<PAGE> 1
THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT IS NOT COMPLETE AND MAY BE
CHANGED. THIS PROSPECTUS SUPPLEMENT IS NOT AN OFFER TO SELL THESE
SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY
JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED SEPTEMBER 12, 2000
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED SEPTEMBER 12, 2000)
$500,000,000 % CLASS A MASTER TRUST CERTIFICATES, SERIES 2000-2
$35,300,000 % CLASS B MASTER TRUST CERTIFICATES, SERIES 2000-2
SEARS CREDIT ACCOUNT MASTER TRUST II
ISSUER
<TABLE>
<S> <C>
SEARS, ROEBUCK AND CO. SRFG, INC.
SERVICER SELLER
</TABLE>
------------------------
-------------------------------
YOU SHOULD CONSIDER
CAREFULLY THE RISK
FACTORS BEGINNING ON
PAGE S -14 OF THIS
PROSPECTUS SUPPLEMENT.
The certificates
represent interests in
the trust and are not
obligations of Sears,
Roebuck and Co., Sears
National Bank, SRFG,
Inc. or any of their
affiliates.
Neither the FDIC
nor any other
governmental agency has
insured or guaranteed
the certificates or the
trust's assets.
-------------------------------
<TABLE>
<S> <C> <C>
THE TRUST WILL ISSUE: CLASS A CERTIFICATES CLASS B CERTIFICATES
Principal amount: $500,000,000 $35,300,000
Price to public: % ($ ) % ($ )
Underwriting
discount: % ($ ) % ($ )
Proceeds to SRFG: % ($ ) % ($ )
Interest rate: % per year % per year
Interest paid: Monthly Monthly
First interest
payment date: November 15, 2000 November 15, 2000
Expected principal
payment date: September 15, 2005 October 17, 2005
Series termination
date: September 16, 2009 September 16, 2009
CREDIT ENHANCEMENT:
- The Class B Certificates will be subordinate to the Class A
Certificates.
- The trust is also issuing $52,950,000 principal amount of Class C
Certificates that will be subordinate to the Class A Certificates
and the Class B Certificates.
</TABLE>
------------------------
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved these securities or determined
if this prospectus supplement or the accompanying prospectus is accurate or
complete. Any representation to the contrary is a criminal offense.
The underwriters will offer the Class A Certificates and the Class B
Certificates as described in this prospectus supplement if they receive and
accept them from SRFG under the terms of the underwriting agreement.
------------------------
UNDERWRITERS OF THE CLASS A CERTIFICATES
Joint Bookrunners
BEAR, STEARNS & CO. INC. DEUTSCHE BANC ALEX. BROWN
Co-Managers
CHASE SECURITIES INC.
GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
MORGAN STANLEY DEAN WITTER
------------------------
UNDERWRITER OF THE CLASS B CERTIFICATES
The date of this prospectus supplement is September , 2000
<PAGE> 2
TABLE OF CONTENTS
Prospectus Supplement
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Important Notice to Investors about this
Prospectus Supplement and the Accompanying
Prospectus................................. S-3
Summary of Series Terms...................... S-4
Risk Factors................................. S-14
Subordination of the Class B and Class C
Certificates; Limited Subordination...... S-14
Limited Ability to Resell Certificates..... S-15
Rating of the Certificates................. S-15
Effects of the Selection Process, Seasoning
and Performance Characteristics.......... S-15
Ability to Change Terms of the
Receivables.............................. S-16
Effects of Rapid Amortization Event........ S-16
Payment Rates, Generation of Receivables
and Maturity............................. S-16
Investor Risk of Loss...................... S-17
Issuance of Additional Series and
Additional Certificates.................. S-17
Effect and Limited Availability of
Reallocations............................ S-18
Floating Principal Allocation.............. S-18
Effect of Paired Series.................... S-19
Security Interests and Insolvency Related
Matters.................................. S-19
Consumer Protection and Regulatory Credit
Laws..................................... S-20
Legislation................................ S-21
Maturity Considerations...................... S-21
General.................................... S-21
Effect of Payment Rates.................... S-21
Floating Principal Allocations............. S-22
Paired Series.............................. S-22
Effect of Variable Length of the Controlled
Accumulation Period...................... S-22
Sears Credit Business........................ S-23
General.................................... S-23
Credit Granting Procedures................. S-24
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Billing and Payments....................... S-24
Collection Efforts......................... S-25
Effects of the Selection Process........... S-26
Composition and Historical Performance of the
Sears Portfolio............................ S-27
Composition of the Sears Portfolio......... S-28
The Certificates............................. S-31
Invested Amounts........................... S-31
Investor Interests......................... S-31
Interest Payments.......................... S-32
Principal Payments......................... S-32
Subordination.............................. S-34
Series Collections and Charge-offs......... S-34
Series Yield Collections................... S-37
Series Investment Income................... S-38
Series Additional Funds.................... S-38
Reallocations.............................. S-39
Investor Accounts.......................... S-41
Cash Flows................................. S-41
Payments................................... S-53
Subordinate Series......................... S-54
Sale of Class C Certificates............... S-54
Issuance of Additional Certificates........ S-55
Paired Series.............................. S-55
Rapid Amortization Events.................. S-56
Termination of Series; Clean-Up Call....... S-57
Servicing Compensation..................... S-58
Underwriting................................. S-59
Legal Matters................................ S-60
Glossary of Terms............................ S-61
Annex A -- Other Series...................... A-1
</TABLE>
Prospectus
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Overview of the Information in this
Prospectus and the Prospectus Supplement... 3
Prospectus Summary........................... 4
The Seller................................... 12
The Servicer................................. 12
The Credit Card Bank......................... 12
The Trustee.................................. 13
Legal Matters Relating to the Receivables.... 13
Transfer of Receivables.................... 13
Security Interests in Receivables.......... 14
Insolvency Related Matters................. 15
Consumer Protection Laws and Debtor Relief
Laws Applicable to the Receivables....... 17
Claims and Defenses of Credit Account
Customers Against the Trust.............. 17
The Trust.................................... 18
Formation of the Trust..................... 18
Collections Account and Group Collections
Accounts................................. 19
Adjustments to Receivables................. 20
Addition of Accounts....................... 20
Removal of Accounts........................ 22
Repurchase of Trust Portfolio.............. 23
Repurchase of Specified Receivables........ 24
Termination of the Trust................... 25
Indemnification of Trust and Trustee....... 25
The Certificates............................. 25
General.................................... 26
Interest Payments.......................... 26
Principal Payments......................... 26
Class Percentages and Seller Percentage.... 27
Investor Losses............................ 27
Reallocations and Subordination of
Collections.............................. 27
Aggregate and Net Payments................. 28
Additional Funds........................... 28
Investment of Funds in Investor Accounts... 29
Final Payment of Principal; Termination of
Series................................... 29
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Description of Credit Enhancement.......... 30
Establishing and Issuing New Series........ 31
Reallocation of Series Among Groups........ 32
Meetings................................... 32
Book-Entry Registration.................... 32
Definitive Certificates.................... 35
List of Certificateholders................. 36
Exchange of Certificates for Seller
Interest................................. 36
Sale of Seller Interest.................... 36
Amendments................................. 37
Servicer Duties, Compensation and Other
Matters.................................... 38
Servicing Compensation and Payment of
Expenses................................. 38
Resignation or Merger of Servicer;
Delegation of Duties..................... 38
Servicer Termination Events................ 38
Reports to Certificateholders.............. 39
Evidence as to Compliance.................. 40
Use of Proceeds.............................. 41
Federal Income Tax Consequences.............. 41
General.................................... 41
Tax Treatment of the Certificates as
Debt..................................... 42
United States Investors.................... 43
Foreign Investors.......................... 46
Backup Withholding and Information
Reporting................................ 47
New Withholding Regulations................ 48
Possible Characterization of the
Certificates............................. 48
State Tax Consequences....................... 50
General.................................... 50
Arizona, Delaware, Georgia, Illinois, Ohio
and Texas................................ 50
ERISA Considerations......................... 51
Plan of Distribution......................... 52
Legal Matters................................ 54
Where You Can Find More Information.......... 54
Glossary of Terms............................ 56
</TABLE>
S-2
<PAGE> 3
IMPORTANT NOTICE TO INVESTORS ABOUT THIS PROSPECTUS
SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS
We provide information to you about the Class A Certificates and the Class
B Certificates in two separate documents:
- this prospectus supplement, which describes the specific terms of your
Class A Certificates or Class B Certificates; and
- the prospectus, which provides general information, some of which may not
apply to the Class A Certificates and the Class B Certificates.
It is important for you to read and consider all information contained in both
this prospectus supplement and the prospectus in making your investment
decision.
You should rely only on the information contained or incorporated by
reference in this prospectus supplement and the prospectus. We have not
authorized anyone to provide you with different information.
We are not offering to sell or soliciting offers to buy any securities
other than the Class A Certificates or Class B Certificates to which this
prospectus supplement and the prospectus relate, nor are we offering to sell or
soliciting offers to buy Class A Certificates or Class B Certificates in any
jurisdiction where the offer is not permitted.
We include cross-references in this prospectus supplement and in the
prospectus to sections in each document where you can find related discussions
containing additional information. The Tables of Contents in this prospectus
supplement and in the prospectus provide the pages on which these sections
begin.
S-3
<PAGE> 4
SUMMARY OF SERIES TERMS
The following summary generally describes the terms of this series of
certificates. The Prospectus Summary beginning on page 4 of the prospectus
generally describes the trust. You should read that summary before reading this
summary. The remainder of this prospectus supplement and the prospectus contain
more detailed information about the trust and your investment in the
certificates. You should review this entire prospectus supplement and the
prospectus before deciding to invest in the certificates.
THE CERTIFICATES.............. Class A Certificates:
$500,000,000 % Class A Master Trust
Certificates, Series 2000-2.
Class B Certificates:
$35,300,000 % Class B Master Trust
Certificates, Series 2000-2.
The trust will also issue:
Class C Certificates:
$52,950,000 Class C Master Trust
Certificates, Series 2000-2.
SRFG initially will own the Class C
Certificates. SRFG is not currently offering
the Class C Certificates for sale to the
public.
Each certificate represents an interest in the
assets in the trust, which consist primarily
of credit account receivables and cash
payments on these receivables.
OTHER SERIES OF
CERTIFICATES.................. The trust has issued other series of
certificates, and SRFG expects that the trust
will issue additional series while this
series is outstanding. The certificates of
these other series represent similar
interests in the trust. We have summarized
the terms of each series previously issued
and currently outstanding in "Annex
A -- Other Series" in this prospectus
supplement. The Pooling and Servicing
Agreement permits the trust to issue
additional series without the consent of the
investors in any other outstanding series.
SRFG and the trust will not request your
consent before issuing any new series in the
future.
INTEREST PAYMENTS............. Class A Certificates and Class B Certificates:
The interest rate for the Class A
Certificates is % per year and for the
Class B Certificates is % per year, each
calculated on the basis of a 360-day year
consisting of twelve 30-day months. The trust
will pay interest to you on the 15th day of
each month, or, if not a business day, the
next business day, beginning in November
2000.
Class C Certificates: The trust will not pay
interest on the Class C Certificates as long
as SRFG owns them.
PRINCIPAL PAYMENTS............ Class A Certificates: The trust is scheduled
to pay $500,000,000 of principal on the Class
A Certificates on September 15, 2005, or, if
not a business day, the next business day.
S-4
<PAGE> 5
Class B Certificates: The trust is scheduled
to pay $35,300,000 of principal on the Class
B Certificates on October 15, 2005 or, if not
a business day, the next business day. The
trust will pay the Class B principal only
after the trust has paid the Class A
principal in full.
Class C Certificates: The trust may be
permitted to pay Class C principal during the
controlled accumulation period in an amount
that will reduce the Class C investor
interest in receivables in proportion to the
reduction in the Class A investor interest in
receivables if Standard & Poor's Ratings
Services and Moody's Investors Service Inc.
have advised SRFG that these payments will
not cause them to lower or withdraw their
ratings on any class of certificates of any
series. The trust may also be permitted to
pay Class C principal during the revolving
period, if Standard & Poor's and Moody's have
advised SRFG that these payments will not
cause them to lower or withdraw their ratings
on any class of certificates of any series.
The trust will not pay Class C principal to
the extent that payments would reduce the
Class C investor interest in receivables
below $17,647,500, unless the rating agencies
permit further payments. The trust will also
not pay Class C principal if SRFG has elected
to reduce the permitted Class C principal
payment for any distribution date to zero.
The trust is scheduled to pay the remaining
Class C principal on the November 2005 and
December 2005 distribution dates. The trust
will pay this remaining portion of the Class
C principal only after the trust has paid the
Class A and Class B principal in full.
FORMATION OF THE TRUST;
TRANSFER OF RECEIVABLES....... Sears, SRFG and the trustee formed the trust in
July 1994 by entering into a Pooling and
Servicing Agreement that applies to all
series of certificates. Pursuant to the
Pooling and Servicing Agreement, SRFG has
transferred to the trust all the receivables
existing under designated accounts. As the
credit account customers make additional
charges on the trust's accounts and incur
additional finance charges and other fees,
SRFG transfers the additional receivables
resulting from those purchases, charges and
fees to the trust on an ongoing basis. In the
future, SRFG may also designate more accounts
as trust accounts and transfer the
receivables from those accounts to the trust.
The trust's receivables include:
- principal receivables, which generally
are amounts owed by credit account
customers as a result of their purchases
of goods and services, late fees and
other fees; and
S-5
<PAGE> 6
- finance charge receivables, which
generally are amounts owed by credit
account customers as a result of
interest accrued on unpaid principal
balances.
The aggregate amount of receivables in the
trust's accounts as of the last day of the
billing cycles that ended in August 2000 was
$11,270,203,223, consisting of
$11,080,625,623 of principal receivables and
$189,577,600 of finance charge receivables.
TRUST ASSETS.................. The trust's assets include or may include the
following:
- credit card receivables;
- cash payments by credit account
customers;
- interests in the cash recoveries of
receivables owned by SRFG and charged
off as uncollectible;
- interests in other credit card
receivables pools;
- credit support or enhancement for a
particular series or class within a
series;
- additional funds that the servicer may
elect to add to the trust;
- cash deposits in trust accounts; and
- rights to payments under interest rate
protection agreements.
CHARGE-OFFS................... Sears may charge off certain receivables in the
trust as uncollectible. We refer to these
receivables as charge-offs. The trust will
reimburse investors for charge-offs to the
extent funds are available.
RECOVERIES.................... SRFG has agreed to transfer to the trust as
additional funds a portion of the amounts it
recovers with respect to accounts that Sears
charged off as uncollectible. See "The
Certificates -- Additional Funds" in the
prospectus for more detailed information.
CLASS INVESTOR INTERESTS...... Your investor interest in the trust's assets
equals:
- the face amount of the certificates that
you initially purchased; minus
- the amount of principal the trust has
previously paid to you on your
certificates or the amount of principal
the trust has accumulated in an account
to be paid to you on your certificates;
minus
- your share of charge-offs and other
losses that the trust has not
reimbursed.
DISTRIBUTION DATES............ A distribution date is the date in each month,
usually the 15th or the following business
day, on which the trust allocates collections
from the preceding calendar month to
investors and the trustee deposits those
collections
S-6
<PAGE> 7
into the appropriate accounts. A distribution
date is also the date in a particular month
on which the trust pays interest and/or
principal due to investors.
SELLER INTEREST............... SRFG owns a Seller Certificate which represents
the interest in the trust not represented by
certificates of any series. This remaining
interest varies based on the size of the
interests of the trust's investors and the
total amount of the trust's principal
receivables. Among other things, this
remaining interest will decline as a result
of decreases in the amount of the trust's
receivables that may be caused by a net
decline in the trust's account balances. The
Seller Certificate reflects SRFG's right to
receive each month a portion of the
collections paid on the trust's receivables
based on this remaining interest.
ALLOCATIONS................... Your certificate reflects your right to receive
each month a portion of the collections paid
on the trust's receivables and the additional
funds SRFG adds to the trust minus your share
of charge-offs. The trust treats as finance
charge collections all collections on the
trust's receivables in any month up to the
aggregate amount of finance charge
receivables billed for the applicable period.
The trust treats as principal collections all
collections on the trust's receivables in any
month other than amounts treated as finance
charge collections. The trust will allocate
principal collections, finance charge
collections, and charge-offs among the
outstanding series on a pro rata basis based
on the series investor interest for each
series. The trust will also allocate
additional funds to each series pro rata
based on its series investor interest. Once
this allocation among the series has been
made, then the trust will further allocate a
percentage of the collections allocable to
each series among that series' classes. The
Series Supplement specifies the percentages
of these collections and charge-offs that are
allocated to each class of this series at
each point in time. Each of these class
percentages will be based on:
- the class investor interest in
receivables at certain points in time;
- the amount of principal receivables in
the trust;
- the amount of cash in certain cash
accounts designated as excess funding
accounts;
- the interests of other series in the
trust; and
- whether this series is in its revolving
period, its controlled accumulation
period or a rapid amortization period.
The class percentages may vary for principal
collections, finance charge collections and
charge-offs.
S-7
<PAGE> 8
Finance charge collections and principal
collections can only be used to fund certain
payments, deposits and reimbursements. When
Sears charges off a receivable as
uncollectible, it allocates a portion of the
amount charged off against your interest in
principal receivables based on your class
percentage. Typically, the trust uses finance
charge collections and other income allocated
to you to pay interest on your certificates,
to pay to the servicer the portion of the
servicing fee allocated to you, and to
reimburse you for charge-offs that the trust
previously allocated to you, thus reinstating
your interest in principal receivables.
During the controlled accumulation period,
the trust generally uses principal
collections to make the scheduled principal
deposits for your certificates.
In general, the trust will use collections
allocated to you to make required payments
and deposits, to pay its share of servicing
fees and to reimburse your share of
charge-offs. If this series has more
collections than it needs in any month, the
trust may reallocate the excess collections
to other series so those series may make
their payments or deposits as required. You
will not be entitled to receive these excess
collections. If this series does not have
enough collections in any month, the trust
may use excess collections from other series
to make payments to you. The trust may also
use principal collections allocated to the
Seller Certificate to deposit principal for
your benefit during the controlled
accumulation period.
SERVICING COMPENSATION........ Each month the trust will pay to the servicer
from available funds an amount equal to 2.00%
per year of this series' investor interest in
the trust's receivables.
REVOLVING PERIOD.............. During the revolving period, the trust will not
pay Class A and Class B principal. However,
if it is permitted to do so by Moody's and
Standard & Poor's, the trust may pay a
portion of the Class C principal during the
revolving period. Currently, Moody's and
Standard & Poor's do not permit the trust to
pay Class C principal during the revolving
period.
In general, during the revolving period, the
trust pays principal collections allocated to
you to SRFG. During the revolving period, the
trust may also use principal collections to
pay the principal of other series.
The revolving period for this series begins on
the first day of the billing cycles that end
in October 2000 and ends on the earlier of:
- the last business day before the
controlled accumulation period begins;
or
- the day a rapid amortization event
occurs.
S-8
<PAGE> 9
CONTROLLED ACCUMULATION
PERIOD........................ During the controlled accumulation period, the
trust will accumulate principal collections
allocated to this series to pay principal on
the certificates on their expected maturity
dates.
The trust will begin to accumulate cash in the
series principal funding account on the
distribution date in October 2003, first to
pay Class A principal at maturity and second
to pay Class B principal at maturity, unless
the servicer elects to delay this process or
a rapid amortization event has occurred. The
trust is scheduled to accumulate principal
collections in the series principal funding
account over a maximum of twenty-four months
for Class A, so that it will have collections
available to make the final payment. Unless
the servicer otherwise elects, the trust will
accumulate principal collections to pay Class
B principal only after it has accumulated
principal collections sufficient to pay Class
A principal in full.
The servicer may elect to shorten the
controlled accumulation period if it
determines that enough principal collections
from other series and from the Seller
Certificate will be available to make larger
deposits into the series principal funding
account.
The controlled accumulation period will end on
the earliest to occur of:
- the day the trust repays the principal
of the series in full;
- the day a rapid amortization event
occurs; or
- the business day after September 15,
2009, or if September 15, 2009 is not a
business day, the second business day
after September 15, 2009.
RAPID AMORTIZATION EVENTS..... Rapid amortization events are certain events
that might impair the long-term ability of
the trust to make all required payments for
this series. Examples of these events
include:
- legal issues with transferring
receivables to the trust;
- legal issues with the status of the
trust;
- certain breaches of representations,
warranties or covenants;
- economic performance that may
unfavorably impact the trust; or
- certain events of insolvency with
respect to SRFG, Sears National Bank or
Sears.
For some of these events to become rapid
amortization events, the trustee or a
specified percentage of investors must
declare them to be rapid amortization events;
S-9
<PAGE> 10
others become rapid amortization events
automatically when they occur. We discuss
these events in more detail in "The
Certificates -- Rapid Amortization Events."
RAPID AMORTIZATION PERIOD..... If a rapid amortization event for this series
occurs, the trust will repay the principal of
this series on a monthly basis and as quickly
as possible under the cash flows for this
series. The cash flows are the allocation,
payment and reimbursement priorities for this
series as set forth in "The Certificates --
Cash Flows." The rapid amortization period
begins when a rapid amortization event occurs
and continues until the trust has fully paid
the principal of this series or until this
series terminates.
SERIES TERMINATION DATE....... The business day after September 15, 2009. If
September 15, 2009 is not a business day, the
series termination date will be the second
business day after September 15, 2009. The
series termination date is the last day on
which the trust may make payments on the
certificates.
SUBORDINATION; ADDITIONAL
AMOUNTS AVAILABLE TO CLASS A
AND CLASS B INVESTORS....... The Class B Certificates and the Class C
Certificates will be subordinate to the Class
A Certificates. The Class C Certificates will
be subordinate to the Class B Certificates.
The trust uses all finance charge collections
and other income allocated to this series to
pay or reimburse:
- first, Class A interest;
- second, Class B interest;
- third, Class C interest, if any;
- fourth, this series' monthly servicing
fees;
- fifth, Class A charge-offs;
- sixth, Class B charge-offs; and
- seventh, Class C charge-offs.
The trust may also reallocate principal
collections originally allocated to Class C,
or it may reallocate the Class C investor
interest in receivables, to pay Class A or
Class B interest or to reimburse Class A or
Class B charge-offs. If the trust does this,
it will increase Class C charge-offs, and may
decrease the Class C investor interest in
receivables, to reflect the reallocated
amount.
The trust may also reallocate principal
collections originally allocated to Class B,
or it may reallocate the Class B investor
interest in receivables, to pay Class A
interest or to reimburse Class A charge-offs.
If the trust does this, it will increase
Class B charge-offs, and may decrease the
Class B investor interest in receivables, to
reflect the reallocated amount.
S-10
<PAGE> 11
This series of certificates will not be
subordinated to any other series of
certificates that the trust has issued or may
issue in the future.
CLEAN-UP CALL................. SRFG will have the right to repurchase the
Class A Certificates and the Class B
Certificates on any distribution date if:
- this series is in a rapid amortization
period, or the proposed date of
repurchase is on or after the
distribution date in October 2005; and
- the Class A investor interest and the
Class B investor interest in receivables
is less than $53,530,000, which is 10%
of the face amount of the Class A
Certificates and the Class B
Certificates. We will determine the
Class A investor interest and the Class
B investor interest in receivables by
excluding Class A's and Class B's pro
rata share of the funds on deposit in
the cash accounts designated as excess
funding accounts.
The purchase price will equal the sum of the
Class A investor interest and the Class B
investor interest in receivables and accrued
but unpaid interest on the Class A
Certificates and the Class B Certificates.
PARTICIPATION WITH OTHER
SERIES........................ This series is included in a group of series
that the trust has designated as Group One.
SRFG has included each other outstanding
series, and may include other series in the
future, in Group One. Under certain
circumstances, the trust may reallocate
collections allocated to this series to other
series in Group One. In addition, the trust
may reallocate collections allocated to other
series in Group One to this series. Under
certain circumstances, the trust may move
this series or any other series from one
group to another group.
ERISA CONSIDERATIONS.......... Under the regulations issued by the Department
of Labor, the trust's assets will not be
considered plan assets of any employee
benefit plan that holds interests in the
Class A Certificates if the Class A
Certificates meet the requirements necessary
to be considered publicly-offered securities.
One of those requirements is that, upon
completion of the public offering under this
prospectus supplement, at least 100 persons
independent of SRFG and each other hold
interests in the Class A Certificates. The
Class A underwriters expect, although they
cannot assure you, that at least 100
independent persons will hold interests in
the Class A Certificates. SRFG also expects
that the other requirements will be met so
that the Class A Certificates will be
considered publicly-offered securities. If,
however, the Class A Certificates do not meet
the requirements of a publicly-offered
security and the trust's assets are
considered to be plan
S-11
<PAGE> 12
assets of an employee benefit plan, then the
prohibited transaction rules of ERISA may
apply to certain transactions involving the
trust's assets. SRFG does not expect that 100
or more independent persons will hold
interests in the Class B Certificates.
Accordingly, employee benefit plans should
consult their own counsel before purchasing
Class A Certificates or Class B Certificates.
See "ERISA Considerations" in the prospectus
for additional information concerning this
and other ERISA issues.
TAX STATUS.................... Sears and SRFG will receive an opinion of
counsel that, although the matter is not free
from doubt, the Class A Certificates and the
Class B Certificates will be treated as debt
for federal income tax purposes. By accepting
a certificate, you will agree with Sears and
SRFG to treat the certificate as debt for
federal, state and local income and franchise
tax purposes. If you hold a beneficial
interest in a Class A Certificate or a Class
B Certificate, you should:
- include in your gross income all stated
interest paid or accrued on your
certificate; and
- treat as a return of capital any
principal payments on your certificate,
to the extent of your allocable basis in
your certificate.
Payments on the Class A Certificates and the
Class B Certificates held by foreign persons
will generally be exempt from United States
federal income tax and withholding, subject
to compliance with applicable certification
requirements. See "Federal Income Tax
Consequences" and "State Tax Consequences" in
the prospectus for information concerning the
application of tax laws.
REGISTRATION, CLEARANCE AND
SETTLEMENT.................. Your certificates will be registered in the
name of Cede & Co., as the nominee of DTC.
You will not receive a definitive certificate
representing your interest in the trust's
assets, except in limited circumstances. See
"The Certificates -- Book-Entry Registration"
and "Definitive Certificates" in the
prospectus for more detailed information.
You may elect to hold your certificates through
one of the following clearing organizations,
all of which permit transfers of securities
or interests in securities by computer
entries instead of paper transfers:
- DTC in the United States;
- Clearstream Banking in Europe; or
- the Euroclear System in Europe.
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You may transfer your interest within DTC,
Clearstream Banking or Euroclear in
accordance with the usual rules and operating
procedures of the relevant system. Parties
holding directly or indirectly through DTC,
on the one hand, and other parties holding
directly or indirectly through Clearstream
Banking or Euroclear, on the other hand, may
make cross-market transfers through the
relevant depositories of Clearstream Banking
and Euroclear. See "The
Certificates -- Book-Entry Registration" in
the prospectus for more detailed information.
SRFG expects to deliver the certificates in
book-entry form through the facilities of
DTC, Clearstream Banking and Euroclear on or
about September , 2000.
CLASS A CERTIFICATE RATING.... The trust will issue the Class A Certificates
only if at least two nationally recognized
rating agencies rate the Class A Certificates
in the highest rating category. The rating
agencies base their ratings primarily on the
value of the trust's receivables and the
subordination of the Class B Certificates and
the Class C Certificates. See "Risk
Factors -- Rating of the Certificates."
CLASS B CERTIFICATE RATING.... The trust will issue the Class B Certificates
only if at least two nationally recognized
rating agencies rate the Class B Certificates
in one of the three highest rating
categories. The rating agencies base their
ratings primarily on the value of the trust's
receivables and the subordination of the
Class C Certificates. See "Risk
Factors -- Rating of the Certificates."
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RISK FACTORS
You should consider the following factors carefully in evaluating an
investment in certificates. This prospectus supplement and the prospectus
contain forward-looking statements that relate to, among other things, the
performance of the Sears portfolio and the trust, the timing and amount of
payments on the certificates, issuance of additional series of certificates,
additions of accounts to the trust and plans for the future operations of Sears
business. The words "expects," "plans," "believes," "anticipates," and similar
expressions are intended to identify forward-looking statements. The cautionary
statements provided in this "Risk Factors" section and elsewhere identify
important factors -- including factors outside our control such as general
economic trends affecting customers, the need for rating agency approvals,
etc. -- that could cause actual results to differ materially from those in the
forward-looking statements.
SUBORDINATION OF THE CLASS B AND CLASS C CERTIFICATES; LIMITED SUBORDINATION
You should consider the following six aspects of the subordination
provisions:
- First, the trust will use all finance charge collections for this series
and other income for this series, including amounts allocated to the
Class B investor interest in receivables and the Class C investor
interest in receivables, to pay Class A interest first, then Class B
interest and finally Class C interest, if any.
- Second, the trust will use remaining finance charge collections for this
series and other income for this series to pay the monthly servicing fee
for this series and then to reimburse Class A charge-offs first, then
Class B charge-offs and finally Class C charge-offs. Charge-offs
allocated to you that are not reimbursed will result in a reduction of
the aggregate amount of principal and interest you ultimately receive on
your certificates.
- Third, the trust may use Class C principal collections or Class B
principal collections to pay Class A interest or reimburse Class A
charge-offs, and may use Class C principal to pay Class B interest or
reimburse Class B charge-offs. Any such use of Class B or Class C
principal collections will reduce the investor interest in receivables
for Class B or Class C, as applicable.
- Fourth, if the trust allocates charge-offs to the Class A Certificates or
the Class B Certificates that it cannot otherwise reimburse, it will
reallocate the Class C investor interest in receivables to reimburse
those charge-offs. For example, if the Class A investor interest in
receivables was $500, no subordination was available, and the trust could
not reimburse $3 of Class A charge-offs, the trust would reduce the Class
A investor interest in receivables to $497. If, however, the Class C
investor interest in receivables at that time was $20, the trust would
instead reallocate $3 of this interest to reimburse those Class A
charge-offs; the Class A investor interest in receivables would remain at
$500 and the trust would reduce the Class C investor interest in
receivables to $17. Similarly, if the trust allocates charge-offs to the
Class A Certificates that it cannot otherwise reimburse, and the Class C
investor interest in receivables is zero, the trust will reallocate the
Class B investor interest in receivables to reimburse those charge-offs.
- Fifth, the trust may pay a portion of Class C principal during the
revolving period if Moody's and Standard & Poor's advise SRFG that this
will not cause them to reduce or withdraw their ratings of any
outstanding class of any series. The trust will be permitted to pay
limited amounts of Class C principal during the controlled accumulation
period as the trust deposits Class A principal into the series principal
funding account, if Moody's and Standard & Poor's advise SRFG that this
will not cause them to reduce or withdraw their ratings on any class of
any series. The Class C investor interest in receivables will decline by
the amount of these payments.
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- Sixth, the amount of collections allocated to each class is generally
related to its class investor interest in receivables, so reductions in
the Class B investor interest in receivables or the Class C investor
interest in receivables may also reduce the amount of collections
allocated to these classes and to this series in later months. However,
once a rapid amortization event occurs, the trust will generally use the
class investor interest in receivables immediately prior to the rapid
amortization event to allocate collections to each class.
Although the Class B Certificates and the Class C Certificates provide credit
enhancement to the Class A Certificates, and the Class C Certificates provide
credit enhancement to the Class B Certificates, the amount of this credit
enhancement is limited by the class investor interest in receivables of each
subordinate class. If you own a Class B Certificate and the Class C investor
interest in receivables is reduced to zero, you will bear directly all credit
and other risks associated with your investment in the trust and the
subordination of your certificate to the Class A Certificates. If you own a
Class A Certificate and both the Class C investor interest in receivables and
the Class B investor interest in receivables are reduced to zero, you will bear
directly all credit and other risks associated with your interest in the trust.
To the extent that the trust cannot fully reinstate any reduction in your class
investor interest in receivables, the aggregate amount of principal you
ultimately receive will be less than the face amount of your certificates. We
encourage you to review the cash flows for this series, summarized in "The
Certificates -- Cash Flows," which describe in greater detail how the trust
prioritizes allocations, payments and reimbursements.
LIMITED ABILITY TO RESELL CERTIFICATES
We anticipate that the underwriters will make a market in the certificates.
A secondary market, however, may not develop. If a secondary market does
develop, it might not continue until your certificates mature, or it might not
be sufficiently liquid to allow you to resell any of your certificates.
RATING OF THE CERTIFICATES
The ratings assigned by a rating agency to the certificates are not a
recommendation to purchase, hold or sell the certificates. These ratings do not
address the market price of the certificates or whether the certificates are
suitable for you. A rating agency may lower or withdraw its rating at any time.
The rating agencies do not evaluate, and the ratings do not address, the
likelihood that the trust will pay the entire outstanding principal amount of
your certificates on or before any scheduled payment date.
EFFECTS OF THE SELECTION PROCESS, SEASONING AND PERFORMANCE CHARACTERISTICS
The performance of the trust's accounts will affect the extent to which the
trust has sufficient funds to pay principal and interest to you when scheduled.
Although Sears selected the accounts for the trust at random from the Sears
portfolio, the performance of the trust's accounts may be different from the
performance of the Sears portfolio because:
- the payment performance of the obligors on the trust's accounts may
differ from the overall payment performance of the obligors on the Sears
portfolio;
- the pool of receivables in the trust may not include receivables from all
types of accounts issued by Sears National Bank or a proportionate share
of receivables from the various account types; and
- the pool of receivables in the trust may not contain receivables in
accounts from every state and does not contain receivables in accounts
from Puerto Rico.
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SRFG has designated additional accounts to be included as trust accounts,
and, in the future, SRFG may voluntarily, or may be obligated to, designate
additional accounts to be included as trust accounts. The performance of any
additional trust accounts may be different from the performance of the trust's
existing accounts and the Sears portfolio. Additional trust accounts also may
include additional types of accounts issued by the bank from time to time,
including general-purpose credit card accounts.
In the future, SRFG may voluntarily, or may be obligated to, add to the
trust participation interests in pools of credit card receivables. The terms
governing those credit card receivables may be different from the terms
governing the receivables in the trust's accounts and the receivables in the
Sears portfolio. Consequently, the performance of these pools of credit card
receivables may be different from the performance of the trust's accounts and
the Sears portfolio.
ABILITY TO CHANGE TERMS OF THE RECEIVABLES
Sears National Bank, Sears or their affiliates, as applicable, may change
the terms governing the trust's accounts so long as the bank, Sears or their
affiliates, as applicable, also change the terms governing similarly situated
accounts arising in the same jurisdiction. Changes may affect, among other
things, the required minimum payment, annual percentage rate and type of
account. Such changes may decrease the effective yield on the receivables in the
trust and increase the possibility of a rapid amortization event. The bank,
Sears or their affiliates, as applicable, retain the right to prevent any credit
account customer, or all of the credit account customers within a particular
jurisdiction, from creating new receivables in a trust account. If the bank,
Sears or their affiliates exercise their right to change the terms of an account
or to prevent the creation of receivables in a trust account, then the amount of
the receivables generated in the trust's accounts might significantly decline.
That decline could cause SRFG's residual interest in the trust to decline to an
amount that would require SRFG to contribute to the trust the receivables in
additional accounts or participation interests in other pools of credit card
receivables in order to avoid a rapid amortization event.
In connection with the operation of the credit business, the bank and Sears
reserve the right to change their credit evaluation policies at any time. The
bank and Sears cannot assure you that these policies will not have a material
adverse effect on the level of charge-offs on the trust's accounts.
EFFECTS OF RAPID AMORTIZATION EVENT
If a rapid amortization event occurs:
- you may receive payments of principal earlier or later than scheduled,
which could cause the average life and maturity of your certificates to
be significantly reduced or extended and the yield to maturity to be
significantly affected;
- we cannot predict how much principal the trust will pay you in any month,
how long it will take to pay your invested amount in full, or whether you
will ultimately receive an aggregate amount of principal less than the
face amount of your certificates; and
- you will not be entitled to receive reallocations of principal
collections originally allocated to the Seller Certificate.
PAYMENT RATES, GENERATION OF RECEIVABLES AND MATURITY
Monthly payment rates on the trust's receivables may vary because, among
other things, credit account customers may not make their required minimum
payments, may pay only the minimum required payments or may pay up to their
entire outstanding balance. We cannot predict the credit account customers'
actual future payment rates.
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Monthly payment rates, as well as the rate at which credit account
customers purchase goods and services with their accounts, may also vary because
of a variety of social, legal and economic factors, as well as customers'
seasonal purchasing and payment habits. Because customers may use Sears Card,
SearsCharge PLUS and Sears Home Improvement Accounts only to purchase goods and
services sold and made available through Sears stores and its affiliates,
licensees or concessionaires, the trust depends upon sales at Sears stores to
generate receivables. The retail industry is highly competitive. Although Sears
is among the largest retailers in the world on the basis of sales of merchandise
and services, it has numerous competitors. Also, in addition to Sears and Sears
National Bank's credit plans, customers of Sears or its affiliates, licensees or
concessionaires may use third-party credit cards, personal checks or cash to
make purchases. Because of the interest rates and other benefits available
through other credit sources, customers may not use or carry balances on various
Sears or bank credit plans. We cannot assure you that these economic,
competitive and social factors and the availability of these other credit
sources will not reduce the rate at which the trust's receivables are generated.
Because we cannot predict future payment rates or assure you that
additional receivables will be generated in the trust's accounts, we cannot
predict the actual rate at which the trust will pay principal to you or whether
the terms of any subsequently issued series might affect the amount or timing of
any payment of principal to you. Any delay in the payment of principal for this
series will extend the period during which the trust may allocate charged-off
receivables to this series. In addition, increased convenience use, where credit
account customers pay their receivables within the grace period to avoid all
finance charges, might:
- decrease the effective yield on the receivables in the trust; and
- cause SRFG's residual interest in the trust to decline.
A decline in the amount of receivables generated in the trust's accounts
might cause SRFG's residual interest in the trust to decline to an amount that
would require SRFG to contribute to the trust the receivables in additional
accounts or participation interests in other pools of credit card receivables in
order to avoid a rapid amortization event.
INVESTOR RISK OF LOSS
You will only receive payments of interest and principal on your
certificates to the extent that the trust has funds available to make these
payments. The trust will allocate charged-off receivables to your certificates
each month, and will reimburse you for those charge-offs, only to the extent
that the trust has funds available to make those reimbursements. You should
review the cash flow provisions described in "The Certificates -- Cash Flows" to
understand the priority in which the trust allocates its assets to pay interest
and principal and to reimburse charge-offs on this series and other series. To
the extent the trust cannot fully reimburse your charge-offs, the aggregate
amount of principal you ultimately receive will be less than the face amount of
your certificates. In addition, the amount of collections allocated to your
class of certificates may be related to your investor interest in receivables,
so reductions in your investor interest in receivables due to unreimbursed
charge-offs may also reduce the amount of collections allocated to you in later
months.
ISSUANCE OF ADDITIONAL SERIES AND ADDITIONAL CERTIFICATES
SRFG expects the trust to issue from time to time other series of
certificates without your review of the series terms or your consent. SRFG may
also direct the trustee to have the trust issue additional certificates in this
series. We cannot assure you that the issuance of one or more additional series
in the future, or the issuance of additional certificates in this series, will
not affect the timing and amount of the trust's payments to you.
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In 1998, SRFG agreed to add additional funds to the trust. These additional
funds are a pro rata share of the amounts the servicer collects on the
receivables that it had previously charged off as uncollectible, including
amounts received from the sale of charged-off receivables. See "The
Certificates -- Series Additional Funds." The trust allocates additional funds
among the outstanding series of certificates, but does not allocate any of the
additional funds to SRFG based on SRFG's residual interest in the trust.
Accordingly, when the trust issues a new series, the pro rata share of
additional funds allocated to this series will decline as the trust allocates a
portion of those additional funds to the new series. Similarly, when the trust
issues additional certificates in this series, the pro rata share of additional
funds allocated to each certificate will decline as the trust allocates a
portion of additional funds to the additional certificates.
EFFECT AND LIMITED AVAILABILITY OF REALLOCATIONS
Collections originally allocated to another series in your group or to the
Seller Certificate may be reallocated to you during the controlled accumulation
period for this series, and in reliance on principal collections from those
other series and the Seller Certificate the percentage the trust uses to
allocate principal collections to you may decline. The servicer may elect to
shorten the controlled accumulation period if it determines that enough
principal collections from other series and from the Seller Certificate will be
available to make larger deposits into the series principal funding account. If
a rapid amortization event occurs for a series from which your series received
collections:
- you will no longer receive reallocated principal collections from that
series;
- the trust may make principal deposits into the series principal funding
account that are smaller than scheduled; and
- the trust's payment of principal to you may be delayed or reduced.
The provisions in the Series Supplement for this series that permit the trust to
reallocate collections from other series to this series will be effective only
to the extent that the Series Supplement for another series in your group also
permits reallocations. SRFG is not obligated, however, to establish or issue any
series from which collections may be reallocated. See "The
Certificates -- Reallocations and Subordination of Collections" in the
prospectus for additional information.
We cannot assure you that SRFG will not move a series from its original
group to a new group, including a new group with no other series then
outstanding. If SRFG moves this series from Group One, or moves the other series
in Group One to a new group, or moves series from another group to Group One,
you may no longer be entitled to reallocations from other series or different
reallocation provisions may apply. We have described this in more detail in "The
Certificates -- Reallocation of Series Among Groups" in the prospectus.
If a rapid amortization event occurs for your series, you will no longer be
entitled to receive reallocated principal collections allocated to the Seller
Certificate.
FLOATING PRINCIPAL ALLOCATION
The trust allocates principal collections to each class of this series
based on its class percentage, which in general is proportionate to its class
investor interest in receivables. As the trust deposits principal collections
into the series principal funding account for this series, we expect this series
to receive fewer principal collections in each month to reflect its declining
interest in the receivables in the trust. In these circumstances, the trust will
use reallocations from other series and from the Seller Certificate to this
series to make scheduled principal
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deposits. If a rapid amortization event occurs for any series that would have
reallocated principal collections to this series:
- this series may no longer receive reallocations adequate for the trust to
accumulate sufficient principal collections to make the scheduled Class A
and Class B principal payments; and
- the class percentages of principal collections for each class of this
series may have declined to levels that will not allow the trust to
accumulate sufficient principal collections for this series to make these
scheduled principal payments.
If the servicer has delayed the commencement of the controlled accumulation
period in reliance on anticipated reallocations, these effects may be
exacerbated. Consequently, the trust may not be able to pay Class A principal
and Class B principal in full and on time. We encourage you to review the
information and the definition of "Class Percentage" in "The Certificates --
Series Collections and Charge-offs" in this prospectus supplement for more
information about how the trust uses class percentages to allocate principal
collections to this series and how the trust calculates those class percentages.
EFFECT OF PAIRED SERIES
During the controlled accumulation period for this series, the trust may
issue a second, or paired, series that is effectively supported by the same
principal receivables that support this series. As the trust accumulates
principal for the benefit of this series, this series' investor interest in
receivables will decline, but the monthly principal deposit for this series will
not decline. To make scheduled monthly principal deposits in spite of a
declining investor interest in receivables, the trust may maintain an amount of
principal receivables to support this series that exceeds this series' investor
interest in receivables during the controlled accumulation period. To finance
these excess principal receivables, the trust may issue a paired series.
Initially the trust would reallocate the principal collections for the paired
series to make scheduled principal deposits for this series. However, if a rapid
amortization event for the paired series occurs before the trust pays in full
the principal for this series:
- SRFG may use principal collections allocated to the paired series that it
would otherwise have reallocated to this series, to repay the principal
of the paired series;
- the trust may make principal deposits into the series principal funding
account that are smaller than scheduled; and
- the trust's final payment of principal to you may be delayed.
The trust will not seek your review or consent before it issues a paired series.
The outstanding principal amount of any paired series may vary over time. The
rapid amortization events for a paired series may vary from the rapid
amortization events for the series with which it is paired. In particular, the
rapid amortization events for a paired series may include events that are
unrelated to the status of SRFG, the servicer or the receivables, including
events that relate to the continued availability and rating of third-party
providers of credit enhancement to the paired series.
SECURITY INTERESTS AND INSOLVENCY RELATED MATTERS
Sears National Bank has granted to Sears all of its right, title and
interest in and to any of the trust's receivables originated by the bank under
the Assignment of Accounts and Sale of Receivables Agreement dated as of
September 15, 1994, as amended, between the bank and Sears, which we refer to as
the Assignment Agreement. Because a receiver or conservator of the bank may
argue that this transaction was a pledge of the receivables rather than an
absolute transfer, the bank also granted Sears a security interest in the
receivables under the Assignment
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Agreement. Sears has taken certain actions to perfect its security interest in
the receivables. In general, a security interest in receivables is perfected if
it can be enforced not only against the person granting it but also against
creditors of that person who might want to claim those receivables. Typically, a
security interest in receivables is perfected by notice, for example, through a
filing.
A receiver or conservator of Sears National Bank should not be able to
avoid Sears security interest in, or recover payments made by credit account
customers on, the receivables if Sears has validly perfected this security
interest before an insolvency of the bank occurs and if Sears did not take the
security interest to hinder, delay or defraud the bank or its creditors. If,
however, a receiver or conservator of the bank asserts a contrary position or
requires the trust to establish its right to cash collections by submitting a
claim and completing the administrative claims procedure established under the
Federal Deposit Insurance Act, as amended, the trust's payments to you may be
delayed or reduced. We have explained these issues in more detail in "Legal
Matters Relating to the Receivables -- Insolvency Related Matters" in the
prospectus.
Sears and SRFG intend the transfer of the trust's receivables from Sears to
SRFG to be an absolute transfer of those receivables to SRFG and will treat it
as an absolute transfer. As an absolute transfer, those receivables would not be
a part of any Sears bankruptcy estate and would not be available to Sears
creditors. However, if Sears became insolvent, the bankruptcy trustee, a
creditor of Sears, or Sears as debtor-in-possession could attempt to argue that
the transaction between Sears and SRFG was a pledge of those receivables rather
than an absolute transfer. This position, if accepted by a court, could prevent
the trust from making timely payments to you.
SRFG has taken actions required to perfect the trust's interest in its
receivables. However, unless SRFG files continuation statements from time to
time within the time specified in the Uniform Commercial Code to continue the
perfection of the trust's security interest in those receivables, the perfection
of the security interest will lapse. In addition, more than one person can have
a perfected security interest in the same receivables, and the person with the
higher priority -- which is determined by statute -- will have the first claim
to the property. Consequently, a tax or other statutory lien on property of
Sears or Sears National Bank arising before receivables come into existence may
have priority over the trust's interest in those receivables. See
"-- Legislation" in this prospectus supplement and "Legal Matters Relating to
the Receivables" in the prospectus for additional information.
If Sears short-term debt rating is increased to A-1/P-1, Sears may use all
collections allocable to the certificates as a loan until each distribution
date. In the event of a bankruptcy of Sears, the trust may not have a perfected
interest in those collections loaned to Sears by the trust. We have described
these issues in more detail in "Legal Matters Relating to the
Receivables -- Transfer of Receivables" in the prospectus.
CONSUMER PROTECTION AND REGULATORY CREDIT LAWS
The trust's accounts and the receivables in the trust are subject to
numerous federal and state consumer protection and state regulatory laws that
impose requirements on the making and enforcement of consumer credit. These
laws, and any new laws or rulings that may be adopted, may adversely affect
Sears and Sears National Bank's ability to collect the receivables in the trust
or maintain the current level of finance and other charges. If Sears or the bank
does not comply with these requirements, it could adversely affect the
servicer's ability to collect the receivables in the trust. For example, the
federal Truth in Lending Act, Equal Credit Opportunity Act, Fair Credit Billing
Act, Fair Credit Reporting Act and their related regulations impose extensive
procedural obligations upon Sears. A credit recipient may assert violations of
these consumer protection laws as a setoff against his or her obligation to pay
amounts owed on an account or as claims against Sears. SRFG has covenanted to
repurchase trust receivables if
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the requirements of such statutes have not been complied with, if the failure
has a material adverse effect on the trust's interest in all the trust's
receivables. Federal and state bankruptcy laws and debtor relief laws also may
prevent Sears from fully collecting amounts owed.
We do not anticipate that the trustee will examine the receivables in the
trust or the records relating to them to establish whether defects exist in the
trust's accounts or for any other purpose. We discuss these issues more fully in
"Legal Matters Relating to the Receivables -- Consumer Protection Laws and
Debtor Relief Laws Applicable to the Receivables" in the prospectus.
LEGISLATION
We cannot assure you that a federal or state legislature will not enact
legislation that would substantially reduce finance charge revenue or impair
collection of receivables. A reduction in finance or other charges could reduce
the yield on the receivables in the trust and, therefore, the amounts available
to pay interest to you or to reimburse charged-off receivables. If this type of
legislation limited finance charge or other revenue to a sufficiently low level,
the trust has structural features that SRFG could use, with approval of Moody's
and Standard & Poor's, to enhance yield. We cannot assure you, however, that
SRFG will use these structural features or that they would be sufficient to
compensate for a decline in yield.
MATURITY CONSIDERATIONS
GENERAL
The trust will not pay any Class A principal until the September 2005
distribution date or any Class B principal until the October 2005 distribution
date unless a rapid amortization event occurs. If a rapid amortization event
occurs, the trust will pay Class A principal on each distribution date following
the calendar month in which the rapid amortization event occurs until it has
paid the Class A Invested Amount in full, or until the September 2009
distribution date, whichever is earlier. The trust will not pay any Class B
principal until it has made its final Class A principal payment. The trust will
not make any payments to you or the other investors in this series after the
September 2009 distribution date. For a more complete discussion of the effect
of a rapid amortization event on the timing and amount of payments you receive,
see "Risk Factors -- Effects of Rapid Amortization Event" in this prospectus
supplement.
On each distribution date during the controlled accumulation period,
principal collections will be deposited into the series principal funding
account in amounts set forth in "The Certificates -- Cash Flows." The Class A
principal and Class B principal will be paid with the principal collections
deposited in the series principal funding account for the benefit of the Class A
and Class B investors.
Although we expect that the trust will pay Class A principal in full on the
September 2005 distribution date and the Class B principal in full on the
October 2005 distribution date, we cannot assure you that the trust will pay
principal in full or on time. Our expectation is based, among other things, on
the following assumptions:
- monthly payment rates, yield and charge-off rates remain consistent with
the levels indicated for the Sears portfolio in the related tables in
"Composition and Historical Performance of the Sears Portfolio" in this
prospectus supplement; and
- a rapid amortization event does not occur for this series. See "Risk
Factors -- Effects of Rapid Amortization Event" in this prospectus
supplement.
EFFECT OF PAYMENT RATES
The trust's ability to pay the Class A and Class B principal on schedule
may be affected by future monthly payment rates, gross charge-offs,
delinquencies, new charges on the Accounts and yield. We
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cannot predict future monthly payment rates, gross charge-offs, delinquencies,
new charges or yield, nor can we assure you that any of the assumptions set
forth above will prove to be correct. We refer you to "Risk Factors -- Payment
Rates, Generation of Receivables and Maturity" in this prospectus supplement for
a more complete discussion of this issue. The Sears portfolio's historical
payment rates, charge-off rates, delinquencies and yields are set forth in
"Composition and Historical Performance of the Sears Portfolio" in this
prospectus supplement.
FLOATING PRINCIPAL ALLOCATION
The trust allocates principal collections to each class of this series
based on its class percentage, which in general is proportionate to its class
investor interest in receivables. As the trust deposits principal collections
into the series principal funding account for this series, we expect this series
to receive fewer principal collections in each month to reflect its declining
interest in the receivables in the trust. In these circumstances, the trust will
reallocate principal collections from other series and from the Seller
Certificate to this series to make scheduled principal deposits. We cannot
assure you that the terms of any other series currently outstanding or that the
trust may issue in the future will not affect the timing or amount of principal
deposits for your benefit or payments to you. We refer you to "Risk Factors --
Floating Principal Allocation" in this prospectus supplement for a more complete
discussion of this issue.
PAIRED SERIES
During the controlled accumulation period, the trust may issue a "paired
series" of certificates to finance the increase in the seller interest that
results when the trust deposits your principal collections into the series
principal funding account. If a rapid amortization event for the paired series
occurs before the trust pays the Class A and Class B principal in full, the
trust's payment of principal to you may be delayed. We refer you to "Risk
Factors -- Effect of Paired Series" in this prospectus supplement for a
discussion on the effect the issuance of a paired series might have on the
timing and amount of your principal payments.
EFFECT OF VARIABLE LENGTH OF THE CONTROLLED ACCUMULATION PERIOD
The servicer may elect to delay the start of the controlled accumulation
period and, if applicable, the accumulation of Class B principal because:
- it believes that principal collections will be reallocated to this series
from other series or from the seller interest, or
- SRFG has entered into a commitment to issue a new series and has elected
to deposit proceeds from the sale of that new series into the series
principal funding account for this series, if Standard & Poor's and
Moody's have advised SRFG that they will not reduce or withdraw their
ratings on any class of this series if the servicer delays accumulation
on this basis.
If a rapid amortization event occurs for this series or another series, or if
the conditions to issue the new series set forth in the commitment are not met,
this series may not be entitled to receive reallocated principal collections or
sale proceeds. Accordingly, if the servicer elects to delay the accumulation of
principal and these funds are not available, you may receive some of your
principal later than you would have received it if the servicer had not elected
to delay the accumulation of principal.
S-22
<PAGE> 23
Below, we use some terms that are capitalized. We have defined these terms
in the Glossary of Terms beginning on page S-61.
SEARS CREDIT BUSINESS
GENERAL
Sears National Bank issues three primary types of proprietary accounts,
under which customers may purchase goods and services sold and made available
through Sears stores and its affiliates, licensees or concessionaires. These
three types of proprietary accounts are:
- Sears Card: Sears Card -- including Sears Premier Card -- is the
traditional charge card that customers may use to purchase goods and
services, generally in an amount up to the customer's credit limit. Sears
Card receivables accounted for approximately 89% of the Sears portfolio
as of the end of 1999.
- SearsCharge PLUS: Customers in most states may use SearsCharge PLUS to
purchase certain merchandise that costs at least $400, if their account
is new, or $100, if they have an existing account. SearsCharge PLUS
receivables accounted for approximately 8% of the Sears portfolio as of
the end of 1999.
- Sears Home Improvement Account: Under Sears Home Improvement Accounts
("SHIAs"), customers may only purchase various goods and services
relating to home improvements. SHIA and its predecessors' receivables
accounted for approximately 3% of the Sears portfolio as of the end of
1999.
Sears National Bank also issues the Sears Gold MasterCard, a
general-purpose card that may provide favorable pricing for purchases at
participating Sears locations. Over the past several months, Sears has
substituted Sears Gold MasterCards for the Sears Cards of approximately seven
million accounts which generally were not incurring finance charges, either
because cardholders were not using their cards or because they were using the
cards only for convenience, generally making their payments within their grace
periods. Sears has removed from the trust many of the substituted accounts and
intends to remove those remaining. Sears may substitute Sears Gold MasterCards
for the Sears Cards of additional customers. Many Sears Card accounts do not
revolve significant balances. While Sears is presently evaluating this portfolio
of non-revolving accounts for additional substitutions in selected tranches over
the coming quarters, Sears can provide no assurances concerning the occurrence
or timing of any substitutions. Sears may choose not to remove additional
substituted accounts from the trust. MasterCard balances are a growing portion
of the Sears portfolio, and additional MasterCard receivables may become assets
of the trust in the future.
Each of the types of accounts described above requires different minimum
monthly payments, and the bank imposes different finance charges on outstanding
balances under each type of account. The bank may alter the terms of these
accounts or issue additional types of accounts from time to time.
We refer to all of these types of accounts, together with other credit
products issued by Sears, and the receivables arising under them, as the Sears
portfolio. If the receivables arising under an account are part of the trust's
assets, we refer to that account as an "Account" and the receivables in that
account as "Receivables." Except as otherwise noted, descriptions of the Sears
portfolio, credit processing, and similar matters relate solely to the
proprietary accounts; however, "Composition and Historical Performance of the
Sears Portfolio" includes the performance of the MasterCard accounts.
Sears and the bank service the proprietary accounts at:
- nine regional credit card operations centers, each located in a different
state;
- a national account authorization center;
- three credit processing centers;
S-23
<PAGE> 24
- Sears headquarters in Hoffman Estates, Illinois; and
- the bank's headquarters in Tempe, Arizona.
The bank and Sears have entered into agreements under which Sears acts as the
primary servicer of the Receivables that Sears has designated with respect to
the trust. The Sears Credit Department and the bank employ approximately 9,000
individuals on a full-time or part-time basis.
CREDIT GRANTING PROCEDURES
Each credit account customer enters into a credit agreement with Sears
National Bank (the "Account Issuer") governing the terms and conditions of the
account. A small percentage of existing accounts that Sears issued continue to
be governed by credit agreements between the customer and Sears. With respect to
these accounts, Sears is also an "Account Issuer." Because each state regulates
retail charge accounts differently, the terms of the credit agreements for
accounts still owned by Sears are not identical nationally. The Account Issuer
reserves the right to change credit terms, including the rate of the finance
charge, upon notice. In addition, the Account Issuer and, when applicable, its
affiliates take a purchase money security interest to the extent permitted by
law in all goods that customers purchase through their accounts.
The Account Issuer uses statistical scoring models to enhance its ability
to evaluate the creditworthiness of an applicant and minimize its exposure to
high credit risk individuals. The Account Issuer also uses scoring models to
evaluate existing accounts, modify credit limits and approve purchases that
exceed a customer's credit limit. The Account Issuer tracks and audits model
performance to assure that the model is recommending appropriate credit
decisions.
The Account Issuer obtains credit bureau reports, including risk scores
prepared by the credit bureaus, from an independent credit reporting agency for
all applications. The applicable credit bureau reports are used as input to
scoring models that recommend whether or not to approve an application based on
all available predictive information about that applicant.
The bank periodically issues pre-screened accounts. It obtains lists of
applicants for pre-screened accounts from credit bureaus or other list sources.
The credit bureaus qualify the lists without regard to the source of the list
based on credit criteria specified by the bank.
In the year ended January 1, 2000, the Account Issuers approved on average
approximately 358,973 new accounts each month. Approximately 27 million accounts
in the Sears portfolio had been active as of the month ended December 31, 1999.
This total excludes accounts from Puerto Rico, which are not included in the
Accounts. The number of active accounts tends to be higher in the fourth quarter
of the year.
BILLING AND PAYMENTS
The accounts have various billing cycles, which are not based on the
historical or expected performance of the accounts. Each billing cycle has a
separate monthly billing date; the billing cycle is the period of approximately
30 days ending on that billing date. On each billing date, Sears and Sears
National Bank process and bill customers for their purchases and related finance
charges and fees for the billing cycle.
The accounts have various billing and payment structures, including varying
minimum payment levels and finance charges. This "-- Billing and Payments"
section contains information on the most common current billing and payment
characteristics of these accounts, although practices in some states vary in
accordance with local law.
S-24
<PAGE> 25
Sears or the bank sends monthly billing statements to customers who have
more than $1.00 of outstanding charges or credits. Each month, except in certain
circumstances involving prepayment, low balances or special promotions, a Sears
Card customer generally must make a minimum payment equal to:
- 1/42 of the amount outstanding on the customer's account; plus
- any amount that is past due.
The bank assesses a finance charge on Sears Card accounts each month a
credit account customer has an unpaid balance from a prior month. The bank
calculates the finance charge by multiplying the daily balances of the account
for each day of the billing period by the applicable daily periodic finance
charge rate. The daily balance owing on an account equals:
- the account balance at the start of the day; plus
- new purchases, unpaid finance charges, late payment charges, returned
payment charges and insurance charges, if any; minus
- payments and credits processed that day.
The bank does not assess finance charges on purchases during a billing cycle if
the customer pays the entire account balance shown on the billing statement for
that billing cycle on or before the account's due date.
Currently, the equivalent annual rate of periodic finance charge on Sears
Card and SearsCharge PLUS accounts is generally 21% and the rate on SHIAs is
15.9%. Delinquent accounts generally are charged higher rates. Sears Gold
MasterCards have variable rates, and may provide favorable fixed-rate pricing
for purchases at participating Sears locations.
Sears new credit card receivables processing system, described in
"-- Collection Efforts" below, allows the bank and Sears to change the terms of
accounts based on the performance of the accounts, or otherwise, including
changing the minimum monthly payment, changing the annual rate of periodic
finance charge or offering variable rate accounts. The Account Issuers are
testing accounts with various finance charge rates, along with other product and
pricing strategies designed to increase customers' utilization of credit. The
Account Issuers are soliciting new cardholders and issuing accounts with various
introductory and subsequent rates.
The bank may allow special credit promotions, in conjunction with Sears,
which permit customers to defer payments, in some circumstances without
incurring finance charges, for limited periods of time. For example, the bank
may have a "zero-percent financing" promotion. If credit account customers make
purchases during the promotion, they will not be billed for those purchases for
a specified period, generally ranging from three to twelve months. During the
promotion period:
- customers are not required to make payments on the balance for those
purchases; and
- customers will not accrue finance charges on that balance.
The bank will assess customary finance charges in the usual manner on the unpaid
promotional balance after the promotion period ends. The Accounts may include
Principal Receivables originated during zero-percent financing promotions or
other promotions.
COLLECTION EFFORTS
Sears personnel who staff the regional credit card operations centers make
most of the efforts to collect past due receivables. In some instances, however,
Sears retains collection agencies and attorneys. Under current practices, Sears
requests payment of overdue amounts on all billing statements with past due
balances. Collections personnel generally initiate telephone contact with credit
account customers who have not paid their past due balances by the first billing
date after they have been notified that their account is past due. Sears begins
telephone contact for high risk/high balance accounts sooner. If the customer
does not pay after the initial telephone contact, Sears or its agent continues
to contact the
S-25
<PAGE> 26
customer by telephone and by mail. Sears may also arrange with credit account
customers to extend or otherwise change payment schedules.
In May 1998, Sears entered into an agreement with Total System Services,
Inc. ("TSYS") to provide processing services relating to the Sears portfolio,
including the Receivables. The new system has allowed Sears and the bank to
enhance their customer relationships and improve service support of Sears
multiple business formats. Sears converted from its proprietary processing
system to a TSYS processing system in three phases, completing the first in
October 1998 (affecting approximately 12% of the accounts in the Sears
portfolio), the second in March 1999 (affecting approximately 38% of accounts),
and the last in April 1999 (affecting the remaining 50% of accounts). TSYS now
processes all accounts.
The new processing system also has enabled Sears to change its methodology
for aging and charging off accounts. Under the new aging methodology, a
customer's account generally is considered delinquent when the customer has
failed to make a required payment in each of the last three billing cycles.
Formerly, under Sears proprietary credit system, an account generally was
considered delinquent when the customer's cumulative past due balance was three
or more times the scheduled minimum monthly payment. As a result, accounts
generally are considered delinquent earlier and charged off sooner under the
TSYS system than was the case under the former, proprietary system. Changes in
delinquency status based on changes in methodology reflect a reclassification of
account status rather than a change in actual performance of the account.
Under the new charge-off methodology, Sears generally charges off an
account automatically when a customer has failed to make a required payment in
each of the eight billing cycles following a missed payment. Under Sears former,
proprietary system, Sears generally charged off an account automatically when
the account's cumulative past due balance was at least eight times the scheduled
minimum monthly payment. The old system permitted and the new system permits
Sears to charge off accounts earlier if the credit account customer initiates
bankruptcy proceedings.
Over time, Sears and the bank may change the credit evaluation, servicing
and charge-off policies and collection practices that they apply to the Accounts
in accordance with their business judgment and applicable law. Under the Pooling
and Servicing Agreement, SRFG retains all recoveries on charged-off Receivables;
however, SRFG has agreed to add to the trust certain recoveries it receives on
receivables owned by it in accounts that Sears has charged off as uncollectible.
See "The Certificates -- Additional Funds" in the prospectus.
EFFECTS OF THE SELECTION PROCESS
Sears selected the Accounts for the trust, including additional Accounts,
in a manner intended to include Sears Card and SearsCharge PLUS accounts and
SHIAs. The Accounts may contain a higher or lower percentage of newly solicited
or unseasoned accounts than the Sears portfolio, in part due to the following
factors:
- Sears did not select the Accounts according to the creditworthiness of
the credit account customers, except that Sears did not select
charged-off accounts;
- Sears selected some of the Accounts from previously segregated pools of
more seasoned accounts; and
- Sears selected some of the Accounts from accounts not previously
segregated into pools.
Sears generally does not charge off a new account until at least eight months
after a customer has failed to make a payment. Thus, charge-offs for new
accounts will generally be more variable than for more seasoned accounts. The
Receivables include delinquent Receivables and amounts owed by credit account
customers who are about to become bankrupt or insolvent.
Sears believes that the Accounts are distributed geographically in similar
proportions to the accounts in the Sears portfolio, except that accounts from
Puerto Rico are not included in the Accounts.
S-26
<PAGE> 27
Receivables from accounts from Puerto Rico represented 1.2%, 1.3% and 1.4% of
the receivable balances in the Sears portfolio as of January 3, 1998, January 2,
1999 and January 1, 2000, respectively.
Sears makes all monthly calculations for the trust based on the activity
during the Accounts' billing cycles ending in that month. We refer to each of
these billing cycles as a "Due Period." For example, on the November 2000
distribution date, monthly collections will be based on the October 2000 Due
Period and will reflect activity for billing cycles beginning at the opening of
business on various days in September 2000 and ending at the close of business
on various days in October 2000 with respect to the Accounts in each of the
billing cycles. The amount of Principal Receivables and Finance Charge
Receivables billed to the Accounts as of the last day of the Due Period ending
in August 2000 equaled $11,080,625,623 and $189,577,600, respectively. Under the
Pooling and Servicing Agreement, SRFG has the right, and in some circumstances,
the obligation, to designate additional accounts to be included as Accounts, or
to add participation interests in other pools of credit card receivables to the
trust, subject to certain conditions.
Based on historical experience, fixed pools of accounts like the Accounts
in general experience somewhat higher yields and charge-offs and more volatile
performance characteristics than the Sears portfolio and monthly variations tend
to be greater than annual changes. We also note that Sears calculates certain
performance statistics for the trust in accordance with the terms of the Pooling
and Servicing Agreement, instead of in accordance with generally accepted
accounting principles. You should expect the reported performance statistics for
the Accounts in the trust to differ from the reported performance statistics for
the accounts in the Sears portfolio as a result of the different calculation
methodologies. See "Composition and Historical Performance of the Sears
Portfolio" below.
COMPOSITION AND HISTORICAL PERFORMANCE OF THE SEARS PORTFOLIO
The tables below describe the composition and historical performance of the
accounts in the Sears portfolio, excluding accounts from Puerto Rico, which are
not included in the trust. These tables do not reflect the composition and
historical performance of the Accounts in the trust. Sears uses different
methodologies to calculate the performance characteristics of the accounts in
the Sears portfolio than those the trust uses to calculate the performance
characteristics of the Accounts. We have described some of these differences and
the performance characteristics they may affect below.
- The total amount of receivables in the Sears portfolio is used as the
denominator for its yield and charge-off calculations. The trust uses the
amount of Principal Receivables in the Accounts as the denominator for
its yield and charge-off calculations. "Principal Receivables" include
late fees, returned check fees and insurance charges.
- The Sears portfolio's yield calculation includes late fees in its
numerator. The trust's yield calculation does not.
- The charge-off rate for the Sears portfolio is calculated using only
charge-offs of principal receivables. The trust calculates its charge-off
rate using the total amount of Receivables charged off as uncollectible.
S-27
<PAGE> 28
COMPOSITION OF THE SEARS PORTFOLIO
Composition of Accounts by Credit Limit
The following table summarizes the credit limits for accounts in the Sears
portfolio. Sears based this information on accounts with balances at any time in
the twenty-four months ended with the billing cycles ended in December 1999.
<TABLE>
<CAPTION>
PERCENTAGE OF SEARS
PORTFOLIO AS OF
BILLING CYCLES ENDED IN
CREDIT LIMIT DECEMBER 1999
------------ -----------------------
<S> <C>
$ 0 - $ 99.................................. 20.5%
100 - 499.................................. 3.4%
500 - 999.................................. 6.3%
1,000 - 1,499.................................. 6.9%
1,500 - 1,999.................................. 5.9%
2,000 - 2,999.................................. 12.3%
3,000 - 3,999.................................. 17.1%
4,000 and over.................................. 27.6%
-----
100.0%
=====
</TABLE>
Largest States
The Sears portfolio is not concentrated geographically. As of December 31,
1999, the following five states had the largest receivables balances and number
of accounts:
<TABLE>
<CAPTION>
SEARS PORTFOLIO CALIFORNIA FLORIDA NEW YORK PENNSYLVANIA TEXAS
--------------- ---------- ------- -------- ------------ -----
<S> <C> <C> <C> <C> <C>
% of accounts................................. 10.4% 6.7% 6.5% 5.9% 6.2%
% of balances................................. 10.5% 7.4% 6.0% 5.2% 8.1%
</TABLE>
No other state accounted for more than 5% of the number of active accounts
in the Sears portfolio or 5% of the balances as of December 31, 1999.
Seasoning
More than 58% of the accounts in the Sears portfolio were at least five
years old as of the billing cycles ended in December 1999. The ages of accounts
in the Sears portfolio were distributed as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF
SEARS PORTFOLIO AS
OF BILLING
CYCLES ENDED IN
AGE OF ACCOUNTS DECEMBER 1999
--------------- ------------------
<S> <C>
Up to 1 year......................................... 7.7%
1 year up to 2 years................................. 7.3%
2 years up to 3 years................................ 7.2%
3 years up to 4 years................................ 11.2%
4 years up to 5 years................................ 8.2%
5 years up to 10 years............................... 20.4%
10 years and older................................... 38.0%
-----
100.0%
=====
</TABLE>
Sears based this information on accounts with balances at any time in the
twenty-four months ended with the billing cycles ended in December 1999.
S-28
<PAGE> 29
Summary Yield Information
The accounts in the Sears portfolio had the following annualized aggregate
monthly yields:
<TABLE>
<CAPTION>
THREE MONTHS TWELVE MONTHS
ENDED ENDED
AUGUST 31, 2000 AUGUST 31, 2000 1999 1998 1997
--------------- --------------- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Aggregate monthly yield........... 20.20% 20.19% 20.03% 20.59% 20.27%
</TABLE>
Aggregate monthly yield is the unweighted average of monthly yields
annualized for each period shown. Sears calculates monthly yield by dividing:
- monthly finance charges and late fees minus estimated accumulated finance
charges and late fees billed to accounts charged off in that month; by
- the balance outstanding as of the beginning of the month.
For additional information concerning periodic finance charges, see "Sears
Credit Business -- Billing and Payments."
Summary Charge-Off Information
The accounts in the Sears portfolio had the following annualized charge-off
and recoveries percentages:
<TABLE>
<CAPTION>
THREE MONTHS TWELVE MONTHS
ENDED ENDED
AUGUST 31, 2000 AUGUST 31, 2000 1999 1998 1997
--------------- --------------- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Gross charge-offs as a % of balances......... 7.08% 7.19% 8.16% 8.82% 7.61%
Recoveries as a % of balances................ 1.89% 1.78% 1.69% 1.35% 1.06%
---- ---- ---- ---- ----
Net charge-offs as a % of balances........... 5.19% 5.41% 6.47% 7.47% 6.55%
==== ==== ==== ==== ====
</TABLE>
All rates shown are unweighted averages of monthly rates annualized for
each period shown. Sears calculates the monthly rate by dividing:
- either (i) the amount of charged-off receivables for that month minus
estimated accumulated finance charges and late fees billed to those
accounts, or (ii) the amount of recoveries for that month, as applicable;
by
- the balance outstanding as of the beginning of the month.
Charge-off rates after October 1998 include the effects of the conversion
to TSYS. See "Sears Credit Business -- Collection Efforts."
S-29
<PAGE> 30
Summary Delinquency Aging Information
The following table provides delinquency profiles based on monthly
percentages for the accounts in the Sears portfolio. Percentages for 1998 and
1997 include only results from the Sears proprietary system. Percentages for
1999 and subsequent periods include only results from the TSYS system. Because
the TSYS system enabled Sears to change its methodologies for calculating
delinquency percentages, data for 1999 and subsequent periods are not comparable
to data for prior periods.
<TABLE>
<CAPTION>
TWELVE MONTHS
ENDED
AUGUST 31,
2000 1999 1998 1997
------------- ---- ---- ----
<S> <C> <C> <C> <C>
Delinquencies as a % of balances
60-89 days past due....................................... 1.91% 2.01% 1.99% 1.96%
90-119 days past due...................................... 1.49% 1.55% 1.53% 1.45%
120 days or more past due................................. 4.11% 4.35% 3.46% 2.97%
---- ---- ---- ----
Total delinquencies............................... 7.51% 7.91% 6.98% 6.38%
==== ==== ==== ====
</TABLE>
The TSYS delinquency data reported in the rows above reflect accounts for
which the customer has failed to make a required payment in the last three,
four, and five or more billings cycles, respectively. Sears calculates these
delinquencies reported for accounts processed under TSYS by dividing
delinquencies at the end of each month by balances at the end of each month.
The proprietary system delinquency data reported in the rows above reflect
the percentage of account balances for which the cumulative past due amount was
three, four, and five or more times, respectively, the scheduled minimum monthly
payment. Delinquencies reported under the proprietary system were calculated by
dividing delinquencies as of the end of each billing cycle by balances at the
beginning of that month.
Summary Payment Rate Information
The accounts in the Sears portfolio had the following monthly payment
rates:
<TABLE>
<CAPTION>
TWELVE MONTHS
ENDED
AUGUST 31,
PAYMENT RATES 2000 1999 1998 1997
------------- ------------- ---- ---- ----
<S> <C> <C> <C> <C>
Average monthly rate........................................ 6.91% 6.78% 6.51% 6.14%
Highest monthly rate........................................ 7.64% 7.42% 6.89% 6.64%
Lowest monthly rate......................................... 6.35% 6.35% 6.15% 5.81%
</TABLE>
Sears calculates these payment rates by dividing:
- cash received during each month; by
- the balance outstanding as of the beginning of that month.
S-30
<PAGE> 31
THE CERTIFICATES
The trust will issue the certificates of this series pursuant to the
Pooling and Servicing Agreement and the Series Supplement. The Series Supplement
will consist of two parts, a series term sheet and an annex. The annex includes
detailed definitions, cash flows, payment provisions and other important
provisions of this series. The annex is designed to be used for a variety of
different types of series and, accordingly, contains some provisions that do not
apply to this series. The series term sheet sets forth the specific terms of
this series and identifies which provisions of the annex apply to this series.
Although we summarize the Series Supplement in this section, our summary is not
complete and we encourage you to review the Series Supplement and the Pooling
and Servicing Agreement. If you write to the trustee at its principal corporate
trust office, the trustee will send you, without charge, a copy of the Series
Supplement, without exhibits, and the Pooling and Servicing Agreement, without
exhibits.
INVESTED AMOUNTS
Your certificate will initially have an Invested Amount equal to its face
amount. Your Invested Amount will decrease by:
- the amount of principal we pay you;
- the amount of any investor loss you incur if we cannot fully reimburse
the charge-offs allocated to your certificate, including, if you own a
Class B Certificate, increased charge-offs because of the way the trust
applies the subordination provisions of this series;
- the amount of any investor loss you suffer if the trust sells Receivables
to make its final payment to you and the proceeds from that sale are not
sufficient to pay your outstanding principal and interest in full; and
- your share of the aggregate amount of losses of principal on investments
of funds on deposit for the benefit of your class in the Series Principal
Funding Account, if applicable.
The "Class A Invested Amount" will initially be $500,000,000, the "Class B
Invested Amount" will initially be $35,300,000, and the "Class C Invested
Amount" will initially be $52,950,000. These Class Invested Amounts initially
will equal the face amounts of all certificates in the class. Each Class
Invested Amount will decrease by:
- the amount of principal we pay to investors in that class; and
- the amount of any losses suffered by each class because of unreimbursed
charge-offs, insufficient proceeds from the sale of receivables, or
investment losses, as described in more detail above.
The "Series Invested Amount" will be the sum of the Class Invested Amounts for
all classes in this series.
INVESTOR INTERESTS
Your Investor Interest is your interest in Principal Receivables and
certain cash amounts in the trust. During the Revolving Period, your Investor
Interest will equal your Invested Amount. During the Controlled Accumulation
Period and any Rapid Amortization Period, your Investor Interest will equal your
Invested Amount minus funds on deposit in the Series Principal Funding Account
to pay your principal. Consequently,
- the Class A Investor Interest equals the Class A Invested Amount minus
the aggregate amount on deposit in the Series Principal Funding Account
to pay Class A principal as of the end of the previous distribution date;
- the Class B Investor Interest equals the Class B Invested Amount minus
the aggregate amount on deposit in the Series Principal Funding Account
to pay Class B principal as of the end of the previous distribution date;
S-31
<PAGE> 32
- the Class C Investor Interest equals the Class C Invested Amount; and
- the Series Investor Interest equals the Series Invested Amount minus the
aggregate amount on deposit in the Series Principal Funding Account to
pay principal of this Series as of the end of the previous distribution
date.
Accordingly, the "Aggregate Investor Interest"-- which is the sum of the series
Investor Interests for all series -- may be less than the face amounts of all
certificates issued by the trust.
INTEREST PAYMENTS
The trust will generally pay you interest on your Invested Amount at the
interest rate for your class. The trust will pay you this interest on the 15th
day of each month, or, if not a business day, the following business day,
beginning in November 2000, if your certificate was registered in your name as
of the last day of the preceding calendar month. The interest payable on any
interest payment date will accrue:
- for the first interest payment date, from and including the date the
trust issues your certificate, to but excluding the 15th day of the
calendar month in which that first interest payment date occurs; and
- for each other interest payment date, from and including the preceding
interest payment date, to but excluding that interest payment date.
The trust will only pay you this interest, however, to the extent that the trust
has adequate funds to use for this payment in accordance with the terms of the
cash flows for this series as provided in the Series Supplement. We encourage
you to review these cash flows to see how the trust uses its assets to pay
interest on the certificates. See "-- Cash Flows." As long as SRFG owns the
Class C Certificates, the trust will not pay interest on those certificates.
The trust generally will calculate the interest payment on your certificate
based on a 360-day year of twelve 30-day months. For the first interest payment
date, however, the trustee will calculate the interest on your certificate based
on the number of days elapsed from and including the date the trust issues your
certificate, to but excluding the 15th day of the calendar month in which that
first interest payment date occurs, assuming a 360-day year comprised of twelve
30-day months. The trustee will generally determine your interest payment by
multiplying your Invested Amount by your interest rate, and dividing it by
twelve, as shown below:
Monthly Interest Payment Amount =Invested Amount X Interest Rate
-------------------------------
12
PRINCIPAL PAYMENTS
The amount of principal the trust pays to you each month will depend on
whether this series is in the Revolving Period, the Controlled Accumulation
Period or the Rapid Amortization Period.
Revolving Period. The trust will not pay principal to you during the
Revolving Period. However, if it is permitted to do so by the Rating Agencies,
the trust may pay a portion of the Class C principal during the Revolving
Period. Currently, the Rating Agencies do not permit the trust to pay Class C
principal during the Revolving Period. The Revolving Period begins on the first
day of the Due Period ending in October 2000 and ends on the day before either
the Controlled Accumulation Period or the Rapid Amortization Period begins.
Controlled Accumulation Period. The trust will deposit funds into the
Series Principal Funding Account on each distribution date of the Controlled
Accumulation Period as set forth in the cash flows for this series. The trust
will pay Class A principal in a lump sum on the Class A expected principal
payment date, using funds from the Series Principal Funding Account. If that
account does not have sufficient funds to pay the Class A Invested Amount in
full on that date, the trust will pay Class A principal on each following
distribution date, until the Class A Invested Amount has been reduced to zero,
and will then pay Class B principal on each distribution date until the Class B
Invested Amount has been reduced to zero. If the trust does pay all Class A
principal on the Class A expected principal payment date, it will
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pay Class B principal in a lump sum on the Class B expected principal payment
date, using funds from the Series Principal Funding Account. If that account
does not have sufficient funds to pay the Class B Invested Amount in full on
that date, the trust will pay Class B principal on each following distribution
date, until the Class B Invested Amount has been reduced to zero. The trust may
be permitted to pay a portion of Class C principal during the Controlled
Accumulation Period, unless SRFG has elected to reduce this permitted payment to
zero. After the Class B Invested Amount has been reduced to zero, the trust will
pay any remaining Class C principal until the Class C Invested Amount has been
reduced to zero. If the expected principal payment date of your certificate is
not a business day, the trust will pay your principal on the following business
day and you will not receive any additional interest because of this delay.
Variable Length of the Controlled Accumulation Period. The servicer may
elect to delay the start of the Controlled Accumulation Period, and, if
applicable, the accumulation of Class B principal, and extend the length of the
Revolving Period, if:
- the servicer has delivered to the trustee a certificate to the effect
that the servicer reasonably believes that the delay would not result in
any delay in the payment of Class A, Class B or Class C principal; and
- the servicer adjusts the amount of principal that the trustee will
deposit into the Series Principal Funding Account each month, so that the
sum of all deposits made on or prior to the distribution date in
September 2005 will equal or exceed $500,000,000, and the sum of all
deposits made on or prior to the distribution date in October 2005 will
equal or exceed $535,300,000.
The servicer may consider, in delivering the certificate described above,
any commitment that SRFG has entered into to issue a new series, if SRFG has
elected to deposit all or a portion of proceeds from the sale of the new series
into the Series Principal Funding Account for this series and Standard & Poor's
and Moody's have advised SRFG that this will not cause them to reduce or
withdraw their ratings on any class of this series.
If the servicer has elected to delay the commencement of the Controlled
Accumulation Period, SRFG will not be permitted to require the trust to reassign
Receivables to it or terminate any commitment to issue a new series to fund the
Series Principal Funding Account unless the servicer has delivered to the
trustee a certificate to the effect that the servicer reasonably believes that
the reassignment of the Receivables would not result in any delay in the payment
of Class A, Class B or Class C principal.
Minimum Receivables Trigger. A Minimum Receivables Trigger will occur, and
the trust will maintain a higher amount of Principal Receivables to make
available larger reallocations of Seller Principal Collections to this series,
if:
- this series would not be expected to be able to make its principal
payments on time even using the amounts deposited in the Group One
Principal Collections Reallocation Account that would be expected to be
available to it; or
- the servicer elects to cause a Minimum Receivables Trigger to occur.
If a Rapid Amortization Event occurs, a Minimum Receivables Trigger will
also occur, and the percentage of Principal Collections allocated to this series
will no longer decline because of principal payments to investors in this
series.
Rapid Amortization Period. The Rapid Amortization Period begins when a
Rapid Amortization Event occurs. We have described the events that the trust
will treat as Rapid Amortization Events for this series in "-- Rapid
Amortization Events." The trust will pay principal to you during the Rapid
Amortization Period to the extent that it has available funds. On each
distribution date related to the Rapid Amortization Period, the trust will pay:
- first, Class A principal up to the Class A Invested Amount, until the
Class A Invested Amount is paid in full;
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- second, Class B principal up to the Class B Invested Amount, until the
Class B Invested Amount is paid in full; and
- third, Class C principal up to the Class C Invested Amount, until the
Class C Invested Amount is paid in full.
The trust will not pay any Class B principal during the Rapid Amortization
Period until the final Class A principal payment is made. Similarly, the trust
will not pay any Class C principal during the Rapid Amortization Period until
the final Class B principal payment is made.
The trust will make all payments of principal to you in accordance with and
in the amounts determined by the cash flows for this series. We encourage you to
review these cash flows to see how the trust will use its assets to pay your
principal. See "-- Cash Flows." In no event, however, will the trust make any
principal payments to you or any other investor in this series after the
September 2009 distribution date.
SUBORDINATION
The Class B Certificates will be subordinate to the Class A Certificates,
and the Class C Certificates will be subordinate to the Class A Certificates and
the Class B Certificates. Accordingly, the trust will allocate certain funds to
the Class A Certificates before the Class B Certificates and the Class C
Certificates and will allocate certain funds to the Class B Certificates before
the Class C Certificates. The subordination provisions in the cash flows for
this series are summarized in "Risk Factors -- Subordination of the Class B and
Class C Certificates; Limited Subordination."
We encourage you to review the cash flows for this series to see how the
trust prioritizes payments and reimbursements. See "-- Cash Flows."
SERIES COLLECTIONS AND CHARGE-OFFS
The trust allocates a pro rata share of Finance Charge Collections,
Principal Collections and charge-offs to each class of this series on each
distribution date based on the Class Percentage for each class. The Class
Percentage generally equals the numerator set forth in the table on the
following page, divided by the total amount of Principal Receivables in the
trust, or by the sum of the numerators used to calculate that percentage, if
that sum is a greater amount.
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Class Percentage of Finance Charge Collections
<TABLE>
<CAPTION>
PERIOD: NUMERATOR:
------- ----------
<S> <C>
Revolving Period............................. Class Investor Interest* as of the beginning
of the prior calendar month.
Controlled Accumulation Period............... Class Investor Interest* as of the beginning
of the prior calendar month.
Rapid Amortization Period.................... Class Investor Interest* as of the end of the
calendar month preceding the Rapid
Amortization Event.
</TABLE>
Class Percentage of Principal Collections
<TABLE>
<CAPTION>
PERIOD: NUMERATOR:
------- ----------
<S> <C>
Revolving Period............................. Class Investor Interest* as of the beginning
of the prior calendar month.
Controlled Accumulation Period............... Class Investor Interest* as of the beginning
of the prior calendar month.
Rapid Amortization Period.................... The Class Investor Interest* as of the
beginning of the calendar month in which the
Rapid Amortization Event occurred.
</TABLE>
Class Percentage for Charge-Offs
<TABLE>
<CAPTION>
PERIOD: NUMERATOR:
------- ----------
<S> <C>
All Periods.................................. Class Investor Interest* as of the beginning
of the prior calendar month.
</TABLE>
---------------
* Minus, in each case, a pro rata share of funds on deposit in the Excess
Funding Account (General) and, in limited circumstances, the Excess Funding
Account (SRC).
Series Finance Charge Collections. The trust treats as Finance Charge
Collections all collections on the Receivables in any month up to the aggregate
amount of Finance Charge Receivables billed for the applicable period. The trust
allocates a pro rata share of these Finance Charge Collections to each class of
this series on each distribution date by multiplying the Finance Charge
Collections received during the previous calendar month by the Class Percentage
for that class:
Class Finance Charge Collections = Finance Charge Collections X Class Percentage
"Series Finance Charge Collections" equal:
- Class Finance Charge Collections for Class A; plus
- Class Finance Charge Collections for Class B; plus
- Class Finance Charge Collections for Class C.
As the trust accumulates principal for this series, we expect this series to
receive fewer Finance Charge Collections in each month to reflect:
- its declining interest in the Receivables in the trust;
- its correspondingly smaller allocation of charge-offs; and
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- the availability of investment income from the Series Principal Funding
Account, which the trust will use to pay interest on this series.
However, if a Rapid Amortization Event occurs, the percentage of Finance Charge
Collections allocated to this series will no longer decline because of principal
payments. We encourage you to review clauses (d) and (e) of the definition of
"Class Percentage" in the Glossary of Terms in this prospectus supplement, which
describe in more detail how the trust calculates these pro rata shares.
Series Principal Collections. The trust treats as Principal Collections all
collections on the Receivables in any month other than amounts treated as
Finance Charge Collections. The trust allocates a pro rata share of such
Principal Collections to each class of this series on each distribution date by
multiplying the Principal Collections received during the previous calendar
month by the Class Percentage for that class:
Class Principal Collections = Principal Collections X Class Percentage
"Series Principal Collections" equal:
- Class A Principal Collections; plus
- Class B Principal Collections; plus
- Class C Principal Collections.
As the trust accumulates principal for this series, we expect this series
to receive fewer Principal Collections in each month to reflect its declining
interest in the Receivables in the trust. If a Rapid Amortization Event occurs,
however, the percentage of Principal Collections allocated to this series will
no longer decline because of principal payments to the investors in this series.
Series Charge-Offs. The trust allocates a pro rata share of charge-offs to
each class of this series on each distribution date by multiplying:
- the amount of Receivables in the trust that the servicer charged off as
uncollectible during the prior Due Period; minus
- the amount of these Receivables repurchased by SRFG during that Due
Period because they were in accounts that contained Receivables that were
not Eligible Receivables,
by the Class Percentage for that class:
Class Charge-offs = (Charged-Off Receivables -- Repurchased Receivables) X
Class Percentage
We encourage you to review clause (a) of the definition of "Class Percentage" in
the Glossary of Terms in this prospectus supplement, which describes in more
detail how the trust calculates this pro rata share.
The Class B charge-offs will also increase by:
- the amount of Class B Principal Collections and Class B Excess Funding
Amounts that the trust uses to pay Class A interest and reimburse Class A
charge-offs in steps (17) and (21) of the cash flows for this series; and
- the amount of the Class B Investor Interest used to reimburse Class A
charge-offs in step (22) of the cash flows for this series.
Similarly, the Class C charge-offs will also increase by:
- the amount of Class C Principal Collections and Class C Excess Funding
Amounts that the trust uses to pay Class A interest and reimburse Class A
charge-offs in steps (16) and (19) of the cash flows for this series;
- the amount of the Class C Investor Interest used to reimburse Class A
charge-offs in step (20) of the cash flows for this series;
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- the amount of Class C Principal Collections and Class C Excess Funding
Amounts that the trust uses to pay Class B interest and reimburse Class B
charge-offs in steps (18) and (23) of the cash flows for this series; and
- the amount of the Class C Investor Interest used to reimburse Class B
charge-offs in step (24) of the cash flows for this series.
If the trust cannot reimburse all of the charge-offs for any class in any
month, it will carry forward the amount of unreimbursed charge-offs and will try
to reimburse them in the following month. The unreimbursed charge-offs on any
distribution date are an investor loss, and the trust reduces the Class Investor
Interest and the Class Invested Amount for each class by the amount of investor
loss for that class. To the extent that the trust subsequently reimburses these
charge-offs, it will reinstate the Class Investor Interest and the Class
Invested Amount. On any distribution date, the trust will not reinstate the
Class Investor Interest and the Class Invested Amount to exceed the initial
Class Investor Interest minus
- the aggregate amount of principal paid to investors in that class before
the distribution date;
- in the case of the Class Investor Interest, the amount on deposit in the
Series Principal Funding Account for that class; and
- the aggregate amount of losses on investments of principal funds on
deposit for that class in the Series Principal Funding Account.
If the trust reimburses all investor losses, it will also pay interest on
those investor losses for the periods in which the interest payments to
investors were reduced because of those investor losses. The trust will pay this
additional interest as part of Class A interest in steps (1), (9), (16) and (17)
of the cash flows, and as part of Class B interest in steps (2), (10) and (18)
of the cash flows. If the Class Investor Interest is reduced to zero on any
distribution date, it will not be reinstated. If your class incurs an investor
loss, and the trust does not subsequently reimburse that investor loss and
reinstate any reduction in your Investor Interest, the aggregate amount of
principal you ultimately receive will be less than the face amount of your
certificates.
SERIES YIELD COLLECTIONS
The Series Supplement provides that a portion of Series Principal
Collections may be recharacterized as "Series Yield Collections." The trust uses
Series Yield Collections in the same way it uses Series Finance Charge
Collections -- to pay interest and servicing fees and to reimburse charge-offs.
Sears will calculate the amount of Series Yield Collections by multiplying:
- the Series Yield Factor, by
- the amount of Series Principal Collections.
Initially, the Series Yield Factor for this series will be zero. Sears may
change the Series Yield Factor in the future, only if:
- Sears does not reduce the Series Yield Factor below zero;
- Sears delivers a certificate to the trustee stating that Sears reasonably
believes that the change in the Series Yield Factor will not
- delay the payment of principal for any series outstanding on the date of
the change, including this series, or
- cause a rapid amortization event to occur for any series outstanding on
the date of the change, including this series; and
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- the Rating Agencies advise Sears and SRFG that the proposed change in the
Series Yield Factor will not cause them to reduce or withdraw their
ratings on the certificates of any series outstanding on the date of the
change, including this series.
Recharacterizing a portion of Series Principal Collections as Series Yield
Collections may lower the amount of principal the trust may have available to
make payments in any month.
SERIES INVESTMENT INCOME
On each distribution date the trust will allocate to this series investment
income earned on funds allocated to this series but not yet paid. The trust uses
Series Investment Income in the same way it uses Series Finance Charge
Collections -- to pay interest and servicing fees and to reimburse charge-offs.
The trust calculates the Series Investment Income on each distribution date by
adding:
- the income from the investment of funds on deposit in the Series
Principal Funding Account;
- the income from the investment of funds on deposit in the Series Interest
Funding Account;
- the income from the investment of funds with respect to the Series
Aggregate Excess Funding Amount;
- this series' pro rata share of the income from the investment of funds on
deposit in the Collections Account; and
- this series' pro rata share of the income from the investment of funds on
deposit in the Group One Collections Account,
in each case for the calendar month preceding the distribution date.
SERIES ADDITIONAL FUNDS
On January 30, 1998, SRFG agreed to add additional funds to the trust.
These additional funds are a pro rata share of the amounts the servicer collects
on the receivables that it had previously charged off as uncollectible. The
servicer will calculate this pro rata share by dividing the total amount of
Principal Receivables in the trust by the total amount of principal receivables
in the Sears portfolio. The amount of additional funds added to the trust under
the agreement dated January 30, 1998 will be limited by the amount of recoveries
that SRFG receives on the portfolio of charged-off receivables owned by SRFG.
The trust will use these additional funds in the same way it uses Series Finance
Charge Collections -- to pay interest and servicing fees and to reimburse
charge-offs.
These additional funds include amounts received from the sale of
charged-off receivables. The periodic sales will affect the timing and amount of
recoveries available to the trust.
SRFG may in the future elect to add more cash to the trust as additional
funds.
On each distribution date, the trust will allocate to this series a pro
rata share of the additional funds added to the trust on that distribution date.
The trust will base the allocation on the Series Investor Interest -- adjusted
to reflect only this series' interest in the Principal Receivables in the
trust -- on the first day of the calendar month preceding the distribution date.
The trustee will deposit the additional funds allocated to this series into the
Series Collections Account.
SRFG adds additional funds based on the total amount of Principal
Receivables in the trust, which is generally the sum of the Series Investor
Interest for all series plus the Seller Interest, and the servicer allocates
additional funds to each series based on the series investor interest, without
any allocation to the Seller Interest. As a result, the amount of additional
funds allocated to this series will depend not only on
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the amount the servicer collects on the receivables it had previously charged
off, but also on the size of the Seller Interest. The Seller Interest will
generally:
- increase as credit account customers generate new Receivables in the
Accounts;
- decrease when credit account customers pay Principal Receivables;
- decrease as the trust issues new series or additional certificates;
- increase when SRFG designates Receivables in additional Accounts to be
added to the trust;
- decrease when SRFG designates Receivables in specified Accounts to be
removed from the trust; and
- increase when the trust pays principal or deposits principal into the
series principal funding account for any series.
REALLOCATIONS
Under certain circumstances, the trust may reallocate to this series
collections initially allocated to another series in Group One or Principal
Collections allocated to the Seller Interest. Similarly, the trust may
reallocate to another series in Group One collections initially allocated to
this series. The trust will not, however, reallocate collections initially
allocated to this series until the trust has made all required payments,
deposits and reimbursements for this series. The trust uses the Group One
Finance Charge Collections Reallocation Account and the Group One Principal
Collections Reallocation Account to reallocate collections from one series to
the other series.
Group One Finance Charge Collections Reallocation Account. After the trust
uses Series Finance Charge Collections and other income for this series to pay
interest and servicing fees and reimburse charge-offs for this series on any
distribution date, the trustee will deposit any remaining Series Finance Charge
Collections and other income for this series into the Group One Finance Charge
Collections Reallocation Account. Other series in Group One have similar cash
flow provisions that require the trust to deposit excess Finance Charge
Collections and other income in the Group One Finance Charge Collections
Reallocation Account. The trust, if necessary, will use funds in the Group One
Finance Charge Collections Reallocation Account to pay interest and servicing
fees and to reimburse charge-offs for other series in Group One. If the trust
has not been able to pay all interest and servicing fees and to reimburse all
charge-offs for this series using Series Finance Charge Collections and other
income for this series on any distribution date, it may draw from the Group One
Finance Charge Collections Reallocation Account, in an amount proportionate to
its needs, as described in steps (9) through (15) of the cash flows. Other
series will also draw from this account in proportion to their needs.
We encourage you to review the cash flows in this prospectus supplement to
see how the trust, if necessary, uses funds in the Group One Finance Charge
Collections Reallocation Account to pay interest and servicing fees and to
reimburse charge-offs for this series.
Group One Principal Collections Reallocation Account. During the Revolving
Period, the trust will deposit into the Group One Principal Collections
Reallocation Account:
- amounts the trust uses to reimburse charge-offs for this series;
- Class A Principal Collections, excluding those recharacterized as Series
Yield Collections, remaining after any payment of Class C principal
permitted by the rating agencies;
- Class B Principal Collections, excluding those recharacterized as Series
Yield Collections, and the Class B Excess Funding Amount, remaining after
paying any Class A interest, after reimbursing Class A charge-offs, or
after any payment of Class C principal permitted by the rating agencies;
and
- Class C Principal Collections, excluding those recharacterized as Series
Yield Collections, and the Class C Excess Funding Amount, remaining after
paying any Class A or Class B interest, after
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reimbursing Class A or Class B charge-offs, or after any payment of Class
C principal permitted by the rating agencies.
During the Controlled Accumulation Period, the trust will deposit into the
Series Principal Collections Account:
- amounts the trust uses to reimburse charge-offs for this series;
- Class A Principal Collections, excluding those recharacterized as Series
Yield Collections;
- Class B Principal Collections, excluding those recharacterized as Series
Yield Collections, and the Class B Excess Funding Amount, remaining after
paying any Class A interest or reimbursing Class A charge-offs; and
- Class C Principal Collections, excluding those recharacterized as Series
Yield Collections, and the Class C Excess Funding Amount, remaining after
paying any Class A or Class B interest or reimbursing Class A or Class B
charge-offs.
After the trust uses the funds on deposit in the Series Principal Collections
Account to deposit Class A or Class B principal into the Series Principal
Funding Account or to pay Class C principal on any distribution date, the
trustee will deposit any remaining funds into the Group One Principal
Collections Reallocation Account. Other series in Group One have similar cash
flow provisions that require the trust to deposit excess funds in their
principal collections accounts into the Group One Principal Collections
Reallocation Account. The trust uses funds in the Group One Principal
Collections Reallocation Account to pay principal to series in Group One. If the
trust has not been able to make the scheduled principal deposit for this series
into the Series Principal Funding Account or the scheduled principal payment for
Class C on any distribution date, it may draw from the Group One Principal
Collections Reallocation Account in an amount proportionate to its needs, as
described in steps (7) through (9) of the cash flows for the Controlled
Accumulation Period. Other series in their controlled amortization or controlled
accumulation periods will also draw from this account in proportion to their
needs. During the Rapid Amortization Period, if funds remain in the Group One
Principal Collections Reallocation Account after the trust has drawn from that
account for all series in their controlled amortization or controlled
accumulation periods, the trust may draw from that account, in an amount
proportionate to its needs, as described in steps (7) through (9) of the cash
flows for the Rapid Amortization Period, to pay principal for this series. Other
series in their rapid amortization periods will also draw from that account in
proportion to their needs.
Collections Account. Seller Principal Collections will initially be
retained in the Collections Account. If the trust has not been able to make the
scheduled principal deposit for this series into the Series Principal Funding
Account or the scheduled principal payment for Class C on any distribution date,
it may draw from the Collections Account in an amount proportionate to its
needs, as described in steps (13) through (15) of the cash flows for the
Controlled Accumulation Period. Other series in their controlled amortization
periods or controlled accumulation periods will also draw from this account in
proportion to their needs, if permitted by their cash flow provisions. This
series may not draw from the Collections Account during its Rapid Amortization
Period.
We encourage you to review the cash flows in this prospectus supplement to
see how the trust, if necessary, uses funds in the Group One Principal
Collections Reallocation Account and the Collections Account to pay principal to
this series. If funds remain in the Group One Principal Collections Reallocation
Account after the trust has made all required reallocations to outstanding
series, including this series, the trustee will either deposit the remaining
funds in the Excess Funding Account (General) or pay them to SRFG, as required
by the cash flows. If funds remain in the Collections Account after the trust
has made all required reallocations to outstanding series, including this
series, the trustee will pay remaining funds to SRFG.
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INVESTOR ACCOUNTS
The trustee has established or will establish the following accounts in the
name of the trust:
- the Series Collections Account;
- the Series Principal Collections Account;
- the Series Principal Funding Account;
- the Series Interest Funding Account;
- the Series Distribution Account;
- the Group One Collections Account;
- the Group One Finance Charge Collections Reallocation Account;
- the Group One Principal Collections Reallocation Account;
- the Collections Account;
- the Excess Funding Account (General); and
- the Excess Funding Account (SRC).
Each of these accounts will be either a segregated trust account or a
segregated deposit account at a bank or other institution that satisfies certain
Rating Agency criteria for a Qualified Trust Institution or Eligible
Institution. We refer to these accounts as "Investor Accounts." The servicer has
the revocable power to instruct the trustee to make withdrawals from any
Investor Account to carry out its duties under the Pooling and Servicing
Agreement and the Series Supplement. The paying agent, which will initially be
the trustee, will have the revocable power to withdraw funds from the Series
Distribution Account, the Series Principal Funding Account and the Series
Interest Funding Account to pay to investors. A successor paying agent may be
appointed in the future.
The trustee must invest funds on deposit in the Investor Accounts for more
than one business day in "Permitted Investments." We describe these Permitted
Investments under "The Certificates -- Investment of Funds in Investor Accounts"
in the prospectus.
CASH FLOWS
We have summarized the cash flow provisions for this series and we have
used familiar terms in this summary instead of the more complex defined terms
that the Series Supplement uses. For example, we refer to "Class A interest"
where the Series Supplement refers to the "Class A Modified Required Amount."
The "Class A Modified Required Amount" is more than the simple concept of
interest, however; it includes complex provisions to pay deferred interest, to
reduce required interest if you lose a portion of your principal under the
provisions of these cash flows, and to compensate you for that reduced interest
to the extent that the trust later reimburses the lost principal. We also refer
to "charge-offs" instead of "Class Cumulative Investor Charged-off Amounts,"
which includes amounts carried forward from prior months and certain amounts
related to the effect of the subordination provisions. Because these
complexities are important, we encourage you to read the cash flow provisions
and the related definitions in the Series Supplement for a complete description.
Funds Distributed to this Series. On or before each distribution date, the
trustee, acting for the trust on the servicer's instructions, will withdraw the
following funds from the Group One Collections Account and deposit them into the
Series Collections Account:
- Series Finance Charge Collections for the preceding month; and
- Series Principal Collections for the preceding month.
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On or before each distribution date, the trustee will, acting for the trust
on the servicer's instructions, withdraw the following funds from the Excess
Funding Account (General) and deposit them into the Series Collections Account:
- an amount equal to the Class B Excess Funding Amount for the preceding
month; and
- an amount equal to the Class C Excess Funding Amount for the preceding
month.
To the extent not already deposited in the Series Collections Account, the
trustee will also deposit into the Series Collections Account other income for
this series including:
- Series Yield Collections;
- Series Investment Income; and
- Series Additional Funds that are not used to pay the Investor Servicing
Fee.
The trustee will distribute funds from the Series Collections Account as
described below:
Revolving Period. On each distribution date during the Revolving Period,
the trustee, acting for the trust on the servicer's instructions, will apply
funds, to the extent they are available, but only to the extent necessary to
make any required payment, deposit or reimbursement, in the order set forth
below to the accounts indicated below in parentheses or otherwise.
(1) CLASS A INTEREST. The trust will use
- Series Finance Charge Collections; and
- other income for this series, if any,
to pay Class A interest. (To the Series Distribution Account.)
(2) CLASS B INTEREST. The trust will use
- Series Finance Charge Collections remaining after step (1); and
- other income for this series remaining after step (1)
to pay Class B interest. (To the Series Distribution Account.)
(3) CLASS C INTEREST. The trust will use
- Series Finance Charge Collections remaining after step (2); and
- other income for this series remaining after step (2)
to pay Class C interest, if any. (To the Series Distribution Account.)
(4) SERIES MONTHLY SERVICING FEE. The trust will use
- Series Finance Charge Collections remaining after step (3); and
- other income for this series remaining after step (3)
to pay all accrued but unpaid monthly servicing fees for this series. (To the
Series Distribution Account.)
(5) CLASS A CHARGE-OFFS. The trust will use
- Series Finance Charge Collections remaining after step (4); and
- other income for this series remaining after step (4)
to reimburse Class A charge-offs. (To the Group One Principal Collections
Reallocation Account.)
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(6) CLASS B CHARGE-OFFS. The trust will use
- Series Finance Charge Collections remaining after step (5); and
- other income for this series remaining after step (5)
to reimburse Class B charge-offs. (To the Group One Principal Collections
Reallocation Account.)
(7) CLASS C CHARGE-OFFS. The trust will use
- Series Finance Charge Collections remaining after step (6); and
- other income for this series remaining after step (6)
to reimburse Class C charge-offs. (To the Group One Principal Collections
Reallocation Account.)
(8) REALLOCATION TO OTHER SERIES. The trust will reallocate
- Series Finance Charge Collections remaining after step (7); and
- other income for this series remaining after step (7)
to pay interest and monthly servicing fees and reimburse charge-offs for other
series in Group One. (To the Group One Finance Charge Collections Reallocation
Account.)
(9) CLASS A INTEREST. If the trust cannot pay Class A interest in full in
step (1), it will also use
- a pro rata share of funds in the Group One Finance Charge Collections
Reallocation Account from other series
to pay Class A interest. The pro rata share equals:
- the amount of Class A interest unpaid after step (1); divided by
- the aggregate amount of Class A interest unpaid for all series after step
(1) of the cash flows for each series, or an equivalent step.
(To the Series Distribution Account.)
(10) CLASS B INTEREST. If the trust cannot pay Class B interest in full in
step (2), it will also use
- a pro rata share of funds in the Group One Finance Charge Collections
Reallocation Account from other series remaining after step (9) of the
cash flows for each series, or an equivalent step,
to pay Class B interest. The pro rata share equals:
- the amount of Class B interest unpaid after step (2); divided by
- the aggregate amount of Class B interest unpaid for all series after step
(2) of the cash flows for each series, or an equivalent step.
(To the Series Distribution Account.)
(11) CLASS C INTEREST. If the trust cannot pay Class C interest, if any, in
full in step (3), it will also use
- a pro rata share of funds in the Group One Finance Charge Collections
Reallocation Account from other series remaining after step (10) of the
cash flows for each series, or an equivalent step,
to pay Class C interest. The pro rata share equals:
- the amount of Class C interest unpaid after step (3); divided by
- the aggregate amount of Class C interest unpaid for all series after step
(3) of the cash flows for each series, or an equivalent step.
(To the Series Distribution Account.)
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(12) CLASS A CHARGE-OFFS. If the trust cannot reimburse the Class A
charge-offs in full in step (5), it will also use
- a pro rata share of funds in the Group One Finance Charge Collections
Reallocation Account from other series remaining after step (11) of the
cash flows for each series, or an equivalent step,
to reimburse Class A charge-offs. The pro rata share equals:
- the amount of Class A charge-offs after step (5); divided by
- the aggregate amount of Class A charge-offs for all series after step (5)
of the cash flows for each series, or an equivalent step.
(To the Group One Principal Collections Reallocation Account.)
(13) CLASS B CHARGE-OFFS. If the trust cannot reimburse Class B charge-offs
in full in step (6), it will also use
- a pro rata share of funds in the Group One Finance Charge Collections
Reallocation Account from other series remaining after step (12) of the
cash flows for each series, or an equivalent step,
to reimburse Class B charge-offs. The pro rata share equals:
- the amount of Class B charge-offs after step (6); divided by
- the aggregate amount of Class B charge-offs for all series after step (6)
of the cash flows for each series, or an equivalent step.
(To the Group One Principal Collections Reallocation Account.)
(14) SERIES MONTHLY SERVICING FEE. If the trust cannot pay the series
monthly servicing fees in full in step (4), it will also use
- a pro rata share of funds in the Group One Finance Charge Collections
Reallocation Account from other series remaining after step (13) of the
cash flows for each series, or an equivalent step,
to pay all accrued but unpaid monthly servicing fees for the series. The pro
rata share equals:
- the amount of accrued but unpaid monthly servicing fees for this series
after step (4); divided by
- the aggregate amount of accrued but unpaid monthly servicing fees for all
series after step (4) of the cash flows for each series, or an equivalent
step.
(To the Series Distribution Account.)
(15) CLASS C CHARGE-OFFS. If the trust cannot reimburse the Class C
charge-offs in full in step (7), it will also use
- a pro rata share of funds in the Group One Finance Charge Collections
Reallocation Account from other series remaining after step (14) of the
cash flows for each series, or an equivalent step,
to reimburse Class C charge-offs. The pro rata share equals:
- the amount of Class C charge-offs after step (7); divided by
- the aggregate amount of Class C charge-offs for all series after step (7)
of the cash flows for each series, or an equivalent step.
(To the Group One Principal Collections Reallocation Account.)
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(16) CLASS A INTEREST. If the trust cannot pay Class A interest in full in
steps (1) and (9), it will also use
- the Class C Excess Funding Amount; and
- Class C Principal Collections minus the Class C Principal Collections
already used as income for this series under the Series Yield Factor
provisions
to pay the Class A interest. Class C charge-offs will increase by the amount
used in this step. (To the Series Distribution Account.)
(17) CLASS A INTEREST. If the trust cannot pay Class A interest in full in
steps (1), (9) and (16), it will also use
- the Class B Excess Funding Amount; and
- Class B Principal Collections minus the Class B Principal Collections
already used as income for this series under the Series Yield Factor
provisions
to pay the Class A interest. Class B charge-offs will increase by the amount
used in this step. (To the Series Distribution Account.)
(18) CLASS B INTEREST. If the trust cannot pay Class B interest in full in
steps (2) and (10), it will also use
- the Class C Excess Funding Amount remaining after step (16); and
- Class C Principal Collections remaining after step (16) minus the Class C
Principal Collections already used as income for this series under the
Series Yield Factor provisions
to pay the Class B interest. Class C charge-offs will increase by the amount
used in this step. (To the Series Distribution Account.)
(19) CLASS A CHARGE-OFFS. If the trust cannot reimburse Class A charge-offs
in full in steps (5) and (12), it will also use
- the Class C Excess Funding Amount remaining after step (18); and
- Class C Principal Collections remaining after step (18) minus the Class C
Principal Collections already used as income for this series under the
Series Yield Factor provisions
to reimburse Class A charge-offs. Class C charge-offs will increase by the
amount used in this step. (To the Group One Principal Collections Reallocation
Account.)
(20) CLASS A CHARGE-OFFS. If the trust cannot reimburse Class A charge-offs
in full in steps (5), (12) and (19), it will reallocate
- the Class C Investor Interest
to reimburse Class A charge-offs. The Class C charge-offs will increase by the
amount reallocated in this step. In this step, the trust may reallocate the
Class C Investor Interest only to the extent that the cumulative Class C
charge-offs after steps (16), (18) and (19), including unreimbursed Class C
charge-offs from prior months, do not exceed the initial Class C Investor
Interest minus any Class C principal paid in prior months pursuant to step (27)
below.
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(21) CLASS A CHARGE-OFFS. If the trust cannot reimburse Class A charge-offs
in full in steps (5), (12), (19) and (20), it will also use
- the Class B Excess Funding Amount remaining after step (17); and
- Class B Principal Collections remaining after step (17) minus the Class B
Principal Collections already used as income for this series under the
Series Yield Factor provisions
to reimburse Class A charge-offs. Class B charge-offs will increase by the
amount used in this step. (To the Group One Principal Collections Reallocation
Account.)
(22) CLASS A CHARGE-OFFS. If the trust cannot reimburse Class A charge-offs
in full in steps (5), (12), (19), (20) and (21), it will reallocate
- the Class B Investor Interest
to reimburse Class A charge-offs. The Class B charge-offs will increase by the
amount reallocated in this step. In this step, the trust may reallocate the
Class B Investor Interest only to the extent that the cumulative Class B
charge-offs after steps (17), (21) and (22), including unreimbursed Class B
charge-offs from prior months, do not exceed the initial Class B Investor
Interest. (To the Group One Principal Collections Reallocation Account.)
(23) CLASS B CHARGE-OFFS. If the trust cannot reimburse Class B charge-offs
in full in steps (6) and (13) as increased in steps (17), (21) and (22), it will
also use
- the Class C Excess Funding Amount remaining after step (19); and
- Class C Principal Collections remaining after step (19) minus the Class C
Principal Collections already used as income for this series under the
Series Yield Factor provisions
to reimburse Class B charge-offs. Class C charge-offs will increase by the
amount used in this step. (To the Group One Principal Collections Reallocation
Account.)
(24) CLASS B CHARGE-OFFS. If the trust cannot reimburse Class B charge-offs
in full in steps (6), (13) and (23) as increased in steps (17), (21) and (22),
it will reallocate
- the Class C Investor Interest
to reimburse Class B charge-offs. The Class C charge-offs will increase by the
amount reallocated in this step. In this step, the trust may reallocate the
Class C Investor Interest only to the extent that the cumulative Class C
charge-offs after steps (16), (18), (19), (20) and (23), including unreimbursed
Class C charge-offs from prior months, do not exceed the initial Class C
Investor Interest minus any Class C principal paid in prior months pursuant to
step (27) below.
(25) PAYMENT TO SRFG. The trust will pay to SRFG all amounts remaining in
the Group One Finance Charge Collections Reallocation Account after steps (1)
through (24) and the equivalent steps for all other series in Group One.
(26) PRINCIPAL COLLECTIONS FROM EXCESS FUNDING ACCOUNT (GENERAL). The trust
will first use the Principal Collections in the Excess Funding Account
(General), after all allocations of Class B Excess Funding Amounts and Class C
Excess Funding Amounts to each series, to pay the principal of series that are
in their rapid amortization periods. To the extent that funds remain in the
account after this use, the trustee will deposit
- the Class A pro rata share of funds in the Excess Funding Account
(General)
into the Group One Principal Collections Reallocation Account. The Class A pro
rata share equals:
- the Class A Investor Interest; divided by
- the sum of the Class A investor interests plus the Class B investor
interests for those series issued prior to Series 2000-2 for which SRFG
does not own the Class B investor interest.
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(To the Group One Principal Collections Reallocation Account.)
(27) CLASS C PRINCIPAL. If the Rating Agencies permit the trust to pay
Class C principal during the Revolving Period, the trust will use:
- Series Principal Collections remaining in the Series Collections Account
after steps (1) through (8), (16) through (19), (21) and (23) minus the
Series Principal Collections already used as income for this series under
the Series Yield Factor provisions;
to pay Class C principal to the extent permitted. (To the Series Distribution
Account.)
(28) REALLOCATION TO OTHER SERIES. The trust will reallocate
- Series Principal Collections remaining after step (27) minus the Series
Principal Collections already used as income for this series under the
Series Yield Factor provisions
to pay principal for other series in Group One. (To the Group One Principal
Collections Reallocation Account.)
(29) ADDITIONAL PAYMENT TO SRFG. The trustee will withdraw
- amounts remaining in the Collections Account after all withdrawals from
that account to pay or deposit principal for any other series in its
controlled accumulation period or controlled amortization period
and pay those funds to SRFG.
(30) DEPOSIT TO EXCESS FUNDING ACCOUNT (GENERAL) AND PAYMENT TO SRFG. To
the extent necessary to maintain the Seller Interest at the minimum level that
the Pooling and Servicing Agreement requires, the trustee will deposit
- amounts remaining in the Group One Principal Collections Reallocation
Account
into the Excess Funding Account (General). The trustee will pay to SRFG any
funds remaining in the Group One Principal Collections Reallocation Account that
it does not need to deposit in the Excess Funding Account (General) to maintain
that minimum Seller Interest.
Controlled Accumulation Period. On any date during the Controlled
Accumulation Period on which the trust issues a new series, SRFG may deposit all
or a portion of the proceeds from the sale of the new series into the Series
Principal Funding Account. This deposit will be applied toward the scheduled
Class A principal deposit for the first distribution date occurring on or after
that date, and the scheduled Class A principal deposit referred to in the
following steps will be reduced by the amount of that deposit of proceeds. On
each distribution date during the Controlled Accumulation Period, the trustee,
acting for the trust on the servicer's instructions, will apply funds, to the
extent they are available, but only to the extent necessary to make any required
payment, deposit or reimbursement, in the order set forth below to the accounts
indicated below in parentheses or otherwise:
(1) The trustee will apply funds as described in steps (1) through (26) for
the Revolving Period, except that:
- The trustee will deposit funds used to reimburse charge-offs in steps
(5), (6), (7), (12), (13), (15), (19), (21) and (23) into the Series
Principal Collections Account instead of the Group One Principal
Collections Reallocation Account. The trust will use these funds to pay
Class A principal, Class B principal and Class C principal.
(2) PRINCIPAL COLLECTIONS. The trustee will deposit
- Series Principal Collections remaining after step (1) minus the Series
Principal Collections already used as income for this series under the
Series Yield Factor provisions
into the Series Principal Collections Account.
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(3) CLASS A PRINCIPAL. The trust will use
- funds in the Series Principal Collections Account
to make the scheduled Class A principal deposit. (To the Series Principal
Funding Account.)
(4) CLASS B PRINCIPAL. If the trust has deposited the full amount of the
Class A principal in the Series Principal Funding Account, or if the trust has
paid all Class A principal in full, the trust will use
- funds remaining in the Series Principal Collections Account after step
(3)
to make the scheduled Class B principal deposit. (To the Series Principal
Funding Account.)
(5) CLASS C PRINCIPAL. The trust will use
- funds remaining in the Series Principal Collections Account after step
(4)
to pay the permitted Class C principal payment, if any. (To the Series
Distribution Account.)
(6) CLASS C PRINCIPAL. On each distribution date after the distribution
date on which the trust has paid Class B principal in full, the trust will use
- funds remaining in the Series Collections Account after step (5)
to pay the scheduled Class C principal payment. (To the Series Distribution
Account.)
(7) CLASS A PRINCIPAL. If the trust cannot make the scheduled Class A
principal deposit in full in step (3), the trust will also use
- a pro rata share of funds in the Group One Principal Collections
Reallocation Account from other series
to make the scheduled Class A principal deposit. The pro rata share equals:
- the amount of the scheduled Class A principal deposit that the trust did
not make after step (3); divided by
- the aggregate amount of the scheduled Class A principal deposits or
payments for all series that the trust did not make after step (3) of the
cash flows for each series, or an equivalent step.
(To the Series Principal Funding Account.)
(8) CLASS B PRINCIPAL. If the trust cannot make the scheduled Class B
principal deposit in full in step (4), the trust will also use
- a pro rata share of funds in the Group One Principal Collections
Reallocation Account from other series remaining after step (7) of the
cash flows for the controlled accumulation period or the controlled
amortization period for each series, as applicable, or an equivalent
step,
to make the scheduled Class B principal payment. The pro rata share equals:
- the amount of the scheduled Class B principal deposit that the trust did
not make after step (4); divided by
- the aggregate amount of the scheduled Class B principal deposits or
payments for all series that the trust did not make after step (4) of the
cash flows for the controlled accumulation period or the controlled
amortization period for each series, as applicable, or an equivalent
step.
(To the Series Principal Funding Account.)
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(9) CLASS C PRINCIPAL. If the trust cannot make the scheduled Class C
principal payment in full in step (6), the trust will use
- a pro rata share of funds in the Group One Principal Collections
Reallocation Account from other series remaining after step (8) of the
cash flows for each series, or an equivalent step,
to make the scheduled Class C principal payment. The pro rata share equals:
- the amount of Class C principal unpaid after step (6); divided by
- the aggregate amount of Class C principal unpaid for all series after
step (6) of the cash flows for the controlled accumulation period or the
controlled amortization period for each series, as applicable, or an
equivalent step.
(To the Series Distribution Account.)
(10) CLASS A PRINCIPAL. If the trust cannot make the scheduled Class A
principal deposit in full in steps (3) and (7), the trust will use
- a pro rata share of funds in the Group One Pre-Funding Reallocation
Account from pre-funded series, if any,
to make the scheduled Class A principal deposit. The pro rata share equals:
- the amount of the scheduled Class A principal deposit that the trust did
not make after steps (3) and (7); divided by
- the aggregate amount of the scheduled Class A principal deposits or
payments for all series that the trust did not make after steps (3) and
(7) of the cash flows for the controlled accumulation period or the
controlled amortization period for each series, as applicable, or
equivalent steps.
(To the Series Principal Funding Account.)
(11) CLASS B PRINCIPAL. If the trust cannot make the scheduled Class B
principal deposit in full in steps (4) and (8), the trust will use
- a pro rata share of funds in the Group One Pre-Funding Reallocation
Account from pre-funded series, if any, remaining after step (10) of the
cash flows for each series, or an equivalent step,
to make the scheduled Class B principal deposit. The pro rata share equals:
- the amount of the scheduled Class B principal deposit that the trust did
not make after steps (4) and (8); divided by
- the aggregate amount of Class B principal deposits or payments for all
series that the trust did not make after steps (4) and (8) of the cash
flows for the controlled accumulation period or the controlled
amortization period for each series, as applicable, or equivalent steps.
(To the Series Principal Funding Account.)
(12) CLASS C PRINCIPAL. If the trust cannot make the scheduled Class C
principal payment in full in steps (6) and (9), the trust will use
- a pro rata share of funds in the Group One Pre-Funding Reallocation
Account from pre-funded series, if any, remaining after step (11) of the
cash flows for each series, or an equivalent step,
to make the scheduled Class C principal payment. The pro rata share equals:
- the amount of Class C principal unpaid after steps (6) and (9); divided
by
- the aggregate amount of Class C principal unpaid for all series after
steps (6) and (9) of the cash flows for the controlled accumulation
period or the controlled amortization period for each series, as
applicable, or equivalent steps.
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(To the Series Distribution Account.)
(13) CLASS A PRINCIPAL. If the trust cannot make the scheduled Class A
principal deposit in full in steps (3), (7) and (10), the trust will use
- a pro rata share of funds in the Collections Account
to make the scheduled Class A principal deposit. The pro rata share equals:
- the amount of the scheduled Class A principal deposit that the trust did
not deposit after steps (3), (7) and (10); divided by
- the aggregate amount of the scheduled Class A principal deposits or
payments for all series with an equivalent cash flow step, other than
series in their rapid amortization periods, that the trust did not make
after steps (3), (7) and (10) of the cash flows for the controlled
accumulation period or the controlled amortization period, as applicable,
for each series, or equivalent steps.
(To the Series Principal Funding Account.)
(14) CLASS B PRINCIPAL. If the trust cannot make the scheduled Class B
principal deposit in full in steps (4), (8) and (11), the trust will use
- a pro rata share of funds in the Collections Account remaining after step
(13) of the cash flows for each series, or an equivalent step
to make the scheduled Class B principal deposit. The pro rata share equals:
- the amount of the scheduled Class B principal deposit that the trust did
not deposit after steps (4), (8) and (11); divided by
- the aggregate amount of the scheduled Class B principal deposits or
payments for all series with an equivalent cash flow step, other than
series in their rapid amortization periods, that the trust did not make
after steps (4), (8) and (11) of the cash flows for the controlled
accumulation period or the controlled amortization period, as applicable,
for each series, or equivalent steps.
(To the Series Principal Funding Account.)
(15) CLASS C PRINCIPAL. If the trust cannot make the scheduled Class C
principal deposit in full in steps (6), (9) and (12), the trust will use
- a pro rata share of funds in the Collections Account remaining after step
(14) of the cash flows for each series, or an equivalent step
to make the scheduled Class C principal deposit. The pro rata share equals:
- the amount of the scheduled Class C principal deposit that the trust did
not deposit after steps (6), (9) and (12); divided by
- the aggregate amount of the scheduled Class C principal deposits or
payments for all series with an equivalent cash flow step, other than
series in their rapid amortization periods, that the trust did not make
after steps (6), (9) and (12) of the cash flows for the controlled
accumulation period or the controlled amortization period, as applicable,
for each series, or equivalent steps.
(To the Series Distribution Account.)
(16) REALLOCATION TO OTHER SERIES. The trustee will deposit
- funds remaining in the Series Principal Collections Account
into the Group One Principal Collections Reallocation Account.
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(17) PAYMENT TO SRFG. The trustee will withdraw
- amounts remaining in the Collections Account after step (15) of the cash
flows for the controlled accumulation period or the controlled
amortization period, as applicable, for each series, or an equivalent
step,
and pay those funds to SRFG.
(18) DEPOSIT TO EXCESS FUNDING ACCOUNT (GENERAL) AND PAYMENT TO SRFG. To
the extent necessary to maintain the Seller Interest at the minimum level that
the Pooling and Servicing Agreement requires, the trustee will deposit
- amounts remaining in the Group One Principal Collections Reallocation
Account
into the Excess Funding Account (General). The trustee will pay to SRFG any
funds remaining in the Group One Principal Collections Reallocation Account that
it does not need to deposit in the Excess Funding Account (General) to maintain
that minimum Seller Interest.
Rapid Amortization Period. On each distribution date during the Rapid
Amortization Period, the trustee, acting for the trust on the servicer's
instructions, will apply funds, to the extent they are available, but only to
the extent necessary to make any required payment, deposit or reimbursement, in
the order set forth below to the accounts indicated below in the parentheses or
otherwise:
(1) The trustee will apply funds as described in steps (1) through (25) for
the Revolving Period, except that:
- The trustee will deposit funds used to reimburse charge-offs in steps
(5), (6), (7), (12), (13), (15), (19), (21) and (23) into the Series
Principal Collections Account instead of the Group One Principal
Collections Reallocation Account. The trust will use these funds to pay
Class A principal, Class B principal and Class C principal.
(2) PRINCIPAL COLLECTIONS FROM EXCESS FUNDING ACCOUNT (GENERAL). The
trustee will deposit
- a pro rata share of funds in the Excess Funding Account (General)
into the Series Principal Collections Account. The pro rata share equals:
- the Class A Investor Interest for this series; divided by
- the sum of the Class A investor interests and, for each series issued
prior to Series 2000-2 for which SRFG does not own the Class B
certificates, the Class B investor interests, of all series in rapid
amortization periods in the trust.
(To the Series Principal Collections Account.)
(3) PRINCIPAL COLLECTIONS. The trustee will deposit
- Series Principal Collections remaining after step (1) minus the Series
Principal Collections already used as income for this series under the
Series Yield Factor provisions
into the Series Principal Collections Account.
(4) CLASS A PRINCIPAL. The trust will use
- funds deposited in the Series Principal Collections Account
to pay Class A principal. (To the Series Distribution Account.)
(5) CLASS B PRINCIPAL. If the trust has paid all Class A principal in full,
the trust will use
- funds remaining in the Series Principal Collections Account after step
(4)
to pay Class B principal. (To the Series Distribution Account.)
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(6) CLASS C PRINCIPAL. If the trust has paid Class B principal in full, the
trust will use
- funds remaining in the Series Principal Collections Account after step
(5)
to pay Class C principal. (To the Series Distribution Account.)
(7) CLASS A PRINCIPAL. The trust will first use funds in the Group One
Principal Collections Reallocation Account to pay the principal of series that
are in their controlled amortization periods or controlled accumulation periods.
To the extent that funds remain in the account after this use, if the trust
cannot pay all Class A principal in full in step (4), the trust will also use
- a pro rata share of funds in the Group One Principal Collections
Reallocation Account from other series
to pay Class A principal. The pro rata share equals:
- the amount of Class A principal unpaid after step (4); divided by
- the aggregate amount of Class A principal unpaid for all series in their
rapid amortization periods after step (4) of the cash flows for the rapid
amortization period for each series, or an equivalent step.
(To the Series Distribution Account.)
(8) CLASS B PRINCIPAL. If the trust cannot pay all Class B principal in
full in step (5), the trust will also use
- a pro rata share of funds in the Group One Principal Collections
Reallocation Account from other series remaining after step (7)
to pay Class B principal. The pro rata share equals:
- the amount of Class B principal unpaid after step (5); divided by
- the aggregate amount of Class B principal unpaid for all series in their
rapid amortization periods after step (5) of the cash flows for the rapid
amortization period for each series, or an equivalent step.
(To the Series Distribution Account.)
(9) CLASS C PRINCIPAL. If the trust cannot pay all Class C principal in
full in step (6), the trust will use
- a pro rata share of funds in the Group One Principal Collections
Reallocation Account from other series remaining after step (8)
to pay Class C principal. The pro rata share equals:
- the amount of Class C principal unpaid after step (6); divided by
- the aggregate amount of Class C principal unpaid for all series in their
rapid amortization periods after step (6) of the cash flows for the rapid
amortization period for each series, or an equivalent step.
(To the Series Distribution Account.)
(10) REALLOCATION TO OTHER SERIES. The trustee will deposit
- funds remaining in the Series Principal Collections Account after step
(4)
into the Group One Principal Collections Reallocation Account.
(11) PAYMENT TO SRFG. The trustee will withdraw
- amounts remaining in the Collections Account after all withdrawals from
the account to pay or deposit principal for any other series in its
controlled accumulation period or controlled amortization period, as
applicable,
and pay those funds to SRFG.
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(12) DEPOSIT TO EXCESS FUNDING ACCOUNT (GENERAL) AND PAYMENT TO SRFG. To
the extent necessary to maintain the Seller Interest at the minimum level that
the Pooling and Servicing Agreement requires, the trustee will deposit
- amounts remaining in the Group One Principal Collections Reallocation
Account
into the Excess Funding Account (General). The trustee will pay to SRFG any
funds remaining in the Group One Principal Collections Reallocation Account that
it does not need to deposit in the Excess Funding Account (General) to maintain
that minimum Seller Interest.
PAYMENTS
Interest and Monthly Servicing Fees. On each distribution date, after the
trustee applies the funds as described in "-- Cash Flows," the trustee, acting
for the trust on the servicer's instructions, will apply funds, to the extent
they are available, in the order set forth below to the accounts indicated below
in parentheses or otherwise:
(1) CLASS A INTEREST. The trust will use
- funds deposited into the Series Distribution Account for Class A
to pay Class A interest. (To the Series Interest Funding Account.)
(2) CLASS B INTEREST. The trust will use
- funds deposited into the Series Distribution Account for Class B
to pay Class B interest. (To the Series Interest Funding Account.)
(3) CLASS C INTEREST. The trust will use
- funds deposited into the Series Distribution Account for Class C
to pay Class C interest, if any. (To the Series Interest Funding Account.)
(4) INTEREST PAYMENT TO INVESTORS. The trust will use
- funds deposited into the Series Interest Funding Account in steps (1),
(2) and (3)
to pay Class A interest, Class B interest and Class C interest, if any.
(5) SERIES MONTHLY SERVICING FEES. The trust will use
- funds deposited into the Series Distribution Account for accrued and
unpaid monthly servicing fees for this series
to pay accrued and unpaid monthly servicing fees for this series to the
servicer.
Principal. The trustee, acting for the trust on the servicer's
instructions, will apply funds to the extent they are available in the order set
forth below on the following dates:
(1) CLASS C PRINCIPAL. On each distribution date during the Revolving
Period and the Controlled Accumulation Period, the trust will use
- funds remaining in the Series Distribution Account after the trust pays
interest and monthly servicing fees as described above
to make the permitted Class C principal payment, if any.
(2) CLASS A PRINCIPAL. On the distribution date in September 2005 and each
subsequent distribution date during the Controlled Accumulation Period until the
trust has paid Class A principal in full, the trust will use
- funds on deposit in the Series Principal Funding Account
to pay all Class A principal.
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(3) CLASS B PRINCIPAL. On the distribution date in October 2005 and each
subsequent distribution date during the Controlled Accumulation Period, the
trust will use
- funds remaining in the Series Principal Funding Account after step (2)
to pay all Class B principal.
(4) CLASS C PRINCIPAL. On each distribution date during the Controlled
Accumulation Period after the trust has paid Class A principal and Class B
principal in full, the trust will use
- funds in the Series Distribution Account
to pay all Class C principal.
(5) SERIES PRINCIPAL. On each distribution date during the Rapid
Amortization Period, the trust will use
- funds on deposit in the Series Principal Funding Account, if any; and
- funds remaining in the Series Distribution Account after the trust pays
interest and monthly servicing fees as described above
in the following order:
- first, the trust will pay Class A principal;
- second, the trust will pay Class B principal; and
- third, the trust will pay Class C principal.
SUBORDINATE SERIES
This series will not be subordinate to any other series. In the future, the
trust may issue a series that is subordinate to this series. If the trust issues
a subordinate series, the trust will use funds from that series to cover certain
shortfalls in this series before the trust uses funds in the Group One Finance
Charge Collections Reallocation Account to cover those shortfalls. The extent to
which any new series is subordinate to this series will be set forth in the
Series Supplement for that series. SRFG does not at this time have any plans to
cause the trust to issue a series subordinate to this series and we cannot
assure you that the trust will issue a subordinate series in the future.
SALE OF CLASS C CERTIFICATES
Although SRFG initially will own the Class C Certificates and currently
intends to keep them, it may on any date that is at least two months before the
beginning of the Controlled Accumulation Period sell or transfer all of the
Class C Certificates. SRFG may also increase the interest rate on the Class C
Certificates in connection with any sale or transfer of them. SRFG may sell or
transfer the Class C Certificates and increase the applicable interest rate only
if:
- SRFG notifies the trustee, the servicer and the Rating Agencies of the
proposed sale or transfer of the Class C Certificates, and any proposed
increase in the interest rate, at least five days before the transfer or
sale takes place;
- the Rating Agencies advise the trustee that the proposed sale or transfer
of the Class C Certificates, and any proposed increase in the interest
rate, will not cause them to reduce or withdraw their ratings on the
certificates of any outstanding series, including this series;
- SRFG delivers to the trustee a certificate stating that SRFG reasonably
believes that the sale of the Class C Certificates will not have a
material adverse effect on the Class A Certificates or the Class B
Certificates;
- there are no outstanding Investor Losses for any class of this series on
the day that SRFG sells or transfers the Class C Certificates;
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- the new holders of the Class C Certificates agree that they will not be
entitled to receive Class C principal payments until the Class A Investor
Interest and the Class B Investor Interest have each been reduced to
zero;
- a Rapid Amortization Event for this series has not occurred; and
- SRFG delivers to the trustee an opinion of tax counsel that the proposed
sale or transfer will not affect the treatment of certain certificates as
debt and the treatment of the trust as an entity not subject to tax.
ISSUANCE OF ADDITIONAL CERTIFICATES
During the Revolving Period, the trust may issue additional certificates
that will be identical to the certificates described in this prospectus
supplement. Each time the trust issues additional certificates in this series,
it will issue a pro rata principal amount of each class of certificates, based
on the aggregate face amount of the outstanding certificates; the initial Class
Investor Interest and the scheduled principal payments for each class will be
increased proportionately to reflect the aggregate face amount of the additional
certificates.
The trust may issue additional certificates in this series in any aggregate
amount at any time during the Revolving Period if:
- SRFG notifies the trustee, the servicer and the Rating Agencies of the
proposed issuance of the additional certificates at least five business
days before the trust issues them;
- after the trust issues the additional certificates, the total amount of
Principal Receivables will be greater than or equal to the minimum level
required under the Pooling and Servicing Agreement;
- SRFG delivers to the trustee an executed copy of any agreement relating
to credit enhancement provided by a third party in connection with
issuing the additional certificates;
- the Rating Agencies advise SRFG in writing that the proposed issuance of
additional certificates will not cause them to reduce or withdraw their
ratings on the certificates of any outstanding series, including this
series;
- SRFG delivers to the trustee a certificate stating that SRFG reasonably
believes that issuing the additional certificates will not have a
material adverse effect on the outstanding certificates of this series;
- there are no outstanding Investor Losses for any class of this series on
the day that the trust issues the additional certificates; and
- SRFG delivers to the trustee an opinion of tax counsel that issuance of
the additional certificates will not affect the treatment of certain
certificates as debt and the treatment of the trust as not an entity
subject to tax.
PAIRED SERIES
During the Controlled Accumulation Period, the trust may issue a new series
that is paired with this series. The trust will use this "Paired Series" to
finance the increase in the Seller Interest that results when the trust deposits
Class A principal. The trust will pay the proceeds from the sale of the Paired
Series certificates to SRFG, unless SRFG has elected to deposit all or a portion
of the sale proceeds into the Series Principal Funding Account for this series
or another series. The trust may issue a Paired Series if it can meet the
conditions that apply to the issuance of any new series. We have described those
conditions under "The Certificates -- Establishing and Issuing New Series" in
the prospectus.
We cannot assure you that the terms of any Paired Series will not have an
impact on the timing or amount of payments to this series. In particular, if a
rapid amortization event for the Paired Series occurs while this series is in
its Controlled Accumulation Period or Rapid Amortization Period, the amount of
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Principal Collections reallocated to this series may decrease. As a result,
principal payments to you or deposits into the Series Principal Funding Account
may be smaller than expected or scheduled and the trust's final payment of
principal to you may be delayed.
RAPID AMORTIZATION EVENTS
If a Rapid Amortization Event occurs, the Rapid Amortization Period will
begin. A Rapid Amortization Event will occur if:
- SRFG fails to make any payment or deposit on the date required under the
Pooling and Servicing Agreement or the Series Supplement and fails to
make that payment or deposit within five business days after that date;
or
- SRFG materially fails to observe or perform any other material covenant
or agreement of SRFG in the Pooling and Servicing Agreement or the Series
Supplement and SRFG does not remedy the problem within 60 days after
notice is given to:
- SRFG, by the trustee; or
- SRFG and the trustee, by investors holding at least 25% of the Class
Invested Amount of any class materially adversely affected by SRFG's
failure to observe or perform the covenant; or
- any representation or warranty made by SRFG in the Pooling and Servicing
Agreement or the Series Supplement, or any information required to be
given by SRFG to the trustee to identify the Accounts, proves to have
been materially incorrect when made and continues to be materially
incorrect for 60 days after notice is given to:
- SRFG, by the trustee; or
- SRFG and the trustee, by investors holding at least 25% of the Class
Invested Amount of any class materially adversely affected by the
incorrect representation or warranty; or
- any Servicer Termination Event occurs that would have a material adverse
effect on the investors in this series;
and either the trustee or investors whose aggregate Investor Interests equal at
least 51% of the Series Investor Interest declare in writing to SRFG and the
servicer, and to the trustee if declared by the investors, that a Rapid
Amortization Event has occurred for this series.
A Rapid Amortization Event will occur for all series without notice from
the trustee or the investors if:
- certain events of bankruptcy, insolvency or receivership relating to
SRFG, the bank or Sears, when Sears is not the servicer, occur; or
- SRFG becomes unable to transfer Receivables to the trust in accordance
with the Pooling and Servicing Agreement and that inability continues for
five business days; or
- the trust becomes an "investment company" within the meaning of the
Investment Company Act of 1940, as amended; or
- the amount of Principal Receivables in the trust at the end of any Due
Period is less than the Minimum Principal Receivables Balance required
under the Pooling and Servicing Agreement and SRFG fails to assign
Receivables in additional Accounts or participation interests in other
pools of credit card receivables to the trust in at least the amount of
the deficiency by the distribution date related to the second subsequent
Due Period.
A Rapid Amortization Event will occur for this series without notice from
the trustee or the investors if, since September , 2000 or the last
distribution date on which the Investor Loss for each class of this series
equaled zero, whichever is later, there have been three distribution dates on
which the Net Yield is less than the Base Rate.
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"Net Yield" equals the annualized percentage of:
- Series Finance Charge Collections and other income for this series; plus
- Series Finance Charge Collections and other series income that the trust
reallocated to this series from other series; minus
- this series' pro rata share of the amount of Receivables in the trust
that the servicer charged off as uncollectible during the prior Due
Period; plus
- this series' pro rata share of the amount of these charged-off
Receivables repurchased by SRFG during that Due Period because they were
in accounts that contained Receivables that were not Eligible
Receivables; divided by
- the Series Invested Amount.
"Base Rate" equals 2.00% -- the investor servicing fee percentage -- plus
the weighted average of the Class A, Class B and Class C interest rates.
Initially, the Base Rate will be %.
If a Rapid Amortization Event occurs, the trust will pay the principal of
this series on each distribution date, beginning on the distribution date in the
calendar month following the month in which the Rapid Amortization Event occurs.
The trust will use:
- amounts the trust uses to reimburse charge-offs for this series;
- Class A Principal Collections, excluding those recharacterized as Series
Yield Collections;
- Class B Principal Collections, excluding those recharacterized as Series
Yield Collections, and the Class B Excess Funding Amount, remaining after
paying any Class A interest or reimbursing Class A charge-offs;
- Class C Principal Collections, excluding those recharacterized as Series
Yield Collections, and the Class C Excess Funding Account, remaining
after paying any Class A or Class B interest or reimbursing Class A or
Class B charge-offs;
- Class A's allocable share of funds in the Excess Funding Account
(General); and
- this series' allocable share of funds in the Group One Principal
Collections Reallocation Account
to pay Class A principal until the Class A Invested Amount is zero, then to pay
Class B principal until the Class B Invested Amount is zero and then to pay
Class C principal until the Class C Invested Amount is zero. In any event, the
trust will not make any payments to you after the September 2009 distribution
date.
TERMINATION OF SERIES; CLEAN-UP CALL
This series will terminate upon the earlier of:
- the business day after the September 2009 distribution date; or
- the day that the trust makes the final Class C principal payment.
If the Series Investor Interest is greater than zero after the August 2009
distribution date, the trust will sell Receivables or interests in the
Receivables for an amount equal to the remaining Series Investor Interest plus
interest on the certificates that will be accrued but unpaid on the September
2009 distribution date; provided, however, that the trust may not sell more than
this series' pro rata share of the Receivables in the trust. That pro rata share
will equal:
- the aggregate amount of Receivables in the trust; multiplied by
- the Series Investor Interest on the distribution date; divided by
- the Aggregate Investor Interest on the distribution date.
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The trust will not sell Receivables that are materially different from the
Receivables remaining in the trust. The trustee will deposit the proceeds from
this sale into the Series Distribution Account. The trust will use those
proceeds to pay the remaining Class A, Class B and Class C principal and
interest, to the extent funds are available. This will be the trust's final
payment to the investors.
Under certain circumstances, SRFG may terminate this series by repurchasing
and canceling the certificates. The Series Supplement provides that SRFG may
purchase the remaining Series Investor Interest from the trust if, after the
trust makes payments on any distribution date during the Controlled Accumulation
Period or the Rapid Amortization Period,
- the Series Investor Interest; minus
- the Class C Investor Interest if SRFG owns the Class C Certificates;
minus
- this series' pro rata share of funds on deposit in the Excess Funding
Account (General)
is less than or equal to $53,530,000. If SRFG elects to purchase the remaining
Series Investor Interest, it will deposit into the Series Distribution Account
on the next distribution date an amount equal to:
- the Series Investor Interest at the end of the prior calendar month; plus
- all interest accrued but unpaid as of the end of the prior calendar
month.
SRFG may not purchase and cancel any Class C Certificates until it purchases and
cancels all Class A Certificates and Class B Certificates.
SERVICING COMPENSATION
The trust will pay the servicer a monthly servicing fee to compensate the
servicer for its activities and to reimburse the servicer's expenses. On each
distribution date, the trust will use Series Finance Charge Collections and
other income for this series, and this series' pro rata share of funds in the
Group One Finance Charge Collections Reallocation Account, to the extent
available, to pay the monthly servicing fee. The trust will calculate the
monthly servicing fee for each class as follows:
- 2.00% of the Series Investor Interest minus this series' pro rata share
of funds on deposit in the Excess Funding Account (General) and the
Excess Funding Account (SRC), divided by twelve; multiplied by
- the Class Investor Interest; divided by
- the Series Investor Interest.
SRFG and the servicer may agree in the future to reduce the 2.00% investor
servicing fee percentage.
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UNDERWRITING
The Class A underwriters named below, SRFG and Sears have entered into a
Class A underwriting agreement. The Class B underwriter named below, SRFG and
Sears have entered into a Class B underwriting agreement. Pursuant to each
underwriting agreement, SRFG has agreed to sell to the underwriters, and each of
the underwriters has severally agreed to purchase, the principal amount of Class
A Certificates and Class B Certificates set forth opposite its name:
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OF
CLASS A
CLASS A UNDERWRITERS CERTIFICATES
-------------------- ------------
<S> <C>
Bear, Stearns & Co. Inc. ................................... $
Deutsche Bank Securities Inc. ..............................
Chase Securities Inc. ......................................
Goldman, Sachs & Co. .......................................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...................................
Morgan Stanley & Co. Incorporated...........................
------------
Total $500,000,000
============
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OF
CLASS B
CLASS B UNDERWRITER CERTIFICATES
------------------- ------------
<S> <C>
$35,300,000
===========
</TABLE>
The underwriting agreements provide that the underwriters will be obligated
to pay for and accept delivery of the certificates only if their counsel
approves of certain legal matters and various other conditions are met. If the
trust issues any of the Class A Certificates and Class B Certificates, it must
issue all of the Class A Certificates and Class B Certificates. Under the terms
and conditions of the Class A underwriting agreement, the Class A underwriters
must take and pay for all of the Class A Certificates if they take any of them.
Similarly, under the terms and conditions of the Class B underwriting agreement,
the Class B underwriter must take and pay for all of the Class B Certificates,
if it takes any of them. The purchase and sale of each class of certificates
will occur at the same time as the purchase and sale of the other class of
certificates. No class of certificates will be sold if the other class is not
sold.
In addition, the Class B underwriting agreement will terminate if the Class
B underwriter does not purchase the principal amount of Class B Certificates set
forth opposite its name above. If the Class B underwriting agreement terminates,
the Class A underwriters have the right to purchase the Class B Certificates on
a pro rata basis based on the percentage of Class A Certificates that each Class
A underwriter has agreed to purchase.
The Class A underwriters have advised SRFG that they propose to offer the
Class A Certificates purchased by them:
- to the public at the price set forth on the cover page of this prospectus
supplement; and
- to certain dealers at the price set forth on the cover page of this
prospectus supplement minus concessions of up to % of the principal
amount of the Class A Certificates.
The Class A underwriters may allow, and the dealers may reallow, concessions of
up to % of the principal amount of the Class A Certificates to certain
brokers and dealers. After the initial public offering, the Class A underwriters
may change the public offering price and other selling terms.
The Class B underwriter has advised SRFG that it proposes to offer the
Class B Certificates purchased by it:
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- to the public at the price set forth on the cover page of this prospectus
supplement; and
- to certain dealers at the price set forth on the cover page of this
prospectus supplement minus concessions of up to % of the principal
amount of the Class B Certificates.
The Class B underwriter may allow, and the dealers may reallow, concessions of
up to % of the principal amount of the Class B Certificates to certain
brokers and dealers. After the initial public offering, the Class B underwriter
may change the public offering price and other selling terms.
The underwriters may engage in over-allotment, syndicate covering
transactions and penalty bids in accordance with Regulation M under the Exchange
Act. The Class A underwriters may also engage in stabilizing transactions.
Over-allotment involves syndicate sales in excess of the offering size, which
creates a syndicate short position. Stabilizing transactions permit bids to
purchase the underlying security so long as the stabilizing bids do not exceed a
specified maximum. Syndicate covering transactions involve purchases of the
securities in the open market after the distribution has been completed in order
to cover syndicate short positions. Penalty bids permit the underwriters to
reclaim a selling concession from a syndicate member when the securities
originally sold by that syndicate member are purchased in a syndicate covering
transaction to cover syndicate short positions. Such stabilizing transactions,
syndicate covering transactions and penalty bids may cause the price of the
securities to be higher than it would otherwise be in the absence of these
transactions. None of SRFG, Sears or the underwriters represents that the
underwriters will engage in any of these transactions. These transactions, once
commenced, may be discontinued without notice at any time.
There currently is no secondary market for the Class A Certificates or the
Class B Certificates, and SRFG and the underwriters cannot assure you that one
will develop. If a secondary market for the certificates does develop, it may
not continue until the trust has paid the certificates in full.
SRFG has agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act, or contribute to payments the
underwriters may be required to make in connection with those liabilities.
Certain of the underwriters may agree to increase or decrease the
underwriting fees payable to them in connection with the offering of the Class A
Certificates by an amount determined by reference to movements in interest rates
between September , 2000 and September , 2000. This arrangement would
protect SRFG from market movements with respect to a benchmark swap rate during
that period.
In the ordinary course of their respective businesses, the underwriters and
their affiliates have engaged and may engage in investment banking and/or
commercial banking transactions with SRFG, Sears and their affiliates.
The underwriters and SRFG have agreed that the closing of the sale of the
certificates to the underwriters will occur business days after the date on
the cover of this prospectus supplement or at such later date as they may
mutually agree.
SRFG estimates that its expenses for this offering will be approximately
$600,000.
LEGAL MATTERS
Latham & Watkins and Anastasia D. Kelly, Executive Vice President, General
Counsel of Sears, or other in-house counsel, will pass upon the legality of the
certificates for SRFG. Such in-house counsel will own shares of Sears common
stock and will have been granted stock options with respect to additional shares
of Sears common stock. Latham & Watkins also will pass upon certain legal
matters for SRFG relating to the tax consequences of the certificates' issuance.
Skadden, Arps, Slate, Meagher & Flom LLP will pass upon the legality of the
certificates for the underwriters. From time to time, Skadden, Arps, Slate,
Meagher & Flom LLP performs legal services for Sears and its affiliates.
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GLOSSARY OF TERMS
"ACCOUNT" means any account designated pursuant to the Pooling and
Servicing Agreement as an account for which SRFG has agreed to transfer all
receivables to the trust.
"ACCOUNT ISSUER" means Sears National Bank, or, with respect to accounts
governed by credit agreements between the customer and Sears, Sears.
"AGGREGATE EXCESS FUNDING AMOUNT" means the sum of the amounts on deposit
in the Excess Funding Account (General) and the Excess Funding Account (SRC).
"AGGREGATE INVESTOR INTEREST" means the sum of the series investor
interests for all outstanding series.
"ASSIGNMENT AGREEMENT" means the Assignment of Accounts and Sale of
Receivables Agreement dated as of September 15, 1994, as amended, between Sears
and Sears National Bank.
"BASE RATE" for each distribution date means 2.00% -- the investor
servicing fee percentage -- plus the weighted average of the Class A, Class B
and Class C interest rates. The Base Rate initially will be %.
"CHARGED-OFF AMOUNT" means, for any distribution date:
- the aggregate amount of Receivables in Accounts that became charged-off
accounts in the related Due Period; minus
- the full amount of any of those Receivables that SRFG repurchased because
those Receivables were in Accounts that included Receivables that were
not Eligible Receivables.
"CLASS A CUMULATIVE INVESTOR CHARGED-OFF AMOUNT" means, for any
distribution date:
- the Class A Cumulative Investor Charged-Off amount remaining as of the
end of the Due Period related to the prior distribution date; plus
- the Class A Investor Charged-Off Amount as of the end of the Due Period
related to the applicable distribution date,
in each case as adjusted on each distribution date as described in "The
Certificates -- Cash Flows."
"CLASS A INVESTED AMOUNT" means, as of any distribution date:
- $500,000,000; minus
- the amount of principal previously paid to the Class A investors; minus
- the amount of any losses the Class A investors suffer because of
unreimbursed charge-offs, insufficient proceeds from the sale of
receivables or investment losses, if any.
"CLASS A INVESTOR CHARGED-OFF AMOUNT" means, for any distribution date:
- the Charged-Off Amount for that distribution date; multiplied by
- the Class Percentage for Class A for the Charged-Off Amount.
"CLASS A INVESTOR INTEREST" means, as of any distribution date:
- the Class A Invested Amount; minus
- the aggregate amount on deposit in the Series Principal Funding Account
for the benefit of Class A, other than investment income.
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"CLASS A PRINCIPAL COLLECTIONS" means, for any day or any distribution
date:
- the Class Percentage for Class A for Principal Collections for the
related distribution date; multiplied by
- the amount of Principal Collections for that day or for the related Due
Period, as applicable.
"CLASS B CUMULATIVE INVESTOR CHARGED-OFF AMOUNT" means, for any
distribution date:
- the Class B Cumulative Investor Charged-Off amount remaining as of the
end of the Due Period related to the prior distribution date; plus
- the Class B Investor Charged-Off Amount as of the end of the Due Period
related to the applicable distribution date,
in each case as adjusted on each distribution date as described in "The
Certificates -- Cash Flows."
"CLASS B EXCESS FUNDING AMOUNT" means, on any distribution date:
- the Excess Funding Amount (General), multiplied by
- the Class B Investor Interest, divided by
- the Aggregate Investor Interest minus the sum of the class investor
interests for all classes of series issued before Series 2000-2 that are
owned by SRFG.
"CLASS B INVESTED AMOUNT" means, as of any distribution date,
- $35,300,000; minus
- the amount of principal previously paid to the Class B investors; minus
- the amount of any losses the Class B investors suffer because of
unreimbursed charge-offs, insufficient proceeds from the sale of
receivables or investment losses, if any.
"CLASS B INVESTOR CHARGED-OFF AMOUNT" means, for any distribution date:
- the Charged-Off Amount for that distribution date; multiplied by
- the Class Percentage for Class B for the Charged-Off Amount.
"CLASS B INVESTOR INTEREST" means, as of any distribution date:
- the Class B Invested Amount; minus
- the aggregate amount on deposit in the Series Principal Funding Account
for the benefit of Class B, other than investment income.
"CLASS B PRINCIPAL COLLECTIONS" means, for any day or any distribution
date:
- the Class Percentage for Class B for Principal Collections for the
related distribution date; multiplied by
- the amount of Principal Collections for that day or for the related Due
Period, as applicable.
"CLASS C CUMULATIVE INVESTOR CHARGED-OFF AMOUNT" means, for any
distribution date:
- the Class C Cumulative Investor Charged-Off Amount as of the end of the
Due Period related to the prior distribution date; plus
- the Class C Investor Charged-Off Amount as of the end of the Due Period
related to the applicable distribution date,
in each case as adjusted on each distribution date as described in "The
Certificates -- Cash Flows."
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"CLASS C EXCESS FUNDING AMOUNT" means, on any distribution date:
- the Excess Funding Amount (General), multiplied by
- the Class C Investor Interest, divided by
- the Aggregate Investor Interest minus the sum of the class investor
interests for all classes of series issued before Series 2000-2 that are
owned by SRFG.
"CLASS C INVESTOR CHARGED-OFF AMOUNT" means, for any distribution date:
- the Charged-Off Amount for that distribution date; multiplied by
- the Class Percentage for Class C for the Charged-Off Amount.
"CLASS C INVESTOR INTEREST" means:
- $52,950,000; minus
- the amount of principal previously paid to the Class C investor,
initially SRFG; minus
- the Class C Cumulative Investor Charged-Off Amount.
"CLASS C PRINCIPAL COLLECTIONS" means for any day or any distribution date:
- the Class Percentage for Class C for Principal Collections for the
related distribution date; multiplied by
- the amount of Principal Collections for that day or for the related Due
Period, as applicable.
"CLASS CUMULATIVE INVESTOR CHARGED-OFF AMOUNT" means the Class A Cumulative
Investor Charged-Off Amount, the Class B Cumulative Investor Charged-Off Amount
or the Class C Cumulative Investor Charged-Off Amount, as applicable.
"CLASS FINANCE CHARGE COLLECTIONS" means, for each class on any day or any
distribution date:
- the Class Percentage for Finance Charge Collections determined as of the
related distribution date; multiplied by
- the amount of Finance Charge Collections for that day or the related Due
Period, as applicable;
provided, however, that Class Finance Charge Collections for each class will be
increased by the lesser of:
- the amount of Class Investment Shortfall for such class; and
- an amount equal to
- the total amount of Finance Charge Collections otherwise allocable to
the Seller Certificate for the related Due Period; multiplied by
- the Class Investment Shortfall for that class divided by the sum of
the class investment shortfalls for all classes of all outstanding
series; and
provided, further, that notwithstanding the foregoing, Class Finance Charge
Collections for each class will not, for any such day or distribution date
during the Controlled Accumulation Period, exceed the amount that would be
available if the Class Percentage equaled
- the amount of the Class Investor Interest on the last day of the Due
Period prior to the commencement of the Controlled Accumulation Period,
divided by
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- the greater of:
- the amount of Principal Receivables in the trust on the first day of
the related Due Period; or
- the sum of the numerators used in calculating the components of the
Series Percentage for Finance Charge Collections for each series in
Group One as of such day or distribution date, as applicable.
"CLASS INVESTED AMOUNT" means the Class A Invested Amount, the Class B
Invested Amount or the Class C Invested Amount, as applicable.
"CLASS INVESTMENT SHORTFALL" for each class for any distribution date
during the Controlled Accumulation Period, will mean the amount, if any, by
which:
- the interest rate for such class for the related Due Period, multiplied
by the amount on deposit in the Series Principal Funding Account for the
benefit of such class as of the end of the previous distribution date,
divided by twelve, exceeds
- the income from the investment of funds on deposit in the Series
Principal Funding Account for the benefit of such class.
"CLASS INVESTOR CHARGED-OFF AMOUNT" means the Class A Investor Charged-Off
Amount, the Class B Investor Charged-Off Amount or the Class C Investor
Charged-Off Amount, as applicable.
"CLASS INVESTOR INTEREST" means the Class A Investor Interest, the Class B
Investor Interest or the Class C Investor Interest, as applicable.
"CLASS PERCENTAGE" means, for any class on any distribution date:
(a) when used for the Charged-Off Amount, the percentage equivalent of a
fraction:
- the numerator of which will be the Class Investor Interest minus the
Supplemental Cash allocable to that class; and
- the denominator of which will be the greater of:
- the amount of Principal Receivables in the trust, and
- the Aggregate Investor Interest minus the Excess Funding Amount
(General), the Excess Funding Amount (SRC) and the sum of the series
pre-funding amounts, if any, for all outstanding series,
in each case on the first day of the related Due Period; or
(b) when used for Principal Collections before a Rapid Amortization Event
occurs, the percentage equivalent of a fraction:
- the numerator of which will be the Class Investor Interest minus the
Supplemental Cash allocable to that class on the first day of the related
Due Period; and
- the denominator of which will be the greater of:
- the amount of Principal Receivables in the trust on the first day of the
related Due Period, and
- the sum of the numerators used in calculating the components of the
Series Percentage for Principal Collections for each series then
outstanding as of that distribution date; or
(c) when used for Principal Collections on and after a Rapid Amortization
Event has occurred, the percentage equivalent of a fraction:
- the numerator of which will be the Class Investor Interest minus the
Supplemental Cash allocable to that class on the first day of the Due
Period before the Rapid Amortization Event; and
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- the denominator of which will be the greater of:
- the amount of Principal Receivables in the trust on the first day of the
related Due Period; and
- the sum of the numerators used in calculating the components of the
Series Percentage for Principal Collections for each series then
outstanding as of that distribution date; or
(d) when used for Finance Charge Collections during the Revolving Period or
the Controlled Accumulation Period, the percentage equivalent of a fraction:
- the numerator of which will be the amount of the applicable Class
Investor Interest minus the Supplemental Cash allocable to that class on
the first day of the related Due Period; and
- the denominator of which will be the greater of:
- the amount of Principal Receivables in the trust on the first day of the
related Due Period; and
- the sum of the numerators used in calculating the components of the
Series Percentage for Finance Charge Collections for each series then
outstanding as of that distribution date; or
(e) when used for Finance Charge Collections during the Rapid Amortization
Period, on each distribution date beginning with the distribution date related
to the Due Period in which the Rapid Amortization Event occurs, the percentage
equivalent of a fraction:
- the numerator of which will be the amount of the Class Investor Interest
minus the Supplemental Cash allocable to that class on the last day of
the related Due Period before the Rapid Amortization Event; and
- the denominator of which will be the greater of:
- the amount of Principal Receivables in the trust on the first day of the
related Due Period; and
- the sum of the numerators used in calculating the components of the
Series Percentage for Finance Charge Collections for each series then
outstanding as of that distribution date.
"CLASS PRINCIPAL COLLECTIONS" means the Class A Principal Collections, the
Class B Principal Collections or the Class C Principal Collections, as
applicable.
"CONTROLLED ACCUMULATION PERIOD" means the period commencing at the opening
of business on the first day of the Due Period related to the distribution date
in October 2003, unless the servicer elects to delay the start of the Controlled
Accumulation Period, and ending upon the earliest to occur of:
- the date on which a Rapid Amortization Event for this series occurs;
- the payment in full of the Series Invested Amount; and
- the Series Termination Date.
"DETERMINATION DATE" for any month means the second business day before the
distribution date for the month.
"DUE PERIOD" for any Account is the period included in the monthly billing
cycle of that Account. When this prospectus supplement refers to a Due Period
ending in a particular month, it means, collectively, the Due Periods applicable
to each of the Accounts that ended during that month. For example, the Due
Period ending in September includes the billing cycles of each of the Accounts
that begin on various days during August and end on various days during
September. The Due Period related to a particular distribution date is the Due
Period ending in the calendar month preceding that distribution date.
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"ELIGIBLE INSTITUTION" means:
- a depositary institution organized under the laws of the United States,
any state or the District of Columbia that at all times has a short-term
certificate of deposit rating of A-1+/P-1 or better by the Rating
Agencies and whose deposits are insured by the FDIC; or
- any other institution that will not cause a Rating Agency to reduce or
withdraw its rating on any class of certificates of any outstanding
series.
"ELIGIBLE RECEIVABLE" means any Receivable that was eligible to be
transferred to the trust by SRFG. A Receivable is an Eligible Receivable if:
- that Receivable is payable in United States dollars;
- that Receivable was created in compliance, in all material respects, with
all legal requirements that apply to SRFG and to Sears, the bank or one
of their affiliates, as applicable;
- that Receivable was created under a contract governing the relevant
Account that complies with all legal requirements that apply to SRFG and
to Sears, the bank or one of their affiliates, as applicable;
- at the time that Receivable was conveyed to the trust, if that Receivable
was created before the related Account was added to the trust, Sears,
SRFG or the trust had good and marketable title to that Receivable free
and clear of all liens, not including statutory or non-consensual liens;
- at the time that Receivable was created, if that Receivable was created
after the related Account was added to the trust, Sears, SRFG or the
trust had good and marketable title to that Receivable free and clear of
all liens, not including statutory or non-consensual liens; and
- that Receivable is an "account," "general intangible" or "chattel paper"
as defined in Article 9 of the Uniform Commercial Code in effect in the
State of New York.
"EXCESS FUNDING AMOUNT (GENERAL)" for any distribution date means the
amount on deposit in the Excess Funding Account (General) less investment
earnings.
"EXCESS FUNDING AMOUNT (SRC)" for any distribution date means the amount on
deposit in the Excess Funding Account (SRC) less investment earnings.
"FINANCE CHARGE COLLECTIONS" means all collections on the Receivables in
any month up to the aggregate amount of Finance Charge Receivables billed for
the applicable Due Period.
"FINANCE CHARGE RECEIVABLES" means, for any Account for any Due Period, the
amount billed as finance charges and, if applicable, fees accounted for as
finance charges on that Account for that Due Period.
"GROUP AVAILABLE PRINCIPAL AMOUNT" means, for each distribution date:
- the amount remaining on deposit in the Group One Principal Collections
Reallocation Account on that distribution date after all withdrawals have
been made from that account for the benefit of any series in Group One,
but before that amount is withdrawn from the Group One Principal
Collections Reallocation Account and paid to SRFG; minus
- the amount deposited in the Group One Principal Collections Reallocation
Account from the series collections account of any series in Group One
that has a controlled amortization period or controlled accumulation
period, as applicable, beginning before the first day of the December
2005 Due Period minus
- the amount deposited in the Group One Principal Collections Reallocation
Account from the series principal collections account of any series in
Group One that has a controlled amortization period or controlled
accumulation period, as applicable, ending before the first day of the
December 2005 Due Period minus
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- the amount deposited in the Group One Principal Collections Reallocation
Account from the series principal collections account of any series in
Group One that is in its rapid amortization period.
"GROUP EXCESS FUNDING AMOUNT" means:
- the Aggregate Excess Funding Amount; multiplied by
- the sum of the numerators used in calculating the class percentage for
Principal Collections for all classes of all series, including the
classes of this series, in Group One; divided by
- the sum of the numerators used in calculating the class percentage for
Principal Collections for all classes of all outstanding series.
"GROUP ONE" means the group of series in the trust to which your series
currently belongs.
"GROUP ONE PRE-FUNDING REALLOCATION ACCOUNT" means an account established
in connection with the pre-funding of any series in Group One.
"HIGHEST RATING" means, with respect to Moody's, P-1 or Aaa and, with
respect to Standard & Poor's, A-1+ or AAA, or any rating that will not cause a
Rating Agency to reduce or withdraw its rating on any class of any outstanding
series.
"INTEREST PAYMENT DATE" means the 15th day of each calendar month, or if
not a business day, the next business day, beginning in November 2000.
"INVESTED AMOUNT" means, for any certificate of a series:
- the initial face amount of the certificate; minus
- the amount of principal the trust has previously paid on that
certificate; minus
- the amount of any losses the certificate suffers because of unreimbursed
charge-offs, insufficient proceeds from the sale of receivables or
investment losses, if any.
"INVESTOR ACCOUNTS" means the following accounts that the trustee has
established or will establish in the name of the trust:
- the Series Collections Account;
- the Series Principal Collections Account;
- the Series Interest Funding Account;
- the Series Principal Funding Account;
- the Series Distribution Account;
- the Group One Collections Account;
- the Group One Finance Charge Collections Reallocation Account;
- the Group One Principal Collections Reallocation Account;
- the Collections Account;
- the Excess Funding Account (General); and
- the Excess Funding Account (SRC).
"INVESTOR INTEREST" means, for any certificate of a series:
- the Invested Amount for that certificate; minus
- the amount of funds in the applicable Series Principal Funding Account,
if any, allocated to that certificate.
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"INVESTOR LOSS" means, for each class as of any distribution date, the
Class Cumulative Investor Charged-Off Amount after giving effect to the
allocations and payments on that distribution date, and if the Receivables are
sold in connection with the termination of the trust or this series, the amount,
if any, by which the Class Investor Interest, determined immediately before the
sale, exceeds the net proceeds of the sale that are payable to the class.
"INVESTOR SERVICING FEE" means, for any distribution date or the related
Due Period:
- the investor servicing fee percentage of 2.00% per year, divided by
twelve; multiplied by
- the Series Investor Interest minus the Supplemental Cash, if any,
allocable to this series on the first day of the related Due Period.
"MINIMUM PRINCIPAL RECEIVABLES BALANCE" means, on any Determination Date,
the sum of the Series Minimum Principal Receivables Balances for all outstanding
series in the trust.
"MINIMUM RECEIVABLES TRIGGER" means the earliest of:
- the beginning of the Due Period immediately following the Due Period
related to the distribution date during the Controlled Accumulation
Period for this series on which the Series Available Principal Amount is
less than zero;
- the date on which a Rapid Amortization Event for this series occurs; or
- a date selected by the servicer, if any, provided that the servicer
provides notification of that date to SRFG, the trustee and the Rating
Agencies no later than two business days before the selected date.
"MONTHLY SERVICER CERTIFICATE" means the certificate of an officer of the
servicer, in the form attached as an exhibit to the Series Supplement.
"NET YIELD" means, for any Due Period or any distribution date, the
annualized percentage equivalent of a fraction:
- the numerator of which is:
- the sum of the Series Finance Charge Collections, Series Additional
Allocable Amounts, and finance charge collections and series additional
allocable amounts, if any, reallocated to this series; minus
- the Series Investor Charged-Off Amount; and
- the denominator of which is the Series Invested Amount.
"PAIRED SERIES" means a new series paired with this series that may be used
to finance the increase in the Seller Interest that results when the trust
deposits Class A principal or Class B principal into the Series Principal
Funding Account.
"PERMITTED INVESTMENTS" means securities or negotiable instruments that
represent:
- obligations issued or fully guaranteed by the United States of America;
- time deposits in or banker's acceptances issued by depository
institutions or trust companies whose short-term deposits or commercial
paper have the Highest Rating;
- commercial paper or other short-term obligations that have the Highest
Rating at the time of the trust's investment;
- investments in money market or common trust funds that have the Highest
Rating;
- demand deposits in any depository institution or trust company whose
short-term deposits or commercial paper that have the Highest Rating;
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- certain repurchase agreements with either:
- an entity subject to the Bankruptcy Code; or
- a financial institution insured by the FDIC or any broker-dealer with
"retail customers" which is under the jurisdiction of the SIPC; and
- any other investment, including:
- shares of open-end mutual funds that invest only in obligations issued
or fully guaranteed by the United States of America; and
- guaranteed investment contracts, if that investment will not cause a
Rating Agency to reduce or withdraw its rating on any class of any
series.
"PRINCIPAL COLLECTIONS" means all collections on the Receivables in any
month other than Finance Charge Collections.
"PRINCIPAL RECEIVABLES" means all Receivables other than Finance Charge
Receivables.
"QUALIFIED TRUST INSTITUTION" means:
- a depositary institution organized under the laws of the United States,
any state or the District of Columbia, or a domestic branch of a foreign
bank, that:
- acts as a trustee for funds deposited in segregated trust accounts in
its corporate trust department, and
- has securities that have an investment grade credit rating from each
Rating Agency; or
- any other institution that will not cause a Rating Agency to reduce or
withdraw its rating on any class of certificates of any outstanding
series.
"RAPID AMORTIZATION EVENT" means a specified event that might impair the
long-term ability of the trust to make all required payments, and which
therefore triggers the commencement of the Rapid Amortization Period. We
describe these events in "The Certificates -- Rapid Amortization Events."
"RAPID AMORTIZATION PERIOD" means the period from, and including, the date
on which a Rapid Amortization Event occurs to, and including, the earlier of:
- the date of the final distribution to the investors in this series; or
- the Series Termination Date.
The first distribution date of the Rapid Amortization Period will be the
distribution date in the calendar month following the date on which a Rapid
Amortization Event occurs.
"RATING AGENCY" means Moody's Investors Service, Inc. or Standard & Poor's
Ratings Services unless otherwise set forth in the Series Supplement for this
series. "Rating Agencies" means both Moody's Investors Service, Inc. and
Standard & Poor's Ratings Services unless otherwise set forth in the Series
Supplement for this series.
"RECEIVABLE" means any receivable arising in an Account.
"REQUIRED DAILY DEPOSIT" will mean during any month the servicer is
required to deposit collections into the Collections Account on a daily basis
pursuant to the Pooling and Servicing Agreement, amounts that will be available
to pay interest and principal, as applicable, under the cash flows, up to the
amount of interest and principal expected to be paid to investors in this series
on the related distribution date, as more fully specified in the Series
Supplement.
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"REVOLVING PERIOD" means the period beginning on the first day of the Due
Period that ends in October 2000, and ending on the earlier of:
- the last business day before the Controlled Accumulation Period begins,
or
- the day a Rapid Amortization Event occurs.
"SELLER INTEREST" means the interest in the trust not represented by the
certificates of any series.
"SELLER PRINCIPAL COLLECTIONS" means, for any day or any distribution date,
the amount of Principal Collections for that day or the related Due Period that
is not characterized as Series Principal Collections for any series.
"SERIES ADDITIONAL ALLOCABLE AMOUNTS," if any, means, for any distribution
date, the sum of:
- Series Yield Collections;
- Series Investment Income; and
- Series Additional Investor Funds.
"SERIES ADDITIONAL FUNDS," if any, means, for any distribution date, the
additional funds deposited into the Series Collections Account on that
distribution date.
"SERIES ADDITIONAL INVESTOR FUNDS," if applicable, means, for any
distribution date, the Series Additional Funds, if any, that the trust does not
apply to pay the Investor Servicing Fee.
"SERIES AGGREGATE EXCESS FUNDING AMOUNT" means the lesser of:
- the Series Investor Interest; divided by the sum of the series investor
interests for all outstanding series in Group One, multiplied by the
Group Excess Funding Amount; and
- the Series Investor Interest, divided by the sum of the series investor
interests for all outstanding series in Group One minus the sum of the
class investor interests for all classes for all outstanding series
issued prior to Series 2000-2 that are owned by SRFG, multiplied by the
Excess Funding Amount (General).
"SERIES ALLOCABLE INVESTMENT AMOUNT" means, for any distribution date, the
sum of:
- the investment income on funds on deposit in the Collections Account for
the related Due Period, multiplied by the sum of the numerators for all
classes in this series used in calculating the Class Percentage for
Finance Charge Collections, divided by the sum of the numerators used in
calculating the class percentage for Finance Charge Collections for all
classes of all outstanding series; plus
- the investment income on funds on deposit in the Group One Collections
Account for the related Due Period, multiplied by the sum of the
numerators for all classes in this series used in calculating the Class
Percentage for Finance Charge Collections, divided by the sum of the
numerators used in calculating the class percentage for Finance Charge
Collections for all classes of all series in Group One.
"SERIES AVAILABLE PRINCIPAL AMOUNT" means, for any distribution date, for
each series in Group One that is in its controlled amortization period or
controlled accumulation period, as applicable, an amount calculated as follows:
For each such series, in sequence, beginning with the series with the largest
series Investor Interest as of that distribution date -- and if more than one
series has the same series Investor Interest on that distribution date,
beginning with whichever of such series has the longest time remaining in its
controlled amortization period or controlled accumulation period, as applicable,
assuming that no rapid amortization event occurs with respect to that
series -- an amount equal to:
- the Group Available Principal Amount; minus
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- the difference between the Series Required Principal Amount and the
amount of such series' controlled amortization amount or controlled
accumulation amount, as applicable, that was funded on the distribution
date, including any portion of the amount that was funded by amounts
withdrawn from the Group One Principal Collections Reallocation Account
but excluding any portion of the amount that was funded by amounts
withdrawn from the Collections Account, in each case as described in "The
Certificates -- Cash Flows."
For purposes of calculating the series available principal amount for each other
such series, the Group Available Principal Amount shall be reduced by the amount
calculated in the second bullet point above for each prior series for which the
series available principal amount was calculated.
"SERIES CUT-OFF DATE" means the last day of the Due Period ending in
September 2000.
"SERIES FINANCE CHARGE COLLECTIONS" means, for any day or any distribution
date, the sum of the amount of Class Finance Charge Collections for each class
of this series for that day or for the related Due Period, as applicable.
"SERIES INVESTED AMOUNT" means, for any distribution date, the sum of the
Class Invested Amounts for each class of this series on that distribution date.
"SERIES INVESTMENT INCOME" means, for any distribution date, the sum of:
- the income from the investment of funds on deposit in the Series Interest
Funding Account;
- the income from the investment of funds on deposit in the Series
Principal Funding Account;
- the income from the investment of funds with respect to the Series
Aggregate Excess Funding Amount; and
- the Series Allocable Investment Amount.
"SERIES INVESTOR INTEREST" means, for any distribution date, the sum of the
Class Investor Interests for each class of this series on that distribution
date.
"SERIES INVESTOR CHARGED-OFF AMOUNT" means the sum of the Class Investor
Charged-Off Amounts for each class of this series.
"SERIES MINIMUM PRINCIPAL RECEIVABLES BALANCE" means, for this series, on
any Determination Date, greater of:
- the Series Investor Interest minus Supplemental Cash on that
Determination Date, divided by 0.909: or
- if a Minimum Receivables Trigger has occurred, the Series Investor
Interest as of the first day of the Due Period before the Minimum
Receivables Trigger occurred minus the following:
(a) Supplemental Cash as of the first day of the Due Period before the
Minimum Receivables Trigger occurred, and
(b) the series Investor Interest, minus Supplemental Cash, of any new
series issued in Group One after the date of the Minimum Receivables
Trigger, provided that the controlled accumulation period or
controlled amortization period, as applicable, for the new series
commences after the first day of the December 2005 Due Period. The
series Investor Interest for a new series used in this clause (b) will
be as adjusted to deduct any portion of the series Investor Interest
used, in the discretion of the servicer, to determine the series
minimum principal receivables balance for any other series in Group
One.
"SERIES PERCENTAGE" for any specified type of collections or charge-offs
means, on any distribution date, the sum of the Class Percentages for that
specified type of collections or charge-offs for each class of a series on that
distribution date.
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"SERIES PRINCIPAL COLLECTIONS" means, for any day or any distribution date,
the sum of the amount of Class Principal Collections for each class of this
series for that day or for the related Due Period, as applicable.
"SERIES REQUIRED PRINCIPAL AMOUNT" means, for each distribution date and
each series in Group One that is in its controlled amortization period or
controlled accumulation period, as applicable:
- 1.20; multiplied by
- the controlled amortization amount or the controlled accumulation amount,
as applicable, for the series for each distribution date.
"SERIES SUPPLEMENT" means the Series Supplement dated as of the closing of
the sale of the certificates to the underwriters, to the Pooling and Servicing
Agreement, as amended, modified or supplemented from time to time.
"SERIES TERMINATION DATE" means the business day following the September
2009 distribution date.
"SERIES YIELD COLLECTIONS" means, for any day or any distribution date:
- the Series Yield Factor; multiplied by
- the amount of Series Principal Collections for that day or the related
Due Period, as applicable.
"SERIES YIELD FACTOR" is initially zero, but may be increased in accordance
with the terms of the Series Supplement.
"SERVICER TERMINATION EVENT" means any event that gives the trustee or
investors holding at least 51% of the aggregate invested amount of certificates
the right to terminate all of the rights and obligations of the servicer under
the Pooling and Servicing Agreement.
"SHIAS" mean Sears Home Improvement Accounts, and predecessor accounts.
"SUPPLEMENTAL CASH" for any distribution date means the Series Aggregate
Excess Funding Amount for that distribution date. For purposes of this
prospectus supplement, allocations of Supplemental Cash for any class shall be
made according to the following calculation:
- the Supplemental Cash; multiplied by
- the Class Investor Interest for that class; divided by
- the Series Investor Interest.
"TSYS" means Total System Services, Inc.
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ANNEX A
OTHER SERIES
The table below sets forth the principal characteristics of the Class A,
Class B and Class C Master Trust Certificates of Series 1994-1, Series 1995-1,
Series 1995-2, Series 1995-3, Series 1995-5, Series 1996-1, Series 1996-3,
Series 1996-4, Series 1996-5, Series 1997-1, Series 1998-1, Series 1998-2 Series
1999-1, Series 1999-2, Series 1999-3, and Series 2000-1, the only series
previously issued by the trust and currently outstanding.
<TABLE>
<S> <C> <C>
CLASS A, CLASS B AND CLASS C MASTER TRUST CERTIFICATES,
1. SERIES 1994-1
Group....................................................... One
Class A Initial Investor Interest........................... $750,000,000
Class B Initial Investor Interest........................... $33,500,000
Class C Initial Investor Interest........................... $98,857,000
Class A Certificate Rate.................................... 7.00%
Class B Certificate Rate.................................... 7.25%
Class C Certificate Rate.................................... 0%
Type........................................................ Controlled Amortization
Class A Scheduled Initial Principal Payment Date............ September 15, 1998
Class A Expected Final Payment Date......................... August 15, 2000
Class B Expected Final Payment Date......................... September 15, 2000
Class C Expected Final Payment Date......................... October 16, 2000
Type of Credit Enhancement.................................. Subordination
Series Closing Date......................................... August 16, 1994
Series Termination Date..................................... January 16, 2004
</TABLE>
Series 1994-1 provides for reallocation of collections to other series in
Group One to the extent provided in the series supplement relating to such other
series.
<TABLE>
<S> <C> <C>
CLASS A, CLASS B AND CLASS C MASTER TRUST CERTIFICATES,
2. SERIES 1995-1
Group....................................................... One
Class A Initial Investor Interest........................... $200,000,000
Class B Initial Investor Interest........................... $10,000
Class C Initial Investor Interest........................... $35,285,000
Class A Certificate Rate.................................... 8.24%
Class B Certificate Rate.................................... 8.24%
Class C Certificate Rate.................................... 0%
Type........................................................ Controlled Amortization
Class A Scheduled Initial Principal Payment Date............ February 15, 1999
Class A Expected Final Payment Date......................... January 15, 2001
Class B Expected Final Payment Date......................... February 15, 2001
Class C Expected Final Payment Date......................... March 15, 2001
Type of Credit Enhancement.................................. Subordination
Series Closing Date......................................... January 4, 1995
Series Termination Date..................................... June 16, 2004
</TABLE>
Series 1995-1 provides for reallocation of collections to other series in
Group One to the extent provided in the series supplement relating to such other
series.
A-1
<PAGE> 74
<TABLE>
<S> <C> <C>
CLASS A, CLASS B AND CLASS C MASTER TRUST CERTIFICATES,
3. SERIES 1995-2
Group....................................................... One
Class A Initial Investor Interest........................... $600,000,000
Class B Initial Investor Interest........................... $26,966,000
Class C Initial Investor Interest........................... $78,917,000
Class A Certificate Rate.................................... 8.10%
Class B Certificate Rate.................................... 8.30%
Class C Certificate Rate.................................... 0%
Type........................................................ Controlled Amortization
Class A Scheduled Initial Principal Payment Date............ February 15, 1999
Class A Expected Final Payment Date......................... January 15, 2001
Class B Expected Final Payment Date......................... February 15, 2001
Class C Expected Final Payment Date......................... March 15, 2001
Type of Credit Enhancement.................................. Subordination
Series Closing Date......................................... January 20, 1995
Series Termination Date..................................... June 16, 2004
</TABLE>
Series 1995-2 provides for reallocation of collections to other series in
Group One to the extent provided in the series supplement relating to such other
series.
<TABLE>
<S> <C> <C>
CLASS A, CLASS B AND CLASS C MASTER TRUST CERTIFICATES,
4. SERIES 1995-3
Group....................................................... One
Class A Initial Investor Amount............................. $500,000,000
Class B Initial Investor Amount............................. $22,500,000
Class C Initial Investor Amount............................. $65,740,000
Class A Certificate Rate.................................... 7.00%
Class B Certificate Rate.................................... 7.25%
Class C Certificate Rate.................................... 0%
Type........................................................ Controlled Amortization
Class A Scheduled Initial Principal Payment Date............ June 15, 1999
Class A Expected Final Payment Date......................... May 15, 2001
Class B Expected Final Payment Date......................... June 15, 2001
Class C Expected Final Payment Date......................... July 15, 2001
Type of Credit Enhancement.................................. Subordination
Series Closing Date......................................... May 8, 1995
Series Termination Date..................................... October 16, 2004
</TABLE>
Series 1995-3 provides for reallocation of collections to other series in
Group One to the extent provided in the series supplement relating to such other
series.
<TABLE>
<S> <C> <C>
CLASS A, CLASS B AND CLASS C MASTER TRUST CERTIFICATES,
5. SERIES 1995-5
Group....................................................... One
Class A Initial Investor Amount............................. $500,000,000
Class B Initial Investor Amount............................. $22,730,000
Class C Initial Investor Amount............................. $65,520,000
Class A Certificate Rate.................................... 6.05%
Class B Certificate Rate.................................... 6.20%
Class C Certificate Rate.................................... 0%
Type........................................................ Controlled Amortization
Class A Scheduled Initial Principal Payment Date............ March 15, 2002
Class A Expected Final Payment Date......................... March 15, 2004
Class C Expected Final Payment Date......................... April 15, 2004
Type of Credit Enhancement.................................. Subordination
Series Closing Date......................................... December 12, 1995
Series Termination Date..................................... January 16, 2008
</TABLE>
Series 1995-5 provides for reallocation of collections to other series in
Group One to the extent provided in the series supplement relating to such other
series.
A-2
<PAGE> 75
<TABLE>
<S> <C> <C>
CLASS A, CLASS B AND CLASS C MASTER TRUST CERTIFICATES,
6. SERIES 1996-1
Group....................................................... One
Class A Initial Investor Interest........................... $500,000,000
Class B Initial Investor Interest........................... $22,500,000
Class C Initial Investor Interest........................... $65,740,000
Class A Certificate Rate.................................... 6.20%
Class B Certificate Rate.................................... 6.35%
Class C Certificate Rate.................................... 0%
Type........................................................ Controlled Amortization
Class A Scheduled Initial Principal Payment Date............ April 17, 2000
Class A Expected Final Payment Date......................... March 15, 2002
Class B Expected Final Payment Date......................... April 15, 2002
Class C Expected Final Payment Date......................... May 15, 2002
Type of Credit Enhancement.................................. Subordination
Series Closing Date......................................... March 26, 1996
Series Termination Date..................................... February 16, 2006
</TABLE>
Series 1996-1 provides for reallocation of collections to other series in
Group One to the extent provided in the series supplement relating to such other
series.
<TABLE>
<S> <C> <C>
CLASS A, CLASS B AND CLASS C MASTER TRUST CERTIFICATES,
7. SERIES 1996-3
Group....................................................... One
Class A Initial Investor Amount............................. $500,000,000
Class B Initial Investor Amount............................. $22,500,000
Class C Initial Investor Amount............................. $65,740,000
Class A Certificate Rate.................................... 7.00%
Class B Certificate Rate.................................... 7.10%
Class C Certificate Rate.................................... 0%
Type........................................................ Controlled Amortization
Class A Scheduled Initial Principal Payment Date............ August 15, 2002
Class A Expected Final Payment Date......................... July 15, 2004
Class B Expected Final Payment Date......................... August 16, 2004
Class C Expected Final Payment Date......................... September 15, 2004
Type of Credit Enhancement.................................. Subordination
Series Closing Date......................................... August 6, 1996
Series Termination Date..................................... July 16, 2008
</TABLE>
Series 1996-3 provides for reallocation of collections to other series in
Group One to the extent provided in the series supplement relating to such other
series.
<TABLE>
<S> <C> <C>
CLASS A, CLASS B AND CLASS C MASTER TRUST CERTIFICATES,
8. SERIES 1996-4
Group....................................................... One
Class A Initial Investor Interest........................... $500,000,000
Class B Initial Investor Interest........................... $22,500,000
Class C Initial Investor Interest........................... $65,740,000
Class A Certificate Rate.................................... 6.45%
Class B Certificate Rate.................................... 6.65%
Class C Certificate Rate.................................... 0%
Type........................................................ Controlled Amortization
Class A Scheduled Initial Principal Payment Date............ November 15, 2000
Class A Expected Final Payment Date......................... October 15, 2002
Class B Expected Final Payment Date......................... November 15, 2002
Class C Expected Final Payment Date......................... December 16, 2002
Type of Credit Enhancement.................................. Subordination
Series Closing Date......................................... October 29, 1996
Series Termination Date..................................... October 17, 2006
</TABLE>
Series 1996-4 provides for reallocation of collections to other series in
Group One to the extent provided in the series supplement relating to such other
series.
A-3
<PAGE> 76
<TABLE>
<S> <C> <C>
CLASS A, CLASS B AND CLASS C MASTER TRUST CERTIFICATES,
9. SERIES 1996-5
Group....................................................... One
Class A Initial Investor Interest........................... $500,000,000
Class B Initial Investor Interest........................... $25,000,000
Class C Initial Investor Interest........................... $103,931,000
Class A Certificate Rate.................................... One-month LIBOR plus
0.23%
Class B Certificate Rate.................................... One-month LIBOR plus
0.43%
Class C Certificate Rate.................................... 0%
Type........................................................ Controlled Amortization
Class A Scheduled Initial Principal Payment Date............ January 16, 2006
Class A Expected Final Payment Date......................... December 17, 2007
Class B Expected Final Payment Date......................... February 15, 2008
Class C Expected Final Payment Date......................... March 17, 2008
Type of Credit Enhancement.................................. Subordination
Series Closing Date......................................... December 16, 1996
Series Termination Date..................................... December 16, 2011
</TABLE>
Series 1996-5 provides for reallocation of collections to other series in
Group One to the extent provided in the series supplement relating to such other
series.
<TABLE>
<S> <C> <C>
CLASS A, CLASS B AND CLASS C MASTER TRUST CERTIFICATES,
10. SERIES 1997-1
Group....................................................... One
Class A Initial Investor Interest........................... $500,000,000
Class B Initial Investor Interest........................... $22,500,000
Class C Initial Investor Interest........................... $65,740,000
Class A Certificate Rate.................................... 6.20%
Class B Certificate Rate.................................... 6.40%
Class C Certificate Rate.................................... 0%
Type........................................................ Controlled Amortization
Class A Scheduled Initial Principal Payment Date............ August 15, 2001
Class A Expected Final Payment Date......................... August 15, 2003
Class B Expected Final Payment Date......................... September 15, 2003
Class C Expected Final Payment Date......................... October 15, 2003
Type of Credit Enhancement.................................. Subordination
Series Closing Date......................................... July 31, 1997
Series Termination Date..................................... July 17, 2007
</TABLE>
Series 1997-1 provides for reallocation of collections to other series in
Group One to the extent provided in the series supplement relating to such other
series.
<TABLE>
<S> <C> <C>
CLASS A, CLASS B AND CLASS C MASTER TRUST CERTIFICATES,
11. SERIES 1998-1
Group....................................................... One
Class A Initial Investor Interest........................... $500,000,000
Class B Initial Investor Interest........................... $35,300,000
Class C Initial Investor Interest........................... $52,950,000
Class A Certificate Rate.................................... 5.80%
Class B Certificate Rate.................................... 6.00%
Class C Certificate Rate.................................... 0%
Type........................................................ Controlled Amortization
Class A Scheduled Initial Principal Payment Date............ September 15, 2000
Class A Expected Final Payment Date......................... August 15, 2001
Class B Expected Final Payment Date......................... October 15, 2001
Class C Expected Final Payment Date......................... November 15, 2001
Type of Credit Enhancement.................................. Subordination
Series Closing Date......................................... June 2, 1998
Series Termination Date..................................... August 16, 2005
</TABLE>
Series 1998-1 provides for reallocation of collections to other series in
Group One to the extent provided in the series supplement relating to such other
series.
A-4
<PAGE> 77
<TABLE>
<S> <C> <C>
CLASS A, CLASS B AND CLASS C MASTER TRUST CERTIFICATES,
12. SERIES 1998-2
Group....................................................... One
Class A Initial Investor Interest........................... $450,000,000
Class B Initial Investor Interest........................... $32,000,000
Class C Initial Investor Interest........................... $48,000,000
Class A Certificate Rate.................................... 5.25%
Class B Certificate Rate.................................... 0%
Class C Certificate Rate.................................... 0%
Type........................................................ Controlled Amortization
Class A Scheduled Initial Principal Payment Date............ November 15, 2002
Class A Expected Final Payment Date......................... October 15, 2004
Class B Expected Final Payment Date......................... December 15, 2004
Class C Expected Final Payment Date......................... January 17, 2005
Type of Credit Enhancement.................................. Subordination
Series Closing Date......................................... November 9, 1998
Series Termination Date..................................... October 16, 2008
</TABLE>
Series 1998-2 provides for reallocation of collections to other series in
Group One to the extent provided in the series supplement relating to such other
series.
<TABLE>
<S> <C> <C>
CLASS A, CLASS B AND CLASS C MASTER TRUST CERTIFICATES,
13. SERIES 1999-1
Group....................................................... One
Class A Initial Investor Interest........................... $500,000,000
Class B Initial Investor Interest........................... $35,300,000
Class C Initial Investor Interest........................... $52,950,000
Class A Certificate Rate.................................... 5.65%
Class B Certificate Rate.................................... 0%
Class C Certificate Rate.................................... 0%
Type........................................................ Controlled Amortization
Class A Scheduled Initial Principal Payment Date............ April 15, 2003
Class A Expected Final Payment Date......................... March 15, 2005
Class B Expected Final Payment Date......................... May 15, 2005
Class C Expected Final Payment Date......................... June 17, 2005
Type of Credit Enhancement.................................. Subordination
Series Closing Date......................................... March 23, 1999
Series Termination Date..................................... March 17, 2009
</TABLE>
Series 1999-1 provides for reallocation of collections to other series in
Group One to the extent provided in the series supplement relating to such other
series.
<TABLE>
<S> <C> <C>
CLASS A, CLASS B AND CLASS C MASTER TRUST CERTIFICATES,
14. SERIES 1999-2
Group....................................................... One
Class A Initial Investor Interest........................... $500,000,000
Class B Initial Investor Interest........................... $35,300,000
Class C Initial Investor Interest........................... $52,950,000
Class A Certificate Rate.................................... 6.35%
Class B Certificate Rate.................................... 0%
Class C Certificate Rate.................................... 0%
Type........................................................ Controlled Amortization
Class A Scheduled Initial Principal Payment Date............ March 15, 2002
Class A Expected Final Payment Date......................... February 17, 2003
Class B Expected Final Payment Date......................... April 15, 2003
Class C Expected Final Payment Date......................... May 15, 2003
Type of Credit Enhancement.................................. Subordination
Series Closing Date......................................... September 27, 1999
Series Termination Date..................................... February 16, 2007
</TABLE>
Series 1999-2 provides for reallocation of collections to other series in
Group One to the extent provided in the series supplement relating to such other
series.
A-5
<PAGE> 78
<TABLE>
<S> <C> <C>
CLASS A, CLASS B AND CLASS C MASTER TRUST CERTIFICATES,
15. SERIES 1999-3
Group....................................................... One
Class A Initial Investor Interest........................... $400,000,000
Class B Initial Investor Interest........................... $28,250,000
Class C Initial Investor Interest........................... $42,400,000
Class A Certificate Rate.................................... 6.45%
Class B Certificate Rate.................................... 0%
Class C Certificate Rate.................................... 0%
Type........................................................ Controlled Amortization
Class A Scheduled Initial Principal Payment Date............ December 15, 2003
Class A Expected Final Payment Date......................... November 15, 2005
Class B Expected Final Payment Date......................... December 15, 2005
Class C Expected Final Payment Date......................... February 15, 2006
Type of Credit Enhancement.................................. Subordination
Series Closing Date......................................... November 23, 1999
Series Termination Date..................................... November 17, 2009
</TABLE>
Series 1999-3 provides for reallocation of collections to other series in
Group One to the extent provided in the series supplement relating to such other
series.
<TABLE>
<S> <C> <C>
CLASS A, CLASS B AND CLASS C MASTER TRUST CERTIFICATES,
16. SERIES 2000-1
Group....................................................... One
Class A Initial Investor Interest........................... $850,000,000
Class B Initial Investor Interest........................... $60,000,000
Class C Initial Investor Interest........................... $90,000,000
Class A Certificate Rate.................................... 7.25%
Class B Certificate Rate.................................... 7.50%
Class C Certificate Rate.................................... 0%
Type........................................................ Controlled Amortization
Class A Scheduled Initial Principal Payment Date............ December 16, 2002
Class A Expected Final Payment Date......................... November 17, 2003
Class B Expected Final Payment Date......................... December 15, 2003
Class C Expected Final Payment Date......................... January 15, 2004
Type of Credit Enhancement.................................. Subordination
Series Closing Date......................................... June 7, 2000
Series Termination Date..................................... November 16, 2007
</TABLE>
Series 2000-1 provides for reallocation of collections to other series in
Group One to the extent provided in the series supplement relating to such other
series.
A-6
<PAGE> 79
PROSPECTUS
MASTER TRUST CERTIFICATES
SEARS CREDIT ACCOUNT MASTER TRUST II
ISSUER
<TABLE>
<S> <C>
SEARS, ROEBUCK AND CO. SRFG, INC.
SERVICER SELLER
</TABLE>
------------------------
<TABLE>
<S> <C>
------------------------------------ THE TRUST
The certificates represent
interests in the trust and - Sears, Roebuck and Co.,
are not obligations of SRFG, Inc. and Bank One,
Sears, Roebuck and Co., National Association, as
Sears National Bank, trustee, formed the Sears
SRFG, Inc. or any of Credit Account Master Trust
their affiliates. II in July 1994.
Neither the FDIC nor - The trust's assets include
any other governmental a portfolio of receivables
agency has insured or from selected charge
guaranteed the accounts originated by
certificates or the Sears, Sears National Bank
trust's assets. or their affiliates.
SRFG and its underwriters THE CERTIFICATES
and agents will not
sell certificates to you - SRFG intends to sell up to
unless you have received $4,090,000,000 aggregate
both this prospectus and a principal amount of
prospectus supplement certificates, in one or
describing the terms of more series from time to
that series of certificates. time, representing
interests in the trust.
------------------------------------
- Your interest in the trust
will include the right to
receive a varying
percentage of each month's
collections of receivables.
- The trust will pay interest
and principal on each series
of certificates as
specified in the prospectus
supplement for the series.
CREDIT ENHANCEMENT
- SRFG may provide credit
enhancement to a series or
class of certificates,
which the prospectus
supplement for a series
will describe.
</TABLE>
------------------------
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these securities or
determined if this prospectus is accurate or complete. Any representation to the
contrary is a criminal offense.
September 12, 2000
<PAGE> 80
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Overview of the Information in this
Prospectus and the Prospectus
Supplement....................... 3
Prospectus Summary................. 4
The Seller......................... 12
The Servicer....................... 12
The Credit Card Bank............... 12
The Trustee........................ 13
Legal Matters Relating to the
Receivables...................... 13
Transfer of Receivables.......... 13
Security Interests in
Receivables................... 14
Insolvency Related Matters....... 15
Consumer Protection Laws and
Debtor Relief Laws Applicable
to the Receivables............ 17
Claims and Defenses of Credit
Account Customers Against the
Trust......................... 17
The Trust.......................... 18
Formation of the Trust........... 18
Collections Account and Group
Collections Accounts.......... 19
Adjustments to Receivables....... 20
Addition of Accounts............. 20
Removal of Accounts.............. 22
Repurchase of Trust Portfolio.... 23
Repurchase of Specified
Receivables................... 24
Termination of the Trust......... 25
Indemnification of Trust and
Trustee....................... 25
The Certificates................... 25
General.......................... 26
Interest Payments................ 26
Principal Payments............... 26
Class Percentages and Seller
Percentage.................... 27
Investor Losses.................. 27
Reallocations and Subordination
of Collections................ 27
Aggregate and Net Payments....... 28
Additional Funds................. 28
Investment of Funds in Investor
Accounts...................... 29
Final Payment of Principal;
Termination of Series......... 29
Description of Credit
Enhancement................... 30
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Establishing and Issuing New
Series........................ 31
Reallocation of Series Among
Groups........................ 32
Meetings......................... 32
Book-Entry Registration.......... 32
Definitive Certificates.......... 35
List of Certificateholders....... 36
Exchange of Certificates for
Seller Interest............... 36
Sale of Seller Interest.......... 36
Amendments....................... 37
Servicer Duties, Compensation and
Other Matters.................... 38
Servicing Compensation and
Payment of Expenses........... 38
Resignation or Merger of
Servicer; Delegation of
Duties........................ 38
Servicer Termination Events...... 38
Reports to Certificateholders.... 39
Evidence as to Compliance........ 40
Use of Proceeds.................... 41
Federal Income Tax Consequences.... 41
General.......................... 41
Tax Treatment of the Certificates
as Debt....................... 42
United States Investors.......... 43
Foreign Investors................ 46
Backup Withholding and
Information Reporting......... 47
New Withholding Regulations...... 48
Possible Characterization of the
Certificates.................. 48
State Tax Consequences............. 50
General.......................... 50
Arizona, Delaware, Georgia,
Illinois, Ohio and Texas...... 50
ERISA Considerations............... 51
Plan of Distribution............... 52
Legal Matters...................... 54
Where You Can Find More
Information...................... 54
Glossary of Terms.................. 56
</TABLE>
2
<PAGE> 81
OVERVIEW OF THE INFORMATION IN THIS PROSPECTUS
AND THE PROSPECTUS SUPPLEMENT
We provide information to you about the certificates in two separate
documents that progressively provide more detail:
- this prospectus, which provides general information, some of which may
not apply to a particular series of certificates, including your series;
and
- the prospectus supplement, which will describe the specific terms of your
series of certificates.
The prospectus supplement will describe:
- the timing of interest and principal payments for your class of
certificates;
- financial and other information about the trust's assets, including
receivables;
- the credit enhancement for and subordination of your class of
certificates;
- the ratings for your class of certificates; and
- the method of selling the certificates.
You should rely only on the information provided in this prospectus and the
prospectus supplement. We have not authorized anyone to provide you with
different information.
We are not offering to sell or soliciting offers to buy the certificates in
any state where the offer is not permitted.
We include cross-references in this prospectus and in the prospectus
supplement to sections in each document where you can find related discussions
containing additional information. The Tables of Contents in this prospectus and
in the prospectus supplement provide the pages on which these sections begin.
3
<PAGE> 82
PROSPECTUS SUMMARY
The following summary generally describes the trust, including the typical
provisions of each series of certificates. The trust's certificates are complex
financial instruments. This summary does not include all information that SRFG
believes to be material to an investment in the certificates. The remainder of
this prospectus contains more detailed information about the trust, as does the
prospectus supplement that relates to the specific series being issued. You
should review the entire prospectus and the prospectus supplement before
deciding to invest in the certificates.
GENERAL....................... Each certificate represents an interest in the
assets in the trust, which consist primarily
of credit account receivables and cash
payments on those receivables.
SERVICER...................... Sears is the servicer for the trust, and in
that capacity handles billing and collection
efforts for the receivables in the trust.
Sears principal executive offices are located
at 3333 Beverly Road, Hoffman Estates,
Illinois 60179 (847-286-2500). Sears is a
multi-line retailer and credit provider. The
receivables in the trust arise from domestic
credit operations.
SELLER........................ SRFG is the seller of the receivables to the
trust. SRFG's principal executive offices are
located at 3711 Kennett Pike, Greenville,
Delaware 19807 (302-434-3176). SRFG, a wholly
owned subsidiary of Sears, was organized for
limited purposes, including to facilitate the
issuance of the certificates.
TRUSTEE....................... Bank One, National Association (formerly The
First National Bank of Chicago) is the
trustee. The trustee's principal corporate
trust office is located at 1 Bank One Plaza,
Suite IL1-0126, Chicago, Illinois 60670-0126.
BANK.......................... Sears National Bank is a wholly owned
subsidiary of Sears and a "credit card bank"
under the Bank Holding Company Act. The bank
issues the accounts in the Sears portfolio of
credit accounts. The bank transfers to Sears
all receivables arising under the bank's
accounts.
FORMATION OF THE TRUST;
TRANSFER OF RECEIVABLES....... Sears, SRFG and the trustee formed the trust in
July 1994 by entering into a Pooling and
Servicing Agreement that applies to all
series of certificates. Under the Pooling and
Servicing Agreement, SRFG has transferred to
the trust all the receivables existing under
designated accounts. As the credit account
customers make additional charges on the
trust's accounts and incur additional finance
charges and other fees, SRFG transfers the
additional receivables resulting from those
purchases, charges and fees to the trust on
an ongoing basis. In the future, SRFG may
also designate more accounts as trust
accounts and transfer the receivables from
those accounts to the trust.
4
<PAGE> 83
The trust's receivables include:
- principal receivables, which generally
are amounts owed by credit account
customers as a result of their purchases
of goods and services, late fees and
other fees; and
- finance charge receivables, which
generally are amounts owed by credit
account customers as a result of
interest accrued on unpaid principal
balances.
TRUST ASSETS.................. The trust's assets include or may include the
following:
- credit card receivables;
- cash payments by credit account
customers;
- interests in the cash recoveries of
receivables owned by SRFG and charged
off as uncollectible;
- interests in other pools of credit card
receivables;
- credit support or enhancement for a
particular series or class within a
series;
- additional funds that the servicer may
elect to add to the trust;
- cash deposits in investor accounts; and
- rights to payments under interest rate
protection agreements.
CHARGE-OFFS................... Sears may charge off certain receivables in the
trust as uncollectible. We refer to these
receivables as charge-offs. The trust will
reimburse investors for charge-offs to the
extent funds are available.
RECOVERIES.................... SRFG has agreed to transfer to the trust as
additional funds a portion of the amounts it
recovers with respect to accounts that Sears
charged off as uncollectible. See "The
Certificates -- Additional Funds" for more
detailed information.
DISTRIBUTION DATES............ A distribution date is the date in each month,
usually the 15th or the following business
day, on which the trust allocates collections
from the preceding calendar month to
investors and the trustee deposits those
collections into the appropriate accounts. A
distribution date may also be the date in a
particular month on which the trust pays
interest and/or principal due to investors.
ISSUANCE OF CERTIFICATES...... The trust issues certificates in series. The
certificates comprising a series are governed
by the same general terms. The trust may
issue different classes of certificates
within each series. Each certificate within a
class has the same characteristics as the
other certificates in that class. The trust
assigns each series to a particular group
5
<PAGE> 84
for purposes of reallocating collections
among series in a group.
The trust has issued many series of
certificates, and SRFG expects that the trust
will issue additional series. The Pooling and
Servicing Agreement permits the trust to
issue additional series without the consent
of the investors in any outstanding series.
SRFG and the trust will not request your
consent or allow you to review the series
terms before issuing any new series in the
future.
Your certificate may reflect your right to the
benefit of the credit enhancement established
with respect to your series or interest rate
protection agreements for your series.
INTEREST...................... The trust will pay interest on the certificates
as specified in the prospectus supplement.
The interest payment dates will also be
specified in the prospectus supplement.
PRINCIPAL..................... The trust will be scheduled to pay principal on
each class of a series either:
- in a single payment on a specified date,
or
- in monthly payments beginning on a
specified date.
The prospectus supplement for a specific series
will set forth the scheduled principal
payments for each class of that series. Under
certain circumstances, the trust may be
unable to meet the schedule. Under other
circumstances -- referred to as rapid
amortization events, which we describe below
in this summary -- the trust may be required
to repay principal on an expedited basis.
Each series of certificates will have two types
of maturity dates:
- class expected final payment dates,
which may be different for each class in
a series, and
- a series termination date.
The class expected final payment date for a
particular class of certificates is the date
on which SRFG believes the trust will make
the final principal payment to investors in
that class. If, however, a rapid amortization
event occurs, the final payment may occur
earlier or later than the class expected
final payment date.
The series termination date is the last day on
which the trust may make payments on the
certificates of a series. It is always later
than the class expected final payment date
for each class. If the trust owes principal
to investors during the month before the
series termination date, the trustee will
sell receivables, in an amount proportionate
to the series' remaining interest in the
trust, to repay the principal. After the
series termination
6
<PAGE> 85
date, the trust will no longer allocate
collections to the series.
REVOLVING PERIOD.............. The revolving period for a series begins when
that series becomes entitled to receive a
proportionate share of the trust's
collections. Typically, the revolving period
begins on the first day of the billing cycles
that end in the month the trust issues the
series, or in the following month. For
example, if the trust issued a series in
early January, that series might be entitled
to payments due from credit account customers
on various dates in January, which would be
allocated to investors on the distribution
date in February. If the trust issued the
series in late January, that series might
first be entitled to payments due from credit
account customers on various dates in
February, which would be allocated to
investors on the distribution date in March.
The revolving period ends when the trust
begins using principal collections to make
principal payments or to accumulate the cash
to be used to make later principal payments.
Generally, this will be the last business day
before the controlled amortization period or
the controlled accumulation period begins, or
the day a rapid amortization event occurs.
In general, during the revolving period, the
trust pays principal collections allocated to
you to SRFG. During the revolving period, the
trust may also use principal collections
allocated to one series to pay the principal
of other series.
CONTROLLED AMORTIZATION
PERIOD........................ If a series requires that the trust repay its
principal in scheduled monthly payments, the
series will have a controlled amortization
period. During the controlled amortization
period, the trust will apply principal
collections allocated to the series to pay
principal on the certificates, up to the
amount of the scheduled monthly principal
payment.
The controlled amortization period will begin
on the first day of each of the billing
cycles ending in the month preceding the
month in which the trust will make the first
principal payment for the series, as
specified in the prospectus supplement. The
controlled amortization period will end on
the earliest of:
- the day the trust repays the principal
of the series in full,
- the day a rapid amortization event
occurs, or
- the series termination date.
CONTROLLED ACCUMULATION
PERIOD........................ If a series requires that the trust repay its
principal in a single payment, the series
will have a controlled accumulation period.
During the controlled accumulation period,
the trust will deposit principal collections
allocated to the
7
<PAGE> 86
series into the investor account named the
Series Principal Funding Account. The trust
accumulates principal collections in the
Series Principal Funding Account over several
months, so that it will have enough of these
collections available to make the final
payment. The controlled accumulation period
will begin on the first day of each of the
billing cycles ending in the month preceding
the month in which the trust will first
deposit collections into the Series Principal
Funding Account, as specified in the
prospectus supplement. The controlled
accumulation period will end on the earliest
of:
- the day the trust repays the principal
of the series in full,
- the day a rapid amortization event
occurs, or
- the series termination date.
A series may also have a controlled
accumulation period followed by a controlled
amortization period, in which case the
controlled accumulation period will terminate
when the controlled amortization period
begins.
RAPID AMORTIZATION EVENTS..... Rapid amortization events are certain events
that might impair the long-term ability of
the trust to make all required payments.
Examples of these events include:
- legal issues with transferring
receivables to the trust;
- legal issues with the status of the
trust;
- certain breaches of representations,
warranties or covenants;
- economic performance that may
unfavorably impact the trust; or
- certain events of insolvency with
respect to SRFG, Sears National Bank or
Sears.
For some of these events to become rapid
amortization events, the trustee or a
specified percentage of investors must
declare them to be rapid amortization events;
others become rapid amortization events
automatically when they occur.
RAPID AMORTIZATION PERIOD..... If a rapid amortization event for a series
occurs, the trust will repay the principal of
that series on a monthly basis and as quickly
as possible under the cash flows for that
series. The cash flows are the allocation,
payment and reimbursement priorities for a
series and will be provided in the prospectus
supplement. The rapid amortization period for
a series begins when a rapid amortization
event for that series occurs and continues
until the trust has fully paid the principal
of that series or until that series
terminates.
8
<PAGE> 87
SELLER INTEREST............... SRFG owns a Seller Certificate that represents
the interest in the trust not represented by
certificates of any series, which we refer to
as the seller interest. The seller interest
varies based on the size of the interests of
the trust's investors and the total amount of
the trust's principal receivables. Among
other things, the seller interest will
decline as a result of decreases in the
amount of the trust's receivables that may be
caused by a net decline in account balances.
The Seller Certificate reflects SRFG's right
to receive each month a portion of the
collections paid on the receivables based on
the seller interest.
CLASSES, ALLOCATIONS AND
REALLOCATIONS............... Each series may have one or more classes.
Typically, Class B certificates rank junior
to Class A certificates and Class C
certificates rank junior to Class B
certificates. SRFG may own one or more of
these junior classes. Your certificate
reflects your right to receive each month a
portion of the collections paid on the
trust's receivables and the additional funds
SRFG adds to the trust minus your share of
charge-offs. The trust treats as finance
charge collections all collections on the
trust's receivables in any month up to the
aggregate amount of finance charge
receivables billed for the applicable period.
The trust treats as principal collections all
collections on the trust's receivables in any
month other than finance charge collections.
The trust will allocate principal
collections, finance charge collections, and
charge-offs among the outstanding series on a
pro rata basis based on the investor interest
in receivables for each series. The trust
will also allocate additional funds to each
series pro rata based on its investor
interest in receivables. Once this allocation
among the series has been made, the trust
will further allocate a percentage of the
collections allocable to each series among
that series' classes. The Series Supplement
for each series will specify the percentages
of these collections and charge-offs that are
allocated to each class of that series at
each point in time. Each of these class
percentages, will be based on:
- the class investor interest in
receivables at certain points in time;
- the amount of principal receivables in
the trust;
- the amount of cash in certain cash
accounts designated as excess funding
accounts;
- the interests of other series in the
trust;
9
<PAGE> 88
- whether that series is in its revolving
period, its controlled amortization
period, its controlled accumulation
period or its rapid amortization period;
and
- how much principal will be available to
reallocate to that series from other
series during the controlled
amortization period or controlled
accumulation period.
The class percentages may vary for principal
collections, finance charge collections and
charge-offs.
Finance charge collections and principal
collections can only be used to fund certain
payments, deposits and reimbursements. When
Sears charges off a receivable as
uncollectible, it allocates a portion of the
amount charged off against your interest in
principal receivables based on your class
percentage. Typically, the trust uses finance
charge collections and other income allocated
to you to pay interest on your certificates,
to pay to the servicer the portion of the
servicing fee allocated to you, and to
reimburse you for charge-offs that the trust
previously allocated to you, thus reinstating
your interest in principal receivables. When
you are scheduled to receive principal
payments, the trust generally uses principal
collections to pay the principal of your
certificates.
In general, the trust will use collections
allocated to you to make required payments to
you, to pay your share of servicing fees and
to reimburse your share of charge-offs. If
your series has more collections than it
needs in any month, the trust may reallocate
the excess collections to other series so
those series may make their payments. You
will not be entitled to receive these excess
collections. If your series does not have
enough collections in any month, the trust
may use excess collections from other series
or from the Seller Certificate to make
payments to you.
CREDIT ENHANCEMENT............ A series or a class of a series may have the
benefit of credit enhancement, which provides
additional payment protection to investors in
that series or class. For instance,
subordination provisions may require the
trust to use collections allocated to a
junior series or class first to make
payments, deposits and reimbursements for a
senior series or class. The trust would make
payments, deposits and reimbursements for the
junior series or class only when it had
satisfied the requirements of the senior
series or class.
Credit enhancement for a series may also
provide the trust with an additional source
of funds if the trust does not receive
sufficient collections on receivables to make
all required payments, deposits and
reimbursements for that
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series in any month. This credit enhancement
may include:
- cash collateral accounts or reserve
funds,
- letters of credit,
- surety bonds, or
- insurance policies.
The prospectus supplement may also identify
other forms of credit enhancement.
CLEARANCE AND SETTLEMENT...... You may elect to hold your certificates through
one of the following clearing organizations,
all of which permit transfers of securities
or interests in securities by computer
entries instead of paper transfers:
- DTC in the United States,
- Clearstream Banking in Europe, or
- the Euroclear System in Europe.
You may transfer your interest within DTC,
Clearstream Banking or Euroclear in
accordance with the usual rules and operating
procedures of the relevant system. Parties
holding directly or indirectly through DTC,
on the one hand, and other parties holding
directly or indirectly through Clearstream
Banking or Euroclear, on the other hand, may
make cross-market transfers through the
relevant depositories of Clearstream Banking
and Euroclear.
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Below, we use some terms that are capitalized. We have defined these terms
in the Glossaries of Terms to the prospectus supplement and to this prospectus.
The Glossary of Terms to this prospectus begins on page 56.
THE SELLER
SRFG was incorporated under the laws of the State of Delaware in 1988. SRFG
is a wholly owned subsidiary of Sears. SRFG was organized for the following
limited purposes:
- to facilitate the issuance of certificates and similar securities;
- to purchase, hold, own and sell receivables;
- to hold interests in securitizations such as the Seller Certificate and
subordinated classes of certificates; and
- to perform activities incidental to and necessary or convenient to
accomplish those purposes.
Neither the sole stockholder of SRFG, nor SRFG's board of directors, intends to
change SRFG's business purposes. SRFG's principal executive offices are located
at 3711 Kennett Pike, Greenville, Delaware 19807 (302-434-3176).
THE SERVICER
Sears acts as servicer of all Accounts originated by Sears or Sears
National Bank. The bank provides certain servicing functions for the Accounts as
a sub-servicer, including providing judgmental decision-making policy relating
to all Accounts. Sears and any of its affiliates may hold certificates.
Sears originated from an enterprise established in 1886. It was
incorporated under the laws of the State of New York in 1906. Its principal
executive offices are located at 3333 Beverly Road, Hoffman Estates, Illinois
60179 (847-286-2500). Sears, with its consolidated subsidiaries, is a multi-line
retailer that provides a wide array of merchandise and services. Sears is among
the largest retailers in the world on the basis of sales of merchandise and
services.
THE CREDIT CARD BANK
Sears National Bank is a national banking association. The bank is a
"credit card bank" under the Bank Holding Company Act. The bank issues the Sears
Card and SearsCharge PLUS accounts, Sears Home Improvement Accounts and Sears
Gold MasterCard.
The bank issues accounts to allow Sears to operate its credit business in a
more unified regulatory and pricing environment. In general, under federal law,
the maximum finance charge that the bank may charge is the rate permitted under
the laws of the State of Arizona, in which the bank's charter is located, rather
than the laws of the state in which the credit account customer resides. Arizona
law also governs the bank's ability to charge late fees and other fees and
charges. Accordingly, in certain states the bank is imposing higher finance
charge rates, and higher or additional fees and charges, than Sears currently
would be permitted to impose. We cannot assure you, however, that these higher
fees or charges will not result in a reduction in the amount of new Receivables
generated in the Accounts, earlier payment of outstanding Receivables, or
increased convenience use of the cards, with customers repaying all balances
within the grace period so that the bank does not assess a finance charge. Sears
and the bank have entered into contractual arrangements under which Sears acts
as primary servicer of Accounts that have been transferred to or originated by
the bank.
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THE TRUSTEE
Bank One, National Association is the trustee for the trust. The trustee's
principal corporate trust office is located at 1 Bank One Plaza, Suite IL1-0126,
Chicago, Illinois 60670-0126. Sears, SRFG and their affiliates may from time to
time enter into normal banking and trustee relationships with Bank One that are
unrelated to the trust. The trustee and any of its affiliates may hold
certificates in their own names. In order to meet legal requirements in certain
jurisdictions, the trustee has the power to appoint a co-trustee or separate
trustee of all or part of the trust. If the trustee appoints a co-trustee or
separate trustee, that co-trustee or separate trustee will have the same rights,
powers, duties and obligations that the trustee has under the Pooling and
Servicing Agreement. Generally, the trustee and any co-trustee or separate
trustee will exercise and perform those rights, powers, duties and obligations
jointly. However, in any jurisdiction in which the trustee is incompetent or
unqualified to perform certain acts, the co-trustee or separate trustee will
exercise and perform those rights, powers, duties and obligations individually,
solely at the direction of the trustee.
The trustee may resign at any time. In addition, SRFG may remove the
trustee if:
- the trustee no longer meets the eligibility requirements set forth in the
Pooling and Servicing Agreement, and the trustee does not resign after
receiving a written request from SRFG to do so;
- the trustee becomes legally unable to act; or
- the trustee becomes insolvent.
Sears may also remove the trustee upon 30 days' written notice unless a Servicer
Termination Event has occurred. If the trustee resigns, or if SRFG or Sears
removes the trustee:
- SRFG must appoint a successor trustee; and
- Sears must notify the Rating Agencies of the resignation or removal and
the appointment of a successor trustee.
The trustee's resignation or removal and the appointment of a successor trustee
will not be effective until the successor trustee has accepted its appointment
as trustee.
LEGAL MATTERS RELATING TO THE RECEIVABLES
TRANSFER OF RECEIVABLES
Sears, the bank or their affiliates originated the Receivables in the
Accounts. The bank has granted to Sears all of its right, title and interest in
and to any Receivables originated by the bank under the Assignment Agreement.
Sears sold to SRFG, contributed to the capital of SRFG, or confirmed the prior
sale or contribution to SRFG of:
- all of the Receivables existing under the Accounts as of the dates
specified in the applicable transfer agreement; and
- all Receivables created under those Accounts after the date specified in
the applicable transfer agreement.
These Receivables included all Receivables originated by the bank in the
Accounts. Sears transferred all of the Receivables to SRFG without recourse, and
SRFG then transferred all the Receivables to the trust. On July 31, 1994, at the
same time that Sears transferred the Receivables to SRFG and SRFG transferred
the Receivables to the trust, the trust:
- issued the Series 1994-1 certificates;
- paid to SRFG the proceeds from issuing Series 1994-1; and
- issued the Seller Certificate to SRFG.
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SRFG then paid the Series 1994-1 proceeds to Sears in consideration for Sears
sale of the Receivables to SRFG, but SRFG retained the Seller Certificate for
its own benefit.
The bank sells to Sears on a daily basis the Receivables in Accounts that
have been transferred to or originated by the bank. Sears then transfers those
Receivables to SRFG, and SRFG transfers them to the trust. In addition, SRFG has
transferred to the trust all the Receivables in additional Accounts as of the
dates specified in the applicable transfer agreements, and may do so again in
the future. Those additional Accounts may include accounts originated by or
transferred to the bank. See "The Trust -- Addition of Accounts" for more
information.
Sears has indicated in its computer files that Sears transferred the
Receivables to SRFG and that SRFG transferred them to the trust. In addition,
Sears has provided to SRFG, which in turn has provided to the trustee, a
computer file, hard copy or microfiche list with a true and complete list of
each Account identified by account number. Sears will provide to SRFG, and SRFG
will provide to the trustee, a similar computer file, hard copy or microfiche
list identifying any additional Accounts. Sears, the bank and SRFG are not
obligated to deliver to the trustee any other records or agreements relating to
the Accounts or the Receivables. Sears and the bank will not segregate their
records and agreements that relate to the Accounts and the Receivables from
their records and agreements that relate to other credit accounts and
receivables. Similarly, Sears and the bank will not mark their records and
agreements that relate to the Accounts and the Receivables to reflect that SRFG
has transferred the Receivables to the trust, except to the extent that an
electronic or other indicator is necessary for them to service the Accounts in
accordance with the Pooling and Servicing Agreement. SRFG filed UCC-1 and UCC-3
financing statements in accordance with state law to perfect the trust's
interest in the Receivables, and in the future will file any additional UCC-3
statements necessary to perfect the trust's interest in Receivables in
additional Accounts. The trust will also file any continuation statements
necessary to continue the perfection of the trust's interest in the Receivables.
SECURITY INTERESTS IN RECEIVABLES
The Receivables are "accounts" or "chattel paper" within the meaning of the
Uniform Commercial Code as in effect in the State of Delaware and "accounts,"
"chattel paper" or "general intangibles" within the meaning of the Uniform
Commercial Code as in effect in the States of Illinois, New York and Arizona. To
the extent the receivables are accounts or chattel paper, Article 9 of the
Uniform Commercial Code as in effect in the States of Delaware, Illinois, New
York and Arizona governs both the sale of the Receivables and the transfer of
the receivables as security for an obligation. To the extent Article 9 applies,
appropriate financing statements must be filed to perfect the bank's sale of any
Receivables to Sears, Sears sale of the Receivables to SRFG, and SRFG's sale of
the Receivables to the trust. Appropriate financing statements covering the
Receivables have been filed in:
- Arizona, to perfect the bank's sale and transfer of Receivables to Sears;
- Delaware and Illinois, to perfect Sears sale and transfer of the
Receivables to SRFG; and
- Delaware and Illinois, to perfect SRFG's sale and transfer of the
Receivables to the trust.
To the extent the Receivables are general intangibles and the transfer of the
Receivables is deemed to be a transfer as security for an obligation, the
provisions of Article 9 of the Uniform Commercial Code apply to the same extent
that they apply to Receivables that are accounts or chattel paper.
If the Receivables are general intangibles and a court deems the transfer
of the Receivables to be a sale, then the Uniform Commercial Code does not apply
and no further action is required to protect the trust's interest from third
parties. However, to the extent a court deems the transfer of Receivables that
are general intangibles to be a sale, the priority of interests in Receivables
arising after the closing date for any series is not as clear as it would be if
the priority of interests in those Receivables was governed by the Uniform
Commercial Code. Nevertheless, the bank, Sears and SRFG believe that it would be
inconsistent for a court to afford the trust less favorable treatment if it
deems the transfer of Receivables to be a sale than the court would afford if it
deems the transfer to be a security interest. Accordingly, the bank, Sears
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and SRFG believe that a court should conclude that a sale of Receivables
consisting of general intangibles would be deemed to have occurred as of July
31, 1994, in the case of Receivables from the initial Accounts, or as of the
date an additional Account was added to the trust, in the case of Receivables
from that additional Account.
Under limited circumstances, if Receivables are created in an Account after
the date on which the trust acquired an interest in all Receivables in that
Account, a prior or subsequent transferee of Receivables could have an interest
in those Receivables with priority over the trust's interest in those
Receivables. A tax or other statutory lien on property of Sears or the bank
arising before a Receivable is created may also have priority over the trust's
interest in that Receivable.
SRFG has agreed to repurchase any Receivable that it has transferred to the
trust that was not, to the best knowledge of SRFG, an "Eligible Receivable" as
of the date SRFG transferred that Receivable to the trust, if the failure of the
Receivable to be an Eligible Receivable has an adverse effect on the trust's
interest in all the Receivables. We have described this issue, including what
constitutes an "Eligible Receivable," in "The Trust -- Repurchase of Specified
Receivables." In addition, SRFG has agreed that it will not sell, pledge,
assign, transfer or grant any lien on any of the Receivables, or any interest in
the Receivables, other than to the trust.
There is a significant possibility that the trust may not have a perfected
security interest in any of the Receivables created after a petition for relief
is filed by or against Sears under the Bankruptcy Code or after a receiver or
conservator is appointed for the bank. Nevertheless, we anticipate that the
trust will either own or have a perfected security interest in Receivables
existing on the date a petition is filed by or against Sears under the
Bankruptcy Code or after the date a receiver or conservator is appointed for the
bank, and that the trust will be able to pay principal and interest on the
certificates, although we cannot assure you that the trust will make those
payments on time. Because the trust's interest in the Receivables depends upon
SRFG's interest in the Receivables, which in turn depends upon Sears interest in
the Receivables, any adverse change in the priority or perfection of SRFG's or
Sears security interest would also affect the trust's interest in the affected
Receivables.
The Pooling and Servicing Agreement provides that, as long as the
short-term debt rating of Sears remains below A-1/P-1, or if Sears is not the
servicer, the servicer will be required to deposit into the Collections Account
a portion of collections for each outstanding series within two business days
after the date it processes its receipt of those collections or make other
arrangements that will not result in a Ratings Event. As long as Sears is the
servicer, Sears may use all remaining collections as a loan until each
distribution date. If Sears becomes insolvent or a receiver is appointed for
Sears or, in certain circumstances, a certain period of time lapses, the trust
may not have a perfected interest in those cash collections.
INSOLVENCY RELATED MATTERS
Transfer from Sears to SRFG. Sears and SRFG intend the transfer of the
Receivables from Sears to SRFG to be an absolute transfer of the Receivables to
SRFG and will treat it as an absolute transfer. As an absolute transfer, the
Receivables would not be part of any Sears bankruptcy estate and would not be
available to Sears creditors. However, if Sears became insolvent, the bankruptcy
trustee, a creditor of Sears, or Sears as debtor-in-possession could argue that
the transaction between Sears and SRFG was a pledge of the Receivables rather
than an absolute transfer. If a court accepted that position, the trust might
not be able to pay interest and principal on the certificates on time.
Unless the prospectus supplement for a series specifies otherwise, SRFG
will receive on the closing date for each series an opinion of Latham & Watkins,
counsel to Sears and SRFG, concluding on the basis of a reasoned analysis of
analogous case law, although no precedent based on directly similar facts
exists, that:
- a federal bankruptcy court would not order the substantive consolidation
of SRFG's assets and liabilities with Sears assets and liabilities; and
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- a transfer of the Receivables in the form and manner contemplated by the
transfer agreements between Sears and SRFG would constitute an absolute
sale or other transfer of the Receivables rather than a borrowing by
Sears secured by the Receivables, so that the Receivables would not be
property of the estate of Sears under Section 541(a) of the Bankruptcy
Code and, thus, SRFG's rights to the Receivables would not be impaired by
the operation of Section 362(a) of the Bankruptcy Code.
This opinion will be subject to the facts, assumptions and qualifications stated
in it.
Transfer from Sears National Bank to Sears. It is possible that a receiver
or conservator of the bank may argue that the transaction between the bank and
Sears under the Assignment Agreement, under which the bank has granted to Sears
all of its right, title and interest in and to the Receivables, is a pledge of
the Receivables rather than an absolute transfer. Accordingly, the bank has
granted Sears a security interest in the Receivables under the Assignment
Agreement. To the extent that Sears validly perfects that security interest
before an insolvency of the bank occurs, and if Sears did not take that security
interest to hinder, delay or defraud the bank or its creditors, a receiver or
conservator of the bank should not be able to avoid that security interest or
recover payments made on the Receivables. If, however, a receiver or conservator
of the bank asserts a contrary position or requires the trust to establish its
right to cash collections by submitting a claim and completing the
administrative claims procedure under the Federal Deposit Insurance Act, as
amended, the trust's payments of principal and interest on the certificates may
be delayed or reduced. In addition, the FDIC, if appointed as conservator or
receiver for the bank, has the power under the Federal Deposit Insurance Act, as
amended, to repudiate contracts, including contracts of the bank like the
Assignment Agreement. The Federal Deposit Insurance Act provides that a claim
for damages arising from the repudiation of a contract is limited to "actual
direct compensatory damages." In a 1993 case involving the repudiation by the
Resolution Trust Corporation, whose responsibilities have since been assumed by
the FDIC, of certain secured zero-coupon bonds issued by a savings association,
a United States federal district court held that "actual direct compensatory
damages" in the case of a marketable security meant the value of the repudiated
bonds as of the date of repudiation. If the FDIC is appointed as conservator or
receiver of the bank and then repudiates the Assignment Agreement, the amount of
collateral available for the trust to use to pay principal and interest on the
certificates may not be sufficient to pay all outstanding principal and accrued
interest on the certificates. On August 11, 2000, the FDIC adopted a final rule
effective September 11, 2000 regarding the treatment by the FDIC, as receiver or
conservator of an insured depository institution (such as the bank), of
financial assets transferred by an institution in connection with a
securitization. Subject to the conditions described in the rule, the FDIC will
not seek to recover or reclaim such financial assets in exercising its statutory
authority to repudiate contracts described above. However, we cannot assure you
that the rule will apply to a receivership or conservatorship involving the
bank.
Unless the prospectus supplement for a series specifies otherwise, SRFG
will receive on the closing date for each series an opinion of Latham & Watkins,
counsel to Sears and SRFG, concluding on the basis of a reasoned analysis of
analogous case law, although no precedent based on directly similar facts
exists, that:
- if the transfer of Receivables from the bank to Sears under the
Assignment Agreement constitutes an absolute transfer, then the transfer
is a transfer to Sears of all of the bank's right, title and interest in
and to those Receivables; and
- if a court deems the transfer not to be an absolute transfer, it would be
treated as a security interest created by the Assignment Agreement in
favor of Sears in the bank's right, title and interest in and to the
Receivables.
This opinion will be subject to the facts, assumptions and qualifications stated
in it.
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Unless the prospectus supplement for a series specifies otherwise, SRFG
will receive on the closing date for each series an opinion of Arizona counsel
to the bank concluding on a reasoned basis that, if a court deems the transfer
not to be an absolute transfer and a security interest is created by the
Assignment Agreement in favor of Sears in the bank's right, title and interest
in and to the Receivables:
- the security interest is a perfected security interest; and
- the security interest is a first priority security interest.
This opinion will be subject to the facts, assumptions and qualifications stated
in it.
CONSUMER PROTECTION LAWS AND DEBTOR RELIEF LAWS APPLICABLE TO THE RECEIVABLES
Federal and state consumer protection laws and regulations and the Uniform
Commercial Code extensively regulate the relationships among credit recipients,
credit issuers and sellers of goods and services in transactions financed by the
extension of credit under credit accounts. These laws and regulations include
the following federal laws:
- the Truth in Lending Act and the Federal Reserve Board's Regulation Z
issued under that act;
- the Equal Credit Opportunity Act and the Federal Reserve Board's
Regulation B issued under that act;
- the Fair Credit Billing Act; and
- the Fair Credit Reporting Act.
These statutes and regulations require credit issuers to disclose certain
information when an account is opened, at the end of each monthly billing cycle
and annually. In addition, credit recipients are entitled under these laws and
regulations to have payments and credits promptly applied on their credit
accounts and to require billing errors to be promptly resolved. A credit
recipient may be entitled to assert violations of certain of these credit
protection laws through setoff against his or her obligation to pay amounts
owing on his or her account, or in certain cases against the lender or seller.
SRFG has agreed to repurchase Receivables if all applicable requirements of
these statutes have not been complied with for those Receivables and if that
failure to comply has a material adverse effect on the trust's interest in all
Receivables.
Certain laws, including those we described above, may limit Sears ability
to collect Receivables regardless of any act or omission on the part of Sears.
Application of federal and state bankruptcy and debtor relief laws may also
prevent Sears from fully collecting the Receivables.
CLAIMS AND DEFENSES OF CREDIT ACCOUNT CUSTOMERS AGAINST THE TRUST
The Federal Trade Commission's Preservation of Claims and Defenses Trade
Regulation Rule has the effect of preserving claims and defenses that the
obligor on an Account may have against the seller of goods or services or Sears
National Bank when an account or any amount owed under an account is sold or
assigned to another creditor, including the trust. In addition, the Uniform
Commercial Code and other state laws that govern consumer credit provide that:
- unless the obligor for an Account has agreed not to assert defenses or
claims arising out of a sale, and that agreement is enforceable, the
trust's rights, as assignee of the Receivables in that Account, are
subject to:
- all the terms of the contract between the seller of goods or services or
the bank and the obligor for the Account;
- any defense or claim arising from that contract; and
- any other defense or claim of the obligor against the seller of goods or
services or the bank that arises before the obligor is notified of the
assignment; and
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- the obligor for an Account is authorized to continue to pay the seller of
goods or services or the bank until:
- the obligor receives a notice that reasonably identifies the rights
assigned, that informs the obligor that the amount due or to become due
has been assigned, and that directs the obligor to pay the trustee
directly; and
- if requested by the credit account customer, the trustee has furnished
reasonable proof of the assignment.
THE TRUST
FORMATION OF THE TRUST
Sears, SRFG and the trustee formed the trust in July 1994 by entering into
the Pooling and Servicing Agreement. SRFG has conveyed to the trust, without
recourse, all of the Receivables:
- that existed under the Accounts as of the last day of the Due Period that
ended in July 1994;
- that existed under any additional Account as of the date specified as the
"Additional Account Cut-Off Date" in the Assignment of Additional
Accounts for that additional Account; and
- created under any Account or additional Account after the last day of the
July 1994 Due Period or the Additional Account Cut-Off Date, as
applicable, for that Account or additional Account.
In exchange for the transfer of the Receivables, SRFG received the Seller
Certificate and has received and will receive the net cash proceeds from the
sale of each series of certificates. The trust's assets include or may include:
- the Receivables;
- cash payments by credit account customers;
- interests in the cash recoveries of receivables owned by SRFG and charged
off as uncollectible;
- interests in other pools of credit card receivables;
- credit support or enhancement for a particular series or class within a
series;
- additional funds that the servicer may elect to add to the trust;
- cash deposits in investor accounts; and
- rights to payments under interest rate protection agreements.
Sears, SRFG and the trustee formed the trust to issue series of
certificates under the Pooling and Servicing Agreement and the related Series
Supplements. The trust, as a master trust, can issue numerous series of
certificates and remain a trust even after a series of certificates is paid in
full or reaches its Series Termination Date. The trust has numerous series of
certificates, and we expect it to continue to issue series of certificates from
time to time. The trust will only engage in the following business activities:
- acquiring and holding the Receivables and the proceeds of the
Receivables;
- issuing series of certificates and the Seller Certificate and making
payments on those certificates;
- investing funds on deposit in the investor accounts as required under the
Pooling and Servicing Agreement and the applicable Series Supplements;
- entering into credit enhancement arrangements; and
- entering into interest rate protection agreements.
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Consequently, we do not expect the trust to need additional capital resources
other than Receivables in additional Accounts or participation interests in
other pools of credit card receivables, if applicable.
COLLECTIONS ACCOUNT AND GROUP COLLECTIONS ACCOUNTS
The trustee has established and maintains in the name of the trust:
- the Collections Account;
- the Excess Funding Account (General);
- the Excess Funding Account (SRC); and
- for each group of series, a Group Collections Account.
Each of these accounts is either a segregated trust account or a segregated
deposit account at a Qualified Trust Institution or Eligible Institution.
Sears as servicer will direct the trustee to invest all amounts in each of
these accounts in highly-rated short-term investments referred to as "Permitted
Investments." We have described these Permitted Investments in "The
Certificates -- Investment of Funds in Investor Accounts." The servicer has the
revocable power to instruct the trustee to make withdrawals from each of these
accounts to carry out its duties under the Pooling and Servicing Agreement and
each Series Supplement.
For each distribution date that the short-term debt rating of Sears is
below A-1/P-1, or if Sears is not the servicer, the servicer will be required to
make daily deposits of a portion of collections into the Collections Account for
each outstanding series within two business days after the date it processes its
receipt of those collections or make other arrangements that will not result in
a Ratings Event. The total amount to be deposited on any day for any series will
be determined pursuant to the Series Supplement. The servicer will not have to
make these deposits if the Rating Agencies have advised the servicer that they
will not reduce or withdraw their ratings on any class of certificates of any
outstanding series if the servicer does not make these deposits. To the extent
that the required daily deposit for any series is based upon an estimate of
interest payable on any distribution date, and a lower amount of interest is
subsequently determined to be payable, the excess amount deposited may be
returned to the servicer as a loan until that distribution date.
On or before each distribution date, the servicer deposits into the
Collections Account:
- all collections from the prior month that the servicer retained as a
loan; and
- the portion of the collections from the prior month that the trust is to
allocate on that distribution date and that the servicer had not
previously deposited into the Collections Account.
The servicer then directs the trustee to withdraw from the Collections Account
and pay to SRFG the total amount of Finance Charge Collections for the prior
month minus the aggregate amount of those Finance Charge Collections allocated
to each outstanding series. However, for any calendar month during which the
servicer deposited collections into the Collections Account on a daily basis,
the trust will be deemed to allocate the collections on the date the servicer
delivers the monthly investor statement and the monthly servicer statement to
the trustee. The trustee is authorized, when it receives those statements, to
transfer immediately to SRFG or the servicer any funds in the Collections
Account that the trust would otherwise pay to them on the related distribution
date.
On or before each distribution date, the servicer will direct the trustee
to withdraw all amounts on deposit in the Excess Funding Account (SRC), and to
deposit those amounts in the Collections Account. The servicer will then direct
the trustee to withdraw from the Collections Account and deposit in each Group
Collections Account the sum of:
- the Finance Charge Collections for the prior month that the trust
allocates to each series that is a member of the applicable group;
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- the Principal Collections for the prior month that the trust allocates to
each series that is a member of the applicable group; and
- the Group Excess Funding Amount (SRC).
The trust will allocate collections, additional funds and amounts on deposit in
the Excess Funding Account (General) to each series as set forth in the Series
Supplement for each series. Similarly, the trust will allocate, deposit or pay
collections in the Group Collections Account according to the terms of the
Series Supplement for each series in the applicable group. The trust will
deposit amounts, if any, from each series in each group into the Excess Funding
Account (General) and the Excess Funding Account (SRC) on each distribution date
according to the terms of the applicable Series Supplement.
ADJUSTMENTS TO RECEIVABLES
The servicer may adjust the amount of Receivables in any Account, which
will change the amount of Receivables in the trust. The servicer regularly
reduces the amount of Receivables in an Account when:
- a credit account customer returns merchandise that the customer purchased
using that Account; or
- the servicer discovers that a Receivable was created through a fraudulent
or counterfeit charge on that Account.
The servicer may also make other adjustments to the Receivables in accordance
with its customary practices. The effects of these adjustments on the trust
include:
- if the servicer reduces the amount of Receivables in the trust due to
returned merchandise, the servicer will reduce by the same amount the
amount of Principal Receivables used to calculate the Seller Interest;
- if the servicer reduces the amount of Receivables in the trust due to a
fraudulent or counterfeit charge or due to customary practices, the
servicer will either:
- increase by the same amount the amount of collections for the applicable
Due Period; or
- decrease by the same amount the amount of the Seller Interest; and
- if the servicer increases the amount of Receivables in the trust due to
customary practices, the servicer will either:
- decrease by the same amount the amount of collections for the applicable
Due Period; or
- increase by the same amount the amount of the Seller Interest.
If any of the adjustments to the Seller Interest described above would cause the
Seller Interest to be reduced below zero, SRFG will, no later than the business
day after the Due Period during which the servicer made the adjustment, deposit
into the Collections Account an amount equal to the deficiency in the Seller
Interest.
ADDITIONS OF ACCOUNTS
SRFG has the right, subject to the limitations and conditions discussed
below, to:
- designate additional credit accounts of Sears, the bank or their
affiliates to be included as Accounts and add to the trust all
Receivables existing, or generated in the future, in those additional
Accounts; or
- add participation interests in other pools of credit card receivables to
the trust.
In addition, SRFG will be required to designate additional Accounts or add
participation interests to the trust if the aggregate amount of Principal
Receivables in the trust on the last day of any month is less than the sum of
the Series Minimum Principal Receivables Balances for each outstanding series.
The Series Supplement for each series will specify the minimum principal
receivables balance for that series.
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SRFG may, in its discretion, designate additional Accounts and add the
Receivables in those additional Accounts to the trust if the following
conditions are satisfied:
- SRFG executes and delivers a written assignment of additional Accounts to
the trust;
- SRFG delivers an opinion of outside counsel addressing:
- the trust's security interest in the Receivables in the additional
Accounts; and
- insolvency and other related matters as they may affect the Receivables;
- the servicer delivers a certificate of a servicing officer confirming
that the servicer did not use any selection procedures to select the
additional Accounts that the servicer believes to be materially adverse
to the interests of investors in any series as of the day the servicer
selected those additional Accounts.
- unless the Rating Agencies otherwise consent, as of the last day of any
calendar year:
- the amount of Principal Receivables in Accounts designated as additional
Accounts during that calendar year will not exceed 20% of the amount of
Principal Receivables in the trust as of the first day of that calendar
year; and
- the number of Accounts designated as additional Accounts during that
calendar year will not exceed 20% of the number of Accounts in the trust
as of the first day of that calendar year; and
- unless the Rating Agencies otherwise consent, as of the last day of any
calendar quarter:
- the amount of Principal Receivables in Accounts designated as additional
Accounts during that calendar quarter will not exceed 15% of the amount
of Principal Receivables in the trust as of the first day of that
calendar quarter; and
- the number of Accounts designated as additional Accounts during that
calendar quarter will not exceed 15% of the number of Accounts in the
trust as of the first day of that calendar quarter.
SRFG may replace these conditions with substitute conditions if the Rating
Agencies confirm that the substitute conditions will not cause them to reduce or
withdraw their ratings on any class of certificates of any outstanding series.
The trust will receive all collections on Receivables in additional
Accounts in the same manner that it receives collections on the other
Receivables, except that the servicer may estimate the amount of Finance Charge
Receivables billed on the Receivables in the additional Accounts for the Due
Period during which SRFG added the additional Accounts to the trust.
SRFG will add participation interests in other pools of credit card
receivables to the trust by amending the Pooling and Servicing Agreement. SRFG
will not be required to obtain the consent of investors to execute that
amendment. SRFG may add participation interests to the trust if the following
conditions are satisfied:
- SRFG delivers a certificate stating that SRFG reasonably believes that
the addition of participation interests will not be materially adverse to
the investors in any class of certificates of any outstanding series or
to any third party who provides credit enhancement;
- SRFG delivers an opinion of outside counsel addressing:
- the trust's security interest in the participation interests; and
- insolvency and other related matters as they may affect the
participation interests; and
- the Rating Agencies confirm that the addition of the participation
interests to the trust will not cause them to reduce or withdraw their
ratings on any class of certificates of any outstanding series.
The terms governing any additional Accounts may differ from the terms
governing the Accounts initially included in the trust. For example, it is
possible that some or all additional Accounts will have
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lower periodic finance charges or fees than the initial Accounts, which may
reduce the percentage of Finance Charge Collections relative to Principal
Collections. The performance of any additional Accounts may differ from the
performance of the Accounts and the Sears portfolio because:
- the payment performance of the obligors on the additional Accounts may
differ from the overall payment performance of the obligors on the
Accounts and the Sears portfolio;
- the additional Accounts may not contain receivables in accounts from
every state;
- the additional Accounts may not contain receivables in accounts
previously segregated into pools;
- the additional Accounts may contain a higher or lower percentage of newly
solicited and unseasoned accounts than the Accounts or the Sears
portfolio; and
- the additional accounts may have different terms from those of the
Accounts currently in the trust.
The servicer uses an account selection process to segregate pools of accounts,
including the Accounts and any additional Accounts, that is generally designed
to exclude some seasoned accounts to insure that some seasoned accounts remain
available for the servicer to include in subsequently segregated pools. The
servicer may designate previously established pools of more seasoned accounts to
become part of the trust as additional Accounts.
REMOVAL OF ACCOUNTS
Subject to the conditions set forth below, SRFG may remove Accounts and
their Receivables from the trust. We refer to those Accounts as removed
accounts. SRFG is not required to remove Accounts. SRFG will be permitted to
designate Accounts for removal and require reassignment to it of the Receivables
from those removed accounts only if the following conditions are satisfied:
- as of the date that the Accounts are to be removed from the trust and the
Receivables from those Accounts reassigned to SRFG, the aggregate amount
of Principal Receivables in the trust, minus the aggregate amount of
Principal Receivables in those Accounts, will not be less than the sum of
the minimum principal receivables balance for each outstanding series;
- within five business days after the date SRFG designated for removal of
the Accounts, SRFG will deliver to the trustee:
- a written assignment of the Receivables in the Accounts to SRFG for the
trustee to execute; and
- a computer, hard copy or microfiche list containing a true and complete
list of all Accounts removed, identified by account number;
- SRFG represents and warrants that it did not use any selection procedures
that it believed to be materially adverse to the investors in any
outstanding series of certificates or to any third-party provider of
credit enhancement;
- the Rating Agencies advise SRFG that the reassignment of the Receivables
in the Accounts to SRFG will not cause them to reduce or withdraw their
ratings on any class of certificates of any outstanding series; and
- SRFG delivers to the trustee an officer's certificate confirming that the
conditions listed above have been satisfied.
At least five business days before the Receivables in the Accounts are to be
removed from the trust, SRFG will notify the trustee, the servicer, the Rating
Agencies and any third party who provides credit enhancement for any series of
certificates that the trustee is to reassign to SRFG the Receivables from those
Accounts, effective as of the date specified in the notice.
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REPURCHASE OF TRUST PORTFOLIO
A trust portfolio repurchase event will occur if, as of July 31, 1994, or,
with respect to any additional Accounts, as of any date on which there is an
assignment of those additional Accounts, it is not true that:
- each of the Pooling and Servicing Agreement and each Series Supplement
constitutes a valid and binding obligation of Sears and SRFG, subject to
usual and customary exceptions relating to bankruptcy or insolvency and
general equity principles;
- the Pooling and Servicing Agreement constitutes either:
- a valid transfer and assignment of all right, title and interest of SRFG
to the trust in and to the Receivables and the proceeds of those
Receivables, including Receivables created after the transfer date and
amounts in any account established by the trustee for the benefit of
investors; or
- the grant of a perfected security interest of first priority, not
including statutory or other non-consensual liens, under the Delaware
Uniform Commercial Code in those Receivables and proceeds; or
- certain of SRFG's representations and warranties regarding:
- its corporate status,
- its authority to assign the Receivables to the trust and perform its
obligations under the Pooling and Servicing Agreement; and
- the accuracy of information furnished by SRFG to the trustee
are true and correct, unless SRFG cures any breach with respect to these
representations and warranties within the required cure period.
If a trust portfolio repurchase event occurs, either the trustee or
investors holding at least 51% of the aggregate Invested Amount, not including
the Invested Amount for any class of certificates owned by SRFG, by written
notice to SRFG, may direct SRFG to purchase the Receivables on any distribution
date within 60 days of that notice, and SRFG will be required to comply with
that direction. The notice may also grant a longer period, up to 150 days, for
SRFG to repurchase the Receivables. If, however, the trust portfolio repurchase
event occurs because of an assignment of additional Accounts, SRFG will
repurchase only the Receivables in those additional Accounts. SRFG will not be
required to repurchase any Receivables if, on any day after SRFG received this
notice, the trust portfolio repurchase event does not adversely affect in any
material way the interests of investors in the certificates.
If SRFG is required to repurchase all the Receivables, the repurchase price
will equal:
- the aggregate Investor Interest on the distribution date SRFG is
scheduled to purchase the Receivables; plus
- all interest accrued but unpaid through the date of purchase; minus
- amounts on deposit in the Excess Funding Account (General), if any; minus
- amounts on deposit in the Excess Funding Account (SRC), if any; minus
- the sum of all pre-funding amounts for all outstanding series, if any.
The trust will distribute that repurchase price to investors upon presentation
and surrender of their certificates.
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If SRFG is required to purchase only the Receivables in additional
Accounts, the repurchase price will equal for each series that series' pro rata
share of those Receivables. Each series' pro rata share will equal:
- the sum of the class percentage for Principal Receivables for each class
in that series; multiplied by
- the amount of Receivables attributable to the additional Accounts.
The trust will treat that repurchase price as collections on the Receivables in
the additional Accounts and will allocate those collections to each series in
accordance with that series' Series Supplement. The trust will deposit the
amount of the repurchase price allocated to each series into the Group
Collections Account for the group to which that series belongs.
REPURCHASE OF SPECIFIED RECEIVABLES
We refer to a Receivable as an "Eligible Receivable" if:
- that Receivable is payable in United States dollars;
- that Receivable was created in compliance, in all material respects, with
all legal requirements that apply to SRFG and to Sears, Sears National
Bank or one of their affiliates, as applicable;
- that Receivable was created under a contract governing the relevant
Account that complies with all legal requirements that apply to SRFG and
to Sears, the bank or one of their affiliates, as applicable;
- at the time that Receivable was conveyed to the trust, if that Receivable
was created before the related Account was added to the trust, Sears,
SRFG or the trust had good and marketable title to that Receivable free
and clear of all liens, not including statutory or non-consensual liens;
- at the time that Receivable was created, if that Receivable was created
after the related Account was added to the trust, Sears, SRFG or the
trust had good and marketable title to that Receivable free and clear of
all liens, not including statutory or non-consensual liens; and
- that Receivable is an "account," "general intangible" or "chattel paper"
as defined in Article 9 of the Uniform Commercial Code in effect in the
State of New York.
In the Pooling and Serving Agreement, SRFG represented and warranted to the
trust that, to its best knowledge:
- as of July 31, 1994, each Receivable existing on July 31, 1994, was an
Eligible Receivable;
- as of the date the trust adds additional Accounts or participation
interests in pools of credit card receivables to the trust, each
Receivable in those additional Accounts or participation interests is an
Eligible Receivable; and
- as of the date any Receivable is created, if that Receivable is created
after the related Account is added to the trust, that Receivable is an
Eligible Receivable.
A receivables repurchase event will occur if:
- one of SRFG's representations and warranties described above is not true
and correct, in any material respect, for any Receivable;
- that breach of SRFG's representation and warranty has a material adverse
effect on the investors' interest in the Receivables; and
- SRFG fails to cure that breach within 60 days, or any longer period, not
to exceed 150 days, to which the trustee agrees, after SRFG receives
written notice of the breach from the trustee.
An officer of SRFG will determine, in that officer's sole reasonable judgment
and without considering any impact of credit enhancement provided by a third
party, whether SRFG's breach has a material adverse
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effect on investors. However, if the aggregate amount of Receivables that are
not Eligible Receivables as of the last day of the prior month exceeds 5% of the
total amount of Receivables as of that day, an officer of SRFG will be deemed to
have determined that the breach has a material adverse effect.
When a receivables repurchase event occurs, SRFG will purchase all the
Receivables in each Account containing any Receivable that is not an Eligible
Receivable. SRFG will purchase those Receivables by directing the servicer to
deduct the face amount of each of those Receivables from the aggregate amount of
Principal Receivables in the trust. If the exclusion of any of those Receivables
from the calculation of the Seller Interest would cause the Seller Interest to
be less than zero, on the following distribution date, SRFG will deposit into
the Collections Account the amount of the deficiency in the Seller Interest. The
trust will treat that deposit as collections on Principal Receivables for the
applicable Due Period.
TERMINATION OF THE TRUST
The trust and the related obligations and responsibilities of SRFG, Sears
and the trustee will terminate on the earlier of:
- July 31, 2015; and
- the day after the distribution date on which the trust deposits funds
into the Series Distribution Accounts sufficient to pay in full the
Series Invested Amounts for all outstanding series of certificates plus
accrued and unpaid interest on all outstanding series of certificates.
INDEMNIFICATION OF TRUST AND TRUSTEE
SRFG will indemnify the trust and the trustee from and against any loss,
liability, expense, damage or injury the trust or the trustee suffers or
sustains because of any acts, omissions or alleged acts or omissions arising out
of the activities of the trust or trustee, except that SRFG will not indemnify:
- the trustee for liabilities it incurs because of its fraud, negligence,
breach of fiduciary duty or misconduct in performing its duties under the
Pooling and Servicing Agreement;
- the trust or the investors in the certificates for liabilities arising
from actions that the trustee took at the request of investors in the
certificates; or
- the trust or the investors in the certificates with respect to any
federal, state or local income or franchise taxes, or any related
interest or penalties, that the trust or those investors were required to
pay.
THE CERTIFICATES
The trust will issue each series of certificates under the terms of the
Pooling and Servicing Agreement and the Series Supplement for that series. We
summarize in this section the general terms of the certificates. The Pooling and
Servicing Agreement, together with the Series Supplement for a particular series
of certificates, will contain all of the terms of that series of certificates.
Because this section only summarizes the terms of the certificates, you should
review the Pooling and Servicing Agreement and the Series Supplement for a
series of certificates before you decide to invest in that series. If you write
to the trustee at its principal corporate trust office, the trustee will send to
you, without charge, a copy of the Pooling and Servicing Agreement, without
exhibits, and the Series Supplement for a particular series, without exhibits.
This prospectus is a part of a registration statement filed with the
Securities and Exchange Commission. The Pooling and Servicing Agreement, a form
of Series Supplement, and the Series Supplement for each series of certificates
have been or will be filed as exhibits to or incorporated by reference into that
registration statement.
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GENERAL
Each series of certificates will consist of one or more classes of
certificates. Each certificate will represent an undivided interest in the
trust, including the right to a percentage of all collections on the Receivables
in the trust.
SRFG owns a Seller Certificate which represents the interest in the trust
not represented by certificates of any series. We refer to this remaining
interest as the "Seller Interest." In general, the Seller Interest is based on
the size of the interests of the trust's investors and the total amount of the
trust's Principal Receivables. For example, if the trust contained $11 billion
in Principal Receivables, interests in other pools of receivables and other cash
deposits, and the sum of the Series Investor Interests for all series was $10
billion, the Seller Interest would equal $1 billion. The trust will allocate to
SRFG, as holder of the Seller Certificate, a floating percentage of all payments
on the receivables by credit account customers, based on the size of the Seller
Interest. The Seller Interest will fluctuate in size depending upon:
- the rates at which the servicer collects and charges off Receivables;
- the rate at which credit account customers generate new Receivables;
- the amount of Receivables SRFG adds to or removes from the trust;
- the amount of principal the trust pays to investors on any distribution
date; and
- the amount of certificates the trust issues and the timing of those
issuances.
If the Seller Interest becomes less than a required minimum amount, SRFG
will be required to designate additional Accounts or participation interests in
other pools of credit card receivables, the Receivables of which or interests in
which SRFG will transfer to the trust. If SRFG cannot add Receivables in
additional Accounts or participation interests to the trust, a Rapid
Amortization Event will occur. We cannot assure you that the Seller Interest
will be sufficiently large to ensure that SRFG will not be required to add
Receivables or participation interests to the trust, or to avoid a rapid
amortization period.
During the revolving period of each series, the Investor Interest of each
series will remain constant except in limited circumstances. The total amount of
Principal Receivables in the trust, however, will vary each day as credit
account customers create new Principal Receivables and pay off others. Sears
will not calculate the amount of Principal Receivables daily. During the
controlled amortization period or the controlled accumulation period, and the
rapid amortization period, if any, of each series, the Series Investor Interest
of each series generally will decline as the trust pays principal to or
accumulates principal for the investors in those series.
INTEREST PAYMENTS
Your certificate will accrue interest at the rate specified in, or
determined in the manner specified in, the prospectus supplement for your
series. The trust will use Finance Charge Collections and certain other funds
allocated to your series to pay interest to you on the interest payment dates
specified in the prospectus supplement for your series unless that prospectus
supplement provides otherwise. The trust will determine how much interest it
owes you on each of those dates as described in the prospectus supplement for
your series.
PRINCIPAL PAYMENTS
The prospectus supplement for your series will specify a period during
which the trust will not distribute Principal Collections to you. We refer to
this period as the revolving period. Unless otherwise specified in the
prospectus supplement for your series, your series will have a controlled
accumulation period, a controlled amortization period, or both a controlled
accumulation period and a controlled amortization period. If your series has a
controlled accumulation period but does not have a controlled
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amortization period, the trust will be scheduled to pay your principal in full
on one specified date. If your series has a controlled amortization period, the
trust will pay principal to you in installments beginning on the date specified
in the prospectus supplement for your series. If your series has more than one
class of certificates, each class may be paid in a different manner and on
different dates. If a Rapid Amortization Event occurs for your series, the trust
may begin to pay principal to your series earlier than scheduled, and the trust
may make its final principal payment to you earlier or later than scheduled.
CLASS PERCENTAGES AND SELLER PERCENTAGE
Each month Sears, as servicer, will allocate Finance Charge Collections,
Principal Collections and charge-offs among SRFG and each class of each
outstanding series. The Series Supplement for each series will specify how to
calculate a "Class Percentage" for each of these amounts for each class in that
series. Thus, for each month, each class will have a Class Percentage for
Finance Charge Collections, a Class Percentage for Principal Collections and a
Class Percentage for charge-offs. Sears will allocate a share of Finance Charge
Collections, Principal Collections and charge-offs to each class by multiplying
the amount of those collections or charge-offs by the applicable Class
Percentage. Similarly, Sears will allocate a share of each of these items to
SRFG by multiplying the amount of those collections or charge-offs by the
applicable Seller Percentage. The "Seller Percentage" for collections or
charge-offs will equal 100% minus the sum of all the Class Percentages for that
type of collections or charge-offs.
For convenience, in this prospectus, we refer to the Class Percentages for
Finance Charge Collections, Principal Collections and charge-offs for each
class, and certain other percentages relating to the outstanding series, as if
those percentages will not vary. The Class Percentages and other percentages,
however, may vary in each case as described in the Glossary of Terms contained
in the prospectus supplement for your series.
Under the Pooling and Servicing Agreement, the trust will treat all
collections during any calendar month, up to the amount of Finance Charge
Receivables billed at the beginning of the Due Period ending in that month, as
"Finance Charge Collections." The trust will treat all remaining amounts
collected on Receivables during that calendar month as "Principal Collections."
INVESTOR LOSSES
On each distribution date, if the trust cannot reimburse all charge-offs
allocated to a particular class, the trust will reduce the Investor Interest for
that class by the amount of unreimbursed charge-offs. The Investor Interest may
also be increased or decreased for a particular class of a series in accordance
with the payment and allocation priorities set out in the prospectus supplement
for that series. We refer to the amount of any reduction in the Investor
Interest as an "Investor Loss." To the extent you suffer an unreimbursed
Investor Loss, you will receive interest on a smaller Invested Amount and,
accordingly, less interest than you would otherwise receive, and the aggregate
amount of principal you ultimately receive will be less than the face amount of
your certificate.
REALLOCATIONS AND SUBORDINATION OF COLLECTIONS
Reallocations of Collections among Series. The trust may reallocate
collections originally available to one series in a group to another series in
the same group, if the Series Supplements related to those series specify that
the trust may do so. The trust will not, however, reallocate collections
originally allocated to one series on any distribution date to another series
unless the trust has paid all amounts it owes to the series to which it
initially allocated those collections, or unless that series is a subordinated
series and the Series Supplement for that series permits the reallocation. SRFG
is not obligated to issue additional series that reallocate collections from one
series to another.
Subordination of Class B Certificates. If a series of certificates has two
or more classes, the Class B certificates will be subordinate to the Class A
certificates, unless the prospectus supplement for that series specifies
otherwise. If the trust does not allocate enough funds to the Class A
certificates in any month to make the scheduled Class A principal or interest
payment, the trust may use amounts originally allocated
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to the Class B certificates to pay Class A principal and interest, as specified
in the cash flow provisions in the prospectus supplement for that series. If the
trust is not able to reimburse holders of the Class B certificates for any
reallocations to the Class A certificates, the Class B investor interest will be
reduced.
Subordination of Class C Certificates. If a series of certificates has
three classes, the Class C certificates will be subordinate to both the Class A
certificates and the Class B certificates, unless the prospectus supplement for
that series specifies otherwise. If the trust does not allocate enough funds to
the Class A certificates or the Class B certificates in any month to make the
scheduled Class A principal or interest payment or the scheduled Class B
principal or interest payment, the trust may use amounts originally allocated to
the Class C certificates first to pay Class A principal and interest and second
to pay Class B principal and interest, in each case as specified in the cash
flow provisions in the prospectus supplement for that series. If the trust is
not able to reimburse holders of the Class C certificates for any reallocations
to the Class A certificates or the Class B certificates, the Class C investor
interest will be reduced.
Subordinate Series. The trust may issue series of certificates that are
subordinate in right of payment, in whole or in part, to one or more other
series. A series will not be subordinate to any other series unless the
prospectus supplement for that series states that it is a subordinate series and
describes the terms of the subordination. Unless the prospectus supplement for a
series states that no series may be subordinate to that series, the trust may
issue in the future another series that is subordinate to that series. SRFG,
however, is under no obligation to direct the trust to issue a series that is
subordinate to another series.
AGGREGATE AND NET PAYMENTS
Rather than making several deposits to and withdrawals from a specific
account for a distribution date, or several payments to a specific person for
that distribution date, the servicer or SRFG may make a single deposit,
withdrawal or payment.
If the servicer aggregates its deposits and withdrawals to a particular
account, it will deposit an amount equal to:
- all payments it and SRFG are required to deposit in that account; minus
- all amounts to be paid out of that account to Sears and SRFG.
ADDITIONAL FUNDS
The servicer may add additional funds to the trust if:
- the servicer notifies the trustee and the Rating Agencies in writing that
it intends to add additional funds to the trust;
- the servicer specifies in its notice to the trustee and Rating Agencies
the method of calculating the amount of funds to be added to the trust as
of any distribution date and the source of those funds; and
- the Rating Agencies confirm in writing that the proposed addition of
funds will not cause them to reduce or withdraw their ratings on the
certificates of any outstanding series.
The trust will allocate additional funds as directed in the Series Supplement
for each series.
On January 30, 1998, SRFG agreed to add additional funds to the trust.
These additional funds are a pro rata share of the amounts the servicer collects
on the receivables that it had previously charged off as uncollectible. The
servicer will calculate this pro rata share by dividing the total amount of
Principal Receivables in the trust by the total amount of principal receivables
in the Sears portfolio. The amount of additional funds added to the trust under
the agreement dated January 30, 1998 will be limited by the amount of recoveries
that SRFG receives on the portfolio of charged-off receivables owned by SRFG.
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These additional funds include amounts received from the sale of
charged-off receivables. The periodic sales will affect the timing and amount of
recoveries available to the trust.
SRFG may in the future elect to add more cash to the trust as additional
funds.
INVESTMENT OF FUNDS IN INVESTOR ACCOUNTS
Sears as servicer will direct the trustee to invest all amounts in accounts
established by the trustee for the benefit of the investors. These amounts will
be invested in one of the types of highly-rated short-term investments that we
refer to as "Permitted Investments."
Although the Permitted Investments are short-term, highly rated
investments, we cannot assure you that the trust will receive on time, or
recover in full, the principal amount of any Permitted Investment. The funds the
trustee invests in Permitted Investments must be available for the trust to use
on or before the distribution date after the month in which the trust received
the funds, unless the Rating Agencies advise that they will not reduce or
withdraw their ratings on any class of any outstanding series if those funds are
not available at that time. The trust will distribute income from the Permitted
Investments to each outstanding series according to the Series Supplement for
that series.
FINAL PAYMENT OF PRINCIPAL; TERMINATION OF SERIES
The trust will not make any payments of interest or principal to a series
after the date specified as the "Series Termination Date" in the prospectus
supplement for that series. Each series will terminate on the earlier of:
- the Series Termination Date for that series; or
- the day after the distribution date on which the trust makes the final
payment of principal for that series.
The trust will make the final payment of principal of and interest on a
certificate only when the investor or DTC presents and surrenders the
certificate at the office or agency specified in the notice from the trustee
regarding the final distribution. The trustee will notify investors no later
than the tenth day of the month in which the trust will make the final
distribution on their certificates.
If the Series Investor Interest for a series is greater than zero after the
distribution date in the month before its Series Termination Date, after giving
effect to all transfers, withdrawals and deposits to occur on that distribution
date, the trust will sell Receivables or interests in the Receivables for an
amount equal to the remaining Series Investor Interest for that series plus
interest on the certificates for that series that will be accrued but unpaid on
the next distribution date. However, the trust may not sell more than that
series' pro rata share of the Receivables in the trust. That pro rata share will
equal:
- the aggregate amount of Receivables in the trust; multiplied by
- the Investor Interest for the series on the distribution date in the
month before its Series Termination Date; divided by
- the aggregate Investor Interest for all series on the distribution date
in the month before the Series Termination Date for that series.
The trust will not sell Receivables that are materially different from the
Receivables remaining in the trust. The trustee will deposit the proceeds from
this sale into the distribution account for the applicable series. The trust
will use those proceeds to pay the remaining principal and interest to investors
in that series, to the extent funds are available. This will be the trust's
final payment to investors in that series.
If the prospectus supplement for a series permits, under certain
circumstances SRFG may terminate the series by repurchasing and canceling the
certificates of that series. Generally, SRFG may purchase the
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remaining Series Investor Interest for a series, subject to any conditions or
limitations described in the prospectus supplement for that series, if:
- the Series Investor Interest for that series; minus
- the Series Investor Interest for any class of that series that SRFG owns;
minus
- the pro rata share for each class in that series, except any class that
SRFG owns, of funds on deposit in the Excess Funding Account (General)
and the Excess Funding Account (SRC)
is less than or equal to the amount set forth in the prospectus supplement. This
remaining Series Investor Interest will be determined after the trust makes
payments on any distribution date during the controlled amortization period, the
controlled accumulation period or the rapid amortization period for that series.
The amount set forth in the prospectus supplement for each series will represent
a specified percentage of the initial investor interest of that series. If SRFG
elects to purchase the remaining Series Investor Interest for that series, it
will deposit into that series' distribution account on the next distribution
date an amount equal to:
- the Series Investor Interest for that series at the end of the prior
calendar month; plus
- all accrued but unpaid interest as of that distribution date.
SRFG may not repurchase and cancel any class of certificates that it owns until
it repurchases and cancels all classes of certificates in that series that are
senior to SRFG's certificates. The investors in a series will have no further
rights in connection with their certificates after SRFG repurchases and cancels
the certificates and deposits the purchase price into the appropriate account.
If SRFG for any reason fails to deposit the purchase price for the repurchased
certificates, the trust will continue to make payments on those certificates.
DESCRIPTION OF CREDIT ENHANCEMENT
SRFG may provide credit enhancement to a series or class of certificates in
the following ways:
- by including subordination provisions that require the trust to pay
principal or interest to investors in a certain series or class of
certificates before the trust pays principal or interest to investors in
other series or classes;
- by creating and funding reserve accounts; or
- by arranging for an outside party to provide credit enhancement in the
form of a cash collateral account, a letter of credit, a surety bond, an
insurance policy or any other form described in the prospectus supplement
for a series.
The prospectus supplement for your series will describe any credit
enhancement SRFG will provide to your series. The description will include
information about:
- the amount payable under the credit enhancement;
- any conditions to that payment;
- the circumstance under which the credit enhancement is available;
- the class or classes of your series that will benefit directly from the
credit enhancement; and
- the conditions under which the amount payable under the credit
enhancement may be terminated, reduced or replaced.
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ESTABLISHING AND ISSUING NEW SERIES
SRFG may direct the trustee to issue from time to time new series of
certificates. SRFG, the servicer, the trustee and the trust will not obtain the
consent of, or allow prior review by, any investors in any outstanding series
before the trustee issues a new series. The trustee may issue a new series only
if:
- at least two business days before the trustee will issue the new series,
SRFG notifies the trustee in writing of the following:
- the name of the new series;
- the dates on which the trust will be scheduled to pay principal and
interest on the new series;
- the date from which interest on the new series will accrue;
- the initial Series Investor Interest of investors in the new series;
- the interest rates, or method of calculating the interest rates, for
each class of certificates in the new series;
- the Series Termination Date for the new series; and
- any other material terms of the new series;
- SRFG delivers to the trustee a Series Supplement, executed by SRFG, the
servicer and the trustee, setting forth the terms of the new series
either expressly or by reference to other documentation previously
delivered to the trustee;
- the Rating Agencies confirm in writing that issuance of the new series
will not cause them to reduce or withdraw their ratings on the
certificates of any outstanding series;
- SRFG delivers to the trustee and the Rating Agencies an opinion of tax
counsel that issuance of the new series will not affect the treatment of
certain certificates as debt and the treatment of the trust as not an
entity subject to tax;
- SRFG delivers to the trustee an officer's certificate confirming that the
Pooling and Servicing Agreement will not require SRFG to add additional
Accounts to the trust as a result of the trustee issuing the new series;
and
- SRFG satisfies any additional conditions for issuing a new series that
are set forth in any Series Supplement.
If these conditions are satisfied, the trustee will issue certificates for the
new series for SRFG to execute. SRFG will execute the new certificates and
redeliver them to the trustee for the trustee to authenticate.
SRFG may offer to sell the certificates of any new series under a
prospectus or other disclosure document in transactions either registered with
the Securities and Exchange Commission under the Securities Act of 1933, as
amended, or exempt from registration under that act. Except as otherwise
provided in the Series Supplement for a new series, the Seller Interest will
decrease by the amount of the initial Series Investor Interest of the investors
in the new series. SRFG intends to offer to sell certificates from new series
from time to time. SRFG, however, is not required to issue any new series.
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REALLOCATION OF SERIES AMONG GROUPS
SRFG may elect, at any time, by written notice to the trustee and to Sears,
to move any series from one group to another group if:
- both groups have the same distribution date;
- the servicer certifies to the trustee that the servicer reasonably
believes that moving the series will not:
- delay the payment of principal for any outstanding series; or
- cause a Rapid Amortization Event for any outstanding series; and
- the Rating Agencies advise SRFG, the trustee and Sears that moving the
series will not cause them to reduce or withdraw their ratings on the
certificates of any outstanding series.
SRFG may move a series to a new group even if that series will be the only
series in the new group.
MEETINGS
Unless otherwise specified in the prospectus supplement for a series, the
Pooling and Servicing Agreement and any Series Supplement will not provide for
any annual or other meetings of investors.
BOOK-ENTRY REGISTRATION
The information in this section concerning The Depository Trust Company,
Clearstream Banking, and Euroclear and their book-entry systems and procedures
will apply to each series of certificates unless otherwise specified in the
prospectus supplement for a series. SRFG and the trust have obtained this
information from sources they believe to be reliable, but SRFG and the trust
take no responsibility for the accuracy of the information in this section.
You may hold your certificates in the United States through DTC or in
Europe through Clearstream Banking or Euroclear. The certificates will be
registered in the name of the nominee of DTC. Clearstream Banking and Euroclear
will hold omnibus positions on behalf of their respective participants,
organizations or customers, through customers' securities accounts in
Clearstream Banking's or Euroclear's name on the books of their respective
depositaries. These depositaries will in turn hold those positions in customers'
securities accounts in the depositaries' names on the books of DTC. DTC has
informed SRFG that DTC's nominee will be Cede & Co. Accordingly, SRFG expects
Cede & Co. to be the holder of record of the certificates whether you hold your
certificates through DTC, Clearstream Banking or Euroclear. You may purchase the
certificates in book-entry form in minimum denominations of $1,000 and integral
multiples of $1,000. Unless and until the trust issues definitive certificates
as described below in "-- Definitive Certificates":
- you will not be entitled to receive a physical certificate representing
your interest in the trust;
- all references in this prospectus to actions by investors in the
certificates will refer to actions taken by DTC upon instructions from
its participating organizations; and
- all references in this prospectus to distributions and notices to
investors in the certificates will refer to distributions and notices to
DTC or Cede & Co., as the registered holder of the certificates, for
distribution to you in accordance with DTC procedures.
The Depository Trust Company. DTC is:
- a limited-purpose trust company organized under the New York Banking Law;
- a "banking organization" under the New York Banking Law;
- a member of the Federal Reserve System;
- a "clearing corporation" under the New York Uniform Commercial Code; and
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- a "clearing agency" registered under the provisions of Section 17A of the
Securities Exchange Act of 1934.
DTC holds securities that its Direct Participants deposit with DTC. DTC
also facilitates the settlement among Direct Participants of securities
transactions, such as transfers and pledges, in deposited securities through
electronic computerized book-entry changes in Direct Participants' accounts,
thereby eliminating the need for physical movement of securities certificates.
"Direct Participants" of DTC include securities brokers and dealers, banks,
trust companies, clearing corporations, and certain other organizations.
"Indirect Participants," such as securities brokers and dealers, banks and trust
companies, can also access the DTC system if they maintain a custodial
relationship with a Direct Participant. If you are not a Direct Participant or
an Indirect Participant and you wish to purchase, sell or otherwise transfer
ownership of, or other interests in, certificates, you must do so through a
Direct Participant or an Indirect Participant. DTC is owned by a number of its
Direct Participants and by the New York Stock Exchange, Inc., the American Stock
Exchange, Inc., and the National Association of Securities Dealers, Inc. The
Securities and Exchange Commission has on file a set of the rules applicable to
DTC and its Direct Participants.
Clearstream Banking holds securities for its customers and facilitates the
clearance and settlement of securities transactions between Clearstream Banking
customers through electronic book-entry changes in accounts of Clearstream
Banking customers, thus eliminating the need for physical movement of
certificates. Clearstream Banking provides to its customers, among other things,
services for safekeeping, administration, clearance and settlement of
internationally traded securities and securities lending and borrowing.
Clearstream Banking interfaces with domestic markets in over 30 countries.
Clearstream Banking has established an electronic bridge with Morgan Guaranty
Trust Company of New York, the operator of the Euroclear System, to facilitate
settlement of trades between Clearstream Banking and Euroclear. Clearstream
Banking currently accepts over 110,000 securities issues on its books.
As a registered bank in Luxembourg, Clearstream Banking is subject to
regulation by the Luxembourg Commission for the Supervision of the Financial
Sector. Clearstream Banking customers are recognized financial institutions
around the world, including underwriters, securities brokers and dealers, banks,
trust companies and clearing corporations. Currently, Clearstream Banking has
approximately 2,000 customers located in over 80 countries, including all major
European countries, Canada and the United States. In the United States,
Clearstream Banking customers are limited to securities brokers and dealers.
Clearstream Banking customers may include the underwriters of your series of
certificates. Other institutions that maintain a custodial relationship with a
Clearstream Banking customer may obtain indirect access to Clearstream Banking.
Clearstream Banking is an Indirect Participant in DTC.
The Euroclear System. The Euroclear System was created in 1968 to hold
securities for participants of the Euroclear System and to clear and settle
transactions between Euroclear participants through simultaneous electronic
book-entry delivery against payment, thus eliminating the need for physical
movement of certificates and risk from lack of simultaneous transfers of
securities and cash. Transactions may now be settled in any of 34 currencies,
including United States dollars. The Euroclear System includes various other
services, including securities lending and borrowing and interfaces with
domestic markets in several countries generally similar to the arrangements for
cross-market transfers with DTC described below. The Euroclear System is
operated by Morgan Guaranty Trust Company of New York through its Brussels,
Belgium office (the "Euroclear Operator"), under contract with Euroclear
Clearance System, S.C., a Belgian cooperative corporation (the "Cooperative").
The Euroclear Operator conducts all operations, and all Euroclear securities
clearance accounts and Euroclear cash accounts are accounts with the Euroclear
Operator, not the Cooperative. The Cooperative establishes policy for the
Euroclear System on behalf of Euroclear participants. Euroclear participants
include banks, including central banks, securities brokers and dealers and other
professional financial intermediaries and may include the underwriters of your
series of certificates. 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. Euroclear is an
Indirect Participant in DTC.
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The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. The Board of
Governors of the Federal Reserve System, the New York State Banking Department
and the Belgian Banking Commission regulate and examine the Euroclear Operator.
The Terms and Conditions Governing Use of Euroclear and the related
Operating Procedures of the Euroclear System and applicable Belgian law, which
we refer to as the "Terms and Conditions," govern securities clearance accounts
and cash accounts with the Euroclear Operator. Specifically, the Terms and
Conditions govern:
- transfers of securities and cash within the Euroclear System;
- withdrawal of securities and cash from the Euroclear System; and
- receipts of payments with respect to securities in the Euroclear System.
All securities in the Euroclear System are held on a fungible basis without
attribution of specific certificates to specific securities clearance accounts.
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
securities through Euroclear participants.
Book-Entry Format. Under the book-entry format, the trustee will pay
interest or principal to Cede & Co., as nominee of DTC. DTC will forward the
payment to the Direct Participants, who will then forward the payment to the
Indirect Participants -- including Clearstream Banking or Euroclear -- or to you
as the beneficial owner. You may experience some delay in receiving your
payments under this system.
DTC is required to make book-entry transfers on behalf of its Direct
Participants and is required to receive and transmit payments of principal,
premium, if any, and interest on the certificates. Any Direct Participant or
Indirect Participant with which you have an account is similarly required to
make book-entry transfers and to receive and transmit payments with respect to
the certificates on your behalf.
The trustee will not recognize you as an "Investor Certificateholder" under
the Pooling and Servicing Agreement or any applicable Series Supplement, and you
can only exercise the rights of an Investor Certificateholder indirectly through
DTC and its Direct Participants. DTC has advised the trust that it will only
take action regarding a certificate if one or more of the Direct Participants to
whom the certificate is credited direct DTC to take such action. DTC can only
act on behalf of its Direct Participants. Your ability to pledge certificates to
non-Direct Participants, and to take other actions, may be limited because you
will not possess a physical certificate that represents your certificates.
Clearstream Banking or Euroclear will credit payments to the cash accounts of
Clearstream Banking customers or Euroclear participants in accordance with the
relevant system's rules and procedures, to the extent received by its
depositary. These payments will be subject to tax reporting in accordance with
relevant United States tax laws and regulations. Clearstream Banking or the
Euroclear Operator, as the case may be, will take any other action permitted to
be taken by an Investor Certificateholder on behalf of a Clearstream Banking
customer or Euroclear participant only in accordance with its relevant rules and
procedures and subject to its depositary's ability to effect those actions on
its behalf through DTC.
DTC, Clearstream Banking and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of certificates among participants
or customers of DTC, Clearstream Banking and Euroclear. However, they are under
no obligation to perform or continue to perform those procedures, and they may
discontinue those procedures at any time.
Transfers within and among Book-Entry Systems. Transfers between DTC's
Direct Participants will occur in accordance with DTC rules. Transfers between
Clearstream Banking customers and Euroclear participants will occur in
accordance with their applicable rules and operating procedures.
DTC will effect cross-market transfers between persons holding directly or
indirectly through DTC, on the one hand, and directly or indirectly through
Clearstream Banking customers or Euroclear participants,
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on the other hand, in accordance with DTC rules on behalf of the relevant
European international clearing system by its depositary. However, cross-market
transactions will require delivery of instructions to the relevant European
international clearing system by the counterparty in that 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, instruct its depositary 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. Clearstream Banking customers and Euroclear
participants may not deliver instructions directly to the depositaries.
Because of time-zone differences, credits of securities in Clearstream
Banking or Euroclear resulting from a transaction with a DTC Direct Participant
will be made during the subsequent securities settlement processing, dated the
business day following the DTC settlement date. Those credits or any
transactions in those securities settled during that processing will be reported
to the relevant Clearstream Banking customer or Euroclear participant on that
business day. Cash received in Clearstream Banking or Euroclear as a result of
sales of securities by or through a Clearstream Banking customer or a Euroclear
participant to a DTC Direct Participant will be received with value on the DTC
settlement date but will be available in the relevant Clearstream Banking or
Euroclear cash account only as of the business day following settlement in DTC.
Same-Day Settlement and Payment. Underwriters will settle the certificates
in immediately available funds. The trust will make principal and interest
payments on the certificates in immediately available funds or the equivalent.
Secondary market trading between DTC Direct Participants will occur in
accordance with DTC rules and will be settled in immediately available funds
using DTC's Same-Day Funds Settlement System. Secondary market trading between
Clearstream Banking customers and Euroclear participants will occur in
accordance with the applicable rules and operating procedures of Clearstream
Banking and Euroclear and will be settled using the procedures applicable to
conventional eurobonds in immediately available funds.
DEFINITIVE CERTIFICATES
The trust will issue definitive certificates in fully registered
certificated form to you or your nominees, rather than to DTC or its nominees
only if:
- SRFG advises the trustee in writing that DTC is no longer willing or able
to discharge properly its responsibilities as depositary for the
certificates;
- SRFG elects to terminate the book-entry system through DTC; or
- after a Servicer Termination Event occurs, investors representing 51% of
the Series Invested Amount of any series advise DTC in writing through
DTC participants that the continuation of a book-entry system through
DTC, or its successor, is no longer in the best interest of the investors
of that series.
If any of these event occurs, the trustee must notify all investors that
definitive certificates in fully registered certificated form are available
through DTC. DTC will then surrender the global certificate representing the
certificates along with instructions for re-registration. The trustee will
reissue the certificates in fully registered certificated form and the trustee
will recognize the registered holders of those definitive certificates as
"Investor Certificateholders" under the Pooling and Servicing Agreement.
The trustee will pay principal and interest on the certificates directly to
the holders of definitive certificates in accordance with the procedures set
forth in this prospectus and the Pooling and Servicing Agreement. The trustee
will pay principal and interest on each distribution date to each person in
whose name a definitive certificate was registered at the close of business on
the last day of the prior month by mailing a check to the address for that
person that appears on the trustee's register. The trustee will make the final
payment on a certificate, whether a definitive certificate or a certificate
registered in the name of Cede & Co., only when that certificate is presented
and surrendered at the office or agency specified in the
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trustee's notice of the final distribution. The trustee must provide the notice
of final distribution to each registered holder no later than the tenth day of
the month in which the trustee will make the payment.
Holders of definitive certificates may transfer and exchange them at the
trustee's offices, or at any other office that SRFG designates. The trustee, or
any other transfer agent, will not impose a service charge for registering any
transfer or exchange, but may require payment to cover any tax or other
governmental charge imposed in connection with the registration of the transfer
or exchange.
LIST OF CERTIFICATEHOLDERS
If the trust issues definitive certificates for a series, and three or more
registered holders of certificates whose Invested Amounts represent at least 5%
of the Series Invested Amount for that series so request in writing, the trustee
must provide those holders access during business hours to the current list of
holders so that they may communicate with other holders about their rights under
the Pooling and Servicing Agreement. The requesting holders, however, must
indemnify the trustee for all costs and expenses related to their request.
EXCHANGE OF CERTIFICATES FOR SELLER INTEREST
On any distribution date, after the trust has made all required payments
and allocations, SRFG may cancel any certificates that SRFG owns by notifying
the trustee as to which of SRFG's certificates it wishes to cancel. SRFG,
however, may not cancel any of its certificates that are subordinate to another
class of certificates unless the Rating Agencies have notified SRFG that the
cancellation of those certificates will not cause them to reduce or withdraw
their ratings on any class of certificates in any outstanding series. When SRFG
cancels certificates in a series:
- the Series Investor Interest for that series will decrease;
- the aggregate interest in the assets of the trust represented by
certificates will decrease because the principal amount of outstanding
certificates decreased; and
- the Seller Interest will increase because the interest in the trust not
represented by certificates increased.
When SRFG cancels its certificates, it exchanges those certificates for a larger
Seller Interest. Your interest in the trust's assets represented by your
certificate will not decrease when SRFG cancels any of its certificates.
SALE OF SELLER INTEREST
The trust has issued the Seller Certificate to SRFG. SRFG may not transfer,
assign, sell or pledge or grant a security interest in any portion of the Seller
Interest represented by the Seller Certificate, except that SRFG may transfer a
portion of the Seller Interest if:
- the terms of the transfer are substantially similar to the Pooling and
Servicing Agreement;
- the agreements and other documentation relating to the transfer:
- are consistent with, and subject to, the terms of the Pooling and
Servicing Agreement and the Series Supplements;
- do not require the servicer, SRFG or the trustee to perform any action
that is prohibited by the Pooling and Servicing Agreement or any Series
Supplement; and
- do not prohibit the servicer, SRFG or the trustee from performing any
action that is required by the Pooling and Servicing Agreement or any
Series Supplement or that is necessary to protect the interests of the
investors in the certificates; and
- the Rating Agencies advise SRFG that the transfer would not cause them to
reduce or withdraw their ratings on any class of certificates of any
outstanding series. This advice from the Rating
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Agencies is not required if SRFG is transferring the Seller Interest to
comply with regulatory requirements.
AMENDMENTS
Sears, SRFG and the trustee may amend the Pooling and Servicing Agreement
or any Series Supplement, without the consent of any investor in the
certificates, for the following purposes:
- to add to the covenants and agreements of the Pooling and Servicing
Agreement or any Series Supplement for the benefit of investors in the
certificates;
- to surrender any right or power granted to Sears or SRFG in the Pooling
and Servicing Agreement or any Series Supplement;
- to add provisions to or change or remove any provision of the Pooling and
Servicing Agreement or any Series Supplement, if the addition, change or
removal will not adversely affect in any material respect the investors
in any class of any outstanding series;
- to cure any ambiguity or to correct or supplement any inconsistent
provision of the Pooling and Servicing Agreement or any Series
Supplement;
- to change the procedures for issuing a single temporary or permanent
global certificate representing the certificates of any series or class;
or
- to add any other provisions with respect to matters or questions arising
under the Pooling and Servicing Agreement or any Series Supplement which
are not inconsistent with those agreements, if those provisions will not
adversely affect in any material respect the investors in any class of
any outstanding series.
Sears, SRFG and the trustee may also amend the Pooling and Servicing Agreement
or any Series Supplement, without the consent of any investor in the
certificates, for the following purposes, but only if the Rating Agencies
confirm in writing that the amendment will not cause them to reduce or withdraw
their ratings on any class of certificates of any outstanding series:
- to accommodate the addition to the trust of participation interests in
other pools of credit card receivables;
- to change the credit enhancement for any class or series of certificates;
- to accommodate the issuance of additional certificates in an outstanding
series; and
- to accommodate the issuance of variable funding certificates.
In addition, Sears, SRFG and the trustee may amend the Pooling and
Servicing Agreement or any Series Supplement if:
- investors holding certificates that represent 66 2/3% of the Class
Invested Amount of any class that is adversely affected by the proposed
amendment consent to the proposed amendment; and
- the Rating Agencies confirm in writing that the amendment will not cause
them to reduce or withdraw their ratings on any class of certificates of
any outstanding series.
That proposed amendment, however, may not:
- increase or reduce the amount, or delay or accelerate the timing, of
distributions the trust is required to make for any class of certificates
unless all investors in that class of certificates consent to the change;
or
- reduce the percentage of the Class Invested Amount of any class required
to consent to the proposed amendment unless all investors in each
affected class consent to the reduction.
Promptly after Sears, SRFG and the trustee execute any amendment that required
the consent of investors, the trustee will provide written notice of the
substance of the amendment to each holder of a certificate.
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SERVICER DUTIES, COMPENSATION AND OTHER MATTERS
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The trust will pay a monthly servicing fee to Sears on behalf of each
series as compensation for Sears servicing activities and reimbursement for its
expenses. The Series Supplement for each series will specify the amount of the
monthly servicing fee. Under certain circumstances, to the extent permitted in
the Series Supplement for a series, Sears may be entitled to additional
servicing compensation from that series. The trust generally will use
collections of Finance Charge Receivables allocated to a series to pay the
monthly servicing fee for that series, although the trust may use additional
funds to pay a portion of the monthly servicing fee if the Series Supplement for
that series permits.
The servicer will use its servicing compensation to pay certain expenses it
incurs in connection with servicing the Receivables, including:
- the fees of and other payments to the trustee and independent public
accountants; and
- other fees that the Pooling and Servicing Agreement or the related Series
Supplement do not require the trust or the investors to pay.
The servicer is not required to use its servicing compensation to pay the
trust's federal, state and local income and franchise taxes, if any.
RESIGNATION OR MERGER OF SERVICER; DELEGATION OF DUTIES
Sears may not resign from its obligations and duties as servicer under the
Pooling and Servicing Agreement, unless it determines that those duties are no
longer permissible under applicable law. If Sears does resign under those
circumstances, its resignation will not be effective until the trustee or a
successor to Sears has assumed the responsibilities and obligations of the
servicer under the Pooling and Servicing Agreement.
Although the servicer may delegate any of its duties under the Pooling and
Servicing Agreement or any Series Supplement, the delegation of any duties will
not relieve the servicer of its liabilities and responsibilities with respect to
those duties. The servicer's delegation of duties will not constitute a
resignation of the servicer.
Any individual, partnership, corporation, joint stock company, business
trust or other similar association:
- into which Sears merges or consolidates in accordance with the Pooling
and Servicing Agreement;
- resulting from any merger or consolidation to which Sears is a party; or
- succeeding to the business of Sears
will be the successor to Sears as servicer upon the execution of a supplement to
the Pooling and Servicing Agreement.
SERVICER TERMINATION EVENTS
A "Servicer Termination Event" will occur if:
- the servicer fails to make any payment, transfer or deposit on or before
the date required under the Pooling and Servicing Agreement or the
applicable Series Supplement and fails to make that payment, transfer or
deposit within five business days after that date;
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- the servicer fails to observe or perform duly any other covenant or
material agreement of the servicer in the Pooling and Servicing Agreement
or any Series Supplement and the servicer does not remedy the problem
within 60 days after notice is given to:
- the servicer, by the trustee; or
- the servicer and the trustee, by investors holding at least 25% of the
Class Invested Amount of any class of certificates materially affected
by the servicer's failure to observe the covenant or material agreement;
- any representation, warranty or certification made by the servicer in the
Pooling and Servicing Agreement or any Series Supplement proves to have
been incorrect when made, which has a material adverse effect on the
investors in any class of any series, and which continues to be
materially incorrect for 60 days after notice is given to:
- the servicer, by the trustee; or
- the servicer and the trustee, by investors holding at least 25% of the
Class Invested Amount of any class of certificates materially adversely
affected by the incorrect representation, warranty or certification;
- certain events of bankruptcy, insolvency or receivership of the servicer
occur; or
- any other event that a Series Supplement specifies is a Servicer
Termination Event occurs.
If a Servicer Termination Event occurs, either the trustee or investors holding
at least 51% of the Aggregate Invested Amount of certificates may terminate all
of the rights and obligations of the servicer under the Pooling and Servicing
Agreement after notice is given to:
- the servicer, by the trustee; or
- the servicer and the trustee, by the investors.
The trustee will as promptly as possible appoint a successor servicer. If the
trustee has not appointed a successor servicer, or the successor servicer has
not accepted its appointment, by the time Sears ceases to act as servicer, all
authority, power and obligations of the servicer under the Pooling and Servicing
Agreement will pass to and be vested in the trustee.
If the Servicer Termination Event consists of the filing of a bankruptcy
petition by or against the servicer, and the servicer is subject to the
Bankruptcy Code, the bankruptcy court may prevent the trustee or investors from
terminating the servicer's rights and obligations and appointing a successor
servicer. Similarly, if the Servicer Termination Event consists of the
appointment of a conservator or receivership of the servicer or the insolvency
of the servicer, and the servicer is an FDIC insured depository institution, the
FDIC may have the power to prevent the trustee or investors from terminating the
servicer's rights and obligations and appointing a successor servicer.
REPORTS TO CERTIFICATEHOLDERS
For each distribution date, the trustee will execute a statement based on
information provided by Sears as servicer setting forth:
- the total amount the trust paid to investors on that distribution date;
- the amount of principal the trust paid to, or accumulated for, investors
on that distribution date;
- the amount of interest the trust paid to investors on that distribution
date;
- the total amount of collections of Principal Receivables Sears processed
during the prior month and the amount the trust allocated to the
certificates and to the Seller Certificate;
- the total amount of collections of Finance Charge Receivables that Sears
processed during the prior month and the amount the trust allocated to
the certificates and to the Seller Certificate;
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- the aggregate amount of Principal Receivables and the amount of the
Series Investor Interest for each series of certificates on that
distribution date after the trust made all required payments on that
distribution date;
- the charge-offs for that distribution date and the cumulative amount of
charge-offs;
- the amount of Investor Losses for that distribution date, the aggregate
amount of Investor Losses and the amount of Investor Losses that the
trust reimbursed;
- the amount of the investor servicing fee for the related Due Period; and
- any other customary information that the trustee, Sears or SRFG deems
necessary.
In addition, on or before January 31 of each calendar year, the paying agent for
the trust, currently the corporate trust office of the trustee, will prepare a
statement from information provided by Sears setting forth:
- the total amount the trust paid to investors during the prior calendar
year;
- the amount of principal the trust paid to, or accumulated for, investors
on each distribution date during the prior calendar year;
- the amount of interest the trust paid to investors on each distribution
date during the prior calendar year; and
- any other customary information that the trustee, Sears or SRFG deems
necessary or desirable for the investors to prepare their tax returns.
EVIDENCE AS TO COMPLIANCE
On or about April 15 of each calendar year, Sears as servicer will cause a
firm of nationally recognized independent public accountants to furnish a report
to the trustee covering the prior annual period stating that:
- the accountants have performed certain agreed-upon procedures on certain
documents and records relating to the servicing of the Accounts;
- the accountants compared the information contained in the monthly
certificates the servicer delivered during the period covered by the
report with those documents and records; and
- on the basis of those procedures, the extent to which matters, if any,
came to the attention of the accountants that caused them to believe that
the servicer's servicing of the Accounts did not comply with the Pooling
and Servicing Agreement or any Series Supplement.
In addition, each report will set forth the procedures the accountants performed
to compare the mathematical calculations of the amounts contained in the
servicer's monthly certificates with the servicer's computer reports, and the
conclusions reached. If the accountants conclude that the servicer did not
comply with the Pooling and Servicing Agreement or any Series Supplement, or if
the amounts in the reports are not in agreement, the accountants will set out
their exceptions in the report unless they believe them to be immaterial. The
procedures to be followed by the accountants will not constitute an audit
conducted in accordance with generally accepted auditing standards.
Sears as servicer is required to deliver to the trustee, on or about April
15 of each calendar year, an annual statement signed by an officer of Sears
stating that:
- the officer, in the course of that officer's duties as an officer of
Sears, would normally obtain knowledge of any Servicer Termination Event;
- whether or not that officer has obtained knowledge of any Servicer
Termination Event; and
- if the officer has knowledge of a Servicer Termination Event, the nature
of the Servicer Termination Event.
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USE OF PROCEEDS
SRFG conveyed the Receivables to the trust on July 31, 1994, at the same
time that it sold the Series 1994-1 certificates and received the net proceeds
from the sale of those certificates. SRFG paid those proceeds to Sears in
consideration for Sears sale of a part of the Receivables to SRFG. SRFG has used
and will use proceeds from the sale of certificates:
- to purchase additional Receivables from Sears;
- to loan or return funds to Sears; or
- for general corporate purposes.
Unless the prospectus supplement for a series specifies otherwise, Sears will
add proceeds it receives from SRFG to its general funds and initially use the
proceeds to reduce its short-term borrowings.
FEDERAL INCOME TAX CONSEQUENCES
GENERAL
This summary of the material federal income tax consequences to investors
in certificates of any series is based on the opinion of Latham & Watkins,
special tax counsel to Sears and SRFG. This summary is based on the Code,
Treasury Regulations and judicial and administrative rulings and decisions as of
the date of this prospectus. We cannot assure you that the IRS will agree with
the conclusions in this summary, and we have not sought and will not seek a
ruling from the IRS on the expected federal tax consequences described in this
summary. Subsequent legislative, judicial or administrative changes -- which may
or may not be applied retroactively -- could change these tax consequences.
Although we provide certain limited discussions of particular topics, in
general we have not considered your particular tax consequences in this summary
if you are subject to special treatment under the federal income tax laws, such
as:
- a life insurance company;
- a tax-exempt organization;
- a financial institution;
- a broker-dealer;
- an investor that has a functional currency other than the United States
dollar; or
- an investor that holds certificates as part of a hedge, straddle or
conversion transaction.
We also do not deal with all aspects of federal income taxation that may
affect you in light of your individual circumstances. WE RECOMMEND THAT YOU
CONSULT YOUR OWN TAX ADVISORS ABOUT THE FEDERAL, STATE, LOCAL, FOREIGN AND ANY
OTHER TAX CONSEQUENCES TO YOU OF PURCHASING, OWNING AND DISPOSING OF
CERTIFICATES.
This summary assumes that your certificate:
- is issued in registered form;
- has all payments denominated in United States dollars and not determined
by reference to the value of any other currency;
- has a term that exceeds one year;
- has an interest formula that meets the requirements for "qualified stated
interest" under Treasury Regulations relating to OID unless Section
1272(a)(6) of the Code applies to the certificate; and
- does not have any OID arising from any excess of its Stated Redemption
Price at Maturity -- generally, the principal amount of the
certificate -- over its Issue Price, or has only a de minimis
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amount of OID. OID is de minimis if it is less than 1/4% of the
certificate's principal amount multiplied by the number of complete
years, computed on a weighted-average basis taking into account when each
principal payment is due for a certificate with principal payments due
before maturity, until the certificate's maturity date.
If these conditions are not satisfied, we will describe additional tax
considerations in the prospectus supplement for your series. This summary
assumes that you hold your certificate as a capital asset -- generally, property
held for investment -- within the meaning of Section 1221 of the Code. This
summary does not apply to any certificates of a series that are retained by
SRFG.
TAX TREATMENT OF THE CERTIFICATES AS DEBT
Sears and SRFG will treat the certificates of each series as debt for
federal, state and local income and franchise tax purposes. By accepting a
certificate, you also will commit to treat your certificates as debt for
federal, state and local income and franchise tax purposes. However, the Pooling
and Servicing Agreement and each Series Supplement generally refer to the
transfer of Receivables as a "sale," and SRFG has informed its tax counsel that:
- SRFG's accountants use different criteria to determine the nontax
accounting treatment of the transaction; and
- for regulatory and financial accounting purposes, SRFG will treat the
transfer of the Receivables under the Pooling and Servicing Agreement and
each Series Supplement as a transfer of an ownership interest in the
Receivables and not as the creation of a debt obligation.
In general, whether for federal income tax purposes a transaction
constitutes a purchase or a loan secured by the transferred property is a
question of fact. This question is generally resolved based on the economic
substance of the transaction, rather than its form. In the case of the
certificates of a series, the issue is whether the investors have loaned money
or have purchased Receivables through ownership of the certificates. In some
cases, courts have held that a taxpayer is bound by the form of the transaction
even if the substance does not comport with its form. Although the matter is not
free from doubt, Sears and SRFG's tax counsel believes that the rationale of
those cases will not apply to this transaction, based, in part, upon:
- Sears and SRFG's expressed intent to treat the certificates of each
series for federal, state and local income and franchise tax purposes as
debt secured by the Receivables and other assets held in the trust, and
- each investor's commitment, by accepting a certificate of a series,
similarly to treat the certificate for federal, state and local income
and franchise tax purposes as debt.
Although the IRS and the courts have established several factors to be
considered in determining whether, for federal income tax purposes, a
transaction in substance constitutes a sale or a loan secured by the transferred
property, including the form of the transaction, it is the opinion of tax
counsel to Sears and SRFG that the primary factor in this case is whether the
investors, through ownership of the certificates, have assumed the benefits and
burdens of ownership of the Receivables. Unless the prospectus supplement for a
series specifies otherwise, tax counsel to Sears and SRFG has concluded for
federal income tax purposes that, although the matter is not free from doubt,
the benefits and burdens of ownership of the Receivables have not been
transferred to the investors through ownership of the certificates.
Unless the prospectus supplement for a series specifies otherwise, for the
reasons described above, tax counsel to Sears and SRFG will advise Sears and
SRFG that, in their opinion, under applicable law, the certificates of a series
will be treated as debt for federal income tax purposes and the IRS will
continue to not treat the trust as an entity subject to federal income tax,
although the matter is not free from doubt as the IRS or the courts may not
agree. See "-- Possible Characterization of the Certificates" for a discussion
of your federal income tax consequences if your certificates are not treated as
debt for federal income tax
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purposes. Except for that discussion, the following discussion assumes that your
certificates will be treated as debt for federal income tax purposes.
UNITED STATES INVESTORS
The rules set forth below apply to you only if you are a "United States
Holder." A "United States Holder" is a "United States Person" who is a
beneficial owner of a certificate. A "United States Person" generally is:
- a citizen or resident of the United States;
- a corporation or partnership, including an entity treated as a
corporation or partnership for federal income tax purposes, created or
organized in the United States or under the laws of the United States or
of any state;
- an estate the income of which is subject to United States federal income
taxation regardless of the source of that income; or
- a trust if a court within the United States is able to exercise primary
supervision over the trust's administration, and one or more United
States Persons have the authority to control all substantial decisions of
the trust. Notwithstanding the preceding clause, to the extent provided
in Treasury Regulations, certain trusts in existence on August 20, 1996
and treated as United States Persons under the Code and Treasury
Regulations prior to such date, that elect to continue to be treated as
United States Persons, will also be considered United States Persons.
Interest on Certificates. Subject to the discussion below:
- If you use the cash method of accounting for tax purposes, you generally
will be taxed on the interest on your certificate at the time it is paid
to you.
- If you use the accrual method of accounting for tax purposes, you
generally will be taxed on the interest on your certificate at the time
it accrues.
- The interest on your certificate will be treated as ordinary income and
will generally constitute "investment income" for purposes of certain
limitations of the Code concerning the deductibility of investment
interest expense.
Original Issue Discount. The certificates of a series will be issued with
OID to the extent that a certificate's Stated Redemption Price at
Maturity -- generally, the certificate's principal amount -- exceeds its Issue
Price. The Issue Price of a certificate will be the first price at which a
substantial amount of the certificates are sold for money, excluding sales to
bond houses or brokers acting in the capacity of underwriters, placement agents
or wholesalers.
If you purchase a certificate upon its original issue for the Issue Price,
and the amount of OID is less than 1/4% of your certificate's principal amount
multiplied by the number of complete years, computed on a weighted-average basis
taking into account when each principal payment is due for a certificate with
principal payments due before maturity, until the certificate's maturity date,
then the amount of OID (the "De Minimis OID") will be includible in your gross
income as principal payments are made on your certificate and will be treated as
gain on disposition of a certificate, subject to tax in accordance with the
rules described below in "-- Dispositions of Certificates." Sears and SRFG will
take the position that principal is due for this purpose on the day it is
expected to be paid. The portion of the De Minimis OID that will be includible
in your gross income with respect to each principal payment is equal to a
fraction, the numerator of which is the amount of the principal payment and the
denominator of which is the principal amount of your certificate.
If your certificates are issued with OID that is not De Minimis OID, you
generally will be required to include OID in income for each accrual period
before you receive the cash representing the OID. You will be required to
recognize as ordinary income the amount of OID on your certificates as the
discount accrues, in accordance with a constant yield method. Accrued OID is the
sum of OID attributable to each
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day during the taxable year or portion thereof in which you hold a certificate.
The daily portion is determined by allocating to each day of an accrual period a
pro rata portion of the OID that accrued in such period. The accrual period may
be of any length and may vary in length over the term of the certificate,
provided that
- no accrual period is longer than one year and
- each scheduled payment of principal or interest occurs either on the
final or first day of an accrual period.
The amount of OID that accrues with respect to any accrual period is the excess
of
- the product of the certificate's adjusted issue price at the beginning of
such accrual period and its yield to maturity, which yield will be
determined on the basis of compounding at the close of each accrual
period and properly adjusted for the length of such period, over
- the amount of stated interest allocable to such accrual period.
The adjusted issue price at the beginning of an accrual period is equal to the
certificate's Issue Price increased by the accrued OID for each prior accrual
period and decreased by any prior payments made on such certificate other than
payments of stated interest. If you purchase a certificate at a price in excess
of the adjusted issue price, you may reduce future OID accruals by an allocable
portion of such excess.
The prospectus supplement for your series will advise you if your
certificates may be issued with OID that is not De Minimis OID.
Under Section 1272(a)(6) of the Code, special provisions apply to debt
instruments on which payments may be accelerated due to prepayments of other
obligations securing those debt instruments, or because of other events to the
extent specified in Treasury Regulations. If your certificate has OID, and
Section 1272(a)(6) applies, you must compute your OID and market discount -- see
"-- Market Discount" -- by taking into account both the prepayment assumptions
used in pricing your certificates and the actual prepayment experience. As a
result, the amount of OID on your certificates that would accrue in any given
accrual period might either increase or decrease depending on the actual
prepayment rate. Because no Treasury Regulations have been issued under Section
1272(a)(6), you should consult your own tax advisors about the possible impact
of these OID rules if your certificates are issued with OID.
Market Discount. In general, subject to a statutorily-defined de minimis
exception, you will have acquired your certificate at a market discount if you
acquire the certificate at a price that is less than the certificate's Stated
Redemption Price at Maturity -- generally, the certificate's principal
amount -- and
- you acquire your certificate upon its original issue at a price that is
less than the certificate's Issue Price; or
- you acquire your certificate subsequent to its original issue and, if the
certificate was issued with OID that is not De Minimis OID, at a price
that is less than the certificate's "Revised Issue Price." A
certificate's Revised Issue Price should generally be its Issue Price
plus the amount of OID previously includible in income by all prior
holders of the certificate less the amount of principal payments
previously made on the certificate.
The market discount rules generally provide that, if you acquire a
certificate at a market discount and you later recognize gain upon a disposition
of the certificate, you must treat as ordinary interest income at the time of
disposition the lesser of your gain or the portion of the market discount that
accrued while you held the certificate. Similarly, if you dispose of the
certificate in certain nonrecognition transactions, such as a gift, you will be
treated for purposes of the market discount rules as realizing an amount equal
to the fair market value of the certificate and you must treat as ordinary
interest income at the time of disposition the lesser of your deemed gain or the
portion of the market discount that accrued while you held the certificate. If
you acquire a certificate with market discount, you should contact your own tax
advisors as to the possible application of Section 1272(a)(6) of the Code and
its effect on your accrual of market discount. See "-- Original Issue Discount."
In addition, you may also be required to defer a
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portion of any interest expense that you might otherwise be able to deduct on
any debt you incurred or maintained to purchase or carry the certificate until
you dispose of the certificate in a taxable transaction.
If you acquire a certificate at a market discount, you will generally be
required to treat as ordinary interest income the portion of any principal
payment, including a payment on maturity, attributable to accrued market
discount on your certificate. If you acquire a certificate with market discount
that is de minimis where the discount to the Stated Redemption Price at Maturity
or, for a certificate with OID that is not De Minimis OID, the Revised Issue
Price, is less than 1/4% of the Stated Redemption Price at Maturity multiplied
by the number of complete years from your acquisition date, probably computed on
a weighted-average basis taking into account when each principal payment is due
for a certificate with principal payments due before maturity, until the
certificate's maturity date, the rules described above will not apply to you and
you should include in your gross income at the time you receive a principal
payment an amount equal to the de minimis amount of market discount, multiplied
by the amount of the principal payment, divided by the amount of remaining
principal payments on the certificate, including the principal payment you are
receiving.
If you acquire your certificate at a market discount, you may elect to
include market discount in income as the discount accrues, either on a ratable
basis or, if you so elect, on a constant interest rate basis. Once you make this
election, it applies to all market discount obligations that you acquire on or
after the first day of the first taxable year to which your election applies,
and you may not revoke the election without the consent of the IRS. In addition,
if you make this election, you will not have to recognize ordinary income on
sales, principal payments and certain other dispositions of the certificates and
you will not have to defer interest deductions on debt related to the
certificates in accordance with the rules discussed above.
The Clinton Administration has proposed legislation that would require you,
if you are an accrual method taxpayer that acquires a certificate at a market
discount, to include the discount in income as it accrues, subject to certain
limitations. As proposed, this provision would apply to certificates that you
acquire on or after the date of enactment. Sears and SRFG cannot predict whether
this legislation will be enacted, or if enacted, what its ultimate form or
effective date will be.
Amortizable Bond Premium. Generally, if the price you paid for your
certificate or your tax basis in your certificate exceeds the sum of all amounts
payable on the certificate after your acquisition date, other than payments of
qualified stated interest, the excess may constitute amortizable bond premium
that you may elect to amortize under the constant interest rate method over the
period from your acquisition date to the certificate's maturity date. If your
certificates are subject to Section 1272(a)(6) of the Code, the application of
the amortizable bond premium rules is unclear, as the amortizable bond premium
Treasury Regulations specifically exclude from their application instruments
subject to Section 1272(a)(6). Because no Treasury Regulations have been issued
interpreting Section 1272(a)(6), you should contact your own tax advisors about
the possible impact of Section 1272(a)(6) if you acquire a certificate at a
premium. See the discussion of Section 1272(a)(6) in "-- Original Issue
Discount." You may generally treat amortizable bond premium as an offset to
interest income on the certificate, rather than as a separate interest deduction
item subject to the investment interest limitations of the Code. If you elect to
amortize bond premium, you must generally reduce your tax basis in the related
certificate by the amount of bond premium used to offset interest income. If
your certificate is redeemed in full before its maturity and you have elected to
amortize bond premium, you may be entitled to a deduction for any remaining
unamortized bond premium in the taxable year of redemption.
Dispositions of Certificates. In general, you will recognize gain or loss
upon the sale, exchange, redemption or other taxable disposition of your
certificate measured by the difference between:
- the amount of cash and the fair market value of any property received for
the certificate other than the amount attributable to, and taxable as,
accrued but unpaid interest, and
- your tax basis in the certificate, as increased by any OID or market
discount, including de minimis amounts, that you previously included in
income, and as decreased by any deductions previously
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allowed to you for amortizable bond premium and by any payments
reflecting principal or OID that you received with respect to the
certificate.
Subject to the OID and market discount rules discussed above and to the
one-year holding period requirement for long-term capital gain treatment, any
gain or loss generally will be long-term capital gain or loss. The excess of net
long-term capital gains over net short-term capital losses may be taxed at a
lower rate than ordinary income for individuals, estates and trusts. The
deductibility of capital losses may be subject to limitation.
FOREIGN INVESTORS
The following summary of the United States federal income and estate tax
consequences of the purchase, ownership, sale or other disposition of a
certificate applies to you only if you are a "Non-United States Holder." You
generally are a "Non-United States Holder" if, for United States federal income
tax purposes, you are a beneficial owner of a certificate and are:
- a nonresident alien individual,
- a foreign corporation,
- a foreign partnership, or
- a foreign estate or trust,
as each term is defined in the Code. Some Non-United States Holders, including
certain residents of certain United States possessions or territories, may be
subject to special rules not discussed in this summary.
Interest, including OID, if any, paid to you on your certificate will not
be subject to withholding of United States federal income tax, provided that:
- these interest payments are effectively connected with your conduct of a
trade or business within the United States and you submit, under current
Treasury Regulations, a properly executed Internal Revenue Service Form
4224 (Exemption from Withholding of Tax on Income Effectively Connected
With the Conduct of a Trade or Business in the United States); or
- you are not a "10 percent shareholder" of the holder of the Seller
Certificate or a "controlled foreign corporation" with respect to which
the holder of the Seller Certificate is a "related person" within the
meaning of the Code, and, under current Treasury Regulations, either (i)
you represent that you are not a United States Person and provide your
name and address to SRFG or its paying agent on a properly executed
Internal Revenue Service Form W-8 (Certificate of Foreign Status), or a
suitable substitute form, signed under penalties of perjury; or (ii) a
securities clearing organization, bank or other financial institution
that holds customers' securities in the ordinary course of its business
holds your certificate on your behalf, certifies to SRFG or its paying
agent under penalties of perjury that it has received Form W-8 or a
suitable substitute form from you or from another qualifying financial
institution intermediary, and provides a copy to SRFG or its paying
agent.
If these exceptions do not apply to you, interest, including OID, if any, paid
to you generally will be subject to withholding of United States federal income
tax at a 30% rate. You may, however, be able to claim the benefit of a reduced
withholding tax rate under an applicable income tax treaty. The required
information for claiming treaty benefits is generally submitted, under current
Treasury Regulations, on Form 1001 (Ownership, Exemption, or Reduced Rate
Certificate).
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You generally will not be subject to United States federal income tax on
gain realized on the sale, exchange or redemption of your certificate, other
than gain attributable to accrued interest or OID, which is addressed in the
preceding paragraph, provided that:
- the gain is not effectively connected with your conduct of a trade or
business within the United States; and
- if you are an individual,
- you have not been present in the United States for 183 days or more in
the taxable year of the sale, exchange or redemption; or
- you do not have a "tax home" in the United States and the gain is not
attributable to an office or other fixed place of business that you
maintain in the United States.
If the interest or gain on your certificate is effectively connected with
your conduct of a trade or business within the United States, then although you
will be exempt from the withholding of tax previously discussed if you provide
an appropriate statement, you generally will be subject to United States federal
income tax on the interest, including OID, if any, or gain at regular federal
income tax rates in a manner similar to a United States Person. See "-- United
States Investors." In addition, if you are a foreign corporation, you may be
subject to a branch profits tax equal to 30% of your "effectively connected
earnings and profits" within the meaning of the Code for the taxable year, as
adjusted for certain items, unless you qualify for a lower rate under an
applicable tax treaty.
If you are an individual and are not a citizen or resident of the United
States at the time of your death, your certificates will generally not be
subject to United States federal estate tax as a result of your death if,
immediately before death,
- you were not a "10 percent shareholder" of the holder of the Seller
Certificate, and
- your interest on the certificate was not effectively connected with your
conduct of a trade or business within the United States.
THE ABOVE DESCRIPTION OF THE POTENTIAL UNITED STATES FEDERAL INCOME AND
ESTATE TAX CONSEQUENCES TO NON-UNITED STATES HOLDERS IS NECESSARILY INCOMPLETE.
YOU ARE URGED TO CONSULT YOUR OWN TAX ADVISORS ABOUT THESE MATTERS.
BACKUP WITHHOLDING AND INFORMATION REPORTING
If you are a United States Holder but not a corporation, financial
institution or certain other type of entity, information reporting requirements
will apply to certain payments of principal and interest, including accrued OID,
if any, on a certificate and to proceeds of certain sales of a certificate
before maturity. In addition, if you do not provide a correct taxpayer
identification number and other required information, or do not comply with
certain other requirements or otherwise establish an exemption, the holder of
the Seller Certificate, a paying agent, or a broker, as the case may be, will be
required to withhold from its payments to you a tax equal to 31% of each
payment.
If you are a Non-United States Holder, backup withholding and information
reporting will not apply to payments of principal and interest, including
accrued OID, if any, on a certificate to you if you certify under penalties of
perjury that you are not a United States Person or otherwise establish an
exemption, provided that neither the holder of the Seller Certificate nor its
paying agent has actual knowledge that you are a United States Person or that
the conditions of any other exemption are not in fact satisfied. Information
reporting, but not backup withholding, requirements will apply to payments of
the proceeds of your sale of a certificate to or through a foreign office of a
broker that is a United States Person, a controlled foreign corporation for
United States federal income tax purposes or a foreign person 50% or
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more of whose gross income is connected with the conduct of a trade or business
within the United States for a specified three-year period, unless:
- you are an exempt recipient; or
- the broker has evidence in its records that you are not a United States
Person and no actual knowledge that the evidence is false, and certain
other conditions are met.
Information reporting and backup withholding will apply to payments of the
proceeds of your sale of a certificate to or through a United States office of a
broker unless:
- you provide your name and address and certify under penalties of perjury
as to your status as a Non-United States Person and certain other
qualifications, and no agent of the broker who is responsible for
receiving or reviewing your statement has actual knowledge that it is
incorrect; or
- you otherwise establish an exemption.
If you provide the IRS with the information it requires, you will receive a
refund or a credit against your United States federal income tax liability for
any amounts withheld from your payments under the backup withholding rules.
NEW WITHHOLDING REGULATIONS
The Treasury Department has promulgated final regulations regarding certain
withholding and information reporting rules discussed above that are generally
effective for payments made after December 31, 2000, subject to certain
transition rules. In general, these New Withholding Regulations do not
significantly alter the substantive withholding and information reporting
requirements but unify current certification procedures and forms and clarify
reliance standards. The New Withholding Regulations combine several existing
forms, including Form W-8, Form 4224 and Form 1001 into an expanded Form W-8.
The new Forms W-8 include Form W-8BEN (Certificate of Foreign Status of
Beneficial Owner for United States Tax Withholding) that replaces the existing
Forms W-8 and 1001; Form W-8ECI (Certificate of Foreign Person's Claim for
Exemption From Withholding on Income Effectively Connected With the Conduct of a
Trade or Business in the United States) that replaces existing Form 4224; and
Form W-8IMY (Certificate of Foreign Intermediary, Foreign Partnership, or
Certain U.S. Branches for United States Tax Withholding). Special rules apply
that permit the shifting of primary responsibility for withholding to certain
financial intermediaries acting on behalf of beneficial owners.
Certifications satisfying the requirements of the New Withholding
Regulations will be deemed to satisfy the requirements of the Treasury
Regulations now in effect. You must, however, provide certifications that comply
with the provisions of the New Withholding Regulations, where required, with
respect to payments made after December 31, 2000, if you remain as a holder of a
certificate on that date, unless you receive payments on a certificate through a
qualified intermediary, as defined in the New Withholding Regulations, that has
provided a proper certification on your behalf, although you may have to provide
such certifications to the qualified intermediary.
THE ABOVE SUMMARY OF THE NEW WITHHOLDING REGULATIONS IS NECESSARILY
INCOMPLETE. YOU ARE URGED TO CONSULT YOUR OWN TAX ADVISORS TO DETERMINE HOW THE
NEW WITHHOLDING REGULATIONS WILL AFFECT YOUR PARTICULAR CIRCUMSTANCES.
POSSIBLE CHARACTERIZATION OF THE CERTIFICATES
The above discussion assumes that the certificates of a series will be
treated as debt for federal income tax purposes. However, although Sears and
SRFG's tax counsel will render an opinion to that effect with respect to each
series of certificates, the matter is not free from doubt, and we cannot assure
you that the IRS or the courts will agree with that opinion. If the IRS were to
contend successfully that some or all of the certificates of a series are not
debt for federal income tax purposes, it could find that the
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arrangement created by the Pooling and Servicing Agreement and the related
Series Supplement constitutes a partnership that could be treated as a "publicly
traded partnership" taxable as a corporation.
If your certificates were treated as interests in a partnership, the
partnership in all likelihood would be treated as a "publicly traded
partnership." If the partnership were nevertheless not taxable as a corporation,
for example, because of an exception for a "publicly traded partnership" whose
income is interest that is not derived in the conduct of a financial business,
the partnership would not be subject to federal income tax. Rather, you would be
required to include in income your share of the income and deductions generated
by the assets of the trust, as determined under partnership tax accounting
rules. In that event, the amount, timing and character of the income required to
be included in your income could differ materially from the amount, timing and
character of income if your certificates were characterized as debt. It also is
possible that such a partnership could be subject to tax in certain states where
the partnership is considered to be engaged in business, and that you, as a
partner in such a partnership, could be taxed on your share of the partnership's
income in those states.
In addition, if you are a Non-United States Holder and such a partnership
were considered to be engaged in a trade or business within the United States,
the partnership would be subject to a withholding tax on distributions to (or,
at its election, income allocable to) you and you would be credited for your
share of the withholding tax paid by the partnership. Moreover, you generally
would be subject to United States federal income tax at regular federal income
tax rates, and possibly a branch profits tax, if you are a corporation, as
previously described. See "-- Foreign Investors." Further, even if the
partnership is not considered to be engaged in a trade or business within the
United States, it appears that partnership withholding would be required if you
are a Non-United States Holder that is engaged in a trade or business within the
United States to which the certificate income is effectively connected.
Alternatively, although there may be arguments to the contrary, it appears
that if such a partnership is not considered to be engaged in a trade or
business within the United States and if income with respect to a certificate is
not otherwise effectively connected with the conduct of a trade or business
within the United States by a Non-United States Holder, the Non-United States
Holder would be subject to United States federal income tax and withholding at a
rate of 30%, unless reduced by an applicable treaty, on its distributive share
of the partnership's interest income.
If some or all of the certificates of a series were treated as interests in
a "publicly traded partnership" taxable as a corporation, the income from the
assets of the trust would be subject to federal income tax and any income tax
imposed by certain states where the entity would be considered to be engaged in
business, at corporate rates, which would reduce the amounts available for
distribution to certificateholders. See "-- State Tax Consequences." Under these
circumstances, your certificates may be treated as debt of an entity taxable as
a corporation or, alternatively, as equity of such an entity, in which latter
case interest payments to you could be treated as dividends and, if you are a
Non-United States Holder, could be subject to United States federal income tax
and withholding at a rate of 30%, unless reduced by an applicable treaty. In
addition, if you are a Non-United States Holder of a certificate that is treated
as debt of an entity taxable as a corporation and you actually or constructively
own 10% or more of the outstanding principal amount of certificates that are
treated as equity of that entity, you may be treated as a "10 percent
shareholder." See "-- Foreign Investors."
Based on the advice of tax counsel to Sears and SRFG as to the likely
treatment of the certificates for federal income tax purposes, Sears, SRFG and
the trust will not attempt to cause the arrangement created by the Pooling and
Servicing Agreement and the Series Supplement for a series to comply with the
federal or state income tax reporting requirements applicable to partnerships or
corporations. If this arrangement were later held to constitute a partnership or
corporation for tax purposes, it is not clear how we would make the arrangement
comply with applicable tax reporting requirements.
YOU SHOULD CONSULT YOUR OWN TAX ADVISORS AS TO THE RISK THAT THE
CERTIFICATES WILL NOT BE TREATED AS DEBT, AND THE POSSIBLE TAX CONSEQUENCES OF
POTENTIAL ALTERNATIVE TREATMENTS.
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STATE TAX CONSEQUENCES
This summary of the material state tax consequences to investors in
certificates of any series is based on the opinion of Latham & Watkins, special
tax counsel to Sears and SRFG. This summary is based upon currently applicable
tax laws of certain states as of the date of this prospectus. We cannot assure
you that the taxing authorities of any state will agree with the conclusions in
this summary, and we have not sought and will not seek a ruling from the taxing
authorities of any state on the expected state tax consequences described in
this summary. Subsequent legislative, judicial or administrative changes --
which may or may not be applied retroactively -- could change these tax
consequences. Except as discussed below, this summary assumes that the
certificates of each series will be treated as debt for federal income tax
purposes and the trust will continue to not be treated as an entity subject to
federal income tax. This summary does not apply to any certificates of a series
that are retained by SRFG.
GENERAL
Your state tax consequences will depend upon the provisions of the state
tax laws to which you are subject. Most states modify or adjust the taxpayer's
federal taxable income to arrive at the amount of income potentially subject to
state tax. Resident individuals usually pay state tax on 100% of the state-
modified income, while corporations and other taxpayers generally pay state tax
only on that portion of state-modified income assigned to the taxing state under
the state's own apportionment and allocation rules. Because each state's tax
laws vary, it is impossible to predict the tax consequences to investors in all
of the state taxing jurisdictions in which they are already subject to tax.
ARIZONA, DELAWARE, GEORGIA, ILLINOIS, OHIO AND TEXAS
Most activities relating to servicing and collecting the Receivables will
take place in Arizona, Delaware, Georgia, Illinois, Ohio and Texas. Tax counsel
to Sears and SRFG has advised them that, in their opinion, under applicable law,
although the matter is not free from doubt, the certificates will be treated as
debt and the trust will continue to not be treated as an entity subject to tax,
in each case for purposes of the Arizona income tax, the Delaware income tax,
the Georgia income and net worth taxes, the Illinois income tax, the Ohio
corporate franchise tax, to the extent based on net income, and personal income
tax and the Texas corporate franchise tax, to the extent based on net income.
Accordingly, although the matter is not free from doubt, if the certificates are
treated as debt in those states, investors not otherwise subject to taxation in
those states will not become subject to taxation in those states solely because
they own certificates.
Generally, you are required to pay, in states in which you are already
subject to state tax, additional state tax as a result of interest earned on
your certificates. Moreover, a state could claim that the trust has undertaken
activities within that state and therefore the trust is subject to taxation by
that state. Were any state to make and sustain that claim, the treatment of the
certificates would be determined under that state's tax laws, and it is possible
that the certificates would not be treated as debt or that the trust would be
treated as an entity subject to tax for purposes of that state's tax laws.
If some or all of your certificates were treated as interests in a
partnership, a corporation, or a business trust, your state tax consequences
could be materially different than those described above, especially in states
that may be considered to have a business connection with the Receivables. See
"Federal Income Tax Consequences -- Possible Characterization of the
Certificates."
THE ABOVE DESCRIPTION OF THE POTENTIAL STATE TAX CONSEQUENCES IS
INCOMPLETE. YOU ARE URGED TO CONSULT YOUR OWN TAX ADVISORS ABOUT THESE MATTERS.
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ERISA CONSIDERATIONS
ERISA and the Code impose certain requirements on those employee benefit
plans, including Individual Retirement Accounts and Individual Retirement
Annuities (collectively "IRAs"), to which they apply ("Plans") and on
fiduciaries of those Plans. To comply with ERISA's general fiduciary standards,
before investing in certificates, a Plan Fiduciary should determine whether such
an investment is permitted under the governing Plan instruments and is
appropriate for the Plan in view of the risks associated with the investment,
the Plan's overall investment policy and the composition and diversification of
the Plan's portfolio. ERISA and the Code prohibit certain transactions involving
the assets of a Plan and persons who have certain specified relationships to the
Plan -- "parties in interest" within the meaning of ERISA or "disqualified
persons" within the meaning of the Code. Prohibited transactions may generate
excise taxes and other liabilities. Prohibited transactions involving IRAs may
result in the disqualification of the IRAs. Thus, a Plan Fiduciary considering
an investment in certificates should also consider whether such an investment
might constitute or give rise to a prohibited transaction under ERISA or the
Code.
Certain transactions involved in the operation of the trust might be deemed
to constitute prohibited transactions under ERISA and the Code, if assets of the
trust were deemed to be assets of an investing Plan. ERISA and the Code do not
define "plan assets." The U.S. Department of Labor has published a regulation,
which defines when a Plan's investment in an entity will be deemed to include an
interest in the underlying assets of the entity, such as the trust, for purposes
of ERISA and the Code. Unless the Plan's investment is an "equity interest," the
underlying assets of the entity will not be considered assets of the Plan under
the Regulation. Under the DOL's regulation, a beneficial ownership in a trust is
deemed to be an equity interest. The DOL has ruled in an opinion letter, which
is not binding upon Sears, SRFG, trustee or any underwriter, that similar "pass
through" certificates in a trust constituted equity interests.
Assuming that the certificates are equity interests, the DOL's regulation
contains an exception that provides that if a Plan acquires a Publicly-Offered
Security, then the assets of the issuer of the security will not be deemed to be
Plan assets. A Publicly-Offered Security is a security that is:
- freely transferable,
- part of a class of securities that is owned by 100 or more investors
independent of the issuer and of one another by the conclusion of the
offering, and
- either is:
- part of a class of securities registered under section 12(b) or 12(g) of
the Securities Exchange Act of 1934, or
- sold to the Plan as part of an offering of securities to the public
pursuant to an effective registration statement under the Securities Act
of 1933, if the class of securities of which the security is a part is
registered under the Securities Exchange Act of 1934 within 120 days, or
such later time as may be allowed by the Securities and Exchange
Commission, after the end of the fiscal year of the issuer during which
the offering of the securities to the public occurred.
Whether certificates of a series are expected to meet the criteria of a
Publicly-Offered Security will be set forth in the related prospectus
supplement.
If the certificates are deemed to be debt and not equity for ERISA
purposes, the purchase of the certificates by a Plan with respect to which SRFG
or one of its affiliates is a "party in interest" or "disqualified person" might
be considered a prohibited extension of credit under Section 406 of ERISA and
Section 4975 of the Code unless an exemption applies. There are at least four
prohibited transaction class exemptions issued by the DOL that might apply,
depending in part on who decided to acquire the certificates for the Plan:
- DOL Prohibited Transaction Exemption ("PTE") 84-14 (Class Exemption for
Plan Asset Transactions determined by Independent Qualified Professional
Asset Managers);
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- PTE 91-38 (Class Exemption for Certain Transactions Involving Bank
Collective Investment Funds);
- PTE 90-1 (Class Exemption for Certain Transactions Involving Insurance
Company Pooled Separate Accounts); and
- PTE 96-23 (Class Exemption for Plan Asset Transactions Determined by
In-House Asset Managers).
Moreover, whether the certificates are debt or equity for ERISA purposes, a
purchaser of certificates might violate the prohibited transaction rules if the
purchase were made during the offering with assets of a Plan and Sears, the
trustee, any underwriter or any of their affiliates was a Fiduciary with respect
to that Plan. Under ERISA and the Code, a person is a Fiduciary with respect to
a Plan to the extent:
- he or she exercises any discretionary authority or discretionary control
respecting management of that Plan or exercise any authority or control
respecting management or disposition of its assets,
- he or she renders investment advice for a fee or other compensation,
direct or indirect, with respect to any moneys or other property of that
Plan, or has any authority or responsibility to do so, or
- he or she has any discretionary authority or discretionary responsibility
in the administration of that Plan.
Accordingly, the fiduciaries of any Plan should not purchase certificates
during the offering with assets of any Plan if Sears, the trustee, any
underwriter or any of their affiliates is a Fiduciary with respect to the Plan.
In light of the foregoing, fiduciaries of Plans considering the purchase of
certificates should consult their own benefits counsel or other appropriate
counsel regarding the application of ERISA and the Code to their purchase of the
certificates.
In addition, based on the reasoning of the United States Supreme Court's
decision in John Hancock Life Ins. Co. v. Harris Trust and Sav. Bank, 114 S. Ct.
517 (1993), under certain circumstances assets in the general account of an
insurance company may be deemed to be plan assets for certain purposes and under
such reasoning a purchase of certificates with assets of an insurance company
general account might be subject to the prohibited transaction rules described
above. Therefore, insurance companies investing assets of their general accounts
should also consider the potential effects of the enactment of Section 401(c) of
ERISA, DOL Regulation 29 CFR 2550.401c-1, and PTE 95-60 (Class Exemption for
Certain Transaction Involving Insurance Company General Accounts).
PLAN OF DISTRIBUTION
SRFG may sell certificates:
- through underwriters or dealers;
- directly to one or more purchasers; or
- through agents.
SRFG will receive net proceeds from the offering equal to:
- the public offering price of the certificates less the discount, in the
case of an underwriter,
- the purchase price of the certificates less the commission, in the case
of an agent, or
- the purchase price of the certificates, in the case of a dealer,
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less, in each case, SRFG's other expenses associated with the issuance and
distribution of the certificates. The prospectus supplement for a series will
set forth the terms under which the certificates in that series will be offered
for sale, including:
- the name or names of any underwriters;
- the purchase price of the certificates;
- the amount of proceeds SRFG will receive from the sale of the
certificates;
- the amount of any underwriting discounts and other items constituting
underwriter's compensation;
- any initial offering price; and
- any discounts or concessions allowed or reallowed or paid to dealers.
The underwriters for a series of certificates will be only those underwriters
named in the prospectus supplement for that series.
If underwriters are used in the sale, the underwriters will acquire the
certificates for their own account and may resell the certificates from time to
time in one or more transactions, including negotiated transactions, at a fixed
price, at varying prices determined at the time of sale or at negotiated prices.
Underwriters may offer the certificates to the public on their own or through
underwriting syndicates represented by managing underwriters. The obligations of
the underwriters to purchase the certificates will be subject to conditions
described in the underwriting agreement, and the underwriters will be obligated
to purchase all the certificates of a series offered for sale to the public if
they purchase any of them. Any initial public offering price and any discounts
or concessions allowed or reallowed or paid to dealers may be changed from time
to time.
SRFG may also sell the certificates of any series directly to investors or
through agents designated by SRFG. The prospectus supplement for a series will
name any agents involved in the sale of the certificates of that series and will
set forth any commissions SRFG has agreed to pay to those agents. Unless the
prospectus supplement for a series specifies otherwise, any agent is acting
solely as an agent for the period of its appointment.
If the prospectus supplement for a series so indicates, SRFG will authorize
agents, underwriters or dealers to solicit offers from certain institutional
investors to purchase the certificates of that series with payment and delivery
to occur on a future date specified in the prospectus supplement. There may be
limitations on the minimum amount of certificates that an institutional investor
may purchase or on the portion of the aggregate principal amount of the
certificates of that series that SRFG may sell pursuant to delayed delivery and
payment arrangements. Institutional investors from whom delayed delivery and
payment offers may be solicited, when authorized, include:
- commercial and savings banks;
- insurance companies;
- pension funds;
- investment companies;
- educational and charitable institutions; and
- other institutions that SRFG approves.
Unless the prospectus supplement for a series specifies otherwise, the
obligations of institutional investors under any delayed delivery and payment
arrangements will not be subject to any conditions except:
- the laws of any jurisdiction of the United States to which the
institution is subject must not at the time of delivery prohibit the
institution's purchase of the certificates; and
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- if SRFG is selling certificates to underwriters, SRFG will sell to those
underwriters the total principal amount of those certificates minus the
principal amount of those certificates covered by delayed delivery and
payment arrangements.
Underwriters will not be responsible for the validity of the delayed delivery
and payment arrangements or the performance of SRFG or the institutional
investors under those arrangements.
Underwriters, dealers and agents who participate in the distribution of the
certificates:
- may be deemed to be underwriters under the Securities Act of 1933, as
amended, and any discounts or commissions they receive from SRFG and any
profit on their resale of the certificates may be deemed to be
underwriting discounts and commissions under that act; and
- under arrangements with SRFG, may be entitled to be indemnified by SRFG
against certain civil liabilities, including liabilities under the
Securities Act of 1933, as amended, or to contribution for payments that
they make with respect to those civil liabilities.
Underwriters, dealers and agents may engage in transactions with, or perform
services for, SRFG in the ordinary course of their respective businesses.
LEGAL MATTERS
Unless the prospectus supplement for a series specifies otherwise:
- The Sears Law Department and Latham & Watkins will pass upon the legality
of the certificates for SRFG;
- Latham & Watkins will pass upon legal matters relating to the material
tax consequences of the issuance of the certificates for SRFG; and
- Skadden, Arps, Slate, Meagher & Flom LLP will pass upon the legality of
the certificates for the underwriters.
Skadden, Arps, Slate, Meagher & Flom LLP from time to time performs legal
services for Sears and its affiliates.
WHERE YOU CAN FIND MORE INFORMATION
SRFG, as originator of the trust, has filed a registration statement with
the SEC on behalf of the trust relating to the certificates offered by this
prospectus and any prospectus supplement accompanying this prospectus.
You may read and copy any reports, statements or other information SRFG
files at the SEC's public reference rooms at:
- 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549;
- 7 World Trade Center, Suite 1300, New York, New York 10048; and
- Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511.
You can request copies of these documents, upon payment of a duplicating fee, by
writing to the SEC. Please call the SEC at (800) SEC-0330 for further
information on the operation of the public reference rooms. SEC filings relating
to the trust are also available to the public on the SEC Internet site
(http://www.sec.gov). The trust is subject to the informational requirements of
the Securities Exchange Act of 1934, as amended, and in accordance with that
act, SRFG, on behalf of the trust, files reports and other information with the
SEC. You may obtain copies of the Registration Statement together with all
amendments and exhibits, as well as filings relating to the trust, from the
Public Reference Section of the SEC at 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates.
The SEC allows us to incorporate by reference information we file with it,
which means that we can disclose important information to you by referring you
to those documents. The information incorporated
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by reference is considered to be part of this prospectus. Information that we
file later with the SEC will automatically update the information in this
prospectus. In all cases, you should rely on the later information over
different information included in this prospectus or the prospectus supplement
for any series. We incorporate by reference any future annual, monthly and
special SEC reports and proxy materials filed by or on behalf of the trust until
we terminate our offering of the certificates.
We incorporated by reference the following reports and documents filed by
SRFG on behalf of the trust pursuant to Section 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934, as amended:
(1) Annual Report on Form 10-K for the year ended December 31, 1999; and
(2) Current Reports on Form 8-K filed January 18, February 15, March 15,
April 17, May 15, June 5, June 8, June 12, June 13, June 15 (2
filings), June 22, July 17 and August 15, 2000.
All reports and other documents filed by SRFG on behalf of the trust
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of
1934, as amended, after the date of this prospectus and before the termination
of the offering of the certificates will be deemed to be incorporated by
reference into this prospectus and to be a part of it.
As a recipient of this prospectus, you may request a copy of any document
we incorporate by reference, except exhibits to the documents, unless the
exhibits are specifically incorporated by reference, at no cost, by calling
Sears, as servicer at the Sears Office of the General Counsel (847-286-2500).
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GLOSSARY OF TERMS
"ADDITIONAL ACCOUNT CUT-OFF DATE" means, for any additional Account, the
date from which the trust has an interest in receivables existing in that
account.
"AGGREGATE INVESTED AMOUNT" means the sum of the Series Invested Amounts
for all outstanding series.
"CLASS INVESTED AMOUNT" means, for any class, the sum of the Invested
Amounts for each certificate in that class.
"CLASS INVESTOR INTEREST" means, for any class, the sum of the Investor
Interests for each certificate in that class.
"CLASS PERCENTAGE" means, for each class of each series, the applicable
percentage of Finance Charge Collections, Principal Collections and charge-offs
to be allocated to investors in that class, determined in each case as described
in the prospectus supplement for the series.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COOPERATIVE" means Euroclear Clearance System, S.C., a Belgian cooperative
corporation.
"DE MINIMIS OID" means, for any certificate, the amount of OID on that
certificate if the OID is less than 1/4% of the certificate's principal amount
multiplied by the number of complete years, computed on a weighted-average basis
taking into account when each principal payment is due for a certificate with
principal payments due before maturity, until the certificate's maturity date.
"DIRECT PARTICIPANT" means any entity that can directly access DTC's
book-entry securities clearance system.
"DOL" means the U.S. Department of Labor.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"EUROCLEAR OPERATOR" means the Brussels, Belgium office of Morgan Guaranty
Trust Company of New York.
"FIDUCIARY" means, with respect to a Plan, a person who:
- exercises any discretionary authority or discretionary control respecting
management of that Plan or exercises any authority or control respecting
management or disposition of its assets,
- renders investment advice for a fee or other compensation, direct or
indirect, with respect to any moneys or other property of that Plan, or
has any authority or responsibility to do so, or
- has any discretionary authority or discretionary responsibility in the
administration of the Plan.
"GROUP EXCESS FUNDING AMOUNT (SRC)" means, for any group, the group's pro
rata share of all amounts on deposit in the Excess Funding Account (SRC),
determined based on the interests of SRFG in classes of certificates it owns in
each group that have been designated as seller retained classes.
"INDIRECT PARTICIPANT" means any entity that maintains a custodial
relationship with a Direct Participant that allows it to indirectly access DTC's
book-entry securities clearance system.
"INVESTOR CERTIFICATEHOLDER" means the registered holder of a certificate
of any class of any series.
"INVESTOR LOSS" means any reduction in the Investor Interest for a class by
the amount of unreimbursed charge-offs for that class or by application of the
subordination provisions for a particular series.
"IRA" means an Individual Retirement Account or an Individual Retirement
Annuity.
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"ISSUE PRICE" means, for any certificate, the first price at which a
substantial amount of the certificates are sold for money, excluding sales to
bond houses or brokers acting in the capacity of underwriters, placement agents
or wholesalers.
"NEW WITHHOLDING REGULATIONS" means final regulations promulgated by the
Treasury Department regarding certain withholding and information reporting
rules that are generally effective for payments made after December 31, 2000,
subject to certain transition rules.
"NON-UNITED STATES HOLDER" generally means a holder that is a beneficial
owner of a certificate and is, for United States federal income tax purposes, a
non-resident alien individual, a foreign corporation, a foreign partnership, or
a foreign estate or trust, as each term is defined in the Code.
"OID" means original issue discount.
"PLAN" means any employee benefit plan, including any IRA.
"PTE" means any Department of Labor Prohibited Transaction Exemption.
"PUBLICLY-OFFERED SECURITY" means a security that is:
- freely transferable,
- part of a class of securities that is owned by 100 or more investors
independent of the issuer and of one another by the conclusion of the
offering, and
- either is:
- part of a class of securities registered under section 12(b) or 12(g) of
the Securities Exchange Act of 1934, or
- sold to the Plan as part of an offering of securities to the public
pursuant to an effective registration statement under the Securities Act
of 1933, if the class of securities of which the security is a part is
registered under the Securities Exchange Act of 1934 within 120 days, or
such later time as may be allowed by the Securities and Exchange
Commission, after the end of the fiscal year of the issuer during which
the offering of the securities to the public occurred.
"RATINGS EVENT" means a reduction or withdrawal of the rating of any
outstanding class of certificates rated by a Rating Agency.
"REGULATION" means a regulation, published by the DOL, which defines when a
Plan's investment in an entity will be deemed to include an interest in the
underlying assets of the entity for purposes of ERISA and the Code.
"REVISED ISSUE PRICE" means, for any certificate, generally, its Issue
Price plus the amount of OID previously includible in income by all prior
holders of the certificate less the amount of principal payments previously made
on the certificate.
"SELLER PERCENTAGE" means the applicable percentage of Finance Charge
Collections, Principal Collections and charge-offs to be allocated to the Seller
Interest, which will equal in each case 100% minus the sum of all the Class
Percentages for that type of collections or charge-offs.
"SERIES INVESTED AMOUNT" means, for any series, the sum of the Invested
Amounts for certificates in that series.
"SERIES INVESTOR INTEREST" means, for any series, the sum of the Investor
Interests for each class of certificates in that series.
"SERIES SUPPLEMENT" means, for any series, the Series Supplement to the
Pooling and Servicing Agreement that establishes the specific provisions of that
series.
"SERIES TERMINATION DATE" means, for any series, the last date on which the
trust may make any payment on certificates of that series.
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"STATED REDEMPTION PRICE AT MATURITY" for any certificate has the meaning
given to it in the Code, which will be generally the principal amount of the
certificate.
"TERMS AND CONDITIONS" means the Terms and Conditions Governing Use of
Euroclear and the related Operating Procedures of the Euroclear System and
applicable Belgian law.
"UNITED STATES HOLDER" means a United States Person who is a beneficial
owner of a certificate.
"UNITED STATES PERSON" generally means:
- a citizen or resident of the United States;
- a corporation or partnership, including an entity treated as a
corporation or partnership for federal income tax purposes, created or
organized in the United States or under the laws of the United States or
of any state;
- an estate the income of which is subject to United States federal income
taxation regardless of the source of that income; or
- a trust if a court within the United States is able to exercise primary
supervision over the trust's administration, and one or more United
States Persons have the authority to control all substantial decisions of
the trust. Notwithstanding the preceding clause, to the extent provided
in Treasury Regulations, certain trusts in existence on August 20, 1996
and treated as United States Persons under the Code and Treasury
Regulations prior to such date, that elect to continue to be treated as
United States Persons, will also be considered United States Persons.
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--------------------------------------------------------------------------------
$500,000,000 % CLASS A MASTER TRUST CERTIFICATES, SERIES 2000-2
$35,300,000 % CLASS B MASTER TRUST CERTIFICATES, SERIES 2000-2
SEARS CREDIT ACCOUNT MASTER TRUST II
ISSUER
SEARS, ROEBUCK AND CO.
SERVICER
SRFG, INC.
SELLER
PROSPECTUS SUPPLEMENT
UNDERWRITERS OF THE CLASS A CERTIFICATES
JOINT BOOKRUNNERS
BEAR, STEARNS & CO. INC.
DEUTSCHE BANC ALEX. BROWN
CO-MANAGERS
CHASE SECURITIES INC.
GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
MORGAN STANLEY DEAN WITTER
UNDERWRITER OF THE CLASS B CERTIFICATES
--------------------------------------------------------------------------------
(LOGO) printed on recycled paper