45,987 0.6 181,411,896 1.4
--------- ----- ---------------- -----
TOTAL ................ 7,254,575 100.0% $13,179,479,363 100.0%
========= ===== ================ =====
</TABLE>
A-71
<PAGE>
<PAGE>
Composition by Geographic Distribution
Trust Portfolio
<TABLE>
<CAPTION>
Percentage
of Total Percentage of
Number of Number of Amount of Total Amount of
State Accounts Accounts Receivables Receivables
----- --------- ----------- ----------- ---------------
<S> <C> <C> <C> <C>
Alabama .................. 60,476 0.8% $ 116,000,853 0.9%
Alaska ................... 17,576 0.2 41,943,862 0.3
Arizona .................. 120,307 1.7 230,263,500 1.7
Arkansas ................. 66,676 0.9 110,800,749 0.8
California ............... 790,379 10.9 1,693,653,394 12.9
Colorado ................. 85,395 1.2 180,320,834 1.4
Connecticut .............. 110,226 1.5 208,862,025 1.6
Delaware ................. 6,490 0.1 12,287,498 0.1
District of Columbia ..... 15,708 0.2 31,712,805 0.2
Florida .................. 471,353 6.5 875,087,322 6.6
Georgia .................. 166,141 2.3 326,188,962 2.5
Hawaii ................... 31,916 0.4 62,397,573 0.5
Idaho .................... 23,434 0.3 42,949,111 0.3
Illinois ................. 383,364 5.3 623,839,556 4.7
Indiana .................. 30,469 0.4 48,032,274 0.4
Iowa ..................... 6,040 0.1 9,388,490 0.1
Kansas ................... 59,387 0.8 109,287,778 0.8
Kentucky ................. 70,826 1.0 116,934,357 0.9
Louisiana ................ 232,883 3.2 357,630,132 2.7
Maine .................... 16,293 0.2 31,268,615 0.2
Maryland ................. 186,577 2.6 353,231,410 2.7
Massachusetts ............ 225,360 3.1 400,511,840 3.0
Michigan ................. 243,587 3.4 454,197,522 3.4
Minnesota ................ 41,349 0.6 48,686,967 0.4
Mississippi .............. 46,623 0.6 83,331,645 0.6
Missouri ................. 112,993 1.6 194,524,017 1.5
Montana .................. 24,813 0.3 42,586,371 0.3
Nebraska ................. 45,583 0.6 67,854,515 0.5
Nevada ................... 59,046 0.8 120,586,314 0.9
New Hampshire ............ 39,695 0.5 70,577,977 0.5
New Jersey ............... 349,315 4.8 594,484,521 4.5
New Mexico ............... 48,468 0.7 79,793,685 0.6
New York ................. 572,746 7.9 1,083,701,225 8.2
North Carolina ........... 104,370 1.4 201,551,012 1.5
North Dakota ............. 15,584 0.2 20,656,650 0.2
Ohio ..................... 275,581 3.8 469,325,437 3.6
Oklahoma ................. 154,699 2.1 238,947,561 1.8
Oregon ................... 94,071 1.3 169,878,906 1.3
Pennsylvania ............. 302,696 4.2 460,533,552 3.5
Rhode Island ............. 29,405 0.4 52,544,782 0.4
South Carolina ........... 62,917 0.9 110,466,020 0.8
South Dakota ............. 15,500 0.2 23,185,767 0.2
Tennessee ................ 40,917 0.6 67,666,720 0.5
Texas .................... 917,215 12.6 1,629,941,699 12.4
Utah ..................... 42,240 0.6 67,941,359 0.5
Vermont .................. 14,720 0.2 24,908,172 0.2
Virginia ................. 185,424 2.6 363,889,425 2.8
</TABLE>
A-72
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Percentage
of Total Percentage of
Number of Number of Amount of Total Amount of
State Accounts Accounts Receivables Receivables
----- --------- ---------- ----------- ---------------
<S> <C> <C> <C> <C>
Washington ................................. 164,283 2.3 331,998,400 2.5
West Virginia .............................. 30,909 0.4 55,442,039 0.4
Wisconsin .................................. 11,517 0.2 17,436,402 0.2
Wyoming .................................... 11,612 0.2 20,571,391 0.2
Other U.S. territories and possessions ..... 19,421 0.3 29,676,370 0.3
--------- ----- --------------- -----
TOTAL .............................. 7,254,575 100.0% $13,179,479,363 100.0%
========= ===== =============== =====
</TABLE>
Since the largest number of cardholders (based on billing addresses) whose
accounts were included in the Trust as of August 23, 1995 were in Texas,
California, New York, Florida and Illinois, adverse changes in the economic
conditions in these areas could have a direct impact on the timing and amount of
payments on the Certificates.
Composition of Accounts by Age
Trust Portfolio
<TABLE>
<CAPTION>
Percentage
of Total Percentage of
Number of Number of Amount of Total Amount of
Age Accounts Accounts Receivables Receivables
--- --------- ---------- ----------- ---------------
<S> <C> <C> <C> <C>
Less than or equal to 6 Months .. 818,133 11.3% $ 2,189,645,777 16.6%
Over 6 Months to 12 Months ...... 1,801,332 24.8 3,667,282,941 27.8
Over 12 Months to 24 Months ..... 2,065,184 28.5 3,530,366,226 26.8
Over 24 Months to 36 Months ..... 1,068,429 14.7 1,480,949,248 11.2
Over 36 Months to 48 Months ..... 367,178 5.1 433,205,002 3.3
Over 48 Months to 60 Months ..... 277,875 3.8 318,498,314 2.4
Over 60 Months .................. 856,444 11.8 1,559,531,855 11.9
--------- ----- --------------- -----
TOTAL ...................... 7,254,575 100.0% $13,179,479,363 100.0%
========= ===== =============== =====
</TABLE>
A-73
<PAGE>
<PAGE>
Excerpt from Global Prospectus Supplement dated June 14, 1994
to Prospectus Supplement dated June 14, 1994
and Prospectus dated June 14, 1994
Lehman Card Account Trust 1994-1
Floating Rate Asset Backed Notes
THE TRUST
General
The Issuer, Lehman Card Account Trust 1994-1, is a business trust formed
under the laws of the State of Delaware pursuant to the Trust Agreement for the
transactions described in this Prospectus Supplement. The Trust Agreement
constitutes the 'governing instrument' under the laws of the State of Delaware
relating to business trusts. After its formation, the Issuer will not engage in
any activity other than (i) acquiring, holding and managing the CABS and the
other assets of the Trust and proceeds therefrom, (ii) issuing the Notes and the
Certificates, (iii) making payments on the Notes and the Certificates and (iv)
engaging in other activities that are necessary, suitable or convenient to
accomplish the foregoing or are incidental thereto or connected therewith.
The Trust's principal offices are in Wilmington, Delaware, in care of
Wilmington Trust Company, as Owner Trustee. at the address listed below under
'The Owner Trustee'.
DESCRIPTION OF THE NOTES
General
The Notes will be issued pursuant to the Indenture dated as of June 1,
1994, between the Trust and The Bank of New York, as Indenture Trustee. The
Depositor will provide a copy of the Indenture to prospective investors without
charge upon request.
The following summaries describe certain terms of the Notes and the
Indenture. The summaries do not purport to be complete and are subject to, and
qualified in their entirety by reference to, the provisions of the Indenture.
Wherever particular defined terms of the Indenture are referred to, such defined
terms are thereby incorporated herein by reference. See 'The Indenture' herein
for a summary of additional terms of the Indenture.
The Notes will be issued in fully registered form only and each Class of
Notes will be secured by a specified group of assets of the Trust. The Notes
will be freely transferable and exchangeable at the corporate trust office of
the Indenture Trustee. The Depositor will retain at least 0.2% of the
outstanding principal amount of each Class of Notes at all times prior to the
payment in full of the Notes.
Payments on Notes
Payments on the Notes, as described below, will be made by the Indenture
Trustee on the Payment Date to persons in whose names the Notes are registered
on the last day of the month preceding the month in which such Payment Date
occurs (the 'Record Date'). Payments to each Noteholder will he made through the
facilities of The Depository Trust Company ('DTC') (in the United States) or
Cedel or Euroclear (in Europe) to an account specified in writing by such holder
as of the preceding Record Date or in such other manner as may be agreed to by
the Indenture Trustee and such holder. The final payment in retirement of a Note
will be made only upon surrender of the Note to the Indenture Trustee at the
office thereof specified in the notice to Noteholders of such final payment.
Notice will be mailed prior to the Payment Date on which the final payment of
principal and interest on a Note is expected to be made to the holder thereof.
A-74
<PAGE>
<PAGE>
Payments of Interest
Interest on the principal balances of the Classes of the Notes will accrue
at the respective per annum interest rates specified below and will be payable
monthly on each Payment Date.
Interest in respect of a Payment Date will accrue on the outstanding
principal of the Notes from and including the preceding Payment Date (in the
case of the first Payment Date, from and including June 15,1994 (the 'Closing
Date')) to but excluding such current Payment Date (each, an 'Interest Accrual
Period'). Interest will be calculated on the basis of the actual number of days
in each Interest Accrual Period divided by 360.
Except for payments made pursuant to the Interest Rate Cap Agreements
described below, interest payments on the Class A1 Notes will be funded from the
collections of interest on the Group I CABS on such date, and interest payments
on the Class A2 Notes will be funded from the collections of interest on the
Group II CABS on such date. Interest on all of the CABS is payable on the 15th
day of each month or, if such day is not a Business Day, the next succeeding
Business Day (each, a 'CABS Distribution Date'). If interest collections on the
Group I CABS or the Group II CABS plus amounts received with respect to the
respective Interest Rate Cap Agreements are not sufficient to pay the interest
due on the respective classes of Notes for any Payment Date and such default
continues for five days, an Event of Default will occur in respect of all of the
Notes.
Calculation of LIBOR. LIBOR applicable to the calculation of the interest
rates on the Class A1 Notes in respect of a Payment Date shall be calculated by
the Indenture Trustee and shall be equal to the weighted average of the LIBOR
interest rates (weighted on the basis of the outstanding principal balances of
the Group I CABS immediately prior to such CABS Distribution Date) applicable to
the distributions of interest on the Group I CABS distributable on such CABS
Distribution Date. LIBOR applicable to the calculation of the interest rates on
the Class A2 Notes in respect of a Payment Date shall be calculated by the
Indenture Trustee and shall be equal to the weighted average of the LIBOR
interest rates (weighted on the basis of the outstanding principal balances of
the Group II CABS immediately prior to such CABS Distribution Date) applicable
to the distributions of interest on the Group II CABS distributable on such CABS
Distribution Date. The LIBOR applicable to the CABS is described under
'Description of the CABS--Interest Distributions' herein. The Indenture Trustee
shall transmit the results of its calculations of LIBOR to any securities
exchange to which application to list the Notes has been made prior to the
Closing Date.
Class A1. The Class Al Notes will bear interest at an annual rate equal to
LIBOR (calculated as described herein) plus 0.25% on the aggregate principal
amount of the Class A1 Notes.
Class A2. The Class A2 Notes will bear interest at an annual rate equal to
LIBOR plus 0.20% on the aggregate principal amount of the Class A2 Notes,
subject to a maximum rate of 12% until the January 1998 Payment Date, and,
subsequently, subject to no maximum rate.
Payments of Principal
Principal payments to the Noteholders are expected to commence on the May
1998 Payment Date with respect to the Class A1 Notes and the March 1998 Payment
Date with respect to the Class A2 Notes. If, however, a CABS Amortization Event
(as defined herein) shall occur, principal payments on the Notes will commence
on the first Payment Date after such CABS Amortization Event.
On each Payment Date in respect of which principal is distributed on the
Group I CABS, principal payments will be made on the Class A1 Notes in an amount
generally equal to 97% (the 'Class A1 Note Percentage') of the principal
distributed on the Group I CABS only. Such principal will be applied pro rata in
accordance with the outstanding principal balances of the Class A1 Notes. The
principal balance of the Class A1 Notes, to the extent not previously paid, will
be due on the June 1999 Payment Date (the 'Class A1 Final Scheduled Payment
Date').
On each Payment Date in respect of which principal is distributed on the
Group II CABS, principal payments will be made on the Class A2 Notes in an
amount generally equal to 97% (the 'Class A2 Note Percentage') of such principal
distributed on the Group II CABS only. Such principal will be applied pro rata
in accordance with the outstanding principal balances of the Class A2 Notes. The
principal balance of the Class A2 Notes, to the extent not previously paid, will
be due on the March 1999 Payment Date (the 'Class A2 Final Scheduled Payment
Date').
Principal on the Class A1 Notes will be payable solely from principal on
the Group I CABS and principal on the Class A2 Notes will be payable solely from
principal on the Group II CABS.
A-75
<PAGE>
<PAGE>
Interest Rate Cap Agreements
On the Closing Date the Trust will enter into interest rate cap agreements
(such agreements, the 'Interest Rate Cap Agreements') with the Interest Rate Cap
Provider.
Pursuant to the Interest Rate Cap Agreements, the Interest Rate Cap
Provider will make payments (the 'Interest Rate Cap Payments') to the Trust on
each Payment Date with respect to the Class Al Notes, and commencing with the
January 1998 Payment Date with respect to the Class A2 Notes, to the extent the
applicable LIBOR on any such Payment Date exceeds the following rates ('Cap
Rates'):
11.75% in the case of the Class A1 Notes and,
11.80% in the case of the Class A2 Notes.
For each Class of Notes listed above, the Interest Rate Cap Payment will
equal the product of (i) the principal balances of such Class of Notes and (ii)
the product of (x) the amount by which the applicable LIBOR exceeds the related
Cap Rate and (y) the number of days in the Interest Accrual Period divided by
360. Payments with respect to each Interest Rate Cap Agreement will be available
for payment on the respective Class of Notes only and not for payment on the
other Class of Notes.
Payments received by the Indenture Trustee pursuant to the Interest Rate
Cap Agreements will be deposited in the Collection Account.
Interest Rate Cap Provider
The Interest Rate Cap Provider will be Lehman Asset Backed Caps Inc., a
newly formed wholly owned subsidiary of the Depositor. On the Closing Date the
sole assets of the Interest Rate Cap Provider will be a cap agreement (the
'Initial Cap') from Lehman Brothers Special Financing Inc. ('LBSF') and cash
(the 'Cash Collateral') deposited by the Depositor in an account (the 'Cash
Collateral Account') held by the Indenture Trustee on behalf of the Interest
Rate Cap Provider. On a weekly basis LBSF will determine whether the Cash
Collateral is sufficient to maintain the rating of the Notes. If the Cash
Collateral is not sufficient, the Depositor or an affiliate thereof will
contribute additional cash to the Cash Collateral Account. By October 15,1994,
(the 'Agreement Date'), it is anticipated that the Interest Rate Cap Provider
will assign the Initial Cap to Lehman Brothers Financial Products, Inc.
('LBFP'), in exchange for interest rate cap agreements (the 'Interest Rate Cap
Support Agreements') which are to be entered into by LBFP. Upon receipt of the
Interest Rate Cap Support Agreements the Cash Collateral will be released to the
Depositor. LBFP is incorporated in New York. Its main office is located at 3
World Financial Center, 12th Floor, New York, New York 10285-1200. LBFP is a
wholly owned subsidiary of Lehman Brothers Inc. and an indirect subsidiary of
Lehman Brothers Holdings Inc. LBFP will initially be capitalized with $200
million of equity. LBFP's primary objective is to provide comprehensive treasury
and risk management and derivative product services, including interest-rate and
currency swaps, to its own and its shareholders' clients worldwide. It has been
assigned a rating of 'Aaa' by Moody's and 'AAA' by S&P.
If LBFP does not enter into the Interest Rate Cap Support Agreements with
the Interest Rate Cap Provider by the Agreement Date, then the Interest Rate Cap
Provider will use all or part of the Cash Collateral to enter into the Interest
Rate Cap Support Agreements with a provider selected by the Depositor and rated
'Aaa' by Moody's and 'AAA' by S&P.
In the event of a reduction or withdrawal of the credit rating by any
Rating Agency of the short-term debt of the provider of the Interest Rate Cap
Support Agreements (or, if such provider does not have such a rating by the
relevant Rating Agency, the long-term debt), the Interest Rate Cap Provider may,
but is not required to, obtain a substitute interest rate cap support provider
or enter into a substitute arrangement that is satisfactory to such Rating
Agency, in order to avoid a reduction or withdrawal of the rating of the Notes.
A-76
<PAGE>
<PAGE>
Distributions on the CABS; Collection Account
All distributions on the CABS will be remitted directly to an account (the
'Collection Account') to be established with the Indenture Trustee under the
Indenture on the Closing Date. The Indenture Trustee will hold such moneys
uninvested and without liability for interest thereon for the benefit of holders
of the Securities. The CABS Distribution Date in each month is the Payment Date
for such month.
Assignment of CABS
The Depositor will acquire the CABS for deposit into the Trust from Lehman
Government Securities, Inc. ('LGSI'). At the time of issuance of the Securities,
the Depositor will cause the beneficial interest in such CABS, which will be
held in book-entry form through the facilities of The Depository Trust Company,
to be delivered to the Indenture Trustee's participant account at The Depository
Trust Company.
Termination
All obligations of the Depositor and the Indenture Trustee created by the
Indenture will terminate upon the payment to Noteholders of all amounts required
to be paid to them pursuant to the Indenture. In addition, the occurrence of
certain CABS Amortization Events (as defined herein) may lead to an early
termination of the obligations of the Depositor and the Indenture Trustee
created by the Indenture.
DESCRIPTION OF THE CABS
The table below sets forth certain of the characteristics of the CABS. The
table does not purport to be complete and is subject to, and qualified in its
entirety by reference to, the prospectuses pursuant to which the CABS were
offered and sold. The CABS are not listed on any securities exchange.
A-77
<PAGE>
<PAGE>
DESCRIPTION OF THE CABS
<TABLE>
<CAPTION>
Group I
---------------------------------------------------------------
ADVANTA First USA MBNA Master
Credit Card Credit Card Credit
Issuer: Master Trust Master Trust Card Trust
- ------- ------------ ------------ ----------
<S> <C> <C> <C>
Servicer ................... Colonial National First USA Bank MBNA America
Bank USA Bank, National
Association
Trustee .................... Chemical Bank NationsBank of Bankers Trust
Virginia, N.A. Company
Designation ..... ......... Floating Rate Asset Floating Rate Asset Floating Rate Asset
Backed Certificates, Backed Certificates, Backed Certificates,
Series 1993-4 Series 1993-3 Series 1993-4
Principal Amount Purchased by Depositor......... $75,000,000 $259,750,000 $335,360,000
Percentage of total CABS pool .................. 6.93% 24% 30.98%
Investor amount................................. $400,000,000 $750,000,000 $1,000,000,000
Series termination date(l) ..................... December 31, 2000 December 15, 2000 December 15, 2000
Certificate rate.............................. LIBOR(2) plus 0.25%; LIBOR(3) plus 0.25%; LIBOR(2) plus 0.25%;
cap of 12% cap of 12% cap of 12%
Monthly payment date(4) ........................ 15th 15th 15th
Commencement of controlled amortization
period(5) ..................................... June 1, 1998 April 1, 1998 June 1, 1998
Minimum Seller's percentage .................... 7% 7% 7%
Cash Collateral Guaranty(6) Amount.............. $52,000,000 $97,500,000 $105,000,000
Percentage of Subordinated Class B Certificates.. None None None
Optional repurchase percentage.................. 5% 5% 5%
Ratings (Moody's/S&P)(8)........................ Aaa/AAA Aaa/AAA Aaa/AAA
<CAPTION>
Group II
--------------------------------------------
Household Affinity
First Chicago Credit Card Master
Issuer: Master Trust II Trust I
- ------- --------------- -------
<S> <C> <C>
Servicer ................... FCC National Bank Household Finance
Corporation
Trustee .................... Norwest Bank The Bank of New
Minnesota, National York
Association
Designation ..... ......... Floating Rate Credit Floating Rate Class A
Card Certificates, Credit Card
Series 1993-H Participation
Certificates, Series
1993-1
Principal Amount Purchased by Depositor......... $226,115,000 $186,260,000
Percentage of total CABS pool .................. 20.89% 17.21%
Investor amount................................. $700,000,000 $900,000,000
Series termination date(l) ..................... April 15, 2000 September 15, 2000
Certificate rate.............................. LIBOR(2) plus 0.20%; LIBOR(3) plus 0.20%
cap of 12% cap of 12%
Monthly payment date(4) ........................ 15th 15th
Commencement of controlled amortization
period(5) ..................................... February 1, 1998 March 1, 1998
Minimum Seller's percentage .................... 7% 7%
Cash Collateral Guaranty(6) Amount.............. $91,000,000 (7)
Percentage of Subordinated Class B Certificates.. None 6%
Optional repurchase percentage.................. 5% 5%
Ratings (Moody's/S&P)(8)........................ Aaa/AAA Aaa/AAA
</TABLE>
- ---------------
(1) Includes defined terms: Series Termination Date and Stated Series
Termination Date
(2) Reuters LIBOR
(3) Telerate LIBOR
(4) Includes defined terms: Payment Date and Distribution Date
(5) Includes defined terms: Controlled Amortization Period, Amortization Period
and Controlled Liquidation Period
(6) A 'Cash Collateral Guaranty' generally provides, that in the event that a
deficiency exists with respect to a payment of interest and/or principal,
an amount equal to such deficiency may be withdrawn from the cash
collateral account and applied to such deficiency up to the amount provided
in the Agreement.
(7) On each payment date for the investors, the amount of Enhancement available
to the investors will equal the lesser of (i) the Collateral Amount and
(ii) the Required Collateral Amount. 'Collateral Amount' means an amount
equal to the sum of the Collateral Invested Amount and the amount, if any,
on deposit in the cash collateral account. The 'Required Collateral Amount'
with respect to any payment date means (i) $105,883,000 until the payment
date on which the invested amount of the Class A Certificates has been
reduced to zero and (ii) on any payment date thereafter 60% of the unpaid
principal balance of the Class B Certificates as of the last day of the due
period preceding such payment date.
The investors have the benefit of a cash collateral account. The cash
collateral account had a beginning balance of zero which may be increased
(i) to the extent the Seller elects, subject to rating agency approval, to
apply collections of Principal Receivables to decrease the Collateral
Invested Amount and (ii) to the extent either collections of Principal
Receivables allocable to the Collateral Invested Amount or collections of
excess Finance Charge Receivables are required to be deposited therein.
'Collateral Invested Amount' means an undivided interest in the assets of
the CABS Issuer in the initial amount of $105,883,000 of Principal
Receivables.
(8) As of June 14, 1994.
A-78
<PAGE>
<PAGE>
General
This Prospectus Supplement sets forth certain relevant terms with respect
to the CABS, but does not provide detailed information with respect to the CABS.
Appendix A to this Prospectus Supplement contains excerpts from each prospectus
pursuant to which the CABS were offered and sold. This Prospectus Supplement
relates only to the Securities offered hereby and does not relate to the CABS.
Each CABS Issuer is subject to the information requirements of the Exchange
Act. Accordingly, each CABS Issuer is required to file reports, and other
information with respect to the CABS Issuer, including monthly Servicer Reports
regarding the Receivables, with the Commission. Copies of such reports and other
information may be inspected and copies at certain offices of the Commission at
the address listed under 'Available Information' in the Prospectus.
Neither the Depositor nor the Underwriter participated in the preparation
of such Servicer Reports. Such reports and information will have been prepared
by the respective CABS Issuer and will not be independently verified by the
Depositor or the Underwriter. There can be no assurance that events have not
occurred which would affect the accuracy or completeness of any statements
included in such Servicer Reports or in the publicly available documents filed
by or on behalf of the CABS Issuers.
Although the Depositor has no reason to believe the information concerning
the CABS, the CABS Issuers, or each prospectus or prospectus supplement relating
to the CABS is not reliable, the Depositor has not verified either its accuracy
or its completeness. Such information is as of the date of each related
prospectus and comparable information if given as of the date hereof may be
different.
Set forth below is certain information excerpted and summarized from each
prospectus relating to the CABS.
The CABS have been issued pursuant to Agreements entered into between
various sellers and various trustees. See 'Appendix A' for further description
of the various CABS Issuers. The following summary describes certain general
terms of such Agreements, but investors should refer to the Agreements
themselves for all the terms governing the CABS.
Each CABS represents an undivided interest in one of the CABS Issuers,
including the right to a percentage of cardholder payments on the Receivables
underlying such issue of CABS. The assets of each CABS Issuer include a pool of
Receivables arising under Accounts, funds collected or to be collected from
cardholders in respect of the Receivables and services in the Accounts, monies
on deposit in certain accounts of the CABS Issuers, the right to draw upon
various enhancements and may also include the right to receive certain
interchange fees attributed to cardholder charges for merchandise. Each CABS
represents the right to receive payments of interest for the related interest
period at the applicable CABS Certificate Rate (as defined herein) for such
interest period from collections of Receivables and, in certain circumstances.
from draws on applicable enhancement, and payments of principal during the CABS
Amortization Period (as defined herein) funded from collections of Receivables.
Each seller of CABS (each, a 'Seller') holds the interest in the
Receivables of a CABS Issuer not represented by the CABS and any other series of
securities issued by the CABS Issuer. Such Seller holds an undivided interest in
the CABS Issuer (the 'Seller's Interest'), including the right to a percentage
(the 'Seller's Percentage') of all cardholder payments on the Receivables.
The Group I CABS
The Group I CABS will consist of the CABS issued by the following CABS
Issuers: ADVANTA Credit Card Master Trust, First USA Credit Card Master Trust,
and MBNA Master Credit Card Trust.
The Group 11 CABS
The Group II CABS will consist of the CABS issued by the following CABS
Issuers: First Chicago Master Trust II and Household Affinity Credit Card Master
Trust I.
A-79
<PAGE>
<PAGE>
Interest Distributions
Interest accrues on the CABS at the certificate rate for each class and
series of CABS (a 'CABS Certificate Rate'), from the date of the initial
issuance of the CABS. Interest at the applicable rate will be distributed to the
holders of the CABS monthly on each CABS Distribution Date.
Interest on the CABS is calculated on the basis of the actual number of
days in the related interest period and a 360-day year.
The CABS all bear interest at a rate per annum above the arithmetic mean of
London interbank offered quotations for one-month Eurodollar deposits ('LIBOR');
provided, however, that the rate at which interest will accrue on the CABS will
in no event exceed 12% per annum. In the case of the CABS issued by ADVANTA
Credit Card Master Trust, First Chicago Master Trust II, and MBNA Master Credit
Card Trust, LIBOR is determined according to the Reuters Screen LIBO Page (as
defined in the International Swap Dealers Association. Inc. Code of Standard
Wording, Assumption and Provisions for SWAPS, 1986 edition) ('Reuters LIBOR').
In the case of the CABS issued by First USA Credit Card Master Trust and
Household Affinity Credit Card Master Trust I, LIBOR is determined according to
the Telerate Page 3750 of the Dow Jones Telerate Service (or such other page as
may replace Telerate Page 3750 on that service for the purpose of displaying
London interbank offered rates of major banks) ('Telerate LIBOR').
Principal Distributions
Generally, principal distributions due to the holders of the CABS are
scheduled to commence on the first CABS Distribution Date with respect to a
controlled amortization period for a series of CABS (a 'CABS Controlled
Amortization Period'), but may be distributed earlier or later than such date.
However, if an Early Amortization Event, Payout Event, Liquidation Event or
Economic Amortization Event (as such terms are defined in the Agreements) (each
such event a 'CABS Amortization Event') occurs, monthly distributions of
principal to the holders of the CABS will begin on the first CABS Distribution
Date following the occurrence of such CABS Amortization Event. See 'CABS
Amortization Events' below.
If a CABS Amortization Event does not occur, principal will be distributed
to the holders of the CABS on the first CABS Distribution Date during the
applicable CABS Controlled Amortization Period. If, however, the amount of
principal distributed on the scheduled final CABS Distribution Date is not
sufficient to pay the holders of the CABS in full, then monthly distributions of
principal to the holders of CABS will occur on each CABS Distribution Date after
the scheduled final CABS Distribution Date.
Investor Percentage and Seller's Percentage
Pursuant to the Agreements, all amounts collected on Receivables will be
allocated between the investor interest of the holders of the CABS, the investor
interest of any other Series, and the Seller's Interest by reference to the
investor percentage of the holders of the CABS, the investor percentage of any
other Series, and the Seller's Percentage.
The Seller's Percentage in all cases means the excess of 100% over the
aggregate investor percentages of all Series then outstanding.
Allocation Or Collections
The CABS Servicer will deposit any payments collected by the CABS Servicer
with respect to the Receivables and will generally allocate such amounts as
follows:
(a) an amount equal to the applicable Seller's Percentage of the
aggregate amount of deposits in respect of Principal Receivables
and Finance Charge Receivables, respectively, will be paid to the
holder of the Seller's Interest,
A-80
<PAGE>
<PAGE>
ADVANTA Credit Card Master Trust, Series 1993-4
(a) the available amount in the Cash Collateral Account is less than an
amount equal to $9,000.000 plus 3% of any increases in the invested amount
during the period money is held in a pre-funding account.
Servicing Compensation and Payment of Expenses
Generally, the CABS Servicer's compensation for its servicing activities
and reimbursement for its expenses for any monthly period will be a servicing
fee (a 'CABS Servicing Fee') payable monthly. The CABS Servicing Fee will be
allocated among the Seller's Interest and the investor interests of all Series
issued by the CABS Issuer.
Generally, the CABS Servicer will pay from its servicing compensation
certain expenses incurred in connection with servicing the Receivables
including, without limitation, payment of the fees and disbursements of the CABS
Trustee and independent accountants and other fees which are not expressly
stated in the related Agreement to be payable by the CABS Issuer or the holders
of CABS
THE DEPOSITOR
Lehman ABS Corporation (the 'Depositor') was incorporated in the State of
Delaware on January 29, 1988. As of January 4, 1993, the Depositor is a wholly
owned, special purpose subsidiary of Lehman Commercial Paper Inc. ('LCPI'),
which is itself a wholly owned subsidiary of Lehman Brothers Inc. ('Lehman
Brothers'), which is a wholly owned subsidiary of Lehman Brothers Holdings Inc.
('Holdings'). None of Lehman Brothers, LCPI, Holdings or the Depositor, nor any
affiliate of the foregoing, has guaranteed or is otherwise obligated with
respect to the Securities.
As of December 31, 1993, the Depositor's total assets were approximately
$29.2 million, its total liabilities were approximately $1.1 million, its total
stockholders' equity was approximately $28.1 million, and for the fiscal year
ended December 31, 1993, the Depositor had net income of approximately $144,000
and as of December 31, 1992, the Depositor's total assets were approximately
$220,000, its total liabilities were approximately $14,000, its total
stockholders' equity was approximately $206,000, and for the fiscal year ended
December 31, 1992, the Depositor experienced a net loss of $7,689.
The principal executive offices of the Depositor are located at 200 Vesey
Street, Three World Financial Center, New York, New York 10285 (Telephone: (212)
526-7000). See 'The Depositor' in the Prospectus.
A-81
<PAGE>
<PAGE>
Excerpt from Prospectus Supplement dated October 19, 1994
to Prospectus dated October 18, 1994
MBNA Master Credit Card Trust II
Floating Rate Asset Backed Certificates,
Series 1994-C
MBNA'S CREDIT CARD ACTIVITIES
General
With respect to each Series of Certificates, the Receivables conveyed or to
be conveyed to a Trust by MBNA pursuant to the related Agreement have been or
will be generated from transactions made by holders of selected MasterCard and
VISA credit card accounts, including premium accounts and standard accounts,
from the Bank Portfolio. Generally, both premium and standard accounts undergo
the same credit analysis, but premium accounts carry higher credit limits and
offer a wider variety of services to the cardholders. MBNA currently services
the Bank Portfolio in the manner described in the related Prospectus Supplement.
Certain data processing and administrative functions associated with the
servicing of the Bank Portfolio are performed on behalf of MBNA by MBNA
Information Services, Inc. ('MBNA I.S.'). See '--Description of MBNA I.S.' MBNA
I.S. is a wholly-owned subsidiary of MBNA.
Acquisition and Use of Credit Card Accounts
MBNA primarily relies on affinity marketing in the acquisition of new
credit card accounts. Affinity marketing involves the solicitation of
prospective cardholders from identifiable groups with a common interest or a
common cause. Affinity marketing is conducted through two approaches: the first
relies on the solicitation of members of organized membership groups with the
endorsement of such group's leadership, and the second utilizes direct
solicitation of purchased list prospects. MBNA also relies on targeted direct
response marketing in the acquisition of new accounts.
Credit applications are reviewed individually by a credit analyst, who
makes a credit decision based on a review of the potential customer's financial
history and capacity to repay. Credit analysts review credit reports obtained
through an independent credit reporting agency, and use MBNA's risk rating
system and a delinquency probability model to assist them in reaching a credit
decision for each applicant. Credit analysts also review and verify other
information, such as employment and income, when necessary to make a credit
decision. Further levels of review are automatically triggered, depending upon
the levels of risk indicated by the delinquency probability model. For some
programs, MBNA uses a pre-screening method to acquire new accounts. Credit
analysts review the majority of these applications to ensure the appropriate
credit limit is assigned. MBNA's Loan Review Department independently reviews
selected applications to ensure quality and consistency. Less than 50 percent of
all credit applications are approved.
Credit card accounts that have been purchased by the Seller were originally
opened using criteria established by institutions other than MBNA and may not
have been subject to the same level of credit review as accounts established by
MBNA. It is expected that portfolios of credit card accounts purchased by the
Seller from other credit card issuers will be added to Trusts from time to time.
Each cardholder is subject to an agreement with MBNA governing the terms
and conditions of the related MasterCard or VISA account. Pursuant to each such
agreement, MBNA reserves the right, upon advance notice to the cardholder, to
add or to change any terms, conditions, services or features of its MasterCard
or VISA accounts at any time, including increasing or decreasing periodic
finance charges, other charges or minimum payment terms. The agreement with each
cardholder provides that MBNA may apply such changes, when applicable, to
current outstanding balances as well as to future transactions. The cardholder
can avoid certain changes in terms by giving timely written notification to MBNA
and by not using the account.
A cardholder may use the credit card for two types of transactions:
purchases and cash advances. Cardholders make purchases when using the credit
card to buy goods or services. A cash advance is made when a credit card is used
to obtain cash from a financial institution or an automated teller machine.
Cardholders may also use special cash advance checks issued by MBNA to draw
against their MasterCard or VISA credit lines.
A-82
<PAGE>
<PAGE>
Description of MBNA I.S.
Credit card processing services performed by MBNA I.S. include data
processing, payment processing, statement rendering, card production and network
services. MBNA I.S.'s data network provides an interface to MasterCard
International Incorporated and VISA USA, Inc. for performing authorizations and
funds transfers. Most data processing and network functions are performed at
MBNA I.S.'s facility in Addison, Texas.
Interchange
Creditors participating in the VISA and MasterCard associations receive
Interchange 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 systems, a portion of this Interchange in
connection with cardholder charges for goods and services is passed from banks
which clear the transactions for merchants to credit card issuing banks.
Interchange fees are set annually by MasterCard and VISA and are based on the
number of credit card transactions and the amount charged per transaction. The
Seller may be required, as described in the related Prospectus Supplement, to
transfer to a Trust a percentage of the Interchange attributed to cardholder
charges for goods and services in the related Accounts. If so required to be
transferred, Interchange arising under the Accounts will be allocated to the
related Certificates of any Series in the manner provided in the related
Prospectus Supplement, and, unless otherwise provided in the related Prospectus
Supplement, will be treated as collections of Finance Charge Receivables and
will be used to pay required monthly payments including interest on the related
Series of Certificates, and, in some cases, to pay all or a portion of the
Servicing Fee to the Servicer.
MBNA AND MBNA CORPORATION
MBNA America Bank, National Association, a national banking association
located in Newark, Delaware, conducts nationwide consumer lending programs
principally comprised of credit card related activities. MBNA is a wholly-owned
subsidiary of the Corporation. MBNA was organized in January 1991 as the
successor of a national bank formed in 1982. The Corporation is a bank holding
company organized under the laws of Maryland on December 6, 1990 and registered
under the Bank Holding Company Act of 1956, as amended. The Prospectus
Supplement for each Series of Certificates will provide additional information,
including financial information, relating to MBNA, MBNA's credit card activities
and the Corporation.
MBNA'S CREDIT CARD PORTFOLIO
General
The Receivables conveyed or to be conveyed to Trust II by MBNA pursuant to
Agreement II have been or will be generated from transactions made by holders of
selected MasterCard and VISA credit card accounts, including premium accounts
and standard accounts, from the Bank Portfolio.
Billing and Payments
MBNA, using MBNA Information Services, Inc. ('MBNA I.S.') as its service
bureau, generates and mails to cardholders monthly statements summarizing
account activity and processes cardholder monthly payments. Currently,
cardholders must make a monthly minimum payment at least equal to the greater of
(i) 2% of the statement balance plus past due amounts and (ii) a stated minimum
payment (generally $15) plus past due amounts. Certain eligible cardholders are
given the option periodically to take a payment deferral.
The finance charges assessed monthly are calculated by multiplying the
account's average daily balance(s) by the applicable daily periodic rate, and
multiplying the result by the number of days in the billing cycle. Finance
charges are calculated on purchases from the date of the purchase or the first
day of the billing cycle in which the purchase is posted to the account,
whichever is later. Monthly periodic finance charges are not assessed in most
circumstances on purchases if all balances shown in the billing statement are
paid by the due date, which is generally 25 days after the billing date. Finance
charges are calculated on cash advances from the date of the transaction.
Currently, MBNA generally treats the day (excluding Sundays and bank holidays)
before the day on which a cash advance check is presented to MBNA for payment as
the transaction date for such check.
A-83
<PAGE>
<PAGE>
MBNA offers fixed rate and variable rate credit card accounts. Generally,
fixed annual percentage rates range from 11.9% to 19.8%, and variable rates
range from 7.6% to 10.9% above the prime rate. MBNA also offers temporary
promotional rates and, under certain circumstances, the periodic finance charges
on a limited number of accounts may be either greater than or less than those
assessed by MBNA generally.
MBNA assesses annual membership fees (generally ranging from $18 to $40) on
certain accounts although under various marketing programs these fees may be
waived or rebated. For most credit card accounts, MBNA also assesses late and
overlimit charges (generally $15) and returned check charges (generally $15).
For most accounts, MBNA assesses a cash advance fee generally ranging from 1% to
2% of the cash advance amount with a $2 minimum and a maximum fee of either $10
or $25.
Delinquency and Loss Experience
An account is contractually delinquent if the minimum payment is not
received by the due date indicated on the customer's statement. Efforts to
collect contractually delinquent credit card receivables currently are made by
MBNA's Customer Assistance personnel. Collection activities include statement
messages, telephone calls and formal collection letters. MBNA employs two
principal computerized systems for collecting past due accounts. The Predictive
Management System analyzes each cardholder's purchase and repayment habits and
selects accounts for initial contact with the objective of contacting the
highest risk accounts first. The accounts selected are queued to MBNA's
proprietary Outbound Call Management System ('OCMS'). OCMS sorts accounts by a
number of factors, including time zone, degree of delinquency and dollar amount
due. OCMS automatically dials delinquent accounts in order of priority.
Representatives are automatically linked to the cardholder's account information
and voice line when a contact is established.
Accounts are worked continually at each stage of delinquency through the
180 day past due level. As an account enters the 180 day delinquency level, it
is classified as a potential charge-off. Accounts failing to make a payment
during the 180 day cycle are written off. Managers may defer a charge-off of an
account for another month, pending continued payment activity or other special
circumstances. Senior manager approval is required on all exceptions to
charge-off. Accounts of cardholders in bankruptcy are currently charged-off no
later than is consistent with this policy.
The following tables set forth the delinquency and loss experience for each
of the periods shown for the Bank Portfolio of credit card accounts. The Bank
Portfolio's delinquency and loss experience is comprised of segments which may,
when taken individually, have delinquency and loss characteristics different
from those of the overall Bank Portfolio of credit card accounts. As of the
beginning of the day on September 19, 1994, the Receivables in the Trust II
Portfolio represented approximately 26% of the Bank Portfolio. Because the Trust
II Portfolio is only a portion of the Bank Portfolio, actual delinquency and
loss experience with respect to the Receivables may be different from that set
forth below for the Bank Portfolio. There can be no assurance that the
delinquency and loss experience for the Receivables in the future will be
similar to the historical experience of the Bank Portfolio set forth below.
Delinquency Experience
Bank Portfolio
(Dollars in Thousands)
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------------------------
September 30, 1994 1993 1992 1991
------------------------ ----------------------- ---------------------- ------------------------
Percentage Percentage Percentage Percentage
of Total of Total of Total of Total
Receivables Receivables Receivables Receivables Receivables Receivables Receivables Receivables
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Receivables
Outstanding(1)......... $15,427,023 $11,483,205 $9,142,132 $8,173,853
Receivables Delinquent:
35-64 Days ............ $ 200,138 1.30% $ 140,512 1.22% $ 144,546 1.58% $ 141,149 1.73%
65-94 Days ............ 79,955 0.52 70,988 0.62 69,709 0.76 71,407 0.87
95 or More Days ....... 172,173 1.11 160,305 1.40 145,745 1.60 140,450 1.72
----------- ---- ----------- ---- ---------- ---- ---------- ----
Total ................ $ 452,266 2.93% $ 371,805 3.24% $ 360,000 3.94% $ 353,006 4.32%
=========== ==== =========== ==== ========== ==== ========== ====
</TABLE>
(1) The Receivables Outstanding on the accounts consist of all amounts due from
cardholders as posted to the accounts as of the end of the period shown.
A-84
<PAGE>
<PAGE>
Loss Experience
Bank Portfolio
(Dollars in Thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
Nine Months Ended ------------------------------------
September 30, 1994 1993 1992 1991
------------------ ---------- ---------- ----------
<S> <C> <C> <C> <C>
Average Receivables Outstanding (1) ................ $12,744,154 $9,905,037 $8,249,352 $7,243,512
Total Gross Charge-Offs (2) ........................ 304,967 344,956 319,874 259,696
Total Gross Charge-Offs as a percentage of Average
Receivables Outstanding (3) ....................... 3.19% 3.48% 3.88% 3.59%
</TABLE>
- -----------
(1) Average Receivables Outstanding is the average of the daily receivable
balance during the period indicated.
(3) Total Gross Charge-Offs are total principal and interest charge-offs before
recoveries and do not include the amount of any reductions in Average
Receivables Outstanding due to fraud, returned goods, customer disputes or
other miscellaneous credit adjustments.
(3) The percentage reflected for the nine months ended September 30, 1994 is an
annualized figure.
Interchange
The Seller will be required, pursuant to the terms of Agreement II, to
transfer to Trust II a percentage of the Interchange attributed to cardholder
charges for goods and services in the Accounts. Interchange arising under the
Accounts will be allocated to the Certificates on the basis of the percentage
equivalent of the ratio which the amount of the Investor Percentage, with regard
to Finance Charge Receivables, of cardholder charges for goods and services in
the Accounts bears to the total amount of cardholder charges for goods and
services in the MasterCard and VISA credit card accounts owned by MBNA, as
reasonably estimated by the Seller. VISA and MasterCard may from time to time
change the amount of Interchange reimbursed to banks issuing their credit cards.
Interchange will be treated as collections of Finance Charge Receivables for the
purposes of determining the amount of Finance Charge Receivables, allocating
collections of Finance Charge Receivables, making required monthly payments, and
calculating the Portfolio Yield. Under the circumstances described herein,
Interchange will be used to pay a portion of the Investor Servicing Fee required
to be paid on each Transfer Date. See 'Description of the
Certificates--Servicing Compensation and Payment of Expenses' herein and 'MBNA's
Credit Card Activities--Interchange' in the Prospectus.
A-85
<PAGE>
<PAGE>
THE RECEIVABLES
The Receivables conveyed to Trust II arise in Accounts selected from the
Bank Portfolio on the basis of criteria set forth in Agreement II as applied on
the Cut-Off Date and, with respect to Additional Accounts. as of the related
date of their designation (the 'Trust II Portfolio'). Pursuant to Agreement II,
the Seller has the right, subject to certain limitations and conditions set
forth therein, to designate from time to time Additional Accounts and to
transfer to Trust II all Receivables of such Additional Accounts, whether such
Receivables are then existing or thereafter created. Any Additional Accounts
designated pursuant to Agreement II must be Eligible Accounts as of the date the
Seller designates such accounts as Additional Accounts. On September 19, 1994,
the Seller designated Additional Accounts and conveyed the Receivables arising
therein to Trust II, which included approximately $1.487 billion of Principal
Receivables. In addition, the Seller will be required to designate Additional
Accounts, to the extent available, (x) to maintain the Seller Interest so that,
during any period of 30 consecutive days, the Seller Interest averaged over that
period equals or exceeds the Minimum Seller Interest for the same period and (y)
to maintain, for so long as certificates of any Series (including the
Certificates) remain outstanding, an aggregate amount of Principal Receivables
equal to or greater than the Minimum Aggregate Principal Receivables. 'Minimum
Seller Interest' for any period means 7% of the average Principal Receivables
for such period; provided, however, that the Seller may reduce the Minimum
Seller Interest to not less than 2% of the average Principal Receivables for
such period upon satisfaction of the Rating Agency Condition and certain other
conditions set forth in Agreement II. 'Minimum Aggregate Principal Receivables'
means an amount equal to the sum of the initial investor interests for all
Series then outstanding; provided, that the Minimum Aggregate Principal
Receivables may be reduced to a lesser amount at any time if the Rating Agency
Condition is satisfied. The Seller will convey the Receivables then existing or
thereafter created under such Additional Accounts to Trust II. Further, pursuant
to Agreement II, the Seller will have the right (subject to certain limitations
and conditions) to designate certain Removed Accounts and to require the Trustee
to reconvey all Receivables in such Removed Accounts to the Seller, whether such
Receivables are then existing or thereafter created. Throughout the term of
Trust II, the Accounts from which the Receivables arise will be the Accounts
designated by the Seller on the Cut-Off Date plus any Additional Accounts minus
any Removed Accounts. As of the Cut-Off Date and, with respect to Receivables in
Additional Accounts, as of the related date of their conveyance to Trust II, and
on the date any new Receivables are created, the Seller will represent and
warrant to Trust II that the Receivables meet the eligibility requirements
specified in Agreement II. See 'Description of the Certificates--Representations
and Warranties' in the Prospectus.
The Receivables in the Trust II Portfolio, as of the beginning of the day
on September 19, 1994, included $3,823,958,964 of Principal Receivables and
$41,770,705 of Finance Charge Receivables. The Accounts had an average Principal
Receivable balance of $1,126 and an average credit limit of $6,159. The
percentage of the aggregate total Receivable balance to the aggregate total
credit limit was 18.5%. The average age of the Accounts was approximately 20
months. As of the beginning of the day on September 19, 1994, cardholders whose
Accounts are included in the Trust II Portfolio had billing addresses in all 50
States and the District of Columbia. As of the beginning of the day on September
19, 1994, 59.5% of the Accounts were standard accounts and 40.5% were premium
accounts, and the aggregate Principal Receivable balances of standard accounts
and premium accounts, as a percentage of the total aggregate Principal
Receivables, were 49.2% and 50.8%, respectively.
The following tables summarize the Trust II Portfolio by various criteria
as of the beginning of the day on September 19, 1994. Because the future
composition of the Trust II Portfolio may change over time, these tables are not
necessarily indicative of the composition of the Trust II Portfolio at any
subsequent time.
Composition by Account Balance
Trust Portfolio
<TABLE>
<CAPTION>
Percentage
of Total Percentage
Number of Number of of Total
Account Balance Range Accounts Accounts Receivables Receivables
- --------------------- -------- -------- ----------- -----------
<S> <C> <C> <C> <C>
Credit Balance................ 21,036 0.6% $ (2,103,257) (0.1%)
No Balance ................... 1,694,954 49.9 0 0.0
$.01--$5,000.00 ............... 1,459,048 43.0 2,139,881,119 55.4
$5,000.01--$10,000.00 ............ 187,045 5.5 1,278,489,099 33.1
$10,000.01--$15,000.00......... 25,819 0.8 307,432,150 8.0
$15,000.01--$20,000.00......... 4,990 0.2 84,815,082 2.2
$20,000.01--$25,000.00......... 1,425 0.0 31,540,051 0.8
$25,000.01 or More ........... 821 0.0 25,675,425 0.6
--------- ----- -------------- -----
TOTAL ................... 3,395,138 100.0% $3,865,729,669 100.0%
========= ===== ============== =====
</TABLE>
A-86
<PAGE>
<PAGE>
Composition by Credit Limit
Trust Portfolio
<TABLE>
<CAPTION>
Percentage
of Total Percentage
Number of Number of of Total
Credit Limit Range Accounts Accounts Receivables Receivables
- ------------------ -------- -------- ----------- -----------
<S> <C> <C> <C> <C>
Less than or equal to $5,000.00.......... 1,964,322 57.9% $1,545,823,835 40.0%
$5,000.01--$10,000.00 ................... 1,073,948 31.6 1,464,838,878 37.9
$10,000.01--$15,000.00................... 223,971 6.6 503,968,149 13.0
$15,000.01--$20,000.00................... 77,163 2.3 180,120,495 4.7
$20,000.01--$25,000.00................... 35,147 1.0 97,604,348 2.5
$25,000.01 or More ...................... 20,587 0.6 73,373,964 1.9
--------- ----- -------------- -----
TOTAL................................. 3,395,138 100.0% $3,865,729,669 100.0%
========= ===== ============== =====
</TABLE>
Composition by Period of Delinquency
Trust Portfolio
<TABLE>
<CAPTION>
Percentage
of Total Percentage
Period of Delinquency Number of Number of of Total
(Days Contractually Delinquent) Accounts Accounts Receivables Receivables
- ------------------------------- -------- -------- ----------- -----------
<S> <C> <C> <C> <C>
Not Delinquent .......................... 3,305,178 97.4% $3,603,901,872 93.2%
Up to 34 Days ........................... 64,857 1.9 184,552,207 4.8
35 to 64 Days............................ 12,936 0.4 36,100,782 0.9
65 to 94 Days ........................... 4,494 0.1 13,702,083 0.4
95 or More Days ......................... 7,673 0.2 27,472,725 0.7
--------- ----- -------------- -----
TOTAL ................................. 3,395,138 100.0% $3,865,729,669 100.0%
========= ===== ============== =====
</TABLE>
Composition by Account Age
Trust Portfolio
<TABLE>
<CAPTION>
Percentage
of Total Percentage
Number of Number of of Total
Account Age Accounts Accounts Receivables Receivables
- ----------- -------- -------- ----------- -----------
<S> <C> <C> <C> <C>
Not More than 6 Months .................. 1,855,011 54.6% $1,750,823,618 45.3%
Over 6 Months to 12 Months............... 856,686 25.2 910,636,812 23.6
Over 12 Months to 24 Months.............. 43,351 1.3 38,757,849 1.0
Over 24 Months to 36 Months.............. 8,952 0.3 7,482,902 0.2
Over 36 Months to 48 Months ............. 11,576 0.3 9,925,649 0.3
Over 48 Months to 60 Months.............. 178,507 5.3 299,217,879 7.7
Over 60 Months to 72 Months.............. 280,481 8.3 522,318,466 13.5
Over 72 Months........................... 160,574 4.7 326,566,494 8.4
--------- ----- -------------- -----
TOTAL ................................... 3,395,138 100.0% $3,865,729,669 100.0%
========= ===== ============== =====
</TABLE>
A-87
<PAGE>
<PAGE>
Geographic Distribution of Accounts
Trust Portfolio
<TABLE>
<CAPTION>
Percentage
of Total Percentage
Number of Number of of Total
State Accounts Accounts Receivables Receivables
- ----- -------- -------- ----------- -----------
<S> <C> <C> <C> <C>
Alabama .................................. 32,214 0.9% $ 34,811,895 0.9%
Alaska.................................... 6,506 0.2 12,061,544 0.3
Arizona................................... 54,501 1.6 69,076,745 1.8
Arkansas.................................. 29,643 0.9 33,952,720 0.9
California ............................... 350,158 10.3 586,687,843 15.2
Colorado.................................. 48,576 1.4 61,805,044 1.6
Connecticut .............................. 57,821 1.7 58,190,386 1.5
Delaware ................................. 14,213 0.4 15,102,823 0.4
Florida .................................. 183,086 5.4 228,164,110 5.9
Georgia .................................. 72,569 2.1 81,309,702 2.1
Hawaii ................................... 13,031 0.4 17,854,085 0.5
Idaho .................................... 14,048 0.4 15,832,403 0.4
Illinois.................................. 122,833 3.6 125,448,000 3.2
Indiana................................... 79,087 2.3 70,396,925 1.8
Iowa ..................................... 32,136 0.9 21,023,235 0.5
Kansas ................................... 29,373 0.9 33,135,720 0.9
Kentucky ................................. 43,722 1.3 39,964,292 1.0
Louisiana ................................ 53,902 1.6 53,598,330 1.4
Maine..................................... 24,712 0.7 20,704,687 0.5
Maryland.................................. 140,091 4.1 184,886,192 4.8
Massachusetts ............................ 112,077 3.3 102,734,501 2.7
Michigan ................................. 127,574 3.8 113,283,836 2.9
Minnesota................................. 65,430 1.9 57,335,094 1.5
Mississippi .............................. 23,811 0.7 22,623,256 0.6
Missouri.................................. 51,493 1.5 55,525,010 1.4
Montana .................................. 11,265 0.3 8,792,936 0.2
Nebraska ................................. 23,065 0.7 17,813,249 0.5
Nevada ................................... 21,317 0.6 33,268,230 0.9
New Hampshire............................. 23,100 0.7 22,797,858 0.6
New Jersey ............................... 141,811 4.2 177,080,594 4.6
New Mexico ............................... 20,163 0.6 26,764,591 0.7
New York.................................. 238,121 7.0 279,871,747 7.2
North Carolina ........................... 74,018 2.2 76,328,079 2.0
North Dakota ............................. 8,442 0.2 6,728,175 0.2
Ohio ..................................... 121,195 3.6 128,406,313 3.3
Oklahoma.................................. 38,044 1.1 49,188,949 1.3
Oregon ................................... 25,671 0.8 33,882,819 0.9
Pennsylvania ............................. 176,701 5.2 153,917,079 4.0
Rhode Island ............................. 17,267 0.5 17,092,506 0.4
South Carolina............................ 40,823 1.2 36,033,803 0.9
South Dakota.............................. 9,376 0.3 8,292,573 0.2
Tennessee ................................ 59,964 1.8 71,556,243 1.9
Texas..................................... 249,538 7.4 263,826,401 6.8
Utah ..................................... 21,826 0.7 22,639,532 0.6
Vermont .................................. 10,910 0.3 9,284,798 0.2
Virginia ................................. 90,606 2.7 114,891,348 3.0
Washington ............................... 69,166 2.0 85,107,091 2.2
West Virginia ............................ 23,521 0.7 22,582,638 0.6
Wisconsin ................................ 76,730 2.3 57,517,739 1.5
Wyoming .................................. 5,886 0.2 5,276,336 0.1
District of Columbia ..................... 11,089 0.3 17,182,038 0.4
Other .................................... 2,916 0.1 4,097,626 0.1
--------- ----- -------------- ------
TOTAL ................................. 3,395,138 100.0% $3,865,729,669 100.0%
========= ===== ============== ======
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<PAGE>
RECEIVABLE YIELD CONSIDERATIONS
The gross revenues from finance charges and fees billed to accounts in the
Bank Portfolio for each of the three calendar years contained in the period
ended December 31, 1993 and the nine months ended September 30, 1994 are set
forth in the following table.
The historical yield figures in the following table are calculated on an
accrual basis. Collections of Receivables included in Trust II will be on a cash
basis and may not reflect the historical yield experience in the table. During
periods of increasing delinquencies or periodic payment deferral programs,
accrual yields may exceed cash amounts accrued and billed to cardholders.
Conversely, as delinquencies decrease, cash yields may exceed accrual yields as
amounts collected in a current period may include amounts accrued during prior
periods. However, the Seller believes that during the three calendar years ended
December 31, 1993 and the nine months ended September 30, 1994, the yield on an
accrual basis closely approximated the yield on a cash basis. The yield on both
an accrual and a cash basis will be affected by numerous factors, including the
monthly periodic finance charges on the Receivables, the amount of the annual
membership fees and other fees, changes in the delinquency rate on the
Receivables and the percentage of cardholders who pay their balances in full
each month and do not incur monthly periodic finance charges. See 'Special
Considerations' in the Prospectus.
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
Nine Months Ended ------------------------------------
September 30, 1994 1993 1992 1991
------------------ ---------- ---------- ----------
<S> <C> <C> <C> <C>
Average Account Monthly Accrued Finance
Charges and Fees (1)(2) .......................... $ 22.28 $ 23.11 $ 24.57 $ 24.05
Average Account Balance (3) ....................... $1,597.25 $1,593.64 $1,581.70 $1,520.91
Yield from Finance Charges and Fees (4) ........... 16.74% 17.40% 18.64% 18.98%
Yield from Interchange (5)......................... 1.57% 1.84% 1.92% 1.98%
Yield from Finance Charges, Fees and
Interchange ...................................... 18.31% 19.24% 20.56% 20.96%
</TABLE>
- ----------
(1) Finance Charges and Fees are comprised of monthly periodic finance charges
and other credit card fees.
(2) Average Account Monthly Accrued Finance Charges and Fees are presented net
of adjustments made pursuant to MBNA's normal servicing procedures,
including removal of incorrect or disputed monthly periodic finance
charges.
(3) Average Account Balances include purchases, cash advances and accrued and
unpaid monthly periodic finance and other charges and are calculated based
on the average of the account balances during the periods shown for
accounts with charging privileges.
(4) Yield from Finance Charges and Fees is the result of dividing the
annualized Average Account Monthly Accrued Finance Charges and Fees by the
Average Account Balance for the period.
(5) Yield from Interchange is the result of dividing annualized revenue
attributable to Interchange received during the period by the Average
Account Balance for the period. The amount of Interchange for each of the
periods indicated above has been estimated.
The revenue for the Bank Portfolio of credit card accounts shown in the
above table is comprised of monthly periodic finance charges, credit card fees
and Interchange. These revenues vary for each account based on the type and
volume of activity for each account. Because the Trust II Portfolio is only a
portion of the Bank Portfolio, actual yield with respect to the Receivables may
be different from that set forth above for the Bank Portfolio. See 'MBNA's
Credit Card Portfolio' herein and 'MBNA Credit Card Activities' in the
Prospectus.
MBNA AND MBNA CORPORATION
MBNA America Bank, National Association, a national banking association
located in Newark, Delaware, conducts nationwide consumer lending programs
principally comprised of credit card related activities. Based on statistics
compiled by MasterCard and VISA from member institutions as of June 30, 1994,
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<PAGE>
MBNA was the nation's leading issuer of premium MasterCard credit cards and the
second largest issuer of premium VISA credit cards based on managed loans. As of
June 30, 1994, MBNA was the second largest MasterCard and Visa lender based on
managed loans according to an August 1994 issue of The Nilson Report, a by-
weekly industry publication. On a managed basis, MBNA maintained loan accounts
with over 13 million customers with aggregate outstanding balances of $16.5
billion as of September 30, 1994. Of this amount, $15.5 billion were MasterCard
and VISA credit card loans outstanding. As of September 30, 1994, the premium
credit card portfolio accounted for 50% of MBNA's MasterCard and VISA credit
card accounts with outstanding balances and 67% of MBNA's MasterCard and VISA
credit card loans outstanding.
MBNA conducts all direct customer contact processes with respect to the
cardholder. This involves a 24 hour, 365 day per year Customer Service telephone
staff, Credit Decisions, Correspondence Resolution, Security and Collection
Operations. As of June 30, 1994, MBNA had assets of $7.7 billion, deposits of
$5.6 billion and capital and surplus accounts of $744 million.
MBNA is a wholly-owned subsidiary of the Corporation. MBNA was established
in January 1991 in connection with a restructuring of the former MBNA America
Bank, N.A., a wholly-owned subsidiary of MNC Financial, Inc. The Corporation is
a bank holding company organized under the laws of Maryland in 1990 and
registered under the Bank Holding Company Act of 1956, as amended. As of
September 30, 1994, the Corporation had consolidated assets of $9.8 billion,
consolidated deposits of $6.3 billion and capital and surplus accounts of $870
million. The principal asset of the Corporation is the capital stock of MBNA.
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<PAGE>
Excerpt from Prospectus dated March 21, 1995
People's Bank Credit Card Master Trust
Floating Rate Class A Asset Backed Certificates,
Series 1995-1
THE CREDIT CARD BUSINESS OF PEOPLE'S BANK
General
People's Bank began its credit card program in 1985. It launched this program
by marketing a low interest rate credit card to highly creditworthy individuals
in its market area. As a result of the initial program's success, beginning in
January 1987, People's Bank gradually expanded the program nationally with a
continued emphasis on credit quality. The January 1995 issue of the Nilson
Report ranked People's Bank the 30th largest bank credit card issuer in the
United States on the basis of active accounts.
The Receivables conveyed or to be conveyed to the Trust by People's Bank
pursuant to the Agreement have been or will be generated from transactions made
by holders of certain VISA Classic and certain standard MasterCard credit card
accounts, a subset of People's Bank's entire portfolio of credit card accounts;
and include fees billed to the Accounts. The Accounts were generated under the
VISA USA, Inc. ('VISA') or MasterCard International Incorporated ('MasterCard')
associations of which People's Bank is a member.
People's Bank services all of its accounts and receivables at its facilities
located in Bridgeport, Connecticut. Certain operations are performed on behalf
of People's Bank by Total System Services Inc., of Columbus, Georgia ('Total
System'), which operations include statement processing, printing and mailing.
People's Bank has used Total System for such services since it launched its
credit card program in 1985. If Total System were to fall or become insolvent,
delays in processing and recovery of information with respect to charges
incurred by cardholders could occur, and the replacement of such services
provided to People's Bank could be time-consuming. As a result, delays in
payments to Certificateholders could occur.
The entire portfolio of People's Bank VISA and MasterCard accounts (the 'Bank
Portfolio'), of which the accounts giving rise to the Trust Portfolio are a
part, includes premium accounts (i.e., VISA Gold, Gold MasterCard and business
accounts) and standard accounts (i.e., VISA Classic and standard MasterCard).
The accounts from which Receivables arose in the initial Trust Portfolio
included only the standard accounts and not premium accounts. As of January 31,
1995, 5.78% of the accounts in the Bank Portfolio were premium accounts and
94.22% were standard accounts, and the receivables balance of premium accounts
and standard accounts, as a percentage of the total balance of the receivables
in the Bank Portfolio, was 7.64% and 92.36%, respectively. Both premium and
standard accounts undergo the same credit analysis, but premium accounts
generally carry higher annual membership fees and have higher credit limits.
The VISA and MasterCard credit card accounts may be used for three types of
transactions: credit card purchases, cash advances and convenience checks.
Purchases occur when cardholders use credit cards to buy goods and/or services.
A cash advance is made when a credit card is used to obtain cash from a
financial institution or an automated teller machine. Cardholders may also use
convenience
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<PAGE>
checks allowing cardholders to (i) transfer balances from other credit card
accounts to their People's Bank accounts and (ii) draw against their VISA and
MasterCard credit card accounts at any time Amounts due with respect to
purchases, cash advances and convenience checks are included in the Receivables.
In addition, cardholders have been able to purchase insurance covering their
account balances since March 1985. As of January 31, 1995, 0.12% of the accounts
giving rise to the Receivables in the Trust Portfolio were covered by insurance.
Premiums for this insurance are charged to the account for each monthly Billing
Cycle. Such insurance premiums are included in the Receivables transferred to
the Trust and are treated as Finance Charge Receivables.
Each cardholder is subject to an agreement with People's Bank governing the
terms and conditions of the related VISA or MasterCard credit card account.
Pursuant to each such agreement, except as described herein, People's Bank
reserves the right, subject to fifteen days' prior notice to the cardholder or
as may be required by law, to add to, change or terminate any terms, conditions,
services or features of its VISA or MasterCard credit card accounts at any time,
including increasing or decreasing the periodic finance charges, other charges
or the minimum monthly payment requirements.
The credit evaluation, collection and charge-off policies and servicing
practices of People's Bank, as well as the terms and conditions governing
cardholder agreements in effect as of the date hereof, are under continuous
review and may change at any time in accordance with its business judgment,
applicable law and guidelines established by regulatory authorities.
Transactions creating the Receivables through the use of the credit cards are
processed through the VISA and MasterCard systems. Should either system
materially curtail its activities, or should People's Bank cease to be a member
of VISA or MasterCard, for any reason, a Pay Out Event could occur, and delays
in payments on the Receivables and possible reductions in the amounts thereof
could also occur.
Account Origination
The VISA and MasterCard credit card accounts owned by People's Bank were
principally generated through: (i) direct mail solicitations of individuals who
have been prescreened at credit bureaus on the basis of criteria furnished by
People's Bank; (ii) applicant-initiated requests; (iii) applications mailed to
customers of People's Bank and customers of certain agent banks for which
People's Bank acts as a sponsor with VISA USA, Inc. and/or Mastercard
International Incorporated pursuant to People's Bank's Agent Bank Account
program (the 'Agent Bank Accounts'); and (iv) affinity marketing programs which
are originated by People's Bank by soliciting prospective cardholders from
identifiable groups with a common interest or a common cause, and with the
assistance of an organization of the members of such group ('Affinity Program
Accounts'). In addition to these account origination methods, People's Bank
originates certain co-brand accounts and solicits accounts from students and
alumni of local Connecticut universities. In all cases, People's Bank applies
the same credit criteria as with other originations as described below in
'Underwriting Procedures' and the performance by the cardholders of such
accounts is comparable to the remaining Bank Portfolio of accounts.
The largest percentage of all national accounts are originated through
targeted, prescreened direct-mail requests and a significant number of accounts
are originated through applicant-initiated requests. People's Bank's strategy of
offering a low interest rate credit card to highly creditworthy customers has
received significant attention by national consumer groups, consumer focused
publications and financial journals. These sources frequently publish
information regarding People's Bank's credit card products, including People's
Bank's toll free customer service telephone number.
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<PAGE>
Prospective applicants contact People's Bank using the toll free telephone
number and request an application, which they then complete and return to
People's Bank or complete an application over the telephone. Automatic
Additional Accounts will include all VISA Classic and standard Mastercard
accounts originated by applicant-initiated request and through the People's Bank
branch banking system and certain Affinity Program Accounts or Agent Bank
Accounts. Additional Accounts which are not Automatic Additional Accounts may
include Affinity Program Accounts, Agent Bank Accounts, accounts of a type other
than the standard or Classic type and other consumer revolving credit accounts.
See 'Description of the Certificates--Addition of Accounts'.
Underwriting Procedures
All applications for accounts originated by People's Bank are reviewed for
completeness and creditworthiness based on the credit underwriting criteria
established by People's Bank. People's Bank uses credit reports issued by
independent credit reporting agencies with respect to the applicant. In the
event there are discrepancies between the application and the credit report, and
in certain other circumstances, People's Bank may verify certain information
regarding the applicant.
Applications and prescreened direct mail candidates are evaluated by
utilizing a credit scoring system, which was installed in July 1992. Prior to
such installation, People's Bank's accounts were underwritten completely
judgmentally. Since July 1992, the judgmental underwriting has been used to
evaluate only those who score above a preset level. The credit scoring model
used by People's Bank was developed with Fair, Isaac Companies, which has
extensive experience in developing credit scoring models. Credit scoring is
intended to provide a general indication, based on the information available, of
the applicant's willingness and ability to repay his or her obligations. Credit
scoring evaluates a potential cardholder's credit profile and certain
application information in order to statistically quantify credit risk. Models
for credit scoring are developed by using statistics to evaluate common
characteristics and their correlation with credit risk. From time to time, the
credit scoring models used by People's Bank are reviewed and, if necessary,
updated to reflect more current statistical data. Based on statistical analysis,
People's Bank established a policy, as of August 1, 1994, that certain accounts
receiving high credit scores may be automatically approved without judgmental
review.
In the case of prescreened direct mail solicitations, selection criteria
established by People's Bank are used by credit bureaus to generate or screen
lists of qualifying individuals. Members of People's Bank's Consumer Credit
Department then mail solicitations to those qualifying individuals on the list.
Additional credit criteria are applied on a case-by-case basis to those
qualifying individuals accepting such solicitation to determine the appropriate
line of credit for such individuals. The information requested in the response
forms mailed to prescreened prospects is less extensive than the information
requested in the applications mailed to individuals who have not been
prescreened. Credit limits are assigned to prescreened prospective cardholders
based on a credit profile that includes existing indebtedness, past payment
patterns on other consumer loans and certain other criteria. The response forms
of individuals responding to prescreened direct mail solicitations are reviewed
by People's Bank and are checked again through credit reporting bureaus. If no
change in credit performance has occurred, an offer of credit is made.
Generally, each new cardholder is issued a credit card that expires two years
after issuance. People's Bank generally reissues credit cards with two-year
expiration dates, so long as the payment history of the cardholder satisfies
certain criteria.
Billing and Payments
The Bank Portfolio has different billing and payment structures, including
minimum payment levels, annual membership fees and monthly periodic charges.
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For purposes of administrative convenience, the VISA and MasterCard
credit card accounts of People's Bank are currently grouped into twenty-two
billing cycles ending on the 5th through 27th day of each month (other than the
24th day) (each, a 'Billing Cycle'). Each Billing Cycle has its own monthly
billing date, at which time the activity in the related accounts during the
month ending on such billing date is processed and billed to accountholders. See
'The Receivables'. The Accounts include VISA and MasterCard credit card accounts
in Billing Cycles ending at the close of business on each of the days referred
to above. See 'The Receivables'.
Monthly billing statements are sent to accountholders with either debit or
credit activity during the Billing Cycle. Generally, each month, accountholders
must make at least a minimum payment equal to the greater of (i) 3% of the
account balance and (ii) $10, plus any past due amount; provided, however, that
if the remaining balance is less than $10, the minimum payment shall be equal to
the amount of such remaining balance.
The monthly periodic finance charges assessed on cash advances and
convenience checks are calculated by multiplying the average daily cash advance
balance by the applicable monthly periodic rate. Monthly periodic finance
charges are calculated on cash advances (including unpaid finance charges) from
the date of the transaction or, if a convenience check is used, the day the
convenience check is posted to the cardholder's account. The monthly periodic
finance charges assessed on purchases are calculated by multiplying the average
daily purchase balance by the applicable monthly periodic rate. Monthly periodic
finance charges are calculated on purchases (including certain fees and unpaid
finance charges) from the date of the purchase or the first day of the Billing
Cycle in which the purchase is posted to the account (whichever is later). The
credit card agreement provides that monthly periodic finance charges are not
assessed in most circumstances on purchases if the purchaser's new balance shown
in the billing statement is paid within 25 days after the last day of the
Billing Cycle, or if the purchaser's previous balance is zero. With certain
exceptions, the current fixed annual percentage rate for purchases is the
recently established rate of 13.9% or the previously governing rate of 11.5%;
however, periodically People's Bank will offer introductory rates below the
standard rate. An increase in the fixed annual percentage rate for purchases
might have the result of decreasing the volume of Receivables generated. The
current fixed annual percentage rate for cash advances is 18%. For a break-down
of the yield from finance charges and fees billed, see the table titled 'Revenue
Experience Representative Portfolio' included under 'Receivable Yield
Considerations'.
People's Bank may, at its option, reduce the minimum payment requirements and
monthly periodic finance charges described above for the accounts of cardholders
who are members of Consumer Credit Counseling Services, an organization which
assists financially troubled cardholders with outstanding credit card balances
to devise a repayment program. Such repayment program generally involves
reducing the minimum monthly payment and/or reducing the finance charges
assessed. People's Bank may, but is not obligated to, accept such repayment
program.
People's Bank generally assesses a non-refundable annual membership fee of
$25 for standard accounts, $30 for business accounts and $40 for premium
accounts. People's Bank may waive the annual membership fee, or a portion
thereof, in connection with certain solicitations, affinity programs and in
certain other cases. Some of the accounts may be subject to certain additional
fees, including: (i) a late fee, generally in the amount of $20, with respect to
any monthly payment if the required minimum monthly payment is not received by
the payment due date shown on the monthly billing statement; (ii) a cash advance
fee of $3 per transaction at ATMs, People's Bank or any bank; (iii) an overlimit
fee, generally in the amount of $15; and (iv) a returned check fee, generally in
the amount of $15. Subject to the requirements of applicable laws, People's Bank
may change certain of these fees and rates at any time by written notice to
cardholders. Pursuant to the terms of the cardholder agreement, People's Bank
may change the terms of such agreement and must give cardholders 15 days prior
notice of any change which would result in an increase in the rate of finance
charges on existing balances or new activity, or other fees, or impose a fee not
set forth in such agreement.
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<PAGE>
Payments on People's Bank accounts are generally applied, in the
following order, to: finance charges, the balance of purchases prior to March
1992 and balance transfers prior to May 5,1993, the balance of cash advances and
convenience checks (other than convenience checks used to pay balance transfers)
previously billed, the balance of new cash advances, balance transfers on or
after May 5, 1993, the balance of purchases previously billed after March 1992
and the balance of new purchases.
There can be no assurance that periodic finance charges, fees, and other
charges imposed by People's Bank will remain at current levels in the future, or
that the order of application of payments made on People's Bank's accounts will
remain as described above.
Collection of Delinquent Accounts. An account is initially considered
delinquent if the minimum monthly payment indicated on the accountholder's
statement is not received within one calendar month from the statement date.
Efforts to collect delinquent credit card receivables are made by People's
Bank's personnel and collection agencies and attorneys retained by People's
Bank. Under current practice, accountholders that become one to ten days
delinquent are sent a notice on the billing statement and telephone calls to the
accountholder begin once an account becomes delinquent. People's Bank uses an
automated dialer to telephone delinquent accountholders. People's Bank also uses
the on-line collections system of Total System and a Fair, Isaac Companies
scoring system to analyze the collection risk on such accounts.
Generally, within 31 days of contractual delinquency, no additional
extensions of credit through such account are authorized and, at 61 days of
contractual delinquency, the account is closed. Consistent with the credit and
collection policies, in certain infrequent circumstances, People's Bank may
enter into arrangements with cardholders to extend or otherwise change payment
schedules, which can include the suspension of finance charge accruals or
bringing current (or 'reaging') accounts where cardholders make three
consecutive minimum monthly payments. People's Bank will enter into such
arrangements only in circumstances where it believes the Bank's ability to
collect on the account will be enhanced by such arrangements.
The current policy of People's Bank is to charge off, as a loan loss, the
principal portion of the receivables balance for both purchases and cash
advances at any time after the 210th through the 240th day of delinquency.
Charge offs may occur earlier in some circumstances, as in the case of bankrupt
cardholders. At the time an account is charged off, an evaluation of its
collectibility is made on a case by case basis to determine whether further
remedies should be pursued by collection personnel at People's Bank, outside
collection agencies or, in some cases, outside attorneys. Delinquency levels are
monitored by collection managers and information is reported regularly to senior
management. Under the terms of the Agreement, any Recoveries will be included in
the assets of the Trust and considered Finance Charge Receivables.
Loss and Delinquency Experience
The following tables set forth the delinquency and loss experience for each
of the periods shown for receivables in accounts which would have substantially
satisfied the criteria for inclusion of its related receivables in the Trust
Portfolio (the 'Representative Portfolio') set forth in the Agreement as applied
on each date listed in the tables below. The Servicer will file with the
Commission monthly reports with respect to the Trust, including information with
respect to revenues, losses and Portfolio Yield with respect to the Accounts.
There can be no assurance that the delinquency and loss experience for the
Receivables in the future will be similar to the historical experience of the
Representative Portfolio included in the tables set forth below because, among
other things, economic and financial conditions affecting the ability of
cardholders to pay may be different from those which prevailed during the
periods reflected below.
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<PAGE>
Loss Experience
Representative Portfolio
(Dollars in Thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
1994 1993 1992
---------- -------- --------
<S> <C> <C> <C>
Average Receivables Outstanding(1) ................. $1,094,642 $706,663 $406,447
Gross Charge Offs(2)(3) ............................ 24,954 16,625 16,771
Recoveries ......................................... 3,591 2,998 2,440
Net Charge Offs(3) ................................. 21,363 13,627 14,331
Net Charge Offs as Percentage of Average Receivables
Outstanding(3) .................................... 1.95% 1.93% 3.53%
</TABLE>
- ----------
(1) Average Receivables Outstanding is the average of the daily receivable
balance during the period indicated.
(2) Gross Charge Offs are calculated before Recoveries and do not include the
amount of any reductions in Average Receivables Outstanding due to fraud.
(3) The amounts of charge-offs include the principal and interest portion of
charged off receivables.
Delinquency Experience
Representative Portfolio
(Dollars in Thousands)
<TABLE>
<CAPTION>
As of December 31,
-----------------------------------------------------------------------
1994 1993 1992
--------------------- --------------------- ---------------------
Number of Days Delinquent(1) Amount Percentage Amount Percentage Amount Percentage
---------------------------- ------- ---------- ------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
31 to 60 days..................... $13,164 0.93% $ 6,492 0.71% $ 5,238 1.03%
61 to 90 days .................... 7,011 0.50 3,649 0.40 2,968 0.58
91 to 120 days ................... 4,859 0.34 2,798 0.30 2,093 0.41
121 to 150 days .................. 3,822 0.27 2,098 0.23 1,597 0.32
151 to 180 days .................. 2,892 0.20 1,772 0.19 1,379 0.27
181 days or greater .............. 4,166 0.29 2,715 0.29 2,063 0.41
------- ---- ------- ---- ------- ----
Total (2) ...................... $35,904 2.53% $19,524 2.12% $15,338 3.02%
======= ==== ======= ==== ======= ====
</TABLE>
- ----------
(1) Number of days delinquent means the number of days after the billing date
next following the original billing date. For example, 31 days delinquent
means that no payment is received within 61 days after the original billing
date.
(2) Delinquencies are calculated as a percentage of outstanding receivables as
of the end of each calendar month. Delinquencies include bankruptcies.
The delinquency and loss experience for the receivables in 1992 and 1993 was
affected by the sale in November 1991 of approximately $200,000,000 of credit
card receivables and related accounts. People's Bank believes the selection
criteria used in such sale, which included, among other things delinquency
experience, adversely affected the performance of the Representative Portfolio
on a temporary basis. Similarly, the 1992 loss experienced was negatively
impacted by the selection process applied in the above referenced sale.
Furthermore, while the increases in delinquency and loss experience described
above are largely attributable to such sale of receivables, they are also
attributable, in part, to slower growth in the receivables balances in 1991 and
to a national recession and a recession in Connecticut. See 'Special
Considerations--Social, Legal, and Economic Factors'. The rise in average
outstandings from approximately $406,447,000 in 1992 to approximately
$1,094,642,000 in 1994, has significantly
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reduced the loss and delinquency amounts as a percentage of the Representative
Portfolio, as demonstrated by comparing the delinquency amounts and percentages
for the calendar year ended 1992 to those for the calendar year ended 1994. The
delinquency rate increase to 2.53% as of December 31, 1994 reflects the effects
of both account seasoning and a slight reduction in the rate of average
receivable growth. To the extent that average receivables outstanding do not
continue to rise at the same rate as they did from 1992 to 1994, and to the
extent that the rate of account seasoning does not remain the same, there can be
no assurance that the loss and delinquency amounts as a percentage of the
Representative Portfolio will remain at current levels.
People's Bank believes that conformity with its underwriting procedures (see
'--Underwriting Procedures') will keep the loss and delinquency experience
within historical norms.
Interchange
Creditors participating in the VISA and MasterCard associations receive
certain fees 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 systems, a portion of these fees collected in
connection with cardholder charges for merchandise and services is passed from
the banks clearing the transactions for merchants to credit card issuing banks.
These fees currently range from approximately 0.90% to 2.18% of the transaction
amount. People's Bank is required, pursuant to the terms of the Agreement, to
transfer to the Trust those fees attributed to cardholder charges for
merchandise and services in the Accounts ('Interchange'). Such percentages are
set by the VISA and MasterCard associations and may be changed by either of them
respectively from time to time. Interchange is treated as Finance Charge
Receivables for the purposes of determining the amount of Finance Charge
Receivables, allocating collections and payments to Certificateholders and
calculating the Portfolio Yield.
THE RECEIVABLES
The Receivables conveyed to the Trust arise in Accounts from the Bank
Portfolio of VISA Classic and standard MasterCard credit card accounts on the
basis of eligibility criteria set forth in the Agreement (the 'Trust
Portfolio'). Such criteria do not create a selection adverse to the
Certificateholders. Pursuant to the Agreement, the Transferor has the right
(and, under certain circumstances, the obligation), subject to certain
limitations and conditions set forth therein, to designate from time to time
Additional Accounts and to transfer to the Trust all Receivables of such
Additional Accounts, whether such Receivables are then existing or thereafter
created. Any Additional Accounts designated pursuant to the Agreement must be
Eligible Additional Accounts as of the date the Transferor designates such
accounts as Additional Accounts. The Agreement also provides that the Transferor
will add as Automatic Additional Accounts certain new accounts opened in the
ordinary course of its business. Automatic Additional Accounts will be added to
the Trust on the business day that they are originated if certain requirements
are satisfied. See 'Description of the Certificates--Addition of Accounts'.
Automatic Additional Accounts will consist of newly originated VISA Classic and
standard MasterCard accounts originated through applicant-initiated requests and
the People's Bank branch banking system and certain Affinity Program Accounts or
Agent Bank Accounts. The Transferor may designate additional categories of
Automatic Additional Accounts; provided, however, that the Transferor shall not
have received notice from any Rating Agency that such designation will result in
a downgrading or withdrawal of the rating of any certificates of any Series
outstanding. In addition, the Transferor is required to designate Eligible
Additional Accounts as Additional Accounts (x) to maintain the Transferor
Interest such that on any Record Date the Transferor Interest for the related
Monthly Period equals or exceeds 7% or such higher percentage as may be stated
in any Supplement (such percentage, the 'Minimum Transferor Interest') of the
average Aggregate Principal Receivables and (y) to maintain, for so long as
certificates of any Series, including the Certificates, remain outstanding,
A-98
<PAGE>
<PAGE>
Aggregate Principal Receivables in an amount equal to or greater than the
Minimum Aggregate Principal Receivables. The 'Minimum Aggregate Principal
Receivables' required to be maintained through the designation by the Transferor
of Additional Accounts shall generally be an amount equal to the sum of the
numerators used to calculate the Investor Percentage with respect to Principal
Receivables for each Series. Such amount may be increased by a Supplement
pursuant to which additional Series may be issued. The Transferor will convey
the Receivables then existing or thereafter created under such Additional
Accounts to the Trust. See 'Description of the Certificates--Addition of
Accounts'. Further, pursuant to the Agreement, the Transferor has the right
(subject to certain limitations and conditions discussed herein) to remove
certain Accounts designated by the Transferor whether such Receivables are then
existing or thereafter created. See 'Description of Certificates--Removal of
Accounts'. Throughout the term of the Trust, the Accounts from which the
Receivables arise will be the same Accounts designated and conveyed by the
Transferor to the Trust plus any Additional Accounts and Automatic Additional
Accounts and minus any Removed Accounts. As of each date an Account is added,
and on any date Additional Accounts or Automatic Additional Accounts are added,
to the Trust, and on the date any new Receivables are created or are added to
the Trust, as applicable, the Transferor will represent and warrant to the Trust
that the Receivables meet the eligibility requirements specified in the
Agreement. See 'Description of the Certificates--Representations and
Warranties'.
Some of the Accounts are recently solicited, unseasoned accounts and the
Receivables include Receivables that may be up to 240 days contractually
delinquent. Because the Accounts were selected as of the Series Cut-Off Date,
there can be no assurance that all of the accounts will continue to meet the
eligibility requirements during the life of the Trust. The Receivables in the
Accounts are the unsecured obligations of the cardholders.
The Receivables in the Trust Portfolio as of the Series Cut-Off Date totalled
$1,396,128,919.02. The Accounts had, as of the January 1995 Monthly Period, an
average outstanding balance of $1,572 and an average credit limit of $4,507. The
percentage of the aggregate total Receivables balance to the aggregate total
credit limit was 34.88%, and the weighted average age of the Accounts was
approximately 30.50 months. As of the January 1995 Monthly Period, cardholders
whose Accounts giving rise to the Receivables are included in the Trust
Portfolio have billing addresses in all 50 States and the District of Columbia.
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<PAGE>
<PAGE>
The following tables summarize the Trust Portfolio's balance and account
characteristics of the Accounts giving rise to the Receivables as of the close
of the January 1995 Monthly Period for each of the Accounts. Because the future
composition of the Trust Portfolio may change over time, these tables may not
necessarily be indicative of the composition of the Trust Portfolio after the
January 1995 Monthly Period.
Composition by Account Balance
Trust Portfolio
<TABLE>
<CAPTION>
Percentage Percentage
of Total of Total
Account of Number of Number of Receivables
Balance Range Accounts Accounts Receivables Balance Balance
------------- --------- ---------- ------------------- -----------
<S> <C> <C> <C> <C>
Credit Balance ............ 10,432 1.17% $ (1,027,665.13) (0.07)%
No Balance ................ 250,062 28.16 0.00 0.00
$.01-$500.00 .............. 133,330 15.01 25,987,991.98 1.86
$500.01-$1,000.00 ......... 72,807 8.20 54,587,777.87 3.91
$1,000.01-$3,000.00 ....... 232,288 26.15 466,683,378.94 33 43
$3,000.01-$5,000.00 ....... 140,427 15.81 545,115,396.37 39.04
$5,000.01-$10,000.00 ...... 47,772 5.38 292,631,914.32 20.96
Over $10,000.00 .......... 1,029 0.12 12,150,124.67 0.87
------- ------ ----------------- -------
Total ................... 888,147 100.00% $1,396,128,919.02 100.00%
======= ====== ================= ======
</TABLE>
Composition by Credit Limit
Trust Portfolio
<TABLE>
<CAPTION>
Percentage Percentage
Number of Total of Total
Credit of Number of Receivables
Limit Range Accounts Accounts Receivables Balance Balance
--------------- -------- ---------- ------------------- -----------
<S> <C> <C> <C> <C>
$0-$1,000.00 ................. 64,080 7.22% $ 16,030,133.79 1.15%
$1,000.01-$2,000.00 .......... 76,677 8.63 52,954,121.82 3.79
$2,000.01-$3,000.00 .......... 120,625 13.58 137,182,901.31 9.83
$3,000.01-$4,000.00 .......... 118,464 13.34 157,305,745.96 11.27
$4,000.01-$5,000.00 .......... 172,080 19.38 328,470,517.15 23.53
$5,000.01-$10,000.00 ......... 315,413 35.51 650,800,995.45 46.61
Over $10,000.00 .............. 20,808 2.34 53,384,503.54 3.82
------- ------ ----------------- ------
Total ...................... 888,147 100.00% $1,396,128,919.02 100.00%
======= ====== ================= ======
</TABLE>
Composition by Period of Delinquency
Trust Portfolio
<TABLE>
<CAPTION>
Percentage Percentage
Period of Delinquency Number of Total of Total
(Days Contractually of Number of Receivables Receivables
Delinquent) Accounts Accounts Balance Balance
--------------------- -------- --------- ----------------- ---------
<S> <C> <C> <C> <C>
Current ................... 846,579 95.32% $1,290,631,069.95 92.44%
1-30 Days ................ 26,396 2.97 66,556,319.75 4.77
31 to 60 Days ............ 5,865 0.66 14,308,722.77 1.03
61 or More Days .......... 9,307 1.05 24,632,806.55 1.76
------- ------ ----------------- ------
Total .................. 888,147 100.00% $1,396,128,919.02 100.00%
======= ====== ================= ======
</TABLE>
A-100
<PAGE>
<PAGE>
Composition by Account Age
Trust Portfolio
<TABLE>
<CAPTION>
Percentage Percentage
Number of Total of Total
of Number of Receivables Receivables
Account Age Accounts Accounts Balance Balance
------------- -------- --------- ---------------- -----------
<S> <C> <C> <C> <C>
0 to 6 Months .................... 129,134 14.54% $ 259,709,807.34 18.60%
Over 6 Months to 12 Months ....... 139,808 15.74 244,318,323.51 17.50
Over 12 Months to 24 Months ...... 100,067 11.27 164,417,458.62 11.78
Over 24 Months to 48 Months ...... 156,605 17.63 231,186,264.35 16.56
Over 48 Months ................... 362,533 40.82 496,497,065.20 35.56
------- ------ ----------------- ------
Total .......................... 888,147 100.00% $1,396,128,919.02 100.00%
======= ====== ================= ======
</TABLE>
Geographic Distribution by Accounts
Trust Portfolio
<TABLE>
<CAPTION>
Percentage Percentage
Number of Total of Total
of Number of Receivables Receivables
Accounts Accounts Balance Balance
-------- --------- ----------------- -----------
<S> <C> <C> <C> <C>
Connecticut ..................... 188,157 21.19% $ 268,668,200.27 19.24%
California ..................... 57,731 6.50 104,787,348.84 7.51
Texas .......................... 50,651 5.70 85,266,612.36 6.11
New York ....................... 49,487 5.57 71,113,022.80 5.09
Florida ........................ 41,153 4.63 64,908,356.51 4.65
Ohio ........................... 34,971 3.94 56,714,121.22 4.06
Illinois ....................... 31,423 3.54 49,458,321.92 3.54
New Jersey ..................... 29,626 3.34 45,834,045.62 3.28
Pennsylvania ................... 30,586 3.44 42,930,009.76 3.08
Michigan ....................... 25,418 2.86 42,606,305.30 3.05
Other(1) ....................... 348,944 39.29 563,842,574.42 40.39
------- ------ ----------------- ------
Total ........................ 888,147 100.00% $1,396,128,919.02 100.00%
======= ====== ================= ======
</TABLE>
- ----------
(1) States with less than 2.86% of the Percentage of Total Number of Accounts.
The largest concentration of Accounts giving rise to Receivables in the Trust
Portfolio is in Connecticut. Connecticut's economy has historically been highly
dependent on the defense industry, which recently has been adversely affected by
cutbacks in federal spending. During the past several years, Connecticut has
been adversely impacted by employment losses more severe in Connecticut than in
the United States as a whole. See 'Special Considerations--Social, Legal and
Economic Factors'.
MATURITY ASSUMPTIONS
The Agreement provides that Certificateholders will not receive principal
payments until the Distribution Date following the commencement of the
Controlled Amortization Period, which will commence with the September 1999
Monthly Period, except in the event of a Pay Out Event, which will result in the
commencement of the Rapid Amortization Period. A 'Pay Out Event' occurs, either
automatically or after specified notice, upon (a) the failure of the Transferor
to make certain payments or transfers of funds for the benefit of the
Certificateholders within the time periods stated in the Agreement, (b) material
breaches of certain representations, warranties or covenants of the Transferor,
A-101
<PAGE>
<PAGE>
(c) certain insolvency events involving the Transferor, (d) the occurrence of a
Servicer Default which would have a material adverse effect on the
Certificateholders, (e) the failure of the Transferor to convey Receivables
arising under Additional Accounts when required by the Agreement, (f) the Trust
becoming subject to regulation as an 'investment company' by the Securities and
Exchange Commission within the meaning of the Investment Company Act of 1940, as
amended, (g) a reduction in the Portfolio Yield averaged for any three
consecutive Monthly Periods to a rate which is less than the Base Rate, (h)
reduction of the Available Cash Collateral Amount to less than the lesser of the
Investor Interest as of the last day of the related Monthly Period and 3% of the
Initial Investor Interest, (i) the failure to pay each class of Certificates in
full on or prior to its applicable Expected Final Distribution Date or a) the
failure of the Interest Rate Cap Provider to make any payment under the Interest
Rate Caps within five days of the date such payment was due. See 'Description of
the Certificates--Pay Out Events'.
During the Controlled Amortization Period, distributions of monthly principal
will be made on each Distribution Date (beginning with the September 1999
Distribution Date) to the Class A Certificateholders until the earlier of (x)
the termination of the Trust and (y) the date on which the Class A Investor
Interest is paid in full and, beginning with the Class B Payment Commencement
Date, to the Class B Certificateholders until the earlier of (x) the termination
of the Trust and (y) the date on which the Class B Investor Interest is paid in
full, in an amount on any such Distribution Date equal to the lesser of (a) the
sum of (i) the Principal Allocation, which is equal to the product of the
applicable Investor Percentage (which percentage may be reset during the
Controlled Amortization Period if new Series are issued) and collections in
respect of Principal Receivables received during the related Monthly Period and
(ii) the amount of Shared Principal Collections, if any, allocable to the
Certificates with respect to such Monthly Period and (b) the applicable
Controlled Distribution Amount for the class receiving such distributions, which
is equal to the sum of the applicable Controlled Amortization Amount and any
existing Deficit Controlled Amortization Amount (both as defined below). The
'Class A Controlled Amortization Amount' means $27,142,857.14 and the 'Class B
Controlled Amortization Amount' means $20,000,000.00 and the 'Controlled
Amortization Amount' means either the Class A Controlled Amortization Amount or
the Class B Controlled Amortization Amount, as context requires. Such amounts
may be reduced to reflect the tender and cancellation of Certificates pursuant
to an Investor Exchange. The 'Class A Controlled Distribution Amount' means, on
any Distribution Date, the Class A Controlled Amortization Amount plus the
related Deficit Controlled Amortization Amount as of such Distribution Date, and
the 'Class B Controlled Distribution Amount' means, on any Distribution Date,
the Class B Controlled Amortization Amount plus the related Deficit Controlled
Amortization Amount as of such Distribution Date, and the 'Controlled
Distribution Amount' means either the Class A Controlled Distribution Amount or
the Class B Controlled Distribution Amount, as context requires. The term
'Deficit Controlled Amortization Amount' means, on the Closing Date, zero and,
on any Distribution Date, the amount of the accrued and unpaid monthly excesses
of the Controlled Amortization Amount for the applicable class of Certificates
and for each preceding Monthly Period over the sum of the Principal Allocation
and the amount of any Shared Principal Collections available to the Certificates
for each such Monthly Period. Should the Rapid Amortization Period commence, the
Certificateholders will be entitled to receive monthly payments as provided
herein of principal on each Distribution Date (beginning with the Distribution
Date in the month following the month in which the Rapid Amortization Period
commences) equal to the product of the applicable Investor Percentage and
collections in respect of Principal Receivables received during the related
Monthly Period and the amount of Shared Principal Collections, if any, allocable
to the Certificates with respect to such Monthly Period. Allocations based upon
the applicable Investor Percentage during either the Controlled Amortization
Period or the Rapid Amortization Period may result in distributions of principal
to Certificateholders greater, relative to the declining balance of the Investor
Interest, than would be the case if a percentage based on such declining balance
were used to determine the percentage of collections to be distributed in
respect of the Investor Interest. See 'Description of the Certificates--
Allocation Percentages'.
A-102
<PAGE>
<PAGE>
A significant decline in the amount of Receivables generated during the
Revolving Period could result in the occurrence of a Pay Out Event for the
Certificateholders and the commencement of the Rapid Amortization Period, thus
shortening the maturity of the Certificates. Conversely, a significant decline
in the amount of Receivables generated during an Amortization Period could
result in an extension of the final payment of the Certificates. If the maturity
of the Certificates has been shortened at a time when interest rates generally
available are lower than the Certificate Rate, the yield to maturity realized by
the Certificateholders upon reinvestment at the lower prevailing interest rates
may be lower than if the Certificates remained outstanding until the expected
maturity. Conversely, if the maturity of the Certificates is extended at a time
when interest rates generally available are higher than the Certificate Rate,
the yield to maturity realized by the Certificateholders may be lower than if
the Certificates had matured when expected and the Certificateholders had
reinvested at the higher prevailing interest rates.
The following table sets forth the highest and lowest cardholder monthly
payment rates for the Representative Portfolio during any month in the period
shown and the average cardholder monthly payment rates for all months during the
periods shown, in each case calculated as a percentage of the prior month's
ending outstanding receivables balance during the periods shown. Payment rates
shown in the table are based on amounts which would be deemed payments of
Principal Receivables and Finance Charge Receivables with respect to the
Accounts.
Cardholder Monthly Payment Rates(1)
Representative Portfolio
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------
1994 1993 1992
----- ----- -----
<S> <C> <C> <C>
Lowest ....................... 9.63% 11.31% 10.74%
Highest ...................... 12.82 13.68 13.79
Average(2) ................... 10.91 12.15 12 50
</TABLE>
- ----------
(1) Monthly payment rates represent total payments collected during a given
month expressed as a percentage of the prior month's ending outstanding
receivables.
(2) The average monthly payment rates shown are expressed as an arithmetic
average of the payment rate during each month of the period indicated.
The amount of collections of Receivables may vary from month to month due to
seasonal variations, general economic conditions and payment habits of
individual cardholders. There can be no assurance that collections of Principal
Receivables with respect to the Trust Portfolio, and thus the rate at which
Certificateholders could expect to receive payments of principal on the
Certificates during either the Controlled Amortization Period or the Rapid
Amortization Period, will be similar to the historical experience set forth
above. In addition, if a Pay Out Event occurs, the average life and maturity of
the Certificates could be significantly reduced.
Because there may be a slowdown in the payment rate below the payment rate
used to determine the Controlled Amortization Amount, or because a Pay Out Event
may occur which would initiate the Rapid Amortization Period, there can be no
assurance that the actual number of months elapsed from the beginning of the
Controlled Amortization Period to the final Distribution Date with respect to
the Class A Certificates or the Class B Certificates will equal the expected
number of months (respectively, 14 months and 15 months).
A-103
<PAGE>
<PAGE>
PEOPLE'S BANK
People's Bank was formed in 1842 and is headquartered in Bridgeport,
Connecticut. People's Bank is a majority-owned subsidiary of People's Mutual
Holdings, which as of December 31, 1994 owns 67.7% of the issued and outstanding
common stock of People's Bank. In May 1993, People's Bank issued $69,000,000 of
convertible preferred stock. After such stock is fully converted, People's
Mutual Holdings will own 60.5% of the common stock of People's Bank. People's
Bank is chartered as a Connecticut stock savings bank, and as a state chartered
non-member bank is regulated by the State of Connecticut Department of Banking
and by the FDIC. As of December 31, 1994, People's Bank's total assets were
approximately $6.5 billion, total liabilities were approximately $6.0 billion,
and total stockholders' equity was approximately $469 million. At December 31,
1994, People's Bank Tier 1 leverage capital ratio was 7.1%, satisfying the
minimum ratio of 4.0% to 5.0% generally required by the FDIC. People's Bank is
also subject to the FDlC's risk-based capital regulations, which require minimum
ratios of Tier 1 capital and total capital to risk-weighted assets of 4.0% and
8.0%, respectively. People's Bank satisfied these requirements at December 31,
1994 with ratios of 10.1% and 11.3%, respectively. People's Bank regulatory
capital ratios at December 31, 1994 exceed the FDlC's numeric criteria for
classification as a 'well capitalized' institution. People's Bank's lending
activities consist of originating loans secured by residential and commercial
properties, and extending secured and unsecured loans to consumers and
businesses.
A-104
<PAGE>
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
A-105
<PAGE>
<PAGE>
Excerpt from Prospectus dated September 24, 1992
Standard Credit Card Master Trust I
Floating Rate Credit Card Participation Certificates,
Series 1992-3
THE CREDIT CARD BUSINESS OF CITIBANK (SOUTH DAKOTA)
General
The Receivables which the Banks convey to the Trust from time to time
pursuant to the Pooling Agreement have been and will be generated from
transactions made by holders of certain credit card accounts. Citibank (South
Dakota) will service these accounts at its facilities located in Sioux Falls,
South Dakota, and through affiliated credit card processors pursuant to service
contracts. The Receivables conveyed to the Trust to date were generated under
the VISA U.S.A., Inc. ('VISA') or MasterCard International Incorporated
('MasterCard International') programs and were either originated by Citibank
(South Dakota) or purchased by Citibank (South Dakota) from other credit card
issuers. Such accounts are owned by Citibank (South Dakota) but a participation
in the Receivables in certain of these accounts has been or will be sold to
Citibank (Nevada) prior to their conveyance to the Trust.
Subject to certain conditions, the Banks may convey to the Trust
receivables arising in credit card accounts of a type not currently included in
the Accounts. Affiliates of the Banks also currently conduct credit card
businesses. For example, Citibank (Maryland), N.A. owns and services a portfolio
of VISA'r'* and MasterCard'r' credit card accounts and Citicorp Retail Services,
Inc. also manages private label credit card programs for several retailers.
Receivables arising in such accounts may be participated to the Banks and sold
to the Trust. In addition, the Banks may purchase portfolios of credit card
accounts from other credit card issuers which may be included in the Trust. Such
accounts may not be originated, used or collected in the same manner as the VISA
and MasterCard accounts described below and may differ with respect to loss and
delinquency and revenue experience and historical payment rates. Such accounts
may also have different terms than the accounts described below, including lower
periodic finance charges. Consequently, the addition of the receivables arising
in such accounts to the Trust could have the effect of reducing the Portfolio
Yield. The Banks intend to file with the Commission on behalf of the Trust a
Report on Form 8-K with respect to any addition of accounts which would have a
material effect on the composition of the Accounts. See 'Master Trust
Provisions--Addition of Trust Assets'.
The following discussion describes certain terms and characteristics of the
accounts in the Portfolio from which the Accounts were selected. The Eligible
Accounts from which the Accounts were selected represent only a portion of the
Portfolio. In addition, Additional Accounts may consist of Eligible Accounts
which are not currently in existence and which are selected using different
eligibility criteria from those used in selecting the Accounts already included
in the Trust. See 'Master Trust Provisions--Addition of Trust Assets' and 'The
Pooling Agreement Generally--Representations and Warranties'. Consequently,
actual loss and delinquency, revenue and monthly payment rate experience with
respect to the Eligible Accounts and the Additional Accounts may be different
from such experience for the Portfolio described hereunder.
Citibank (South Dakota) is a member of VISA and MasterCard International. The
VISA and MasterCard credit cards are issued as part of the worldwide VISA and
MasterCard International systems, and transactions creating the receivables
through the use of the credit cards are processed through the VISA and
MasterCard International authorization and settlement systems. Should either
system materially curtail its activities, or should Citibank (South Dakota)
cease to be a member of VISA or MasterCard International, for any reason, an
Early Amortization Event could occur, and delays in payments on the Receivables
and possible reductions in the amounts thereof could also occur. The VISA and
MasterCard accounts the receivables in which have been conveyed to the Trust
include both nonpremium and premium VISA and MasterCard accounts. Such accounts
differ with respect to certain characteristics such as annual fees, periodic
finance charges and late fees on amounts charged for goods and services, as more
fully described below. See 'The Accounts'. For the six months ended June 30,
1992, the average receivables balance of nonpremium and premium accounts, as a
percentage of the total receivables balance of the entire Portfolio, was
approximately 76% and 24%, respectively.
- ----------
* VISA and MasterCard are registered trademarks of VISA U.S.A., Inc. and
MasterCard International Incorporated, respectively.
A-106
<PAGE>
<PAGE>
The VISA and MasterCard credit cards of the type pursuant to which the
Accounts were established may be used to purchase merchandise and services and
to obtain cash advances. A cash advance is made when a credit card account is
used to obtain cash from a financial institution or automated teller machine,
which may be located at a financial institution, supermarket or other business
establishment. Amounts due with respect to both purchases and cash advances will
be included in the Receivables.
The VISA and MasterCard credit card accounts owned by Citibank (South
Dakota) were principally generated through: (i) applications mailed directly to
prospective cardholders; (ii) applications made available to prospective
cardholders at the banking facilities of Citibank (South Dakota), at other
financial institutions and at retail outlets; (iii) applications generated by
advertising on television, on radio and in magazines; (iv) direct mail and
telemarketing solicitation for accounts on a preapproved credit basis; (v)
solicitation of cardholders of existing nonpremium accounts for premium
accounts; (vi) applications through affinity marketing programs; and (vii)
purchases of accounts from other credit card issuers.
Acquisition and Use of Credit Cards
When Citibank (South Dakota) generates new VISA and MasterCard accounts
through the solicitation of individual applications to open an account, it
reviews each application for completeness and creditworthiness. In addition,
Citibank (South Dakota) generally obtains a credit report issued by an
independent credit reporting agency with respect to the applicant. In the event
there are discrepancies between the application and the credit report and in
certain other circumstances, Citibank (South Dakota) may verify certain of the
information regarding the applicant. Citibank (South Dakota) generally evaluates
the ability of an applicant for a VISA or MasterCard credit card account to
repay credit card balances by applying a credit scoring system using models
developed with the assistance of an independent firm with extensive experience
in developing credit scoring models. Credit scoring is intended to provide a
general indication, based on the information available, of the applicant's
willingness and ability to repay his or her obligations. Credit scoring
evaluates a potential cardholder's credit profile to arrive at an estimate of
the associated credit risk. Models for credit scoring are developed by using
statistics to evaluate common characteristics and their correlation with credit
risk. The credit scoring model used to evaluate a particular applicant is based
on a variety of factors, including the manner in which the application was made
or the manner in which the account was acquired as well as the place of
residence of the applicant or cardholder. From time to time the credit scoring
models used by Citibank (South Dakota) are reviewed and, if necessary, updated
to reflect more current statistical information. Once an application to open an
account is approved an initial credit limit is established for the account based
on, among other things, the applicant's credit score and the source from which
the account was acquired.
Citibank (South Dakota) also generates new VISA and MasterCard accounts
through direct mail and telemarketing solicitation campaigns directed at
individuals who have been preapproved by Citibank (South Dakota). Citibank
(South Dakota) identifies potential cardholders for preapproved direct mail or
telemarketing solicitation campaigns by supplying a list of credit criteria to a
credit bureau which generates a list of individuals who meet such criteria and
forwards such list to a processing vendor. The processing vendor screens the
list in accordance with the credit criteria of Citibank (South Dakota) to
determine the eligibility of the individuals on the list for a preapproved
solicitation. Individuals qualifying for preapproved direct mail or
telemarketing solicitation are invited to apply for a credit card without having
to complete a detailed application. In the case of preapproved solicitations, a
predetermined credit limit is reserved for each member of the group being
solicited, which credit limit may be based upon, among other things, each
member's individual credit profile, level of existing and potential indebtedness
relative to assumed income and estimated income and the availability of
additional demographic data for such member.
In recent years, Citibank (South Dakota) has added affinity marketing to
its other means of business development. Affinity marketing involves the
solicitation of prospective cardholders from identifiable groups with a common
interest and/or common cause. Affinity marketing is conducted through two
approaches: the first relies on the solicitation of organized membership groups
with the written endorsement of the group's leadership and the second utilizes
direct mail solicitation of prospective cardholders through the use of a list
purchased from a group. Solicitation activities used in connection with affinity
marketing also include solicitations in appropriate magazines, telemarketing and
applications made available to prospective cardholders in appropriate locations.
In certain cases, preapproved solicitations will be used in the same manner as
described in the preceding paragraph.
A-107
<PAGE>
<PAGE>
Credit card accounts that have been purchased by Citibank (South Dakota)
were originally opened using criteria established by the institution from which
the accounts were purchased or by the institution from which the selling
institution originally purchased the accounts. Purchased accounts are screened
against criteria which are set at the time of acquisition to determine whether
any of the purchased accounts should be closed immediately. Any accounts failing
the criteria are closed and no further purchases or cash advances are
authorized. All other such accounts remain open. The credit limits on such
accounts are based initially on the limits established or maintained by the
selling institution. The Accounts include accounts from a portfolio of credit
card accounts originated by First RepublicBank of Delaware and acquired by
Citibank (South Dakota) from the FDIC in October 1988 (the 'First RepublicBank
Portfolio'), accounts from a portfolio of credit card accounts originated by
Empire of America Federal Savings Bank ('Empire') and acquired by Citibank
(South Dakota) from Empire in June 1989 (the 'Empire Portfolio') and accounts
from a portfolio of credit card accounts originated or acquired by The Bank of
New England Corporation ('Bank of New England') and acquired by Citibank (South
Dakota) in February 1990 (the 'Bank of New England Portfolio'). It is expected
that other portfolios of credit card accounts purchased by the Banks from other
credit card issuers will be added to the Trust from time to time. See 'Master
Trust Provisions--Addition of Trust Assets'. It is expected that such accounts
will be screened in the manner described above.
Each cardholder is subject to an agreement governing the terms and
conditions of the accounts. Pursuant to such agreement, Citibank (South Dakota)
reserves the right to change or terminate any terms, conditions, services or
features of the accounts (including increasing or decreasing periodic finance
charges, other charges or minimum payments). Credit limits may be adjusted
periodically based upon an evaluation of the cardholder's performance.
Collection of Delinquent Accounts
Generally, Citibank (South Dakota) considers a VISA or MasterCard account
delinquent if a minimum payment due thereunder is not received by Citibank
(South Dakota) by the due date indicated on the cardholder's statement. Efforts
to collect delinquent credit card receivables are made by the personnel of
Citibank (South Dakota), supplemented by collection agencies and attorneys
retained by Citibank (South Dakota). Under current practice, Citibank (South
Dakota includes a request for payment of overdue amounts on all billing
statements issued after the account becomes delinquent. While collection
personnel initiate telephone contact with cardholders whose credit card accounts
have become as little as five days delinquent, based on credit scoring criteria,
generally contact is initiated when an account is 35 days or more delinquent. In
the event that initial telephone contact fails to resolve the delinquency,
Citibank (south Dakota) continues to contact the cardholder by telephone and by
mail. Thirty-five days after an account becomes delinquent no additional
extensions of credit through such account are authorized. Generally, no more
than 95 days after the account becomes delinquent it is closed. Citibank (South
Dakota) may also, at its discretion, enter into arrangements with delinquent
cardholders to extend or otherwise change payment schedules. The current policy
of Citibank (South Dakota) is to charge off an account when that account becomes
185 days delinquent; provided, that if Citibank (South Dakota) receives notice
that a cardholder has filed for bankruptcy or has a bankruptcy petition filed
against it, Citibank (South Dakota) charges-off such servicing and charge-off
policies and collection practices of Citibank (South Dakota) may change over
time in accordance with the business judgment of Citibank (South Dakota),
applicable law and guidelines established by applicable regulatory authorities.
Loss and Delinquency Experience
The following table set forth the loss and delinquency experience with
respect to payments by cardholders for each of the periods shows for the entire
portfolio of consumer revolving credit loans arising in the VISA and MasterCard
accounts currently owned by Citibank (South Dakota) (the 'Portfolio'). The
Portfolio includes receivables previously transferred by the Banks to certain
trusts (other than the Trust) in outstanding transactions similar to that
described by this Prospectus, which receivables are currently serviced by
Citibank (South Dakota). The aggregate balance of the receivables transferred to
such trusts on their respective dates of transfer was approximately $17 billion.
The Banks believe that the historical performance of the Eligible Accounts
existing in the Portfolio as of June 30, 1992 was no worse than that of the
portfolio as a whole. There can be no assurance, however, that the loss and
delinquency experience for the Receivables in the future will be similar to the
historical experience set forth below with respect to the Portfolio.
A-108
<PAGE>
<PAGE>
The amount of delinquent receivables and the amount of charged-off
receivables for the Portfolio increased in 1991 and in the first six months of
1992 due to underlying economic conditions. The amount of delinquent receivables
and the amount of charged-off receivables for the Portfolio may continue to
increase in the future if such economic conditions worsen and may continue to
increase for several months even after such conditions begin to improve.
Although no assurance can be given, the Banks do not expect the Repricing to
have a material adverse effect on the amount of delinquent and charged-off
receivables for the Portfolio in the future. See 'The Accounts--Billing and
Payments'.
Loss Experience for the Portfolio(1)(2)
(Dollars in Thousands)
<TABLE>
<CAPTION>
Six Months Year Ended December 31,
Ended --------------------------------------
June 30, 1992 1991 1990 1989
------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Average Receivables Outstanding(3) .... $29,849,691 $29,112,792 $25,796,848 $20,409,498
Net Losses(4).......................... $ 1,010,073 $ 1,899,902 $ 1,305,598 $ 949,487
Net Losses as a Percentage of Average
Receivables Outstanding(5) ............ 6.80% 6.53% 5.06% 4.65%
</TABLE>
- ----------
(1) The figures show do not include any loss experience for the Bank of New
England Portfolio for the years ended December 31, 1990 and 1989. In
addition, the figures shown for the year ended December 31, 1989 include
information with respect to loss experience for the Empire Portfolio for
only the six months ended December 31, 1989.
(2) Losses include write-offs of Principal and Finance Charge Receivables.
(3) Average Receivables Outstanding is the average of receivables outstanding
during the periods indicated.
(4) Net losses as a percentage of gross charge-offs for the six months ended
June 30, 1992 and for each of the years ended December 31, 1991, 1990 and
1989 were 87.61%, 88.60%. 86.42% and 85.27%, respectively. Gross
charge-offs are charge-offs before recoveries and do not include the amount
of any reductions in Average Receivables Outstanding due to fraud, returned
goods, customer disputes or certain other miscellaneous write-offs.
(5) The percentage for the six months ended June 30, 1992 is an annualized
figure.
Delinquencies as a Percentage of the Portfolio(1)(2)
(Dollars in Thousands)
<TABLE>
<CAPTION>
Six Year Ended December 31,
Months Ended ----------------------------------------------------------------------------
June 30, 1992 1991 1990 1989
----------------------- ------------------------ ------------------------- ------------------------
Number of Days Delinquent Delinquent Delinquent Delinquent
Delinquent Amount Percentage Amount Percentage Amount Percentage Amount Percentage
--------------- ---------- ---------- ---------- ---------- ----------- ---------- ----------- ----------
<C> <C> <C> <C> <C> <C> <C> <C> <C>
35-64 days ........... $1,158,534 3.88% $1,130,161 3.88% $ 964,077 3.74% $ 716,322 3.51%
65-94 days ........... 528,215 1.77 510,995 1.76 402,132 1.56 285,197 1.40
95 days or more ...... 898,389 3.01 855,187 2.94 603,792 2.34 430,146 2.11
---------- ---- ---------- ---- ---------- ---- ---------- ----
Total .............. $2,585,138 8.66% $2,496,343 8.58% $1,970,001 7.64% $1,431,665 7.02%
========== ==== ========== ==== ========== ==== ========== ====
</TABLE>
- ----------
(1) The percentages are the result of dividing Delinquent Amount by Average
Receivables Outstanding for the periods indicated.
(2) The figures shown do not include any information with respect to
delinquencies for the Bank of New England Portfolio for the years ended
December 31, 1990 and 1989. In addition, the figures shown for the year
ended December 31, 1989 include information with respect to delinquencies
for the Empire Portfolio for only the six months ended December 31, 1989.
Revenue Experience
The revenues for the Portfolio from finance charges and fees billed to
cardholders for the six months ended June 30, 1992 and for each year of the
three-year period ended December 31, 1991, are set forth in the following table.
A-109
<PAGE>
<PAGE>
The revenue experience in the following table is presented on an accrual
basis before deduction for charge-offs. Cash collections on receivables may not
reflect the historical experience in the table. During periods of increasing
delinquencies, billings of finance charges and fees may exceed cash collections
as amounts collected on credit card receivables lag behind amounts billed to
cardholders. Conversely, as delinquencies decrease, cash collections may exceed
billings of finance charges and fees as amounts collected in a current period
may include amounts billed during prior periods. However, the Banks believe that
during the three years ended December 31, 1991 and the six months ended June 30,
1992 revenues as presented closely approximated revenues on a cash basis.
Revenues from finance charges and fees on both a billed and a cash basis will be
affected by numerous factors, including the periodic finance charge on the
receivables, the amount of the annual membership fee, other fees paid by
cardholders, the percentage of cardholders who pay off their balances in full
each month and do not incur periodic finance charges on purchases and changes in
the level of delinquencies on the receivables. See 'Special Considerations'.
Revenue Experience for the Portfolio(1)
(Dollars in Thousands)
<TABLE>
<CAPTION>
Six Months Year Ended December 31,
Ended ----------------------------------------
June 30, 1992 1991 1990 1989
------------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Finance Charges and Fees Billed (2) .... $2,923,209 $5,803,520 $5,197,971 $4,138,851
Average Revenue Yield (3)(4) ........... 19.69% 19.93% 20.15% 20.28%
</TABLE>
- ----------
(1) The figures shown do not include any information with respect to revenue
for the Bank of New England Portfolio for the years ended December 31, 1990
and 1989. In addition, the figures shown for the year ended December 31,
1989 include information with respect to revenue for the Empire Portfolio
for only the six months ended December 31, 1989.
(2) Certain amounts included in Finance Charges and Fees Billed will be treated
for purposes of the Pooling Agreement as Principal Receivables rather than
finance Charge Receivables. These amounts were less than 5% of Finance
Charges and Fees Billed for each of the periods shown in the table. Finance
Charges and Fees Billed do not include revenue attributable to Interchange.
See 'Interchange' below.
(3) Average Revenue Yield is the result of dividing Finance Charges and Fees
Billed by Average Receivables Outstanding during the periods indicated.
(4) The percentage for the six months ended June 30, 1992 is an annualized
figure.
The revenues for the Portfolio shown in the table above are attributable to
periodic finance charges and annual and other fees billed to cardholders but do
not include revenue attributable to Interchange. The periodic finance charge
assessed on most of the premium accounts for purchases of merchandise and
services in the Portfolio is lower than the periodic finance charge assessed on
most of the nonpremium accounts for such purchases, although the annual
membership fee on the premium accounts is higher. The revenues related to
periodic finance charges and fees (other than annual fees) depend in part upon
the collective preference of cardholders to use their credit cards as revolving
debt instruments for purchases and cash advances and to pay off account balances
over several months as opposed to convenience use (where the cardholders prefer
instead to pay off their entire balance each month, thereby avoiding periodic
finance charges on purchases) and upon other series of which the cardholder
chooses to avail himself and which are paid for by the use of the card. Fees for
these other services will be treated for purposes of the Pooling Agreement and
the Series Supplement as Principal Receivables rather than Finance Charge
Receivables; however, the Banks will be permitted to specify that any such fees
will be treated as Finance Charge Receivables. Revenues related to periodic
finance charges and fees also depend on the types of charges and fees assessed
on the Accounts and on whether such Accounts are nonpremium or premium Accounts.
Accordingly, revenues will be affected by future changes in the types of charges
and fees assessed on the Accounts, on the respective percentages of the
Receivable balances of nonpremium and premium Accounts and the types of
Additional Accounts the receivables in which are added to the Trust from time to
time. See 'Master Trust Provisions--Addition of Trst Assets'. Revenues could be
adversely affected by future changes in fees and charges assessed by Citibank
(South Dakota) and other factors. See 'Certain Legal Aspects of the Receivables
- --Consumer Protection Laws'. If the Repricing had been in effect for the year
ended December 31,1991, the Banks believe that the Average Revenue Yield (as
defined in the chart above) would have been approximately 19.35%. However,
because cardholder behavior is difficult to predict and is influenced by
numerous variables, the Banks are unable to predict what effect the Repricing
will have on Average Revenue Yield in the future. See 'The Accounts--Billing and
Payments'.
A-110
<PAGE>
<PAGE>
Cardholder Monthly Payment Rates for the Portfolio
Monthly payment rates on the Receivables may vary because, among other
things, cardholders may fail to make a required payment, may only make payments
as low as the minimum required payment or may make payments as high as the
entire outstanding balance. Monthly payment rates on the Receivables may also
vary due to seasonal purchasing and payment habits of cardholders. The following
table sets forth the highest and lowest cardholder monthly payment rates for the
Portfolio during any month in the periods shown and the average of the
cardholder monthly payment rates for all months during the periods shown, in
each case calculated as a percentage of the total beginning account balances for
such month. Monthly payment rates reflected in the table include amounts which
would be deemed payments of Principal Receivables and Finance Charge Receivables
with respect to the Accounts as well as certain noncash adjustments which would
not generally be deemed payments of Principal Receivables or Finance Charge
Receivables but do not include amounts received as recoveries of Receivables or
Interchange which would be deemed payments of Finance Charge Receivables.
In addition, the amount of outstanding Receivables and the rates of payments,
delinquencies, charge-offs and new borrowings on the Accounts depend on a
variety of factors including seasonal variations, the availability of other
sources of credit, general economic conditions, tax laws, consumer spending and
borrowing patterns and the terms of the Accounts (which are subject to change by
Citibank (South Dakota)).
Cardholder Monthly Payment Rates for the Portfolio(1)
<TABLE>
<CAPTION>
Six Months Year Ended December 31,
Ended --------------------------
June 30, 1992 1991 1990 1989
------------- ----- ----- ------
<S> <C> <C> <C> <C>
Lowest Month ......................... 12.22% 11.27% 11.63% 12.28%
Highest Month ........................ 14.50% 13.65% 13.97% 15.32%
Average of the Months in the Period .. 13.55% 12.56% 12.78% 13.36%
</TABLE>
- ----------
(1) The percentages for the periods shown above do not include information with
respect to monthly payment rates for the Bank of New England Portfolio for
the years ended December 31, 1990 and 1989. In addition, the percentages
shown for the year ended December 31, 1989 include information with respect
to monthly payment rates for the Empire Portfolio for only the six months
ended December 31, 1989.
Although no assurance can be given, the Banks do not expect the Repricing
to have a material adverse effect on cardholder monthly payment rates for the
Portfolio in the future. See 'The Accounts--Billing and Payments'.
Interchange
Creditors participating in the VISA and MasterCard International
associations receive certain fees ('Interchange') as partial compensation for
taking credit risk, absorbing fraud losses and funding receiveables for a
limited period prior to initial billing. Under the VISA and MasterCard
International systems, a portion of this 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. Interchange ranges
from appropriately 1% to 1.85% of the transaction amount. Citibank (South
Dakota) is required, pursuant to the terms of the Pooling Agreement, to transfer
to the Trust Interchange attributed to cardholder charges for merchandise and
services in the Accounts. Interchange is allocated to the Trust on the basis of
the percentage equivalent of the ratio which the amount of cardholder charges
for merchandise and services in the Accounts bears to the total amount of
cardholder charges for merchandise and services in the Portfolio. VISA and
MasterCard International may from time to time change the amount of Interchange
reimbursed to banks issuing their credit cards.
THE ACCOUNTS
General
The Receivables arise in the Accounts. The Accounts have been selected from
substantially all of the Eligible Accounts in the Portfolio. See 'The Pooling
Agreement Generally--Representations and Warranties'.
A-111
<PAGE>
<PAGE>
Citibank (South Dakota) believes that the Accounts are representative of
the Eligible Accounts in the Portfolio and that the inclusion of the Accounts,
as a whole, does not represent an adverse selection from among the Eligible
Accounts. For the six months ended June 30, 1992 and for each of the past three
years, the balance of the receivables arising from nonpremium and premium
accounts in the Portfolio as a percentage of the total receivable balance of the
Portfolio has historically averaged approximately 74% and 26%, respectively. The
balance of the receivables arising from nonpremium and premium accounts as a
percentage of the total receivable balance of the Accounts, as of September 5,
1992, was approximately 73% and 27%, respectively. Although no assurance can be
given, the Banks do not believe that such difference between the Portfolio and
the Accounts will result in a material difference in performance between the
Portfolio and the Accounts. The information in the tables above entitled 'Loss
Experience for the Portfolio', 'Delinquencies as a Percentage of the Portfolio',
'Revenue Experience for the Portfolio' and 'Cardholder Monthly Payment Rates for
the Portfolio' relates to the historical Portfolio.
The Accounts include receivables which have been charged-off as
uncollectible prior to their addition to the Trust in accordance with normal
servicing policies. However, for purposes of calculation of the amount of
Principal Receivables and Finance Charge Receivables in the Trust for any date,
the balance of such charged-off Receivables is zero and the Trust owns only the
right to receive recoveries with respect to such Receivables.
As of the Trust Cut-Off Date and the Series Cut-Off Date (and on the date
any new Receivables are generated), the Banks have represented and warranted,
and will represent and warrant, to the Trust that the Receivables (and such new
Receivables) meet the eligibility requirements set forth in the Pooling
Agreement. See 'The Pooling Agreement Generally--Representations and
Warranties'. There can be no assurance that all of the Accounts will continue
to meet applicable eligibility requirements throughout the life of the Trust.
The Accounts consist of Eligible Accounts, which consist of VISA and
MasterCard credit card accounts. The Banks expect (subject to ceretain
limitations and conditions), and, in certain circumstances, will be obligated,
to designate from time to time Additional Accounts and to convey to the Trust
all Receivables of such Additional Accounts, whether such Receivables are then
existing or thereafter created. On December 17, 1991, on February 18, 1992 and
on August 17, 1992, the Banks made Lump Sum Additions to the Trust which, in the
aggregate, included approximately $4 billion of Principal Receivables. The Lump
Sum Additions made to the Trust on December 17, 1991 and February 18, 1992
consisted primarily of receivables arising from certain nonpremium VISA and
MasterCard credit card accounts which had been previously transferred by the
Banks to the National Credit Card Trust 1988-1 and National Credit Card Trust
1989-1 (collectively, the 'Terminated Trusts'), credit card trusts originated by
the Banks which had reached their maturity dates and terminated pursuant to
their terms. The accounts with respect to the Terminated Trusts met the
eligibility criteria used in selecting the Initial Accounts at the time the
receivables in such accounts were included in the Trust. The Lump Sum Addition
made to the Trust on August 17, 1992 consisted of premium and non-premium Visa
and MasterCard credit card accounts which met the eligibility criteria used in
selecting the Initial Accounts at the time the receivables in such accounts were
included in Trust.
Additional Accounts will be subject to different eligibility criteria from
those used in selecting the Initial Accounts and may not be accounts of the same
type previously included in the Trust. Therefore there can be no assurance that
such Additional Accounts will be of the same credit quality as the Initial
Accounts or the Additional Accounts the Receivables in which have been conveyed
previously to the Trust. Moreover, Additional Accounts may contain Receivables
which consist of fees, charges and amounts which are different from the fees,
charges and amounts described below. Such Additional Accounts may also be
subject to different credit limits, balances and ages. Consequently, there can
be no assurance that the Accounts will continue to have the characteristics
described below as Additional Amounts are added. In addition, the inclusion in
the Trust of Additional Accounts with lower periodic finance charges may have
the effect of reducing the Portfolio Yield. The Banks intend to file with the
Commission, on behalf of the Trust, a Report on Form 8-K with respect to any
addition of accounts which would have a material effect on the composition of
the Accounts. See 'Master Trust Provisions--Addition of Trust Assets'.
A-112
<PAGE>
<PAGE>
The Receivables in the Accounts as of September 5, 1992 included
$202,350,997 of Finance Charge Receivables and $11,469,226,967 of Principal
Receivables (which amounts include overdue Finance Charge Receivables and
overdue Principal Receivables). As of September 5, 1992, there were 9,763,838
Accounts. The Accounts had an average Principal Receivable balance of $1,175 and
an average credit limit of $3,317. The average total Receivable balance in the
Accounts as a percentage of the average credit limit with respect to the
Accounts was approximately 36%. Approximately 58% of the Accounts were opened
prior to September 1990. Approximately 14.17%, 11.98%, 6.32% and 5.19% of the
Accounts relate to cardholders having billing addresses in California, New York,
Texas and Florida, respectively. Not more than 5% of the Accounts related to
cardholders having billing addresses in any other state.
The following tables summarize the Accounts by various criteria as of
September 5,1992. Receivables in certain New Accounts have been added to the
Trust since September 5, 1992. If such Receivables had been included as of
September 5, 1992, the data relating to the composition of accounts presented in
the following tables would not have been materially different. References to
'Receivables Outstanding' in the following tables include both Finance Charge
Receivables and Principal Receivables. Because the composition of the Accounts
will change in the future, these tables are not necessarily indicative of the
future composition of the Accounts.
Composition of Accounts by Account Balance
<TABLE>
<CAPTION>
Percentage Percentage
of Total of Total
Number of Number of Receivables Receivables
Account Balance Accounts Accounts Outstanding Outstanding
---------------- ---------- ---------- ---------------- ------------
<S> <C> <C> <C> <C>
Credit Balance(1) ............. 66,188 0.68% $ (9,323,340.77) (0.08)%
No Balance(2).................. 2,371,910 24.30 0.00 0.00
Less than or equal to $500.00.. 1,888,705 19.35 416,619,699.41 3.57
$500.01 to $1,000.00........... 1,593,932 16.32 1,182,676,677.79 10.13
$1,000.01 to $2,000.00 ........ 1,950,084 19.98 2,774,189,799.72 23.77
$2,000.01 to $3,000.00 ........ 785,314 8.04 1,916,493,035.85 16.42
$3,000.01 to $4,000.00 ........ 404,502 4.14 1,398,886,369.00 11.99
$4,000.01 to $5,000.00 ........ 344,477 3.53 1,562,111,483.78 13.38
$5,000.01 to $6,000.00 ........ 157,488 1.61 857,080,456.23 7.34
$6,000.01 to $7,000.00 ........ 82,211 0.84 530,727,544.88 4.55
$7,000.01 to $8,000.00 ......... 50,457 0.52 376,983,729.12 3.23
$8,000.01 to $9,000.00 ........ 31,601 0.32 267,909,314.48 2.30
$9,000.01 to $10,000.00........ 22,918 0.23 217,248,282.15 1.86
Over $10,000.00................ 14,051 0.14 179,974,912.74 1.54
--------- ------ ------------------ ------
Total ....................... 9,763,838 100.00% $11,671,577,964.38 100.00%
========= ====== ================== ======
</TABLE>
- ----------
(1) Credit balances are a result of cardholder payments and credit adjustments
applied in excess of an Account's unpaid balance. Accounts which currently
have a credit balance are included because Receivables may be generated
with respect thereto in the future.
(2) Accounts which currently have no balance are included because Receivables
may be generated with respect thereto in the future.
Composition of Accounts by Credit Limit
<TABLE>
<CAPTION>
Percentage Percentage
of Total of Total
Number of Number of Receivables Receivables
Credit Limit Accounts Accounts Outstanding Outstanding
---------------- --------- -------- ------------------ -----------
<S> <C> <C> <C> <C>
Less than or equal to $500.00... 520,601 5.33% $ 50,592,426.11 0.43%
$500.01 to $1,000.00............ 1,369,067 14.02 639,383,128.02 5.48
$1,000.01 to $2,000.00 ......... 2,553,625 26.15 2,064,579,993.10 17.69
$2,000.01 to $3,000.00 ......... 1,402,647 14.37 1,513,378,302.74 12.97
$3,000.01 to $4,000.00 ......... 829,832 8.50 1,029,307,132.47 8.82
$4,000.01 to $5,000.00 ......... 1,146,331 11.74 2,133,326,939.07 18.28
Over $5,000.00 ................. 1,941,735 19.89 4,241,010,042.87 36.33
--------- ------ ------------------ ------
Total......................... 9,763,838 100.00% $11,671,577,964.38 100.00%
========= ====== ================== ======
</TABLE>
A-113
<PAGE>
<PAGE>
Composition of Accounts by Payment Status(1)
<TABLE>
<CAPTION>
Percentage Percentage
of Total of Total
Number of Number of Receivables Receivables
Payment Status Accounts Accounts Outstanding Outstanding
---------------- ---------- ---------- --------------- ------------
<S> <C> <C> <C> <C>
Current(2) ............................. 8,768,471 89.82% $ 9,870,226,646 85.87%
Up to 34 days delinquent ............... 594,725 6.09 1,037,805,517 8.89
35 to 64 days delinquent ............... 180,108 1.84 310,348,322 2.66
65 to 94 days delinquent ............... 88,249 0.90 167,986,499 1.44
95 to 124 days delinquent .............. 55,843 0.57 114,170,866 0.98
125 to 154 days delinquent ............. 43,117 0.44 93,952,198 0.80
155 to 184 days delinquent ............. 33,325 0.34 77,087,916 0.66
--------- ------ --------------- ------
Total ................................ 9,763,838 100.00% $11,671,577,964 100.00%
========= ====== =============== ======
</TABLE>
- ----------
(1) Payment Status is determined as of September 5, 1992.
(2) Includes accounts on which the minimum payment has not yet been received
prior to the second billing date following the issuance of the related
bill.
Composition of Accounts by Age
<TABLE>
<CAPTION>
Percentage Percentage
of Total of Total
Number of Number of Receivables Receivables
Age Accounts Accounts Outstanding Outstanding
--- ---------- ---------- ------------------ ------------
<S> <C> <C> <C> <C>
Less than or equal to 6 months ......... 725,363 7.43% $ 497,794,790.29 4.27%
Over 6 months to 12 months ............. 1,037,687 10.63 970,085,877.67 8.31
Over 12 months to 24 months ............ 2,378,369 24.36 2,621,148,965.51 22.46
Over 24 months to 36 months ............ 1,293,666 13.25 1,705,718,198.26 14.61
Over 36 months to 48 months ............ 747,804 7.66 1,087,260,040.61 9.32
Over 48 months ......................... 3,580,949 36.67 4,789,570,092.04 41.03
--------- ------ ------------------ ------
Total ................................. 9,763,838 100.00% $11,671,577,964.38 100.00%
========= ====== ================== ======
</TABLE>
Billing and Payments
The Accounts have various billing and payment structures, including varying
periodic finance charges and fees. The following is information on the current
billing and payment characteristics of the Accounts.
Monthly billing statements are sent by Citibank (South Dakota) to cardholders
with balances at the end of the billing period. Each month a VISA or MasterCard
cardholder must make a minimum payment equal to (a) with respect to the
nonpremium accounts, the sum of (i) the greater of $20 (or, if the then current
balance for purchases is less than $20, such balance) and 1/36 of the then
current balance, (ii) any amount which is past due and (iii) any amount which is
in excess of the credit limit; or (b) with respect to premium accounts, the sum
of (i) $50 if such balance is between $50 and $1,800 (or, if the balance is less
than $50, such balance), or if such balance is more than $1,800, 1/36 of the
then current balance, rounded to the next dollar, (ii) any amount which is past
due and (iii) any amount which is in excess of the credit limit; provided, that
in each case the required minimum payment will not be less than the finance
charges billed.
A periodic finance charge is assessed on the Accounts. The periodic finance
charge assessed on balances for cash advances is calculated by multiplying (i)
the average daily balances for cash advances during the billing cycle by (ii)
the number of days in the billing cycle by (iii) the applicable daily periodic
finance charge. Cash advances are included in the average daily balance for cash
advances from the date such advances are made. The periodic finance charge
assessed on balances for purchases is calculated by multiplying the average
daily balance for purchases (the balance thereof on which finance charges are
assessed) by the applicable monthly periodic finance charge. Purchases are
included in the average daily balance for
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purchases generally from the date of purchase. Periodic finance charges are not
assessed in most circumstances on purchase amounts if all balances shown in the
previous billing statement are paid in full by the due date indicated on such
statement. The periodic finance charge assessed on most of the Accounts for cash
advances is currently 19.8% per annum. The periodic finance charge assessed on
most Receivables arising in nonpremium and premium accounts for purchase of
merchandise and services is currently 19.8% per annum and 16.8% per annum,
respectively. Citibank (South Dakota) may change the periodic finance charge on
the nonpremium and premium accounts at any time by written notice to the
cardholders. Any announced increase in such rate becomes effective upon the
earlier of subsequent use of a card and the expiration of a 25-day period from
the date such change was made effective (assuming failure on the part of the
cardholder to object to the new rate). Effective June 1, 1992, Citibank (South
Dakota) converted the periodic finance charge on approximately six million of
its VISA and MasterCard accounts from a fixed rate to a variable rate. The new
periodic finance charge on nonpremium accounts and premium accounts which will
be available to certain eligible cardholders initially will be 15.9% and 13.9%,
respectively, and will be reset quarterly to the Prime Rate (as published in The
Wall Street Journal) plus 9.4% in the case of nonpremium accounts and 7.4% for
premium accounts. As of the most recent quarterly reset date, the periodic
finance charge on nonpremium accounts and premium accounts available to certain
eligible cardholders was 15.4% and 13.4%, respectively. To qualify for the new
periodic finance charge rates, a cardholder must have had an account for at
least one year, made timely payments and had total purchases since the account
was opened of at least $1,000 in the case of nonpremium accounts and $3,000 for
premium accounts. The new lower rates apply to new purchases and cash advances
after June 1, 1992. Older balances will be assessed the previous periodic
finance charge rates. See 'Special Considerations--Master Trust
Considerations--The Ability of Citibank (South Dakota) to Change Terms of the
Accounts'.
Citibank (South Dakota) generally assesses an annual membership fee of $20
for nonpremium accounts and $50 for premium accounts Certain of the Accounts may
be subject to certain additional fees, including: (a)(i) in the case of a
nonpremium account, a late fee of $15 if Citibank (South Dakota) does not
receive a required minimum payment within 25 days following the payment due date
shown on the monthly billing statement and (ii) in the case of a premium
account, a late fee of $6 if Citibank (South Dakota) does not receive a required
payment within 15 days following the payment due date shown on the monthly
billing statement and an additional fee, if the minimum amount due is not
received by the next payment due date, of the greater of $15 or .65% of the
outstanding balance on the account, which fee is assessed monthly until the
account is less than 30 days past due; (b) a cash advance fee which is generally
equal to 2% of the amount of the cash advance (subject to a minimum fee of $2
and a maximum fee of $10); (c) a returned payment fee of $15; (d) a returned
check fee of $15; (e) a stop payment fee of $15; and (f) a fee of $10 with
respect to each account with an outstanding balance more than 10% over the
credit limit established for such account. In recent months, a number of
lawsuits have been commenced against Citibank (South Dakota) challenging the
assessment of certain of such fees and charges. See 'Special
Considerations--Master Trust Considerations--Certain Legal Aspects' and 'Certain
Legal Aspects of the Receivables--Consumer Protection Laws'.
Payments by cardholders to Citibank (South Dakota) on the Accounts are
processed and applied to all minimum amounts due, from the oldest to the most
current, with respect to the following items in the following order: (i)
periodic finance charges on cash advances; (ii) periodic finance charges on
purchases; (iii) cash advance amounts; and (iv) purchase amounts. When all
minimum amounts due are paid, payments are generally allocated first to cash
advance balances and then to purchase balances. There can be no assurance that
periodic finance charges, fees and other charges will remain at current levels
in the future. See 'The Pooling Agreement Generally--Collection and Other
Servicing Procedures'.
THE BANKS
Citibank (South Dakota), a national banking association and wholly-owned
subsidiary of Citicorp located in Sioux Falls, South Dakota, was formed in 1981
and conducts nationwide consumer lending programs primarily comprised of credit
card-related activities. Citibank (South Dakota) is the nation's largest bank
credit card issuer. As of June 30, 1992, total assets were approximately $7.0
billion, total liabilities were approximately $5.7 billion and equity was
approximately $1.3 billion. The principal executive office of Citibank (South
Dakota) is located at 701 East 60th Street, North, Sioux Falls, South Dakota
57117 (telephone (605) 331-2626).
Citibank (Nevada), a national banking association and wholly-owned subsidiary
of Citicorp located in Las Vegas, Nevada, was formed in 1985 and conducts a
retail banking business in the Las Vegas, Nevada area and services credit card
accounts for certain of its affiliates. The principal executive office of
Citibank (Nevada) is located at 8725 West Sahara Avenue, Las Vegas, Nevada 89163
(telephone (702) 797-4444).
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PROSPECTUS
LEHMAN ABS CORPORATION
ASSET BACKED NOTES
ASSET BACKED CERTIFICATES
(ISSUABLE IN SERIES)
--------------------------
LEHMAN ABS CORPORATION (THE DEPOSITOR) MAY OFFER FROM TIME TO TIME UNDER
THIS PROSPECTUS AND RELATED PROSPECTUS SUPPLEMENTS THE ASSET BACKED NOTES (THE
NOTES) AND THE ASSET BACKED CERTIFICATES (THE CERTIFICATES AND, TOGETHER WITH
THE NOTES, THE SECURITIES) DESCRIBED HEREIN WHICH MAY BE SOLD FROM TIME TO TIME
IN ONE OR MORE 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).
AS SPECIFIED IN THE RELATED PROSPECTUS SUPPLEMENT, THE CERTIFICATES WILL
EVIDENCE AN INTEREST IN CERTAIN ASSETS DEPOSITED INTO A TRUST (A TRUST) BY THE
DEPOSITOR AS DEPOSITOR OR TRANSFEROR PURSUANT TO A POOLING AND SERVICING
AGREEMENT, MASTER POOLING AND SERVICING AGREEMENT, SALE AND SERVICING AGREEMENT
OR TRUST AGREEMENT, AS DESCRIBED HEREIN. THE NOTES OF EACH SERIES WILL BE ISSUED
AND SECURED PURSUANT TO AN INDENTURE BETWEEN THE TRUST AND THE INDENTURE TRUSTEE
SPECIFIED IN THE RELATED PROSPECTUS SUPPLEMENT (THE INDENTURE TRUSTEE) AND WILL
REPRESENT INDEBTEDNESS OF THE RELATED TRUST. THE CERTIFICATES OF A SERIES WILL
REPRESENT FRACTIONAL UNDIVIDED INTERESTS IN THE RELATED TRUST. THE PROPERTY OF
EACH TRUST WILL INCLUDE ASSETS COMPOSED OF (A) PRIMARY ASSETS, WHICH MAY INCLUDE
(I) ONE OR MORE POOLS OF RECEIVABLES (COLLECTIVELY, THE RECEIVABLES) GENERATED
OR TO BE GENERATED FROM TIME TO TIME IN THE ORDINARY COURSE OF BUSINESS IN ONE
OR MORE PORTFOLIOS OF ACCOUNTS (COLLECTIVELY, THE ACCOUNTS), PURCHASED FROM THE
SELLER OR SELLERS OR TRANSFEROR OR TRANSFERORS SPECIFIED IN THE RELATED
PROSPECTUS SUPPLEMENT (EACH A SELLER) AND (II) CABS SECURITIES (AS DEFINED
HEREIN), (B) ALL MONIES DUE THEREUNDER NET, IF AND AS PROVIDED IN THE RELATED
PROSPECTUS SUPPLEMENT, OF CERTAIN AMOUNTS PAYABLE TO THE SERVICER OF THE
RECEIVABLES, WHICH SERVICER MAY ALSO BE THE SELLER, SPECIFIED IN THE RELATED
PROSPECTUS SUPPLEMENT (THE SERVICER), AND (C) CERTAIN FUNDS, ENHANCEMENT (AS
DEFINED HEREIN) AND OTHER ASSETS AS DESCRIBED HEREIN AND IN THE RELATED
PROSPECTUS SUPPLEMENT. IN ADDITION, IF SO SPECIFIED IN THE RELATED PROSPECTUS
SUPPLEMENT, THE PROPERTY OF THE TRUST WILL INCLUDE MONIES ON DEPOSIT IN A TRUST
ACCOUNT (THE PRE-FUNDING ACCOUNT) TO BE ESTABLISHED WITH THE RELATED TRUSTEE,
WHICH WILL BE USED TO PURCHASE ADDITIONAL PRIMARY ASSETS OR CABS SECURITIES FROM
A SELLER FROM TIME TO TIME DURING THE FUNDING PERIOD SPECIFIED IN THE RELATED
PROSPECTUS SUPPLEMENT.
EACH SERIES OF SECURITIES WILL BE ISSUED IN ONE OR MORE CLASSES (EACH, A
CLASS), WHICH MAY INCLUDE SUBCLASSES. INTEREST ON AND PRINCIPAL OF THE
SECURITIES OF A SERIES WILL BE PAYABLE ON EACH PAYMENT DATE SPECIFIED IN THE
RELATED PROSPECTUS SUPPLEMENT, AT THE TIMES, AT THE RATES, IN THE AMOUNTS AND IN
THE ORDER OF PRIORITY SET FORTH IN THE RELATED PROSPECTUS SUPPLEMENT. SECURITIES
MAY BE SOLD FOR U.S. DOLLARS OR FOR ONE OR MORE FOREIGN OR COMPOSITE CURRENCIES
AND THE PRINCIPAL OF AND ANY INTEREST ON SECURITIES MAY BE PAYABLE IN U.S.
DOLLARS OR ONE OR MORE FOREIGN OR COMPOSITE CURRENCIES.
IF A SERIES INCLUDES MULTIPLE CLASSES, SUCH CLASSES MAY VARY WITH RESPECT TO
THE AMOUNT, PERCENTAGE AND TIMING OF DISTRIBUTIONS OF PRINCIPAL, INTEREST OR
BOTH AND ONE OR MORE CLASSES MAY BE SUBORDINATED TO OTHER CLASSES WITH RESPECT
TO DISTRIBUTIONS OF PRINCIPAL, INTEREST OR BOTH AS DESCRIBED HEREIN AND IN THE
RELATED PROSPECTUS SUPPLEMENT. A SERIES MAY INCLUDE ONE OR MORE CLASSES OF NOTES
AND CERTIFICATES. A SERIES MAY INCLUDE ONE OR MORE CLASSES ENTITLED TO
DISTRIBUTIONS OF PRINCIPAL WITH DISPROPORTIONATE, NOMINAL OR NO INTEREST
DISTRIBUTIONS, OR TO INTEREST DISTRIBUTIONS WITH DISPROPORTIONATE, NOMINAL OR NO
DISTRIBUTIONS IN RESPECT OF PRINCIPAL. IF SO SPECIFIED IN THE RELATED PROSPECTUS
SUPPLEMENT, THE PRIMARY ASSETS AND OTHER ASSETS COMPRISING THE TRUST MAY BE
DIVIDED INTO ONE OR MORE ASSET GROUPS AND EACH CLASS OF THE RELATED SERIES WILL
BE SECURED BY, OR WILL EVIDENCE BENEFICIAL OWNERSHIP OF, THE CORRESPONDING ASSET
GROUP, AS APPLICABLE. EACH SERIES OF SECURITIES MAY BE SUBJECT TO TERMINATION
UNDER THE CIRCUMSTANCES DESCRIBED HEREIN AND IN THE RELATED PROSPECTUS
SUPPLEMENT.
---------------------------
FOR A DISCUSSION OF CERTAIN FACTORS WHICH SHOULD BE CONSIDERED BY
PROSPECTIVE PURCHASERS OF THE SECURITIES, SEE RISK FACTORS ON PAGE 12 HEREIN AND
ON PAGE S-11 OF THE PROSPECTUS SUPPLEMENT.
---------------------------
NOTES OF A GIVEN SERIES REPRESENT OBLIGATIONS OF, AND THE CERTIFICATES OF A
SERIES EVIDENCE BENEFICIAL INTERESTS IN THE RELATED TRUST ONLY AND ARE NOT
GUARANTEED BY ANY GOVERNMENTAL AGENCY OR BY THE DEPOSITOR, ANY SELLER, THE
TRUSTEE, THE SERVICER OR BY ANY OF THEIR RESPECTIVE AFFILIATES OR,
UNLESS OTHERWISE SPECIFIED IN THE RELATED PROSPECTUS SUPPLEMENT, BY
ANY OTHER PERSON OR ENTITY. THE DEPOSITOR'S ONLY OBLIGATIONS WITH
RESPECT TO ANY SERIES OF SECURITIES WILL BE PURSUANT TO CERTAIN
REPRESENTATIONS AND WARRANTIES SET FORTH IN THE RELATED POOLING
AND SERVICING AGREEMENT, MASTER POOLING AND SERVICING
AGREEMENT, SALE AND SERVICING AGREEMENT, INDENTURE OR TRUST
AGREEMENT, AS DESCRIBED HEREIN OR IN THE RELATED
PROSPECTUS SUPPLEMENT. SEE RISK FACTORS FOR CERTAIN
FACTORS TO BE CONSIDERED IN PURCHASING
THE SECURITIES.
---------------------------
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 OR THE PROSPECTUS SUPPLEMENT.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-------------------------------------------
THE SECURITIES OFFERED BY THIS PROSPECTUS AND BY THE RELATED PROSPECTUS
SUPPLEMENT ARE OFFERED BY LEHMAN BROTHERS INC. AND THE OTHER UNDERWRITERS SET
FORTH IN THE RELATED PROSPECTUS SUPPLEMENT, IF ANY, SUBJECT TO PRIOR SALE, TO
WITHDRAWAL, CANCELLATION OR MODIFICATION OF THE OFFER WITHOUT NOTICE, TO
DELIVERY TO AND ACCEPTANCE BY LEHMAN BROTHERS INC. AND THE OTHER UNDERWRITERS,
IF ANY, AND CERTAIN FURTHER CONDITIONS. RETAIN THIS PROSPECTUS FOR FUTURE
REFERENCE. THIS PROSPECTUS MAY NOT BE USED TO CONSUMMATE SALES OF THE SECURITIES
OFFERED HEREBY UNLESS ACCOMPANIED BY A PROSPECTUS SUPPLEMENT.
---------------------------
LEHMAN BROTHERS
DECEMBER 29, 1995.
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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 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 Receivables, the Seller and the Servicer; (iii) the terms of any
enhancement with respect to such Series (the 'Enhancement'); (iv) information
concerning any other assets in the related Trust, including any Enhancement; (v)
the expected date or dates on which the principal amount of each Class of
Securities will be paid to holders of such Securities; (vi) the extent to which
any Class within a Series is subordinated to any other Class of such Series; and
(vii) additional information with respect to the plan of distribution of such
Securities. To the extent that the terms of this Prospectus conflict or are
otherwise inconsistent with the terms of any related Prospectus Supplement, the
terms of such related Prospectus Supplement shall govern.
AVAILABLE INFORMATION
The Depositor is subject to the informational requirements of the
Securities Exchange Act of 1934 and in accordance therewith files reports and
other information with the Securities and Exchange Commission (the
'Commission'). Such reports and other information 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 its Regional Offices located as
follows: Chicago Regional Office, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661; and New York Regional Office, 75 Park Place, Room 1102, New
York, New York 10007. Copies of such material can also be obtained from the
Public Reference Section of the Commission, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
There are incorporated herein by reference all documents filed by the
Depositor with the Commission pursuant to Sections 13(a), 13(c), 14 or 15(d) of
the Securities Exchange Act of 1934 on or subsequent to the date of this
Prospectus and prior to the termination of the offering of Securities made
hereby and by the related Prospectus Supplements. The Depositor will provide
without charge to each person to whom this Prospectus is delivered, on request
of such person, a copy of any or all of the documents incorporated herein by
reference other than the exhibits to such documents (unless such exhibits are
specifically incorporated by reference in such documents). Requests should be
directed to the Corporate Secretary of Lehman ABS Corporation in writing at 3
World Financial Center, New York, New York 10285 or by telephone at (212)
526-7000.
REPORTS TO HOLDERS
Periodic and annual reports concerning the related Trust for a Series of
Securities are required under the Agreement to be forwarded to holders. Unless
otherwise specified in the related Prospectus Supplement, such reports will not
be examined and reported on by an independent public accountant. See 'THE
AGREEMENTS -- Reports to Holders' herein.
2
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SUMMARY OF TERMS
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus 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 or Notes of such Series. Capitalized terms used and not otherwise
defined herein or in the related Prospectus Supplement shall have the meanings
set forth in the 'Glossary of Terms' herein.
<TABLE>
<S> <C>
THE CERTIFICATES............................. Asset Backed Certificates (the 'Certificates') are issuable from
time to time in Series pursuant to separate Pooling and
Servicing Agreements, Master Pooling and Servicing Agreements,
Sale and Servicing Agreements, or Trust Agreements (each, an
'Agreement'). Each Certificate of a Series will evidence an
interest in the Trust for such Series, or in an Asset Group
specified in the related Prospectus Supplement. Each Series of
Certificates will consist of one or more Classes, one or more of
which may be Classes of Variable Interest Certificates, Zero
Coupon Certificates, Principal Only Certificates, Compound
Interest Certificates, Interest Only Certificates, Participating
Certificates, Senior Certificates, Subordinate Certificates or
other types of Certificates. Each Class may differ in, among
other things, the amounts allocated to and the priority of
principal and interest payments, Final Scheduled Payment Dates,
Payment Dates and interest rate. The Certificates of each Class
will be issued in fully registered form in the denominations
specified in the related Prospectus Supplement. If so specified
in the related Prospectus Supplement, the Certificates or
certain Classes of such Certificates offered thereby may be
available in book-entry form only.
THE NOTES.................................... Each Series of Securities may include one or more classes of
Notes, which will be issued pursuant to an Indenture between the
Trust and the Indenture Trustee (as amended and supplemented
from time to time, an 'Indenture'). The terms of any Notes will
be set forth in the Prospectus Supplement relating to such
Notes.
Unless otherwise specified in the related Prospectus Supplement,
each class of Notes will have a stated principal amount and will
bear interest at a specified rate or rates (with respect to each
class of Notes, the 'Interest Rate'). Each class of Notes may
have a different Interest Rate, which may be fixed, variable or
an adjustable Interest Rate, or any combination of the
foregoing. The related Prospectus Supplement will specify the
Interest Rate for each class of Notes, and the method for
determining the Interest Rate.
With respect to a Series that includes two or more classes of
Notes, each class may differ as to the timing and priority of
payments, seniority, allocations of losses, Interest Rate or
amount of payments of principal or interest, or 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
Pool of Receivables.
In addition, a 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.
</TABLE>
3
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<TABLE>
<S> <C>
All discussions in this Prospectus of the Certificates, the terms
thereof as well as any investment and tax considerations related
thereto will be generally applicable to any Notes.
DEPOSITOR.................................... Lehman ABS Corporation (the 'Depositor') was incorporated in the
State of Delaware on January 29, 1988. As of January 4, 1993,
the Depositor is a wholly owned, special purpose subsidiary of
Lehman Commercial Paper Inc. ('LCPI'), which itself is a wholly
owned subsidiary of Lehman Brothers Inc. ('Lehman Brothers'),
which is a wholly owned subsidiary of Lehman Brothers Holdings
Inc. ('Holdings'). None of Lehman Brothers, LCPI, Holdings, the
Depositor, the Servicer, the Trustee or the Seller, nor any
other affiliate of the foregoing, has guaranteed or is otherwise
obligated with respect to the Certificates of any Series. See
'THE DEPOSITOR.'
INTEREST PAYMENTS............................ Interest payments on the Certificates of a Series entitled by
their terms to receive interest will be made on each Payment
Date, to the extent set forth in, and at the applicable rate
specified in (or determined in the manner set forth in), the
related Prospectus Supplement. The interest rate on Certificates
of a Series may be variable or change with changes in the rates
of interest on the pool of receivables (collectively, the
'Receivables') generated or to be generated from time to time in
the ordinary course of business in a portfolio of accounts
(collectively, the 'Accounts') underlying or comprising the
Primary Assets and/or as early amortizations or prepayments
occur with respect to any CABS Securities underlying or
comprising the Primary Assets. Interest Only Certificates may be
assigned a 'Notional Amount' set forth in the related Prospectus
Supplement which is used solely for convenience in expressing
the calculation of interest and for certain other purposes and
does not represent the right to receive any distributions
allocable to principal. Principal Only Certificates may not be
entitled to receive any interest payments or may be entitled to
receive only nominal interest payments. Interest payable on the
Certificates of a Series on a Payment Date will include all
interest accrued during the period specified in the related
Prospectus Supplement. See 'DESCRIPTION OF THE
CERTIFICATES -- Payments of Interest.'
PRINCIPAL PAYMENTS........................... All payments of principal of a Series of Certificates will be made
in an aggregate amount determined as set forth in the related
Prospectus Supplement and will be paid at the times and will be
allocated among the Classes of such Series in the order and
amounts, and will be applied either on a pro rata or a random
lot basis among all Certificates of any such Class, all as
specified in the related Prospectus Supplement.
FINAL SCHEDULED PAYMENT DATE OF THE
CERTIFICATES............................... 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 equal the maturity date of the Primary Asset in
the related Trust which has the latest stated maturity or will
be determined as described herein and in the related Prospectus
Supplement.
</TABLE>
4
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<TABLE>
<S> <C>
The actual final Payment Date of the Certificates of a Series will
depend primarily upon the rate of payment (including early
amortization, prepayments and repurchases) of the Receivables
underlying or comprising the Primary Assets in the related
Trust. Unless otherwise specified in the related Prospectus
Supplement, the actual final Payment Date of any Certificate is
likely to occur earlier and may occur substantially earlier than
its Final Scheduled Payment Date as a result of the application
of prepayments to the reduction of the principal balances of
Certificates or if an early amortization occurs with respect to
the Primary Assets, or may occur later than its 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.
OPTIONAL TERMINATION......................... One or more Classes of Certificates of any Series may be
repurchased in whole, but not in part, at the Depositor's or the
related Seller's option, at such time and under the
circumstances specified in the related Prospectus Supplement, at
the redemption price set forth therein. If so specified in the
related Prospectus Supplement for a Series of Certificates, the
Depositor, the Servicer, the related Seller or such other entity
that is specified in the related Prospectus Supplement may, at
its option, cause an early termination of the related Trust by
repurchasing all of the Primary Assets remaining in the Trust on
or after a specified date, or on or after such time as the
aggregate principal balance of the Certificates of the Series or
the Primary Assets relating to such Series, as specified in the
related Prospectus Supplement, is less than the amount or
percentage specified in the related Prospectus Supplement. See
'DESCRIPTION OF THE CERTIFICATES -- Optional Purchase or
Termination.'
In addition, the 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 if payments or distributions were solely based on
the activity of the related Primary Assets.
TRUST ASSETS................................. The Trust for a Series of Certificates will consist of one or more
of the assets described below, as described in the related
Prospectus Supplement.
A. PRIMARY ASSETS....................... The Primary Assets for a Series may consist of any combination of
the following assets, to the extent and as specified in the
related Prospectus Supplement. The Primary Assets will be
purchased from the Seller or may be purchased by the Depositor
in the open market or in privately negotiated transactions,
including transactions with entities affiliated with the
Depositor.
The assets of the Trust created with respect to any Series may
include a pool of Receivables arising under the Accounts
included in such Trust from time to time, funds collected or to
be collected from cardholders in respect of the Receivables, the
right to receive certain Interchange fees attributed to
cardholder charges for merchandise and services in the Accounts,
monies on deposit in certain accounts of the Trust, funds
collected or to be collected from Participations, if any, and
any Enhancement issued with respect to a particular Series (the
drawing on or payment of any Enhancement for the benefit of a
Series or class of investor certificates will not be available
to the investor certificateholders of any other Series or
class).
</TABLE>
5
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<TABLE>
<S> <C>
The designated Accounts will meet the criteria provided in each
Agreement applied as of the applicable Cut-off Date. The
Accounts will consist of the Initial Accounts and any Additional
Accounts but will not include any Removed Accounts. In addition,
pursuant to each Agreement, each Seller may (subject to certain
limitations and conditions), and in some circumstances, will be
obligated to designate Additional Accounts, the Receivables in
which will be included in the Trust or, in lieu thereof or in
addition thereto, to include Participations in the Trust.
Pursuant to each Agreement, a 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').
(1) THE RECEIVABLES
(A) CREDIT CARD RECEIVABLES... Credit Card Receivables consist of periodic finance charges,
annual membership fees, cash advance fees, late charges on
amounts charged for merchandise and services, certain other
designated fees ('Finance Charge Receivables') and all amounts
charged by cardholders for merchandise and services, amounts
advanced to cardholders as cash advances and all other fees
billed to cardholders on the Accounts ('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-issuing bank from the VISA USA, Inc.
('VISA'(1)) and MasterCard International Incorporated
('MasterCard International'1) associations as partial
compensation for taking credit risk, absorbing fraud losses and
funding receivables for a limited period prior to initial
billing.
(B) CHARGE CARD RECEIVABLES... Charge Card Receivables consist of amounts charged on the
designated Accounts for merchandise and services, and annual
membership fees and certain other administrative fees billed to
the designated Accounts. Receivables originated under charge
card accounts are not subject to a monthly finance charge and,
therefore, it will be necessary to treat a portion of the
collections on the Charge Card Receivables as 'yield'. The
remainder of such collections will be treated as principal
collections.
(C) GENERAL................... All new Receivables arising in the designated Accounts (including
in any Additional Accounts) during the term of the Trust will be
the property of the Trust. Accordingly, the amount of
Receivables will fluctuate as new Receivables are generated and
as existing Receivables are collected, charged off as
uncollectible or
</TABLE>
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(1) VISA and MasterCard are registered trademarks of VISA USA, Inc. and
MasterCard International Incorporated, respectively.
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otherwise adjusted. Receivables may be payable in U.S. dollars
or in any foreign currency.
(2) CABS SECURITIES........... Primary Assets for a Series may consist, in whole or in part, of
card asset backed securities ('CABS Securities') which include
certificates representing undivided interests in, or notes or
loans secured by, Receivables generated 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 or are being registered
under the Securities Act of 1933 in connection with the offering
of a Series of Securities. See 'THE TRUST ASSETS -- CABS
Securities.' Unless otherwise specified in the Prospectus
Supplement relating to a Series of Securities, payments on the
CABS Securities will be distributed directly to the Trustee as
registered owner of such CABS Securities.
The related Prospectus Supplement for a Series 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 aggregate approximate
principal amount and type of any CABS Securities to be included
in the Trust for such Series; (ii) certain characteristics of
the Receivables which comprise the underlying assets for the
CABS Securities; (iii) the expected maturity and the final
maturity of the CABS Securities; (iv) the certificate rate for
the CABS Securities; (v) the issuer or issuers of the CABS
Securities (the 'CABS Issuer'), the servicer or servicers of the
CABS Securities (the 'CABS Servicer') and the trustee or
trustees of the Securities (the 'CABS Trustee'); (vi) certain
characteristics of enhancement, if any, such as reserve funds,
insurance policies, letters of credit or guarantees relating to
such CABS Securities; (vii) any early amortization events
applicable to the CABS Securities; (viii) the terms on which
underlying Receivables for such CABS Securities may, or are
required to, be repurchased prior to stated maturity; and (ix)
the terms on which substitute Receivables may be delivered to
replace those initially deposited with the CABS Trustee. See
'THE TRUST ASSETS' herein.
B. COLLECTION, DISTRIBUTION, PRE-FUNDING
AND OTHER TRUST ACCOUNTS.............. Unless otherwise provided in the related Prospectus Supplement,
all payments on or with respect to the Primary Assets for a
Series will be remitted directly to an account (the 'Collection
Account') to be established for such Series with the Trustee, or
the Servicer in the name of the Trustee. Unless otherwise
provided in the related Prospectus Supplement the 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 a separate account (the
'Distribution Account') to be established for such Series, each
in the manner and at the times established in the related
Prospectus Supplement. All amounts deposited in such
Distribution Account will be available unless otherwise
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specified in the related Prospectus Supplement, for (i)
application to the payment of principal of and interest on such
Series of Certificates on the next Payment Date, (ii) the making
of adequate provision for future payments on certain Classes of
Certificates and (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 Enhancement with respect to such
Series (an 'Enhancer') or any other person entitled thereto in
the manner and at the times established in the related
Prospectus Supplement. From time to time, various accounts,
including Pre-Funding Accounts, may be created under the terms
of the documents related to a specific Series.
In addition, a Prospectus Supplement may provide that the assets
of a Trust will include a Pre-Funding Account (the 'Pre-Funding
Account'). To the extent provided in the related Prospectus
Supplement, the Depositor 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 Sale and Servicing
Agreement), additional Receivables (the 'Subsequent
Receivables') from time to time (as frequently as daily) 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.
ENHANCEMENT.................................. If stated in the Prospectus Supplement relating to a Series,
enhancement may be provided with respect to one or more Classes
of the Certificates of such Series. Enhancement may be in the
form of the subordination of one or more Classes of the
Certificates 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 Enhancement described in the related Prospectus
Supplement, or any combination of the foregoing. Series
Enhancement may also include any type of derivative arrangement,
including a guaranteed rate agreement, maturity liquidity
facility, tax protection agreement, interest rate cap or floor
agreement, interest rate or currency swap agreement or other
similar arrangement. The Enhancement will support the payments
on the Certificates and may be used for other purposes, to the
extent and under the conditions specified in such related
Prospectus Supplement. See 'ENHANCEMENT' herein.
Enhancement for a Series may include one or more of the following
types of Enhancement, or such other type of Enhancement
specified in the related Prospectus Supplement.
The type, characteristics and amount of the Enhancement will be
determined based on several factors, including the
characteristics of the Receivables and Accounts underlying or
comprising the portfolio as of the relevant Closing Date with
respect to any Series, and will be established on the basis of
requirements of each Rating Agency rating the Certificates of
such Series. If so
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specified in the related Prospectus Supplement, any such
Enhancement may apply only in the event of certain types of
losses and the protection against losses provided by such
Enhancement will be limited.
(A) SUBORDINATION.................. A Series of Certificates may include one or more Classes of
Certificates which are subordinate to one or more other Classes
of such Series. The rights of the holders of any such
subordinated Certificates to receive distributions on any
Payment Date for such Series will be subordinate in right and
priority to the rights of the holders of Certificates which are
senior to such subordinated Certificates, but only to the extent
set forth in the related Prospectus Supplement. If so specified
in the related Prospectus Supplement, subordination may apply
only in the event of certain types of losses not covered by
another Enhancement. The related Prospectus Supplement will also
set forth information concerning the amount of subordination of
a Class or Classes of subordinated Certificates in a Series, the
circumstances in which such subordination will be applicable,
the manner, if any, in which the amount subordinated will
decrease over time, and the conditions under which amounts
available from payments that would otherwise be made to holders
of such subordinated Certificates will be distributed to holders
of Certificates which are senior to such subordinated
Certificates. If cash flows otherwise distributable to holders
of a subordinated Class of a Series will be used as support for
a Class of another Series, the related Prospectus Supplement
will specify the manner and conditions for applying such a
cross-support feature. See 'ENHANCEMENT -- Subordination.'
(B) LETTER OF CREDIT............... If so specified in the related Prospectus Supplement, support for
a Series 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 Enhancement. The issuer of the letter of credit
(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 an 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 amount of a
Series 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. See 'ENHANCEMENT -- Letter of Credit.'
(C) CASH COLLATERAL GUARANTY OR
ACCOUNT.......................... If so specified in the related Prospectus Supplement, support for
a Series or one or more Classes of a Series may be provided by a
guaranty (the 'Cash Collateral Guaranty') secured by the deposit
of cash or certain permitted investments in an account the 'Cash
Collateral Account') reserved for the beneficiaries of the Cash
Collateral Guaranty or by a Cash Collateral Account alone. The
amount available pursuant to the Cash Collateral Guaranty or the
Cash Collateral Account will
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be the lesser of amounts 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 are made to beneficiaries of
the Cash Collateral Guaranty from the Cash Collateral Account or
from the Cash Collateral Account directly.
(D) RESERVE FUND................... If so specified in the related Prospectus Supplement, the
Depositor may deposit cash, a letter or letters of credit,
short-term investments, or other instruments acceptable to the
Rating Agency in one or more reserve funds to be established in
the name of the Trustee (each, a 'Reserve Fund'), which will be
used, as specified in such Prospectus Supplement, by the Trustee
to make required payments of principal of or interest on the
Certificates of such Series, to make adequate provision for
future payments on such Certificates or for any other purpose
specified in the Agreement, with respect to such Series, to the
extent that funds are not otherwise available. In the
alternative or in addition to such deposit, a Reserve Fund for a
Series may be funded through application of all or a portion of
the excess cash flow from the Primary Assets for such Series, to
the extent described in the related Prospectus Supplement.
(E) SURETY BOND OR INSURANCE
POLICY........................... If so specified in the related Prospectus Supplement, support for
a Series or one or more Classes of a Series may be provided by
the posting of a surety bond or the issuance of insurance by an
insurance company, in each instance designed to assure the
distribution of interest or principal on the Certificates of
such Class or Series in the manner and amount specified in the
related Prospectus Supplement.
(F) SPREAD ACCOUNT................. If so specified in the related Prospectus Supplement, support for
a Series or one or more Classes 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 or principal
on the Certificates of such Class or Series in the manner
specified in the related Prospectus Supplement.
(G) DERIVATIVE PRODUCTS............ If so specified in the related Prospectus Supplement, the
Depositor may enter into any type of derivative arrangement with
respect to the Certificates of any Class or Series. Such
derivative arrangement may include a guaranteed rate agreement,
a maturity liquidity facility, a tax protection agreement, an
interest rate cap or floor agreement, an interest rate or
currency swap agreement or any other similar arrangement.
SERVICING.................................... The Servicer will be responsible for servicing, managing and
making collections on the Receivables for a Series. The Servicer
may perform such functions alone, through subservicers or in
conjunction with a Master Servicer. In performing these
functions, the Servicer will 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 be
appointed as successor servicer. The Servicer will receive a
periodic fee as servicing compensation and may, as specified
herein and in the related Prospectus Supplement, receive certain
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additional compensation. See 'SERVICING OF RECEIVABLES' herein.
FEDERAL INCOME TAX CONSIDERATIONS............ Except as set forth in the related Prospectus Supplement, it is
anticipated that Special Tax Counsel to the Depositor will be of
the opinion that, under existing law, the Trust will be
classified as either a grantor trust under the Internal Revenue
Code of 1986, as amended (the 'Code'), and not as an association
taxable as a corporation or as an owner trust and the Notes will
be treated as debt instruments for Federal, state and local
income and franchise tax purposes as of the Closing Date. See
'CERTAIN FEDERAL INCOME TAX CONSIDERATIONS' for additional
information concerning the application of Federal income tax
laws.
ERISA CONSIDERATIONS......................... A fiduciary of any employee benefit plan subject to the Employee
Retirement Income Security Act of 1974, as amended ('ERISA'), or
the Internal Revenue Code of 1986, as amended (the 'Code'),
should carefully review with its own legal advisors whether the
purchase or holding of Certificates could give rise to a
transaction prohibited or otherwise impermissible under ERISA or
the Code. See 'ERISA CONSIDERATIONS.'
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 constitute
legal investments for them.
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 Primary Assets, (ii) to repay indebtedness
which has been incurred to obtain funds to acquire such Primary
Assets, (iii) to establish a Pre-Funding Account for such
Series, (iv) to establish any Reserve Funds or Cash Collateral
Accounts described in the related Prospectus Supplement, (v) to
provide enhancement for any other Series or for securities
issued by another issuer, and (vi) to pay costs of structuring
and issuing such Certificates, including the costs of obtaining
Enhancement, if any. If so specified in the related Prospectus
Supplement, the purchase of the Primary Assets for a Series may
be effected by an exchange of Certificates with the Seller of
such Primary Assets. See 'USE OF PROCEEDS.'
RATINGS...................................... It will be a requirement for issuance of any Series that the
Certificates offered by this Prospectus and the related
Prospectus Supplement be rated by at least one Rating Agency in
one of its four highest applicable rating categories. The rating
or ratings applicable to Certificates of each Series offered
hereby and by the related Prospectus Supplement will be as set
forth in the related Prospectus Supplement. A securities rating
should be evaluated independently of similar ratings on
different types of securities.
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RISK FACTORS
Limited Liquidity. There can be no assurance that a secondary market for
the Certificates of any Series will develop or, if it does develop, that such
market will provide Certificateholders with liquidity of investment or that it
will continue for the life of the Certificates of such Series. The Underwriters
presently expect to make a secondary market in the Certificates offered hereby
and pursuant to any Prospectus Supplement, but have no obligation to do so.
Certain Legal Aspects. Each Seller will warrant in its Pooling and
Servicing Agreement, Master Pooling and Servicing Agreement, Sale and Servicing
Agreement or Trust Agreement (collectively, an 'Agreement') that the transfer of
the Receivables by it to the Trust is and will be either a valid transfer and
assignment of all right, title and interest in the Receivables and all proceeds
thereof to the Trust or the grant to the Trust of a security interest in the
Receivables. The Seller has taken and will take certain actions required to
perfect the Trust's interest in the Receivables. The Seller has warranted that
if the transfer by it 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 the transfer of the Receivables and all
proceeds thereof to the Trust is deemed to create a security interest therein, a
tax or government lien on property of the Seller arising before Receivables come
into existence may have priority over the Trust's interest in such Receivables.
See 'CERTAIN LEGAL ASPECTS OF THE RECEIVABLES -- Transfer of Receivables.'
If any Seller is a regulated financial institution, to the extent that a
Seller grants a security interest in the Receivables 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,
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, the
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 of proceedings with respect to
the Seller as provided under FIRREA, delays in payments on the Certificates and
possible reductions in the amount of those payments could occur. In the event of
a Servicer Default, 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 majority of the Certificateholders
from effecting a transfer of servicing to a successor Servicer. If a conservator
or receiver were appointed for the Seller pursuant to the Agreement, new
Principal Receivables would not be transferred to the Trust and the Trustee
would sell the portion of the Receivables allocable in accordance with the
Agreement to each Series (unless Certificateholders representing more than 50%
of the Investor Amount of each Series, or if any such Series has more than one
Class of each Class of such Series, instruct otherwise), thereby causing early
termination of the Trust and a loss to the Certificateholders if the net
proceeds of such sale were insufficient to pay Certificates in full. Upon the
occurrence of a Liquidation Event, if a conservator or receiver was appointed
for the Seller and no Liquidation Event other than such conservatorship,
receivership or insolvency of the Seller existed, the conservator or receiver
may have the power to prevent the early sale, liquidation or disposition of the
Receivables and the commencement of the Rapid Amortization Period. In addition,
a conservator or receiver for the Seller may have the power to cause early
payment of the Certificates. See 'CERTAIN LEGAL ASPECTS OF THE
RECEIVABLES -- Certain Matters Relating to Receivership.'
The Accounts and the Receivables are subject to numerous Federal and state
consumer protection laws which impose requirements on the making and collection
of consumer loans. Such laws, as well as any new laws or rulings which may be
adopted, may adversely affect the Servicer's ability to collect on the
Receivables or maintain previous levels of finance charges, annual cardholder
fees and other fees, and failure by the Seller or the Servicer to comply with
such requirements also could adversely affect the Servicer's ability to collect
on the Receivables. Pursuant to the Agreement, the Depositor covenants to accept
the transfer of all Receivables in an Account if any Receivable in such Account
does not comply with all requirements of law, if any Receivable is charged off
as uncollectible or if the proceeds
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of any Receivable in such Account are not available to the Trust. The Depositor
also makes certain other representations and warranties relating to the validity
and enforceability of the Accounts and the Receivables. However, the Trustee
will not make any examination of the Receivables or the records relating thereto
for the purpose of establishing the presence or absence of defects, compliance
with such representations and warranties, or for any other purpose. The sole
remedy if any such representation or warranty is breached and such breach
continues beyond the applicable cure period, if any, is that the Depositor or
the Servicer, as the case may be, will generally be obligated to accept the
transfer of all Receivables in the Account affected thereby. In addition, in the
event of a breach of certain representations and warranties, the Depositor may
be obligated to accept the reassignment and transfer of the interest in the
Trust of the holders of all Series.
Application of Federal and state bankruptcy and debtor relief laws would
affect the interests of the Certificateholders in the Receivables, if such laws
result in any Receivables being written off as uncollectible.
Certain Legal Concerns Applicable to Accounts. In November 1991, the United
States Senate voted to amend a then-proposed Senate banking bill to include an
amendment to the Federal Truth-in-Lending Act which would have limited the
annual percentage rate charged on credit card accounts to a rate not exceeding
four percentage points over the rate charged by the IRS on underpayments of
federal taxes. Based on the then-current IRS rate, such amendment would have
limited the maximum annual percentage rate for all credit card accounts to 14%.
Although the amendment was not approved by the House of Representatives, the
Depositor cannot predict whether Congress will pass a similar bill in the future
or if such a bill would be signed by the President. The potential effect of any
legislation which limits the amount of finance charges that may be charged on
credit card balances could be to reduce the Net Portfolio Yield of a Series. If
such Net Portfolio Yield for such Series is reduced, a Liquidation Event may
occur, and the Rapid Amortization Period for such Series could commence prior to
the Scheduled Amortization Date for such Series. In addition, during the past
year, there has been increased consumer awareness of the level of finance
charges and fees and other practices of card issuers. 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 finance charges or fees relating to the
Accounts.
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. On January 11, 1993, the U.S. Supreme Court denied the petition of the
Commonwealth to review the decision of the First Circuit. 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. 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. 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. If such a reduction occurs, a
Liquidation Event may occur.
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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
portfolios 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.
Payments and Maturity. The Receivables in the Trust may be paid at any time
and there is no assurance that there will be additional Receivables created in
the Accounts the Receivables of which are designated for inclusion in the Trust
or that any particular pattern of cardholder repayments will occur. The
continuation of the Revolving Period of a Series will be dependent upon the
continued generation of new Receivables for the Trust. A significant decline in
the amount of Receivables generated in the Accounts could result in the
occurrence of a Liquidation Event for one or more Series and the commencement of
the Rapid Amortization Period for each such Series. A decrease in the rate of
payment by cardholders could delay the return of principal to the
Certificateholders during the Amortization Periods for each Series. See
'Receivable Yield Considerations' in the related Prospectus Supplement. Each
Agreement will provide that the Depositor or the related Seller may, or will be
required to, designate Additional Accounts, the Receivables of which will be
added to the Trust in the event that the amount of the Principal Receivables is
not maintained at a certain minimum amount. If Additional Accounts are not
designated by the Depositor or the related Seller when required, a Liquidation
Event for one or more Series may occur and result in the commencement of a Rapid
Amortization Period for such Series. See the related Prospectus Supplement for a
discussion of other events which might lead to the commencement of the Rapid
Amortization Period for a Series.
Basis Risk. If so specified in the related Prospectus Supplement, a portion
of the Accounts in a Trust will have finance charges set at a variable rate
above a designated prime rate or other designated index. A Series of
Certificates issued by such Trust may bear interest at a fixed rate or at a
floating rate based on an index other than the prime rate or other designated
index. If there is a decline in the prime rate or other designated index, the
amount of collections of Finance Charge Receivables on such Accounts may be
reduced, whereas the amounts payable as Monthly Interest on such Series of
Certificates and other amounts required to be funded out of Finance Charge
Receivables with respect to such Series may not be similarly reduced.
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. Social factors include the public's
perceptions of the use of credit cards. Legal factors include any charges in the
current legal structure affecting the relative balance of power between credit
card issuers and the obligors under credit card accounts. 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 Certificates 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 trial was denied. VISA is currently appealing this decision to
the United States Court of Appeals for the Tenth Circuit. MasterCard has settled
a similar lawsuit. This settlement by MasterCard and/or a final decision
against, or a similar settlement by, VISA could result in increased competition
among issuers of VISA and MasterCard credit cards and thereby have adverse
consequences for members of the VISA and MasterCard associations.
A Seller's Ability to Change Terms of the Receivables. Any Seller 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
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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 the other fees and charges
assessed on the Accounts would decrease the effective yield on the Accounts and
could result in the occurrence of a Liquidation Event for one or more Series and
commencement of the Rapid Amortization Period for each such Series. Under an
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 defined below under 'Maturity Assumptions') as of such
date would be less than the Base Rate for such Series. The terms 'Base Rate' and
'Net Portfolio Yield' for each Series have the meanings set forth in the
Prospectus Supplement relating to each such Series. The Seller may also covenant
that it will change the terms relating to the Accounts only if the change is
made applicable to the comparable segment of the accounts owned and serviced by
the Seller with characteristics the same as or substantially similar to the
Accounts, except as otherwise restricted by the terms of the applicable
cardholder agreement. In servicing Accounts, a Servicer will be required to
exercise the same care and apply the same policies that it exercises in handling
similar matters for its own comparable accounts. Except as set forth above, the
Agreement does 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.
Limited Nature of Rating. Any rating assigned to the Certificates of a
Series or a Class of a Series by a Rating Agency will reflect such Rating
Agency's assessment solely of the likelihood that Certificateholders will
receive the payments of interest and principal required to be made under the
Agreement and will be based primarily on the value of the Primary Assets in the
Trust and the availability of any Enhancement with respect to such Series or
Class of such Series. The rating will not be a recommendation to purchase, hold
or sell Certificates of such Series or Class of such Series, and such rating
will not comment as to the marketability of such Certificates, any market price
or suitability for a particular investor. There is no assurance that any rating
will remain for any given period of time or that any rating will not be lowered
or withdrawn entirely by a Rating Agency if in such Rating Agency's judgment
circumstances so warrant.
Book-Entry Certificates. Issuance of the Certificates in book-entry form
may reduce the liquidity of such Certificates in the secondary trading market
since investors may be unwilling to purchase Certificates for which they cannot
obtain physical certificates. See 'DESCRIPTION OF THE CERTIFICATES -- Book-Entry
Registration' herein.
Because transactions in the Certificates can be effected only through DTC,
CEDEL, Euroclear, participating organizations, indirect participants and certain
banks, the ability of a Certificate Owner to pledge a Certificate to persons or
entities that do not participate in the DTC, CEDEL or Euroclear system, or
otherwise to take actions in respect of such Certificates, may be limited due to
lack of a physical certificate representing the Certificates. See 'DESCRIPTION
OF THE CERTIFICATES -- Book-Entry Registration' herein.
Certificate Owners may experience some delay in their receipt of
distributions of interest and principal on the Certificates because such
distributions will be forwarded by the Trustee to DTC and DTC will credit such
distributions to the accounts of its Participants (as defined herein) which will
thereafter credit them to the accounts of Certificate Owners either directly or
indirectly through indirect participants. See 'DESCRIPTION OF THE
CERTIFICATES -- Book-Entry Registration' herein.
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Certificates will be issued in Series pursuant to separate Pooling and
Servicing Agreements, Master Pooling and Servicing Agreements, Sale and
Servicing Agreements or Trust Agreements
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(collectively, an 'Agreement') between the Depositor, the Servicer and the
Trustee for the related Series identified in the related Prospectus Supplement.
A form of Agreement has been filed as an exhibit to the Registration Statement
of which this Prospectus forms a part. The Agreement relating to each Series of
Certificates 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
Certificates.
The Seller may agree to reimburse the Depositor for certain fees and
expenses of the Depositor incurred in connection with the offering of
Certificates.
The following summaries describe certain provisions in the Agreements which
are anticipated to be common to each Series of Certificates. The summaries do
not purport to be complete and are subject to, and are qualified in their
entirety by reference to, the provisions of the Agreement and the Prospectus
Supplement relating to each Series of Certificates. Where particular provisions
or terms used in the Agreement are referred to, the actual provisions (including
definitions of terms) are incorporated herein by reference as part of such
summaries.
The Certificates are issuable in Series. Each Series will consist of one or
more Classes of Certificates, one or more of which may be Variable Interest
Certificates, Zero Coupon Certificates, Principal Only Certificates, Interest
Only Certificates or other types of Certificates as described in the related
Prospectus Supplement. A Series may also include one or more Classes of
Subordinate Certificates. 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 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. If specified in the related
Prospectus Supplement, one or more Classes of a Series may be available in
book-entry form only.
Unless otherwise provided in the related Prospectus Supplement, payments of
principal of and interest on a Series of Certificates will be made on the
Payment Dates specified in the Prospectus Supplement relating to such Series by
check mailed to Certificateholders of such Series, registered as such at the
close of business on the record date specified in the related Prospectus
Supplement applicable to such Payment Dates at their addresses appearing on the
certificate register, 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 each Certificate will be made only
upon presentation and surrender of such Certificate at the office of the Trustee
specified in the related Prospectus Supplement. Notice of the final payment on a
Certificate will be mailed to the holder of such certificate before the Payment
Date on which the final principal payment on any Certificate is expected to be
made to the holder of such Certificate.
Payments of principal of and interest on the Certificates will be made by
the Trustee, or a paying agent on behalf of the Trustee, as specified in the
related Prospectus Supplement. Unless otherwise provided in the related
Prospectus Supplement, all payments with respect to the Primary Assets for a
Series, together with reinvestment income thereon, amounts withdrawn from any
Reserve Fund, and amounts available pursuant to any other Enhancement will be
deposited directly into the Collection Account and, net, if and as provided in
the related Prospectus Supplement, of certain amounts payable to the Series
under the related Agreement and any other person specified in the related
Prospectus Supplement, will thereafter be deposited into the Distribution
Account and will 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 Distribution Accounts.'
PAYMENTS OF INTEREST
The Certificates of each Class which by their terms are entitled to receive
interest will bear interest (calculated, unless otherwise specified in the
related Prospectus Supplement, on the basis of a 360-day year of twelve 30-day
months) from the date and at the rate per annum specified, or calculated in the
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method described in the related Prospectus Supplement. Interest on such
Certificates of a Series will be payable on the Payment Date specified in the
related Prospectus Supplement. The rate of interest on Certificates of a Series
may be floating. Principal Only Certificates may not be entitled to receive any
interest distributions or may be entitled to receive only nominal interest
distributions. Any interest on Zero Coupon Certificates that is not paid on the
related Payment Date 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 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 a Series, principal payments will be made to the
holders of the Certificates of such Series 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.
FINAL SCHEDULED PAYMENT DATE
The Final Scheduled Payment Date of each Class of a Series of Certificates
will be specified in the related Prospectus Supplement and 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 on the Primary Assets will be
used to make distributions in reduction of the outstanding principal amount of
the Certificates, it is likely that the actual final Payment Date of any such
Class will occur earlier, and may occur substantially earlier, than its Final
Scheduled Payment Date.
COMPANION SERIES
If so specified in the related Prospectus Supplement, a Series of
Certificates may be paired with another Series issued by the related Trust (a
'Companion Series') on or prior to the commencement of an Accumulation Period or
Amortization Period for such Series. As the Investor Interest of the Series
having a Companion Series is reduced, the Investor Interest of the Companion
Series will increase by an equal amount. Upon payment in full of such Series,
the Investor Interest of the Companion Series will be equal to the amount of the
Investor Interest paid to Certificateholders of such Series.
OPTIONAL PURCHASE OR TERMINATION
The Depositor may, at its option, purchase a Class of Certificates of any
Series, on any Payment Date under the circumstances, if any, specified in the
Prospectus Supplement relating to such Series. Alternatively, if so specified in
the related Prospectus Supplement for a Series of Certificates, the Depositor,
the Servicer, or another entity designated in the related Prospectus Supplement
may, at its option, cause an early termination of a Trust by repurchasing all of
the Primary Assets from such Trust on or after a date specified in the related
Prospectus Supplement, or on or after such time as the aggregate outstanding
principal amount of the Certificates or Primary Assets, as specified in the
related Prospectus Supplement, is less than the amount or percentage specified
in the related Prospectus Supplement. Notice of such purchase or termination
must be given by the Depositor or the Trustee prior to the related date. The
purchase or repurchase price will be set forth in the related Prospectus
Supplement.
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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 an Early Amortization Event.
BOOK-ENTRY REGISTRATION
If so specified in the related Prospectus Supplement, Certificateholders
may hold their Certificates 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 Certificates. Unless
and until Definitive Certificates are issued under the limited circumstances
described in the related Prospectus Supplement, all references herein or in such
Prospectus Supplement to actions by Certificateholders 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 Certificateholders shall refer to distributions, notices, reports
and statements to DTC or Cede, as the registered holder of the Certificates, as
the case may be, for distribution to Certificateholders 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 between CEDEL Participants and Euroclear
Participants will occur in the ordinary way in accordance with their applicable
rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through CEDEL or
Euroclear participants, on the other, will be effected in DTC in accordance with
DTC rules on behalf of the relevant European international clearing system by
its Depositary; however, such cross-market transactions will require delivery of
instructions to the relevant European international clearing system by the
counterparty in such system in accordance with its rules and procedures and
within its established deadlines (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 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
Certificates, see Annex I hereto and for information with respect to tax
documentation procedures relating to the Certificates, see Annex I hereto and
'CERTAIN FEDERAL INCOME TAX CONSIDERATIONS -- 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
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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 custodian relationship with a Participant, either
directly or indirectly (the 'Indirect Participants').
Certificateholders that are not Participants or Indirect Participants but
desire to purchase, sell or otherwise transfer ownership of, or other interests
in, Certificates may do so only through Participants and Indirect Participants.
In addition, Certificateholders will receive all distributions of principal of
and interest on the Certificates from the 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, Certificateholders
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 Certificateholders. It is anticipated that the only
'Certificateholder' for a Series may be Cede, as nominee of DTC.
Certificateholders would not then be recognized by the Trustee as
Certificateholders, as such term is used in the Agreement, and
Certificateholders would only be permitted to exercise the rights of
Certificateholders indirectly through the Participants who in turn will exercise
the rights of Certificateholders 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 Certificates and is required to
receive and transmit distributions of principal of and interest on the
Certificates. Participants and Indirect Participants with which
Certificateholders have accounts with respect to the Certificates similarly are
required to make book-entry transfers and receive and transmit such payments on
behalf of their respective Certificateholders. Accordingly, although
Certificateholders will not possess Certificates, Certificateholders 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 and certain banks, the ability of a
Certificateholder to pledge Certificates to persons or entities that do not
participate in the DTC system, or otherwise take actions in respect of such
Certificates, may be limited due to the lack of a physical certificate for such
Certificates.
DTC will take any action permitted to be taken by a Certificateholder under
the Agreement only at the direction of one or more Participants to whose account
with DTC the Certificates are credited. Additionally, DTC will take such actions
with respect to specified percentages of the Certificateholders' 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 its 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 was created in 1968 to hold securities for its
participants ('Euroclear Participants') and to clear and settle transactions
between Euroclear Participants through simultaneous
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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 System has subsequently been extended to clear and settle transactions
between Euroclear Participants and 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 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 Certificates held through CEDEL or Euroclear
will be credited to the cash accounts of CEDEL Participants or Euroclear
Participants in accordance with the relevant system's rules and procedures, to
the extent received by its Depositary. Such distributions will be subject to tax
reporting in accordance with relevant United States tax laws and regulations.
See 'Certain Federal Income Tax Considerations.' The CEDEL or the Euroclear
Operator, as the case may be, will take any other action permitted to be taken
by a Certificateholder under the Agreement on behalf of a CEDEL Participant or
Euroclear Participant only in accordance with its relevant rules and procedures
and subject to its Depositary's ability to effect such actions on its behalf
through DTC.
Although DTC, CEDEL and Euroclear have agreed to the foregoing procedures
in order to facilitate transfers of Certificates among participants of DTC,
CEDEL and Euroclear, they are under no obligation to perform or continue to
perform such procedures and such procedures may be discontinued at any time.
DEFINITIVE CERTIFICATES
The Certificates of any Series will be issued in fully registered,
certificated form to Certificateholders or their respective nominees
('Definitive Certificates'), rather than to DTC or its nominee only if (i) the
Depositor advises the Trustee in writing that DTC is no longer willing or able
to discharge properly its responsibilities as depository with respect to the
Certificates, and the 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,
Certificateholders of the related series evidencing not less than 50% of the
aggregate unpaid principal amount of the Certificates 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
Certificateholders.
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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 Certificates. Upon surrender by DTC of
the definitive certificates representing the Certificates, and instructions for
re-registration, the Trustee will issue such Certificates in the form of
Definitive Certificates, and thereafter the Trustee will recognize the holders
of such Definitive Certificates as Certificateholders, under the Agreement and
the Series Supplement ('Holders').
If Definitive Certificates are issued, distribution of principal and
interest on the Definitive Certificates will be made by the Paying Agent or the
Trustee directly to the Holders in whose names the Definitive Certificates were
registered on the related Record Date in accordance with the procedures set
forth herein and in the Agreement and the Series Supplement. Distributions will
be made by check mailed to the address of each Holder as it appears on the
register maintained by the Trustee, except that the final payment on any
Definitive Certificate will be made only upon presentation and surrender of such
Definitive Certificate 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 will provide such notice to Holders not later than the fifth day of the
month of the final distribution.
Definitive Certificates will be transferable and exchangeable at the
offices of the Transfer Agent and Registrar, which shall initially be Citibank.
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.
Each series of Securities may include one or more classes of Notes, which
will be issued pursuant to an Indenture between the Trust and the Indenture
Trustee (as amended and supplemented from time to time, an 'Indenture'). The
terms of any Notes will be set forth in the Prospectus Supplement relating to
such Notes.
All discussions in this Prospectus of the Certificates, the terms thereof
as well as any investment considerations related thereto will be generally
applicable to any Notes.
TRUST ASSETS
GENERAL
The Trust for each Series of Certificates will be composed of certain
assets delivered, assigned and transferred to the Trustee by the Depositor, in
each case consisting, unless otherwise specified in the related Prospectus
Supplement, of (i) the Primary Assets, (ii) any Enhancement, (iii) the amount,
if any, initially deposited in the Collection Account, Distribution Account or
Pre-Funding Account for a Series as specified in the related Prospectus
Supplement.
The Primary Assets for a Series will be sold by the Seller to the Depositor
or purchased by the Depositor in the open market or in privately negotiated
transactions, which may include transactions with affiliates. Receivables
relating to a Series will be serviced by the Servicer, which may be the Seller,
specified in the related Prospectus Supplement, either pursuant to a Pooling and
Servicing Agreement or, if serviced by the Seller, a Sale and Servicing
Agreement (any of the Pooling and Servicing Agreements or the Sale and Servicing
Agreements are referred to herein individually as an 'Agreement').
Primary Assets included in the Trust for a Series may consist of any
combination of Receivables and CABS Securities, to the extent and as specified
in the related Prospectus Supplement.
The following is a brief description of the Primary Assets expected to be
included in the Trusts. Specific information regarding the Primary Assets 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 Securities and Exchange Commission within fifteen days after the
initial issuance of such Certificate. A copy of the Agreement with respect to
each Series of Certificates, or the Indenture with respect to each Series of
Notes, will be attached to the Form 8-K and will be available for inspection at
the corporate trust office of the Trustee specified in the related Prospectus
Supplement.
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THE RECEIVABLES
General. The Primary Assets for a Series may consist, in whole or in part,
of consumer, corporate, revolving credit card, charge card or debit card
receivables (collectively, the 'Receivables') generated 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 Accounts will consist of the Initial Accounts sold by a Seller, as well as
any Additional Accounts added from time to time, but will not include any
Removed Accounts. Each Seller will convey to the Trust all Receivables existing
on the Cut-off Date in certain consumer, revolving credit card, charge card or
debit card accounts (the 'Initial Accounts') and all Receivables arising in the
Initial Accounts from time to time thereafter until the termination of the
Trust. The Receivables may be payable in U.S. dollars or in any other foreign
currency. After the Cut-off Date, the Seller will convey to the Trust the
Receivables in certain New Accounts and the Receivables in certain other
Accounts included in certain Lump Sum Additions, in each case in accordance with
the provisions of the Agreement. In addition, pursuant to the Agreement, the
Seller in some circumstances will be obligated to designate Additional Accounts
the Receivables in which will be included in the Trust or, in lieu thereof or in
addition thereto, to include Participations in the Trust. Additional Accounts
will consist of New Accounts and accounts relating to any Lump Sum Additions.
The Seller will convey to the Trust all Receivables in Additional Accounts,
whether such Receivables are then existing or thereafter created. The addition
to the Trust of Receivables in Additional Accounts or Participations will be
subject to certain conditions.
Pursuant to the Agreement, the 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'). If so
specified in the related Prospectus Supplement, the Seller will be able to
include in the related Trust, participations representing undivided interests in
a pool of assets primarily consisting of revolving credit card accounts or other
revolving credit accounts owned by the Seller or any affiliate thereof and
collections thereon ('Participations').
Credit Card Accounts and Receivables. The Credit Card Receivables consist
of periodic finance charges, annual membership fees, cash advance fees and late
charges on amounts charged for merchandise and services and certain other fees
designated by the Seller ('Finance Charge Receivables') and all amounts charged
by cardholders for merchandise and services, amounts advanced to cardholders as
cash advances and all other fees billed to cardholders on the Accounts
('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. The amount
of Receivables 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 or otherwise adjusted. '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. 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 consist of
amounts charged on designated Accounts for merchandise and services, and all
annual membership fees and certain other administrative fees billed to the
designated Accounts. Receivables originated under Charge Card Accounts are not
subject to a monthly finance charge.
There are distinctions between the Credit Card Accounts and the Charge Card
Accounts. The Credit Card Accounts offer revolving credit plans to their
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
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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 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 Accounts received in any Due Period
equal to the product of Collections and 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 the Receivables that are Primary Assets as of the 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 Primary
Assets will be specified in the related Prospectus Supplement. The related
Prospectus Supplement will provide information, including, 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 for a Series.
If information of the nature described above respecting the Receivables is
not known to the Seller at the time the Certificates are initially offered,
approximate or more general information of the nature described above will be
provided in the related Prospectus Supplement and 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 Series and to be filed with the Commission
within 15 days after the initial issuance of such Certificates.
CABS SECURITIES
General. Primary Assets for a Series may consist, in whole or in part, of
CABS Securities which include 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 or are being
registered under the Securities Act of 1933 in connection with the offering of a
Series of Securities. CABS 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 'CABS Agreement'). The seller/servicer of the underlying Receivables will
have entered into the CABS Agreement with the trustee under such CABS Agreement
(the 'CABS Trustee'). Receivables underlying a CABS Security will be serviced by
a servicer (the 'CABS Servicer') directly or by one or more sub-servicers who
may be subject to the supervision of the CABS Servicer.
The issuer of the CABS Securities (the 'CABS 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 or merchandiser 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,
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and selling beneficial interests in such trusts; or one of such trusts. If so
specified in the related Prospectus Supplement, the CABS Issuer may be an
affiliate of the Depositor. The obligations of the CABS Issuer will generally be
limited to certain representations and warranties with respect to the assets
conveyed by it to the related trust. Unless otherwise specified in the related
Prospectus Supplement, the CABS Issuer will not have guaranteed any of the
assets conveyed to the related trust or any of the CABS Securities issued under
the CABS Agreement.
Distributions of principal and interest will be made on the CABS Securities
on the dates specified in the related Prospectus Supplement. The CABS 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 CABS Securities by the CABS Trustee or the CABS Servicer. The CABS Issuer or
the CABS Servicer may have the right to repurchase assets underlying the CABS
Securities after a certain date or under other circumstances specified in the
related Prospectus Supplement.
Underlying Receivables. The Receivables underlying the CABS Securities may
consist of Credit Card Receivables or Charge Card Receivables.
Enhancement Relating to CABS Securities. Enhancement in the form of reserve
funds, subordination of other CABS issued under the CABS Agreement, guarantees,
letters of credit, cash collateral accounts, insurance policies or other types
of Enhancement may be provided with respect to the Receivables underlying the
CABS Securities or with respect to the CABS Securities 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 CABS Securities on the basis of requirements of the rating
agencies.
Additional Information. The related Prospectus Supplement for a Series for
which the Primary Assets includes CABS 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 CABS Securities
to be included in the Primary Assets; (ii) certain characteristics of the
Receivables which comprise the underlying assets for the CABS Securities
including, (A) whether such Receivables are Credit Card Receivables or Charge
Card Receivables, (B) the fees and charges associated with such Receivables and
(C) the servicing fee or range of servicing fees with respect to the
Receivables; (iii) the expected and final maturity of the CABS Securities; (iv)
the interest rate of the CABS Securities; (v) the CABS Issuer, the CABS Servicer
(if other than the CABS Issuer) and the CABS Trustee for such CABS Securities;
(vi) certain characteristics of Enhancement, if any, such as reserve funds,
insurance policies, letters of credit or guarantees relating to the Receivables
underlying the CABS Securities or to such CABS Securities themselves; (vii) the
terms on which the underlying Receivables for such CABS Securities may, or are
required to, be purchased prior to their stated maturity or the stated maturity
of the CABS Securities; and (viii) the terms on which Receivables may be
substituted for those originally underlying the CABS Securities.
If information of the nature described above representing the CABS
Securities is not known to the Depositor at the time the Certificates are
initially offered, approximate or more general information of the nature
described above will be provided in the related Prospectus Supplement and the
additional information, if available, will be set forth in a Current Report on
Form 8-K to be available to investors on the date of issuance of the related
Series and to be filed with the Commission within 15 days of the initial
issuance of such Certificates.
COLLECTION AND DISTRIBUTION ACCOUNTS
A separate Collection Account will be established by the Trustee or the
Servicer, in the name of the Trustee, for each Series of Certificates 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 Primary Assets and, unless otherwise
specified in the related Prospectus Supplement, income earned thereon. Certain
amounts on deposit in such Collection Account and certain amounts available
pursuant to any Enhancement, as provided in the related Prospectus Supplement,
will be deposited in a related Distribution Account, which will also be
established by the
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Trustee for each such Series of Certificates, for distribution to the related
Certificateholders. The Trustee will invest the funds in the Collection and
Distribution Accounts in Eligible Investments maturing, with certain exceptions,
not later, in the case of funds in the Collection Account, than the day
preceding the date such funds are due to be deposited in the Distribution
Account or otherwise distributed and, in the case of funds in the Distribution
Account, than the day preceding the next Payment Date for the related Series of
Certificates. Eligible Investments include, among other investments, obligations
of the United States and certain agencies thereof, federal funds, certificates
of deposit, 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 Rating Agency.
From time to time, various accounts including Pre-Funding Accounts may be
created under the terms of the documents related to a specific Series.
ENHANCEMENT
GENERAL
For any Series, Enhancement may be provided with respect to one or more
Classes thereof. Enhancement may be in the form of the subordination of one or
more Classes of the Certificates 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 Enhancement
described in the related Prospectus Supplement, or any combination of the
foregoing. Enhancement may also include any type of derivative product or
arrangement. If so specified in the related Prospectus Supplement, any form of
Enhancement may be structured so as to be drawn upon by more than one Class to
the extent described therein.
Unless otherwise specified in the related Prospectus Supplement for a
Series, the Enhancement will not provide protection against all risks of loss
and will not guarantee repayment of the entire principal balance of the
Certificates and interest thereon. If losses occur which exceed the amount
covered by the Enhancement or which are not covered by the Enhancement,
certificateholders will bear their allocable share of deficiencies.
If Enhancement is provided with respect to a Series, the related Prospectus
Supplement will include a description of (a) the amount payable under such
Enhancement, (b) any conditions to payment thereunder not otherwise described
herein, (c) the conditions (if any) under which the amount payable under such
Enhancement may be reduced and under which such Enhancement may be terminated or
replaced and (d) any material provisions of any agreement relating to such
Enhancement. Additionally, the related Prospectus Supplement may set forth
certain information with respect to the issuer of any third-party 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.
SUBORDINATION
If so specified in the related Prospectus Supplement, one or more Classes
of a Series may be subordinated to one or more other Classes of a Series. If so
specified in the related Prospectus Supplement, the rights of the holders of the
subordinated Certificates to receive distributions of principal and/or interest
on any Payment Date will be subordinated to such rights of the holders of the
Certificates which are senior to such subordinated Certificates to the extent
set forth in the related Prospectus Supplement. The amount of subordination will
decrease whenever amounts otherwise payable to the holders of subordinated
Certificates are paid to the holders of the Certificates which are senior to
such subordinated Certificates.
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LETTER OF CREDIT
If so specified in the related Prospectus Supplement, a letter of credit
with respect to a Series or Class of Certificates may be issued by the bank or
financial institution specified in the related Prospectus Supplement (the 'L/C
Bank'). Under the letter of credit, the L/C Bank will be obligated to honor
drawings thereunder in an aggregate fixed dollar amount, net of unreimbursed
payments thereunder, equal to the amount described in the related Prospectus
Supplement. The amount available under the letter of credit will be reduced to
the extent of the unreimbursed payments thereunder.
CASH COLLATERAL GUARANTY OR ACCOUNT
If specified in the related Prospectus Supplement, the Certificates of any
Class or Series may have the benefit of a Cash Collateral Guaranty issued
pursuant to a trust agreement between a cash collateral depositor, a cash
collateral trustee and the Seller and Servicer or a Cash Collateral Account
directly. 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), the Trustee or the Seller or the Servicer.
The Servicer will determine on each Determination Date with respect to the
Series enhanced by the Cash Collateral Guaranty or the Cash Collateral Account
whether a deficiency exists with respect to the payment of interest and/or
principal on the Certificates so enhanced. If the Servicer determines that a
deficiency exists, it shall instruct the Trustee for such Series to draw an
amount equal to such deficiency from the Cash Collateral Guaranty or the Cash
Collateral Account, up to the maximum amount available thereunder.
RESERVE FUND
If so specified in the Prospectus Supplement relating to a Series of
Certificates, the Depositor will deposit into one or more funds to be
established with the Trustee as part of the Trust for such Series or for the
benefit of any Enhancer with respect to such Series (the 'Reserve Fund') cash, a
letter or letters of credit, Eligible Investments, or other instruments meeting
the criteria of the Rating Agency rating any Series of the Certificates in the
amount specified in such Prospectus Supplement. In the alternative or in
addition to such deposit, a Reserve Fund for a Series may be funded over time
through application of all or a portion of the excess cash flow from the Primary
Assets for such Series, to the extent described in the related Prospectus
Supplement. If applicable, the initial amount of the Reserve Fund and the
Reserve Fund maintenance requirements for a Series of Certificates will be
described in the related Prospectus Supplement.
Amounts withdrawn from any Reserve Fund will be applied by the Trustee to
make payments on the Certificates of a Series, to pay expenses, to reimburse any
Enhancer or for any other purpose, in the manner and to the extent specified in
the related Prospectus Supplement.
Amounts deposited in a Reserve Fund will be invested by the Trustee, in
Eligible Investments maturing no later than the day specified in the related
Prospectus Supplement.
SURETY BOND OR INSURANCE POLICY
If so specified in the related Prospectus Supplement, insurance with
respect to a Series or Class of Certificates may be provided by one or more
insurance companies. Such insurance will guarantee, with respect to one or more
Classes of the related Series, distributions of interest or principal in the
manner and amount specified in the related Prospectus Supplement.
If so specified in the related Prospectus Supplement, a surety bond may be
purchased for the benefit of the holders of any Series or Class of such Series
to assure distributions of interest or principal with respect to such Series or
Class of Certificates in the manner and amount specified in the related
Prospectus Supplement.
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SPREAD ACCOUNT
If so specified in the related Prospectus Supplement, support for a Series
or one or more Classes 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 the Certificates of such Class or Series in the manner specified in
the related Prospectus Supplement.
DERIVATIVE PRODUCTS
If so specified in the related Prospectus Supplement, the Depositor may
enter into a derivative arrangement with respect to the Certificates of any
Class or Series. Such derivative arrangement may include a guaranteed rate
agreement, a maturity liquidity facility, a tax protection agreement, an
interest rate cap or floor agreement, an interest rate or currency swap
agreement or any other similar arrangement.
SERVICING OF RECEIVABLES
GENERAL
Customary servicing functions with respect to Receivables comprising or
underlying the Primary Assets in the Trust will be provided by the Servicer
directly pursuant to an Agreement.
COLLECTION PROCEDURES
The Servicer will make reasonable efforts to collect all payments required
to be made under the Accounts and will, consistent with the terms of the related
Agreement for a Series and any applicable Enhancement, follow such collection
procedures as it follows with respect to comparable receivables held in its own
portfolio.
DEPOSITS TO THE COLLECTION ACCOUNT
Unless otherwise specified in the related Prospectus Supplement, the
Servicer will establish a separate account (the 'Collection Account') in the
name of the Trustee. Unless otherwise indicated in the related Prospectus
Supplement, the Collection Account will be an account maintained (i) at a
depository institution, the long-term unsecured debt obligations of which at the
time of any deposit herein are rated as described in the related Prospectus
Supplement and as specified by each Rating Agency rating the Certificates of
such Series or (ii) in an account or accounts the deposits in which are insured
to the maximum extent available by the FDIC or which are secured in a manner
meeting requirements established by each Rating Agency.
Unless otherwise specified in the related Prospectus Supplement, the funds
held in the Collection Account may be invested, pending remittance to the
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.
Unless otherwise specified in the related Prospectus Supplement, the
Servicer, the Seller, the Trustee or the Depositor, as appropriate, will deposit
into the Collection Account for each Series, within two business days after the
date of receipt thereof, the following payments and collections received or made
by it:
(i) All payments on account of principal, including prepayments, on
such Primary Assets;
(ii) All payments on account of interest or finance charges on such
Primary Assets after deducting therefrom, at the discretion of the Servicer
but only to the extent of the amount permitted to be withdrawn or withheld
from the Collection Account in accordance with the applicable Agreement,
the Servicing Fee in respect of such Primary Assets;
(iii) All amounts received by the Servicer in connection with the
liquidation of Primary Assets other than amounts required to be paid or
refunded to the obligor pursuant to the terms of the
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applicable documents or otherwise pursuant to law ('Liquidation Proceeds'),
exclusive of, in the discretion of the Servicer, but only to the extent of
the amount permitted to be withdrawn from the Collection Account in
accordance with the related Agreement, the Servicing Fee, if any, in
respect of the related Primary Asset;
(iv) All amounts required to be deposited therein from any applicable
Enhancement for such Series pursuant to the related Trust Agreement;
(v) All repurchase prices of any such Primary Assets repurchased by
the Depositor, the Seller or the Servicer pursuant to the related
Agreement;
(vi) Any amounts payable to the applicable person with respect to each
Primary Asset acquired that has been repurchased or removed from the Trust
by the Depositor, the Servicer or the Seller pursuant to the related
Agreement, all amounts received thereon and not distributed as of the date
on which the related repurchase price was determined;
(vii) All amounts payable to the Trustee of such Series for deposit
into the Distribution Account, if any, or for remittance to the
Certificateholders of such series as provided for in the related Trust
Agreement; and
(viii) All amounts necessary to clear and terminate the Collection
Account pursuant to the related Agreement.
In addition, if the Servicer deposits in the Collection Account for a
Series any amount not required to be deposited therein, it may, at any time,
withdraw such amount from such Collection Account.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
Except as otherwise provided in the related Prospectus Supplement, the
Servicer will be entitled to a servicing fee in an amount to be determined as
specified in the related Prospectus Supplement. The servicing fee may be fixed
or variable, as specified in the related Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, the
Servicer will 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 independent accountants, payment of the cost of
Enhancement, if any, and payment of expenses incurred in preparation of reports
to Certificateholders.
The rights of the Servicer to receive funds from the Collection Account for
a Series, whether as the Servicing Fee or other compensation, or for the
reimbursement of expenses or otherwise, may be subordinate to the rights of
Certificateholders of such Series.
EVIDENCE AS TO COMPLIANCE
The Agreement for each 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 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 Agreement for each 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 Agreement
throughout the preceding calendar year.
CERTAIN MATTERS REGARDING THE SERVICER
The Servicer for each Series will be identified in the related Prospectus
Supplement. The Servicer may be an affiliate of the Seller and may have other
business relationships with the Depositor and its affiliates.
If an event of default occurs with respect to the Servicer under an
Agreement, the Servicer may be replaced by the Trustee or a successor Servicer.
Unless otherwise specified in the related Prospectus
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Supplement, Servicer events of default and the rights of the Trustee upon such a
default under the Agreement for the related Series will be substantially similar
to those described under 'THE AGREEMENTS -- Events of Default' and ' -- Rights
upon Events of Default' herein.
Unless otherwise provided in the related Prospectus Supplement, the
Servicer may not resign from its obligations and duties under the Agreement,
except (a) upon determination that (i) the performance of its duties under the
Agreement is no longer permissible under applicable law and (ii) there is no
reasonable action which the Servicer could take to make the performance of its
duties hereunder permissible under applicable law, (b) in connection with a
conveyance, consolidation or merger by the Servicer with any corporation, or
conveyance or transfer of its properties or assets substantially as an entirety
to any other person permitted under the Agreement or (c) upon the satisfaction
of the following conditions: (i) the acceptance and assumption, by an agreement
supplemental thereto, executed and delivered to the Trustee, in form
satisfactory to the Trustee, of the obligations and duties of the Servicer
thereunder by a proposed successor Servicer, (ii) the Servicer having given
written notice to each Rating Agency of such transfer and such Rating Agency
having notified the Servicer in writing to the effect that its then current
rating of Certificates of any Series will not be reduced or withdrawn as a
result of such transfer, (iii) the written consent of any provider of
Enhancement (such consent not to be unreasonably withheld) and (iv) the proposed
successor Servicer being an Eligible Servicer (as defined below).
Notwithstanding anything in the 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 Agreement.
'Eligible Servicer' means the 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 Agreement.
INDEMNIFICATION
Except to the extent otherwise provided therein, each Agreement will
provide that the Servicer will indemnify the Trust, the Trustee and the
Certificateholders of all 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 this Agreement,
including those arising from acts or omissions of the Servicer pursuant to the
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 Certificateholders of any series for any
liability, cost or expense of the Trust with respect to any action taken by the
Trust at the request of the Certificateholders of a Series in accordance with
the Agreement nor 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 the Certificateholders of a Series in connection
herewith to any taxing authority; or (iii) the Trust or Certificateholders 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 Agreement by the Servicer. Subject to certain
exceptions in the Agreement, any indemnification pursuant to the Agreement will
be only from the assets of the Servicer.
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THE AGREEMENTS
The following summaries describe certain provisions of the Agreements. The
summaries do not purport to be complete and are subject to, and qualified in
their entirety by reference to, the provisions of the Agreements. Where
particular provisions or terms used in the Agreements are referred to, such
provisions or terms are as specified in the Agreements.
ASSIGNMENT OF PRIMARY ASSETS
Receivables; Pre-Funding Accounts. On the Closing Date specified with
respect to any given Trust in the related Prospectus Supplement (the 'Closing
Date'), the Seller will transfer and assign to the applicable Trustee, without
recourse, its entire interest in the Initial Receivables of the related
receivables pool. Each such Receivable will be identified at such time of
transfer. The Applicable Trustee will, concurrently with such transfer and
assignment, execute and deliver the related Certificates. Unless otherwise
provided in the related Prospectus Supplement, the net proceeds received from
the sale of the Certificates of a given series will be applied to the purchase
of the related CABS Securities from the Seller and, to the extent specified in
the related Prospectus Supplement, to the deposit of the Pre-Funded Amount into
the Pre-Funding Account. The related Prospectus Supplement for a given Trust
will specify whether, and the terms, conditions and manner under which,
Subsequent CABS will be sold by the Seller to the applicable Trust from time to
time during the Funding Period on each date specified as a transfer date in the
related Prospectus Supplement (each, a 'Subsequent Transfer Date').
General. In connection with any transfer of the Initial Receivables and any
transfer of Subsequent Receivables and CABS Securities pursuant to an Agreement
each Seller will annotate and indicate in its computer files that the
Receivables and CAB Securities 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 Cut-off Date. The Seller will not deliver to
the Trustee any other records or agreements relating to such Account 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' and
'CERTAIN LEGAL ASPECTS OF THE RECEIVABLES.'
Assignment of CABS Securities; Pre-Funding Accounts. The Depositor will
cause CABS Securities to be registered in the name of the Trustee (or its
nominee or correspondent). The Trustee (or its agent or correspondent) will have
possession of any certificated CABS Securities. Unless otherwise specified in
the related Prospectus Supplement, the Trustee will not be in possession of or
be assignee of record of any underlying assets for a CABS Security. See 'THE
TRUST ASSETS -- CABS Securities' herein. Each CABS Security will be identified
in a schedule appearing as an exhibit to the related Agreement (the 'CABS
Schedule'), which will specify the original principal amount, outstanding
principal balance as of the Cut-off Date, annual pass-through rate or interest
rate and maturity date for each CABS Security conveyed to the Trustee. In the
Agreement, the Depositor will represent and warrant to the Trustee regarding the
CABS Securities: (i) that the information contained in the CABS Schedule is true
and correct in all material respects; (ii) that, immediately prior to the
conveyance of the CABS 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
CABS Securities; and (iv) that there is no existing lien, charge, security
interest or other encumbrance on such CABS Securities. Unless otherwise provided
in the related Prospectus Supplement, the net proceeds received from the sale of
the Certificates of a given series will be applied to the purchase of the
related CABS Securities from the Seller and, to the extent specified in the
related Prospectus Supplement, to the deposit of the Pre-Funded Amount into the
Pre-Funding Account. The related Prospectus Supplement for a given Trust will
specify whether, and the terms, conditions and manner under which, Subsequent
CABS will be sold by the Seller to the applicable Trust
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from time to time during the Funding Period on each date specified as a transfer
date in the related Prospectus Supplement (each, a 'Subsequent Transfer Date').
Repurchase and Substitution of Non-Conforming Primary Assets. Unless
otherwise provided in the related Prospectus Supplement, if any document in the
file relating to the Primary Assets delivered by the Depositor to the Trustee is
found by the Trustee within 45 days of the execution of the related Agreement
(or promptly after the Trustee's receipt of any document permitted to be
delivered after the Closing Date) to be defective in any material respect and
the Depositor does not cure such defect within 90 days, or within such other
period specified in the related Prospectus Supplement, the Depositor will, not
later than 90 days or within such other period specified in the related
Prospectus Supplement, after the Trustee's notice to the Depositor or the
Servicer, as the case may be, of the defect, repurchase the related Primary
Asset from the Trustee at a price equal to (a) the outstanding principal balance
of such Primary Asset and (b) accrued and unpaid interest to the date of the
next scheduled payment on such Primary Asset at the rate set forth in the
related Agreement.
If provided in the related Prospectus Supplement, the Depositor may, rather
than repurchase the Primary Asset as described above, remove such Primary Asset
from the Trust (the 'Deleted Primary Asset') and substitute in its place one or
more other Primary Assets (each, a 'Qualifying Substitute Primary Asset').
Unless otherwise specified in the related Prospectus Supplement, any
Qualifying Substitute Primary Asset will have, on the date of substitution, (i)
an outstanding principal balance, after deduction of all Payments due in the
month of substitution, at least equal to the outstanding principal balance of
the Deleted Primary Asset (the amount of any shortfall to be deposited to the
Certificate Account in the month of substitution for distribution to
Certificateholders), (ii) an interest rate not less than the interest rate of
the Deleted Primary Asset, (iii) a remaining term-to-stated maturity not greater
than (and not more than two years less than) that of the Deleted Primary Asset,
and will comply with all of the representations and warranties set forth in the
applicable Agreement as of the date of substitution.
Unless otherwise provided in the related Prospectus Supplement, the
above-described cure, repurchase or substitution obligations constitute the sole
remedies available to the Certificateholders or the Trustee for a material
defect in a document for a Primary Asset.
The Depositor or another entity will make representations and warranties
with respect to Primary Assets for a Series. If the Depositor or such entity
cannot cure a breach of any such representations and warranties in all material
respects within the time period specified in the related 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 Primary Asset,
the Depositor or such entity is obligated to repurchase the affected Primary
Asset or, if provided in the related Prospectus Supplement, provide a Qualifying
Substitute Primary Asset therefor, subject to the same conditions and
limitations on purchases and substitutions as described above.
The Depositor's only source of funds to effect any cure, repurchase or
substitution will be through the enforcement of the corresponding obligations of
the responsible originator or seller of such Primary Assets. See 'RISK FACTORS.'
REPORTS TO HOLDERS
The Trustee will prepare and forward to each Certificateholder on each
Payment Date, or as soon thereafter as is practicable, a statement setting
forth, to the extent applicable to any Series, among other things:
(i) with respect to a Series, the amount of such distribution
allocable to interest or finance charges on the Primary Assets;
(ii) with respect to a Series the amount of such distribution
allocable to principal on the Primary Assets;
(iii) the amount of servicing compensation with respect to the Primary
Assets paid during the period commencing on the Due Date to which such
distribution relates and the amount of servicing compensation during such
period attributable to penalties and fees;
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(iv) the aggregate outstanding principal balance of the Primary Assets
as of the opening of business on the Due Date, after giving effect to
distributions allocated to principal and reported under (i) above;
(v) the aggregate outstanding principal amount of the Certificates of
such Series as of the Due Date after giving effect to distributions
allocated to principal reported under (ii) above;
(vi) with respect to Certificates that are Compound Interest
Certificates or Zero Coupon Certificates, the amount of interest accrued on
such Certificates during the related interest accrual period and added to
the Compound Value thereof;
(vii) in the case of Certificates that are Variable Interest
Certificates, the rate applicable to the distribution being made;
(viii) if applicable, the amount of any shortfall (i.e., the
difference between the aggregate amounts of principal and interest which
Certificateholders would have received if there were sufficient eligible
funds in the Distribution Account and the amounts actually distributed);
(ix) if applicable, the number and aggregate principal balances of
Primary Assets delinquent for (A) two consecutive payments and (B) three or
more consecutive payments, as of the close of business on the Determination
Date to which such distribution relates;
(x) in the case of any Enhancement described in the related Prospectus
Supplement, the amount of coverage of such Enhancement as of the close of
business on the applicable Payment Date;
(xi) in the case of any Series which includes a Class of Subordinate
Certificates, the subordinated amount, if any, determined as of the related
Determination Date and if the distribution to the Senior Certificateholders
is less than their required distribution, the amount of the shortfall;
(xii) the amount of any withdrawal from any applicable Reserve Fund
included in amounts actually distributed to Certificateholders and the
remaining balance of each Reserve Fund, if any, on such Payment Date, after
giving effect to distributions made on such date;
(xiii) for each such date during the Funding Period (if any), the
remaining Pre-Funded Amount;
(xiv) for the first such date that is on or immediately following the
end of the Funding Period (if any), the amount of any remaining Pre-Funded
Amount that has not been used to fund the purchase of Subsequent
Receivables and that is being passed through as payments on the
Certificates of the related Series; and
(xv) such other information as is specified in the related Agreement.
In addition, within a reasonable period of time after the end of each
calendar year the Trustee, unless otherwise specified in the related Prospectus
Supplement, will furnish to each holder of record at any time during such
calendar year: (a) the aggregate of amounts reported pursuant to (i) through
(iv), (vi) and (viii) above for such calendar year and (b) such information
specified in the Agreement to enable holders to prepare their tax returns
including, without limitation, the amount of original issue discount accrued on
the Certificates, if applicable. Information in the Payment Date reports and the
annual reports provided to the holders will not have been examined and reported
upon by an independent public accountant. However, each 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' herein.
EVENTS OF DEFAULT
Unless otherwise specified in the related Prospectus Supplement, Events of
Default under the Agreement for each Series include (i) any failure by the
Servicer to deposit amounts in the Collection Account and Distribution 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
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Trustee by the holders of Certificates of such Series evidencing not less than
25% of the aggregate voting rights of the Certificates for such Series, (ii) any
failure by the Servicer duly to observe or perform in any material respect any
other of its covenants or agreements in the 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
Certificates of such Series evidencing not less than 25% of the aggregate voting
rights of the Certificates and (iii) certain events of insolvency, readjustment
of debt, marshalling of assets and liabilities or similar proceedings and
certain actions by the Servicer indicating its insolvency, reorganization or
inability to pay its obligations.
RIGHTS UPON EVENTS OF DEFAULT
So long as an Event of Default remains unremedied under the Agreement for a
Series, the Trustee for such Series or holder of Certificates of such Series
evidencing not less than 51% of the aggregate principal amount of the
Certificates for such Series may terminate all of the rights and obligations of
the Servicer as servicer under the Agreement and in and to the Receivables,
whereupon the Trustee will succeed to all the responsibilities, duties and
liabilities of the Servicer under the Agreement and will be entitled to
reasonable servicing compensation not to exceed the applicable servicing fee,
together with other servicing compensation in the form of assumption fees, late
payment charges, or otherwise as provided in the Agreement.
In the event that the Trustee is unwilling or unable so to act, it may
select, or petition a court of competent jurisdiction to appoint, a finance
institution, bank or loan servicing institution with a net worth of at least
$15,000,000 to act as successor Servicer under the provisions of such Agreement
relating to the servicing of the Receivables. The successor Servicer would be
entitled to reasonable servicing compensation in an amount not to exceed the
Servicing Fee as set forth in the related Prospectus Supplement, together with
the other servicing compensation in the form of assumption fees, late payment
charges or otherwise, as provided in the Agreement.
During the continuance of any Event of Default under the Agreement for a
Series, the Trustee for such Series will have the right to take action to
enforce its rights and remedies and to protect and enforce the rights and
remedies of the Certificateholders of such Series, and holders of Certificates
evidencing not less than 51% of the aggregate voting rights of the Certificates
for such Series 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 that Trustee. However, the Trustee will not be under any
obligation to pursue any such remedy or to exercise any of such trusts or powers
unless such 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 prejudiced 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 Agreement for such Series
to institute any proceeding with respect to the Agreement, unless such holder
previously has given to the Trustee for such Series written notice of default
and unless the Holders of Certificates evidencing not less than 51% of the
aggregate voting rights of the Certificates for such Series 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 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
Certificates. In the event of such appointment, all rights, powers, duties and
obligations
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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 makes no representations as to the validity or sufficiency of
the Agreement, the Certificates or of any Primary Asset or related documents. If
no Event of Default (as defined in the related Agreement) has occurred, the
Trustee is required to perform only those duties specifically required of it
under the Agreement. Upon receipt of the various certificates, statements,
reports or other instruments required to be furnished to it, the Trustee is
required to examine them to determine whether they are in the form required by
the related Agreement; however, the Trustee will not be responsible for the
accuracy or content of any such documents furnished by it or the
Certificateholders 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
Certificateholders in an Event of Default. See ' -- Rights Upon Events of
Default' 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.
RESIGNATION OF 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 Agreement, (ii) if the Trustee becomes insolvent or (iii) by the
holders of Certificates evidencing more than 50% of the aggregate voting rights
of the Certificates in the Trust upon 30 days' advance written notice to the
Trustee and to the Depositor. Any resignation or removal of the Trustee and
appointment of a successor Trustee will not become effective until acceptance of
the appointment by the successor Trustee.
AMENDMENT OF THE AGREEMENT
Unless otherwise specified in the Prospectus Supplement, the Agreement for
each Series of Certificates may be amended by the Depositor, the Servicer, and
the Trustee with respect to such Series, without notice to or consent of the
Certificateholders (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 or Servicer, (iv) to add any other provisions with respect to matters
or questions arising under such Agreement or related 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 the Certificates, or (vi) to comply with
any requirements imposed by the Code; provided that any such amendment pursuant
to clause (iv) above will not adversely affect in any material respect the
interests of any Certificateholders 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 Certificateholder if the Trustee
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receives written confirmation from each Rating Agency rating such Certificates
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
Trustee, the Servicer and the Depositor with respect to such Series with the
consent of the holders possessing not less than 66 2/3% of the aggregate
outstanding principal amount of the Certificates of each Class 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 such Series; provided, however,
that no such amendment may (a) reduce the amount or delay the timing of payments
on any Certificate without the consent of the holder of such Certificate; or (b)
reduce the aforesaid percentage of aggregate outstanding principal amount of
Certificates of each Class, the holders of which are required to consent to any
such amendment without the consent of the holders of 100% of the aggregate
outstanding principal amount of each Class of Certificates affected thereby.
VOTING RIGHTS
The related Prospectus Supplement will set forth the method of determining
allocation of voting rights with respect to a Series, if other than set forth
herein.
LIST OF CERTIFICATEHOLDERS
Upon written request of three or more Certificateholders of record of a
Series for purposes of communicating with other Certificateholders with respect
to their rights under the Agreement or under the Certificates for such Series,
which request is accompanied by a copy of the communication which such
Certificateholders propose to transmit, the Trustee will afford such
Certificateholders access during business hours to the most recent list of
Certificateholders of that Series held by the Trustee.
No Agreement will provide for the holding of any annual or other meeting of
Certificateholders.
TERMINATION
The obligations created by the Agreement for a Series will terminate upon
the distribution to Certificateholders of all amounts distributable to them
pursuant to such Agreement after the earlier of (i) the final payment or other
liquidation of the last Primary 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 Primary Assets and other property at that time subject to the
Agreement. The Agreement for each Series permits, but does not require, the
Servicer to repurchase from the Trust for such Series all remaining Primary
Assets at a price equal to 100% of the aggregate Principal Balance of such
Primary Assets plus, with respect to any property acquired in respect of a
Primary Asset, if any, the outstanding Principal Balance of the related Primary
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 Primary Assets through the last day of the Due 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 Primary Assets at the time of
repurchase being less than a fixed percentage, to be set forth in the related
Prospectus Supplement, of the Cut-off Date aggregate Principal Balance. In no
event, however, will the trust created by the Agreement continue beyond the
expiration of 21 years from the death of the last survivor of certain persons
identified therein. For each Series, the Servicer or the Trustee, as applicable,
will give written notice of termination of the Agreement to each
Certificateholder, and the final distribution will be made only upon surrender
and cancellation of the Certificates at an office or agency specified in the
notice of termination. If so provided in the related Prospectus Supplement for a
Series, the Depositor or another entity may effect an optional termination of
the Trust under the circumstances described in such related Prospectus
Supplement. See 'DESCRIPTION OF THE CERTIFICATES -- Optional Purchase or
Termination' herein.
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CERTAIN LEGAL ASPECTS OF THE RECEIVABLES
The following discussion contains summaries of certain legal aspects of
credit, charge and debit card receivables which are general in nature. Because
certain of such legal aspects are governed by applicable state law (which laws
may differ substantially), the summaries do not purport to be complete nor to
reflect the laws of any particular state, nor to encompass the laws of all
states in which Receivables originate. The summaries are qualified in their
entirety by reference to the applicable federal and state laws governing the
Receivables.
TRANSFER OF RECEIVABLES
Each Seller will warrant in the applicable Agreement that the transfer of
the Receivables by it to the Depositor constitutes either a valid transfer and
assignment to the Depositor of all right, title and interest of the Seller in
and to the Receivables free and clear from liens arising from or through the
Seller, except, to the extent specified in the related Prospectus Supplement,
for certain potential tax liens, any interest of the Seller as holder of the
Exchangeable Transferor's Certificate and the Depositor'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 Depositor of a
security interest in the Receivables. The Seller will also warrant in the
Agreement that, in the event the transfer of the Receivables by the Seller to
the Depositor 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
Depositor and a valid, subsisting and enforceable first priority perfected
security interest in the Receivables created thereafter in favor of the
Depositor on and after their creation, except for certain liens as described in
the Agreement.
The Receivables are generally considered to be 'accounts' for purposes of
the UCC. Both the transfer of accounts and the transfer of accounts as security
for an obligation are treated under Article 9 of the UCC as creating a security
interest therein and are subject to its provisions, and the filing of
appropriate financing statements is required to perfect the security interest of
the Depositor. Financing statements covering the Receivables will be filed with
the appropriate governmental authority to protect the interest of the Depositor
in the Receivables.
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 Depositor could have an interest
in such Receivables with priority over the Depositor's interest. Under the
Agreement, however, the Seller will warrant that it has transferred the
Receivables to the Depositor free and clear of the lien of any third party,
except for certain tax and other governmental liens. In addition, the Seller
will covenant that, except as permitted by the Agreement, it will not sell,
pledge, assign, transfer or grant any lien on any Receivable (or any interest
therein) other than to the Depositor. A tax or other government lien on property
of the Seller arising prior to the time a Receivable comes into existence may
also have priority over the interest of the Depositor in such Receivable. In
addition, if a Seller is a Bank, if the FDIC were appointed as receiver of the
Bank, certain administrative expenses of the receiver may also have priority
over the interest of the Depositor 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,
Certificateholders could experience a delay or reduction in distributions.
CERTAIN MATTERS RELATING TO RECEIVERSHIP
It is likely that many of the Sellers to the Depositor will be banking
institutions. The Financial Institutions Reform, Recovery and Enforcement Act of
1989 ('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.
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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 the Seller would not interfere with the
timely transfer to the Depositor of payments collected on the Receivables or
interfere with the timely liquidation of Receivables as described below. To the
extent that the Seller granted a security interest in the Receivables to the
Depositor, 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
Depositor with respect to the Receivables should not be subject to recovery by
the FDIC as receiver of the Seller. If, however, the FDIC were to assert a
contrary position, or were to require the 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 Certificates of
any Series relating to such Seller outstanding at such time and possible
reductions in the amount of those payments could occur.
Each Agreement as to which a Bank is the Seller will provide that, upon the
appointment of a receiver for the Seller, the Seller will promptly give notice
thereof to the Trustee, and a Liquidation Event will occur. Under the Agreement,
no new Principal Receivables will be transferred to the Trust and, unless
otherwise instructed within a specified period by the holders of Certificates
representing undivided interests aggregating more than 50% of the Investor
Amount of each Series (or if any such Series has more than one Class, of each
Class of such Series) 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 be 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
Liquidation Event, if a conservator or receiver is appointed for the Seller and
no Liquidation Event other than such conservatorship or receivership or
insolvency of the Seller exists, the conservator or receiver may have the power
to prevent the early sale, liquidation or disposition of Receivables and the
commencement of a Rapid Amortization Period with respect to any outstanding
Series. In addition, a conservator or receiver for the Seller may have the power
to cause early payment of the Certificates.
If the Seller Bank 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 exists, the
conservator or receiver may have the power to prevent either the Trustee or the
majority in interest of the Certificateholders from effecting a transfer of
servicing to a successor Servicer.
CONSUMER PROTECTION LAWS
The relationship of cardholder and card issuer is extensively regulated by
Federal and state consumer protection laws. The most significant of these laws
include the Federal Truth-in-Lending Act, Equal Credit Opportunity Act, Fair
Credit Reporting Act, Electronic Funds Transfer Act and, to the extent that the
Seller is a bank, the National Bank Act (if such Seller is a national banking
association), as well as the banking statutes of the state in which the bank is
located, and comparable statutes in the states in which cardholders reside.
These statutes impose disclosure requirements when an account is advertised,
when it is opened, at the end of monthly billing cycles, upon account renewal
for accounts on which annual fees are assessed, and at year end and, in
addition, limit cardholder liability for unauthorized use, prohibit certain
discriminatory practices in extending credit, and impose certain limitations on
the type of account-related charges that may be assessed. Newly adopted Federal
legislation requires card issuers to disclose to consumers the interest rates,
annual cardholder fees, grace periods, and balance calculation methods
associated with their accounts. Cardholders are entitled under current law to
have payments and credits applied to the account promptly, to receive prescribed
notices and to have billing errors resolved promptly.
Various proposed laws and amendments to existing laws have been introduced
in Congress and certain state and local legislatures that, if enacted, would
further regulate the credit card industry. Certain such laws would, among other
things, impose a ceiling of the rate at which a financial institution
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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
Liquidation Event for such Series may occur, and the Rapid Amortization Period
for such Series would commence.
In October 1991, the United States District Court for the State of
Massachusetts held that Greenwood Trust Company (a federally-insured,
Delaware-chartered bank that issues the Discover credit card) was prohibited by
Massachusetts law from assessing late charges on credit card accounts of
Massachusetts residents. On August 6, 1992, that decision was reversed by the
United States Court of Appeals for the First Circuit, which held that the
Massachusetts law was preempted by federal law permitting the charges in
question. In November 1992, the Commonwealth of Massachusetts petitioned the
United States Supreme Court to accept the case. On January 11, 1993, the U.S.
Supreme Court denied the petition of the Commonwealth to review the decision of
the First Circuit. 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. 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. 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 Depositor 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
Depositor 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 transfer 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 was incorporated in the State of Delaware on January 29,
1988. As of January 4, 1993, the Depositor is a wholly owned subsidiary of LCPI,
which is a wholly owned subsidiary of Lehman Brothers, a wholly owned subsidiary
of Holdings. The Depositor's principal executive offices are located at Three
World Financial Center, New York, New York 10285. Its telephone number is (212)
526-7000.
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The Depositor will not engage in any activities other than to authorize,
issue, sell, deliver, purchase and invest in (and enter into agreements in
connection with), and/or to engage in the establishment of one or more trusts
which will issue and sell, bonds, notes, debt or equity securities, obligations
and other securities and instruments ('Depositor Securities') collateralized or
otherwise secured or backed by, or otherwise representing an interest in, among
other things, receivables or pass-through certificates, or participations or
certificates of participation or beneficial ownership in one or more pools of
receivables, and the proceeds of the foregoing, that arise in connection with
(i) the sale or lease of automobiles, trucks or other motor vehicles, equipment,
merchandise and other personal property, (ii) credit card purchases or cash
advances, (iii) the sale, licensing or other commercial provision of services,
rights, intellectual properties and other intangibles, (iv) trade financings,
(v) loans secured by certain first or junior mortgages on real estate, (vi)
loans to employee stock ownership plans and (vii) all other commercial
transactions and commercial, sovereign, student or consumer loans or
indebtedness and, in connection therewith or otherwise, purchasing, acquiring,
owning, holding, transferring, conveying, servicing, selling, pledging,
assigning, financing and otherwise dealing with such receivables, pass-through
certificates, or participations or certificates of participation or beneficial
ownership. Article Third of the Depositor's Certificate of Incorporation limits
the Depositor's activities to the above activities and certain related
activities, such as Enhancement with respect to such Depositor Securities, and
to any activities incidental to and necessary or convenient for the
accomplishment of such purposes. The Certificate of Incorporation of the
Depositor provides that any Depositor Securities, except for subordinated
Depositor Securities, must be rated in one of the four highest categories by a
nationally recognized rating agency.
USE OF PROCEEDS
The Depositor will apply all or substantially all of the net proceeds from
the sale of each Series of Certificates offered hereby and by the related
Prospectus Supplement for one or more of the following purposes: (i) to purchase
the related Primary Assets, (ii) to repay indebtedness which has been incurred
to obtain funds to acquire such Primary Assets, (iii) to establish a Pre-Funding
Account for such Series, (iv) to establish any Reserve Funds or Cash Collateral
Accounts described in the related Prospectus Supplement, (v) to provide
enhancement for any other Series or for securities issued by another issuer and
(vi) to pay costs of structuring and issuing such Certificates, including the
costs of obtaining Enhancement, if any. If so specified in the related
Prospectus Supplement, the purchase of the Primary Assets for a Series may be
effected by an exchange of Certificates with the Seller of such Primary Assets.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
Set forth below is a discussion of certain U.S. federal income tax
consequences of the purchase, ownership and disposition of the Securities. This
discussion does not purport to deal with all aspects of federal income taxation
that may be relevant to holders of the Securities in light of their personal
investment circumstances, nor to certain types of holders subject to special
treatment under the U.S. federal income tax laws (for example, banks, life
insurance companies and tax-exempt organizations). Prospective investors are
advised to consult their own tax advisors with regard to the U.S. federal income
tax consequences of holding and disposing of the Securities, as well as the tax
consequences arising under the laws of any state, foreign country or other
jurisdiction. This discussion is based upon present provisions of the Internal
Revenue Code of 1986, as amended (the 'Code'), the regulations promulgated
thereunder, and judicial or ruling authority, all of which are subject to
change, which change may be retroactive. No ruling on any of the issues
discussed below will be sought from the Internal Revenue Service (the 'IRS').
The Securities of a Series may be classified for U.S. federal income tax
purposes as (i) indebtedness, (ii) an ownership interest in some or all of the
assets included in the Trust for a Series, or (iii) otherwise specified in the
Prospectus Supplement for a Series.
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TREATMENT OF THE NOTES AS INDEBTEDNESS
The Seller will agree, and the Noteholders will agree by their purchase of
Notes, to treat the Notes as debt for federal income tax purposes. If so
specified in the Prospectus Supplement for a Series, Tax Counsel will advise the
Trust that the Notes of a Series will be classified as debt for federal income
tax purposes. The discussion below assumes this characterization of the Notes is
correct. If, contrary to the opinion of Special Tax Counsel, the IRS
successfully asserted that one or more of the Notes did not represent debt for
federal income tax purposes, the Notes might be treated as equity interests in
the Trust. If so treated, the Trust might be taxable as a corporation or,
alternatively, as a publicly traded partnership.
TAXATION OF DEBT SECURITIES
Interest Income to Securityholders. Assuming the Securities are debt
obligations for U.S. federal income tax purposes, interest thereon will be
taxable as ordinary income for U.S. federal income tax purposes when received by
Securityholders utilizing the cash basis method of accounting and when accrued
by Securityholders utilizing the accrual method of accounting. Interest received
on the Securities may also constitute 'investment income' for purposes of
certain limitations of the Code concerning the deductibility of investment
interest expense. In addition, a Securityholder who buys a Security for less
than its principal amount (assuming the Security is issued without OID) will be
subject to the 'market discount' rules of the Code, and a Securityholder who
buys a Security for more than its principal amount will be subject to the
premium amortization rules of the Code. See 'Original Issue Discount' below for
a description of the U.S. federal income tax consequences if the Securities are
issued with OID.
The Trustee will be required to report annually to the IRS, and to each
Securityholder of record, the amount of interest paid (and OID accrued, if any)
on the Securities (and the amount of interest withheld for U.S. federal income
taxes, if any) for each calendar year, except as to exempt holders. See 'Backup
Withholding' herein.
The Code currently provides for a top marginal tax rate applicable to
ordinary income of individuals of 39.6% while maintaining a maximum marginal
rate for the long-term capital gains of individuals of 28%.
Original Issue Discount. The following summary is a general discussion of
the United States federal income tax consequences to Securityholders who are
United States persons owning Securities issued with original issue discount
('OID Securities' and 'OID', respectively). It is based upon income tax
regulations (the 'OID Regulations') finalized on January 27, 1994 under Code
Sections 1271 through 1273 and 1275.
In general, the OID with respect to any OID Security will equal the
difference between the principal amount of the Security and its issue price
(defined as the initial offering price to the public at which price a
substantial amount of the OID Securities have been sold), if such excess is
0.25% or more of the OID Security's principal amount multiplied by the number of
complete years to its maturity (the 'de minimis amount'). Even if such excess is
less than the de minimis amount, if a failure to pay interest currently on the
Securities is not a default it is possible that all stated interest could be
treated as principal for this purpose (and for purposes of the computations
described below) with the result that the Securities could be viewed as OID
Securities. Holders of OID Securities must include OID in income for United
States federal income tax purposes as it accrues under a method that takes
account of the compounding of interest, in advance of receipt of the related
cash payments.
In general, each Securityholder of an OID Security, whether such
Securityholder uses the cash or accrual method of accounting for tax purposes,
will be required to include in ordinary gross income the sum of the 'daily
portions' of OID on the Security for each day during the taxable year that the
Securityholder owns the Security. The daily portion of OID on an OID Security is
determined by allocating to each day in any 'accrual period' a ratable portion
of the original issue discount allocable to that accrual period. In the case of
an initial Securityholder, the amount of original issue discount on an OID
Security allocable to each accrual period is determined by (i) multiplying the
'adjusted issue price' (as defined below) of the Security by a fraction, the
numerator of which is the annual yield to
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maturity of such Security and the denominator of which is the number of accrual
periods in a year, and (ii) subtracting from the product the amount of interest
paid during that accrual period. The 'adjusted issue price' of an OID Security
at the beginning of any accrual period will be the sum of its issue price and
the amount of OID allocable to all prior accrual periods, minus the amount of
all payments (other than payments of qualified stated interest) previously made
with respect to the OID Security. As a result of such 'constant yield' method of
including OID income, the amounts so includible in income are lower in the early
years and greater in the later years than the amounts that would be includible
on a straightline basis.
In the event that a Securityholder purchases an OID Security at an
'acquisition premium,' i.e., at a price in excess of the issue price, plus the
OID accrued prior to acquisition and minus any principal payments made with
respect to the OID Security prior to acquisition, the amount includible in
income in each taxable year as OID will be reduced by that portion of the
premium properly allocable to such year. Moreover, a Securityholder who
purchases an OID Security at a price less than the price described in the
preceding sentence will be subject to the market discount rules of the Code.
A Securityholder's tax basis in an OID Security generally will be the
Securityholder's cost increased by any OID included in income (and market
discount, if any, if the Securityholder has elected to include accrued market
discount in income on a current basis) and decreased by the amount of any
principal payment received with respect to the OID Security. Gain or loss on the
sale, exchange or redemption of an OID Security generally will be long-term
capital gain or loss if the OID Security has been held for more than a year
except to the extent that such gain represents accrued market discount not
previously included in the Securityholder's income.
If an Early Amortization Event or Asset Composition Event occurs, the early
payments of principal as a result of either such event could result in
acceleration of income corresponding to a portion of the unaccrued OID.
Effects of Defaults and Delinquencies. Holders of Securities that are
treated as Debt Securities for U.S. federal income tax purposes will be required
to report income with respect to such Securities under an accrual method without
giving effect to delays and reductions in distributions attributable to a
default or delinquency on the Primary Assets, except possibly to the extent that
it can be established that such amounts are uncollectible. As a result, the
amount of income (including OID) reported by a holder of such a Security in any
period could significantly exceed the amount of cash distributed to such holder
in that period. The holder will eventually be allowed a loss (or will be allowed
to report a lesser amount of income) to the extent that the aggregate amount of
distributions on the Securities is reduced as a result of a Primary Asset
default. However, the timing and character of such losses or reductions in
income are uncertain and, accordingly, holders of Securities should consult
their own tax advisors on this point.
Sale or Exchange. A Securityholder's tax basis in its Security is the price
such holder pays for a Security, plus amounts of original issue or market
discount included in income and reduced by any payments received (other than
qualified stated interest payments) and any amortized premium. Gain or loss
recognized on a sale, exchange, or redemption of a Security, measured by the
difference between the amount realized and the Security's basis as so adjusted,
will generally be a capital gain or loss, assuming that the Security is held as
a capital asset.
A portion of any gain from the sale of a Security that might otherwise be
capital gain may be treated as ordinary income to the extent such Security is
held as part of a 'conversion transaction' within the meaning of new Section
1258 of the Code. A conversion transaction generally is one in which the
taxpayer has taken two or more positions in Securities or similar property that
reduce or eliminate market risk, if substantially all of the taxpayer's return
is attributable to the time value of the taxpayer's net investment in such
transaction. The amount of gain realized in a conversion transaction that may be
recharacterized as ordinary income generally will not exceed the amount of
interest that would have accrued on the taxpayer's net investment in such
transaction at 120% of the appropriate 'applicable Federal rate' (which rate is
computed and published monthly by the IRS), subject to appropriate reduction (to
the extent provided in regulations to be issued) to reflect prior inclusion of
interest or other ordinary income items from the transaction.
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Foreign Investors. If so specified in the Prospectus Supplement for a
Series, Tax Counsel will give its opinion that the Securities of a Series of
Securities will properly be classified as debt for U.S. federal income tax
purposes. If the Securities are treated as debt:
(a) interest paid to a nonresident alien or foreign corporation or
partnership would be exempt from U.S. withholding taxes (including backup
withholding taxes), provided the holder complies with applicable
identification requirements (and does not actually or constructively own
10% or more of the voting stock of the Depositor and is not a controlled
foreign corporation with respect to the Depositor). Applicable
identification requirements will be satisfied if there is delivered to a
securities clearing organization (or bank or other financial institution
that holds the Securities on behalf of the customer in the ordinary course
of its trade or business) (i) IRS Form W-8 signed under penalties of
perjury by the beneficial owner of such Securities stating that the holder
is not a U.S. Person and providing such holder's name and address, (ii) IRS
Form 1001 signed by the beneficial owner of such Securities or such owner's
agent claiming exemption from withholding under an applicable tax treaty,
or (iii) IRS Form 4224 signed by the beneficial owner of such Securities of
such owner's agent claiming exemption from withholding of tax on income
connected with the conduct of a trade or business in the United States;
provided in any such case (x) the applicable form is delivered pursuant to
applicable procedures and is properly transmitted to the United States
entity otherwise required to withhold tax and (y) none of the entities
receiving the form has actual knowledge that the holder is a U.S. person or
that any certification on the form is false;
(b) a holder of a Security who is a nonresident alien or foreign
corporation will not be subject to United States federal income tax on gain
realized on the sale, exchange or redemption of such Security, provided
that (i) such gain is not effectively connected to a trade or business
carried on by the holder in the United States, (ii) in the case of a holder
that is an individual, such holder is not present in the United States for
183 days or more during the taxable year in which such sale, exchange or
redemption occurs and (iii) in the case of gain representing accrued
interest, the conditions described in clause (a) are satisfied; and
(c) a Security held by an individual who at the time of death is a
nonresident alien will not be subject to United States federal estate tax
as a result of such individual's death if, immediately before his death,
(i) the individual did not actually or constructively own 10% or more of
the voting stock of the Depositor and (ii) the holding of such Security was
not effectively connected with the conduct by the decedent of a trade or
business in the United States.
Interest and OID of Securityholders who are foreign persons are not subject
to withholding if they are effectively connected with a United States business
conducted by the Securityholder. They will, however, generally be subject to the
regular United States income tax.
If the IRS were to contend successfully that a Series of Securities are
interests in a partnership (not taxable as a corporation), a Securityholder that
is a nonresident alien or foreign corporation might be required to file a U.S.
individual or corporate income tax return and pay tax on its share of
partnership income at regular U.S. rates, including, in the case of a
corporation, the branch profits tax (and would be subject to withholding tax on
its share of partnership income). If the Securities are recharacterized as
interests in an association taxable as a corporation or a 'publicly traded
partnership' taxable as a corporation, to the extent distributions on the
Securities were treated as dividends, a nonresident alien individual or foreign
corporation would generally be taxed on the gross amount of such dividends (and
subject to withholding) at a rate of 30% unless such rate were reduced by an
applicable treaty.
Backup Withholding. A Securityholder may, under certain circumstances, be
subject to 'backup withholding' at a rate of 31% with respect to distributions
or the proceeds of a sale of Securities to or through brokers that represent
interest or OID on the Securities. This withholding generally applies if the
holder of a Security (i) fails to furnish the Trustee with its taxpayer
identification number ('TIN'); (ii) furnishes the Trustee an incorrect TIN;
(iii) fails to report properly interest, dividends or other 'reportable
payments' as defined in the Code; or (iv) under certain circumstances, fails to
provide the Trustee or such holder's securities broker with a certified
statement, signed under penalty of perjury, that the TIN provided is its correct
number and that the holder is not subject to backup withholding. Backup
withholding will not apply, however, with respect to certain payments made to
Securityholders,
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including payments to certain exempt recipients (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) and to certain Nonresidents
(as defined below). Each nonexempt Securityholder will be required to provide,
under penalties of perjury, a certificate on IRS Form W-9 containing such
holder's name, address, federal taxpayer identification number and a statement
that such holder is not subject to backup withholding. Should a nonexempt
Securityholder fail to provide the required certification, the Trustee will be
required to withhold (or cause to be withheld) 31% of the interest (and
principal) otherwise payable to the holder, and remit the withheld amounts to
the IRS as credit against the holder's federal income tax liability. Holders of
the Securities should consult their tax advisers as to their qualification for
exemption from backup withholding and the procedure for obtaining the exemption.
The Trustee will report to the Securityholders and to the Servicer for each
calendar year the amount of any 'reportable payments' during such year and the
amount of tax withheld, if any, with respect to payments on the Securities. The
Trustee will furnish or make available, within a reasonable time after the end
of each calendar year, to each Securityholder or each person holding a Security
on behalf of a Securityholder at any time during such year, such information as
the Trustee deems necessary or desirable to assist Securityholders in preparing
their federal income tax returns.
TAX STATUS AS A GRANTOR TRUST
General. If specified in the related Prospectus Supplement, in the opinion
of Brown & Wood, special counsel to the Depositor, the Trust Fund relating to a
Series of Certificates will be classified for U.S. federal income tax purposes
as a grantor trust under Subpart E, Part 1 of Subchapter J of the Code and not
as an association taxable as a corporation (the Certificates of such Series,
'Pass-Through Securities'). In some Series there will be no separation of the
principal and interest payments on the Securities. In such circumstances, a
Certificateholder will be considered to have purchased a pro rata undivided
interest in the Securities. In other cases ('Stripped Securities'), sale of the
Certificates will produce a separation in the ownership of all or a portion of
the principal payments from all or a portion of the interest payments on the
Securities.
Each Certificateholder must report on its U.S. federal income tax return
its share of the gross income derived from the Securities (not reduced by the
amount payable as fees to the Trustee and the Servicer and similar fees
(collectively, the 'Servicing Fee')), at the same time and in the same manner as
such items would have been reported under the Certificateholder's tax accounting
method had it held its interest in the Securities directly, received directly
its share of the amounts received with respect to the Securities, and paid
directly its share of the servicing fees. In the case of Pass-Through Securities
other than Stripped Securities, such income will consist of a pro rata share of
all of the income derived from all of the Securities and, in the case of
Stripped Securities, such income will consist of a pro rata share of the income
derived from each stripped bond or stripped coupon in which the
Certificateholder owns an interest. The Certificateholder will generally be
entitled to deduct servicing fees under Section 162 or Section 212 of the Code
to the extent that such servicing fees represent 'reasonable' compensation for
the services rendered by the Trustee and the Servicer (or third parties that are
compensated for the performance of services). In the case of a noncorporate
holder, however, servicing fees (to the extent not otherwise disallowed, e.g.,
because they exceed reasonable compensation) will be deductible in computing
such holder's regular tax liability only to the extent that such fees, when
added to other miscellaneous itemized deductions, exceed 2% of adjusted gross
income and may not be deductible to any extent in computing such holder's
alternative minimum tax liability. In addition, the amount of itemized
deductions otherwise allowable for the taxable year for an individual whose
adjusted gross income exceeds the applicable amount will be reduced by the
lesser of (i) 3% of the excess of adjusted gross income over the applicable
amount or (ii) 80% of the amount of itemized deductions otherwise allowable for
such taxable year.
The Code currently provides for a top marginal tax rate applicable to
ordinary income of individuals of 39.6% while maintaining a maximum marginal
rate for the long-term capital gains of Individuals of 28%.
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Discount or Premium on Pass-Through Securities. Discount on a Pass-Through
Security represents OID or market discount. In the case of a CABS Security with
OID in excess of a prescribed de minimis amount or a Stripped Security, a holder
of a Certificate will be required to report as interest income in each taxable
year its share of the amount of OID that accrues during the year.
Stripped Securities. A Stripped Security may represent a right to receive
only a portion of the interest payments on a CABS Security (a 'Stripped
Coupon'), a right to receive only principal payments on a CABS Security or a
right to receive certain payments of both interest and principal (a 'Stripped
Bond'). Pursuant to Section 1286 of the Code, the separation of ownership of the
right to receive some or all of the interest payments on an obligation from
ownership of the right to receive some or all of the principal payments results
in the creation of 'stripped bonds' with respect to principal payments and
'stripped coupons' with respect to interest payments. Section 1286 of the Code
applies the OID rules to stripped bonds and stripped coupons. For purposes of
computing OID, a Stripped Bond or a Stripped Coupon is treated as a debt
instrument issued on the date that such stripped interest is purchased with an
issue price equal to its purchase price or, if more than one stripped interest
is purchased, the ratable share of the purchase price allocable to such stripped
interest.
The Code, OID Regulations and judicial decisions provide no direct guidance
as to how the interest and OID rules are to apply to Stripped Securities.
Although the tax treatment of Stripped Securities is not entirely clear, based
on recent guidance by the Internal Revenue Service (the 'IRS'), a Stripped Bond
Certificate generally should be treated as a single debt instrument issued on
the day it is purchased for purposes of calculating any OID. Generally, under
Treasury regulations issued on December 28, 1992 (the 'Section 1286 Treasury
Regulations'), if the discount on a Stripped Bond Certificate is larger than a
de minimis amount (as calculated for purposes of the OID rules of the Code) such
Stripped Bond Certificate will be considered to have been issued with OID. Based
on the preamble to the Section 1286 Treasury Regulations, it appears that stated
interest on a Stripped Bond Certificate will be treated as 'qualified stated
interest' within the meaning of the Section 1286 Treasury Regulations and such
income will be so treated in the Trustee's tax information reporting.
Under the foregoing rules, it is anticipated that Stripped Bond
Certificates will be considered to be issued with de minimis OID, which will
therefore be considered to be zero and Stripped Coupon Certificates will be
issued with OID. If Stripped Bond Certificates are issued with OID, the rules
described in this paragraph would apply. Generally, the owner of a Stripped
Security issued or acquired with OID must include in gross income the sum of the
'daily portions,' as defined below, of the OID on such Stripped Security for
each day on which it owns a Stripped Security, including the date of purchase
but excluding the date of disposition. In the case of an original Stripped
Security holder, the daily portions of OID with respect to a Stripped Security
generally would be determined as follows. A calculation will be made of the
portion of OID that accrues on the Stripped Security during each successive
monthly accrual period (or shorter period in respect of the date of original
issue or the final Distribution Date) that ends on the earlier to occur of the
day in the calendar year corresponding to each Distribution Date or the last day
of the related accrual period. This will be done, in the case of each full
monthly accrual period, by adding (i) the present value of all remaining
payments to be received on the Stripped Security and (ii) any payments received
during such accrual period, and subtracting from that total the 'adjusted issued
price' of the Stripped Security at the beginning of such accrual period. The
'adjusted issue price' of a Stripped Security at the beginning of the first
accrual period is its issue price (as determined for purposes of the original
issue discount rules of the Code) and the 'adjusted issue price' of a Stripped
Security at the beginning of a subsequent accrual period is the 'adjusted issued
price' at the beginning of the immediately preceding accrual period plus the
amount of OID allocable to that accrual period and reduced by the amount of any
payment made at the end of or during that accrual period. The OID accruing
during such accrual period will then be divided by the number of days in the
period to determine the daily portion of OID for each day in the period. With
respect to an initial accrual period shorter than a full monthly accrual period,
the daily portions of OID must be determined according to an appropriate
allocation under either an exact or approximate method set forth in proposed
Treasury regulations with respect to OID, or some other reasonable method,
provided that such method is consistent with the method used to determine the
yield to maturity of the Stripped Security.
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Sale or Exchange. A Certificateholder's tax basis in its Certificate is the
price such holder pays for a Certificate, plus amounts of original issue or
market discount included in income and reduced by any payments received (other
than qualified stated interest payments) and any amortized premium. Gain or loss
recognized on a sale, exchange, or redemption of a Certificate, measured by the
difference between the amount realized and the Certificate's basis as so
adjusted, will generally be capital gain or loss, assuming that the Certificate
is held as a capital asset.
Gain or loss from the sale of a Grantor Trust Certificate that might
otherwise be capital gain may be treated as ordinary income to the extent such
Certificate is held as part of a 'conversion transaction' within the meaning of
new Section 1258 of the Code. A conversion transaction generally is one in which
the taxpayer has taken two or more positions in Certificates or similar property
that reduce or eliminate market risk, if substantially all of the taxpayer's
return is attributable to the time value of the taxpayer's net investment in
such transaction. The amount of gain realized in a conversion transaction that
may be recharacterized as ordinary income generally will not exceed the amount
of interest that would have accrued on the taxpayer's net investment in such
transaction at 120% of the appropriate 'applicable Federal rate' (which rate is
computed and published monthly by the IRS), subject to appropriate reduction (to
the extent provided in regulations to be issued) to reflect prior inclusion of
interest or other ordinary income items from the transaction.
Foreign Investors. Under the Code, unless interest (including OID) paid on
a Certificate is considered to be 'effectively connected' with a trade or
business conducted in the United States by a nonresident alien individual,
foreign partnership or foreign corporation ('Nonresidents'), such interest will
normally qualify as portfolio interest (except where (i) the recipient is a
holder, directly or by attribution, of 10% or more of the capital or profits
interest in the issuer of the Securities, or (ii) the recipient is a controlled
foreign corporation to which the issuer of the Securities is a related person)
and will be exempt from U.S. federal income tax. Upon receipt of appropriate
ownership statements, the issuer normally will be relieved of obligations to
withhold tax from such interest payments. These provisions supersede the
generally applicable provisions of United States law that would otherwise
require the issuer to withhold at a 30% rate (unless such rate were reduced or
eliminated by an applicable tax treaty) on, among other things, interest and
other fixed or determinable, annual or periodic income paid to Nonresidents.
Holders of Pass-Through Securities and Stripped Securities, however, may be
subject to withholding to the extent that the Securities were originated on or
before July 18, 1984.
Interest and original issue discount of Certificateholders who are foreign
persons are not subject to withholding if they are effectively connected with a
United States business conducted by the Certificateholder. They will, however,
generally be subject to the regular United States income tax.
STATE TAX CONSIDERATIONS
In addition to the U.S. federal income tax consequences described in
'Certain Federal Income Tax Considerations,' 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 not purport to describe any
aspect of the income tax laws of any state. Therefore, potential investors
should consult their own tax advisors with respect to the various state tax
consequences of an investment in the Securities.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ('ERISA'),
imposes certain restrictions on employee benefit plans ('Plans') subject to
ERISA and persons who have certain specified relationships to such Plans
('Parties in Interest'). ERISA also imposes certain duties on persons who are
fiduciaries of Plans subject to ERISA and prohibits certain transactions between
a Plan and Parties in Interest with respect to such Plans ('Prohibited
Transactions'). Under ERISA, any person who exercises any authority or control
respecting the management or disposition of the assets of a Plan is considered
to be a fiduciary of such Plan (subject to certain exceptions not here
relevant). Similar restrictions also apply to Plans that are subject to the
Code.
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PLAN OF DISTRIBUTION
The Depositor may offer each Series of Certificates or Notes through Lehman
Brothers or one or more other firms that may be designated at the time of each
offering of such Certificates of Notes. The participation of Lehman Brothers in
any offering will comply with Schedule E to the By-Laws of the National
Association of Securities Dealers, Inc. The Prospectus Supplement relating to
each Series of Certificates or Notes will set forth the specific terms of the
offering of such Series of Certificates or Notes and of each Class within such
Series, the names of the underwriters, the purchase price of the Certificates or
Notes, the proceeds to the Depositor from such sale, any securities exchange on
which the Certificates or Notes may be listed, and, if applicable, the initial
public offering prices, the discounts and commissions to the underwriters and
any discounts and concessions allowed or reallowed to certain dealers. The place
and time of delivery of each Series of Certificates or Notes will also be set
forth in the Prospectus Supplement relating to such Series.
LEGAL MATTERS
Unless otherwise specified in the related Prospectus Supplement, certain
legal matters in connection with the Certificates and the Notes will be passed
upon for the Depositor and for the underwriters by Brown & Wood, New York, New
York.
EXPERTS
The financial statements and schedules of the Depositor for the fiscal
years ended December 31, 1990, 1991 and 1992, audited by Ernst & Young,
independent auditors, are included or incorporated by reference in the
Depositor's Annual Report on Form 10-K for the fiscal year ended December 31,
1992 (the '1992 Form 10-K'). The 1992 Form 10-K is incorporated by reference in
this Prospectus in reliance upon the opinions of such firms appearing therein
given upon the authority of those firms as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Prospectus does not contain all the information set forth in the
Registration Statement (of which this Prospectus is a part) and exhibits
relating thereto which the Depositor has filed with the Commission in
Washington, D.C. Copies of the information and the exhibits are on file at the
offices of the Commission and may be obtained, upon payment of the fee
prescribed by the Commission, or may be examined without charge at the offices
of the Commission.
Neither Lehman Brothers Inc. nor any of its affiliates, including the
Depositor, are obligated with respect to the Certificates or the Notes.
Accordingly, the Depositor has determined that financial statements of Lehman
Brothers and its affiliates including the Depositor are not material to the
offering made hereby.
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GLOSSARY OF TERMS
The following are abbreviated definitions of certain capitalized terms used
in this Prospectus. Unless otherwise provided in a 'Supplemental Glossary' in
the Prospectus Supplement for a Series, such definitions shall apply to
capitalized terms used in such Prospectus Supplement. The definitions may vary
from those in the related Agreement for a Series and the related Agreement for a
Series generally provides a more complete definition of certain of the terms.
Reference should be made to the related Agreement for a Series for a more
complete definition of such terms.
'Accrual Termination Date' means, with respect to a Class of Compound
Interest Certificates, the Payment Date specified in the related Prospectus
Supplement.
'Accounts' means with respect to the Primary Assets of a Series, portfolios
of revolving credit, charge and debit card accounts.
'Advance' means a cash advance by the Servicer in respect of delinquent
payments of principal of and interest on an Account, and for any other purposes
specified in the related Prospectus Supplement.
'Agreement' means a Master Pooling and Servicing Agreement, Pooling and
Servicing Agreement, Sale and Servicing Agreement or Trust Agreement entered
into among the Seller, the Servicer, the Depositor and the Trustee with respect
to the issuance of a CABS Security.
'Asset Group' means, with respect to the Primary Assets of a Series, a
group of such Primary Assets having the characteristics described in the related
Prospectus Supplement.
'Asset Value' means, for any Primary Asset, the amount set forth in or
determined in accordance with the related Prospectus Supplement.
'Assumed Reinvestment Rate' means, with respect to a Series, the per annum
rate or rates specified in the related Prospectus Supplement for a particular
period or periods as the 'Assumed Reinvestment Rate' for funds held in any fund
or account for the Series.
'Bankruptcy Code' means the federal bankruptcy code, Title 11 United States
Code Section 101 et seq., and related rules and regulations promulgated
thereunder.
'Business Day' means a day that, in the City of New York or in the city or
cities in which the corporate trust office of the Trustee are located, is
neither a legal holiday nor a day on which banking institutions are authorized
or obligated by law, regulations or executive order to be closed.
'CABS Agreement' means a Pooling and Servicing Agreement, a Master Pooling
and Servicing Agreement, a Sale and Servicing Agreement, a Trust Agreement or
similar agreement.
'CABS Issuer' means the issuer or issuers of the CABS.
'CABS' or 'CABS Security' means a certificate evidencing an undivided
interest in, or a note or loan secured by Receivables generated in Accounts.
Such certificate, note or loan will have previously been offered and distributed
to the public pursuant to an effective registration statement or is being
registered under the Securities Act of 1933 in connection with the offering of a
Series of Securities.
'CABS Servicer' means the servicer or servicers of the CABS.
'CABS Trustee' means the trustee or trustees of the Securities.
'Cash Collateral Guaranty' means the guaranty that provides support for a
Series or one or more Classes of a Series if so specified in the related
Prospectus Supplement.
'Cash Collateral Account' see 'Reserve Fund.'
'Cedel' means Centrale de Livraison de Valeurs Mobilieres S.A.
'Cedel Participants' means Cedel's participating organizations.
'Certificateholder' means a holder of a Certificate.
'Certificates' means the Asset Backed Certificates.
'Certificate Schedule' means a schedule appearing as an exhibit to the
related Agreement identifying each CABS Security.
'Citibank' means Citibank, N.A.
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'Class' means a Class of Certificates or Notes of a Series.
'Closing Date' means, with respect to a Series, the date specified in the
related Prospectus Supplement as the date on which Certificates of such Series
are first issued.
'Code' means the Internal Revenue Code of 1986, as amended, and regulations
(including proposed regulations) or other pronouncements of the Internal Revenue
Service promulgated thereunder.
'Collection Account' means, with respect to a Series, the account
established with the Trustee or the Servicer in the name of the Trustee for the
deposit by the Servicer of payments received from the Primary Assets.
'Commission' means the Securities and Exchange Commission.
'Compound Interest Certificate' means any Certificate of a Series on which
all or a portion of the interest accrued thereon is added to the principal
balance of such Certificate on each Payment Date, through the Accrual
Termination Date, and with respect to which no interest shall be payable until
such Accrual Termination Date, after which interest payments will be made on the
Compound Value thereof.
'Compound Value' means, with respect to a Class of Compound Interest
Certificates, the original principal balance of such Class, plus all accrued and
unpaid interest, if any, previously added to the principal balance thereof and
reduced by any payments of principal previously made on such Class of Compound
Interest Certificates.
'Cooperative' means Euroclear Clearance System S.C., a Belgian cooperative
corporation.
'Cut-off Date' means the date designated as such in the related Prospectus
Supplement for a Series.
'Debt Securities' means Certificates or Notes characterized as indebtedness
for federal income tax purposes.
'Definitive Certificates' means Certificates of any Series issued in fully
registered, certificated form.
'Deleted Primary Asset' means a Primary Asset removed from the Trust.
'de minimis amount' is equal to .25% or more of the OID Certificate's
principal amount multiplied by the number of complete years to its maturity.
'Depositor' means Lehman ABS Corporation.
'Depositor Securities' means Depositor's bonds, notes, debt or equity
securities, obligations and other securities and instruments.
'Disqualified Organization' means the United States, any State or political
subdivision thereof, any possession of the United States, any foreign
government, any international organization, or any agency or instrumentality of
any of the foregoing, a rural electric or telephone cooperative described in
section 1381 (a)(2)(C) of the Code, or any entity exempt from the tax imposed by
sections 1-1399 of the Code, if such entity is not subject to tax on its
unrelated business income.
'Distribution Account' means, with respect to a Series, the account
established in the name of the Trustee for the deposit of remittances received
from the Servicer with respect to the Primary Assets.
'DTC' means The Depository Trust Company.
'Due Date' means each date, as specified in the related Prospectus
Supplement for a Series, on which any payment of principal or interest is due
and payable by the obligor on any Primary Asset pursuant to the terms thereof.
'Eligible Investments' means any one or more of the obligations or
securities described as such in the related Agreement.
'Eligible Servicer' means the 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
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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
Agreement.
'Enhancement' means the Enhancement for a Series, if any, specified in the
related Prospectus Supplement.
'Enhancer' means the provider of the Enhancement for a Series specified in
the related Prospectus Supplement.
'ERISA' means the Employee Retirement Income Security Act of 1974, as
amended.
'Euroclear' or 'Euroclear Operator' means Morgan Guaranty Trust Company of
New York, Brussels, Belgium office.
'Euroclear Participants' means participants of the Euroclear system.
'Final Scheduled Payment Date' means, with respect to a Class of a Series
of Certificates, the date after which no Certificates of such Class will remain
outstanding based on the assumptions set forth in the related Prospectus
Supplement.
'Finance Charge Receivables' means all periodic finance charges, annual
membership fees, cash advance fees and late charges on amounts charged for
merchandise and services and certain other fees designated in the related
Prospectus Supplement.
'FIRREA' means the Financial Institutions Reform, Recovery and Enforcement
Act of 1987.
'Global Securities' means the globally offered Certificates.
'Holders' or 'holders' means holders of any Certificates or any Notes.
'Holdings' means Lehman Brothers Holdings Inc.
'Indirect Participants' consist of banks, brokers, dealers and trust
companies that clear through or maintain a custodian relationship with a
Participant either directly or indirectly.
'Initial Accounts' means Receivables existing on the Cut-Off Date in
certain consumer, corporate, revolving credit card, charge card or debit card
accounts.
'Interest Only Certificates' means a Class of Certificates entitled solely
or primarily to distributions of interest and which is identified as such in the
related Prospectus Supplement.
'IRS' means the Internal Revenue Service.
'Issuer' means, with respect to Securities, the issuer, depositor or
seller/servicer under an Agreement.
'Investor Interest' means a specific undivided interest in the assets of
the Trust allocated to the Certificates.
'IRS' means the Internal Revenue Service.
'L/C Bank' means the issuer of the letter of credit.
'LCPI' means Lehman Commercial Paper Inc.
'Lehman Brothers' means Lehman Brothers Inc.
'Liquidation Proceeds' means all amounts received by the Servicer in
connection with the liquidation of Primary Assets other than amounts required to
be paid or refunded to the obligor pursuant to the terms of the applicable
documents or otherwise pursuant to law.
'Mastercard International' means Mastercard International Incorporated.
'Modification' means a change in any term of a Receivable.
'Morgan' means Morgan Guaranty Trust Company of New York.
'1986 Act' means the Tax Reform Act of 1986.
'1992 Form 10-K' means the Annual Report on Form 10-K for the fiscal year
ended December 31, 1992.
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'Nonresidents' means a nonresident alien individual, foreign partnership or
foreign corporation.
'Notional Amount' means the amount set forth in the related Prospectus
Supplement for a Class of Interest Only Certificates used solely for convenience
in expressing the calculation of interest and does not represent the right to
receive distributions allocable to principal.
'OID' means original issue discount.
'OID Securities' means Securities issued with OID.
'Participants' means organizations participating in the Prospectus
Supplement.
'Participating Certificates' means Certificates entitled to receive
payments of principal and interest and an additional return on investment as
described in the related Prospectus Supplement.
'Participations' means participations representing undivided interests in a
pool of assets primarily consisting of revolving charge card accounts or other
revolving credit accounts owned by the Depositor or any affiliate thereof and
collections thereon.
'Parties in Interest' means persons who have certain specified
relationships to such plans.
'Pass-Through Securities' means classified certificates of a grantor trust
under Subpart E, Part 1 of Subchapter J of the Code.
'Paying Agent' means the Trustee, or its successor in such capacity.
'Payment Date' means, with respect to a Series or Class of Certificates,
each date specified as a distribution date for such Series or Class in the
related Prospectus Supplement.
'Payments' means the payments of principal and finance charges to be made
by obligors on Securities or by Cardholders.
'Person' means any individual, corporation, partnership, joint venture,
association, joint stock company, trust (including any beneficiary thereof),
unincorporated organization, or government or any agency or political
subdivision thereof.
'Plans' means employee benefit plans.
'Pooling and Servicing Agreement' means the pooling and servicing agreement
relating to a Series of Certificates among the Depositor, the Servicer and the
Trustee.
'Pre-Funding Account' means the Pre-Funding Account which may be deemed
necessary by a Prospectus Supplement.
'Pre-Funded Amount' means the amount on deposit in the Pre-Funded Account.
'Primary Assets' means one or more pools of Receivables arising under
Accounts purchased from the Seller specified in the related Prospectus
Supplement and Securities which are included in the Trust Fund for such Series.
A Primary Asset refers to a specific Receivable or CABS Security, as the case
may be.
'Principal Balance' means, with respect to a Primary Asset and as of a Due
Date, the original principal amount of the Primary Asset, plus the amount of any
Deferred Interest added to such principal amount, reduced by (i) all payments,
both scheduled or otherwise, received on such Primary Asset prior to such Due
Date and applied to principal in accordance with the terms of the Primary Asset,
(ii) the principal portion of the purchase price of any Primary Asset removed
from the Trust Fund and (iii) the principal portion of any liquidation proceeds.
'Principal Only Certificates' means a Class of Certificates entitled solely
or primarily to distributions of Principal and identified as such in the
Prospectus Supplement.
'Principal Receivables' means all amounts charged by cardholders for
merchandise and services, amounts advanced and certain other fees billed to
cardholders on the Accounts.
'Prohibited Transactions' means certain transactions between a Plan and
Parties in Interest with respect to such Plans prohibited by ERISA.
'Proposed OID Regulations' means proposed income tax regulations.
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'Qualifying Substitute Primary Asset' means Primary Assets substituted for
a Deleted Primary Asset.
'Rating Agency' means the nationally recognized statistical rating
organization (or organizations) which was (or were) requested by the Depositor
to rate the Certificates upon the original issuance thereof.
'Receivables' may consist of, with respect to the Primary Series, consumer,
corporate, revolving credit card, charge card or debit card receivables.
'Removed Account' means receivables removed from certain Accounts from the
Trust.
'Reserve Fund' means, with respect to a Series, any Reserve Fund
established pursuant to the Pooling and Servicing Agreement.
'Revolving Period' means the period during which Primary Assets will be
continuously purchased and no principal will be paid to the Certificateholders.
'Sale and Servicing Agreement' means, in the case of a Series in which
Receivables are serviced by the Seller, the agreement among the Depositor, the
Seller and the Trustee for the sale and servicing of the Mortgage Loans.
'Section 1286 Treasury Regulations' means Treasury Regulations issued on
December 28, 1992.
'Securityholder' means a holder of a Security.
'Senior Securityholder' means a holder of a Senior Security.
'Senior Securities' means a Class of Securities as to which the holders'
rights to receive distributions of principal and interest are senior to the
rights of holders of Subordinated Securities, to the extent specified in the
related Prospectus Supplement.
'Series' means a separate series of Certificates or Notes sold pursuant to
this Prospectus and the related Prospectus Supplement.
'Servicer' means, with respect to a Series secured by Receivables, the
Person, if any, designated in the related Prospectus Supplement to service
Receivables for that Series, or the successors or assigns of such Person.
'Servicing Agreement' means, in the case of a Series which includes
Receivables not serviced by the Seller, the agreement among the Depositor, the
Trustee and the Servicer for the servicing of such Receivables.
'Servicing Fee' means the amount payable as fees to the Trustee and the
Servicer.
'Spread Account' means an Account which supports a Series or one or more
Classes of Series by assuring the subsequent distribution of interest or
principal on the Certificates of such Class or Series.
'Stripped Coupon' means a right to receive only a portion of the interest
payments on a CABS Security.
'Stripped Securities' means Certificates whose sale produces a separation
in the ownership of all or a portion of the principal payments from all or a
portion of the interest payments on the Securities.
'Subordinated Securityholder' means a holder of a Subordinated Security.
'Subordinated Securities' means a Class of Securities as to which the
rights of holders to receive distributions of principal, interest or both is
subordinated to the rights of holders of Senior Securities, and may be allocated
losses and shortfalls prior to the allocation thereof to other Classes of
Securities, to the extent and under the circumstances specified in the related
Prospectus Supplement.
'Subsequent Receivables' means additional receivables which the related
Trust may be required to purchase.
'Subsequent Transfer Date' means the transfer dates on which Subsequent
Receivables will be sold from time to time during the Funding Period.
'Terms and Conditions' means Terms and Conditions Governing Use of
Euroclear and the related Operating Procedures of the Euroclear System.
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'Trust' means, with respect to any Series of Certificates, all money,
instruments, securities and other property, including all proceeds thereof,
which are held for the benefit of the Certificateholders by the Trustee under
the Agreement, including, without limitation, the Primary Assets, all amounts in
the Distribution Account, Collection Account or Reserve Funds, distributions on
the Primary Assets (net of servicing fees, if any), and reinvestment earnings on
such net distributions and any Enhancement and all other property and interests
held by the Trustee pursuant to the Trust Agreement for such Series.
'Trustee' means the trustee under an Agreement and its successors.
'UCC' means the Uniform Commercial Code.
'Variable Interest Certificate' means a Certificate on which interest
accrues at a rate that is adjusted, based upon a predetermined index, at fixed
periodic intervals, all as set forth in the related Prospectus Supplement.
'VISA' means VISA U.S.A., Inc.
'Zero Coupon Certificate' means a Certificate entitling the holder to
receive only payments of principal as specified in the related Prospectus
Supplement.
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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. Investors
in the Global Securities may hold such Global Securities through any of The
Depository Trust Company ('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, N.A. ('Citibank') and Morgan
Guaranty Trust Company of New York ('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 be 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 securities previously issued by the
Depositor. 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
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 securities
previously issued by the Depositor in same-day funds.
Trading between CEDEL and/or Euroclear participants. Secondary market
trading between CEDEL participants and/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,
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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. For
transactions settling on the 31st day of the month, payment will include
interest accrued to and excluding the first day of the following month. 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.
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 bonds to the 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. For transactions selling on
the 31st day of the month, payment will include interest accrued to and
excluding the first day of the following month. 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, 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.
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(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 holder of Global Securities holding securities through CEDEL or Euroclear
(or through DTC if the holder has an address outside the U.S.) will be subject
to the 30% U.S. withholding tax that generally applies to payments of interest
(including original issue discount) on registered debt issued by U.S. persons,
unless such holder takes one of the following steps to obtain an exemption or
reduced tax rate:
Exemption for non-U.S. persons (Form W-8). Non U.S. persons that are
beneficial owners can obtain a complete exemption from the withholding tax
by filing a signed Form W-8 (Certificate of Foreign Status).
Exemption for non-U.S. persons with effectively connected income (Form
4224). A non-U.S. person, including a non-U.S. corporation or bank with a
U.S. branch, for which the interest income is effectively connected with
its conduct of a trade or business in the United States, can obtain an
exemption from the withholding tax by filing Form 4224 (exemption from
withholding of Tax on Income Effectively Connected with the Conduct of a
Trade or Business in the United States).
Exemption or reduced rate for non-U.S.persons resident in treaty
countries (Form 1001). Non-U.S. persons that are beneficial owners residing
in a country that has a tax treaty with the United States can obtain an
exemption or reduced tax rate (depending on the treaty terms) by filing
Form 1001 (Ownership, Exemption or Reduced Rate Class A2 Certificate). If
the treaty provides only for a reduced rate, withholding tax will be
imposed at that rate unless the filer alternately files Form W-8, Form 1001
may be filed by the beneficial owner or his agent.
Exemption for U.S. persons (Form W-9). U.S. persons can obtain a
complete exemption from the withholding tax by filing Form W-9 (Request for
Taxpayer Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The Global Security
holder, or in the case of a Form 1001 or a Form 4224 filer, his agent,
files by submitting the appropriate form to the person through whom he
holds (the clearing agency, in the case of persons holding directly on the
books for the clearing agency). Form W-8 and Form 1001 are effective for
three calendar years and Form 4224 is effective for one calendar year.
This summary does not deal with all aspects of federal 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.
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_____________________________________ _____________________________________
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS
SUPPLEMENT OR THE PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
DEPOSITOR OR LEHMAN BROTHERS. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO
NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH THEY RELATE
OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY
JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE
DELIVERY OF THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THEIR
RESPECTIVE DATES.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PROSPECTUS SUPPLEMENT
Summary........................................... S-2
Risk Factors...................................... S-11
The Trust......................................... S-12
Description of the Class A1 Notes................. S-12
Description of the Class A2 Certificates.......... S-13
Description of the CABS........................... S-15
The Depositor..................................... S-21
The Indenture..................................... S-22
The Trust Agreement............................... S-26
The Swap Agreement................................ S-27
The Market Agent Agreement........................ S-28
The Administration Agreement...................... S-29
The Indenture Trustee............................. S-29
The Owner Trustee................................. S-29
Use of Proceeds................................... S-29
Certain Federal Income Tax Consequences........... S-29
State Tax Consequences............................ S-35
ERISA Considerations.............................. S-35
Legal Investment Considerations................... S-37
Underwriting...................................... S-37
Legal Matters..................................... S-38
Rating............................................ S-38
Index of Defined Terms............................ S-39
PROSPECTUS
Prospectus Supplement............................. 2
Available Information............................. 2
Incorporation of Certain Documents by Reference... 2
Reports to Holders................................ 2
Summary of Terms.................................. 3
Risk Factors...................................... 12
Description of the Certificates................... 15
Trust Assets...................................... 21
Enhancement....................................... 25
Servicing of Receivables.......................... 27
The Agreements.................................... 30
Certain Legal Aspects of the Receivables.......... 36
The Depositor..................................... 38
Use of Proceeds................................... 39
Certain Federal Income Tax Considerations......... 39
State Tax Considerations.......................... 45
ERISA Considerations.............................. 45
Plan of Distribution.............................. 46
Legal Matters..................................... 46
Experts........................................... 46
Additional Information............................ 46
Glossary of Terms................................. 47
Annex I........................................... I-1
</TABLE>
$1,600,000,000
SHORT-TERM CARD
ACCOUNT TRUST 1995-1
$1,552,000,000 FLOATING RATE
ASSET BACKED NOTES, CLASS A1
$48,000,000 FLOATING RATE
ASSET BACKED CERTIFICATES, CLASS A2
LEHMAN ABS CORPORATION
(DEPOSITOR)
---------------------------
PROSPECTUS SUPPLEMENT
December 29, 1995
---------------------------
LEHMAN BROTHERS
_____________________________________ _____________________________________
<PAGE>
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
<PAGE>
_____________________________________ _____________________________________
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS GLOBAL
PROSPECTUS SUPPLEMENT OR THE PROSPECTUS OR THE PROSPECTUS SUPPLEMENT AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE DEPOSITOR OR LEHMAN BROTHERS. THIS GLOBAL
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS AND THE PROSPECTUS SUPPLEMENT 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 GLOBAL PROSPECTUS SUPPLEMENT AND THE PROSPECTUS AND THE
PROSPECTUS SUPPLEMENT NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THEIR RESPECTIVE DATES.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
GLOBAL PROSPECTUS SUPPLEMENT
Description of Securities........................ GS-2
The Depositor.................................... GS-3
General Information.............................. GS-3
PROSPECTUS SUPPLEMENT
Summary.......................................... S-2
Risk Factors..................................... S-11
The Trust........................................ S-12
Description of the Class A1 Notes................ S-12
Description of the Class A2 Certificates......... S-13
Description of the CABS.......................... S-15
The Depositor.................................... S-21
The Indenture.................................... S-22
The Trust Agreement.............................. S-26
The Swap Agreement............................... S-27
The Market Agent Agreement....................... S-28
The Administration Agreement..................... S-29
The Indenture Trustee............................ S-29
The Owner Trustee................................ S-29
Use of Proceeds.................................. S-29
Certain Federal Income Tax Consequences.......... S-29
State Tax Consequences........................... S-35
ERISA Considerations............................. S-35
Legal Investment Considerations.................. S-37
Underwriting..................................... S-37
Legal Matters.................................... S-38
Rating........................................... S-38
Index of Defined Terms........................... S-39
PROSPECTUS
Prospectus Supplement............................ 2
Available Information............................ 2
Incorporation of Certain Documents by
Reference...................................... 2
Reports to Holders............................... 2
Summary of Terms................................. 3
Risk Factors..................................... 12
Description of the Certificates.................. 15
Trust Assets..................................... 21
Enhancement...................................... 25
Servicing of Receivables......................... 27
The Agreements................................... 30
Certain Legal Aspects of the Receivables......... 36
The Depositor.................................... 38
Use of Proceeds.................................. 39
Certain Federal Income Tax Considerations........ 39
State Tax Considerations......................... 45
ERISA Considerations............................. 45
Plan of Distribution............................. 46
Legal Matters.................................... 46
Experts.......................................... 46
Additional Information........................... 46
Glossary of Terms................................ 47
Annex I.......................................... I-1
</TABLE>
$1,600,000,000
SHORT-TERM CARD
ACCOUNT TRUST 1995-1
$1,552,000,000 FLOATING RATE
ASSET BACKED NOTES, CLASS A1
$48,000,000 FLOATING RATE
ASSET BACKED CERTIFICATES, CLASS A2
LEHMAN ABS CORPORATION
(DEPOSITOR)
---------------------------
GLOBAL PROSPECTUS SUPPLEMENT
December 29, 1995
---------------------------
LEHMAN BROTHERS
_____________________________________ _____________________________________
<PAGE>
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
<PAGE>
PRINCIPAL OFFICE OF DEPOSITOR
Lehman ABS Corporation
Three World Financial Center
New York, New York 10285
OWNER TRUSTEE
Wilmington Trust Company
Rodney Square North
Wilmington, DE 19890
INDENTURE TRUSTEE, ADMINISTRATOR AND REGISTRAR
The Bank of New York
101 Barclay Street
New York, New York 10286
PAYING AGENTS
<TABLE>
<S> <C>
The Bank of New York The Bank of New York
101 Barclay Street 46 Berkeley Street
New York, New York 10286 London WIX 6AA
England
LEGAL ADVISER TO DEPOSITOR LEGAL ADVISER TO THE UNDERWRITER
as to United States Law as to United States Law
Brown & Wood Brown & Wood
One World Trade Center One World Trade Center
New York, New York 10048 New York, New York 10048
</TABLE>
ACCOUNTANTS TO DEPOSITOR
Ernst & Young
787 Seventh Avenue
New York, New York 10019
STATEMENT OF DIFFERENCES
The registered trademark symbol shall be expressed as............. 'r'
<PAGE>
