As filed with the Securities and Exchange Commission on January 28, 2000
Registration Statement No. 333-91981
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------
AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT
Under The Securities Act of 1933
--------
SEARS CREDIT ACCOUNT MASTER TRUST II
(Exact name of registrant)
(Issuer)
SRFG, INC.
(Exact name of registrant as specified in its charter)
(Seller)
Delaware 51-0080535
(State of Incorporation) (I.R.S. Employer Identification No.)
3711 Kennett Pike
Greenville, Delaware 19087
(302) 434-3100
(Address, including zip code, and telephone number, including
area code, or registrant's principal executive offices)
George F. Slook
President and Chief Executive Officer
SRFG, Inc.
3711 Kennett Pike
Greenville, Delaware 19807
(302) 434-3100
(Names, addresses, including zip code, and telephone numbers,
including area code, of agent for service)
Copies to:
Steven M. Cook, Esq. Ellen L. Marks, Andrew M. Faulkner,
Vice Esq. Esq.
President/Deputy Latham & Watkins Skadden, Arps,
General Counsel Sears Tower, Suite Slate, Meagher
Sears, Roebuck and 5800 & Flom LLP
Co. Chicago, Illinois Four Times Square
3333 Beverly Road 60606 New York, New York
Hoffman Estates, 10036
Illinois 60179
--------
Approximate date of commencement of proposed sale to the
public: From time to time after the effective date of this
Registration Statement as determined by market conditions.
If the only securities being registered on this Form are
being offered pursuant to dividend or interest reinvestment
plans, please check the following box:
If any of the securities being registered on this Form are to
be offered on a delayed or continuous basis pursuant to Rule 415
under the Securities Act of 1933, other than securities offered
only in connection with dividend or interest reinvestment plans,
check the following box: X
If this Form is filed to register additional securities for
an offering pursuant to Rule 462(b) under the Securities Act,
please check the following box and list the Securities Act
registration statement number of the earlier effective
registration statement for the same offering.
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following box and
list the Securities Act registration statement number of the
earlier effective registration statement for the same offering.
If delivery of the prospectus is expected to be made pursuant
to Rule 434, please check the following box.
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CALCULATION OF REGISTRATION FEE
Proposed Proposed
Title of Each Maximum Maximum Amount
Class of Amount Offering Aggregate of
Securities to to be Price Per Offering Registration
be Registered Registered Unit (1) Price (1) Fee (2)
Master Trust $5,000,000,000 100% $5,000,000,000 $1,320,000
Certificates of
Sears Credit
Account Master
Trust II
- - - - - - -
(1)Estimated solely for purposes of calculating the registration
fee
(2)Previously paid
The registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective
date until the registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
SUBJECT TO COMPLETION, DATED JANUARY 27, 2000
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED , )
$
% Class A Master Trust Certificates, Series
SEARS CREDIT ACCOUNT MASTER TRUST II
ISSUER
SEARS, ROEBUCK AND CO. SRFG, INC.
SERVICER SELLER
- -------------------- THE TRUST WILL ISSUE: CLASS A CERTIFICATES
YOU SHOULD CONSIDER Principal amount: $
CAREFULLY THE RISK Price to public: % ($ )
FACTORS DESCRIBED ON PAGE Underwriting discount: % ($ )
S- OF THIS PROSPECTUS Proceeds to SRFG: % ($ )
SUPPLEMENT. Interest rate: % per year
Interest paid: Monthly
The certificates First interest payment date: ,
represent interests in Scheduled first
the trust and are not principal payment date: ,
obligations of Sears, Scheduled final
Roebuck and Co., Sears principal payment date: ,
National Bank, SRFG, Inc. Series termination date: ,
or any of their
affiliates. CREDIT ENHANCEMENT:
- The trust is also issuing $ principal
amount of Class B Certificates that will be
Neither the FDIC subordinate to the Class A Certificates.
nor any other - The trust is also issuing $ principal
governmental agency has amount of Class C Certificates that will be
insured or guaranteed the subordinate to the Class A Certificates and
certificates and the the Class B Certificates.
trust's assets.
- ----------------------
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 as described in
this prospectus supplement if they receive and accept them from SRFG under
the terms of the underwriting agreement.
[Underwriters]
The date of this prospectus supplement is ,
The information in this prospectus supplement and the prospectus is not
complete and may be changed. We cannot sell these securities until the
registration statement filed with the Securities and Exchange Commission
is effective. This prospectus supplement and the prospectus are not an
offer to sell these securities and they are not soliciting an offer to
buy these securities in any state where the offer or sale is not permitted.
S-1
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
PAGE
----
Important Notice to Investors about this
Prospectus Supplement and the Accompanying
Prospectus................................ S-
Summary of Series Terms..................... S-
Risk Factors................................ S-
Subordination of the Class B and Class C
Certificates; Limited Subordination..... S-
Limited Ability to Resell Certificates.... S-
Rating of the Certificates................ S-
Effects of the Selection Process, Seasoning
and Performance Characteristics........ S-
Ability to Change Terms of the
Receivables............................ S-
Effects of Rapid Amortization Event....... S-
Payments, Generation of Receivables
and Maturity.......................... S-
Investor Risk of Loss..................... S-
Issuance of Additional Series and
Additional Certificates............... S-
Effect and Limited Availability of
Reallocations.......................... S-
Floating Principal Allocation................ S-
Effect of Paired Series................... S-
No Recourse............................... S-
Security Interests and Insolvency
Related Matters....................... S-
Consumer Protection and Regulatory Credit
Laws.................................. S-
Legislation............................... S-
Sears Credit Business....................... S-
General................................... S-
Credit Granting Procedures................ S-
Billing and Payments...................... S-
Collection Efforts........................ S-
Effects of the Selection Process.......... S-
Composition and Historical Performance of
the Sears Portfolio....................... S-
Composition of the Sears Portfolio........ S-
The Certificates............................ S-
Invested Amounts.......................... S-
Investor Interests........................ S-
Interest Payments......................... S-
Principal Payments........................ S-
Subordination............................. S-
Series Collections and Charge-offs........ S-
Series Yield Collections.................. S-
Series Investment Income.................. S-
Series Additional Funds................... S-
Reallocations............................. S-
Investor Accounts......................... S-
Cash Flows................................ S-
Payments.................................. S-
Subordinate Series........................ S-
Sale of Class B Certificates and Class C
Certificates............................ S-
Issuance of Additional Certificates....... S-
Paired Series............................. S-
Rapid Amortization Events................. S-
Termination of Series; Clean-up Call...... S-
Servicing Compensation...................... S-
Underwriting................................ S-
Glossary of Terms........................... S-
Legal Matters............................... S-
Annex A--Cash Flows......................... S-
Annex B--Other Series....................... S-
S-2
PROSPECTUS
PAGE
----
Overview of the Information in this Prospectus
and the Prospectus Supplement.............
Prospectus Summary..........................
The Seller..................................
The Servicer................................
Year 2000 Compliance......................
The Credit Card Bank........................
The Trustee.................................
Legal Matters Relating to the Receivables...
Transfer of Receivables...................
Security Interests in Receivables.........
Insolvency Related Matters................
Consumer Protection Laws and Debtor Relief
Laws Applicable to the Receivables......
Claims and Defenses of Credit Account
Customers Against the Trust.............
The Trust...................................
Formation of the Trust....................
Collections Account and Group Collections
Accounts................................
Adjustments to Receivables................
Addition of Accounts......................
Removal of Accounts.......................
Repurchase of Trust Portfolio.............
Repurchase of Specified Receivables.......
Termination of the Trust..................
Indemnification of Trust and Trustee......
The Certificates............................
General...................................
Interest Payments.........................
Principal Payments........................
Class Percentages and Seller Percentage...
Investor Losses...........................
Reallocations and Subordination of
Collections.............................
Aggregate and Net Payments................
Additional Funds..........................
Investment of Funds in Investor
Accounts................................
Final Payment of Principal; Termination of
Series..................................
Description of Credit Enhancement.........
Establishing and Issuing New Series.......
Reallocation of Series Among Groups.......
Meetings..................................
Book-Entry Registration...................
Definitive Certificates...................
List of Certificateholders................
Exchange of Certificates for Seller
Interest................................
Sale of Seller Interest...................
Amendments................................
Servicer Duties, Compensation and Other
S-3
Matters...................................
Servicing Compensation and Payment of
Expenses................................
Resignation or Merger of Servicer;
Delegation of Duties....................
Servicer Termination Events...............
Reports to Certificateholders.............
Evidence as to Compliance.................
Use of Proceeds.............................
Federal Income Tax Consequences.............
General...................................
Tax Treatment of the Certificates
as Debt.................................
United States Investors...................
Foreign Investors.........................
Backup Withholding and Information
Reporting...............................
New Withholding Regulations................
Possible Characterization of the
Certificates............................
State Tax Consequences......................
General...................................
Arizona, Delaware, Georgia, Illinois, Ohio
and Texas...............................
ERISA Considerations........................
Plan of Distribution........................
Legal Matters...............................
Reports to Investors........................
Where You Can Find More Information.........
S-4
IMPORTANT NOTICE TO INVESTORS ABOUT THIS PROSPECTUS
SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS
We provide information to you about the Class A Certificates in two
separate documents:
- this prospectus supplement, which describes the specific terms of
your Class A Certificates; and
- the prospectus, which provides general information, some of which
may not apply to the Class A 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 to which this prospectus supplement and
the prospectus relate, nor are we offering to sell or soliciting offers to
buy Class A 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-5
SUMMARY OF SERIES TERMS
The following summary generally describes the terms of this series of
certificates. The Prospectus Summary beginning on page 3 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:
$ % Class A Master Trust
Certificates, Series .
The trust will also issue:
Class B Certificates:
$ Class B Master Trust
Certificates, Series .
Class C Certificates:
$ Class C Master Trust
Certificates, Series .
SRFG initially will own the Class B
Certificates and Class C Certificates.
SRFG is not currently offering the Class
B Certificates or 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
arising under Sears Card accounts 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 B--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: The interest rate for
the Class A Certificates is % per year,
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
.
S-6
Class B Certificates and Class C
Certificates: The trust will not pay
interest on the Class B Certificates or
Class C Certificates as long as SRFG owns
them.
PRINCIPAL PAYMENTS............ Class A Certificates: The trust is scheduled
to pay $ of principal on the
Class A Certificates on the 15th day of
each month, or, if not a business day, the
next business day, beginning in and
ending in .
Class B Certificates: The trust is scheduled
to pay $ of principal on the
Class B Certificates on or, if
not a business day, the next business day,
and on , or, if not a business
day, the next business day.
Class C Certificates: The trust is permitted
to pay up to $ of Class C
principal on the 15th day of each month,
or, if not a business day, the next
business day, beginning in and
continuing until the first month after the
outstanding principal amount of the
Class C Certificates is reduced to or
below $ . On each of those days, the
trust will pay Class C principal in an
amount that will allow the Class C
investor interest in receivables in the
trust to decline proportionately to the
decline in the Class A investor interest
in receivables in the trust to the extent
that the trust has Class B and Class C
principal collections available to make
this payment. The trust is scheduled to
pay the remaining Class C principal on
or, if not a business day, the next
business day.
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:
S-7
- principal receivables, which are
amounts owed by credit account
customers as a result of their purchase
of goods and services, late fees and
other fees; and
- finance charge receivables, which 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 began on various days
in and ended on various days
in was $ ,
consisting of $ of principal
receivables and $ 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
S-8
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; minus
- your share of charge-offs that the
trust has not reimbursed.
S-9
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
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
S-10
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;
- whether this series is in its revolving
period, its controlled amortization
period or a rapid amortization period;
and
- how much principal will be available to
reallocate to this series from other
series during the controlled
amortization 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 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. You will
not be entitled to receive these excess
collections. If this series does not have
enough collections in any month, the trust
S-11
may use excess collections from other
series to make payments to you.
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 Investors Service and Standard &
Poor's Ratings Service, 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 each billing cycle
that ends in and ends on
the earlier of:
- the last business day before the
controlled amortization period begins;
or
- the day a rapid amortization event
occurs.
CONTROLLED AMORTIZATION
PERIOD........................ During the controlled amortization period,
the trust will apply principal collections
allocated to this series to pay principal
on the certificates, up to the amount of
the scheduled monthly principal payment.
The trust will pay Class A principal on each
distribution date during the controlled
amortization period until the trust has
paid the Class A principal in full. The
trust is scheduled to pay Class A
principal in monthly payments of
$ . On each distribution date during
the controlled amortization period, the
trust will pay Class B principal only if
the trust has paid the Class A principal in
full. The trust expects to pay Class B
principal in two monthly payments of
$ . The trust is scheduled to pay
a portion of the Class C principal before
the trust pays the Class A principal in
full. The trust will pay the remaining
portion of Class C principal only after
the trust has paid the Class B principal
in full.
Unless a rapid amortization event occurs
earlier, the controlled amortization
period
S-12
will begin on the first day of the billing
cycles that end in . The controlled
amortization period will end on the
earlier of:
- the day the trust repays the principal
of this series in full;
- the day a rapid amortization event
occurs; or
- the business day after ,
or, if is not a business
day, the second business day after .
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 and cause
the trust to accelerate payment of
principal; 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. 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" and "Annex
A-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 .
S-13
If is not a business
day, the series termination date will be
the second business day after .
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. However, the trust
generally will not use Class B principal
collections and Class C principal
collections to pay Class A principal.
The trust uses all finance charge
collections and other income allocated to
his series to pay or reimburse:
- first, Class A interest;
- second, Class B interest, if any;
- 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 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 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.
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 on any distribution
date if:
S-14
- this series is in a rapid amortization
period, or the proposed date of
repurchase is on or after ;
and
- the Class A investor interest in
receivables is less than $ ,
which is 10% of the face amount of the
Class A Certificates. We will
determine the Class A investor
interest in receivables by excluding
Class A'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 in receivables
and accrued but unpaid interest on the
Class A 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
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 assets of an
employee benefit plan, then the prohibited
transaction rules of ERISA may apply to
certain transactions involving the trust's
assets. Accordingly, employee benefit
plans should consult their counsel before
purchasing Class A Certificates. See
"ERISA
S-15
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
will be treated as debt for federal income
tax purposes. If you hold a beneficial
interest in a Class A Certificate, you
should:
- include in your gross income all
interest paid or accrued on your
certificate;
- include in your gross income a ratable
share of any de minimis original issue
discount as principal payments are made
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 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 Class A Certificate 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-Definitive
Certificates" in the prospectus for more
detailed information.
You may elect to hold your Class A
Certificate 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;
- Cedelbank in Europe; or
- the Euroclear System in Europe.
You may transfer your interest within DTC,
Cedelbank or Euroclear in accordance with
the usual rules and operating procedures
of the relevant system. Parties holding
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directly or indirectly through DTC, on the
one hand, and other parties holding
directly or indirectly through Cedelbank
or Euroclear, on the other hand, may make
cross-market transfers through the
relevant depositories of Cedelbank and
Euroclear. See "The Certificates--Book-
Entry Registration" in the prospectus for
more detailed information.
SRFG expects to deliver the Class A
Certificates in book-entry form through
the facilities of DTC, Cedelbank and
Euroclear on or about .
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."
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RISK FACTORS
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, if any, 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 reimburse Class A
charge-offs first, then Class B charge-offs and finally Class C
charge-offs. Class A charge-offs that are not reimbursed will result
in a reduction of the aggregate amount of principal and interest you
ultimately receive on your Class A Certificate.
- Third, the trust will not use Class B principal collections or Class C
principal collections to pay Class A principal, although it may use
Class B principal collections or Class C principal collections in some
circumstances to pay Class A interest or to reimburse Class A charge-
offs.
- 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 and Poor's advise SRFG that
this will not cause them to reduce or withdraw their ratings on the
Class A Certificates. The trust will pay limited amounts of Class C
principal during the controlled amortization period as the trust pays
Class A principal. The Class C investor interest in receivables will
decline by the amount of these payments.
- 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 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
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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 contain receivables
in accounts from every state and does not contain receivables in
accounts from Puerto Rico; and
- the pool of receivables in the trust may not contain receivables
in accounts previously segregated into pools.
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 for the
reasons noted above. Additional trust accounts also may include additional
types of accounts issued by Sears National Bank from time to time.
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.
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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. 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; and
- 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.
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.
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
customer's seasonal purchasing and payment habits. Because customers
may use their credit accounts only to purchase goods and services sold and
made available through Sears stores and its affiliates, licensees or
concessionaires, the trust is dependent 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
S-20
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 significant 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.
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 may be
reallocated to you during the controlled amortization period for this series,
and in reliance on principal collections from those other series the
percentage the trust uses to allocate principal collections to you may
decline. 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;
S-21
- the trust may not allocate enough principal collections to you to
pay all of your principal when scheduled; and
- the trust's payments 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 or different
reallocation provisions may apply. We have described this in more detail in
"The Certificates--Reallocation of Series Among Groups" in the prospectus.
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 pays Class A 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. In these circumstances, the trust will use reallocations from other
series to this series to make scheduled principal payments. If adequate
reallocations will not be available, the trust will determine the class
percentage of principal collections for each class of this series using a fixed
class investor interest in receivables that does not decline as the trust pays
principal to that class. 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 make the scheduled Class A 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
allocate sufficient principal collections to this series to make these
scheduled principal payments.
Consequently, the trust may not be able to pay Class A 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 amortization 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 pays principal
to this series, this series' investor interest in receivables will decline,
but the monthly principal payment on this series will not decline. To make a
constant monthly principal payment in spite of a declining investor interest
in receivables, the trust will maintain an amount of principal receivables to
support this series that exceeds this series' investor interest in
receivables during the controlled amortization period. To finance these
excess principal receivables, the trust may issue a paired series. Initially
the trust will allocate a smaller share of principal collections to the
paired series than it would if it were not a paired series. However, if a
rapid amortization event for the paired series occurs before the trust pays
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in full the principal for this series:
- SRFG may allocate principal collections to the paired series that
it would otherwise have allocated to this series, thereby reducing
your share of the amount of principal collections allocated to you;
- you may receive smaller principal payments 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 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 "The Credit Card Bank" and "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
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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 "The
Credit Card Bank" 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 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 or other charge revenue to a
sufficiently low level, the trust has structural features that SRFG could
use, with approval of Moody's and Standard and 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.
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Below, we use some terms that are capitalized. We have defined these
terms in the Glossary of Terms beginning at page S-64.
SEARS CREDIT BUSINESS
GENERAL
Sears National Bank issues three primary types of open-end revolving
credit plans, or accounts, under which customers may purchase goods and
services sold and made available through Sears stores and its affiliates,
licensees or concessionaires. We refer to all of these accounts, together with
other credit products formerly 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." The three
primary types of accounts are:
- Sears Card: Sears 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 % of the Sears portfolio as of the end of .
- SearsCharge PLUS: Customers in most states may use SearsCharge PLUS
to purchase certain merchandise that costs at least $ ,
if their account is new, or $ , if they have an existing account.
SearsCharge PLUS receivables accounted for approximately % of the
Sears portfolio as of the end of .
- 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 % of the Sears portfolio as
of the end of .
Each of these three types of accounts 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.
Sears and the bank service all the accounts in the Sears portfolio at:
- nine regional credit card operations centers, each located in a
different state;
- a national account authorization center;
- four credit processing centers;
- 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 all the Receivables that Sears has designated with
respect to the trust. The Sears Credit Department and the bank employ
approximately 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
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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 bureau, from an independent credit reporting agency
for all applications. The applicable credit bureau report is used as an
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 , the Account Issuers approved on
average approximately new accounts each month. Approximately
million accounts in the Sears portfolio had been active during the billing
cycles that ended in . 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.
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
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- 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%. However, 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 have solicited new
cardholders and issued 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 customer by
telephone and by mail. Sears may also arrange with credit account customers
to extend or otherwise change payment schedules.
The following discussion and analysis of Sears conversion to a new
credit card receivables processing system contains forward-looking statements
that involve risks and uncertainties. The actual effects of this conversion
could differ materially from those anticipated in the forward-looking
statements as a result of certain factors including, but not limited to,
changes in social and economic factors and credit policies that affect
delinquencies, charge-offs and customer payment behaviors. In addition,
numerous other social and economic factors and credit policies may also
affect delinquency and charge-off levels following the conversion.
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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 will allow 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.
To assess the potential effect of the new aging methodology, Sears used
historical account activity for a 10% random sample of accounts to simulate
the differences between the historical methodology and the new methodology.
Under the simulations, delinquencies as a percentage of managed receivables
at the conversion date were approximately 275 to 300 basis points higher
than under the proprietary system. After a transition period of approximately
eight months, the change in delinquency levels decreased to approximately 200
basis points above the levels reported under the historical methodology.
Based on the simulations, Sears believes that delinquency trends over the
three-year period covered in the simulations would have been consistent under
either methodology.
The simulations also modeled the gross charge-offs that would have
been reported under the new methodology based upon the actual transaction
activity of the 10% sample of accounts. Under the simulations, using
historical account activity, the percentage of account balances charged off
as uncollectible increased in the range of 75 to 100 basis points during the
eight-month period after the conversion date. The increase then declined
over the next four months. An increase in gross charge-off levels in the
range of 15 to 25 basis points remained after this twelve-month period. The
actual effect of the new methodology on charge-offs cannot be predicted or
determined with precision, and may be offset in part by benefits of earlier
collection efforts due to an earlier recognition of delinquencies and
improved authorization and line management strategies.
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
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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 will include delinquent Receivables and may include 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. Receivables from
accounts from Puerto Rico represented %, % and % of the receivable
balances in the Sears portfolio as of , and ,
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
October distribution date, monthly collections will be based on the
September Due Period and will reflect activity for billing cycles
beginning at the opening of business on various days in August and
ending at the close of business on various days in September 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 equaled $
and $ , 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 receivables to the trust, subject to certain
conditions.
Sears has no reason to believe that the performance characteristics of
the Accounts will not be representative of the Sears portfolio in all
material respects. However, 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.
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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.
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 .
PERCENTAGE OF SEARS
PORTFOLIO AS OF
BILLING CYCLES ENDED
CREDIT LIMIT IN
------------ --------------------
$ 0 - $ 99.............................. %
100 - 499.............................. %
500 - 999.............................. %
1,000 - 1,499.............................. %
1,500 - 1,999.............................. %
2,000 - 2,999.............................. %
3,000 - 3,999.............................. %
4,000 and over.............................. %
------
100.0%
======
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LARGEST STATES
The Sears portfolio is not concentrated geographically.
As of the billing cycles ended in , the following
five states had the largest receivables balances and number
of accounts:
SEARS PORTFOLIO CALIFORNIA FLORIDA NEW YORK PENNSYLVANIA TEXAS
--------------- ---------- ------- -------- ------------ -----
% of active accounts.. % % % % %
% of balances......... % % % % %
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 the billing cycles ended in .
SEASONING
More than % of the accounts in the Sears portfolio
were at least five years old as of the billing cycles ended
in . The ages of accounts in the Sears
portfolio were distributed as follows:
PERCENTAGE OF
SEARS PORTFOLIO AS
OF BILLING
CYCLES ENDED
AGE OF ACCOUNTS IN
- --------------- ------------------
Up to 1 year................................... %
1 year up to 2 years........................... %
2 years up to 3 years.......................... %
3 years up to 4 years.......................... %
4 years up to 5 years.......................... %
5 years up to 10 years......................... %
10 years and older............................. %
------
100.0%
======
Sears based this information on accounts with balances
at any time in the twenty-four months ended with the billing
cycles ended in .
SUMMARY YIELD INFORMATION
The accounts in the Sears portfolio had the following
annualized aggregate monthly yields:
THREE MONTHS TWELVE MONTHS
ENDED ENDED
, ,
------------ ------------- ------ ------ ------
Aggregate monthly yield......... % % % % %
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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 gross
charge-off and recoveries percentages:
THREE MONTHS TWELVE MONTHS
ENDED ENDED
, ,
------------ ------------ ----- ----- -----
Gross charge-offs as a % of
balances..... % % % % %
Recoveries as a % of
balances............ % % % % %
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.
For a discussion of Sears change to a new aging methodology in
connection with the conversion of its proprietary receivables processing
system to the TSYS account processing system, which will have an effect on
gross charge-off levels, see "Sears Credit Business--Collection Efforts."
SUMMARY DELINQUENCY AGING INFORMATION
The following table provides delinquency profiles based on monthly
percentages for the accounts in the Sears portfolio. As more fully described
in "Sears Credit Business - Collection Efforts," Sears converted from its
proprietary processing system to the TSYS system beginning in October 1998
and ending in May 1999. The 1998 percentages include only results from the
proprietary system; thus, they include monthly percentages for all accounts
through October, then monthly percentages for the approximately 88% of
accounts not converted to TSYS for November and December. The 1999
percentages include only results from the TSYS system; thus, they include
monthly percentages for the accounts as converted in January through April,
then for all accounts from May forward. The portions of the receivables
balances converted prior to May--January 14%, February 13%, March 45% and
April 70%--may not have been representative of the entire portfolio.
MONTHS
ENDED
,
------------- ------- ----- -----
Delinquencies as a % of balances
60-89 days past due............. % % % %
90-119 days past due............ % % % %
120 days or more past due....... % % % %
----- ----- ----- -----
Total Delinquencies.......... % % % %
===== ===== ===== =====
The TSYS delinquency data reported in the rows above reflect accounts
for which the customer has failed to make a required payment in each of the
last three, four, and five or more billing cycles, respectively. Sears
calculates delinquencies reported for accounts processed under TSYS by
dividing delinquencies at the end of each month by balances at the beginning
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.
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SUMMARY PAYMENT RATE INFORMATION
The accounts in the Sears portfolio had the following monthly payment
rates:
TWELVE MONTHS
ENDED
,
PAYMENT RATES
- ------------- ------------- ----- ----- -----
Average monthly rate................. % % % %
Highest monthly rate................. % % % %
Lowest monthly rate.................. % % % %
Sears calculates the payment rate by dividing:
- cash received during each month; by
- the balance outstanding as of the beginning of that month.
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
S-33
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. Although the Class B Certificates and
Class C Certificates will be part of this series, you may not purchase them
in this offering.
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; and
- the amount of any investor loss you incur if we cannot fully reimburse
the charge-offs allocated to your certificate.
The "Class A Invested Amount" will initially be $
, the "Class B Invested Amount" will initially be $
, and the "Class C Invested Amount" will initially be $
. These Class Invested Amounts 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 investor losses that investors in that class incur if we
cannot fully reimburse the charge-offs allocated to their certificates.
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. In this series, your Investor Interest
will always equal your Invested Amount. Consequently,
- the Class A Investor Interest equals the Class A Invested Amount;
- the Class B Investor Interest equals the Class B Invested Amount;
- the Class C Investor Interest equals the Class C Invested Amount; and
- the Series Investor Interest equals the Series Invested Amount.
For other series, including Paired Series, the Investor Interest for a
certificate may be less than its Invested Amount at certain times.
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 of % per year if you own a Class A Certificate. The trust
will pay you this interest on the 15th day of each month, or, if not a
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business day, the following business day, beginning in, 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. 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" and "Annex A--Cash
Flows." As long as SRFG owns the Class B Certificates and 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 Amortization
Period or the Rapid Amortization Period.
Revolving Period. The trust will not pay principal to you during the
Revolving Period. Similarly, the trust will not pay Class B principal 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 and ends
on the day before either the Controlled Amortization Period or the Rapid
Amortization Period begins.
Controlled Amortization Period. The trust will pay principal to you
during the Controlled Amortization Period to the extent that the trust has
available funds to make scheduled principal payments. The trust is scheduled
to pay Class A principal in monthly installments of $ starting on
the distribution date and continuing on each subsequent
distribution date. The trust is scheduled to pay Class B principal in two
monthly installments of $ beginning on the distribution date. The
trust will not, however, pay Class B principal until the trust pays the Class
A Invested Amount in full. The trust will pay up to $ of Class C
principal on each distribution date during the Controlled Amortization
Period, until the first month after the Class C Invested Amount has been
reduced to or below $ . After the Class B Invested Amount has been
paid in full, the trust will pay any remaining Class C principal until the
Class C Invested Amount is paid in full.
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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 Class A principal up to the Class A Invested Amount, until the Class
A 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" and "Annex A--Cash Flows." In no
event, however, will the trust make any principal payments to you or any
other investor in this series after the 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" above.
We encourage you to review the cash flows for this series to see how the
trust prioritizes payments and reimbursements. See "--Cash Flows" and "Annex
A--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
PERIOD: NUMERATOR:
------- ----------
Revolving Period................. Class Investor Interest* as of the
beginning of the prior calendar month.
Controlled Amortization 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.
CLASS PERCENTAGE OF PRINCIPAL COLLECTIONS
PERIOD: NUMERATOR:
------- ----------
Revolving Period................. Class Investor Interest* as of the
beginning of the prior calendar month.
Controlled Amortization Period:
No Fixed Principal Allocation
Event ..... Class Investor Interest* as of the
beginning of the prior calendar month.
Fixed Principal Allocation Event Class Investor Interest* as of the
beginning of the calendar month preceding
the Fixed Principal Allocation Event.
-- and Fixed Principal
Allocation Adjustment........ Class Investor Interest* as of the
beginning of the calendar month preceding
the Fixed Principal Allocation Event,
multiplied by the Fixed Principal
Allocation Adjustment Factor, but not less
than the Class Investor Interest as of the
beginning of the prior calendar month.
-- and paired with a Paired
Series for which a rapid
amortization event has
occurred..................... To be determined by the servicer, but not
less than the Class Investor Interest* as
of the last day of the Revolving Period
for the Paired Series.
Rapid Amortization Period........ Not less than the Class Investor Interest*
as of the beginning of the calendar month
in which the Rapid Amortization Event
occurred.**
CLASS PERCENTAGE FOR CHARGE-OFFS
PERIOD: NUMERATOR:
------- ----------
All Periods................... Class Investor Interest* as of the beginning
of the prior calendar month.
- ------------------
* Minus, in each case, a pro rata share of funds on deposit in the Excess
Funding Account (General) and the Excess Funding Account (SRC).
** May be higher if a Fixed Principal Allocation Event has previously occurred.
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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 A Finance Charge Collections; plus
- Class B Finance Charge Collections; plus
- Class C Finance Charge Collections.
As the trust pays principal on 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
- its interest payments on a smaller principal amount.
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 (e) and (f) 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 pays principal on 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. For example, if this series
typically received $20,000,000 in Principal Collections in each month of the
Revolving Period, it might receive only $10,000,000 in Principal Collections
after _______ months of the Controlled Amortization Period. The trust would
use Principal Collections reallocated from other series to continue to make
the scheduled monthly Class A principal payment of $ . If a Fixed
Principal Allocation 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.
In general, a Fixed Principal Allocation Event may occur:
- if this series would not be able to make its principal payments on
time even using the amounts deposited in the Group One Principal
Collections
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Reallocation Account that would be available to it;
- if the servicer elects to cause a Fixed Principal Allocation Event to
occur; or
- if a Rapid Amortization Event occurs.
If a Fixed Principal Allocation Event other than a Rapid Amortization Event
occurs, and the trust subsequently issues a new series from which the
servicer expects to reallocate Principal Collections to this series, the
servicer may lower the Class Percentage for Principal Collections for each
class of this series, subject to the limit described in the table above. We
refer to this as a "Fixed Principal Allocation Adjustment." We encourage
you to review clauses (b), (c) and (d) of the definition of "Class
Percentage" and the definitions of "Fixed Principal Allocation Event" and
"Fixed Principal Allocation Adjustment" in the Glossary of Terms in this
prospectus supplement, which describe in more detail how the trust calculates
these pro rata shares and when a Fixed Principal Allocation Event or Fixed
Principal Allocation Adjustment will occur.
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 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 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;
- the amount of Class C Principal Collections 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
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- 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.
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--referred to in the Glossary of Terms in this
prospectus supplement as the "Reimbursed Loss Interest Gross-up Amount"--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
- 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.
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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 calculates the Series Investment Income on each distribution date
by adding:
- 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, including amounts received from the sale of charged-off
receivables. 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. 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 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;
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- 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 for any series.
REALLOCATIONS
Under certain circumstances, the trust may reallocate to this series
collections initially allocated to another series in Group One. 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 and
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; and
- Class A Principal Collections, excluding those recharacterized as
Series Yield Collections.
During the Controlled Amortization Period, the trust will deposit into the
Series Principal Collections Account:
- amounts the trust uses to reimburse charge-offs for this series; and
- Class A Principal Collections, excluding those recharacterized as
Series Yield Collections.
After the trust uses the funds on deposit in the Series Principal Collections
Account to pay principal for this series 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
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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 pay all scheduled principal payments for this
series using the funds on deposit in the Series Principal Collections Account
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
Amortization 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 the account for all series in their controlled
amortization or controlled accumulation periods, the trust may draw on this
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 the 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 Principal
Collections Reallocation 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.
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 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
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Distribution 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 have included the full text of
the Series Supplement cash flow provisions in Annex A to this prospectus
supplement, and we encourage you to read Annex A and the related definitions
in the Glossary of Terms in full.
Funds Distributed to this Series. On or before each distribution date,
the trustee will, acting for the trust on the servicer's instructions,
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;
- Series Principal Collections for the preceding month; and
- Series Excess Funding Amount (SRC) 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,
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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, if any. (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.)
(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, as described in steps (9) through (15) below. (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
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to pay Class A interest. The pro rata share equals:
- the amount of Class A interest unpaid after step (1); divided by
- the 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, if any,
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 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 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.)
(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 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
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- the 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 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 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.)
(16) CLASS A INTEREST. If the trust cannot pay Class A interest in full
in steps (1) and (9), it will also use
- the Series Excess Funding Amount (SRC); 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
- 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, if any,
in full in steps (2) and (10), it will also use
- the Series Excess Funding Amount (SRC) remaining after step (16); and
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- 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 Series Excess Funding Amount (SRC) 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.
(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
- 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 Series Excess Funding Amount (SRC) 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
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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) 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 Group One pro rata share of funds in the Excess Funding Account
(General)
into the Group One Principal Collections Reallocation Account. The Group One
pro rata share equals:
- the sum of the series investor interests of all series in Group One
minus the amount of those series Investor Interests represented by
certificates that SRFG owns; divided by
- the sum of the series investor interests of all series in the trust
minus the amount of those series Investor Interests represented by
certificates that SRFG owns.
(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:
- first, the Series Excess Funding Amount (SRC) and Class C Principal
Collections remaining in the Series Collections Account after steps
(1) through (8), (16), (18), (19) and (23);
- second, Class B Principal Collections remaining in the Series
Collections Account after steps (1) through (8), (17) and (21); and
- third, Class A Principal Collections remaining in the Series
Collections Account after steps (1) through (8)
to pay Class C principal to the extent permitted. (To the Series Distribution
Account.)
(28) REALLOCATION TO OTHER SERIES. The trust will reallocate
- Class A Principal Collections remaining after step (27) minus the
Class A Principal Collections already used as income for this series
under the Series Yield Factor provisions
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to pay principal for other series in Group One. (To the Group One Principal
Collections Reallocation Account.)
(29) DEPOSIT TO EXCESS FUNDING ACCOUNT (SRC) 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 Series Collections Account after step (28)
into the Excess Funding Account (SRC). The trustee will pay to SRFG any funds
remaining in the Series Collections Account after step (28) that it does not
need to deposit in the Excess Funding Account (SRC) to maintain that minimum
Seller Interest. This provision will be applied to each series in the order
in which the series were issued.
(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 Amortization Period. On each distribution date during the
Controlled 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 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; and
- In steps (20) and (24), 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) do not exceed the initial
Class C Investor Interest minus any Class C principal paid in prior
months.
(2) PRINCIPAL COLLECTIONS. The trustee will deposit
- Class A Principal Collections remaining after step (1) minus the Class
A Principal Collections already used as income for this series under
the Series Yield Factor provisions
into the Series Principal Collections Account.
(3) CLASS A PRINCIPAL. The trust will use
- funds in the Series Principal Collections Account
to pay the scheduled Class A principal payment. (To the Series Distribution
Account.)
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(4) CLASS C PRINCIPAL. The trust will use
- funds remaining in the Series Collections Account after step (2)
to pay the permitted Class C principal payment, if any. (To the Series
Distribution Account.)
(5) CLASS B PRINCIPAL. After , if the trust has
paid all Class A principal in full, the trust will use
- funds remaining in the Series Collections Account after step (2)
to pay the scheduled Class B principal payment. (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 (2)
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 payment 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 payment. The pro rata share equals:
- the amount of Class A principal unpaid after step (3); divided by
- the amount of Class A principal unpaid for all series after step (3)
of the cash flows for each series, or an equivalent step.
(To the Series Distribution Account.)
(8) CLASS B PRINCIPAL. If the trust cannot make the scheduled Class B
principal payment 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) of the
cash flows for each series, or an equivalent step,
to make the scheduled Class B principal payment. The pro rata share equals:
- the amount of Class B principal unpaid after step (5); divided by
- the amount of Class B principal unpaid for all series after step (5)
of the cash flows for the controlled amortization period for each
series, or an equivalent step.
(To the Series Distribution Account.)
(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:
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- the amount of Class C principal unpaid after step (6); divided by
- the amount of Class C principal unpaid for all series after step (6)
of the cash flows for the controlled amortization period for each
series, or an equivalent step.
(To the Series Distribution Account.)
(10) CLASS A PRINCIPAL. If the trust cannot make the scheduled Class A
principal payment 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 payment. The pro rata share equals:
- the amount of Class A principal unpaid after steps (3) and (7);
divided by
- the amount of Class A principal unpaid for all series after steps (3)
and (7) of the cash flows for the controlled amortization period for
each series, or equivalent steps.
(To the Series Distribution Account.)
(11) CLASS B PRINCIPAL. If the trust cannot make the scheduled Class B
principal payment in full in steps (5) 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 payment. The pro rata share equals:
- the amount of Class B principal unpaid after steps (5) and (8);
divided by
- the amount of Class B principal unpaid for all series after steps (5)
and (8) of the cash flows for the controlled amortization period for
each series, or equivalent steps.
(To the Series Distribution 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 amount of Class C principal unpaid for all series after steps (6)
and (9) of the cash flows for the controlled amortization period for
each series, or equivalent steps.
(To the Series Distribution Account.)
(13) 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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(14) DEPOSIT TO EXCESS FUNDING ACCOUNT (SRC) 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 Series Collections Account
into the Excess Funding Account (SRC). The trustee will pay to SRFG any funds
remaining in the Series Collections Account that it does not need to deposit
in the Excess Funding Account (SRC) to maintain that minimum Seller Interest.
This provision will be applied to each series in the order in which the
series were issued.
(15) 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;
- In steps (20) and (24), 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) do not exceed the initial
Class C Investor Interest minus any Class C principal paid in prior
months; and
- In step (22), the trust may reallocate the Class B Investor Interest
only to the extent that the cumulative Class B charge-offs after steps
(17) and (21) do not exceed the initial Class B Investor Interest
minus any Class B principal paid in prior months.
(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 sum of the Series Investor Interest for this series minus the
amount of the Series Investor Interest for this series represented by
certificates that SRFG owns; divided by
- the sum of the series investor interests of all series in rapid
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amortization periods in the trust minus the amount of those series
investor interests represented by certificates that SRFG owns.
(To the Series Principal Collections Account.)
(3) PRINCIPAL COLLECTIONS. The trustee will deposit
- Class A Principal Collections remaining after step (1) minus the Class
A 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 Collections Account after step (3)
to pay Class B principal. (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 (1)
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 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 amount of Class B principal unpaid for all series in their rapid
amortization periods after step (5) of the cash flows for the rapid
S-54
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 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) DEPOSIT TO EXCESS FUNDING ACCOUNT (SRC) 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 Series Collections Account
into the Excess Funding Account (SRC). The trustee will pay to SRFG any funds
remaining in the Series Collections Account that it does not need to deposit
in the Excess Funding Account (SRC) to maintain that minimum Seller Interest.
This provision will be applied to each series in the order in which the
series were issued.
(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.)
S-55
(2) CLASS B INTEREST. The trust will use
- funds deposited into the Series Distribution Account for Class B
to pay Class B interest, if any. (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, if any, 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 A PRINCIPAL. On each distribution date during the Controlled
Amortization 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 scheduled Class A principal payment.
(2) CLASS B PRINCIPAL. On each distribution date during the Controlled
Amortization Period after the trust has paid Class A principal in full, 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 scheduled Class B principal payment.
(3) CLASS C PRINCIPAL. On each distribution date during the Controlled
Amortization Period, the trust will use
- funds remaining in the Series Distribution Account after step (1) or
(2), as applicable
to make the permitted Class C principal payment.
(4) CLASS C PRINCIPAL. On each distribution date during the Controlled
Amortization 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
S-56
to pay all Class C principal.
(5) SERIES PRINCIPAL. On each of the following dates:
- each distribution date during the Rapid Amortization Period; and
- each distribution date after the scheduled final principal payment
date for each class if the trust has not paid all principal to that
class on or before the scheduled final principal payment date,
the trust will use
- 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 B CERTIFICATES AND CLASS C CERTIFICATES
Although SRFG initially will own the Class B Certificates and 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 Amortization
Period sell or transfer all of the Class B Certificates or all of the Class C
Certificates. SRFG may also increase the interest rate on the Class B
Certificates or the Class C Certificates in connection with any sale or
transfer of them. SRFG may sell or transfer the Class B Certificates or 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 B Certificates or 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 B Certificates or 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 B Certificates or the
Class C Certificates will not have a material adverse effect on the
Class A Certificates;
- there are no outstanding investor losses for any class of this series
on the day that SRFG sells or transfers the Class B Certificates or
the Class C Certificates;
S-57
- the new holders of the Class B Certificates or the Class C
Certificates agree that they will not be entitled to receive Class B
principal payments or Class C principal payments, as applicable, until
the Class A Investor Interest has 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 an
entity not subject to tax.
PAIRED SERIES
During the Controlled Amortization Period and after a Fixed Principal
Allocation Event occurs, 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 pays Class A principal.
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.
S-58
The trust will pay the proceeds from the sale of the Paired Series
certificates to SRFG. We expect that the Paired Series invested amount would
equal the face amount of the Paired Series certificates, but initially the
trust would allocate a lower amount of Principal Collections to the Paired
Series than it would if it were not a Paired Series. The numerator for the
allocation percentage for the Paired Series may increase to the level of the
Paired Series Invested Amount if a rapid amortization event for the Paired
Series occurs.
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 Amortization Period or Rapid Amortization Period, SRFG
may decrease the numerator the trust uses to calculate the Class Percentage
for Principal Collections for each class of this series. SRFG may not,
however, reduce this numerator below what it would have been for that class
as of the last day of the revolving period for the Paired Series. This
reduction in the Class Percentage for this series would result in a
corresponding increase in the class percentage used to allocate Principal
Collections to the Paired Series. Consequently, the amount of Principal
Collections allocated to this series may decrease while the amount of
Principal Collections allocated to the Paired Series may increase. As a
result, you may receive principal payments smaller than your scheduled
payments 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;
S-59
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 amount of Principal Receivables
required under the Pooling and Servicing Agreement and SRFG fails to
assign Receivables in additional Accounts or participation interests
in other pools of 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 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.
- "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:
- the Series Principal Collections minus the Principal Collections
allocable to the Class B Certificates and the Class C Certificates;
- Class A's allocable share of funds in the Excess Funding Account
(General); and
S-60
- 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. In any
event, the trust will not make any payments to you after the
distribution date.
TERMINATION OF SERIES; CLEAN-UP CALL
This series will terminate upon the earlier of:
- the business day after the 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
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
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.
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 Amortization Period or the Rapid Amortization Period,
- the Series Investor Interest; minus
- the Class B Investor Interest and the Class C Investor Interest if
SRFG owns the Class B and Class C certificates; minus
- Class A's pro rata share of funds on deposit in the Excess Funding
Account (General) and the Excess Funding Account (SRC)
is less than or equal to $ . 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.
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SRFG may not purchase and cancel any Class B Certificates or Class C
Certificates until it purchases and cancels all Class A 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.
UNDERWRITING
The underwriters named below, SRFG and Sears have entered into an
underwriting agreement. Pursuant to the 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
set forth opposite its name:
PRINCIPAL
AMOUNT OF
CLASS A
UNDERWRITERS CERTIFICATES
------------ ------------
.................. $
..................
..................
..................
..................
------------
Total.................................................. $
============
The underwriting agreement provides 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, it must issue all
of the Class A Certificates. Under the terms and conditions of the
underwriting agreement, the underwriters must take and pay for all of the
Class A Certificates, if they take any of them.
The underwriters have advised SRFG that they propose to offer the Class
A Certificates:
- to the public at the price set forth on the cover page of this
prospectus supplement; and
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- 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 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 underwriters may
change the public offering price and other selling terms.
The underwriters may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with
Regulation M under the Exchange Act. 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, and
SRFG and the underwriters cannot assure you that one will develop. If a
secondary market for the Class A Certificates does develop, it may not
continue until the trust has paid the Class A 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.
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
$ .
LEGAL MATTERS
Latham & Watkins and Steven M. Cook, Deputy General Counsel,
Transactions and Securities, of Sears, will pass upon the legality of the
certificates for SRFG. Steven M. Cook owns shares of Sears common stock
and has been granted stock options with respect to an 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 %--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 CERTIFICATE INTEREST" means, for any distribution date:
- the Class A Invested Amount for that distribution date; multiplied by
- %; divided by
- twelve, or, for the distribution date in , 360 divided by
--the actual number of days from to but excluding
15, , assuming the month of has 30 days.
"CLASS A CONTROLLED AMORTIZATION AMOUNT" means, for any distribution
date during the Controlled Amortization Period, the sum of:
- $ ; and
- any Class A Controlled Amortization Amount Shortfall.
"CLASS A CONTROLLED AMORTIZATION AMOUNT SHORTFALL" means, for any
distribution date during the Controlled Amortization Period, the amount, if
any, by which the Class A Controlled Amortization Amount exceeds the amount
deposited to the Series Distribution Account in connection with payment of
Class A principal as described in step (3) of the cash flows in "Annex A -
Cash Flows."
"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 "Annex A--
Cash Flows."
"CLASS A EXPECTED FINAL PAYMENT DATE" means the distribution date
in .
"CLASS A INVESTED AMOUNT" means, as of any distribution date:
- $ ; minus
- the amount of principal previously paid to the Class A investors;
minus
- the Class A Cumulative Investor Charged-Off Amount.
"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.
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"CLASS A INVESTOR INTEREST" means, as of any distribution date,
- $ ; minus
- the amount of principal previously paid to the Class A investors;
minus
- the Class A Cumulative Investor Charged-Off Amount.
"CLASS A MODIFIED REQUIRED AMOUNT" means, on any distribution date:
- the Class A Required Amount for that distribution date; minus
- the sum of all accrued but unpaid Class Monthly Servicing Fees for the
Class A Certificates.
"CLASS A MODIFIED REQUIRED AMOUNT SHORTFALL" on any distribution
date, means the amount, if any, by which the Class A Modified Required
Amount exceeds the sum of the Series Finance Charge Collections and Series
Additional Allocable Amounts on that distribution date.
"CLASS A PRINCIPAL COLLECTIONS" means, on 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 such day or for the related
Due Period, as applicable.
"CLASS A RAPID AMORTIZATION AMOUNT" means the Class A Investor Interest.
"CLASS A RAPID AMORTIZATION AMOUNT SHORTFALL" means, for any
distribution date during a Rapid Amortization Period, the amount, if any, by
which the Class A Rapid Amortization Amount exceeds the amount deposited to
the Series Distribution Account in connection with payment of Class A
principal as described in step (4) of the cash flows in "Annex A - Cash
Flows."
"CLASS A REQUIRED AMOUNT" means, on any distribution date, the Class
Required Amount for the Class A Certificates.
"CLASS B CERTIFICATE INTEREST" means, for any distribution date on
which SRFG owns the Class B Certificates, zero.
"CLASS B CONTROLLED AMORTIZATION AMOUNT" means, for any distribution
date with respect to the Controlled Amortization Period occurring after the
distribution date, the sum of:
- $ ; and
- any Class B Controlled Amortization Amount Shortfall.
"CLASS B CONTROLLED AMORTIZATION AMOUNT SHORTFALL" means, for any
distribution date during the Controlled Amortization Period, the amount, if
any, by which the Class B Controlled Amortization Amount exceeds the amount
deposited to the Series Distribution Account in connection with payment of
Class B principal as described in step (5) of the cash flows in "Annex A -
Cash Flows."
"CLASS B CUMULATIVE INVESTOR CHARGED-OFF AMOUNT" means, for any
distribution date:
- the Class B Cumulative Investor Charged-Off Amount 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 "Annex A--Cash Flows."
"CLASS B EXPECTED FINAL PAYMENT DATE" means the distribution
date.
"CLASS B INVESTED AMOUNT" means, as of any distribution date,
- $ ; minus
- the amount of principal previously paid to the Class B investors,
initially SRFG; minus
- the Class B Cumulative Investor Charged-off Amount.
"CLASS B INVESTOR CHARGED-OFF AMOUNT" means, for any distribution date:
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- 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,
- $ ; minus
- the amount of principal previously paid to the Class B investors,
initially SRFG; minus
- the Class B Cumulative Investor Charged-off Amount.
"CLASS B MODIFIED REQUIRED AMOUNT" means on any distribution date:
- the Class B Required Amount for that distribution date; minus
- the sum of all accrued but unpaid Class Monthly Servicing Fees for the
Class B Certificates.
"CLASS B MODIFIED REQUIRED AMOUNT SHORTFALL" on any distribution date,
means the amount, if any, by which the Class B Modified Required Amount
exceeds the sum of the Series Finance Charge Collections and Series
Additional Allocable Amounts on that distribution date minus the Class A
Modified Required Amount.
"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 B RAPID AMORTIZATION AMOUNT" means the Class B Investor Interest.
"CLASS B RAPID AMORTIZATION AMOUNT SHORTFALL" means, for any
distribution date during a Rapid Amortization Period, the amount, if any, by
which the Class B Rapid Amortization Amount exceeds the amount deposited to
the Series Distribution Account in connection with payment of Class B
principal as described in step (8) of the cash flows in "Annex A - Cash
Flows."
"CLASS B REQUIRED AMOUNT" on any distribution date, means the Class
Required Amount for the Class B Certificates.
"CLASS C CERTIFICATE INTEREST" means, for any distribution date on which
SRFG owns the Class C Certificates, zero.
"CLASS C CONTROLLED AMORTIZATION AMOUNT" means the Class C Invested
Amount.
"CLASS C CONTROLLED AMORTIZATION AMOUNT SHORTFALL" means, for any
distribution date during a Rapid Amortization Period, the amount, if any, by
which the Class C Rapid Amortization Amount exceeds the amount deposited to
the Series Distribution Account in connection with payment of Class C
principal as described in step (6) of the cash flows in "Annex A - Cash
Flows."
"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 "Annex A--
Cash Flows."
"CLASS C FIXING DEADLINE" means the earliest date on which:
- a Rapid Amortization Event occurs;
- SRFG transfers or sells the Class C Certificates; or
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- the Class C Invested Amount is less than or equal to $ - 3%
of the initial Series Investor Interest - or a lower amount
permitted by the Rating Agencies. The trust may decrease this amount
without the consent of the investors in this series if SRFG receives
written notice from the Rating Agencies that such a decrease will not
cause them to reduce or withdraw their ratings on the certificates of
any outstanding series.
"CLASS C INVESTED AMOUNT" means, as of any distribution date:
- $ ; 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 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
- $ ; 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 MODIFIED REQUIRED AMOUNT" means, on any distribution date:
- the Class C Required Amount for that distribution date; minus
- the sum of all accrued but unpaid Class Monthly Servicing Fees for the
Class C Certificates.
"CLASS C MODIFIED REQUIRED AMOUNT SHORTFALL" on any distribution date,
means the amount, if any, by which the Class C Modified Required Amount
exceeds
- the sum of the Series Finance Charge Collections and Series Additional
Allocable Amounts on that distribution date minus the sum of the Class
A Modified Required Amount and the Class B Modified Required Amount.
"CLASS C PERMITTED CONTROLLED AMORTIZATION AMOUNT," if applicable, for
any distribution date in the Controlled Amortization Period before the Class
C Fixing Deadline, means an amount equal to:
- $ ; plus
- the Class C Permitted Controlled Amortization Amount Shortfall, if
any.
The trust may increase the Class C Permitted Controlled Amortization Amount,
including designating a Class C Permitted Controlled Amortization Amount
payable during the Revolving Period, without the consent of the investors in
this series if SRFG receives written notice from the Rating Agencies that
such an increase will not cause them to reduce or withdraw their ratings on
the certificates of any outstanding series.
"CLASS C PERMITTED CONTROLLED AMORTIZATION AMOUNT
SHORTFALL" means, for any distribution date during a Controlled Amortization
Period, the amount, if any, by which the Class C Permitted Controlled
Amortization Amount exceeds the amount deposited to the Series Distribution
Account in connection with a permitted payment of Class C principal as
described in "Annex A - Cash Flows." The deposit will equal the lesser of
the Class C Permitted Controlled Amortization Amount and the amount then
remaining on deposit in the Series Collections Account.
"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.
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"CLASS C RAPID AMORTIZATION AMOUNT" means the Class C Investor Interest.
"CLASS C RAPID AMORTIZATION AMOUNT SHORTFALL" means, for any
distribution date during a Controlled Amortization Period, the amount, if
any, by which the Class C Rapid Amortization Amount exceeds the amount
deposited to the Series Distribution Account in connection with payment of
Class C principal as described in step (6) of the cash flows in "Annex A -
Cash Flows."
"CLASS C REQUIRED AMOUNT" means, on any distribution date, the Class
Required Amount for the Class C Certificates.
"CLASS ALTERNATIVE DEFICIENCY AMOUNT" means, for any class, on any
distribution date, the Class Deficiency Amount that would have been
calculated for that class on that distribution date if the aggregate
unreimbursed Investor Losses on that distribution date equaled zero.
"CLASS CONTROLLED AMORTIZATION AMOUNT" means the Class A Controlled
Amortization Amount, the Class B Controlled Amortization Amount or the Class
C Controlled Amortization Amount, 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 DEFICIENCY AMOUNT" means, for each class, on any distribution
date, the sum of:
- interest for that class accrued since the immediately preceding
distribution date;
- if, since the immediately preceding distribution date and before the
current distribution date, a Reimbursed Loss Event has occurred, the
sum of:
- the Reimbursed Loss Interest for that class for each previous
distribution date since the last distribution date on which
Investor Losses for that class equaled zero, and
- the Reimbursed Loss Interest Gross-up Amount for that class for
each previous distribution date since the last distribution date on
which the aggregate amount of unreimbursed Investor Losses for that
class equaled zero;
- the Class Deficiency Amount on the immediately preceding distribution
date; and
- the Class Deficiency Amount on the immediately preceding distribution
date multiplied by the interest rate, if any, for that class and
divided by twelve.
"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.
"CLASS INVESTED AMOUNT" means the Class A Invested Amount, the Class B
Invested Amount or the Class C Invested Amount, as applicable.
"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 MONTHLY DEFICIENCY AMOUNT" means, for any class on any
distribution date, the amount, if any, by which:
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- the Class Modified Required Amount for that class for that
distribution date; exceeds
- the amount deposited into the Series Interest Funding Account to pay
that Class Modified Required Amount on that distribution date.
"CLASS MONTHLY SERVICING FEE" means, for any class on any distribution
date:
- the Class Investor Interest divided by the Series Investor Interest,
or, in the case of the first distribution date, $ , in each
case on the first day of the related Due Period; multiplied by
- the amount of the Investor Servicing Fee for the related Due Period.
"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 Fixed Principal
Allocation 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 Fixed Principal
Allocation Event has occurred, unless a Fixed Principal Allocation Adjustment
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 Fixed Principal Allocation 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
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- 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.
However, because each class may be paired with a class of a Paired Series,
SRFG may designate a different numerator to calculate this fraction if:
- after the pairing, a rapid amortization event for the Paired Series
occurs;
- the new numerator is not less than the Class Investor Interest minus
the Supplemental Cash allocable to that class as of the last day of
the revolving period for the Paired Series; and
- SRFG delivers to the trustee a certificate of an authorized officer
stating that, based on the facts known to that officer at the time, in
the reasonable belief of SRFG, the designation of a different
numerator will not cause a Rapid Amortization Event or an event that,
after the
giving of notice or the lapse of time, would constitute a Rapid
Amortization Event, to occur for this series.
If a Rapid Amortization Event for this series nonetheless occurs, then, on
each distribution date beginning with the distribution date related to the
Due Period in which the Rapid Amortization Event occurs, the numerator will
not be less than the Class Investor Interest minus the Supplemental Cash
allocable to that class as of the first day of the Due Period in which that
Rapid Amortization Event occurs; or
(d) when used for Principal Collections on and after the date the
servicer has made a Fixed Principal Allocation Adjustment, the percentage
equivalent of a fraction:
- the numerator of which will be the greater of:
- the amount of the Class Investor Interest minus Supplemental Cash
allocable to such class on the first day of the Due Period before
the Fixed Principal Allocation Event multiplied by the Fixed
Principal Allocation Adjustment Factor; and
- the amount of the Class Investor Interest minus the Supplemental
Cash allocable to that class on the first day of that 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 the distribution date.
However, after a Rapid Amortization Event for this series, on each
distribution date beginning with the distribution date related to the Due
Period in which the Rapid Amortization Event occurred, the numerator will be
the Class Investor Interest minus the Supplemental Cash allocable to that
class on the first day of the Due Period in which the Rapid Amortization
Event occurred; or
(e) when used for Finance Charge Collections during the Revolving Period
or the Controlled Amortization 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
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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 Finance Charge Collections for each series
then outstanding as of that distribution date; or
(f) 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 and the Class C Principal Collections, as
applicable.
"CLASS RAPID AMORTIZATION AMOUNT" means, for each class on any
distribution date during the Rapid Amortization Period, the Class Investor
Interest for that class.
"CLASS REQUIRED AMOUNT" means, for any class on any distribution date,
the sum of:
- interest for that class for that distribution date;
- the Class Monthly Deficiency Amount on the immediately preceding
distribution date;
- the Class Deficiency Amount on the immediately preceding distribution
date multiplied by the interest rate, if any, for the class plus two
percent per year divided by twelve;
- if on the immediately preceding distribution date a Reimbursed Loss
Event occurred, the sum of:
- the Reimbursed Loss Interest for each previous distribution date
since the last distribution date on which the aggregate amount of
unreimbursed Investor Losses for the class equaled zero;
- the Reimbursed Loss Interest Gross-up Amount for each previous
distribution date since the last distribution date on which the
aggregate amount of unreimbursed Investor Losses for the class
equaled zero; and
- for any distribution date following the distribution date
immediately following the Reimbursed Loss Event to and including
the next distribution date, the Reimbursed Loss Interest Gross-up
Amount for the class for the distribution date; and
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- the sum of all accrued but unpaid Class Monthly Servicing Fees.
"CONTROLLED AMORTIZATION PERIOD" means the period commencing at the
opening of business on the first day of the Due Period related to the
distribution date in 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.
"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.
"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 amounts owed by credit account
customers as a result of interest accrued on unpaid principal balances.
"FIXED PRINCIPAL ALLOCATION ADJUSTMENT" means, if:
- a Fixed Principal Allocation Event has occurred; and
- a Rapid Amortization Event has not occurred,
an adjustment by the servicer of the Class Percentage for Principal
Collections in accordance with the provisions of the Series Supplement and
set forth in the Monthly Servicer Certificate.
"FIXED PRINCIPAL ALLOCATION ADJUSTMENT FACTOR" means, for any class for
any distribution date, a fraction:
- the numerator of which is the Class Controlled Amortization Amount,
and
- the denominator of which is the sum of:
- the Class Controlled Amortization Amount; and
- the Group Available Principal Amount on the distribution date, as
adjusted to deduct any portion of the Group Available Principal
Amount used, in the discretion of the servicer, to determine the
Fixed Principal Allocation Adjustment Factor for any class of any
of the other series in Group One.
"FIXED PRINCIPAL ALLOCATION EVENT" means the earliest of:
- the beginning of the Due Period immediately following the Due Period
related to the distribution date during the Controlled Amortization
Period of 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
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- 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.
"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 accounts of any
series in Group One that has a controlled amortization period or
controlled accumulation period, as applicable, beginning
before ; minus
- the amount deposited in the Group One Principal Collections
Reallocation Account from the series principal collections accounts of
any series in Group One that has a controlled amortization period or
controlled accumulation period, as applicable, ending
before ; 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 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
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 .
"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 to the
investors in that class of certificates; minus
- that certificat's share of charge-offs that the trust has not
reimbursed, including unreimbursed charge-offs from prior months.
"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 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 allocated to that certificate.
"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:
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- the investor servicing fee percentage of % 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 SELLER INTEREST" for any day or distribution date means the
positive difference, if any, between:
- the sum of the Series Minimum Principal Receivables Balances for all
outstanding series; and
- the Aggregate Investor Interest minus the sum of:
- the series pre-funding amounts, if any, for all outstanding series;
- the Excess Funding Amount (General); and
- the Excess Funding Amount (SRC),
for that day or distribution 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 pays Class A principal.
"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; or
- 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 have
the Highest Rating;
- 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
outstanding series.
"PRINCIPAL COLLECTIONS" means all collections on the receivables in any
month other than Finance Charge Collections.
"PRINCIPAL RECEIVABLES" means amounts owed by credit account customers
as a result of their purchase of goods and services, late fees and other
fees.
"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.
"REIMBURSED LOSS EVENT" means, for each class, any distribution date on
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which the aggregate amount of unreimbursed Investor Losses for that class is
reduced to zero; provided that if the Class Invested Amounts for all
classes senior to that class have been reduced to zero and the Reimbursed
Loss Event occurs on the expected final payment date for that class, the
Reimbursed Loss Event will be deemed to occur on the current distribution
date for the purposes of calculating the Class Modified Required Amount
for that class.
"REIMBURSED LOSS INTEREST" means for each class for any distribution
date:
- the aggregate amount of Investor Losses that have not been reimbursed
before the beginning of the related Due Period; multiplied by
- the interest rate, if any, for the class for the related Due Period
divided by twelve.
"REIMBURSED LOSS INTEREST GROSS-UP AMOUNT" means, for each class for any
distribution date:
- the amount, if any, by which the Class Alternative Deficiency Amount
for the immediately preceding distribution date exceeds the Class
Deficiency Amount for the immediately preceding distribution date,
multiplied by
- the interest rate, if any, for that class for the related Due Period
divided by twelve.
"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.
"REVOLVING PERIOD" means the period beginning on the first day of the
Due Period that ends in , and ending on the earlier of:
- the last business day before the Controlled Amortization 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.
"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 Series Investor Interest; divided by
- the sum of the series investor interests for all outstanding series in
Group One; multiplied by
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- the Group Excess Funding Amount.
"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
- 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 as described in "Annex A--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
.
"SERIES EXCESS FUNDING AMOUNT (SRC)" means:
- the Group Excess Funding Amount (SRC); multiplied by
- the sum of the numerators used in calculating the Class Percentage for
Class B Principal Collections and Class C Principal Collections
divided by the sum of the numerators used in calculating the class
percentage for principal collections for all classes retained by SRFG
in Group One.
"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.
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"SERIES INVESTED AMOUNT" with respect to any distribution date, means
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 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 AMOUNTS" 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, the greater of:
- the Series Investor Interest minus Supplemental Cash on that
Determination Date, divided by 0.909; or
- if a Fixed Principal Allocation Event has occurred, and a Fixed
Principal Allocation Adjustment has not occurred, the Series Investor
Interest minus Supplemental Cash as of the first day of the Due Period
before the Fixed Principal Allocation Event, which may be reduced if a
Rapid Amortization Event occurs for any series with which this series
is paired, to an amount equal to the sum of the then applicable
numerators for the class percentages for Principal Collections for all
classes in the Paired Series; or
- if a Fixed Principal Allocation Adjustment has occurred, the Series
Investor Interest minus Supplemental Cash as of the first day of the
Due Period before the Fixed Principal Allocation Event multiplied by
the Fixed Principal Allocation Adjustment Factor; provided, however,
that after a Rapid Amortization Event, this amount will be the Series
Investor Interest minus Supplemental Cash as of the first day of the
Due Period before the Rapid Amortization Event.
SRFG may, upon 30 days' prior notice to the trustee and the Rating Agencies,
reduce the Series Minimum Principal Receivables Balance by increasing the
divisor set forth above, if:
- SRFG receives written notice from the Rating Agencies that such an
increase will not cause them to reduce or withdraw their ratings on
the certificates of any outstanding series; and
- the divisor used to calculate the Series Minimum Principal Receivables
Balance is not increased to more than 0.980.
"SERIES MONTHLY SERVICING FEE" means, for any distribution date, the sum
of the Class Monthly Servicing Fees for each class of this series on that
distribution date.
"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 this 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 ,
to the Pooling and Servicing Agreement, as amended, modified or supplemented
from time to time.
"SERIES TERMINATION DATE" means the business day following the
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
CASH FLOWS
We provide below descriptions of the cash flows that
use the language of the Series Supplement. We refer you also
to the summaries of these provisions in "The Certificates--
Cash Flows."
Deposits to Series Collections Account or Series Principal Collections
Account. On or before each distribution date, the trustee, acting for the trust
pursuant to the servicer's instructions, will withdraw from the Group One
Collections Account and deposit into the Series Collections Account an amount
equal to:
- the sum of the Series Finance Charge Collections and the Series
Principal Collections; and
- the Series Excess Funding Amount (SRC),
each for the related Due Period. On or before each
distribution date, the trustee, acting for the trust
pursuant to the servicer's instructions, will also deposit
the Series Additional Allocable Amounts, if any, which have
not previously been deposited into the Series Collections
Account.
Allocation of Interest, Fees and Other Items During the
Revolving Period. On each distribution date during the
Revolving Period, the trustee, acting for the trust pursuant
to the servicer's instructions, will apply funds to be paid
or deposited in the following order of priority, to the
extent those amounts are available on that distribution
date.
(1) CLASS A INTEREST. An amount equal to the lesser of:
- the Class A Modified Required Amount; and
- the sum of any Series Finance Charge Collections and
Series Additional Allocable Amounts
will be withdrawn from the Series Collections Account and
deposited in the Series Distribution Account.
(2) CLASS B INTEREST. An amount equal to the lesser of:
- the Class B Modified Required Amount, if any; and
- the sum of any remaining Series Finance Charge Collections and any
remaining Series Additional Allocable Amounts
will be withdrawn from the Series Collections Account and
deposited into the Series Distribution Account.
(3) CLASS C INTEREST. An amount equal to the lesser of:
- the Class C Modified Required Amount, if any; and
- the sum of any remaining Series Finance Charge Collections and any
remaining Series Additional Allocable Amounts
will be withdrawn from the Series Collections Account and
deposited into the Series Distribution Account.
(4) SERIES MONTHLY SERVICING FEE. An amount equal to
the lesser of:
- the sum of the Series Monthly Servicing Fee and all accrued but unpaid
Series Monthly Servicing Fees as of the prior distribution date; and
- the sum of any remaining Series Finance Charge Collections and any
remaining Series Additional Allocable Amounts
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will be withdrawn from the Series Collections Account and
deposited into the Series Distribution Account.
(5) CLASS A CHARGE-OFFS. An amount equal to the lesser
of:
- the Class A Cumulative Investor Charged-Off Amount; and
- the sum of any remaining Series Finance Charge Collections and any
remaining Series Additional Allocable Amounts
will be withdrawn from the Series Collections Account and
deposited into the Group One Principal Collections
Reallocation Account. The Class A Cumulative Investor
Charged-Off Amount will be reduced by the amount of this
deposit.
(6) CLASS B CHARGE-OFFS. An amount equal to the lesser
of:
- the Class B Cumulative Investor Charged-Off Amount; and
- the sum of any remaining Series Finance Charge Collections and any
remaining Series Additional Allocable Amounts
will be withdrawn from the Series Collections Account and
deposited into the Group One Principal Collections
Reallocation Account. The Class B Cumulative Investor
Charged-Off Amount will be reduced by the amount of this
deposit.
(7) CLASS C CHARGE-OFFS. An amount equal to the lesser
of:
- the Class C Cumulative Investor Charged-Off Amount; and
- the sum of any remaining Series Finance Charge Collections and any
remaining Series Additional Allocable Amounts
will be withdrawn from the Series Collections Account and
deposited into the Group One Principal Collections
Reallocation Account. The Class C Cumulative Investor
Charged-Off Amount will be reduced by the amount of this
deposit.
(8) REALLOCATION TO OTHER SERIES. An amount equal to
any remaining Series Finance Charge Collections and any
remaining Series Additional Allocable Amounts will be withdrawn
from the Series Collections Account and deposited into the Group
One Finance Charge Collections Reallocation Account.
(9) CLASS A INTEREST. If one or more other series
included in Group One which is outstanding with respect to
the distribution date provides for the reallocation of
finance charge collections and series additional allocable
amounts, series excess servicing relating to that series
will be deposited into the Group One Finance Charge
Collections Reallocation Account. An amount equal to the
lesser of:
- the Class A Modified Required Amount Shortfall; and
- the product of:
- a fraction the numerator of which is the Class A Modified Required
Amount Shortfall and the denominator of which is the sum of the
class modified required amount shortfalls for all classes with the
same alphabetical designation for all series in Group One; and
- the amount on deposit in the Group One Finance Charge Collections
Reallocation Account before any withdrawals from that account with
respect to any other series pursuant to a comparable clause in the
applicable series supplement for the purpose of covering class
modified required amount shortfalls,
will be withdrawn from the Group One Finance Charge
Collections Reallocation Account and deposited into the
Series Distribution Account. The Class A Modified Required
Amount Shortfall will be reduced by the amount of this
deposit.
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(10) CLASS B INTEREST. An amount equal to the lesser
of:
- the Class B Modified Required Amount Shortfall; and
- the product of:
- a fraction the numerator of which is the Class B Modified Required
Amount Shortfall and the denominator of which is the sum of the
class modified required amount shortfalls for all classes with the
same alphabetical designation for all series in Group One; and
- the amount on deposit in the Group One Finance Charge Collections
Reallocation Account before any withdrawals from that account with
respect to any other series pursuant to a comparable clause in the
applicable series supplement for any class with the same
alphabetical designation and after any withdrawals from that
account for the benefit of classes of those other series with a
higher alphabetical designation,
will be withdrawn from the Group One Finance Charge
Collections Reallocation Account and deposited into the
Series Distribution Account. The Class B Modified Required
Amount Shortfall will be reduced by the amount of this
deposit.
(11) CLASS C INTEREST. An amount equal to the lesser of:
- the Class C Modified Required Amount Shortfall; and
- the product of:
- a fraction the numerator of which is the Class C Modified Required
Amount Shortfall and the denominator of which is the sum of the
class modified required amount shortfalls for all classes with the
same alphabetical designation for all series in Group One; and
- the amount on deposit in the Group One Finance Charge Collections
Reallocation Account before any withdrawals from that account with
respect to any other series pursuant to a comparable clause in the
applicable series supplement for any class with the same
alphabetical designation and after any withdrawals from that
account for the benefit of classes with a higher alphabetical
designation of those other series,
will be withdrawn from the Group One Finance Charge Collections Reallocation
Account and deposited into the Series Distribution Account. The Class C
Modified Required Amount Shortfall will be reduced by the amount of this
deposit.
(12) CLASS A CHARGE-OFFS. An amount equal to the lesser of:
- the Class A Cumulative Investor Charged-Off Amount; and
- the product of:
- a fraction the numerator of which is the Class A Cumulative
Investor Charged-Off Amount and the denominator of which is the sum
of the class cumulative investor charged-off amounts for all
classes with the same alphabetical designation for all series in
Group One; and
- the amount on deposit in the Group One Finance Charge Collections
Reallocation Account before any withdrawals from that account with
respect to any other series pursuant to a comparable clause in the
applicable series supplement for the purpose of covering cumulative
investor charged-off amounts for any class with the same
alphabetical designation,
will be withdrawn from the Group One Finance Charge
Collections Reallocation Account and deposited into the
Group One Principal Collections Reallocation Account. The
Class A Cumulative Investor Charged-Off Amount will be
reduced by the amount of this deposit.
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(13) CLASS B CHARGE-OFFS. An amount equal to the lesser of:
- the Class B Cumulative Investor Charged-Off Amount; and
- the product of:
- a fraction the numerator of which is the Class B Cumulative
Investor Charged-Off Amount and the denominator of which is the sum
of the class cumulative investor charged-off amounts for all
classes with the same alphabetical designation for all series in
Group One; and
- the amount on deposit in the Group One Finance Charge Collections
Reallocation Account before any withdrawals from that account with
respect to any other series pursuant to a comparable clause in the
applicable series supplement for the purpose of covering cumulative
investor charged-off amounts for any class with the same
alphabetical designation and after any withdrawals from that
account for the benefit of classes of such other series with a
higher alphabetical designation,
will be withdrawn from the Group One Finance Charge
Collections Reallocation Account and deposited into the
Group One Principal Collections Reallocation Account. The
Class B Cumulative Investor Charged-Off Amount will be
reduced by the amount of this deposit.
(14) SERIES MONTHLY SERVICING FEE. An amount equal to the lesser of:
- all accrued but unpaid Series Monthly Servicing Fees; and
- the product of:
- a fraction the numerator of which is all accrued but unpaid Series
Monthly Servicing Fees and the denominator of which is the sum of
all accrued but unpaid monthly servicing fees for all series in
Group One; and
- the amount on deposit in the Group One Finance Charge Collections
Reallocation Account before any withdrawals from that account
pursuant to a comparable clause in the applicable series supplement
with respect to any other series to cover payment of accrued but
unpaid monthly servicing fees,
will be withdrawn from the Group One Finance Charge
Collections Reallocation Account and deposited into the
Series Distribution Account.
(15) CLASS C CHARGE-OFFS. An amount equal to the lesser
of:
- the Class C Cumulative Investor Charged-Off Amount; and
- the product of:
- a fraction the numerator of which is the Class C Cumulative
Investor Charged-Off Amount and the denominator of which is the sum
of the class cumulative investor charged-off amounts for all
classes with the same alphabetical designation for all series in
Group One; and
- the amount on deposit in the Group One Finance Charge Collections
Reallocation Account before any withdrawals from that account with
respect to any other series pursuant to a comparable clause in the
applicable series supplement for the purpose of covering cumulative
investor charged-off amounts for any class with the same
alphabetical designation and after any withdrawals from that
account for the benefit of classes of such other series with a
higher alphabetical designation,
will be withdrawn from the Group One Finance Charge
Collections Reallocation Account and deposited into the
Group One Principal Collections Reallocation Account. The
Class C Cumulative Investor Charged-Off Amount will be
reduced by the amount of this deposit.
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(16) CLASS A INTEREST. An amount equal to the lesser of:
- the Class A Modified Required Amount Shortfall; and
- the sum of the Series Excess Funding Amount (SRC) and Class C
Principal Collections less Series Yield Collections allocable to the
Class C Investor Interest
will be withdrawn from the Series Collections Account and
deposited into the Series Distribution Account. The Class A
Modified Required Amount Shortfall will be reduced by the
amount of this deposit, and the Class C Cumulative Investor
Charged-Off Amount will be increased by the amount of this
deposit.
(17) CLASS A INTEREST. An amount equal to the lesser of:
- the Class A Modified Required Amount Shortfall; and
- the Class B Principal Collections less Series Yield Collections
allocable to the Class B Investor Interest
will be withdrawn from the Series Collections Account and
deposited into the Series Distribution Account. The Class A
Modified Required Amount Shortfall will be reduced by the
amount of this deposit, and the Class B Cumulative Investor
Charged-Off Amount will be increased by the amount of this
deposit.
(18) CLASS B INTEREST. An amount equal to the lesser of:
- the Class B Modified Required Amount Shortfall; and
- the sum of any remaining Series Excess Funding Amounts (SRC) and any
remaining Class C Principal Collections less Series Yield Collections
allocable to the Class C Investor Interest
will be withdrawn from the Series Principal Collections
Account and deposited into the Series Distribution Account.
The Class B Modified Required Amount Shortfall will be
reduced by the amount of this deposit, and the Class C
Cumulative Investor Charged-Off Amount will be increased by
the amount of this deposit.
(19) CLASS A CHARGE-OFFS. An amount equal to the lesser of:
- the Class A Cumulative Investor Charged-Off Amount; and
- the sum of any remaining Series Excess Funding Amounts (SRC) and any
remaining Class C Principal Collections less Series Yield Collections
allocable to the Class C Investor Interest
will be withdrawn from the Series Collections Account and
deposited into the Group One Principal Collections
Reallocation Account. The Class A Cumulative Investor
Charged-Off Amount will be reduced by the amount of this
deposit, and the Class C Cumulative Investor Charged-Off
Amount will be increased by the amount of this deposit.
(20) CLASS A CHARGE-OFFS. The Class A Cumulative Investor Charged-Off
Amount will be reduced by an amount equal to the lesser of:
- the Class A Cumulative Investor Charged-Off Amount; and
- the Class C Investor Interest,
and the Class C Cumulative Investor Charged-Off Amount will
be increased by this amount; provided, however, that the
Class C Cumulative Investor Charged-Off Amount would not, as
a result, exceed the initial Class C Investor Interest.
(21) CLASS A CHARGE-OFFS. An amount equal to the lesser of:
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- the Class A Cumulative Investor Charged-Off Amount; and
- any remaining Class B Principal Collections less Series Yield
Collections allocable to the Class B Investor Interest
will be withdrawn from the Series Collections Account and
deposited into the Group One Principal Collections
Reallocation Account. The Class A Cumulative Investor
Charged-Off Amount will be reduced by the amount of this
deposit, and the Class B Cumulative Investor Charged-Off
Amount will be increased by the amount of this deposit.
(22) CLASS A CHARGE-OFFS. The Class A Cumulative Investor Charged-Off
Amount will be reduced by an amount equal to the lesser of:
- the Class A Cumulative Investor Charged-Off Amount; and
- the Class B Investor Interest,
and the Class B Cumulative Investor Charged-Off Amount will be increased by
this amount; provided, however, that the Class B Cumulative Investor Charged-
Off Amount would not, as a result, exceed the initial Class B Investor
Interest.
(23) CLASS B CHARGE-OFFS. An amount equal to the lesser of:
- the Class B Cumulative Investor Charged-Off Amount; and
- the sum of any remaining Series Excess Funding Amounts (SRC) and any
remaining Class C Principal Collections less Series Yield Collections
allocable to the Class C Investor Interest
will be withdrawn from the Series Collections Account and
deposited into the Group One Principal Collections
Reallocation Account. The Class B Cumulative Investor
Charged-Off Amount will be reduced by the amount of this
deposit, and the Class C Cumulative Investor Charged-Off
Amount will be increased by the amount of this deposit.
(24) CLASS B CHARGE-OFFS. The Class B Cumulative
Investor Charged-Off Amount will be reduced by an amount
equal to the lesser of:
- the Class B Cumulative Investor Charged-Off Amount; and
- the Class C Investor Interest,
and the Class C Cumulative Investor Charged-Off Amount will
be increased by this amount; provided, however, that the
Class C Cumulative Investor Charged-Off Amount would not, as
a result, exceed the initial Class C Investor Interest.
(25) PAYMENT TO SRFG. An amount equal to all remaining amounts on
deposit in the Group One Finance Charge Collections Reallocation Account, after
all other allocations from this account pursuant to the series supplements for
any series in Group One, will be withdrawn from the Group One Finance Charge
Collections Reallocation Account and paid to SRFG.
(26) PRINCIPAL COLLECTIONS FROM EXCESS FUNDING ACCOUNT (GENERAL). If no
series is in its rapid amortization period, or if amounts remain on deposit
in the Excess Funding Account (General) after all allocations to other series
that are in their rapid amortization periods, an amount equal to the product
of:
- a fraction the numerator of which is the sum of the series investor
interests for all series in Group One less the sum of class investor
interests with respect to classes retained by SRFG for all series in
Group One and the denominator of which is the Aggregate Investor
Interest less the sum of all class investor interests with respect to
classes retained by SRFG for all outstanding series; and
- the amount on deposit in the Excess Funding Account (General) before
any withdrawals from that account with respect to any other series
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pursuant to a comparable clause in the applicable series supplement,
will be withdrawn from the Excess Funding Account (General)
and deposited into the Group One Principal Collections
Reallocation Account.
(27) CLASS C PRINCIPAL. An amount equal to the lesser of:
- the Class C Permitted Controlled Amortization Amount; and
- the remaining amounts on deposit in the Series Collections Account
will be withdrawn from the Series Collections Account and
deposited into the Series Distribution Account.
(28) REALLOCATIONS TO OTHER SERIES. An amount equal to the remaining
Series Principal Collections minus:
- Series Yield Collections, if any; and
- remaining Class B Principal Collections and Class C Principal
Collections
will be withdrawn from the Series Collections Account and
deposited into the Group One Principal Collections
Reallocation Account.
(29) DEPOSIT TO EXCESS FUNDING ACCOUNT (SRC) AND PAYMENT TO SRFG. An
amount equal to the lesser of:
- the positive difference, if any, between the amount of the Seller
Interest and the Minimum Seller Interest, after giving effect to all
such payments to SRFG, beginning with the series having the earliest
series closing date and continuing seriatim; and
- any remaining amounts on deposit in the Series Collections Account
will be withdrawn from the Series Collections Account and
paid to SRFG. If after this payment, amounts remain on
deposit in the Series Collections Account, these amounts
will be deposited into the Excess Funding Account (SRC). For
purposes of this provision, the Seller Interest will be
deemed to include:
- all amounts on deposit in the Series Collection Account after step
(28);
- all amounts on deposit in the Group One Principal Collections
Reallocation Account after step (28), plus comparable amounts on
deposit in comparable accounts for other series; and
- all amounts deposited into the Excess Funding Account (SRC) and the
Excess Funding Account (General) on that distribution date pursuant to
cash flow provisions for other series.
(30) DEPOSIT TO EXCESS FUNDING ACCOUNT (GENERAL) AND PAYMENT TO SRFG. An
amount equal to the lesser of:
- the positive difference, if any, between the amount of the Seller
Interest and the Minimum Seller Interest; and
- the product of:
- any remaining amounts on deposit in the Group One Principal
Collections Reallocation Account; and
- a fraction the numerator of which is the remaining amounts on
deposit in the Group One Principal Collections Reallocation Account
and the denominator of which is the sum of the remaining amounts on
deposit in all group principal collections reallocation accounts
including the Group One Principal Collections Reallocation Account,
will be withdrawn from the Group One Principal Collections
Reallocation Account and paid to SRFG. If after this
payment, amounts remain on deposit in the Group One
Principal Collections Reallocation Account, these amounts
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will be deposited into the Excess Funding Account (General).
For purposes of this provision, the Seller Interest will be
deemed to include:
- all amounts on deposit in the Group One Principal Collections
Reallocation Account and in all other group principal collection
reallocation accounts; and
- all amounts deposited into the Excess Funding Account (SRC) and the
Excess Funding Account (General) on that distribution date pursuant to
the cash flow provisions for other series.
This provision will be applied before any comparable
provisions in any previously issued series.
Allocation of Principal, Interest, Fees and Other Items
During the Controlled Amortization Period. On each
distribution date during the Controlled Amortization Period,
the trustee, acting pursuant to the servicer's instructions,
will apply funds to be paid or deposited in the following
order of priority, to the extent these amounts are available
on that distribution date.
(1) The allocations and payments described in items 1
through 26 in "--Allocation of Interest, Fees and Other
Items During the Revolving Period" will be made; provided,
however, that, with respect to items 5, 6, 7, 12, 13, 15,
19, 21 and 23 of that subsection, amounts specified to be
deposited into the Group One Principal Collections
Reallocation Account will instead be deposited in the Series
Principal Collections Account and provided, further, that
with respect to the reduction of the Class A Cumulative
Investor Charged-Off Amount or the Class B Cumulative
Investor Charged-Off Amount, as applicable, as set forth in
items 20 and 24 of that subsection, the increased Class C
Cumulative Investor Charged-Off Amount will not exceed the
initial Class C Investor Interest minus any principal
payments made with respect to the Class C Certificates.
(2) PRINCIPAL COLLECTIONS. An amount equal to the
remaining Series Principal Collections minus:
- Series Yield Collections, if any; and
- remaining Class B Principal Collections and Class C Principal
Collections
will be withdrawn from the Series Collections Account and
deposited into the Series Principal Collections Account.
(3) CLASS A PRINCIPAL. An amount equal to the lesser of:
- the Class A Controlled Amortization Amount; and
- amounts on deposit in the Series Principal Collections Account
will be withdrawn from the Series Principal Collections
Account and deposited into the Series Distribution Account.
The amount by which the Class A Controlled Amortization
Amount exceeds this deposit will be the "Class A Controlled
Amortization Amount Shortfall."
(4) CLASS C PRINCIPAL. An amount equal to the lesser of:
- the Class C Permitted Controlled Amortization Amount; and
- remaining amounts on deposit in the Series Collections Account
will be withdrawn from the Series Collections Account and
deposited into the Series Distribution Account. The amount
by which the Class C Permitted Controlled Amortization
Amount exceeds this deposit will be the "Class C Permitted
Controlled Amortization Amount Shortfall."
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(5) CLASS B PRINCIPAL. On the distribution date following the Class A
Expected Final Payment Date if the Class A Invested Amount has been paid in
full, or on and after the distribution date on which the Class A Invested
Amount has been paid in full if the distribution date is after the Class A
Expected Final Payment Date, an amount equal to the lesser of:
- the Class B Controlled Amortization Amount; and
- remaining amounts on deposit in the Series Collections Account
will be withdrawn from the Series Principal Collections
Account and deposited into the Series Distribution Account.
The amount by which the Class B Controlled Amortization
Amount exceeds this deposit will be the "Class B Controlled
Amortization Amount Shortfall."
(6) CLASS C PRINCIPAL. On each distribution date after the distribution
date on which the Class B Invested Amount is paid in full, an amount equal to
the lesser of:
- the Class C Controlled Amortization Amount; and
- remaining amounts on deposit in the Series Collections Account
will be withdrawn from the Series Collections Account and
deposited into the Series Distribution Account. The amount
by which the Class C Controlled Amortization Amount exceeds
this deposit will be the "Class C Controlled Amortization
Amount Shortfall."
(7) CLASS A PRINCIPAL. For so long as each previously issued series is
included in Group One, and if one or more other series included in Group One
provides for the reallocation of principal collections, excess principal
collections relating to such series will be deposited into the Group One
Principal Collections Reallocation Account. An amount equal to the lesser of:
- the Class A Controlled Amortization Amount Shortfall; and
- the product of:
- a fraction the numerator of which is the Class A Controlled
Amortization Amount Shortfall and the denominator of which is the
sum of the class controlled accumulation amount shortfalls and
class controlled amortization amount shortfalls for all classes
with the same alphabetical designation for all series in Group One;
and
- the amount on deposit in the Group One Principal Collections
Reallocation Account before any withdrawals from that account with
respect to any other series in Group One pursuant to a comparable
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clause in the applicable series supplement for the purpose of
covering class controlled amortization amount shortfalls and class
controlled accumulation amount shortfalls for any class with the
same alphabetical designation,
will be withdrawn from the Group One Principal Collections
Reallocation Account and deposited in the Series
Distribution Account. The Class A Controlled Amortization
Amount Shortfall will be reduced by the amount of this
deposit.
(8) CLASS B PRINCIPAL. An amount equal to the lesser of:
- the Class B Controlled Amortization Amount Shortfall; and
- the product of:
- a fraction the numerator of which is the Class B Controlled
Amortization Amount Shortfall and the denominator of which is the
sum of the class controlled accumulation amount shortfalls and
class controlled amortization amount shortfalls for all classes
with the same alphabetical designation for all series in Group One;
and
- the amount on deposit in the Group One Principal Collections
Reallocation Account before any withdrawals from that account with
respect to any other series in Group One pursuant to a comparable
clause in the applicable series supplement for the purpose of
covering class controlled amortization amount shortfalls and class
controlled accumulation amount shortfalls for any class with the
same alphabetical designation and after any withdrawals from that
account for the benefit of classes of such other series with a
higher alphabetical designation,
will be withdrawn from the Group One Principal Collections
Reallocation Account and deposited in the Series
Distribution Account. The Class B Controlled Amortization
Amount Shortfall will be reduced by the amount of this
deposit.
(9) CLASS C PRINCIPAL. An amount equal to the lesser of:
- the Class C Controlled Amortization Amount Shortfall; and
- the product of:
- a fraction the numerator of which is the Class C Controlled
Amortization Amount Shortfall and the denominator of which is the
sum of the class controlled accumulation amount shortfalls and
class controlled amortization amount shortfalls for all classes
with the same alphabetical designation for all series in Group One;
and
- the amount on deposit in the Group One Principal Collections
Reallocation Account before any withdrawals from that account with
respect to any other series in Group One pursuant to a comparable
clause in the applicable series supplement for the purpose of
covering class controlled amortization amount shortfalls and class
controlled accumulation amount shortfalls for any class with the
same alphabetical designation and after any withdrawals from that
account for the benefit of classes of such other series with a
higher alphabetical designation,
will be withdrawn from the Group One Principal Collections
Reallocation Account and deposited in the Series
Distribution Account. The Class C Controlled Amortization
Amount Shortfall will be reduced by the amount of this
deposit.
(10) CLASS A PRINCIPAL. To the extent that funds are available in the
Group One Pre-Funding Reallocation Account as a result of a future series in
Group One being pre-funded in accordance with the terms of the series
supplement for such series, an amount equal to the lesser of:
- the Class A Controlled Amortization Amount Shortfall; and
- the product of:
- a fraction the numerator of which is the Class A Controlled
Amortization Amount Shortfall and the denominator of which is the
sum of the class controlled amortization amount shortfalls and
class controlled accumulation amount shortfalls for all classes
with the same alphabetical designation for all series not in their
rapid amortization periods in Group One; and
- the amount on deposit in the Group One Pre-Funding Reallocation
Account, if any, before any withdrawals from that account with
respect to any other series in Group One pursuant to a comparable
clause in the applicable series supplement for the purpose of
covering class controlled amortization amount shortfalls and class
controlled accumulation amount shortfalls for any class with the
same alphabetical designation,
will be withdrawn from the Group One Pre-Funding
Reallocation Account and deposited in the Series
Distribution Account. The Class A Controlled Amortization
Amount Shortfall will be reduced by the amount of this
deposit.
(11) CLASS B PRINCIPAL. An amount equal to the lesser of:
- the Class B Controlled Amortization Amount Shortfall; and
- the product of:
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- a fraction the numerator of which is the Class B Controlled
Amortization Amount Shortfall and the denominator of which is the
sum of the class controlled amortization amount shortfalls and
class controlled accumulation amount shortfalls for all classes
with the same alphabetical designation for all series not in their
rapid amortization periods in Group One; and
- the amount on deposit in the Group One Pre-Funding Reallocation
Account, if any, before any withdrawals from that account with
respect to any other series in Group One pursuant to a comparable
clause in the applicable series supplement for the purpose of
covering class controlled amortization amount shortfalls and class
controlled accumulation amount shortfalls for any class with the
same alphabetical designation and after any withdrawals from that
account for the benefit of classes of such other series with a
higher alphabetical designation,
will be withdrawn from the Group One Pre-Funding
Reallocation Account and deposited in the Series
Distribution Account. The Class B Controlled Amortization
Amount Shortfall will be reduced by the amount of this
deposit.
(12) CLASS C PRINCIPAL. An amount equal to the lesser of:
- the Class C Controlled Amortization Amount Shortfall; and
- the product of:
- a fraction the numerator of which is the Class C Controlled
Amortization Amount Shortfall and the denominator of which is the
sum of the class controlled amortization amount shortfalls and
class controlled accumulation amount shortfalls for all classes
with the same alphabetical designation for all series not in their
rapid amortization periods in Group One; and
- the amount on deposit in the Group One Pre-Funding Reallocation
Account, if any, before any withdrawals from that account with
respect to any other series in Group One pursuant to a comparable
clause in the applicable series supplement for the purpose of
covering class controlled amortization amount shortfalls and class
controlled accumulation amount shortfalls for any class with the
same alphabetical designation and after any withdrawals from that
account or the benefit of classes of such other series with a
higher alphabetical designation,
will be withdrawn from the Group One Pre-Funding
Reallocation Account and deposited in the Series
Distribution Account. The Class C Controlled Amortization
Amount Shortfall will be reduced by the amount of this
deposit.
(13) REALLOCATION TO OTHER SERIES. An amount equal to all remaining
amounts on deposit in the Series Principal Collections Account will be
withdrawn from the Series Principal Collections Account and deposited into
the Group One Principal Collections Reallocation Account.
(14) DEPOSIT TO EXCESS FUNDING ACCOUNT (SRC) AND PAYMENT TO SRFG. An
amount equal to the lesser of:
- the positive difference, if any, between the amount of the Seller
Interest and the Minimum Seller Interest, after giving effect to all
such payments to SRFG, beginning with the series having the earliest
series closing date and continuing seriatim; and
- any remaining amounts on deposit in the Series Collections Account
will be withdrawn from the Series Collections Account and
paid to SRFG. If after this payment, amounts remain on
deposit in the Series Collections Account, these amounts
will be deposited into the Excess Funding Account (SRC). For
purposes of this provision, the Seller Interest will be
deemed to include:
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- all amounts on deposit in the Series Collection Account after step
(13); and
- all amounts on deposit in the Group One Principal Collections
Reallocation Account after step (13), plus comparable amounts on
deposit in comparable accounts for other Series; and
- all amounts deposited into the Excess Funding Account (SRC) and the
Excess Funding Account (General) on that distribution date pursuant to
cash flow provisions for other series.
(15) DEPOSIT TO EXCESS FUNDING ACCOUNT (GENERAL) AND PAYMENT TO SRFG. An
amount equal to the lesser of:
- the positive difference, if any, between the amount of the Seller
Interest and the Minimum Seller Interest; and
- the product of:
- any remaining amounts on deposit in the Group One Principal
Collections Reallocation Account; and
- a fraction the numerator of which is the remaining amounts on
deposit in the Group One Principal Collections Reallocation Account
and the denominator of which is the sum of the remaining amounts on
deposit in all group principal collections reallocation accounts,
including the Group One Principal Collections Reallocation Account,
will be withdrawn from the Group One Principal Collections
Reallocation Account and paid to SRFG. If after this
payment, amounts remain on deposit in the Group One
Principal Collections Reallocation Account, these amounts
will be deposited into the Excess Funding Account (General).
For purposes of this provision, the Seller Interest will be
deemed to include:
- all amounts on deposit in the Group One Principal Collections
Reallocation Account and in all other group principal collection
reallocation accounts; and
- all amounts deposited into the Excess Funding Account (SRC) and the
Excess Funding Account (General) on that distribution date pursuant to
cash flow provisions for other series.
This provision will be applied before any comparable provisions in any
previously issued series.
Allocation of Principal, Interest, Fees and Other Items
During the Rapid Amortization Period. On each distribution
date during the Rapid Amortization Period, the trustee,
acting pursuant to the servicer's instructions, will apply
funds to be paid or deposited in the following order of
priority, to the extent those amounts are available on the
distribution date.
(1) The allocations and payments described in items 1
through 25 in "--Allocation of Interest, Fees and Other
Items During the Revolving Period" will be made; provided,
however, that, with respect to items 5, 6, 7, 12, 13, 15,
19, 21 and 23 of that subsection, amounts specified to be
deposited into the Group One Principal Collections
Reallocation Account will instead be deposited in the Series
Principal Collections Account and provided, further, that:
- with respect to the reduction of the Class A Cumulative Investor
Charged-Off Amount, as set forth in item 20 of such subsection, the
increased Class C Cumulative Investor Charged-Off Amount will not
exceed the initial Class C Investor Interest minus any principal
payments made with respect to the Class C Certificates;
- with respect to the reduction of the Class A Cumulative Investor
Charged-Off Amount, as set forth in item 22 of such subsection, the
increased Class B Cumulative Investor Charged-Off Amount will not
exceed the initial Class B Investor Interest minus any principal
payments made with respect to the Class B Certificates; and
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- with respect to the reduction of the Class B Cumulative Investor
Charged-Off Amount, as set forth in item 24 of such subsection, the
increased Class C Cumulative Investor Charged-Off Amount will not
exceed the initial Class C Investor Interest minus any principal
payments made with respect to the Class C Certificates.
(2) PRINCIPAL COLLECTIONS FROM EXCESS FUNDING ACCOUNT (GENERAL). An
amount equal to the product of:
- the sum of the Series Investor Interests for all series in Group One
minus the sum of Class Investor Interests with respect to all classes
retained by SRFG for all series in Group One, divided by the Aggregate
Investor Interest minus the sum of all Class Investor Interests with
respect to all classes retained by SRFG for all outstanding series;
and
- the amount on deposit in the Excess Funding Account (General) before
any withdrawals from that account with respect to any other series
pursuant to a comparable clause in the applicable series supplement
will be withdrawn from the Excess Funding Account (General)
and deposited into the Group One Principal Collections
Reallocation Account.
(3) PRINCIPAL COLLECTIONS. An amount equal to the remaining Series
Principal Collections minus the sum of:
- Series Yield Collections, if any; and
- remaining Class B Principal Collections and Class C Principal
Collections
will be withdrawn from the Series Collections Account and
deposited in the Series Principal Collections Account.
(4) CLASS A PRINCIPAL. An amount equal to the lesser of:
- the Class A Rapid Amortization Amount; and
- the amount on deposit in the Series Principal Collections Account
will be withdrawn from the Series Principal Collections
Account and deposited into the Series Distribution Account.
The amount by which the Class A Rapid Amortization Amount
exceeds this deposit will be the "Class A Rapid Amortization
Amount Shortfall."
(5) CLASS B PRINCIPAL. On and after the distribution date on which the
Class A Invested Amount is paid in full, an amount equal to the lesser of:
- the Class B Rapid Amortization Amount; and
- the amount on deposit in the Series Collections Account
will be withdrawn from the Series Principal Collections
Account and deposited into the Series Distribution Account.
The amount by which the Class B Rapid Amortization Amount
exceeds this deposit will be the "Class B Rapid Amortization
Amount Shortfall."
(6) CLASS C PRINCIPAL. On each distribution date after the distribution
date on which the Class B Rapid Amortization Amount is paid in full, an
amount equal to the lesser of:
- the Class C Rapid Amortization Amount; and
- the amount on deposit in the Series Collections Account
will be withdrawn from the Series Collections Account and
deposited into the Series Distribution Account. The amount
by which the Class C Rapid Amortization Amount exceeds this
deposit will be the "Class C Rapid Amortization Amount Shortfall."
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(7) CLASS A PRINCIPAL. An amount equal to the lesser of:
- the Class A Rapid Amortization Amount Shortfall; and
- the product of:
- a fraction the numerator of which is the Class A Rapid Amortization
Amount Shortfall and the denominator of which is the sum of the
class rapid amortization amount shortfalls for all classes with the
same alphabetical designation for all series in Group One; and
- the amount on deposit in the Group One Principal Collections
Reallocation Account before any withdrawals from that account with
respect to any other series in Group One pursuant to a comparable
clause in the applicable series supplement for the purpose of
covering rapid amortization amount shortfalls for any class with
the same alphabetical designation,
will be withdrawn from the Group One Principal Collections
Reallocation Account and deposited in the Series
Distribution Account. The Class A Rapid Amortization Amount
Shortfall will be reduced by the amount of this deposit.
(8) CLASS B PRINCIPAL. An amount equal to the lesser of:
- the Class B Rapid Amortization Amount Shortfall; and
- the product of:
- a fraction the numerator of which is the Class B Rapid Amortization
Amount Shortfall and the denominator of which is the sum of the
class rapid amortization amount shortfalls for all classes with the
same alphabetical designation for all series in Group One; and
- the amount on deposit in the Group One Principal Collections
Reallocation Account before any withdrawals from that account with
respect to any other series in Group One pursuant to a comparable
clause in the applicable series supplement for the purpose of
covering rapid amortization amount shortfalls for any class with
the same alphabetical designation and after any withdrawals from
that account for the benefit of classes of such other series with a
higher alphabetical designation,
will be withdrawn from the Group One Principal Collections
Reallocation Account and deposited in the Series
Distribution Account. The Class B Rapid Amortization Amount
Shortfall will be reduced by the amount of this deposit.
(9) CLASS C PRINCIPAL. An amount equal to the lesser of:
- the Class C Rapid Amortization Amount Shortfall; and
- the product of:
- a fraction the numerator of which is the Class C Rapid Amortization
Amount Shortfall and the denominator of which is the sum of the
class rapid amortization amount shortfalls for all classes with the
same alphabetical designation for all series in Group One; and
- the amount on deposit in the Group One Principal Collections
Reallocation Account before any withdrawals from that account with
respect to any other series in Group One pursuant to a comparable
clause in the applicable series supplement for the purpose of
covering rapid amortization amount shortfalls for any class with
the same alphabetical designation and after any withdrawals from
that account for the benefit of classes of such other series with a
higher alphabetical designation,
will be withdrawn from the Group One Principal Collections
Reallocation Account and deposited in the Series
Distribution Account. The Class C Rapid Amortization Amount
Shortfall will be reduced by the amount of this deposit.
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(10) REALLOCATION TO OTHER SERIES. An amount equal to all remaining
amounts on deposit in the Series Principal Collections Account will be
withdrawn from the Series Principal Collections Account and deposited into
the Group One Principal Collections Reallocation Account.
(11) DEPOSIT TO EXCESS FUNDING ACCOUNT (SRC) AND PAYMENT TO SRFG. An
amount equal to the lesser of:
- the positive difference, if any, between the amount of the Seller
Interest and the Minimum Seller Interest, after giving effect to all
such payments to SRFG, beginning with the series having the earliest
series closing date and continuing seriatim; and
- any remaining amounts on deposit in the Series Collections Account
will be withdrawn from the Series Collections Account and
paid to SRFG. If after this payment, amounts remain on
deposit in the Series Collections Account, these amounts
will be deposited into the Excess Funding Account (SRC). For
purposes of this provision, the Seller Interest will be
deemed to include:
- all amounts on deposit in the Series Collection Account after step
(9);
- all amounts on deposit in the Group One Principal Collections
Reallocation Account after step (9), plus comparable amounts on
deposit in comparable accounts for other series; and
- all amounts deposited into the Excess Funding Account SRC) and the
Excess Funding Account (General) on that distribution date pursuant to
cash flow provisions for other series.
(12) DEPOSIT TO EXCESS FUNDING ACCOUNT (GENERAL) AND PAYMENT TO SRFG. An
amount equal to the lesser of:
- the positive difference, if any, between the amount of the Seller
Interest and the Minimum Seller Interest; and
- the product of:
- any remaining amounts on deposit in the Group One Principal
Collections Reallocation Account; and
- a fraction the numerator of which is the remaining amounts on
deposit in the Group One Principal Collections Reallocation Account
and the denominator of which is the sum of the remaining amounts on
deposit in all group principal collections reallocation accounts,
including the Group One Principal Collections Reallocation Account,
will be withdrawn from the Group One Principal Collections
Reallocation Account and paid to SRFG. If after this
payment, amounts remain on deposit in the Group One
Principal Collections Reallocation Account, these amounts
will be deposited into the Excess Funding Account (General).
For purposes of this provision, the Seller Interest will be
deemed to include:
- all amounts on deposit in the Group One Principal Collections
Reallocation Account and in all other group principal collection
reallocation accounts; and
- all amounts deposited into the Excess Funding Account (SRC) and the
Excess Funding Account (General) on that distribution date pursuant to
cash flow provisions for other series.
This provision will be applied before any comparable
provisions in any previously issued series.
PAYMENTS
Payments of Interest and Series Monthly Servicing Fees.
On each distribution date, after giving effect to the
payments and allocations described above, the servicer will
direct the trustee to make the following deposits and
payments in the order set forth and to the extent funds are
available:
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(1) CLASS A INTEREST. The lesser of:
- the Class A Modified Required Amount; and
- the amount on deposit in the Series Distribution Account with respect
to the Class A Certificates
will be withdrawn from the Series Distribution Account and
deposited in the Series Interest Funding Account.
(2) CLASS B INTEREST. The lesser of:
- the Class B Modified Required Amount, if any; and
- the amount on deposit in the Series Distribution Account with respect
to the Class B Certificates
will be withdrawn from the Series Distribution Account and
deposited in the Series Interest Funding Account.
(3) CLASS C INTEREST. The lesser of:
- the Class C Modified Required Amount, if any; and
- the amount on deposit in the Series Distribution Account with respect
to the Class C Certificates
will be withdrawn from the Series Distribution Account and
deposited in the Series Interest Funding Account.
(4) INTEREST PAYMENT TO INVESTORS. On each distribution date, all
amounts on deposit in the Series Interest Funding Account will be withdrawn
from that account and paid to the Class A Certificateholders, the Class B
Certificate holders and the Class C Certificateholders in accordance with the
amounts deposited into that account with respect to each respective class
since the preceding distribution date.
(5) SERIES MONTHLY SERVICING FEES. The lesser of:
- the sum of the Series Monthly Servicing Fees and all accrued but
unpaid Series Monthly Servicing Fees as of the prior distribution
date; and
- the amount on deposit in the Series Distribution Account with respect
to such fees on each distribution date
will be withdrawn from the Series Distribution Account and
paid to the servicer.
Payments of Principal. On each distribution date
following the commencement of the Controlled Amortization
Period, the lesser of:
- all amounts on deposit in the Series Distribution Account; and
- the Class A Controlled Amortization Amount
will be paid to Class A Certificateholders until the Class A
Invested Amount has been paid in full. On each distribution
date following the payment in full of the Class A Invested
Amount, or if the Class A Invested Amount is paid in full on
the Class A Expected Final Payment Date, beginning on the
distribution date following the Class A Expected Final
Payment Date, the lesser of amounts remaining on deposit in
the Series Distribution Account following the payments and
deposits pursuant to steps (1) through (4) of "--Payments of
Interest and Series Monthly Servicing Fees" and the Class B
Controlled Amortization Amount will be paid to Class B
Certificateholders. On each distribution date during the
Controlled Amortization Period while payments of principal
are being made to the Class A Certificateholders or the
Class B Certificateholders, the lesser of amounts remaining
S-94
on deposit in the Series Distribution Account and the Class
C Permitted Controlled Amortization Amount will be paid to
the Class C Certificateholders. On each distribution date
after the Class A Invested Amount and the Class B Invested
Amount have been paid in full, all remaining amounts on
deposit in the Series Distribution Account will be paid to
the Class C Certificateholders, up to an amount equal to the
Class C Invested Amount. On each distribution date of the
Rapid Amortization Period, all amounts on deposit in the
Series Distribution Account up to the Class A Invested
Amount will be distributed to the Class A
Certificateholders, and any remaining amounts will be
distributed first to the Class B Certificateholders in an
amount up to the Class B Invested Amount and then to the
Class C Certificateholders in an amount up to the Class C
Invested Amount.
S-95
ANNEX B
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, and Series 1999-3, the only series previously issued
by the trust and currently outstanding.
1. CLASS A, CLASS B AND CLASS C MASTER TRUST CERTIFICATES, 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
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.
2. CLASS A, CLASS B AND CLASS C MASTER TRUST CERTIFICATES,
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
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.
3. CLASS A, CLASS B AND CLASS C MASTER TRUST CERTIFICATES,
SERIES 1995-2
Group................................................ One
Class A Initial Investor Interest.................... $600,000,000
Class B Initial Investor Interest.................... $26,966,000
S-96
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
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.
4. CLASS A, CLASS B AND CLASS C MASTER TRUST CERTIFICATES,
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
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.
5. CLASS A, CLASS B AND CLASS C MASTER TRUST CERTIFICATES,
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.................. February 16, 2004
Class B 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
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.
6. CLASS A, CLASS B AND CLASS C MASTER TRUST CERTIFICATES,
SERIES 1996-1
Group................................................ One
Class A Initial Investor Interest.................... $500,000,000
Class B Initial Investor Interest.................... $22,500,000
S-97
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
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.
7. CLASS A, CLASS B AND CLASS C MASTER TRUST CERTIFICATES,
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
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.
8. CLASS A, CLASS B AND CLASS C MASTER TRUST CERTIFICATES,
SERIES 1996-4
Group............................................. One
Class A Initial Investor Interest................. $500,000,000
Class B Initial Investor Interest................. $22,500,000
S-98
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
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.
9. CLASS A, CLASS B AND CLASS C MASTER TRUST CERTIFICATES,
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
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.
10. CLASS A, CLASS B AND CLASS C MASTER TRUST CERTIFICATES,
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
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.
S-99
11. CLASS A, CLASS B AND CLASS C MASTER TRUST CERTIFICATES,
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
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.
12. CLASS A, CLASS B AND CLASS C MASTER TRUST CERTIFICATES,
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
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.
13. CLASS A, CLASS B AND CLASS C MASTER TRUST CERTIFICATES,
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, 2003
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
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.
14. CLASS A, CLASS B AND CLASS C MASTER TRUST CERTIFICATES,
SERIES 1999-2
Group............................................... One
Class A Initial Investor Interest................... $500,000,000
Class B Initial Investor Interest................... $35,300,000
S-100
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
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.
15. CLASS A, CLASS B AND CLASS C MASTER TRUST CERTIFICATES,
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
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.
S-101
SUBJECT TO COMPLETION, DATED JANUARY 28, 2000
PROSPECTUS
MASTER TRUST CERTIFICATES
SEARS CREDIT ACCOUNT MASTER TRUST II
ISSUER
SEARS, ROEBUCK AND CO.
SERVICER
SRFG, INC.
SELLER
___________________
THE TRUST
THE CERTIFICATES - Sears, Roebuck and Co., SRFG, Inc. and
REPRESENT Bank One, National Association, as trustee,
INTERESTS IN THE formed the Sears Credit Account Master
TRUST AND ARE Trust II in July 1994.
NOT OBLIGATIONS
OF SEARS, - The trust's assets include a portfolio of
ROEBUCK AND CO., receivables from selected charge accounts
SEARS NATIONAL originated by Sears, Sears National Bank
BANK, SRFG, INC. or their affiliates.
OR ANY OF THEIR
AFFILIATES.
THE CERTIFICATES
- SRFG intends to sell up to
NEITHER THE $______________ aggregate principal amount
FDIC NOR of certificates, in one or more series from
ANY OTHER time to time, representing interests in the
OTHER GOVERNMENTAL trust.
AGENCY HAS
INSURED OR - Your interest in the trust will include
GUARANTEED THE the right to receive a varying percentage
CERTIFICATES AND of each month's collections of receivables.
THE TRUST'S
ASSETS. - The trust will pay interest and principal
on each series of certificates as specified
in the prospectus supplement for the
series.
CREDIT ENHANCEMENT
SRFG AND ITS - SRFG may provide credit enhancement to a
UNDERWRITERS series or class of certificates, which the
AND AGENTS WILL prospectus supplement for a series will
NOT SELL describe.
CERTIFICATES TO YOU
UNLESS YOU HAVE
RECEIVED BOTH THIS
PROSPECTUS AND A
PROSPECTUS
SUPPLEMENT
DESCRIBING THE
TERMS OF THAT
SERIES OF CERTIFICATES.
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.
The information in this prospectus is not complete and may
be changed. We cannot sell these securities until the
registration statement filed with the Securities and Exchange
Commission is effective. This prospectus is not an offer to
sell these securities and it is not soliciting an offer to buy
these securities in any state where the offer or sale is not
permitted.
TABLE OF CONTENTS
Page Page
Overview of the Information Description of Credit
in this Prospectus and the Enhancement
Prospectus Supplement Establishing and Issuing
Prospectus Summary New Series
The Seller Reallocation of Series
The Servicer Among Groups
Year 2000 Compliance Meetings
The Credit Card Bank Book-Entry Registration
The Trustee Definitive Certificates
Legal Matters Relating to List of
the Receivables Certificateholders
Transfer of Receivables Exchange of Certificates
Security Interests in for Seller Interest
Receivables Sale of Seller Interest
Insolvency Related Amendments
Matters Servicer Duties,
Consumer Protection Laws Compensation and Other
and Debtor Relief Matters
Laws Applicable to the Servicing Compensation
Receivables and Payment of
Claims and Defenses of Expenses
Credit Account Resignation or Merger of
Customers Against the Servicer;
Trust Delegation of Duties
The Trust Servicer Termination
Formation of the Trust Events
Collections Account and Reports to
Group Collections Certificateholders
Accounts Evidence as to Compliance
Adjustments to Use of Proceeds
Receivables Federal Income Tax
Addition of Accounts Consequences
Removal of Accounts General
Repurchase of Trust Tax Treatment of the
Portfolio Certificates
Repurchase of Specified as Debt
Receivables United States Investors
Termination of the Trust Foreign Investors
Indemnification of Trust Backup Withholding and
and Trustee Information
The Certificates Reporting
General New Withholding
Interest Payments Regulations
Principal Payments Possible Characterization
Class Percentages and of the Certificates
Seller Percentage State Tax Consequences
Investor Losses General
Reallocations and Arizona, Delaware,
Subordination of Georgia, Illinois, Ohio
Collections and Texas
Aggregate and Net ERISA Considerations
Payments Plan of Distribution
Additional Funds Legal Matters
Investment of Funds in Information
Investor Accounts
Final Payment of
Principal; Termination of
Series
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.
2
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
arising under Sears Card
accounts 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.
3
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.
The trust's receivables include:
-principal receivables, which
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 are amounts owed by
credit account customers as a
result of interest accrued on
unpaid principal balances.
4
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 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"
for more detailed information.
5
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 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
6
Your certificate may reflect
your right to the benefit of
the credit enhancement
established with respect to any
series or interest rate
protection agreements for that
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.
7
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.
8
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 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.
9
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.
10
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
series into the trust 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.
11
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
and cause the trust to
accelerate payment of
principal; 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.
12
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.
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.
13
Classes, Allocations and Each series may have one or
Reallocations 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:
14
-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;
-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.
15
In general, the trust will use
collections allocated to you to
make required payments, to pay
its 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
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 series
in any month. This credit
enhancement may include:
16
-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,
-Cedelbank in Europe, or
-the Euroclear System in
Europe.
You may transfer your interest
within DTC, Cedelbank 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 Cedelbank or
Euroclear, on the other hand,
may make cross-market transfers
through the relevant
depositaries of Cedelbank and
Euroclear.
17
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 82.
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.
18
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 and Sears Home
Improvement Accounts.
The bank issues Sears Card 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 Sears Card,
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.
THE TRUSTEE
Bank One, National Association is the trustee for the trust.
The trustee's principal corporate trust office is located at One
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.
19
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.
20
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.
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
21
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
22
the court would afford if it deems the transfer to be a security
interest. Accordingly, the bank, Sears 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. 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
23
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
-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
24
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. The FDIC has proposed a
rule under which it would not repudiate specified transfers under
some circumstances; however, we cannot assure you that the rule
will be adopted or that it 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.
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 of 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:
25
-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. Each Sears Card
account agreement includes a notice to this effect. 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
-the obligor for an Account is authorized to continue to pay
the seller of goods or services or the bank until:
26
-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.
27
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 trust 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
28
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 trust's 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.
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.
29
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. 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 sum of:
-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; and
30
-the total amount of Principal Collections for the prior
month minus the aggregate amount of those Principal
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;
-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:
31
-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 minimum
principal receivables balance for each outstanding series. The
Series Supplement for each series will specify the minimum
principal receivables balance for that series.
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;
32
-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
33
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 Receivables 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 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; and
-the additional Accounts may contain a higher or lower
percentage of newly solicited and unseasoned accounts than
the Accounts or the Sears portfolio.
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:
34
-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.
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
35
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.
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
36
-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
37
-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 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
38
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.
39
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.
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
40
Rapid Amortization Event will occur. SRFG selected the amount
of Receivables so that reasonably anticipated fluctuations in the
amount of Principal Receivables would not cause the Seller
Interest to decline to a level at which SRFG would be required to
add Receivables in additional Accounts or participation interests
to the trust. We cannot assure you, however, 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 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
41
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.
42
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 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 on a distribution date, or several payments to
a specific person on 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.
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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 to the trust as
additional funds a pro rata share of the recoveries on charged-
off accounts received on the entire Sears portfolio. The pro
rata share will be based on the ratio of Principal Receivables in
the trust to principal receivables in the total 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. SRFG may elect in the future 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 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.
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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.
45
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 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.
46
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.
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;
47
-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 not as 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.
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
48
-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.
49
BOOK-ENTRY REGISTRATION
The information in this section concerning The Depository
Trust Company, Cedelbank, 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 Cedelbank or Euroclear. The
certificates will be registered in the name of the nominee of
DTC. Cedelbank and Euroclear will hold omnibus positions on
behalf of their respective participants, organizations or
customers, through customers' securities accounts in Cedelbank'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, Cedelbank 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
-a "clearing agency" registered under the provisions of
Section 17A of the Securities Exchange Act of 1934.
50
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.
Cedelbank. Cedelbank was incorporated as a limited company
under Luxembourg law. Cedel International, societe anonyme, owns
Cedelbank. Cedel International's shareholders are banks,
securities dealers and financial institutions. Cedel
International currently has approximately 100 shareholders,
including U.S. financial institutions or their subsidiaries. No
single entity may own more than twenty percent of Cedel
International's stock.
Cedelbank holds securities for its customers and facilitates
the clearance and settlement of securities transactions between
Cedelbank customers through electronic book-entry changes in
accounts of Cedelbank customers, thus eliminating the need for
physical movement of certificates. Cedelbank provides to its
customers, among other things, services for safekeeping,
administration, clearance and settlement of internationally
traded securities and securities lending and borrowing.
Cedelbank interfaces with domestic markets in over 30 countries.
Cedelbank 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 Cedelbank and
Euroclear. Cedelbank currently accepts over 110,000 securities
issues on its books.
As a registered bank in Luxembourg, Cedelbank is subject to
regulation by the Luxembourg Commission for the Supervision of
the Financial Sector. Cedelbank customers are recognized
financial institutions around the world, including underwriters,
securities brokers and dealers, banks, trust companies and
clearing corporations. Currently, Cedelbank has approximately
2,000 customers located in over 80 countries, including all major
European countries, Canada and the United States. In the United
States, Cedelbank customers are limited to securities brokers and
dealers. Cedelbank customers may include the underwriters of
your series of certificates. Other institutions that maintain a
custodial relationship with a Cedelbank customer may obtain
indirect access to Cedelbank. Cedelbank 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
51
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.
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
Cedelbank 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.
52
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. Cedelbank or Euroclear will credit
payments to the cash accounts of Cedelbank 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. Cedelbank 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 Cedelbank 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, Cedelbank and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of certificates among
participants or customers of DTC, Cedelbank 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 Cedelbank 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 Cedelbank customers or Euroclear
participants, 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. Cedelbank
customers and Euroclear participants may not deliver instructions
directly to the depositaries.
Because of time-zone differences, credits of securities in
Cedelbank or Euroclear resulting from a transaction with a DTC
Direct Participant will be made during the subsequent
53
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 Cedelbank customer or Euroclear
participant on that business day. Cash received in Cedelbank or
Euroclear as a result of sales of securities by or through a
Cedelbank 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 Cedelbank 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 Cedelbank customers and Euroclear participants
will occur in accordance with the applicable rules and operating
procedures of Cedelbank 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
certificated registered 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 for any series,
investors representing 51% of the Series Invested Amount of that
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.
If any of these event occurs, the trustee must notify all
investors that definitive certificates in fully certificated
registered 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 certificated registered 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,
54
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
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
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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 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;
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-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 an interest in 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
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-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;
-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 ClassInvested 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:
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-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.
FINANCIAL REPORTS
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;
-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;
-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.
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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:
-that the accountants have performed certain agreed-upon
procedures on certain documents and records relating to the
servicing of the Accounts;
-that 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;
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-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.
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.
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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 Internal Revenue Code of
1986, as amended, 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;
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-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 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 years, computed on a weighted-average
basis taking into account when each principal payment is due, 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:
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-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 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
65
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 years,
computed on a weighted-average basis taking into account when
each principal payment is due, 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." 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 equals or
exceeds the de minimis amount, 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.
The prospectus supplement for your series will advise you if your
certificates have been issued with OID that equals or exceeds the
de minimis amount.
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
66
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. You should be aware that if you resell
your certificate, you may be affected by the market discount
provisions of the Code. 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, 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 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, 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.
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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.
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 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
68
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 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.
69
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).
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.
70
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 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
71
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 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
72
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
73
corporation, 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.
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.
74
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.
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,
75
the 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.
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);
-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).
76
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
exercises 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 particular, insurance companies considering the purchase
of certificates should consult their own benefits counsel or
other appropriate counsel with respect to the United States
Supreme Court's decision in JOHN HANCOCK MUTUAL LIFE INSURANCE CO.
V. HARRIS TRUST & SAVINGS BANK, 114 S. Ct. 517 (1993), DOL PTE 95-60
(Class Exemption for Certain Transactions Involving Insurance Company
General Accounts) and Section 401(c) of ERISA. In JOHN HANCOCK, the
Supreme Court held that the assets held in an insurance company's
general account may be deemed to be plan assets under certain
circumstances. Subject to numerous conditions and limitations,
PTE 95-60 effectively provides an exemption from this portion of the
holding in JOHN HANCOCK. Section 401(c) of ERISA was added by
the Small Business Job Protection Act of 1996 and requires the
Secretary of Labor to issue regulations which are to provide
guidance for the purpose of determining, in cases where an
insurer issues one or more policies, supported by the assets of
the insurer's general account, to or for the benefit of an
employee benefit plan, which assets of the insurer, other than
assets held in a separate account, constitute plan assets for
the purposes of the fiduciary responsibility provisions of ERISA
and Section 4975 of the Code. On December 22, 1997, the DOL
issued proposed regulations under Section 401(c) of ERISA.
29 CFR 2550.401c-1. These regulations apply only to policies
that are issued by an insurer on or before December 31, 1998, to
or for the benefit of an employee benefit plan that is supported
by the assets of the insurer's general account. These regulations
will take effect at the end of the 18-month period following the
date on which they become final. Section
77
401(c) of ERISA also provides that no person will be subject
to liability under Section 4975 of the Code and the fiduciary
responsibility provisions of ERISA on the basis of a claim that
the assets of an insurer, other than assets held in a separate
account, are "plan assets," for conduct occurring before the date
that is 18 months after the date the regulations become final.
Accordingly, investors should analyze whether JOHN HANCOCK,
PTE 95-60, Section 401(c) of ERISA and any regulations issued
pursuant to Section 401(c) of ERISA may have an effect on their
purchase of certificates.
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,
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
78
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
-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.
79
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.
80
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 Commission. 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 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, 1998; and
(2) Current Reports on Form 8-K filed January 15,
February 9, February 16, February 19, March 12,
March 15, March 19, March 22, March 25, April 15,
May 17, June 15, July 15, August 16, September 15,
September 16, September 22, September 23, September 29,
October 15, November 12, November 15, November 18,
November 19, November 30, December 15, and
December 16, 1999 and January 18, 2000.
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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).
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.
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"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 years, computed on a weighted-average
basis taking into account when each principal payment is due, 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.
"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.
"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.
83
"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.
"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.
"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.
84
"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, 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.
"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.
85
"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.
"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.
86
Part II.
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The following is an itemized list of estimated expenses to be incurred
in connection with the offering of the securities being offered
hereunder, other than underwriting discounts and commissions.
S.E.C. Registration Fee $1,320,000
Printing 450,000
Trustee's Fees 75,000
Legal Fees and Expenses 650,000
Blue Sky Fees and Expenses 50,000
Accountants' Fees and Expenses 450,000
Rating Agency Fees 4,000,000
Miscellaneous Fees 100,000
Total $ 7,095,000
Item 15. Indemnification of Directors and Officers.
SRFG is a Delaware corporation. Section 145 of the General
Corporation Law of the State of Delaware ("GCL") provides that a
Delaware corporation has the power to indemnify its officers and
directors in certain circumstances.
Subsection (a) of Section 145 of the GCL empowers a
corporation to indemnify any director or officer, or former
director or officer, who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit
or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the
corporation), against expenses (including attorney's fees),
judgments, fines and amounts paid in settlement actually and
reasonably incurred in connection with such action, suit or
proceeding provided that such director or officer acted in good
faith in a manner reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any
criminal action or proceeding, provided that such director or
officer had no cause to believe his or her conduct was unlawful.
Subsection (b) of Section 145 empowers a corporation to
indemnify any director or officer, or former director or officer,
who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the
right of the corporation to procure a judgment in its favor by
reason of the fact that such person acted in any of the
capacities set forth above, against expenses (including
attorney's fees) actually and reasonably incurred in connection
with the defense or settlement of such action or suit provided
that such director or officer acted in good faith and in a manner
reasonably believed to be in or not opposed to the best interests
of the corporation, except that no indemnification may be made in
respect of any claim, issue or matter as to which such director
or officer shall have been adjudged to be liable to the
corporation unless and only to the extent that the Court of
Chancery or the court in which such action was brought shall
determine that despite the adjudication of liability such
director or officer is fairly and reasonably entitled to
indemnity for such expenses which the court shall deem proper.
Section 145 further provides that to the extent a director
or officer of a corporation has been successful in the defense of
any action, suit or proceeding referred to in subsections (a) and
(b) or in the defense of any claim, issue or matter therein, he
or she shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by him or her
in connection therewith; that indemnification provided for by
Section 145 shall not be deemed exclusive of any other rights to
which the indemnified party may be entitled; and the corporation
may purchase and maintain insurance
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on behalf of a director or officer of the corporation against any
liability asserted against him or her or incurred by him or her
in any such capacity or arising out of his or her status as such
whether or not the corporation would have the power to indemnify
him or her against such liabilities under Section 145.
Article III of SRFG's by-laws (incorporated by reference to
Exhibit 3.2 to Amendment No. 1 to Registration Statement No. 33-
79186) provides for indemnification of SRFG's officers and
directors to the fullest extent permitted by applicable law.
Sears, the parent of SRFG, has in effect insurance
policies in the amount of $150 million covering all of Sears and
SRFG's directors and officers in certain instances where by law
they may not be indemnified by Sears or SRFG.
The Pooling and Servicing Agreement among Sears, SRFG and Bank
One, National Association, dated as of July 3, 1994 (incorporated by
reference to Exhibit 4.1 to the Trust's current report on Form 8-K
for August 16, 1994) provides that SRFG will indemnify the trust and
trustee against certain liabilities they may incur in connection with
the Pooling and Servicing Agreement.
Item 16. Exhibits.
The "Exhibit Index" attached to this Registration Statement
is incorporated herein by reference.
Item 17. Undertakings.
The undersigned hereby undertake:
(1) To file, during any period in which offers or
sales are being made, a post-effective amendment to this
registration statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or
events arising after the effective date of the
registration statement (or the most recent post-
effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the
information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease
in volume of securities offered (if the total dollar
value of securities offered would not exceed that which
was registered) and any deviation from the low or high
end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no
more than a 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of
Registration Fee" table in the effective registration
statement;
(iii) To include any material information with
respect to the plan of distribution not previously
disclosed in the registration statement or any material
change to such information in the registration
statement;
Provided, however, that paragraphs (i) and
(ii) shall not apply if the information required
to be included in a post-effective amendment by
those paragraphs is contained in periodic reports
filed with or furnished to the Commission by the
trust pursuant to Section 13 or Section 15(d)
of the Securities Exchange Act of 1934 that are
incorporated by reference in the registration
statement.
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(2) That, for the purpose of determining any liability
under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering
of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-
effective amendment any of the securities being registered
which remain unsold at the termination of the offering.
The undersigned registrants hereby undertake that, for
purposes of determining any liability under the Securities Act of
1933, each filing of the trust's annual report pursuant to
Section 13(a) or Section 15(d) of the Securities Exchange Act of
1934 that is incorporated by reference in the registration
statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial
bona fide offering thereof.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers
and controlling persons of the registrants pursuant to the
provisions described in this registration statement above, or
otherwise, the registrants have been advised that in the opinion of
the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act of 1933
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the
payment by the registrants of expenses incurred or paid by a
director, officer or controlling person of the registrants in the
successful defense of any action, suit or proceeding) is asserted
by such director, officer or controlling person in connection
with the securities being registered, the registrants will, unless
in the opinion of counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy
as expressed in the Act and will be governed by the final
adjudication of such issue.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
the registrants certify that they have reasonable grounds to
believe that they meet all of the requirements for filing on
Form S-3 and have duly caused this Registration Statement to be
signed on their behalf by the undersigned, thereunto duly
authorized, in the City of Hoffman Estates, Illinois, and
the City of Greenville, Delaware, respectively, on the 28th day
of January, 2000.
SEARS CREDIT ACCOUNT MASTER TRUST II
By: SEARS, ROEBUCK AND CO., as Servicer
By: /s/ Larry R. Raymond
Vice President and Treasurer
SRFG, INC., as originator of the Trust
By: George F. Slook*
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933,
this Registration Statement has been signed by the following persons
in the capacities for SRFG and on the dates indicated.
Signature Title Date
George F. Slook* President, Chief January 28, 2000
Executive Officer
and Director
(Principal Executive
Officer)
Keith E. Trost* Vice President, January 28, 2000
Treasurer and
Assistant Secretary
(Principal Financial
and Accounting
Officer)
Thomas N. Beckmann* Director January 28, 2000
Larry R. Raymond* Director January 28, 2000
B.T. Reidy* Director January 28, 2000
Norman Tucker* Director January 28, 2000
Perry N. Weine* Director January 28, 2000
*By /s/ George F. Slook, Individually and as Attorney-in-fact
George F. Slook
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EXHIBIT INDEX
Exhibit Description
Number
*1.1 Form of Underwriting Agreement
*3.1 Certificate of Incorporation of SRFG, Inc., as
amended.
3.2 By-Laws of SRFG, Inc. (incorporated by
reference to Exhibit 3.2 to Amendment No. 1 to
Registration Statement No. 33-79186).
4.1 Pooling and Servicing Agreement among Sears,
Roebuck and Co. as Servicer, SRFG, Inc.
(formerly Sears Receivables Financing Group,
Inc.) as Seller and Bank One, National
Association (formerly The First National Bank
of Chicago) as Trustee, dated as of July 31,
1994 (incorporated by reference to Exhibit 4.1
to the Trust's Current Report on Form 8-K for
August 16, 1994 (File No. 0-24776)).
4.2 Amendment No. 1 to the Pooling and Servicing
Agreement among Sears as Servicer, SRFG, Inc.
(formerly Sears Receivables Financing Group,
Inc.) as Seller and Bank One, National
Association (formerly The First National Bank
of Chicago) as Trustee, dated as of March 31,
1995 (incorporated by reference to Exhibit 4.2
to the Trust's Current Report on Form 8-K for
May 8, 1995 (File No. 0-24776)).
4.3 Amendment No. 2 to the Pooling and Servicing
Agreement among Sears, Roebuck and Co. as
Servicer, SRFG, Inc. (formerly Sears
Receivables Financing Group, Inc.) as Seller
and Bank One, National Association (formerly
The First National Bank of Chicago) as
Trustee, dated as of December 21, 1995
(incorporated by reference to Exhibit 4.3 to
the Trust's Form 8-A dated March 23, 1999).
*4.4 Form of Series Supplement among Sears, Roebuck
and Co. as Servicer, SRFG, Inc. as Seller and
Bank One, National Association as Trustee,
including form of Investor Certificates.
4.5 Assignment of Additional Funds between SRFG,
Inc. as Seller and Bank One, National
Association (formerly The First National Bank
of Chicago) as Trustee, dated as of January
30, 1998 (incorporated by reference to Exhibit
4.1 to the Trust's Current Report on Form 8-K
for January 30, 1998).
*4.6 Form of Agreement among Bank One, National
Association as Trustee, SRFG, Inc. and The
Depository Trust Company.
*5.1 Opinion of Steven M. Cook.
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*5.2 Form of Opinion of Latham & Watkins as to
certain creditors' rights matters.
*5.3 Form of Opinion of Latham & Watkins relating
to certain matters with respect to Sears
National Bank.
*5.4 Form of Opinion of Greenberg Traurig relating
to certain matters with respect to Sears
National Bank.
*8.1 Opinion of Latham & Watkins as to certain tax
matters.
10.1 First Amended and Restated Purchase Agreement
between Sears, Roebuck and Co. and SRFG, Inc.
(formerly Sears Receivables Financing Group,
Inc.) dated as of July 31, 1994 (incorporated
by reference to Exhibit 4.5 to the Trust's
Current Report on Form 8-K for May 8, 1995
(File No. 0-24776)).
10.2 First Amended and Restated Contribution
Agreement between Sears, Roebuck and Co. and
SRFG, Inc. (formerly Sears Receivables
Financing Group, Inc.) dated as of July 31,
1994 (incorporated by reference to Exhibit 4.4
to the Trust's Current Report on Form 8-K for
May 8, 1995 (File No. 0-24776)).
*10.3 Receivables Warehouse Agreement between Sears,
Roebuck and Co. and SRFG, Inc. (formerly Sears
Receivables Financing Group, Inc.) dated as of
December 21, 1995.
23.1 Consent of Steven M. Cook (included in Exhibit
5.1).
*23.2 Consent of Latham & Watkins (also included in
Exhibit 8.1).
*23.3 Consent of Greenberg Traurig
*24.1 Power of Attorney for certain officers and
directors of SRFG, Inc.
----
* Previously filed in connection
with this Registration Statement.
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